1. Module 1 – Operations
Management: Trends and Issues
Dr. M. Ramkumar
Assistant Professor
Indian Institute of Management Raipur
2. Agenda for Module 1
• What do you mean by the term ‘Operations Management’?
• Basic understanding of the progression/ evolution of OM.
• Basic understanding of jobs/ decisions related to OM.
• What is the status of manufacturing and services industries in India?
• What is the emerging opportunities and challenges for OM?
• Can the OM principles can be applied to both manufacturing and
service organizations?
3. Case 1: Narayana Health: A journey that
began winning the heart of India
• Indians – 3 times prone to heart diseases than Europeans
• Need – 2.5 Million heart surgeries/ year; doing only 90000
• India produces 80 cardiologists/ year (800 in USA)
• 70% of doctors live in urban; 70% of people live in rural
• Narayana Health: planning, passion and compassion
• Started by Dr. Devi Shetty in 2001 with 300 beds.
• Currently having 24 hospitals and 7 heart centres with 6000 beds
• Expansion plans: 30000 beds and 40,000 work force by 2025
4. Case 1: Narayana Health: A journey that
began winning the heart of India – Contd.,
• Expansion plan: strategic thinking, creation of new facilities, and operating
them on a day-to-day basis
• Vision: No body should go back from the hospital for want of money
• Heart surgery package at NH: between Rs 75000 to Rs. 150000
• Achieving such cost reduction
• Input cost reduction
• Benefitting from process innovations and economies of scale
• Bringing innovative ideas in facility design and resource deployment
• Example: able to buy gloves (pair) at Rs. 4.50 as against Rs. 9 by directly
sourcing from Malaysia – volumes and supplier development efforts
• MRI Scans – installed on a pay-per use
• Location of hospitals: outskirts of the city
• Building: pre-fabricated materials and no air conditioning
• Increase the volume of patient flow: diversified to eye care, orthopedics…
• Recruit the best doctors with best industry standards; little extra work
6. Operations Management
Definition
• An operations system is defined as one in which
• several activities are performed
• to transform a set of inputs into useful output
• using a transformation process
• Operations Management is
• a systematic approach to
• address all the issues pertaining to
• the transformation process that converts some inputs into
output that are useful, and
• could fetch revenue to the operations system
7. Operations Management – Some cases
Case Input Physical resources
used
output Type of input/
output
Type of utility
provided to the
customers
Inorganic chemicals
production
Ores Chemical plant and
equipment, other
chemicals, labor
Inorganic chemical Physical input and
physical output
Form
Outpatient ward Unhealthy patients Doctors, nurses,
other staff,
equipment, other
facilities
Healthier patients Physical input and
physical output
State
Educational
institution
‘Raw’ minds Teachers, books ‘Enlightened’ minds Physical input and
physical output
State
Sales office Data from market Personnel, office
equipment and
facilities
Processed
‘information’
Non physical input
and non physical
output
state
Petrol pump Petrol (in possession
of the petrol pump
owner)
Operators,
equipment
Petrol (in possession
of the car owner)
Physical input and
physical output
possession
8. Operations Management – Some cases
• What about taxi service, astrologer, maintenance workshop, income
tax office?
9. Operations Management (OM)
Salient Aspects
• OM is a systematic approach
• using scientific tools & techniques and solution methodologies to analyze
problems
• OM is about addressing several issues
• varying in terms of time horizon, nature of decisions
• Transformation processes are central to Operations
• Focusing on keeping costs to the minimum
• Developing a set of measures to assess performance of the system
10. OM decisions in long term horizons
• Product design
• Quality policy
• Technology to be employed
• Process selection
• Site selection
• Machinery and plant/ facility selection
• Plant/ facility size selection – phased addition
• Manpower training and development – phased programme
• Warehousing arrangements
• Design of jobs
• Setting up of work standards
• Effluent and waste disposal systems
• Safety and maintenance systems
• Supply chain and outsourcing
11. OM decisions in Intermediate time horizons
• Product variations
• Methods selection
• Quality implementation, inspection and control methods
• Machinery and plant facility loading decisions
• Forecasting
• Deployment of manpower
• Overtime decisions
• Shift-working decisions
• Temporary hiring or lay-off manpower
• Purchasing policy
• Purchasing source selection, development and evaluation
• Make or buy decision
• Inventory policy for raw material, work-in-progress, and finished goods
• Transport and delivery arrangements
• Implementation of safety decisions
12. Short term horizon
• Production/ operations scheduling
• Available materials allocation and handling
• Scheduling of manpower
• Breakdown maintenance
• Progress check and change in priorities in production/ operations
scheduling
• Temporary manpower
• Supervision and immediate attention to problem areas in labor,
materials, machines, etc.,
15. Corporate Sector of the Indian Economy
Salient Aspects
All number in the table
represent growth % over
the previous year
Data compiled from
Economic Outlook of
Centre for Monitoring
Indian Economy (CMIE)
using their time series
data available at
http://economicoutlook.c
mie.com
Index of Industrial Production 2009-10 2010-11 2011-12 2012-13
Manufacturing 4.84 8.95 3.00 1.29
Capital goods 0.99 14.75 -3.97 -6.04
Consumer goods 7.65 8.57 4.37 2.43
Intermediate goods 6.03 7.39 -0.62 1.60
Corporate Sector Performance
Manufacturing Sector
Sales 5.0 20.7 19.3 9.3
Operating Expenses 4.8 22.3 19.6 10.1
RM Expenses 6.9 25.1 21.5 8.3
Compensation to Employees 10.9 15.0 9.1 12.7
Profit After Tax (PAT) 43.1 15.4 18.4 -4.6
No. of Companies 8751 8320 5690 3978
Non-financial Services Sector
Sales 8.3 15.7 13.6 2.7
Operating Expenses 6.1 17.7 15.3 1.3
Compensation to Employees 5.3 15.0 14.3 14.1
Profit After Tax (PAT) 15.3 -28.0 -54.5 -7.7
No. of Companies 6137 6125 4328 3065
16. Manufacturing trend in India
• Increase in raw material consumption – increasingly buying components
• Gradual increase in cost of material and labor
• Greater pressure on firms to cut down waste and improve productivity
• Focus areas of operations – better supplier management, elimination of waste
from the system, improvement in overall productivity
• India is emerging as a global manufacturing base
• Competing close with china in attracting several manufacturing companies
• Several studies – emerging opportunities for Indian manufacturing
• Abundant low-cost labor and technical manpower
• Global manufacturing competitive index (Deloitte) – India Rank 4 (next to China,
Germany and USA)
17. Services Sector in India
Share of GDP in percentage
2008-09 2009-10 2010-11 2011-12 2012-13#
Service Sector Growth rates in GDP
Trade, Hotels, Transport,
Communications
16.9 16.5 17.2 18.0 25.1
Transport, Storage &
Communications
7.8 7.7 7.3 7.1
Financial Services, Insurance, Real
Estate & business services
15.9 15.8 16.0 16.6 17.2
Community, Social & Personal
Services
13.3 14.5 14.0 14.0 14.3
Construction 8.5 8.2 8.2 8.2 8.2
Total (including construction) 62.4 62.7 62.6 63.9 64.8
# Advanced Estimate
* Compiled from Chapter 10 on Services Sector in Economic Survey 2012 – 13, Government of India, Ministry of Finance, Economic
Division. For more details see http://indiabudget.nic.in
18. The Service – Product Continuum
Materials, Assets, Products… Services, People, Interactions…
Passenger Cars, Machine Tools
Professional Consulting, Legal Services
Health Care System (Hospitals)
Restaurants, Fitness Centres
Logistics, Tourism, Travel and Entertainment Sectors
Facilities Maintenance, Turnkey Project Execution …
Product Domination Service Domination
19. Service Operations
Salient Features
• Tangibility: Services are performances and actions rather than objects,
therefore having poor tangibility
• Heterogeneity: High variability in the operation system performance
• Simultaneous Production & Consumption: Degree of customer contact is
very high
• Perishability: Services cannot be inventoried as in the case of
manufactured products.
20. Manufacturing & Service
Similarities & Differences
Manufacturing Organizations Service Organizations
Differences
Physical durable product Intangible, perishable product
Output can be inventoried Output can’t be inventoried
Low customer contact High customer contact
Long response time Short response time
Regional, national, Intl. markets Local markets
Large facilities Small facilities
Capital intensive Labour intensive
Quality easily measured Quality not easily measured
Similarities
Is concerned about quality, productivity & timely response to its customers
Must make choices about capacity, location, layout
Has suppliers to deal with
Has to plan its operations, schedules and resources
Balance capacity with demand by a careful choice of resources
Has to make an estimate of demand
22. Operations Function
Linkages with other functions
I T
Operations Support Layer
Marketing
Design
Costing
Quality
Planning
Material
Maintenance
Tooling
I E
Ultimate
Customer
Dealers
Retailers
Customer Layer
Suppliers
Sub-contractors
Other service providers
Supplier Layer
Innovation
Strategy
Research &
Development
Layer of
Innovation
Service Delivery system
Machining
Fabrication
Assembly
Testing
Core Operations Layer
Source: B Mahadevan, The New Manufacturing Architecture, Tata McGraw Hill, New Delhi, 1999.
23. Operations Management
A systems Perspective
INPUT
OUTPUT
Labour
Capital
Material
Goods
Services
Forecasting
Operations
Planning &
Control
Process &
Product
Design
Material &
Capacity
Planning
Feedback
Purchasing &
Inventory
Control
Maintenance
Management
Process
Improvement
Quality
Management
PROCESSING
24. Operations Management
Functions
• Design issues in Operations Management lay down overall
constraints under which the operations system functions
• Operational Control issues focuses on optimizing the use of
available resources in the short-term while delivering goods and
services as per plan under the given design constraints
Design Issues Operational Control Issues
Product & Service Design Forecasting the Demand
Process Design Operations Planning & Control
Quality Management Supply Chain Management
Location & Layout of Facilities Maintenance Management
Capacity Planning Continuous Improvement of
Operations
26. Operations Management
Challenges
• Competitive Pressures due to economic reforms
• Falling Prices
• The on road price of a Hyundai Santro has not changed much between 2000 and 2014
• Shrinking Delivery Quote
• Textile Manufacturers are expected to cut their lead time from order placement to final
delivery down to 2 months
• Build-to-Order Requirements
• Need systems that allows customers to self-configure, customize and visualize their own
version of products & services
27. Operations Management
Challenges
• Growing customer expectations
• Examples: Tariff plans and options provided by mobile operators, options in
passenger car
• Customers tend to demand more and refine their expectations
• Manufacturing & Service organizations must learn to respond to these
expectations
• Need to develop capabilities to bring newer products and services faster and
yet profitably
28. Operations Management
Challenges
• Today’s businesses are constantly challenged by the rapid
technological advancements
• Example 1: ATMs & Internet Banking. Customers need not visit a bank branch. Drafts and cheques
replaced with electronic payment gateways & fund transfer mechanisms.
• Example 2: Buying a train ticket. By visiting a Web site like http://www.irctc.co.in/, a customer can
accomplish all tasks pertaining to ticket booking and cancellation at leisure.
• Example 3: Procurement of goods & services. A manufacturing organization can procure goods &
services by organizing a reverse auction on the Internet. In 3 to 4 hours, the best price for a component
and the supplier willing to provide the component at a desired quality can be located.
• Example 4: New Product Development. A team of design personnel from across different geographical
locations can participate in new product development using technological tools.
29. Operations Management
Challenges
• Environmental Issues
• When Government of India announced a scheme for special economic zones
(SEZs), it generated controversies and social concerns.
• Growing industrialization raises concerns regarding the depletion of natural
resources and the waste generated from production systems and end-of-life
products.
• Growing urbanization creates societal problems arising out of scarcity of
available resources and generation of solid wastes.
• Consumption of energy and water in countries like India is on the rise. Such a
situation requires better practices and newer methods of addressing these
requirements using better operational practices.
• Increasingly, firms are under pressure to take responsibility of restoring,
sustaining, and expanding the planet’s ecosystem instead of merely
exploiting it.
• OM practices must address environmental concerns in order
to ensure a sustainable world
30. Operations Management
Implications & Priorities
• Relate operations system to Customer/ Market
• Acquire Capabilities to tolerate product proliferation
• Develop systems and procedures that promote learning
• Develop Green Manufacturing Practices
31. Operations Management: Trends & Issues
Chapter Highlights
• Operations Management is a systematic approach to
address all issues pertaining to the transformation
process that converts some inputs into useful output
• Globally, India is emerging as an important
manufacturing base.
• Several recent studies point to emerging opportunities
for Indian manufacturing to grow and attain a global
presence.
• From an operations management perspective, the
notion of a ‘pure product’ and ‘pure service’ is just the
two ends of the spectrum.
• In reality, a vast majority of operations share a continuum of
products and services.
32. Operations Management: Trends & Issues
Chapter Highlights…
• Despite several important differences between
products & services, from an OM perspective there
are several similarities between the two
• Decision context in operations management can be
broadly classified as
• Design and operations control issues
• Long term and short term decisions
• Some of the challenges faced by operation firms
include
• Need to address increased competition due to economic
reforms
• Addressing the growing expectations of the customers
• Rapid technological advances
• Emerging environmental concerns
