UNIT-I

Introduction to
Operations
Management
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 Lecture Outline
Operations Management Definition
Nature, importance & Its Historical Evolution
Transformation Processes
Difference Between goods and services
System Perspective
Types of Production system
Functions, challenges, current priorities and
recent trends
Operation Strategy Framework & Strategic
Fit
Supply chain Managment
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 Introduction to Operations
Management
What is Production?
Production takes place when resources such as
raw materials or components, are changed into
products. It refers to those activities that
bring a product into being.

What is Operations?
It is that part of an organization, which is
concerned with the transformation of a range
 Introduction to Operations Management
(Contd..)
What is Production Management?
It is a set of interrelated management activities, which
are involved in manufacturing certain products.

What is Operations Management?

It is a business function responsible for planning,
coordinating, and controlling the resources needed to
produce products and services for a company
Operations managers focus on managing the five Ps
of the firms operations:
People, plants, parts, processes, and planning and
control systems.
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 Trends in Business
Major trends
The Internet, e-commerce, e-business
Management technology
Globalization
Management of supply chains
Outsourcing
Agility
A gility refers to the ability of an organization to respond quickly
to demands or opportunities. It is a strategy that involves
maintaining a flexible system that can quickly respond to changes
in either the volume of demand or changes in product/service
offerings. This is particularly important as organizations scramble
to remain competitive and cope with increasingly shorter product
life cycles and strive to achieve shorter development times for new
orimproved products and services.
Ethical behavior
 Nature, Importance & Objectives
NATURE OF OM:
Transformation Process: Concerned with the
conversion of raw materials.
Results into Value addition: At every successive
level value is added to the previous level
System itself: Acts as a well defined sequence of
operations
Inter-relation among the system: No system ever
works in isolation and depends on other for certain
help.
Increase in Productivity
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IMPORTANCE OF OM:
An effective operation can give 4 types of advantage to the
business:
Operations management can reduce the cost of products
and services by being efficient.
Operations management can increase revenue through
increased customer satisfaction in producing quality
goods and services.
Operation management can reduce the amount of
investment necessary to produce the goods and services
by being effective and innovative in the use of
resources.
Operations management provides the basis for
innovation by building a solid base of operations and
knowledge 1-7
OBJECTIVES OF OM:
Customer Service
Utilize resources for the satisfaction of customer
wants
Resource Utilization
Customer service must be provided with the
achievement of effective operations through efficient
use of resources.

Operations management is concerned with the

achievement of both satisfactory customer service and
resource utilization. An improvement in one will often
give rise to deterioration in the other. Often both cannot
be maximized, and hence a satisfactory performance must
be achieved on both objectives 1-8
 Historical Events in Operations
Management
Era Events/Concepts Dates Originator
Steam engine 1769 James Watt
Industrial
Division of labor 1776 Adam Smith
Revolutio
Interchangeable
n 1790 Eli Whitney
parts
Principles of
Frederick
scientific 1911
W. Taylor
management
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 Historical Events in Operations
Management (Contd..)
Era Events/Concepts Dates Originator
Hawthorne studies 1930 Elton Mayo
1940s Abraham Maslow
Human Frederick
1950s
Relations Motivation theories Herzberg
Douglas
1960s
McGregor
Linear
1947 George Dantzig
programming 1-10
 Historical Events in Operations
Management (Contd..)
Era Events/Concepts Dates Originator
Taiichi Ohno
JIT (just-in-time) 1970s
(Toyota)
TQM (total W. Edwards
quality 1980s Deming,
Quality
management) Joseph Juran
Revolutio
Strategy and Wickham Skinner,
n 1980s
operations Robert Hayes
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 Historical Events in Operations
Management (Contd..)
Era Events/Concepts Dates Originator
Internet Internet, WWW, 1990s ARPANET, Tim Berners-
Revolutio ERP, supply chain Lee SAP,
n management i2 Technologies, ORACLE,
Dell
E-commerce 2000s Amazon, Yahoo, eBay,
Google, and others
Globalizat WTO, European 1990s China, India, emerging
ion Union, Global 2000s economies
supply chains,
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 Industrial Revolution (Late 1700s)

Replaced traditional craft methods

(Craft production- process of handcrafting
products or services for individual customers)
Substituted machine power for labor
Major contributions:
James Watt (1764): steam engine
Adam Smith (1776): division of labor
(dividing a job into a series of small tasks each
performed by a different worker)
Eli Whitney (1790): interchangeable parts
(standardization of parts initially as replacement
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Scientific Management (Early 1900s)
Emphasis on Technical aspects of work design
Separated planning from doing
Managements job was to discover workers
physical limits through measurement, analysis
& observation
Major contributors:
- Principles/ Science of Management --1911 --
F W Taylor
- Time & Motion Study -----
1911 ----- Frank & Lillian Gilbert 1-14
 Human Relations Movement (1930s
to 1960s)
Emphasis on human aspects of job design
Recognition that factors other than money contribute to
worker productivity
Major contributions:
- Motivation Theories ----- 1930 ----- Abraham Maslow
----- 1950 -----
Frederick Hertzberg
- Theory X & Theory Y ----- 1960 ----- Douglas Mc
Gregore
- Theory Z ----- 1970 ----- William
Ouchi

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 Management Science (Mid-1900s)
Developed new quantitative techniques for
common OM problems:
Major contributions include:
inventory modeling
linear programming
project management
forecasting
statistical sampling
quality control techniques
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 Computer Age (1970s)
Provided the tool necessary to support the
widespread use of Management Sciences
quantitative techniques the ability to
process huge amounts of data quickly &
relatively cheaply

Major contributions include the development

of Material Requirements Planning (MRP)
systems for production control

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 Developments (1980s)
Japanese Influence
Just-In-Time (JIT):
Techniques designed to achieve high-volume
production using coordinated material flows,
continuous improvement, & elimination of
waste
Total Quality Management (TQM):
Techniques designed to achieve high levels
of product quality through shared
responsibility & by eliminating the root causes
of product defects
Business Process Reengineering: 1-18
 Developments (1990s)
Flexibility:
Offer a greater variety of product choices on
a mass scale (mass customization)
Time-based competition:
Developing new product designs &
delivering customer orders more quickly than
competitors
Supply Chain Management
Cooperating with suppliers & customers to
reduce overall costs of the supply chain &
increase responsiveness to customers 1-19
 Developments (1990s)
Global competition:
International trade agreements open new markets for
expansion & lower barriers to the entry of foreign
competitors (e.g.: NAFTA & GATT)
Creates the need for decision-making tools for
facility location, compliance with with local
regulations, tailoring product offerings to local tastes,
managing distribution networks,
Environmental issues:
Pressure from consumers & regulators to reduce,
reuse & recycle solid wastes & discharges to air &
water
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 Electronic Commerce
Internet & related technologies enable new
methods of business transactions:
E-tailing creates a new outlet for retail
goods & services with global access and 24-
7 availability
Internet provides a cheap network for
coordinating supply chain management
information
Developing influence of broadband & wireless

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 GOODS Vs SERVICES
GOODS:
Goods are basically objects or products which have to
be manufactured, stored, transported, marketed and
sold.

SERVICES:
A service is an activity or benefit that one party can
offer to another that is essentially intangible and does
not result in the ownership of anything. Its production
may or may not be tied to a physical product
- Kotler and Armstrong (1981)
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1-23
1-24
Contd
Physical goods Services
tangible intangible

homogeneous heterogeneous

Production and distribution are separated Production, distribution and consumption are
from consumption simultaneous processes
A thing An activity or process

Core value processed in factory Core value produced in the buyer-seller

interaction
Customers do not participate in the Customers participate in production
production process
Can be kept in stock Cannot be kept in stock

Transfer of ownership No transfer of ownership

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Characteristics that distinguish services from goods:
Intangibility
Inseparability
Perishability
Difficulty of standardization
Frequent requirement of interaction between buyer
and Seller
Variability
Legal and Ethical Barriers
Unpredictability of demand
Difficulty in entering foreign markets
Limited applicability of portfolio theory
Difficulties in establishing large market shares
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 TRANSFORMATION PROCESS
Operations management transforms inputs (labor, capital,
equipment, land, buildings, materials and information) into
outputs (goods and services) that provide added value to
customers.
Diagram below summarizes the transformation process

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 SYSTEM PERSPECTIVE
A System is a group of interrelated items in which no
item studied in isolation will act in the same way as it
would in the system.
Systems view of operations management states that
activities in an
operations system can be classified as inputs,
transformation I process
Processing
and output. Inputs
O are classified
into three general categories-external, market and
Labor N Process and Product design U Goods
Material P Purchasing and Inventory Control T
Services
U P
primary resources.
Capital Operational Planning and control
T U
T

Quality Maintenance Process

Management Management Improvement
Contd

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 PRODUCTION SYSTEM
Definition:
The set of resources and procedures involved
in converting raw material into products and
delivering them to customers
Types of Production System:
Types of
Production

Intermittent Continuous
Production Production

Mass & Assembly

Project Job Batch Flow Production
Production Production Production Production
 INTERMITTENT PRODUCTION SYSTEM
It is a production system in which the production facilities are flecible
enough to handle a wide variety of products and sizes.
These can be used to manufacture those products where the basic
nature of inputs changes with the change in the design of the product
and the production process require continuous adjustments.
Example: Machine Shops, Hospitals, General Office etc.
Intermittent systems can be further classified into 3 categories, namely
(a) Project production: Project production where a single assignment
of complex nature isundertaken for completion within the given
period and within the estimatedexpenditure. (Ex: Aircrafts)
(b) Job production: Jobbing production where one or few units of a
product are produced tocustomers requirement within the given date
amid within the price fixedprior to the contract. (Ex: Genaral Repair
shops)
(c) Batch production: Batch production where limited quantity of each
type of product is authorized for manufacture at a time. (Ex: Paints)
 CONTINUOUS PRODUCTION SYSTEM
In this system the items are produces for the stocks and not for
specific orders.
Before planning manufacturing to stock, a sales forecast is made to
estimate likely demand of the product.
The inputs are standardized and a standard set of processes and
sequence of processes can be adopted.

Continuous systems can be further classified into 2 categories, namely

a) Mass & Flow Production: Mass and flow production where a
production run is conducted either on asingle machine or on a
number of machines, arranged according to thesequence of operations
and several number of a product are manufactured ata time and
stocked in warehouse awaiting sales. (Ex: Sugar Production)
b) Assembly Production: It is a typr of production system in which
the assembly of different equipment takes place to produce the final
product. (Ex: Manufacturing of cars)
SCOPE OF PRODUCTION & OPERATION
MANAGEMENT
Location of
facilities

Maintenance Plant layout

Management & materials

Scope of
Materials Production & Product
Management Operations Design
Management

Quality
Control Process Design

Production &
Planning
Control
Functions of Operations Management
Operations as Key Functional Area:
Finance
Operations

Marketing HRM
Opeartions Function in an Organization:
Operating Support Layer
Customer Layer 1. Marketing 2. IT
3. Maintenance 4. Design
Ultimate Customer
5. Quality 6. Material
Dealers
Core Operations
Retailers Layer
Testing Supplier Layer
Assembly Sub-Contractors
Layer of Innovation Fabrication Suppliers
Innovation Strategy Machining Other Service
Research & Development Service Delivery Providers
System
 CHALLENGES & CURRENT PRIORITIES IN OM
CHALLENGES:
Competitive pressure due to Economic Reforms
Growing customer Expectations
Technological Developments
Environmental Issues
CURRENT PRIORITIES:
Relate the operations system to customer/market
requirements
Acquire capabilities to tolerate product/service
proliferation
Develop systems and procedures that promote learning
Develop green manufacturing practices
 RECENT TRENDS IN OM
Flexibility Lean Production
Total Quality Just in time production
Management Computer Aided
Time Reduction manufacturing
Computer Aided
Worker Involvement
Design
Business Process E-Supply Chain
Re-engineering Management
Global Market Place Enterprise Resource
Operations Strategy Planning
Environmental Issues
 OPERATIONS STRATEGY
DEFINITION:
Operations strategy is the development of a long-term
plan for using the major resources of the firm for a high
degree of compatibility between these resources and the
firms longterm corporate strategy.
Some of the major long-term issues addressed in operations
strategy include
How large do we make our facilities?
What type of process(es) do we install to make the
products or provide services?
What will our supply chain look like?
What will be the nature of our workforce?
How do we ensure quality?
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OPERATIONS STRATEGY PROCESS

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 OPERATIONS STRATEGY PROCESS (Contd)
VISION: A statement that provides long-term direction and motivation for the
organization
MISSION: A statement about the organization's business scope and methods of
competing
CORPORATE STRATEGY: Overall strategy adopted by the parent corporation
STRATEGIC BUSINESS UNIT (SBU): Stand-alone business within
conglomerate that operates like an independent company
BUSINESS STRATEGY: How a strategic business unit (SBU) addresses the
specific markets it serves and products it provides
FUNCTIONAL STRATEGY: Strategy developed by a function within an
organization to support the business strategy
COMPETITIVENESS: Company's position in the marketplace relative to its
competition
OPERATIONS STRATEGY: How the operations function contributes to
competitive advantage
COMPETITIVE PRIORITIES: How the operations function provides a firm
with a specific competitive advantage
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 ELEMENTS OF OPERATIONS STRATEGY

1. Positioning the Production System

2. Focus of factories and Service Facilities
3. Product/Service Design and Development
4. Outsourcing Plans
5. Technology Selection and Process Development
6. Allocation of Resources to Strategic Alternative
7. Facility Planning, Capacity, Location and Layout

1-40
4 PERSPECTIVES THAT REFLECT OPERATIONS STRATEGY

1-41
STRATEGIC FIT IN OPERATIONS STRATEGY

Market
Market
Operations
Strategy Owners
Target Types of
Types of hip of
Market Operation
Products Resourc
Segment Operation
s
Customer es
s
s Excellenc
Particular Product
Distinctiv
e Manage
Customer Features
e ment of
Requirem &
Capabiliti Resourc
ents Performa
es es
nce Success comes
from Strategic Fit 1-42
 OPERATIONS STRATEGY FRAMEWORK
Competitive
dynamics at Order Winners
the Order Qualifiers
marketplace
Generic
Strategic Competitive
Options for Priorities:
sustaining Quality, Cost,
competitive Delivery &
advantage Flexibility
Firm-Level
Corporate
strengths &
Strategy
Weaknesses

Measures for
Strategic options Operations
operational
for operations Strategy
excellence

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OPERATIONS STRATEGY FRAMEWORK (Manufacturing)

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 What Is a Supply Chain?
Flow of products and services from:
Raw materials manufacturers
Intermediate products manufacturers
End product manufacturers
Wholesalers and distributors and
Retailers
Connected by transportation and storage
activities
Integrated through information, planning,
and integration activities
 SUPPLY CHAIN MANAGEMENT
DEFINITION:
Supply Chain Management deals with the management of
materials,
information, and financial flows in a network consisting of
suppliers,
manufacturers, distributors and customers.
Stanford Supply Chain Forum
Supply chain management is a set of approaches utilized to
efficiently integrate suppliers, manufacturers, warehouses, and
stores, so that merchandise is produced and distributed at the
right quantities, to the right locations, and at the right time, in
order to minimize system wide costs while satisfying service
level requirements
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The SCM Network
 OBJECTIVES OF SUPPLY CHAIN MANAGEMENT
Service Orientation
Systems Orientation
Competitiveness & Efficiency
Minimizing the Time and Work-in-progress
Improving visibility of demand & pipeline
Improving Quality
Reduces Transportation & Warehousing
Rationalose supplier base
Life-cycle support
Improving Value
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 FLOWS IN SCM
Material Flow

Converter
Supplier Retailer
Distributor

Source
Converter Consumers
Distributor
Supplier End-User

Value-Added Services

Funds/Demand Flow

Information Flow

Reuse/Maintenance/After Sales Service Flow

Process view of a supply chain

Cycle view

Push/pull view
Cycle View of Supply Chains
Customer

Customer Order Cycle

Retailer
Replenishment Cycle
Distributor

Manufacturing Cycle
Manufacturer

Procurement Cycle
Supplier
Customer order cycle Replenishment cycle
Customer arrival Retail order
Customer order entry
Customer order trigger
fulfillment Retail order entry
Customer order receiving
Retail order
fulfillment
Manufacturing cycle Retail order
Order arrival from receiving
the distributor,
retailer, or customer
Production
scheduling
Manufacturing and
 Push/Pull View of Supply
Chains
Pull processes: execution is initiated
in response to a customer order

Push processes: execution is

initiated in anticipation of customer
orders
Push/Pull View of Supply Chains

Procurement, Customer Order

Manufacturing and Cycle
Replenishment cycles

PUSH PROCESSES PULL PROCESSES

Customer
Order Arrives