UNIT I INTRODUCTION TO

OPERATIONS
MANAGEMENT
 UNIT I INTRODUCTION TO
OPERATIONS MANAGEMENT
Operations Management Nature,
Importance, historical development,
transformation processes, differences
between services and goods, a
system perspective, functions,
challenges, current priorities, recent
trends; Operations Strategy
Strategic fit, framework; Supply
Chain Management
 Operation management
refers to the administration of
business practices to create the
highest level of efficiency possible
within an organization
concerned with converting materials
and labor into goods and services as
efficiently as possible to maximize
the profit of an organization
Production Management
Classification of Production Systems
OM in Organizations
OM in Department Stores
OM in farm
 Operations Management
Operations management: The management of
the efficient transformation of inputs into outputs
to effectively satisfy customers.
The active role of operations:
Inputs become Outputs after some Transformation
(Process or Operation)
Food processing example
Inputs Transformation Outputs
Energy, Raw vegetables Cleaning Clean vegetables
Energy, Metal sheets Cutting/Rolling/Welding Cans
Energy, Vegetables Cutting/Chopping Cut vegetables
Energy, Water, Vegetables Cooking Boiled vegetables

Energy, Cans, Boiled vegetables Placing Can food

 Definition
According to Joseph G Monks OM is a process
whereby resources, flowing within a defined
system, are combined and transformed by a
controlled manner to add value in accordance
with policies communicated by management

The principles of OM help one to view a

business enterprise as a total system, in which
all activities are coordinated not vertically
throughout the organization, but also
horizontally across multiple functions
 Scope of OM
The operations function includes many interrelated
activities such as:
Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating employees
Deciding where to locate facilities
And more . .
 Learning Objectives
To understand the nature of typical OM
activities in business, what operations
managers do, and how everyone uses OM
principles in their work
To understand the nature of goods and
services, their similarities and differences
To understand the concept of a process and
value chain and how they are used in
operations to support the creation of goods
and services
 What Operations Manager
do?
Planning and Budgeting
Developing annual budgets
Staff plans
Watching technology that might affect
production
Inventory managmenet
Scheduling and capacity
Annual scheduling of resources
Quality
 Key Decisions of Operations
Managers
Typical operations decisions include:
What: What resources are needed, and in what
amounts?
When: When will each resource be needed? When
should the work be scheduled? When should
materials and other supplies be ordered?
Where: Where will the work be done?
How: How will he product or service be designed?
How will the work be done? How will resources be
allocated?
Who: Who will do the work?
 Historical Evolution of OM
Industrial Revolution
Scientific Management
Mass production
Interchangeable parts
Division of labor
Human Relations Movement
Decision Models and Management
Science
Influence of Japanese Manufacturers
Historical Events in OM
Historical Events in OM
Historical Events in OM
Historical Events in OM
 Understanding goods and
services
Good is a physical product that you
can see, touch, or possible consume
Orange, flowers, television, soap, fish,
furniture, personal computers, paper,
machines etc.,
Durable good is product that
typically lasts atleast three years
Vehicles, furniture, house hold items
etc.,
 Understanding goods and
services
Non durable good is perishable
and generally lasts for less than
three years
Tooth paste, software, shoes, fruits etc.,
Service is any primary or
complementary activity that does not
directly produce a physical product
Maintenance, repair, hospitality etc.,
 Understanding goods and
services
Service management integrates
marketing, human resource, and
operations functions to plan, create
and deliver goods and services and
their associated service encounters

Service encounter is an interaction

between the customer and the service
provider
 Similarities between goods and
services
Goods and services provide value
and satisfaction to customers who
purchase and use them
Both can be standardized or
customized to individual wants and
needs
A process creates and delivers each
good or service, and therefore OM is
a critical skill
 Differences between goods and
services
Goods are tangible while services are intangible
Customers participate in many service
processes, activities and transactions
The demand for service is more difficult to
predict than the demand for goods
Services cannot be stored as physical inventory
Service management skills are paramount to a
successful service encounter
Service facilities typically need to be in close
proximity to the customers
 Supply Does Not Naturally Match
Demand
Inventory results from a mismatch between supply and
demand
Mismatch can take one of the following two forms
Supply waits for Demand
Inventory = Finished goods and resources
Demand waits for Supply
Inventory is negative or said to be backordered in manufacturing
Inventory = Waiting customers in services
Mismatch happens because
the demand varies
the capacity is rigid and finite.
If the capacity is infinite, products (or services) can be provided at an
infinite rate and instantaneously as the demand happens. Then
there is no mismatch.
 Consequences of the Mismatch are
Severe
Air Travel Retailing Iron Ore Plant
Supply Seats on specific Consumer Iron ore
flight Electronics
Demand Travel for specific Consumers buying Steel mills
time and desitnation a new video system
Supply Empty seat High Inventory Prices fall
exceeds costs; few
demand inventory turns
Demand Overbooking; Foregone profit Prices rise
exceeds customer has to opportunity;
supply take different flight consumer
dissatisfaction
Actions to Dynamic pricing; Forecasting; quick If prices fall too
match booking policies response low, production
supply and facility is shut down
demand
Managerial About 30% of all Per unit inventory Prices are so
importance seats fly empty; a 1- costs for consumer competitive that
2% increase in seat electronics retailing the primary
 Todays OM Environment
Customers demand better quality,
greater speed and lower costs
Companies implementing lean
systems concepts a total systems
approach to efficient operations
Recognized need to better manage
information using ERP and CRM
systems
Increased cross-functional decision
making
Operations are everywhere
 Operations Competitive Priorities

Product and service design

Cost
Location
Quality
Quick response
Flexibility
Inventory management
Supply chain management
Service
 Recent trends in OM
Operations strategy.
Total quality management(TQM), team approach, service,
continuous improvement.
Flexibility, agile manufacturing.
Time reduction.
Technology advance.
Worker involvement.
Re-engineering (starting over).
Environmental issues.
Corporate downsizing.
Supply-chain management.
Lean production.
 Competitiveness and Performance
Measures
Short Time Horizon of Business Plans
Giving excessive weights to financial criteria
rather then other criteria.
Underinvestment in R&D
Diversification away from established
businesses to new areas, which promise short-
term profits. (Dilbert)
Strategic Weaknesses; Industry Level
Not focused on international Competition
Neglect of Manufacturing/Operations Function
relative to other functions
Lack of Investment
 Competitiveness and Performance
Measures
Lack of cooperation
Need for greater partnering and team efforts
within and between organizations
Weaknesses in Human Resources
Viewing H.R- as a cost, not an investment
Weaknesses in Technological Practices
early quality designs - weaknesses in process
design (with over innovation in product design,
under innovation in process design) - inability
to shorten "concept to cash"
 For competitive organization
(performance objectives)
Price (cost)
Lower costs/prices better.
Quality
how well can product or service serve its purpose.
Product Differentiation
what product characteristics make it better.
Flexibility
the ability to respond to changes.
Time
how rapidly something is accomplished
design of new products to delivery of existing products.
 Strategy
Mission: The reason for existence of an
organization.
Mission statement: A clear statement of
purpose that serves as a guide for strategy
and decision making.
Strategy: A plan for achieving organizational
goals. Strategies have functional strategies
and organizational strategies.
Tactics: The methods and actions taken to
accomplish strategies.
 Strategy and Operations
How the mission of a company is
accomplished
Provides direction for achieving a
mission
Unites the organization
Provides consistency in decisions
Keeps organization moving in the
right direction
 Strategy Formulation
1. Defining a primary task
What is the firm in the business of doing?
2. Assessing core competencies
What does the firm do better than anyone
else?
3. Determining order winners and order qualifiers
What qualifies an item to be considered for
purchase?
What wins the order?
4. Positioning the firm
How will the firm compete?
5. Deploying the strategy
 Strategic Planning
Mission
and Vision

Voice o he
f th Voice of t r
Busines e Custome
s Corporate
Strategy

Marketing Operations Financial

Strategy Strategy Strategy
Positioning the Firm
 Strategic Approach
Formulation of organizational strategy
should take into account the realities of
operations' strength and weakness,
capitalizing on strength and dealing with
weakness. (This is generally ignored in a
business.)
SWOT approach (strength, weakness,
opportunity, and threat) critically
examines factors that could have either
positive or negative effects.
SWOT Analysis
 Strategic Approach
Strategies which Japanese
manufacturing companies have
employed since World War II are:
Low labor cost strategy.
Scale-based strategy.
Focused factory strategy.
Flexible factory strategy.
 Strategic Approach
External factors of strategies:
Economic condition.
Political condition.
Legal environment.
Technology.
Competition.
Market.
Internal factors of strategies:
Human resources.
Facility and equipment.
Financial resources.
Customers.
 Strategic Approach
Many organizations are now adapting
strategies that are based on quality and/or
time.
Quality-based strategies focus on satisfying
customers by integrating quality into all phases of
the organization.
Time-based strategies focus on reducing the time
required to accomplish various activities.
The rationale is that, by reducing time, cost is
generally less, productivity is higher, quality
tends to be higher, product innovation
appears on the market sooner, and customer
service is improved.
Supply chain management
 Supply chain management

Right Product At Right Place

Right Quantity At Right Time

Right Quality At Right Value

 Supply chain management
SCM addresses the following areas
 Supply chain management
A set of processes and sub-processes which
attempt to implement and optimize the functions
connected entities and interacting elements of a
supply chain.
Involves
Organizations, procedures, people
Activities : Purchasing, delivery, packaging, checking,
ware housing etc.,
Establishment of long-term relationships with suppliers
and distributors
Effective flow of information through the supply chain
Supply chain optimization
 Supply chain management
Supply chain management
(SCM)
The coordination of all supply
activities of an organization
from its suppliers and partners
to its customers.
Upstream supply chain
Transactions between an
organization and its suppliers
and intermediaries, equivalent
to buy-side e- commerce.
Downstream supply chain
Transactions between an
organization and its customers
and intermediaries, equivalent
to selling side e- commerce
 upstream

supplie
r
supplie
r
supplie
r
manufactur distribute retaile custom
er r r er
supplie
r suppli
er

supplie
downstream
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fig: an example of supply chain.

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 Three flows in SCM
There are three kinds of
flows in a supply chain:
Material, Information, Capital
Downstream
Material: products, parts
Information: Capacity,
Delivery schedules
Finance: Invoices, pricing,
credit terms
Upstream
Material: returns, repairs,
after sales services
Information: orders, point of
sale data
Finance: payments
 Supply chain management
SCM Definition (Tan, 2001)
Purchasing and supply activities of
manufacturers.
Transportation and logistics function of
merchants and retailers.
All value-adding activities from raw materials
extractor to the end users, including recycling.

Achieving Competitive Advantage through

Supply Chain Integration.
 Supply chain management
Other definition
Supply chain management
 Key Business Areas
Enterprise performance
Customer service
Order management
Demand planning
Warehouse distribution
Partnerships
Suppliers
 Benefits of SCM
Reduce uncertainty along the chain
Proper inventory levels in the chain
Minimize delays
Eliminate rush (unplanned) activities
Provide good customer service
 Problems along the supply
chain
Delays in production, distribution
etc.,
Expensive inventories
Lack of partners coordination
Uncertainties in deliveries
Poor demand forecast
Interference with production
Poor quality
 Variability in the supply
chain
Demand variability
Even the most sophisticated demand
forecasting tools often fail to anticipate
demand
Process variability
Production unit downtimes
Unexpected staff absences
Supply variability
Late deliveries from suppliers
 Technology in the SC
The internet and the web can be very effective
communication enhances

Software include demand forecasting tools and to

allow all SC members to coordinate their
activities and adjust their production levels

Software can allow members to

Review past performance
Monitor current performance
Predict future production levels of products
Use of internet in SCM
 Supply chain integration:
Benefits
Tangible benefits
Inventory reduction, personnel reduction,
productivity improvement, order
management improvement, financial cycle
improvements
Intangible benefits
Information visibility, new/improved
processes, customer responsiveness,
standardization, flexibility, globalization,
and business performance