OPERATIONS MANAGEMENT

Operations management is an area of management concerned with overseeing,

designing, and controlling the process of production and redesigning business
operations in the production of goods or services. It involves the responsibility of
ensuring that business operations are efficient in terms of using as few resources as
needed, and effective in terms of meeting customer requirements. It is concerned with
managing the process that converts inputs (in the forms of raw materials, labor,
and energy) into outputs (in the form of goods and/or services).[1] The relationship of
operations management to senior management in commercial contexts can be compared
to the relationship of line officers to highest-level senior officers in military science. The
highest-level officers shape the strategy and revise it over time, while the line officers
make tactical decisions in support of carrying out the strategy.
Objectives of Production and Operations Management
Operations management can significantly contribute to the success of your business
by using your available resources to effectively produce products and services in a way
that satisfies customers.
To do this you must be creative, innovative and energetic in improving processes,
products and services.[1] The four main advantages an effective operation can provide
to your business include:[2]

reducing the costs of producing products and services and being efficient

increasing revenue by increasing customer satisfaction through good quality and

service

reducing the amount of investment that is necessary to produce the required type
and quantity of products and services by increasing the effective capacity of the
operation

providing the basis for future innovation by building a solid base of operations
skills and knowledge within the business
The objective of the production management is to produce goods services of right
quality and quantity at the right time and right manufacturing cost.
1. RIGHT QUALITY The quality of product is established based upon the customers
needs. The right quality is not necessarily best quality. It is determined by the cost of the
product and the technical characteristics as suited to the specific requirements.
2. RIGHT QUANTITY The manufacturing organization should produce the products in
right number. If they are produced in excess of demand the capital will block up in the
form of inventory and if the quantity is produced in short of demand, leads to shortage
of products.
3. RIGHT TIME Timeliness of delivery is one of the important parameter to judge the
effectiveness of production department. So, the production department has to make the
optimal utilization of input resources to achieve its objective.

4. RIGHT MANUFACTURING COST Manufacturing costs are established before the

product is actually manufactured. Hence, all attempts should be made to produce the
products at pre-established cost, so as to reduce the variation between actual and the
standard (pre-established) cost.

A Framework for Managing Operations

Managing operations can be enclosed in a frame of general management function as shown in
Fig. 1.3. Operation managers are concerned with planning, organizing, and controlling the
activities which affect human behaviour through models.
PLANNING
Activities that establishes a course of action and guide future decision-making is
planning.The operations manager defines the objectives for the operations subsystem of the
organization, and the policies, and procedures for achieving the objectives. This stage includes
clarifying the role and focus of operations in the organizations overall strategy. It also involves
product planning, facility designing and using the conversion process.
2.ORGANIZING
Activities that establishes a structure of tasks and authority. Operation managers
establish a structure of roles and the flow of information within the operations subsystem. They
determine the activities required to achieve the goals and assign authority and responsibility for
carrying them out.
CONTROLLING
Activities that assure the actual performance in accordance with planned performance.
To ensure that the plans for the operations subsystems are accomplished, the operations
manager must exercise control by measuring actual outputs and comparing them to planned
operations management. Controlling costs, quality, and schedules are the important functions
here.
BEHAVIOUR
Operation managers are concerned with how their efforts to plan, organize, and control affect
human behaviour. They also want to know how the behaviour of subordinates can affect
managements planning, organizing, and controlling actions. Their interest lies in decision-making
behaviour.
MODELS
As operation managers plan, organise, and control the conversion process, they encounter many
problems and must make many decisions. They can simplify their difficulties using models like
aggregate planning models for examining how best to use existing capacity in short-term, break
even analysis to identify break even volumes, linear programming and computer simulation for

capacity utilisation, decision tree analysis for long-term capacity problem of facility expansion,
simple median model for determining best locations of facilities etc.

10 Critical Decision areas of operation management

I. Design of Goods and service- Design of goods and design defines much of the
transformation process. The factors of cost, quality and human resources must be made
during the stage. Operation management of product and services is also different
because due to different characteristic and tangible / intangible feature.
II. Managing Quality. Customer has a very high quality standard nowadays and
operation management decision in quality must be clear and strict for its members to

understand and comply. It must set a quality, standard and operating procedure to meet
customers high expectation.
III. Process and capacity design. Manufacturing of physical products may have higher
importance on process and capacity design than services operation. Operation
management (product) should decide what process and what capacity will these product
requires. Services operation decision on this area is much simpler and it can determine
by customers who directly involved in the process. For example, customer will ask tailor
to design specific fashion clothes. Capacity design issue is critical for services because it
will try to reduce waiting time and avoid lost of sales due to insufficient capacity. For
manufacturing, capacity design is based on firms financial capability, forecast for future
and market demand.
IV. Location can be an area for operation management to decide and with globalization
of business, operation managers too must think global. For physical goods, location
selection can be determined by pools of qualified human resources, technology, raw
material, access to market and government policy. For services as it is direct to
customers, the location is determined by market accessibility or near to customer as
possible.
V. Layout design. Material flow, process selection technology used, capacity needs,
workers needs, inventory requirement, and capital will influence the decision for layout
design. For services such as hotels, beside capacity needs layout also will enhance its
attributes and features to the customers.
VI. Human Resources and Job Design Employees is the integral part in the total
system design. Operation management must set a policy to set labor standards to ease
transition of skills, improvement of knowledge, skills and abilities (KSA), build a balance
work and life quality in an effective cost target. For services one extra area operation
management should touch, which is customers relationship that they are dealing
directly.
VII. Supply Chain Management Decisions that have to take place of what to
produce, what material to buy, from where, how is the cost and how is the delivery from
supplier to the final end customers in on-time delivery and minimum cost possible. It is
more critical in production of goods than services.
VIII. Inventory Decisions on how and where the inventory level to keep long term
customers satisfaction, suppliers, material availability for not to disrupt the production,
human resources needed for this purpose and important the holding cost from financial
perspective. Goods production are more concern because manufacturer may kept raw
material, in progress work order and final goods while services is not critical as it is
directly produce and consume simultaneously.
IX. Scheduling Efficient way of allocation, control and management of materials,
capital goods and human resources to efficiently produce the final goods from the input
available. Schedules are more formal in goods production with short, medium and long

term planning to accommodate customers demand. For services the demand is more
direct and volatile and often concern on human resources and KSA availability to meet
current customers needs.
X. Maintenance Decision must be made regarding the desired level of reliability,
stability and systems must be established by management to maintain that reliability
and stability.

OPERATION STRATEGIES
A plan of action implemented by a firm that describes how they
will employ their resources in
the production of
a product or service.
An operational strategy is a necessary element for a business and supports
the firm's corporate strategy.
Companies and organizations making products and delivering, be it for
profit or not for profit rely on a handful of processes to get their products
manufactured properly and delivered on time. Each of the process acts as
an operation for the company. Operations strategy is to provide an overall
direction that serves the framework for carrying out all the organizations
functions. Operations strategy is the total pattern of decisions which
shape the long-term capabilities of any type of operations and their
contribution to the overall strategy.
What are the main differences between operations strategy and
operations management?
The chapter identifies four dimensions on which operations strategy
and operations management differ.

 Time scale operations management is relatively short to medium

term. This will include decisions that affect minute-by-minute, to
month-by-month activities. Some operations management decisions
will have an impact several years in advance, but most are confined to
the shorter term. Operations strategy decisions however are generally
focused specifically on the longer term. So whereas operations
management is concerned with reacting effectively and efficiently to
specific demands from its customers, operations strategy is concerned
with making sure that the company has an appropriate capacity and
capability to meet its market requirements years into the future.
Level of analysis many operations management decisions are
relatively local in their effect. For example, an individual retail store
could be concerned with how it manages it inventory levels within its
own facilities. Operations strategy tends to be wider in its application
and effect. For example, a more strategic view of thinking about
inventory is to consider the whole supply network from raw materials
through to end consumer and question where inventory should be held
in the total network.
Level of aggregation operations management can be relatively
detailed. Resources are treated separately and are associated with
specific services or products. For example, What kind of customer
relationship skills do our checkout operators need? is a detailed
operations management decision. Operations strategy can rarely be so
detailed. It tends to aggregate different types of resource into one
overall unit. For example, What are our overall human resource
requirements in our larger superstores? is an important but highly
aggregated decision.
Level of abstraction operations management concerns itself mainly
with what is immediately recognizable and tangible. So, the retail
company might ask itself, How do we improve the procedures which
place orders with suppliers? These procedures, systems, information
flows and the physical inventory associated with them can all be
readily observed. Operations strategy, on the other hand, deals with
more abstract issues. For example, Should we develop strategic
alliances with a small number of partners? is a question that touches
on the very philosophy of the company.

Why is an operations strategy needed?

First things first. An operations strategy is not synonymous with a

corporate strategy. The key difference is that the operations strategy is a
subordinate, yet crucial enabler to the corporate strategy. A corporate
strategy is the overall scope and direction of a corporation and the way in
which its various business operations work together to achieve particular
goals. An operations strategy supports the overall corporate strategy by
ensuring the physical assets and organizational resources in the
operations domain are aligned with the direction set out in the corporate
strategy.
Whereas almost all companies, big and small, have a corporate strategy,
few follow a clear operations strategy and it shows. As a company grows,
it usually expands its range of products and services as well as the
markets it serves. As it grew, the company most likely closely adhered to
the corporate strategy or in some cases revised the corporate strategy as
new opportunities appeared. Either way, the corporate strategy
maintained its role as a key provider of guiding principles for the
company. However, the operational structure and capabilities that were
built over the same growth period may have been added in an ad hoc
fashion in order to keep pace with the growth curve at any cost. In most
cases, this is because an operational strategy was nonexistent or simply
bypassed in an effort to ensure growth targets were achieved. The typical
result is an inefficient and often disjointed operational model.
The disadvantages of such a model becomes all too apparent in an
economic downturn or when a new competitor appears. The success of a
strategy depends on doing many things well - not just a few - and
integrating among them." While inefficiencies may have been ok during
the early stages of growth, they quickly start to hamper a firm's ability to
compete and ultimately its ability to realize its corporate strategy. There
are numerous examples of a big company that was the shining start of an
industry being unexpectedly usurped by a start up competitor that has
developed a new way to achieve the same customer value with few
resources.
Everyone is familiar with the havoc Amazon.com and Apple's iTunes store
have created for the traditional bricks and mortar book and music stores
around the world. Spanish clothing retailer Zara has crafted an
operations model that is capable of replicating and supplying the latest
runway fashion to its stores in less than two weeks. It does this by using
many small sewing contractors in Spain rather than huge clothing mills
with cheaper labor all the way in Asia.

Furthermore, simply looking to "industry best practices" for how you

should operate is short sighted and is by no means strategic in nature. A
firm's pursuit of best practices is merely an attempt "to develop the
capabilities that their fiercest competitors have already mastered". Not
only are you simply trying to play catch up in a race you can't win, you
leave yourself vulnerable to the new, up-and-coming competitor.
Lastly, whether you are a manufacturer, a services firm or anything in
between, a sound operations strategy is necessary regardless of the
industry you are in. In all cases, a company takes some starting material,
changes it in some way that makes it more valuable to a customer and
then sells it to that customer. For a manufacturer like Intel, the primary
starting material is an ingot of pure silicone. Intel then uses its production
facilities and its proprietary knowledge to turn that lump of silicone into a
computer processor chip similar to the one powering the machine you are
currently using to read this blog. For a service provider such as an
employment recruiter or real estate agent, the starting material is
information. They take data such as the current market conditions and
current offerings on the market and use their expertise to identify possible
hiring or buying opportunities for their client. In both cases, the way in
which the firm operates (imparts value to the starting material) is a key
determiner of the performance of the firm.

Strategy Formulation Process

Strategy formulation refers to the process of choosing the most appropriate
course of action for the realization of organizational goals and objectives and
thereby achieving the organizational vision. The process of strategy
formulation basically involves six main steps. Though these steps do not
follow a rigid chronological order, however they are very rational and can be
easily followed in this order.
1. Setting Organizations objectives - The key component of any strategy
statement is to set the long-term objectives of the organization. It is known
that strategy is generally a medium for realization of organizational
objectives. Objectives stress the state of being there whereas Strategy
stresses upon the process of reaching there. Strategy includes both the
fixation of objectives as well the medium to be used to realize those
objectives. Thus, strategy is a wider term which believes in the manner of
deployment of resources so as to achieve the objectives.
While fixing the organizational objectives, it is essential that the factors
which influence the selection of objectives must be analyzed before the

selection of objectives. Once the objectives and the factors influencing

strategic decisions have been determined, it is easy to take strategic
decisions.
2. Evaluating the Organizational Environment - The next step is to
evaluate the general economic and industrial environment in which the
organization operates. This includes a review of the organizations
competitive position. It is essential to conduct a qualitative and quantitative
review of an organizations existing product line. The purpose of such a
review is to make sure that the factors important for competitive success in
the market can be discovered so that the management can identify their
own strengths and weaknesses as well as their competitors strengths and
weaknesses.
After identifying its strengths and weaknesses, an organization must keep a
track of competitors moves and actions so as to discover probable
opportunities of threats to its market or supply sources.
3. Setting Quantitative Targets - In this step, an organization must
practically fix the quantitative target values for some of the organizational
objectives. The idea behind this is to compare with long term customers, so
as to evaluate the contribution that might be made by various product zones
or operating departments.
4. Aiming in context with the divisional plans - In this step, the
contributions made by each department or division or product category
within the organization is identified and accordingly strategic planning is
done for each sub-unit. This requires a careful analysis of macroeconomic
trends.
5. Performance Analysis - Performance analysis includes discovering and
analyzing the gap between the planned or desired performance. A critical
evaluation of the organizations past performance, present condition and the
desired future conditions must be done by the organization. This critical
evaluation identifies the degree of gap that persists between the actual
reality and the long-term aspirations of the organization. An attempt is
made by the organization to estimate its probable future condition if the
current trends persist.
6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The
best course of action is actually chosen after considering organizational
goals, organizational strengths, potential and limitations as well as the
external opportunities.