OPERATIONS

MANAGEMENT
MBA
II SEM
 SYLLABUS
 UNIT I Production as a value addition process –
its ingredients – 5 P’s of operations management –
Design function. Plant location – plant layout –
Economy of size – Make/ Buy mix, productivity –
work methods, work measurement techniques,
capacity measurements.
 UNIT II Vertical Integration – Quality
Management, Quality control – Statistical Quality
Control (including process control) TQM – ISO
9000, 14000 and SA 8000 and other international
standards – Quality circles – JIT – Vendor selection
and rating – quality problem solving tools- Six
Sigma – Service Quality.
 UNIT III Production Planning and Control – Forecasting –
aggregate planning – development of MPS – capacity planning
– shop floor control – Master and detailed schedules, work
orders, route sheets, Job cards etc – Value analysis/engineering.

 UNIT IV Materials Management – Stores management –

maintenance management (including reliability concepts)
Inventory Control – P & ! system – safety stocks – ABC – VED –
two Bin – EOQ – MRP – I, MRP II – Inventory records – spare
parts management – Concepts of SCM & Logistics.

 UNIT V Computer Based Integrated Manufacturing Systems –

CIM, CAM, Robotics, automated material, FMS, ERP, World
class manufacturing – Project Management concepts –
PERT/CPM (concepts) – Gantt Chart-Precedence diagram –
Lessons from Japanese and Chinese manufacturing – challenges
due to globalization.
 INTRODUCTION
 DEFINITION: Operations management is the
process that generally plans, controls and
supervises manufacturing and production
processes and service delivery.
 Importance: it makes an organization efficient.

 Evolution:

Industrial revolution began in the 1770s in

England and slowly spread all over Europe
and USA by the 19th century.
 Machine power replaced human power.
 Change in Production system, increase in scale
of economies, development of standard
gauging system and rapid growth of factories.
 Adam Smith recognized the importance of
specialization of labor which gave rise to
manufacturing management.
 In the 20th century F.W Taylor introduced
scientific management.
 The term productions management was
accepted by the 1930s to 1950s.
 Henry Ford practically adopted the scientific
management principles for Taylor.
 He Introduced the moving assembly line, which
affected to many industries and mass production.
 Influencers of operations management: Frank
Gilbreth, Henry Gantt, Harrington Emerson, F.W.
Harris, H.F. Dodge, H.G. Romig and W.
Shewhart.
 The decision models by all the pioneers were also
used for forecasting, inventory management,
project management and other areas of
operations management
 Japanese manufacturers also have an important
influence on operations and productions
management.
 In the present day advances in information
technology and global competition is
influencing OM.
Date Contribution Contributor
1776 Specialization of labour in Adam Smith
manufacturing
1799 Interchangeable parts, cost accounting Eli Whitney and others
1832 Division of labour by skill; assignment Charles Babbage
of jobs by skill; basics of time study
1900 Scientific management time study and Frederick W. Taylor
work study developed; dividing
planning and doing of work
1900 Motion of study of jobs Frank. B. Gilbreth
1901 Scheduling techniques for employees, Henry L. Gantt
machines jobs in manufacturing
1915 Economic lot sizes for inventory F. W. Harris
control
1927 Human relations; the Hawthorne Elton Mayo
studies
1931 Statistical inference applied to product W. A. Shewart
quality: quality control charts
1935 Statistical sampling applied to quality and H. F. Dodge and H. G.
control: inspection sampling plans Roming
1940 Operations research applications in World P. M. Blacker and
War II  others
1946 Digital Computer  John Mauchlly and J.
P. Eckert
1947 Linear Programming G. B. Dantzig, William
& others
1950 Mathematical programming, on-linear and A. Charnes, W. W.
stochastic processes Cooper & others
1951 Commercial digital computer: large-scale Sperry Univac
computations available.
1960 Organizational behaviour: continued study L. Cummings, L.
of people at work Porter
1970 Integrating operations into overall strategy W. Skinner J. Orlicky
and policy, Computer applications to and G. Wright
manufacturing, Scheduling and control,
Material requirement planning (MRP)
1980 Quality and productivity applications from W. E. Deming and J.
Japan: robotics, CAD-CAM Juran
 BENEFITS
 Product Quality
 Productivity
 Customer Satisfaction
 Reduced Operating Cost
 PRODUCTION
 Production refers to the process through which
the various resources are transformed into the
required products in a controlled manner
where the output should have the desired
quality.
 Production can be defined as “the step-by-step
conversion of one form of material into another
form through chemical or mechanical process
to create or enhance the utility of the product to
the user.” 
 Production Management can be defined as all
the interrelated management activities
involved in manufacturing the certain
products.
 If the same concept is extended to services then
it is called operations management.
 It is value addition process.
 THE PRODUCTION SYSTEM

TRANSFOR
MATION OUTPUTS
INPUTS PROCESS PRODUCTS
MEN PRODUCT AND
MATERIAL DESIGN SERVICES
MACHINARY PRODUCT
INFORMATIO PLANNING
N PRODUCTIO
CAPITAL N CONTROL
MAINTANA
NCE
FEEDBACK INFORMATION
SYSTEM ENVIRONMENT
CONTINOUS INVENTORY
QUALITY
COST
CHARACTERISTICS OF PRODUCTION SYSTEM
1. Production is an organized activity, so every
production system has an objective.
2. The system transforms the various inputs to
useful outputs.
3. It does not operate in isolation from the other
organization system.
4. There exists a feedback about the activities,
which is essential to control and improve
system performance.
 PRODUCTION TYPES
 Unit /Job production:
This type of production is most commonly observed
when you produce one single unit of a product. E.g:
A Stitched outfit by tailor, Cake made to order.
Features:
 Customized product.

 Depends a lot on skill

 Dependency is more on manual work than

mechanical work
 Customer service  plays and important role
 Batch Production:
Batch production takes place in batches. The
manufacturer already knows the number of units
he needs to a manufacturer and they are
manufactured in one batch. E.g: FMCG goods,
medicines, consumer durable goods etc.

Features:
 Once a batch production starts, stopping it

midway may cost a huge amount to the

company.
 Demand plays a major role in a batch

production.
  Mass Production:
A large volume of products are produced simultaneously. Mass

production is also known as flow production or assembly line

production.
 It is one of the most common types of products used in

the automobile industry and is also used in industries where

continuous production is required.
mass production plant typically focus on specialization.

There are multiple workstations installed and the assembly line

goes through all the workstations turn by turn.

The work is done in a specialized manner and each workstation

is responsible for one single type of work.

As a result, these workstations are very efficient and

production due to which the whole assembly line becomes

productive and efficient.
Features :
 Mass production is generally used to dole out huge

volumes of the product

 It is used only if the product is standardized

 Demand does not play a major role in a Mass

production. However, production capacity

determines the success of a mass production.
 Mass production requires huge initial investment

and the working capital demand is huge too.

 Continuous / Process production:

In continuous production, the production is
continuous,24×7 hours, all days in a year.
The difference between continuous and mass production
can be narrowed down to by a single element, i.e. the
amount of mechanical work involved.
In Mass production, both machines and humans work in

tandem. However, in continuous production, most of the

work is done by machines rather than humans. 
E.g: Alcohol Brewing such as beer.

Features
 Majority of the work is done by machines rather than

humans
 Work is continuous in nature. Once production starts,

it cannot be stopped otherwise it will cause huge loss.

 A very controlled environment  is required for
continuous production.
 PLANT LOCATION
 Refers to the choice of region and the selection of a
particular site for setting up a business or factory.
 The decision is made only after considering cost
and benefits of different alternative sites.
 It is a strategic decision that cannot be changed once
taken
 An ideal location is one where the cost of the
product is kept to minimum, with large market
share, the least risk and the maximum social gain.
 Both the negative and positive aspects are to be
considered.
 Factors to be considered while choosing a plant location.

1. Natural or climatic conditions.

2. Availability and nearness to the sources of raw material.
3. Transport costs
4. Access to market
5. Availability of Infrastructural facilities
6. Availability of skilled and non-skilled labour and
technically qualified and trained managers.
7. Banking and financial institutions are located nearby.
8. Locations with links: to develop industrial areas or
business centers result in savings and cost reductions in
transport overheads, miscellaneous expenses.
9. Strategic considerations of safety and security should be
given due importance.
10. Government influences
 PLANT LAYOUT
 Refers to the arrangement of physical facilities such as
machinery, equipment, furniture etc. within the factory
building in such a manner so as to have quickest flow of
material at the lowest cost and with the least amount of
handling in processing the product from the receipt of
material to the shipment of the finished product.
Factors to be considered while choosing the layout.
1. Proper and efficient utilization of available floor space
2. To ensure that work proceeds from one point to another
point without any delay
3. Provide enough production capacity.
4. Reduce material handling costs
5. Reduce hazards to personnel
6. Utilize labor efficiently
7. Increase employee morale
8. Reduce accidents
9. Provide for volume and product flexibility
10. Provide ease of supervision and control
11. Provide for employee safety and health
12. Allow ease of maintenance
13. Allow high machine or equipment utilization
14. Improve productivity
  Objectives of Plant Layout:

Provide for employee convenience,

Maintain flexibility of arrangement
safety and comfort.
and operation.

Streamline the flow of materials through Effective utilization of men, equipment

the plant. and space.

Facilitate the manufacturing process. Make effective utilization of cubic space.

Maintain high turnover of in-process

Flexibility of manufacturing operations
inventory.
and arrangements.

Minimize materials handling and cost. Minimize overall production time.

Minimize investment in equipment.

Facilitate the organizational structure.
TYPES OF PLANT LAYOUTS

PLANT
LAYOUT
 PRODUCT LAYOUT
 A product layout is one in which machines and
auxiliary services are located according to the
processing sequence of the product. •
 The product layout is selected when the volume
of production of a product is high such that a
separate production line to manufacture it can be
justified. •
 In a strict product layout, machines are not
shared by different products. Therefore, the
production volume must be sufficient to achieve
satisfactory utilization of the equipment.
E.g.: Automobile assembly layout
Advantages :
 Low unit costs for high volume.
 Gives opportunities for specialization of equipment.

 Materials or customer movement is convenient.

 The flow of product will be smooth and logical in
flow lines.
 In- process inventory is less.

 Throughput time is less.

 Minimum material handling cost.

 Simplified production, planning and control

Disadvantages:
Low flexibility
 PROCESS LAYOUT
 A process layout is one in which all machines or processes of
the same type are grouped together.
 It is recommended for batch production. 
 Different variety of product and low production volumes.
Advantages:
 In process layout machines are better utilized and fewer
machines are required.
 Flexibility of equipment and personnel is possible in process
layout.
 Lower investment on account of comparatively less number of
machines and lower cost of general purpose machines.
 Higher utilization of production facilities.
 A high degree of flexibility with regards to work distribution to
machineries and workers.
 The diversity of tasks and variety of job makes the job
challenging and interesting.
 Supervisors will become highly knowledgeable about the
functions under their department.
Disadvantages:
 Backtracking and long movements may occur in the handling
of materials thus, reducing material handling efficiency.
 Material handling cannot be mechanized which adds to cost.
 Lowered productivity due to number of set-ups.
 Process time is prolonged which reduce the inventory
turnover and increases the in- process inventory.
 Throughput (time gap between in and out in the process)
time is longer.
 Space and capital are tied up by work-in-process
 FIXED-POSITION LAYOUT
  In this type of layout, the material, or major
components remain in a fixed location and
tools, machinery, men and other materials are
brought to this location.
 This type of layout is suitable when one or a
few pieces of identical heavy products are to be
manufactured and when the assembly consists
of large number of heavy parts, the cost of
transportation of these parts is very high.
 E.g: Bridge Construction.
Advantages:
 Very high mix and product flexibility

 Product or customer not moved or disturbed

 High variety of tasks for staff

Disadvantages:
 Very high unit costs.

 Scheduling of space and activities can be

difficult.
 Can mean much movement of plant and staff.
 CELL LAYOUT
 Group layout is a combination of the product
layout and process layout.
 The objective is to minimize the sum of the cost
of transportation and the cost of equipment's.
 So, this is called as multi-objective layout.
 It is used for Just In Time Production
 E.g: Same brand laptop assembly, Maternity
unit in hospital
Advantages:
 Can give a good compromise between cost and

flexibility for relatively high-variety operations

 Fast throughput

 Group work can result in good motivation.

Disadvantages:
 Can be costly to rearrange existing layout

 Can need more plant and equipment

 Can give lower utilization of plant

 MIXED LAYOUT
 Also known as Hybrid layout.
 Uses the combination of either some or all of the
four basic layout types.
For example, one firm may utilize a process layout
for the majority of its process along with an
assembly in one area. Alternatively, a firm may
utilize a fixed-position layout for the assembly of
its final product, but use assembly lines to produce
the components and subassemblies that make up
the final product (e.g., aircraft).
 MAKE/BUY DECISION
 It is a strategic management decision making process
where the cost –benefit is compared to decide whether
to produce a product in house or purchase it from an
external person.
 Reasons: when the company is facing diminishing
capacity, experiences problems with the current
suppliers, or sees changing demand.
 The analysis is conducted at the strategic and
operational level.
 The two most important factors to consider in a make-
or-buy decision are cost and the availability of
production capacity.
 This analysis is performed at the beginning of the product
life cycle.

 At the strategic level factors to be considered are:

1. government regulation
2. competing firms
3. and market trends

The firms make those items that reinforce or are in-line with
their core competencies. These are areas in which the firm is
strongest and which give the firm a competitive advantage.

The concept of lean manufacturing(focuses on minimizing waste

introduced by Toyota), within manufacturing systems while
simultaneously maximizing productivity.  has prompted an
increase in outsourcing.
 Make-or-buy decisions occurring at the operational level considers the
following factors:

1. Cost considerations (less expensive to make the part)

2. Desire to integrate plant operations.
3. Productive use of excess plant capacity to help absorb fixed overhead (using
existing idle capacity)
4. Need to exert direct control over production and/or quality
5. Better quality control
6. Design secrecy is required to protect proprietary technology
7. Unreliable suppliers/No competent suppliers
8. Desire to maintain a stable workforce (in periods of declining sales)
9. Quantity too small to interest a supplier
10. Control of lead time, transportation, and warehousing costs
11. Greater assurance of continual supply
12. Provision of a second source
13. Political, social or environmental reasons (union pressure)Emotion (e.g.,
pride?
Factors that may influence firms to buy a part externally
include:
 Lack of expertise

 Suppliers' research and specialized know-how exceeds

that of the buyer

 cost considerations (less expensive to buy the item)

 Small-volume requirements

 Limited production facilities or insufficient capacity

 Desire to maintain a multiple-source policy

 Indirect managerial control considerations

 Procurement and inventory considerations

 Brand preference

 Item not essential to the firm's strategy

 Benefits of a Make-or-Buy Decision
1. Lower costs and higher capital investments.
2. Source of competitive advantage
 ECONOMIES OF SIZE/SCALE
 Economies of size result from spreading fixed
costs over a large number of units of
production.
 Because fixed costs remain the same regardless
of the number of units produced, as the
number of units produced increases, the fixed
cost per unit declines.
 As a result of declining fixed cost per unit, total
cost per unit also declines.
 Economies of scale refer to the cost advantage
experienced by a firm when it increases its
level of output.

Effects of Economies of Scale on Production

Costs
 It reduces the per-unit fixed cost. As a result of

increased production, the fixed cost gets spread

over more output than before.
 It reduces per-unit variable costs. This occurs

as the expanded scale of production increases

the efficiency of the production process.
The company is said to experience economies of scale when it increases its production to Q2.
a key result that emerges from the analysis of the production process is that a profit-
maximizing firm always produces that level of output which results in the least
average cost per unit of output.
 Types of Economies of Scale

1. Internal Economies of Scale

 This refers to economies that are unique to a firm. For instance, a
firm may hold a patent over a mass production machine, which
allows it to lower its average cost of production more than other
firms in the industry.
2. External Economies of Scale
 These refer to economies of scale enjoyed by an entire industry. For
instance, suppose the government wants to increase steel
production. In order to do so, the government announces that all
steel producers who employ more than 10,000 workers will be given
a 20% tax break. Thus, firms employing less than 10,000 workers can
potentially lower their average cost of production by employing
more workers. This is an example of an external economy of scale –
one that affects an entire industry or sector of the economy.
 WORK MEASUREMENT AND
PRODUCTIVITY
 Work measurement is concerned with how
much time is taken to complete one unit of work.
 It is important for promoting productivity of an
organization. 
 It helps in planning.
 Work measurement has been defined as “The
application of techniques designed to establish
the time for a qualified worker to carry out a
specified job at a defined level of
performance”.
 Time study may also be defined as “the art of
observing and recording the time required to
do each detailed element of an industrial
operation”.
Uses of Work Measurement:
 In planning work and in drawing out
schedules.
 It is used to determine standard costs.

 It is used as an aid in preparing budgets.

 It is used in determining machine effectiveness.

 To determine time standards to be used for

providing a basis for wage incentive plans.

 TECHNIQUES OF WORK
MEASUREMENT
1. Time Study
2. Work Sampling
3. Pre-determined Motion Time System
4. Analytical Estimating
5. Historical method
1. Historical Data:
Historical data method Past performance is used as a
guideline for setting work performance standards

2. Time Study:
 Time study stop watch is the most commonly used work
measurement method. 
 This technique was developed by Frederick Winslow
Taylor (1856-1915).
 This is a direct observation method
 Time study is best suited for short-cycle repetitive jobs. 
It consists of the following steps:
Select the job to be timed
Standardize the method of doing the job.
 Select the worker to be studied.
 Record the necessary details of the job and

conditions of work.
 Divide the job into elements. Here, ’element’ is

a part of the job.

 Find out the time taken to do every single

element.
 Keep provisions for relaxation, etc.

Standard Time= Basic time + Allowances

Basic time= Observed time X observed rating
3. Work Sampling
Was developed by Leonard Henry Caleb Tippet
in 1934.
It is a sampling technique and also called activity
sampling / random observation method/ snap
reading method
When sample size is large enough and
observations are made random, And there will
be high probability that these observations
reflect real situation with certain error.
probability which means ‘ the extent to which an
event is likely to occur’.
 For eg: if 500 instantaneous observations taken at
random intervals over a few weeks show that a lathe
operator was doing productive work in 365
observations and in the remaining 135 observations he
was found idle for miscellaneous reasons. Then it can
be reliably taken that the operator remains idle
(135/500) * 100= 27% of the time.
 The accuracy of the results depends on the no: of
observations.
Application of work sampling: To compare the efficiency
of two departments.  Provide more equitable group
distribution among the group workers. 
Management gets approximate data among the
percentage idle time and the reasons behind it.
 Steps in Work sampling:
1. Describe the job for which the standard time is to
be determined. 
2. Design the sampling plan -estimate satisfactory
no: of observations to be made. 
3. The contact the persons concerned and take them
in confidence regarding conduct of the study.
4. Make the observations at the predetermined
random times about the working / non working
of the operator.
Since the accuracy of the results improve with
increasing number of observations, the study can
be continued until the cumulative results.
4. Pre-determined Motion Time System
  is a work measurement technique whereby

times established for basic human motions are

used to build up the time for a job at a defined
level of performance.
 also called predetermined time system (PTS), 

 It is a database of basic motion elements and

their associated normal time values, together

with a set of procedures for applying the data
to analyze manual tasks and establish standard
times for the tasks.
 job is also considered to consist of elements, the

total of which is the sum of the elements. 

 Most predetermined motion time systems use time measurement
units (TMU) instead of seconds for measuring time. One TMU is
defined to be 0.00001 hours, or 0.036 seconds.
Objectives:
 Determine job time standards.
 Compare the times for alternative, proposed methods so as the
determine the economics of the proposals before the production
runs or other way round fabrication/ production of equipment to
be employed.
 To estimate the manpower, equipment and space requirements
before production or prior to setting up of facilities.
 To develop tentative layouts for assembly lines before the work
starts so as to minimize the investment on subsequent
rearrangement and rebalancing etc.
 For improving and modifying work methods before stating the
work on the job.
 To set time standards for various jobs.
 To provide a basis for estimation of labour cost and wage plans.
 To facilitate training of the workers and supervisory staff.
 To utilize for timing of those short and repetitive motion which
are difficult to be measured by stop watch.

Advantages:
 Eliminates the inaccuracies associated with stop watch time
study.
 The basic times determined with the use of PMT system are
relatively more consistent.
 Time standard for a job can be arrived at without going to the
workplace.
 The use of PMTS, force the analyst to be method conscious and
to take care of method in detail. This sometimes help’s to
further improve the method.
 They are an excellent training technique.
 Limitations:
 PMTS can deal manual motions of an operation only.
 They are not economical for non-repetitive operations.
 They cannot be applied to restricted work (refer to
process time studies).
 PMTS’s are restrictive in nature because they have been
built on data taken from particular operations and thus
PMTS provides better results if applied to that type of
work/operation only.
 All categories of motions have not been taken into
consideration while collecting PMTS data.
 The need of trained personnel. Although PMT System
eliminates the utilization of rating quite a bit of
judgment is still essentially exercised at various stages.
 5. Analytical Estimating
“A development of estimating, in which the time required to
perform each constituent part of a task at a defined rate of
working is estimated from knowledge and practical
experience of the work and/or from synthetic data”.
 It is used for assessing work over a reasonably lengthy
period of time, where it may be difficult and more
expensive to collect the information required using other
measurement techniques.
 In some work environments the presence of an individual
carrying out work measurement in the work place could
be unacceptable.
 In these cases, analytical estimating may be an appropriate
method to use, assuming someone with experience of the
work is available to apply their experienced judgement. 
Advantages:
Perhaps the most significant advantage of using
analytical estimating is its speed of application
and low cost. Using trained and experienced
personnel process and measurement data can be
quickly assembled and applied.
It helps in planning and scheduling activities in
production activities.
It helps in fixing the labor rates for no repetitive jobs.
The main limitation is that it may not be a standard
time set by a work measurement engineer after
regular observation. The results may be that
accurate.
 CAPASITY MEASUREMENT
 Capacity is referred to the quantity that we can make.
 Capacity measures the rate that the operation can
transform inputs into outputs.
 Capacity is about the quantity of a product or service
that can be made within a given time period
 Discrepancies between the capacity of an
organization and the demands of its customers result
in inefficiency, either in underutilized resources or
dissatisfied customers.
 If ignored ,it may result in lost sales, lost customers
and potentially loss of reputation.
 Capacity Constraints:
The resource mix that can result in capacity
constraints and can it be removed.
1. Staff/Skill levels

2. IT facilities/Technology

3. Materials availability

4. Product or service mix

5. Storage

6. Working schedules and access to facilities

 MEASURING CAPASITY
Capacity can be measured from looking at the
operation as a whole and then calculated on the
resources and facilities available and process
time
 Capacity can be measured in two ways

Input measures: E.g: no. of rooms available for

guests in a hotel.
Output Measures: E.g. How many pots can a
potter make in an hour.
 Capacity= Time Available/Time of task

Capacity Planning Methods:

1. It can provide capacity ahead of the forecast so
that it is ready to respond immediately which
is known as a capacity leads demand strategy.
2. It can provide capacity as demand changes so
that it expands and contracts its capacity to
follow demand, which is a capacity matches
demand strategy.
3. It can wait to see what demand is and then
respond after it is confirmed, a capacity lags
demand strategy.