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Dr. M. Ahsan Akhtar Hasin IPE Depallnent, BUET

Chapter 1
Introduction to Operations Management
Dr. Md. Ahsan Akhtar Hasin
Professor,
Industrial and Productjon Engineering, BUET.

Definition

Operations Management (OM) may be defined as the design, operations and improvement of
the prcduction systems that crcate the organization's p mary prcducts or senices.

Like marketing and finance, it is a function requiring Line Management Responsibility. This
is a clear-cut functional field of business. This point is important, because operations
management is tlequently confused with operations research (OR) or, management science.
The essential difference is that OM is a field ofmanagement, while OR is the applications of
quantitative (mathematical) methods to decision making in al1 fields.

The operations strategy needs to be developed in-line u,ith overall coeorate strategy. The
operations strategy specifies how the firm will employ its prcduction capabilities to suppoft
ma*eting, sales, customer service, etc., taking help fiom procurement, quality inspection etc.
It also proves that ultimately this depattment can not perform alone. It has to opemte with
close cooperation with other departments.

Operations (P(oduction) planning and control is basically a short-tem decision. It has to plan
and manage 5P's, related to core opeBtion, or production. The 5Ps are:

1. Plant P.oduction factory, where actual prodLlction takes place. This requires
implementation of production plan and execution. Execution rcquires operations
scheduling of machineries and manpower.

2. People - Large number of personnel, including workers, supervisors, product and

process engineeis, managers, etc. need to scheduled on a short term (e.g. daily) and
medium-term (weekly, monthly) basis. Long-term planning may also be required in
case of probable future expansion of product-line.

3. Palts - This lypically means raw materials and/or components from which the
Finished Coods (FG) are produced. Production planning involves appropriate parts
(materials) planning for "availability" (on-time) and appropriate quantity, such that
production is never delayed. Pafts work as the main input to a production system.
However, materials (Pafis) planning involves management offinished good also.

4. Processes A production system requires many different kinds of machineries for

processing ofmaterials in order to convert those to finished goods_ Machine capacity
is important for timely production ofproducts. Allocation of sufficient machine-houn
is a must.

5. Production Planning and Control (PPC) As the 5th P, an integrated production

planning and control system is essential which integrates all other 4Ps. When,
production planning prepares plan for other 4Ps, 'Control' function controls the
execution ofintegrated plan. Thus, it functions as the integrator ofother 4Ps.
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Dr. M. Ahsan Akhtar Ha:in IPE Departme t, BUET

A schematic diagam of 5P view of operations management is given belo\!. ln fact, this

figure gives a better view than text-description, becaLlse it shows the interactions of the
functions.

5 P view ofOperations Management

Inputs Outputs
Materials, Products/
coIrcepts Production Planning and Control system Services

mr--->
Transfonnation

Production Systems

The heafi of OM is the management of production system. A production system uses

operations resources to tlansform inputs to outputs. However, different types oforganizations
use different types of inputs, since their operations are different. The operations ofa hospital
and those of a ceramic industry are totally different. Again, the operation of a retail
organization is again different. Transportation operation is also djfferent fiom any production
operation. We must make it clear that the scope of operations managemeflt does not inc]ude
only tangible production type ofindustry, but also other service type oforganizations too.

The operations, unde. the scope ofoperations Management (OM), can be broadly discussed
under six catego es, or six type of "Tran sformation" process :

1. Physical (as in manufacturing) - This is mainly found in tangible manufacturing

operations, or processes, which take place in the Shop Floor production floor) of
production industry. Here, physical changes take place in raw materials, and finally
finished goods are produced.

2. Location (as in transportation) - This is a major suppofiive transformation or

opentjon, which basically includes "Logistical" transportation, or movement of
materials fiom source to destination. Raw materials need to be transported from
suppliers to manufacturing plant, and finished goods need to be transported from
manufacturing plant to custome$ through distribution channel. This is an important
part of Supply Chain. Because of rapidly growing importance, and scope of this
activity, a separate course is ofteo found in many disciplines.

3. Storage (as in warehousing) This tlpically involves Warehousing, or storage, or

materials management. Inventory (or stock) is important to support timely production
ofproducts. This is another important part ofl-ogistics, or supply chain. Amount of
storage or inventory must be planned carefully, because a huge sum ofmoney remains
attached to large amount of stock. Materials are stoaed approp ately such that
materials storage and refrieval dose not take long time.
Dr. M Ahsan Akhtat Hasin IPE Department, BUET

4. Exchange (as in retailing) This operation is involves exchanging products, materials

with money between two consecutive members in a supply chain. The most frequent
exchanges can be found in "Retail business:. In retail shops, although volume of
products in each transaction is generally low, its frequency is very high, and
continuous.

5. Physiological (as in Healthcare) - Healthcare operations (it includes neither the

diagnosis technique, nor doctoral analysis, it simply means management of the
hospital as an organization) were typically under the scope ofoperations management.
But with growing importance of this area of ktowledge, it has been sepa.ated from
operations management.

6. lnformation (as in functional communication) Now-a-days, integrated

communication! among all functions inside the industry, and with extemal
organizations (including suppliers and dist bution centers, retailers, customem) is a
must. Nobody can imagine an organization, without the application of integrated
information system, aided by ERP (Enterprise Resource Planning) systems, EDI
(Electronic Data Interchange), telecommunication, internet. etc. E-Commerce is
gradually taking bigger role in sales.

Business/Operational Processes

A business process, or operation is a series of activities an organization must pedorm to

produce a product, or service. It is a function ofthe organization. Sol,e are big functions,
some are small firnctions. Some examples include; opening a bank account, selling air tickets,
manufactu ng operations, etc. Some business or operational processes may simply perfom,
or act as support element of prodLlcing product or seryice, such as recruitment, payroll,
marketing processes, purchasing, etc.

Manufacturing Vs. Serwice

Organizations can be bioadly categorized into two:

Manufacturing - Those organizations, which produce "Physical tangible goods,,are called

manufacturing organizations. It has less involvement/contact with the customers (consume$).
Manufactures themselves may provide many services to customers as part ofthe product (i.e.
a package in fact).

Service -Service organizations create in-tangible offerings to the customers, requiring more
contact with the customers (consurners); e.g. hotels, hospitals. etc.

Productivity
It is a measure of how well a company is using its resources. Productivity can also be defined
as an average measure of the efficiency of production. It can be expressed as the ratio of
output to inputs used in the production process, i.e. output per unit of input. Thus,
productivity is defined as -

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Dr. M Ahsan Akhtat Hasin IPE DepartmenL BUET

Output
Input

For profitability, productivity must be greater than I. Productivity lower than 1 means that
the oiganization is not profitable, or it is a loosing concem. Inputs and outputs are measured
in monetary terms.

Ptoduoi|ily: Output Goods a d Senices produced

Input Labor + Capital + Mateials + Enetg/

Wlen all outputs and inputs are included in the productivity measure it is called.,total
producti\)iry". Outputs and inputs are defined in the total productivity measure as their
economic values. The value of outputs minus the value ofinputs is a measure ofthe income
generated in a production process. lt is a measure oftotal efficiency of a production process
and as such the objective to be mfiimized in production process.

Productivity measures that use one or more inputs or factors, but not all factors, are called
"pdrtial productivity". A common example in economics is labor p.oductivity, where only
one input is "Labor", or Labor-hou$.

A numerical example follows:

outouts value Productivity measures

Finished Goods $10,000
Work in process $ 2,500
Other income $ 1,000
Totaloutputs $ 13,500
ToraloJmul
r l3-500
Inpuls ' ---:
lolal PtotlurtiviN
Totallnput
--:-:: -0.89
15193
89o"

Human $3000
Materials $153
Capital $10,000
Energy $540
Other Expenses $1500
Totalinputs $15,193

Types ofManufacturing Operations / Processes

1. Converion Operations / processes - Examples are changing iron ores into sheets thrcugh
melting operation, making toothpaste from multiple ingredients. Here. properties of
materials change drastically.

2. Fabrication Operations / processe! - Examples are changing raw materials into some
specific form, such as bending an iron tube for making the &ame of a chair, making a
drill,4role in the steel sheet, etc. Here, no major change, in tems ofproperties, take place in
the material, rather only forms change.

3. Assembly Opemtions / Processes - Assembly operation tlpically means joining several

components into one combined subassembly. This joining process can be done in many

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Dr. M. Ahsdn Akhtar Hasin IPE Depa menl, BUET

ways, such as putting glue, welding, putting screw! sewing, etc. Examples of assembly
operations include assembling components for making television, assembling parts for
making a computer, sewing a pocket into the main body ofa shirt, joining an iron frame as
the leg ofa chair, etc.

4. Testing Operations / Processes - This is a special type of opemtion, generally perfomed

for quality verification, inspection and test ofperformance, etc.

Process Flow chart / structure

A"PlocessJlot) chart or stlucture" rclers to how a factory organizes material flo\l, using a
graphical flow chart.

A function or a task is composed ofmany small activities/operations. A process flow chart is

the representation ofthe direction of flow ofmaterials or the sequential steps ofoperations to
perform the function. It uses some predefined symbols, which are globally recognized. The
symbols are suggested by the American Society of Mechanical Engineers (ASME). The
s),mbols are used to denote what happens to the function or the product when it progrcsscs
through the shop floor.

The chart is a useful tool for process/operation analysis and subsequent improvement.
However, it is not that a process flow chart is created only for production operation, but for
any service operation also.

An example ofa typical process flow chart ofa service organization, a bank, is shown below,
where a common banking function - "Withdrawal ofmoney fiom an account,! is shown.

Bank cheque submitted

?
5 sec
to officer

15 sec
E Officer log in computer and
verifies account status

20 sec
3 Officer debits money
from account
Standard symbols:
25 sec
I
? OtEcer processes the
cheque and keeps record
O- operation, o,
main activity

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lol
Cheque sent to higher officer for Transportation, or
counter-verifi cation and approval movement

I Money taken from !<- hspection or

veriJication

Y-\
storage

Money given to account V- s,otug"

holder

vI Processed cheque kept in file

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Dr. M. Ahsan Akhtar Ilasin IPE Departnent- BUET

Types of Production Systems

Therc are various types of production systems. They may be classified, based 0r rlany
c teria.

There are fourt)?es ofproduction / manufactu ng systems based on process flow structurc:

1. Job Shop Production of small batches of a large number of different products, most of
which require a different set of sequence ofprocessing steps- Commercial printing firms,
machine tool shops, tailor shops, small fumiture shops making fumiture from individual
customen, are some examples ofjob shop.

Different custome.s submit different orders, where each order has its own process flow
chart. Many such orde$ may remain under processing simultaneously in the shop floor.
Here, mostly customized products are produced in small lots.

2. Batch - Essentially, it is partly similar to job shop in the sense that products are produced
in batches, and different orders will have differcnt operations flow. Nevertheless, it is
distinctly different from a Job Shop, because ofthe following differences

Job shoD Batch system

Product va ation is hiqh Product variation is low
Production batch size is verv small Production batch size is very large

In majority ofthe cases, batch type system is not customer order based. Some examples
arc: Pharmaceuticals, gaments, barlk note printing, etc.

Such a structure is generally employed when a business has a relatively stable line of
products, each of which is produced in periodic batches, either to customer order (e.g.
garments), or for inventory (e.g. pharmaceutical, bank notes, etc.).

Assembly line - P.oduction ofdiscrete parts (which can be separated from each other and
are distinctly countable) moving from workstation to workstation along a predefined path
at a controlled rate. Examples include manual assembly oftoys, television, motor cycles,
etc. Assembly of television or appliances requiies insedion of components on a printed
circuit board. This type ofassembly line needs capacity balancing at each operational step,
such that bottleneck is not fieated.

4. Continuous Flow - In this case also, production continues along a much defined path, and
generally no deviation is allowed. The materials or ingredients must flow continuously
without interuption.

Such systems are highly automated and continue production 24 hours a day, without any
shutdown. Any interruption may be highly expensive, which may lead to wastage oflarge
amount of materials in the pipeline. Some examples arc. Petroleum refinery, sugar,
chemical production (like cosmetics). Herg not only production process is continuous, but
also products are by nature continuous, which can not be counted. Prcduction is measured
by volume, not by number.

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Dr. M. Ahsan Akhtar Hasin IPE Department, BUET

Production or manufacturing systems may again be classified into lour types based on
customer ordedng policy or system. The following section explains 3 of them which are
commonly found:

l. Make-to-Order O{TO) lt is a manufactuing process in which manufactu ng stafts only

after a customer's order is received. Here complete production starts, ght from
components produced from raw materials, up to finished good, only alter receiving the
customer order. The products are produced according to customer specifications. or
design. Some examples are: tailor shop, fumiture. etc. In many cases, not only the desig[
but also the raw materials are supplied by the customer, such as in a tailor shop.

This creates additional wait time for the consumer to receive the product, but allows for
more flexible customization compared to purchasing from retailers'shelves.

2. Make-to-Stock (MTS) ln MTS, products are manufactured based on demand forecasts

quite in advance (before any customer order arrives), and kept in warehouse for future
sale. Herc, generally, the companies produce products according to their oun design;
customers have nothing to do about that. Some examples are: television, ceiling fan, wrist
watch, etc.

Cenerally, these productio. systems produce high volume ofhighly standardized products
(mass production system), to achieve economy of scale. Economy of scale means that
production cost pei unit decreases with increased volume ofproduction.

3. Assemble-to-Order (ATO) It is a production system, where components are produced in

advance to stock, in anticipation of demand. Only tbe final assembly is started after
receiving the customer order, and the assembly is done according to the specification given
by the customer. In other way, it can be stated that the assembleto-order (ATO) stuategy
requires that the basic pads for the product aae aheady manufactured but not yet
assembled. Once an order is received, the parts are assembled quickly and sent to the
customer. For instance, Dell computer follows this system.

The assemble-to-order (ATO) strategy is a hybrid between a make-to-stock strategy -

wherc products are fully produced in advance - and the make{o-order strategy - wherc
products are manufactured once the order has been received. The ATO strategy attempts to
combine the benefits of both strategies - getting products into customers, hands quickly
while allowing for the product to be customizable.

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