Introduction to Operations management

Operations management: 1. It is a methodology for viewing an end-to-end process with a view to optimizing efficiency. 2. Management of conversion process, which convert input into desired output.

What is operations functions/Operation systems: The operations function (system is that part of the organization that e!ists primarily to generate and produce the organization"s products. #roduct can $e of 2 types % Tangi$le product (physical goods & 'arment, fa$ric, mo$ile ( Intangi$le product (services & Insurance, healthcare. Main aim of operation function is to add value.

Random fluctuations Inputs

Land Labour Capital Management

Adjustment Needed?
Conversion Process

Monitor output Outputs

Goods Services

Comparison
Actual vs Desired

Conversion Process:
#rocess of converting input into output. Input ) information*feed$ac+ #rocess ,utput

Random fluctuation:
-andom fluctuation can $e of 2 types a $ .!ternal sources& /ire, stri+e, flood Internal pro$lem& 0uman error, material 1uality pro$lem, imperfect tools or machines.

,perations
Features ,utput 2uration of consumption of output 3ature of wor+ 2egree of customer contact 5ustomer involvement in conversion Measurement of performance 7ariation in demand 6cale of operation Manufacturing Operations Tangi$le 0igh 4ess la$our, more e1uipment 4ow 3o 6ophisticated methods 4ow (ig Service operations Intangi$le Immediate More la$our, less e1uipments 2irect /re1uent .lementary method 0igh 6mall

istorical !volution of POM:

1. Manufacturing management "#radition vie$% (ased on %dam 6mith"s theory of economic $enefit of specialization of la$our. (asic idea is to $rea+ 8o$s down into su$tas+s and reassigning wor+ers to specialized tas+ in which they would $ecome highly s+illed and efficient. 2. Production Management "&'() * &'+)% (ased on /rederic+ Taylor"s wor+, production management is focused on economic efficiency in production process. 6cientific techni1ues were developed to eliminate wasteful efforts and achieve greater efficiency. 0uman $ehavior at wor+place is studied $y psychologists 9 sociologists to understand multiple needs of wor+ers. 3ewer and more sophisticated analytical approached developed $y economist, mathematicians and computer scientists. :. Operations Management ",fter &'-)% 6ervice industry $ecome more important 6ynthesis rather than 8ust analysis.

Systems vie$ of operations:

6ystem is collection of o$8ects united $y some form of regular interaction and interdependence. %n organization is made from su$systems 9 su$components. In a normal $usiness firm, we have finance, mar+eting, accounting, purchase, operations. distri$ution etc. %ll these functions are interrelated. 6ome departments are closely lin+ed and some are not. 2ecision made in one department will affect the $ehavior and performance of other departments. (oundaries separating various departments are not clear 9 distinct.

#ypes of operations su.system management:

,perations management can $e divided into three types. 1. Classical management : (ased on scientific management and process theories. /ocus on economic efficiency at the production. .fficiency (; & ,utput < 1==; * Input Main 8o$ of the management is a $ c #lanning (developing a course of action ,rganizing (structuring of tas+ 9 authority 5ontrolling (plan vs actual performance

2. /ehavioral management: (ased on $ehavioral science and social system concept. (asic idea is that wor+ers respond positively to the individual care, attention and interest and production improves.

:. Modelling management: 6tudy organization from a >total systems? point of view. 2ecision-ma+ing orientation considers ma+ing decisions to $e the central purpose of management. /ocus on creating mathematical representation of management pro$lems and organizations. Model is used to demonstrate different outcomes that would result from various possi$le managerial choices. Types of models used are as $elow& % 7er$al model& @se words to e!press relationship among varia$les ( 6chematic models& #ictorial relationship among varia$les 5 Iconic models& Iconic models used as replicas of o$8ects or process 2 Mathematical model& Mathematical sym$ols or e1uations are used to show functional relationship among varia$les. Mathematical solutions are of 2 types a. ,ptimizing (6earch for $est solution $ut in steps $. 0euristics (@se defined solutions for satisfactory solution 1uic+ly

Responsi.ility of an operations manager:

1 #lanning 2 6elects the o$8ective for operation 2ecides policies, programs and procedures to achieve o$8ective #roduct planning, facility design and use of conversion process

,rganizing .sta$lishment of roles and information flow system To ensure achievement of goals To assign authority and responsi$ility.

5ontrolling

.!ercise control to ensure achievement of planned results. 5ontrolling costs, 1uality and schedules.

(ehavior %ffect of decision on human $ehavior %ffect of su$ordinates $ehavior on management goals.

Models @se of different models for pro$lem solving.

Organi0ation1s strategy to compete "mar2et3.ased criteria for success%:

1. Cuality (product performance & 0igh 9 consistent 1uality 2. 4ow cost*price*higher productivity (utilization of resources (efficiency :. 2ependa$ility (on time delivery 9 relia$ility (.ffectiveness (technical capa$ility A. /le!i$ility (Cuic+ response (wide product*service range

Operation1s o.4ective:
1. #roduct characteristics 2. #rocess characteristics :. #roduct 1uality A. .fficiency (cost control 9 utilization B. 5ustomer service D. %dapta$ility for future survival

Operations strategies

6trategic #lanning&

6trategic planning is the process of thin+ing through the current mission of the organization and current environmental conditions facing it, then setting forth a guide for tomorrow"s decision. Main area for discussion (decision is as $elow 1. /acility ( 6cale, location 9 focus 2. 5apacity :. #rocess (technology A. 7ertical integration B. ,perations integration D. ,peration interface with other functions

-elation $etween prod 9 1uality& If production E capacity, If production G capacity, #roductivity F #roductivity F Cuality F Cuality H

Financial 5 economic analysis:

/asic definitions:

%ccounting life& %sset life for accounts purpose .conomic life& %ctual useful life Machine life& 4ife for which asset and function

.!& If 1 machine is purchased that can wor+ for 1= yrs $ut company is planned to use it for D yrs and in accounts if depreciation is 2B; then .conomic life & D yrs Machine life & 1= yrs %ccounting life & A yrs.

6un+ cost& #ast e!penditure that is irrelevant now. 6alvage value& Income received $y selling an asset Time value of money& potential of money to generate returns ,pportunity cost& 4ost returns as a result of selecting one alternative over other.

#ay $ac+ period & Time re1 to cover the e!penses I 3et investment * 3et annual return

3et present value& %ccounting tool to select the alternative for investment. 3#7 is techni1ue of discounting all cash flow of an investment $ac+ to their present values and netting out the inflows against the out flow.

I -eturns at present value J Investment (e!penses at present value.

Operations strategy: Key areas for $road operations functions

Mar+eting 6ales Target mar+ets #roduct line /inance 9 control -92 4a$our #urchase #roduction 2istri$ution

#roduct strategy&
#roduct can $e divided into A sections as per there nature.
% 5ustom product ( 4ow volume product 5 0igh volume with multiple choices 2 0ighly standardized product

Product life cycle:

Product life cycle (PLC) has to do with the life of a product in the market with respect to business/commercial costs and sales measures. The different stages in a product life cycle are: .Market introduction stage costs are high slow sales !olumes to start little or no competition " competiti!e manufacturers watch for acceptance/segment growth losses demand has to be created customers ha!e to be prompted to try the product

#.Growth stage costs reduced due to economies of scale sales !olume increases significantly profitability begins to rise public awareness increases competition begins to increase with a few new players in establishing market increased competition leads to price decreases

$.Mature stage Costs are lowered as a result of production !olumes increasing and e%perience cur!e effects sales !olume peaks and market saturation is reached increase in competitors entering the market prices tend to drop due to the proliferation of competing products brand differentiation and feature di!ersification is emphasi&ed to maintain or increase market share 'ndustrial profits go down

(.Saturation and decline stage costs become counter"optimal

sales !olume decline or stabili&e prices) profitability diminish profit becomes more a challenge of production/distribution efficiency than increased sales

Types of Productive systems:

Producti!e systems can be di!ided into # types

A) Process focused systems:

*sed for custom products +igh fle%ibility ,peciali&ation in generic process -aterial flow from process to another

B) Product focus systems:

*sed for standardi&ed product +igh efficiency +igh automation . low cost Continuous material flow +igh in!entory

Types of nventory systems:

'n!entory systems can be di!ided into # types

A) To!order:
Product design fle%ibility Low in!entory cost /etter 0uality control

B) To!stock
/etter product a!ailability

1educe !ariable cost 'mpro!ed market share

"elationship #etween P$% & productive system type:

Process lifecycles & technology:

'ntroduction stage : 2le%ible technology) Low automation 3rowth stage: -ore speciali&ed technology) +igh automation . mechani&ation. -aturity stage: 4ery high automation) 5fficiency is the key to success.

6rgani&ation structure
7) Process focused organi&ation

/) Product focused organi&ation

Type of service system '#ased on la#our work involve & customer contact):
A) Stagnant personal services:
8irect contact with customer +ighly labour oriented Low scope for producti!ity impro!ement

B) Su#stituta#le personal services:

Technical alternati!e of stagnant personal ser!ices Low 0uality compared to stagnant personal ser!ices 3ood scope for producti!ity impro!ement

%) Progressive services
,er!ice has two components. 6ne re0uired little labour other is labour intensi!e.

,hows producti!ity growth . cost reduction at initial stage. 7fter one le!el) cost starts increasing.

() )*plosive services
9o customer contact. +igh producti!ity . technology impro!ement. 1educe cost.