Operations Management

Lec-1
 Evolution of POM

Steam engine in 1764

spinning jenny
Cartwright’s ‘power loom
Maudsley’s ‘screw cutting lathe’
Interchangeable parts 1790

Source: Hopp & Spearman

 Historical summary of OM

Chase & Jacobs

 Historical summary of OM(contd.)

Chase & Jacobs

Source: heizer & render
 Why Study OM?
🗹 OM is one of three major functions
(marketing, finance, and operations) of any
organization
🗹 We want (and need) to know how
goods and services are produced
🗹 We want to understand what operations
managers do
🗹 OM is such a costly part of an
organization
 Overview of Operations

Slack & Chambers

 Relationships Between
Business Strategy and Functional Strategies

Boyer & Verma

 Levels within operations function
• Strategic
• Tactical
• Operational

▪ For Cadbury India, a decision to build a new factory five years in the future is
strategic; a decision to introduce a new product next year is tactical; a decision about
the units of Cadbury Silk to make next week is operational.
▪ LIC makes a strategic decision to offer single premium pensions, a tactical decision to
expand the pension support office over the next year, and operational decisions about
the number of staff needed in the office each week.
▪ Indian Railways has made a strategic decision to continue a Garib Rath/ Highs peed
rails, tactical decisions about the fare structures, and operational decisions about crew
schedules.
 Broad Definition
• Operations refer to the application of
resources (capital, materials, technology, and
human skills and knowledge)to the production
of goods and services
• Operations also refers to a specific function in
an organization, distinct from other functions
such as product design, accounting,
marketing, finance, HR, and IT
 Defining OM
• Organising the process of getting things done
• About the way organizations produce goods and
services
– Issuing books, treatment at hospital, service received at stores , everything
we consume
• Is transformation process of converting a set of
resources(inputs) into goods and services (outputs) by
means of transforming resources(facilities & staff)
• Input Resources: r/m, info, or customer themselves

What is the input in a hospital ?

A retail store?
 Defining OM
• Create operational systems.
• Manage (plan, organize, staff, direct and control) the
activities relating to the production of goods and/or
services with maximum efficiency (at the lowest cost)
and effectiveness (in the eyes of the customer).
• Improve those processes continuously to create
competitive advantage
 Industrial Engg
• Industrial engineers determine the most
effective ways to use the basic factors of
production—people, machines, materials,
information, and energy—to make a product.
 Distinguishing OM

OM (service, transportation, retail,

manufacturing etc.)

Manufacturing Operations

Manufacturing
(Mfg engg, product/process design,
production control etc.)

Source: hopp & spearman

 Operations Management
INPUTS
OUTPUTS
•Human labor TRANSFORMATION
•Finished product
•Materials and parts •Manufacturing •Service interaction with
•Energy (gas, electricity, coal) •Assembly customer
•Machinery/equipment •Location change •Increased knowledge or
•Exchange (retail)
satisfaction
•Storage (distribution center)

• The process that effectively produce,

transform, and deliver a product or service.

Boyer & Verma

 An operating system approach as applied to an Environmental
Health Department

OM in context by Rowbotham
 Example of the operating system approach as applied
to a manufacturing operation

OM in context by Rowbotham
 Types of transformation
A transformation process is defined as a user of resources to
transform inputs into some desired outputs

• Physical--manufacturing
• Locational--transportation
• Exchange--retailing
• Storage--warehousing
• Physiological--health care
• Informational--telecommunications
 I/P-Transformation- O/P

Chase & Jacobs

 Class Exercise

• A hospital operation
• An Airline
• A Bank
Foundational components of OM
Product
Development

Process Design &

Supply Chain
Mgt
 Process Design & Management
• Process Design: Options & Assessment
– Queuing Analysis
– Capacity Analysis
– Uncertainty Analysis
• Inventory Systems
• Production Control
ERP/Software/Internet
• Operations Excellence
– - Continuous Improvement
– - Just-in-Time
– - Quality Management (SPC, 6σ)
 SC
• Strategic Supply Chain Design
– Make Vs. Buy
– Supplier Selection , Sourcing
• Supply Chain Management
– End-to-end coordination
– Supplier Relations
• hard-nosed, polite, hostile, collaborative?
• Delayed Differentiation
 Goods Versus Services
Attributes of Goods
(Tangible Product)
Can be resold
Can be inventoried
Some aspects of quality
measurable
Selling is distinct from
production
Product is transportable
Site of facility important for cost
Often easy to automate
Revenue generated primarily
from tangible product
Attributes of Services
(Intangible Product)
Reselling unusual
Difficult to inventory
Quality difficult to measure
Selling is part of service
Provider, not product, is
often transportable
Site of facility important for
customer contact
Often difficult to automate
Revenue generated primarily
from the intangible service
Table 1.3
 Organizational Charts
Commercial Bank

Operations Finance Marketing

Teller Scheduling Investments Loans
Check Clearing Security Commercial
Collection Real estate Industrial
Transaction Financial
processing Personal
Facilities Accounting
Mortgage
design/layout
Vault operations
Maintenance Auditing
Security Trust Department

Source: heizer & render

 Organizational Charts
Airline

Operations Finance/ Marketing

Ground support accounting Traffic
equipment Accounting administration
Maintenance Payables Reservations
Ground Operations Receivables Schedules
General Ledger Tariffs (pricing)
Facility
maintenance Finance Sales
Catering Cash control Advertising
Flight Operations International
exchange
Crew scheduling
Flying
Communications
Dispatching
Management science
Source: heizer & render
Productivity

Output
Productivity =
Input
Productivity

Policies processed
Labor productivity =
Employee hours
Productivity

600 policies
Labor productivity =
(3 employees)(40 hours/employee)
Productivity

Labor productivity = 5 policies/hour

 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

Labor productivity = 5 policies/hour

Multifactor productivity =

Quantity at standard cost

Labor cost + Materials cost + Overhead cost
Productivity

Labor productivity = 5 policies/hour

Multifactor productivity =

(400 units)($10/unit) $4000

= = 2.35
$400 + $1000 + $300 $1700
 New Trends in OM
🗹 Global focus
🗹 Just-in-time performance
🗹 Supply chain partnering
🗹 Coordination in SC
🗹 Rapid product development
🗹 Mass customization
🗹 Empowered employees
🗹 Environmentally sensitive production
🗹 Ethics