OPERATIONS MANAGEMENT

Faculty:
Department of Operations

Unit 1
Introduction to Operations & Operations Strategy
 Course Objectives

• Understanding the basics of operations management using manufacturing and

service examples
• Explain the roles and responsibilities of operations managers in different
organizational contexts.
• Apply the planning and control concepts for decision-making
• Analyze the operations to identify areas for improvement
• Evaluate strategies for improvement in manufacturing and service contexts
 COURSE OUTLINES
Sessions Topics to be discussed
UNIT-I:
7 hrs Introduction to Operations & Operations Strategy: Introduction to Operations Management-
Scope, Need, Input-Process-Output Model, Nature of Operations, Goods Vs. Services, Four Vs,
Five Performance Objectives, Operations Strategy and its Formulation.
UNIT-II:
7 hrs Designing Operations: Designing Products and Services: Product Development, Sequential vs
Concurrent Design. Process Design: Manufacturing and Service Process Types, Service
Delivery Systems. Facilities Location – Location Decision Relevant Factors.
UNIT-III:
8 hrs Planning and Control of Operations – I: Layout Planning - Types of Layout, Implications for
Layout Planning, Layout Design. Dependent and Independent Demand, Strategies to Meet
Demand, Loading – Finite and Infinite, Sequencing, Capacity Planning.
UNIT-IV:
7 hrs Planning and Control of Operations – II: Aggregate Production Planning (APP) - Strategies,
Master Production Scheduling – Linkages with APP. Evolution of ERP – Developing MRP
Logic - Bill of Materials (BoM), Lot Sizing Rules, Inventory Management.
UNIT-V:
7 hrs Quality Management: Introduction to Quality and its Characteristics, Quality Philosophy –
Perspectives from WE Deming, PB Crosby and JM Juran, Quality Assessment Models and
Frameworks – FEQM and ISO9001, Service Quality, BPR vs Continuous Improvement –
Introduction to TQM, Lean and Six Sigma.
 SCHEME OF EVALUATION

Task Task type Weightage (%)

A1 Mid exam Individual 15
A2 Coursera Individual 10
A3 Quiz/Project/Assignment Individual/Group 20
A4 Case Individual/Group 15
A5 End-term exam Individual 40

Prescribed Text Book:

B. Mahadevan. Operations Management: Theory and Practice Third Edition.

Reference Book:
William J. Stevenson. Operations Management, nine edition, Tata Mc Graw Hill.
 Operations Management
▪ Operations Management is:
The management of systems or processes that create goods
and/or provide services
Goods: Physical items produced by business organizations
Services: Activities that provide some combination of time, location,
form and psychological value.
▪ Operations Management affects:
▪ Companies’ ability to compete
▪ Nation’s ability to compete internationally

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Historical Evolution of Operations Management

• Industrial revolution (1770’s)

• Scientific management (1911)
• Mass production
• Interchangeable parts
• Division of labor
• Human relations movement (1920-60)
• Decision models (1915, 1960-70’s)
• Influence of Japanese manufacturers
 The Organization

The Three Basic Functions

Organization

Finance Operations Marketing

 Operations management at..... IKEA
Design a store layout
which gives smooth Ensure that the jobs
Design elegant
and effective flow of all staff encourage
products which can be
flat-packed efficiently their contribution to
business success

Site stores of an Continually examine

appropriate size in and improve
the most effective operations practice
locations

Maintain
cleanliness and Monitor and enhance
safety of storage Arrange for fast quality of service to
area replenishment of customers
products
 They are all operations
Kitchen unit
Back office manufacturing
operation in a bank operation

Take-out / restaurant
operation
Retail operation
 Operations are everywhere
The best way to start understanding the nature of
“Operations” is to look around you

Everything you can see around you (except the flesh and
blood) has been produced 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, throw at people, and throw away
 Interfunctional relationships between operations
and other functions

Engineering/ Product/service
technical Understanding of
the capabilities and development
function constraints of the function
operations process
Analysis of new
technology options Understanding of
process technology
needs New product and
Accounting service ideas
and finance Provision Understanding of the
of relevant capabilities and
function data
Operations constraints of the
Financial analysis function operations process
for performance
and decisions Market
requirements Marketing
Understanding of human function
resource needs Understanding Provision of systems for
of infrastructural design, planning and
Recruitment and system control, and improvement
development needs
and training
Human Information
resources technology
function (IT) function
Scope and need of Operations Management

Operations Management includes:

▪ Forecasting
▪ Capacity planning
▪ Scheduling
▪ Managing inventories
▪ Assuring quality
▪ Motivating employees
▪ Deciding where to locate facilities
▪ Supply chain management
▪ And more . . .
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All operations are input-transformation-output processes

Inputs Transformation process Outputs

 Operations input resources and outputs

Transformed
resources
•Materials
•Information
•Customers

Input Output
resources
Transformation process products and Customers
services

Transforming
resources
•Facilities
Outputs are products and services
•Staff
that add value for customers
 Value-Added Process
The operations function involves the conversion of
inputs into outputs
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Control
Feedback Feedback
Operations management uses…………
machines to efficiently assemble products

diagnose to treat real and

knowledge to effectively perceived patient
conditions
concerns

people to effectively create services that will

address current and
potential client needs

ours and our to speedily provide supplies and services

partners’ that relieve
resources community suffering

our staff’s to creatively present ideas that delight

knowledge and clients and address
experience their real needs
 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
 Operations management is changing
The business environment is Prompting operations responses, for
changing, for example…… example…….
 Increased cost-based competition Globalization of operations networking
 Higher quality expectations Information-based technologies
Internet-based integration of operations
 Demands for better service activities
 More choice and variety Supply chain management
Customer relationship management
 Rapidly developing technologies
Flexible working patterns
 Frequent new product/service
Mass customization
introduction
Fast time-to-market methods
 Increased ethical sensitivity Lean process design
 Environmental impacts are more Environmentally sensitive design
transparent Supplier ‘partnership’ and development
 More legal regulation Failure analysis
Business recovery planning
 Greater security awareness
 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
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 Goods-service Continuum

Steel production Home remodeling Auto Repair Maid Service Teaching

Automobile fabrication Retail sales Appliance repair Manual car wash Lawn mowing

High percentage goods Low percentage goods

Low percentage service High percentage service
 Food Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
 Hospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
Responsibilities of Operations Management

Planning Organizing
– Capacity – Degree of centralization
– Location – Process selection
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling/Improving – Issuance of work orders
– Inventory – Job assignments
– Quality
– Costs
– Productivity
Key Decisions of Operations Managers
• What
What resources/what amounts
• When
Needed/scheduled/ordered
• Where
Work to be done
• How
Designed
• Who
To do the work
 Four performance objectives
Overall objective of the operations management:
 Quality
 Quantity
 Time
 Cost
 Five Performance Objectives
The big 5 P’s of operations performance objectives are:

1. Product
2. Plant
3. Programme
4. Process
5. People
 Product

A product must have:

Performance
Quality and reliability
Aesthetics and ergonomics
Quantity and selling price
Delivery schedule
 Plant
• The plant accounts for major investment
• The plant is concerned with:
(1) Design and layout of buildings,
(2) Reliability and maintenance of equipment,
(3) Safety of operations
• Plant layout must allow smooth movement of men and material.
• Type of layout dependent on production type, volume of demand
 Process
Method used to create product
Selection of process depends on following factors:
• Available capacity
• Manpower skill available
• Type of production
• Layout of plant
• Safety
• Maintenance required
• Manufacturing cost
 Programme
• Programme indicates timetable of production
• Programme prepares schedule for:
Purchasing
Transforming
Maintenance
Cash
Storage and transport
 People
• People are part of organization. Success of organization depends on attitude and
skills of working people
• Job satisfaction depends on good matching between people and jobs.
• It is possible by:
i. Motivation
ii. Training of employees
iii. Condition of work
iv. Proper wages
 Operations Strategy
Introduction

• No organization can tell exactly what will happen in the future.

• But all organizations need strategic direction and can benefit from some
idea of where they are heading and how they could get there.
• Once the operations function has understood its role in the business, it
needs to formulate a set of general principles which will guide its
decision making. This is the operations strategy of the company.

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 What is strategy?
Setting broad objectives that direct an enterprise towards its
overall goal

Planning the path (in general rather than specific terms) that
will achieve these goals

Stressing long-term rather than short-term objectives

Dealing with the total picture rather than stressing individual

activities

Being detached from, and above, the confusion and

distractions of day-to-day activities.
 Strategic decisions

Strategic decisions are those decisions which: are

widespread in their effect on the organization to which the
strategy refers, define the position of the organization
relative to its environment, and move the organization
closer to its long-term goals.
‘Operations’ is not the same as ‘operational’

‘Operations’ are the resources that create products and

services.

‘Operational’ is the opposite of strategic, meaning day-to-

day and detailed.

So, one can examine both the operational and the

strategic aspects of operations.
 Operations Strategy
Relevance & Context
• Strategic planning exercise
Enables an organization to respond to the market needs in the most effective
manner by :
• By aligning various resources and activities in the organization
• To deliver products & services that are likely to succeed in the market
• Operations Strategy
• Is a process by which key operations decisions are made that are consistent
with the overall strategic objectives of a firm
• Decisions in the operations function are made on the basis of the inputs
from the overall corporate strategy
Corporate strategy is hierarchically the highest strategic plan of the organization, which defines the
corporate goals and ways of their achieving within strategic management. A vision and mission are
parts of the strategy. When developing the strategy, numerous analytical techniques are used
(PESTLE, SWOT, VRIO)
 Need for Operations Strategy
• Competitive dynamics & expectations of customers change with time
• Due to the changes in market place, competitive priorities for an
organization is likely to change
– While it was customary for people to book for a passenger car and wait for a few
months to get delivery of the car, today a manufacturer of passenger cars cannot
afford to make customers wait that long
– Triveni Engineering, a manufacturer of Turbines faced a 40% reduction in the price
of turbines in the less than 3.5 million watts category over the last six years
• Need a mechanism to systematically respond to these changes in the
most effective way
• Need to tune their operations to match with the competitive priorities
 Strategy Formulation Process Steps
• Step 1: Understanding the Competitive Dynamics at the
Marketplace
• Step 2: Identifying Order-Qualifying & Order-Winning Attributes
• Step 3: Deciding on Strategic Options for Sustaining Competitive
Advantage
• Step 4: Matching the strategic options with resources, constraints,
values & objectives to arrive at the overall Corporate Strategy
• Step 5: Developing an Operations Strategy on the basis of the
corporate strategy
• Step 6: Selecting appropriate options for configuring an Operations
systems & establishing relevant measures for operational excellence
 Strategy formulation process

Competitive
Order winners
Dynamics at
Order Qualifiers
the marketplace

Strategic options for Generic Competitive Priorities

Sustaining Quality, Cost,
competitive advantage Delivery, Flexibility

Firm level
Strengths & Corporate Strategy
Weaknesses

Strategic decisions for Measures for

Operations Strategy
Operations System Operational Excellence
Order Qualifiers & Order Winners
• Order qualifying attributes are the set of attributes
that customers expect in the product or service they
consider for buying
• Order winning attributes are other attributes that have
the potential to sufficiently motivate the customer to
buy the product or service
• What constitutes order winning and order qualifying
might change from time to time
• During the early 1980’s providing superior quality products
was an order winning attribute. However, in the 1990’s
quality became an order qualifying attribute as customers
began to expect high levels of quality
• Order winning attributes include efficient consumer
response, speed, variety and convenience
 Operational Excellence
Performance Measures
• Provide critical linkage between order winning and order
qualifying attributes and choices made in operations
• Help organisations evaluate how well the operations system
is responding to the requirements at the marketplace
• Serve a useful purpose in comparing performances amongst
competitors and for benchmarking
• Four generic options are useful for developing measures for
operational excellence; this includes Quality, Cost, Delivery
and Flexibility
 Operational Excellence
Performance measures
Quality Cost

First Pass Yield Average days of inventory (No. of inventory turns)

Quality Costs Manufacturing cost as percent of sales

Defects per Million Opportunities Procurement costs, total cost of ownership

Number of suggestions per employee Value of import substitution, cost reduction
Process Capability Indices Target cost reduction efforts
Delivery Flexibility
Lead time for order fulfillment Number of models introduced
Procurement and Manufacturing Lead time New product development time
On time delivery for supplies Breadth and depth of the product and service offerings
Schedule adherence Process flexibility
Indirect Measures
Indirect-labour to Direct-labour ratio Number of suggestions per employee
Ratio of Lead time to work content Non-value added content in processes
Process rate to sales rate ratio No. of certified deliveries
Average training time per employee Delivery quote for customized products and services
Strategic Decisions in Operations
Options

Product
Portfolio

Supply
Process
Chain
Strategic
Options for
Operations

Tech-
Capacity
nology
 Operation Strategy Options
Product Portfolio
• Product portfolio pertains to decisions on
• what products the organization wants to produce
• the number of variations in each product line
• the extent of customization offered to customers
• Product portfolio as a strategic option
• Wide product portfolio: Overall strategic objective is to provide highly
differentiated set of products and services to the customer
• Narrow product portfolio: Overall strategic objective is one of cost
leadership
• Examples in Services & Manufacturing
• Air travel from Bangalore to Delhi: Indigo and Jet Airways differ vastly
in terms of the service offered
• Computer manufacturers, Dell and Lenova: Overall strategic objective
of Dell appears to be one of providing highly differentiated products,
Lenova appears to emphasize on robust and reliable computing power
 Operation Strategy Options
Process Choices
• Three types of flow happen on account of process
choices:
• Continuous streamlined flow
• Intermittent or batch flow
• Jumbled flow
• Choice of process will be consistent with product
portfolio decisions
• A manufacturer emphasizing on production volumes, fewer varieties
and less cost will make process choices pertaining to continuous
streamlined flow (Hero Honda)
• An organization wishing to satisfy an objective of providing wide range
of products to the customers will adopt batch/intermittent flow type
• the need to provide a very large variety and practically a production
volume of one or few will adopt jumbled flow (BHEL)
 Operation Strategy Options
Supply Chain issues
• Supply chain refers to the network of entities supplying
components and raw material to an organization as well as
those distributing the finished goods of an organization to the
customers through alternative channels
• Designing an appropriate supply chain calls for a better
understanding of the product profile for which the supply
chain is configured
• Two types of supply chains can be configured:
• Efficient supply chain: objective is cost optimization and better
utilization of resources employed in supply chain operations; typically
used in the case of functional products (machine tools, engineered
equipments)
• Responsive supply chain: the key objective is to develop a capability to
respond fast to the market requirements; typically used in the case of
innovative products (iPhone, Fancy Garments, trendy Electronics
Goods)
 Operation Strategy Options
Technology Choices
• Technological advancements in recent years have given new
opportunities for creating competitive advantage for firms
• Case of Asian Paints utilizing technological advancements
for mixing of basic pigments to distribute paints in large
varieties of colours and in large assortment of sizes
• Using new technology options for manufacturing processes,
organizations can
• react faster to customer needs
• manage a wide portfolio of product offerings and
• yet maintain high levels of productivity
• Organizations making a strategic choice to operate in the
manufacture of mid-volume, mid-variety products could utilize
new technology
 New Technology Options
Strategic Advantages
• Increased machine utilisation
• Scheduling flexibility: Permits an organisation to have flexibility in
scheduling thereby enabling the organisation to react to changes fast
• Ease of engineering challenges: Changes in engineering design and
process plans can be easily accommodated by use of technology
based manufacturing and process design.
• Ease of expansion: Provides volume flexibility to the organisation,
making it much easier to expand in response to a growing market
• Reduced manufacturing lead time
• Lower in-process inventory: Several of the above benefits directly
translate to lower work in process inventory and reduced cost of
manufacturing
 Operation Strategy Options
Capacity
• Capacity is defined as:
• maximum number of units of goods that can be produced
per unit time in the case of manufacturing system
• the maximum number of service offerings that can be
made per unit time in the case of a service system
• Capacity decision influences the cost of goods & services
offered in three ways:
• Accrued cost advantage due to economies of scale
• Ability to spread fixed costs over a larger capacity
• additional cost advantages in procuring other factors of
production
 World Class Manufacturing (WCM)
Core building blocks

• WCM firms perform very well in all the four

parameters of Quality, Cost, Delivery and Flexibility
at the same time using better operations
management practices
• The new operations management tools that form the
core building blocks of WCM are:
• Just in Time (JIT)
• Total Quality Management (TQM)
• Total Productive Maintenance (TPM)
• Employee Involvement (EI)
• Simplicity
 Changing Competitive Priorities for WCM

Weak companies are plagued by Trade-off obstacles

WCMs have gained an upper hand over the trade-off obstacles
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QUESTIONS
COMMENTS

THANK YOU…