Chapter 1

Operations
Management:
Trends & Issues
 Operations Management
Definition
An operations system is defined as one in
which
several activities are performed
to transform a set of inputs into useful output
using a transformation process
Operations Management is
a systematic approach to
address all the issues pertaining to
the transformation process that converts some
inputs into output that are useful, and
could fetch revenue to the operations system

Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Operations Management (OM)
Salient Aspects
OM is a systematic approach
using scientific tools & techniques and solution
methodologies to analyze problems
OM is about addressing several issues
varying in terms of time horizon, nature of
decisions
Transformation processes are central to
Operations
Focusing on keeping costs to the minimum
Developing a set of measures to assess
performance of the system
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Manufacturing Sector
Salient Aspects
IndexofIndustrialProduction* 200304 200405 200506 200607 Average
Manufacturing 9.20 9.10 12.50 10.27
Capitalgoods 13.60 13.90 15.80 18.20 15.38
Consumergoods 7.20 11.70 12.00 10.10 10.25
Intermediategoods 6.40 6.10 2.50 12.00 6.75
CorporateSectorPerformance #

Sales/Income:Manufacturing 13.30 20.50 18.30 23.10 18.80

Sales/Income:Services(otherthan
financial) 27.00 21.40 15.70 22.60 21.68 All number in the table
Sales/Income:Financialservices 9.10 66.10 13.90 32.60 14.13 represent growth %
WagesandSalaries:Manufacturing 6.70 3.00 8.90 18.20 9.20 over the previous year

WagesandSalaries:Services(otherthan * Compiled from

financial) 16.00 35.10 17.90 26.50 23.88 Economic Survey 2007
08, Government of
WagesandSalaries:Financialservices 12.80 8.60 11.20 10.90 10.88 India, Ministry of
PAT:Manufacturing 147.80 58.30 17.30 58.40 70.45 Finance, Economic
PAT:Services(otherthanfinancial) 165.60 109.90 39.50 27.60 85.65 Division, Oxford
University Press, New
PAT:Financialservices 62.30 2.70 27.70 34.90 30.55 Delhi, 2008, pp 201
TotalAssets:Manufacturing 7.00 12.50 18.80 20.70 14.75
# Compiled from
TotalAssets:Services(otherthan Economic Intelligence
financial) 11.10 13.30 18.10 21.60 16.03 Services (EIS) database
TotalAssets:Financialservices 14.70 14.60 18.60 23.80 17.93 on Corporate Sector

GrossSavings:Manufacturing 58.60 31.50 14.00 45.10 37.30

GrossSavings:Services(otherthan
financial) 34.30 40.20 11.90 31.60 29.50
GrossSavings:Financialservices 30.80 8.50 17.30 24.30 20.23
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Indian Manufacturing
Export Potential of Sectors
Current Potential
Sector of Industry Strengths Weaknesses
Exports Exports
Electrical & Electronics $ 1.25 b $ 15 - 18 b Design & Lack of scale,
Engineering Low domestic
skills, vendor demand
base
Apparel Manufacturing $ 6.10 b $ 25 - 30 b Vertical Lack of scale,
integration, operational
skilled labour, expertise
design skills
Auto-components $ 1.10 b $ 20 - 25 b Engineering and Fragmented
continuous industry and
improvement of poor OEM
skills linkages
Specialty chemicals $ 1.60 b $ 12 - 15 b Low cost Application R & D
manpower and and marketing
process
innovation skills

Source: Based on Roshni Jayakar, Manufacturings Next Export Wave, Business Today, 24 April 2005 , pp.
6672.

Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Service Manufacturing
Continuum
Pure Product Pure Service

Ayurvedic Healing Treatment

Legal/Tax Consulting
Cyber Caf Telephone Booths
Emergency Maintenance Services
Facilities Maintenance
High quality restaurant meal
Fast food in a eat out joint
Customized durable goods
Fast moving commodities
Vending Machines
Adopted from Hill, T. (2005), Operations Management (Palgrave Macmillan), 2nd Edition, pp 14.

Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Service Sector in India
GDP growth rate

Service Sectors 2001 2002 2003- 2004 2005 2006-

-02 -03 04 -05 -06 07
Trade, Hotels, Transport, 9.2 9.4 12.0 10.7 11.5 11.8
Communications
Financial Services, 7.3 8.0 5.6 8.7 11.4 13.9
Insurance, Real Estate &
business services
Public administration & 4.1 3.9 5.4 6.9 7.2 6.9
defence and other services
All number in the table represent growth % over the previous year
* Compiled from Economic Survey 2007 08, Government of India, Ministry of Finance, Economic Division,
Oxford University Press, New Delhi, 2008, Table A-7.

Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Service Operations
Salient Features
Tangibility: Services are performances and
actions rather than objects, therefore
having poor tangibility
Heterogeneity: High variability in the
operation system performance
Simultaneous Production & Consumption:
Degree of customer contact is very high
Perishability: Services cannot be
inventoried as in the case of manufactured
products.

Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Operations Management in Services
Process flow diagram for passport application
processing

Source: Ravichandran, N and D. Bahuguna (2006), Rule Bound Government Agency to Customer Centric Service
Facility: Can Indian Passport Offices make the leap? IIMB Management Review, 18(1), 59 66.
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Manufacturing & Service
Similarities & Differences
Manufacturing Organizations Service Organizations
Differences
Physical durable product Intangible, perishable product
Output can be inventoried Output cant be inventoried
Low customer contact High customer contact
Long response time Short response time
Regional, national, Intl. markets Local markets
Large facilities Small facilities
Capital intensive Labour intensive

Quality easily measured Quality not easily measured

Similarities
Is concerned about quality, productivity & timely response to its customers
Must make choices about capacity, location, layout
Has suppliers to deal with
Has to plan its operations, schedules and resources
Balance capacity with demand by a careful choice of resources
Has to make an estimate of demand

Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Operations
A key functional area in an Organisation

Finance

Operations

Marketing HRM

Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Operations Function
Linkages with other functions
Customer Layer Operations Support Layer

Ultimate Dealers Marketing Maintenance Quality

Customer Retailers

Costing Planning Tooling

Core Operations Layer Material IT Design IE

Testing Assembly
Layer of
Innovation
Fabrication Machining
Innovation Supplier Layer
Strategy Service Delivery system
Sub-contractors Suppliers
Research &
Development Other service providers

Source: B Mahadevan, The New Manufacturing Architecture, Tata McGraw Hill, New Delhi, 1999.

Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Operations Management
A systems Perspective

Forecasting

PROCESSING
Labour Process & Purchasing & Goods

OUTPUT
Product Inventory
INPUT

Design Control
Material

Capital Operations Material & Services

Planning & Capacity
Control Planning

Feedback
Quality Maintenance Process
Management Management Improvement

Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Operations Management
Functions

Design of Operations Operational Control of Operations

Product Design & Development Forecasting

Process Design Production Planning and Control
Quality Management Supply Chain Management
Location and Layout of facilities Maintenance Management
Capacity Planning Continuous improvement of operations

Design issues in Operations Management lay down overall

constraints under which the operations system functions
Operational Control issues focuses on optimizing the use of
available resources in the short-term while delivering goods and
services as per plan under the given design constraints

Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Operations Management
Challenges
Competitive Pressures due to economic
reforms
Tariff reduction has exposed Indian companies to
global competition
Chelliah Committee tax reforms proposed during 1992
94 triggered this process
Abolition licensing policies had enabled several new
players to enter into business increasing domestic
competition and capacity build up
Examples include liberalization of two wheelers and LCV
segment in early 1980s and passenger car segment in
early 1990s
Indian customers are more demanding in terms of
quality, cost and delivery of goods & services

Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Operations Management
Challenges

Growing customer expectations

Examples: Tariff plans and options provided
by mobile operators, options in passenger
car
Customers tend to demand more and refine
their expectations
Manufacturing & Service organizations must
learn to respond to these expectations
Need to develop capabilities to bring newer
products and services faster and yet
profitably

Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Operations Management
Challenges
Todays businesses are constantly challenged
by the rapid technological advancements
Example 1: ATMs & Internet Banking. Customers need not
visit a bank branch. Drafts and cheques replaced with electronic
payment gateways & fund transfer mechanisms.
Example 2: Buying a train ticket. By visiting a Web site like
http://www.irctc.co.in/, a customer can accomplish all tasks
pertaining to ticket booking and cancellation at leisure.
Example 3: Procurement of goods & services. A
manufacturing organization can procure goods & services by
organizing a reverse auction on the Internet. In 3 to 4 hours, the
best price for a component and the supplier willing to provide the
component at a desired quality can be located.
Example 4: New Product Development. A team of design
personnel from across different geographical locations can
participate in new product development using technological tools.

Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Operations Management
Challenges
Environmental Issues
When Government of India announced a scheme for special
economic zones (SEZs), it generated controversies and social
concerns.
Growing industrialization raises concerns regarding the depletion
of natural resources and the waste generated from production
systems and end-of-life products.
Growing urbanization creates societal problems arising out of
scarcity of available resources and generation of solid wastes.
Consumption of energy and water in countries like India is on the
rise. Such a situation requires better practices and newer methods
of addressing these requirements using better operational
practices.
Increasingly, firms are under pressure to take responsibility of
restoring, sustaining, and expanding the planets ecosystem
instead of merely exploiting it.
OM practices must address environmental concerns in
order to ensure a sustainable world
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Operations Management
Implications & Priorities

Relate operations system to Customer/

Market
Acquire Capabilities to tolerate product
proliferation
Develop systems and procedures that
promote learning
Develop Green Manufacturing Practices

Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Operations Management: Trends & Issues
Chapter Highlights
Operations Management is a systematic
approach to address all issues pertaining to the
transformation process that converts some
inputs into useful output
Globally, India is emerging as an important
manufacturing base.
Several recent studies point to emerging
opportunities for Indian manufacturing to grow
and attain a global presence.
From an operations management perspective,
the notion of a pure product and pure service
is just the two ends of the spectrum.
In reality, a vast majority of operations share a
continuum of products and services.

Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
 Operations Management: Trends & Issues
Chapter Highlights
Despite several important differences between
products & services, from an OM perspective
there are several similarities between the two
Decision context in operations management
can be broadly classified as
Design and operations control issues
Long term and short term decisions
Some of the challenges faced by operation
firms include
Need to address increased competition due to
economic reforms
Addressing the growing expectations of the
customers
Rapid technological advances
Emerging environmental concerns

Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education