OPERATIONS MANAGEMENT
Faculty:
Department of Operations
Unit 1
Introduction to Operations & Operations Strategy
Course Objectives
• Understanding the basics of operations management using manufacturing and
service examples
• Explain the roles and responsibilities of operations managers in different
organizational contexts.
• Apply the planning and control concepts for decision-making
• Analyze the operations to identify areas for improvement
• Evaluate strategies for improvement in manufacturing and service contexts
COURSE OUTLINES
Sessions
7 hrs
7 hrs
8 hrs
7 hrs
7 hrs
Topics to be discussed
UNIT-I:
Introduction to Operations & Operations Strategy: Introduction to Operations ManagementScope, Need, Input-Process-Output Model, Nature of Operations, Goods Vs. Services, Four Vs,
Five Performance Objectives, Operations Strategy and its Formulation.
UNIT-II:
Designing Operations: Designing Products and Services: Product Development, Sequential vs
Concurrent Design. Process Design: Manufacturing and Service Process Types, Service
Delivery Systems. Facilities Location – Location Decision Relevant Factors.
UNIT-III:
Planning and Control of Operations – I: Layout Planning - Types of Layout, Implications for
Layout Planning, Layout Design. Dependent and Independent Demand, Strategies to Meet
Demand, Loading – Finite and Infinite, Sequencing, Capacity Planning.
UNIT-IV:
Planning and Control of Operations – II: Aggregate Production Planning (APP) - Strategies,
Master Production Scheduling – Linkages with APP. Evolution of ERP – Developing MRP
Logic - Bill of Materials (BoM), Lot Sizing Rules, Inventory Management.
UNIT-V:
Quality Management: Introduction to Quality and its Characteristics, Quality Philosophy –
Perspectives from WE Deming, PB Crosby and JM Juran, Quality Assessment Models and
Frameworks – FEQM and ISO9001, Service Quality, BPR vs Continuous Improvement –
Introduction to TQM, Lean and Six Sigma.
SCHEME OF EVALUATION
A1
A2
A3
A4
A5
Task
Mid exam
Coursera
Quiz/Project/Assignment
Case
End-term exam
Task type
Individual
Individual
Individual/Group
Individual/Group
Individual
Weightage (%)
15
10
20
15
40
Prescribed Text Book:
B. Mahadevan. Operations Management: Theory and Practice Third Edition.
Reference Book:
William J. Stevenson. Operations Management, nine edition, Tata Mc Graw Hill.
Operations Management
▪ Operations Management is:
The management of systems or processes that create
goods and/or provide services
Goods: Physical items produced by business
organizations
Services: Activities that provide some combination of time,
location, form and psychological value.
▪ Operations Management affects:
▪ Companies’ ability to compete
▪ Nation’s ability to compete internationally
5
Historical Evolution of Operations Management
• Industrial revolution (1770’s)
• Scientific management (1911)
• Mass production
• Interchangeable parts
• Division of labor
• Human relations movement (1920-60)
• Decision models (1915, 1960-70’s)
• Influence of Japanese manufacturers
The Organization
The Three Basic Functions
Organization
Finance
Operations
Marketing
Operations management at..... IKEA
Design elegant
products which can be
flat-packed efficiently
Design a store layout
which gives smooth
and effective flow
Continually examine
and improve
operations practice
Site stores of an
appropriate size in
the most effective
locations
Maintain
cleanliness and
safety of storage
area
Ensure that the jobs
of all staff encourage
their contribution to
business success
Arrange for fast
replenishment of
products
Monitor and enhance
quality of service to
customers
They are all operations
Back office
operation in a bank
Retail operation
Kitchen unit
manufacturing
operation
Take-out / restaurant
operation
Operations are everywhere
The best way to start understanding the nature of
“Operations” is to look around you
Everything you can see around you (except the flesh and
blood) has been produced by an operation
Every service you consumed today (radio station, bus
service, lecture, etc.) has also been produced by an
operation
Operations Managers create everything you buy, sit on,
wear, eat, throw at people, and throw away
Interfunctional relationships between operations
and other functions
Engineering/
technical
function
Understanding of
the capabilities and
constraints of the
operations process
Product/service
development
function
Analysis of new
technology options Understanding of
process technology
New product and
needs
Accounting
service ideas
Provision
Understanding of the
and finance
of relevant
capabilities and
function
data
constraints of the
Operations
Financial analysis
operations
process
function
for performance
Market
and decisions
requirements
Understanding of human
resource needs
Understanding Provision of systems for
of infrastructural design, planning and
and system control, and improvement
Recruitment
needs
development
and training
Human
resources
function
Information
technology
(IT) function
Marketing
function
Scope and need of Operations Management
Operations Management includes:
▪
▪
▪
▪
▪
▪
▪
▪
▪
Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating employees
Deciding where to locate facilities
Supply chain management
And more . . .
15
All operations are input-transformation-output processes
Inputs
Transformation process
Outputs
Operations input resources and outputs
Transformed
resources
•Materials
•Information
•Customers
Input
resources
Transformation process
Output
products and
services
Customers
Transforming
resources
•Facilities
•Staff
Outputs are products and services
that add value for customers
Value-Added Process
The operations function involves the conversion of
inputs into outputs
Value added
Inputs
Land
Labor
Capital
Transformation/
Conversion
process
Outputs
Goods
Services
Feedback
Control
Feedback
Feedback
Operations management uses…………
machines
to
efficiently
assemble
to treat real and
perceived patient
concerns
products
knowledge
to
effectively
diagnose
conditions
people
to
effectively
create
services that will
address current and
potential client needs
to
speedily
provide
supplies and services
that relieve
community suffering
creatively
present
ideas that delight
clients and address
their real needs
ours and our
partners’
resources
our staff’s
knowledge and
experience
to
Types of Operations
Operations
Goods Producing
Examples
Farming, mining, construction,
manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange
Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment
Films, radio and television,
concerts, recording
Communication
Newspapers, radio and television
newscasts, telephone, satellites
Operations management is changing
The business environment is
changing, for example……
 Increased cost-based competition
Prompting operations responses, for
example…….
Globalization of operations networking
 Higher quality expectations
Information-based technologies
 Demands for better service
Internet-based integration of operations
activities
 More choice and variety
Supply chain management
 Rapidly developing technologies
 Frequent new product/service
introduction
Customer relationship management
Flexible working patterns
Mass customization
Fast time-to-market methods
 Increased ethical sensitivity
Lean process design
 Environmental impacts are more
transparent
Environmentally sensitive design
 More legal regulation
Failure analysis
 Greater security awareness
Supplier ‘partnership’ and development
Business recovery planning
Goods vs Service
Characteristic
Customer contact
Uniformity of input
Labor content
Uniformity of output
Output
Measurement of productivity
Opportunity to correct problems
Inventory
Evaluation
Patentable
Goods
Low
High
Low
High
Tangible
Easy
High
Much
Easier
Usually
Service
High
Low
High
Low
Intangible
Difficult
Low
Little
Difficult
Not usual
22
Goods-service Continuum
Steel production
Home remodeling
Auto Repair
Maid Service
Teaching
Automobile fabrication
Retail sales
Appliance repair Manual car wash Lawn mowing
High percentage goods
Low percentage service
Low percentage goods
High percentage service
Food Processor
Inputs
Processing
Outputs
Raw Vegetables
Metal Sheets
Water
Energy
Labor
Building
Equipment
Cleaning
Making cans
Cutting
Cooking
Packing
Labeling
Canned
vegetables
Hospital Process
Inputs
Doctors, nurses
Hospital
Medical Supplies
Equipment
Laboratories
Processing
Outputs
Examination
Surgery
Monitoring
Medication
Therapy
Healthy
patients
Responsibilities of Operations Management
Planning
–
–
–
–
–
–
–
Capacity
Location
Products & services
Make or buy
Layout
Projects
Scheduling
Controlling/Improving
–
–
–
–
Inventory
Quality
Costs
Productivity
Organizing
– Degree of centralization
– Process selection
Staffing
– Hiring/laying off
– Use of Overtime
Directing
– Incentive plans
– Issuance of work orders
– Job assignments
Key Decisions of Operations Managers
• What
What resources/what amounts
• When
Needed/scheduled/ordered
• Where
Work to be done
• How
Designed
• Who
To do the work
Four performance objectives
Overall objective of the operations management:
 Quality
 Quantity
 Time
 Cost
Five Performance Objectives
The big 5 P’s of operations performance objectives are:
1.
2.
3.
4.
5.
Product
Plant
Programme
Process
People
Product
A product must have:
Performance
Quality and reliability
Aesthetics and ergonomics
Quantity and selling price
Delivery schedule
Plant
• The plant accounts for major investment
• The plant is concerned with:
(1) Design and layout of buildings,
(2) Reliability and maintenance of equipment,
(3) Safety of operations
• Plant layout must allow smooth movement of men and material.
• Type of layout dependent on production type, volume of demand
Process
Method used to create product
Selection of process depends on following factors:
• Available capacity
• Manpower skill available
• Type of production
• Layout of plant
• Safety
• Maintenance required
• Manufacturing cost
Programme
• Programme indicates timetable of production
• Programme prepares schedule for:
Purchasing
Transforming
Maintenance
Cash
Storage and transport
People
• People are part of organization. Success of organization depends on attitude and
skills of working people
• Job satisfaction depends on good matching between people and jobs.
• It is possible by:
i. Motivation
ii. Training of employees
iii. Condition of work
iv. Proper wages
Operations Strategy
Introduction
• No organization can tell exactly what will happen in the future.
• But all organizations need strategic direction and can benefit from some
idea of where they are heading and how they could get there.
• Once the operations function has understood its role in the business, it
needs to formulate a set of general principles which will guide its
decision making. This is the operations strategy of the company.
35
What is strategy?
Setting broad objectives that direct an enterprise towards its
overall goal
Planning the path (in general rather than specific terms) that
will achieve these goals
Stressing long-term rather than short-term objectives
Dealing with the total picture rather than stressing individual
activities
Being detached from, and above, the confusion and
distractions of day-to-day activities.
Strategic decisions
Strategic decisions are those decisions which: are
widespread in their effect on the organization to which the
strategy refers, define the position of the organization
relative to its environment, and move the organization
closer to its long-term goals.
‘Operations’ is not the same as ‘operational’
‘Operations’ are the resources that create products and
services.
‘Operational’ is the opposite of strategic, meaning day-today and detailed.
So, one can examine both the operational and the
strategic aspects of operations.
Operations Strategy
Relevance & Context
• Strategic planning exercise
Enables an organization to respond to the market needs in the most effective
manner by :
• By aligning various resources and activities in the organization
• To deliver products & services that are likely to succeed in the market
• Operations Strategy
• Is a process by which key operations decisions are made that are consistent
with the overall strategic objectives of a firm
• Decisions in the operations function are made on the basis of the inputs
from the overall corporate strategy
Corporate strategy is hierarchically the highest strategic plan of the organization, which defines the
corporate goals and ways of their achieving within strategic management. A vision and mission are
parts of the strategy. When developing the strategy, numerous analytical techniques are used
(PESTLE, SWOT, VRIO)
Need for Operations Strategy
• Competitive dynamics & expectations of customers change with time
• Due to the changes in market place, competitive priorities for an
organization is likely to change
– While it was customary for people to book for a passenger car and wait for a few
months to get delivery of the car, today a manufacturer of passenger cars cannot
afford to make customers wait that long
– Triveni Engineering, a manufacturer of Turbines faced a 40% reduction in the price
of turbines in the less than 3.5 million watts category over the last six years
• Need a mechanism to systematically respond to these changes in the
most effective way
• Need to tune their operations to match with the competitive priorities
Strategy Formulation Process Steps
• Step 1: Understanding the Competitive Dynamics at the
Marketplace
• Step 2: Identifying Order-Qualifying & Order-Winning Attributes
• Step 3: Deciding on Strategic Options for Sustaining Competitive
Advantage
• Step 4: Matching the strategic options with resources, constraints,
values & objectives to arrive at the overall Corporate Strategy
• Step 5: Developing an Operations Strategy on the basis of the
corporate strategy
• Step 6: Selecting appropriate options for configuring an Operations
systems & establishing relevant measures for operational excellence
Strategy formulation process
Competitive
Dynamics at
the marketplace
Order winners
Order Qualifiers
Strategic options for
Sustaining
competitive advantage
Firm level
Strengths &
Weaknesses
Strategic decisions for
Operations System
Generic Competitive Priorities
Quality, Cost,
Delivery, Flexibility
Corporate Strategy
Operations Strategy
Measures for
Operational Excellence
Order Qualifiers & Order Winners
• Order qualifying attributes are the set of attributes
that customers expect in the product or service they
consider for buying
• Order winning attributes are other attributes that have
the potential to sufficiently motivate the customer to
buy the product or service
• What constitutes order winning and order qualifying
might change from time to time
• During the early 1980’s providing superior quality products
was an order winning attribute. However, in the 1990’s
quality became an order qualifying attribute as customers
began to expect high levels of quality
• Order winning attributes include efficient consumer
response, speed, variety and convenience
Operational Excellence
Performance Measures
• Provide critical linkage between order winning and order
qualifying attributes and choices made in operations
• Help organisations evaluate how well the operations system
is responding to the requirements at the marketplace
• Serve a useful purpose in comparing performances amongst
competitors and for benchmarking
• Four generic options are useful for developing measures for
operational excellence; this includes Quality, Cost, Delivery
and Flexibility
Operational Excellence
Performance measures
Quality
Cost
First Pass Yield
Average days of inventory (No. of inventory turns)
Quality Costs
Manufacturing cost as percent of sales
Defects per Million Opportunities
Procurement costs, total cost of ownership
Number of suggestions per employee
Value of import substitution, cost reduction
Process Capability Indices
Target cost reduction efforts
Delivery
Flexibility
Lead time for order fulfillment
Number of models introduced
Procurement and Manufacturing Lead time
New product development time
On time delivery for supplies
Breadth and depth of the product and service offerings
Schedule adherence
Process flexibility
Indirect Measures
Indirect-labour to Direct-labour ratio
Number of suggestions per employee
Ratio of Lead time to work content
Non-value added content in processes
Process rate to sales rate ratio
No. of certified deliveries
Average training time per employee
Delivery quote for customized products and services
Strategic Decisions in Operations
Options
Product
Portfolio
Supply
Chain
Process
Strategic
Options for
Operations
Technology
Capacity
Operation Strategy Options
Product Portfolio
• Product portfolio pertains to decisions on
• what products the organization wants to produce
• the number of variations in each product line
• the extent of customization offered to customers
• Product portfolio as a strategic option
• Wide product portfolio: Overall strategic objective is to provide highly
differentiated set of products and services to the customer
• Narrow product portfolio: Overall strategic objective is one of cost
leadership
• Examples in Services & Manufacturing
• Air travel from Bangalore to Delhi: Indigo and Jet Airways differ vastly
in terms of the service offered
• Computer manufacturers, Dell and Lenova: Overall strategic objective
of Dell appears to be one of providing highly differentiated products,
Lenova appears to emphasize on robust and reliable computing power
Operation Strategy Options
Process Choices
• Three types of flow happen on account of process
choices:
• Continuous streamlined flow
• Intermittent or batch flow
• Jumbled flow
• Choice of process will be consistent with product
portfolio decisions
• A manufacturer emphasizing on production volumes, fewer varieties
and less cost will make process choices pertaining to continuous
streamlined flow (Hero Honda)
• An organization wishing to satisfy an objective of providing wide range
of products to the customers will adopt batch/intermittent flow type
• the need to provide a very large variety and practically a production
volume of one or few will adopt jumbled flow (BHEL)
Operation Strategy Options
Supply Chain issues
• Supply chain refers to the network of entities supplying
components and raw material to an organization as well as
those distributing the finished goods of an organization to the
customers through alternative channels
• Designing an appropriate supply chain calls for a better
understanding of the product profile for which the supply
chain is configured
• Two types of supply chains can be configured:
• Efficient supply chain: objective is cost optimization and better
utilization of resources employed in supply chain operations; typically
used in the case of functional products (machine tools, engineered
equipments)
• Responsive supply chain: the key objective is to develop a capability to
respond fast to the market requirements; typically used in the case of
innovative products (iPhone, Fancy Garments, trendy Electronics
Goods)
Operation Strategy Options
Technology Choices
• Technological advancements in recent years have given new
opportunities for creating competitive advantage for firms
• Case of Asian Paints utilizing technological advancements
for mixing of basic pigments to distribute paints in large
varieties of colours and in large assortment of sizes
• Using new technology options for manufacturing processes,
organizations can
• react faster to customer needs
• manage a wide portfolio of product offerings and
• yet maintain high levels of productivity
• Organizations making a strategic choice to operate in the
manufacture of mid-volume, mid-variety products could utilize
new technology
New Technology Options
Strategic Advantages
• Increased machine utilisation
• Scheduling flexibility: Permits an organisation to have flexibility in
scheduling thereby enabling the organisation to react to changes fast
• Ease of engineering challenges: Changes in engineering design and
process plans can be easily accommodated by use of technology
based manufacturing and process design.
• Ease of expansion: Provides volume flexibility to the organisation,
making it much easier to expand in response to a growing market
• Reduced manufacturing lead time
• Lower in-process inventory: Several of the above benefits directly
translate to lower work in process inventory and reduced cost of
manufacturing
Operation Strategy Options
Capacity
• Capacity is defined as:
• maximum number of units of goods that can be produced
per unit time in the case of manufacturing system
• the maximum number of service offerings that can be
made per unit time in the case of a service system
• Capacity decision influences the cost of goods & services
offered in three ways:
• Accrued cost advantage due to economies of scale
• Ability to spread fixed costs over a larger capacity
• additional cost advantages in procuring other factors of
production
World Class Manufacturing (WCM)
Core building blocks
• WCM firms perform very well in all the four
parameters of Quality, Cost, Delivery and Flexibility
at the same time using better operations
management practices
• The new operations management tools that form the
core building blocks of WCM are:
•
•
•
•
•
Just in Time (JIT)
Total Quality Management (TQM)
Total Productive Maintenance (TPM)
Employee Involvement (EI)
Simplicity
Changing Competitive Priorities for WCM
Weak companies are plagued by Trade-off obstacles
WCMs have gained an upper hand over the trade-off obstacles
54
QUESTIONS
COMMENTS
THANK YOU…