OPERATIONS MANAGEMENT

CHAPTER I. OPERATIONS MANAGEMENT

At the end of the chapter, the student should be able to:
a) Define operations management, it’s principle, concept and challenges;
b) Identify how operations management has change over the years; and
c) Familiarize the concept, required skills and role of operations manager.
OVERVIEW OF OPERATIONS
Operation is that part of as organization, which is concerned with the
transformation of a range of inputs into the required output (services) having
the requisite quality level.
Management is the process, which combines and transforms various resources
used in the operations subsystem of the organization into value added services
in a controlled manner as per the policies of the organization.
The set of interrelated management activities, which are involved in
manufacturing certain products, is called as production management. If the
same concept is extended to services management, then the corresponding set
of management activities is called as operations management.
An operation was defined in terms of the mission it serves for the organization,
technology it employs and the human and managerial processes it involves.
Operations in an organization can be categorized into Manufacturing
Operations and Service Operations.
Manufacturing Operations is a conversion process that includes manufacturing
yields a tangible output: a product, whereas, a conversion process that includes
service yields an intangible output: a deed, a performance, an effort.
Service operations achieve profitability on the basis of relatively low materials
costs and relatively high labor costs, which lead to a high contribution margin.
This tends, therefore, to be sensitive to demand fluctuations, making capacity
management a key feature of successful OM. According to Heskett, Sasser and
Schlesinger (1997), profit in the most successful ‘service breakthrough’ firms
derives from achieving effective market segmentation based on high-volume
sales; understanding these segments’ needs, values and behavior; selecting
profitable segments; articulating the service concept’s benefits; deploying
resources efficiently; and creating barriers to entry. A second key factor is
having a high level of repeat custom. Apart from this being a form on entry
barrier, repeat customers have lower acquisition costs and a closer match
between expectation and perception,4 and make more efficient use of the
system
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Retail operations cost structure has relatively high materials cost and low labor
cost and therefore reasonable margins. These too are insensitive to demand
fluctuations due to the shelf life of stock. Hence, retail operations managers
make profit through stock control and sales and revenue management (such as
direct selling, sales scripts, table-top promotions and merchandizing).
Operations system 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 organization that produces the organization’s physical goods and
services’.
Ray Wild defines operations system as ‘a configuration of resources combined
for the provision of goods or services’. In some of the organization the product
is a physical good (breakfast in hotels) while in others it is a service (treatment
in hospitals). Bus and taxi services, tailors, hospital and builders are the
examples of an operations system.
OPERATIONS MANAGEMENT
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.
Operations management involves planning, organizing, and supervising
processes, and makes necessary improvements for higher profitability. The
adjustments in the everyday operations have to support the company’s
strategic goals, so they are preceded by deep analysis and measurement of the
current processes.
Historical background
Operations management was previously called production management, clearly
showing its origins in manufacturing. Historically, it all began with the division
of production, starting as early as the times of ancient craftsmen, but spreading
more widely only by adding the concept of interchangeability of parts in the
eighteenth century, ultimately sparking the industrial revolution.
Still, it was not until Henry Ford took a twist on manufacturing with his famous
assembly line concept, otherwise known as “bring work to men,” that the
 OPERATIONS MANAGEMENT
management of production for improving productivity became a hot topic.
From the 1950’s and 1960’s, it formed a separate discipline, besides bringing
other concepts, such as Taylorism, production planning, or inventory control, to
life.
As the economies in the developed world were gradually shifting to be service-
based, all the corporate functions, including product management, started to
integrate them. The service side also began its approach by applying product
management principles to the planning and organizing of processes, to the
point where it made more sense to call it operations management.
MULTIDISCIPLINARY NATURE
Operations management is now a multidisciplinary functional area in a
company, along with finance and marketing. It makes sure the materials and
labor, or any other input, is used in the most effective and efficient way possible
within an organization – thus maximizing the output.
Operations management requires being familiar with a wide range of disciplines.
It incorporates general management, factory- and equipment maintenance
management by tradition. The operations manager has to know about the
common strategic policies, basic material planning, manufacturing and
production systems, and their analysis. Production and cost control principles
are also of importance. And last, but not least, it has to be someone’s who is
able to navigate industrial labor relations
Objectives of Operations Management can be categorized into Customer
Service and Resource Utilization.
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.
Generally, an organization will aim reliably and consistently to achieve certain
standards and operations manager will be influential in attempting to achieve
these standards. Hence, this objective will influence the operations manager’s
decisions to achieve the required customer service.
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RESOURCE UTILIZATION
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 utilization of
resources, i.e. obtaining maximum effect from resources or minimizing their loss,
under utilization or waste. The extent of the utilization of the resources’
potential might be expressed in terms of the proportion of available time used
or occupied, space utilization, levels of activity, etc. Each measure indicates the
extent to which the potential or capacity of such resources is utilized. This is
referred as the objective of resource utilization.
The customer service objective The resource utilization objective
i.e. to provide agreed/adequate levels i.e. to achieve adequate levels of
of customer service (and hence resource utilization (or productivity)
customer satisfaction) by providing e.g. to achieve at the right agreed
goods or services with the right levels of utilization of materials,
specification, cost and at the right machines and labour.
time
Operations management in tourism and hospitality refers to the work done in
the different fields of hotel industry. Jobs in the hospitality industry, such as
hotels, restaurants, catering, resorts and casinos as well as other hospitality
positions that deal with tourists generally, refers to hospitality. Hospitality
 OPERATIONS MANAGEMENT
involves the relationship process between the hotel and a guest and the act of
being hospitable, such as guest reception and entertainment with friendliness,
goodwill and liberality. Tourists who travel for recreation or leisure purposes is
related to tourist management. In recent years, tourism has become a popular
global leisure activity among worldwide customers.
REQUIRED SKILLS
The skills required to perform such work are as diverse as the function itself.
The most important skills are:
 Organizational abilities. Organizing processes in an organization requires
a set of skills from planning and prioritizing through execution to
monitoring. These abilities together help the manager achieve
productivity and efficiency.
 Analytic capabilities/understanding of process. The capability to
understand processes in your area often includes a broad understanding
of other functions, too. An attention to detail is often helpful to go
deeper in the analysis.
 Coordination of processes. Once processes are analysed and
understood, they can be optimized for maximum efficiency. Quick
decision-making is a real advantage here, as well as a clear focus
problem-solving.
 People skills. Flaws in the interactions with employees or member of
senior management can seriously harm productivity, so an operation
manager has to have people skills to properly navigate the fine lines with
their colleagues. Furthermore, clear communication of the tasks and
goals serves as great motivation and to give a purpose for everyone.
 Creativity. Again, problem-solving skills are essential for a creative
approach if things don’t go in the right direction. When they do,
creativity helps find new ways to improve corporate performance.
 Tech-savviness. In order to understand and design processes in a time
when operations are getting increasingly technology-dependent, affinity
for technology is a skill that can’t be underestimated. Operations
managers have to be familiar with the most common technologies used
in their industries, and have an even deeper understanding of the
specific operation technology at their organizations.
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ScopeofOperationsManagement
1. Location of Facilities: The most important decision with respect to th
operations management is the selection of location, a huge investment is
made by the firm in acquiring the building, arranging and installing plant
and machinery. And if the location is not suitable, then all of this investment
will be called as a sheer wastage of money, time, and efforts.
2. Product Design: Product design is all about an in-depth analysis of the
customer’s requirements and giving a proper shape to the idea, which
thoroughly fulfills those requirements. It is a complete process of
identification of needs of the consumers to the final creation of a product
which involves designing and marketing, product development, and
introduction of the product to the market.
3. Process Design: It is the planning and decision making of the entire work
flow for transforming the raw material into finished goods, It involves
decisions regarding the choice of technology, process flow analysis, process
selection, and so forth.
4. Plant Layout: As the name signifies, plant layout is the grouping and
arrangement of the personnel, machines, equipment, storage space, and
other facilities, which are used in the production process, to economically
produce the desired output, both quality wise and quantity wise.
5. Material Handling: Material Handling is all about holding and treatment of
material within and outside the organization. It is concerned with the
movement of material from one go down to another, from go down to
machine and from one process to another, along with the packing and
storing of the product.
6. Material Management: The part of management which deals with the
procurement, use and control of the raw material, which is required during
the process of production. Its aim is to acquire, transport and store the
material in such a way to minimize the related cost. It tends to find out new
sources of supply and develop a good relationship with the suppliers to
ensure an ongoing supply of material.
7. Quality Control: Quality Control is the systematic process of keeping an
intended level of quality in the goods and services, in which the
organization deals. It attempts to prevent defects and make corrective
actions (if they find any defects during the quality control process), to
ensure that the desired quality is maintained, at reasonable prices.
8. Maintenance Management: Machinery, tools and equipment play a crucial
role in the process of production. So, if they are not available at the time of
need, due to any reason like downtime or breakage etc. then the entire
process will suffer. Hence, it is the responsibility of the operations manager
to keep the plant in good condition, as well as keeping the machines and
other equipment in the right state, so that the firm can use them in their
optimal capacity.