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Introduction of operation management

Operation management is an area of business

concerned with production of goods and
services and involve the responsibility of
ensuring that business operations are
effective in term of meeting customer
requirements. It is concerned with managing
the process that converts input into output.
OM aims to increase the content of value –
added activities in any given process .
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Meaning of operation management
cont…
The operations managers have the prime
responsibility for processing inputs into
outputs. They have to come up with such a
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.

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ACC to The association for operation
management
OM has been define as “the felid of study that
focuses on effectively planning , scheduling,
use and control of a manufacturing or
services organization through the study of
concept from design engineering ,industrial
engineering ,management information
system, quality management, production
management, inventory management
,accounting and other functions as they
affect the organization”.
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 Meaning of operation management
definition
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.”

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Meaning of operation management
cont…
The definition of the operations
Management contains following
keywords: Resources, Systems,
transformation and Value addition
Activities

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 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.

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 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.

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 System Cont…

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. 9
System Cont…
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.

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System cont…
Itinvolves 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.
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 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
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Operations Management-nature

 A systematic approach using scientific tools &

techniques and solution methodologies to
analyze problems
• Addressing several issues varying in terms of
time horizon, nature of decisions
• Addressing design & operational control
issues in the transformation process
• Focusing on keeping costs to the minimum
• Developing a set of measures to assess
performance of the system
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The scope of operations management
based on the interrelationship of three aspects,
namely: 
Structural aspects in the form of input that
will be transformed according to criteria of the
desired products, machinery, equipment,
formulas and models.
Functional aspects:- namely the link between the
component input, within teraksinyamulai of the
planning, implementation, control and improvements
to obtain optimum performance, so that operation
can be run continuously. 

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The scope of operations management
Environmental aspects, is the tendency that
occurs outside the system as community,
government ,technology, economics, political
,social ,cultural ,demonstrated ability to adapt.
Each manager will carry out basic functions of
management process. As it is known Management
process consists of planning, organizing, setting
up employees, directing, and controlling.
 Operations managers has to implement these
management process in decision making while
performing operation management functions.
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The scope of operations management cont..

The design of products and services

manage the quality
the strategy process 
strategic location
Layout strategy
Human resources
Supply chain management
inventory management
 scheduling
maintenance
Forecasting
Capacity planning

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Operations Management Functions

Operations management (OM) is an integral part of

all types of organizations. To understand various
functions of OM, following classification scheme can
be used.
(a) Design Functions :- Design functions prepare
configuration of the operations system and provide an
overall framework under which the operations system
will function. Various design functions can be product
design and development, process design, quality
management, location and layout of facilities and
capacity planning.
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OM Function cont…
 Operational Control Functions :- Functions of
forecasting, production planning and control, supply
chain management, maintenance management are some
of the control functions of operations management. Most
of the design issues are discussed in control functions
also. However context may differ in two. Design issues
are often strategic in nature while operational issues are
tactical in nature. Take example of capacity planning. As
a design issue, we are interested to know capacity
requirement for meeting targeted business plans but as a
control issue the objective is to match the requirement to
the available capacity

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OM Function cont…
Long Term Functions :- Certain operations
management functions are rare. Decisions with
respect to them is made once every five to ten years.
Where to locate a new plant is one such decision.
Most of the design related decisions are made on long
term horizon.
 Short Term Functions :- Short term decisions can be
made in fixed cycles of one year. Aggregate
production planning, master production scheduling
etc. are done once or twice in a year while operations
scheduling are done for very short period, may be one
or two weeks.
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OM 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
 Resource Utilisation.

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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.
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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.

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RESOURCE UTILISATION cont…

 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.

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RESOURCE UTILISATION cont…

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.

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HISTORICAL DEVELOPMENT
For over two centuries operations and production
management has been recognized as an important factor in a
country’s economic growth. The traditional view of
manufacturing management began in eighteenth century when
Adam Smith recognised the economic benefits of
specialization of labour. He recommended breaking of jobs
down into subtasks and recognises workers to specialized
tasks in which they would become highly skilled and efficient.
In the early twentieth century, F.W. Taylor implemented
Smith’s theories and developed scientific management. From
then till 1930, many techniques were developed prevailing the
traditional view. Brief information about the contributions to
manufacturing management is shown in the Table

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Production Management becomes the acceptable
term from 1930s to 1950s. As F.W. Taylor’s works
become more widely known, managers developed
techniques that focused on economic efficiency in
manufacturing. Workers were studied in great detail
to eliminate wasteful efforts and achieve greater
efficiency. At the same time, psychologists,
socialists and other social scientists began to study
people and human behaviour in the working
environment. In addition, economists,
mathematicians, and computer socialists
contributed newer, more sophisticated analytical
approaches.

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With the 1970s emerge two distinct changes in
our views. The most obvious of these, reflected
in the new name Operations Management was
a shift in the service and manufacturing sectors
of the economy. As service sector became more
prominent, the change from ‘production’ to
‘operations’ emphasized the broadening of our
field to service organizations. The second, more
suitable change was the beginning of an
emphasis on synthesis, rather than just analysis,
in management practices.

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Table on Historical summary of operations management

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 Operations system :-
OM consist of Operations system which 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 organization's physical goods and
services’.

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 The basic elements of an operation system show in Figure 1.3

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. 32
 DEVELOPMENT OF
OPERATION STRATEGY

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develop an operations strategy
-What products can be produced in which
facility and how much?
-Which products are going to be produced
internally, and which ones will be
purchased?
-How many facilities are needed?

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develop an operations strategy
-Where will the facilities be located, with
how much capacity?
-What type of processes will be utilized to
produce products?
-How much flexibility is required from
each process and each product?

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Develop an Operations Strategy
-What level of technology (automation,
etc.) will be used?
-Are the resources going to be owned or
bought?
-How will the products be distributed to
the end customers?

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Develop an Operations Strategy
-Which suppliers will provide materials,
and how much?
-What kind of human skills are needed?
-And so on.

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develop an operations strategy
Operations decisions given regarding
these issues must be consistent with the
firm’s corporate strategy.
These decisions made by operations
managers are going to be viewed in detail
throughout this course.

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ROLE OF OPERATION
STRATEGY

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Operations’ Role in Corporate Strategy

• Operations provides support for a

differentiated strategy

• Operations serves as a firm’s distinctive

competence in executing similar strategies
better than competitors

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Operations Strategy at Wal-Mart

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Operations Strategy:
Products and Services
Make-to-Order
◦ products and services are made to customer
specifications after an order has been received
Make-to-Stock
◦ products and services are made in anticipation
of demand
Assemble-to-Order
◦ products and services add options according to
customer specifications

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Operations Strategy: Human Resources
What are the skill levels and degree of
autonomy required to operate production
system?
What are the training requirements and
selection criteria?
What are the policies on performance
evaluations, compensation, and incentives?
Will workers be salaried, paid an hourly
rate, or paid a piece rate?
Will profit sharing be allowed, and if so,
on what criteria?
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Operations Strategy: Human Resources
(cont.)
Will workers perform individual tasks or
work in teams?
Will they have supervisors or work in
self-managed work groups?
How many levels of management will be
required?
Will extensive worker training be
necessary?
Should workforce be cross-trained?
What efforts will be made in terms of
retention?
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Operations Strategy: Quality
What is the target level of quality for our
products and services?
How will it be measured?
How will employees be involved with
quality?
What will the responsibilities of the
quality department be?

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Operations Strategy: Quality (cont.)
What types of systems will be set up to
ensure quality?
How will quality awareness be
maintained?
How will quality efforts be evaluated?
How will customer perceptions of quality
be determined?
How will decisions in other functional
areas affect quality?
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Operations Strategy: Sourcing
Vertical Integration
◦ degree to which a firm produces parts that go into its
products
Strategic Decisions
◦ How much work should be done outside the firm?
◦ On what basis should particular items be made in-
house?
◦ When should items be outsourced?
◦ How should suppliers be selected?

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Operations Strategy: Sourcing (cont.)
◦ What type of relationship should be maintained with
suppliers?
◦ What is expected from suppliers?
◦ How many suppliers should be used?
◦ How can quality and dependability of suppliers be
ensured?
◦ How can suppliers be encouraged to collaborate?

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OM link with other functional
areas

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FINANCE
• Financial decisions affect the choice of
equipment, use of overtime, cost-control

policies and price-volume decisions.

• Operations functions are often dictated

by economics.

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MARKETING
Itis important for understanding customer
needs and developing new markets and
product potential

Understanding between marketing and

operations takes organizations to higher
levels

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ACCOUNTING
Itprovides data on product and service
costs that help evaluate operational
performance.

Budgeting and operational planning

depend on accuracy of accounting data.

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DESIGN
Product design ensures that the end
products meet customer needs.

The design process includes process

development and engineering.

New initiatives in design elevate

the role of operations in this process.

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HUMAN RESOURCES
Itincludes the recruitment of employees,
their training and enhancing their well
being
This depends on operations approaches.
Flexible design of operations is needed to
accommodate all employees.

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INFORMATION SYSTEMS
Information systems provide the means
for capturing and analyzing, and
coordinating the information needs of all
of the preceding areas as well as
operations.

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RECENT TRENDS IN FIELD OF OM
Operations management is the process in
which resources/inputs are converted into
more useful products. In the light of
global competition many recent trends in
operations management have evolved that
have impact on manufacturing firms

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Some Of The Recent Trends Are
Flexibility: The ability to adapt quickly to changes in volumes of demand,
in the product mix demanded, and in product design or delivery schedules,
has become a major competitive strategy and a competitive advantage to the
firms. This is sometimes called as agile manufacturing.

Total Quality Management: TQM approach has been adopted by many

firms to achieve customer satisfaction by a never ending quest for
improving the quality of goods and services.

Time Reduction: Reduction of manufacturing cycle time and speed to

marker for a new product provide a competitive edge to a firm over other
firms. When companies can provide products at the same price and quality,
quicker delivery (short lead time) provide one firm competitive edge over
the other.

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Worker Involvement: The recent trends is to assign responsibility for
decision making and problem solving to the lower levels in the
organization. This is known as employee involvement and
empowerment. Examples of employees empowerment are quality circle
and use of work teams or quality improvement teams.

Business Process Re-engineering: BPR involves drastic measures or

break-through improvements to improve the performance of a firm. It
involves the concept of clean-state approach or starting from a scratch in
redesigning in business processes.

Global Market Place: Globalization of business has compelled many

manufacturing firms to gave operations in many countries where they
have certain economic advantage. This has resulted in a steep increase in
the level of competition among manufacturing firms throughout the
world.

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Operations Strategy: More and more firms are
recognizing the importance of operations strategy for
the overall success of their business and the necessity
for relating it to their overall business strategy.

Lean production: Production system have become

lean production systems which have minimal amount
of resources to produce a high volume of high quality
goods with some variety. These systems use flexible
manufacturing systems and multi-skilled workforce to
have advantages of both mass production and job
production.

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Just in time production:  JIT is a ‘pull’ system of
production, so actual orders provide a signal for when
a product should be manufactured. Demand-pull
enables a firm to produce only what is required, in the
correct quantity and at the correct time.This means
that stock levels of raw materials, components, work
in progress and finished goods can be kept to a
minimum. This requires a carefully planned
scheduling and flow of resources through the
production process. For example, a car manufacturing
plant might receive exactly the right number and type
of tyres for one day’s production, and the supplier
would be expected to deliver them to the correct
loading bay on the production line within a very
narrow time slot.
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Computer Aided Manufacturing: Computer-aided
manufacturing (CAM) is the use of computer-based software
tools that assist engineers and machinists in manufacturing or
prototyping product components. CAM is a programming tool
that makes it possible to manufacture physical models using
computer-aided design (CAD) programs. CAM creates real
life versions of components designed within a software
package. CAM was first used in 1971 for car body design and
tooling.

Computer Aided Design:  Computer-aided design (CAD) is

the use of computer technology to aid in the design and
particularly the drafting (technical drawing and engineering
drawing) of a part or product, including entire buildings. It is
both a visual  (or drawing) and symbol-based method of
communication whose conventions are particular to a specific
technical field.

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E-Supply Chain Management: Supply chain management
is the management of supply chain from suppliers to final
customers reduces the cost of transportation, warehousing
and distribution through out the supply chain. But SCM was
a traditional concept which is now being replaced by E-
SCM. E-Supply chain management is a series of Internet
enabled value-adding activities to guarantee products
created by a manufacturing process can eventually meet
customer requirements and realize returns on investment.
Supply chains have advanced in the last two decades with
improved efficiency, agility and accuracy. The recent
advancement of Internet technology has brought more
powerful support to improving supply chain performance.
In this context, e-supply chain management becomes a new
term that distinguishes itself by net-centric and real-time
features from traditional supply chain management.

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Enterprise Resource Planning: Enterprise
resource planning (ERP) is an enterprise-wide
information system designed to coordinate all the
resources, information, and activities needed to
complete business processes such as order
fulfillment or billing.
Environmental Issues: Today’s production
managers are concerned more and more with
pollution control and waste disposal which are key
issues in protection of environment and social
responsibility. There is increasing emphasis on
reducing waste, recycling waste, using less-toxic
chemicals and using biodegradable materials for
packaging.
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