OPERATIONS MANAGEMENT

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INTRODUCTION TO OPERATION MANAGEMENT, COMPETITIVE STRATEGY, COMPETITIVE ADVANTAGE, TIME BASED COMPETITION
TABLE OF CONTENTS
SR.NO 1 2 3 PARTICULARS PRODUCTION MANAGEMENT OPERATIONS MANAGEMENT IN PLANNING CRITERIA IMPORTANCE OF PRODUCTION/OPERATIONS MANAGEMENT THE PRODUCTION (MANUFACTURING) FUNCTION OPERATION CONCEPT OF PRODUCTION PRODUCTION AS THE CONVERSION PROCESS PRODUCTIVITY OF CONVERSION PROCESS OBJECTIVES OF PRODUCTION MANAGEMENT COMPONENTS OF PRODUCTION FUNCTION FACILITIES (PLANT) LAYOUT AND MATERIALS HANDLING HISTORY OF PRODUCTION MANAGEMENT OPERATIONS STRATEGY GENERIC ENTERPRISE STRATEGIES AND THE OPERATIONS FUNCTION SR.NO 1 1 2-3

4 5 6 7 8 9 10 11 12

4 4 5-6 7 8 9-11 11-14 14-19 19-27 28-30

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TIME BASED COMPETITION CASE STUDY

30-36 37-40

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WHAT IS OPERATIONS MANAGEMENT? Operations management is an area of business that is concerned with the production of goods and services, and involves the responsibility of ensuring that business operations are efficient and effective. It is also the management of resources, the distribution of goods and services to customers, and the analysis of queue systems. APICS The Association for Operations Management also defines operations management as "the field of study that focuses on the effective planning, scheduling, use, and control of a manufacturing or service organization through the study of concepts from design engineering, industrial engineering, management information systems, quality management, production management, inventory management, accounting, and other functions as they affect the organization" (APICS Dictionary, 11th edition). Operations also refer to the production of goods and services, the set of value-added activities that transform inputs into many outputs.[1] Fundamentally, these valueadding creative activities should be aligned with market opportunity (see Marketing) for optimal enterprise performance. OPERATIONS MANAGEMENT PLANNING CRITERIA

Control by creating and maintaining a positive flow of work by utilizing what resources and facilities are available Lead by developing and cascading the organizations strategy/mission statement to all staff Organize resources such as facilities and employees so as to ensure effective production of goods and services Plan by prioritizing customer, employee and organizational requirements Maintaining and monitoring staffing, levels, Knowledge-Skill-Attitude (KSA), expectations and motivation to fulfill organizational requirements Performance Measures for the measurement of performance and consideration of efficiency versus effectiveness

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IMPORTANCE OF PRODUCTION/OPERATIONS MANAGEMENT: Many people ask the question "Why do I need to know about production and operations management or for that matter any other area, when basically I am a finance (or accounting or marketing or HR) person?" In large organizations, many people do not know what is happening in other departments, except their own. I call this "Frog in a Pond" syndrome. There was a time when one could escape with this thinking, but not any more. It has become imperative that all people in all functions have at least a rudimentary understanding of all the areas of management. Acquiring cross functional knowledge and skills is the need of the hour. However, a good understanding of operations or production management is a must for all. SUPPLY AND DEMAND: In Economics, we have the supply and demand equation for goods and services. The Production/Operations side of business management deals with the supply side, whereas the Marketing side deals with the demand. Marketing Managers need to understand what it takes to build and operate production systems and this understanding makes them serve their markets well. They must understand the capabilities and limitations of their total supply-demand system. Financial managers can plan for capacity expansion and will be able to better understand inventories before they demand its reduction. They can also plan their future cash flow requirements for new machines, labor, materials, energy and overheads just as if cash were another raw material. Accountants and Controllers need to learn about modern computer based production and inventory control systems which can provide cost, accounting information, capacity utilization, various ratios, inventory valuation, cost of good sold and other information for internal controls, auditing and financial reporting. Internal auditors need to understand these to carry out their functions properly. Certified public accountants would be severely hampered in their auditing of manufacturing companies if they did not have an understanding of EOQ, ROP, MRP, WIP, ABC analysis, methods of determining labor standards etc., Personnel
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and HRD managers can start appreciating the complexities of job design, functions and the skills required to perform the jobs effectively. This understanding will enable them design training programs, compensation systems and in proper recruitment and selection of people. Computer and IT systems specialists need to have a thorough understanding of the various production and operating processes to design suitable programs. Purchase managers are more than just buyers. Efficient purchasing can make a big difference in highly competitive industries. Let us say the cost of making a product is 90 and the selling price is 100. A good purchasing man comes in and manages to reduce the purchase cost by 10% thus making the CP to 81. The selling price remains the same because of extreme competitive pressure. The contribution or profit goes up from 10 to 19. One would observe that a 10% reduction in costs has led to 90% increase in profits! If the manufacturing person also manages to reduce the other cost of manufacturing, it is still better. ASSET CONCENTRATION: It is found that approximately 70 to 80% of all assets in manufacturing and processing organizations are in inventories, plant and machinery. These assets are directly under the control of production and operating personnel. With this concentration of assets, one should know what these people do with them. Optimum use of assets is a key factor in maintaining competitive edge. Most importantly, you need good and competent people to manage these assets. As a result the production/operations department has the maximum concentration of people. One can learn management of people, the best, in this department.

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THE PRODUCTION (MANUFACTURING) FUNCTION The production (or manufacturing) management since long has been associated with a factory situation where goods arc produced in physical sense. Factory has been defined As any premises in which persons are employed for the purpose of making, altering, repairing, ornamenting, finishing, cleaning, washing, breaking, demolishing, or adopting for sale, any article. The foregoing definition, however, restricts the scope of production function. A much broader and a generalized concept of production are as under: Production is the process by winch goods and services are produced. This broader concept of production brings in a large number of seemingly nonmanufacturing sectors of economy such as transport, energy, health, agriculture, warehousing, banking etc, within the preview of production management. The essential feature of a production function is to bring together people, machines and materials to provide goods and services thereby satisfying the wants of people. Since both manufacturing and service organizations involve above mentioned features, the term production management is gradually being replaced by Operations Management. OPERATION CONCEPT OF PRODUCTION: The concept of "Operations" instead of "Production" includes both manufacturing as well as service organizations. Operations in a manufacturing as well as in a service organization represent purposeful activities of the organization. Operations function is the heart of and indeed the very reason for existence of any organization. All operations add value to the objects thereby enhance their usefulness. An operation may be defined "as the process of changing inputs into outputs thereby adding value to some entity". The value is added to the entity by one or more of the following ways: Alteration refers to the change in form or state of inputs. Such a change may be physical as in any machine shop or press shop or assembly shop operation, or
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psychological as the feeling of comfort after getting cured from illness. Transportation refers to the movement of the entity from one place to another. The entity has more value if it is located at somewhere other than where it currently is. Storage refers to the process of keeping an entity in a protected environment (i.e. storing food grains in warehouses) for some period of time. Inspection refers to the process of verification of entity for its properties and thereby taking more informed decisions concerning their purchase, use repair etc. Since alteration, transportation, storage and inspection add value, organizations such as manufacturing, transportation, warehousing, health care, education etc. come within the preview of operation or production management.

PRODUCTION AS THE CONVERSION PROCESS: Since production is the process of changing inputs into output, every organization therefore, can be considered essentially as the conversion system. The inputs to the production system are raw materials, parts, consumables, energy, engineering details, production schedules, information technology, capital or management and output are the produced goods, transported goods, delivered messages, cured patients, serviced customers.

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FOR EXAMPLE In a manufacturing organization like steel plant, inputs are, materials like iron ore, coke, lime stone, dolomite, etc., labor, machines, capital and outputs are steel sections like channels, rods, bars, sheets, etc. In a service, organizations like banks, inputs are customers and outputs are serviced customers. In a hospital inputs are patients and outputs are cured patients. In a public transport, inputs are commuters and outputs are serviced (or transported) Commuters. In a post and telegraph office, inputs are letters or messages and outputs are delivered letters/messages.

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PRODUCTIVITY OF CONVERSION PROCESS Effectiveness of production management may be viewed as the efficiency with which inputs 1 are converted into outputs. This conversion efficiency can be' gauged by the ratio of the output to the input and is commonly known as productivity of the system. Productivity = Output/Input = Goods and services / Capital, manpower, materials, machines, land and building. The higher the productivity of production system, more efficient the production function is said to be. Management of production system thus is essentially concerned with management of productivity. Another way of looking at the concept of productivity is to look at the amount of waste generated in the system if the waste is unnecessary output and/or defective output from the system, then the productivity of the system can be improved by eliminating/ minimizing the waste occurring in the system. Typical examples of wastes of the conversion process are: Idling of the resources (e.g. materials waiting in the form of inventory, in stores, machines waiting to be loaded, job orders waiting to be processed, patients waiting to be attended etc.) be attended etc.) Production of defective goods and services (e.g. components/parts not conforming to; specifications, wrongly delivered letters, etc) Higher conversion costs (higher costs resulting from inefficient methods, poor quality of tools, bad conditions of machines, wrong selection of materials, poorly trained operators, ineffective supervision). Higher total throughput time (due to waiting time, hunting time, queuing time, buried waiting time etc). In an efficient production function, wastes of all kinds must be eliminated or minimized.

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OBJECTIVES OF PRODUCTION MANAGEMENT Right quality, right quantity, right time and right price, are the four basic requirement of the customers and as such they determine the extent of customer satisfaction. And if these can be provided at a minimum cost, then the value of goods produced or services rendered increases. Thus the objectives of production management are "to produce goods and services of the right quality, in the right quantities, according to the time schedule and at a minimum cost". Objectives of production management may be amplified as under: Producing the right kind of goods and services that satisfy customers' needs (effectiveness objective). Maximizing output of goods and services with minimum resource inputs (efficiency objective). Ensuring that goods and services produced conform to pre-set quality specifications (quality objective). Minimizing throughput time - the time that elapses in the conversion process - by reducing delays, waiting lime and idle, time (lead time objective). Maximizing utilization of manpower, machines, etc. (capacity utilization objective). Minimizing cost of producing goods or rendering a service (cost objective). COMPONENTS OF PRODUCTION FUNCTION Production Management is -not same as production engineering although there are considerable areas of common interest. Broadly, production engineering is concerned with the design of physical equipment while the production management is concerned with the management of the use of equipment and other resources. Production engineering is the domain of engineers while knowledge of engineering of any sort is not necessary requirement of production management. Production management is essentially planning, organizing and controlling of production function. Management of production can be described in terms of fourteen components as under:
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Aspects of management

Components of the production function PLANNING Product selection and design (Planning the conversion process) & Process selection and planning (Planning the use of conversion'' process) Facility layout and materials and handling. Capacity planning Forecasting Production planning

Aspects of management .

Components of the production function

ORGANISING (Organizing for * Work study and job design conversion) (Controlling the conversion Production control process) Inventory control (or stock) control Quality control Maintenance and replacement Cost reduction and cost control

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A short description of each component is given below PRODUCT SELECTION AND DESIGN: The right kind of products and good design of the products are. Crucial for the success of an organization. A wrong selection of the product and/or poor design of the products can render the company's operations ineffective and non-competitive. Product/services, therefore, must be chosen after detailed evaluation of the product/services alternatives in conformity with the organizations objectives. Techniques like value engineering may be employed in creating alternate designs, which are free from unnecessary features and meet the intended functions at the' lowest cost. PROCESS SELECTION AND PLANNING Selection of the optimal conversion system is as important as choice of products/services and their design. Process' selection decisions include decisions concerning choice of technology equipment machines, material handling systems, mechanization and automation. Process planning involves detailing of processes of resource conversion required and their sequence. FACILITIES (PLANT) LOCATION A poor location of the plant can be constant source of higher cost, difficult marketing and transportation, dissatisfaction among employees and customers frequent disturbances in production, substandard quality, competitive disadvantage etc. Plant location decisions are strategic decisions and once plant is set up at a location, it is comparatively immobile and can be shifted later only at a considerable cost and interruption of production. Although problem of locational choice does not fail within preview the production function and it occurs infrequently, yet it is of crucial, importance because of its major effect on the performance of every department including production. Therefore, it is important to choose the right location which will minimize total delivered-customer cost (production and distribution cost). Locational decisions involve evaluation of locational alternatives against multiplicity of relevant factors considering their relative importance to the organization and selecting those which are operationally advantageous to the organization.

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FACILITIES (PLANT) LAYOUT AND MATERIALS HANDLING Plant layout is concerned with relative location of one department (work centre) with another in order to facilitate material flow and processing of a product in the-most efficient manner through the shortest possible distance and through the shortest possible time. A good layout reduces material handling cost, eliminates delays an congestion, improves coordination, provides good housekeeping etc. while a poor layout results in congestion, waste, frustration, inefficiency and loss of profit. Since the layout integrates the factors of production, the selection of the layout depends on the nature of the production systems. Good plant layout and minimum materials handling are said to be akin to each other. Only a good layout can ensure minimum materials handling. Most of the concepts used in layout planning mode are based on the importance of locating departments close to each other, depending upon their degree of closeness desired in order to minimum cost of material handling. Layout' decisions have also to consider the nature of the material handling equipment. Since space requirements of the work centers, gangways etc. depends on the type of material handling equipment the selection of the proper material handling equipment such is conveyors, fork-lift, trolleys etc. is the, components (related decision) of plant layout. Another related aspect in product based layouts the balancing of the production or assembly lines. CAPACITY PLANNING: Capacity planning concerns determination and acquisition of productive resources ensure that their availability matches the demand. Capacity decisions have a direct influence on performance of the production, system in respect of both resource productivity and customer service, (i.e. delivery performance). Excess capacity results in low resource productivity while inadequate capacity leads to poor customer service. Capacity planning decisions can be short-term as well as long term decisions. Long term capacity planning decisions concern expansion/contraction of major facilities required in the conversion process, economics-of multiple shift operation, development of vendors for major components, etc, Short term capacity planning decisions concerns issues like overtime working, sub-contracting, shift adjustments etc. Break even analysis is a valuable tool for capacity planning.

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PRODUCTION PLANNING AND CONTROL (PPC) Production planning is the system for specifying the production procedure to obtain the desired output-in a given-time at optimum cost in conformance with specified standard of quality, and control is essential to ensure that manufacturing takes place in the manner stated in the plan. Production planning is a pre-production activity associated with determination of optimal projection schedule, sequence of operations, economic batch quantity, optimal job machine assignment and dispatching priorities for sequencing of jobs. Production control is a complementary activity to production planning and it involves keeping track of what is happening and taking remedial action when the progress is behind schedule. Production planning is a centralized activity and it includes functions such as order preparation, materials control, process planning and scheduling production control. On the other hand, is a diffused activity (in the shops) and it includes functions such as dispatching, progressing and expediting. INVENTORY CONTROL Inventory control deals with determination of optimal inventory levels of raw materials, components, parts, tools, finished goods, spares and supplies to ensure their availability with minimum capital lock up. Material requirement planning (MRP) and Just-ln-Time (JIT) are the, latest techniques that can help inventory control. QUALITY ASSURANCE AND CONTROL Quality is an important aspect of production system and it must ensure that services and products produced by the company conform to the declared quality standards at the minimum cost. A total quality assurance system include such aspects as setting standards of quality, inspection of purchased and sub-contracted parts, control of quality during manufacture and inspection of finished product including performance testing etc. WORK STUDY AND JOB DESIGN Work study, also called time and motion study, is concerned with of improvement of productivity in the existing jobs and the maximization of
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productivity in the design of new jobs. Two principal component of work study are (i) Method study (ii)Work measurement Method study has been defined (BS 3138). as the; systematic recording and critical examination of the existing and proposed ways of doing work, as a means of developing and applying easier and more, effective methods and reducing costs. Method study when applied to production methods yields one or more (of the following benefits: Improved work environment Improved facility layout Better utilization of facilities. Greater safety Lesser materials handling Smooth production flow Lower work-in-process Higher earnings for the workmen

Work Measurement is defined (BS 3138), as the application of techniques design to establish the time for a qualified worker to carry out a specified job und specified conditions and at a defined level of performance. Since the correct standard of performance can be set appropriately only after the work method has been standardized method study-should -precede work measurement. Scientific work standards have lot many uses. They are required for Manpower planning Production scheduling Cost estimating Cost reduction and cost control Financial incentives Manufacturing process selection Measuring employee progress Maintenance and replacement

Maintenance and replacement involve selection of optimal maintenance (preventive and/or breakdown), (policy to ensure higher equipment availability at minimum maintenance and repair cost. Preventive maintenance which includes preventive inspection, planned lubrication,
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periodic cleaning and upkeep, planned replacement of parts, condition monitoring of the equipment and machines, etc. is most appropriate for critical machines. Replacement decisions concerning machines are basically financial investment decisions but have a major effect on efficiency of production system. Other types of replacement decisions concern parts of machines and most common problem is to decide between individual replacement and group replacement. COST REDUCTION AND COST CONTROL Effective production management must ensure minimum cost of production and in this context cost reduction and cost control acquires significant importance. SHORT HISTORY OF PRODUCTION MANAGEMENT: History of production management though not very old but it has passed through various stages to reach its present formidable stage. Its roots go back to the concept of "division of labor" advocated by Adam Smith in his book. "The wealth of Nations" in 1776. Major contributors to the development of production management, beginning with Adam Smith (1776) are as under: ADAM SMITH (1776): Attention to the scientific production management for the first time was drawn by the great Scottish economist, Adam Smith. Through his book titled 'The Wealth of Nations', Adam Smith advocated division, of labor. He gave three major benefits of the division of labor. Workmen performing work in repetition attain higher skill and greater dexterity. Saving in time result while changing from one activity to another. Improvement in production methods result when workmen are made to specialize on certain tasks. Since division of labor concept was later to serve foundation of many other concepts, Adam Smith can be said to be the originator of the concept of production management. CHARLES' BABBAGE (1883): Charles Babbage, the English mathematician who followed Adam Smith agreed with his predecessor in the former's theory of division of labor. Babbage envisioned specialization as yet another (fourth) advantage of
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division of labor and advanced the concept of specialization as the next logical stage to the division of labor. Through his book titled "The Economy of Machinery and Manufacture", Babbage demonstrated to the world the benefits of specialization. He referred to pin industry and its seven operations: drawing, straightening, pointing, twisting, cutting heads, heading and tinning to highlight the gains. The beginning of the twentieth century provided impetus to his concept of specialization which later developed into "workmen trades". F.W.TAYLOR (1859 TO 1915): F.W. Taylor who later came to be known as 'Father of scientific management gave the concept of "functional management": While disagreeing with the management approach of ''allowing workmen to choose their own tasks, decide their own methods and get; themselves trained on the jobs, Taylor advocated four duties of management, namely: Development of science for each element of man's work to replace old rule of-thumb methods. Selection of best worker for each particular task and then training and developing .the workmen (in place of old practice of allowing a 'workman, to choose his won work and get himself trained as best as he could) on individual basis. The performance of work by the workmen in accordance with the scientifically devised methods by the management and striving for co-operation between workmen and management to obtain both maximum production and higher worker wages. The division of work between workers and management, each group taking responsibility of the work for which it was best suited. The above four principles over I ho period developed into great expansions without which an organization is inconceivable. Taylor concept at. serial (1) developed into method study and work measurement" while concepts at serial (2) and (3) gave rise to ''Training, Selection and Placement, and Industrial Relations" concept in the field of personnel management. And concept at serial (4) concerning division of labor today is well recognized and has become inherent in the industry wherein today management/ takes the function of planning and control while first line supervisors and workmen are left to concentrate on execution of the plans. Taylor also did remarkable work of direct
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advantage to production management. He envisioned motion study as a complimentary technique of time study and devised ground rules for time study. They are: The task under study should be analyzed part by part, each part being called an element. Elements should be examined and those which do not form part of the work cycle should be dropped. Elements should be timed accurately using stop watch. A small allowance of time should be added to the time of each element to compensate for the unforeseen contingencies. Elements should Declassified and carefully defined to enable future reference. Taylor's direct contribution to production management also includes development of principles of functional organization. Financial incentive plan called Taylors differential piece rate method. (FRANK .B. GILBRETH (1917) Frank B. Gilbreth is considered the founder father of Work study; Assisted by his wife Lilian. Gilbreth envisioned the motion study as a part of work analysis. Through his two books titled Motion Study (1911) and Applied Motion Study (1917); Gilbreth emphasized the importance of relationship between operator's output and his physical effort. He devised a system of classifying motions into seventeen basic divisions which he called Therbligs (founders name Gilbreth spelled in the reverse order) and suggested use of a chart called Simo Chart to record motions employed by the workman to perform a task. Lilian, (Gilbreths wife and psychologist by profession pioneered the concept of human factor in industry. The couple conducted a series of experiments and evolved .several laws as principles of motion economy to provide ground rules around which an ideal method could be established. Gilbreth's contribution to production management also includes the concept of micro-motion studies (micro-motion camera studies as a substitute to stop watch studies) to measure time of short cycle jobs. HENRY FORD: Henry Ford gave to the world concept of mass production and organized work stations (into a conveyors assembly line)

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HENRY GANTT (1913): Henry Gantt made his best known contribution (1913) using a visual diagrammatic tool which is popularly known as "Gantt chart". This visual diagrammatic tool still remains a practical tool even today: for charting the production schedules and machine load schedules. HARRINGTON EMERSON (1913): Harrington Emerson evolved Emerson Efficiency Plan to emphasize labor efficiency as basis for pavement of wages. Emersons concept of labor efficiency is embodied in his two books respectively titled "Efficiency as a basis for Operations and Wages (1911)"and "The Twelve Principles of Efficiency (1913)". F.W. HARRIS (1914) F.W. Harris developed the first economic lot size (EOQ) model which is still recognized as the classical work in the scientific inventory control system. The present day-inventory models are essentially the refinements of Wilsons economic lot size formula. The contribution of F.W. Raymond in this regard is also note worthy. WALTER SHEWHART (1924) In 1924 Walter Shewhart introduced the concept of statistical quality control to the industry. He pioneered the concept of control, charts for monitoring the quality of production. F.H. DODGE, H.G. ROMING & W. SHEWHART (1931) In 1931; F.H. Dodge, H.G. Roming and W. Shewhart developed the concept of sampling inspection and published statistical sampling tables. L.H.C. TIPPETT (1937) L.H.C. Tippett developed the concept of work sampling to determine the machine and manpower utilization and for setting performance standards for long-cycle-jobs, operations involving team working and heterogeneous activities.

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BETWEEN 1940 1980 In and around .1950, two major developments which influenced the production management were the emergence of 'Operation Research (OR) beyond military context and development of Value Engineering' by L.D. Miles. The OR is the application of scientific methods to study and devise solutions to managerial problems in decision making. Using mathematical models and the systems approach OR has helped solve resource allocation; scheduling, processing, inventory, location layout and control problems. Value Analysis is ah organized approach to identify unnecessary costs of products and systems by analysis of function and efficiently eliminating them (unnecessary costs) without impairing the quality, reliability and ability of the item to give service. Developments in computers led to the computerized applications of industrial engineering and OR techniques to production management problems. Development in, MIS, and D$S (Decision Support Systems) provided a further growth to the development of Operations Management. In 1958, concepts of CPM and PERT were developed for analysis of large projects and since then a number of network based techniques of protect management have been developed. In late 1950's the techniques of production were extended to other production organizations such as petroleum, chemical and other process industries which led to the emergence of production management as a functional management discipline. In the late I960 the concept of production was amplified to include a number seemingly non-manufacturing organizations such as transport, hospitals, banks, agriculture, warehouses, educational institutes, etc. which has led to the adoption of "operations management" in place of "production management" so as to include both the production of goods (manufacturing organizations) as well as Services (service organizations). Systems approach which advocates integrated approach to problems emerged in 1970s. Late 70s also saw the development of a large number of computer packages such as CRAFT (Computerized Relative Allocation of Facilities Techniques), CORELAP (Computerized Relationship Layout Planning etc. to help facilities planning. Assembly line balancing and Computer simulation for, integrated production inventory system made big strides during this period. More recently there has-been a major thrust on the adoption of Japanese management techniques like 'Just-In-Time (JIT)' or "KANBAN System" for solving production scheduling and inventory related problems and
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the concepts of "Quality Circles" for involving employees at all levels in solving their work related problems. Other notable developments in the recent past have been Group 'Technology (GT), Cellular Manufacturing Systems (CMS), Flexible Manufacturing System (FMS), Computer aided design manufacturing (CAD/CAM), etc. The process of development of production management which has been dramatic is on and the future looks promising. PRESENT DAY POSITION: Production management today is over 200 years old since Adam' Smith. Lot of changes has taken place. The industry today has well planned layouts, materials handling equipments, vast buildings to accommodate manufacturing facilities and trained manpower. Manufacturing activity is organized into line production. A large number of SPMs have been installed. The industry is today well informed. It has better knowledge of materials, machines and labor. JA number of training institutes is there in the country to impart training to workmen. Many Management institutes have sprung up to train production managers of tomorrow. There are several worker education centres in India who undertake training of labor. Many a management consultants are the in our country to help industry to conduct diagnostic surveys and offer consultancy services. Besides, change in technology, there has been tremendous growth of techniques and knowledge. In past, the education-was limited to knowledge of art, literature, languages but today it has vast scope. Today, production man is required to know commerce, economics, and technology. Production management thus includes all this. OPERATIONS STRATEGY- A KEY ELEMENT IN CORPORATE STRATEGY What is Strategy? Strategy formulation is a process by which a firm determines how it will compete in industry. It involves goal determination and development of policies for achieving those goals. It must be broadly related to internal factors such as strengths and weaknesses of company and external factors such as industry economic forces and societal values. One operations strategy is to be driven by sales and manufacture whatever quantity the customer wants. But this strategy is often, from the customer-point-of-view is linked with the lowest cost for the highest quality. Within the firm desperate for business this disappointingly often translates to "lowest cost with the lowest quality that we can get away
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with". In a buyers market - this may be the cul-de-sac the company is forced into. If a footwear manufacturer decides to move from being a safe, conservative design manufacturer to being a market/fashion leader then its production and service operations must deliver the quality and responsiveness that this requires. Production processes, supplier relationships, uses of technology and design capabilities are key factors. Yet sometimes there is a failure to give sufficient attention to the strategic aspects of operations functions. We can think of competitive strategy as a wheel: the firms goals and how the firm will compete are in centre and the spokes of the wheel radiate out carefully defined key operating policies to the functional areas. Some of the functional areas are as follows: Marketing Sales Target Markets Product line Finance & Control Engineering & Research and Development Labor Purchasing Production Distribution

Five of the 10areas listed extremely important in the performance of the broad operations function. The last three functions must be carefully related in modern concept of operation function. The operational side of a business directly contributes to competitiveness and market leader. Management of operations therefore needs specified, consistent and achievable objectives and sound implementation strategy. All the activities in the line of material flow from suppliers through fabrication and assembly and culminating in product distribution must be integrated for sensible operations strategy formulation. If parts of this flow are left out, there is risk of an uncoordinated strategy. In addition, the crucial inputs of labor, job design must be included for an integrated strategy.

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COMPONENTS OF OPERATION STRATEGY Major components of operation strategy are as follows: Positioning the Productive system Capacity decisions Product and Process Technology Work force and Job design Strategic Implications of operating decisions Suppliers and Vertical integration

These components are basic to operations strategy because there is wide managerial choice available within each, and each affects the long term competitive position of firm by impacting cost, quality, product availability and flexibility of product or service. These above components do not in themselves constitute a strategy. They must be integrated into managerial framework that relates the components and provides basis for implementing the strategy. For example the strategy concerning jobs and process design needs to be carefully coordinated with strategic plans for product or process technologies, which in turn needs to be coordinated with capacity or location decisions. These strategies must be related to positioning strategy and so on. Finally all the elements of operation strategy must be related to enterprise or corporate strategy, shown surrounding the entire process. Operations strategy must therefore fit in the basic strategy of enterprise that must be carefully coordinated since the function is so centrally involved. Now let us understand briefly each component of operations strategy.

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DEVELOPING OPERATIONS STRATEGY

Assessment of Global Business Conditions

Corporate Mission Business Strategy Product/Service Plans Competitive Priorities Operations Strategy

Distinctive Competencies or Weaknesses

1) POSITIONING THE PRODUCTIVE SYSTEM Although all the elements of operation strategy are important and all need to be woven together, if positioning the productive system is wrong, the operation strategy will be ineffective. If production is not made the part of corporate strategy, there is likelihood that there is mismatch between systems and markets is high, with resulting conflicts between production function and marketing functions. Analyzing the firm's product portfolio in marketing terms means considering

the stage the firm occupies in its product life cycle whether to imitate or innovate the focus/coherence of the product range

As a product moves in the PLC from launch to growth, market maturity, and, possibly to eventual decline - there are important implications for the operations manager.

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AT THE DEVELOPMENT AND ENTRY STAGES Operations flexibility is at a premium. The product may be made in low volumes. Its design features are still being fined tuned and there are still market uncertainties. In the early 1980's personal computer standards were still unresolved. Product design and volumes were unpredictable. Cash flow is negative. Development costs at the point that the first product is sold or first customer served costs are at their height as the launch itself demands marketing and promotional expenditure. This continues until the product is established and even then promotion is a normal cost of sale. Sales revenues must catch up. INTO LATE GROWTH AND MATURITY The product and market are stable. The aim is market share and cash generation with operations achieving consistent, high quality, low cost output. Predictability is a premium more than flexibility. Investment in operational improvements aims to lower costs. Product moving into decline may attract design changes which will require operations to implement. For a car there may be a trim or body shell up-grade but the changes may be just skin deep. Improvement is the constant call as the firm strives to keep its existing products from entering terminal decline. 2) CAPACITY DECISIONS ILLUSTRATION: Videotape prices in US and elsewhere began to decline in 1982 when Fuji Photo Film, Hitachi Maxwell, and TDK collectively increased capacity to more than 90%.The massive capacity increase lead to decrease in sales to relatively 40%. This resulted in imbalance between demand and supply which created havoc in industry. It was expected that Overcapacity would not be absorbed for at least two years. Thus poor capacity decisions can virtually negate good operation strategy in other dimensions. The illustration stated above dealing with capacity decisions suggests the importance of capacity decisions. In fact, these kinds of decisions are the most significant ones made in terms of the amount of capital involved and amount of care which they should be made from the strategic point of view. The risks are great because future
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demand is uncertain. But in making such decisions forecasting competitors behavior is even more important than predicting demand. Thus in above example, if too many competitors add the capacity, all firms in the industry is likely to suffer. Once installed, new capacity remains and over-capacity can be a problem for the company and industry far in future. The issue of capacity expansion immediately raises the companion issues of where to expand in order to improve firms competitive position, how to counter competitive moves, and how to tie new capacity into distribution network effectively. The overcapacity that results from any of structural causes discussed or from ineffective capacity gaming can place manufacturer in a cost price vise even if operation strategy is otherwise excellent in relation to competitors. Advanced technology available can make production capacity more flexible and therefore less subject to the effects of product and schedule changes. Those firms that develop facilities with greater flexibility will have competitive edge in reacting to major shifts in product design and development. 3) PRODUCT AND PROCESS TECHNOLOGY A company can have its production system positioned just right in relation to market requirements but strategy can be ineffective if company uses obsolete technology. Operations located at several points on a continuum from labor-intensive operations to full automation. Automating or retaining labor-intensive operations depends on many factors - how far does the firm want to invest in either (do they have the financial capability)? The operations manager needs clear policy and agreed programmes for maintenance or change. A decision by an airline to buy a new fleet of Boeing 747's ahead of its competitors would identify the company as an innovator. The operations manager has to realize the competitive potential by achieving the lower maintenance and running Automation exploits available technology to speed up operations, make them more reliable and to reduce unit costs and there are risks and costs. Decisions affect staff: jobs, overtime, rewards, terms and conditions of employment, training/skills and full-time/part-time staffing mix etc. The technology may require fewer but more skilled and more committed staff. The organization may become dependent on a small cohort of specialists. They may understand more about the technology than the operations managers themselves. Automation has implications of changes in specialisms and relationships between people. The skill mix of jobs change - often for the better. The type of automation may bring flexibility to the operations system. it may bring less flexibility. For certain kinds of production - the advantage of people is their ability to
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apply skills across a range of activities. Automation may involve fixed, large scale expenditure which once installed demands a particular set of operational arrangements which are difficult to change if the product mix or requirement changes. High tech, automated production processes require a supporting infrastructure - educated employees, telecommunications support, and expert suppliers. Note however how leading airlines have moved some of their computerized data processing operations to India. The skilled workforce exists and world wide telecommunications networks make it viable to separate the physical location of processing from the points of usage. 4) WORK FORCE AND JOB DESIGN In spite of fact that advanced process technologies is reducing number of workers in manufacturing process, labor will still continue to be an important input. Therefore work rules, job design, wage rates and entire labor-management relationship becomes extremely important element in operations strategy. Labor is key to all the dimension of production system. The role of the worker is crucial to the success of organization. How automated or labor-intensive should the operation be (service or manufacturing)? In an a la carte restaurant the customer-waiter relationship is close. In fast food outlets pre-prepared meals are dispensed from counters. Fill your own salad bowl or barbeque your own steak! Home banking and the use of automated teller machines make banking services available, independent of customer location, 24 hours per day. 5) STRATEGIC IMPLICATIONS OF OPERATING DECISIONS: A successful way of making strategic impact on operating decisions is by reducing costs and controlling quality Not only capacity, process costs and labor costs have strategic importance but also quality, costs and on-time delivery can be extremely important in basic strategy of firm. Price competition calls for operational cost reduction and improved efficiency (alongside all other objectives flexibility, variety and quality etc). Where price competition is less intense, operations can concentrate on premium quality, more variety and responsiveness (unless they become complacent). Monopoly producers have less incentive to offer variety or to address issues of quality - after all - the customer has no alternative source of supply. This is the classic market-force argument for monopoly and competition regulation. Not all markets are concerned about high quality so we must define what the market requirement for "quality" actually is. What are the prevailing
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design standards? Higher quality than needed adds to costs and may not be required competitively. Of course the firm may wish to be an innovator/leader in terms of product/service design - an operation has to be able to respond. There should not be any distinction between long term strategic issues and short term operating ones. 7) SUPPLIERS AND VERTICAL INTEGRATION: Purchasing and relationships with suppliers must be consciously formulated to be part of operations strategy. Suppliers performance is often important in plant-processes in achieving objectives. The results should depend on operations strategys relative emphasis on cost, quality, product availability, and flexibility or service. In examining supplier relationships and purchasing strategy, the issue of whether vertical integration is logical step is always a question. But more fundamental is the nature of vertical integration issue, which is basically different from the concerns dominating the mergers and acquisitions craze that has held sway in recent years. In vertical integration decisions, the emphasis is on the logic to change within the strategy of the firm to produce something of economic value. It is not an investment portfolio concept. COMPETITIVE ADVANTAGE There are four dimensions of competitiveness that measure the effectiveness of the operations function: Cost Quality Dependability as a supplier Flexibility/service

COST Although price is the competitive weapon in the marketplace, profitability is related to the difference between price and cost. Cost is the variable that can allow lower prices that may be profitable. To compete on the basis of price requires an operations function capable of producing at low cost. Therefore, the effects of location, product design, equipment use and replacement, labor productivity, good inventory management, employment, employment of process technology, and so on all contribute to the resulting costs. It is well known in manufacturing that unit costs are usually reduced as experience is gained through production. It was
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originally thought that the cost improvement was simply the result of a learning effect among workers, reflecting the development of skill and dexterity that occurs when a task is performed repeatedly. Now, however, this effect, is recognized as resulting from a wide variety of additional sources, such as improved production methods and tools, improved product design, standardization, improved material utilization, reduction of system inventories, improved layout and flow, economies of scale, and improved organization. The entire effect might be called organizational learning. Actually, the worker learning effect. Although all the dimensions of production performance are important in competitiveness the cost factor is one factor that is particularly crucial for survival. QUALITY The effectiveness of this factor has been highlighted by Japanese market dominance in consumer electronics, steel, automobiles, and machine tools, where product quality has often been cited as a reason for preferring the products purchased. Customers and clients are often willing to pay more for or wait for delivery of superior products. DEPENDABILITY AS A SUPPLIER A reputation for dependability of supply or even off-the-shelf availability is often a strong competitive weapon. Customers may compromise on cost or even quality in order to obtain on-time delivery when they need an item. The scheduling and coordination of all elements of the productive system determine its ability to produce on time. FLEXIBILITY/SERVICE How standard is a product or service? Can variations in the product or service be accommodated? The ability to be flexible will depend a great deal on the design of the productive system and the process technology employed. It is probably not worthwhile for a producer of a standardized item in large volume to offer this kind of flexibility. Such a producer would probably respond to a request for variation with the statement, I am not in that kind of business. Yet there may be a substantial market for that kind of business. Therefore, a competitor could offer such flexibility as a way of competing effectively. What services accompany the sale? Are spare parts readily available? If problems in product performance occur, will the item be serviced quickly and effectively? Flexibility and service then are important elements in an enterprise strategy that is provided by the production function.
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GENERIC ENTERPRISE STRATEGIES AND THE OPERATIONS FUNCTION OVERALL COST LEADERSHIP This strategy requires the concentrations of the operations system on all the elements of system design that make low cost possible: in-line operations; fabrication and assembly lines; equipment dedicated to a restricted mix of products; capital intensity in the form of specialized equipment, mechanization, automation, and robotics, all especially designed for the specific operations problem; and, commonly, specialized and narrowly defined job designs. Usually, the cost leadership strategy also involves production to stock since part of the strategy is to make the product available on demand or off-the- shelf. Where economies of scale are possible, they are used in this strategy, as are the benefits that come from cumulative organizational learning and the experience curve. Products and services are designed for producibility. The organizational structure places emphasis on cost control and on getting product out the door so as to minimize lost sales from not having the product available. Specialization also makes cost minimization possible in other functional areas, such as R&D, services, sales, advertising, personnel, and so on. Low cost and product availability drives the entire strategy and, indeed, the entire organization. Quality, service, and flexibility are not ignored; however, they are not the emphasis. Nevertheless, it is difficult to have it both ways-by specializing facilities, labor, and the entire organization, a trade-off is made. A single purpose facility is not very flexible; it cannot be easily retooled to make a different product. Quality controls are built into the line operations, but it is not feasible to give the same attention to quality in manufacturing a Honda as is given in building a Rolls Royce. The entire momentum of the design of the system and the organization is given to minimizing costs and maintaining the flow of products. The low cost producer in an industry will earn higher than average returns, giving it a defense against competitors. The low cost position provides excellent entry barriers in terms of economies of scale and cost advantages. Even product substitutes have amore difficult task in competing because of low cost and availability. The strategy also provides bargaining power in relation to the potential vertical integration of both suppliers and buyers for the efficient producer in comparison to less efficient producers. Many prominent manufacturers have built their competitive strategies around low cost and high availability: Anheuser Busch with beer; Eastman Kodak with photographic film and paper; Texas Instruments with silicon chips, hand calculators, and digital watches; and many others. There are
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risks in following the cost leadership strategy. The production system becomes inflexible. If consumer preferences take a sharp turn or if technological changes make product designs, plant, and equipment obsolete, the enterprise may have to reinvest huge sums in order to recover. One of the most dramatic examples of the risks of inflexibility in the low cost strategy was Henry Fords standardized Model T. Beginning in 1908, Henry Ford embarked on a conscious policy of price and cost reduction that reduced the price from more than $5000 to nearly $3000 in 1910(in 1958 constant dollars).From that point, the price declined 15 percent for each doubling of cumulative output during the Model T era, culminating in a 1926 price of about $750. Market share increased from 10.7 percent in 1910 to a peak of 55.4 percent in 1921. However, beginning in the middle 1920s, General Motors successfully focused the competitive arena on product innovation. The Ford Company was so completely organized to produce a low-cost, standardized product that effects of the change in consumer preferences nearly sunk the enterprise. Although the companys strategy had been a roaring success during the long period of stable consumer behaviour, it had become a business dinosaur and could not adapt easily to the realities of the changed environment. DIFFERENTIATION The firm attempts to differentiate itself from the pack by offering something that is perceived by the industry (and its customers) as being unique. It could be the high quality (Rolls Royce or Mercedes Benz), innovation (Hewlett Packard), or the willingness to be flexible in product design (Ferrari or Maserati). All these examples of quality, innovation, and flexibility have extremely important implications for the production system and the way it is designed and managed. The requirement is to be flexible in order to cope with the demands on the system. Brand image is important to this strategy. There may be other ways that an organization differentiates itself; for example, a strong dealer network (Zenith), an extremely well-designed distribution system (Gillette or Hunt Wesson), or excellent service. This strategy does not ignore costs, just as the cost leadership strategy odes not ignore quality, but the central thrust of the productive system and, indeed, of the entire organization is on the unique character of the companys products and services. Cost and availability are less important in the companys priorities since customers may be willing to pay a little more and even wait in order to have a more unique product.In relation to industry competitors, a company with a differentiation strategy has less competition from both its direct competitors and from potential substitutes because of the uniqueness of
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its position. Its customers have greater brand loyalty and, therefore, less price sensitivity. Differentiation draws higher margins, so the higher costs are less important. Barriers to entry are provided, and higher margins make potential competition from suppliers forward integration less important. Still there are risks. Customers will tolerate only some maximum premium for uniqueness. If cost control becomes lax or if the cost of providing the uniqueness is beyond the customers willingness to pay, then advantage can turn to disadvantage. Since many of the ways of providing high quality, innovation, and flexibility are labor intensive, inflation in labor costs relative to the inflation in the costs of other factors can price the product out of the market. TIME BASED COMPETITION DEFINITION Time based competition is an operational strategy focusing on compressing total throughput time in an organization. Compressing time has a cascading affect on quality and cost. As cycle times are reduced, productivity increases proportionally. A fifty percent reduction in cycle time and a doubling in work-in-process inventory turn cause productivity to increase from 20-70 percent. As productivity increases, resource capacity is freed. Two things happen: costs decline, and the organization becomes capable of producing significantly more output with less resources: a winning combination Most manufacturing companies spend anywhere from 5-10 percent total time actually adding value to the product, i.e., transforming the part or moving it closer to the customer. The rest of the time is waste, resulting in higher costs occurring with loss of time. Inducing velocity throughout a business has a profound effect on time and cost. The need for no value-adding functions disappears, and the functions designed to accommodate exceptional circumstances fall out. The organization chart becomes flatter. Following this is a dramatic reduction of overhead. HOW TO REDUCE TOTAL CYCLE TIME Understanding the way an organization functions is key to the redesign for time-based competition. The structure dictates how labor is divided and how power is allocated. Physical proximity normally follows structure, both of which have a direct impact on ease of information sharing and time.

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In a traditional functional organization, communication walls begin to build as the organization grows. Over time, functional entities develop and become self-serving, losing sight of the mission of serving the customer. Sequential decision-making becomes prevalent, coupled with poor or non-existent communications. The organization develops functional empires, fraught with politics and narrow points of view. The result is an organization slow in decision-making, heavy with vertical layers of management, bureaucratic in nature, low in productivity, and generally ineffective. Every business has basic cycles that govern the way that paper is processed, parts are manufactured, and decisions are made. They may be documented in the form of procedures or routings. Examples of business cycles are customer order, product development, production, and procurement. A customer order cycle begins with the placement of an order by a customer. It ends when you are finally paid for goods or services rendered. But there are activities in between the two events that consume time. Some add value, such as packing and shipping, and some are nonvalue adding and delay time, such as moving the order around the building from mailbox to mailbox, sitting on a desk, or repetitive motions. When a cycle ends, a lot of non-value adding time has been consumed that may constitute 90-95 percent of total time. Some of the time is lost in travel, some is lost in the processing backlog, and some may be lost diverting a customer's order to a credit department for release. If you can identify the non-value added time in the cycle, you can devise ways to eliminate the causes. THE TIME PARADIGM Time is the secret weapon of business. Advantages in response time provide leverage for all the other competitive differences that make up a company's overall competitive advantage. Many executives believe that competitive advantage is best achieved by providing the most value for the lowest cost. This is the traditional paradigm for corporate success. Providing the most value for the lowest cost in the least amount of time is the new paradigm for corporate success. An increasing number of companies are achieving success by
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establishing competitive response advantages. These time-based competitors belong to a new generation of companies that manage and compete in different ways. New-paradigm companies:

choose time consumption as a critical management and strategic measure; use responsiveness to stay close to their customers, increasing their customers' dependence on them; rapidly redirect their value-delivery systems to the most attractive customers, forcing their competitors toward the less attractive ones; set the pace of business innovation in their industries; and Grow faster with higher profits than their competitors.

The new generation of competitors is obtaining remarkable results by focusing its organizations on flexibility and responsiveness. The companies in the table below use their response advantages to grow at least three times as fast as their industries and to earn profits more than twice the average of their competitors. BECOMING A TIME-BASED COMPETITOR You have become a time-based competitor when you have accomplished three tasks:

Your value-delivery system is two to three times as flexible and responsive as those of your competitors; You have determined how your customers value these capabilities and have priced accordingly; and You have a strategy for surprising your competitors with your time-based advantage.

MAKE YOUR VALUE-DELIVERY SYSTEM FLEXIBLE AND RESPONSIVE Most of the time a product or service is in your value-delivery system is spent waiting. Delays stem from these causes:

procedural constraints, including minimum production or information-processing batch sizes, scheduling practices, and authorization schedules;
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quality problems, including physical and intellectual rework necessitated by inadequate design and attention to details; and Structural difficulties, including convoluted flows of product and information, functional handoffs, and interrelated facilities located at different sites.

The single greatest cause of inflexibility and slow responsiveness, though, is organizing for economies of scale and control rather than for fast throughput. To improve its responsiveness a company needs to organize for economies of time and for visibility. To do so, many companies disassemble their functional organizations and reassemble them into permanent, multifunctional teams. The members of these teams focus on entire processes, products, projects, customers, and/or competitors. The teams include everyone who can slow or speed the process and are often in one location. Their performance measures are set to achieve goals rather than efficiency. One consumer appliance manufacturer formed development teams and challenged them to reduce the company's development cycle from as much as three years to less than 12 months. The teams identified many opportunities. For example, they found that months could be cut from the cycle by transferring several performance tests from the company's central testing laboratories to the design team organization. As the result of such changes, the company is well on its way to achieving its goal. TECHNIQUES FOR REDUCING TIME 1. JUST IN TIME 2. KANBAN 3. SOVA JUST IN TIME APICS Definition of JIT A philosophy of manufacturing based on planned elimination of waste and continuous improvement of productivity. ... APICS Definition of JIT The primary elements of Just-in-Time are to:
q

have only the required inventory when needed,

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improve quality to zero defects, reduce lead times by reducing setup times, queue lengths, and lot sizes, incrementally revise the operations themselves, and accomplish these things at minimum cost.

JIT MANUFACTURING PHILOSOPHY

q

The main objective of JIT manufacturing is to reduce manufacturing lead times. This is primarily achieved by drastic reductions in work-in-process (WIP). The result is a smooth, uninterrupted flow of small lots of products throughout production. KANBAN

Kanban Production Control

q

At the core of JIT manufacturing at Toyota is Kanban, an amazingly simple system of planning and controlling production. Kanban, in Japanese, means card or marquee.

q q

Kanban is the means of signaling to the upstream workstation that the downstream workstation is ready for the upstream workstation to produce another batch of parts. Kanbans and Other Signals

q
q

There are two types of Kanban cards:

a conveyance card (C-Kanban) a production card (P-Kanban) Signals come in many forms other than cards, including:

q
q

an empty crate an empty designated location on the floor

HOW KANBAN OPERATES When a worker at d.ownstream Work Center #2 needs a container of parts, she does the following:
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q q q

She takes the C-Kanban from the container she just emptied. She finds a full container of the needed part in storage.

She places the C-Kanban in the full container and removes the PKanban from the full container and places it on a post at Work Center #1.
q She takes the full container of parts with its C-Kanban back to Work Center #2.

CONTAINERS IN A KANBAN SYSTEM

q

Kanban is based on the simple idea of replacement of containers of parts, one at a time. Containers are reserved for specific parts, are purposely kept small, and always contain the same standard number of parts for each part number.

At Toyota the containers must not hold more than about 10% of a days requirements. There is a minimum of two containers for each part number, one at the upstream producing work center and one at the downstream using work center. STREAM OF VARIATION ANALYSIS (SOVA) Manufacturers in the 21st century will face frequent and unpredictable market changes.These changes include rapid-frequency introduction of new products, increased demandfor new products and mix of products, new parts for existing products, and overall newprocess technologies. To gain the competitive advantage, manufacturing companies must be able to analyze, predict and optimize manufacturing system performance during the design phase (that is, do all design in the first time right FTRDesign approach) and be able to identify and isolate root causes of all faults during ramp-up time (do all fault isolation in the first time right FTRDiagnosis approach).This leads to a new manufacturing strategy namely, math-based SOVA system working in FTRDesign/Diagnose mode for product/process performance analysis. In the last decade, the socalled stream of variation analysis (SOVA) methodology has been proposed and developed to overcome the aforementioned challenges (Ceglarek and Shi, 1994, 1995,1996; Apley and Shi, 1998; Hu, 1997; Ding, Ceglarek, and Shi, 2000, 2002a, 2002b; Ding,Shi, and Ceglarek, 2002c). SOVAis a generic math model for variation propagation analysis in multistage manufacturing systems. SOVAintegrates multivariate statistics, control theory as well as design/manufacturing knowledge (CAD/CAM models) into a unified framework.
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SOVA serves two objectives : In the design phase, the SOVA can be used for analysis, prediction, and optimization of manufacturing system performance following the concept of FTRDesign. Given the process and tooling design information, SOVA can simulate the variation propagating throughout the process and then predict the final product-dimensional variation and resultant product geometry. In the production ramp-up phase, SOVA can be used to identify and isolate fault root causes following the concept of FTRDiagnosis. Given the process and tooling design information, SOVA can demonstrate high responsiveness in identifying and isolating root causes of dimensional variation, that is, identifying the most severe dimensional faults, localizing the critical stations contributing most to the final product variation and speedily isolating the root causes of dimensional faultsachieving faster

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CASE STUDY: OBJECTIVE OF THE CASE STUDY: The case examines the initiatives taken by the Indian cement major Gujarat Ambuja Cements Ltd. (GACL) to maintain profitability and market share despite adverse industry and market conditions. The company's efforts to improve its operational efficiency through productivity enhancement, quality control, pollution control and costcutting measures are explored in detail. The case also discusses the future prospects of the company in light of the fact that the company might not be able to continue to reap the benefits of the above measures. ISSUES: Importance of using innovative ideas (such as using groundnut husk and sugarcane waste as fuel and using sea transportation instead of land/rail transportation) to achieve superior results 1) BACKGROUND Gujarat Ambuja Cements Ltd. (GACL) was established as Ambuja Cements Private Ltd. (ACPL) in 1981 by Narotam Satyanarayan Sekhsaria (Sekhsaria), a businessman from the western Indian state of Gujarat. Originally a cotton trader, Sekhsaria entered the cement business because of factors such as stable demand, lack of substitutes and limited competition. With the support of Gujarat Industrial Investment Corporation's (GIIC1), Sekhsaria and his two partners, Suresh and Vinod Neotia, set up APCL. Suresh Neotia was appointed Chairman while Sekhsaria was made the Managing Director. In 1983, the company floated a public issue and its name was changed to GACL. The same year, production started at a 0.7 million tons per annum (mtpa) plant, named Ambuja Cements, in Ambuja Nagar, Gujarat. GIIC sold its stake in GACL in two tranches to Sekhsaria in 1987 and 1990. In 1993, GACL commissioned its second cement plant at Ambuja Nagar (capacity 1 mtpa), named Guj ambuja Cements. Attracted by buoyant cement demand in the northern regions, GACL commissioned a 1.5 mtpa plant at Suli in Himachal Pradesh (HP), named Ambuja Cements Himachal Unit in 1995. In the same year, GACL floated a wholly owned subsidiary in Mauritius - Cement Ambuja International Ltd. (CAIL). A year later, GACL floated another subsidiary, Ceylon Ambuja Cements (Private) Ltd., through which it acquired a small company, Midigama Cement, in Sri Lanka. In 1996, GACL set up its third 1 mtpa plant at Ambuja Nagar, named Guj Line - II (capacity 1 mtpa). In December 1999, GACL
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acquired a 51% stake in Delhi based DLF Cement for Rs 3.5 billion. DLF Cement had started its operations in 1997 in Rajasthan with a plant of capacity 1.4 mtpa. After this merger, GACL became the fourth largest cement manufacturer in India after ACC, L&T and Grasim. In the same month, GACL also acquired a 7.2% stake in Associated Cement Companies (ACC) for Rs 4.55 billion. ACC was the largest manufacturer of cement in India. With 14 manufacturing units in India, it had a total capacity of over 11 mtpa. It was one of the largest integrated cement companies in the world. By the late 1990s, GACL had emerged as one of the most energy efficient and technologically advanced cement manufacturers in India. In December 2001, GACL began trial production at a new 2 mtpa plant in Chandrapur, Maharashtra, taking its total capacity to 12.5 mtpa (Refer Exhibit I). For the financial year 2000-01, the company recorded a turnover of Rs 12.52 billion and a net profit of Rs 1.5 billion (Refer Exhibit II). GACL had a large distribution network of 11,500 outlets. It was one of the first cement companies in the country to recognize the importance of brand building. The company's cement, sold under the Gujarat Ambuja brand name, enjoyed good brand equity and sold at a premium. The company was the overall market leader in the Indian cement industry GACL was not only the market leader, it ALSO ranked very high on the profitability criteria. Its new plants, use of better quality limestone, innovative energy management efforts, and strong retail presence in Mumbai, Gujarat and Punjab gave it a strong edge over its peers .Its cost per rupee of sales was much lower than most of its competitors, resulting in much better operating margins Industry observers unanimously agreed that GACL was the most efficient cement manufacturer mainly because of its operational excellence. The company had done well in spite of the fluctuations in the cement industry by adopting aggressive productivity improvement and cost-cutting measures. GACL had won a host of awards for management excellence, quality, business strategy and environment management (Refer Exhibit III). Ever since its inception, the company believed in doing things in an innovative and unconventional way, so as to reap benefits in new ways, using new methods... 2).Working Hard towards Operational Excellence According to analysts, GACL's strategic farsightedness was evident in its decision to locate its plants in backward areas, so as to take advantage of
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substantial sales tax and income tax incentives. GACL's units in the states of Gujarat, HP and Punjab also received sales tax incentives. This was possible as all new investments in cement after 1986 enjoyed a sales tax benefit of up to 90% of the value of fixed assets for a period of 14 years... Enhancing Productivity GACL worked hard to reduce mining expenses. Cement companies normally operate their own limestone mines. Mines were not only extremely destructive environmentally, they were also expensive to operate. The explosives used for mining were on the negative list of imports and substantial costs were involved in implementing safety measures. In 1997, GACL sent its engineers to Australia to study the extraction of metals. On their return, GACL implemented new technologies that could access limestone in smaller areas where blasting was not possible. To reduce the noise and vibration that occurred during the conventional drilling, blasting and crushing process, the company introduced an Australian device called Surface Miner... CUTTING COSTS: 1) Power Power accounted for a large part of GACL's cost of production. GACL realized that a captive power plant would increase savings substantially as power sourced from the power grids was both unreliable and costly. So it set up fuel based captive power plants in Gujarat (40 MW) and Himachal Pradesh (12 MW) in 1998. GACL's captive power generation cost was only Rs 1.30 per kilowatt (excluding interest and depreciation), compared to Rs 4.50 per kilowatt for power supplied by the Electricity Boards. Soon, the company was not only getting around 60.3% of its total power requirement from these plants, it was also selling the excess power it generated to the local state governments. B S Dulani, Vice President, Operations, at the Gujambuja plant said, "Small measures like modifications in higher capacity motors for fans, coolers etc. according to specific requirements (shifting from AC to DC drive, which allows regulation of current) wherever possible, and many other simple steps helped reduce GACL's power consumption from 120 units/tonne of cement in 1987 to 88-90 units per tonne in 1995 against an industry average of 121 units per tonne."... 3) The Future The continual capacity build-up in the Indian cement industry led to an excess capacity situation by the beginning of the 21st century. During the
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same period, growth in the cement industry declined from 21% (AprilSeptember 1999) to 11% (October 1999-March 2000) because of drought in many parts of the country. Prices dropped because people feared that construction activities would decline due to the drought.

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BIBLIOGRAPHY Following books were consulted while making this project: Operations Management- L.C. Jhamb Operations Management- Buffa And Sarin. Operations Management- Ashwathappa

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