OPERATIONS MANAGEMENT

Q2. Define and explain the term ‘Operations Management’. Explain the role of
Operations Managers in their interface with other functions in an organization. Give
relevant examples from a Retail Store Operation. (10 Marks)

Ans2. Operations management is a systematic approach to addressing issues in the

transformation process that converts inputs into useful , revenue generating outputs.

Four aspects of this definition merit closer attention :-

• Operations management is a systematic approach.

It involves understanding the nature of issues and problems to be studied ;
establishing measures of performance ; collecting relevant data ; using
scientific tools ; techniques and solution methodologies for analysis ; and
developing effective as well as efficient solutions to the problem at hand.
• Operations management involves addressing various issues that an
organization faces. These issues vary markedly in terms of the time frame ,
the nature of the problem and the commitment of the required resources .
Simple problems include deciding how to re-route jobs when a machine
breaks down on a shop floor , or how to handle a surge in demand in a
service system .On the other hand , decisions such as where to locate the
plant ,what capacity to build in the system ,and what types of products and
services to offer to the customers require greater commitment of resources
and time. Operations management provides alternative methodologies to
address such wide ranging issues in an organization.
• Transformational processes are central to operations systems. The
transformational process ensures that inputs are converted into useful
outputs. Therefore, the focus of operations management is to address the
design , planning , and operational control of transformational process.
• The goal of operations management is to ensure that the organization is
able to keep costs to a minimum and obtain revenue in excess of costs
through careful planning and control of operations . An appropriate
performance evaluation system is required for this . Therefore, the operations
management also involves the development of performance evaluation
systems and methods through which the operating system can make
improvements to meet targeted performance measures.

The important functions of an operations managers in their interface with other

functions in an organization as follows :-

1. Design Versus Operational Control issues.

Design issues relate to the configuration of the operations system and provide
an overall framework under which the operations system will function. Design
issues in an operations management establish the overall constraints under
which the operations system functions .
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• For example , once the capacity of the resources to be used in the
system is decided ,it sets limits for the actual use of the system in
operation . If Maruti Suzuki India Ltd. installed an engine plant that has
the capacity to produce 200000 engines annually, then , in actual
operation , it can produce no more than 200000 engines. Similarly if a
multi-specialty hospital is located in Pune with 200 bed facility , it is
understood that it will largely serve residents in the vicinity of Pune up
to a capacity of 200 in-patients at any time.

2. Long term Vs Short term issues.

• Certain operations decisions are made once every five to ten years.
For example, the decision to locate a manufacturing or service delivery
facility is made as and when a new facility is to be introduced. Similarly
product line decisions and capacity augmentation decisions are made
once every three to five years. Typically , a majority of design decisions
are made with a planning horizon of five to ten years. Such decisions
usually require a long lead time , multiple levels of decisions making
and huge capital outlay.
• Some other decisions are made in fixed cycle of one year. Every
organization makes a business plan coinciding with its financial year
,wherein specific targets for sales are established . The annual
business planning exercise leads to aggregate operations planning.
Once the aggregate operations planning is done, master scheduling
and material and capacity requirements planning are done for the next
quarter or three months . These are medium term decisions. Finally,
several operations management decisions are made for a short run of
a week or less. These decisions include detailed scheduling of
operations , quality management and control , and reacting to
disruptions and changes in plan .

Ans3. Economic Ordered Quantity -: Economic order quantity (EOQ) is the ideal
order quantity a company should purchase to minimize inventory costs such as holding
costs, shortage costs, and order costs. This production-scheduling model was
developed in 1913 by Ford W. Harris and has been refined over time. The formula
assumes that demand, ordering, and holding costs all remain constant.

• Formula for Economic Ordered Quantity :- Q = √2DS/H

Where, Q= EOQ units
D= Demand in units ( typically on annual basis )
S = Order Cost ( per purchase order)
H = Holding costs (per unit, per year )

• Assume, for example, a retail clothing shop carries a line of men’s jeans, and the
shop sells 1,000 pairs of jeans each year. It costs the company Rs. 5 per year to
hold a pair of jeans in inventory, and the fixed cost to place an order is Rs.2.
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• The EOQ formula is the square root of (2 x 1,000 pairs x Rs2 order cost) / (Rs5
holding cost) or 28.3 with rounding. The ideal order size to minimize costs and
meet customer demand is slightly more than 28 pairs of jeans. A more complex
portion of the EOQ formula provides the reorder point.

Q3. Many business organizations have operations in which inventory

management is a daily and constant process. Managing a production setup
(say an automobile manufacturing or service shop) is one such business,
wherein the procurement and managing various inventory is a very strategic
process. Explain the following concepts (with atleast one example) in the
Operations of the business, and conclude how relevant is it in the business?

Ans3. The quality gurus provided alternative approaches to build quality into the products
and services that a company offers. The critical differences in their approaches stem from
their definition of quality. For instance, Deming’s emphasis on process improvements and
use of statistical process control charts (SPC) clearly point to a definition of quality that is
linked to specifications.4 On the other hand, Taguchi’s loss function or Juran’s notion of
“fitness for use” extends the definition of quality to a larger domain. Therefore, it is important
to understand the various definitions of quality and the implications of these alternative
definitions.

• Conformance to Specifications. The easiest definition of quality is conformance

to specifications. This definition focuses on the manufacturing process and
motivates the quality manager to develop mechanisms for ensuring that
specifications are met with. Every component of a manufactured product has
specifications. As long as the specifications are met, it is assumed that quality
objectives are met with. Such a definition is very crucial for a manufacturing
firm as it enables the management to develop unambiguous instructions for
the worker on the shop floor to maintain quality. Just as we have
specifications for products, specifications for services can also be developed.
For instance, in a hotel, one could set a specification that check-in of arriving
guests should be done in 3 minutes ± 30 seconds. Or, in a bank, the time for
servicing a customer at the teller’s counter could be specified and the process
monitored and controlled to meet this specification.
• Fulfilling Customer Needs . In the previous definition of quality, we made an
important assumption that the specifications are right. Consider a twowheeler
such as the Kinetic Nova. Let us assume that the specifications include an
overall weight of 115 kg, a height of 42 inches, and so on. If the
manufacturing process is able to ensure that the scooters manufactured meet
these specifications, have they met the quality objectives? The answer
depends on whether they met the customer needs: If the customers have felt
a strong need for a lighter scooter (less than 95 kg), with moderate height
(less than 40 inches) then perhaps the scooter is not of good quality.
Therefore, this definition of quality focuses not merely on the manufacturing
process but also on the process of arriving at the specifications themselves. It
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emphasizes the need to have a system of collecting information regarding
customers’ perceptions about the product and preferences before the
specifications are arrived at.
• Fitness for Use. Quality can also be defined as “fitness for use”. Such a
definition of quality demands that an organization understands the preferred
methods of use by prospective customers over an extended period of time. In
order to develop this understanding, an organization needs to focus on
customer relationships, the design, and the manufacturing processes. A
variation of this definition is minimizing the loss to society. This definition of
quality emphasizes a life-cycle approach to building quality. Ensuring quality
in this manner also demands that considerable efforts are made at the
concept and design stages of a product.

Various dimensions of quality are as follows :-

Performance
• Performance has to do with the expected operating characteristics of a
product or service. Does a service or product do what it’s supposed to do?
The primary operating characteristics involve measurable elements, which
makes it easier to objectively measure the performance.

• Some of the performance requirements are related to subjective preferences,

but when they are the preference of almost every consumer they become as
powerful as an objective requirement.

Features
• What the dimension ‘performance’ doesn’t focus on are the features, the
characteristics that decide how appealing a product or service is to the
consumer.

• Such features are the extras of a product or service and complement its basic
functioning. This means that the ones designing a product or service should
be familiar with the end-users and should be updated on developments in
consumer preferences. Often it’s difficult to see a clear line between primary
performance attributes and additional features.

• An example of features in service is offering free drinks on a plane. An

example of features in products is adding a drink cooler in the car.

Reliability
• Reliability is usually closely related to performance. The focus of the
dimension reliability is more on how long a product will perform consistently
according to the specifications of that product. This is important to customers
who need the product to work without any errors and contributes to a brand or
company’s image.
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• For example, for parents with children who depend on a car, the reliability of
the car becomes an important element. Also for most farmers, reliability is a
key attribute.

Conformance
• This dimension is closely related to the dimensions performance and features.
The dimension of conformance is about to what extent the product or service
conforms to the specifications. Does it function and have all the features as
specified? Every product and service has some sort of specifications that
comes with it.

• For example, the materials used or the dimensions of a product can be

specified and set as a target specification for the product. Something that can
also be defined in the specification is the tolerance, which states how much a
product is allowed to deviate from the target. Problematic with this approach is
that it makes it easier for producers to focus less on if the specifications have
been met as long as they’ve met the tolerance limits.

Durability
• Out of the eight dimensions of quality, the dimension durability is about how
long a product will last or perform and under what conditions it will perform.
Estimating the length of a product’s life becomes complicated when it’s
possible to repair the product.

• For example, is the case when a light bulb burns up and must be replaced by
a new one. In this case, repairing it is impossible.

Serviceability
• Serviceability is one of the eight dimensions of quality that reflects on if the
product is relatively easy to maintain and repair. This becomes important for
consumers who are more focused on the total cost of ownership as criteria for
selecting a product.

• For example, there are companies that do their best to resolve the complaints
they receive, while others don’t offer any service when it comes to complaints.
An example of improving a company’s serviceability is by installing a cost-free
phone number to reach the helplines.

Aesthetics
• The aesthetics dimension is all about the way a product looks and contributes
to the company’s identity or a brand. Aesthetics is not only about how a
product looks but also about how it feels, tastes, smells or sounds.

• This is clearly determined by individual preference and personal judgement,

however, there is a way to measure this dimension. There are some clear
patterns found in the way consumers rank products based on personal taste.
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Still, the aesthetics of a product is not as universal as the dimension
‘performance’.

Perceived Quality
• The perception of something is not always reality. Meaning that a product or
service can have high scores on each of the seven dimensions of quality, but
still receive a bad rating from customers as a result of negative perceptions
from customers or the public.

• Customers sometimes lack information about a service or product and for

comparing brands will rely on indirect reviews. This is usually the case when it
comes to a product’s durability because in most cases it can’t be observed
directly.

Q1. What are various decision criteria for deciding a location for a business
setup? Explain these decision criteria with reference to a location decision for
setting up a textile manufacturing plant. (10 Marks)

Ans1.

Area choice: For setting up a partnership, one wishes legitimate area to open the
plant for creation. Concluding the area of a business is an indispensable component
of office arranging as it influences the expense, accomplishment, and productivity of
a company. Scanning out a spot for the business is a basic determination and should
be taken with sharp consideration. Therefore, area decision implies tracking down a
brilliant district for introducing a plant or office for assembling labor and products.
Different names for place choices are page area and Facility area. Typically, the
locale choice incorporates:

• Choices with respect to setting up another plant.

• Migration of a current plant.

• Development of the current plant.

The purpose for the decision of plant area is the making of availability for
representatives, materials, transportation, laborers, and numerous others. This
choice relies upon factors influencing the undertaking in the long and brief run.
These variables incorporate environment circumstances, resources, client nearness,
and work.

Idea and application:

Deciding the region for a business is an indispensable piece of tasks control. A

horrendous area for the business can influence the business adversely to a top
notch degree. In this way, an organization should notice the legitimate determination
models for picking a business region. Permit us to perceive the determination
principles for recognizing area for a business set up regarding the matter of a
material assembling plant.
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● Accessibility of Raw Material: One of the greatest fundamental norms for
choosing an area is to test whether or not the plant place has smooth admittance to
natural substance. Having a spot with clean admittance to natural substances can
offer the organization the main increase of much lower transportation expenses.
Having fabric for a drawn out away makes the shade of the material disappear.
Likewise, the quick trade in design powers a firm to protect considerably less texture
in stock with the goal that the association doesn't have overabundance unfortunate
unrefined substance away at the hour of progress in style.

● Closeness to showcase: Production or assembling of labor and products really

does never again fill any need and has no worth on the off chance that it isn't
consumed by utilizing the clients. Consumption privileges here way a market which
sells and things to the buyers. In this way, a plant can't successfully exist without a
market. For example, a texture fabricating organization can't accomplish satisfaction
disregarding the ongoing period of the commercial center, new regions, capacity
development, and the contenders' region. Further, assuming the material creation
industry is pondering trading the last right, it needs to check for the inventory of
handling offices.

● Infrastructural offices: Each industry depends upon the infrastructural focuses in

one of a kind methodologies, yet the accessibility of infrastructural focuses carries
out a basic role in deciding the locale of a venture. Numerous infrastructural offices
include transport, water, banking, correspondence, power, and so forth. For
instance, for a texture creation plant, in the event that there might be less openness
to energy in a specific spot, it will probably be trying for the maker the run-up the
machines. It will burn through a lot of cash on generators, and so on.

● Government inclusion: To promote close by adjusted improvement, the public

authority gives phenomenal concessions, charge discounts, motivations, etc. to set
up the assembling plant in reverse and less created locales. The material creation
plant can exploit these arrangements as the development of clothing requires hand-
made work and ability, which should be visible in people living in reverse regions.

● Accessibility of Manpower: Another thing influencing the region determination for

setting up a business is the accessibility of the labor force around there. An
association needs to check whether or not the areas in decision have the right,
proficient, and required labor force accessible. An organization can gain data
concerning this from the enterprises previously existing in one's locales. Likewise, an
organization might see whether it needs sensibly valued efforts or in fact
predominant work, etc. for instance, for the setting up of a texture creation plant, in
the event that the producer needs workers with weaving capacities, and so on, he
can cross for rustic locales as the one's regions can give the predetermined efforts in
overflow.

● Resistance: Revenue of firms like retail associations, and so on, depend on the
level of rivalry close to them. Subsequently, the area choice for such kind of
associations depends on the contenders nearby. Further, for the material assembling
industry, the scope of contenders close to the plant likewise plays a significant
position. The texture maker will attempt to search for a region with no or many less
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contenders because of the reality style industry proceeds to change, and there might
be extreme rivalry in this industry.

Conclusion:

With the exception of the above-noted norms for the decision of an individual for
setting up a business, there are other various variables influencing the choice,
including climatic circumstances, political circumstances, motivators, subsidies, land
costs, and so on. An association should keep everything in thought while picking the
area for setting up the business.