Description Of OM

1. Operations Management
Introduction

2. Who is the Best Operations Manager?
1. Santa Claus is one of the best operations Managers in the world.
2. He always delivers the right product to the right place at the right
time.
3. This is despite highly uncertain demand and a very complex SC
with more than two billion customers.
4. The customer department is responsible for processing all the
letters from children all over the world.
5. The demand data is then given to the supply department.
6. The supply department is responsible for buying the desired items
from the supplier worldwide.

3. 7. In some cases, the desired items are so specific that no supplier can be found. For such
cases, Santa Claus has established some globally located production facilities to minimize
total transportation costs and to ensure the on-time delivery.
8. The customer department regularly analyzes the children’s wishes. They noticed that there
are a lot of similar items which are requested each year. In order to reduce the purchasing
fixed cost and scale effects, Santa Claus organized a network of warehouses worldwide.
Standard items are purchased in large batches and stored.
9. In January, Santa Claus and the customer department start to analyze the previous year’s
demand. They create a projection of future demand. After that, the supply department
replenishes the items and distributes them to different warehouses.
10. The production department schedules the manufacturing processes. From October to
December, Santa Claus needs many assistants and enlarges the workforce.
11. Santa Claus has established the most sustainable operations in the world using
transportation by sledges.

4. What is Operations Management?
• Manufacturing, service, and agriculture are the major economic activities in any country.
• In India, manufacturing and services together constitute nearly 75 per cent of the gross
domestic product (GDP).
• Management of manufacturing and service are considered as important economic
activities.
• Manufacturing firms essentially engage in production activities and the concept of
Production Management is used for specially for manufacturing firms.
• Production management primarily focus on managing the production related activities.
• Growth in service sector in recent times requires a more generalized concept of managing
all operational activities.

5. What is Operations Management?
• Narayana Health (NH) started their journey with 300-bed hospital started by Dr. Devi
Shetty in the outskirts of Bangalore city in 2001.
• Currently, the group has 14 hospitals in multiple locations with multiple specialties that
offer a total of 5,700 beds. There are plans to add new hospitals in Siliguri, Bhubaneswar,
Mysore, Mumbai, and Delhi in addition to Cayman Islands and Malaysia, which will add
another 2,500 beds capacity to the NH network*.
• A Heart surgery package at NH could be anywhere between 75,000 and 150,000
compared to a typical cost of 300,000 in other hospitals*.
• Issues – facility location selection, developing new facilities in a cost-effective way,
operating them in a daily basis, input cost reduction, process innovation, resource
deployment, Supplier development, patient volume.
• Like NH, every other service organizations as well as manufacturing organizations face
similar set of issues, although in varying degrees.
*Based on Babu, V. (2012), “Pulse on the future”, Business World, March 5, 2012, pp 40–45; Chaki, D. (2013),
“Straight from the heart”, Business India, Sep. 30–Oct. 13, 2013, pp 61–63.

6. What is Operations Management?
• Operations Management consists of two terms : ‘Operations’ and ‘Management’.
• What is Operations?
o Transforming inputs into value added outputs.
• 1 ton of iron ore transforms into 1 ton of steel (High Value end product)
• Vegetable products sell in urban market (location change – add value)
• What is Management?
• Design of operation – Facility creation, design of product and service, arranging
layouts
• Managing operation – resource utilization, scheduling of work, planning production.
• Growth of operation – process improvement, measuring performance, controlling
quality.
• Survival of operation – developing strategies, sustainability.
• Control - control all above activities.

9. Manufacturing and Services
• Manufacturing Organizations: Organizations that primarily produce a tangible product
and typically have low customer contact.
• Service organizations: Organizations that primarily produce an intangible product, such
as ideas, assistance, or information, and typically have high customer contact.

10. Manufacturing and Services
• There are certain important differences between services and product:-
Characteristics of Pure Services Characteristics of Pure Product
Intangible: Ride in an airline seat Tangible: The seat itself
Produced and consumed simultaneously: Beauty salon
produces a haircut that is consumed as it is produced
Product can usually be kept in inventory (beauty care
products)
Unique: Your investments and medical care are
unique
Similar products produced (iPods)
High customer interaction: Often what the customer is
paying for (consulting, education)
Limited customer involvement in production
Inconsistant Product definition: Auto insurance
changes with age and type of car
Product standardized (iPhone)
Often knowledge based: Legal, education, and
medical services are hard to automate
Standard tangible product tends to make
automation feasible
Quality may be hard to evaluate: Consulting,
education, and medical services
Many aspects of quality for tangible products are
easy to evaluate (strength of a bolt)
Reselling is unusual: Musical concert or medical care Product often has some residual value

11. Operations Management is Important for all
Organizations
Automobile Assembly Advertising Agency
Produce Automobiles Produce Advertisements
But What is their Operations
function?
Any business that produces something, whether tangible or not, must use resources to do so,
and so must have an operations activity.

12. Automobile assembly factory – Operations
management uses machines to efficiently
assemble products that satisfy current customer
demands.
Physician (general practitioner) – Operations
management uses knowledge to effectively
diagnose conditions in order to treat real and
perceived patient concern.
Disaster relief charity – Operations
management uses our and our partners’
resources to speedily provide the supplies
and services that relieve community
suffering.

13. Management consultant – Operations
management uses people to effectively create
the services that will address current and
potential client needs
Advertising agency – Operations management
uses our staff ’s knowledge and experience to
creatively present ideas that delight clients and
address their real needs.

14.  From the ‘easy to visualize’ automobile plant, what operations management did was
that . . . ‘Operations management uses machines to efficiently assemble products that
satisfy current customer demands.’
 The statements from the other organizations were similar, but used slightly different
language.
 Operations management used, not just machines but also . . . ‘knowledge, people, “our
and our partners’ resources” ’ and ‘our staff ’s experience and knowledge’, to
efficiently (or effectively, or creatively) assemble (or produce, change, sell, move, cure,
shape, etc.) products (or services or ideas) that satisfy (or match or exceed or delight)
customers’ (or clients’ or citizens’ or society’s) demands (or needs or concerns or even
dreams).

15. Evolution of Operations Management
Era Events/Concept Dates Originator
Industrial Revolution Steam Engine 1769 James Watt
Division of Labor 1776 Adam Smith
Interchangeable of Parts/Standardization 1790 Eli Whitney
Scientific Management Principles of scientific management 1911 Frederick W. Taylor
Time and motion studies 1911 Frank and Lillian Gilbreth
Moving assembly line 1913 Henry Ford (T model)
Human Relations Hawthorne studies 1930 Elton Mayo
Motivation theories 1940 Abraham Maslow
Operations Research Linear Programming 1947 Dantzig
Simulation, Waiting Line, PERT/CPM,
Decision Theory
1960s Operations Research
Groups
MRP, CIM 1970s IBM and others

16. Evolution of Operations Management
Era Events/Concept Dates Originator
Quality Evaluation JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (Total Quality Management), Kanban 1980s Edward Deming , Juran
Six Sigma 1990s Motorola
Internet Revolution ERP, MRP- II, SCM 1990s Dell
E commerce 2000s Amazon, Yahoo
Globalization European Union, World Trade Organization 1990s Europe, China
Global Supply Chain, Service Science 2000s Emerging Economies
Sustainability, Triple Bottom Line (3PL) 1990s Brundtland Report
Green Revolution, Era of advances of technologies for enhanced services, Industrial Revolution and 4.0

17. Operations as a key functional area
• Understand the role of operations in an organization and its relationship with other functional
areas of business.
• Every organization has a few important activities. These include operations, marketing,
finance, and human resources management.
• Operations management deals with the management of the conversion process in an
organization.
• The marketing function is responsible for understanding the requirements of customers,
creating a demand for the products and services produced, and satisfying customer
requirements by delivering the right products and services to customers at the right time.
• Both operational and marketing activities require estimates of financial needs, funds, and
management of working capital. These set of activities constitute the finance function.

18. Operations as a key functional area
• Every organization employs a number of people who have varied skills, backgrounds and
work requirements. Managing the workforce is considered under the purview of human
resource management function.
• The four functions have mutual interactions among them. The decisions made in each of
these functional areas could form an important input in another functional area.

19. Operations as a key functional area
• Organizations typically begin their yearly plan with the marketing function making an
estimate of the next year’s sales.
• The above input forms the basis for production planning in the operations area of
business.
• Based on the production plans, procurement planning is done and all these factors lead to
a certain estimate of the fund requirements. This forms an important input for the finance
function.
• The interactions between these functions are even greater when the above plans are
executed.
• The human resource management function influences the productive capacity of labour
available in real time.

21. Decisions Making and Planning Horizons in Operations
Management
• Three different planning horizons:
 Strategic (long Term Planning) – Design of products and services, selection of locations,
Process design, Capacity Planning, Quality Management.
Tactical (Mid Term Planning) – Forecasting, Inventory policies, Transport and delivery
arrangements, Supplier selection, Make or Buy.
Operational (Short Term Planning) – Operations Scheduling, Available material handling
and allocation.

22. Efficiency and Effectiveness
• Efficiency is a ratio of the actual output of a process relative to some standard.
• Example, consider a machine is designed to package rice at a rate of 36 packets per
minute. If during a shift the operators actually produce at a rate of 30 boxes per minute,
then the efficiency of the machine is 83 percent (30/36).
• Labor Efficiency – number of labor hours required to accomplish a given task, when
compared with the standard in industry or setting.
• Also, being “efficient” means doing something at the lowest possible cost.
• Efficiency means doing the things right.
• Effectiveness means doing the right things to create the most value for the company.
• For example, to be effective at a grocery store it is important to have plenty of operating
check-out lines even though they may often stand idle.
• Maximizing effectiveness and efficiency at the same time creates conflict between the
two goals.

23. Efficiency Measure
• Inventory turnover- It measures the average number of times inventory is sold and
replaced during the fiscal year.
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑉𝑎𝑙𝑢𝑒
• This ratio measures the company’s efficiency in turning its inventory into sales.
• A low inventory turnover ratio is a signal of inefficiency.
• It might imply either poor sales or excess inventory relative to sales.
• A high inventory turnover ratio implies either strong sales.
• A high inventory turnover ratio also indicate shortage or inadequate inventory level.

24. Productivity Measurement
• Productivity is an index that measures the outputs (goods and services) related to the
input (labor, material, capital, and other resources) used to produce it.
• Conventionally, It is expressed as ratio of output by input. Productivity =
𝑂𝑢𝑡𝑝𝑢𝑡
𝐼𝑛𝑝𝑢𝑡
• Productivity "is a measure of how well resources are combined and used to accomplish
specific, desirable results”.
• Low productivity is bad and high productivity is to be valued.
• Achieving higher productivity implies the generation of more output per unit of input, but
this can be arrived at in a number of ways:
 Same output for less input
 More output for same input
 Increased output and a less than proportional increase in input, etc.

25. Productivity Measurement
• Difficulties arise when the following questions can be asked
 What are the elements that constitute output and input?
 How is the use of these elements measured?
 Which measurement units should be used?
 Over what time period?
• Output can be expressed in units or dollars in a variety of scenarios, such as sales made,
products produced, customers served, meals delivered, or calls answered.
• Single-factor productivity compares output to individual inputs, such as labor hours,
investment in equipment, material usage, or square footage.
• Multifactor productivity relates output to a combination of inputs, such as (labor+capital)
or (labor+capital+energy+materials)

26. Productivity Measurement
• Capital can include the value of equipment, facilities, inventory, and land.
Example:-
Osborne Industries is compiling the monthly productivity report for its Board of
Directors. From the following data, calculate (a) labor productivity, (b) machine
productivity, and (c) the multifactor productivity of dollars spent on labor, machine,
materials, and energy. The average labor rate is $15 an hour, and the average machine
usage rate is $10 an hour.
Units Produced 100,000
Labor hour 10,000
Machine hours 5000
Cost of Material $35,000
Cost of Energy $15,000

27. Productivity Measurement
• Labor Productivity =
𝑂𝑢𝑡𝑝𝑢𝑡
𝐼𝑛𝑝𝑢𝑡
=
𝑂𝑢𝑡𝑝𝑢𝑡
𝐿𝑎𝑏𝑜𝑟 ℎ𝑜𝑢𝑟𝑠
=
100,000
10,000
= 10 𝑢𝑛𝑖𝑡𝑠/ℎ𝑜𝑢𝑟.
• Machine Productivity =
𝑂𝑢𝑡𝑝𝑢𝑡
𝐼𝑛𝑝𝑢𝑡
=
𝑂𝑢𝑡𝑝𝑢𝑡
𝑀𝑎𝑐ℎ𝑖𝑛𝑒 ℎ𝑜𝑢𝑟𝑠
=
100,000
5000
= 20 𝑢𝑛𝑖𝑡𝑠/ℎ𝑜𝑢𝑟
• Multifactor productivity =
𝑂𝑢𝑡𝑝𝑢𝑡
𝐿𝑎𝑏𝑜𝑟 ℎ𝑜𝑢𝑟𝑠+𝑀𝑎𝑐ℎ𝑖𝑛𝑒 𝑐𝑜𝑠𝑡𝑠+𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑐𝑜𝑠𝑡𝑠+𝐸𝑛𝑒𝑟𝑔𝑦 𝑐𝑜𝑠𝑡𝑠
=
100,000
10,000×$15 + 5000×$10 +$35,000+$15,000
=
100,000
$250,000
= 0.4 𝑢𝑛𝑖𝑡 𝑝𝑒𝑟 𝑑𝑜𝑙𝑙𝑎𝑟 𝑠𝑝𝑒𝑛𝑡

28. Example-Productivity Measurement
A mobile phone manufacturing company is producing 44,000 mobile phones per month
by employing 200 workers in 8-hour shift. The company gets additional order to supply
6000 mobile phones. The management has decided to employ additional workers. What
will be production and productivity levels when the number of additional workers
employed is (a) 20, (b) 25 and (c) 30.
• Present Production = 44,000 mobile phones
• Present Productivity (of labor) =
𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 (𝑜𝑢𝑡𝑝𝑢𝑡)
𝑇𝑜𝑡𝑎𝑙 𝑤𝑜𝑟𝑘𝑒𝑟 ℎ𝑜𝑢𝑟𝑠 (𝑖𝑛𝑝𝑢𝑡)
=
44,000
(200 𝑤𝑜𝑟𝑘𝑒𝑟𝑠×8 ℎ𝑜𝑢𝑟𝑠×30)
=
44,000
48,000
= 0.916 mobile/labor-hour.
• With increased order
(a) When additional 20 workers are hired
Production = 44,000+6000=50,000
Productivity =
50,000
(220×8×30)
= 0.946mobile/labor-hour

29. (b) When additional 25 workers hired
Production = 44,000+6000 = 50,000 mobile phones
Productivity =
50,000
(225×8×30)
= 0.925 mobile/labor-hour
(c) When additional 30 workers hired
Production = 44,000+6000 = 50,000 mobile phones
Productivity =
50,000
(230×8×30)
= 0.905 mobile/labor-hour

30. Different characteristics of Operations Processes

31. How Operations can effect Profit
Consider two information technology (IT) support companies. Both design, supply, install
and maintain IT systems for business clients.

33. Competitiveness
 Operations can have a significant impact on strategic success.
Competitiveness: How effectively an organization meets the wants and needs of
customers relative to others that offer similar goods or services.
 Marketing influences competitiveness in several ways, including identifying consumer
wants and needs, pricing, and advertising and promotion.
 Operations has a major influence on competitiveness through product and service design,
cost, location, quality, response time, flexibility, inventory and supply chain management,
and service.

34. Achieving Competitive Advantage Through Operations
• Firms achieve missions in three conceptual ways: (1) Differentiation, (2) cost leadership,
and (3) response.
• Differentiation is concerned with providing uniqueness. May be a product differentiation
or experience differentiation (service).
• Low-cost leadership entails achieving maximum value as defined by your customer.
Walmart continues to pursue its low-cost strategy with superstores, open 24
hours a day.
• Response, a set of values related to rapid (quickness), flexible (ability to match changes
according to market) and reliable performance .
• Operations managers are called on to deliver goods and services
that are (1) better, or at least different, (2) cheaper, and (3) more responsive.

35. Quality inside the operation…
• When quality means consistently producing services and products to specification it not
only leads to external customer satisfaction, but makes life easier inside the operation as
well.

36. Response (speed) in the Operation…
• Speed means the elapsed time between customers requesting products or services and
their receiving them.

37. Flexibility in the Operations….
• Flexibility means being able to change the operation in some way. This may mean
changing what the operation is doing, how it is doing it, or when it is doing it.
Specifically, customers will need the operation to change so that it can provide four types
of requirements:
▶ product/service flexibility – the operation’s ability to introduce new or modified
products and services
▶ mix flexibility – the operation’s ability to produce a wide range or mix of products
and services
▶ volume flexibility – the operation’s ability to change its level of output or activity to
produce different quantities or volumes of products and services over time.
▶ delivery flexibility – the operation’s ability to change the timing of the delivery of
its services or products.

40. Core Competencies
• The unique strengths of a business or the special attributes or abilities that give an
organization a competitive edge.
• A firm’s core competence can be exceptional service, higher quality, faster delivery, or
lower cost.
• Core competencies are more likely to be processes, a company’s ability to do certain
things better than a competitor.
• iPod was a breakthrough product, it is Apple’s ability to turn out hit product after hit
product such as iPhone, iPad, MacBook, etc. that gives it that competitive advantage.
• Core competencies are not static. It changes over the time. Example: Dell, Walmart.
• It helps define a business strategy is an understanding of the
company’s strengths.
• Companies need to continually evaluate the characteristics of their products or services
that prompt customer purchase; that is, the order qualifiers and order winners.

41. Order Winners and Order Qualifiers
• Order qualifiers are the characteristics of a product or service that qualify it to be
considered for purchase by a customer.
• The absence of any of these attributes will result in the customer removing the product or
service from his or her list of items under consideration.
• An order winner is a criterion, or possibly a set of criteria, that differentiates the products
or services of one firm from those of another.
• Depending on the situation, the order-winning criteria may be the cost of the product
(price), product quality and reliability, or any of the other dimensions developed earlier.
• What constitutes order-winning and order-qualifying attributes might change from time to
time.
• Marketing helps to identify these qualifiers and winners.
• Characteristics under the purview of operations and supply chain management, such as
cost, speed to the market, speed of delivery, or customization, are also considered as
qualifiers and winners.

42. The role of Operations Strategy
• The role of operations strategy is to provide a plan for the operations function so that it
can make the best use of its resources.
• Operations strategy specifies the policies and plans for using the organization’s resources
to support its long-term competitive strategy.
• Includes the location, size, and type of facilities available; worker skills and talents
required; use of technology, special processes needed, special equipment; and quality
control methods.

43. Organizational
Strategy Operations Strategy Examples of Companies or Services
Low Price Low cost Wal-Mart
Responsiveness Short processing times
On-time delivery
McDonald’s restaurants
FedEx
Differentiation:
High Quality
High performance design
and/or high quality
processing
Consistent quality
Sony TV, Toyota
Differentiation:
Newness
Innovation 3M, Apple, Google
Differentiation:
Variety
Flexibility Burger King (“Have it your way”),
Hospital Emergency room
Differentiation:
Service
Superior customer service Disneyland
IBM, Amazon
Differentiation:
Location
Convenience Supermarkets; mall stores

44. Trade-off between Performance Objectives
Improving the performance of one performance objective might only be achieved by
sacrificing the performance of another.
For example, an operation might wish to improve its cost efficiencies by reducing the
variety of products or services that it offers to its customers.