Introduction to Operations Management

What is Operations Management?

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 What is Operations Management?
A function of Corporate Management
What is a function?
What is an activity?
What are objectives? Whose objectives?
What are expectations? Whose
expectations

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Organizational objectives
QCD
P,Q,C,D,E,F,S,H,E

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 What is product?
Need?
Value?
Value addition?
What activities add value?
Alter physical state-water to ice
Alter form-blacksmith
Alter chemical composition-chemical
products
Alter metallurgical condition-alloys 4
 Store, preserve-refrigerate deep freeze
Impart knowledge-teach, train, information
Give advice-medical advice, legal opinion
Give medical treatment
Transport – mangoes from Ratnagiri to
Mumbai

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 Production & Operation
Concept of Production & Operation
Types of Products
Consumer /Industrial
Consumer durable & Non-durable
Discrete/Continuous
Standard/Customized
Tangible/Intangible

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 What is operation?
Product? Service?
Production? Operation?
Factory? Facility?
What is core service?
Products meeting QCD expectations of
customer
What is Value added service?
Help external customers use the core
service effectively
Help internal customers perform effectively
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 1. Information on product and product
performance-safety, cost etc.
2. Problem solving-product support, workers
visiting customers works to learn product
performance for CCA/PA
3. Sales support- technology demonstration
4. Field support-parts replacement, stock
replenishment

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 Product Vs Service

• Result of a process • A process itself

• Tangible • Intangible
• Inventoriable • Non inventoriable
• Customer is away, • Customer is on the
product is to be
delivered to the shop floor and
customer involved in creation
of service

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 What is management?
Important features of management
Facilitation
Resource allocation
Accountability
 Review – PDCA
Efficiency & Effectiveness
Visualization & Planning
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 What is Operations Management?
Definition: Design, operation and
improvement of systems that create and
deliver the firms primary products and
services
O/M is a function of general management
O/M is a line function
O/M uses tools of OR (Operations
Research), MS (Method Study) & IE
(Industrial Engineering), hence closely
associated with these functions
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Operations Management Objectives
Performance Objectives
Efficiency & Effectiveness
Quality
Lead times
Capacity utilization
Flexibility

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 Cost Objectives
Explicit [visible] costs: material, labor, scrap,
rework, maintenance
Implicit [invisible]costs: inventory, stock-outs,
shortages, delayed deliveries, mat.handling,
inspection, grievances, dissatisfaction,
opportunity
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 Importance of Operations Management
1.Business education is incomplete without the
study of Operations Management
Central to every business activity
Knowledge of issues in the field is critical for
a manager whether the business is
manufacturing or service, private or public
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 2. ‘Reinventing Government’ in the US
-1990
David Osborne and Ted Gaebler-1992 book
Reinventing Government
It applies the business customer service
model to government and the PSUs
In India many of the PSUs are either getting
privatized or following the Business
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 This approach focuses on results and
promotes competition inside and outside
government
‘Reinventing Government’ initiatives draw
from the concepts of Supply Chain
Management, TQM, BPR and JIT delivery,
concepts that fall under OM umbrella

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 3. Operations Management provides a
systematic way of looking at organizational
processes
Analytical approach to a situation
Strategizing
Problem solving

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 4. O/M presents interesting carrier
opportunities
Line positions-direct supervision of
operations
Staff positions-Supply Chain Management,
Quality Assurance
Consulting opportunities-BPR, ERP

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5. Concepts and tools of O/M are used in all
functions of management
Quality Control
Productivity improvement
Internal customer focus

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6. Competitive edge through O/M to business
and to management professionals
Huge potential to boost the productivity of
the process, offer products at lower cost and
high quality
Meeting the ‘QCD’ expectations of the
customers with improved flexibility

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 History of Operations Management
Concept of O/M - an evolution: House hold
trades to factories as investment
opportunities
1910s
Frederic Taylor
Principles of scientific management
Concept of productivity, time study
Frank and Lillian Gilbreth
Motion study 25
 Henry Ford and Henry Gantt
Moving assembly line and activity scheduling,
Gantt Chart
F.W. Harris
Inventory Control, concept of EOQ

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 1930s
Walter Shewhart & H.F. Dodge and H.G.
Romig
Quality control, sampling inspection &
statistical tables for quality control
Elton Mayo & L.H.C. Tippet
Hawthorne studies of worker motivation

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 1940
George B. Dantzig
Simplex method of linear programming to
solve complex multidisciplinary problems

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 1950s -1960s
Many researchers in US & Western Europe
Extensive development of OR tools like
simulation, waiting line theory, decision
theory, mathematical programming, PERT &
CPM

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 1970
Many computer manufacturers lead by
IBM in US
Wide spread use of computers in business
for production scheduling, inventory control,
forecasting, project management, MRP
Mc Donald's restaurants in US
Service Quality and Productivity, mass
production in service sector
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 1980
Harvard Business School Faculty
Manufacturing as a competitive weapon
Tai-ichi Uhno of Toyota Motors,
D E Deming & J E Juran
Kanban, Pokayoke, CIM, FMS, CAD/CAM,
robots etc.
Eliyahu M. Goldratt
Synchronous manufacturing-Lean principles
to variety production, bottleneck analysis-
methodology for solving problems, Theory Of
Constraints: goal-performance-constraints
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 1990
National Institute of Standards and
Technology, American Society of Quality
Control and International Organization for
Standardization
Total Quality Management, Balridge quality
award, ISO 9000, Quality Functional
Deployment, value engineering and
concurrent engineering-modern approach to
product development
Michael Hammer and other major
consulting firms
Business Process Re-engineering 32
 US government, Netscape
Communication Corporation and
Microsoft Corporation
SAP (Germany), Oracle (US)
Supply chain management, SAP/R3,
client/server software
2000
Amazon, eBay, American Online, Yahoo
E-commerce, Internet, World Wide Web

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 What is Operations Strategy?
Evaluating most Cost effective methodology
of producing goods while achieving desired
Quality and Delivery objectives
A planning process to organize the
resources to fulfill the long term objectives of
operations, which are focused on
organizational objectives
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Organizational objectives are dynamic as
they are competitive - post war US and Japan
Objectives are flexible to meet changing
expectations of customers
Operations strategy is a process by which
key operations decisions are made that are
consistent with overall strategic objectives of
the firm
Operations Strategy leads to operational
excellence 35
 What are operational decisions?
Decisions are at the core of a strategy.
Operational Decisions are the strategic
options selected by the organization.
Product & Process
Product portfolio- products, product line,
extent of customization
Product design
Process design
Technology selection
Capacity planning
Inventory decisions 36
 Infrastructure
Planning systems
Control systems
Quality assurance and control
Work payment structure
Process location
Organization of Operations function

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 Relevance of Operations Strategy
1.Changing expectations of customers due to
the competitive dynamics
2. Need for a cost effective plan to respond to
these changes
3. Need for adaptation to competitive
priorities, Quality? Cost? Delivery?
4. Competitive pressure on price line, lead
time and quality
5. Challenges of modern business- pushes
and pulls, customers, suppliers, investors,
workers, government, NGOs
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 COMPETITIVE DIMENTIONS IN
OPERATIONS STRATEGY
‘Make it cheap’- cost reduction, post war
demand for volumes
‘Make it good’- quality and reliability as a
dimension, Competition from Japanese
products
‘Make it quick’- lead time reduction
‘Deliver it when promised’-OTD
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‘Change its volume’-Meeting rising demand
and scaling down
‘Change it’-new product introduction
‘Support it’-competitive dimensions related
to service

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 COMPETITIVE ADVANTAGE
Competitive Advantage creates value for
the customer
Firm’s profit exceeds the competition
average
Cost advantages-core service is delivered
at lower cost
Differential advantage-benefits delivered
are superior

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 Resources

Cost Advantage
or
Distinctive Differentiation Value
Competencies Advantage Creation

Capabilities

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 Resources
Firm’s resources and capabilities are to be
superior to competition- Without this superiority,
any advantage quickly would disappear
Patents and trademarks
Proprietary know-how
Installed customer base
Reputation of the firm
Brand equity-is the value that customers
PERCEIVE in a brand. It is measured based on
how much trust a customer has in the brand.
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 Capabilities
Firm's ability to utilize its resources
effectively
Aspects that are difficult to document
Embedded strengths of the company
Distinctive Competencies
The firm's resources and capabilities
together form its distinctive competencies
competencies enable innovation, efficiency,
quality, and customer responsiveness, all of
which can be leveraged to create a cost
advantage or a differentiation advantage.
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 TIME BASED COMPETITION
Business organizations seek competitive
advantage to attract customers
Focus of the competition changed with time
post war focus in the US was cost (concept of
'make it cheap')
Japanese introduced quality focus in 1980s
(concept of 'make it better')
As the cost and quality become qualifiers in
competitive business. Now focus comes on
time. (concept of 'make it quick')

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 Satisfying 'D' expectation became the
winner characteristic in competitive business
Lead-time came under the scanner of
business managers
Classical ILO approach to work talks about
work content and ineffective time
TBC as an initiative puts the focus on NVA
elimination/reduction
As the NVAs shrink changes occur in O/S
Productivity goes up, Output rises,
Business prospers
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TBC has a methodology for implementation
Value stream mapping
Process mapping
Prioritization with respect to product
delivery
Selecting focus area
Reduce NVAs
tools used: SMED, KANBAN, 5S, Process
mapping, layout change, Technology,
Logistical Management, Supply Chain
Management
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