UNIT-I
Introduction to Operations Management
Nature of Operations management:
Operations Management is a field that focuses on the management of resources and processes to
create and deliver goods or services. It is a relatively new domain, only emerging as a different
discipline in the early 20th century. Operations management is concerned with all aspects of an
organisation’s operations, including the design, planning, control, and execution of processes.
Operations management aims to ensure that the organisation’s operations are efficient and effective.
This blog post will explore the nature, scope, and fundamentals of operations management. We will
also discuss some of the challenges faced by operations managers.
Before moving ahead and understanding the nature of operations management, check out our
Advanced Certificate in Operations, Supply Chain and Project Management which has all the
necessary learning resources you require to be an operations manager.
Objectives of Operations Management
Operations management is a field concerned with designing, planning, controlling, and operating an
organisation’s production systems. The objectives of operations management are to:
1. Ensure that the organisation’s production systems can meet customer demand. Operations
management is the process of ensuring that business operations are efficient with regards to
using as few resources as necessary and effective in terms of meeting customer demand. The
ultimate goal and nature of operations management are to improve the efficiency and
effectiveness of an organisation’s operations while also reducing costs.
2. Maximise the efficiency of the organisation’s production systems. The goal of operations
management is to maximise the efficiency of these production systems so that the
organisation can produce goods and services more effectively and efficiently. There are
plenty of different tools and techniques that operations managers use to achieve this goal,
such as process improvement methods, quality control techniques, and work measurement
tools.
3. Minimise the cost of producing goods and services. The objective of operations
management is to minimise the cost of producing goods and services while still providing
high levels of quality and customer satisfaction. One of the effective ways this can be
accomplished is by streamlining production processes and eliminating waste. Additionally,
effective operations managers will continuously look for ways to improve efficiency and
productivity to keep costs low.
4. Improve the quality of the goods and services made by the organisation. The objective of
operations management is to improve the quality of the goods and services of the
organisation. It can be done through a variety of means, such as improving the efficiency of
production processes, ensuring that products are produced to meet customer specifications,
and reducing waste and defects in finished products. Improving quality can lead to increased
customer satisfaction and loyalty, which can, in turn, lead to higher sales and profits for the
organisation.
5. Increase the flexibility of the organisation’s production systems. Operations management
strives to increase the flexibility of an organisation’s production systems. The goal is to make
the organisation more responsive to market demands and better adapt to changes in the
business environment. This may be accomplished through various means, such as
introducing new technologies, revising processes, or changing the organisational structure.
6. Reduce the risk of disruptions to the organisation’s production systems. The leading
objective of operations management is to reduce the risk of disruptions to the organisation’s
production systems. This includes ensuring that all necessary resources are available and that
processes are running smoothly and efficiently. Operations managers work to identify and
mitigate potential risks before they can cause problems. Doing so helps keep the
organisation’s production systems running smoothly and avoid costly downtime.
7. Improve communication and coordination among all parties involved in operating an
organisation’s production systems. The objective of operations management is to Improve
communication and coordination among all parties involved in the operation of an
organisation’s production systems. This includes managers, employees, suppliers, customers,
and other stakeholders. By improving communication and coordination among all parties
involved in production, operations managers can improve efficiency and effectiveness
throughout the organisation.
Components of Operations Management
Forecasting
Forecasting is a critical component and nature of operations management. It helps organisations
make informed decisions about future production needs and capacity requirements. There are
several vital elements to consider when developing a forecasting system, including:
The type of product or service being produced
The underlying demand for the product or service
The lead time required to produce the product or service
The amount of variability in the production process
The level of inventory desired
An effective forecasting system takes all of these factors into account and provides accurate
information that can be used to make sound operational decisions.
Total Quality Management
Total Quality Management is a strategic approach to improving an organisation’s competitiveness. It
is a philosophy that emphasises the need for continuous advancement in all aspects of an
organisation’s operations, with the ultimate goal of providing customers with products and services
that meet or exceed their expectations.
The basic components of TQM are:
1) Quality planning: This involves setting quality objectives and goals and developing plans to
achieve them.
2) Quality control: This is the process of monitoring and measuring the quality of products and
services to ensure they meet desired levels. It also includes taking corrective action when necessary.
3) Quality assurance: This entails developing and implementing procedures and processes to prevent
the occurrence of defects in the first place.
4) Quality improvement: This encompasses continual efforts to identify and eliminate sources of
defects and variation to improve overall quality levels.
Materials Requirement Planning
In materials requirement planning (MRP), the timing of production activities is planned to ensure
that materials are available when needed. This type of planning is necessary because many
manufacturing processes require the use of raw materials, which must be obtained from suppliers
and often have lead times that must be taken into account. In addition, finished products are often
required for assembly or other downstream processes before they can be shipped to customers.
To effectively manage the flow of materials through a manufacturing organisation, MRP systems keep
track of three types of information:
1) The master schedule, which indicates when each finished product is due to be completed;
2) The inventory records, which show how much material is on hand and where it is located; and
3) The bill of materials (BOM), which lists the raw materials and subassemblies required to make
each finished product.
Using this information, MRP systems generate schedules for purchasing raw materials and
components as well as for producing finished products. These schedules consider lead times for
procurement and production, as well as any minimum order quantities that may apply. In some
cases, MRP systems also generate rescheduling messages if there are delays in obtaining necessary
supplies.
Just In Time
Just In Time (JIT) is a manufacturing philosophy that arose in the 1970s. Its main goal is to eliminate
waste throughout the production process by producing only what is needed and in the quantities
needed.
This philosophy was born out of necessity as businesses increasingly felt the squeeze of overseas
competition. To survive and thrive, they had to find ways to operate more efficiently and cut costs
wherever possible. JIT became one of the most popular methods for achieving this.
There are four key principles of JIT:
1) Produce only what is needed
2) Produce only what is demanded
3) Do not overproduce or keep excessive inventory on hand
4) Streamline the production process to minimise waste and maximise efficiency.
When properly implemented, JIT can result in significant cost savings, improved quality control, and
customer satisfaction. It can also lead to shorter lead times, increased flexibility, and reduced
inventories.
Inventory Management
It is the process of tracking inventory levels and making decisions about what levels are acceptable.
This includes both raw materials and finished goods. The aim should be to strike a good balance
between having too much inventory (which ties up cash and can lead to obsolescence) and too little
inventory (which can lead to stockouts and lost sales).
Inventory management is a critical component of operations management. It encompasses all of the
activities and processes associated with the management of inventory, including but not limited to
procurement, warehousing, transportation, and customer service.
An effective inventory management system must take into account both the physical and financial
aspects of inventory. The physical aspect includes the actual goods or materials that make up the
inventory, while the financial aspect encompasses the costs associated with procuring, storing, and
transporting the inventory.
An effective inventory management system will minimise both the physical and financial risks
associated with excess or obsolete inventory. Excess inventory can tie up valuable resources and lead
to storage costs, while obsolete inventory can result in lost sales and customers.
The components of an effective inventory management system include:
1) A clear understanding of customer demand: This involves forecasting future demand for products
or services and ensuring that there is enough inventory on hand to meet this demand.
2) An efficient procurement process: This ensures that the right products are ordered from suppliers
at the right time and in their required quantities.
3) An effective warehousing strategy: This involves storing inventory in a way that minimises
damage, loss, or theft while maximising space utilisation.
4) A well-designed transportation network: This ensures that finished goods are delivered to
customers within the stipulated time and in good condition.
Historical Evolution of Operations Management
Pre-Industrial Revolution Era
1. Craft Production
Before the Industrial Revolution, production was primarily artisanal, with skilled craftsmen producing
goods individually or in small workshops. Each item was unique and tailored to customer
specifications.
Industrial Revolution (Late 18th to Early 19th Century)
2. Division of Labor
The Industrial Revolution introduced the concept of division of labor, where tasks were broken down
into simpler, repetitive tasks. This led to increased efficiency and the ability to produce goods on a
larger scale.
3. Factory System
The factory system emerged, bringing together machines, labor, and materials under one roof. This
marked the transition from decentralized craft production to centralized manufacturing.
Scientific Management (Late 19th to Early 20th Century)
4. Frederick W. Taylor
Frederick W. Taylor, known as the father of scientific management, introduced the principles of time
and motion studies. His work aimed to improve worker productivity and efficiency through
systematic analysis and standardization of work processes.
5. Henry Ford
Henry Ford’s implementation of assembly line production techniques in the early 20th century
revolutionized manufacturing. His innovations, such as the Model T production line, led to mass
production and lowered costs.
World War II and Post-War Era
6. Operations Research (OR)
Operations research, born out of the military’s need for logistics and optimization during World War
II, became a key component of operations management. OR uses mathematical models to solve
complex decision-making problems.
7. Total Quality Management (TQM)
Post-war Japan introduced Total Quality Management, emphasizing quality control and continuous
improvement. Figures like W. Edwards Deming and Joseph M. Juran played a pivotal role in its
development.
Late 20th Century
8. Lean Manufacturing
The concept of Lean Manufacturing, derived from the Toyota Production System (TPS), emerged in
the late 20th century. It focuses on minimizing waste, optimizing processes, and improving efficiency.
9. Computerization and Technology
The widespread adoption of computers and information technology revolutionized operations
management. It led to automation, improved data analysis, and enhanced supply chain
management.
21st Century
10. Supply Chain Management (SCM)
Supply chain management gained prominence in the 21st century, emphasizing the end-to-end
management of the flow of goods, information, and finances across the entire supply chain.
11. Sustainability and Environmental Concerns
The 21st century saw a growing emphasis on sustainable operations management, addressing
environmental and social responsibilities, as well as resource optimization.
Future Trends
12. Industry 4.0
Industry 4.0, characterized by the integration of digital technologies, artificial intelligence, and the
Internet of Things (IoT), is shaping the future of operations management. It promises increased
automation, connectivity, and data-driven decision-making.
What is Manufacturing?
Manufacturing is the process of transforming raw materials, components, or parts into finished
goods that are ready for use or sale. It encompasses a wide range of activities, from product design
and material sourcing to production, assembly, quality control, and distribution. Manufacturing plays
a pivotal role in the economy, contributing to the creation of tangible products in various industries,
from automobiles and electronics to food and textiles. It involves a combination of human labor,
machinery, and technology to produce items as per a customer's expectations or specifications to
satisfy consumer needs and demand. Manufacturing is a crucial driver of economic growth, job
creation, and technological advancement, and it underpins many aspects of modern life by supplying
goods for daily use.
Types of Manufacturing Systems
Manufacturing can be broadly categorized into several types according to the nature of the
production process, the characteristics of the products, and the type of industries. However some
common types of manufacturing are:
1. Continuous Manufacturing: In Continuous Manufacturing, production processes operate 24/7
without interruption. This type is often used for goods with high demand and consistent quality
requirements, such as chemicals and petrochemicals.
2. Batch Manufacturing: Batch Manufacturing involves producing a specific quantity of items in a
single batch. It's used for products with variations in design or specifications. Pharmaceuticals and
food processing often use batch production.
3. Job Shop Manufacturing: Job Shop Manufacturing is characterized by customised or low-volume
products. Each item is unique and produced to order. Precision machining and metal fabrication are
examples of job shop manufacturing.
4. Mass Production: Mass Production is the large-scale, standardized production of identical goods.
It's characterized by assembly line techniques and is common in industries like automotive
manufacturing.
5. Lean Manufacturing: Lean Manufacturing focuses on minimizing waste (in terms of resources,
time, and effort) while maximizing efficiency and productivity. It often involves just-in-time (JIT)
inventory management and continuous improvement principles.
6. Flexible Manufacturing: Flexible Manufacturing Systems (FMS) use automated machinery and
robots to produce a wide range of products with minimal setup time. This approach is common in
electronics and aerospace industries.
7. Cellular Manufacturing: Cellular Manufacturing organizes production into cells, with each cell
responsible for producing a specific part or assembly. It's designed to improve efficiency and reduce
handling and transportation between workstations.
8. Custom Manufacturing: Custom Manufacturing involves producing goods to meet the specific
needs and requirements of individual customers. It is often used for products like custom furniture or
personalized goods.
9. Repetitive Manufacturing: Repetitive Manufacturing focuses on producing the same or similar
products repeatedly. It is often used in the production of consumer goods like appliances.
10. Additive Manufacturing (3D Printing): Additive Manufacturing builds products layer by layer
from digital design files. It's used for creating prototypes, custom parts, and complex components in
industries ranging from aerospace to healthcare.
11. Discrete Manufacturing: Discrete Manufacturing produces distinct items that can be counted,
such as automobiles, machinery, or consumer electronics.
12. Process Manufacturing: Process Manufacturing involves the production of goods that cannot be
individually separated once they are created. Examples include chemicals, pharmaceuticals, and food
products.
13. Green Manufacturing: Green Manufacturing focuses on sustainable and environmentally friendly
production methods, using eco-friendly materials and reducing waste and pollution.
14. High-Tech Manufacturing: High-tech Manufacturing relies on advanced technology, automation,
and precision. It is prominent in industries like semiconductor manufacturing and electronics
assembly.
15. Heavy Manufacturing: Heavy Manufacturing involves the production of large, heavy machinery,
equipment, or industrial components. Industries include construction equipment and shipbuilding.
Definition of Manufacturing Operations
Manufacturing operations refers to bringing together the people, processes, tools and equipment to
convert the raw material into finished goods by adding value, to meet customer’s requirements and
specifications and making it ready for sale. It implies a continuous process of observing and
enhancing the production processes, with the aim of increasing efficiency and productivity.
The three components of manufacturing operations are direct material, direct labour and direct
expenses (also known as production overhead), that takes into account various costs incurred during
the process and can be attributed outrightly to the production.
Definition of Service Operations
Service operations refer to the process of providing services to the clients and business users, on
demand and as per their specifications, for a fee. Here the word ‘services’ connotes economic
activities in which the service provider supply or fulfil the need of another person or organization for
adequate consideration and creates time, place or psychological utility.
In other words, service operations imply a process of transforming consumers into satisfied
consumers. It aims at coordinating and undertaking those activities, processes and technology
needed to render desired and acceptable services to the consumers.
Key Differences Between Manufacturing and Service Operations
The most important differences between manufacturing and service operations are discussed in the
points given below:
1. Manufacturing operations can be understood as those processes wherein the organization
engages in the manufacture of goods, so as to sell the same to the final customer. On the
other hand, service operations point out those process which involves the provision of
services to the clients and satisfying their needs.
2. One of the greatest disadvantages with service operations is that its productivity cannot be
measured, as we can measure the productivity of manufacturing operations.
3. In the case of manufacturing operations, the output produced is in a tangible form, which
may be standardized as per the market demand, or customized, as per the demand of a
consumer. As against, in service operations, the form of output is intangible, i.e. saving of
time, resources, efforts, advice, or psychological utility, which is always customized as per the
needs of the client or user.
4. When it comes to uniformity of input and output, these are always uniform in case of
manufacturing operations. On the contrary, it may or may not be same in case of service
operations, as it changes as per customer’s specifications.
5. Manufacturing operations are performed by manufacturing concerns which are located near
to the supply of raw material and other inputs so as to save time and cost of transportation.
In contrast, service providers engaged in service operations are usually located at the market,
so that the customers can easily reach the service centre.
6. If we talk about capital cost, as big machines and equipment are installed in the
manufacturing concerns for manufacturing operations, the cost is comparatively high, but
the concern can achieve economies of scale, by producing in bulk quantities. As opposed to
service operations, the cost of training to the staff is usually high, but it can operate with a
low capital cost.
7. In manufacturing operations, usually unskilled or technically skilled workforce is hired, and
so the labour cost is low. On the flip side, in service operations, skilled and professionally
trained personnel is hired, which makes the labour cost high.
8. The lead time in case of manufacturing operations is high, as compared to service
operations.
9. In the case of manufacturing operations, as the products are standardized, the quality
standards can be easily implemented and checked, as to whether the products possess the
specific quality or not. Conversely, in case of service operation, due to the customization of
input and output, the implementation of quality standards is quite hard.
Role of a Product and operations Manager
Operations management is a field of business that involves managing the operations of a business to
ensure efficiency in the execution of projects. It means that the individual in charge of the
department will be required to perform various strategic functions. Some of the functions include:
1. Product Design
Product design involves creating a product that will be sold to the end consumer. It involves
generating new ideas or expanding on current ideas in a process that will lead to the production of
new products. The operations manager’s responsibility is to ensure that the products sold to
consumers meet their needs, as well as match current market trends.
Consumers are more interested in the quality of the product more than the quantity, and the
organization should create systems that ensure the products produced meet the needs of the
consumer.
2. Forecasting
Forecasting involving making predictions of events that will occur in the future based on past data.
One of the events that the operations manager is required to predict is the consumer demand for
the company’s products.
The manager relies on past and present data on the uptake of the company’s products to determine
future trends in consumption. The forecasts help the company know the volume of products needed
to meet the market demand.
3. Supply Chain Management
Supply chain management involves managing the production process from raw materials to the
finished product. It controls everything from production, shipping, distribution, to delivery of
products.
The operations manager manages the supply chain process by maintaining control of inventory
management, the production process, distribution, sales, and sourcing of suppliers to supply
required goods at reasonable prices. A properly managed supply chain process will result in an
efficient production process, low overhead costs, and timely delivery of products to consumers.
4. Delivery Management
The operations manager is in charge of delivery management. The manager ensures that the goods
are delivered to the consumer in a timely manner. They must follow up with consumers to ensure
that the goods delivered are what the consumers ordered and that they meet their functionality
needs.
If the customer is unsatisfied with the product or is complaining about certain features of the
product, the operations manager receives the feedback and forwards it to the relevant departments.
Ideal Skills of an Operations Manager
Unlike the marketing or finance departments, where managers are responsible for their
departments, operations management is a cross-department role where the manager assumes an
array of responsibilities across multiple disciplines. To be successful, an operations manager must
possess the following skills:
1. Organizational Abilities
Organizational abilities refer to the ability of the operations manager to focus on different projects
without getting distracted by the many processes. The operations manager should be able to plan,
execute, and monitor each project to the end without losing focus.
If a manager is not organized, uncompleted tasks will pile up, important documents will get lost in
the process, and a majority of the time will be spent finding lost documents that could be easily
accessible had the manager been organized. Good organization skills can increase production
efficiency and help the manager save time.
2. Coordination
An operations manager needs to have good coordination by knowing how to integrate resources,
activities, and time to ensure proper use of the resources toward the achievement of the
organization’s goals. Coordination involves carrying out specific activities simultaneously and
switching between the activities with ease. It also involves dealing with interruptions, obstacles, and
crises, and efficiently going back to the normal routine functions to prevent further interruptions.
3. People Skills
Most of the responsibilities of an operations manager involve dealing with people. This means that
they must know how to relate with the employees, outside stakeholders, and other members of
senior management. An operations manager should know how to manage the fine lines with other
colleagues by knowing how to communicate, listen, and relate to them on professional and personal
levels.
Since workplaces are made up of people from diverse cultures, the operations manager needs to
show tolerance and understanding to other people. Also, the manager should be able to resolve
conflicts and mediate disputes between employees and members of the senior staff.
4. Tech-savvy
In this age of rapidly advancing technologies, an operations manager needs to have an affinity for
technology in order to be in a position to design processes that are both efficient and tech-
compliant. Modern organizations are becoming increasingly tech-dependent in order to gain a
competitive advantage in the market.
This means that most of the processes conducted manually, such as procurement, must transition to
more efficient automated processes. When an operations manager is familiar with the latest
innovations in the tech industry, they can use the innovations to improve internal processes.
Case 1: Product Development Risks
You have the opportunity to invest INR 100 billion for your company to develop a jet engine for
commercial aircrafts. Development will span 5 years. The final product costing Rs. 500 million / unit
could reach a sales potential, eventually of Rs. 2500 billion. The new engine can be placed in service
5 years from now, but only if it qualifies four years from now for certification clearing commercial use
and only if it meets America’s Federal Aviation Administration’s (FAA) ever tightening standards for
noise reduction. Certification also has to be obtained from India’s Director General of Civil Aviation
(DGCA). There is competition from world-class manufacturers like Pratt and Whitney and Rolls Royce
who are developing competing engines. If you decide to proceed with the project, you must also
determine where the new engines will be produced and develop the manufacturing facilities. If you
decline to proceed, your company could invest its resources elsewhere and based on its track record,
get attractive returns.
(a) What would be your line of action?
(b) In case of lengthy product design and development time, what kinds of risks
are there?
