Unit-1

Operations Management (OM)

Operations management (OM) is the administration of business practices to create the

highest level of efficiency possible within an organization. It is concerned with converting
materials and labour into goods and services as efficiently as possible to maximize the
profit of an organization. Operations management teams attempt to balance costs with
revenue to achieve the highest net operating profit possible.

KEY TAKEAWAYS

 Operations management is the administration of business practices to create the

highest level of efficiency possible within an organization.

 Operations management is concerned with converting materials and labour into

goods and services as efficiently as possible.

 Corporate operations management professionals try to balance costs with revenue to

maximize net operating profit.

Definition: Operations Management can be understood as an area of management which is

concerned with the government of system, processes and functions that manufacture goods

and renders services to the end user, to provide desired utilities to them while adhering to

other objectives of the concern, i.e. efficiency, effectiveness, and productivity.

 Objectives of Operations Management
 Customer Service: The primary objective of operations management is to utilize the
resources of the organization, to create such products or services that satisfy the needs of the
consumers, by providing “right thing at the right price, place and time”.
 Resource Utilization: To make the best possible use of the organisation’s resources
to satisfy the wants of the consumers, is another important objective of the operations
management.
In operations management, the formation of goods or services encompasses conversion of
inputs into outputs, wherein different inputs such as capital, labour, material, machinery and
information are combined and used to create output, by using the conversion process. For
this purpose, the organization measures different points in the process and then compares
the same with the set standards, to ascertain whether corrective action is required or not.
 Scope of Operations Management
1. Location of Facilities: The most important decision with respect to the operations
management is the selection of location, a huge investment is made by the firm in acquiring
the building, arranging and installing plant and machinery. And if the location is not
suitable, then all of this investment will be called as a sheer wastage of money, time, and
efforts.
So, while choosing the location for the operations, company’s expansion plans,
diversification plans, the supply of materials, weather conditions, transportation facility and
everything else which is essential in this regard should be taken into consideration.

2. Product Design: Product design is all about an in-depth analysis of the customer’s
requirements and giving a proper shape to the idea, which thoroughly fulfils those
requirements. It is a complete process of identification of needs of the consumers to the final
creation of a product which involves designing and marketing, product development, and
introduction of the product to the market.
3. Process Design: It is the planning and decision making of the entire workflow for
transforming the raw material into finished goods; It involves decisions regarding the choice
of technology, process flow analysis, process selection, and so forth.
4. Plant Layout: As the name signifies, plant layout is the grouping and arrangement
of the personnel, machines, equipment, storage space, and other facilities, which are used in
the production process, to economically produce the desired output, both quality wise and
quantity wise.
5. Material Handling: Material Handling is all about holding and treatment of
material within and outside the organisation. It is concerned with the movement of material
from one go down to another, from go down to machine and from one process to another,
along with the packing and storing of the product.
6. Material Management: The part of management which deals with the procurement,
use and control of the raw material, which is required during the process of production. Its
aim is to acquire, transport and store the material in such a way to minimize the related cost.
It tends to find out new sources of supply and develop a good relationship with the suppliers
to ensure an ongoing supply of material.
7. Quality Control: Quality Control is the systematic process of keeping an intended
level of quality in the goods and services, in which the organization deals. It attempts to
prevent defects and make corrective actions (if they find any defects during the quality
control process), to ensure that the desired quality is maintained, at reasonable prices.
8. Maintenance Management: Machinery, tools and equipment play a crucial role in
the process of production. So, if they are not available at the time of need, due to any reason
like downtime or breakage etc. then the entire process will suffer.
Hence, it is the responsibility of the operations manager to keep the plant in good condition,
as well as keeping the machines and other equipment in the right state, so that the firm can
use them in their optimal capacity.
 Key Functions within Operations Management
Some of the key functions of operations management include:

 Finance - In any manufacturing organization, finance plays a crucial role in ensuring

that financial resources are properly allocated and utilized to their full extent. Finance in
operations management helps create a budget that will allow the organization to meet its
production goals and can help evaluate various investment opportunities to make the best
decision. Proper utilization and allocation of finances will allow for a product to be created
for the lowest cost that will also satisfy overall consumer needs.

 Strategy - Strategic management is the planning, monitoring, analysis, and

assessment of tall aspects of an organization on a continuing basis. Attention to these
elements ensures that a strategy is developed and then implemented in the manufacturing
facility. The benefits of strategic management will help manufacturing organizations make
better decisions regarding production planning and scheduling, keep customers happy and
allow the facility to meet its overall goals.

 Operation - This function of operations management is concerned with planning,

organizing, directing, and overall control of all activities within the organization. This is the
primary function of operations management and will effectively aid in converting raw
materials and human efforts into a durable good and service that consumers will be able to
utilize. Operations within production must be scheduled in a way that minimizes the amount
of setup required and maximizes the utilization of resource capacity. If this is achieved, the
production facility will be able to increase its production output.

 Product Design - With new technology becoming available, the selling of a product
becomes much simpler. One of the main duties of operations management is to ensure that a
product is designed properly and caters to market trends and satisfies the needs of
consumers. In addition, introducing new product designs can be challenging due to the
existing product mix and available resources. Those are important factors to consider when
looking introducing new items.

 Forecasting - Demand forecasting is the process of predicting what the demand for
certain products will be in the future. It identifies what both current and future customers
will want to buy and tells manufacturing facilities what they should actually produce.
Ideally, manufacturing companies want to be able to accurately predict customer demands
so that they can produce the right amount of products.

 Quality Control - In addition to the product design function, operations managers

should strive to produce the best quality product possible. Modern-day consumers are
concerned about quality instead of quantity, which is why it is so crucial to develop a
durable and top-notch quality product. This is especially important when evaluating the
existing processes as improving production processes should not be at the expense of
quality. Operations managers should ensure that quality control processes are defined and
implemented to catch any defective items.
 Production Management Vs Operations Management

BASIS FOR OPERATIONS

PRODUCTION MANAGEMENT
COMPARISON MANAGEMENT

Meaning Production Management connotes the Operations Management refers to

administration of the range of activities the part of management concerned
belonging to the creation of products. with the production and delivery of
goods and services.

Decision Making Related to the aspects of production. Related to the regular business
activities.

Found in Enterprises where production is Banks, Hospitals, Companies

undertaken. including production companies,
Agencies etc.

Objectives To produce right quality goods in right To utilize resources, to the extent
quantity at right time and at least cost. possible so as to satisfy customer
wants.
Definition of Productivity

The definition of productivity according to management expert Peter Drucker.

“Productivity means the balance between all factors of production that will give the greatest
output for the smallest effort.”
Productivity is expressed or measured as a mathematical division of two important
parameters (functions) viz., output and input.

The concept of productivity is depicted in the following illustration.

Meaning of Productivity

Productivity is a relationship between output and input. It is expressed or measured as a

ratio of output and input. In other words, it equals output divided by input.

Some examples of productivity measurement are as follows:

Productivity of a manufacturing unit can be measured in terms of the number of goods

produced in some fixed amount of time (usually in hours).
Generally, productivity of a service industry is measured in terms of income generated by an
employee within an organization.
Nowadays, organizations give more importance to productivity and less importance to
efficiency.

The three main indicators of higher productivity are as follows:

Best utilization of the available human and material resources.

Minimum wastage and losses of materials.
Quantitative and qualitative production of goods at lower cost.
What is
productivity?

What is
productivity?

Work Study: Meaning, Objectives and Types

Meaning of Work Study:

According to ILO — International Labour Organisation — work study is “a term used to

embrace the techniques of method study and work measurement which are employed
to ensure the best possible use of human and material resources in carrying out a
specified activity.” In other words, “work study is a tool or technique of management
involving the analytical study of a job or operation.” Work study helps to increase
productivity.
Objectives of Work Study:
(i) Work study brings higher productivity

(ii) Work study improves existing method of work for which cost becomes lower;

(iii) It eliminates wasteful elements;

(iv) It sets standard of performance;

(v) It helps to use plant and human more effectively;

(vi) It improves by saving in time and loss of material also.

Steps Involved in Work Study:

The steps of work study are:

(i) It selects the jobs which are to be studied;

(ii) It examines critically the recorded facts which are already done

(iii) It records from direct observations all the matters which are happened;

(iv) It defines new method;

(v) It also installs the new method;

(vi) It also maintains the new standard;

(vii) It develops most economic and appropriate methods;

(viii) It measures the work content in the method that is selected and computes a standard
time.

Types of Work Study:

1. Method Study:

According to ILO, method study is “the systematic recording, analysis and critical
examination of existing and proposed ways of doing work and the development and
application of easier and more effective method”. In short, it is a systematic procedure to
analyse the work to eliminate unnecessary operations.

Objectives:

The objectives of method study are:

(i) It improves the proper utilisation of manpower, machine and materials;

(ii) It also improves the factory layout, work place, etc.;

(iii) It also improves the process and procedure;

(iv) It develops better physical working environment;

(v) It reduces undesirable fatigue.

Steps:

The steps of method study are:

(i) At first select the proper work which is to be studied;

(ii) Record all the facts of existing method;

(iii) Examine the facts very critically;

(iv) Develop the most practical, economic, and effective method;

(v) Install the method and the same should be maintained.

2. Time And Motion Study:

According to ILO, Time Study means “a technique for determining as accurately as

possible from a limited number of observations the time necessary to carry out a given
activity at a different standard of performance”. In other words, “time study is the art of
observing and recording time required to do each detailed element of an individual
operation.” Practically, it studies the time taken on each element of a job.
Motion study, on the other hand, is the study of the body motion used in performing an
operation, with the thought of improving the operation by eliminating unnecessary motion
and simplifying necessary motion and thus establishing the most favourable motion
sequence for maximum efficiency.

So, in short, ‘Time Study’ means the determination of standard time that is taken by a
worker of average ability under normal working conditions for performing a job. But
‘Motion Study’ determines the correct method of doing a job to avoid wasteful movements,
for which the workers are unnecessarily tired.

Steps:

1. Time and Motion studies eliminate wasteful movements;

2. They examine the proposed method critically and determine the most effective one;

3. They determine for each element having a stop-watch;

4. They record all the parts of a job which are done by the existing method;

5. They install the method as standard one;

6. They critically observe the workers who are engaged with the work;

7. They assess the proper speed of the operator who is working.

Work Measurement Techniques

 Historical data method - It uses the past performance data to set performance

standards.

 Time study - It uses stop watch and is best suited for short-cycle repetitive jobs.

 Work sampling - Here, workers are observed many times at random.

 Synthesis method - Here, the full job is divided into element or parts.

 Predetermined motion time system (PMTS) - Here, normally, three times are

fixed for one job namely; normal, fast, and very-fast.

 Analytical estimating - It is used for fixing the standard time for jobs, which are
 very long and repetitive.

Manufacturing Processes:

Repetitive Manufacturing

Basic manufacturing that creates the same product on an assembly line is engaged in the
repetitive manufacturing process. These types of rapid manufacturing operations will
produce the same or very similar products en masse 24/7.

The manufacturing industries that utilize this type of production process including:

 Automotive
 Electronics
 Semiconductor
 Durable consumer goods

These mass production industries are ideal for repetitive manufacturing because the
consumer demand for the finished product is stable and predictable. The assembly line will
remain fairly constant, with few changes as one product is manufactured over a period of
time.

Master plans are created on a period of time and quantity basis. Repetitive manufacturing is
often used for make-to-stock production or in a high volume, sales order-oriented
environment like automotive. Robots and other automated high-volume manufacturing
equipment are used to increase throughput and decrease manufacturing costs in these types
of factories.

Discrete Manufacturing

Discrete manufacturing is the cousin of repetitive manufacturing. It too runs on production

lines, but the finished goods that are created during this process often vary considerably.

When switching between different product models, the assembly line configuration must
often be changed. In manufacturing facilities, this is known as a changeover and carries
setup cost in the form of time, labour, and resources.

For example, in the computer industry, technology not only develops at a constantly rapid
rate but the customers demand mass customization. The manufacturing process for
producing newer computers and laptops will require modifications to the assembly line to
produce and assemble orders that call for the latest electronic components.

Job Shop Manufacturing

In the job shop manufacturing process, production areas, like workstations and workshops,
are used instead of an assembly line. Each worker may add something to the product when it
passes through their station, before it is moved on to another, and until eventually the final
product is finished. This method of manufacturing is ideal for custom manufacturing
because it tends to be slower and produces a low volume of highly customized products.

Take for example a job shop that builds custom cabinets. Workers will be stationed at their
workstations, and they will add to the cabinet as it is brought to them. One may be in charge
of sawing the lumber, another of applying resin, others in charge of polishing the varnish,
and others still in charge of assembly.

Keep in mind that job shop manufacturing is not just for low technology products. This
process is also used in the advanced manufacturing of fighter jets and rockets for the
aerospace and defence industry. These products are produced by highly trained
professionals who employ advanced manufacturing techniques and place a strong focus on
quality control to ensure a high-quality build.

Continuous Process Manufacturing

Continuous process manufacturing is very similar to repetitive manufacturing because it

runs 24/7, creates the same or similar products repeatedly, and creates larger order
quantities. The key difference here is that the raw materials used are gases, liquids, powders,
and slurries, instead of solid-state components.

It works almost exactly the same as repetitive manufacturing besides the difference in raw
materials. An example of this in practice might be a pharmaceutical company that produces
painkillers in larger quantities.

Traditional industrial manufacturing industries that widely utilize continuous processes

include:

 Pharmaceutics
 Chemicals/industrial gases
 Fertilizers
 Power stations
 Oil refining
 Paper
 Furnace - Steel, Iron, and Alloys

Batch Process Manufacturing

The batch process of manufacture differs quite a bit from continuous process
manufacture and is more similar to discrete and job shop manufacturing. The number of
batches that are created will be enough to serve a particular customer's needs. In-between
batches, the equipment will be cleaned and left alone until another batch is required. The
raw materials used are more similar to continuous process manufacturing as they are liquids,
gases, powders, and slurries too.

A prominent example of this is a sauce manufacturer. They may be capable of creating

many sauces - BBQ, ketchup, mayonnaise - but a customer's order may only require one of
them. Whilst they make one batch of ketchup for a customer to a specific quantity, the
mayonnaise and other sauces won't be in production - instead, the machines will be cleaned
and left until it is time to create another batch of that sauce.

Managing the Manufacturing Process

The manufacturing process you choose is dependent on your manufacturing industry and the
type of product you are looking to create. Sometimes a hybrid manufacturing approach that
combines multiple manufacturing processes can be useful if you want to create an
assortment of products.

Once you choose the right manufacturing process, it is important to leverage the right
manufacturing systems and investing in the right manufacturing technology to ensure
process control. You’re ERP and MES systems are a step in the right direction, but they lack
the planning and scheduling capabilities required to become a truly lean manufacturing
organization.

PLANT LOCATION DECISION AND ITS IMPORTANCE:

Plant Location is the right location for the manufacturing facility; it will have sufficient
access to the customers, workers, transportation, etc. For commercial success, and
competitive advantage following are the critical factors:

GENERAL FACTORS AFFECTING PLANT LOCATION

DECISION:
INPUT CONSIDERATIONS
 Material- Quantity, quality, cost and regular supply.
 Land- Site availability and cost, cost of construction, constructional
regulations.
 Equipment- Cost and availability.
 Plant utilities- Water, electricity, gas, coal etc.
 Labour- Availability, skill, wage rates etc.

PROCESSING CONSIDERATIONS

 Production analysis
 Process analysis
 Forecasting and scheduling
 Production control
 Maintenance
 Cost control
OUTPUT CONSIDERATIONS

 Distribution- Distribution and storage facilities

 Transportation- Facilities and cost
 Present and future market potential
 Local rates
 Local taxes

OTHER CONSIDERATIONS

 Community attitude towards industry and company

 Public and community services
 Stockholder interests
 Organizational decentralization policies.
 Political situation
 Environmental standards

PLANT LAYOUT
 Layout refers to the arrangement of facilities in a particular workstation. It may be
plant layout, office layout, auditorium layout etc.

 Plant Layout implies the physical arrangement of machines, equipment and other
industrial facilities on the factory floor in such a manner that they may be handled
efficiently.

 Plant layout refers to the arrangement of physical facilities such as machinery,

equipment, furniture etc. within the factory building in such a manner so as to have
quickest flow of material at the lowest cost and with the least amount of handling in
processing the product from the receipt of material to the shipment of the finished
product.

 Layout is a Fundamental of every organization and enterprise.

 Kitchen, Retailers, offices, service organization and all the enterprises have a
specific layout.

 Previously Layouts were based on intuition, experience and judgment.

 With the complexities and competition now scientific methods are used.

 The Layout comes in picture after the location has been finalized.

 Development of good layout depends on decisions already taken on location,

capacity, facility, manufacturing method and material handling techniques.
 CHARACTERISTICS OF PLANT LAYOUT:
 Provide space for machine / materials / storage / etc.
 Flexible for future changes in capacity / Design / Process etc. ( Cellular design).
 Accommodate future expansion.
 Deals with government rules & regulations ( Municipal corporation / Labour law &
rules).
 Safety of employees / visitors / vendors is prime concern.
 Achieve economy in operation.

IMPORTANCE OF PLANT LAYOUT:

 It is long-term commitment.
 It facilitates the production process, minimizes material handling, time and cost, and
allows flexibility of operations.
 It facilitates easy production flow, makes economic use of the building, promotes
effective utilization of manpower, and provides for employees’ convenience, safety,
comfort at work, maximum exposure to natural light and ventilation.
 It affects the flow of material and processes, labor efficiency, supervision and
control, use of space and expansion possibilities .

OBJECTIVES OF PLANT LAYOUT:

 Overall simplification of production process in terms of equipment utilization,
minimization of delays, reducing manufacturing time and better provisions for
maintenance.
 Overall integration of men, materials, machinery, supporting activities and many
other considerations in a way that result in the best compromise.
 Minimization of material handling cost by suitably placing the facilities in the best
flow sequence.
 Saving in floor space, effective space utilization and less congestion.
 Increased output and reduced inventories in process.
 Better supervision and control.
 Worker convenience, improved morale and worker satisfaction.
 Better working environment, safety of employees and reduced hazards.
 Minimization of waste and higher productivity.
 Avoid unnecessary capital investment.
 Higher flexibility and adaptability to changing conditions.

EVIDENCE OF POOR LAYOUT:

 Slow movement of materials through the plant.
 High handling and transportation costs.
 Crowded stock rooms and production departments.
 Congested workplaces.
 Inconveniently located service departments.
 In-process materials are frequently damaged, misplaced or lost.
 PRINCIPLE OF PLANT LAYOUT:

 Principle of Overall Integration: All the plant facilities are integrated one single operating
unit considering all the servicing necessary for operations.

 Principle of Minimum Distance Moved: Attempts are made to minimize the movements
as far as possible. However, the principle of overall integration should be considered while
planning for the minimum distance moved.

 Principle of Flow: A layout must arrange the work areas as far as possible, in the same
way as the sequence of operations or processes. The basic idea is to move the work
towards completion progressively without interference of backtracking with a minimum
of interruption or congestion.
 Principle of Cubic Space: Economy is obtained by using effectively available space- both
vertical and horizontal.

 Principle of Satisfaction and Safety: Satisfaction of working people is an important factor to

be kept in mind. Similarly due consideration must be given to safely requirements.

 Principle of Flexibility: The layout must be sufficiently flexible to take care of the necessity
of rearranging the production facilities, when the need comes.