Operations Management Unit - I

Operations Management
1.0 Introduction to Operations Management
Operations management is an area of management concerned with designing, and controlling the
process of production and redesigning business operations in the production of goods or services. It
involves the responsibility of ensuring that business operations are efficient in terms of using as few
resources as needed and effective in terms of meeting customer requirements.
It is concerned with managing the process that converts inputs (in the forms of raw materials, labor,
and energy) into outputs (in the form of goods and/or services). The relationship of operations
management to senior management in commercial contexts can be compared to the relationship of
line officers to highest-level senior officers in military science.
The highest-level officers shape the strategy and revise it over time, while the line officers make
tactical decisions in support of carrying out the strategy. In business as in military affairs, the
boundaries between levels are not always distinct; tactical information dynamically informs strategy,
and individual people often move between roles over time.
1.2 History of Operations Management
The various contributors who have played a very important role in the formation and also the
development of operations management are as under:
1. Adam Smith (1776)
The world has observed Adam Smith as one of the world’s best Scottish economist – who was the
very first person to draw some attention towards the scientific operations management. He was the
one for advocating the importance of division of labor in his book ‘The Wealth of Nations’.
According to Adam Smith the division of labor was a very handy tool having the following benefits –
• Higher skill accompanied with greater degree of dexterity is achieved by the workmen who are
performing work in repetition.
2. Charles Babbage (1883)
The English mathematician Charles Babbage was the first one to follow the concept advocated by
Adam Smith. He advocated the concept of specialization of tasks as the next stage (logically related)
to the division of labor. Babbage considered specialization in tasks as a very important advantage of
the division of labor.
3. F.W. Taylor (1859 to 1915)
F.W. Taylor is known as the father of scientific management – he was the one who explained the
concept of functional management. Four duties of management given by Taylor are: 0

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* Work is to be divided between the workers and the management – each of them has to take
responsibility for the work for which each is best suited.

* Science of every element of the work done by man is developed in order to replace the old rule -of-
thumb methods.

The four principles discussed above over a period have developed into great expansions, and without
these four expansions the organization is inconceivable. Taylor also contributed towards the work of
direct advantage to operations management.
The rules devised for time study by Taylor are as follows: –
(a) Every element of the task under study should be analyzed.

(b) Examination of the elements should take place and the one found not to be a part of the work
cycle should be dropped.

(c) Timing of the elements should be accurate and should be done with the help of a stop watch.

(d) Classification of elements should be done carefully, leading to convenience for future reference.

4. Frank B. Gilbreth (1917)

Frank B. Gilbreth is known as the founder father of work study. He laid emphasis on explaining the
importance of the correlation between the physical effort and the operators output through his two
books ‘Motion Study’ (1911) and ‘Applied Motion Study’ (1917). He was the one to devise a very
famous method for the classification of motions into 17 basic divisions, referred to as Therbligs by
him.
5. Henry Ford ( 1913 )
The concept of mass production and organized work stations into a conveyorised assembly line was
given to the world by Henry ford.
6. Henry Gantt ( 1913 )
His main contribution is the “Gantt chart “– which is a very important practical tool even in today’s
world, in order to chart the production schedules and also the machine load schedules.
7. F.W Harris ( 1914 )
The first economic lot size (EOQ) model was developed by Harris – F.W Raymond also made a very
important contribution in this regard.
8. Walter Shewhart ( 1924 )
In 1924 Walter was the one to introduce the concept of statistical quality control.
9. F.H Dodge ( 1931 )
Developed the concept of sampling inspection and published statistical sampling tables.
10. L.H.C Tippett ( 1937 )
The phenomenon of work sampling was developed by Tippett in order to know the manpower and
machine utilization and also for setting performance standards. 0

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1.3 What does Operations mean?

The term Operations is generally used as an umbrella term to refer to the corporate area responsible
for actually producing goods and services.
This includes all the activities required to create and deliver a product or service, from selecting
suppliers and/or raw materials to supply chain management and distribution.
The organization of these different activities within the company implies a vision of the business as
different processes. Of all the corporate divisions, operations tend to require the greatest number of
employees and assets.
Generally in charge of product and service quality, operations are also the key basis on which the
company’s long-term performance rests.
For this reason, operations is increasingly seen as a source of competitive advantage because
correctly managing this area is fundamental to ensuring the company’s carefully crafted strategy
becomes reality; without operations, corporate strategy would run the risk of remaining a merely
theoretical exercise.
1.4 Operations Management Definitions
There are many differing definitions of operations management; we have picked a range for you to
look at below. Depending on your specific area of operations management, some may suit your role
or understanding better, but overall they all make a similar point.
· The efficient and effective implementation of the policies and tasks necessary to satisfy an
organization’s customers, employees, and management (and stockholders, if a publicly owned
company)

· The management of systems or processes that create goods and/or provide services

· "The on-going activities of designing, reviewing and using the operating system, to achieve service
outputs as determined by the organization for customers" (Wright, 1999)

· Management of main business activity: the organizing and controlling of the fundamental business
activity of providing goods and services to customers

· Operations management deals with the design and management of products, processes, services and
supply chains. It considers the acquisition, development, and utilization of resources that firms need
to deliver the goods and services their clients want.

· Tactical issues include plant layout and structure, project management methods, and equipment
selection and replacement. Operational issues include production scheduling and control, inventory
management, quality control and inspection, traffic and materials handling, and equipment
maintenance policies.

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Two key Terms for Operations Management

There are two big terms that can help answer the question of what is operations management more
precisely: supply chain management and logistics. Operations management has firm foundations in
both areas. For example, understanding global trends in supply chain management in order to meet
client demand is often critical. With logistics, the careful and considered use of resources, as well as
cost-effectiveness, has become increasingly important in an era in which resources can often be in
short supply and customer expectations have skyrocketed.
1.5 Skills Required of an Operations Manager
There are strong parallels between the skills required for effective operations management and those
needed in both logistics and supply chain management. Consummate organizational ability is crucial
in successfully enhancing efficiency and driving productivity as an operations manager.
One must be able to understand the series of processes within a company in order to get them to flow
seamlessly, and in this sense the role is directly related to supply chain management. Meanwhile, the
coordination involved in setting up these processes in practice represents logistics; the combination
of understanding and coordinating the work of a company are therefore central to being a successful
operations manager.
1.6 Benefits of Operation Management
The discipline offers various benefits, including better profitability tracking, manufacturing expertise
and regulatory compliance.
Profitability Management
Sound operations management causes corporate leadership to challenge conventional wisdom or
employees’ sense of what's operationally correct. Simply put, senior executives rely on this activity
to question existing processes and ask personnel to come up with new ideas to do business and
increase sales. In fact, companies with experienced, competent operations managers are generally
adept at monitoring their revenues and expenses. They do so by delving into corporate statements of
income, profitability trends and budget reports, to name a few.

Competitive Advantage
Businesses adequately manage their operations to get a handle on key internal and external factors.
Internal factors include operating policies, intellectual capital and the average attrition rate. This
reflects the number of employees leaving as a result of resignations, retirements and deaths. Forced
workforce reductions, such as terminations, do not count as attrition-rate components. Intellectual
capital represents various abilities, expertise and knowledge that a firm has gathered over time.
External factors that
Operations managers heed include the state of the economy and rivals’ strategies. By helping a firm
understand its internal and external conditions, operations management improves the company’s
competitive standing.

Manufacturing Edge
Operations management allows a manufacturing firm to change or improve the way it produces
goods, as well as how it stores items such as raw materials, work-in process merchandise and
completely finished products. This important benefit helps the manufacturer prevent a deterioration
in debt affordability, which may happen if the firm incurs losses and cannot repay its existing
liabilities.
Manufacturing tools used in operations management include computer-aided production software,
defect-tracking programs, warehouse management software and process re-engineering
applications.

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Regulatory Compliance
By studiously analyzing operating activities, corporate management waves goodbye to the days of
hefty government fines and adverse regulatory decisions. Department heads and segment chiefs set
adequate internal controls to make sure rank-and-file personnel perform tasks in accordance with the
law.
For example, adequate operations management helps improve workplace safety, a key criterion
that the U.S. Occupational Safety and Health Administration watches closely.

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1.7 Role of Operational Manager

Management of Resources
Operations managers play a leading role in managing both raw materials and personnel. Oversight of
inventory, purchasing and supplies is central to the job. Human resources tasks include determining
needs, hiring employees, overseeing assignment of employees and planning staff development.
Financial Management
Operations managers play a key role in budgeting, controlling costs and keeping the organization on
track financially. Their management of the supply chain and other resources helps minimize costs of
production. They study business forecasts, sales reports and financial statements to find ways to
maximize results. They use methods such as cost-benefit analysis to improve efficiency. Modern
operations management even includes sustainability in the financial equation.
Goal-setting
Operations managers set goals and objectives and establish policies for various departments in the
organization. For example, operations manager duties include sales forecasting and planning of sales
promotions. In cooperation with other managers, they help establish procedures and put them into
effect.
Communications
Operations managers need good communication and interpersonal skills to help the different parts of
an organization work together. Their job includes creating a positive culture where the work can get
done. They facilitate communication between employees and departments. At times, operation
managers help resolve disputes or disagreements. Operations managers cooperate in high-level
decision making with other top executives of an organization, such as the president, chief financial
officer and chief executive.
Salary
Operations and general managers averaged an annual income of $113,100 in 2010, according to the
Bureau of Labor Statistics. Managers at the 10th percentile received $47,280 per year, while those at
the 75th percentile got $142,030 per year. The government does not report a specific figure at the
90th percentile, stating only that it was at least $166,400 annually.
Operations Management:
The important responsibility of operations managers is about processing inputs and makes
outputs by controlling required parameters. The primary keywords contained in the definition of
operations management are resources, systems, transformation, and value addition activities.

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1.8 Disadvantages of Operations Management

Operations management depends on many different components within the organization working
together to achieve success. Even if operations management implements an effective plan, if
operations management does not carry out the plan properly, the plan will most likely fail.
Within an organization, mistakes often occur during the chain of events from manufacturing to sale.
Therefore, operations management requires the coordination of operation functions, marketing,
finance, accounting, engineering, information systems and human resources to have success within the
organization.

This poses the primary disadvantage of operations management because if an organization's

individual components do not work well together, operations management will have limited success
within the organization.

1.9 Scope of Operations Management

It is the process of planning, organizing, directing, and controlling the resources needed
to produce goods and services. The scope of operations management includes all the
activities necessary to plan, design, and manage the production and distribution
process.

The eight scopes of operations management are as follows:

1) Facility layout planning: This step involves deciding how best to utilize the space in
a factory or office to optimize workflow.

2) Workforce planning and management: This includes ensuring that there are
enough employees with the right skills to do the work required and managing employee
performance.

3) Inventory management: This encompasses everything from raw materials to

finished products and ensuring that inventory levels are maintained at an optimum
level.

4) Scheduling: This is creating a production schedule that meets customer demand

while maximizing efficiency.

5) Quality control: Quality control is essential to ensuring that products meet customer
expectations and standards.

6) Transportation and logistics: Operations managers must plan to move goods from
suppliers to customers efficiently.

7) Maintenance: Regular maintenance is necessary to keep equipment and facilities

running smoothly.

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8) Project management: Many operations require project management to ensure that

they are completed within time and budget.

1.10 Decision Making in Operations Management :

Making sound operations management is critical to the success of any organization. If
you make one wrong decision, it can ripple effect throughout your entire organization.
That’s why it’s important to understand the key points related to decision-making in
operations management.

What Is Decision-Making in Operations Management?

Operations management is the process of planning, scheduling, and controlling the
operations of an organization. It involves the coordination of people and resources to
produce goods and services.

Decision-making in operations management is the decision-making process about

efficiently using resources to produce goods or services. Operations management
decisions aim to maximize efficiency while meeting customer needs.

It will be no surprise that operations managers have to make many decisions. In fact,
they may make dozens of decisions each day. Some of these decisions are routine,
while others are more complex and require more transparency.

While it may not always be easy, decision-making is essential to operations

management. Decision-making can be difficult, but operations managers must be up to
the challenge. They need the knowledge and skills necessary to make sound decisions
to help their organization meet its goals.

Operations managers are responsible for making decisions that will impact the
operations of their organization. They need to be able to identify problems, develop
solutions, and make decisions that are in the best interest of their organization.

Critical Points That Influence Decision-Making In

Operations Management
There are a few critical points that influence operations management decisions. Here
are the eight key points you need to know:

Ascertaining Company’s Objectives: The operations manager needs to be aware of

the company’s objectives in order to make decisions that are aligned with these goals. It
will streamline the operations and make it easier to achieve desired results. There is no
shortcut to this; operations managers must be familiar with all aspects of the business.

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Data-Driven Analysis: In operations management, decisions are often based on data

and analytics. Operations managers need to be able to analyze data and draw insights
from it to make informed decisions. It requires a strong analytical skill set.

Stakeholder Analysis: Operations managers need to be able to identify and assess

the interests of different stakeholders. It will help them understand the impact of their
decisions and choose the course of action that is most beneficial to all parties involved.

Cost-Benefit Analysis: There is no better way to make decisions than by doing a cost-
benefit analysis. Operations managers need to be able to weigh the costs and benefits
of different options before making a decision. It will help them choose the most
beneficial option for the company.

Risk Analysis: Operations managers must identify and assess risks before making any
decisions. It will help them avoid potential pitfalls and make the best possible decision
for the company. For instance, if an operations manager is considering a new course of
action, they will need to consider the risks involved and decide if the potential benefits
are worth the risk.

Determining the Scope of the Decision: Once the objectives have been determined,
the manager needs to decide on the scope of the decision. It will help them identify the
parameters within which the decision needs to be made. For instance, for a brand new
plan, they will need to decide how many resources are required and how much time
needs to be invested.

Analyzing the Available Options: Operations managers need to be able to identify

and assess the available options before making any decisions. It will help them choose
the most beneficial option for the company. For instance, multiple options may be
available, but one option may be more valuable in the long run, even though it requires
more resources upfront.

Making the Decision: Operations managers must be able to make decisions quickly
and efficiently. It requires a strong ability to think on one’s feet and make decisions
under pressure. It may also need the operations manager to delegate authority to make
decisions.

Steps to Ensuring successful Decision Making in Operations Management

According to the Institute for Operations Research and the Management Sciences
(INFORMS), there are five steps to decision-making:

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Step One: Define the Problem

The first step in making a decision is to define the problem. Operations managers must
identify the problem and how it needs to be solved. It will help them identify the
problem’s parameters and choose the best course of action. Defining the issue will also
help operations managers understand the impact of their decision and its potential
consequences.

Step Two: Gather information

Gathering enough information is vital in making strategic information. It is the area

where managers need to do research and figure out what options are available.
Managers must consider costs, time, and resources when making decisions. Once all
the information is gathered, managers can make tactical decisions that work best for the
business.

Step Three: Consider All The Options

The third step is all about considering your options. Here managers need to think about
what could happen if they make a particular decision. What are the risks and rewards

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associated with each option? This step is about being realistic and thinking through
each decision’s possible outcomes.

Step Four: Make A Decision

This may seem like the easy part, but it can actually be quite tricky. Managers must
weigh each option’s risks and rewards and make the best decision for their operations.
They must use their experience and knowledge to make the best decision possible.

Step Five: Evaluate Your Decision

The decision isn’t final until it is evaluated. This step is important because it allows them
to see how the decision has affected the operations. It also allows them to learn from
mistakes and make better decisions in the future. They should evaluate your decision
regularly to ensure that it is still the best decision for your operations. It will help them
improve operations and make better decisions in the future.

Important Operations Management Decisions

Many decisions are involved in operations management, but some are more important
than others.

Quality Management: Quality management decisions ensure that products and

services meet or exceed customer expectations. It is one of the most critical aspects of
operations management because it can directly impact customer satisfaction and
loyalty.

Design Strategy: Design strategy decisions involve creating a plan for how products
and services will be produced. It includes everything from deciding on the best
production methods to selecting the right materials and suppliers.

Resource Planning Operations managers are responsible for making decisions about
allocating resources within an organization. It includes both human and material
resources. The goal is to ensure that resources are used efficiently and effectively. One
of the most important aspects of resource planning is forecasting. It is the process of
predicting future demand for resources. This information is then used to decide how to
allocate those resources efficiently.

Process and Capacity Design: The operations manager must also be involved in
process and capacity design decisions. The operations manager is responsible for
ensuring that the facilities can handle the volume of work required and that the
processes can meet the desired quality levels. If the operations manager is not involved
in these decisions, likely, the facility will not be able to meet the needs of the business.

Inventory Management: Another key area of operations management is inventory

management. Inventory management is about ensuring that a company has the right

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products in stock at the right time. To make sure that a company has the right amount of
inventory on hand, operations managers need to be able to make quick and efficient
decisions. It is the most critical decision in operations management.

Supply Chain Management: The operations decisions are made to create value
through the transformation process. The operations manager is responsible for the
efficient and effective use of resources to produce goods and services. The operations
manager makes decisions about the use of technology, quality control, capacity
planning, and inventory management.

Human Resource Decision: Operations management is a field of business concerned

with producing goods and services and involves the management of resources such as
raw materials, equipment, and labor. Human resources will always be an important
decision-making area that operations managers face. The reason is that operations
managers must manage workers to achieve company objectives while ensuring the
safety of employees. With decision matrix, SWOT analysis, and cost-benefit analysis,
operations managers can make strategic decisions.

Scheduling Decision: It is the decision that involves creating a schedule for the
production process. This includes deciding when to start and finish each task and how
much time to allot for each task. This decision is crucial because it can impact the
overall efficiency of the production process. It will directly impact the lead time, which is
the amount of time it takes to produce a product.

Location Decision: The decisions operations managers affect not only the company
they work for but also the community around them. A bad decision can lead to a loss of
money and jobs, while a good decision can create new opportunities and wealth. The
location you choose for your business operations is one of the most important decisions
you will make to prosper your company. Considering the cost of land and labor,
availability of resources and proximity to the market will help make a well-informed
decision.

Decision Making Is The Lifeblood of Operations

Management
Operations management is all about making decisions. Every day, operations managers
are confronted with choices that will directly impact the efficiency and effectiveness of
their operations.

Some of these decisions are easy, but many are complex and require careful
consideration. To make the best possible decisions, operations managers need to
understand the different types of decisions they will face and the key factors that should
be considered when making each type of decision.

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Become An Operations Manager And Make Planned

Decisions
A study by the Harvard Business Review found that operations managers who are
effective at making decisions are twice as likely to be successful in achieving the goals
of their operations.

The operations manager’s role is to ensure that a company’s operations are running
smoothly and efficiently. To do this, they need to be able to make decisions quickly and
effectively.

There are five main types of decisions that operations managers need to be able to
make:

Strategic decisions: These are long-term decisions that will majorly impact the
company’s operations.

Tactical decisions: Operations managers make decisions related to their

organization’s day-to-day operations. These decisions are usually short-term and have
a direct impact on the operations of the organization.

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Operational decisions: Operational activities involve the use of resources to produce

goods and services. The operations decision deals with the transformation process that
converts inputs into outputs.

Organizational decisions: Organizational decisions are made to achieve

organizational objectives. The operations manager is responsible for the efficient and
effective use of resources.

People’s decisions: Just like the name suggests, people’s decisions are all about the
workforce. The operations manager ensures that the right people are in the right place
at the right time.

Each type of decision requires a different approach, but some general principles apply
to all decision-making in operations management. Operations managers are
responsible for making efficient and productive decisions that will best benefit the
business objectives and bring substantial results to the company. All the important
decisions should be:

 Based on a clear understanding of the operations environment

 Supported by data and information
 Made using a systematic and logical approach

1.11 What is Process Management?

• All business organizations involve processes. It can be as simple as buying

ingredients, baking bread, selling bread, and receiving payment for a
bakery. It can also be more complex, like a multistep purchasing process for
vendor management. In either case, without an efficient system,
unorganized processes can lead to problems that can adversely affect a
business.

• Thus, it is important to implement process management regardless of the

size of the company. To understand its importance, here’s a quick run-
through of how process management benefits business organizations.

• Process management is a systematic approach to ensure that effective and

efficient business processes are in place. It is a methodology used to align
business processes with strategic goals.

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• In contrast to project management, which is focused on a single project,

process management addresses repetitive processes carried out on a
regular basis. It looks at every business process, individually and as a whole,
to create a more efficient organization. It analyzes current systems, spots
bottlenecks, and identifies areas of improvement.

Process management is a long-term strategy that constantly monitors business

processes so they maintain optimal efficiency. Implemented properly, it
significantly helps boost business growth.

1.12 The Importance of Process Management System

When managing any organization, it is imperative to understand why process management is
important. More than creating seamless workflows, it enables all aspects of business operations to
run at an optimal pace.
• With business processes systematically implemented, you reduce time wasted on repetitive
tasks and minimize errors due to human inefficiency.
• It also prevents the loss of data and missed steps within a process.
• it ensures that resources are used properly so your business becomes more cost-efficient.

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• Aligns your processes with the needs of your customers. This increases customer satisfaction
and leads to higher revenues.
5 Real Time Examples of Process Management
• Process management encompasses all aspects of the business. Some business organizations
use process management software to automate their systems, while others still use
traditional methods of flowcharts and manuals. If you have been running your own company,
you are most likely using some form of business process management (BPM).
• Here are some real-world business process examples of how BPM is used in various
industries.
1. Onboarding New Employees | Human Resource Department
Without a proper system, the on boarding process can be chaotic and time-consuming. With
BPM, forms and documents can be filled up and submitted electronically. Software is used to
automatically filter data, find the best matches for a position, send messages, schedule
interviews, and facilitate employee on boarding.

2. Managing Logistics | Shipping Company

Logistics for a shipping company entails a long chain of complex processes while dealing
with potentially thousands of people in various locations. BPM standardizes and optimizes
routines involved to streamline the entire process and deliver quality service. It integrates
production, finance, quality control, HR, customer service, and other departments. It
centralizes data to facilitate easy retrieval of information in every phase of the business
operations.
3. Loan Processing | Banking Firms
With BPM, processing loans can be done in a much shorter time. It creates an efficient flow
from document submission to credit and risk checks to loan approval. It also enables tracking
of applications through the entire loan processing system.
4. Compliance Management| Insurance Companies
BPM improves the overall regulatory compliance of insurance companies. It reduces human
error and prevents data loss through proper documentation management. It also ensures that
the company is able to comply with the latest state and federal regulations.
5. Customer Service | Retail Business
BPM enables customer-centric operations. It unifies all systems and departments for a
smooth workflow that ensures all customer needs are met. It also identifies bottlenecks in the
buyer’s journey so the entire purchasing process can be improved.

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1. Streamlined Processes
BPM restructures tangled operations into smooth workflows, simplifying operations and
improving business agility.
2. Increased Productivity
BPM makes sure that resources and capital are utilized properly. It also improves business
processes and working conditions to increase overall productivity.
3. Minimized Risks
By clearly defining responsibilities, BPM demands higher accountability. This minimizes
risks due to human error and reduces inefficiencies.
4. Reduced Costs
BPM helps spot inefficiencies so they can be corrected. It also tracks the usage of resources.
With fewer inefficiencies and proper utilization of resources, BPM can reduce costs and
expenditures.

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