Introduction to OM | M A Hoque

Introduction to Operations Management

We are dependent on various kinds of products and services in our everyday life. Without food
and services, we cannot maintain our life even for a day. We eat various kinds of foods, use various
kinds of things in making our residents, apply various kinds of medicines in treatment of different
types of diseases, utilize various types of necessities in education, etc. Besides, we need various
types of services such as banking, healthcare, educational, retail, transport, waste management,
internet, energy generation, etc. in our everyday life. Generally, foods and services are generated
following some processes or systems to meet demands of customers. Customers’ satisfaction with
the delivered goods/services depends on competitive prices, qualities and customer services.
Besides, customers’ attitude toward a product/service change because of the emergence of
innovative technology and availability of affordable various kinds of options. So, proper
management of systems or processes is required to fulfil variable customers’ demands. Operations
Management is the proper management of processes or systems that generates products or services
to satisfy customers’ demands in time. Instances of various kinds of operations along with
examples are shown in the following table.

Operations Examples
Goods Producing Farming, mining, vehicle manufacturing, construction manufacturing,
power generation, pharmaceutical manufacturing, etc.
Storage/Transportation Warehousing, trucking, mailing service, moving service, taxis, buses,
hotels, airlines, shipping, railways, etc.
Exchange Retailing, wholesaling, banking, renting, leasing, library, loans, etc.

Entertainment/recreation Films, drama, radio and television, concerts, recording, paintings, etc.

Communication Newspapers, radio and television, newscasts, telephone, satellites, internet,

e-business, etc.
Teaching Students’ enrolment, teachers recruitment, syllabuses updating, scheduling
of classes, IT service, accounting service, transportation, etc.
Treatment Hospitals, doctors, various kinds of operations, testing, medicines, nursing,
therapy, etc.
Security Law enforcing agencies, defense force, fire brigades, coast guards, courts,
environmental protection, etc.
Waste management Garbage collection and disposal, sanitizing, pollution controlling,
environmental management, time and resources management, etc.

Thus Operations Management is the management of that part of an organization responsible for
producing standard quality of goods or providing standard quality of services.

The three basic function of an organization are finance, operations and marketing.
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1. Finance has three parts - financial security, budgeting and funding

Financial resources is a term covering all financial aspects of an organization. Security of

financial resources is essential for an organization. A company's financial security is a complex
multilevel process of ensuring protection of the enterprise from the negative impact of external
and internal financial threats, and the formation of its financial equilibrium in the current and
strategic perspective through effective use of its financial capacity.
Budgeting is the process of generating a plan to spend organization’s money, that is, the spending
plan of an organization. This spending plan allows an organization to determine in advance
whether it will have enough money to do the necessary things in time. Budgeting is the appropriate
allocation of money at different sectors of an organization to carry out various kinds of necessary
operations to achieve its goal. Also, it can be thought of simply balancing expenses of an
organization with its income.
Funding is the act of providing financial resources or disbursement of budgeted money at the
scheduled time to finance a need, program, or project of an organization. While this is usually in
the form of money, it can also take the form of effort or time for an organization or a company.
Generally, there are 10 fundamental steps to help manage organization’s money the right way as
follows:
1. Create a budget.
2. Understand your expenses.
3. Understand your income.
4. Consolidate your debt.
5. Remove unnecessary expenses.
6. Create an emergency fund.
7. Save 10 to 15 percent for retirement.
8. Review and understand your credit report.
9. Use a tool or personal finance app to manage money.
10. Follow money management resources.

2. Operations
Operation is the process of managing the interior mechanism of a business so that it can run as
efficiently as possible to fulfil the organization’s purpose. Whether one produces products, sell
products, or provide services, every business owner has to oversee the design and management of
its organizational whole work. Actually, the operations function involves the transformation of
inputs into output (product or service). The productivity, quality, any form of business (general or
online), price and customer service are dependent on these carried out operations. So,
competiveness of an organization is fully dependent of the carried out operations.

3. Marketing
Marketing is the set of activities, institutions and processes for creating, communicating,
delivering, and exchanging offerings that have value to customers, clients, partners, and society at
large. In marketing, the first step is to assess the customers’ needs and wants, that is, customers’
demands of the concerned products or services. The second step is to meet the customers’ expected
demand by selling and promoting the concerned items. In marketing, customer service is very
important in the competitive market. Delivery of standard quality products or services with
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reasonable prices in stipulated time to customers by maintaining courtesy is vital in upholding

customer service.
Thus marketing has two parts – forecasting of customer demands (assessment of customers’
demand) and fulfilment of customers’ demand.

Value-added process
Transformation of inputs into outputs requires a process, that is, a process is used to convert inputs
into outputs. In a value-added process, each of the operations of a process used to transform inputs
into outputs should add some value to the process. Here all of the belongings used to produce a
product or to provide a service to customers are called inputs. In case of production of a product,
the raw materials, the concerned equipment used, all the concerned employees, the required
infrastructure are the inputs. Generally, land, labor and capital are inputs. The outputs are goods
and services provided to customers. The method used to convert input into outputs is called the
conversion process. Thus a lot of money is invested in producing a product or providing a service.
For existence in business and also to continue with the updated competitive business environment,
all business organizations should accrue reasonable profit to the invested money; otherwise, a
business organization cannot exist with its business in the long run. This profit is called the value-
added by the process of transforming inputs into outputs. That is,
Value-added = Value or price of outputs – Cost of inputs
To produce qualified products or services the transformation process must be under control;
otherwise, one business organization cannot make reasonable profit and hence cannot survive in
the long run. However, a process of transforming inputs into outputs may face various kind of
problems, and so may not work 100 percent correctly. So, with the intention to make the process
more efficient, a feedback mechanism following the current condition of the process should be
adopted. Thus this feedback mechanism helps to keep the process under control more efficiently.

Examples of transformation of inputs into outputs:

Inputs Processing Outputs

Raw Vegetables Cleaning Canned vegetables
Metal Sheets Making cans Scraps!
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment

Product Package means a combination of good/goods and service/services. For instance, if you
buy a laptop and it has warranty for three years. Then goodwill of the company will depend both
on the quality of the product and the quality of warranty service. Thus an organization can be more
competitive by providing product packages to customers.

Group the following into product and service: Surgery, song writing, teaching, software
development, automobile repair, restaurant meal, computer repair, fast food, farming, vegetables,
car assembly, steel manufacturing, online selling, treatment of a patient, home repair,
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transportation, warehousing, home meal, cleaning, water supply, internet service, banking and
loan.

Production of Goods Versus Delivery of services

Production of Goods: Production of goods means a realistic output which is production based,
for examples, any agricultural product (crops, vegetables, fruits, fish, flowers, meats, etc.,) and
any industrial product (vehicles, construction materials, utensils, furniture, electronics, pens,
pencils, electrical items, cloths, shoes, etc.).
Delivery of services: An action carried out to satisfy customers’ wants and needs, that is, demands.
Delivery of service is always action based. Services can be categorized as wholesale/retail,
financial, educational, healthcare, security, military, transportation, agricultural, industrial,
cultural, utility, etc. Characteristics of goods and services are shown in the table below.

Characteristic Goods Service

Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Output Tangible Intangible
Measurement of productivity Easy Difficult
Opportunity to correct problems High Low
Inventory Much Little
Evaluation Easier Difficult
Patentable Usually Not usual

Managing of services is more challenging because of the following reasons:

1. Service jobs are often less structured than manufacturing jobs because the latter is carried out
following sequences and schedules. But in case of service, variation of service time is
somewhat unpredictable. As for example, treatment time of patients may vary from patient to
patient. So, maintenance of scheduling is difficult in case of service.
2. Customer contact is higher in case of service, and so customer satisfaction vary from customer
to customer following customers’ and service provider’s behaviors.
3. Services hire many entry-level workers who are low skilled and their input variability is higher.
They are required to be trained. However, they are provided salaries following minimum wage
rules and regulations. So, expenditure for low-skilled workers is higher
4. Service performance can be affected by worker’s personal factors. Different workers may
behave differently to customers that may affect the goodwill of the business.
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Scope of Operations Management

1. Forecasting
Forecasting is the process of estimating the demand of a product to be produced or a service to
be provided in the future. If one cannot properly estimate this demand then he/she has to face
loss in the future. If more product/services than the actual demand is produced/provided or
planned then the extra amount cannot be sold and hence to face loss. If less than the actual
demand is produced or planned, then there will be scarcity of the produce/service in practice,
and hence there will be a profit loss. Therefore, proper forecasting of demand is very important
in business and hence there lies a great scope (opportunity) of forecasting demand of a
product/service as accurate as possible in business.
2. Capacity planning
Capacity planning is the process of determining the maximum level of
production/service needed by an organization to meet demands of its product/service in the
future. If this capacity is not planned appropriately, then one has to face loss due to under or
over production of its products/services. So, there lies a scope of planning appropriate capacity
in a specified time in order to achieve expected profit in business.
3. Scheduling
Scheduling is the process of arranging, controlling and optimizing work and workloads in a
process by specifying fixed time for carrying out each of the concerned activities in the process.
Scheduling is used to allocate plant and machinery resources, plan human resources, plan
production/service processes and purchase materials. So, scheduling plays a vital role in
competitive business environment today and hence there lies a scope of updating works for an
organization.
4. Managing inventories
Inventory is the idle resources (materials, finished products, time, space, talents or capital) tied
up in a system those may be used to make a kind of benefit or profit in business. In business,
existence of inventory is a necessity. For example, the certain amount of a product must be
kept in a retail store for a certain amount of time to meet its continuous customers’ demand.
The retailer cannot get supply of a product every day because of the imposed higher
transportation cost. On the contrary, if a large amount of the product is kept in the store for a
longer time, then a lot of money tied up there which could be used in a more profitable way in
the business. So, both the over and under inventory cost creates a lot of problems in business.
So, there lies a scope of determining optimum (appropriate) level of inventory in business.
5. Assuring quality
If standard quality of a product or a service is not maintained, there will be a loss of customers’
goodwill and hence loss of business in the long run. A lot of effort and practice for quality
maintenance is required in business. So, there lies a scope of working for supplying better
quality products/services to customers.
6. Motivating employees
All of the things discussed above cannot be maintained without dedication and cooperation
of the employees. Motivation of the employees plays an important role in achieving a goal in
business. Employees can be motivated in various ways such as providing financial benefit,
recreational benefit, healthcare benefit, insurance benefit, job security benefit, etc. Hence
there lies a scope of generating various kinds of benefits for employees in order to motivate
them to work with dedication for a company.
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7. Deciding where to locate facilities

Location of a facility (factory, warehouse, show room, retail store, etc.) is also important in
business. Warehouse location depend on location of the area, government imposed taxes in
the area, transportation facilities, employee environment, availabilities of electricity, gas and
water, etc. As for example, if you think to place a warehouse in a remote area, then rental
cost or land cost will be lesser but transportation cost will be higher. On the contrary if you
think to place the warehouse in an area near to the city, then rental or land cost will be higher
but the transportation cost will be lesser. So, you have to locate the warehouse by balancing
the costs concerned. So, there lies a scope of working for proper placement of a warehouse.
8. Supply chain management
In producing a product or providing a service a lot of employees, equipment have to work at
different levels of an organization. Production of a quality product in lesser cost and delivering
it to customers in lesser time with lesser price is very crucial to the competitive market. This
purpose can be accomplished by proper concentration, coordination, cooperation and
collaboration among different components of an organization, which is called the supply chain
management. So, there lies an enormous scope of managing the supply chain of producing and
delivering products/services to fulfil customers’ expectation.

Key Decisions of Operations Managers

What resources should be used/what amount of a product should be produced?:
The first decision of operations managers is to decide what resources should be used in making a
product, and what amount of the product should be produced. The quality of a product depends on
the resources used in making the product. So, care should be taken for the use of qualified
resources. Besides, if a larger amount of a product is produced at a time, then it will generate a
larger amount of inventory and all of them may not be sold due to the emergence of an updated
substitute produced by embedding updated technologies. If lesser amount of a product is produced
at a time, then production cost increases due to the increase in set up cost for setting up a production
process again and again. Hence production of balanced amount is important. The operations
manager has the responsibility to decide this balanced amount of production.
When needed/scheduled/ordered?:
When needed means when the resources are required. For example, when raw materials are
needed? If raw materials are collected early, extra inventory is created. Later collection of raw
materials may result in delay of production of products which in turn may lead to shortages of the
product. In the same way, scheduling of starting and ending of a task is important to maintain the
chain of supplies in a system for completing the production in minimum time. If a task is completed
early in a supply chain, it will generate an extra inventory, and if it is carried out late, the whole
production will be delayed. Similarly, when a retailer should order for a next lot? A retailer should
order for a next lot so that he/she can meet customers’ demand without creating an extra inventory
and without shortage of products. Thus the operations manager has the responsibility of deciding
on the timing of carrying out these activities.
Where works to be done?:
A production manager has to decide in which factory the production of a product should be carried
out so that demand of the product in a place can be met easily incurring lesser cost; in which
warehouse raw materials should be stored so that the raw materials can be supplied easily with
minimum cost to maintain a continuous production process; in which warehouse the finished
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product should be stored so that demand in a place can be satisfied easily with the minimum cost
of inventory holding and transportation.
How to design a production process?
The production manager has the responsibility of designing the production process to produce the
required quantity of goods of the desired quality, at the right time at the right place, and at the
minimal cost. Process design helps develop a detailed plan for manufacturing products or
generating services, and provides the foundation and structure for production/services operations.
Who to do the work?:
Operations management is chiefly concerned with planning, organizing and supervising in the
contexts of production, manufacturing or the provision of services. As such, it is delivery-focused,
ensuring that an organization successfully turns inputs to outputs in an efficient manner. So, the
concerned well apt people should do their duties efficiently by establishing coordination and
cooperation among themselves to achieve the goal.

Decision Making Attributes

Capacity planning is mainly concerned with personnel. So, recruitment of personnel should be
justified for building up required capacity.
Location of a facility is mainly concerned with the building up of inventory. So proper care should
be taken in locating a facility in order to keep minimum inventory.
Arrangement of various departments of an organization is mainly concerned with scheduling of
tasks. So, the design of those departments should be carried out in a way that the various tasks can
be carried out efficiently.
Product and service planning are mainly concerned with project management. So, these planning
should be organized well so that project activities can be implemented in the required time.
Acquisition and placement of equipment are mainly concerned with quality assurance, and these
should be done in a way that quality of the concerned product/service can be maintained.

Operations Management Decision Modeling Techniques

Modeling of a problem
A model is defined as an abstraction of a reality. Typically, a simplified version of a reality. There
are various types of modeling techniques available in the operations management literature.

1. Physical (crash tests) model: A physical model is a smaller or larger physical copy of an
object. The object being modelled may be small (for example, an atom) or large (for example,
the Solar System). A crash test is a form of destructive testing usually performed in order to
ensure safe design standards in crashworthiness and crash compatibility for various modes of
transportation or related systems and components.
2. Schematic (blueprint) model: It is a modeling technique which consists of having plans and
elevations on orthogonal planes so as to ensure the selection of modeling operations and foster
the most appropriate control during the process of creating three-dimensional digital model.
Actually, a graphical representation of plan and programs to be carried out. For example,
architectural model of a construction project.
3. Mathematical model: Representation of a model by using mathematical expressions. For
example, your monthly expenditure of TK 100000 in different categories can be expressed as
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X+Y+Z <= 10000 and X <=3000, Y>=2000 and Z<=5000, where X, Y and Z denote different
categories of expenditures. There are different types of available mathematical models as
follows:
Linear Programming Model- A mathematical model developed by using linear functions and
linear inequalities.
Queuing/Waiting line Model- A mathematical model developed based on arrival times of
customers and service times of the service men.
Inventory model- A mathematical model developed to meet customers’ demand by keeping
minimum inventory.
4. Statistical Model: Representation of a mathematical model including statistical factors.
5. Project model- A schematic model developed to carry out project activities in scheduled times
to complete a project within specified time period.

A model is useful for systematic study of the concerned problem. However, all models have some
advantages and disadvantages. The advantages of models are as follows:

 Easy to use and implement over a concerned problem and less expensive.
 Require users to organize the model and hence creates job opportunities.
 Increase understanding of the concerned problem because of its systematic study.
 Enable “what if” questions- users can improve their knowledge about the concerned problem
by carrying out ‘trial & error’ analysis.
 Consistent tool for evaluation and standardized format are provided for systematic studies.
 Power of mathematics- The mathematics used in a model has the power to provide expected
quantitative results within a specified time period.

The disadvantages of models are as follows:

 Quantitative information may be overemphasized over qualitative ones.
 Models may be incorrectly applied and results are misinterpreted.
 Nonqualified users may not comprehend the rules on how to use the model.
 Use of models does not always guarantee good decisions, requires adjustments of results
obtained by using a model.

Trade-offs Analysis
A trade-offs is a balance between two extremes. For example, if a retailer keeps larger amount of
inventory in a retail store, the inventory cost will be higher, but he/she can meet customers’ demand
more satisfactorily, that is, loss of customers will be lesser (level of customers service will be
higher). On the contrary, if the retailer stocks lesser amount of inventory, then the inventory cost
will be smaller, and loss of customers will be higher (level of customer service is lower). So, the
retailer needs to balance between these two extremes (stock of inventory and loss of customers),
what is called trade-offs between two extremes.

System Approach
A line of thought in the management field which stresses the interactive nature and
interdependence of external and internal factors in an organization. A systems approach is
commonly used to evaluate market elements which affect the profitability of a business. Thus the
system approach is to think for the benefit of the whole system, instead of the benefit of any
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individual component of the system. That means, there is no scope of sub-optimization in a system
approach. The system approach of producing a standard quality product means that until the
product is produced maintaining the specified standard, it is not acceptable.

Major trends in Business

 The Internet, e-commerce, e-business- play vital role in business in this COVID-19 period.
 Technological Management- plays a vital role in the maintenance of Internet, e-commerce, e-
business.
 Globalization- due to the technological development a business competition prevails globally
not locally.
 Management of supply chains- plays a crucial role in supplying standard quality product with
reasonable prices in minimum lead time.
 Outsourcing - a practice used by different companies to reduce costs by transferring portions
of work to outside suppliers rather than completing it internally.
 Agility- the power of moving qualified products/services with attractive prices to customers
quickly and easily.

Other important trends in Business

 Ethical behavior – concealing defects of products, error in service, inferior quality or any
devious behavior to customers is unethical, and a business cannot run for long unethically.
 Operations strategy- a master plan specifying how an organization will allocate resources in
order to support infrastructure and production. An operations strategy is typically driven by
the overall business strategy of an organization, and is designed to maximize the effectiveness
of production while minimizing costs.
 Working with fewer resources- engagement with fewer resources incur lesser capital and hence
generates more benefits. It can be achieved by proper management of time, labor and money.
 Revenue management- the application of disciplined analytics (pertaining to or proceeding by
analysis) that predict consumer behavior at the micro-market levels and optimize product
availability and price to maximize revenue growth.
 Process analysis and improvement- it is about identifying and addressing inefficiencies that
waste resources and add cost. Analysis is carried out to determine which processes and process
steps are value-adding or non-value-adding, and then to decide at what degree the non-value-
adding activities can be reduced or eliminated.
 Increased regulation and product liability- it is the area of law in which manufacturers,
distributors, suppliers, retailers, and others who make products available to the public are held
responsible for the injuries those products cause, and improved regulations are prescribed for
implementing this law.
 Lean production- combination of Mass Production (high volume with low unit cost) and Craft
Production (considering variety and Flexibility). For instance, production of various categories
of Toyota cars or production of various types of bottles of the same branded oil.