Operations Management

Mr.S.Saravanan.,
 Systems (Holistic) Approach

• Emphasize interrelations among subsystems.

• A systems approach is essential whenever something is being
designed, redesigned, implemented, or improved. It is important
to take into account the impact on all parts of the system.
• Example: A new feature is added to a product.
• Designer must take into account how customers will view the change,
instructions for using new feature, the cost, training of workers,
production schedule, quality standard, advertising must be informed
about the new feature.

“The whole is greater than

the sum of the parts.” 2
 Degree of Standardization !
• Standardized output
• Take advantage of
• standardized methods,
• less skilled workers,
• standard materials.
• Example: Iron, Wheat, most of commodities

• Customized output
• Each job is different
• Workers must be skilled
• Example: Hair cut, outputs of most service operations. 3
Manufacturing vs. Service Operations
• Production of goods
• Tangible products
• Automobiles, Refrigerators, Aircrafts, Coats, Books, Sodas
• Services
• Repairs, Improvements, Transportation, Regulation
• Regulatory bodies: Government, Judicial system, FAA, FDA
• Entertainment services: Theaters, Sport activities
• Exchange services: Wholesale/retail
• Appraisal services: Valuation, House appraisal
• Security services: Police force, Army
• Financial services: Banks
• Education: Universities, K-12 schools
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 Manufacturing vs. Service
Operations
• Differences with respect to
1. Customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
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 Manufacturing vs. Services
Characteristic Manufacturing Service
Output Tangible Intangible
Customer contact Low High
Uniformity of output High Low
Labor content Low High
Uniformity of input High Low
Measurement of productivity Easy Difficult
Opportunity to correct quality problems Easy Difficult

Steel production Home remodeling Auto Repair Maid Service Teaching

Automobile fabrication Retail sales Appliance repair Manual car wash Lawn mowing
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High percentage goods Low percentage goods

 Responsibilities of Operations Management
 Controlling
• Planning – Inventory
• Capacity, utilization – Quality
• Location – Costs
• Choosing products or services  Organization
• Make or buy – Degree of standardization
• Layout – Subcontracting
• Projects – Process selection
• Scheduling  Staffing
• Market share – Hiring/lay off
• Plan for risk reduction, plan B? – Use of overtime
• Forecasting – Incentive plans
In a nutshell, the challenge is
“Matching the Supply with Demand”
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SUPPLY SIDE DEMAND SIDE

 Consequences of the Mismatch are
Air travel Severe Emergency room Retailing Iron ore plant Pacemakers

Supply Seats on specific Medical service Consumer Iron ore Medical equipment
flight electronics

Demand Travel for specific Urgent need for Consumers buying a Steel mills Heart surgeon
time and destination medical service new video system requires pacemaker
at exact time and
location

Supply Empty seat Doctors, nurses, and High inventory costs; Prices fall Pacemaker sits in
exceeds infrastructure are few inventory turns inventory
demand under-utilized

Demand Overbooking; Crowding and delays Foregone profit Prices rise Foregone profit
exceeds customer has to take in the ER, potential opportunity; (typically not
supply different flight (profit diversion of consumer associated with
loss) ambulances dissatisfaction medical risk)

Actions to Dynamic pricing; Staffing to predicted Forecasting; quick If prices fall too low, Distribution system
match supply booking policies demand; priorities response production facility is holding pacemakers
and demand shut down at various locations

Managerial About 30% of all Delays in treatment or Per unit inventory Prices are so Most products
importance seats fly empty; a 1- transfer have been costs for consumer competitive that the (valued $20k) spend
2% increase in seat linked to death; electronics retailing primary emphasis is 4-5 months waiting in
utilization makes commonly exceed on reducing the a trunk of a sales
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difference between net profits. cost of supply person before being
profits and losses used
 Production Vs Operation
• To provide the best quality product at minimal
cost and on time.
• Ex: Garment Manufacturing Process
• To ensure the best use of company resources,
managing the processes of producing and
distributing products and services
• Ex: car manufacturing process with an organisation
 Production and operations
management

What is production and operations?

 The part of a business organization that is responsible
for producing goods or services

How can we explain production and operations

management?
 The management of systems or processes that create
goods and/or provide services
 Definition

“ Operation Management is the set of activities

that create goods and services through the
transformation of inputs into outputs.”
 Production vs Productivity
S.no PRODUCTION PRODUCTIVITY

1. Production is defined as the process of producing goods from raw materials. On the other hand, productivity is defined as
the process of producing goods and services
efficiently.
2. The production focuses on the availability of the factors of production, i.e., Productivity focuses on the ways these
land, capital, entrepreneurship, and capital. factors of production are utilized.
3. The land is the key factor of production. Efficiency is the key factor of productivity.
4. A production is an act of creating something. Productivity is the act of calculating the
products produced.
5. Production is undertaken to produce goods. Productivity is used for adaptation.

6. Production controls the output value. Productivity controls the formation/

production issues.
7. The production represents the number of products produced. Productivity represents the ratio of output to
input.
8. Production is the process of conversion. Productivity is the process of utilization of
the available resources.

9. Production is expressed in absolute terms. Productivity is expressed in relative terms.

10. The production helps in fulfilling the needs of the customers. Productivity helps in increasing and
improving productivity.
 Objectives of Production/
Operations Management
• Maximum customer satisfaction through quality, reliability,
cost, and delivery system
• Minimum Scrap/ rework resulting in better product quality
• Minimum Possible inventory levels(i.e, optimum inventory
level)
• Maximum utilization of all kinds of resources needed
• Minimum cash outflow

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 Contd.,

• Maximum employee satisfaction

• Maximum possible production (i.e.,Output)
• Higher operating efficiency
• Minimum production cycle time
• Maximum possible profit or return investment
• Concern for protection of environment
• Maximum possible productivity
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Nature of Operations Management

Know the production & operation function as process of value

addition.
Recognize the distinction between product & services.
Understand all organizations as conversion system whether in
manufacturing or service sectors.
Identify problems of decision making in operations management.
Distinguish functions & requirements of different departments.
Facilities required for production & operation.
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• PDCA
• Plan
• Do
• Check
• Act

Operations
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 Scope/Functions of operations management

The operations function includes many

interrelated activities such as:
– Forecasting
– Capacity planning
– Scheduling
– Managing inventories
– Assuring quality
– Motivating employees
– Deciding where to locate facilities
Importance of Operations Management

 Growth of Technology
 Availability of variety of products
 Quality consciousness
 Globalisation
Operation Management Transformation Role
 The input-transformation-output model

Transformed
resources

Materials
Information
Customers

Transformation Goods
Input Output and
process services

Transforming
resources

Facilities
Staff

UNIT 1
 Inputs

Transformed resources – the resources that are treated,

transformed or converted in some way. The transformed
resources which operations take in are usually a mixture of
materials, information and customers.

Transforming resources – the resources that act upon the

transformed resources. Facilities and staff are the two types of
transforming resources. Facilities include building, equipment,
plant and process technology etc., Staff includes all those who
operate, maintain, plan and manage the operation.

UNIT 1
 Operations Management
The output from most operations is a mixture of goods and services

PURE GOODS
Tangible
CRUDE OIL PRODUCTION

Can be stored
ALUMINIUM SMELTING Production precedes
consumption

SPECIALIST MACHINE TOOL

Low customer
contact
MANUFACTURER Can be transported
Quality is evident
RESTAURANT

COMPUTER SYSTEMS
SERVICES

PSYCHOTHERAPY CLINIC
CONSULTANCY
MANAGEMENT
Intangible
Cannot be stored
Production and
consumption are
simultaneous
High customer contact
Cannot be transported
Quality difficult to judge
PURE SERVICES
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 Similarities-Service/
Manufacturers
 All use technology
 Both have quality, productivity, & response issues
 All must forecast demand
 Each will have capacity, layout, and location issues
 All have customers and suppliers
 All have scheduling and staffing issues

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 Goods Vs Services

Operations
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 Historical Development
 Industrial revolution Late 1700s
 Scientific management Early 1900’s
 Human relations movement 1930s to 1960s
 Management science Mid-1900s
 Computer age 1970s
 Just-in-Time Systems (JIT) 1980s
 Total quality management (TQM) 1980’s
 Reengineering 1990s
 Flexibility 1990s
 Time-Based Competition 1990s
 Supply chain Management 1990’s
 Global Competition 1990s
 Environmental Issues 1990s
 Electronic Commerce Late 1990s
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 Challenges

• National Global focus

• Batch shipment to JIT
• Low bid purchasing to Supply chain partnering
• Lengthy product development to Rapid development,
alliances
• Standard products to mass customisation
• Job specialisation to empowered employees, team
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 Operations Strategy

Operations strategy is the total patterns of

decisions and actions which set the role,
objectives and activities of the operation so
that they contribute to, and support, the
organisation’s business strategy

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 Operations Strategy/
Decisions Types

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 Operations
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 Operations
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 Recent Trends

E-Business & E-Commerce

Management of Technology
Globalization
Management of Supply Chains
Outsourcing
Agility
Ethical Behavior
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 Product Life cycle

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 Productivity

Measuring Productivity

Productivity is a measure of how efficiently inputs

are converted to outputs

Productivity = output/input

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 Operations
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 Continuous/Mass Production

Also called as Flow Production

Ex: Car, Chocolate, Newspaper

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 Job Production

Production volume is low and variety is high

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 Batch Production

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 Decision Making in OM

Strategic Decisions
Operating Decisions
Control Decisions

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 Supply Chain

Supply Chain – a sequence of activities and

organizations involved in producing and delivering a
goods or service

Suppliers’ Direct Final

Producer Distributor
suppliers suppliers Customers

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 Operations Management

Operations Decision Making

Marketplace

Corporate Strategy

Finance Strategy Operations Strategy Marketing Strategy

Operations Management

People Plants Parts Processes

Materials & Products &
Customers Services
Planning and Control

Input Output

The Transformation Process (value adding) 4

 Operations
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 Operations Management

Key OM Concepts
• Efficiency - Doing something at the lowest
possible cost

• Effectiveness - Doing the right things to create

the most value for the organization

• Value - Quality divided by price

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 Operations Management

Transformations

• Physical--manufacturing
• Locational--transportation
• Exchange--retailing
• Storage--warehousing
• Physiological--health care
• Informational--telecommunications
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 Operations Management

Examples of Production Systems

System Inputs Conversion Output
(desired)
Hospital Patients Health Care Healthy
MDs, Nurses Individuals
Medical Supplies
Equipment
Restaurant Hungry Customers Prepare Food Satisfied
Food, Chef Serve Food Customers
Servers
Atmosphere
Automobile Sheet Steel Fabrication High Quality
Plant Engine Parts and Assembly Automobiles
Tools, Equipment of Cars
Workers
University High School Grads Transferring Educated
Teachers, Books of Knowledge Individuals
Classroom and Skills

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 Operations Management

What about McDonald’s?

• Service or Manufacturing?

• The company certainly manufactures tangible

products

• Why then would we consider McDonald’s a

service business?