CHAPTER ONE

1
NATURE OF OPERATIONS MANAGEMENT

“No great civilization has developed in isolation.” Thomas Sewell

“Study the past if you would devine the future” Confucius (490 B.C.)

Operations management has been recognized as an important factor in a country’s economic

growth. The traditional view of manufacturing management is the concept of Production
Management with the focus on economic efficiency in manufacturing. Later the new name
Operations Management was identified, as service sector became more prominent. Rapid
changes in technology have posed numerous opportunities and challenges, which have
resulted in enhancement of manufacturing capabilities through new materials, facilities,
techniques and procedures. Hence, managing a service system has become a major challenge
in the global competitive environment.

Operations Management has been a key element in the improvement and productivity in
business around the world. Operations Management leads the way for the organizations to
achieve its goals with minimum effort.

1.1 INTRODUCTION
Operation is as part of an organization, which is concerned with the transformation of a range
of inputs into the required output (services) having the requisite quality level. Management is
the process, which combines and transforms various resources used in the operations
subsystem of the organization into value added services in a controlled manner as per the
policies of the organization.
The set of interrelated management activities, which are involved in manufacturing certain
products, is called as production management. If the same concept is extended to services
management, then the corresponding set of management activities is called as operations
management.

DEFINITIONS
There is no one single definition given to the term operations management (OM). The
following are few of the definitions given by different writers.
 Operation management deals with the production of goods and services that people buy
and use every day. It is a function that enables organization to achieve their goals through
efficient acquisitions and utilization of resources.
 OM refers to the interaction and control of the process that transform input into finished
goods and services.
 OM may be defined as the design, operation and improvement of the production systems
that create the firm’s primary products or services.

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 OM may be defined as the management of the direct resources required to produce the
goods and services provided by an organization. It is the derivative of the organization
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strategy and mission.
Joseph G .Monks defines Operations Management as the process whereby resources,
flowing within a defined system, are combined and transformed in a controlled manner
to add value in accordance with policies communicated by management.

The operations managers have the prime responsibility for processing inputs into outputs.
They must bring together under production plan that effectively uses the materials, capacity
and knowledge available in the production facility. Given a demand on the system work
must be scheduled and controlled to produce goods and/or services required. Control must be
exercised over such parameters such as costs, quality and inventory levels.

The definition of the operations management contains following keywords: Resources,

Systems, transformation and Value addition Activities.
Resources
Resources are the human, material and capital inputs to the production process. Human
resources are the key assets of an organization. As the technology advances, a large
proportion of human input is in planning and controlling activities. By using the intellectual
capabilities of people, managers can multiply the value of their employees into by many
times. Material resources are the physical facilities and materials such as plant equipment,
inventories and supplies. These are the major assets of an organization. Capital in the form
of stock, bonds, and/or taxes and contributions is a vital asset. Capital is a store of value,
which is used to regulate the flow of the other resources.
Systems
Systems are the arrangement of components designed to achieve objectives according to the
plan. The business systems are subsystem of large social systems. In turn, it contains
subsystem such as personnel, engineering, finance and operations, which will function for
the good of the organization. A systems approach to operations management recognizes
the hierarchical management responsibilities. If subsystems goals are pursued
independently, it will results in sub-optimization. A consistent and integrative approach will
lead to optimization of overall system goals.

The ability of any system to achieve its objective depends on its design and its control.
System design is a predetermined arrangement of components. It establishes the
relationships that must exist between inputs, transformation activities and outputs in order to
achieve the system objectives. With the most structured design, there will be less planning
and decision-making in the operations of the system. System control consists of all actions
necessary to ensure that activities conform to preconceived plans or goals.
Transformation and Value Adding Activities

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 The objective of combining resources under controlled conditions is to transform them into
goods and services having a higher value than the original inputs. The transformation3
process applied will be in the form of technology to the inputs. The effectiveness of the
production factors in the transformation process is known as productivity. The productivity
refers to the ratio between values of output per work hour to the cost of inputs. The firms
overall ratio must be greater than 1, then we can say value is added to the product.
Operations manager should concentrate improving the transformation efficiency and to
increase the ratio.
Fig. 1.1 The conversation process (Schemati
(Schematicc model
model for
for operations system)
system)
Environment Value added
Environment

Transformation or
Input conversion process Output

Control Feedback
Feedback

The essence of the operations function is to add value during the transformation process.
Value added is the term used to describe the difference between the costs of inputs and the
value or price of out puts. Typical examples are given in the table 1 below.

Table 1.1 Input transformation output relationship for typical systems

System Primary Resources Primary Desired output
input transformation
Hospital Patient MDS, nurses medical Health care Healthy
supplies, equipment, (physiological) individuals
bed etc
Restaurant Hungry Food, chief waiters Well prepared well Satisfied
customer served food customers
Automobile Sheet steel Tools, equipment, Fabrication and High quality cars
factory engine parts workers assembly of car
College High school Teachers, books, Imparting Educated
University graduate class rooms knowledge and individuals
skills, information
Department Shoppers Displays, stocks of Attract shoppers Sales to satisfied
Store goods, sales, clerks promote products customers

WHY STUDY OM?

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We study OM for four reasons:
1. OM is one of the three major functions of any organization, and it is integrally related4to
all the other business functions. All organizations market (sell), finance (account), and
produce (operate), and it is important to know how the OM activity functions. Therefore,
we study how people organize themselves for productive enterprise.
2. We study OM because we want to know how goods and services are produced. The
production function is the segment of our society that creates the products and services
we use.
3. We study OM to understand what operations managers do. Regardless of your job in an
organization, you can perform better if you understand what operation managers do. In
addition, understanding OM will help you explore the numerous and lucrative career
opportunities in the field.
4. We study OM because it is such a costly part of an organization. A large percentage of
the revenue of most firms is spent in the OM function. Indeed, OM provides a major
opportunity for an organization to improve its profitability and enhance its service to
society.
1.2 HISTORICAL DEVELOPMENT OF OPERATION MANAGEMENT
For over two century’s operations and production management has been recognized as an
important factor in a country’s economic growth. The traditional view of manufacturing
management began in eighteenth century when Adam Smith recognized the economic
benefits of specialization of labour. He recommended breaking of jobs down into subtasks
and recognizes workers to specialized tasks in which they would become highly skilled and
efficient. In the early twentieth century, F.W. Taylor implemented Smith’s theories and
developed scientific management. From then till 1930, many techniques were developed
prevailing the traditional view. Brief information about the contributions to manufacturing
management is shown in the Table 1.2.
Production Management becomes the acceptable term from 1930s to 1950s. As F.W.
Taylor’s works become more widely known, managers developed techniques that focused on
economic efficiency in manufacturing. Workers were studied in great detail to eliminate
wasteful efforts and achieve greater efficiency. At the same time, psychologists, socialists
and other social scientists began to study people and human behavior in the working
environment. In addition, economists, mathematicians, and computer socialists contributed
newer, more sophisticated analytical approaches.

With the 1970s emerge two distinct changes in our views. The most obvious of these,
reflected in the new name Operations Management was a shift in the service and
manufacturing sectors of the economy. As service sector became more prominent, the change
from ‘production’ to ‘operations’ emphasized the broadening of our field to service
organizations. The second, more suitable change was the beginning of an emphasis on
synthesis, rather than just analysis, in management practices.

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Table 1.1 Historical summary of operations management 5
Date Contribution Contributor
1776 Specialization of labour in manufacturing Adam Smith
1799 Interchangeable parts, cost accounting Eli Whitney & others
1832 Division of labour by skill; assignment of jobs by Skill; Charles Babbage
basics of time study
1900 Scientific management time study and work study Frederick W.Taylor
Developed;
1900 Motion of study of jobs Frank B. Gilbreth
1901 Scheduling techniques for employees, machines Henry L. Gantt
Jobs in manufacturing
1915 Economic lot sizes for inventory control F.W. Harris
1927 Human relations; the Hawthorne studies Elton Mayo
1931 Statistical inference applied to product quality: quality W.A. Shewart
control charts
1935 Statistical Sampling applied to quality control: H.F.Dodge & H.G.Roming
inspection sampling plans
1940 Operations research applications in world war II P.M. Blacker & others
1946 Digital Computer John Mauchlly and J.P.Eckert
1947 Linear Programming G.B.Dantzig, Williams & others
1950 Mathematical programming, on-linear and stochastic A.Charnes, W.W.Cooper & others
processes
1951 Commercial digital computer: large-scale computations Sperry Univac
available
1960 Organizational behavior: continued study of people at L.Cummings, L.Porter
work
1970 Integrating operations into overall strategy and policy
Computer applications to manufacturing & service, W.Skinner J.Orlicky & G. Wright
scheduling, and control, Material Requirement Planning
1980 (MRP)
Quality and productivity applications from Japan: W.E. Deming & J.Juran
robotics, CAD-CAM

1.3 MANUFACTURING OPERATIONS AND SERVICE OPERATIONS

1.3.1 MANUFACTURING OPERATIONS

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Manufacturing is the transformation of raw materials into finished goods for sale, or
intermediate processes involving the production or finishing of semi-manufactures. 6
Manufacturing implies production of a tangible output such as an automobile while service
generally implies as act such as a doctor’s examination.

1.3.2 SERVICE OPERATIONS

Service is defined as either as Services are deeds, processes, and performances or a service is
a time-perishable, intangible experience performed for a customer acting in the role of a co-
producer. Service enterprises are organizations that facilitate the production and distribution
of goods, support other firms in meeting their goals, and add value to our personal lives.
Manufacturing and services are often similar in terms of what is done but different in terms
of how it is done. For example, both involve design and operating decisions. Manufacturers
must decide how large a factory is needed and service organizations (e.g. hospitals) must
decide how large a building they need. Both must make locations decision and both involved
in scheduling and controlling operations and allocating scarce resources. Most of the
differences between manufacturing and service organizations relate to manufacturing being
product-oriented and service being act-oriented.

Following characteristics can be considered for distinguishing Manufacturing Operations

with Service Operations:
1. The nature and customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
1) The nature and customer contact
Service involves a much higher degree of customer contact than manufacturing does. The
performance of a service typically occurs at the point of consumption. That is, the two often
occurs simultaneously. On the other hand, manufacturing allows a separation of production
and consumption, so that manufacturing often occurs in an isolated environment away from
the customers. Service operations because of their contact with customers can sometimes be
much more limited in their range of options in these areas. The product oriented operations
can build up inventories of finished goods, which enable them to absorb some of the shocks
caused by varying demand. However, service operations cannot build up inventories of time,
so service capacity is much more sensitive to demand variability

2) Uniformity of inputs
Services operations are subject to more variability of inputs than manufacturing operations.
There is often the ability in manufacturing to carefully control the amount of variability of
inputs, so it is often possible to achieve low variability. Consequently, job requirement for
manufacturing are generally more uniform than for services.

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3) Labor content of Jobs.
Because of on the site consumption of services and because of the high degree of variation of
output, service requires high labor content where as manufacturing can be more capital
intensive (i.e. mechanized)

4) Uniformity of output
High mechanizations generates products with low variability, so manufacturing tends to be
smooth and efficient; service activities sometimes appear to be slow and awkward, and
output is more variable.

5) Measurement of productivity
Measurement of productivity is relatively straight forward in manufacturing due to the high
degree of uniformity of most manufactured items. However, in many cases variations in
demand intensity as well as variations in service requirement from job to job, make
productivity measurement considered by more difficult. For example, the work load of the
two doctors might be compared. One may have had a large number of routine cases while the
other did not, so their productivity would appear to differ unless a very careful analysis is
made.

6) Quality Assurance
Quality assurance is more challenging in services when production and consumption occurs
at the same time. Moreover, the higher variability of input creates additional opportunity for
the quality of output to suffer unless quality assurance is actively managed. Quality at the
point of creation is typically more important for services than for manufacturing, where
errors can be corrected before the customer receives the outputs.

Generally the differences between manufacturing and service are:

Characteristics Manufacturing service
Output Tangible Intangible
Customer contact Low High
Labor content Low High
Uniformity of output High Low
Measurement of productivity Easy Difficult
Storage Output can be inventoried Not

1.4 OPERATIONS DECISION MAKING

Thousand of business decisions are made every day. Not all the decisions will make or break
the organization. But each one adds a measure of success or failure to the operations. Even
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minor decisions determine the company’s success or failure. It ranges from simple
judgmental to complex analysis which can also involve judgment (past experience 8&
common sense). They involve a way of blending objective and subjective data to arrive at a
choice. The use of quantitative methods of analysis adds to the objectivity of such decisions.

Operations Management Decisions

The major areas in which operations managers make decisions are:
Strategic (long term) decision
Tactical (intermediate term) decision
Operational planning and control (short term) decision
A) Strategic (long term) decision: It involves high amount, more effort and it is periodical.
The strategic decision includes Product design, Process design, and selection and
Location decision. The strategic issue usually broad, addressing questions such as
 How will we make the product?
 When do we locate the facility or facilities?
 How much capacity do we need? When should we add more capacity?
Operations management decisions at the strategic level affect the company's long range
effectiveness in terms of how it can address its customers' needs. Thus, for the firm to
succeed, these decisions must be in alignment with the corporate strategy. Decision made at
the strategic level become the fixed conditions or operating constraints under which the firm
must operate in both the intermediate and short term.

B) Tactical (intermediate term) decisions

The tactical decision primarily address how to efficiently schedule material and labor within
the constraints of previously made strategic decisions. An issue on which OM concentrates
on this level includes:
 How many workers do we need?
 When do we need them?
 Should we work over time?
 When should we have material delivered?
 Should we have a finished goods inventory?
These tactical decisions, in turn, become the operating constraints under which operations
planning and control decisions are made.

C) Operational planning & control (short term) decision.

Management with the respect to operational planning control is narrow and short term. Issues
at this level include:
 What jobs do we work on today or this week?
 Whom do we assign to what tasks?
 What jobs have priority?

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 
9
MANAGEMENT AS A SCIENCE

Management scientists hold that, education, scientific training and experience can improve a
person’s ability to make decisions. Scientific decision-making rests upon organized
principles of knowledge and depends largely upon the collection of empirical data and
analysis of the data in a way that repeatable results will be obtained.

The association of management with the scientific method involves drawing objective
conclusions from the facts. Facts come from the analysis of data, which must be gathered,
compiled and digested into meaningful form, such as graphs and summary statistics.
Computers are helpful in these tasks because they can easily store data and us with the more
sophisticated and statistical analysis. But not all variables are quantifiable, so decision-
makers must still use some value-based judgments in a decision process.
Thus management as a science is characterized by
F Organized principle of knowledge.
F Use of empirical data.
F Systematic analysis of data.
F Repeatable results.

CHARACTERISTICS OF DECISIONS

Operations decision range from simple judgments to complex analyses, which also involves
judgment. Judgment typically incorporates basic knowledge, experience, and common sense.
They enable to blend objectives and sub-objective data to arrive at a choice. The
appropriateness of a given type of analysis depends on

F The significant or long lasting decisions,

F The time availability and the cost of analysis, and
F The degree of complexity of the decision.
The significant or long lasting decisions deserve more considerations than routine ones.
Plant investment, which is a long-range decision, may deserve more thorough analysis. The
time availability and the cost of analysis also influence the amount of analysis. The degree
of complexity of the decision increases when many variables are involved, variables are
highly independent and the data describing the variables are uncertain.

Business decision-makers have always had to work with incomplete and uncertain data.
Fig. 1.2 below depicts the information environment of decisions. In some situations a
decision- maker has complete information about the decision variables; at the other
extremes, no information is available. Operations management decisions are made all along
this continuum.

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Complete certainty in decision-making requires data on all elements in the population. If
such data are not available, large samples lend more certainty than do small ones. Beyond
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this, subjective information is likely to be better than no data at all.

Fig. 1.2 Information continuum

Framework for Decision-Making

An analytical and scientific framework for decision implies the following systematic steps
F Defining the problem.
F Establish the decision criteria.
F Formulation of a model.
F Generating alternatives.
F Evaluation of the alternatives.
F Implementation, monitoring and control.
Defining the Problem
Defining the problem enables to identify the relevant variables and the cause of the problem.
Careful definition of the problem is crucial. Finding the root cause of a problem needs some
questioning and detective work. If a problem defined is too narrow, relevant variable may be
omitted. If it is broader, many tangible aspects may be included which leads to the complex
relationships.
Establish the Decision Criteria
Establish the decision criterion is important because the criterion reflects the goals and
purpose of the work efforts. For many years profits served as a convenient and accepted
goal for many organizations based on economic theory. Nowadays organization will have
multiple goals such as employee welfare, high productivity, stability, market share, growth,
industrial leadership and other social objectives.
Formulation of a Model
Formulation of a model lies at the heart of the scientific decision-making process. Model
describes the essence of a problem or relationship by abstracting relevant variables from the
real world situation. Models are used to simplify or approximate reality, so the relationships
can be expressed in tangible form and studied in isolation.

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Modeling a decision situation usually requires both formulating a model and collecting the
relevant data to use in the model. Mathematical and statistical models are most useful models
11
for understanding the complex business of the problem.
Generating Alternatives
Alternatives are generated by varying the values of the parameters. Mathematical and
statistical models are particularly suitable for generating alternatives because they can be
easily modified. The model builder can experiment with a model by substituting different
values for controllable and uncontrollable variable.
Evaluation of the Alternatives
Evaluation of the alternatives is relatively objective in an analytical decision process
because the criteria for evaluating the alternatives have been precisely defined. The best
alternative is the one that most closely satisfies the criteria. Some models like LPP model
automatically seek out a maximizing or minimizing solution. In problems various heuristic
and statistical techniques can be used to suggest the best course of action.
Implementation and Monitoring
Implementation and monitoring are essential for completing the managerial action. The best
course of action or the solution to a problem determined through a model is implemented in
the business world. Other managers have to be convinced of the merit of the solution. Then
the follow-up procedures are required to ensure about appropriate action taken. This
includes an analysis and evaluation of the solution along with the recommendations for
changes or adjustments.

1.5 PRODUCTIVITY MEASUREMENT

Productivity is defined in terms of utilization of resources, like material and labour. In simple
terms, productivity is the ratio of output to input. For example, productivity of labour can be
measured as units produced per labour hour worked. Productivity is closely linked with
quality, technology and profitability. Hence, there is a strong stress on productivity
improvement in competitive business environment.

Productivity can be improved by (a) controlling inputs, (b) improving process so that the
same input yields higher output, and (c) by improvement of technology. Productivity can be
measured at firm level, at industry level, at national level and at international level.

Modern Dynamic Concept o f P r o d u c t i v i t y

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Productivity can be treated as a multidimensional phenomenon. The modern dynamic
concept of productivity looks at productivity as what may be called “productivity flywheel”. 12
The productivity is energized by competition. Competition leads to higher productivity,
higher productivity results in better value for customers, and these results in higher share of
market for the organization, which results in still keener competition. Productivity thus
forms a cycle, relating to design and products to satisfy customer needs, leading to improved
quality of life, higher competition i.e. need for having still higher goals and higher share of
market, and thereby leading to still better designs.

Fig. 1.8 Dynamic concept of productivity

Factor Productivity and Total

Productivity

When productivity is measured separately for each input resource to the production
process it is called factor productivity or partial productivity. When productivity is
measured for all the factors of production together, it is called total factor productivity.

Generally factor productivity calculations are required at firm level and industry level,
whereas total factor productivity calculations are made for measuring productivity at
national and international level.

Productivity of materials can be measured as output units per unit material consumed. It
can also be measured in terms of value generated per unit expenditure in materials.
For measuring productivity of different groups of operatives, different ratios can be used,
which are indicative of output/input relationship. For example, the productivity of
assembly line work can be measured as output units per man-hour or alternatively, the
value of good produced per cost of labour on assembly line.

One of the primary responsibilities of an operation manger is to achieve productive use of

resources. Productivity measures the relationship between output (goods and Services) and
inputs (labor, capital, materials, or other resources) used to produce them. Productivity
usually expressed the ratio of quantity of output to quantity of input.
Thus, Productivity = Output

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 Input
Productivity may be expressed as partial measures, multifactor measures,
measures, or13 total
measures.
i. Partial productivity (A single input)
Productivity = Output or Output or Output or Output & so on.
Labor Capital Materials Energy

ii. Multifactor productivity (Based on more than one input)

It reflects a combination of some or all of the resources used to obtain a certain output.
Productivity= Output or Output
Labor +Capital Labor + Capital +Material

iii. Total productivity (Based on total measure or on all inputs)

Productivity= Output = Goods or services produced
Input All inputs used to produce them
Pmf = 2.35
Example 1.
Three employees process 600 insurance policies in a week. They work 8 hrs. per day, 5-days per
week. Find labour productivity.
Solution:
Labour Productivity = [Policies Issued]/[Employee Hours]
Plabor = 600 policies/[(3 employees)(40 hrs/employee)]
Plabor = 5 Policies/hr.

Example 2.
A team of workers make 400 units of a product, which is valued by its standard cost of 10 birr
each (before markups for other expenses and profit). The accounting department reports that for this
job the actual costs are:
400 birr for labour,
1 000 birr for materials and
300 birr for overhead.
Calculate multi-factor productivity.
Solution:
Multi-Factor Productivity = [Quantity at standard cost]/[Labour cost + Materials cost
+ Overhead cost]
Pmf = [400 Units x 10 ]/[400+1000+300] = 4000 / 1700
Pmf = 2.35

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Example 3.
Azim Title company has a staff of 4 each working 8 hours/day (for a payroll cost of 640 birr/day)
14

and overhead expenses of 400 birr/day, Azim process and closes on 8 titles each day. The company
recently purchased a computerised title-search system that will allow the processing of 14 titles/day,
although the staff, their work hours, and pay will be the same , the overhead expenses are now 800
birr/day.
8 titles/day
Labour-productivity with the old system = 32 lab. hrs./day = 0.25titles/lab.hrs.
14 titles/day
Labour-productivity with the new system = 32 lab. hrs./day = 0.4375titles/lab.hrs.
8 titles/day
Multi-factor productivity with the old system = ( 640+400 ) birr /day = 0.0077 titles/birr
14 titles /day
Multi-factor productivity with the new system = ( 640+800 ) birr /day = 0.0097 titles/birr
Labour productivity has increased from 0.25 to 0.4375.

The change is 75% increase in labour productivity.

Multi-factor productivity has increased from 0.0077 to 0.0097.
This change is a 25.9% increase in multi-factor productivity.
Example 4.
Productivity can be measured in a variety of ways, such as labour, capital, energy, material usage,
and so on. At Modern Lumper, Inc. Ali Caliskan, president and producer of apple crates sold to
growers, has been able, with his current equipment, to produce 240 crates per 100 logs, the current
purchases 100 logs per day and each log requires 3 labour-hrs to process.
He believes that he can hire a professional buyer who can buy a better-quality log at the same cost. If
this is the case, he can increase his production to 260 crates/100 logs, this labour-hours will increase
by 8 hrs per day.
What will be the impact on productivity(measured in crates per labour-hour) if the buyer is hired?
a. Ali Caliskan has decided to look at his productivity from a multifactor (total factor productivity)
perspective. To do so, he has determined his labour, capital, energy and material usage and
decided to use money units (MU for dollars) as the common denominator
His total labour-hours are now 300 hrs/day and will increase to 308 hrs/day. His capital and
energy costs will remain constant at 350 birr and 150 birr per day, respectively. Material costs for
the 100 logs per day are 1000 birr and will remain the same.

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 Because he pays an average of 10 birr/hr (with fringes), Caliskan wants to determine his
productivity increase? 15

Solution:
240 crates
=0 . 8 crates/lab−hr
Current Labour Productivity = 100 log s×3 hrs
260 crates
Labour Productivity with buyer = (100 log s×3 hrs )+8 hrs = 0.844 crates/lab-hr.
Using current productivity (0.8 from (a)) as a base, the increase will be 5.5% or a 5.5%
increase)

a. Current System System with Professional Buyer

Labour 300hrs@10 birr =3000 308hrs@10 birr = 3080 birr
Material 100 logs/day = 1000 1000
Capital 350 350
Energy 150 150
Total Cost 4.500 birr 4.580 birr
240 crates
=0 . 0533
Productivity of current system =4500
260 crates
= =0 .0567
Productivity of proposed system 4580
Using current productivity (0.0533) as a base, the increase will be 0.047. That is, 6.4%
increase.
Example 5:
Ilhan Bal makes wooden boxes in which to ship bikes. Ilhan and his three employees invest 40 hours
per day making the 120 boxes.
a. What is their productivity?
b. Ilhan and his employees have discussed redesigning the process to improve efficiency. If they
can increase the rate to 125 per day. What would be their new productivity?
c. What would be their increase in productivity?
Solution:
a. Plabour = output/input = 120 boxes/40 hours = 3.0 boxes/hour
b. Plabour = output/input = 125 boxes/40 hours = 3.125 boxes/hour
c. Change in productivity = 0.125 boxes/hour

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 Percentage change = 0.125 boxes/hour/3.0 boxes/hour = 4.166%
Example 6. 16

Magusa Metal Works produces cast bronze valves on a 12 person assembly line. On a recent day,
240 valves produced during an 8 hour shift. Calculate the labour productivity.
Solution:
Total labour hours = 12 persons @ 8 hours = 96 hours
Labour productivity = 240 valves/96 hours = 2.5 valves/hour
Example 7.
Gaye produces “Final Exam Care Packages’ for resale by the sorority. She is currently working a
total of 6 hours a day to produce 120 care packages.
a. What is Gaye’s productivity?
b. Gaye thinks that by redesigning the package she can increase her total productivity to 150
care packages per day. What would be her new productivity?
c. What will be the increase in productivity if Gaye makes the change?
Solution:
a. P = units produced/input = 120 pkgs/6hrs = 20 pkgs/hr
b. P = units produced/input = 150 pkgs/6hrs = 25 pkgs/hr
c. Increase in productivity = {25 pkgs/hr – 20 pkgs/hr}/20 pkgs/hr = 25 %

Productivity comparisons can be made in two ways:

o First, a company can compare itself with similar operations within its industry or it can
use industry data when such data are available. For example, comparing productivity
among the different stores in a franchise.
o Second, to measure productivity overtime with in the same operations. I.e. A Company
can compare its productivity in one time period with that of the next.

Productivity Analysis
For the purposes of studies of productivity for improvement purposes, following types of
analysis can be carried out:
1. Trend analysis: Studying productivity changes for the firm over a period of time.
2. Horizontal analysis: Studying productivity in comparison with other firms of same
size and engaged in similar business.
3. Vertical analysis: Studying productivity in comparison with other industries and
other firms of different sizes in the same industry.
4. Budgetary analysis: Setting up a norm for productivity for a future period as budget,
based on studies as above, and planning strategies to achieve it.

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Factors Affecting Productivity
Numerous factors affect productivity.
productivity However some of the principal factors influencing
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productivity are:
1. Capital/labour ratio: It is a measure of whether enough investment is being made in
plant, machinery, and tools to make effective use of labour hours.
2. Scarcity of some resources: Resources such as energy, water and number of metals
will create productivity problems.
3. Work-force changes: Change in work-force effect productivity to a larger extent,
because of the labour turnover.
4. Innovations and technology: This is the major cause of increasing productivity.
5. Managerial factors: Managerial factors are the ways an organization benefits from
the unique planning and managerial skills of its manager.
6. Quality of work life: It is a term that describes the organizational culture, and the
extent to which it motivates and satisfies employees.

KEY POINTS FOR IMPROVING PRODUCTIVITY

There are a number of key steps that a company or a department can take toward improving
productivity:
1) Develop productivity measures for all operations. Measurement is the first step in
managing and controlling the operation.
2) Look at the system as a whole in deciding which operations to concentrate on; it is
overall productivity that is important.
3) Develop methods for achieving productivity improvements, such as soliciting ideas from
workers, studying how other firms have increased productivity and reexamining the way
work is done.
4) Establish reasonable goals for improvement.
5) Make it clear that management supports and encourage productivity, consider incentives
towards for contributions.
6) Measure improvements and publicize them.

SCOPE OF OPERATIONS MANAGEMENT

Operations Management concern with the conversion of inputs into outputs, using physical
resources, so as to provide the desired utilities to the customer while meeting the other
organizational objectives of effectiveness, efficiency and adoptability. It distinguishes itself
from other functions such as personnel, marketing, finance, etc. by its primary concern for
‘conversion by using physical resources’. Following are the activities, which are listed under
Production and Operations Management functions:

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 18

LOCATION OF FACILITIES
Location of facilities for operations is a long-term capacity decision, which involves a long-
term commitment about the geographically static factors that affect a business organization.
It is an important strategic level decision-making for an organization. It deals with the
questions such as ‘where our main operations should be based?’
The selection of location is a key-decision as large investment is made in building plant and
machinery. An improper location of plant may lead to waste of all the investments made in
plant and machinery equipments. Hence, location of plant should be based on the
company’s expansion plan and policy, diversification plan for the products, changing
sources of raw materials and many other factors. The purpose of the location study is to find
the optimal location that will results in the greatest advantage to the organization.

PLANT LAYOUT AND MATERIAL HANDLING

Plant layout refers to the physical arrangement of facilities. It is the configuration of
departments, work centres and equipment in the conversion process. The overall objective of
the plant layout is to design a physical arrangement that meets the required output quality
and quantity most economically. According to James More ‘Plant layout is a plan of an
optimum arrangement of facilities including personnel, operating equipment, storage space,
material handling equipments and all other supporting services along with the design of best
structure to contain all these facilities’.
‘Material Handling’ refers to the ‘moving of materials from the store room to the machine
and from one machine to the next during the process of manufacture’. It is also defined as
the ‘art and science of moving, packing and storing of products in any form’. It is a
specialized activity for a modern manufacturing concern, with 50 to 75% of the cost of
production. This cost can be reduced by proper section, operation and maintenance of
material handling devices. Material handling devices increases the output, improves quality,

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speeds up the deliveries and decreases the cost of production. Hence, material handling is a
prime consideration in the designing new plant and several existing plants. 19

PRODUCT DESIGN
Product design deals with conversion of ideas into reality. Every business organization have
to design, develop and introduce new products as a survival and growth strategy.
Developing the new products and launching them in the market is the biggest challenge
faced by the organizations. Product design and development provides link between
marketing, customer needs and expectations and the activities required to manufacture the
product.
PROCESS D E S I G N
Process design is a comprehensive decision-making of an overall process route for
converting the raw material into finished goods. These decisions encompass the selection of
a process, choice of technology, process flow analysis and layout of the facilities. Hence,
the important decisions in process design are to analyze the workflow for converting raw
material into finished product and to select the workstation for each included in the
workflow.
PRODUCTION PLANNING AND CONTROL
Production planning and control can be defined as the process of planning the production in
advance, setting the exact route of each item, fixing the starting and finishing dates for each
item, to give production orders to shops and to follow-up the progress of products according
to orders.
The principle of production planning and control lies in the statement ‘First Plan Your Work
and then Work on Your Plan’. Main functions of production planning and control include
Planning, Routing, Scheduling, Dispatching and Follow-up.
Planning is deciding in advance what to do, how to do it, when to do it and who is to do it.
Planning bridges the gap from where we are, to where we want to go. It makes it possible
for things to occur which would not otherwise happen.
Routing may be defined as the selection of path, which each part of the product will follow,
which being transformed from raw material to finished products. Routing determines the
most advantageous path to be followed for department to department and machine to
machine till raw material gets its final shape.
Scheduling determines the programme for the operations. Scheduling may be defined as
'the fixation of time and date for each operation' as well as it determines the sequence of
operations to be followed.

Dispatching is concerned with the starting the processes. It gives necessary authority so as
to start a particular work, which has been already been planned under ‘Routing’ and
‘Scheduling’. Therefore, dispatching is ‘Release of orders and instruction for the starting of
production for any item in acceptance with the Route sheet and Schedule Charts’. The

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function of Follow-up is to report daily the progress of work in each shop in a prescribed
Performa and to investigate the causes of deviations from the planned performance. 20

QUALITY CONTROL (QC)

Quality Control may be defined as ‘a system that is used to maintain a desired level of
quality in a product or service’. It is a systematic control of various factors that affect the
quality of the product. Quality Control aims at prevention of defects at the source, relies on
effective feedback system and corrective action procedure.
MATERIALS MANAGEMENT
Materials Management is that aspect of management function, which is primarily concerned
with the acquisition, control, and use of materials needed and flow of goods and services
connected with the production process having some predetermined objectives in view.
The main objectives of Material Management
are:
F To minimize material cost.
F To purchase, receive, transport and store materials efficiently and to reduce the related
cost.
F To cut down costs through simplification, standardization, value analysis, etc.
F To trace new sources of supply and to develop cordial relations with them in order to
ensure continuous supply at reasonable rates.
F To reduce investment tied in the inventories for use in other productive purposes and
to develop high inventory turnover ratios.

MAINTENANCE MANAGEMENT
In modern industry, equipment and machinery are a very important part of the total
productive effort. Therefore their idleness or downtime becomes are very expensive.
Hence, it is very important that the plant machinery should be properly maintained.
The main objectives of Maintenance Management
are:
F To achieve minimum breakdown and to keep the plant in good working condition at
the lowest possible cost.
F To keep the machines and other facilities in such a condition that permits them to be
used at their optimal capacity without interruption.
F To ensure the availability of the machines, buildings and services required by other
sections of the factory for the performance of their functions at optimal return on
investment.

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