Part I

Conceptualizing Sustainable Operations

CHAPTER

Operations Management:
Trends and Issues 1
After going through this chapter, you will be able to answer the following questions:

• What do you understand by the term operations management?

• What is the status of the manufacturing and service industries in India?
• What are the emerging opportunities and challenges for operations management?
• Can the principles of operations management be applied to both manufacturing and
CRITICAL service organizations?
QUESTIONS • What is the role of operations in an organization?
• What are the key components of an operations management system? What is the nature
of the interaction among them?

The success of Narayana Health

(NH) is mainly due to the proper
implementation of operations
management in its day-to-day activities.
The growth of NH to 14 multi-speciality
hospitals is mainly because of its
planning, passion, and compassion;
this is what operations management
is all about. Managing a workforce of
12,000 is mainly attributed mainly to
strategic thinking and implementation.
The success rate is made possible by
employing cost reduction in several
methods. The main vision of the NH
group is not to lose a single patient in
terms of want of money and conducting
the surgeries in a cost-effective manner.
Source: Franck Boston. Shutterstock

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 Operations Management: Trends and Issues 3

ideas
at Work narayana health (nh): a Journey that Began with Wining the hear t of India
1.1
Indians are three times prone to heart dis- from process innovations and scale economies, and
eases than Europeans. By 2013, while there bringing innovative ideas in design of facilities and
is a need for 2.5 million heart surgeries per year in resource deployment. Further, productivity improve-
India, we are doing only 90,000. Moreover, India ments would be very crucial and an ongoing activity
produces 80 cardiologists a year compared to 800 in such a system. In NH, we find several examples
in the US. There is a huge shortage of doctors and illustrating these.
paramedical staff in the country. To complicate the Due to volumes and supplier development
matter even more, 70% doctors are in urban areas, efforts, NH is able to buy a pair of glove at `4.50 as
whereas 70% people live in rural areas. This appears against `9.50 by directly sourcing it from Malaysia.
to be a serious problem of lack of adequate health- Many of the expensive equipment such as MRI scan
care for the citizens. However, a closer look at the machine are installed by vendors on a pay-per-use
story of Narayana Health (NH) suggests that mass model rather than an outright purchase. This brings
healthcare cover is not about money but about plan- down the cost of an MRI scan and also increases its
ning, passion, and compassion. Operations Manage- utilization. Hospitals are located on the outskirts of
ment can work at its best to address such problems. the cities to bring down the capital costs. The Mysore
NH journey first started with a 300-bed hospital cardiac hospital was built using pre-fabricated mate-
started by Dr. Devi Shetty in the outskirts of Banga- rials and has no air-conditioning, except in operation
lore city in 2001 that began providing heart surgeries theatres, thereby bringing down the cost of the facil-
to patients at significantly low costs. Currently, the ity dramatically low.
group has 14 hospitals in multiple locations with Another strategy to bring down the cost is to
multiple specialties that offer a total of 5,700 beds. increase the volume of patient flow. To achieve this,
Over the next 18 months, there are plans to add new NH has diversified into multi-specialties (such as
hospitals in Siliguri, Bhubaneswar, Mysore, Mumbai, Eye care, Orthopaedics, Neuroscience, and so on).
and Delhi in addition to Cayman Islands and Malay- Furthermore, NH recruits the best doctors and pays
sia, which will add another 2,500 beds capacity to the them as per the best industry standards. However,
NH network. There are plans to expand this to about they are convinced to work a little extra. For the
30,000 beds by 2020. On account of this, the work doctors at NH, 10 years ago, the plan was to do five
force is likely to grow from the current strength of surgeries a day with a 150-bed capacity, which itself
12,000 to nearly 40,000. Managing such a massive was felt high. However, currently with 5,700 beds,
expansion requires sound strategic thinking, crea- they perform 30 surgeries a day. As a result, nearly
tion of new facilities in a cost-effective manner, and 10–12% of all cardiac surgeries performed in India is
operating them on a day-to-day basis with better done in NH network.
planning. All these issues belong to the domain of Narayana Health is an example of a service sys-
Operations Management. tem. Like NH, every other service organizations as
Many of the operational aspects of the NH net- well as manufacturing organizations face similar set
work are governed by the vision that nobody should of issues, although in varying degrees. As illustrated
go back from the hospital for want of money. A heart in the case of NH, these issues can be addressed by
surgery package at NH could be anywhere between applying several tools and techniques, collectively
`75,000 and `150,000 compared to a typical cost of known as Operations Management.
`300,000 in other hospitals. Achieving such dramatic Source: Based on Babu, V. (2012), “Pulse on the future”, Business
cost reduction calls for employing several meth- World, March 5, 2012, pp 40–45; Chaki, D. (2013), “Straight from
ods. These include input cost reduction, benefiting the heart”, Business India, Sep. 30–Oct. 13, 2013, pp 61–63.

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 4  Operations Management

1 . 1  I ntr oducti o n to Ope r ati o ns Manage ment

Manufacturing, service, and agriculture are the major economic activities in any country. In India, manufacturing and
services together constitute nearly 75 per cent of the gross domestic product (GDP). In recent years, growth in the GDP
has been primarily due to the growth in these sectors of the economy. Moreover, the share of the service sector in the
GDP has grown steadily from about 40 per cent to over 51 per cent between 1996 and 2006. In view of their contribution
to the country’s GDP, management of manufacturing and service operations are important economic activities. Signifi-
cant improvements in productivity and cost savings can be achieved through operations management—a discipline that
focuses on activities that relate to the planning and control of operations in manufacturing and service organizations.
Efficient operations management can also have a positive impact on the overall health of the economy.
A manufacturing firm essentially engages in converting a variety of inputs into products that are useful for individuals and
organizations. For example, a manufacturer of machine tools employs several production workers, buys raw material and
components from various suppliers, and manufactures machine tools in a factory using an extensive array of manufacturing
facilities. In this case, the factory encompasses a large number of interrelated conversion processes for the transformation of
raw material into the final product, that is, the machine tool.
A service organization, on the other hand, responds to the requirements of customers and satisfies their needs through
a service delivery process. Service organizations leave an impression in the minds of their customers through their service
delivery. Typical examples of such organizations include management consultancies, automobile garages, hotels, hospitals
and banks. A service organization may not always make use of material inputs and may not always produce products that
are used by the customer. For instance, a law firm providing legal consultancy to its clients may not provide material inputs to
the system or produce material output. Instead, the input and output are informational and experiential in nature. However,
in the case of a service system like an automobile garage, a restaurant or a health care system, there are material inputs and
material outputs (in the form of products consumed by the customers, as in the case of a restaurant). Despite this difference,
service systems also have a conversion process that utilizes resources and delivers useful outputs from the system.
An operations system is defined as one in which several activities are performed to transform a set of inputs into a useful
output using a transformation process. These inputs and outputs can be tangible, in the form of raw materials and physical
products, or intangible, in the form of information and experiences. Viewed in this manner, manufacturing and service
systems could be broadly classified as operations systems. Operations management is a systematic approach to address-
ing issues in the transformation process that converts inputs into useful, revenue-generating outputs. Four aspects of this
definition merit closer attention:
½½ Operations management is a systematic approach. It involves understanding the nature of issues and problems to be stud-
ied; establishing measures of performance; collecting relevant data; using scientific tools, techniques, and solution
methodologies for analysis; and developing effective as well as efficient solutions to the problem at hand. Therefore,
for successful operations management, the focus should be on developing a set of tools and techniques to analyse the
problems faced within an operations system.
½½ Operations management involves addressing various issues that an organization faces. These issues vary markedly in terms of
the time frame, the nature of the problem, and the commitment of the required resources. Simple problems include
deciding how to re-route jobs when a machine breaks down on a shop floor, or how to handle a surge in demand in a
service system. On the other hand, decisions such as where to locate the plant, what capacity to build in the system,
and what types of products and services to offer to the customers require greater commitment of resources and time.
Operations management provides alternative methodologies to address such wide-ranging
issues in an organization.
Operations ½½ Transformation processes are central to operations systems. The transformation process ensures that
management is a inputs are converted into useful outputs. Therefore, the focus of operations management is
systematic approach to to address the design, planning, and operational control of the transformation process.
addressing issues in the ½½ The goal of operations management is to ensure that the organization is able to keep costs to a minimum
transformation process and obtain revenue in excess of costs through careful planning and control of operations. An appropriate
that converts inputs performance evaluation system is required for this. Therefore, operations management also
into useful, revenue-
involves the development of performance evaluation systems and methods through which the
generating outputs.
operating system can make improvements to meet targeted performance measures.

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 Operations Management: Trends and Issues   5

Since manufacturing and service organizations form the operations system, it helps to understand the prevalent trends
and the status of manufacturing and service organizations in India before we dwell on the various elements of operations
management.

1 . 2  M ANU FACTURI NG AND SERV ICE SECTOR TRENDS I N I NDIA

The index of industrial production (IIP) is a measure of the growth in the manufacturing sector. The Centre for Monitoring
Indian Economy (CMIE) collects data on several macroeconomic indicators, including the IIP. Table 1.1 shows some of the
salient aspects of the manufacturing and service sectors of the Indian economy. It is evident from Table 1.1 that the cor-
porate sector has been going through tough times. There has not been much growth in sales revenue. However, there has
been a steady increase in operating expenses and compensation to the employees. This has resulted in a situation where
the profit after tax (PAT) has been progressively and significantly shrinking in the last three years. The service sector com-
panies have been experiencing this more significantly than the manufacturing sector companies as evident from the table.
On the whole, this points to the importance of deploying sound operations management practices in both manufacturing
and service sectors of the Indian economy.
Over the years, there has been an increase in raw-material consumption. This perhaps indicates that manufacturing
organizations are increasingly buying components and semi-processed items from suppliers. Furthermore, there has been
a gradual increase in the cost of material and labour, which are primary inputs in the manufacturing system. Such an
increase in the input cost is likely to put greater pressure on firms to cut down waste and improve productivity to remain

Table 1.1 Salient Aspects of the Corporate Sector of the Indian Economy
Index of Industrial Production 2009–10 2010–11 2011–12 2012–13
Manufacturing 4.84 8.95 3.00 1.29
Capital goods 0.99 14.75 −3.97 −6.04
Consumer goods 7.65 8.57 4.37 2.43
Intermediate goods 6.03 7.39 −0.62 1.60
Corporate sector performance
Manufacturing sector
Sales 5.0 20.7 19.3 9.3
Operating expenses 4.8 22.3 19.6 10.1
Raw materials expenses 6.9 25.1 21.5 8.3
Compensation to employees 10.9 15.0 9.1 12.7
Profit After Tax (PAT) 43.1 15.4 18.4 −4.6
No. of companies 8751 8320 5690 3978
Non-financial services sector
Sales 8.3 15.7 13.6 2.7
Operating expenses 6.1 17.7 15.3 1.3
Compensation to employees 5.3 15.0 14.3 14.1
Profit After Tax (PAT) 15.3 −28.0 −54.5 −7.7
No. of companies 6137 6125 4328 3065
All numbers in the table represent growth % over the previous year.
Data compiled from Economic Outlook of Centre for Monitoring Indian Economy (CMIE) using their time series data available at http://
economicoutlook.cmie.com

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 6  Operations Management

competitive in the market. Therefore, the focus areas of operations management are likely to be in the areas of better sup-
plier management, elimination of waste from the system, and improvement in overall productivity. Several sectors of the
industry have been focusing on some of these initiatives.
Globally, India is emerging as an important manufacturing base and is competing closely with China in attracting sev-
eral multinational companies to set up their manufacturing plants. Several studies point to emerging opportunities for
Indian manufacturing to grow and attain a global presence. India has a unique advantage in the form of abundant low-cost
labour and technical manpower. The Global Manufacturing Competitiveness Index 2013 released by Deloitte rated India
at number four, next to China, Germany, and the US among 38 countries. It predicted India to reach the second position
in the next 5 years. The report suggested that India’s rich talent pool of scientists, researchers, and engineers as well as
its large, well-educated English-speaking workforce and democratic regime would make it an attractive destination for
manufacturers. Global manufacturing executives increasingly view India as a place where they can design, develop, and
manufacture innovative products for sale in local as well as in global markets. Therefore, Indian manufacturing firms can,
on the one hand, exploit the low-cost advantage as an entry strategy to capture global markets and, on the other develop,
unique capabilities to position as an active participant in the global value chain.
The examples discussed here underscore the need for use of operations management to remain competitive in business and
tap the emerging opportunities in the global arena. Effective operations management also requires a greater understanding
of the various activities pursued under its banner and the critical linkages between operations and other aspects of business.

1 . 3  Ser vice s as a Par t o f Ope rations Manage m ent

The service sector encompasses a wide spectrum of activities in every country. The growth of the service sector in India
during 2002 to 2007 has been very significant. Table 1.2 provides some details on the share of some sectors of services
in the overall GDP. The central government began taxing three services in 1994–95. This has grown steadily, and as
of 2012–13, the number of services taxed has gone up to 119. During this period, both the number of assessees and
the service tax revenue has been growing very rapidly. According to the Central Board of Excise and Customs (CBEC),
between 1994–95 and 2012–13 the tax revenue has grown from `4.1 billion to `1.325 trillion.1 These figures indicate the
growing importance of services in the Indian economy and the need to apply management practices to plan and control
operations in the service sector.
Although services and manufacturing are classified as separate sectors in a macroeconomic sense, from the perspective
of operations management, this separation is artificial. In operations management, a “pure product” and a “pure service”
are just two ends of the spectrum, and not separate entities. In reality, a vast majority of operations share a continuum of
services and products. Therefore, most of the principles, tools and techniques of operations management apply to both
these sectors. This product–service continuum is illustrated in Figure 1.1.

Table 1.2 Service Sectors in India: Share of gdp in Percentage

2008–09 2009–10 2010–11 2011–12 2012–13#
Service sector growth rates in GDP
Trade, hotels, transport, and communications 16.9 16.5 17.2 18.0 25.1
Transport, storage, and communications 7.8 7.7 7.3 7.1
Financial services, insurance, real estate, and 15.9 15.8 16.0 16.6 17.2
business services
Community, social, and personal Services 13.3 14.5 14.0 14.0 14.3
Construction 8.5 8.2 8.2 8.2 8.2
Total (including construction) 62.4 62.7 62.6 63.9 64.8
# Advanced Estimate
* Compiled from Chapter 10 on Services Sector in Economic Survey 2012–13, Government of India, Ministry of Finance, Economic Division. For
more details see http://indiabudget.nic.in

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 Operations Management: Trends and Issues   7

Product domination Service domination

Materials, Assets, Products... Services, People, Interactions...

Passenger cars, Machine tools

Facilities maintenance, Turnkey project execution...

Logistics, Tourism, Travel and entertainment sectors

Health care system (hospitals)

Restaurants, Fitness centres

Professional consulting, Legal services

Figure 1.1 The service–product continuum

Services such as management consulting, health spas, and education have dominant service attributes. They form one end
of the spectrum. Similarly, manufacturing and supply of machine tools, gadgets, and consumables have a dominant product
attribute, and they form the other end of the spectrum. However, several businesses share both service and product attributes.
Take the case of automobiles. There is a product attribute in it since it involves the physical structure of the passenger car. On
the other hand, there is also the experiential component of using the car, which forms a significant part of the product. This is
the service component. Similarly, in the case of a restaurant, the food items share both product and service attributes. There
are certain important differences between services and manufacturing. Let us take a brief look at each of these differences.

Intangibility
Fundamentally, services differ from manufacturing with respect to tangibility. Because ser- Fundamentally,
vices are experiences rather than objects, they cannot be touched, tasted or felt as in the case services differ from
of objects. At the most, the recipients of services can form an opinion (based on some personal manufacturing with
assessment) about the quality of the service offered. This has important implications for defin- respect to tangibility,
ing and assessing the quality of the service. heterogeneity,
On the other hand, in a product-oriented operation, the product is defined by certain attrib- simultaneity, and
utes and the customer faces less ambiguity with respect to the product, its attributes, and its perishability.
performance. This is because the customer can touch and feel the product and make his/her
own assessment of the product.

Heterogeneity
The second differentiating aspect of services is the high degree of heterogeneity associated with
High heterogeneity
them. Since the experiential component is dominant in a service, it is likely that no two services results in high
are exactly alike. The differences are attributed to the differences in the service receivers (cus- variability in the
tomers), the service providers, and other parameters of the service delivery system. Therefore, operations system
a dentist attending to two consecutive patients having identical ailments may provide more or performance.
less the same type of service. Nevertheless, the two patients may have different perceptions
of the quality of the service and may have different satisfaction levels. Moreover, the time spent by the dentist in both the
cases could vary greatly. High heterogeneity results in high variability in the operations system performance and the need
to factor them into the planning and control of operations.

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 8 Operations Management

Simultaneous Production and Consumption

More often, services occur in the presence of the customer, who may also be involved at the time the service is produced
for his/her consumption. In the example of the dentist and the patient, the doctor and the patient are in the system
together to produce and consume the service. This holds for education, entertainment, travel, tourism, and hotel ser-
vices as well. In the case of manufacturing, however, most goods are produced at some point in time and distributed to
the customer later. This difference has implications for the design, planning, and control of service operations, as the
degree of customer contact in a service delivery system is likely to be high.

Video insights 1.1

Operations management in service organizations have a different set of issues to address. In order to develop an
understanding of the peculiar issues pertaining to operations management in service organizations, a peep into service
systems will be a valuable exercise. Hospitality and Healthcare sectors of services face unique challenges arising out of
people-intensive service delivery, where the customer involvement is also high. To understand the issues in these sec-
tors, find the video links (Video Insights) in the Instructor Resources or Student Resources under section Downloadable
Resources (http://www.pearsoned.co.in/BMahadevan/) subsections Bonus Material.

Perishability
Services are perishable. This implies that they cannot be inventoried. Thirty minutes of a doc-
Services cannot be
inventoried.
tor’s consulting expertise today cannot be stored for future use, reused, or returned in a future
period. Similarly, the treatment for an acute headache likely to be faced by a patient sometime
in the future cannot be stored in advance and reused at that time. The possibility of inventorying the supply and using it
at a later time is very common in a manufacturing system. The implication for operations is that service systems require
methods that work without inventories.
The characteristics of tangibility, heterogeneity, simultaneity, and perishability apply to “pure services,” which are more
experiential in nature. Furthermore, businesses with dominant service characteristics will have these features dominating
over the other product-related features. For example, in the case of a fast-food joint, there is both the service aspect and the
product aspect. A customer having a plate of idli with sambar experiences all the four attributes discussed here when viewed
from the service angle. However, there is also a product angle to the restaurant. For instance, viewing idli as a product may
enable the restaurant owner to inventory it for future use (later in the day).

ideas
at Work Operations Management in Service Systems
1.2
Intangibility, heterogeneity, perishability, and that time, so there was always a long queue of appli-
simultaneous production and consumption cants waiting at the ARPO, either to know the status
are the factors that differentiate service systems from of the application or to submit the application form.
manufacturing systems. Despite these differences, many To improve the response time, the existing process
of the operations management tools that were initially needed to be studied and redesigned. The situation
developed for manufacturing organizations are appli- called for the application of the principles of opera-
cable to services as well. A study on the Ahmedabad tions management to a service setting.
Regional Passport Office (ARPO) illustrates this fact. A detailed study of the process was undertaken
In March 2001, the regional passport officer of to investigate the reasons for the long lead time.
the ARPO was concerned about the long lead time Excessive delays and long lead times often point to
taken for processing passport applications and issuing operations management issues pertaining to capacity,
passports. The estimated lead time was 145 days at process, procedures, and use of technology and people.

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 Operations Management: Trends and Issues 9

Obtain form and fill

Submit form

RPO counter Registered agents Speed-post centre By registered post

Receiving applications and initial scrutiny 3 minutes

Scrutiny and acceptance of fees 5 minutes

Dispatch of PPF 3 minutes Scanning of registration form 2minutes

2 minutes
Outgoing PPF Detailed entry
Incoming
verified PPF
Police verification Indexing 4 minutes

3 minutes
Verified PPF Linking at branches Diary section

Granting 2 minutes

Writing 6 minutes

Pasting, laminating, signing, and dispatch 5 minutes

Dispatch

FIGure 1.2 Process-flow diagram for application processing

Process mapping, estimating the time for each step in for an illustration of the process followed for passport
the process, and assessment of capacity imbalances are application and approval.
important steps in studying issues related to long lead Detailed discussions with the officers revealed sev-
times in any operations system. In the case of the ARPO, eral opportunities for improving the existing situation.
this data was collected. Although the ARPO had a sanc- The activities at the ARPO were labour-intensive, and
tioned staff of 103, the staff strength was 57 in January the organizational rules and procedures were highly
2002. It augmented the capacity by employing 40 casual centralized. Further, the discussions revealed that there
workers. It received about 235,000 applications in a year. was scope for automation of some of the activities.
Detailed studies were initiated to understand the various In the present scenario, it took a lot of time to access
processes involved in issuing passports. See Figure 1.2 information on the application status, and Web-based

Continued on the next page

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 10 Operations Management

services could reduce this time. The uneven load on ways of redesigning the service delivery system; pro-
police stations and the need to modify and simplify cess redesigning to eliminate waste; improvements
certain rules were some other issues that merited atten- in productivity and the discovery of hidden capacity
tion. Independent of the study, some administrative in the system; the identification of a new system for
and procedural changes were already underway at the tracking operational performance, benchmarking and
ARPO. Attention to all the issues that were highlighted improvement; and the use of workload analysis and
during the study through better capacity management capacity planning methodologies. We shall discuss
could help reduce the lead time in processing passports. these aspects of operations management in the forth-
The data collected during the study was sub- coming chapters.
jected to detailed analysis, and alternative methods
Source: Adapted from N. Ravichandran and D. Bahuguna, “Rule
were identified for the design and operational con- Bound Government Agency to Customer Centric Service Facility:
trol of the operations at the ARPO. These include Can Indian Passport Offices Make The Leap?” IIMB Management
the use of waiting line models to explore alternative Review 18, no. 1 (2006): 59–66.

Despite these differences between products and services, from an operations management perspective, there are similari-
ties between these two categories. Table 1.3 lists some of the salient differences and similarities between a manufacturing and
a service system. The differences, as we have already discussed, are mainly due to the four distinguishing features of services.
The similarities, on the other hand, are due to the basic need to manage operations. Design of operations requires decisions on
capacities, products, and services to be offered. Operational planning and control requires that suppliers are managed, opera-
tions properly planned and scheduled, and demand matched with supply. These issues are common to both manufacturing
and services, though the tools and techniques used to handle these issues may be specific to manufacturing and services.

Table 1.3 A Comparison of Manufacturing and Service Organizations

Manufacturing Organizations Service Organizations
Differences
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 markets Local markets
Large facilities Small facilities
Capital intensive Labour intensive
Quality easily measured Quality not easily measured
Similarities
Is concerned about quality, productivity and timely response to its customers
Must make choices about capacity, location, layout
Has suppliers to deal with
Has to plan operations, schedules and resources
Must balance capacity with demand by a careful choice of resources
Has to make an estimate of demand

1 . 4 o p er atIo n s as a K e y Fun c tIonal area

Before we understand the various sub-functions in operations in detail, it would help to appreciate the role of operations
in an organization and its relationship with other functional areas of business. Irrespective of the activities and the type

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 Operations Management: Trends and Issues   11

of business it is involved in, every organization has a few Finance

important activities. These include operations, marketing,
finance, and human resources management. Operations man-
agement, as we have already seen, deals with the management
of the conversion process in an organization. The marketing Operations
function is responsible for understanding the requirements
of customers, creating a demand for the products and ser-
vices produced, and satisfying customer requirements by
delivering the right products and services to customers at
Marketing HRM
the right time. Both operational and marketing activities
require estimates of financial needs, tapping the market for Figure 1.3 The basic functions of an organization
funds, and management of working capital. These activities
broadly constitute the finance function. Every organization employs a number of people who have varied skills, back-
grounds and work requirements. Managing the workforce and addressing a host of issues related to them is another impor-
tant requirement in an organization. The human resources management function deals with such issues. These four areas form
the basic functions of any organization, as depicted in ­Figure 1.3.
As shown in the figure, the four functions have mutual interactions among them. The decisions made in each of these
functional areas could form an important input in another functional area. For example, organizations typically begin
their yearly plan with the ­marketing function making an estimate of the next year’s sales. This input forms the basis for
production planning in the operations area of business. Depending on the production plans, procurement planning is
done and all these factors lead to a certain estimate of the fund requirements. This forms an important input for the finance
function. At the time these plans are executed, the interactions between these functions are even greater. The human
resource management function influences the productive capacity of labour available in real time. The actual production
of goods and services influences the marketing activities to be undertaken and the quantity and timing of available funds
from sales. Such interactions are common in most organizations.
In every manufacturing or service organization, there are several sub-functions within the core operations function.
Figure 1.4 provides a broader view of the nature of activities pursued within the core operations function and its linkages
with other functions, both within and outside the organization. As shown in the figure, the operations function in an organi-
zation has five layers: (i) the customer layer, (ii) the core operations layer, (iii) the operations support layer, (iv) the innovation
layer, and (v) the supplier layer. The customer layer consists of the end customer and various others in the distribution chain,
including retailers and dealers. Within an organization, there are three layers. The core operations layer represents the manu-
facturing set-up in the case of a manufacturing organization. This may consist of fabrication, machining, assembly and final

Customer layer Operations support layer

• Ultimate customer • Marketing • Tooling
• Dealers • Maintenance • Material
• Retailers • Quality • Information technology
• Costin • Design
• Planning • Industrial engineering

Core operations layer

• Testing
Layer of innovation • Assembly Supplier layer
• Innovation strategy • Fabrication • Sub-contractors
• Research and • Machining • Suppliers
development • Service delivery system • Other service providers

Source: B. Mahadevan, The New Manufacturing Architecture (New Delhi: Tata McGraw Hill, 1999).

Figure 1.4 Operations function and its linkages in an organization

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 12  Operations Management

inspection. In the case of a service organization, the service delivery system consisting of the physical facilities and personnel
forms the core operations layer. In every organization, there are other activities that directly interact with the core operations
layer and provide a variety of support services. These form the operations support layer. This typically includes areas such as
marketing, quality, design, planning, costing, information technology, purchase and materials, stores and maintenance. The
third layer internal to an organization is the innovation layer. Every organization needs to devise strategies to remain competi-
tive in the market. The strategy formulation process drives the research and development activities in an organization and
enables the organization to bring new products and services to its customers.
The last layer, that is, the supplier layer, is external to the organization. Consisting of a network of suppliers, sub-contrac-
tors and other specialized service providers, this layer collectively represents the inbound logistics of the organization.
The customer layer interacts with the marketing function, and the inputs from the marketing function are crucial for
planning operations. The supplier layer interacts with the materials or procurement function of an organization. The pro-
curement function, in turn, interacts with the core operations layer and ensures timely availability of the various materials
required. The customer layer also provides critical inputs to the layer of innovation, which forms the basis for the strategy
formulation process. Based on the strategies made, several changes are made to the core operations layer. Therefore, there
is a critical linkage between the core operations layer and the innovation layer.

1 . 5 Op er ati o n s Man ag eme n t: A Sys t e ms P ers pect iv e

The basic inputs in an
A systems perspective facilitates a comprehensive understanding of the various aspects of
operating system are operations management. A systems perspective essentially involves identifying the input, the
labour, material, and output, and the processing and feedback mechanisms in a system. Figure 1.5 presents a systems
capital. perspective of the operations management function.
The basic inputs in an operating system are labour, material and capital. The availability of
skilled labour is an essential requirement as it is not possible to operate the system satisfactorily and deliver good-quality
goods and services without ade­quate supply. The second input in operations is material. All manufacturing organizations
process raw materials and convert them into useful products. Materials are required in several service systems as well. A
healthcare system such as a multi-specialty hospital requires medical consumables such as cotton, disposable syringes,

Forecasting

Processing
• New product and service Goods
Labour design
• Process design
Output
Input

Material • Purchasing and inventory

control Services
Capital • Operations planning and
control
• Material and capacity planning
Feedback

Quality Maintenance Process

management management improvement

Figure 1.5 Operations management: a systems perspective

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 Operations Management: Trends and Issues   13

and other equipment. Similarly, a hotel requires a variety of raw material for preparation of Processing includes
food. Therefore, material forms a critical input in operations. The third important input in the various activities
operations is capital. Capital is required to buy resources such as plants and machinery, to pay that an operating
labour, and for investing in materials that are being processed into finished goods. system undertakes to
Processing includes the various activities that an operating system undertakes to convert convert the raw material
the raw material into useful products for customers. The conversion process adds value to the into useful products for
product and enables the organization to sell it in the market. In the case of service organizations, the customers.
the conversion process involves committing the various resources at its disposal to deliver use-
ful services to the customer. Irrespective of whether it is a manufacturing or a service organization, there are a set of activi-
ties to be performed in the conversion process. These activities are presented in the processing section of Figure 1.5.
Product and process designs are an integral part of the conversion process. Every operations system must make important
decisions with respect to the type of products and services to be offered. Furthermore, once the right mix of products and ser-
vices are identified, appropriate processes for manufacturing and delivering them to the customers need to be identified. This
involves deciding on the type of technology to use, the type of machines to be used in the conversion process, and the exact
method of creating the products and services. These steps are known as product and process design. For example, when the
low-cost airline Spice Jet started its operations, it had to make these choices. It chose to fly to only three locations connecting
western India to Delhi. It had to decide on the type of aircraft to use, the in-flight services to offer, and various other aspects,
such as ticketing and reservation, airport logistics, and passenger interfaces at the airport and outside. In manufacturing, a
similar exercise can be visualized for Hyundai, when it started to manufacture passenger cars in India in 1998.

Video Insights 1.2

The best way to understand the need for operations management and the issues to be addressed in a manufacturing
system is to make a factory visit. A factory visit gives us a bird’s eye view of various aspects of managing the operations.
The Honda factory in the USA and Mahindra’s XUV 500 factory in India provide a good introduction to the concepts of
operations management in manufacturing organizations. To know more about this, find the video links (Video Insights)
in the Instructor Resources or Student Resources under section Downloadable Resources (http://www.pearsoned.
co.in/BMahadevan/) subsections Bonus Material.

Once the product and process designs are finalized, an operations system must focus on ensuring that the demand
for products and services is met. At this stage, the organization may also require operations
planning to ensure the availability of adequate material and capacity to meet the targeted pro- A planning system
duction and service delivery. This is known as operations planning. The operations system also will help the airline
requires methods for real-time control of operations as there may be several deviations from in route planning,
the plan. For example, there might be a breakdown of machinery or rejection of a lot of mate- rerouting aircraft, and
rial supplied by a vendor. Alternatively, some customer might change his/her order quantity short-term capacity
or cancel the order altogether. The operations control activity takes care of these changing management.
requirements in an operations system. In the airline example, the issues relate to the pricing of
tickets, capacity planning, and the handling of tickets cancellations and schedule delays. A plan- A fast-food restaurant
ning system will help the airline in route planning, rerouting aircraft, and short-term capacity may provide various
management. types of food for
Another important activity in the conversion process pertains to ensuring adequate supply breakfast, as per its
of materials for the operations system. This requires that the suppliers of various materials are process and product
identified and relationships established with them. With such an arrangement, it will be pos- design. In several
sible to place orders for material with the suppliers and receive them within the stipulated time. manufacturing
This activity is labelled as purchasing and inventory control in Figure 1.5. From an operations organizations, services
management perspective, the processing part of the system primarily focuses on identifying the are also offered in the
form of after-sales
nature of resources required, planning for material and capacity, and ensuring that changes in
support and warranty.
real time are addressed.

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 14  Operations Management

An important
The output of an operations system consists of goods and services. An organization that
aspect of operations manufactures passenger cars will provide many variants of the passenger car. On the other
management is hand, a fast-food restaurant may provide various types of food for breakfast, as per its process
estimating demand. and product design. In several manufacturing organizations, services are also offered in the
This is done through form of after-sales support and warranty. In addition to these tangible outputs, it is inevita-
forecasting. ble that an operations system will leave certain impressions and value judgments in the minds
of its customers and stakeholders. For instance, a manufacturer of copper products such as
Hindustan Copper will not only supply copper products to its customers, but also create an impression in the mind of the
customer. For instance, its customers may feel that though the quality of the product is good, it is costly in comparison
with its competition. People living in the vicinity of its factory may form opinions about the company on matters related to
environmental pollution. The labour practices adopted by the company are likely to influence its prospective employees.
In recent times, organizations have begun to understand their role as a responsible entity in society. Pollution of the
atmosphere creates greater problems leading to global warming. Industries such as leather processing and petrochemi-
cals tend to generate large amounts of effluents. Sustainability is another area of major concern. In a country like India,
businesses and society compete for limited natural resources such as water. In the state of Kerala, the local society pro-
tested against Coca-Cola for drawing water from the locality for their bottling plant. In such situations, the government
and judiciary bodies such as the Supreme Court play an active role and intervene to ensure that these issues are resolved.
To avoid disrupting the balance in society, an operations system must take such factors into consideration while config-
uring its input–­processing–output elements.
It is useful to understand how the operations system considers these factors and reacts to them. In any system, the feedback
loop serves the purpose of identifying the deviation paths and highlighting the areas that need immediate correction. In an
operations system, there are three feedback loops available for making corrective measures. These include quality manage-
ment, maintenance management, and process improvement. These operations management activities provide checkpoints to
identify the areas requiring improvement and ensure that corrective measures are indeed taken.
The demand for the goods and services offered by an organization cannot be entirely controlled by the organization. At
best, an organization can influence the demand to an extent. From a systems perspective, the demand is an exogenous vari-
able. However, planning for production, capacity and material clearly depend on the demand that the operations system is
likely to face in the upcoming periods. Therefore, an important aspect of operations management is to estimate demand.
This is done through what is known as forecasting.

1.6 Operations Management Functions

From the description of the various aspects of operations management in the systems perspective, one can distil some of
the important functions of operations management. These functions are carried out irrespective of whether the organiza-
tion is in manufacturing or services. Table 1.4 lists these functions.
The important functions can be understood by: (a) categorizing them under design issues and control issues, as shown in
Table 1.4; and (b) classifying them as long-term issues and short-term issues, based on the planning horizon.

Design Versus Operational Control Issues

An examination of the left-hand column in Table 1.4 shows that the operations management decisions listed in that col-
umn pertain to the design of an operations system. Design issues relate to the configura-
Design issues tion of the operations system and provide an overall framework under which the operations
in operations system will function. The operations management functions pertaining to design include
management establish designing products, services and processes, setting up a quality assurance system, deciding
the overall constraints on the layout and location of facilities, and capacity planning. Design issues in operations
under which the management establish the overall constraints under which the operations system functions.
operations system
A few examples will help clarify this characteristic feature of design issues in operations
functions.
management.

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 Operations Management: Trends and Issues   15

For example, once the capacity of the resources to be used Table 1.4 Operations Management Functions
in the system is decided, it sets limits for the actual use of the Design Issues Operational Control Issues
system in operation. If Maruti Suzuki India Limited installed
Product and service design Forecasting
an engine plant that has the capacity to produce 200,000
engines annually, then, in actual operation, it can produce Process design Operations planning and
no more than 200,000 engines. Similarly, if a multi-specialty control
hospital is located in Pune with a 200-bed facility, it is under- Quality management Supply chain management
stood that it will largely serve residents in the vicinity of Pune Location and layout of Maintenance management
up to a capacity of 200 in-patients at any time. Setting policy facilities
guidelines and procedural details for various aspects of the Capacity planning Continuous improvement of
operations system is also a design activity. A typical example operations
is the setting up of a quality management system that estab-
lishes rules and policies with respect to what is acceptable and what is not.
Operations management decisions listed in the right-hand column of Table 1.4 share a different characteristic. They all
address the vital issue of planning and operations control. Once the design choices are exercised, operations management
amounts to putting the available resources to best use and handling various issues as and when they arise. The available
capacity could be better utilized through production planning and by scheduling operations so that idle time is minimized.
Furthermore, required capacity and material could be estimated and made available through purchasing and scheduling
procedures. All these constitute operational control decisions in operations management.
Every issue addressed in design is inevitably addressed again in operational control. However, the context differs in the
two cases. Capacity planning as a design issue lends itself to a different type of analysis compared to capacity planning in
operational control. In the case of the latter, the objective is to match the requirement to the available capacity, whereas
in the case of the former, the objective is to find out how much capacity is required for meeting targeted business plans.
Moreover, design issues often turn out to be strategic in nature, while operational control issues
are tactical in nature. Strategic decisions frequently involve large capital outlay and are made
with critical inputs from an operations strategy process. Such decisions are made by the top Every issue addressed
management to improve the competitiveness of the organization. Operational control issues, in design is inevitably
addressed again in
on the other hand, are tactical, repetitive and routine in nature. Lower-level operations managers
operational control.
often make such decisions.

Long-term Versus Short-term Issues

Another useful approach to understanding the various operations management functions is to view them from the plan-
ning horizon perspective. Certain operations decisions are made once every five to ten years. For example, the decision
to locate a manufacturing or service delivery facility is made as and when a new facility is to be introduced. Similarly,
product line decisions and capacity augmentation decisions are made once every three to five years. Typically, a major-
ity of design decisions are made with a planning horizon of five to ten years. Such decisions usually require a long
lead time, multiple levels of decision-making and huge capital outlay. Therefore, they tend to be made at less frequent
intervals.
Some other decisions are made in fixed cycles of one year. Every organization makes a business plan coinciding with
its financial year, wherein specific targets for sales are established. The annual business planning exercise leads to aggre-
gate operations planning. Once the aggregate operations planning is done, master scheduling and material and capacity
requirements planning are done for the next quarter or three months. These are medium-term decisions. Finally, several
operations management decisions are made for a short run of a week or less. These decisions include detailed scheduling
of operations, quality management and control, and reacting to disruptions and changes in plans.

1 . 7 Chal l e n g e s in Ope r atio n s M anagem ent

Challenges in operations management arise mostly from developments that create a need for new, and, at times, more
efficient system of operations management. The economic reforms in the 1990s opened up the indian markets to overseas

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 16  Operations Management

players, which posed new challenges for domestic companies. With time, there have been more changes in the form of
rising customer expectations, technological developments, and growing awareness about environmental issues. Each of
these developments needs to be addressed with appropriate changes in the strategy, design and implementation of opera-
tions management practices.

Competitive Pressure due to Economic Reforms

It is more than 20 years since the economic liberalization and globalization policies of the Government of India came
into force. During these years, the Indian corporate sector has learnt what exactly the melting pot of global competi-
tion means. Due to integration of the Indian economy with the global economy, the Indian companies are required
to benchmark the manufacturing sector against the best in the world to enhance their competitiveness. Companies
that are able to meet the stiff competition are able to discover the unprecedented opportunity for growth as they dis-
cover new markets and customers in other parts of the world. Competitive pressure manifests in terms of three major
challenges:
Falling prices There has been a continuous fall in prices of branded, engineered consumer products as well as industrial
products. For example, the on road price of a Hyundai Santro GLS model in 2000 was `440,000/- and the price of a Santro
Xing GLS model in April 2014 was about `480,000/-. Over the last 15 years, the annual growth rate in price of several white
goods such as refrigerators, washing machines, and ovens have been far less than inflation rate. Similarly, industrial buyers
constantly enforce annual cost reduction targets for their suppliers. Therefore, learning to profitably operate in an era of
falling prices is a challenge.
Shrinking delivery quote Several years back it was not uncommon to book a vehicle (such as a car or a scooter) and
wait for taking the delivery. The car manufacturer may not be able to satisfy the customer in terms of the colour choice.
However, due to economic reforms, these issues have been pushed to the background. Today, responding to the require-
ments of the market, rather quickly, is very important. Otherwise, the customers will switch to other suppliers who are
willing to respond to them fast. Several service firms such as insurance providers and banks are expected to provide a high
level of responsiveness. Manufacturing companies are also constantly facing the challenge of quickly reacting to their cus-
tomer needs. For example, textile manufacturers are expected to cut their lead time from order placement to final delivery
down to 2 months. Otherwise, large retailers such as Wal-Mart, Gap, and Tesco are not interested in placing orders on
them. Therefore, developing new methods of shrinking lead time is another challenge for the companies.
Build-to-order requirements Customers increasingly demand several variations of products and services. They also
demand flexibility to change their requirements until the point of service and product delivery. Systems that allow them
to customize, configure, and visualize their own version of products and services are more in demand than a standard off-
the-shelf version with a few pre-determined variations. In order to respond to these emerging requirements, a firm need
to develop build-to-order capabilities.

Growing Customer Expectations

Look at the number of tariff plans and options offered by mobile service providers such as Airtel and Vodafone these
days. They provide multiple postpaid and prepaid options that appear to satisfy every customer category in the market.
This is a good indication of the growing customer expectations and the ability of organizations to respond to them. Such
developments have been greatly facilitated by the economic liberalization process that we discussed earlier. A decade ago,
customers would not have made any fuss about the services provided by the Department of Post and Telegraphs, simply
because they had no other choice. The situation was similar in most sectors, whether a customer wanted to travel by air,
get a phone connection, or buy a car. Today, however, they have a variety of choices in of these situations. Many courier
services can substitute India Post. Several private airlines and telecom companies offer multiple versions of services. Many
different models of cars, starting from basic models such as the Maruti 800 and the Omni to high-end cars such as the
Toyota Camry are available today.

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 Operations Management: Trends and Issues   17

Exposure to such developments increases customer awareness, enabling them to demand better-quality products and
services. They prefer more variety, greater levels of customization, and the ability to have it in discrete quantities and
without waiting too much for the product or service they want. This means that manufacturing organizations and service
providers constantly need to invest in understanding changing customer tastes and provide goods and services by aligning
various aspects of the operations. Organizations need to develop the capability to bring out newer product and service
versions that are not only better but also cost-effective. This introduces new challenges for operations management.

Technological Developments
In the last few tears, technological developments have changed the way businesses in many sectors operate. Take, for
example, the banking sector in our country. With the advent of automated teller machines (ATMs) and the Internet, the
face of banking is undergoing a sea change. Customers need not visit a bank branch to draw cash or to check their account
balance. These transactions can be carried out at an ATM. Drafts and cheques can be replaced with electronic payment
gateways and fund transfer mechanisms. Similar facilities are now available in other sectors. For example, consider the
process involved in buying a train ticket. By visiting a Web site like http://www.irctc.co.in, a customer can accomplish all
the required tasks pertaining to ticket booking and cancellation at leisure.
The changes that manufacturing organizations are going through are no less than service organizations. In this age of
electronic markets, a manufacturing organization can procure goods and services by organizing a reverse auction on the
Internet. In a matter of 3 to 4 hours, the best price for a component and the supplier willing to provide the component at
a desired quality can be located. Similarly, a team of design personnel from across different geographical locations can
participate in new-product development using technological tools.
From these examples, we can appreciate that today’s businesses are constantly challenged by the rapid technological
advancements. These advancements tend to have a dramatic impact on the competitiveness of businesses. They force struc-
tural changes in a sector of the industry and trigger several changes in the operational practices of firms.

Environmental Issues
Growing industrialization at one level indicates the economic progress of a nation. However, at another level, it introduces new
concerns and challenges in operations. In the recent past, there has been growing concern regarding the impact of business
activities on the environment. These include concerns regarding the depletion of natural resources and the waste generated
from production systems and end-of-life products. Increasingly, firms are under pressure to take responsibility of restoring,
sustaining, and expanding the planet’s ecosystem instead of merely exploiting it.
When the Government of India announced a scheme for special economic zones (SEZs), it generated controversies and
social concerns. In several such cases, local communities were reluctant to part with fertile land, which was then used for
industrial purposes. This has implications for the location of manufacturing and service facilities.
Consider the case of passenger cars. In a country like India, 12 out of 1000 people have a passenger car. In the United
States, this figure is 512 per 1000 people. While this could be an indicator for the passenger-car industry to set its growth
projections, it also indicates the challenges arising out of availability of petrol and diesel and increased emissions. Unless
the issue of emissions is addressed and alternative fuels and non-conventional technologies are invented, the sector will
not grow to meet its potential. Design of products and operational practices must take these environmental concerns into
consideration.
Growing urbanization creates societal problems arising out of scarcity of available resources and generation of solid wastes.
With high population density in cities, the consumption of energy and water in countries like India is on the rise. Such a situ-
ation requires better practices and newer methods of addressing these requirements using better operational practices. These
days, due to the increased use of electronic gadgets, the amount of e-waste being generated is also on the increase. Similarly,
the use of plastics and bio-non-degradable items also pose challenges to businesses and society.
Businesses need to refine their operations management practices to be able to address these requirements. Operations
management practices must address environmental concerns in order to ensure a sustainable world.

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 18  Operations Management

1 . 8 Cu r r en t Pri o ri tie s f o r Operat ions Manage ment

Each of the challenges identified in the previous discussion clearly points to new priorities for operations management.
Economic reforms and liberalization have established the importance of the customer/market. Organizations need to relate
the operations system to the customer/market. Otherwise, they may find it difficult to survive in the long run. As customer
aspirations grow, organizations must find ways and means of dealing with the proliferation of variety. Operations manage-
ment practices need to be developed for this purpose. One way in which organizations can meet growing customer aspira-
tions is by getting into a continuous learning mode. In the future, addressing emerging environmental concerns through
better operations practices will become a necessity. Some such priorities for present-day organizations are discussed in
some detail here:

½½ Relate the operations system to customer/market requirements. Choices in manufacturing and services cannot be made on
the basis of internal conveniences, as was the practice in the pre-reforms era. All the choices made in an organization
demand that the customer is central to the design, whether it concerns performance measures, manufacturing and
service-delivery system design, supplier management, or product development. If the customer has difficulty using a
product or service, there should be methods for understanding the difficulty and rectifying the mistakes. This calls for
better quality management practices in every organization.
½½ Acquire capabilities to tolerate product/service proliferation. Customers are likely to demand more choices and value-offerings
from manufacturing and service organizations. In order to remain competitive, every organization needs to under-
stand customer requirements and incorporate them in new product development initiatives. New procedures and
systems should link the customer layer to other layers of an organization (see Figure 1.4). The development of new
products and models often becomes necessary for organizations. However, large product/service variations often
result in a spectrum of offerings ranging from “low-volume, high-variety” to “high-volume, low-variety.” Operations
management practices need to address these requirements and enable managers to handle the complexities arising out
of variety.
½½ Develop systems and procedures that promote learning. Continuous improvements in factors affecting competition, such as
quality, delivery, cost, and responsiveness, are very important for every organization. These improvements do not take
place in isolation or by mere accident. Instead, improvements happen out of continuous learning on the part of the
employees in an organization. A good operations management practice in an organization will help the organization set
up a continuous improvement methodology. New systems and procedures that help employees to learn need to be put
in place.
½½ Develop green manufacturing practices. Green manufacturing practices are operational practices that ensure that products are
manufactured in a sustainable manner by conserving scarce natural resources and minimizing pollution and other nega-
tive impacts on society and nature.

Environmental imbalances are of great concern as they threaten the society and its sustainability. Non-governmental
organizations (NGOs) and interest groups such as Greenpeace, international bodies such as the World Trade Organization
(WTO), and government and regulatory bodies impose stringent regulations on organizations to reduce the adverse effects
of manufacturing activities on the environment. Policy makers have brought in new legislations that put regulatory pres-
sures on businesses as a means to address environmental concerns. Notable among these are the EU directives on com-
pulsory product-take-back at the end of life of a product, The Netherlands National Environmental Plan, and the package
recycling and product take-back laws in Germany.2 In Germany, the Commercial and Industrial Waste Avoidance and
Management Act holds producers responsible for end-of-life disposition, recovery, and reuse of their products.3 Therefore,
it is inevitable for every organization to develop green manufacturing practices.
In an era where human beings are facing serious environmental concerns like global warming and depletion of natu-
ral resources, organizations should reduce the total environmental burden by moving beyond mere “greening” and take
ownership of the environmental impacts associated with the total life cycle of the product. This essentially calls for funda-
mental changes in the underlying product and process design, taking into account all possible effects a product might have
throughout its life on the environment, both within the firm and beyond its boundaries. The use of clean technologies is
another important requirement for maintaining a balanced environment.

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 Operations Management: Trends and Issues 19

ideas
at Work India – an emerging global Manufacturing Base
1.3
Mounting global competitive pressures 8000 MW electricity from distant generating stations.
have forced multi-national companies Similarly, Siemens Ltd. launched SWT-2.3-113 direct
(MNCs) to look for the most competitive way of drive wind turbine targeted at low to moderate wind
manufacturing and delivering products and services. markets.
Being one of the BRIC (Brazil, Russia, India, and China) The second factor that drives India as an emerging
countries, India seems to be an attractive location manufacturing base is to utilize these capabilities and
for the MNCs to invest into the future. Siemens, for deliver cost-effective products and services to global
instance, found that during the recent global recession, markets. Using the capabilities in manufacturing, engi-
Asia in general and both India and China in particular neering, and redesigning tools in India, Siemens AG
have escaped from the recession by showing steady has been able to cut costs by 30–50%. On account
growth. Siemens AG (German parent company) CEO of these, the attractiveness of India increases. For
believes that Siemens Ltd. (Indian subsidiary) will instance, Siemens AG in its annual internal evaluation
play a key role not only as a manufacturing base but ranked Siemens Ltd. the second best regional company
also by generating own innovations and local supply in 2010–11, ahead of the US, China, and many others.
chains. This encourages the MNCs to explore more
The growing importance of India as a manufac- opportunities in India. In the case of Siemens AG, it
turing base stems from three main factors. First is has responded to these developments by investing
the peculiarity of the Indian market that is extremely significantly in India in recent times. Siemens AG has
cost sensitive. Therefore, there is an in-built need invested 1 billion euros in Siemens Ltd. in 2011. In
to develop products that are priced low without January 2012, it opened up two new factories in India
compromising on quality and meeting optimum in addition to the existing 20.
specifications of the customers. In Siemens Ltd., India is at the central point of the global growth
this was addressed by developing SMART products strategy of several firms. This is because of a vibrant
(S – Simple to use; M – Maintenance friendly; A – domestic market and the potential to serve as a
Affordable; R – Reliable, and T – Timely-to-Market). manufacturing base for the global market. It may,
For example, Siemens Ltd. delivered the world’s first therefore, not be surprising to see India emerge as a
1200 kV sulphur hexafluoride (SF6) circuit breaker to global manufacturing base as the Siemens example
Power Grid Corporation of India Ltd., which requires seems to point to us.
less than half the space and fewer lines to transmit
Source: Bana, S. (2012), “Ahead of the Curve”, Business India, April
the same power. It also has the capacity to transmit 15, 2012, pp 46–54.

s uMMa r y
• Operations management is a systematic approach to spectrum. In reality, a vast majority of operations share
addressing issues in the transformation process that the continuum of products and services.
converts inputs into useful, revenue-building outputs. • Despite several important differences between prod-
• globally, India is emerging as an important manufactur- ucts and services, from an operations management per-
ing base and is closely competing with China in attracting spective, there are several similarities between the two
several multinational companies to set up their manu- settings.
facturing plants in India. Several recent studies point • Every organization has five layers that make up its value
to emerging opportunities for Indian manufacturing to chain. The physical arrangement of these five layers
grow and attain a global presence. depicts the structural aspects of an operations system.
• From an operations management perspective, a “pure • The decision context in operations management can be
product” and a “pure service” are just two ends of a broadly classified as design issues and operations control

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 20  Operations Management

issues. Moreover, there are long-term and short-term economic liberalization and globalization, growing aspi-
decisions involved in operations management. rations of customers, rapid technological advances, and
•• Some of the challenges faced by operations firms include emerging environmental concerns.
the need to address increased competition due to

R E V I EW Q U E S T I O N S
1. What is an operations system? Give some examples of 8. What do you understand by the term systems perspective?
operations systems. Use the example of operations management to explain.
2. What do you understand by the term “operations 9. What is the role of operations in an organization? What
management”? are the other functions in an organization? Are these
3. What are the major operations management issues that functions independent of one another? Give some
manufacturing organizations face in India? examples to support your argument.
4. How would you define a service system? Give some 10. What are the various functions of operations and how
examples to support your definition. are they linked to other parts of an organization?
5. How important is it to apply formal management princi- 11. Distinguish between the following terms:
ples to service operations? (a) Service attributes and product attributes
(b) Manufacturing organizations and service organizations
6. “There is nothing like a service system or a manufactur-
(c) Design functions and operational control functions
ing system. In reality, there is a continuum between these
in operations
two extremes.” Comment on this statement.
(d) Long-term functions and short-term functions in
7. “Services are very different from manufacturing. operations
Therefore, it is not appropriate to use the same set of
12. Identify three emerging environmental concerns and
principles for managing operations in manufacturing
their impact on operations management. What changes
and service organizations.” Do you agree with this state-
do you envisage in operations management to address
ment? Give reasons in support of your argument.
these concerns?

N E T - W I S E E X E R C I S E S
1. Visit the following Web sites to understand the current about the status of the Indian service sector and its export
trends and the growth in India’s manufacturing sector: potential. Furthermore, there are several important links
•• http://indiabudget.nic.in/budget2013–2014/es2012– listed in this Web site. Look them up and prepare a report
13/echap-09.pdf on the status of the service sector and its export potential
•• http://nmcc.nic.in/default.aspx (examine the contents by answering the following questions:
under various heads) (a) Comment on the growth of the Indian services sector
•• http://nmcc.nic.in/pdf/strategy_paper_0306.pdf  (go and its exports during the last ten years.
through the report on a strategy for the manufactur- (b) Is India a dominant player in global trade for services?
ing sector) Does it export more services? What types of services
Now, answer the following questions: are exported from India?
(a) What is your understanding of the status of the 3. In the future, all manufacturing and service organiza-
manufacturing sector in the country? tions would be required to adhere to sustainable prac-
(b) What are the key steps that the National Manu- tices. Therefore, every operations manager must develop
facturing Competitiveness Program proposes to a good understanding of the issues and challenges that
improve the competitiveness of manufac-turing? they are likely to face and pos-sible actions that they can
2. Visit http://www.servicetax.gov.in/to know more about take to address these concerns. Visit the following URLs
the growth of service tax in India. Look up http://fieo. and study in detail how environmental issues are being
org/view_section.php?id=0,23&lang=0 to know more addressed by organizations:

M01_OPERATIONS_MANA_XXXX_CH01.indd 20 10/16/2014 8:17:09 PM

 Operations Management: Trends and Issues   21

•• http://www.ecocycle.org/ manufacturing organizations? Can you identify two

•• wwww8.hp.com/us/en/hp-information/global- areas on which product take-back will have significant
citizenship/reporting.html impact and show how they will be affected?
Prepare a report to answer the following questions: (b) How does Hewlett-Packard address environmental
(a) What are the implications of the mandatory concerns? Identify three interesting aspects of their
requirement of “product take-back”? How will it policy and show how an operations manager could
affect the operations management practices of implement these policies in his/her organization.

N O T E S
1. For details, visit http://www.servicetax.gov.in 3. V. D. R. Guide and L. N. Wassenhove, “Managing Product
2. M. Sharfman, R.T. Ellington, and M. Meo, “The Next Step Returns for Remanufacturing,” Production and Operations
in Becoming ‘Green’: Life-Cycle Oriented Environmental Management 10, no. 2 (2001): 142.
Management,” Business Horizons, May–June 1997, pp.13–22.

S U G G E S T E D R E A D I N G S
•• Deloitte Touche Tohmatsu Limited, “Global Manufacturing •• R. Jayakar, “Manufacturing’s Next Export Wave,” Business
Competitiveness Index 2013”, http://www2.deloitte. Today, 24 April 2005, pp. 66–72.
com/content/dam/Deloitte/global/Documents/ •• R. Joshi, “How to Get Manufacturing Going”, Business
Manufacturing/gx_2013%20Global%20Manufacturing%20 India, Dec. 9–22, 2013, pp. 42–48.
Competitiveness%20Index_11_15_12.pdf. •• S. Kumarapuram, “Making the Cut”, Business World,
•• P. Arora, “The Positive Credit Impact of Quota 10 December 2012, pp. 22.
Dismantling,” CRISIL Rating Scan, March 2005, pp. 3–8. •• N. Madhavan, “Ford India is Changing the Way its Parent
•• V. Babu, “Pulse on the future”, Business World, 5 March Ford Motor Company Functions” Business Today, 18
2012, pp. 40–45. March 2012, pp. 106–110.
•• S. Bana, “Ahead of the Curve”, Business India, 15 April •• K. Mitra, “Bloodbath in white goods”, Business Today, 17
2012, pp. 46–54. July 2005, pp 118–122.
•• D. Chaki, “Straight from the Heart”, Business India, Sep. •• G. P. Pisano and W. C. Shih, “Does America Really Need
30–Oct. 13, 2013, pp. 61–63. Manufacturing?”, Harvard Business Review, 2012, 90(3),
•• R. Dhawan, G. Swaroop, and A. Zainulbhai, “Fulfilling pp. 94–102.
the Promise of India’s Manufacturing Sector”, McKinsey •• N. Ravichandran, and D. Bahuguna, “Rule Bound
Quarterly, March 2012. Government Agency to Customer Centric Service
•• J. R. Immelt, “The CEO of General Electric on Sparking Facility: Can Indian Passport Offices Make the Leap?”
an American Manufacturing Renewal”, Harvard Business IIMB Management Review, 2006, 18 (1), pp: 59–66.
Review, 90(3), pp. 43–46.

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