Introduction to Operations

Management

Dr. Pravin Kumar

Unit 1
Introduction to operations management- role, scope and interface with
marketing, finance, strategy; Types of production systems, Concepts of
productivity, competitiveness, Decisions in POM, Case Study.
 Operations Management
• Operations management is the set of activities that creates value in the
form of goods and services by transforming inputs into outputs.
• Production is the creation of goods and services.
• In manufacturing firms, the production activities that create goods.
• In an organization that does not create a tangible good or product, the
production function may be less obvious. We often call these activities
services .
• Goods are physical items that include raw materials, parts, subassemblies
such as motherboards that go into computers, and final products such as
cell phones and automobiles.
• Services are activities that provide some combination of time, location,
form, or psychological value. Examples of goods and services are found all
around you.
 Goods & Services
Basis for comparison Goods Services
Meaning Goods are the material items that can be Services are amenities, facilities, benefits
seen, touched or felt and are ready for sale or help provided by other people.
to the customers.
Nature Tangible Intangible
Transfer of ownership Yes No

Evaluation Very simple and easy Complicated

Return Goods can be returned. Services cannot be returned back once
they are provided.
Separable Yes, goods can be separated from the seller. No, services cannot be separated from the
service provider.
Variability Identical Diversified
Storage Goods can be stored for use in future or Services cannot be stored.
multiple use.
Production and There is a time lag between production and Production and Consumption of goods
Consumption consumption of goods occurs simultaneously.
The goods–service continuum
The Operations Function
 Three Basic Functional Areas
• The ideal situation for a business organization is to achieve a match of
supply and demand.
• Having excess supply or excess capacity is wasteful and costly; having
too little means lost opportunity and possible customer
dissatisfaction.

Cont…
 Three Basic Functional Areas
• Finance is responsible for securing financial resources at favorable prices
and allocating those resources throughout the organization, as well as
budgeting, analyzing investment proposals, and providing funds for
operations.
• Operations is responsible for producing the goods or providing the services
offered by the organization.
• Marketing is responsible for assessing consumer wants and needs, and
selling and promoting the organization’s goods or services.
• A supply chain is the sequence of organizations—their facilities, functions,
and activities—that are involved in producing and delivering a product or
service.
Cont…
The Scope of Operations Management
• Design of goods and services
• Forecasting
• Process and Capacity planning
• Facilities location and layout
• Scheduling
• Inventory Management/ Material Management
• Assuring quality
• Motivating and training employees
• Supply Chain Management
 Significant events in Industrial
Engineering/Operations Management
Historical
summary of
Operations
Management
Operations interfaces with a
number of supporting functions
Current Challenges in Operations
Management
• Globalization
• Supply-chain partnering
• Sustainability
• Rapid product development
• Mass customization
• Lean operations
Operations Strategy and
Competitiveness
 Operations Strategy
• It is concerned with setting broad policies and plans for using the resources
of a firm to best support is long term competitive strategy.
• A strategy breaks down into three major components: Operations
effectiveness, Customer management, and Product Innovation.
• Operations effectiveness relates to core business processes that are
needed to run the business.
• Customer management related to understanding and liveraging customer
relationships better.
• Product innovation involves the development of new products, markets,
and relationships to sustain growth.
 Competitive Dimensions
• Cost – Make it Cheap
• Product Quality and Reliability – Make it Good
• Delivery Speed – Make it Fast
• Delivery Reliability – Deliver it when Promised
• Coping with Change in Demand – Change its volume
• Flexibility and New Product Introduction Speed – Change it
• Other Product Specific Criteria – Support it
 Technical liaison and support
 Meeting a launch date
 Supplier after sales support
 Other dimensions
Order Winners and Order
Qualifiers
• Order winners One or more specific marketing-oriented dimensions
that clearly differentiate a product from competing products.

• Order qualifiers Dimensions used to screen a product or service as a

candidate for purchase.
Kaplan and Norton’s generic strategy map
Assessing the risk associated with
Operations and Supply Chain Strategies
Risk Mitigation Strategies
 Production Systems

• Job-shop Production
• Batch Production Discrete Production
• Mass Production
• Continuous Production
Production Systems
 Production Systems- Job shop
Production
1. High variety of products and low volume.
2. Use of general purpose machines and facilities.
3. Highly skilled operators who can take up each job as a challenge because of
uniqueness.
4. Large inventory of materials, tools, parts.
5. Detailed planning is essential for sequencing the requirements of each
product, capacities for each work centre and order priorities.
6. System is highly flexible.
7. Material handling systems are also highly flexible.
8. Grouping of the machines on a functional basis (i.e. lathe section, milling
section, etc.)
Production Systems- Job shop
Production
Advantages
1. Most suitable for production of a variety of products due to use of general-
purpose machines.
2. Opportunities for learning multiple skills and getting varied exposure to the
workers.
3. The Full potential of operators can be utilized.
4. Importance to creativity and innovative ideas.
Production Systems- Job shop
Production
Limitations
1. Higher cost due to low volume of production and lack of economies of scale.
2. Higher inventory cost due to higher level of inventory at all levels.
3. This is complicated production planning.
4. Unnecessary movement of men and materials cannot be avoided in the shop.
Production Systems- Batch shop
Production
1. Shorter production runs.
2. Flexible manufacturing is most suitable.
3. Plant and machinery set-up is used for production of items in a
batch and a change in set-up may be required for processing the
next batch.
4. Manufacturing lead time and cost of production are lower as
compared to job-shop production.
5. Economy of scale can be achieved up to some extent compared to
job-shop production.
Production Systems- Batch shop
Production
1. Machines are grouped on a functional basis.
2. Semi automatic and special purpose automatic machines are
generally used.
3. Labors are multi-skilled and work upon different product batches.
4. In process inventory is usually high.
5. Semi automatic material handling systems are most appropriate.
6. Normally, production planning and control is difficult due to the odd
size and the non repetitive nature of order.
Production Systems- Batch shop
Production
Advantages
1. There is better utilization of plant and machinery compared to job-
shop production.
2. Batch Production promotes functional specialization.
3. Cost per unit is lower as compared to job-shop production.
4. Investment is lower in plant and machinery.
5. It is flexible enough to accommodate and process a number of
products.
6. Job satisfaction exists for operators.
Production Systems- Batch shop
Production
Limitations
1. Material handling is complex because of irregular and zig-zag flows.
2. Production planning and control becomes complicated.
3. Work-in-process inventory is higher compared to mass/continuous
production.
4. Higher set-up costs due to frequent changes in the set-up.
Production Systems- Mass
Production
1. Product and process sequence are standardized.
2. Special-purpose machines having higher production rate are used.
3. Production volume is large.
4. Production cycle time is shorter compared to job-shop and batch
production systems.
5. In-process inventory is low.
6. Flow of materials, components and parts is continuous and without
any backtracking.
7. Material handling can be completely automatic.
Production Systems- Mass
Production
Advantages
1. It has high production rate with reduced cycle time.
2. Less skilled operators may be employed.
3. Low in-process inventory is used.
4. Manufacturing cost per unit is low.
Production Systems- Mass
Production
Limitations
1. Breakdown of one machine stops the entire production line.
2. The line layout needs major change with changes in the product
design, that is, the layout is less flexible.
3. High investment in production facilities is required.
4. The cycle time is determined by the slowest operation.
Production Systems- Continuous
Production
1. Dedicated plant and equipment is employed.
2. Material handling is fully automated.
3. The production process follows a predetermined sequence of
operations.
4. Component materials cannot be readily identified with the final
product.
5. Planning and scheduling are a routine action.
Production Systems- Continuous
Production
Advantages
1. Product and process sequence are highly standardized.
2. The Production rate is very high with reduced cycle time.
3. Capacity utilization is higher than the other production systems due
to line balancing.
4. Manpower is not required for material handling, as it is completely
automated.
5. A person with limited skills can be used on the production line.
6. The unit cost is lower due to the high volume of production.
Production Systems- Continuous
Production
Limitations
• Flexibility to accommodate and process a number of products does not exist.
• Very high investment is required for setting flow lines.
• Product differentiation is limited.
Bases for Selection of Production Systems

• Effect of volume/variety
• Capacity of the plant
• Flexibility
• Lead Time
• Efficiency
 Productivity

• Productivity is concerned with how effectively

the resources are utilized to increase the
output of production.
• The productivity can be improved by increasing
the output for same inputs or keeping constant
output for deceased amount of inputs or
increasing the output in greater proportion
than the increase in inputs.
Productivity = Output/Input

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Partial Productivity
• Partial productivity is a ratio of the total output and
individual input in the case of multifactor productivity
(MFP).
Partial Productivity Formula
1. Labor Productivity Output/Labor Input
2. Material Productivity Output/Material Input
3. Capital Productivity Output/Capital Input
4. Energy Productivity Output/Energy Input
5.Advertising and Media
Output/Advertising and
Planning Productivity
Media planning Input
6. Other Expense Output/Other Expense
Productivity Input
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Partial Productivity (Cont…)

Advantages
• It is a good diagnostic measure to identify areas where improvements
are required.
• It is easy to calculate because it is independent of other inputs.
• The management finds it easy to understand and pinpoint the logic
for its improvement.
• It is easy to benchmark (compare) with other industries.
• Data may be easily generated for it.

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Partial Productivity (Cont…)
Limitations
• It can be misleading if used out of context.
• It does not contain the overall effect of the system of performance.
Since it is concerned with the contribution of a specific input only
not the all resources.
• Sometimes wrong areas of management control may be identified
for improvement.
• Only limited factors, which affect the output or performance, are
considered.
• It misses the holistic (or totality) approach.

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Total Factor Productivity and Total Productivity

Net Output
Total Factor productivity 
Total Factor Input
Total Output - Materials and Services purchased

( Labor  Capital ) Inputs

Total output
Total Pr oductivity 
Total input

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Total Factor Productivity
Advantage
(a) It is relatively easy to compare data from company records.
(b) Industrialist prefers this as it is easy to compare in cross-industry
context.
Limitations
(a) Many important inputs, such as material, energy, etc. are ignored.
(b) The net-output does not reflect the efficiency of production system
in a proper way.

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Example 1: The data for output produced and inputs consumed for a
particular type of a manufacturing organization are given below in
constant money value. Find out the partial, total factor and total
productivity values.
Output = Rs 3000.00, Labour input = Rs 600.00, Material input = Rs
300.00. Capital input = Rs 800.00, Energy input = Rs 150.00, Other
expenses input = Rs 75.00.
Soln: Output 3, 000
Labor productivity   5
Labor Input 600
Output 3, 000
Material Pr oductivity    10
Material Input 300
Output 3, 000
Capital Pr oductivity    3.75
Capital Input 800
Output 3, 000
Energy Pr oductivity    20
Energy Input 150
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 Output 3, 000
Other Expenses Pr oductivity    40
Other Expenses Input 75

Net Output
Total Factor productivity 
Total Factor Input
Total Output - Materials and Services purchased

( Labor  Capital ) Inputs
3, 000  (300  600  150  75)
  1.34
600  800
Output 3, 000
Total Pr oductivity    1.55
Total Input 600  300  800  150  75

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Example 2: Table 1.1 gives the comparative study of
several items of a motherboard for the year 2016 and
2017. Compute the changes in all productivity indices.
Table 1-1. Comparative study of productivity for the years 2016 and 2017
Items 2016 2017
Number of output at the 10,000 16,000
rate of Rs. 5,000 per unit.
Direct labor cost (Rs.) 32,000 60,000
Capital depreciation (Rs.) 8,000 11,000
Capital Book Value (Rs.) 32,000 45,000
Total Indirect cost (Rs.) 48,000 56,000
Energy Used @ Rs. 4/kW 5,000 kW 8,000 kW
Raw materials used (Rs.) 32,000 36,000
Services of consultant hired (Rs.) 20,000 25,000

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Solution:

16,000/60,000
(a) Direct labor productivity index = ×100
10,000/32,000
= 85.33%
16,000/11,000
(b) Capital depreciation productivity index = ×100
10,000/8,000
=109.09%
16,000/45,000
(c) Capital book value productivity index = ×100
10,000/32,000
= 113.77%

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 16,000/56,000
(d) Totalindirect cost productivity index = ×100
10,000/48,000
= 137.14%
16,000/8,000
(e) Energy productivity index = ×100 = 100%
10,000/5,000
16,000/36,000
(f) Raw material productivity index = ×100
10,000/32,000
= 142.22%
16,000/25,000
(h) Consultant productivity index = ×100
10,000/20,000
= 128% 50
Efficiency
• It is the ratio of output to standard output expected.
• Efficiency indicates a measure of how well the resources are
utilized to accomplish a target or result.
Efficiency may be calculated using the following formula:

Efficiency = Output/Standard
output

51
 Effectiveness and Productivity Index
• Effectiveness represents the degree of success in accomplishing
objectives.
• Effectiveness indicates a measure of how well a set of targets or results
are accomplished.
• Productivity is the integration of both efficiency and effectiveness. It
indicates a combined effect of resource utilization (i.e., efficiency) and
performance (i.e., effectiveness).
• The combined effect of efficiency and effectiveness is used in defining a
term called productivity index:
Performance achieved Productivity current year
Productivity Index = =
Input resources consumed Productivity base year
Effectiveness
=
Efficiency 52
Productivity Cycle

53
Factors influencing the
productivity
• Man: The productivity of man depends on the following
processes:
 Selection of employee.
 The training given to employees.
 Number of personnel required for a job.
 Provision of incentive for workers.
• Machine: The productivity of the machine depends on the
following facts:
 Number of machines employed.
 Replacement policy for existing machines.
 Maintenance plans to avoid machine breakdown. 54
Factors influencing the
productivity
• Material: The following factors affect the productivity
of a material:
 Right quality.
 Right quantity.
 Substitutes for the existing material.
 Inspection and quality control programs
 Cost of material procurement and handling
• Time: It affects the productivity in following manner:
 Inspection time for raw material.
 Inspection time for finished products.
 Production time.
 The time required to repair and maintenance work.
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Factors influencing the
productivity
• Space: Utilization of space affects the productivity in the following
ways:
 Plant layout.
 The total area covered for production work.
 Location of different departments and shops.
• Energy: Use of energy affects the productivity in the following ways:
 Energy-saving schemes.
 Use of renewable energy sources.
 Use of solar energy.
• Finance: Availability and efficient use of financial facilities affect the
productivity.
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 Reasons for lower productivity

• Poor production planning and • Poor working environment.

control. • Nonstandard methods of
• Low motivation of people. working.
• No accountability for loss of
• Lack of coordination.
production.
• Unavailability of right tools, • Government rules and
material and human force. regulations.
• Poor product design. • Old age of plant and equipments.
• Weak R&D.
• Lack of standardization.

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Ways to improve productivity

• Machine
 Manual labor be replaced by machines.
 Reliable machines.
 Automation.
• Management
Motivated workforce.
Better planning and coordination.
Effective control over the system.

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 Ways to improve productivity
• Process
 Computerization of the system.
 Use of Management Information System (MIS).
 Improvement in scheduling.
 Better material flow.
 Fast and accurate retrieval of parts.
• Work Design
 Improved job-design.
 Better work method.
 On-job training. 59
 Ways to improve productivity

• Work Environment
 Better lighting and illumination.
 Better ventilation.
 Safe workplace.
 Total Quality Management (TQM).
• Program
 Quality circle.
 Suggestion scheme.
 Incentive scheme.
 Revise pay or policy.
Industrial Engg. & Managament,1e,
Pravin Kumar
Pearson Education,
60
 Ways to improve productivity

• Technology
 Acquiring new technology such as electro-chemical machining
(ECM), etc.
 Acquiring automated assembly line, for example, surface mounting
technology (SMT) for printed circuit board assembly unit.
 Acquiring computer-controlled machines, such as CNC or DNC.
 Using automated guided vehicle (AGV) for material transportation.

61
 Learning curve concepts
• Predicts reduction in manufacturing costs or direct labor
hours as cumulative production increases

• Based on empirical evidence rather than theory

6 85% slope
5
4
1909
3
1910 1913 1914
1915
2 1911
1912
1920
1923
1918
1 1921
.8
10,000 100,000 1,000,000

Cumulative units produced

1909: 1923:
18,000 units 8,000,000 units
$3,300 $950

Learning Curves
Price of Model T, 1909-1923
(in 1958 dollars)
 An 80% learning curve
Unit Man hours
1ST 1000
2ND 1000 X .80 800
4TH 800 X .80 640
8TH 640 X .80 512
16TH 512 X .80 410
32ND 410 X .80 328
An 80% learning curve
1st unit
1000

2nd

Man-hours per unit

800

4th
600
8th
16th
400 32nd

200

Cumulative units produced

 The log - linear method
• Exponential form:
yx = kxn
Where
x = unit number
yx = man-hrs. to produce xth unit
k = hrs. to produce first unit
n = log b / log 2
b = learning rate (80%, etc.) expressed as decimal (.8, etc.)
• Logarithmic equation:
log yx = log k – n (log x)
 The log - linear method

yx log yx

Cum. units Cum. units

(x) (log x)
Example calculations

• yx = kxn, n = log b / log 2

• For 80% LC, b = .80

• n = log .80 / log 2 = -.3219

• Assume k = 1000

y1 = 1000 (1)-.3219 = 1000 (1) = 1000

y2 = 1000 (2)-.3219 = 1000 (.80) = 800
y3 = 1000 (3)-.3219 = 1000 (.7021) = 702
y4 = 1000 (4)-.3219 = 1000 (.6400) = 640
y = 1000 (100)-.3219 = 1000 (.2270) = 227
Man-hours per unit
1.00

b = 90%
.10
b = 80%

.01 b = 70%

.001
1 10 100 1000

Cumulative units produced

Typical learning curves
where k = 1 (one hour
required for first unit)
69
Learning Curve Examples
LEARNING-
CUMULATIVE CURVE SLOPE
EXAMPLE IMPROVING PARAMETERS PARAMETER (%)
1. Model -T Ford Price Units produced 86
production
2. Aircraft Direct labor-hours per unit Units produced 80
assembly
3. Equipment Average time to replace a Number of 76
maintenance at group of parts replacements
GE

4. Steel production Production worker labor- Units produced 79

hours per unit produced
5. Integrated Average price per unit Units produced 72
circuits
6. Handheld Average factory Units
calculator selling price produced74
EMBA- 106 Productions and Operations Management Max: 40 Hrs
Unit 1
Introduction to operations management- role, scope and interface with marketing, finance, strategy; Types of
production systems, Concepts of productivity, competitiveness, Decisions in POM, Case Study.
Unit 2
Demand forecasting, Time Series, Regression Analysis and Qualitative techniques, Forecast Error Case study.
Unit 3
Work Study, Work Measurement, Activity Sampling, MOST, Ergonomics, Learning Curve.
Unit 4
Product Design and Process Selection, Service Design, Outsourcing, Make buy decision, Value Engineering,
QFD, Concurrent Engineering
Unit 5
Facility Planning- location, layout; Line balancing; Analytical tools and techniques for facility planning and
design. Aggregate planning; Operations scheduling, Project Management, CPM, PERT, Slacks, Project
crashing, Resource Leveling
Unit 6
Total Quality Management (TQM), Statistical Process Control (SPC); Acceptance Sampling, Six-sigma, ISO
9000, Maintenance management, JIT, FMS, MIS, Simulation, Role of IT in manufacturing, Case studies.