Unit 1

Concepts of managing operations

Chapter 1: Operations and Productivity
Lesson 2: Framework for managing operations

Learning Objectives
Strategic role of operations
Operations objectives
Trends in operations management
Careers options in POM

Good Morning students, today we are going to introduce the concept of what is
known as the Framework for managing operations.

Introduction
The lesson introduces you to the Framework for managing operations. You learn to
appreciate the strategic role that operations management plays in the contemporary
business and the trends in its analysis.

OM visited once more

Operations management is the effective Management of the conversion process, which
converts land, labor, capital, and management inputs into desired Outputs or goods and
services.

The operations manager's job is to manage the process of converting inputs into desired
outputs. Our definition of operations management is, then, the management of the
conversion process, which converts land, labor, capital, and management inputs
Into desired outputs of goods and services. In doing so, the manager uses various
approaches from the classical, behavioral, and modeling views of management.

Strategic role of operations

The strategic roles could be summarized as under:

Economy and efficiency of conversion operations are secondary goals.

Primary goals related to market opportunities.
Identify the potential within the industry.
Develop overall organisational strategy.

Operating managers are concerned with many different problem areas: cost control in
brokerage houses, quality of services in hospitals, and rates of production output in
furniture factories. Although operations managers occupy positions at several levels of
their organizations, and although they work in different kinds of organizations, they all
share certain kinds of problems as a study conducted at Boston University, reveals the
kinds of activities 160 executives are concerned with in U.S. and Canadian firms. The
respondents- managers or directors of operations, plant managers, divisional general
managers, vice presidents, and others with related duties stated that many of their firms’
most prominent activities for improving operations and to do with planning, organizing
and controlling the operation system and its conversion process.
You should have come to understand that the basic downward flow of strategy has
strong effects influences leading to managing conversion operations and results. The
general thrust of the process is guided by competitive and market conditions in the
industry, which provide the basis for determining the organization's strategy. The
following points assume significance:
Where is the industry now?
Where will it be in the future?
What are the existing and potential markets?
What market gaps exist?
what competencies do we have for filling them?
A careful analysis of market segments and the ability of our competitors and
ourselves to meet the needs of these segments will determine the best direction for
focusing an organization's efforts.

After assessing the potential within an industry, an overall organizational strategy must
be developed, including some basic choices of the primary basis for competing. In doing
so, priorities are established among the following four characteristics:

Quality (product attributes)

Cost efficiency (low product price)
Dependability (reliable, timely delivery of orders to customers)
Flexibility (responding rapidly with new products or changes in volume)

In recent years, we have learned that most organizations cannot be best on all these
dimensions and, by trying to do so, they end up doing nothing well. Furthermore, when
a competency exists in one of these areas, opting for / exploring available and different
options can lead to a downfall in effectiveness (meeting the primary objectives).

Time is emerging as a critical dimension of competition in both manufacturing and

service industries. In any industry the firm with the fastest response to customer
demands has the potential to achieve an overwhelming market advantage. Its
importance to companies like say, Copeland corporation can not be over emphasized.

In an era of time-based competition, a firm's competitive advantage is defined not by

cost but by the total time required to produce a product or service. Firms able to
respond quickly have reported growth rates over three times the industry average and
double the profitability. Thus the payoff for quick response is market dominance.

These basic strategic choices, then,

Set the tone for the shape of the operations function,
Set the tone for the content of the operations function,
 and what it accomplishes.
A conversion process designed for one type of focus is often ill suited for success in
another system.

Primary basis of competition

Let us now turn our attention to the main bases open to a modern organization on
which it can effectively compete. Could you think of some examples?
Well, what is required is to:

Establish priorities amongst the following four key characteristics:

Quality:
product performance
Cost efficiency:
low product price
Dependability:
Reliable
Timely delivery
Flexibility:
Response time
New products
Changes in output volume

Operations objectives
What are a firm’s operational objective?

Overall objective:
To provide conversion capabilities for meeting the organisation’s goals.
Subgoals:
Product characteristics
Service characteristics
Process characteristics
 Product quality
Service quality
Efficiency-on 3-d plane i.e.
Labour cost and effective employee relations
Cost control of operations
Cost control in facility utilization
Customer service-has 2 aspects i.e.
Meeting customer demand
Meeting delivery deadline
Adaptability

The overall objective of the operations subsystem is to provide conversion

capabilities for meeting the organization's goals and strategy. The sub goals of the
operations subsystem, then, must specify the following:

Product/service characteristics
Process characteristics
Product/service quality
Efficiency
(a) Effective employee relations and cost control of labor (b) Cost control of material
(c) Cost control in facility utilization

Customer service (schedule)

(a) Producing quantities to meet expected demand
(b) Meeting the required delivery date for goods or services

Adaptability for future survival

The priorities among these operations sub goals and their relative emphases should be
directly related to the organization's mission. Relating these six operations sub goals to
the broader strategic choices above, it is clear that quality, efficiency, and dependability
(customer service) are encompassed in the sub goals. Flexibility encompasses
adaptability but also relates to product/service and process characteristics. As we shall
discuss in the future lectures, once choices about product and process are made,
boundaries for meeting the other operations objectives are set.

Trade-offs and Alternatives in POM

The operations sub goals-that is, the objectives-can be attained through the decisions
that are made in the various operations areas. Each decision involves important
tradeoffs between choices about product and process versus choices about quality,
efficiency, schedule, and adaptability.
Consider the late-1980s and early-1990s- recall the popularity of frozen yogurt
desserts as an alternative to ice cream. Once a decision is made to sell yogurt in ice
cream-type parlors, many choices must be made.
The important issues are:
Where should facilities be located?
How large should they be?
What degree of automation should be used?
How skilled must labor be to operate the automated equipment?
Will the frozen yogurt be produced on site?
How do these decisions impact quality, efficiency, schedule (customer service), and
adaptability?
Are we prepared for changes in product or service, or do these decisions lock in our
operations?
These arc examples of the tough, crucial tradeoffs that are at the heart of
understanding the choices that must be made when planning strategically and
tactically.

Let us now discuss what you call trends in operations management.

Trends in operations management
Operations alternatives and Tradeoffs
Shifts in economic activity
Global perspective: emergence of services sector
 General model for managing operations

Are people doing the same kinds of work today that they have done in the past? The
question is important because operations management can usually be found where
economic activity is increasing. We can appreciate , looking over the past few
decades, how there has been an employment shift from agriculture and other
extractive (mining and contract construction) industries to the service sector:
agriculture decreased from 38 percent of the employed workers during 1900s to 3
percent in 1989 and the office workers increased from 28 percent in 1900 to 70
percent in 1989. The percentage of workers employed in industry has dwindled
steadily.
Will this trend continue?
It is quire possible that the percentage of workers in the service sector will gradually
continue to grow, but this growth most likely will be relatively slow. The most recent
data predict workers shifting from industry to the service sector, while the percentage
of agricultural workers will remain around 3 percent.

It is interesting to note that the largest sector of the U.S. economy today is in services. Of
the 47.6 million people employed in the United States in 1960s, 18.1 million were
employed in services. In 1989, 117.3 million people were employed, 82.1 million in
services. The fastest growing service sector has been government.
Look at the table given below:

Distribution of employed workers by major sectors of the

TA I L El. . economy, 1900-1985: Agriculture and other
Industries
Agriculture
Year Other Industry
Industry
1900 38% 34%
19]0 34 37
1920 30 39
 1930 27 35
1940 25 34
1950 15 40
1960 11 39
1970 5 34
1980 4 28
1989 3 27

The total labor force has increased some 69 million workers-64.0 million of whom work
in the service sector. Consequently, consumer expenditures have also shifted towards
services.
Increasing economic activity in the service sector suggests that many of you may find
yourselves employed in service industries. In the discussions during the class, we take the
position that operations management concepts, skills, and techniques are transferable
across the industry/service sectors and within industries and services. Our examples and
explanations therefore apply to both kinds of operations, even if only one is mentioned.
I would be failing in my duty as an instructor, if I don’t discuss the Macro Perspective
Hence, here goes.

Macro Perspective
Not all nations are shifting from industrialization to a manufacturing/service base as
described above for the U.S. economy-many are not yet industrialized. There are
three major industrialized world economic regions with reasonable balances in terms
of production and consumption: the Pacific Rim, North America, and Western
Europe. Outside these regions production often lags behind demand. Supply is
limited. Many nations are simply poor and are unable to produce effectively and
therefore cannot compete in a world economy.

One region under transition is Eastern Europe. In fact, all socialist cultures throughout
the world seem to be in transition. Operations Management Highlight and focuses on the
issues related to operations management in socialist cultures. As you can see, managing
in capitalist democracies such as Canada or the United States is very different.

Let’s do a very quick recap of:

CLASSICAL Management
Classical management deals with the three primary theories of management,
Emphasizing efficiency at the production core, the separation of planning and doing
work, and management principles and functions.
Operations Management is concerned with labor efficiency, especially- when labor is
costly. To determine how efficient labor is in a given situation, management sets an
individual standard, a goal reflecting an average worker's output per unit of time under
normal working conditions, say that the standard in a cafeteria is the preparation of 200
salads per hour. If labor input produces 150 salads per hour, how efficient is the salad
operation?
As you are fully aware, Classical management has contributed the scientific
management and process orientation theories to the operations manager's knowledge.
The basis of scientific management is a focus on economic efficiency at the production
core of the organization. Of central importance is the belief that rationality on the part of
management will yield economic efficiency. Economic efficiency, a term that many
organizations still use today, refers to a ratio of outputs to inputs. Organization efficiency
refers to a ratio of outputs to land, capital, or labor inputs.

The school of process management, also referred to as the administrative or

functional approach to management, was developed in the early 1900s. Management is
viewed as a continuous process of planning, organizing, and controlling.
Planning includes all activities that establish a course of action. These activities guide
future decision-making. Organizing includes all activities that establish a structure of
tasks and authority. Controlling includes all activities that ensure that actual performance
is in accordance with planned performance.

Behavioral management
It is one of the primary theories of management, emphasizing human relations and the
behavioral sciences.
Human relations Phenomenon recognized by behavioral scientists that people are
complex and have multiple needs and that the subordinate-supervisor relationship directly
affects productivity.

The school of behavioral management began in the 1920s with a human relation’s
movement that emerged quite unexpectedly from a typical scientific management
research study. The study intended to measure how changes in the work environment
affected output. Some social scientists on the research team, however, observed that
Changes in output were often due to factors other than physical changes in the work
environment. Workers seemed to respond favorably to the attention and interest the
experimenters had shown toward the workers, and productivity increased. This research
spawned a new attitude that seriously undermined the scientific management man-as-
machine concept.

Behavioral management theories espouse that people in their work environment, as

elsewhere, are extremely complex. Applied psychologists have developed behavioral
science theories of the individual; social psychologists, sociologists, and cultural
anthropologists have developed social systems theories of groups of people at work.
Operations Management explores how employee behavior is of critical concern to the
operations manager.

Behavioral science
A science that explores how human behavior is affected by leadership, motivation,
communication, interpersonal relationships, and attitude change.

Modeling management One of the primary theories of management, emphasizing

decision-making, systems, and mathematical modeling.
Modeling Management
The school of modeling management is concerned with decision-making and systems
theory, and mathematical modeling of these theories. The decision-making orientation
considers making decisions to be the central purpose of management. Advocates of
systems theory stress the importance of studying organizations from a "total systems"
point of view. According to this school, identifying subsystem relationships, predicting
effects of changes in the system, and properly implementing system change are all part of
managing the total organization. With its foundations in operations research and
management science, mathematical modeling focuses on creating mathematical represen-
tations of management problems and organizations. For a particular problem, the
variables are expressed mathematically, and the model is used to demonstrate different

Making jobs more interesting

We must continuously strive to make the job more interesting.
Can you think of ways to make this course delivery more interesting and challenging?
Think about it and let me know.
Meanwhile, let’s concentrate on issue at hand.

One partial solution, for example, may be to increase the participation in the work place.
According to the National Association of Suggestion Systems (NASS), employee
participation programs in the United States made jobs more satisfying and in the process
saved organizations $2.2 billion in 1988 alone. NASS distinguishes eight types of
suggestion systems: suggestion boxes, improvement teams, organization surveys, work
redesign, quality of work life, participative goal setting, gain sharing, and welfare
programs. We will look more closely at work redesign in Chapter 8, examining popular
approaches such as job enrichment, a job-characteristics approach, quality of work life,
and the Japanese-style management focusing on Hito No Wa (harmony and teamwork
among all people).
Are these work redesign efforts effective and are they being used?
An abundant number of studies support the conclusion that employees perform better and
are more satisfied in their jobs when work redesign is implemented. Yet it is not clear
whether work redesign is the cause for improvement or other simultaneous changes
are the causes-for example, a change to group work, new layouts, different equipment, or
new pay systems and pay levels. Canadian companies particularly are benefiting from a
wide range of innovative ways of organizing, rewarding, and managing workers. A
nationwide survey conducted from 1985 to 1986 provided ample evidence that the use of
innovative pay systems (pay for knowledge, gain sharing, profit sharing), job sharing, job
enrichment, semi-autonomous work groups, and other programs to improve employee
participation and satisfaction are sharply increasing. There is no evidence that this
increase is only part of a "cycle of participation" that will taper off, as some experts have
suggested.

Planning for operations management are the activities that establish a course of action
and guide future decision-making. The operations manager defines the objectives for the
operations subsystem of the organization, and the policies, programs, and procedures for
achieving the objectives. This stage includes clarifying the role and focus of operations in
the organization's overall strategy. It also involves product planning, facilities designing,
and using the conversion process.
Organizing Activities that establish a structure of tasks and authority. Operations
managers establish a structure of roles and the flow of information within the operations
subsystem. They determine the activities required to achieve the operations subsystem's
goals and assign authority and responsibility for carrying them out.
Controlling Activities that assure that actual performance is in accordance with planned
performance. It hence seeks to ensure that the plans for the operations subsystem are
accomplished, the operations manager must also exercise control by measuring actual
outputs and comparing them to planned outputs. Controlling costs, quality, and schedules
is at the very heart of operations management.
Behavior Operations managers are concerned with how their efforts to plan, organize,
and control affect human behavior. They also want to know how- the behavior of
subordinates can affect management's planning, organizing, and controlling actions. In
operations we are interested in the behavior of managers as well especially their decision-
making behavior.
Models As operations managers plan, organize, and control the conversion process, they
encounter many problems and must make many decisions. They can frequently simplify
these difficulties by using models. Types of models and examples of their uses would be
discussed as we progress further during our interaction.

Let us try to find out the likely problems to be faced by the operations manager.

PROBLEMS OF THE OPERATIONS MANAGER

Operating managers are concerned with many different problem areas:
Cost control in brokerage houses,
Quality of services in hospitals,
Rates of production output in furniture factories,
Effectively consolidating the operations resulting from mergers,
Developing flexible supply chains to enable mass customization of products and services,
Managing global supplier, production, and distribution networks,
Enhancing value-added services,
Making efficient use of Internet technology, to name a few.

Although operations managers occupy positions at several levels of their organizations,

and although they work in different kinds of organizations, they all share certain kinds of
problems. As explained earlier, a study conducted at Boston University, reveals the kinds
of problems U.S. and Canadian firms managers are likely to face. One of several theories
of classical management emphasizes economic efficiency at the production core through
management by rationality, the economic motivation of workers, and the separation of
planning and doing work.

Careers in POM
Time to share good news with you all.
At the start of the lecture, I remember telling you that there arc three major industrialized
world economic regions with reasonable balances in terms of patterns of production and
consumption: the Pacific Rim, North America, and Western Europe. Outside these
regions production often lags behind demand. Supply is limited. Many nations are simply
poor and are unable to produce effectively and therefore cannot compete in a world
economy.
One region under transition is Eastern Europe. In fact, all socialist cultures throughout
the world seem to be in transition.
If your career objectives are to advance to a top management position, operations is a
reasonable avenue to travel. One Fortune survey of (he 500 largest U.S. individual
companies found that chief executive officers had a production/operations career
emphasis 18.6 percent of the time.4 Besides the top position in the organization,
generally a vice president or similar officer is responsible for production/operations. How
might you gain such a position? What entry positions allow you to gain experience for
promotion within operations?
Two entry tracks are available: line and staff. Line positions are directly related to
achievement of the organization's financial, marketing, and operating objectives while
staff positions are supportive of line throughout the organization. Typical operations line
positions include first-line supervisors, management trainees, and foremen. Operations
staff positions include computer analysts, project analysts, inventory and material
planning and control, production planning, logistics, and quality control. Opportunities
abound in all these areas, especially in first-line supervision and computer-related and
materials management positions. In any of these jobs you will likely obtain product or
service knowledge about the firm for which you work-a necessity for most top
management positions.

A Relevant Example
Recently, two guests visited an undergraduate operations management class.
Responding to student questions on careers, one guest, the personnel manager at a
new Quaker Oats Company manufacturing facility, stressed an interest in
management, operations management, and industrial engineering students for entry
first line foreman positions. As she explained, the jobs were in a clean, modern
facility with good opportunity for line or staff advancement. The second guest, the
operations vice president at Boatmen's Bank of Kansas City, stressed an interest in
operations management majors for entry positions in operations analysis, a staff
function directly supporting bank operations. After six months to two years,
operations analysts typically move to line supervisory positions. In both cases,
promotion was available within operations and to other functions (marketing,
finance, etc.) as well.

Your choice of career deserves reasoned thought and direction. We suggest that in
making career choices in production/operations management you consider
(1) Opportunity for advancement, professional development, and visibility in the
organization
(2) Job satisfaction
(3) Monetary rewards
(4) Quality of life (climate, entertainment, etc.);
(5) Work group characteristics
(6) Individual needs and desires (location, health considerations etc.)
Operations management career decisions are amenable to change. Although you
might have to learn new technology in a major job change, operations management
skills are generally transferable across "services and manufacturing and within each
sector. Professional organizations and journals occasionally summarize career
opportunities in their operations management areas, thus providing a good source of
information.

Activity
See if you can identify the inputs, outputs and conversion processes in a veterinary clinic
consisting of:
3 veterinary doctors
1 clerical staff
2 Animal Control Assistants (ACA)
Identify the primary operations management activities in this setting.
You should consider how the addition of an operations manager to the clinic staff would
affect the cost and effectiveness of medical services.
Normally in a situation like this, the operations manager would be one of the
veterinarians. Could you explain to them why they should hire you to manage the
operations of the clinic?

Points to ponder

OM in the Organization Chart

Finance Operations
Operations Marketing

Plant
Plant Operations
Operations Director
Director
Manager
Manager Manager
Manager

Manufacturing,
Manufacturing,Production
Productioncontrol,
control,
Quality assurance, Engineering,
Quality assurance, Engineering,
Purchasing,
Purchasing,Maintenance,
Maintenance,etc
etc

©The McGraw-Hill Companies, Inc., 2004

 10

Core Services
Defined

Core services are basic things that

customers want from products
they purchase

©The McGraw-Hill Companies, Inc., 2004

11

Core Services Performance Objectives

Quality

Operations
Flexibility Speed
Management

Price (or cost

Reduction)

©The McGraw-Hill Companies, Inc., 2004

 12

Value-Added Services
Defined

Value-added services differentiate

the organization from competitors
and build relationships that bind
customers to the firm in a positive
way

©The McGraw-Hill Companies, Inc., 2004

13

Value-Added Service Categories

Problem Solving

Operations Sales Support

Information
Management

Field Support

©The McGraw-Hill Companies, Inc., 2004

 17

Current Issues in OM
• Effectively consolidating the operations
resulting from mergers
• Developing flexible supply chains to
enable mass customization of products
and services
• Managing global supplier, production and
distribution networks
• Increased “commoditization” of suppliers

©The McGraw-Hill Companies, Inc., 2004

18

Current Issues in OM (cont’d)

• Achieving the “Service Factory”
• Enhancing value added services

• Making efficient use of Internet

technology

• Achieving good service from service

firms

©The McGraw-Hill Companies, Inc., 2004