Operations System and Strategic Planning

CHAPTER 2
Operations System and Strategic
Planning

Faculty of Management Sciences, Department of Management,

International Islamic University IslamabadPage 1

Operations System and Strategic Planning

Table of Contents
Topic
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
2.11
2.12
2.13

Page Number
Operation System
Operations Management
Operations Management Objectives
The Strategic Role of Operations
Strategic Planning
The Trend: Information And Non Manufacturing Systems
Productivity
Factors effecting productivity
The Environment Of Operations
Scope of Operations Management
Exercise
Case Studies
Glossary

Faculty of Management Sciences, Department of Management,

International Islamic University IslamabadPage 2

3
3
5
6
8
8
9
10
10
10
14
14
16

Operations System and Strategic Planning

2.1
OPERATIONS SYSTEM
An operation was defined in terms of the mission it serves for the organisation,
technology it employs and the human and managerial processes it involves. Operations
in an organisation can be categorized into Manufacturing Operations and Service
Operations. Manufacturing Operations is a conversion process that includes
manufacturing yields a tangible output: a product, whereas, a conversion process that
includes service yields an intangible output: a deed, a performance, an effort.
Operations system converts inputs in order to provide outputs, which are required by a
customer. It converts physical resources into outputs, the function of which is to satisfy
customer wants. Everett E. Adam & Ronald J. Ebert defines as An operating system
is the part of an organisation that produces the organistions physical goods and
services. Ray Wild defines operations system as a configuration of resources
combined for the provision of goods or services.
In some of the organisation the product is a physical good (breakfast in hotels) while in
others it is a service (treatment in hospitals). Bus and taxi services, tailors, hospital and
builders are the examples of an operations system. The basic elements of an operation
system show in Figure below with reference to departmental stores. A departmental
store's has an input like land upon which the building is located, labour as a stock clerk,
capital in the form of building, equipment and merchandise, management skills in the
form of the stores manager. Output will be serviced customer with desired
merchandise. Random fluctuations will be from external or internal sources, monitored
through a feedback system.

Fig 1.1

2.2
OPERATIONS MANAGEMENT
Operation is that part of as organization, which is concerned with the
transformation of a range of inputs into the required output (services) having the
requisite quality level. Management is the process, which combines and
transforms various resources used in the operations subsystem of the
organization into value added services in a controlled manner as per the policies
of the organization. The set of interrelated management activities, which are
involved in manufacturing certain products, is called as production
management. If the same concept is extended to services management, then
the corresponding set of management activities is called as operations
management.
Joseph G .Monks defines Operations Management as the process whereby
Faculty of Management Sciences, Department of Management,
International Islamic University IslamabadPage 3

Operations System and Strategic Planning

resources, flowing within a defined system, are combined and transformed by a
controlled manner to add value in accordance with policies communicated by
management.
The operations managers have the prime responsibility for processing inputs into
outputs. They must bring together under production plan that effectively uses the
materials, capacity and knowledge available in the production facility. Given a
demand on the system work must be scheduled and controlled to produce goods
and/or services required. Control must be exercised over such parameters such as
costs, quality and inventory levels. The definition of the operations Management
contains following keywords: Resources, Systems, transformation and Value
addition Activities.

RESOURCES

Resources are the human, material and capital inputs to the production process.
Human resources are the key assets of an organisation. As the technology
advances, a large proportion of human input is in planning and controlling
activities. By using the intellectual capabilities of people, managers can multiply
the value of their employees into by many times. Material resources are the
physical facilities and materials such as plant equipment, inventories and
supplies. These are the major assets of an organisation. Capital in the form of
stock, bonds, and/or taxes and contributions is a vital asset. Capital is a store of
value, which is used to regulate the flow of the other resources.

SYSTEMS

Systems are the arrangement of components designed to achieve objectives

according to the plan. The business systems are subsystem of large social
systems. In turn, it contains subsystem such as personnel, engineering, finance
and operations, which will function for the good of the organisation. A systems
approach to operations management recognises the hierarchical management
responsibilities. If subsystems goals are pursued independently, it will results in
sub-optimization. A consistent and integrative approach will lead to optimization
of overall system goals. The system approach to specific problems requires that
the problem first be identified and isolated from the maze of the less relevant
data that constitute the environment. The problem abstracted from the overall
(macro) environment. Then it can be broken into manageable (micro) parts and
analysed and solutions proposed. Doing this analysis is advantageous before
making any changes. If the solution appears to solve the problem in a satisfactory
way, changes can be made to the real system in an orderly and predictable way.
The ability of any system to achieve its objective depends on its design and its
control. System design is a predetermined arrangement of components. It
establishes the relationships that must exist between inputs, transformation
activities and outputs in order to achieve the system objectives. With the most
structured design, there will be less planning and decision-making in the
operations of the system. System control consists of all actions necessary to
ensure that activities conform to preconceived plans or goals. It involves following
four essential elements:
1. Measurement by an accurate sensory device.
2. Feedback of information in a timely manner.
3. Comparison with standards such as time and cost standards.
4. Corrective actions by someone with the authority and ability to correct.

Faculty of Management Sciences, Department of Management,

International Islamic University IslamabadPage 4

Operations System and Strategic Planning

A closed loop control system can automatically function on the basis of data from
within its own system.

TRANSFORMATION AND VALUE ADDING ACTIVITIES

The objective of combining resources under controlled conditions is to transform

them into goods and services having a higher value than the original inputs. The
transformation process applied will be in the form of technology to the inputs. The
effectiveness of the production factors in the transformation process is known as
productivity. The productivity refers to the ratio between values of output per
work hour to the cost of inputs. The firms overall ratio must be greater than 1,
then we can say value is added to the product. Operations manager should
concentrate improving the transformation efficiency and to increase the ratio.

Fig. Schematic model for operations/production system

2.3
OPERATIONS MANAGEMENT OBJECTIVES
Joseph G .Monks defines Operations Management as the process whereby
resources, flowing within a defined system, are combined and transformed by a
controlled manner to add value in accordance with policies communicated by
management.
Objectives of Operations Management can be categorized into Customer Service
and Resource Utilisation.

CUSTOMER SERVICE

The first objective of operating systems is to utilize resources for the satisfaction
of customer wants. Therefore, customer service is a key objective of operations
management. The operating system must provide something to a specification,
which can satisfy the customer in terms of cost and timing. Thus, providing the
right thing at a right price at the right time can satisfy primary objective.
These aspects of customer service specification, cost and timing are described
for four functions in Table. They are the principal sources of customer satisfaction
and must therefore be the principal dimension of the customer service objective
for operations managers. Generally, an organisation will aim reliably and
consistently to achieve certain standards and operations manager will be
influential in attempting to achieve these standards. Hence, this objective will
influence the operations managers decisions to achieve the required customer
service.

Faculty of Management Sciences, Department of Management,

International Islamic University IslamabadPage 5

Operations System and Strategic Planning

RESOURCE UTILISATION

Another major objective of operating systems is to utilize resources for the

satisfaction of customer wants effectively. Customer service must be provided
with the achievement of effective operations through efficient use of resources.
Inefficient use of resources or inadequate customer service leads to commercial
failure of an operating system.
Operations management is concerned essentially with the utilisation of resources,
i.e. obtaining maximum effect from resources or minimising their loss, under
utilisation or waste. The extent of the utilisation of the resources potential might
be expressed in terms of the proportion of available time used or occupied, space
utilisation, levels of activity, etc. Each measure indicates the extent to which the
potential or capacity of such resources is utilised. This is referred as the objective
of resource utilisation.
Operations management is concerned with the achievement of both satisfactory
customer service and resource utilisation. 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. All the activities of
operations management must be tackled with these two objectives in mind, and
because of this conflict, operations managers will face many of the problems.
Hence, operations managers must attempt to balance these basic objectives.
The Table below summarizes the twin objectives of operations management. The
type of balance established both between and within these basic objectives will
be influenced by market considerations, competitions, the strengths and
weaknesses of the organization, etc. Hence, the operations managers should
make a contribution when these objectives are set.

2.4

THE STRATEGIC ROLE OF OPERATIONS

Faculty of Management Sciences, Department of Management,

International Islamic University IslamabadPage 6

Operations System and Strategic Planning

Primary goals of the organisations are related market opportunities. Economy and
efficiency of conversion operations are the secondary goals, which will be
predominant with the study and practice of operations management.

A STRATEGIC PERSPECTIVE

In figure 1.1 provides the basic downward flow of strategy influence leading to
managing conversion operations and results. The general thrust of the process is
guided by competitive and market conditions in the industry, which provide the
basis for determining the organizations strategy. Where is the industry now, and
where it will be in the future? What are the existing and potential markets? What
market gaps exist, and what competencies do we have for filling them? A careful
analysis of market segments and the ability of our competitors and ourselves to
meet the needs of these segments will determine the best direction for focusing
an organizations efforts. After assessing the potential within an industry, an
overall organizational strategy must be developed, including some basic choices
of the primary basis for competing. In doing so, priorities are established among
the following four characteristics:
Quality (product performance).
Cost efficiency (low product price).
Dependability (reliable, timely delivery of orders to customers).
Flexibility (responding rapidly with new products or changes in volume).
In recent years, most organizations cannot be best on all these dimensions and,
by trying to do so, they end up doing nothing well. Furthermore, when a
competency exists in one of these areas, an attempt to switch to a different one
can lead to a downfall in effectiveness (meeting the primary objectives).
Time is emerging as a critical dimension of competition in both manufacturing
and service industries. In any industry the firm with the fastest response to
customer demands has the potential to achieve an overwhelming market
advantage. In an era of time-based competition, a firm's competitive advantage is
defined by the total time required to produce a product or service. Firms able to
respond quickly have reported growth rates over three times the industry average
and double the profitability. Thus the pay-off for quick response is market
dominance. These basic strategic choices set the tone for the shape and content
of the operations functions.

OPERATIONS OBJECTIVES

The overall objective of the operations subsystem is to provide conversion

capabilities for meeting the organizations goals and strategy. The sub-goals of
the operations subsystem, must specify the following:
1. Product/service characteristics.
2. Process characteristics.
3. Product/service quality.
4. Efficiency
Effective employee relations and cost control of labour.
Cost control of material.
Cost control in facility utilization.
5. Customer service (schedule)
Producing quantities to meet expected demand.
Meeting the required delivery date for goods or services.
6. Adaptability for future survival.
The priorities among these operations sub-goals and their relative emphases
should be direct reflections of the organizations mission. Relating these six
Faculty of Management Sciences, Department of Management,
International Islamic University IslamabadPage 7

Operations System and Strategic Planning

operations sub-goals to the broader strategic choices above, it is clear that
quality, efficiency, and dependability (customer service) are reflected in the subgoals. Flexibility encompasses adaptability but also relates to product/service and
process characteristics: Once choices about product and process are made,
boundaries for meeting the other operations objectives are set.

OPERATIONS ALTERNATIVES AND TRADEOFFS

The operations sub-goals can be attained through the decisions that are made in
the various operations areas. Each decision involves important tradeoffs between
choices about product and process versus choices about quality, efficiency,
schedule and adaptability.
Once a decision is made, it leads to many choices. Where should facilities be
located? How large should they be? What degree of automation should be used?
How skilled must labour be to operate the automated equipment? Will the
product be produced on site? How do these decisions impact quality, efficiency,
schedule (customer service), and adaptability? Are we prepared for changes in
product or service, or do these decisions lock in our operations? These are
examples of the tough, crucial tradeoffs that are at the heart of understanding
the choices that must be made when planning strategically and tactically
2.5 STRATEGIC PLANNING
Strategic planning is the process of thinking through the current mission of the
organization and the current environmental conditions facing it, then setting forth
a guide for tomorrows decisions and results. Strategic planning is built on
fundamental concepts: that current decisions are based on future conditions and
results.
Strategic Planning for Production and Operations
In the production or operations function, strategic planning is the broad, overall
planning that precedes the more detailed operational planning. Executives who
head the production and operations function are actively involved in strategic
planning, developing plans that are consistent with the firms overall strategies as
well as such functions as marketing, finance accounting and engineering.
Production and operations strategic plans are the basis for (1) operational
planning of facilities (design) and (2) operational planning for the use of these
facilities.
Strategic Planning Approaches for Production/Operations
Henry Mintzberg suggests three contrasting modes of strategic planning: the
entrepreneurial, the adaptive, and the planning modes. In the entrepreneurial
mode, one strong, bold leader takes planning action on behalf of the
production/operations function. In the adaptive mode, a managers plan is
formulated in a series of small, disjointed steps in reaction to a disjointed
environment. The planning model uses planning essentials combined with the
logical analysis of management science. There are many approaches to strategic
planning. The key point is that operations strategies must be consistent with the
overall strategies of the firm. Operations typically utilize the overall corporate
approach to strategic planning, with special modifications and a focus upon
operations issues and opportunities. One general approach to strategic planning
is a forced choice model given by Adam and Ebert.

Faculty of Management Sciences, Department of Management,

International Islamic University IslamabadPage 8

Operations System and Strategic Planning

2.6 THE TREND: INFORMATION AND NON MANUFACTURING SYSTEMS
An increasingly significant trend in the Indian economy is the gradual shift of
productive effort from manufacturing (industrial) to service and information based
products. With this, the demand for communication and information based
product is gradually restructuring the society. Traditional ways of doing things are
being replaced by efficient methods. Computers play a major role in this
transition along with fiber optics, microwaves, lasers and other communication
technologies. Following characteristics can be considered for distinguishing
Manufacturing Operations with Service Operations:
1. Tangible/Intangible nature of output
2. Production and consumption
3. Nature of work (job)
4. Degree of customer contact
5. Customer participation in conversion
6. Measurement of performance
7. Quality of output
8. Inventory accumulated.
Manufacturing is characterized by tangible outputs (products). Consumption of
outputs at overtime. Jobs useless labour and more equipment, little customer
contact, no customer participation in the conversion process (in production).
Sophisticated methods for measuring production activities and resource
consumption as product are made.
Service is characterized by intangible outputs. In addition, it possess a potential
for high variability in quality of output. Production and consumption occurs
simultaneously. Jobs use more labour and less equipment, direct consumer
contact, frequent customer participation in the conversion process. Elementary
methods for measuring conversion activities and resource consumption are used.
2.7

PRODUCTIVITY

Productivity is defined in terms of utilization of resources, like material and labour.

In simple terms, productivity is the ratio of output to input. For example,
productivity of labour can be measured as units
produced per labour hour worked. Productivity is closely inked with quality,
technology and profitability.
Hence, there is a strong stress on productivity improvement in competitive
business environment. Productivity can be improved by (a) controlling inputs, (b)
improving process so that the same input yields higher output, and (c) by
improvement of technology. These aspects are discussed in more detail in the
lesson on Productivity Management. Productivity can be measured at firm level,
at industry level
Modern Dynamic Concept of Productivity
Productivity can be treated as a multidimensional phenomenon. The modern
dynamic concept of productivity looks at productivity as what may be called
productivity flywheel. The productivity is energized by competition. Competition
leads to higher productivity, higher productivity results in better value for
customers, this results in higher share of market for the organization, which
results in still keener competition. Productivity thus forms a cycle, relating to
design and products to satisfy customer needs, leading to improved quality of life,
higher competition i.e. need for having still higher goals and higher share of
market, and thereby leading to still better designs.
Faculty of Management Sciences, Department of Management,
International Islamic University IslamabadPage 9

Operations System and Strategic Planning

Factor Productivity and Total Productivity

When productivity is measured separately for each input resource to the
production process it is
called factor productivity or partial productivity. When productivity is measured
for all the factors of
production together, it is called total factor productivity.
Generally factor productivity calculations are required at firm level and industry
level, whereas total factor productivity calculations are made for measuring
productivity at national and international level. Productivity of materials can be
measured as output units per unit material consumed. It can also be measured in
terms of value generated per unit expenditure in materials. For measuring
productivity of different groups of operatives, different ratios can be used, which
are indicative of output/input relationship. For example, the productivity of
assembly line work can
be measured as output units per man-hour or alternatively, the value of good
produced per cost of labour on assembly line.
Productivity Analysis
For the purposes of studies of productivity for improvement purposes, following
types of analysis
can be carried out:
1. Trend analysis: Studying productivity changes for the firm over a period of
time.
2. Horizontal analysis: Studying productivity in comparison with other firms of
same size and
engaged in similar business.
3. Vertical analysis: Studying productivity in comparison with other industries
and other firms
of different sizes in the same industry.
4. Budgetary analysis: Setting up a norm for productivity for a future period as
budget, based
on studies as above, and planning strategies to achieve it.
2.8 FACTORS AFFECTING PRODUCTIVITY
Economists site a variety of reasons for changes in productivity. However some of
the principle
factors influencing productivity rate are:
1. Capital/labour ratio: It is a measure of whether enough investment is being
made in plant,
machinery, and tools to make effective use of labour hours.
2. Scarcity of some resources: Resources such as energy, water and number
of metals will
create productivity problems.
Faculty of Management Sciences, Department of Management,
International Islamic University IslamabadPage 10

Operations System and Strategic Planning

3. Work-force changes: Change in work-force effect productivity to a larger
extent, because
of the labour turnover.
4. Innovations and technology: This is the major cause of increasing
productivity.
5. Regulatory effects: These impose substantial constraints on some firms,
which lead to change
in productivity.
6. Bargaining power: Bargaining power of organized labour to command wage
increases excess
of output increases has had a detrimental effect on productivity.
7. Managerial factors: Managerial factors are the ways an organization benefits
from the
unique planning and managerial skills of its manager.
8. Quality of work life: It is a term that describes the organizational culture,
and the extent to
which it motivates and satisfies employees.
2.9 THE ENVIRONMENT OF OPERATIONS
One of the most encompassing influences on productivity is the environment in
which organization
operates. The social impact of an organization is a reflection of the values held by
top management.
2.10 SCOPE OF OPERATIONS MANAGEMENT
Operations Management concern with the conversion of inputs into outputs, using
physical resources,
so as to provide the desired utilities to the customer while meeting the other
organizational objectives
of effectiveness, efficiency and adoptability. It distinguishes itself from other
functions such as
personnel, marketing, finance, etc. by its primary concern for conversion by
using physical resources.
Following are the activities, which are listed under Production and Operations
Management functions:
1. Location of facilities.
2. Plant layouts and Material Handling.
3. Product Design.
4. Process Design.
5. Production and Planning Control.
6. Quality Control.
7. Materials Management.
8. Maintenance Management.

Faculty of Management Sciences, Department of Management,

International Islamic University IslamabadPage 11

Operations System and Strategic Planning

LOCATION OF FACILITIES

Location of facilities for operations is a long-term capacity decision, which

involves a long-term commitment about the geographically static factors that
affect a business organisation. It is an important strategic level decision-making
for an organisation. It deals with the questions such as where our main
operations should be based? The selection of location is a key-decision as large
investment is made in building plant and machinery. An improper location of plant
may lead to waste of all the investments made in plant and machinery
equipments. Hence, location of plant should be based on the companys
expansion plan and policy, diversification plan for the products, changing sources
of raw materials and many other factors. The purpose of the location study is to
Faculty of Management Sciences, Department of Management,
International Islamic University IslamabadPage 12

Operations System and Strategic Planning

find the optimal location that will results in the
greatest advantage to the organization.

PLANT LAYOUT AND MATERIAL HANDLING

Plant layout refers to the physical arrangement of facilities. It is the configuration

of departments, work centres and equipment in the conversion process. The
overall objective of the plant layout is to design a physical arrangement that
meets the required output quality and quantity most economically. According to
James More Plant layout is a plan of an optimum arrangement of facilities
including personnel, operating equipment, storage space, material handling
equipments and all other supporting services along with the design of best
structure to contain all these facilities.
Material Handling refers to the moving of materials from the store room to the
machine and from one machine to the next during the process of manufacture. It
is also defined as the art and science of moving, packing and storing of products
in any form. It is a specialized activity for a modern manufacturing concern, with
50 to 75% of the cost of production. This cost can be reduced by proper section,
operation and maintenance of material handling devices. Material handling
devices increases the output, improves quality, speeds up the deliveries and
decreases the cost of production. Hence, material handling is a prime
consideration in the designing new plant and several existing plants.

PRODUCT DESIGN

Product design deals with conversion of ideas into reality. Every business
organisation have to design, develop and introduce new products as a survival
and growth strategy. Developing the new products and launching them in the
market is the biggest challenge faced by the organizations. The entire process of
need identification to physical manufactures of product involves three functions
Design and Marketing, Product, Development, and manufacturing. Product
Development translates the needs of customers given by marketing into technical
specifications and designing the various features into the product to these
specifications. Manufacturing has the responsibility of selecting the processes by
which the product can be manufactured. Product design and development
provides link between marketing, customer needs and expectations and the
activities required to manufacture the product.

PROCESS DESIGN

Process design is a macroscopic decision-making of an overall process route for

converting the raw material into finished goods. These decisions encompass the
selection of a process, choice of technology, process flow analysis and layout of
the facilities. Hence, the important decisions in process design are to analyse the
workflow for converting raw material into finished product and to select the
workstation for each included in the workflow.

PRODUCTION PLANNING AND CONTROL

Production planning and control can be defined as the process of planning the
production in advance, setting the exact route of each item, fixing the starting
and finishing dates for each item, to give production orders to shops and to
follow-up the progress of products according to orders. The principle of production
planning and control lies in the statement First Plan Your Work and then Work on
Your Plan. Main functions of production planning and control include Planning,
Routing, Scheduling, Dispatching and Follow-up.
Planning is deciding in advance what to do, how to do it, when to do it and who
is to do it. Planning bridges the gap from where we are, to where we want to go. It
makes it possible for things to occur which would not otherwise happen.
Faculty of Management Sciences, Department of Management,
International Islamic University IslamabadPage 13

Operations System and Strategic Planning

Routing may be defined as the selection of path, which each part of the product
will follow, which being transformed from raw material to finished products.
Routing determines the most advantageous path to be followed for department to
department and machine to machine till raw material gets its final shape.
Scheduling determines the programme for the operations. Scheduling may be
defined as 'the fixation of time and date for each operation' as well as it
determines the sequence of operations to be followed.
Dispatching is concerned with the starting the processes. It gives necessary
authority so as to start a particular work, which has been already been planned
under Routing and Scheduling. Therefore, dispatching is Release of orders and
instruction for the starting of production for any item in acceptance with the
Route sheet and Schedule Charts.
The function of Follow-up is to report daily the progress of work in each shop in a
prescribed proforma and to investigate the causes of deviations from the planned
performance.

QUALITY CONTROL (QC)

Quality Control may be defined as a system that is used to maintain a desired

level of quality in a product or service. It is a systematic control of various factors
that affect the quality of the product. Quality Control aims at prevention of
defects at the source, relies on effective feedback system and corrective action
procedure.
Quality Control can also be defined as that Industrial Management technique by
means of which product of uniform acceptable quality is manufactured. It is the
entire collection of activities, which ensures that the operation will produce the
optimum quality products at minimum cost.
The main objectives of Quality Control are:
1. To improve the companies income by making the production more acceptable
to the customers i.e. by providing longlife, greater usefulness, maintainability,
etc.
2. To reduce companies cost through reduction of losses due to defects.
3. To achieve interchangeability of manufacture in large-scale production.
4. To produce optimal quality at reduced price.
5. To ensure satisfaction of customers with productions or services or high quality
level, to build customer good will, confidence and reputation of manufacturer.
6. To make inspection prompt to ensure quality control.
7. To check the variation during manufacturing.

MATERIALS MANAGEMENT

Materials Management is that aspect of management function, which is primarily

concerned with the acquisition, control, and use of materials needed and flow of
goods and services connected with the production process having some
predetermined objectives in view. The main objectives of Material Management
are:
1. To minimise material cost.
2. To purchase, receive, transport and store materials efficiently and to reduce the
related cost.
3. To cut down costs through simplification, standardisation, value analysis,
import substitution, etc.
4. To trace new sources of supply and to develop cordial relations with them in
order to ensure continuous supply at reasonable rates.
5. To reduce investment tied in the inventories for use in other productive
purposes and to develop high inventory turnover ratios.

Faculty of Management Sciences, Department of Management,

International Islamic University IslamabadPage 14

Operations System and Strategic Planning

MAINTENANCE MANAGEMENT

In modern industry, equipment and machinery are a very important part of the
total productive effort. Therefore their idleness or downtime becomes are very
expensive. Hence, it is very important that the plant machinery should be
properly maintained. The main objectives of Maintenance Management are:
1. To achieve minimum breakdown and to keep the plant in good working
condition at the lowest possible cost.
2. To keep the machines and other facilities in such a condition that permits them
to be used at their optimal capacity without interruption.
3. To ensure the availability of the machines, buildings and services required by
other sections of the factory for the performance of their functions at optimal
return on investment.

2.11 EXERCISE
1. Define Operations management. Explain the key concepts of Operations management
with a schematic diagram.
2. Distinguish between manufacturing and service operation with example.
3. What is strategic planning? Explain the role of models in strategic planning.
4. Define the term operations management. Briefly explain the strategic role of
operations.
5. Write a note on system view of operations.
6. Explain, how the considerations of environtnenta1 assessment and organisational
position provide a modeling framework for the strategic planning of operations.
7. Briefly explain how service producers differ from goods producers in important aspects
of their operations.
8. State the important objectives of production management.
9. Define the term productive system.
10. Give two examples for the productive systems concerned to service and
manufacturing respectively.
11. Operations strategyA key element in corporate strategy. Briefly explain.
12. Explain what do you understand by product-focused systems and process-focused
systems.
13. Differentiate between Production Management and Operations Management.
14. Explain the historical evaluation of production function up to 21st century.
15. Briefly explain the importance of operations management in the corporate
management.
16. Explain the concept of productivity.

2.12

CASE STUDIES :

Case : Birmingham International Airport

In the space of just 30 minutes every weekday, around 5.00 in the evening,
around 20 flights arrive at and depart from the Eurohub Terminal. At the same
time, aircraft are arriving and leaving the Main Terminal next to the Eurohub.
Across the runway and acres of tarmac, at the site of the original airport, the
overnight freight operation is just beginning to wake up with the arrival of staff
and the preparations for the first aircraft from Europe or the United States. Some
of the 7000 staff from the 150 organisations based at Birmingham International
Airport (BIA) see to the needs of their customers. The baggage handling operation
is sorting, checking and dispatching bags to the many departing aircraft. The
ground crews are loading and unloading aircraft, putting meals on board, filling
the fuel tanks and cleaning the aircraft during their brief spell at the airbridge.
The airlines ticketing staff are dealing with lines of passengers, each of whom
may have a different final destination. The information desk is fully staffed,
dealing with the many queries, such as people wanting to know if their plane is on
Faculty of Management Sciences, Department of Management,
International Islamic University IslamabadPage 15

Operations System and Strategic Planning

time, the location of a bank or hotel, or trying to work out how to get by road or
rail to their final destination. Passengers flow through the lounges, passport
control and security checks, and use toilets, duty free shops and restaurants, all
of which have to be kept clean and stocked for their convenience. All of these
activities, and more, are coordinated by BIAs Operations Director, Richard Heard.
Richard explains his role: Out of all the people that work at the airport, BIA
employs about 700 and I oversee about 600 of them. These operations people are
basically concerned with the day-to-day running of the airport and the short and
medium-term operational planning. This includes a whole raft of things on the
airfield and in and around the terminals. The airfield side of things essentially
involves maintaining the runways, agreeing slot allocations with the airlines,
developing and implementing safety management systems and keeping the fire
crew fully trained, for example. This is a heavily regulated area so we work very
closely with the Civil Aviation Authority. The other side of the operation is about
managing the terminal buildings and other facilities. This is almost like running a
shopping centre with its focus on customer service but with special security
arrangements. Airport security is a key task which we run in-house, employing
about 300 people. I also have a facilities management team and an engineering
services team that look after the maintenance of the whole site. In terms of longterm design and development, we set up teams to oversee the planning of new
building projects, such as new catering outlets, car parks and people mover
systems. This plan uses the forecasts of passenger numbers and guides our
decisions about what to build and when, and how to pay for it. We have been
growing at a rate of about 10 per cent a year over the last 10 years. In 2000 the
airport handled 7.6 million passengers and our growth is set to continue, with an
anticipated 10 million passengers expected to travel through Birmingham by
2005. This plan involves serious money; we are talking about a capital plan of
about 50 million a year over the next 15 years. This is all very much driven by
operational needs. Managing and developing the airports operations are huge
challenges. One of the major tasks for operations is not just to provide the
infrastructure for all the other organisations on site such as airlines, handling
agents, retailers, cargo handlers but also to provide the leadership and
coordination for them. There are also groups off site, such as community groups,
which we liaise with as we work to monitor and improve the environment. My
personal job is about coordination and setting the safety and customer service
standards for everyone to adhere to. All of us from the different organisations try
to work together as a team and there is a great community spirit here that has
built up over the years. Everyone wants their own bit to work well and the whole
thing to work well together. We all have a great understanding of everyones
problems and there is an excellent spirit of cooperation. The real secret of
managing operations, if you are ever going to sleep at night, is to make sure you
have really good processes and procedures in place. We cant have people
making it up on the spot. Everything has to be thought through and tried and
tested. We spend a great deal of time reviewing and developing processes. We
have to have procedures for fires, evacuations, bomb threats, ill passengers and
even deaths in the terminal. Unfortunately, we do have medical emergencies, not
surprising since we have about 30 000 people passing through the airport every
day in the summer. Another key task is operational planning. We do this on an
annual basis. Operational planning is about making the operation as efficient as
possible by working out how we can best allocate our infrastructure to the
airlines. For example, we need to decide who is going to get the airbridges, who is
going to get certain stands, who is going to have their passengers bused to the
terminal at peak times, and so on. However, you have to remember that the
Faculty of Management Sciences, Department of Management,
International Islamic University IslamabadPage 16

Operations System and Strategic Planning

operational plans are just that, plans, and as ever, things go wrong schedules
fall apart because of plane delays or mechanical problems, for example. So we
also have terminal duty managers whose job it is to sort out the day-to-day
operational problems. Our team of terminal managers covers the airport 24 hours
a day, every day of the week, with one senior manager overseeing each shift.
Many of the things that happen are recurring problems, such as delays or
diversions, and you know you will end up with a lot of passengers waiting around
a lot longer than they want to. The job of the duty manager is to coordinate all
our efforts, ensuring that the catering people know whats happening and making
sure our information services people know so they can tell the passengers, for
example. The terminal managers need to keep their ears and eyes open.
Passengers may report that they have seen someone acting suspiciously and the
managers need to know what to do. When passengers get off the plane and their
bags are not there, although its the responsibility of the airlines or their handling
agents, our people may have to pick up the pieces. When people try taking
prohibited items through security, such as a family heirloom with a large curved
blade, we have to explain patiently to them that they have to leave it with us.
The terminal managers also have to deal with major incidents things like bomb
threats or, like last year, when the Spanish coach drivers went on strike leaving
many passengers stranded at the airport. The job of the terminal manager is to
sort it all out and make sure everyone knows what is happening. It involves a
great deal of common sense but it is not easy. If you have to do an evacuation, for
example, everyone will be at different stages in the passenger processing and
security clearance procedures, so when the incident is over, we have to try to put
them all back where they came from without mixing them up or they all have to
start the process again! We have the equivalent of the terminal duty managers
looking after the airfield side: operations duty managers. Their job is about
dealing with the day-to-day problems, such as changing stand allocations when
delays occur or arranging snow clearance if we have a sudden fall. Again plans
are in place and everything has to be thought through. We also have weekly
communication meetings when we get the operations and duty managers to work
with the operational planning department. Our mission is to be the best regional
airport in Europe. To do this we need continually to try to improve everything we
do. It sounds simple but it is not easy. For example, we have almost no capacity
at the peak times, that is between 7.00 a.m. and 8.00 a.m. and between 5.00
p.m. and 6.00 p.m. when we are busy with short-haul European traffic, so we are
trying to encourage other airlines to fill in the off-peak times. This is ideal for
long-haul operators and we now have flights to South East Asia and America, and
just last year we added an Emirates flight to Dubai. This allows us to use the
middle of the day when we have runway and terminal capacity and it suits
everybody as we can all make better use of our facilities. Running an airport is a
fascinating and exciting challenge. No two days are the same. We know that we
can make a real difference to our customers, both passengers and airlines, by
what we do. We also make a major contribution to the impact on the local
economy by encouraging inward investment and exports. As an operations
manager, my job is to make it all happen. Its a fantastic opportunity and it really
does make a difference its great!

Questions
1 Identify some of the micro-operations to be found at the airport. For each one:
(a) Identify the transforming and transformed resources.
(b) State which is the predominant transformed resource.
(c) Describe the output of each micro-operation and say who you think its customers are.

Faculty of Management Sciences, Department of Management,

International Islamic University IslamabadPage 17

Operations System and Strategic Planning

2 Summarise the job of the operations director. What are the main issues/problems he faces in
managing the airport?
3 What do you think Richard Heard actually does each day (how does he spend his time)?
4 Discuss the relationship between the day-to-day tasks and the long-term issues and explain
how Richard manages to oversee both at the same time?

2.13 Glossary

Activities

Pieces of work within a project that consume time. The

completion of all the activities of a project marks the end of the
project.

Faculty of Management Sciences, Department of Management,

International Islamic University IslamabadPage 18

Operations System and Strategic Planning

Critical Path The sequence of activities in a project that forms the longest
chain in terms of their time to complete. This path contains zero
slack time.

Early Start
Schedule

A project schedule that lists all activities by their early start

times.

Functional
Project

A structure where team members are assigned from the

functional units of the organization. The team members remain a
part of their functional units and typically are not dedicated to
the project.

Gantt Chart Shows in a graphic manner the amount of time involved and the
sequence in which activities can be performed. Often referred to
as a bar chart.

Immediate
Activity that needs to be completed immediately before another
Predecessor activity.

Matrix
Project

A structure that blends the functional and pure project

structures. Each project uses people from different functional
areas. A dedicated project manager decides what tasks need to
be performed and when, but the functional managers control
which people to use.

Project

A series of related jobs usually directed toward some major

output and requiring a significant period of time to perform.

Project
Planning,
directing,
and
controlling
resources
(people,
Management equipment, material) to meet the technical, cost, and time
Faculty of Management Sciences, Department of Management,
International Islamic University IslamabadPage 19

Operations System and Strategic Planning

constraints of the project.

Project
Milestone

A specific event in a project.

Pure
Project

A structure for organizing a project where a self-contained team

works full-time on the project.

Slack Time

The time that an activity can be delayed; the difference between

the late and early start times of an activity.

Time-Cost
Models

Extension of the critical path models that consider the trade-offs

between the time required to complete an activity and cost.

Work
Breakdown
Structure

The hierarchy of project tasks, subtasks, and work packages

Activities

Pieces of work within a project that consume time. The

completion of all the activities of a project marks the end of the
project.

Critical Path The sequence of activities in a project that forms the longest
chain in terms of their time to complete. This path contains zero
slack time.

Functional
Project

A structure where team members are assigned from the

functional units of the organization. The team members remain a
part of their functional units and typically are not dedicated to

Faculty of Management Sciences, Department of Management,

International Islamic University IslamabadPage 20

Operations System and Strategic Planning

the project.

Gantt Chart Shows in a graphic manner the amount of time involved and the
sequence in which activities can be performed. Often referred to
as a bar chart.

Immediate
Activity that needs to be completed immediately before another
Predecessor activity.

Late Start
Schedule

A project schedule that lists all activities by their late start times.
This schedule may create savings by postponing purchases of
material and other costs associated with the project.

Matrix
Project

A structure that blends the functional and pure project

structures. Each project uses people from different functional
areas. A dedicated project manager decides what tasks need to
be performed and when, but the functional managers control
which people to use.

Project

A series of related jobs usually directed toward some major

output and requiring a significant period of time to perform.

Project
Planning,
directing,
and
controlling
resources
(people,
Management equipment, material) to meet the technical, cost, and time
constraints of the project.

Project
Milestone

A specific event in a project.

Pure
Project

A structure for organizing a project where a self-contained team

works full-time on the project.

Slack Time

The time that an activity can be delayed; the difference between

Faculty of Management Sciences, Department of Management,

International Islamic University IslamabadPage 21

Operations System and Strategic Planning

the late and early start times of an activity.

Time-Cost
Models

Extension of the critical path models that consider the trade-offs

between the time required to complete an activity and cost.

Work
Breakdown
Structure

The hierarchy of project tasks, subtasks, and work packages

References :

1. Operations Management by S Anil Kumar

2. Operations Management by Stevenson
3.
Cases in Operations Management by Robert Johnston

Faculty of Management Sciences, Department of Management,

International Islamic University IslamabadPage 22