Paper Coordinator

Co-Principal Investigator
Development Team
Dr. Vijaya Khader Prof.(Dr.) S.P. Bansal
Former Dean, Vice
Acharya N G Ranga Chancellor, Maharaja
Agricultural Agreshen University,
University
Principal Investigator
Baddi, Solan, Himachal Pradesh, INDIA
Dr. Vijaya Khader
Former Dean, Acharya N G Ranga Agricultural University
Prof.(Dr.) YoginderVerma
Prof.Vice Chancellor, Central University of Himachal
Co-Principal Investigator Pradesh,Kangra Himachal Pradesh, INDIA

Dr. VIkas Singla

Paper Coordinator School of Management Studies, Punjabi University,
Patiala, Punjab

Dr. Sudhanshu Joshi

Content Writer Head, School of Management, Doon University,
Dehradun PIN 248001, Uttarakhand, INDIA

Operation Management
Management
Operation Management as an Inter-functional Imperative
 Quadrant-I

Description of Module
Subject Name Management
Paper Name Operation Management
Module Title Operations Management as an inter-functional imperative
Module Id Module- 03
Pre-requisites
Objectives 1. To understand the concept, definitions and scope of operation
management.
2. Understanding the importance of operational management.
Keywords Operational Management, Layout, Quality Control, Material
Handling, Planning, Process Layout, Product Layout

Learning Objectives:
The module provides an introduction to operations management and its role in
decision making.

Learning Outcomes:
On successful completion of this module, students should be able to:
1. Explain the scope of decision making in operation management.

2. Strategic aspect of decision making in Operation Management.

3. Various techniques and tools (models, quantitative methods, analysis of

trade-offs) use by Operation Managers to take operation decisions.

Throughout this module, learner shall understand broad range of decisions that
operations managers must make. Also, it covers introduced to the tools
necessary to handle those decisions.

Operation Management
Management
Operation Management as an Inter-functional Imperative
 1. Introduction

Operations Management (OM) aims to manage processes engaged in

production, distribution of products/ or services. Therefore, it includes set of
activities (including product creation, development, production, distribution and
reverse logistics). The creation of goods or services involves transforming or
converting inputs into outputs. Various inputs such as capital, labor, and
information are used to create goods or services using one or more
transformation processes (e.g., storing, transporting, and repairing). To ensure
that the desired outputs are obtained, an organization takes measurements at
various points in the transformation process (feedback) and then compares
them with previously established standards to determine whether corrective
action is needed (control). Figure 1.1 depicts the conversion system.

Input Output

 Land  Goods
 Labour Transformation/  Services
 Capital
Conversation Process
 Information

Measurement and Feedback

Measurement and
Measurement and Feedback
Feedback

Control

Operations management inclusive all operations within the organization (viz.

Managing purchases, Material Management (MM) and inventory control,
Production Planning and Production Management (PP/PM) Quality Control (QC)
3

Operation Management
Management
Operation Management as an Inter-functional Imperative
 and Quality Assurance (QA), storage, Sales and Distribution (S&D) and logistics
Management and evaluations). The prime focus during the operation
management is on efficiency and effectiveness of processes. Therefore, OM
includes substantial measurement and analysis of internal processes.
Ultimately, the nature of how operations management is carried out in an
organization depends very much on the nature of products or services in the
organization, For example, in the domain of retail, manufacturing, wholesale,
etc. successful operation management involves several decisions in accordance
to time and space. We can broadly classify them as Design/ Strategic decisions
and operations decisions.
The strategic decisions are the design and policy decisions. The operational
decisions relate to day-to-day activities: managing the flow of material and
product and other aspects of the Operation Management in accordance with
strategic decisions.
2. Importance of Operations Management

Operations and sales are the two line functions in a business organization. All
other functions—accounting, finance, marketing, IT, and so on—support the two
line functions. Among the service jobs that are closely related to operations are
financial services (e.g., stock market analyst, broker, investment banker, and
loan officer), marketing services (e.g., market analyst, marketing researcher,
advertising manager, and product manager), accounting services (e.g.,
corporate accountant, public accountant, and budget analyst), and information
services (e.g., corporate intelligence, library services, management information
systems design services).
Operations

Finance Marketing & Sales

Figure 1.2: Overlapping between

4
Business functions

Operation Management
Management
Operation Management as an Inter-functional Imperative
 Working together successfully means that all members of the organization
understand not only their own role, but they also understand the roles of others.
In practice, there is significant interfacing and collaboration among the various
functional areas, involving exchange of information and cooperative decision
making. For example, although the three primary functions in business
organizations perform different activities, many of their decisions impact the
other areas of the organization. Consequently, these functions have numerous
interactions, as depicted by the overlapping circles shown in Figure 1.2.
Finance and operations management personnel cooperate by exchanging
information and expertise in such activities as the following:
1. Budgeting. Budgets must be periodically prepared to plan financial
requirements.
Budgets must sometimes be adjusted, and performance relative to a budget
must be evaluated.
2. Economic analysis of investment proposals. Evaluation of alternative
investments in plant and equipment requires inputs from both operations and
finance people.
3. Provision of funds. The necessary funding of operations and the amount
and timing of funding can be important and even critical when funds are tight.
Careful planning can help avoid cash-flow problems.

Operation management refers to the management of various operational

processes doing by a business organization. Operations Management is about
how organizations produce or deliver the goods and services that provide the
reason for their existence. Various operations doing by an organization may
include marketing, finance, personnel etc. The operational function of an
organization can be described as that part of the organization devoted to the
production or delivery of goods and services. All organizations undertake
operational activities because every organization produces goods and/or
services.

Operation Management
Management
Operation Management as an Inter-functional Imperative
 Operation management is the process, which combines and transforms various
resources used in the production/operations subsystem of the organization into
value added product/services in a controlled manner as per the policies of the
organization. Therefore, operation management is that part of an organization,
which is concerned with the transformation of a range of inputs into the required
(products/services) having the requisite quality level.

Operation can be seen as one of many functions e.g. marketing, finance,

personnel etc. within the organization. The operation function is that part of the
organization which is devoted to the production and delivery of goods and
services. This means all organizations undertake operations activities because
every organization produces goods and/or services. Operation Management
means administration of all business practices in a way to achieve organizations
goal more efficiently and effectively. It is the process of management of
business operations optimally in order to maximize the business profit and
minimize the cost.

Operations management refers to the management of the production system

that transforms inputs into finished goods and services. Operations
management seeks to increase the quality and efficiency of the firm.

3. Key components of Operations Management

Various Concepts of Operations Management:

A. Quality: Quality simply means the fulfilment of the customers’

expectations. For example, reliable goods and services can fulfil the
customers’ expectations.

B. Efficiency: Efficiency simply means produce the required amount of

output with a given level of input.

C. Responsiveness to Customers: It means actions taken to respond to

customer needs. Firm can react quickly and correctly to customer needs
as they arise.

Operation Management
Management
Operation Management as an Inter-functional Imperative
 4. Operations as a Key Functional Areas:

Operation management is one of the important functional areas of any kind of

business. It influences other functional areas of business at high level. In other
words, all functional areas of a business are interrelated. Following figure shows
interlinkage between various functional areas of a business concern.

Finance

Marketing Human Resource

Management

Figure 1: Inter-linkage between various functions

Organization typically begins their yearly plan with the marketing function
making an estimate of the next year’s sales. This input forms the basis for
production planning in the operations area of business. Procurement planning is
done on the basis of the production plans and all these factors lead to a certain
estimate of the fund requirements. This forms an important input for the finance
function. The human resource management function influences the productivity
capacity as the availability of labor depends upon it. The actual production of
goods and services influences the marketing activities to be undertaken and the
quantity and timing of available funds from sales. Such interactions are common
in most organizations.

Operation Management
Management
Operation Management as an Inter-functional Imperative
 5. Historical evolution of Operation Management
For over two century’s 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 recognized the economic benefits of specialization of labor.
He recommended breaking down the task of a job into subtasks and the
responsibility of workers for doing a specific task must be fixed according to
his/her skill and qualification. 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
following table 2.

Year Contribution Contributor

1776 Specialization of labor in manufacturing Adam Smith
1799 Interchangeable parts, cost accounting Eli Whitney and others
1832 Division of labor by skill; assignment of jobs by skill; Charles Babbage
Basics of time study
1900 Scientific Management: time study and work study Frederick W. Taylor
1900 Motion of study of jobs Frank B. Gilbreth
1901 Scheduling techniques for employees, machines Henry L. Gantt
jobs in manufacturing
1915 Economic lot sizes for inventory control F.W. Harris
1927 Human relations; Hawthorne Studies Elton Mayo
1931 Statistical inference applies to product quality: W.A. Shewart
quality control charts
1935 Statistical sampling applied to quality control: H.F. Dodge & H.G. Roming
inspection sampling plans
1940 Operations research applications in World War II P.M. Blacker and others
1946 Digital computer John Mauchlly and J.P.
Eckert
1947 Linear programming G.B. Dantzig, Williams &
others
1950 Mathematical programming, on-linear and A. Charnes, W.W. Cooper &
stochastic processes others
1951 Commercial digital computer: large-scale Sperry Univac
computations available
1960 Organizational behavior: continued study of people L.Cummings & L. Porter
at work
8

Operation Management
Management
Operation Management as an Inter-functional Imperative
 1970 Integrating operations into overall strategy and W. Skinner, J. Orlicky and G.
policy; Computer applications to manufacturing; Wright
Scheduling and control: Material requirement
planning
1980 Quality and productivity applications from Japan: W.E. Deming and J. Juran
robotics, CAD-CAM

6. Operation functions and its Linkages

Following figure shows various operations functions and its linkages with other
functions:
Operations Support Layer
Customer Layer Marketing Tooling
Maintenance Material
Ultimate Customer Quality IT
Dealers Costing Design
Retailers Planning Industrial
Designing

Core Operations
Layer
Layer of Innovation Supplier Layer
Testing
Assembly Sub-contractors
Innovation Strategy Fabrication Suppliers
Research & Development Machining Other Service Providers
Service Delivery

Figure 2: Linkage between various layers

Managing operations can be enclosed in a frame of general management

function as shown in figure 3. Operation managers are concerned with planning,
organizing, and controlling the activities which affect human behavior through
models.
6.1. Planning:
Planning simply means to decide what is to be done, when and how. It involves
those activities which establish a course of action and guide future decision
9

Operation Management
Management
Operation Management as an Inter-functional Imperative
 making. It is the responsibility of the operation manager to define the objectives
for the operations subsystem of the organization, and the policies and
procedures for achieving the objectives. This stage includes clarifying the role
and focus of operations in the organizations overall strategy. It also involves
product planning and facility designing.
6.2. Organizing:
Organizing involves those activities that establish a structure of tasks and
authority. In organizing top management assigned different tasks and authorities
to their employees. Operation managers establish a structure of roles and the
flow of information within the operations subsystem. They determine the
activities required to achieve the goals and assign authority and responsibility
for carrying them out.
6.3. Controlling:
Under this function the operation manager compare actual outputs with planned
outputs. It involves those activities that assure the actual performance in
accordance with planned performance. To ensure that the plans for the
operations subsystems are accomplished, the operations manager must
exercise control by measuring actual outputs and comparing them to planned
operations. Some important functions consider under this function are
controlling costs, and ensure the quality of production.
6.4. Behavior:
In this function operation managers concerned with how their efforts to plan,
organize, and control affect human behavior. They also want to know how the
behavior of subordinates can affect management’s planning, organizing, and
controlling actions.
6.5. Models:
As operation managers plan, organize, and control the conversion process, they
face many problems during this process. They must take decisions to find out
solutions for such problems. They can simplify their difficulties using models like
aggregate planning models for examining how best to use existing capacity in
10

Operation Management
Management
Operation Management as an Inter-functional Imperative
 short-term, break even analysis to identify break even volumes, linear
programming and computer simulation for capacity utilization, decision tree
analysis for long-term capacity problem of facility expansion etc.

Planning
Planning Conversion System
 Operations Strategies Organizing
 Forecasting Organizing for Conversion
 Operations Capacity  Job design,
Scheduling Conversion Operations standards
System  Project Management
 Operations Scheduling
 Scheduling System

-----Conversion----
Process
Models Behavior

Controlling
Material Control
 Inventory Control
 Material Requirement
Planning
Managing for World Class
Competition
 Japanese Manufacturing
 Managing for Quality
 Quality Analysis & Control

Figure 3: General Model for Managing Operations

7. Objectives of Operation Management:

There are two main objectives of operation management namely, customer
service and resource utilization.
11

Operation Management
Management
Operation Management as an Inter-functional Imperative
 7.1 Customer Service:
The first objective of operational management is the customer service to satisfy
the customer wants. Under this objective the operational manager tends to
identify the customer needs and will try to fulfill their needs in best possible way.
The operation system must provide something special which can satisfy the
customer in terms of cost and timing. This objective can be achieved by
providing the right thing at a right price at the right time.
7.2 Resource Utilization:
Another major objective of operational management is to utilize the available
resources optimally. As we all know resources are very scare, the operational
manager needs to utilize the available resources more efficiently and effectively
so that the firm will be able to satisfy the customer needs and wants in best
possible way.
Under this objective the operational manager tends to achieve adequate levels
of resource utilization or productivity e.g., to achieve agreed levels of utilization
of materials, machines and labor.

8. Scope of Operation Management:

Production and operation management concern with the conversion of inputs
into outputs, using physical resources, so as to provide the desired utilities to
the customer while meeting the other organizational objectives of effectiveness,
efficiency and adoptability. It distinguishes itself from other functions such as
personnel, marketing, finance etc., by its primary concern for ‘conversion by

12

Operation Management
Management
Operation Management as an Inter-functional Imperative
 using physical resources.’ Following are the activities which are listed under
operation management functions:
(I) Location of facilities
(II) Plant layouts and material handling
(III) Product design
(IV) Process design
(V) Production and planning control
(VI) Quality control
(VII) Materials management
(VIII) Maintenance management

8.1. Location of Facilities:

Location of facilities for operations is a long-term decision which involves a long
term commitment about the geographically static factors that affect a business
organization. It is an important strategic level decision-making for an
organization. It deals with the question ‘where our main operations should be
based?’
The selection of location is a key decision because it involves investment of a
large amount of money in building plant and machinery. An improper location of
plant may lead to waste of all the investments made in plant and machinery
equipments. Hence, location of plant should be based on the company’s
expansion plan and policy, diversification plan for the products, changing
sources of raw materials and many other factors. The main purpose of the

13

Operation Management
Management
Operation Management as an Inter-functional Imperative
 location study is to find the optimal location that will results in the greatest
advantage to the organization.

8.2. Plant Layout and Material Handling:

Physical arrangement of facilities known as plant layout. It is the configuration of
department, work centers and equipments. The overall objective of the plant
layout is to design a physical arrangement that meets the required output quality
and quantity most economically.
According to James Moore, “Plant layout is a plan of an optimum arrangement
of facilities including personnel, operating equipment, storage space, material
handling equipments and all other supporting services along with the design of
best structure to contain all these facilities”.
Material handling is the process of movement of materials from store room to
machine and from one machine to another during the manufacturing process. It
also involves moving, packing and storing of products in any form. It is a
specialized activity for a modern manufacturing concern, which involves 50 to
75% of total cost of production. This cost can be reduced by proper operation
and maintenance of material handling devices. Material handling devices
increases the output, improves quality, speeds up the deliveries and decreases
the cost of production.

8.2.1. Types of Layout:

Layouts can be classified into following categories:
(I) Process Layout

14

Operation Management
Management
Operation Management as an Inter-functional Imperative
 (II) Product Layout

(III) Combination Layout

(IV) Fixed Position Layout

8.2.1.1 Process Layout:

In process layout all machines performing similar type of operations are grouped
at one location e.g., all lathes, milling machines etc. Process layout is very
useful in job shop and batch production. Process layouts are found primarily in
job shops or firms that produce customized, low-volume products that may
require different processing requirements and sequences of operations.

8.2.1.2. Product Layout:

Product layout is also known as line layout. In product layout,
(a) Reasonably stable demand for the product.
(b) Continuous supply of materials.

8.2.1.3. Combination Layout:

Combination layout is a mixture of both process and product layouts. A
combination layout is possible where an item is being made in different types
and sizes. In combination layout machinery is arranged according to process
layout but the process grouping is then arranged in a sequence to manufacture
various types and sizes of products. It is to be noted that the sequence of
operations remains same with the variety of products and sizes.

15

Operation Management
Management
Operation Management as an Inter-functional Imperative
 8.2.1.4. Fixed Position Layout:
Fixed position layout is also known as project type of layout. In this type of
layout, the major components remain in a fixed location and tools, machinery,
men and other materials are brought to this location. This type of layout is
suitable when one or a few pieces of identical heavy products are to be
manufactured and when the assembly consists of large number of heavy parts.
The cost of transportation of these parts is very high. For example, when a ship
is manufactured then its main component ship building yard is fixed at one
location and other components i.e. material, labour, equipments etc brought
here to complete the manufacturing process. Following figure shows fixed
position layout.

Ship Building Yard

Material
Finished Product (Ship)
Labor
Equipment

Figure 5: Fixed Position Layout

8.3. Product Design:

Product design simply means conversion of ideas into reality. In order to survive
in current globally competitive environment, business organizations needs to
design, develop and introduce new products in the market. It is an important
part of organizations survival and growth strategy. Developing the new products
and launching them in the market is the biggest challenge faced by the
organizations. The entire process of need identification to physical
manufactures of product involves three functions namely, marketing, product
development and manufacturing. Through marketing organizations tends to

16

Operation Management
Management
Operation Management as an Inter-functional Imperative
 identify customer needs. Product development translates the needs of
customers given by marketing into technical specifications and designing the
various features into the product. Manufacturing has the responsibility of
selecting the processes by which the product can be manufactured.
8.4. Process Design:
Process design means selection of optimum decision route for converting the
raw material into finished goods. During process design the operational
manager needs to consider on selection of process, choice of technology,
process flow analysis and layout of the facilities.
8.5. Production Planning and Control:
Production planning and control can be defined as the process of planning the
production in advance, setting the exact route of each item, fixing the starting
and finishing dates for each item, to give production orders to shops and to
follow up the progress of products according to orders.
Production planning and control works on a simple principle ‘First Plan Your
Work and then Work on Your Plan’. The main functions of production planning
and control includes planning, routing, scheduling, dispatching and follow-up.
8.5.1 Planning: Planning refers to deciding in advance what to do, how to do it,
when to do it and who is to do it. Planning bridges the gap from where we are,
to where we want to go. It makes it possible for things to occur which would not
otherwise happen.
8.5.2. Routing: It simply means selection of path to convert raw materials into
finished goods. Routing determines the path to be followed from department to
department and machine to machine till raw material gets its final shape.
8.5.3. Scheduling: It determines the programme for the operations. Scheduling
may be defined as the fixation of time and date for each operation as well as it
determines the sequence of operations to be followed.
8.5.4. Dispatching: It is concerned with the starting the processes. It gives
necessary authority so as to start a particular work, which has already been
planned under “routing” and “scheduling”. Therefore, dispatching simply means
17

Operation Management
Management
Operation Management as an Inter-functional Imperative
 release of orders and instruction from the starting of production for any item in
acceptance with the route sheet and schedule charts.
8.5.5. Follow-up: It involves the report of daily work progress in a prescribed
proforma and to investigate the causes of deviations from the planned
performance.

Location of Facilities
Plant Layout &
Maintenance Material Handling
Management

Operation
Material Management Management Product Design

Process Design
Quality Control

Production Planning &

Control

Figure 4: Scope of Operation Management

8.6. Quality Control:
Quality control refers to a system that is used to maintain a desired level of
quality in a product or service. It is a systematic control of various factors that
affect the quality of the product. Various factors that affect the quality of a
product include raw material, techniques and equipments to be used, skill level
of workers etc.
18

Operation Management
Management
Operation Management as an Inter-functional Imperative
 Quality control is that industrial management technique which helps in
production of a uniform product with acceptable quality. It is the entire collection
of activities which ensures that the operation will produce the optimum quality
products at minimum cost.
The main objective of quality control is prevention of defects at the source.
Other objectives are as under:
 To improve the companies income by making the production more
acceptable to the customers i.e. by providing long life, greater usefulness,
maintainability etc.

 To reduce cost through reduction of losses due to defects.

 To produce optimal quality at reduced price.

 To make inspection prompt to ensure quality control.

 To check the variation during manufacturing.

8.7. Material Management:

Material management refers to the management of various materials needed in
the process of production. It means find out the optimum ways of acquisition of
raw materials and other inputs required in the production process of a product
so that the wastage of materials are minimized.
The main objectives of material management are as under:
 To minimize material cost.

 To purchase, receive, transport and store materials efficiently and to

reduce the related cost.

 To trace new sources of supply and to develop cordial relations with them
in order to ensure continuous supply at reasonable rates.

19

Operation Management
Management
Operation Management as an Inter-functional Imperative
 8.8. Maintenance Management:
In current scenario, equipment and machinery are a very important part of the
total productive effort. An organization can’t survive without suitable machinery
and equipments. Therefore, their idleness or downtime becomes are very
expensive. Hence, it is very important that the plant machinery should be
properly maintained.
The main objectives of maintenance management are as under:
 To achieve minimum breakdown and to keep the plant in good working
condition at the lowest possible cost.

 To keep the machines and other facilities in such a condition that permits
them to be used at their optimal capacity without interruption.

 To ensure the availability of the machines, buildings and services required

by other sections of the factory for the performance of their functions at
optimal return on investment.

20

Operation Management
Management
Operation Management as an Inter-functional Imperative