Session 1: Introduction to OM

Text Book and Readings

• Operations
& Supply Management, Chase R., Shankar R. and Jacobs F.
TMH, New Delhi, 14th edition.

References
• Operations Management, Theory & Practice, by B. Mahadevan, Pearson
Education, 2nd edition.
• Operations Management along the supply chain by Russell and Taylor,
Wiley India Edition, 2012.
• Production & Operations Management : Chari, McGraw Hill
• Service Operations Management-Improving Service Delivery : Robert
Johnston and Graham Clark, Pearson 2e
• Service Operations Management : James Fitzsimmons & Mona
Fitzsimmons, TMH
• Production & Operations Management: Kanishka Bedi, Oxford University
Press, 2nd Ed.
• Magazines: Business World, Business India, Economic Times, HBR
Class Rules
• Exam will be based on examples and cases taken during the session
• Bring your laptops when pre-informed
• Class will be divided into Learning teams, kindly provide me a list
• Provide me with a list of names, email ids and phone numbers of each
students by tomorrow evening in soft copy (For CR)
• Create a Whats app group of section (For CR)
• All assignments should be submitted by end of the working day of the
date provided
• Presentations will not be rescheduled unless preinformed two days in
advance and with genuine reasons
• Project work will not be accepted without proper formatting, turn it
in report
• All class activities may carry marks
-Operations Management is a very important
area of management. All the functional areas
of management are linked to operations
management which is the center for various
activities in an organisation.
 WHAT IS OPERATIONS
MANAGEMENT?
Production is the creation of goods
Operations management (OM) is the set of activities that
create value in the form of goods and services by transforming
inputs into outputs
 Simple Product Supply Chain

Suppliers’ Direct Final

Producer Distributor
Suppliers Suppliers Consumer

Supply Chain: A sequence of activities

And organizations involved in producing
And delivering a good or service
 A Supply Chain for Bread

Stage of Production Value Value of

Added Product
Farmer produces and harvests wheat $0.15 $0.15
Wheat transported to mill $0.08 $0.23
Mill produces flour $0.15 $0.38
Flour transported to baker $0.08 $0.46
Baker produces bread $0.54 $1.00
Bread transported to grocery store $0.08 $1.08
Grocery store displays and sells bread $0.21 $1.29
Total Value-Added $1.29
 Finance

Operations
Management

Marketing Human
Resource
 Manufacturing Sector in India

• WEF ranks India 30th on global manufacturing index; Japan

tops the list

• India’smanufacturing sector is growing, an important

contribution in growth is because of schemes like- Digital India,
Make in India Skill India etc. These schemes have created and is
expected to create many opportunities in both manufacturing &
service sector.

• In
about a year or two, there will be good number of jobs
available in the manufacturing sector
 Service Sector in India

• Thesector is estimated to contribute around 54.0 per cent of India’s Gross

Value Added in and employed 28.6 per cent of the total population.
Case: Narayan Hridalaya
Video: Narayan Hridalaya
• Low cost (around 30 to 40% less) but with no compromise on
quality
• 200 bed hospital has been build on the outskirts (thereby
reducing cost)
• Cutting cost without cutting corner
• In construction floor tiling is of low cost (not of granite)
• Prefabricated material is used to reduce costs
• AC restricted only to operation theaters
• Layout is build in a manner that there is a plenty of scope for
natural light thereby reducing the cost
• Hospital is also open and well ventilated
• They are continuously talking about reducing cost but with no
compromise on the quality
• Patient relatives (care companion) are also involved while
taking care of the patient so it is serving 2 purposes: lowering
cost and also showing compassion
Case: Chitale Dairy
• First of all Chitale dairy focused on the concept of
improving quality at the source
• They put RFID tagging on all the cows and which gave
them information related to cows health, movement and
feeds etc. leading to the understanding of the
requirements of particular animals and improving the
product quality that is milk quality
• They also gathered all the data through virtual centers,
use of big data which helped the farmers to track the real
time information about their animals health, production
of milk and other quality parameters. Also, it helped the
company to track production quantities as well as health
of the animal, quality of the milk etc., thereby overall
improvement
Organizational Charts
Organizational Charts
FT is a firm that must double its contribution to profit in
order to purchase next generation of production
equipment.

Failing to do so will make the firm out of business

because bank will not provide loans for purchase of new
equipment which will reduce its market share
Table below shows a simple profit-and-loss statement and two strategic options
(marketing, and operations) for the firm. The first option is a marketing option , where
excellent marketing management may increase sales by 50%. By increasing sales by
50%, contribution will in turn increase 71%. But increasing sales 50% may be difficult; it
may even be impossible. Options for Increasing
Contribution
SALES OPTION OM OPTION

INCREASE REDUCE
SALES PRODUCTION
CURRENT REVENUE 50% COSTS 20%
Sales $100,000 $150,000 $100,000

Cost of goods –80,000 –120,000 –64,000

Gross margin 20,000 30,000 36,000

Fix costs –6,000 –6,000 –6,000
Subtotal 14,000 24,000 30,000
Taxes at 25% –3,500 –6,000 –7,500
Contribution $ 10,500 $ 18,000 $ 22,500
Copyright © 2017 Pearson Education, Inc. 1 - 20
 What is the impact of only a 15% decrease in
costs in the OM option?

Copyright © 2017 Pearson Education, Inc. 1 - 21

 Options forMARKETING
Increasing
OPTION OM OPTION
Contribution
INCREASE REDUCE
SALES PRODUCTION
CURRENT REVENUE 50% COSTS 15%
Sales $100,000 $150,000 $100,000

Cost of goods –80,000 –120,000 –68,000

Gross margin 20,000 30,000 32,000

Fix costs –6,000 –6,000 –6,000
Subtotal 14,000 24,000 26,000
Taxes at 25% –3,500 –6,000 –6,500
Contribution $ 10,500 $ 18,000 $ 19,500

Copyright © 2017 Pearson Education, Inc. 1 - 22

Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to save time. Some
improvements:
Stop requiring signatures Saved 8 seconds
on credit card purchases per transaction
under $25
Change the size of the ice Saved 14 seconds
scoop per drink
New espresso machines Saved 12 seconds
per shot
Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Operations improvements have
helped StarbucksSaved
Stop requiring signatures increase yearly
8 seconds
revenue per outlet
on credit card purchases bytransaction
per $250,000 to
under $25 $1,000,000.
Change the size Productivity
of the ice has improved
Saved 14by about
seconds
scoop 4.5% per year. per drink

New espresso machines Saved 12 seconds

per shot
 Ten OM Functions
DECISION

1. Design of goods and services

2. Managing quality
3. Process and capacity strategy
4. Location strategy
5. Layout strategy
6. Human resources and job design
7. Supply-chain management
8. Inventory management
9. Scheduling
10. Maintenance
The Strategic Decisions
1. Design of goods and services
▶ Defines what is required of operations
▶ Product design determines quality,
sustainability and human resources
2. Managing quality
▶ Determine the customer’s quality
expectations
▶ Establish policies and procedures to
identify and achieve that quality
The Strategic Decisions
3. Process and capacity design
▶ How is a good or service produced?
▶ Commits management to specific
technology, quality, resources, and
investment
4. Location strategy
▶ Nearness to customers, suppliers, and
talent
▶ Considering costs, infrastructure, logistics,
and government
The Strategic Decisions
5. Layout strategy
▶ Integrate capacity needs, personnel levels,
technology, and inventory
▶ Determine the efficient flow of materials,
people, and information
6. Human resources and job design
▶ Recruit, motivate, and retain personnel with
the required talent and skills
▶ Integral and expensive part of the total
system design
 The Strategic Decisions
7. Supply chain management
▶ Integrate supply chain into the firm’s strategy
▶ Determine what is to be purchased, from
whom, and under what conditions
8. Inventory management
▶ Inventory ordering and holding decisions
▶ Optimize considering customer satisfaction,
supplier capability, and production schedules
The Strategic Decisions
9. Scheduling
▶ Determine and implement intermediate-
and short-term schedules
▶ Utilize personnel and facilities while
meeting customer demands
10. Maintenance
▶ Consider facility capacity, production
demands, and personnel
▶ Maintain a reliable and stable process
 Oppurtunities

• Plant Manger
• Operations Analyst
• Quality Manager
• Supply Chain Manger
• Process Improvement Consultant
Certifications
▶ APICS, the Association for Operations
Management
▶ American Society for Quality (ASQ)
▶ Institute for Supply Management (ISM)
▶ Project Management Institute (PMI)
▶ Council of Supply Chain Management
Professionals
▶ Charter Institute of Procurement and Supply
(CIPS)
Historical Development of Operations
and Supply Chain Management

Manufacturing strategy developed

Late 1970s
Just-in-time (JIT) production pioneered
Early 1980s by the Japanese
Mid 1980s Service quality and productivity
Total quality management Early 1990s
(TQM) and Quality certification Six-sigma quality
programs Mid 1990s Supply chain
Business process reengineering management (SCM)
Late 1990s
(BPR)
Electronic commerce
Early 2000s Service science

Mid 2010s
Business analytics
Current
Industry 4.0, IOT,
3D Printing,
Sustainability