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  • 1. Subject: Operations Management Subject Code:12MBA32 Module I Introduction to Operations Management What is operations management?  Production system concept Transformation process Difference between products and services  OM in the organizational chart Operations as service Historical development of OM Current issues in operations management Operations strategy Competitive dimensions Operations strategy in manufacturing Developing manufacturing strategy Operations strategy in services
  • 2. Car assembly line, a classical production system Car assembly line, a classical production system studied in operations management Cinema queue. Operations Management studies both manufacturing and services
  • 3. What is operations management? • Operations Management deals with the design and management of products, processes, services and supply chains. It considers the acquisition, development, and utilization of resources that firms need to deliver the goods and services their clients want.
  • 4. • The purvey of OM ranges from strategic to tactical and operational levels. Representative strategic issues include determining the size and location of manufacturing plants, deciding the structure of service or telecommunications networks, and designing technology supply chains. • Tactical issues include plant layout and structure, project management methods, and equipment selection and replacement. Operational issues include production scheduling and control, inventory management, quality control and inspection, traffic and materials handling, and equipment maintenance policies.
  • 5. Production System Manufacturing subsystem that includes all functions required to design, produce, distribute, and service a manufactured product
  • 6. • Production/operations management is the process, which combines and transforms various resources used in the production/operations subsystem of the organization into value added product/services in a controlled manner as per the policies of the organization. Therefore, it is that part of an organization, which is concerned with the transformation of a range of inputs into the required (products/services) having the requisite quality level. The set of interrelated management activities, which are involved in manufacturing certain products, is called as production management. If the same concept is extended to services management, then the corresponding set of management activities is called as operations management.
  • 7. Production Concept Production function is that part of an organization, which is concerned with the transformation of a range of inputs into the required outputs (products) having the requisite quality level. Production is defined as “the step-by-step conversion of one form of material into another form through chemical or mechanical process to create or enhance the utility of the product to the user.” Thus production is a value addition process. At each stage of processing, there will be value addition. Edwood Buffa defines production as ‘a process by which goods and services are created’. Some examples of production are: manufacturing custom- made products like, boilers with a specific capacity, constructing flats, some structural fabrication works for selected customers, etc., and manufacturing standardized products like, car, bus, motor cycle, radio, television, etc.
  • 8. Production system • The production system of an organization is that part, which produces products of an organization. It is that activity whereby resources, flowing within a defined system, are combined and transformed in a controlled manner to add value in accordance with the policies communicated by management. A simplified production system is shown as…
  • 9. The production system has the following characteristics • 1. Production is an organized activity, so every production system has an objective. • 2. The system transforms the various inputs to useful outputs. • 3. It does not operate in isolation from the other organization system. • 4. There exists a feedback about the activities, which is essential to control and improve system performance.
  • 10. • Production management is a process of planning, organizing, directing and controlling the activities of the production function. It combines and transforms various resources used in the production subsystem of the organization into value added product in a controlled manner as per the policies of the organization. E.S. Buffa defines production management as, “Production management deals with decision making related to production processes so that the resulting goods or services are produced according to specifications, in the amount and by the schedule demanded and out of minimum cost.”
  • 11. Objectives of Production Management The objective of the production management is ‘to produce goods services of right quality and quantity at the right time and right manufacturing cost’. • 1. RIGHT QUALITY The quality of product is established based upon the customers needs. The right quality is not necessarily best quality. It is determined by the cost of the product and the technical characteristics as suited to the specific requirements. • 2. RIGHT QUANTITY • The manufacturing organization should produce the products in right number. If they are produced in excess of demand the capital will block up in the form of inventory and if the quantity is produced in short of demand, leads to shortage of products
  • 12. • 3. RIGHT TIME • Timeliness of delivery is one of the important parameter to judge the effectiveness of production department. So, the production department has to make the optimal utilization of input resources to achieve its objective. • 4. RIGHT MANUFACTURING COST • Manufacturing costs are established before the product is actually manufactured. Hence, all attempts should be made to produce the products at pre-established cost, so as to reduce the variation between actual and the standard (pre-established) cost.
  • 13. Transformation Process Organisations are managed systems that are generally made up of interrelated and interdependent parts that process inputs  raw material,  time,  equipment,  information,  technology,  labour/ personnel,  capital/ money etc. into outputs  usable plans,  contingency plans,  strategies,  controls,  action,  efficient operations processes
  • 14. • This is achieved through the transformational process. Input - processes - outputs - outcomes (goal achievement, customer & stakeholder satisfaction) The core processes (how do you plan your output?) would be through:  Consultation (daily service briefings , weekly meetings)  Collaboration (teamwork, consulting with staff)  Goal setting (management to see if improvements/ changes need to be made)  KPI's (employee appraisals)  Transformation of information (e.g. Hygiene laws and OH&S change in such a way that it is easily understood by everyone else, Posters up the wall, sign over hand wash basin on how to properly wash your hands etc.)
  • 15. In other words • The Transformation Process • All operations produce products and services by changing inputs into outputs. They do this by using the ‘input-transformation-output' process. In other words, operations are processes that take in a set of input resources which are used to transform something, or are transformed themselves, into outputs of products and services. • There are two categories of inputs in any operation's processes; transformed and transforming resources.
  • 16. Transformed resources are the resources that are treated, transformed or converted in the process. The three main types of transformed resources include: • Materials: involves transforming either physically (e.g. manufacturing), by location (e.g. transportation), by ownership (e.g. retail) or by storage (e.g. warehousing). • Information: This can be transformed by property (e.g. accountants), by possession (e.g. market research), by storage (e.g. libraries), or by location (e.g. telecommunications). • Customers: They can be transformed either physically (e.g. hairdressers), by storage (e.g. hotels), by location (e.g.airlines), by physiological state (e.g. hospitals), or by psychological state (e.g. entertainment).
  • 17. • The other set of inputs to any operations process are transforming resources. These are the resources which act on or carry out the transformation process. There are two main types of transforming resources: • Facilities - the buildings, equipment, plant and process technology of the operation. • Staff - includes all the people involved in the operations process.
  • 18. • The exact nature of both facilities and staff will differ between operations. For example, most staff employed in a factory assembling air conditioners may not need a very high level of technical skills. In contrast, most staff employed by an accounting firm will require a higher level skills and qualifications. Similarly, the facilities in both types of work would differ quite significantly. • Although products and services are different, sometimes it can be hard to differentiate between the two. Therefore as a general guideline, products are usually tangible while services are intangible. That is, you can physically touch a product, such as a computer, but you cannot touch a consultancy advice. Also, services usually have a shorter stored life while products can usually be stored for a period of time.
  • 19. Transformation in simplest terms • Transformation processes • A transformation process is any activity or group of activities that takes one or more inputs, transforms and adds value to them, and provides outputs for customers or clients. Where the inputs are raw materials, it is relatively easy to identify the transformation involved, as when milk is transformed into cheese and butter. Where the inputs are information or people, the nature of the transformation may be less obvious. For example, a hospital transforms ill patients (the input) into healthy patients (the output). Transformation processes include: • changes in the physical characteristics of materials or customers • changes in the location of materials, information or customers • changes in the ownership of materials or information • storage or accommodation of materials, information or customers • changes in the purpose or form of information • changes in the physiological or psychological state of customers.
  • 20. • Often all three types of input – materials, information and customers – are transformed by the same organisation. For example, withdrawing money from a bank account involves information about the customer's account, materials such as cheques and currency, and the customer. Treating a patient in hospital involves not only the ‘customer's’ state of health, but also any materials used in treatment and information about the patient. One useful way of categorising different types of transformation is into: • manufacture – the physical creation of products (for example cars) • transport – the movement of materials or customers (for example a taxi service) • supply – change in ownership of goods (for example in retailing) • service – the treatment of customers or the storage of materials (for example hospital wards, warehouses).
  • 21. • Several different transformations are usually required to produce a good or service. The overall transformation can be described as the macro operation, and the more detailed transformations within this macro operation as micro operations. For example, the macro operation in a brewery is making beer (see Figure) . The micro operations include: • milling the malted barley into grist • mixing the grist with hot water to form wort • cooling the wort and transferring it to the fermentation vessel • adding yeast to the wort and fermenting the liquid into beer • filtering the beer to remove the spent yeast • decanting the beer into casks or bottles.
  • 22. Differences Between Services and • Information Asymmetry • Intangible • Inventory • Customer Contact • Response Time • Labor Intensity
  • 23. Typical Characteristics of Services and Goods Producers Primarily Service Producers • Intangible, nondurable • Output can’t be inventoried • High customer contact • Short response time • Labor intensive Primarily Goods Producers • Tangible, durable • Output can be inventoried • Low customer contact • Long response time • Capital intensive
  • 24. characteristics distinguishing between manufacturing operations with service operations: • 1. Tangible/Intangible nature of output • 2. Consumption of output • 3. Nature of work (job) • 4. Degree of customer contact • 5. Customer participation in conversion • 6. Measurement of performance. Manufacturing is characterised by tangible outputs (products), outputs that customers consume overtime, jobs that use less labour and more equipment, little customer contact, no customer participation in the conversion process (in production), and sophisticated methods for measuring production activities and resource consumption as product are made.
  • 25. • Service is characterised by intangible outputs, outputs that customers consumes immediately, jobs that use more labour and less equipment, direct consumer contact, frequent customer participation in the conversion process, and elementary methods for measuring conversion activities and resource consumption. Some services are equipment based namely rail-road services, telephone services and some are people based namely tax consultant services, hair styling.
  • 26. Function of Production Department/Management • (i) Materials: The selection of materials for the product. Production manager must have sound Knowledge of materials and their properties, so that he can select appropriate materials for his product. Research on materials is necessary to find alternatives to satisfy the changing needs of the design in the product and availability of material resumes. • (ii) Methods: Finding the best method for the process, to search for the methods to suit the available resources, identifying the sequence of process are some of the activities of Production Management.
  • 27. • (iii) Machines and Equipment: Selection of suitable machinery for the process desired, designing the maintenance policy and design of layout of machines are taken care of by the Production Management department. • (iv) Estimating: To fix up the Production targets and delivery dates and to keep the production costs at minimum, production management department does a thorough estimation of Production times and production costs. In competitive situation this will help the management to decide what should be done in arresting the costs at desired level. • (v) Loading and Scheduling: The Production Management department has to draw the time table for various production activities, specifying when to start and when to finish the process required. It also has to draw the timings of materials movement and plan the activities of manpower. The scheduling is to be done keeping in mind the loads on hand and capacities of facilities available.
  • 28. • (vi) Routing: This is the most important function of Production Management department. The Routing consists of fixing the flow lines for various raw materials, components etc., from the stores to the packing of finished product, so that all concerned knows what exactly is happening on the shop floor. • (vii) Despatching: The Production Management department has to prepare various documents such as Job Cards, Route sheets, Move Cards, Inspection Cards for each and every component of the product. These are prepared in a set of five copies. These documents are to be released from Production Management department to give green signal for starting the production. The activities of the shop floor will follow the instructions given in these documents. Activity of releasing the document is known as dispatching.
  • 29. • (viii) Expediting or Follow up: Once the documents are dispatched, the management wants to know whether the activities are being carried out as per the plans or not. Expediting engineers go round the production floor along with the plans, compare the actual with the plan and feed back the progress of the work to the management. This will help the management to evaluate the plans. • (ix) Inspection: Here inspection is generally concerned with the inspection activities during production, but a separate quality control department does the quality inspection, which is not under the control of Production Management. This is true because, if the quality inspection is given to production Management, then there is a chance of qualifying the defective products also. For example Teaching and examining of students is given to the same person, then there is a possibility of passing Production and Operations Management all the students in the first grade. To avoid this situation an external person does correction of answer scripts, so that the quality of answers are correctly judged.
  • 30. • (x) Evaluation: The Production department must evaluate itself and its contribution in fulfilling the corporate objectives and the departmental objectives. This is necessary for setting up the standards for future. What ever may be the size of the firm; Production management department alone must do Routing, Scheduling, Loading, Dispatching and expediting. This is because this department knows very well regarding materials, Methods, and available resources etc. If the firms are small, all the above- mentioned functions (i to x) are to be carried out by Production Management Department. In medium sized firms in addition to Routing, Scheduling and Loading, Dispatching and expediting, some more functions like Methods, Machines may be under the control of Production Management Department. In large firms, there will be Separate departments for Methods, Machines, Materials and others but routing, loading and scheduling are the sole functions of Production Management. All the above ten functions are categorized in three stage, that is Preplanning, Planning and control stages as
  • 31. ORGANISATION CHART FOR PRODUCTION DEPARTMENT PRODUCTION DEPARTMENT Production Production Inventory Planning Control Control 􀁺 Order Booking 􀁺 Despatching 􀁺 Stores management 􀁺 Production budget 􀁺 Material Records 􀁺 Expediting 􀁺 Quality Control 􀁺 Methods 􀁺 Machines 􀁺 Handling 􀁺 Receiving 􀁺 Tools and Jigs 􀁺 Operation Layout 􀁺 Simplification 􀁺 Time estimating 􀁺 Standardisation 􀁺 Scheduling An organization chart for production management department.
  • 32. Product development Planning for 4 resources Routing ↓ * Process design Materials Estimating ↓ ↓ * Sales forecasting and estimating Methods Scheduling * Plant location ↓ ↓ * Plant layout and Machines and Despatching Layout of facilities | * Equipment policy | Inspection ↓ ↓ * Preplanning Manpower Expediting production ↓ * Evaluation Feedback =-------------------------- |← Pre Planning Stage → | ← Planning Stage→ | ←Control Stage →|
  • 33. Historical Evolution of OM • Industrial Revolution • Scientific Management • Human Relations Movement • Decision Models and Management Science • Influence of Japanese Manufacturers
  • 34. • Pre-Industrial Revolution – Craft production - System in which highly skilled workers use simple, flexible tools to produce small quantities of customized goods • Some key elements of the industrial revolution – Began in England in the 1770s – Division of labor - Adam Smith, 1776 – Application of the “rotative” steam engine, 1780s – Cotton Gin and Interchangeable parts - Eli Whitney, 1792 • Management theory and practice did not advance appreciably during this period
  • 35. • Movement was led by efficiency engineer, Frederick Winslow Taylor – Believed in a “science of management” based on observation, measurement, analysis and improvement of work methods, and economic incentives – Management is responsible for planning, carefully selecting and training workers, finding the best way to perform each job, achieving cooperate between management and workers, and separating management activities from work activities – Emphasis was on maximizing output
  • 36. • Frank Gilbreth - father of motion studies • Henry Gantt - developed the Gantt chart scheduling system and recognized the value of non-monetary rewards for motivating employees • Harrington Emerson - applied Taylor’s ideas to organization structure • Henry Ford - employed scientific management techniques to his factories • Moving assembly line • Mass production
  • 37. • The human relations movement emphasized the importance of the human element in job design – Lillian Gilbreth – Elton Mayo – Hawthorne studies on worker motivation, 1930 – Abraham Maslow – motivation theory, 1940s; hierarchy of needs, 1954 – Frederick Hertzberg – Two Factor Theory, 1959 – Douglas McGregor – Theory X and Theory Y, 1960s – William Ouchi – Theory Z, 1981
  • 38. • F.W. Harris – mathematical model for inventory management, 1915 • Dodge, Romig, and Shewart – statistical procedures for sampling and quality control, 1930s • Tippett – statistical sampling theory, 1935 • Operations Research (OR) Groups – OR applications in warfare • George Dantzig – linear programming, 1947
  • 39. • Refined and developed management practices that increased productivity – Credited with fueling the “quality revolution – Just-in-Time production
  • 40. Historical Development of OM • For over two centuries operations and production management has been recognised as an important factor in a country’s economic growth. The traditional view of manufacturing management began in eighteenth century when Adam Smith recognised the economic benefits of specialisation of labour. He recommended breaking of jobs down into subtasks and recognises workers to specialised tasks in which they would become highly skilled and efficient. In the early twentieth century, F.W. Taylor implemented Smith’s theories and developed scientific management. From then till 1930, many techniques were developed prevailing the traditional view. Brief information about the contributions to manufacturing management is shown below..,
  • 41. Historical summary of Operations Management Date Contribution Contributor • 1776 Specialization of labour in manufacturing Adam Smith • 1799 Interchangeable parts, cost accounting Eli Whitney and others • 1832 Division of labour by skill; Charles Babbage assignment of jobs by skill; basics of time study • 1900 Scientific management time study Frederick W. Taylor and work study developed; dividing planning and doing of work • 1900 Motion of study of jobs Frank B. Gilbreth • 1901 Scheduling techniques for employees, Henry L. Gantt machines jobs in manufacturing
  • 42. • 1915 Economic lot sizes for inventory control F.W. Harris • 1927 Human relations; Elton Mayo the Hawthorne studies • 1931 Statistical inference applied to product W.A. Shewart quality: quality control charts • 1935 Statistical sampling applied to quality H.F. Dodge & H.G. control: inspection sampling plans Roming • 1940 Operations research applications in P.M. Blacker and World War II others. • 1946 Digital computer John Mauchlly and J.P. Eckert
  • 43. • 1947 Linear programming G.B. Dantzig, Williams &others • 1950 Mathematical programming, A. Charnes, W.W. Cooper on-linear and stochastic processes & others • 1951 Commercial digital computer: Sperry Univac large-scale computations available. • 1960 Organizational behaviour: continued L. Cummings, L. Porter study of people at work • 1970 Integrating operations into overall W. Skinner J. Orlicky strategy and policy, and Computer applications to manufacturing, Scheduling G. Wright and control, Material requirement planning (MRP) • 1980 Quality and productivity applications from Japan: W.E. Deming and J. Juran robotics, CAD-CAM
  • 44. Current issues in OM • Economic conditions • Innovating • Quality problems • Risk management • Competing in a global economy
  • 45. Environmental Concerns • Sustainability – Using resources in ways that do not harm ecological systems that support human existence • Sustainability measures often go beyond traditional environmental and economic measures to include measures that incorporate social criteria in decision making • All areas of business will be affected – Product and service design – Consumer education programs – Disaster preparation and response – Supply chain waste management – Outsourcing decisions
  • 46. Ethical Issues in Operations • Ethical issues arise in many aspects of operations management:  Financial statements  Worker safety  Product safety  Quality  The environment  The community  Hiring and firing workers  Closing facilities  Workers rights
  • 47. The Need for Supply Chain Management • In the past, organizations did little to manage the supply chain beyond their own operations and immediate suppliers which led to numerous problems: – Oscillating inventory levels – Inventory stockouts – Late deliveries – Quality problems
  • 48. Supply Chain Issues 1. The need to improve operations 2. Increasing levels of outsourcing 3. Increasing transportation costs 4. Competitive pressures 5. Increasing globalization 6. Increasing importance of e-business 7. The complexity of supply chains 8. The need to manage inventories
  • 49. Element of SC • Customers – what products/services do customers want • Forecasting – predicting timing and volume of customer demand • Design – incorporating customer wants, manufacturability, and time to market • Capacity planning – matching supply and demand • Processing – controlling quality, scheduling work • Inventory – meeting demand requirements while managing costs • Purchasing – evaluating potential suppliers, supporting the needs of operations on purchased goods and services • Suppliers – monitoring supplier quality, on-time delivery, and flexibility; maintaining supplier relations • Location – determining the location of facilities • Logistics – deciding how to best move information and materials
  • 50. More on current issues of OM • Technology’s Role in Manufacturing – Increased automation and integration of production facilities with business systems to to control costs • Predictive maintenance, remote diagnostics, and utility cost savings • Quality • Mass Customization
  • 51. • Quality – The ability of a product or service to reliably do what it’s supposed to do and to satisfy customer expectations. • How is Quality Achieved – Planning for quality – Organizing and leading for quality – Controlling for quality • Quality Goals – ISO900 certification and Six Sigma standards
  • 52. • Mass Customization – A design-to-order concept that provides consumers with a product when, where, and how they want it. – Makes heavy use of technology in developing flexible manufacturing techniques and engaging in continual dialogue with customers. • Benefits of Mass Customization – Creates an important relationship between the firm and the customer in providing loyalty-building value to the customer and in garnering valuable market information for the firm.
  • 53. CRITERIA OF PERFORMANCE Three aims of performance of the Production and Operations Management system may be identified. They are, (a) Effectiveness, (b) Customer satisfaction, (c) Efficiency. The case of Efficiency is productive utilization of resources is clear. Whether the organization is in ‘private sector’ or in the ‘public sector’, is a ‘manufacturing or ‘non-manufacturing’ organization or a ‘profit’ or a ‘non- profit’ organization, the optimal utilization of resource inputs is always a desired objective. The effectiveness has more dimensions to it. It involves optimality in the fulfillment of multiple objectives with a possible prioritization within the objectives. Modern production and operations management has to serve the target customers, the people working within, as also the region, country or society at large. Thus Production / Operations Management system, has not only to be profitable and / or efficient, but must necessarily satisfy many more customers. This effectiveness has to be again viewed in terms of the short and long-term horizons depending upon the operations system. ,
  • 54. Optimum, Good, Better operations management can improve: (i) Efficiency of operation system to do things right and broader concept. (ii) Effectiveness of operation system refers to doing right things that is seven rights, they are: Right operation, Right Quantity, Right Quality, Right Supplier or Right Vendor, Right Time, Right Place and Right Price. Basically, efficiency and effectiveness of the operations system can be measured by four dimensions, They are: (i) Cost, (ii) Quality, (iii) Dependability and (iv) Reliability. In fact these directly relate to the competitiveness of the organization, both nationally and internationally. Modern developments in better tools and techniques, methods and systems like Automation, Flexible manufacturing, CAD
  • 55. Operations Strategy • Defining a primary task – What is the firm in the business of doing? • Assessing core competencies – What does the firm do better than anyone else? • Determining order winners and order qualifiers – What wins the order? – What qualifies an item to be considered for purchase? • Positioning the firm – How will the firm compete?
  • 56. Competitive dimensions • Cost • Quality • Flexibility • Speed