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