Operations Management

Operations management refers to the activities, decisions

and responsibilities of managing the resources which are
dedicated to the production and delivery of products and
services.

It is the administration of business structures, practices,

and processes to enhance efficiency and maximize profit.

Operations management denotes to the management of

functions that a business needs to run effectively day-to-
day, including overseeing multiple departments and
providing goals.
 Operations
Operations is that part of a business organization that is responsible
for producing goods and/ or services.

 Goods are physical items that include raw materials, parts,

sub-assemblies such as motherboards that go into
computers, and final products such as cell phones and
automobiles.

 Services are activities that provide some combination of

time, location, form, or psychological value.

So, operations is that part of as organization, which is concerned

with the transformation of a range of inputs into the required
output (services) having the requisite quality level.
 Management

Management is the process, which combines and

transforms various resources used in the operations
subsystem of the organization into value added
services in a controlled manner as per the policies of
the organization.
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.

According to Lee J Krajewski & Larry P Ritzman, “The

term Operations Management refers to the direction and
control of the processes that transform inputs into products and
services.”

So, operations management is planning, organizing, staffing,

directing and controlling all of the activities of productive
system portions of organization that convert inputs into
products and services.
 Operations system
Operating system converts inputs in order to provide outputs which
are required by a customer.
It converts physical resources into outputs, the function of which is to
satisfy customer wants i.e., to provide some utility for the customer.
Everett E. Adam & Ronald J. Ebert define operating system as, “An
operating system (function) of an organization is the part of an
organization that produces the organization’s physical goods and
services.”
 Operations system

Business organizations typically have three basic functional areas, such as: finance,
marketing, and operations. It doesn’t matter if the business is a retail store, a hospital, a
manufacturing firm, a car wash, or some other type of business; it is true for all business
organizations.

Finance is responsible for securing financial resources at favorable prices and allocating
those resources throughout the organization, as well as budgeting, analyzing investment
proposals, and providing funds for operations. Marketing is responsible for assessing
consumer wants and needs, and selling and promoting the organization’s goods and
services. And an operation is primarily responsible for producing the goods or providing
the services offered by the organization.
 Production
Production is the process by which goods and services
are created. Production systems combine materials,
labor, and capital resources in an organized way with
the objective of producing some goods and service.

In another word, production is a process or procedure

developed to transform a set of inputs like men,
materials, capital, information and energy into a
specified set of outputs like finished products and
services in proper quantity and quality.
 Production System

The production system is ‘that part of an organization,

which produces products of an organization.

It is that activity whereby resources, flowing within a

defined system, are combined and transformed in a
controlled manner to add value in accordance with
the policies communicated by management’.
A simplified production system is shown below:

Production system utilizes materials, funds,

infrastructure, and labor to produce the required output
in form of goods.
 Main Components of production system
Inputs include raw-materials, machines, man-hours,
components or parts, drawing, instructions and other
paper works.
Conversion process includes operations (actual
production process). Operations may be either manual
or mechanical or chemical. Operations convert inputs
into output. Conversion process also includes
supporting activities, which help the process of
conversion.
Output includes finished products, finished goods (parts),
and services.
Classification of Production System:
A. Job-shop Production System
This is the oldest method of production on a very small
scale. It is also popularly known as ‘job-shop or Unit’
production. With this method individual requirements of
consumers can be met. Each job order stands alone and may
not be repeated.

Some of the examples include manufacturing of aircrafts,

ships, space vehicle, bridge and dam construction, ship
building, boilers, turbines, machine tools, things of artistic
nature, die work, etc.
B. Batch Production System
The batch production system is generally adopted in
medium size enterprises. Batch production is a stage in
between mass production and job-shop production.

As in this system, two or more than two types of

products are manufactured in lots or batches at regular
interval, which justifies its name, the ‘batch production
system’.
C. Mass Production System
Manufacture of discrete parts or assemblies using a continuous
process are called Mass Production. This production system is
justified by very large volume of production.
The machines are arranged in a line or product layout. Product and
process standardization exists and all outputs follow the same path.

D. Continuous Production System

Production facilities are arranged as per the sequence of production
operations from the first operations to the finished product.
The items are made to flow through the sequence of operations
through material handling devices such as conveyors, transfer
devices, etc.
 Production Management

Production management is a process of planning,

organizing, directing and controlling the activities of the
production function.
It combines and transforms various resources used in the
production subsystem of the organization into value
added product in a controlled manner as per the policies
of the organization’.

Production management deals with converting raw

materials into finished goods or products. It brings
together the 6M's i.e. men, money, machines, materials,
methods and markets to satisfy the wants of the people.
 Objectives of Production Management

Right Quality: The quality of product is established based upon

the customers need. The right quality is not necessarily being
the best quality. It is determined by the cost of the product and
the technical characteristics as suited to the specific
requirements.

Right Quantity: The manufacturing organization should produce

the products in right number. If they are produced in excess of
demand the capital will block up in the form of inventory and if
the quantity is produced in short of demand, leads to shortage
of products.
 Objectives of Production Management
Right Time: Timeliness of delivery is one of the important
parameter to judge the effectiveness of production
department. So, the production department has to
make the optimal utilization of input resources to
achieve its objective.

Right Manufacturing Cost: Manufacturing costs are

established before the product is actually manufactured.
Hence, all attempts should be made to produce the
products at pre-established cost, so as to reduce the
variation between actual and the standard (pre-
established) cost.
 Difference Between Production Mgt And Operations Mgt
Basic of
Compariso Production Management Operations Management
n
Definition It refers to manage various process It refers to manage various operations
involved in production of goods. or process involved in a business
which may eventually result in
production of goods or services and
effective working of business.

Scope of Scope is limited because it focuses on Broader scope because operations

Operation the design, pricing, quality, and management involves around routine
quantity of goods production business activities like workforce
management, inventory management,
and more

Related to Related to production Related to over all working and

business activities
Objective To produce right quality of goods in To utilize resources up to the optimum
right amount in right time and at level and provide customer
right price satisfaction.
 Basic of
Comparison Production Management Operations Management

Area of Relevant specifically for different aspects Relevant for daily business operations in
Decision- of production any organization
Making

Capital Involves around high capital requirement Less capital requirements.

Requirement initially
Skills Required Technical skills, IT skills, project Leadership skills, data entry and
management skills, communication skills, processing skills, decision-making skills,
and confidence conflict management skills, and
organizational skills

Output Tangible output Both tangible and intangible output

Challenges Meeting deadlines without Development of technology and innovative
compromising quality is a major business models pose new challenges to
challenge for production managers operations managers

Advantages Delivering high quality products on time Utilization of resources to improve regular
at low costs business operations and improving
business reputation

Prevalence Applicable only in organizations where Applicable in all types of organizations like
products are manufactured banks, hospitals, and more
HISTORICAL DEVELOPMENT OF OPERATIONS MANAGEMENT
 Functions of Business Organizations
Business organizations typically have three basic functional areas, such as: finance,
marketing, and operations. It doesn’t matter if the business is a retail store, a
hospital, a manufacturing firm, a car wash, or some other type of business; it is
true for all business organizations.
Organization

Finance Operations Marketing

Figure : The three basic functions of business organizations

Finance is responsible for securing financial resources at favorable prices and

allocating those resources throughout the organization, as well as budgeting,
analyzing investment proposals, and providing funds for operations.

Marketing is responsible for assessing consumer wants and needs, and selling and
promoting the organization’s goods and services.

And operations is primarily responsible for producing the goods or providing the
services offered by the organization.
 Uses of Operations Management
Like a product management course, an operations management course offers
knowledge about the relevant processes. The primary uses of operations
management are as follows:

• Strategic planning: Operations management revolves around strategic planning

to ensure maximum utilization of resources.

• Finance: Operations management is all about ensuring that a business is using

capital resources efficiently during production.

• Production design: Operations management also revolves around creating

product designs that meet customer needs and abide by market trends.

• Forecasting: Operations management is also used for predicting how products

or services will perform in the future and how customer requirements will
change with time.
 What Operations Manager do?
• Technical expertise in areas such as production automation, data entry, budget
tracking, and design.
• Organizational ability and attention to detail, including keeping track of project files,
employee reports, budgets, schedules, and other details related to company
processes.
• Motivational expertise in the form of strong leadership skills that provide the
expertise to motivate others, inspire ideas, and foster a supportive and diverse team.
• Analytical aptitude, including skill in risk analysis and mitigation when initiating new
projects. Operations managers must also analyze processes to identify challenges and
offer solutions if negative situations develop.
• Decision-making proficiency, especially under stress, when there is very little time
to assess all factors.
• Ability to maintain quality standards, including as they relate to raw materials,
machinery, manufacturing procedures, packaging, delivery processes, and the finished
product.
 Responsibilities of Operations Managers
Duties vary according to the nature of the company and the
specific role, but in general, someone working in business
operations is responsible for:

 Evaluating, designing, and implementing business processes

 Managing logistical processes and supply chain
 Overseeing production, distribution, and quality assurance
 Managing and analyzing financial budgets
 Making strategic decisions and engaging with other senior
staff members on business strategy
 Supervising employees
 Supporting HR with recruitment initiatives
 Building relationships with stakeholders and suppliers
 Key Issues for Today’s Business Operations
There are a number of issues that are high priorities of many
business organizations. Chief among the issues are the following:

• Economic conditions: The lingering recession and slow recovery

in various sectors of the economy has made managers cautious
about investment and rehiring workers that had been laid off
during the recession.

• Innovating: Finding new or improved products or services are

only two of the many possibilities that can provide value to an
organization. Innovations can be made in processes, the use of
the Internet, or the supply chain that reduce costs, increase
productivity, expand markets, or improve customer service.
• Quality problems: Quality problem relates to product design and
testing, oversight of suppliers, risk assessment, and timely response to
potential problems.

• Risk management: The need for managing risk is underscored by

recent events that include the crisis in housing, product recalls, oil
spills, and natural and man-made disasters, and economic ups and
downs. Managing risks starts with identifying risks, assessing
vulnerability and potential damage (liability costs, reputation,
demand), and taking steps to reduce or share risks.

• Competing in a global economy: Low labor costs in third-world

countries have increased pressure to reduce labor costs. Companies
must carefully weight their options, which include outsourcing some or
all of their operations to low-wage areas, reducing costs internally,
changing designs, and working to improve productivity.