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INTRODUCTION TO OPERATIONS MANAGEMENT-MODULE 1

An operations system is defined as one in which several activities are performed to

transform a set of inputs into a useful output using a transformation process. These inputs
and outputs can be tangible, in the form of raw materials and physical products, or
intangible, in the form of information and experiences. Viewed in this manner,
manufacturing and service systems could be broadly classified as operations systems.
Operations management is a systematic approach to addressing issues in the
transformation process that converts inputs into useful, revenue-generating outputs.
Operations Management is the process that plans, controls and supervises manufacturing,
production process and service delivery. It is concerned with managing an entire
production or service system which is the process that converts inputs into outputs. So,
process is the conversion of inputs to desired outputs.

Input→ Process→ Output

Inputs: Raw materials, Labor, Capital, Time, Technology, Consumers and Energy

Output: Goods/ Service for consumers.

A manufacturing firm essentially engages in converting a variety of inputs into products

that are useful for individuals and organizations.

A service organization, on the other hand, responds to the requirements of customers and
satisfies their needs through a service delivery process.

Operations management in manufacturing firms

Productivity is the ratio of input facilities to the output of goods and services.

Productivity of any manufacturing firm =Output/Input* 100%

Productivity is determined by considering the amount of waste generated during the

conversion process. If the output is unnecessary waste or defective waste, then
productivity can be improved by eliminating or minimizing the waste occurring in the
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system. To attain 100%, every, manufacturing firm undergoes different methodologies.

They are Just- in- Time, Lean Manufacturing, Six Sigma.

Just-in-Time: It is an inventory management technique that increases efficiency, cut costs

and decrease waste by receiving goods only as they are needed. Products are produced
only according to demand.

Lean Manufacturing: A methodology to reduce waste in a manufacturing system without

sacrificing productivity. i.e. minimizing waste and maximizing productivity.

Six Sigma: It is a method that provides organizations tools to improve the capability of their
business process. It means 99.9996% out of 100 products of a company will be good with
quality and error free.

Non-Manufacturing areas in operations

Operations is not only confined to production alone. Before and after the production
process the company need to plan and control the flow of operations. E.g. Logistics- Timely
delivery without delay is the output of Logistics.

Difference between Manufacturing and Service Operation

 Tangible output: Manufacturing operations convert inputs like materials, labor etc.
into tangible outputs. They produce tangible goods which are the physical products
that can be seen and stored.
Service operations transform inputs into outputs but output of service firm is
intangible.
 Production & Consumption: Manufacturing operations allow separation between
production and consumption.
In Service operation, customers receive service as it is performed. There is
production as well as consumption at the same time.
 Productivity: As manufacturing operations produce tangible products, productivity
can be easily measured.
In service operations, productivity is not easily measured as it produces intangible
outputs.
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 Expense required for material handling is more in manufacturing operations.

In service operations, expense for material handling is less.
 Inventory: Manufacturers produce goods for stock, with inventory levels aligned to
forecast demand.
Service firms do not inventory and they create a service when a client requires it.
 Customers have less contact with people who provide manufacturing operations.
In service operations, customers have more contact with the service providers.
 Quality Standards: Stable standards and easy to establish in manufacturing
operations.
In service operations, it is difficult to establish and product quality is difficult to
evaluate.
 Manufacturing operations depend on maintenance and repair work whereas in-
service operations, no maintenance and repair work.
 Flexibility: Manufacturing operations are flexible in manufacturing work, methods
and scheduling work. They easily adapt to changes in the type and quantity of the
product being manufactured.
Service operations are inflexible because they are in direct contact with customers
and customers are part of delivery system.
 Customization and Standardization: Manufacturing operations are standardized
(no difference between the products) and less customized.
In service operations, they do not produce a service unless a customer requires it. So
it can be more customized (each products are different from the other) according to
customers’ needs.
 Higher amounts are required to be invested on assets like equipment, building, etc.
In service operations higher amounts are not required to be invested since most of
they are labor intensive.
 Quality Assurance: In manufacturing operations it is easy and controllable
variation. Inputs can be controlled and defects can be rectified in outputs before
reaching to customer.
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In service operations, quality assurance is challenging as there is high level of

variation in inputs which affects service quality.
 Size: Manufacturing operations are larger in size and operation is difficult
Service operations are smaller in size and operation as they have direct contact with
the customer.
 Location: Manufacturers must have a physical location for their production and
stock holding operations
Service firms do not require a physical production site as people creating and
delivering service can be located anywhere.

Operation Strategy

Strategy is the plan of action to achieve a specific goal. Operations strategy is the process of
making key decisions regarding the operations function of an organization on the basis of
inputs from its overall corporate strategy. The process of formulating an appropriate
operations strategy involves a sequential and structured set of activities. The first step is to
identify the strategic options for sustaining competitive advantage. Once these options
have been identified, the overall corporate strategy can be devised on the basis of firm-
level strengths and weaknesses. The corporate strategy provides the basis for arriving at
the appropriate operations strategy for the organization.

Strategic formulation process

1. understanding the competitive dynamics at the marketplace-

2. identifying order-winning (the attributes that have the potential to motivate the
customer to buy the product) and order-qualifying attributes (set of attributes the
customer expect in the product or service)

3. deciding on strategic options for sustaining competitive advantage,

4. matching the strategic options with the resources, constraints, values, and objectives of
the organization to arrive at the overall corporate strategy,

5. developing the operations strategy on the basis of the corporate strategy, and;
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6. using the operations strategy to select appropriate options for configuring an operations
system and establishing relevant measures for operational excellence.

Internal factors leading to strategy:

 Nature of the pdt

 Skill set of employees
 Mission & Vision
 Financial
 Resources
 Technology
 Time limitations/working environment

External factors influencing strategy

 Political & economic

Competency- The parameter that can be projected towards the customer.

Elements of Operations Strategy

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1. Product Design: What to produce and from whom to produce by taking feedback
from the market, customers, competitors, and previous data of the company.
2. Location: Whether the location is transporting feasible
3. Layout: Structure of the production plant and process machinaries. It explains the
arrangement of machinaries for different processes and how the product is being
manufactured.
Three types of Layout:
 Product Layout: Machinery is fixed and the product will be moving. The to be
manufactured product travels from one place to another, one process to another
process through conveyer belts. It is usually used in mass production.
 Process Layout: No conveyer belts are used. In this kind of layout various processes
are isolated and treated separately. The unfinished pdts are fed as inputs to these
various processes. Final pdt is obtained as an o/p of completion of various
processes.eg car manufacturing.
 Fixed Position Layout: All the machinery for the process are made available in a a
particular location where the pdt is being manufactured. i.e. product stays
stationary while workers come to the product site to build it. It is suitable for large
in size pdts which is difficult to move around.eg ship, aircraft manufacturing, etc.
4. Process Design: Different process of manufacturing the final product is designed.
The various inputs, &desired outputs are planned and control parameters are
designed in the process.
5. Human Resource & Job Design: After the process is designed, the no of workers
needed for each process is decided in this stage. Different job description for
different employees is decided. Here employees are their strategy.
6. Inventory: Complete list of finished goods or goods used in production held by a
company. It has 3 categories:
 Raw material inventory
 Work-in-progress inventory
 Finished products

Different inventories are treated separately and they have different processes.
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7. Reliability and Maintenance: Reliability is the probability that a product or system

or service will perform its intended function for a specified period or time without
failure. Maintenance refers to life of the machine.
8. Schedule: It prescribes when and where each operation is required to manufacture
the product. Plan the process time, control and optimize work and workloads in a
production process, plan purchase materials, etc.
9. Quality Management: Confirmness to Configuration. If 100% configuration is
there then it is said to have 100 % quality. In service, quality is a perception, there is
no number. Control parameters are used to meet the standards.
10. Procurement: Gathering of raw materials.

Operation strategy as a competitive weapon

Competitive edge- The company has a unique edge to project outside. It can be location,
price, quality, technology, Brand, Vehicles, Customer service. The 3 phase of operation
strategy is Quality, Time and Flexibility.