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OPERATIONS MANAGEMENT

BY

K. SASHI RAO

TRAINING AND MANAGEMENT

CONSULTANT

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Course Objectives To help understand the concepts of

operations and production management

To help get exposure to operationprocess, models and their effectiveness

To help learn production and operation

control mechanism

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Introduction to OperationsManagement

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Operations Operations make products/services Dell

makes computers, Jet Airways fly airplanes,LIC gives insurance, Star TV makes televisionprograms et al

Operations make products to satisfy customerdemand soaps to keep clean, food to satisfyhunger, houses to provide shelter, cars toprovide mobility

Operations transform inputs to outputs steel

to make furniture, sugar to make sweets, coalto make power

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Historical Journey of Operations

Management(1) Scientific management as a principle was

developed by Frederick Taylor in the early1900s who propounded that scientific laws

govern how much a worker can produce perday and it is up to management to apply it toproduction systems and he introduced timestudy and work-study

Later, his co-workers Frank and Lillian Gilbrethintroduced motion study and basic concepts ofpsychology

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Historical Journey of Operations

Management(2) It was Henry Ford who revolutionized production

management in 1913 by introducing the movingassembly line as the most efficient means of massproduction and bringing about labor specialization

Elton Mayo then thro the Hawthorne studies in theearly 1950s found that people performed better undercertain conditions that motivated them- which was thebasis for current personnel management and humanrelations

World War 2 pressures for producing for the Warcreated the field ofOperations Research to formmultidisciplinary teams to scientifically analyze aproblem and have mathematically optimal solutions

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Historical Journey of Operations

Management(3) It was in the 1950s and 1960s that the systems

approach to production evolved and integration oforganizational systems

The 1970s brought about wider use ofcomputers and

development of materials requirement planning( MRP-1) as a precursor to manufacturing resource planning(MRP-2) and later enterprise planning( ERP)

Current decade has brought about modernmanufacturing methods driven by Automation, TQM,

JIT, Lean Manufacture, and now leading to ComputerIntegrated Manufacture (CIM), Flexible ManufacturingSystems (FMS) and Factory of the Future (FOF)

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Operations to meet demandCUSTOMERS

SUPPLYOf products

DEMANDfor products

OPERATIONSIn the process

Passedto

Createdemand

Passedto

Arrange

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Operations transforming inputs to

outputs

INPUTS OPERATIONS OUTPUTS

-People-Buildings-Materials-Equipment-Money-Energy

-Others

-Manufacture-Serve-Transport-Sell-Deliver-Others

-Goods-Services-Profit-Pay-Waste-Others

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Operations in Practice

Procurement

Processing

Or Manufacturing

OperationsDistribution

CUSTOMERSSUPPLIERS

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Variety of Operations

Organization Typical Operations et alFarm Planting, growing, harvesting, shearing

Coal mine Extraction, removing waste, cleaning

Oil refinery Refining, processing ,distribution

Computer maker Assembly, finishing, testing, packing

House builder Bricklaying, concreting, plastering,plumbing

Brewery Preparing, mixing, brewing, bottling

Hospital Diagnosis, surgery, treatment,monitoring

Retail shop Storing, displaying, selling, billing

Airline Booking tickets, flying, feeding,

entertaining

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Goods and Services

SERVICES GOODSIntangible Tangible

Provided by service set-ups Made by manufacturers

Cannot be stored Can be stored( inventory)

Cannot be moved around Can be moved( transportation)

Production and consumption simultaneous Delay between production and use(inventory)

Value declines very quickly Maintains value longer( product/shelf life)

More likely to be unique Often similar and often mass produced

More contact with customers Less direct customer contact with makers

Customers part of service Customers not involved in manufacturingFacilities close to customers Factories centralized and away from

customers

More likely to be labor-intensive Capital-intensive and easier to automate

Quality more difficult to measure Quality is easily measurable

Quality depends on the server Quality assurance is internal to the maker

Difficult to measure output Output can be measured

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Operations and the Process(1) Operations are the activities that make an

organizations products These products can be any combination of

goods and/or services that satisfy customerdemand

In factories products are made, restaurantsprepare meals, power stations generateelectricity, or even universities educatestudents

Operations managers are responsible formaking and/or delivering goods and services

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Operations and the Process(2) In operations we can think of any

product/service using any kind of process orprocesses

Hence, everybody is affected by operations andshould be involved with operationsmanagement

Operations are at the heart of everyorganization and they define what they do andhow they do it

All organizations need proper operationsmanagement Their success will come only if they supply

products that customers want

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Process(1) Process for a product consists of all the steps to make it

Process for wine-making consists of the following steps: Pick the grapes from vineyard

Crush the grapes and remove stems

Separate the juice from the skins and seeds Treat the must( i.e. juice that turns into wine)

Ferment the must in vats

Do first racking to filter the wine into containers

Do second racking to clarify the wine and age in barrels

Blend( sometimes) and bottle

Age in bottles

Pack bottles in cases and dispatch

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Process(2) Previous wine-making example listed the various

steps in a sequential manner

This implies that these steps have to be followed andthe end of one step is the beginning of the next step

In making some items, it may be possible to havemany steps going on simultaneously or in parallel tosave overall process time e.g. cutting vegetableswhile water is boiling or oil being heated beforemaking an elaborate food dish

Hence, sequencing, priority and time management areessential concepts in operations

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Buffering Operations

OPERATIONSSuppliersRaw Materials

Stocks CustomersFinished goods

Stocks

StocksOf Work in Progress

InternalBuffers

(capacity, timeSpace et al)

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Key Operational Issues(1) Objectives maximize output or minimize

costs or aim for best quality ?

Capacity how much maximum can we make ?

Demand variability

Batch-wise or continuous process operations

Production how much should we produce ?

Scheduling how much to produce when ?

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Key Operational Issues(2) Selection and design of particular

products/services to be offered

Capacity decisions and locations plan Suitable supply, manufacturing methods,

storage, and logistics and distribution plans

Optimum utilization of available resources

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Managers and Operations Managers are those who make decisions

They decide what to do, how to do it, whocan/should do it, when it should be doneand how to get things done

Their roles are setting objectives, planning,organizing, staffing, directing, motivating,allocating, monitoring, controlling andinforming et al

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Operations Managers and

Operations Management (OM) People who manage operations are Operations

Managers; they are responsible for all activities thatmake an organizations products

Operations Management is the management functionthat is concerned with all aspects of operations

Operations Management is the management of systemsand processes that creates and produces goods and/orprovide services

OM is involved with everything to do with transformation

of inputs into outputs

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5Ps of Operations Management Product

Plant

Processes Programs

People

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5Ps- Product Market Need

Aesthetics

Performance

Quality Reliability

Quantity

Cost and Price Relationship

Delivery dates/schedules

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5Ps- Plant Plant capability

Plant size/capacity

Plant performance

Plant layout

Plant equipment and performance

Plant maintenance

Plant safety and operation

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5Ps- Processes Process type- batch, semi-continuous,

continuous

Process sequencing, priority and conditionality

Production processes and systems integration

Organizational processes and systems

integration

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5Ps- Programs Demand forecasting and Sales forecasting

Production planning

Production control Production scheduling

Production programs

Timetables for purchasing, production, delivery

and dispatch

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5Ps- People People skills and capabilities

Manpower size and growth

Work conditions and safety

Wages/salaries

People education and training

People motivation

Trade unionization

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Operations Management

- schematic(1)

Manager

Inputs Operations Outputs

DecisionsDecisions

InformationInformation

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Operations Management

-schematic(2)Operations

Management

OperationsStrategy

ProductDesign

ProcessDesign

Planning andSchedulingResources

Managing theSupply Chain

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Operations Management

-a systems view

The operating system of a manufacturing or serviceorganization is made up ofset of highly interactive sub-systems which are independently operable, but yet allaimed at overall organizational profitability and

productivity Systems design elements- product/service design,

capacity, process selection, plant layout, work systemsdesign et al

Systems operation elements production planning,scheduling and control, inventory management, quality

control/assurance, procurement planning and executionet al

System Model of Operations Management- (handout)

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Operational Management

Decisions(1) Objectives- What are our aims? How do we

work with other parts of the organization? Product- What products do customers want?

What should we make?

Demand- How do we forecast demand? Isthere demand variability?

Capacity- How much capacity do we have andwhat is needed now and in future?

Quality- What is desired quality? How is it

measured? How do we maintain requiredquality?

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Operational Management

Decisions(2) Process-How do we make our products? What

facilities do we need?

Planning- When do we make products and scheduleresources?

Performance- How do we measure performance?What targets should we aim for ?

Technology- What level of technology should we use?

Layout- How do we arrange the facilities?

Materials- What materials do we need? Where do we

get them from ?

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Operational ManagementDecisions(3)

Stocks- What do we keep in stock? How do weminimize the cost?

Logistics- How do we move goods thro the supplychain?

Pricing- What prices should we charge customers? Location- Where is the best place for our operations?

Management systems- What type of managementsystems should we use?

Organizational structure- What is the best structure to

support our operations? People- How many and what type of people do we

employ? How do we motivate them?

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Key Concepts in OperationsManagement(1)

Operations

Operations Management

Operations Strategy Production Management

Production Planning and Control

Product Design and Quality

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Key Concepts in OperationsManagement(2)

Process Design and Control

Capacity Planning and Plant Layout

Manufacturing Resources Planning and

Scheduling Job Design and Work Measurement

Managing the Supply Chain

Managing Stocks

Enterprise Resources Planning

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Operational ManagementConstraints

External constraints- market demand and growth,economic situation, customers willingness to buy andpay asked price, competition scenario, costs of materialand used services

Internal constraints- limited resources, expensive costsof available resources, conflicting organizational goalsand objectives, skills and manpower availability,business and operating risks

Inevitably, compromises are needed to give products

that are accepted by customers while using resourcesefficiently enough to meet internal requirements

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Operational ManagementConstraints

OperationalManagement decisions

Customerdemands

Externalconstraints

OPERATIONS

Internalconstraints

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Operations Strategy

A corporation without a strategy is like anairplane weaving thro stormy skies, hurledup and down, slammed by the wind, lost inthe thunderheads. If lightening or crushingwind dont destroy it, it will simply run outof gas.

Alvin Toffler( 1985)

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Operations Strategy

This flows from the organizationsbusiness strategy

Business strategy is illustrated below: Mission

BusinessStrategy

EnvironmentDistinctive

Competence

OperationsStrategy

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Operations Strategy

Operations strategy consists of all the strategic

decisions, policies, plans and culture relating to

operations

Such a strategy can have different focus from time to

time linked to the corporate strategy

Organizations compete by making products that

customers prefer; products depend on the process used

to make them; and the features of products and

processes are set by the operations strategy

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Operations Strategy-focus alternatives

Cost- to go for lowest costs or minimizing costs tooffer lowest prices

Quality- to offer best possible quality or lower qualitythat customers need and/or willing to pay

Timing- to deliver when exactly needed or earlier fromstocks for standard items

Flexibility- to focus on product flexibility forcustomization or on volume flexibility to meetchanging demand levels

Technology- go for any of appropriate, latest orsuperior technology

Customer service- to meet customer satisfaction orcustomer delight

Operations Strategy

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Operations Strategy-focus effectsFocus Competitive

Advantage

Types of operations

Cost Low prices High volume production, automation, highproductivity, standard products, lowoverheads

Quality High quality Reliable processes, TQM, low variability,high quality materials

Timing Delivery whenneeded

Adequate capacity, responsive operations,efficient work scheduling, close customerrelations

Fastresponse

No waitingtime

Short lead times, spare capacity,dedicated operations

Product

reliability

Customized

products

Versatile operations, skilled employees,

quick product changeovers

Demandflexibility

Meet changingdemand levels

Variable capacity, responsive operations,efficient work scheduling, short lead times

Technology

Most advanced Investment in R&D, continuous productdevelopment, exploiting new ideas

Customerservice Pamperingcustomers Customer delight, close customerrelationships, open to suggestions

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Operations StrategyImplementation

While implementing operations strategy,decisions taken are at strategic level, tacticallevel and operational level

Strategic level decisions are of long-termnature and long term impact

Tactical level decisions similarly of mediumterm nature and impact

Operational level decisions are of short term

implications and consequences

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Operational Decisions- strategic

Area Types of decisions

Objectives Setting long term aims and objectives

Business Deciding type of business to be in

Structure Choosing best way to organize operations

Product Designing the type of products

Process Showing how to make the products

Location Choosing where to make the products

Capacity Setting the plant size

QualityMgmt.

Setting how good the products are

Verticalintegration

Deciding how much of supply chain to own

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Operational Decisions- tactical

Area Type of decision

Layout Designing how operations are to be arranged

Planning Deciding when to introduce new products

Q.A. Setting checks on quality

Logistics Planning the distribution of products

Replacement Finding best time to replace equipment

Staffing Employing people with right skills

Technology Choosing technology level for processMake/buy Deciding to make or buy materials

Performance Defining measures of performance

Control

system

Designing checks for operations

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Operational Decisions- operational

Area Type of decisionsScheduling Setting the order in which operations are to be done

Staffing Designing staff schedules

Inventory Deciding how much stock to hold

Reliability Finding ways to improve equipment reliability

Maintenance Scheduling maintenance periods

Quality Checking that products reach designed quality

Job design Finding the best way to do something

Workmeasurement

Seeing how long operations take

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Operational ManagementDecisions- supermarket case study

Performance- targets for all operations on productgroups/product lines/departments like food, textiles, householdgoods etc

Location- select right site to attract customers keepingcompetitive mall locations in mind

Layout- products/sections designed for convenience, shoppingcomfort and ease of pickup and carry

Capacity- to decide based on forecasted customers footfalls andactual buyers to meet current and future demand

Technology use- POS readers and scanners, energy saving storedesign and maintenance, backend SCM methods

Pricing and promotions- decide on periodic sales promotionschemes and incentives, discounts, in-house branding, loyalty

programs Supplier arrangements- supply sources and price negotiation

detailing Staffing- to ensure adequate to provide expected level of

customer service

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Operational Strategy-success factors

Flexible organizational structure that allows innovation

Implementation procedures are formalized

Effective information systems to support decisions

Acceptance that strategies evolve and keep changing

Control systems that monitor progress

Everybody committed to chosen strategy

Developing an organizational culture that supports thestrategy

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Operational Strategy-failure factors

People who design strategy are not responsiblefor implementation

Strategy badly designed

Strategy poorly implemented Strategy not realistic or practical

Strategy not aligned with actual operations

They ignore critical factors

People pay only lip service to strategy

Enthusiasm declines over time