Operation Management

Introduction
• Definition
• Operations function and its environments
• Operations objectives
• Operation systems
• The life cycle approach
• Historical development of operations
management
• Productivity and competitiveness
 Organization

Finance Operations Marketing

Three basic functions

– Operations/Production
• Goods oriented (manufacturing and assembly)
• Service oriented (health care, transportation and retailing)
• Value-added (the essence of the operations functions)
– Finance-Accounting
• Budgets (plan financial requirements)
• Provision of funds (the necessary funding of the operations)

– Marketing
• Selling, Promoting
• Assessing customer wants and needs

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 Definition
• Operations Management is:
– A management function
– An organization’s core function
– In every organization whether Service or Manufacturing, profit or
Not for profit

• OM Transforms inputs to outputs

– Inputs are resources such as
• People, Material, and Money

– Outputs are goods and services

• Operations management is concerned with utilizing the resources that
directly produce the organization’s service or product.

• Operations Management is: The management of systems or processes

that create goods and/or provide services

• Operation Management is the set of activities that create goods and

services through the transformation of inputs into outputs

• Operations Management is the management of the conversion process

which transforms inputs such as raw material and labor into outputs in
the form of finished goods and services.

• Operations Management affects:

– Companies’ ability to compete
– Nation’s ability to compete internationally

An organization is judged by how its operations perform and not what the
organization says it is going to do!
• Operations management is very wide in scope of
responsibilities and will draw upon a range of
functions within the organization, not be limited to
a specific department.
• Operations management is concerned with those
activities that enable an organization to transform
a range of basic inputs (materials, energy,
customers’ requirements, information, skills,
finance, etc.) into outputs for the end customer.
• Operations management is defined as the
design, operation, and improvement of the
systems that create and deliver the firm’s
primary products and services.
• In the words of Mr. E.L. Brech: “Production and Operation
Management is the process of effective planning and regulating the
operations of that section of an enterprise which is responsible for
the actual transformation of materials into finished products”.
• Production and Operation Management deals with decision making
related to production processes, so that the resulting goods and
services are produced in accordance with the quantitative
specifications and demand schedule with minimum
cost.(According to this definition design and control of the
production system are two main functions of production and
operation management.)
• Production and Operation Management is a set of general
principles for production economies, facility design, job design,
schedule design, quality control, inventory control work study and
budgeting control. (This definition explains the main areas of an
enterprise where the principles of production and operation
management can be applied.)
 Scope of Operations Management

• Operations Management includes:

– Forecasting
– Capacity planning
– Scheduling
– Managing inventories
– Assuring quality
– Motivating employees
– Deciding where to locate facilities
– Supply chain management
– And more . . .
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 Key Elements of Operations
Management
• Product selection and design
• Process selection and planning
• Facilities (Plant) location
• Facilities (Plant) layout and materials handling
• Capacity Planning
• Production Planning and Control
• Inventory control
• Quality assurance and control
• Work-study and job design
• Maintenance and replacement
• Cost reduction and cost control
 Types of Operations

Operations Examples
Goods Producing Farming, mining, construction ,
manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites

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 OPERATION FUNCTION
• OM’s function focuses on adding value through
the transformation process (technical core) of
converting inputs into outputs.
• The operation function of an organization is the
part that produces the organization’s products.
• The product may be physical goods or services.
This function performs several activities to
‘transform’ a set of inputs into a useful output
using a conversion process.
 Basic Functions of Operations
Management
• Planning u Controlling
– Capacity, utilization – Inventory
– Quality
– Location
– Costs
– Choosing products or Organization
u
services
– Degree of standardization
– Make or buy
– Subcontracting
– Layout – Process selection
– Projects u Staffing
– Scheduling – Hiring/lay off
– Market share – Use of overtime
– Plan for risk reduction, – Incentive plans
plan B?
– Forecasting
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OM’s Transformation Process/System

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 Goods vs Service
Characteristic Goods Service
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Output Tangible Intangible
Measurement of productivity Easy Difficult
Opportunity to correct problems High Low
Inventory Much Little
Evaluation Easier Difficult
Patentable Usually Not usual 1-18
 Food Processor
Inputs become Outputs after some Transformation (Process or Operation)
Food processing example:

Inputs Transformation Outputs

Energy, Raw vegetables Cleaning Clean vegetables

Energy, Metal sheets Cutting/Rolling/Welding Cans

Energy, Vegetables Cutting/Chopping Cut vegetables

Energy, Water, Vegetables Cooking Boiled vegetables

Energy, Cans, Boiled vegetables Placing Can food

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 Hospital Process
Table 2

Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy

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 Today’s OM Environment
• Customers demand better quality, greater speed,
and lower costs
• Companies implementing lean system concepts
– a total systems approach to efficient
operations
• Recognized need to better manage information
using Enterprise Resource Planning and CRM
systems
• Increased cross-functional decision making
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 This basic model can be expanded

The final, completed

Transformation Inputs product/service offering
• Capital Transformation of for the customer.
• Technology Inputs, adding value Tangible and intangible
• Energy throughout the entire elements, combining
• Know-how process from basic physical & psychological
• Experience inputs to finished effects & benefits for the
goods and services customer are in place for
Inputs: in the final transaction.
• Materials Services & production
• Customer Information operations have become
linked.

INPUTS TRANSFORMATION OUTPUTS

FEEDBACK
The combination of manufacturing
and service operations for the customer
 Objectives of Production and Operation
management
• Producing the right kind of goods and services that satisfy
customers’ needs (effectiveness objective).
• Maximizing output of goods and services with minimum
resource inputs (efficiency objective).
• Ensuring that goods and services produced conform to pre-
set quality specifications (quality objective).
• Minimizing throughput-time- the time that elapses in the
conversion process- by reducing delays, waiting time and
idle time (lead time objective).
• Maximizing utilization of manpower, machines, etc.
(Capacity utilization objective).
• Minimizing cost of producing goods or rendering a service
(Cost objective).
The objectives of production management are “to
produce goods and services of the right
quality, in the right quantities, according to
the time schedule and a minimum cost”.
 Historical Evolution of Operations
Management
• Industrial revolution (1770’s)
• Scientific management (1911)
– Mass production
– Interchangeable parts
– Division of labor
• Human relations movement (1920-60)
• Decision models (1915, 1960-70’s)
• Influence of Japanese manufacturers (JIT/TQM)

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• Manufacturing Management:
In 1776 (Adam Smith; Wealth of Nation)- introduced the concept of traditional
manufacturing management. (Division and Reassigning of Work to workers in
order to make them skilled and efficient in their jobs)
In 1900 (F.W. Tailor; Scientific Management Theory)- concept of Scientific
Management System:
• Science, not rule of thumb
•Cooperation, not individualism
•Harmony, not conflict
•Development of Workers
• Production Management: During 1930s to 1950s ( Development
of many techniques for elimination of waste and increasing efficiency in
manufacturing activity/ behavioral, sociological, psychological factors to make
good environment)
• Operation Management:
Since 1970s; Manufacturing and service sectors
Operation management focuses more in service sectors
 Historical Development of OM

• Industrial revolution Late 1700s

• Scientific management Early 1900s
– Hawthorne Effect 1930s
• Human relations movement 1930s-
• Management science 1940s-
• Computer age 1960s-
• Environmental Issues 1970s-
• JIT & TQM* 1980s-

*JIT= Just in Time, TQM= Total Quality Management

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 Historical Development con’t

• Reengineering 1990-
• Global competition 1980-
• Flexibility 1990-
• Time-Based Competition 1990-
• Supply chain Management 1990-
• Electronic Commerce 2000-
• Outsourcing & flattening of world 2000-
For long-run success, companies must place much importance on their operations

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 OM in Practice
• OM has the most diverse organizational function
• Manages the transformation process
• OM has many faces and names such as;
– V. P. operations, Director of supply chains, Manufacturing
manager
– Plant manger, Quality specialists, etc.
• All business functions need information from OM in
order to perform their tasks

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Business Information Flow

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 OM Across the
Organization – con’t
• Marketing is not fully able to meet customer needs if they do
not understand what operations can produce
• Finance cannot judge the need for capital investments if they do
not understand operations concepts and needs
• Information systems enables the information flow throughout
the organization
• Human resources must understand job requirements and worker
skills
• Accounting needs to consider inventory management, capacity
information, and labor standards

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 Functions and Responsibilities of
Production & Operation manager
• 1. Planning the geographical location of the factory;
• 2. Purchasing production equipment;
• 3. Layout of equipment's within the factory;
• 4. Product Design;
• 5. Establishing the work standards;
• 6. Capacity Planning;
• 7. Production Planning and scheduling;
• 8. Inventory Management;
• 9. Supply Chain Management;
• 10. Quality Control;
• 11. Industrial Relations;
• 12. Budgeting and capacity planning;
• 13. Monitoring of productivity
Some of the major responsibilities of a
production manager are:
(1) Production planning
(2) Production control
(3) Quality control
(4) Method analysis
(5) Inventory control
(6) Plant layout
(7) Work measurement and
(8) Other functions:
 (1) Production planning:

• Production planning is the first function performed

by the production manager.

• Production planning is concerned with thinking in

advance what is to be produced, how it is to be
produced and by what time should it be produced.
• It is concerned with deciding about the production
targets to be achieved by keeping in view the sales
forecasts.
 (2) Production control

• Production planning cannot be properly achieved

without an effective system of production control.
• It is in fact concerned with successful
implementation of production planning.
• It aims at completing production well in time and
also with lesser costs.
• A proper system of production control ensures
continuous production, lesser work-in-progress
and minimization of wastages.
 (3) Quality control

• Quality control is concerned with controlling

the negative variables which affect the ultimate
quality of a product.
• It is concerned with use of all the ways and
means where by quality standards could be
maintained.
 (4) Method analysis
• There are many alternative methods for manufacturing a
product. Some methods are more economical than others.

• The production manager should study all the methods in

detail by analyzing them in detail and select the best
alternative out of them.

• The process of selecting the best alternative is known as

methods of analysis.

• Methods of analysis are considerably helpful in minimizing

the cost of production and improving productivity of the
concern.
 (5) Inventory control

• The next important function to be carried by a

production manager is to exercise proper
control over the inventory.
• Manager should determine economic order size,
maximum, minimum, average and danger
levels of materials so that problems of
overstocking and under stocking do not arise.
• This also helps in minimizing wastages of
materials.
 (6) Plant layout

• Plant layout is primarily concerned with the

internal set up of an enterprise in a proper manner.
• It is related to orderly and proper arrangement and
use of available resources viz., human, money,
machines, materials and methods of production
inside the factory.
• In other words it is concerned with maximum and
effective utilization of available resources at
minimum operating costs.
 (7) Work measurement
• Work measurement methods are concerned
with measuring the level of performance of
work by a worker.
• Time and motion studies techniques can be
used for work measurement.
• If a worker works below the level fixed by
work-measurement techniques, his/her
performance must be improved through
positive or negative incentives
 Other functions
• The production Department also carries certain
other functions viz.,
- cost control,
- standardization and storage,
- price analysis and
- provision of wage incentives to workers etc.
 WHAT IS PRODUCTIVITY ?

• Productivity is the quantitative relation

between what we produce and what we use as a
source of produce them. So, Productivity is the
arithmetic ratio of output to the amount of input.
• PRODUCTIVITY = Output / Input.
• Productivity refers to the efficiency of the
production system.
 Productivity and Competitiveness
Productivity =Output/Input

Goods or services
= -----------------------------------------------------
-----Capital, manpower, materials, machines
and land and building
 Productivity
Units produced
Productivity =
Input used

 Measure of process improvement

 Represents output relative to input
 Only through productivity increases can
our standard of living improve
 Productivity Calculations
Labor Productivity
Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250

One resource input single-factor productivity

 Multi-Factor Productivity
Output
Productivity =
Labor + Material + Energy +
Capital + Miscellaneous
 Also known as total factor productivity
 Output and inputs are often expressed in
dollars

Multiple resource inputs multi-factor productivity

 Productivity Variables
1. Labor - contributes
about 10% of the annual
increase
2. Capital - contributes
about 38% of the annual
increase
3. Management -
contributes about 52%
of the annual increase
 Key Variables for Improved
Labor Productivity
1. Basic education appropriate for the labor
force
2. Diet of the labor force
3. Social overhead that makes labor
available such as transportation and
sanitation
 Challenge is in maintaining and
enhancing skills in the midst of rapidly
changing technology and knowledge
 Service Productivity
1. Typically labor intensive (teaching, counseling)

2. Frequently focused on unique individual

desires (customer representatives in banks)
3. Often an intellectual task performed by
professionals
4. Often difficult to mechanize
5. Often difficult to evaluate for quality
 Ethics and
Social Responsibility
Challenges facing
operations managers:
 Developing and producing safe,
quality products
 Maintaining a clean environment
 Providing a safe workplace
 Honoring stakeholder commitments
 Measurement Problems
1. Quality may change while the quantity
of inputs and outputs remains constant
(HDTV, iphones)

2. External elements may cause an

increase or decrease in productivity
(using more reliable electric power
system)
3. Precise units of measure may be lacking
• Productivity is defined in terms of utilization of
resources, like material and labour.
• Productivity can be improved by (a)
controlling inputs, (b) improving process so
that the same input yields higher output, and (c)
by improvement of technology.
 Service Productivity
1. Typically labor intensive (teaching, counseling)

2. Frequently focused on unique individual

desires (customer representatives in banks)
3. Often an intellectual task performed by
professionals
4. Often difficult to mechanize
5. Often difficult to evaluate for quality
FACTORS EFFECTING PRODUCTIVITY

1. PRODUCT.
2. PLANT &EQUIPMENT.
3. TECHNOLOGY.
4. MATERIAL & ENERGY.
5. HUMAN FACTOR.
6. WORK METHOD.
7. MANAGEMENT STYLE.
 PRODUCTIVITY IMPROVEMENT TECHNIQUES

1. TECHNOLOGY BASED
2. EMPLOYEE BASED.’
3. MATERIAL BASED.
4. PROCESS BASED.
5. PRODUCT BASED.
6. MANAGEMENT BASED.
 Competitive Dimensions

• Cost
• Quality and Reliability
• Delivery
– Flexibility
– Speed
– Reliability
• Coping with Changes in Demand
• New Product Introduction
– Speed
– Flexibility
 What is automation

It is a technology dealing with the application

of
• mechatronics
• computers
for production of goods and services.
Automation is broadly classified into
• manufacturing automation
• service automation
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 Automation-contd..
• Automation has been defined as “Any
development that may cause employee
displacement”
• Automation may:
o Wipe out certain jobs
o Reduce contents of certain jobs
o Combining several jobs into one.

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 EXAMPLES OF AUTOMATION
• automatic machine tools to process parts-
CNC m/c
• industrial robots

• automatic material handling

• feedback control systems

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 Types of automation

• Fixed automation

• Programmable automation

• Flexible automation

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 Fixed automation

• Fixed automation refers to the use of

custom-engineered (special purpose)
equipment to automate a fixed sequence
of processing or assembly operations.
• This is also called hard automation.
• The primary drawbacks are the large initial
investment in equipment and the relative
inflexibility.
• GE: 2 million light bulbs
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 Fixed Automation
A manufacturing system in which the sequence of
processing (or assembly) operations is fixed by the
equipment configuration
Typical features:
• Suited to high production quantities
• High initial investment for custom-engineered
equipment
• High production rates
• Relatively inflexible in accommodating product
variety
 Programmable automation

• In programmable automation, the equipment

is designed to accommodate a specific class
of product changes and the processing or
assembly operations can be changed by
modifying the control program

• Suited to batch production

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 Programmable Automation
A manufacturing system designed with the capability
to change the sequence of operations to
accommodate different product configurations
Typical features:
• High investment in general purpose equipment
• Lower production rates than fixed automation
• Flexibility to deal with variations and changes in
product configuration
• Most suitable for batch production
• Physical setup and part program must be changed
between jobs (batches)
 Programmable automation contd.
• In programmable automation,
reconfiguring the system for a new
product is time consuming because it
involves reprogramming and set up for
the machines, and new fixtures and
tools.

• Jacquard loom:
The Jacquard machine is a device
fitted to a power loom that simplifies
the process of manufacturing textiles
with such complex patterns as brocade.

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 Flexible automation

• In flexible automation, the equipment is designed

to manufacture a variety of products or parts and
very little time is spent on changing from one
product to another.
• a flexible manufacturing system can be used to
manufacture various combinations of products
according to any specified schedule.
• Customization
• Honda-for production of cars and bikes

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 Flexible Automation
An extension of programmable automation in
which the system is capable of changing over from
one job to the next with no lost time between jobs
Typical features:
• High investment for custom-engineered system
• Continuous production of variable mixes of
products
• Medium production rates
• Flexibility to deal with soft product variety
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Source: www.seas.upenn.edu
 Reasons for automation

• Shortage of labor
• High cost of labor
• Increased productivity
• Competition
• Safety
• Reducing manufacturing lead time
• Lower costs in the long run

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 Automation in Production
Systems
Two categories of automation in the production
system:
1. Automation of manufacturing systems in the
factory
2. Computerization of the manufacturing support
systems
• The two categories overlap because
manufacturing support systems are connected
to the factory manufacturing systems
– Computer-Integrated Manufacturing (CIM)