Operations Management - I

Operations Management is a systematic approach to address issues in

transformation process the converts input into useful, revenue-generating
output.

The operations function defined as the design, operational control, planning,

transformation process and improvement of the production system that creates
the firm’s products and services
 Manufacturing trend in India

The growth of manufacturing sector is measure by index of industrial production(IIP).

• The structure of manufacturing industry has been significantly changes in the past few years
• Sales and profit are also on the increase
• Gradual increase in the cost of labour
• Cut down waste and improve productivity to remain competitive in the market
Sector of industry Current export Potential export Requirement to meet
this target
Electrical and $ 1.25 billion $ 15 to $ 18 billion Design and
Electronics manufacturing
capability
Apparel Manuf. $6.10 billion $ 25 to $ 30 billion Operational
Excellence, Labor
productivity, design
and innovation skills
Auto components $1.10 billion $ 20 to $ 25 billion Sales and marketing
capability, manuf.
Capability to meet
world class
competitiveness
Specialty Chemicals $1.60 billion $ 12 to $ 15 billion Low cost manpower
and process
innovation skills

Source: Based on Made in India: The next Big Manufacturing Export story(Mumbai: Confederation of
India Industry and McKinsey & co. 2004)
 Service as a part of Operations Management
Service sector growth rates 2008-09 2009-10 2010-11 2011-12 2012-13
in GDP
Trade, Transport, hotels and 16.9 16.5 17.2 18.0 25.1
communication

Transport, storage and 7.8 7.7 7.3 7.1

communication
Financial services, 15.9 15.8 16.0 16.6 17.2
insurance, real state and
business service
Community, social and 13.3 14.5 14.0 14.0 14.3
personal services
Construction 8.5 8.2 8.2 8.2 8.2
Total 64.4 62.7 62.6 63.9 64.8
Service sector in Economic Survey 2012-13 GOI, Ministry of Finance

• The figure indicate the growth important of service's in Indian economy and need apply
management practices to plan and control operations in the service sector.
• Pure product or pure service – not separate entities.
Goods Services

Surgery, Consulting, Legal Services

Restaurants, Fitness center

Health care system( hospital )

Logistics, tourism, Travel & entertainment

sector, fast food

Home remodeling, retails sales

Automobile assembly, steelmaking, cars

Goods and Services Continuum

 Differences between services and Product

• Intangibility –can not touched, feel the product, tasted, felt as in the case of objects

• Heterogeneity- high variability in the operations system

• Simultaneous production and Consumption- together to produce and consume the service

• Perishability – no inventory
 A comparison of Manufacturing and Service Organization

Manufacturing Organization Service Organization

Difference
Physical, durable product Intangible, perishable product
Output can be inventoried Output cannot be inventoried
Low customer contact High customer contact
Long response time Short response time
Regional, national, International Market Local Market

Large facilities Small facilities

Capital intensive Labour intensive
Quality easily measured Difficult to measure quality
Similarities
Is concerned about quality, productivity and timely response to its customers
Must make choices about capacity, location, layout
Has plan operations, scheduling and resources
Balance between capacity with demand
Has to make an estimate of demand
 Basic Functions of an Organization

Finance

Operations

Marketing HRM
 Operations as a system
• The essence of the operations function is to add value during transformation system.
• Value added: Different between the cost of inputs and the value or price of output

Input Output

Land, Materials,
Transformation/ Outputs, Goods,
Labour, Capital,
Conversion Process Services
Information

Control
Measurement & Feedback
 Competitiveness

Company changing its operations strategies to be more competitive.

Marketing function influencing competitiveness – identifying customer wants and

needs, pricing, and advertisement promotion.

Operational function influencing competitiveness –

• Product and service design
• Innovation
• Cost
• Location
• Quality
• Flexibility
• Inventory management
• Supply chain Management
• Service and service quality
 Productivity
• Productivity is an index that measurements output (goods and services) relatively to the
input (labor, materials, energy, and other resources) used to produce it.

• Productivity is a measurement to evaluate the overall output of an organization.

• Ratio of output to input

Productivity= output/input

Higher the productivity lower the cost of the output.

 Computing Productivity

• Productivity measures can be based on a single input (Partial productivity).

• More then one input (Multifactor productivity ).
• All inputs (Total productivity)’

Partial Output : Output Output Output

Productivity Single factor : Labor Machine Capital

Multi-factor Output : Output

Productivity Multiple inputs : labor + Machine + Capital

Total Output
Productivity All inputs
• If the production is only one product, the output can be either the total
units of the product or the total value(Rs) of the product.

• If we production for more than one products, the output unit is the total
value (Rs) of all products.

• The input can be units or the total value(Rs).

 Computing Productivity

• Produce 400 units in 0.5 hours with four workers.

• Compute the multifactor productivity measure for 8 hours a day in which the useable
product was 300 units, produced by 3 workers who used 600 kg of materials, workers
have an hourly wage of $20, material cost is $1 per kg, overhead cost is 1.5 times labor cost.

• Calculate the productivity for the following operations:

a) Three employees process 600 insurance policies in a week. They work 8 hours
per day, 5 days per week.
b) A team of workers makes 400 units of a product, which sold in the market for $10 each.
The accounting department reported that for this job the actual costs are $400 per labor,
$1000 for materials, $300 for overhead.
• CCI Ltd makes garments. During a particular week employees worked 360 hours to produce
a batch of 132 garments of which 52 were “seconds”( meaning they were low quality).
Seconds are sold for $90 each at near a factory outlet store. The remaining 80 garments
are sold to retail distributer at $200 each. What is the labor productivity ratio of this
manufacture process.

• ATT sys., the output process is valued at $110 per unit. The cost of labor is $ 50 per hour
including benefits. The A/C department provided the following information about the
process foe week:
Units produced 1102
Labor $ 12158
Materials $ 20,829
Overhead $ 9,414
Calculate multifactor productivity rate and labor productivity ratio.