AN INTRODUCTION

OPERATIONS MANAGEMENT

Finance

Marketing

Operations

HR

R&D

MAJOR DEPARTMENTS IN AN ORGANIZATION

“Operations Management is the management of an organization’s productive resources or its production system, which converts inputs into products or services.”

The essence lies in “adding value”

INPUT OUTPUTPROCESSING/OPERATIONS

VALUE ADDITION

Difference between the cost of input and value of output

The value of output is measured by the prices that the customers are willing to pay for those goods or services

Difference between Manufacturing and Service Organizations

Major points of differentiation are as follows:

1. Degree of Customer Contact

2. Uniformity of Input

3. Uniformity of Output

4. Measurement of Productivity

5. Production and Delivery

6. Quality Assurance

7. Amount of Inventory

8. Output

Factors Affecting Operations Management

Global Competition

Quality, customer service and cost challenges

Rapid expansion of advanced technologies

Growth of service sector

Social Responsibility issues

Scarcity of capital, materials etc.

Evolution of Operations Management

Following are the historical developments that impacted evolution of Operations Management

The Industrial Revolution

Scientific Management

The HR Movement

Decision Models and Management Science

Influence of Japanese Manufacturers

Trends in Business

Other Important Trends

Industrial Revolution

Era of pre-1700: Age of Cottage Systems

Industrial Revolution (1700, England)

Ample supplies of coal and iron ore

Development of steam engine and electricity

Emergence of other industries and more factories.

Economies of scale was observed

Opportunities for jobs

Substitution of human power with machines.

Establishment of factory system

Post- Civil War Period

Post Civil war period set the platform for great expansion of production capacity

Large workforce for rapidly developing industries: Abolition of slave labour, migration of farmers from rural to urban areas, influx of immigrants during 1865-1900

Development of extensive rail lines- effective and economic transportation system

All the above factors played pivotal role in production explosion of the early 20th century

Scientific Management

Father of Scientific Management: Frederick Winslow Taylor- emphasized on maximising output

Science Management: Observation, measurement, analysis and improvement of work methods.

Thrust on identifying the best method for doing each job, training of workers, planning, cooperation between management and workers.

Human Relations and Behavioralism

Earlier workers were forced to work under rigidconditions and controls

Emphasis was laid on the human motivation.

Hawthorne studies conducted by Elton Mayoestablished the notion to encourage employees.

Theory X and Theory Y approach introduced byDouglas McGregor

Decision Models and Management Science

The factory movement was accompanied by the development of several quantitative techniques (inventory management, sampling and quality control)

WW-II generated immense pressures on manufacturing output.

After the war, efforts to develop and refine quantitative tools for decision making continued.

Operations research was developed to address management issues.

It uses quantitative techniques, models to evaluate alternatives and provide an optimal solution for informed decision making

Following are its characteristics:

1) Problem solving and decision making approach

2) Draws techniques from science

3) Builds a model for experiment

4) Extensive use of computers

Influence of Japanese Manufacturers

Many Japanese manufacturers developed andrefined management practices that increased theirproductivity and quality of products

Focussed on continuous improvement, workersempowerment and achieving customer satisfaction.

Approaches like JIT, Kaizen etc were introduced

Trends in Business

Information technology has had huge impact on the ways an organization manages operations.

Operating decisions can be made more quickly because of more information and easy access to data

Eg: Enterprise Resource Planning (SAP, PeopleSoft, Oracle)

Communication technologies have helped to manage international affairs easily.

E-commerce and E-business

Management of technology (medical diagnosis, production planning and scheduling, data processing, communication)

Globalization: NAFTA, GATT

Agility: Ability of an organization to respond quickly to demands or opportunities

Outsourcing: Obtaining a product or service from outside the organization.

Other Important Trends

Six Sigma: Process for reducing costs, improving quality and increasing customer satisfaction.

Total Quality Management

Lean Productions

Scope of Operations Management

Forecasting

Capacity planning

Location planning

Facility planning

Selection of technology

Managing inventory

Scheduling

Motivating and Training Employees

Decision Making

Operations managers make a number of key decisions like:

WhatWhat resources/what amounts

WhenNeeded/scheduled/ordered

WhereWork to be done

HowDesigned/ Resource allocation

WhoTo do the work

General Approaches to Decision Making

The decisions involve many possible alternatives that can affect the profitability of the organization.

To take the aforesaid decisions, various tools are available to the managers.

These include: Models Quantitative Approaches Analysis of Trade-offs Systems Approach Establishing Priorities Ethics

Models

A model is an abstraction of reality.

– Physical (toy cars, globe etc)

– Schematic (graphs, blueprints, charts etc)

– Mathematical (EOQ model, transportation model)

What are the pros and cons of models?

Advantages of Models

Models omit unimportant details so that attention can be concentrated on the important aspects of a situation.

Easy to use

Less expensive than dealing with the actual situation

Increase understanding of the problem

Serves as a consistent tool

Provides a standardized format for analyzing a problem

Limitations of Models

Models can be incorrectly applied and the results misinterpreted

Use of models do not guarantee good decisions

Quantitative Approaches

Attempt to obtain mathematically optimal solutions to managerial problems

Linear Programming (allocation of resources)

Queuing Techniques (analyzing situations in which waiting lines form)

Inventory Models (control inventories)

Project Models (PERT and CPM to coordinate large projects)

Decision makers deal with decisions by listing the advantages and disadvantages of a course of action to understand the consequences of the decision.

This helps to “net out” the potential impacts of the trade-offs on their decision.

Eg: Cost of equipment vs benefits

Increased cost of storing inventory vs meeting customer demands

Tradeoffs

Establishing Priorities

Certain factors are more important than other factors.

Manager should examine each situation, searching for the factors that will have the greatest impact and give them highest priority.

Pareto Principle: A few factors account for a high percentage of the occurrence of some events.

Systems Approach

System : A set of interrelated parts that must work together.

“The whole is greater than the sum of its individual parts”

Ethics

In making decisions, managers must consider how their decisions will affect shareholders, management, employees, customers, community and the environment.

Financial statements (represent information accurately) Safety of Workers (adequate training, maintaining equipment in

good working condition) Quality (avoiding hidden defects) Environment (not harming the environment) Community (not affecting the quality of life of the community) Avoiding false pretences Workers’ Rights (dealing with workers’ problems quickly and fairly)

Business Operations Overlap

Operations Interfaces

Career Opportunities

Operations Manager

Production Analyst

Inventory Manager

Purchasing Manager

Supply Chain Manager

Distribution Manager

Schedule Coordinator