Operations Management

Module 1a
Definition
• An operations system is defined as one in which
• several activities are performed
• to transform a set of inputs into useful output
• using a transformation process
• Operations Management is
• a systematic approach to
• address all the issues pertaining to
• the transformation process that converts some inputs into output that are useful,
and
• could fetch revenue to the operations system
Operations Management (OM)
Salient Aspects
• OM is a systematic approach
• using scientific tools & techniques and solution methodologies to analyze problems
• OM is about addressing several issues
• varying in terms of time horizon, nature of decisions
• Transformation processes are central to Operations
• Focusing on keeping costs to the minimum
• Developing a set of measures to assess performance of the system
Operations Management
A systems Perspective
Forecasting

PROCESSING
Labour Process & Purchasing & Goods

OUTPUT
Product Inventory

INPUT
Design Control
Material

Capital Operations Material & Services

Planning & Capacity
Control Planning

Feedback
Quality Maintenance Process
Management Management Improvement
Operations
A key functional area in an Organisation

Finance

Operations

Marketing HRM
WHY STUDY OM?

We study OM for four reasons:

1. To learn how people organize themselves for productive enterprise
2. To learn how goods and services are produced
3. To understand what operations managers do
4. Because OM is a costly part of an organization
WHAT OPERATIONS MANAGERS DO
Ten OM strategic decisions are required of operations managers:
1. Design of goods and services
2. Managing quality
3. Process strategy
4. Location strategies
5. Layout strategies
6. Human resources
7. Supply chain management
8. Inventory management
9. Scheduling
10. Maintenance
About 40% of all jobs are in OM. Operations managers possess job titles such as plant manager,
quality manager, process improvement consultant, and operations analyst.
Operations Management
Functions
Design Issues Operational Control Issues
Product & Service Design Forecasting the Demand
Process Design Operations Planning & Control
Quality Management Supply Chain Management
Location & Layout of Facilities Maintenance Management
Capacity Planning Continuous Improvement of
Operations

• Design issues in Operations Management lay down overall

constraints under which the operations system functions
• Operational Control issues focuses on optimizing the use of
available resources in the short-term while delivering goods and
services as per plan under the given design constraints
Soft Drink Supply Chain
OPERATIONS FOR GOODS AND SERVICES

• Services —Economic activities that typically produce an intangible

product (such as education, entertainment, lodging, government,
financial, and health services). Almost all services and almost all
goods are a mixture of a service and a tangible product.
• Service sector —The segment of the economy that includes trade,
financial, lodging, education, legal, medical, and other professional
occupations. Services now constitute the largest economic sector in
postindustrial societies. The huge productivity increases in agriculture
and manufacturing have allowed more of our economic resources to
be devoted to services. Many service jobs pay very well
The Service – Product Continuum
Product Domination Service Domination

Materials, Assets, Products… Services, People, Interactions…

Passenger Cars, Machine Tools

Facilities Maintenance, Turnkey Project Execution …

Logistics, Tourism, Travel and Entertainment Sectors

Health Care System (Hospitals)

Restaurants, Fitness Centres

Professional Consulting, Legal Services

Service Operations
Salient Features
• Tangibility: Services are performances and actions rather than objects,
therefore having poor tangibility
• Heterogeneity: High variability in the operation system performance
• Simultaneous Production & Consumption: Degree of customer contact is
very high
• Perishability: Services cannot be inventoried as in the case of
manufactured products.
Services are Different

Source: Adapted from Valarie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, “Problems and Strategies in Services Marketing,”
Journal of Marketing 49 (Spring 1985): 33-46.
Manufacturing & Service
Similarities & Differences
Manufacturing Organizations Service Organizations
Differences
Physical durable product Intangible, perishable product
Output can be inventoried Output can’t be inventoried
Low customer contact High customer contact
Long response time Short response time
Regional, national, Intl. markets Local markets
Large facilities Small facilities
Capital intensive Labour intensive

Quality easily measured Quality not easily measured

Similarities
Is concerned about quality, productivity & timely response to its customers
Must make choices about capacity, location, layout
Has suppliers to deal with
Has to plan its operations, schedules and resources
Balance capacity with demand by a careful choice of resources
Has to make an estimate of demand
CURRENT CHALLENGES IN OPERATIONS MANAGEMENT

• Some of the current challenges for operations managers include:

• Global focus; international collaboration
• Supply chain partnering; joint ventures; alliances
• Sustainability; green products; recycle, reuse
• Rapid product development; design collaboration
• Mass customization; customized products
• Lean operations; continuous improvement and elimination of waste
ETHICS, SOCIAL RESPONSIBILITY, AND SUSTAINABILITY

Among the many ethical challenges facing operations managers are

(1) efficiently developing and producing safe, quality products;
(2) maintaining a clean environment;
(3) providing a safe workplace; and
(4) honoring stakeholder commitments.
Productivity Measurement

• The measurement of productivity can be quite direct. Such is the case

when productivity is measured by labor-hours per ton of a specific
type of steel.
• Although labor-hours is a common measure of input, other measures
such as capital (dollars invested), materials (tons of ore), or energy
(kilowatts of electricity) can be used.
• An example of this can be summarized in the following equation:
Single-factor productivity

• Indicates the ratio of goods and services produced (outputs) to one

resource (input).
Multifactor productivity

• Indicates the ratio of goods and services produced (outputs) to many

or all resources (inputs).
THE HERITAGE OF OPERATIONS MANAGEMENT

Significant events in modern OM can be classified into six eras:

1. Early concepts (1776–1880)
• Labor specialization (Smith, Babbage),
• standardized parts (Whitney)
2. Scientific management (1880–1910)
• Gantt charts (Gantt)
• motion and time studies (Gilbreth)
• process analysis (Taylor)
• queuing theory (Erlang)
3. Mass production (1910–1980)
• Assembly line (Ford/Sorensen),
• Statistical sampling (Shewhart),
• economic order quantity (Harris),
• linear programming(Dantzig),
• PERT/CPM (DuPont),
• Material requirements planning
4. Lean production (1980–1995)
• Just-in-time,
• computer-aided design,
• Electronic data interchange,
• total quality management,
• Baldrige Award, empowerment,
• Kanbans
5. Mass customization (1995–2005)
• Internet/e-commerce,
• Enterprise resource planning,
• International quality standards,
• supply-chain management,
• mass customization
• build-to-order,
• radio frequencyidentification (RFID)
6. Globalization era (2005–2020)
• Global supply chains
• Growth of transnational organizations
• Instant communications,
• sustainability, ethics in a global work force,
• logistics and shipping