MODULE 1

OPERATIONS MANAGEMENT

WHAT IS OPERATIONS MANAGEMENT ?

‘Operations Management is about the way organisations produce goods and services’

They are all operations

Back office operation in a bank

Kitchen unit manufacturing operation

Retail operation

Take-out / restaurant operation

Examples of Operations

The best way to start understanding the nature of ‘operations’ is to look around you

Everything you can see around you has been processed by an operation

Every service you consumed today (radio station, bus service, lecture, etc.) has also been produced by an operation

Operations Managers create everything you buy, sit on, wear, eat, and throw away

Concept of Operations Management

• Prior to 1900– Cottage industry produced custom-made goods.– Watt’s steam engine in 1785.– Whitney’s standardized gun parts in 1801.– Industrial Revolution began at mid-century.

HISTORICAL DEVELOPMENT

HISTORICAL DEVELOPMENT

• Adam Smith is the first person who introduced Production Management in 1776.– Emphasized the division of labour– This effected in turn for improving the quality & quantity of

goods.

• Charles Babbage in 1883 introduced the principle of limiting skills as a basis for pay fixation.

• Also agreeing on Adam Smith’s theory.

• Management techniques by F M Taylor.– The workers should not be allowed to evolve their

own operations.– Proper selection, training and development

programmers given to workers to get the best result.– Close cooperation and understanding between

workers and management.– Importance of specialization & expertise to carry

different operations.

HISTORICAL DEVELOPMENT

• In 1914 F W Harris introduced the economic lot size method to control the inventory of an Enterprise.

• In 1931 Walter Schewart introduced statistical quality control. Applied in second World War.

• In 1934 L H C Tippet developed ‘Sampling Theory’. Applied in Production Analysis in 1950.

HISTORICAL DEVELOPMENT

HISTORICAL DEVELOPMENT OF OM (CONT.)• Other Management Pioneers

– Frank and Lillian Gilbreth• Motion study and industrial psychology

– Henry L. Gantt• Scheduling and the Gantt chart

• Hawthorne Studies– Yielded unexpected results in the productivity of Western

Electric plant workers after changes in their production environment.

– Led to recognition of the importance of work design and employee motivation.

HISTORICAL DEVELOPMENT OF OM (CONT.)• Operations Research (Management Science)

– Outgrowth of WWII called for logistics control and weapons-systems design.

– Seeks to obtain mathematically optimal (quantitative) solutions to complex problems.

• OM Emerges as a Field– 1950–1960, OM moved beyond industrial engineering and

operations research to the view of the production operation as a system.

HISTORICAL DEVELOPMENT OF OM (CONT.)• Operations Management in Services

– OM concepts can apply to both manufacturing and service operations.

• Integration of Manufacturing and Services– Conducting world class operations requires compatible

manufacturing and service operations.

OPERATIONS MANAGEMENT’S REMIT

• Operations is not just concerned with what goes on at the point of production…, but is also directly concerned with supplying the materials, the location and layout of facilities, the programming of operations and the motivation of employees.

WHAT IS OPERATIONS MANAGEMENT?

• Operations Management– Management of the conversion process which transforms inputs

such as raw material and labor into outputs in the form of finished goods and services.

Transformation ProcessTransformation Process(components)(components)

InputsInputs(customers(customers

and/orand/ormaterials)materials)

OutputsOutputs(goods(goods

andandservices)services)

The Activities of Operations Management

OUTPUTTransformationGOODS AND

SERVICESINPUT

INPUT TRANSFORMED

RESOURCES• MATERIALS • INFORMATION • CUSTOMERS

• FACILITIES

• STAFF

INPUT TRANSFORMING

RESOURCES

Operations Management Operations management: The management of the efficient transformation of

inputs into outputs to effectively satisfy customers. The active role of operations:

– Inputs become Outputs after some Transformation (Process or Operation)

– Food processing example:

Inputs Transformation Outputs

Energy, Raw vegetables Cleaning Clean vegetables

Energy, Metal sheets Cutting/Rolling/Welding Cans

Energy, Vegetables Cutting/Chopping Cut vegetables

Energy, Water, Vegetables Cooking Boiled vegetables

Energy, Cans, Boiled vegetables Placing Can food

INTRODUCTION TO OPERATIONS

Operations Management-Definition

Operations management (OM) is defined as the design,

operation, and improvement of the systems that create and

deliver the firm’s primary products and services.

OPERATIONS MANAGEMENT• Systematic direction, control, and evaluation of the entire range of processes that transform inputs into finished goods

or services.

• Environmental factors -culture, political, and market influences

• Inputs -HR, capital, materials, land, energy, information, customer

• Transformations -convert inputs into outputs

OPERATIONS MANAGEMENTOPERATIONS MANAGEMENT– Refers to the management of the production system that

transforms inputs into finished goods and services.• Production system: the way a firm acquires inputs then

converts and disposes outputs.• Operations managers: responsible for the transformation

process from inputs to outputs.– Operations management seeks to increase the quality,

efficiency, and responsiveness of the firm.• Seeks to provide a competitive advantage.

OPERATIONS MANAGEMENT CONCEPTSOPERATIONS MANAGEMENT CONCEPTS– Quality: goods and services that are reliable and perform

correctly.• Quality allows customers to receive the performance that

they expect.– Efficiency: the amount of input to produce a given output.

• Less input required lowers cost and waste.– Responsiveness to customers: actions taken to respond to

customer needs.• Firm can react quickly and correctly to customer needs as

they arise.

Business Operations Overlap

Marketing

Operations

Finance

• Operations Management includes:– Forecasting– Capacity planning– Scheduling– Managing inventories– Assuring quality– Motivating employees– And more . . .

SCOPE OF OPERATIONS MANAGEMENT

Types of Operations

Operations ExamplesGoods 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

THE TRANSFORMATION PROCESS WITHIN OM

ROLE OF OM WITHIN AN ORGANIZATION

TOP-DOWN APPROACH TO OM STRATEGY• Operations Strategy Decisions

– Strategic (long-range)• Needs of customers

(capacity planning)

– Tactical (medium-range)• Efficient scheduling of

resources

– Operational planning and control (short-range)• Immediate tasks and

activities

OM’S CONTRIBUTIONS TO SOCIETY• Higher Standard of Living

– Ability to increase productivity– Lower cost of goods and services

• Better Quality Goods and Services– Competition increases quality

• Concern for the Environment– Recycling and concern for air and water quality

• Improved Working Conditions– Better job design and employee participation

THE EMERGENCE OF OM• Operations management has been gaining increased

recognition in recent years for several reasons, includinga) the application of OM concepts in service operations, b) an expanded definition of quality, c) the introduction of OM concepts to other functional areas

such as marketing and human resources, and d) the realization that the OM function can add value to the

end product.

WHAT OPERATIONS MANAGERS DO

Planning Organizing Staffing Leading Controlling

Basic Management FunctionsBasic Management Functions

TEN CRITICAL DECISIONS

Ten Decision Areas Design of goods and servicesDesign of goods and services Managing qualityManaging quality Process and capacity Process and capacity

design design Location strategyLocation strategy Layout strategyLayout strategy Human resources and Human resources and

job design job design Supply chain Supply chain

management management Inventory managementInventory management SchedulingScheduling MaintenanceMaintenance

THE CRITICAL DECISIONS

Design of goods and services What good or service should we offer? How should we design these products and services?

Managing quality How do we define quality? Who is responsible for quality?

THE CRITICAL DECISIONS

Process and capacity design What process and what capacity will these products

require? What equipment and technology is necessary for these

processes?

Location strategy Where should we put the facility? On what criteria should we base the location decision?

THE CRITICAL DECISIONS Layout strategy

How should we arrange the facility? How large must the facility be to meet our plan?

Human resources and job design How do we provide a reasonable work environment? How much can we expect our employees to produce?

THE CRITICAL DECISIONS

Supply chain management Should we make or buy this component? Who are our suppliers and who can integrate into our e-

commerce program?

Inventory, material requirements planning, and JIT How much inventory of each item should we have? When do we re-order?

THE CRITICAL DECISIONS

Intermediate and short–term scheduling Are we better off keeping people on the payroll during

slowdowns? Which jobs do we perform next?

Maintenance Who is responsible for maintenance? When do we do maintenance?