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1. Introduction to Operations Management

Operations Management is a systematic approach to address all the issues pertaining to the

transformation process that converts some inputs into output that are useful, and could fetch

revenue to the organization.

A systematic approach involves understanding the nature of issues and problems to be studied,

establishing measures of performance, collecting relevant data, using scientific tools and

techniques and solution methodologies to analyze and developing effective as well as efficient

solutions to the problem at hand

The second aspect of operations management pertains to addressing several issues that an

organization faces. These issues very markedly in terms of the time horizon, the nature of the

problem to be solved and the commitment of the required resources.

Transformation processes are central to operations systems. The transformation process ensures

that inputs are converted to useful output. Therefore, the focus of the operations management

discipline is to address the various aspects of design in the transformation process as well as

planning and operational control.

Finally, the goal of operations management is to ensure that through care planning and control of

the operations the organization is able to keep costs to the minimum and obtain revenue in excess

of costs.

Transformation process or

Operations ManagementA system Perspective

PROCESSINGINPUT Output

Feedback

Forecastin

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Input- Labour, Material and Capital

Processing- Process & product Design, Purchasing & Inventory control, Operations Planning &

Control, Material & Capacity Planning.

Output- Goods and ServicesFeedback- Quality Management, Maintenance Management, Process Improvement

Hospital

Inputs Processing Output

Doctors Examination Treated Patients

Hospital Surgery

Medical Supplies Monitoring

Equipment Medication

Laboratories Therapy

SERVICES AS A PART OF OPERATIONS MANAGEMENT

From the operations management perspective The notion of a pure product to pure service

Is just the two ends of the spectrum.

General purpose machines

Fast moving Commodities

Ayurvedic Healing Treatment

Customized durable goods

Legal/ tax consulting

Cyber caf- telephone books

Facilities Maintenance

High Quality restaurant meal

Emergency Maintenance Services

Fast food in a eat out joint

Pure Product Pure Service

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The ServiceProduct Spectrum.

Although Services are often classified separately from manufacturing in a macro economic

sense, from the perspective of operations management the separation is artificial. From theoperations management perspective the notion of a pure product to pure service Is just the

two ends of the spectrum. In reality, a vast majority of operations share a continuum of services

and products. Therefore, most of the principles and tools and techniques of operations

management apply to both these sectors.

Services such as management consulting, health spas, and education have dominant service

attributes. They from one end of the spectrum. Similarly manufacture and supply of machine

tools, gadgets, and consumables have a dominant product attribute and they form the other end

of the spectrum. However several other share both service and product attributes. Take the case

of automobiles. There is a product attribute in it since it involves physical structure of thepassenger car. On the other hand, there is a experiential component of using the car, which forms

a significant part of the product. This is service component similarly in the case of restaurant, the

food items share both product and service attributes. A closer examination of the figure

illustrates the important difference between services and manufacturing.

1. Intangibility- because services are performances and actions rather than objects, theycannot be touched, tasted or felt as in the case of objects. There is nothing to touch or feel

in the case of a consulting assignment or education.

2. Heterogeneity- High heterogeneity means high variability in the operations systemperformance. Since the experiential component is dominant in a service, it is likely thatno two services are exactly alike. The differences are attributed to the differences in the

service receivers (customers), the service providers and other parameters of the service

delivery system.

3. Simultaneous production and Consumption- More often, service happens in the presenceof the customer and the customer may also be involved at the time the service is produced

for his / her consumption. The doctors and the patients are in the system together to

produce and consume the service.

4. Perishability- Service cannot be inventoried.A Comparison of manufacturing and service organizations

Differences

Manufacturing Organization Service organizations

Physical, Durable product Intangible, perishable product

Output can be inventoried Output cannot be inventoried

Low customer contact High customer contact

Long response time Short response time

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Regional, national, international markets Local markets

Large facilities Small facilities

Capital intensive Labour intensive

Quality easily Measured Difficult to measure

Similarities

Is concerned about quality, productivity and timely response to its customersMust make choices about capacity, location, layout

Has suppliers to deal with

Has to plan operations, schedules and resources

Has to make an estimate of demand.

Operations as a key functional area in an organization

As shown in the figure, the four functions have mutual interactions among them. The decisions

taken in each of these functional areas could form an important input in another functional area.

For example, typically, organizations begin their yearly plan with marketing function making an

estimate of the next years sales. This input forms the basis for production planning in the

operations area of the business. Depending on the production plans, procurement planning is

done and all these lead to a certain estimate of the fund requirements. This forms an important

input for the finance function. While planning has a such a sequence of information flow and

interactions, at the time of execution the interactions are even more. The HRM function

influences the productive capacity of manpower available in real time. The actual production of

OPERTAIONS

MARKETINGHRM

FINANCE

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goods and services influences the marketing activities to be undertaken and the quantaum and

timing of funds availability from sales. Such interactions are many and common in any

organization.

Operations Strategy formulation Process

Steps in the strategy formulation process

1. Identify strategic options for sustain competitive advantage2. Devise overall corporate strategy3. Develop an appropriate operations strategy

Competitive Dynamics at the market placeit provides useful information about competitors, the

nature of offerings that they make to the customer. The customer expectations, any missing links

between expectations and current offerings and the intensity of the competition.

Order qualifying Attributes- are the set of attributes that customers expect in the product or service

they for buying. On the other hand, the mere presence of these attributes does not guarantee that

customer will buy the product. It only indicates the minimum, or threshold levels of requirements for

considering the product.

Order winners

Order Qualifiers

Competitive

Dyanmics at the

market place

Strategic Options for sustain

competitive advantage

Strategic decisions for

operations system

Firm level

strengths &

Weaknesses

Measures for operational

excellenceOperations Strategy

Corporate Strategy

Generic Competitive priorities

quality, cost, delivery,

flexibilit

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Order winging Attributes- are those attributes are other attributes that have the potential to sufficiently

motivate the customer to buy the product. Presence order winning attributes in a product / service that

help the customer differentiate from his competitors.

Operational excellence measures provide the critical linkage between order winning and order qualifying

attributes identified through the strategic planning exercise and the choices made in the operations.

Four generic options are generally found to be useful for any operations strategy exercise

1. Quality2. Delivery3. Cost4. Flexibility

A simple list of operations measures

Quality Cost

Yield Average days of inventory

Quality costs Manufacturing Costs as percent of sales

Defects( parts per million0 Procurement costs

Process capability indices Value of important substitution

Delivery Flexibility

Lead time for order fulfillment Number of models introduced

Procurement and order lead time New product development time

On time delivery for supplies Breadth and depth of the product offerings

Schedule adherence Process and manufacturing flexibility

Strategic Options for operations

Product Portfolio

Process

Supply Chain

Capacity

Technology

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The historical Evolution of Operations Management

1. Industrial revolution2. Scientific Management3. The Human relations Management4. Decision Models and Management Science5. The influence of Japanese Manufactures

II- ModuleBreak Even Analysis

Factors influencing Make or Buy analysis

1. Cost2. Core versus Non core Activities3. Managing Capacity Expansion4. Strategic Restructuring5. Quality Consideration6. The nature of Demand

Equipment Selection decisions

1. Cost of the equipment2. Numbers of labors required3. Technology4. Flexibility5. Variety of products to be produced6. Maintenance7. Technological Obsolescence8. Volume of output

Process Selection Decisions

Process selection refers to the way production of goods or services is organized. It is the basis for

decisions regarding capacity planning, facilities ( or plant ) layout, equipments and design of

work systems. Process selection is necessary when a firm takes up production of new products or

services to be offered to the customers.

1. Process Technology- Automation- includes methods, procedures, and equipment used toproduce goods and provide services

2. How much variety in products or services will the system need to handle3. What degree of equipment flexibility will be needed4. What is the expected volume of output

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Managerial Uses of Break Even Analysis

1. Margin of Safety calculation2. Volume needed to attain target profit3. Decision on price changes4. Whether to expand capacity or not5. Profitability at different price levels6. Make or Buy analysis decisions7. Equipment selection decisions8. Break Even Quantity determination The volume of output at which total cost is

exactly equal to the Total revenue

Limitations of Break Even Analysis

1. It assumes that the quantity of goods produced is equal to the quantity of goods soldThere is no change in the quantity of goods held in the inventory at the beginning of theperiod and the quantity of goods held in inventory at the end of the period

2. It assumes that Fixed Costs (FC) is constant although this is true in the short run. Anincrease in the scale of production is likely to cause Fixed cost to raise

3. It assumes average Variable Cost are constant per Unit of output( Linearity)4. In ability to deal in a direct way with certainty5. Assumptions that all costs, volume of output and selling price per unit etc.. are known

with certainty

6. Difficulty in classifying all costs as fixed or variable, some costs appear to be semivariable.

7. Break Even Analysis assumes that profit is function of output ignoring the fact that otherfactors such as an efficient management, introduction of new technologies and

improvement of productivity.

8. Selling costs are difficult to handle in Break Even Analysis; Relationship between outputand selling expenses is unstable over time. Thus projection of past relationship into

futures becomes inappropriate and in accurate.

9. Costs attributed to a period may not have been caused during that period Eg-Maintenance Expenses

10.Break Even Analysis is Static- It is useful when situations are stable. Slow moving ratherthan volatile , erratic or changing ones,

11.It is not an effective tool for long term but useful on in the short run.

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Module3 Forecasting

Forecasting Based on TimeSeries Data

A time series is timeordered sequence of observations taken at regular intervals ( e.g- hourly,

daily, weekly, monthly, quarterly, annually) Analysis of time series data requires the analyst toidentify the underlying behavior of the series . This can often be accomplished by merely

plotting the data and visually examining the plot.

One or more patterns might appear trends, seasonal variations, cycles,

1. Trend refers to a long term upward or downward movement in the data. Populationshifts , changing incomes, and cultural changes often account for such movements

2. Seasonality- refers to short term, fairly regular variations generally related to factors suchas the calendar or time of day. Restaurants, supermarkets, and theaters experience weekly

and even daily seasonal variations.

3. Cycles- are wavelike variations of more than one years duration. These are often relatedto a variety of economic, political and even agricultural conditions.

4. Irregular Variations are due to unusual circumstances such as severe weatherconditions, strikes, or a major change in a product or service. They do not reflect typical

behavior, and their inclusion in the series can distort the overall picture. Whenever

possible, these should be identified and removed from the data.

5. Random Variations- are residual variations that remain after all other behaviors havebeen accounted for.

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PROCESSINPUT Output