operation management notes

1. ISBR – Executive PGDM
Operations Management
Course Coordinator – Dr. L.R.S.Mani

2. Course Outcome
• Able to describe the evolution of Operations
Management practices.
• Identify the needs and applications of tools
and technology in Operations Management.
• Able to apply the world class manufacturing
practices in their organizations.
• Devise strategic approaches to managing
operations a business successfully in a global
context.

3. Operations Management
• Module 1 : Introduction
Importance of Operations, Functions of
Operations, Relationship between Operations
and other functions, Operations Performance
Objectives, Systems approach to OM, Decision
making in Operations, Process categorization ,
Differences between Manufacturing and Service
Operations, Productivity , Productivity
Measurement, Types of Production systems, MTS,
MTO, ATO and ETO.

4. Books to be referred
• 1. Operations and Supply Chain Management
Richard Chase, Ravi Shankar, Robert Jacobs,
15th edition McGraw Hill
• 2. Operations Management – Theory and Practice,
B.Mahadevan, 3rd edition, Pearson
• 3. Productions and Operations Management –
K.Aswathappa and K.Shridhara Bhat , 2009, Himalaya
publishing

5. Functional Areas of Management
Four core areas
• Marketing
• Operations
• Finance
• HR
Other support areas
• IT
• Quality
• R & D
• Maintenance

6. Importance of Operations
• Marketing starts and ends with customers.
• Operations deliver Product / Service
• Finance arranges and disburses funds
• HR deals with people

7. Marketing and Operations
• It can be observed that Marketing gets the
business and Operations create value. These
two are the revenue generating functions.
• The objectives of both functions in conflict
with each other. One wants more variety and
less quantity and the other wants more
quantity and less variety.

8. 8
Operations
Management
is all about
integration
of….
What is Operations Management?

9. Introduction to Operations
Management
• The principles of Operations Management (OM) are
applicable throughout the world, to virtually all kinds of
organizations.
• The production of goods and services requires
Operations Management in every field, be it an office, a
hospital, a restaurant, a department store, or a factory.
• The efficient production of goods and services requires
effective applications of the various concepts, tools, and
techniques of OM.

10. Examples of Organizations
Organizations successful through Operations Strategies to
become Market Leaders
 Starbucks
 McDonalds
 Maruti Suzuki
 Amazon
 Aravind Eye Hospital
 Narayana Hrudayalaya

11. Functions of Operations Management
• Product selection and Design
• Facilities location
• Facilities layout and Materials Handling
• Production Planning
• Inventory Control
• Industrial Engineering
• Production system designing
• Method study and Work Measurement
• Capacity planning
• PPC
• Quality control
11

12. Role and activities of Operations
Management in Organizations
12
Page 19

13. Relationship between Operations and
other functions in the Organization
13

14. OM in manufacturing
Manufacturing Operations
Produce Physical tangible items which can be stored as Inventory before delivery to
the Customer
14

15. OM in Services
Service Operations
Produce intangible items that cannot be produced ahead of time
An Operations System for a Bank
15

16. Operations Performance Objectives
16
Quality
Speed
Delivery
Dependability
Flexibility
Cost

17. Production Systems
• Production is the creation of goods and services. OM is the
set of activities that creates value in the form of goods and
services by transforming inputs into outputs.
• Activities creating goods and services take place in all
organizations. In manufacturing firms, the production
activities that create goods are usually obvious. In them, we
can see the creation of a tangible product, such as a television
or a motorcycle.
• However, in an organization that does not create tangible
goods or products, the production function may be less
obvious. We often call these activities as services.

18. What Is Operations and Supply Chain
Management?
• Operations and supply chain management (OSCM) is
defined as the design, operation, and improvement of
the systems that create and deliver the firm’s primary
products and services. Like marketing and finance, OSCM
is a functional field of business with clear line
management responsibilities. OSCM is concerned with
the management of the entire system that produces a
product or delivers a service.

19. Operations and SCM
• Operations refers to manufacturing and service
processes used to transform the resources employed
by a firm into Products and Services as desired by
customers.
• Supply chain refers to processes that move
information and material to and from the
manufacturing and service process of the firm. These
include the logistics processes that physically move
product and the warehousing and storage processes
that position products for quick delivery to the
customer.

20. Three Important Parameters for
Competitiveness
• Quality
• Productivity
• Cost

21. Nature of Production & Operations
• Production is the process by which, raw
materials and other inputs are converted into
finished products.
• Operations is the process by which, various
inputs and resources are converted into more
useful products & services.

22. 1. Production management term is used for a system
where tangible goods are produced. Operations
management term is used where various inputs are
transferred into tangible goods and intangible
services. Operations management covers service
organizations like Banks, Airlines, Educational
Institutions, Hospitals, Hotels etc.
Distinction between Production & Operations
Management

23. 2. Production Management term derived from
manufacturing sector and used earlier.
Operations management term used now a
days & has evolved from production
management.
Distinction between Production & Operations
Management

24. Systems Approach to OM

25. A system is a whole which cannot be taken apart.
There are three systems that form part of
Production System & need to be viewed in totality.
1. Production System – converts a set of inputs into a
set of desired outputs. The inputs could be in the
form of materials, personnel, capital, utilities and
information. Sometimes referred to as the six Ms..
Systems Approach to OM

26. 2. Conversion sub-system – inputs are changed in the
conversion sub-system into desired
products/services.
3. Control sub-system -- portion of the output is
maintained in the control sub-system to determine
whether it is acceptable in terms of Quantity,
Quality & Cost. The control sub-system ensures a
uniform level of system performance by providing
feedback information so that corrective action may
be taken by managers.
Systems Approach to OM

27. Three levels or three categories:
1. Strategic – Relating to products, processes facilities
etc. Major decisions having strategic importance
and long term.
2. Operating – Relating to planning the production to
meet demand & ensure reasonable profitability.
3. Control – Relating to the day to day activities,
Quality & Productivity, Machines Maintenance etc.
Decision making in Operations

28. Process Categorization
• Operations and supply chain processes can be conveniently categorized,
particularly from the view of a producer of consumer products and
services, as planning, sourcing, making, delivering, and returning.
• Planning consists of the processes needed to operate an existing supply
chain strategically. Here a firm must determine how anticipated demand
will be met with available resources. A major aspect of planning is
developing a set of metrics to monitor the supply chain so that it is
efficient and delivers high quality and value to customers.
• Sourcing involves the selection of suppliers that will deliver the goods and
services needed to create the firm’s product. A set of pricing, delivery, and
payment processes are needed, along with metrics for monitoring and
improving the relationships between partners of the firm. These processes
include receiving shipment, verifying them, transferring them to
manufacturing facilities, and authorizing supplier payments.

29. Process Categorization
• Making is where the major product is produced or the service provided.
The step requires scheduling processes for workers and the coordination
of material and other critical resources such as equipment to support
producing or providing the service. Metrics that measure speed, quality,
and worker productivity are used to monitor these processes.
• Delivering is also referred to as logistics processes. Carriers are picked to
move products to warehouses and customers, coordinate and schedule
the movement of goods and information through the supply network,
develop and operate a network of warehouses, and run the information
systems that manage the receipt of orders from customers and the
invoicing systems that collect payments from customers.
• Returning involves processes for receiving worn-out, defective, and excess
products back from customers and support for customers who have
problems with delivered products. In the case of services, this may involve
all types of follow-up activities required for after-sales support.

30. Differences between Manufacturing & Service Operations.
Factor Manufacturing Service
Productivity Relatively easy to measure Difficult in some cases
Quality Relatively simple to specify
& evaluate
Difficult in some cases
Customers Less contact More contact
Inventory Finish products can be
inventoried
Outputs cannot be
inventoried
Material Handling
expenses
Proportionately more Proportionately less
Investment More, capital intensive Less, labor intensive
Tangibility Tangible products Intangible services
Repairs & Maintenance More Less
Lead time Long lead times Short lead times

31. Productivity
• The terms production and productivity are often
used interchangeably. But there is difference
between the two.
• Production refers to the total output where as
productivity refers to the outputs relative to the
inputs.
• Productivity is a ratio where as production is
expressed in units such as pieces , kg, litres etc.
• Increasing productivity is always beneficial but
increase in production may or may not be benefical.

32. Productivity = output
Input
= Quantity of goods produced
Amount of resources used
Productivity

33. • Productivity can be increased in various ways:
1. Increase in production using the same or smaller
amount of resources.
2. Same production but reducing the amount of
resources.
3. Increase in production as well as resources but
increase in production in a higher proportion.
4. Decrease in production as well as resources but
decrease in resources in a higher proportion.
Productivity

34. Labor productivity = output
Man hours used
Labor productivity = actual output
Standard output
Labor productivity = standard time
Actual time
Productivity

35. PRODUCTIVITY MEASUREMENT
• Recall that operations management is responsible for managing the
transformation of many inputs into outputs, such as products or services.
A measure of how efficiently inputs are being converted into outputs is
called productivity. Productivity measures how well resources are used. It
is computed as a ratio of outputs (goods and services) to inputs (e.g.,
labour and materials). The more efficiently a company uses its resources,
the more productive it is:
• Productivity = output/input

36. Productivity Measurement
• Productivity of each resource i.e. men, materials,
machines, space, capital, energy etc can be
measured separately. Such measurement gives
partial productivity.
• Productivity of all inputs together gives the
productivity on total factor basis.
• Productivity = output in a given period
labor + capital + matls+ energy

37. • Productivity is defined as the level of the output of goods and
services achieved by the resources of an organization.
• In simple terms it can be defined as the ratio of output to
input.
• Increasing the output with the same inputs, maintaining the
same output with lesser inputs and/or increasing the output
in a higher proportion to that of the increase in inputs can
increase productivity.
• If an organization does not maintain a high level of
productivity, it tends to be less efficient and less attractive to
investors. Productivity has an impact not only on profits but
also on the very survival of the organization.
Productivity Measurement

38. How to measure productivity?
• The productivity is expressed in the form of a
fraction, output in the numerator and the input or
the resource under consideration in the
denominator.
• Hence the productivity can be expressed in totality
by converting the output in rupee or dollar terms
and all the resources also in rupee or dollar terms.
Since this is a little complicated and also may not
serve much purpose in the organization, the
productivity is usually measured for different kinds of
resources.
Productivity Measurement

39. • Manpower productivity = Output of goods or
services per unit time
Number of persons employed
Or
• = Output of goods or services per unit time
Man - hours used.
Productivity Measurement

40. Material productivity = Output of goods or services per unit time
Cost of material used
Capital productivity = Output of goods or services per unit time
Capital assets employed
Energy productivity = Output of goods or services per unit time
Energy bill per unit time
Productivity Measurement

41. Why do you have to measure productivity?
• The measures of productivity can be used to
compare people one with another, to compare one
organization with another or to track an organization
over a period of time. Productivity measures help
monitor the performance of an organization over
time, initiate corrective actions in time and work
towards further improvements in productivity which
will ultimately lead to improvement in the
profitability of the organization.
Productivity Measurement

42. Types of Production Systems
1. Project: Deals with one-of-a-kind products that are
tailored to the unique requirements of each
customer. A construction company, with its many
kinds and sizes of projects, is an example. Since the
products cannot be standard, the conversion
process must be flexible in its equipment
capabilities, human skills and procedures. The
conversion process features problem-solving,
teamwork and coordinated design and production
of unique products.

43. 2. Job-Shop: Appropriate for manufacture of small
batches of different products, each of which is
custom designed and, hence, requires its own unique
set of processing steps, or routing through the
production process. Printing press illustrates job-
shop technology. Each product uses only a small
portion of the shop’s human resources and general
purpose equipment. With a large number of different
jobs, elaborate job-tracking and control systems are
used. Much time is spent waiting for access to
equipment, some equipment is overloaded while the
other equipment is idle, depending upon the mix of
jobs at hand.
Types of Production Systems

44. 3. Batch Technology: Step ahead from job-shop
process in terms of product standardization, but it is
not as standardized as the assembly line process.
Within the wide range of products in a batch, several
are produced repeatedly and that too in large
volumes. These few dominant products differentiate
batch facilities from job shops, however, no product
is sufficiently dominant to warrant dedicated
equipment and process. Consequently, like job
shops, batch facilities produce a wide variety of
products in a wide variety of volumes. The system
must be flexible for the low-volume/high-variety
products, but the higher volume products can be
processed differently-for example, by producing
some batches for stocking rather than or customer
order.
Types of Production Systems

45. 4.Line production or Assembly line: Facilities
that produce a narrow range of standardized
products. Laundry appliances are a
representative example. Since the product
designs are relatively stable, specialized
equipment, human skills and management
systems can be developed and dedicated to
the limited range of products and volumes.
Beyond this range, the system is rigid.
Types of Production Systems

46. 5. Continuous Flow: Examples are chemical plants and
oil refineries. Materials and products are produced in
continuous, endless flows, rather than in batches of
discrete units. The product is highly standardized, as
are all of the manufacturing procedures, the
sequence of product build-up, materials and
equipment. Continuous flow technology affords high-
volume, round–the–clock operation with capital-
intensive and specialized automation.
Types of Production Systems

47. Product – Process Matrix
47
Different process types imply different volume–variety characteristics for the process

48. Make – to – Stock (MTS)
• Firms that serve their customers from finished goods
inventory are known as Make – to – Stock (MTS) firms.
• Here, the key focus of the demand management activities
is on the maintenance of finished goods inventories.
• Customer Service is determined by whether the item is
readily available in stock or not.
• The finished goods inventory is very often located far from
the manufacturing plant. Also there may be several
locations from which the customers buy their goods.
• Hence there is both a geographical and temporal dimension
to the maintenance of FGI. Thus tracking of demand by
location throughout the supply chain is an important
activity in the MTS environment.

49. Make – to – Stock (MTS)
• A key aspect of the management of FGI is the
determination of when, how much, and how to replenish
the stocks at different locations and this is the concern of
the physical distribution function in demand management.
• MTS firms employ plant warehouses, centralized
distribution centers and local warehouses.
• MTS firms also adopt VMI inside the customer locations.
• Most important here is the information availability on the
status of inventory in the various locations, relationships
with transportation providers, and estimates of the
customers demands by location.

50. Make – to – Stock (MTS)
• The main issue in satisfying customer in the MTS
environment is to balance the level of inventory against
the level of service to the customer. If unlimited
inventory was possible due to less inventory value, the
tasks would be trivial. But, that is not the case.
Providing more inventory increases costs and reducing
the inventory levels reduces the level of customer
service. A trade-off between the inventory cost and
customer service level must be made. This trade-off
can be improved by better estimates of customer
demand, by more rapid transportation alternatives, by
speedier production, and adopting flexible
manufacturing systems.

51. Assemble – to – Order (ATO)
• The firms that combine a number of options
together to meet customer’s specifications are
called Assemble – to – Order (ATO).
• In the ATO environment, the primary task of
demand management is to define the customer’s
order in terms of alternative components and
options. It is also important to take care that they
can be combined into a viable product in a
process. This is known as Configuration
Management.

52. Assemble – to – Order (ATO)
• One of the capabilities required for success in the ATO
environment is engineering design that enables as
much flexibility in combining components, options and
modules into finished products as possible.
• The ATO environment illustrates the two way nature of
the communication between customers and demand
management. Customers need to be informed of the
possible combinations. The customer’s orders must be
configured and they should be informed of the delivery
date of the finished product.

53. Assemble – to – Order (ATO)
• In this ATO environment, the independent
demand for the assembled items is transformed
into dependent demand for the parts required to
produce the components. The inventory that
defines customer service is the inventory of the
components and not the inventory of the finished
product.
• ATO firms have adopted lean principles and they
are able to deliver customers orders quickly.

54. Make – to – Order (MTO)
• The firms that make the customer’s product
starting from raw materials, parts, components
are Make – to – Order (MTO).
• Another variation of MTO is Engineer – to- Order
who work with the customer right from the
design stage.
• The focus of management in the MTS and ATO
environments was largely on satisfying customers
either from finished goods inventory or the
components inventory.

55. Make – to – Order (MTO)
• In the MTO environment, the firm needs to
get the product specifications from the
customers and translate these into
manufacturing terms for those inside the
company.
• Hence, it means that the major task of
demand management in MTO environment is
to coordinate information on customer’s
product needs with engineering.

56. Make – to – Order (MTO)
• In the MTO environment, the R & D or Engineering
Department will determine what materials are required and
what processes are to be followed in manufacturing. The
materials can come from the company’s inventory or be
sourced from vendors.
• In the engineer-to-order environment, most of this
information is needed from customers. In this case the task of
the demand management includes determining how much
engineering capacity will be required to meet future customer
needs.
• The customer order decoupling point could actually be with
the supplier in the engineer to order case.
• In this case, the supply chain can be more called as demand
chain.