Operations Management Module I

Module I
Operations and Productivity
Introduction to Operations Management
Operations management (OM) is the administration of business practices to create the highest
level of efficiency possible within an organization. Operations management is concerned with
converting materials and labour into goods and services as efficiently as possible. Corporate
operations management professionals try to balance costs with revenue to maximize net
operating profit.
Operations management involves utilizing resources from staff, materials, equipment, and
technology. Operations managers acquire, develop, and deliver goods to clients based on client
needs and the abilities of the company.
Operations management handles various strategic issues, including determining the size of
manufacturing plants and project management methods and implementing the structure of
information technology networks. Other operational issues include the management of
inventory levels, including work-in-process levels and raw materials acquisition, quality
control, materials handling, and maintenance policies.
Operations management entails studying the use of raw materials and ensuring that minimal
waste occurs. Operations managers use numerous formulas, such as the economic order
quantity formula, to determine when and how large an inventory order to process and how
much inventory to hold on hand.
Some examples of the Operation Management:
1. Healthcare: An operations manager of a healthcare facility is generally responsible for
ensuring efficiency in delivery of high-quality care. That can include overseeing
administrative costs, managing claims and billing, and legal compliance.
2. Manufacturing: A company that makes home appliances, for example, has processes
for sourcing materials, managing factories, maintenance, overseeing inventory, and
ensuring quality.
3. Restaurant: An operations manager for a restaurant or chain of restaurants is usually
responsible for facility maintenance, employee training and supervision, financial
planning, inventory management, compliance, and payroll.
4. Retail: In an industry that can span multiple environments, from brick-and-mortar to
e-commerce and single stores to chains, business operations can encompass many
functions, including sourcing, inventory, staffing, logistics, store management, and
customer service.
5. Transportation: Operations management for a transportation company includes
overseeing vehicle maintenance, fuel supply, routing, staffing, and communication,
among other functions.
Difference between Operation and Production
The primary objective of production and operations management is to effectively manage and
utilize those resources of the firm that are essential for the production of goods and
services. Production management refers to the management of activities related to the

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production of goods. On the other hand, operations management is a step ahead of production
management, or it can be said that the production management is a part of the operations
management. Operations Management, as the name suggests is the administration of business
operations, by the managers of the organization.

BASIS FOR PRODUCTION

OPERATIONS MANAGEMENT
COMPARISON MANAGEMENT

Meaning Production Management connotes Operations Management refers to the

the administration of the range of part of management concerned with
activities belonging to the creation the production and delivery of goods
of products. and services.

Decision Making Related to the aspects of production. Related to the regular business
activities.

Found in Enterprises where production is Banks, Hospitals, Companies

undertaken. including production companies,
Agencies etc.

Objectives To produce right quality goods in To utilize resources, to the extent

right quantity at right time and at possible so as to satisfy customer
least cost. wants.

The difference between production and operation management, are presented

hereunder:
1. Production Management can be defined as the administration of the set of activities
concerning the creation of goods or transformation of raw material into finished goods.
Conversely, Operations Management is used to mean that branch of management which
deals with the administration both production of goods and provision of services to the
customers.
2. In production management, the manager has to make decisions regarding the design,
quality, quantity and cost of the product manufactured by the department. On the
contrary, the scope of operations management is larger in comparison to the production
management wherein the operations manager looks after the product design, quality,
quantity, process design, location, manpower required, storing, maintenance, logistics,
inventory management, waste management, etc.
3. Production Management can only be found in the firms where production of goods is
undertaken. Unlike, one can find operations management in every organization, i.e.,
manufacturing concerns, service-oriented firms, banks, hospitals, agencies, etc.
4. The basic objective of production management is to provide the right quality goods in
the right quantity at right time and best price. In contrast, operations management aims
at making the best possible use of organization’s resources, in order to fulfil the
customer’s wants.
Conclusion

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Production and Operations Management are so closely intertwined, that it is quite difficult to
differentiate the two. Production management covers administer all the activities which are
involved in the process of production. On the other hand, operations management entails all
the activities involved in the production of goods and delivery of services such as material
management, quality management, maintenance management, process management, process
design, product design and so on.
Services as a Part of Operations Management
Services operations management is related with delivering service to the customers of the
service. It involves understanding the service needs of the target customers, managing the
processes that deliver the services, ensuring objectives are met, while also paying attention to
the constant improvement of the services.
As such operations management is a central organizational function and one that is critical to
organizational triumph. Service organisations react to the wants of customers and leave certain
experiences in the minds of the customer through a service delivery system. It was found in
research study that growth of service industry is rapid at global level.
Service organization is one when two or more people are engaged in systematic efforts to
provide services to customers. These organizations exist to serve customers and satisfy their
need.
Functions of service operation are to restore the normal service to the user as quickly as
possible. There is service desk that made up dedicated number of staff responsible for dealing
with variety of services events, often made via telephone call, web interface or automatically
reported infrastructure events.
Key objectives of service operation are to synchronize and perform the activities and processes
required to deliver and manage services at agreed levels to business users and customers.
Service operation is also responsible for on-going management of the technology that is used
to deliver and support services.
Management scholars stated that highly designed and well implemented processes will be
worthless if day to day operation of those processes is not suitably conducted, controlled and
managed, nor will service improvements be possible if day to day activities to monitor
performance assess metrics and gathering data are not systematically conducted during service
operation.
Advantages of service operation are as under:
1. Scalability: Service organization can be adapted for any size of organization.
2. Reduction in Costs: Service organization has established its value in reducing the
overall cost of managing services.
3. Improved Quality: Service organization helps improve the quality of IT services
through sound management practices.
4. Alignment to Standards: Service organization may well align to the ISO/IEC 20000
Standard for Service Management.
5. Return on Investment (ROI): Service organization helps IT organizations
demonstrate their return on investment and measurable value to the business. This helps
establish a business case for new or continuing investment in IT.

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6. Seamless Sourcing Partnerships: Outsourcing, often with multiple service providers,

is increasingly common today and service organization offers a common practice base
for improved service chain management.
There are numerous disadvantages in service operation management:
1. New service development
2. Managing service experiences
3. Front-office/Back-office
4. Analysing processes
5. Service quality
6. Yield management
7. Inventory management
8. Waiting time management
To summarize, business companies are continually involved to enhance their performances in
order to compete actively in the market. Service industries manage and market their operations
and services differently from manufacturing products.
It is established that providing excellent and quality customer service is a crucial factor in an
intrinsic capable market environment between the product and service industries. Service
operations can be grouped into many industries, such as banking, hospitality. Most services
industries which provide clients what they need and are satisfied. This helps the company to
enhance its market share, and generate more profit. Service operations provide certain
intangible services that may not be easily recognisable.
Operations as a Key Functional Area
Operations Management is a branch that deals with managing operations and processes within
the organisation. Efficacious management of operations ensures successful delivery of the
project. The operation managers optimise the operations by making judicious use of resources
and capital. They manage all the aspects related to the operations that take place in
businesses. Operation managers are not only found in a company but also in manufacturing
units. They are required to perform various functions as a part of their job responsibilities.
These examples give a basic understanding of the functions of operations management.
Example 1:
Sam is an operations manager of a mobile phone manufacturing company called “ABC ltd.”
The company wants to sell a batch of new phones. Therefore, the responsibilities Sam needs to
fulfil are:
• Ensure the products are designed to meet the criteria of customer expectations through
analysis of past data.
• Predict the future requirements through analysis and ensure that the production amount
meets the demand in the market.
• Secure the supply chain system. It involves arranging raw materials and delivering the
same, maintaining existing inventory, ensuring a successful smooth production process,
confirming the production numbers, distributing them in the market, and guaranteeing
their sales.

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• Ensuring there is no loss incurred from the organization’s side by evaluating the cost
and best alternatives available. This reduces the overall cost and overhead costs,
efficient processes, and timely delivery of goods and services.
Example 2
One of the biggest companies in the U.S, Amazon, is a good example of successful operations
management. It is an online retailer with its headquarters in the U.S. which started as an online
bookstore and later evolved into an e-commerce retailer and an online marketplace.
To stand out, it had to begin with building a strong brand image. Hence, it created a
robust supply chain. As a result, it made its services highly efficient, faster, and capable of
catering to many customers. This led to the introduction of the Amazon prime service that
allowed customers to get their products delivered to them within a short time. Apparently, the
refreshing idea of faster deliveries from an e-commerce company attracted a lot of new
customers.
The company developed a supply chain that had end-to-end visibility equipped with advanced
technologies to allow the company takes control of all aspects of it. The company also
automated its warehouse management and established multiple delivery stations to ensure
faster delivery. Presently, with its enormous success and popularity, Amazon is one of the
prime examples that show how effective operations management can benefit an organization.
Some of the key functions of an Operations Manager includes:
1. Finance: Finance plays a chief role in operations management. It is essential to ensure
that the organization’s finance has been utilized properly to carry out major functions
such as the creation of goods or services so that the customer’s needs could be satisfied.
2. Operation: This function in operation management is mainly concerned with planning,
organising, directing and controlling all the activities of an organisation which helps in
converting the raw materials and human efforts into valuable goods and services for
satisfying customer needs.
3. Strategy: Strategy in operation management refers to planning tactics that could help
them to optimise the resources and have a competitive edge over others. Business
strategies imply to supply chain configuration, sales, capacity to hold money, optimum
utilisation of human resources and many more.
4. Design of the product: Incorporating innovative technologies play a crucial role in the
selling of a product. Thus, it is the duty of operations manager to ensure that the product
is designed catering to the market trends and needs of the customers. The modern-day
customers are more concerned about the quality of the product than its quantity. So,
the operation managers focus on producing top-notch quality products.
5. Forecasting: Forecasting refers to the process of making an estimation regarding
certain events that might occur in the future. In operation management, forecasting
refers to the estimation of customer’s demand so that production can be done
accordingly. Through this, the manager gets to know what to produce, when to produce
and how to produce in accordance with the customer’s needs.
6. Supply Chain Configuration: The main motive of Supply Chain Configuration is to
ensure effective management, monitoring and controlling of all the main activities that
are held in a firm. The supply chain configuration starts from the supply of the raw

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materials and continues till the production of the final product and then their selling to
the customers which will satisfy their needs and wants.
7. Managing the Quality: Quality management plays an imperative role in selling a
product. The operation managers allocate the task of quality management to a team and
then supervise their task. The managers identify project defects and rectify them to
ensure quality. For this, certain systems are used that measure and maintain the quality
of the product.
Operations in Commercial Organizations
Introduction
Operations refer to activities that businesses engage in on a daily basis to increase the value of
the enterprise and earn a profit. The activities can be optimized to generate
sufficient revenues to cover expenses and earn a profit for the owners of the business.
Operations evolve as the business grows, and the management should plan to accommodate
the changes to prevent glitches occurring in the system. For example, as a small
business grows, it must be ready to handle arising challenges such as legal, marketing, and
capacity issues. If the business does not evolve with the changes in business operations, glitches
such as errors and omissions will emerge.
Operations in Different Industries
The operations of a business vary across industries, and they are structured according to the
requirements of the specific industries. Mastering the operations of a specific industry can help
the business achieve success. Here is an analysis of business operations in different industries:
1. Retail Industry: One of the main goals of a retail business is to stock products that
customers are looking for and at a price that the customers are willing to pay. This
means that the business must maintain an efficient inventory system so that it knows
what is in stock at any given time, while reducing instances of dead stock. Deadstock
refers to products that the company has in stock but that are not in high demand.
In order to maximize revenues, the business should stock fast-moving items that
customers are willing and happy to pay for. The business should also negotiate friendly
credit terms with suppliers so that they can get the required products on credit to prevent
stock-outs.
2. Service Industry: The business operations of a service business are divided into the
front-end and back-end side of the business. The management must ensure that the two
divisions are running efficiently to prevent laxity on one side, which can hinder the
achievement of the company’s objectives.
On the front end, the business should focus on streamlining the service delivery to
customers to increase their satisfaction. It should also formulate a means of receiving
feedback and complaints from customers to know their expectations and how to
improve service delivery.
On the back end, the management should employ the right people in each department.
For example, the company should appoint trained and experienced staff to prepare
forecasts for client projects to prevent the actual costs from exceeding client budgets.
3. Manufacturing Industry: Manufacturing companies are involved in turning raw
materials into physical products, which are then sold to consumers. One of the things

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that a manufacturing company can do to achieve efficiency is to source quality raw

materials from credible suppliers. For perishable and edible products, the business
should look into how raw materials are stored, processed, and shipped to consumers.
The company can also eliminate bottlenecks that increase processing times to save time
during manufacturing and shipping. If the company is struggling with shipping
logistics, it can outsource shipping and concentrate on other areas of the business that
it excels in.
4. Technology Industry: The key to streamlining operations of a technology company is
hiring the right staff and training them on how to execute the tasks they are assigned.
This means that the company should put a hiring criterion in place that helps them hire
the best candidates for the job. The company should also come up with an internal
training and mentorship program where senior staff works hand-in-hand with junior
staff to help them perfect their skills.
Another way of increasing efficiency is by collaborating the different tools such as
apps, websites, and systems that the company uses. The company’s management should
continually monitor internal and external processes to spot any glitches and address
these issues quickly.
Operations in Non-Commercial Organizations
Introduction
Terms such as competitive advantage, markets and business, are usually associated with
companies in the for-profit sector. Yet operations management is also relevant to organizations
whose purpose is not primarily to earn profits. Managing the operations in an animal welfare
charity, hospital, research organization or government department is essentially the same as in
commercial organizations. Operations have to take the same decisions – how to produce
products and services, invest in technology, contract out some of their activities, devise
performance measures, and improve their operations performance and so on.
However, the strategic objectives of not-for-profit organizations may be more complex and
involve a mixture of political, economic, social and environmental objectives. Because of this
there may be a greater chance of operations decisions being made under conditions of
conflicting objectives. So, for example, it is the operations staff in a children’s welfare
department who have to face the conflict between the cost of providing extra social workers
and the risk of a child not receiving adequate protection.
Operations managers play an important role on the management team at both for-profit
companies and non-profits. In both types of organizations, operations managers are responsible
for directing activities and the use of resources in order to produce a particular outcome, such
as delivery of a product or service. In non-profit organizations, operations managers may also
be responsible for directing fund raising efforts, monitoring government regulations and
guiding public policy.
1. Identifying Resources: In any organization, the operations manager is generally
responsible for identifying the resources necessary to achieve the organization's goals.
In a non-profit, these resources often come from donors and fund-raising activities. The
operations manager may need in-depth knowledge of relevant grant-making bodies and
the grant-making process.

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In a non-profit organization the operations manager may also be responsible for

ensuring that enough fund-raising events are taking place, and that the company's
resources are directed where they are most needed in the organization, for example, to
ongoing programs.
2. Directing Resources: Non-profit organizations, especially those providing human
services, may be much more involved in aspects of public policy than for-profit
companies. The operations manager may need to stay up-to-date on the rules and
regulations involved in providing federal or state public services.
While an operations manager at a large non-profit may have a role in directing resources
toward creating public information campaigns or lobbying efforts that influence public
policy, in a small non-profit the operations manager may instead direct resources
toward creating links with other non-profit organizations in order to pool resources.
3. Performance Appraisals: In the for-profit sector, businesses usually pay all their
employees. By contrast, the non-profit sector often relies heavily on volunteers. The
operations manager for a non-profit develops policies, objectives and measures of
performance for volunteers as well as for paid employees. Because volunteers are
unpaid, the operations manager must keep in mind that they are motivated differently
from paid workers and set volunteer goals, rewards and performance criteria
accordingly. For example, volunteer performance criteria may include learning more
about the issue the non-profit addresses, while paid employees' performance
evaluations may focus more on completing a certain amount of work to a set standard.
4. Board Member Liaising: In a non-profit organization the members of the board of
directors are generally unpaid volunteers. The operations manager may be responsible
for liaising with the board members to make sure they are being effective.
For example, celebrity board members may be recruited for their ability to bring
attention to the non-profit's cause. The operations manager may need to make sure the
celebrity board member attends fund raising and media events. The operations manager
also may see that board members work on committees in which they have expertise and
are doing the work they have agreed to do.
Significance of Operations Management
1. Achievement of Objectives: Operations management has an effective role in the
achievement of pre-determined objectives of an organization. It ensures that all
activities are going as per plans by continuously monitoring all operations of
organization.
2. Improves Employee Productivity: Operation management improves the productivity
of employees. It checks and measures the performance of all people working in the
organization. Operation manager trains and educate their employees for better
performance.
3. Enhance Goodwill: Operation management helps in improving the goodwill and
presence of the organization. It ensures that quality products are delivered to all
customers that could provide them better satisfaction and makes them happy.
4. Optimum Utilization of Resources: Operation management focuses on optimum
utilization of all resources of the organization. It frames proper strategies and
accordingly continues all operations of the organization. Operation managers keep a

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check on all activities and ensure that all resources are utilized on only useful means
and are not wasted.
5. Motivates Employees: Operation management helps in motivating the employees
towards their roles. Operation managers guide all peoples in performing their roles and
provide them with better atmosphere. Employees are remunerated and rewarded
according to their performance level.
6. Increase Productivity: Operation management played an important role in increasing
the productivity of business. It manages all aspects of production activities to achieve
highest efficiency possible. Operation manager are responsible for designing
production plan for carrying out the operations. They ensure that all inputs used by
organisations are efficiently transformed into outputs that is products or services. It is
crucial for all business for properly managing their day-to-day activities and efficient
utilisation of all its resources which helps in raising productivity.
7. Raises Revenue: Operational management directly influences the profitability of the
business. It works on reducing the cost of operations to business by reducing the
wastage of resources. Operations managers monitor every production activity and take
all necessary steps for maintaining efficiency in the organisation. They try to maintain
an appropriate balance between cost and revenue. Maintenance of quality of products
and delivering them as per customer needs is another function played by these operation
managers. It helps in attracting more and more customers which increase the overall
revenue of business.
8. Achievement of Organisation Goals: Every organisation strives towards achievement
of its desired goals. Proper management of production activities helps business to
properly implement their strategic plans in their operation. Operation management
ensures that all operations of business are going in desired direction.
It regularly monitors every activity and takes all corrective measures as required
according to prevailing situations. Proper functioning of business as per strategic plans
helps in achievement of desired goals.
9. Improve Customer Satisfaction: Customer satisfaction is necessary for every
business to improving its relations with its customers. It helps them in retaining them
for the long term. Operation management monitors the quality of products
manufactured by organisations. It ensures that high-quality products are produced in
accordance with the requirements of customers. When products manufactured by
business completely fulfil the needs of customers, their satisfaction level will improve.
10. Reduce Investment Need: Operation management reduces the additional capital
requirements of the business. It ensures that all capital employed in the business are
efficiently used. Management of operations ensures that all production activities go
uninterrupted without any shortage of capital. By increasing the efficiency and avoiding
the wastage of employed resources, it avoids any deficiency of capital in business.
Businesses are not required to invest more in their production activities.
11. Enhance Goodwill: Maintaining proper goodwill in the market is the goal of every
business. Operation management focuses on improving the position of the organisation
in the market. It ensures that business works for providing better services to its
customers. Business should manufacture durable and high-quality products that may
provide better satisfaction to users. Customers will gain confidence in their products
which will improve their market image.

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12. Improve Innovation: Operation management helps in implementing innovative

changes in organisational activities. All decision regarding production planning is taken
by operation managers by doing research and analysis of prevailing market situations.
It takes into account all technological changes and builds a strong base of knowledge
and operations. This helps in bringing various innovations in operations of the business.
Challenges of Operation Management
Challenges in Operations management arise as a result of need of efficient and effective
systems. Efficient systems are required for making cost effective and sustainable processes.
Effective systems are required to support customer requirements.
1. Challenges Due to Marketplace Development: The marketplace is now demanding
customized products in place of mass-marketed products. This has created a challenge
for operations management to develop systems which are capable to produce wide
variety of products at low cost. Secondly, especially in the service industry, the
customer is becoming partner often unwillingly. For example, in a self-serving
restaurant customer has to pick his order on a beep. This trend is coming to
manufacturing also giving pressure to operations management.
2. Challenges due to Economic Reforms: This is particularly applicable in Indian
Scenario after 1991’s economic reforms. Before the economic reforms, Indian Industry
enjoyed undue advantage due to high import tariffs. In some cases, tariff rates were as
high as 350 percent. Among the many changes effected, tariff reductions demanded a
basic shift in the approach of business. “Cost plus some margin is the price” was
approach before economic reforms. After reforms prices are guided by market forces.
Subtract some margin from this price to get that cost under which a business has to
deliver the products. To match the offerings of overseas players, Indian companies were
also expected to improve their performance with respect to cost, delivery, quality and
service.
3. Challenges due to Factors of Production: Factors of production such as managing an
increasingly diverse workforce, shortage of skilled workers, availability of raw
materials from sustainable sources are challenges to modern systems of operations
management.
4. Challenges due to Technological Environment: Information technology is one of the
most important enablers for developing and easy implementation of tools such as ERP,
computer-aided manufacturing, Flexible manufacturing system etc. Now the challenge
is investing in the right technology and mastering it. It is difficult for any small and
medium company to implement regularly changing technology.
5. Challenges due to Regulatory Environment: Global pressure of intellectual property
rights protection has created a pressure on developing nation to keep their systems in
the alignment of the requirement of these legal provisions. Similarly new financial
reporting systems, environmental protection laws are giving challenge to operation
managers which are new to this field.
6. Challenges due to Innovative Business Models: With the advent of new technology,
particularly IT and related e-commerce, new business models are emerging. These new
business models such as e-choupal of ITC, Flipkart have posed new challenges to
operation managers with respect to supply chain management.

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7. Globalization: Operation managers face competition from the company across the
street, as well as, from across the country and across the world. Tishta Bachoo,
Accounting Professor at Curtin University in Australia, explains that companies who
compete with others abroad will have to improve quality while lowering prices to
remain competitive. This falls on the operations manager as he or she is the one who
“engages in the four functions of planning, organizing, leading, and controlling to
ensure that the product or service remains competitive in the market.” Batchoo adds
that the operations manager must tap into their creative skills as innovation will be a
key factor of success as will knowledge about international business and the myriad
cultures of the businesses around the globe.
8. Sustainability: In her article, Business Definition of Operational Sustainability, Kay
Miranda, journalist for the Houston Chronicle, defines business operational
sustainability as a “method of evaluating whether a business can maintain existing
practices without putting future resources at risk.” When discussing the concept of
sustainability, it is often referred to as the Three Pillars of Sustainability which are
social, environmental, and economic. Operations managers must concern themselves
with the outcomes of each of the pillars including how their work affects safety,
welfare, communities, the environment and economic sustainability. Effective
operations managers must implement best practices with a concern for all three pillars
of sustainability. They also need to initiate and verify corrective action when any
outcome of one of the three pillars becomes jeopardized.
9. System Design: In Key Issues in Operations, a blog detailing the relationship between
system design and operational management, the main theme is that organizations must
develop systems capable of “producing quality goods and services in demanded
quantities in acceptable time frames.” Designing the system, planning the system, and
managing the system present a wide variety of challenges to even the savviest
operations managers. As operations managers work in multidisciplinary environments,
they must be aware of and effectively respond to the challenges presented by
globalization, sustainability, ethical conduct, effective communication, and system
design. Doing these calls for operations managers to excel in the business, technical,
and interpersonal aspects of their work as they actively support the mission and vision
of their organization.
Meaning of Productivity
Operations Management is responsible for managing the transformation of many inputs into
outputs, such as goods or services. A measure of how efficiently inputs is being converted into
outputs is called productivity. Productivity measures how well resources are used. It is
computed as a ratio of outputs (goods and services) to inputs (e.g., labour and materials). The
more efficiently a company uses its resources, the more productive.
Productivity is commonly defined as a ratio between the volume of output and the volume of
inputs. In other words, it measures how efficiently production inputs, such as labour and
capital, are being used in an economy to produce a given level of output. Broadly, productivity
measures can be classified as single factor productivity measures (relating a measure of output
to a single measure of input, e.g., labour productivity) or multifactor productivity measures
(relating a measure of output to a bundle of inputs, e.g., multifactor productivity). Productivity
is considered a key source of economic growth and competitiveness.

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Measurement of Productivity in Operations

Single Factor Productivity
Single-Factor Productivity is a measure of output against specific input. Partial productivity is
concerned with efficiency of one class of input. Its significance lies in its focus on utilization
of one resource.
Labor productivity is a single factor productivity measure. It is the ratio of output to labor input
(units of output per labor hour). Material productivity is the ratio of output to materials input.
Machine productivity is the ratio of machine units of output per machine hour, output per unit
machine. Capital productivity is the ratio of output to capital input and it is measured in Rupees.
Energy Productivity is units of output per kilowatt-hour (Rupee value of output per kilowatt-
hour).
Advantages of Single-Factor Productivity:
1. Ease in obtaining relevant data and easy to comprehend.
2. Acts as a good diagnostic measure to identify areas of improvement by evaluating
inputs separately across the output.
3. Ease in comparing with other businesses in the industry.
Disadvantages of Single-Factor Productivity:
1. Does not reflect the overall performance of the business.
2. Misinterpreted as technical change or efficiency/effectiveness of labor.
3. Management may identify wrong areas of improvements if the focus areas of a business
are not examined accurately.
Multifactor Productivity
The concept of multi-factor productivity was developed by Scott D. Sink, multifactor
productivity measurement model considered labour, material and energy as major inputs.
Capital was deliberately left out as it is most difficult to estimate how much capital is being
consumed per unit/ time. The concept of depreciation used by accountants make it further
difficult to estimate actual capital being consumed.
Multi-factor productivity is ratio of output to a group of inputs such as; labor, energy and
material. Multi-factor productivity is an index of output obtained from more than one of the
resources (inputs) used in production. It is the ratio of net output to the sum of associated labor
and other factor inputs
Advantages of Multi-Factor Productivity:
1. Considers intermediate inputs of a business.
2. Measures technical change in an industry.
Disadvantages of Multi-Factor Productivity:
1. Difficulty in obtaining all the inputs.
2. Difficulty in communicating inter-industry linkages and aggregation.

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Multifactor productivity (MFP) is a measure of economic performance that compares the

amount of output to the number of combined inputs used to produce that output. Combinations
of inputs can include labor, capital, energy, materials, and purchased services.
Productivity Variables
Productivity variables consisted of factors that are critical to ensure productivity. Three types
of productivity variable are here as discuss below:
1. Labour: Labour consists of workforce whether skills, semi skill or non-skills. Labour
skills are varied but the productivity still can be improved by improving on some key
areas that affect the labour.
Improvement in the contribution of labour to productivity is the result of a healthier,
better-educated, and better-nourished labour force. Some increase may also be
attributed to a shorter work week. Historically, about 10% of the annual improvement
in productivity is attributed to improvement in the quality of labour.
According to Henzer, the labour productivity can be improved by improving on three
areas which are:
• Basic education appropriate of an effective labour force
• Diet of labour force and social overhead that makes labour available.
• Social overhead is such as transportation and accommodation provided labours
working in the organization.
Labour productivity improvement is the most talk about topic by management because
it is something hard to manage as labour quality, skills are different, and parts of results
in productivity can be qualitative rather than quantitative.
2. Capital: Capital is an important asset to improve productivity. Capital goods are ready
durable that can be used in the production function such as machinery and factory
building. Businesses are investing a significant number of financial resources to equip
themselves with latest capital technology or tools to improve their productivity.
Example is investment in utilizing new machinery and information technology for
production rather than using labour-intensive methods. Interest and taxes affect the
capital investment and making it expensive. Drop in capital investment can results in
drop of productivity.
3. Management: Management is one of factor of production and economics resources.
According to survey, management is the most important key to improve significantly
the productivity of the organization. This is because management can collect,
disseminate and utilize their knowledge and skills to applicable level in organization to
see the results in productivity. Management can used labour resources effectively and
know how to use cost-effective capital goods to further enhance the business
productivity. To create a strong and knowledgeable management, investment in training
and education is necessary in organization.
Productivity and Service Sector
Productivity is the measure of an organization's ability to produce a good or a service. While
organizations that produce goods can point to the total finished number of products as evidence,
it's comparatively difficult to measure the service sector's productivity.

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Quality v/s Quantity

One reason that increasing productivity in the service sector is difficult is that raising the
number of customers helped doesn't necessarily increase the quality of service they're provided.
In fact, the opposite may be true; customers who feel they've been rushed through or given
generic service may be unlikely to return. It may also be unsafe; in the health care industry, for
example, nurses are judged based not just on the quantity of patients they help, but on the
quality, as well. As a result, if increasing productivity is not in the best interests of the customer,
there's little incentive to improve it.
Measurement Difficulty
Because measuring productivity is so difficult in the service sector, it's difficult to know how
much productivity has increased, according to Qualtrics.
For example, imagine a retail salesperson who is helping a client select a new fall wardrobe.
The client may spend well over a thousand dollars on three items in an hour's time. Compare
this salesperson with one who assists five customers over the same period of time except each
customer spends roughly $50 on two items. Determining the productivity of each worker is
difficult, because the metric could be total dollars sold, total number of inventories moved,
total number of full-price items moved or total number of satisfied customers.
Efficiency and Productivity
Increased productivity leads to reduction in staffing required. One way a non-service sector
company can increase productivity is by producing more goods with the same or smaller
amount of input. However, in the service sector, it's not always possible to increase output
given the same number of inputs, because the input is usually people. In other words, while a
goods-producing business may be able to use its resources more efficiently, a service sector
business can't usually decrease its assets i.e. people without negatively affecting productivity.
Improving Service Sector Productivity
Because productivity in the service sector is difficult to measure and improve, there are a lot
of difficulties of increasing labour productivity. There is no specific labour productivity
formula, so it's wise to discuss ways to improve productivity with employees and possibly
clients. Poor productivity may be a result of low morale or outdated technology, or from
employing the wrong team. Providing quality service while maximizing efficiency by helping
the highest number of clients possible and keeping them satisfied at the same time is the best
determinant of an efficient and productive organization.
Factors influencing Productivity
1. Technical Factor: Productivity largely depends on technology. Technical factors are
the most important ones. These include proper location, layout and size of the plant and
machinery, correct design of machines and equipment, research and development,
automation and computerization, etc. If the organization uses the latest technology, then
its productiveness will be high.
2. Production Factor: Productivity is related to the production-factors. The production
of all departments should be properly planned, coordinated and controlled. The right

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quality of raw-materials should be used for production. The production process should
be simplified and standardized. If everything is well it will increase the productiveness.
3. Organizational Factor: Productivity is directly proportional to the organizational
factors. A simple type of organization should be used. Authority and Responsibility of
every individual and department should be defined properly. The line and staff
relationships should also be clearly defined. So, conflicts between line and staff should
be avoided. There should be a division of labour and specialization as far as possible.
This will increase organization's productiveness.
4. Personnel Factor: Productivity of organization is directly related to personnel factors.
The right individual should be selected for suitable posts. After selection, they should
be given proper training and development. They should be given better working
conditions and work-environment. They should be properly motivated; financially,
non-financially and with positive incentives. Incentive wage policies should be
introduced. Job security should also be given. Opinion or suggestions of workers should
be given importance. There should be proper transfer, promotion and other personnel
policies. All this will increase the productiveness of the organization.
5. Finance Factor: Productivity relies on the finance factors. Finance is the life-blood of
modem business. There should be a better control over both fixed capital and working
capital. There should be proper Financial Planning. Capital expenditure should be
properly controlled. Both over and underutilization of capital should be avoided. The
management should see that they get proper returns on the capital which is invested in
the business. If the finance is managed properly the productiveness of the organization
will increase.
6. Management Factor: Productivity of organization rests on the management factors.
The management of organization should be scientific, professional, future-oriented,
sincere and competent. Managers should possess imagination, judgment skills and
willingness to take risks. They should make optimum use of the available resources to
get maximum output at the lowest cost. They should use the recent techniques of
production. They should develop better relations with employees and trade unions.
They should encourage the employees to give suggestions. They should provide a good
working environment, and should motivate employees to increase their output. Efficient
management is the most significant factor for increasing productiveness and decreasing
cost.
7. Government Factor: Productivity depends on government factors. The management
should have a proper knowledge about the government rules and regulations. They
should also maintain good relations with the government.
8. Location Factor: Productivity also depends on location factors such as Law and order
situation, infrastructure facilities, nearness to market, nearness to sources of raw-
materials, skilled workforce, etc.
Sustainability in Operations
Introduction
Sustainability in operations refers to a company's strategy to reduce negative environmental
impact resulting from their operations in a particular market. An organization’s
sustainability practices are typically analysed against environmental, social, and governance
(ESG) metrics.

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In recent years, Sustainable Operations Management (SOM) has started receiving attention
from both operations management and management science researchers. SOM includes topics
such as green supply chain, green procurement and reverse logistics.
SOM can be defined as the operations strategies, tactics and techniques, and operational
policies to support both the economic and the environmental objectives and goals.
SOM has a potentially vital role to play in contributing to solutions for the complex
sustainability challenges confronted by many organisations. As a result, a number of operations
management researchers and practitioners are dealing with the challenges of integrating the
issues of sustainability in protecting the environment and reducing the carbon footprint.
Both researchers and practitioners recognise the importance of SOM as a key strategic
component in the development of cost-effective and sustainable global supply chains to meet
the increasing needs of customers in terms of flexibility, responsiveness and cost while
safeguarding natural resources for future generations.
Framework for Sustainable Operations Management
Reverse Logistics
Introduction
Reverse logistics is a type of supply chain management that moves goods from customers back
to the sellers or manufacturers. Once a customer receives a product, processes such as returns
or recycling require reverse logistics.
Reverse logistics start at the end consumer, moving backward through the supply chain to the
distributor or from the distributor to the manufacturer. Reverse logistics can also include
processes where the end consumer is responsible for the final disposal of the product, including
recycling, refurbishing or resale.

When is Reverse Logistics Used?

Organizations use reverse logistics when goods move from their destination back through the
supply chain to the seller and potentially back to the suppliers. The goal is to regain value from
the product or dispose of it. Worldwide, returns are worth almost a trillion dollars annually and
have become increasingly common with the growth of ecommerce.

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The objectives of reverse logistics are to recoup value and ensure repeat customers. Less than
10% of in-store purchases are returned, compared to at least 30% of items ordered online.
Savvy companies use reverse logistics to build customer loyalty and repeat business and to
minimize losses related to returns.
Reverse Logistics vs. Traditional Logistics
Traditional product flow starts with suppliers and moves on to a factory or distributor. From
there, the goods go to retailers and customers. Reverse logistics management starts at the
consumer and, moving in the opposite direction, returns products to any point along the supply
chain.
Well-designed supply chains are responsive to changes and can handle some reverse logistics
requirements. This reverse process can return products one step back in the chain or to the
original supplier. They can even send returned products back to regular sales or discount
channels (like liquidators).

How Reverse Logistics Works

Reverse logistics moves goods from the traditional endpoint of the supply chain at least one
step backward. This process can involve various plans and controls. Some companies prefer to
outsource this work.
Reverse Logistics Process
The reverse logistics process involves managing returns and buying surplus goods and
materials. The process is also responsible for dealing with any leases or refurbishments.
Reverse logistics vary across different industries, and there are different economic incentives
for improving reverse logistics management.

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For example, in the beverage industry, the reverse logistics process uses empty tap containers.
Beverage production companies want to recapture the value of their containers by reusing
them. This requires planning transportation, managing shipping loads and cleaning the
containers.
In the construction industry, reverse logistics moves and recycles salvaged materials to new
sites. As the construction industry adopts more sustainable practices to reduce waste, there is
an opportunity for cost savings by using reverse logistics.
In the food industry, reverse logistics is responsible for returning packaging materials and
pallets. Companies also must deal with rejected food shipments. Rejections can create logistical
challenges due to delays that lead to food spoilage and concerns over tampering.
Types of Reverse Logistics
The different types of reverse logistics are also known as reverse logistics components. They
focus on returns management and return policies and procedures (RPP) and account for
remanufacturing, packaging, unsold goods and delivery issues. Other types of reverse logistics
account for leases, repairs and product retirement.
Reverse Logistics Components:
1. Returns Management: This process deals with product returns from customers or
avoiding returns in the first place. These activities should be fast, controllable, visible
and straightforward. Customers judge a company on its return flow and re-return
policies. A re-return is the return of an item a second time. Often, these returns trigger
the extended return policies, such as offering store credit.
For example, a customer buys a returned product on clearance, takes it home and
discovers it broken. The store policy would not normally accept the return, but it does
allow for a store credit for the faulty product. A re-return can also occur when a vendor
rejects the return and gives it back to the purchaser without a refund. This scenario
could happen with custom-made items.
2. Return Policy and Procedure (RPP): The policies about returns that a company
shares with customers is its RPP. These policies should be visible and consistent.
Employees should also adhere to them.
3. Remanufacturing or Refurbishment: Another type of reverse logistics management
includes remanufacturing, refurbishing and reconditioning. These activities repair,
rebuild and rework products. Companies recover interchangeable, reusable parts or
materials from other products, also known as the cannibalization of parts.
Reconditioning involves taking apart, cleaning and reassembling products.
4. Packaging Management: This type of reverse logistics focuses on reuse of packing
materials to reduce waste and the disposal.
5. Unsold Goods: Reverse logistics for unsold goods handles returns from retailers to
manufacturers or distributors. These types of returns can be due to poor sales, inventory
obsolescence or a delivery refusal.
6. End-of-Life (EOL): When a product is EOL, it is no longer useful or does not work.
The product may no longer meet a customer's needs or be replaced by a newer, better
version. Manufacturers often recycle or dispose of products that are end-of-life. These
goods can create environmental challenges for manufacturers and countries.

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7. Delivery Failure: With failed deliveries, drivers return products to sorting centers.
From there, the sorting centers return the products to their point of origin. While rare,
some sorting centers may have the staff available to identify why a delivery failed,
correct the problem and resend.
8. Rentals and Leasing: When a piece of equipment comes to the end of its lease or rental
contract, the company that owns the product can remarket, recycle or redeploy it.
9. Repairs and Maintenance: In some product agreements, customers and companies
maintain equipment or repair it if issues arise. In some cases, the company sells
damaged returned products to another consumer after repair.
Design for Sustainability
Sustainable design seeks to reduce negative impacts on the environment, and the health and
comfort of building occupants, thereby improving performance. The basic objectives of
sustainability are to reduce consumption of non-renewable resources, minimize waste, and
create healthy, productive environments. Sustainable design principles include the ability to:
• Optimize potential;
• Minimize non-renewable energy consumption;
• Use environmentally preferable products;
• Protect and conserve water;
• Enhance environmental quality;
• Optimize operational and maintenance practices.
The aim of the organization is to devise a mechanism that allows the generation of sustainable
design scenarios that are coherent with the context of the organization. This mechanism is
characterized by taking into consideration internal and external issues of the organization. In
other terms, design scenarios are not limited to traditional technological or component choice
options. In fact, they are considered as value chain–oriented sustainable design strategies. The
mechanism consists of two main steps:
• The first consists on identifying internal and external issues by integrating three
strategic analysis tools i.e., SWOT, PESTEL, and 7S techniques.
• The second is the generation of strategic scenarios by combining these issues to create
strategies that cope with the context of the organization.
The main contribution of this mechanism is to prevent the risk of adopting incoherent product
designs scenarios that sometimes are expensive to adopt. The second contribution is to adopt
the life cycle approach to take into account all phases of the product as its design phase. The
operations manager’s greatest opportunity to make substantial contributions to the company’s
environmental objectives occurs during product life cycle assessment.
Life cycle assessment evaluates the environmental impact of a product, from raw material and
energy inputs all the way to the disposal of the product at its end-of-life. The goal is to make
decisions that help reduce the environmental impact of a product throughout its entire life.
Focusing on the 3R i.e., reduce, reuse, and recycle can help accomplish this goal. By
incorporating the 3R, product design teams, process managers, and supply-chain personnel can
make great strides toward reducing the environmental impact of products
Remanufacturing

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Remanufacturing is an industrial process by which a previously sold, worn, or non-

functional product can be rebuilt and recovered. Through the disassembly, cleaning, repair
and replacement of worn out and obsolete components, the piece can be returned to a ‘like-
new’ or ‘better-than-new’ condition and will be just as reliable as the original product.
Remanufacturing plays an important role in the concept of a circular economy.
Types of Remanufacturing:
There are three main types of remanufacturing activities, each with different operational
challenges.
1. Remanufacturing without Identity Loss: With this method, a current machine is built
on yesterday's base, receiving all enhancements, expected life and warranty of a new
machine. The physical structure (the chassis or frame) is inspected for soundness. The
whole product is refurbished and critical modules are overhauled, upgraded or replaced.
Any defects in the original design are eliminated.
This is the case for customized remanufacturing of machine tools, airplanes,
computer mainframes, large medical equipment and other capital goods. Because of its
uniqueness, this product recovery is characterized as a project.
2. Remanufacturing with Loss of Original Product Identity: With this method, used
goods are disassembled into pre-determined components and repaired to stock, ready
to be reassembled into a remanufactured product. This is the case when
remanufacturing automobile components, photocopiers, toner cartridges, furniture,
ready-to-use cameras and personal computers.
Once the product is disassembled and the parts are recovered, the process concludes
with an operation similar to original manufacturing. Disassembled parts are
inventoried, just like purchased parts and made available for final assembly.
Remanufacturing with loss of original product identity encompasses some unique
challenges in inventory management and disassembly sequence development.
3. Repetitive remanufacturing without Identity Loss: In this method, there is the
additional challenge of scheduling the sequence of dependent processes and identifying
the location of inventory buffers. There is a fine line between repetitive
remanufacturing without loss of identity and product overhaul. The final output has an
as-new appearance and is covered by a warranty comparable to that of a new product.
4. Remanufacturing by Recoating of Worn Engine Parts: In addition to these is a less
significant type of remanufacturing, remanufacturing by recoating of worn engine
parts. This type of remanufacturing serves many engine parts and other large and
expensive components that become worn after a period of use.
Remanufacturing technology is becoming more popular as companies look for a way to combat
the current climate crisis, as it allows a company to reduce waste and environmental pollution.
Not only is remanufacturing an environmentally friendly process, it allows products to be
reused, rather than go to waste, and therefore supports a circular economy. As a result,
remanufacturing technology greatly benefits the development of the economy and is becoming
a new point of economic growth.
Challenges in Creating Sustainable Operations

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1. Transparency in the Supply Chain: It is only possible to create a sustainable company

with traceability and transparency in the supply chain. And this remains a primary
concern related to sustainability. A corporation must show a detailed view of a product's
lifecycle from raw materials to the point of sale. It is only possible to take significant
action by mapping out what must be done and where. Re-establishing trust for
businesses can be done through transparency. Supply chain scandals revolving around
issues such as working conditions and child labor have surrounded the retail sector for
years.
For instance, Zara has allegedly benefited from “slave labor conditions” in countries
such as Brazil. Long working hours, subpar payment, and difficult work conditions are
just a few of the ghosts hunting some of the employees working for retail giants,
especially in fast fashion.
2. Energy Transition: Many people worldwide don't have access to electricity and gas.
They have to cook with the help of fossil fuels and use it for electricity. Companies
should keep an eye on their electricity usage. To create more sustainable societies, there
needs to be an energy shift toward a cleaner, more affordable, and more effective model.
3. Circular Economy Principle: The most significant general sustainability issue will be
the circular economy. It might be the most effective route toward sustainability,
particularly for international corporations. Due to the scarcity of natural resources, it is
crucial. Waste is becoming a valuable input thanks to the circular economy.
The company can stop using virgin resources and adding to pollution. They can achieve
it by closing the resource supply and disposal circle. It is a concept worth exploring for
industries where raw materials are essential to manufacturing (i.e., food, beverage, and
apparel). These business models aim to keep materials in use. They renew natural
systems and reduce waste and pollution.
4. Diversity, Equity and Inclusion: Companies will be more ambitious in the future
about redefining what it means to be devoted to diversity, equity, and inclusion (DEI).
Instead, the corporation must incorporate DEI principles throughout all operations,
from sales to PR to HR. They should also refocus the purchasing power. It will open
up their chances for various suppliers throughout their value chains.
5. Educating the Public: Sales of environmentally friendly goods and services do not
reflect the effort that went into their development. Businesses must learn more about to
Evaluate, Categorize, Advertise sustainable goods and services It will prevent
greenwashing and have a beneficial impact on consumer behaviour
6. Deciding Focus Area: Leadership teams often struggle to determine which aspects of
the business should be prioritized in a sustainability transformation. To create
competitive advantage from environmental, social, and governance initiatives,
everything must be in-scope. Companies need to execute an in-depth, comprehensive
transformation, not just a small number of isolated initiatives, embedding ESG across
the organization to deliver real change.
7. Leader Enablement: Leaders must be aligned, committed, and supported if they are
to demonstrate new behaviors. Leadership coaching at the outset is critical, along with
incentive structures that reinforce the transformation's objectives.
At many companies, climate and sustainability are key topics for top leaders and boards,
but that urgency and awareness needs to cascade down to the organization's managers.

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This means exploring ways to integrate ESG KPIs into performance targets and link
them to pay and incentives.
8. Great Migration: ‘The Great Migration’ describes the global movement of people,
jobs, labour and supply chains. It requires a new model of business which is flexible to
these changes and to global trends.
9. Great Convergence: ‘The Great Convergence’ will see business, governments, NGOs
and individuals united in the global goal to address the challenges facing the world.
With the launch of the SDGs, the organization are set on the path towards collaboration
in finding solutions to our global challenges.
10. Great Imitation: ‘The Great Imitation’ might be the negative indirect consequence of
corporate responsibility being pushed into the mainstream. It is the risk of companies
imitating a sustainable business without actually taking the action that backs it up.

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