Introduction
to
Operations Management
What is Management
• Management is the art of getting things done by
the people associated with your organization.
• Management is the process of Planning,
Organizing, Directing and Controlling all the
resources to achieve specific objective.
Planning
Planning is the process of thinking about the
activities and resources required to achieve
target goal.
Organizing
Organizing is the process of Making
arrangement to resource needed for the
manufacturing the product.
Directing
Directing is the giving instruction to the human
resources about what to be done.
Controlling
Controlling means supervising all the process
and activities and making correction if needed.
Operations
• Operations is the part of an organization, which
is concerned with the transformation of inputs
into the required output after value addition
process.
Operations Management
• Operations management (OM) is the set of
activities that creates value in the form of goods
and services by transforming inputs into
outputs.
Supply Chain
An integrated process wherein a number of various
business entities (i.e., suppliers, manufacturers,
distributors, and retailers) work together in an effort to:
• Acquire raw materials,
• Convert these raw materials into specified final
products, and
• Deliver these final products to end user through
retailers and distributors.
Example 1: Soft Drink Supply Chain
Example 2: Sugar Industry
Upstream supply chain and Downstream supply chain
Bullwhip effect in supply chain
• Bullwhip effect means distorted information
flowing from final customer to upstream supply
chain.
Product
• A product is the tangible items than can be
offer for sale to the end user.
Service
• Service is a intangible offering.
• The action of doing work for someone.
Difference between Products and services
Product Service
Products are Tangible i.e product one services are Intangible i.e. service we can
can touch, smell, see and wish to buy experience.
Example: aircraft is product Example: flying to a particular destination is
service
Product is labour, raw material, while services are labour intensive only.
machine intensive.
We can store product for future but we can't store services for future use.
Quality of products is homogeneous While quality of services is heterogeneous.
i.e. Quality of product can not vary i.e. Quality of service can vary with time
with time and person.
The consumer can access the product A consumer will never know how good the
(a car, washing machine, etc.) and service is until he gets it.
see/test it.
Product has some resale value Reselling is unusual
Customer
• Customer is the one who purchase the product
either for consume or re-sale.
• Customer is most important asset of any
organization.
• There are two types of customer.
• External Customer: External Customer are said to
be those people who purchases the product for
consume i.e. end user
• Internal Customer: Internal Customer are the
Vendors, Distributors or Retailers who are the part
of delivering your product to end user.
Customer Satisfaction
• Customer Satisfaction is the customer reaction to
the value received from purchase (utilization) of
product.
Objectives of operations management
1. Producing the right kind of products and
services that satisfy customers’ needs
2. Maximizing output of goods and services with
minimum resource inputs
3. Ensuring the high quality of goods and services
4. Minimizing throughput-time
5. Maximizing the utilization of manpower,
machines, etc.
6. Minimizing cost of producing goods
Functions of Operations Management
• Forecasting
• Supplier selection
• Design of the product
• Design of production system
• Production
• Inventory control
• Managing the Quality
Productivity
• Productivity is the quantitative relation between
what we produce and what we use as a resource
to produce them.
• i.e., arithmetic ratio of amount produced
(output) to the amount of resources (input).
Example: 1
• In case A, 10 products are produced spending
1000, rupees and in case B, 15 products are
produced by spending 2000 rupees. Calculate
the productivity in each case?
Measures of Productivity
• Single Factor productivity
• Multi Factor productivity
• Total Factor productivity
Single-Factor Productivity
• The use of just one resource input to measure
productivity, is known as single-factor productivity
Multifactor Productivity
• Multifactor productivity relates output to a
combination of inputs, such as (labour + capital)
or (capital + energy + materials).
Total Factor Productivity
• Total factor productivity includes all inputs used
to produce the output (e.g., capital, labour,
material, energy).
Productivity Growth Rate
P2 P1
Growth Rate
P1
• P2 = productivity at a given time
• P1 = productivity at an earlier time to the same
process.
Example: 2
• Collins Title Insurance Ltd. wants to evaluate its labour
productivity and multifactor productivity with a new
computerized title-search system. The company has a
staff of four, each working 8 hours per day with a
payroll $160/day and overhead expenses of $400 per
day. Collins processes and closes on 8 titles each day.
The new computerized title-search system will allow
the processing of 14 titles per day. Although the staff,
their work hours, and pay are the same, the overhead
expenses are now $800 per day. Calculate growth rate
in labour productivity and growth rate in multifactor
productivity.
Example: 3
• Osborne Industries is compiling the monthly productivity
report for its Board of Directors. From the following data,
calculate (a) labour productivity, (b) machine productivity,
and (c) the Multi-factor productivity of dollars spent on
labour, machine and materials (d) Total factor
productivity. The average labour rate is $15 an hour, and
the average machine usage rate is $10 an hour.
Example: 4
• Art Binley, president and producer of apple crates,
has been able, with his current equipment, to produce
240 crates per 100 logs. He currently purchases 100 logs
per day, and each log requires 3 labour-hours to
process. He believes that he can hire a professional
buyer who can buy a better-quality log at the same cost.
If this is the case, he can increase his production to 260
crates per 100 logs. His labour-hours will increase by 8
hours per day. What will be the impact on productivity
(measured in crates per labour-hour) if the buyer is
hired?
Example: 5
• Last week employees at Bluegill produced 46 chairs
after working a total of 200 hours. Of the 46 chairs
produced, 12 were damaged due to a problem with the
new sanding machine. The damaged chairs can be
discounted and sold for $25 each. The undamaged
chairs are sold to a department store retail chain for $70
each. What was the labour productivity ratio for last
week? If labour productivity was $15 in sales per
hour the previous week, what was the change in
labour productivity?
Product Life Cycle
• It is the period of time over which an item is
developed, brought to market and eventually
removed from the market.
• A new product progresses through a sequence of
stages from introduction to growth, maturity,
and decline.
• This sequence is known as the product life cycle.
Introduction
• This is the stage of low growth rate of sales as the
product is newly launched in the market.
• Since the product is new in the market, the users
may not be aware of its true potential.
• In order to achieve a place in the market, extra
information about the product should be
transferred to consumers through various media.
• The stage has the following characteristics:
– Low competition.
– Firm mostly incurs losses and not profit.
Growth
• Growth comes with the acceptance of the
innovation in the market and profit starts to flow.
• Selling of product will increase in this stage.
• As the monopoly still exists, companies can
experiment with new ideas and innovation in
order to maintain the sales growth.
Maturity
• In this stage, sales will be at maximum stage and
will stagnate, as the product has already achieved
acceptance in the market.
• New firms start experimenting in order to
compete by innovating new models of the
product.
• With many companies in the market, competition
for customers will be there.
• Aggressive competition in the market results in
profits decreasing.
Decline
• This is the stage where most of the product class
usually dies due to low growth rate in sales.
• A number of companies share the same market,
making it difficult for all entrants to maintain
sustainable sales levels.
• It is not always necessary that a product should
go through these stages.
• It depends on the
– type of product,
– its competitors,
– scope of the product etc.
Systems Perspective of
Operations Management
System, Boundary and Environment
• System: System is an item or group of inter-
related items working together as a whole for
achieving specific objective.
• Environment: A system environment is
everything outside the system.
• Boundary: The system’s boundary separates
environment from the system.
• Systems perspective of operations management
states that
“Activities in an operations system can be
classified as inputs, transformation process and
outputs”
Inputs
• Inputs are classified into three general categories:
– external,
– market and
– primary resources.
Transformation process
• The transformation process is concerned with
converting the inputs resources into outputs in the
form of goods and services.
• Transformation process may be either manual or
mechanical or chemical.
Outputs
• Output is the result of transformation process .
• Example: Vedanta Aluminium Manufacturing Unit
Vedanta Aluminium Manufacturing Unit
• Vedanta Aluminium Manufacturing Unit is
situated at Goa.
• This company works under Vedanta Resources
Pvt. Ltd., which is one of the world's largest
diversified natural resources company with
interests in Zinc, Lead, Silver, Copper, Iron Ore,
Aluminium.
• Goa unit produces aluminium from aluminium
oxide through electrolytic reduction.
• System: Here factory as a systems comprising of
various subsystems.
• As we defined earlier, a system consists of three
major components:
• Input
• Transformation process
• Output
• Input: Inputs to an operation systems can be
classified into these categories:
1)External: Legal inputs (the Companies Act etc,
Government policies), Social, Technological
(Electrolytic cells, power generation machinery etc )
2)Market: Competition (HINDALCO, NALCO,
BALCO etc), Customer Desires, Product information
3)Primary resources: Material (Alumina, raw
aluminium ore ), personnel, capital.
• Conversion process: The ore is transformed into
pure aluminium. The transformation process is
carried out mainly through electrolytic reduction.
• Output – There are two types of output
1) Direct: Pure Aluminium
2) Indirect: Waste, Pollution
Challenges in Operations Management
• Globalization
• Sustainability
• Collaborative Relationship
• Rapid product development
• Mass customization
• Lean operations
