OPERATIONS MANAGEMENT

K. Mohanasundaram
Mohanasundaram.k@alliance.edu.in
mohanstat@yahoo.com

OPERATIONS MANAGEMENT
William J. Stevenson, 9
th
Edition, Tata Mcgraw Hill

Reference books:
1. Operations Management, Theory and Practice - B.
Mahadevan
2. Operations Management for competitive advantage
Chase, Jacobs
3. Production and Operations Management
Paneerselvam
4. Operations Management
Russel & Taylor
5. Operations Management- Jay Heizer, Barry Render,
Jagadeesh Rajashekhar

Assessment
INTERNAL (50)
MID TERM 20
ATTENDANCE 05
CASE STUDY (G) 10
PRESENTATION (G) 05
CLASS TEST 10
EXTERNAL (50) (Tentative/ subject to change)
SECTION A 5x2 = 10 All
SECTION B 4x5 = 20 Choice
SECTION C 5x10 =50 Choice
SECTION D 1x20 = 20 Compulsory

Syllabus
Introduction
Forecasting
Product and
service design
Capacity planning
Process selection
Facilities layout
Location analysis
Design of work
system
SCM
inventory
APP
MRP/ERP
JIT / LEAN
Network analysis
Quality
Acceptance
sampling
Maintenance
Scheduling
Productivity
Reliability

OBJECTIVES
Introduction
Definition
Management function
Organizations core function
Decision making
System perceptive
Transformational
Value added
Product /service difference / similarities
Goods and service continuum
Why to study OM
Importance of OM
Scope of OM
Performance Objectives
Evolution
Current trends in OM/ Challenges in OM


Introduction


Organization --> product tangible/intangible

Products are combination of both goods /services

Heart of every organization are the activities that makes
products. OPERATIONS

Operation describe what the organization does.
Eg: IBM make of computers
BA fly passengers
BBC radio/TV programmes
What is Operations Management?
Can be viewed as
1) Management function
2) Organizations core function
3) Decision Making
4) System
OM- Management function
Operations management (OM) is defined as
the design, operation, and improvement of
the systems that create and deliver the
firms primary products and services

The business function responsible for
planning, coordinating, and controlling the
resources needed to produce a companys
products and services
OM Across the Organization- core
function
Most businesses are supported by the
functions of operations, marketing, and
finance
The major functional areas must interact to
achieve the organization goals

OM Across the Organization -
continued
Marketing is not fully capable of meeting customer needs if
they do not understand what operations can produce
Finance cannot judge the need for capital investments if they
do not understand operations concepts and needs
Information systems enables the information flow throughout
the organization
Human resources must understand job requirements and
worker skills
Accounting needs to consider inventory management,
capacity information, and labor standards

OM- organization core function
Operations
Plant
Manager
Operations
Manager
Director
Manufacturing, Production control,
Quality assurance, Engineering,
Purchasing, Maintenance, etc
Finance Marketing
Functions - Airline
Operations
Finance/
Accounting
Marketing
Ground
Support
Flight
Operations
Facility
Maintenance
Catering
Airline
1984-1994 T/Maker Co.
Functions - Bank
Operations
Finance/
Accounting
Marketing
Check
Clearing
Teller
Scheduling
Transactions
Processing
Security
Commercial Bank
1984-1994
T/Maker Co.
Functions - Manufacturer
Operations
Finance/
Accounting
Marketing
Production
Control
Manufacturing
Quality
Control
Purchasing
Manufacturing
Typical role
1-17
Business Operations Overlap
Operations
Finance
Marketing
1-18
Operations Interfaces
Public
Relations
Accounting
Industrial
Engineering
Operations
Maintenance
Personnel
Purchasing
Distribution
MIS
Legal
OM Decisions
All organizations are based on decisions
Decisions follow a similar path
First decisions very broad Strategic decisions
Strategic Decisions set the direction for the entire
company; they are broad in scope and long-term in
nature
Following decisions focus on specifics - Tactical
decision and operational

OM Decisions
Tactical decisions focus on
Specific day-to-day issues
Resource needs, schedules, & quantities to produce
Tactical decisions are very frequent
Strategic decisions less frequent
Tactical decisions must align with strategic
decisions
OM- decision making perspective

Classification of operations management
decision/production management functions
Periodic/Continual Decision
Planning and designing of production systems/Operations and
control of production system
Planning, organising and control decisions
Strategic ( long term) and operational ( Short term) Decision
Productions management decision
Selection


Products
Processes
Equipment
Workforce
Location
Layout

Design



Products
Process Equipment
Jobs
Methods
Wage payment
Operating and
Control systems
System & Procedures


Updating


Involves
revision of
production
system in the
light of
changing
environment
Operating-
controlling


Setting targets
Scheduling
Sequencing
Inventory control
Quality control
Production control
Cost control
Maintenance
Long Term ( STRATEGIC)
Product selection and design
Process selection and planning
Facilities location ( minimize total delivered to customer
cost)
Facilities layout and material handling
Capacity planning

SHORT TERM (OPERATIONAL)


Production planning, Scheduling and control
Inventory planning and control
Quality Assurance
Work and Job Design
Maintenance and replacement
Cost reduction and control

OM Decisions
Operations Management system based
OM Transforms inputs to outputs
Inputs are resources such as
People, Material, and Money
Outputs are goods and services


OMs Transformation Process
Diagrammatical expression



INPUTS
PROCESS
OUTPUTS
Human
resources
(Workers, managers)
Capital
(Equipment, facilities)

Purchases
(Materials, services)
Land
Energy

Goods
Services

Transformation
depends on type
of
facility

1-30
OM system perspective
The operations function involves the conversion of
inputs into outputs
Inputs
Land
Labor
Capital
Transformation/
Conversion
process
Outputs
Goods
Services
Control
Feedback
Feedback Feedback
Value added
Food Processor
Inputs Processing Outputs
Raw Vegetables Cleaning Canned
vegetables
Metal Sheets Making cans
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
Hospital Process
Inputs Processing Outputs
Doctors, nurses Examination Healthy
patients
Hospital Surgery
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
Operations

The process of changing input into output and
thereby adding value to some entity

Value added by performing
operation Function

Alter - change in the form or state of input:
physical manufacturing;
sensual/psychological feeling comfort or
satisfaction
Transport - located somewhere other than where it currently
is. Entity like people, garbage or goods.
Store - kept in a protected environment for some period
of time ( ware house)
Inspect - value of the entity may be enriched through an
inspection as we better understand its properties and then make
a decision ( repair, decision regarding purchase)

OMs Transformation Role
To add value
Increase product value at each stage
Value added is the net increase between output product value and
input material value
Provide an efficient transformation
Efficiency perform activities well at lowest possible cost
What is a Transformation Process?

Defined
A transformation process is defined as a
use of resources to transform inputs into
some desired outputs
Transformations
Physical--manufacturing
Locational--transportation
Exchange--retailing
Storage--warehousing
Physiological--health care
Informational--telecommunications
OM
Inputs Outputs
Conversion
Subsystem
Control
Subsystem
Product
Service
External
Legal, Economic, Social,
Technological
Market
Competition, Customer
Desires, Product Info.
Primary Resources
Materials, Personnel,
Capital, Utilities
Physical (Manufacturing)
Locational Services
(Transportation)
Exchange Services (Retailing)
Storage Services (Warehousing)
Other Private Services (Insurance)
Government Services
(Federal, State, Local)


Monitoring and feedback control



Establish standards of performing or outputs
Measures actual performance
Compare the difference between the actual and planned
Take appropriate remedial actions by changing inputs revising
plans, Changing priorities, Expediting the progress etc.,


Hybrid organizations
Some organizations are a blend of
service/manufacturing/quasi-
manufacturing (QM) organizations
QM characteristics include
Low customer contact & Capital Intensive
1-41
Types of Operations
Operations Examples
Goods Producing Farming, mining, construction ,
manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites
Goods & Services
Services
Intangible product
Product cannot be
inventoried
High customer contact
Short response time
Labor intensive

Manufacturing
Tangible product
Product can be
inventoried
Low customer contact
Longer response time
Capital intensive

1-43
Goods vs Service
Characteristic Goods Service
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Output Tangible Intangible
Measurement of productivity Easy Difficult
Opportunity to correct problems High Low
Inventory Much Little
Evaluation Easier Difficult
Patentable Usually Not usual
Comparison: Continuum
Physical
nature of
product
Inventories

Customer
contact
Customer
response time
Quality
Resource

Size
Location
CATEGORIES
Comparison: Continuum
Intangible, Perishable
(ideas, concepts,
information)
Physical, durable

PHYSICAL NATURE OF PRODUCTS
TOWARDS SERVICES TOWARDS MANUFACTURING
Output less able to be
inventoried
Output can be inventoried
INVENTORY - ABLE
Comparison: Continuum
CUSTOMER CONTACT WITH PRODUCTION
Low or no contact
Customer contacts with
distributor / retailer
High contact
Customer as special
inputs
TOWARDS MANUFACTURING TOWARDS SERVICES
Services industries with low
customer contact ?
CUSTOMER RESPONSE TIME
Long Short
Difficulty matching
capacity with demand
demands fluctuate.
TOWARDS MANUFACTURING TOWARDS SERVICES
Comparison: Continuum
Comparison: Continuum
LOCATION
Regional, national or
international markets
Local markets (near the
customer)
TOWARDS MANUFACTURING TOWARDS SERVICES
SIZE
Large facilities Small facilities
RESOURCES
Capital intensive (more
automation)
Labour intensive
Comparison: Continuum
MEASUREMENT OF QUALITY
Easy to measure
Quantitative nature
Harder to measure
subjective assessments
TOWARDS MANUFACTURING TOWARDS SERVICES
1-50
Automobile assembly, steel making
Home remodeling, retail sales
Automobile Repair, fast food
Goods-service Continuum
Computer repair, restaurant meal
Song writing, software development
Goods Service
Surgery, teaching
Similarities
Process and the use of technology
Concern for quality, productivity and
customer
Choices capacity, location, layout of
facilities
Package offered - goods and services
On the other hand
Both use technology
Both have quality, productivity, & response issues
Both must forecast demand
Both will have capacity, layout, and location issues
Both have customers, suppliers, scheduling and staffing
issues
Manufacturing often provides services
Services often provides tangible goods
Core services are basic things
that customers want from
products they purchase
Core Services
Defined
Core Services Performance Objectives
Operations
Managemen
t
Flexibility
Quality
Speed
Price (or cost
Reduction)
Value-added services
differentiate the organization
from competitors and build
relationships that bind
customers to the firm in a
positive way
Value-Added Services
Defined
Value-Added Service Categories
Operations
Management
Information
Problem Solving
Sales Support
Field Support
Definition : OM
57
Operations management is an area of business that is
concerned with the production of goods and services, and
involves the responsibility of ensuring that business operations
are efficient and effective.
APICS The Association for Operations Management defines operations
management as "the field of study that focuses on the effective
planning, scheduling, use, and control of a manufacturing or service
organization through the study of concepts from design engineering,
industrial engineering, management information systems, quality
management, production management, inventory management,
accounting, and other functions as they affect the organization"
Operations refers to the production of goods and services, the set
of value-added activities that transform inputs into many outputs
MANUFACTURING AND SERVICES

Manufacturing Organizations
Use operations management in the
transformation process of turning raw
materials into physical goods.

Service Organizations
Use operations management in creating
nonphysical outputs in the form of
services (the activities of employees
interacting with customers).

IMPORTANCE OF OM

- It encompasses both services and manufacturing.

- It is important in effectively and efficiently managing
productivity.

- It plays a strategic role in an organizations
competitive success.

- Synergies must exist with other functional areas of the
organization

Operations account for 60-80% of the direct expenses that
burden a firms profit.

Objective of OM
Produces the goods/service in required quantity and of quality as
per schedule at a minimum cost that determine the extent of
customer satisfaction.
Performing objective
Efficiency doing things right
Effectiveness doing the right things
Quality conform to quality specification
Lead time time elapsed in the conversion
process (minimize) - Q, Inventory
Capacity Utilization manpower/ machines etc.
Flexibility flexibility of producing a
combination of o/p, satisfy the
customers needs

objective of Production Management
to produce the desired product or specified product by
specified methods so that the optimal utilization of
available resources is met with.

production management is responsible to produce the
desired product, which has marketability at the
cheapest price by proper planning, the manpower,
material and processes.

Production management must see that it will deliver
right goods of right quantity at right place and at right
price.
Why to Study Operations
Management?
Business Education
Systematic Approach
to Org. Processes
Career Opportunities
Cross-Functional
Applications
Operations
Management
1-63
Operations Management includes:
Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating employees
Deciding where to locate facilities
Supply chain management
And more . . .
Scope of Operations Management
HIGHLIGHTS

Management technology
Ethical issues
OM in practice
Evolution/ History
1-66
Management Technology
Technology: The application of scientific
discoveries to the development and
improvement of goods and services
Product and service technology
Process technology
Information technology
1-67
Ethical Issues
Financial statements
Worker safety
Product safety
Quality
Environment
Community
Hiring/firing workers
Closing facilities
Workers rights
POM
Marketing
MIS
Engineering
HRM
QA
Accounting
Sales
Finance
OM in Practice
OM has the most diverse organizational function
Manages the transformation process
OM has many faces and names such as;
V. P. operations, Director of supply chains, Manufacturing
manager
Plant manger, Quality specialists, etc.
All business functions need information from OM in
order to perform their tasks
OM is the business function that is responsible for managing
and coordinating the resources needed to produce a
companys products and services.
Its role of OM is to transform organizational inputs into
companys products or services outputs
OM is responsible for a wide range of decisions, ranging from
strategic to tactical.
Organizations can be divided into manufacturing and service
organizations, which differ in the tangibility of the product or
service
A number of historical milestones have shaped OM. Some of
the more significant of these are the Industrial Revolution,
scientific management, the human relations movement,
management science, and the computer age
OM is highly important function in todays dynamic business
environment. Among the trends with significant impact are
just-in-time, TQM, reengineering, flexibility, time-based
competition, SCM, global marketplace, and environmental
issues
OM works closely with all other business functions
Business Information Flow


Introduction to POM - The Origins
Sakichi Toyoda receives a patent for
a wooden loom
philosophy of KAIZEN is born out of
the need to compete.
Henry Ford invents
the moving
assembly line
Toyoda Motor Company Ltd.
is created.
Kiichiro Toyoda builds a
plant at Koromo and through
the imbalance caused by
piece work, hangs a sign in
his new production shop that
reads JUST IN TIME.
Taichi Ohno moves to
the Toyota Motor
Company Ltd.
Ohno begins to perfect
the Just-in-Time
concepts introduced by
Kiichiro
Toyota brings the
Toyota Production
System to the
United States in
collaboration with
GM
Womack and Jones
publish The Machine
that Changed the
World
1890 Late 1890s
Central figures who originated the
idea of "Eliminating Waste",
Lillian Gilbreth brings psychology into the
mix by studying the motivations of workers
and how attitudes affected the outcome of
a process.
Frank Gilbreth develops Motion Study and
invented Process Charting.
Frederick W. Taylor develops the principles
of Time Study and standardized work.
1937 1943 1908 1980 1990
Before: cars were built in one
spot and the workers moved
from car to car. This was called
the gypsy production system.
After: Ford used a big rope
and winch to pull the cars
along the assembly line and
kept the workers stationary
1990
Historical Events in
Operations Management
Era Events/Concepts Dates Originator
Industrial
Revolution
Steam engine 1769
James Watt
Division of labor 1776
Adam Smith
Interchangeable parts 1790
Eli Whitney
Scientific
Management
Principles of scientific
management
1911
Frederick W. Taylor
Time and motion studies 1911
Frank and Lillian
Gilbreth
Activity scheduling chart 1912
Henry Gantt
Moving assembly line 1913
Henry Ford
Historical Events in Operations
Management (cont.)
Era Events/Concepts Dates Originator
Human
Relations
Hawthorne studies 1930 Elton Mayo
Motivation theories
1940s Abraham Maslow
1950s Frederick Herzberg
1960s Douglas McGregor
Operations
Research
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, waiting
line theory, decision
theory, PERT/CPM
1950s
Operations research
groups
MRP, EDI, EFT, CIM
1960s,
1970s
Joseph Orlicky, IBM
and others
Historical Events in Operations
Management (cont.)
Era Events/Concepts Dates Originator
Quality
Revolution
JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (total quality
management)
1980s
W. Edwards Deming,
Joseph Juran
Strategy and
operations
1980s
Wickham Skinner,
Robert Hayes
Business process
reengineering
1990s
Michael Hammer,
James Champy
Six Sigma 1990s GE, Motorola
Historical Events in Operations
Management (cont.)
Era Events/Concepts Dates Originator
Internet
Revolution
Internet, WWW, ERP,
supply chain management

1990s ARPANET, Tim
Berners-Lee SAP,
i2 Technologies,
ORACLE
E-commerce 2000s Amazon, Yahoo,
eBay, Google, and
others
Globalization WTO, European Union,
and other trade
agreements, global supply
chains, outsourcing, BPO,
Services Science
1990s
2000s
Numerous countries
and companies
Business Operations: Definition
Early Concepts : 1776 1880

Scientific Management Era : 1880-1910

Mass Production Era: 1910-1980

Lean Production Era: 1980-1995


Mass Customization Era: 1995- present
Cost Focus
Quality Focus
Customization
Focus
Significant Events in OM
Division of labor (Smith, 1776)
Standardized parts (Whitney, 1800)
Scientific Management (Taylor, 1881)
Coordinated assembly line (Ford 1913)
Gantt charts (Gantt, 1916)
Motion Study (the Gilbreths, 1922)
Quality control (Shewhart, 1924)
CPM/PERT (DuPont, 1957)
MRP (Orlicky, 1960)
CAD
Flexible manufacturing systems (FMS)
Manufacturing Automation Protocol (MAP)
Computer Integrated Manufacturing (CIM)
Current Issues in OM
Coordinate the relationships between
mutually supportive but separate
organizations.
Optimizing global supplier, production, and
distribution networks.
Increased co-production of goods and
services
Current Issues in OM (contd)
Managing the customers experience
during the service encounter
Raising the awareness of operations as a
significant competitive weapon
POM in Global economy
82

Product Architecture
Service Design Current Vs Future
Industry Verticals
Centers of Excellence
1-83
Challenges of Managing Services
Service jobs are often less structured than
manufacturing jobs
Customer contact is higher
Worker skill levels are lower
Services hire many low-skill, entry-level workers
Employee turnover is higher
Input variability is higher
Service performance can be affected by workers
personal factors
1-84
Trends in Business
Major trends
The Internet, e-commerce, e-business
Management technology
Globalization
Management of supply chains
Outsourcing
Agility
Ethical behavior
Discussion
With regard to the type of businesses below,
detail the:
Input, processes, output
Extent of client/customer participation
Nature and source of information
Types of business:
Educational institution
Factory manufacturing iron pipes
Jewellery store

ASSIGNMENT
TRENDS IN OM
CHALLENGES OF OM
SUMMARY
Components of POM
Planning
Organizing
Controlling
Models and Behaviour
Summary
It is a management function
Organizations core function
Every organization has OM function
Service or Manufacturing
For profit or Not for profit