10-09-2022
Introduction to Operations
Management
10
Department of Mechanical Engineering, BITS Pilani
Introduction to operations management
✓ Operations are purposeful actions (or activities) methodically done as part of a plan of work by a
process that is designed to achieve practical ends and concrete objectives.
✓ OM designs, operates, and improves productive systems for getting work done
•
•
Activities in operations management include organizing work, selecting processes, arranging layouts,
locating facilities, designing jobs, measuring performance, controlling quality, scheduling work, managing
inventory, and planning production.
Operations managers deal with people, technology, and deadlines. These managers need good technical,
conceptual, and behavioural knowledge.
Operation as a
transformation
process
11
Department of Mechanical Engineering, BITS Pilani
1
10-09-2022
What is Operation Management?
Automobiles
Shopping
malls
Entertainm
ent
Hospitals
Transport
Operation
management
Office
Restaurants
Factory
Universities
Store
12
Department of Mechanical Engineering, BITS Pilani
Why to Study Manufacturing management or OM?
To know, how goods and services are produced?
To understand what operations managers do. Regardless of your job in an organization, you can perform better if you
understand what operations managers do.
A large percentage of the revenue of most firms is spent in the OM function
Manufacturing Planning and control
Transformation of
raw material to
finished product
Or production
Best product
Best output
Future goals
Operation sequence
Anticipation
Prediction
Maximum profit
Preventive step to
avoid variance from
targets, To ensure
compliance with
planned level
Minimum loses
13
Minimum wastages
Department of Mechanical Engineering, BITS Pilani
2
10-09-2022
Introduction
https://www.youtube.com/watch?v=hfQGHh5NIXI&t=81s&ab_channel=ScaleERP
14
Department of Mechanical Engineering, BITS Pilani
Operations as a technical core
Finance pays workers and suppliers, performs cost analyses, approves capital
investments, and communicates requirements of shareholders and financial markets
Outside the
organization
operations interacts
with suppliers to order
materials or services,
communicate
production and
delivery requirements,
certify quality,
negotiate contracts,
and finalize design
specifications.
Marketing provides
operations with sales
forecasts, customer
orders, customer
feedback, and
information on
promotions and
product
development
Human resources recruit, train, evaluate, and compensate workers
and to assist with legal issues, job design, and union activities
15
Department of Mechanical Engineering, BITS Pilani
3
10-09-2022
16
Department of Mechanical Engineering, BITS Pilani
Operations: Manufacturing Vs Service Operations
5
Manufacturing Operations
Service Operations
▪ Manufacturing operations transform materials into
desired goods and products.
▪ Operations can be described using different verbs and
object phrases such as
✓ Turning metal (on a lathe),
✓ Cutting paper,
✓ Drilling wood,
✓ Sand blasting glass,
✓ Forming plastics,
✓ Shaping clay,
✓ Heat-treating materials,
✓ Soldering contacts,
✓ Weaving fabric,
✓ Blending fuels,
✓ Filling cans,
✓ Extruding wires etc.
▪ Service operations in the office environment are quite
familiar, that is, filing documents, typing input for the word
processor, and answering the phone.
• There are similar lists of verbs and objects that apply to jobs
done in
✓ Banks,
✓ Hospitals, and schools:
✓ Granting loans,
✓ Taking X-rays, and
✓ Teaching classes are a few examples.
▪ Movies are one of the biggest export products of the United
States.
▪ Operations management applies directly to entertainment,
film-making, and sports.
17
Department of Mechanical Engineering, BITS Pilani
4
10-09-2022
Difference between Services and Manufacturing
Manufacturing
Services
▪ Organizations that primarily produce a ▪ Organizations that primarily produce an
tangible product by physical transformation
intangible product, such as ideas, assistance,
or information, and typically have high
▪ In
manufacturing
organizations
most
customer contact.
customers have no direct contact with the
operation. Customer contact occurs through ▪ In service organizations the customers are
distributors and retailers. For example, a
typically present during the creation of the
customer buying a car at a car dealership
service. Hospitals, colleges, theatres, and
never comes into contact with the automobile
barber shops are examples of service
factory
organizations in which the customer is
present during the creation of the service.
6
18
Department of Mechanical Engineering, BITS Pilani
Introduction: Sample organization structure
Operations managers are in demand in business,
industry, and government. Chief operating officers
(COOs) run major corporations as shown in Figure.
Vice-presidents of Operations and Supply Chain
Management oversee scores of departments,
facilities, and employees.
Typical jobs for new college graduates include business
process analyst, inventory analyst, project coordinator,
unit supervisor, supply chain analyst, materials
manager, quality assurance specialist, production
scheduler, and logistics planner
Ideas, techniques, concepts you learn in this course
can be used to organize, ensure quality and manage
process.
You can apply some aspect of OM and Supply chain
management to your future career.
19
Department of Mechanical Engineering, BITS Pilani
5
10-09-2022
Historical events in operations management
Production feats
▪
▪
▪
▪
▪
▪
▪
Industrial Revolution (1700)
Scientific Management (1900)
Human Relations (1930)
Management Science (1947- 70s)
Quality Revolution (1970-90s)
Globalization (1990s-2000s)
Information Age/Internet Revolution (Today)
2000 years old
2200 years old
Roman aqueducts
20
Department of Mechanical Engineering, BITS Pilani
Historical events in operations management
Industrial Revolution
1784
Mechanical loom
1870 assembly
line
1969
PLC
Industry 1.0
Industry 2.0
Industry 3.0
Industry 4.0
Mechanical
production
Mass
production
Automated
production
Cyber physical
system
Water/steam
power
Electric
power
Automation/
Electronics/
computers
AI/Big
data/robotics
Now
21
Department of Mechanical Engineering, BITS Pilani
6
10-09-2022
Historical events in operations management
Scientific Management
Principles of scientific management
Frederick W. Taylor
Time and motion studies (1911)
Frank & Lillian Gilbreth
Activity scheduling chart (1912)
Moving assembly line (1913)
Henry Gant
Henry Ford
Human Relations
Hawthorne studies
Motivation theories
1930
1940s
1950s
1960s
Elton Mayo
Abraham Maslow
Frederick Hertzberg
Douglas McGregor
22
Department of Mechanical Engineering, BITS Pilani
Historical events in operations management
Management Science
Linear programming
Digital computer
Simulation, PERT/CPM,
Waiting line theory
MRP
1947
1951
1950s
1960s
George Dantzig
Remington Rand
Operations research
groups
Joseph Orlicky, IBM
Quality Revolution
JIT
TQM
1970s
1980s
Strategy and operations
Reengineering
Six Sigma
1990s
1990s
Taiichi Ohno, Toyota
W. Edwards Deming,
Joseph Juran, et. al.
Skinner, Hayes
Hammer, Champy
GE, Motorola
23
Department of Mechanical Engineering, BITS Pilani
7
10-09-2022
Historical events in operations management
24
Department of Mechanical Engineering, BITS Pilani
Historical events in operations management
Era
Sustainability/
Green
Revolution
Concepts
Global warming
Carbon footprint
Green products
Corporate social
Responsibility
UN Global compact
Dates
Today
25
Originator
scientists,
statesmen and
governments,
World economic
forum
United Nations
Department of Mechanical Engineering, BITS Pilani
8
10-09-2022
Globalization
• Two thirds of today’s businesses operate globally through global markets, global
operations, global financing, and global supply chains.
• Globalization can take the form of selling in foreign markets, producing in foreign
lands, purchasing from foreign suppliers, or partnering with foreign firms.
• Companies “go global” to take advantage of favorable costs, to gain access to
international markets, to be more responsive to changes in demand, to build reliable
sources of supply.
26
Department of Mechanical Engineering, BITS Pilani
27
Department of Mechanical Engineering, BITS Pilani
Globalization
https://technologystudent.com/prddes_2/global1.html
9
10-09-2022
Globalization
Example
28
Department of Mechanical Engineering, BITS Pilani
Globalization
•
•
Cheaper products
Increased availability and variety
of products.
Cultural diversity, as people move
around the world following
employment.
Flow of technical skills from one
region of the world to another,
filling skill gaps.
Increased trade and
corresponding economic success.
The flow of ideas and education.
Products more widely available,
to poorer regions of the world.
The flow of ideas and education.
•
•
•
•
•
•
29
Department of Mechanical Engineering, BITS Pilani
10
10-09-2022
Globalization
* A U.S. worker receives roughly the
equivalent sum of money for working one
hour as a Sri Lankan worker earns in a 40hour week ($24.40)
Daily wages in India as per central Govt. norms varies from 500 -650 INR per day
India Hourly
compensation = 1.17 USD
* China's wage rate is $32.40 a week
World has moved its manufacturing to Asia, in
particular to the large and populous country of
China.
THE CHINA FACTOR
China accounts for 20% of the world’s population
and is the world’s largest manufacturer
Employing more production workers than
US, UK, DE, JP, IT, CN, and FR combined
Hourly Compensation Costs for Production Workers (in U.S. Dollars)
As much as China is known as the world’s manufacturer, India is renowned for its export of services
In 2009, India exported $47 billion in IT services, a number that is expected to reach $200 billion by 2020.
Indian companies, such as WIPRO, Infosys, and Tata Consultancy Services, are world leaders in software development
and business processes
30
Department of Mechanical Engineering, BITS Pilani
Globalization
The scale of manufacturing in China is mind-boggling. For example, Foxconn (the trade name of Taiwan’s Hon
Hai Precision Industry Company) has two enormous industrial complexes in mainland China.
The Guangdong Province site employs and houses approximately 270,000 workers, with its own dormitories,
restaurants, hospital, police force, chicken farm, and soccer stadium.
There are 40 separate production facilities “on campus,” each dedicated to one of its major customers such as
Apple, Dell, Motorola, Sony, Nintendo, and HP. Foxconn is the world’s largest electronics manufacturer and
China’s largest exporter.
It also represents a shorter supply chain because it makes components as well as assembles final products.
Currently, Foxconn is making a bid to enter the retail market in China and is expanding production into Mexico
to better serve the U.S. market.
31
Department of Mechanical Engineering, BITS Pilani
11
10-09-2022
PRODUCTIVITY AND COMPETITIVENESS
Competitiveness:
The degree to which a nation can produce
goods and services that meet the test of
international markets while
simultaneously maintaining or expanding
the real incomes of its citizens.
Productivity =
✓
✓
✓
✓
✓
Output
Input
Become more efficient
Downsize
Expand
Retrench
Achieve breakthroughs
BITS Pilani, Pilani Campus
PRODUCTIVITY AND COMPETITIVENESS
Osborne Industries is compiling
the monthly productivity report
for its Board of Directors.
From the following data,
calculate (a) labor productivity,
(b) machine productivity, and
(c) the multifactor productivity
of dollars spent on labor,
machine, materials, and energy.
The average labor rate is $15 an
hour, and the average machine
usage rate is $10 an hour.
BITS Pilani, Pilani Campus
12
10-09-2022
Strategy and operations
• Strategy is How the mission of a company is
accomplished
(Unites organization, consistency in decisions, keeps the
organization move in right direction)
• The strategic planning process involves a hierarchy of
decisions
• Senior management, with input and participation
from different levels of the organization, develops a
corporate strategic plan in concurrence with the
firm’s mission and vision, customer requirements
(voice of the customer), and business conditions
(voice of the business).
• The strategic plan focuses on the gap between the
firm’s vision and its current position
• It identifies and prioritizes what needs to be done to
close the gap, and it provides direction for
formulating strategies in the functional areas
34
Department of Mechanical Engineering, BITS Pilani
Strategy and Operations
Strategy formulation consists of five basic steps
◼
Defining a primary task
⚫
◼
Assessing core competencies
⚫
◼
⚫
What qualifies an item to be considered for purchase?
What wins the order?
Positioning the firm
⚫
◼
What does the firm do better than anyone else?
Determining order winners and order qualifiers
⚫
◼
What is the firm in the business of doing?
How will the firm compete?
Deploying the strategy
35
Department of Mechanical Engineering, BITS Pilani
13
10-09-2022
Strategy and Operations
PRIMARY TASK
•
•
•
The primary task represents the purpose of a firm—what the firm is in the business of doing.
It also determines the competitive arena.
As such, the primary task should not be defined too narrowly.
(For example, Norfolk Southern Railways is in the business of transportation, not railroads. Paramount is in the business of
communication, not making movies. Amazon’s business is providing the fastest, easiest, and most enjoyable shopping
experience, while Disney’s is making people happy! The primary task is usually expressed in a firm’s mission statement)
CORE COMPETENCIES
•
•
•
Core competency is what a firm does better than anyone else, its distinctive competence.
A firm’s core competence can be exceptional service, higher quality, faster delivery, or lower cost.
One company may strive to be first to the market with innovative designs, whereas another may look for
success arriving later but with better quality.
Breakthrough product
Core competencies are not static
36
Department of Mechanical Engineering, BITS Pilani
Strategy and Operations
ORDER WINNERS AND ORDER QUALIFIERS
•
•
•
A firm is in trouble if the things it does best are not important to the customer.
That’s why it’s essential to look toward customers to determine what influences their purchase decision.
Order qualifiers are the characteristics of a product or service that qualify it to be considered for
purchase by a customer.
An order winner is the characteristic of a product or service that wins orders in the marketplace—the
final factor in the purchasing decision.
For example, when purchasing a DVD
or Blu-ray player, customers may
determine a price range (order
qualifier) and then choose the product
with the most features (order winner)
within that price range. & Vice versa
Order Winners and Order Qualifiers
37
Department of Mechanical Engineering, BITS Pilani
14
10-09-2022
Strategy and Operations
POSITIONING THE FIRM
Strategic positioning involves making choices—choosing one or two important things on which to concentrate
and doing them extremely well. A firm’s positioning strategy defines how it will compete in the marketplace—
what unique value it will deliver to the customer.
• Competing on Cost
✓ Companies that compete on cost relentlessly pursue the elimination of
all waste.
✓ They improve yield by stabilizing the production process, tightening
productivity standards, and investing in automation.
• Competing on Speed
✓ More than ever before, speed has become a source of competitive
advantage.
✓ The Internet has conditioned customers to expect immediate response
and rapid product shipment.
✓ Service organizations such as McDonald’s, LensCrafters, and Federal
Express have always competed on speed.
✓ Now manufacturers are discovering the advantages of time-based
competition, with build-to-order production and efficient supply chains.
38
POSITIONING THE FIRM Contd..
Department of Mechanical Engineering, BITS Pilani
Strategy and Operations
• Competing the quality
✓ To compete on quality, companies must view it as an opportunity to please
the customer
✓ One good source is the American Customer Satisfaction Index compiled each
year by the American Society for Quality and the National Quality Research
Center
• Competing on Flexibility
✓ Marketing always wants more variety to offer its customers.
✓ Manufacturing resists this trend because variety upsets the stability (and
efficiency) of a production system and increases costs.
✓ The ability of manufacturing to respond to variation has opened up a new
level of competition.
✓ Flexibility has become a competitive weapon.
• Competing on Innovation
✓ Apple, Google, and 3M : Apple thinks differently to create incredibly
beautiful game-changing designs.
✓ Google’s open culture has produced such innovations as google street view,
google fiber, Google driverless vehicle etc.
✓ 3M a global innovation company, never stops inventing. Eg. Micro-needle
Department of Mechanical Engineering, BITS Pilani
39
patches
15
10-09-2022
Strategy and Operations
STRATEGY DEPLOYMENT
•
•
•
•
Implementing strategy can be
more difficult than formulating
strategy.
Strategy deployment converts
firm’s positioning strategy,
resultant order winners and
qualifiers into specific
performance requirement.
Policy deployment tries to
focus everyone in an
organization, on common goals
and priorities by translating
corporate strategy in a
measurable objective.
As a result everyone in the
organization should understand
the strategic plan
40
Department of Mechanical Engineering, BITS Pilani
Strategy and Operations
STRATEGY DEPLOYMENT
Example: Consider Schlitz Brewing Company, whose
strategy called for reduced costs and increased
efficiency.
Operations achieved its goals by dramatically
shortening its brewing cycle—and, in the process, lost 6
of every 10 customers when the clarity and taste of the
beer suffered.
The efficiency move that was to make the company the
most profitable in its industry instead caused its stock
value to plummet from $69 per share to $5 per share.
Schiltz has since been sold to Pabst Brewing Company
who combed through company documents and
interviewed retired Schlitz brewmasters and tasteStrategy deployment converts a firm’s positioning strategy and
testers to derive and reintroduce the original 1960’s
resultant order winners and order qualifiers into specific
“with gusto” formula.
performance requirements.
10
41
Department of Mechanical Engineering, BITS Pilani
16
10-09-2022
Balanced Scorecard
It examines a firm’s performance in four critical areas:
1. Finances—How should we look to our shareholders?
2. Customers—How should we look to our customers?
3. Processes—At which business processes must we excel?
4. Learning and Growing—How will we sustain our ability to change and improve?
•
It’s called a balanced scorecard because more than financial measures are used to assess performance.
•
Operational excellence is important in all four areas.
•
How efficiently a firm’s assets are managed, products produced, and services provided affects the financial
health of the firm.
•
Identifying and understanding targeted customers helps determine the processes and capabilities the
organization must concentrate on to deliver value to the customer.
42
Department of Mechanical Engineering, BITS Pilani
The Balanced Scorecard Worksheet
The worksheet selects areas of the
strategy map to incorporate in annual
objectives for the company.
KPI: A set of measures that help
managers evaluate performance
in critical areas.
The goals for the year are given, and
the KPI results are recorded.
The score converts the different
performance measures into
percentage completed.
For example, if the goal is to achieve
12 inventory turns a year and the
company manages only 6, then the
goal is 50% achieved.
The mean performance column
averages the score for each
dimension.
43
Department of Mechanical Engineering, BITS Pilani
17
10-09-2022
Balanced Scorecard
A Radar Chart of the Balanced Scorecard
Visualization of a scorecard performance:
Goals 0% to 40% achieved appear in
the red “danger” zone, 40% to 80% achieved are in the
yellow “cautionary” zone, and 80% to 100% achieved are
in the green “moving ahead” zone.
In this example, the company is in the danger
zone for human capital and distribution, but is doing
well with growth, quality, timeliness, and service.
44
Department of Mechanical Engineering, BITS Pilani
Balanced Scorecard
Dashboard scorecard
•
•
•
•
•
•
Red zone is set at 25% or less goal
achievement
Yellow from 25% to 75%
Green in excess of 75%
The company excels in growth, quality,
and timeliness, and is not in danger on
any measure.
Note that different limits can be set for
each gauge, and measures other than
percentages can be used.
Dashboards are popular ways for
managers to quickly interpret the massive
amounts of data collected each day and in
some cases can be updated in real time.
A Dashboard for the Balanced Scorecard
45
Department of Mechanical Engineering, BITS Pilani
18
10-09-2022
An Integrated Operations Strategy
✓ The operations function helps strategy evolve by creating new and better ways of delivering a firm’s
competitive priorities to the customer.
✓ Once a firm’s competitive priorities have been established, its operating system must be configured
and managed to provide for those priorities.
✓ This involves a whole series of interrelated decisions on products and services, processes and
technology, capacity and facilities, human resources, quality, sourcing, and operating systems.
✓ As shown in Figure, all these decisions
should “fit” like pieces in a puzzle.
✓ A tight strategic fit means
competitors must replicate the entire
system to obtain its advantages.
46
Department of Mechanical Engineering, BITS Pilani
THANK
YOU
19