Operations Management

Operations
Strategies

Operations Management

Operations management may be defined as 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
organisations.

It attempts to balance cost with revenue to achieve highest

operating profits possible. What operation management
department do is, that they design a methods by which
inputs is converted into output that is most beneficial to the
organisation

Operations Management

A systematic approach involves understanding the nature of issues and problems to be studied ,
collecting relevant data, and developing effective as well as efficient solutions to the problem

The second aspect of OM pertains to addressing several issues that an organisation faces. These issues
vary markedly in terms of :

time frame

nature of problem

commitment of required resources

For example, deciding how to re-route jobs when a machine breaks down on a shop floor .

Transformation processes are central to operations systems. The transformation process ensures that
inputs are converted into useful output. For example, converting sugarcane to sugar crystals.

Finally the goal of the organisation is to reduce costs and increase revenues. In order to ensure this an
appropriate performance evaluation system is required .

Operations as a key functional area

Finance

Operations

Marketing

HRM

For example , Organisations typically begin their yearly plan with the marketing function
making an estimate of the next years sales. This input forms the basis for production
planning in the operations area of business. Depending on the production plans,
procurement planning is done and all these factors lead to a certain estimate of the fund
requirements. This forms an important input for the finance function. At the time these plans
are executed, the interactions between these functions are even greater. The HRM function
influences the productivity capacity of labour available in real time. The actual production of
goods and services influences the marketing activities to be undertaken and the quantity and
timing of available funds from sales. Such interactions are common in most organisations.

Operations functions and its linkages

Customer layer
Ultimate customer
Dealers
Retailers

Layers of innovation
Ultimate customer
Dealers
Retailers

Core operations layer

Ultimate customer
Dealers
Retailers

Operations support layer

Marketing
Maintenance
Quality
Costing
Tooling
Materials
IT
Design
Industrial
Engineering

Supplier layer
Ultimate customer
Dealers
Retailers

Services as a part of Operational Management

The service sector encompasses a wide spectrum of activities in every country. The
growth of the service sector in India in the last five years has been very significant.
Although services are often classified separately from manufacturing in a
macroeconomic sense, from the perspective of OM, the separation is artificial. From the
OM perspective the notion of a pure product and pure service is just two ends of the
spectrum. In reality a vast majority of operations share a continuum of services and
products. Therefore most of the principles and tools and techniques of OM apply to
both these sectors.
Differences between services and manufacturing

Intangibility
Heterogeneity
Simultaneous production and consumption
Perishability

Responsibilities Of OM

Provide overall Management of the ongoing Production operations

including Inventory Control, Scheduling, Documentation, Equipment
Maintenance, Calibration, Shipping, and Quality Control/Inspection.

Assist in creation of efficient processes through hands-on development

and training.

Track quality of all processes through analysis of recorded data and

formation of additional test-points.

To ensure that the people involved in production and public are protected.

To ensure safe working conditions and encourage application of proper

working methods.

Responsibilities Of OM

Provide workers with the necessary individual protective

equipment free of cost.

Comply with the Act respecting occupational health and safety, as

well as the other laws and regulations relating to health and safety.

Ensure that existing and potential hazards reported by the

members of the production crew are eliminated.

Ensure proper disposal of chemicals and waste materials released

during the production process.

Recycling of all materials possible.

OM: A System Perspective

A system perspective means identifying the input, output, processing and feedback mechanisms for the
system.
The basic inputs to the operating system are

Labour

Capital

Material

Processing
Processing section includes

Process and product design

Purchasing and inventory control

Operations planning and control

Material and capacity planning

FUNCTIONS OF PRODUCTION AND OPERATION

MANAGEMENT
Production operation management is a component of organisation that
is concerned with the creation of utility in raw material through
conversion process:
As a part of management it has following functions:

Planning

Organising

Controlling

Behaviour

Models

Planning

Activities that establish a course of action and guide future

decision making is called planning

POM defines the objectives for the POM subsystem of the

organisation.

It defines the policies, and procedures for achieving the objectives.

This stage includes clarifying the role and focus of POM in the
organisations overall strategy.

It involves product planning, facility designing and using the

conversion process.

Organising

Activities that establish a structure of roles and the flow of information

within the POM subsystem.

POM establish a structure of roles and the flow of information within the
POM subsystem.

POM determine the activities required to achieve the goals and assign
authority and responsibility for carrying them out.

It includes:

Job design

Work measurement

Project management

Controlling

Activities that assure that actual performance in accordance with

planned performance is called controlling.

To ensure that the plans for the POM subsystems are accomplished,
the PO manager must exercise control by measuring actual outputs
and comparing them to planned operation management.

Controlling costs, quality, and schedules are the important

functions for POM

Material control

Material requirement planning.

Behaviour

Human aspects on the job is called behaviour

Po manager are concerned with how their effort to plan,

organise, and control affect human behaviour.

They also want to know how the behaviour of subordinates

can affect the managements planning, organising, and
controlling actions.

The behaviour is affected by the leadership, motivation,

communication, inter-intra personnel relationship and their
attitudes.

Models

The techniques which are used for problem solving is called models.

As a process of plan, organise and control the conversion process, PO Manager

encounter many problems and must make many decisions.

s/he can simplify their difficulties using models.

The models are:

Aggregate planning models for examining how best to use existing capacity in
short-term.

Break even analysis to identify break even volumes.

Linear programming and computer simulation for capacity utilisation.

Decision tree analysis for long term capacity problem of facility expansion.

Summary of OM

Operational 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 organizations.

Manufacturing and services are parts of OM

OM is a system perspective means identifying the input, output , processing and feedback mechanisms for the system .
There are five functions of OM

Planning

Organising

Controlling

Behaviour

Models

There are 3 priorities of OM

Acquire capabilities to tolerate product proliferation

Relate the operations system to customer/market

Develop system and procedures that promote learning

Operations Strategy
Operations strategyis a process by which key operations
decisions are made that are consistent with the overall
strategic objectives of the firm.

Relevance of OS

Due to several factors, the competitive dynamics will change and the
expectations of the customer also change on account of this.

Organisations need a structural approach to scan the market and distil the
changing needs at the market place. Moreover they also need a mechanism
to chalk out a plan for responding to these changes in the most effective way.

With the changes in the market place the competitive priorities for an
organisation must also change. Organisation need to tune their operations to
match with the competitive priorities.

Therefore it is important for organisation to develop the capability to devise

strategies for operations and revisit the strategy formulation exercise and when
there is a need for it.

Strategy Formulation Process

Step 1

Understand Competitive Market

Dynamics.

Any Strategy-making exercise begins with the scanning

of marketplace and understanding its dynamics. Market
dynamics direct the organisations toward the issues it
should consider while formulation its operations strategy.
It provides useful information on competitors, the nature
of offerings that they make to the customer, customer
expectations, missing links between expectations and
current offerings, and the intensity of competition.

Identify Order-qualifying and Orderwinning attributes.

Step 2
Order Qualifying
These are the set of attributes that customer expect in the product and service they consider for
purchase. The absence of any of these attributes will result in the customer removing the product or
service from his/her list of consideration. On the other hand, the mere presence of these attributes
does not guarantee that the customer will buy the product. It only indicate the minimum or
threshold levels of requirement for considering the product.
Order Winning
The other attributes that have the potential to sufficiently motivate the customer to buy the product.
Such attributes are order winning attributes. The perception of the customer is that the presence of
these attributes indicates him or her that the product/service under consideration surpass the basic
level of requirement and therefore, has the potential to provide better value for money. Presence of
order winning attributes in a product/service helps the customer differentiate it from the competitors
offering unambiguously. It also favourably influence the customers buying decision with respect to
the product/service. The more the number of attributes that customer perceives in a product/
service, the greater the chance that the customer may buy the product or service.

Identify Strategic Options for

Sustaining Competitive Advantage.
Step 3
After an analysis of the competitive dynamics, an
organisation can be in a position to identify the orderqualifying and order-winning attributes for the products/
services that it offers.
At the end of the exercise, the order winning and qualifying
attributes provide the organisation with a set of options for
sustaining competitive advantage. Competition analysis may
indicates that the organisation will do better by providing
high-quality goods, or that a wider variety of options will
bring success.

Step 4

Devise the overall Corporate Strategy

Organisations may not be in position to make use of all the strategic options
available to them because of constraints in operating with the resources available to
them.

For instance: Top management may have certain preferences and views on how desirable the
options are from an internal perspective. Moreover, organisational culture and values may
not permit it to exploit the available options fully.

Therefore, the next critical step is to match the strategic options available for
sustaining the competitive advantage with the available resources and constraints
and to develop an appropriate strategic plan that fulfils the organisations objectives,
taking into considerations its strengths and weaknesses.

Step 5

Arrive at the Operations Strategy.

Once the corporate strategy is arrived at, it serves as the

basis for the operations strategy.
For instance, if the overall strategy of an organisation is to
provide low-cot goods, then the choices made in
operations will be consistent with this overall strategy.

Strategic Options
Translating the corporate strategy into operations strategy essentials boils down to
making certain choices with respect to design and operational control of the operations
system in the following fields:
Product Portfolio

Product portfolio pertains to decisions on what are the products that the organisation
wants to produce, the number of variations in each product line and extend of
customisation that it can offer to its customers. Eg: Jet Airways and Deccan Airways

Process

Process design provides another option to translate strategic objectives to operations

by the appropriate choice of processes. Process designs refers to the overall
configuration of the operations system such that the various production activities
happen I n a particular fashion consistent to the process choice.

Strategic Options
Technology
Technological advancement in the recent years have given new opportunities for
creating competitive advantage for firms. New technology in manufacturing
process helps to react faster to costumers needs. Eg: Asian Paints

Capacity
It is defines as the maximum number of units of goods that can be produced per
unit time in the case of manufacturing and the maximum number of service
offering per unit of time in case of a service system. Capacity decisions in
operations have an important strategic dimension as they directly and
significantly influence the cost of goods sold and services offered.

Air Deccan Indias first low cost airline

Introduction of Air Deccan:
The entry of air Deccan into the Indian civil aviation sector heralds a new era in the air travel . Air
Deccans basic strategy is to make air travel accessible to every Indian by reducing their prices
30-40% of regular airline.

Characteristics of current Air Deccan OS:

1. More flying hours per aircraft
2. Cutting out all frills
3. Elimination of inter alia arrangement for baggage.
4. Air Deccan uses air buses on heavy traffic routes
5. Smaller aircrafts for lower traffic routes.
6. Elimination of inflight food, business class and lounges at air ports.

Air Deccan Indias first low cost airline

Some other important decisions in operational aspects
The hub and spoke model results in delays because of which Air Deccan has adopted
point to point flying. This means each customer has a contract of one flight only . Inter
airline arrangements results in added cost and delay eventually result in fewer flying
hours.
The other aspect was to outsource facilities in all airports. For example at the Hubli
airport, one Air Deccan flight per day means one hour of work at the airport. If the Air
Deccan invests in facilities it results in poor utilisation and high cost. By outsourcing the
airport operations in several such airports, Air Deccan cuts cost incurred on account of
poor utilisation and also generates local employment.
Conclusion
The overall strategy of Air Deccan os to provide affordable air travel . It estimates that
30% of travellers in every Air Deccan flight are first time travellers in India

Summary of OS

Operations strategyis a process by which key operations decisions are made that are consistent with the
overall strategic objectives of the firm

Strategy formulation has three steps

1. Identifying competitive advantage
2. Making corporate strategy
3. Making operations strategy

Order qualifying attributes

Order winning attributes

Translating corporate strategy to operational strategy requires choices in following fields:

1. Product portfolio
2. Process
3. Technology
4. Capacity

Summary of OS
Q1 What is operational management and operational strategy?

Q2 Is services part of operational management ?

Q3 Can other functions perform without operation management and why?

Q4 What are steps in strategy formulation?

Q5 What is difference between order qualifying and order winning attributes?