Introduction to Operations management
Operations management: 1. It is a methodology for viewing an end-to-end process with a view to optimizing efficiency. 2. Management of conversion process, which convert input into desired output.
What is operations functions/Operation systems: The operations function (system) is that part of the organization that exists primarily to generate and produce the organizations products. Product can be of 2 types A) Tangible product (physical goods): Garment, fabric, mobile B) Intangible product (services): Insurance, healthcare. Main aim of operation function is to add value.
Random fluctuations Inputs
Land Labour Capital Management
Adjustment Needed?
Conversion Process
Monitor output Outputs
Goods Services
Comparison
Actual vs Desired
Conversion Process:
Process of converting input into output. Input + information/feedback Process Output
Random fluctuation:
Random fluctuation can be of 2 types a) External sources: Fire, strike, flood b) Internal problem: Human error, material quality problem, imperfect tools or machines.
Operations
Features Output Duration of consumption of output Nature of work Degree of customer contact Customer involvement in conversion Measurement of performance Variation in demand Scale of operation Manufacturing Operations Tangible High Less labour, more equipment Low No Sophisticated methods Low Big Service operations Intangible Immediate More labour, less equipments Direct Frequent Elementary method High Small
Historical Evolution of POM:
1. Manufacturing management (Tradition view) Based on Adam Smiths theory of economic benefit of specialization of labour. Basic idea is to break jobs down into subtasks and reassigning workers to specialized task in which they would become highly skilled and efficient. 2. Production Management (1930 1950) Based on Frederick Taylors work, production management is focused on economic efficiency in production process. Scientific techniques were developed to eliminate wasteful efforts and achieve greater efficiency. Human behavior at workplace is studied by psychologists & sociologists to understand multiple needs of workers. Newer and more sophisticated analytical approached developed by economist, mathematicians and computer scientists.
3. Operations Management (After 1970) Service industry become more important Synthesis rather than just analysis.
Systems view of operations:
System is collection of objects united by some form of regular interaction and interdependence. An organization is made from subsystems & subcomponents. In a normal business firm, we have finance, marketing, accounting, purchase, operations. distribution etc. All these functions are interrelated. Some departments are closely linked and some are not. Decision made in one department will affect the behavior and performance of other departments. Boundaries separating various departments are not clear & distinct.
Types of operations subsystem management:
Operations management can be divided into three types. 1. Classical management : Based on scientific management and process theories. Focus on economic efficiency at the production. Efficiency (%) : Output X 100% / Input
Main job of the management is a) Planning (developing a course of action) b) Organizing (structuring of task & authority) c) Controlling (plan vs actual performance) 2. Behavioral management: Based on behavioral science and social system concept. Basic idea is that workers respond positively to the individual care, attention and interest and production improves.
3. Modelling management: Study organization from a total systems point of view. Decision-making orientation considers making decisions to be the central purpose of management. Focus on creating mathematical representation of management problems and organizations. Model is used to demonstrate different outcomes that would result from various possible managerial choices. Types of models used are as below: A) Verbal model: Use words to express relationship among variables B) Schematic models: Pictorial relationship among variables C) Iconic models: Iconic models used as replicas of objects or process D) Mathematical model: Mathematical symbols or equations are used to show functional relationship among variables. Mathematical solutions are of 2 types a. Optimizing (Search for best solution but in steps) b. Heuristics (Use defined solutions for satisfactory solution quickly)
Responsibility of an operations manager:
1) Planning Selects the objective for operation Decides policies, programs and procedures to achieve objective Product planning, facility design and use of conversion process
2) Organizing
Establishment of roles and information flow system To ensure achievement of goals To assign authority and responsibility.
3) Controlling Exercise control to ensure achievement of planned results. Controlling costs, quality and schedules.
4) Behavior Affect of decision on human behavior Affect of subordinates behavior on management goals.
5) Models Use of different models for problem solving.
Organizations strategy to compete (market-based criteria for success):
1. Quality (product performance): High & consistent quality 2. Low cost/price/higher productivity (utilization of resources)(efficiency) 3. Dependability (on time delivery & reliability)(Effectiveness)(technical capability) 4. Flexibility (Quick response)(wide product/service range)
Operations objective:
1. Product characteristics 2. Process characteristics 3. Product quality 4. Efficiency (cost control & utilization) 5. Customer service 6. Adaptability for future survival
Operations strategies
Strategic Planning:
Strategic planning is the process of thinking through the current mission of the organization and current environmental conditions facing it, then setting forth a guide for tomorrows decision. Main area for discussion (decision) is as below 1. Facility ( Scale, location & focus) 2. Capacity 3. Process (technology) 4. Vertical integration 5. Operations integration 6. Operation interface with other functions
Relation between prod & quality: If production < capacity, If production > capacity, Productivity Productivity Quality Quality
Financial & economic analysis:
Basic definitions:
Accounting life: Asset life for accounts purpose Economic life: Actual useful life Machine life: Life for which asset and function
Ex: If 1 machine is purchased that can work for 10 yrs but company is planned to use it for 6 yrs and in accounts if depreciation is 25% then Economic life : 6 yrs Machine life : 10 yrs
Accounting life : 4 yrs.
Sunk cost: Past expenditure that is irrelevant now. Salvage value: Income received by selling an asset Time value of money: potential of money to generate returns Opportunity cost: Lost returns as a result of selecting one alternative over other. Pay back period : Time req to cover the expenses = Net investment / Net annual return
Net present value: Accounting tool to select the alternative for investment. NPV is technique of discounting all cash flow of an investment back to their present values and netting out the inflows against the out flow.
= Returns at present value Investment (expenses) at present value.
Operations strategy: Key areas for broad operations functions
Marketing Sales Target markets Product line Finance & control R&D Labour Purchase Production Distribution
Product strategy:
Product can be divided into 4 sections as per there nature.
A) Custom product B) Low volume product C) High volume with multiple choices D) Highly standardized product
Product life cycle:
Product life cycle (PLC) has to do with the life of a product in the market with respect to business/commercial costs and sales measures. The different stages in a product life cycle are: 1.Market introduction stage costs are high slow sales volumes to start little or no competition - competitive manufacturers watch for acceptance/segment growth losses demand has to be created customers have to be prompted to try the product
2.Growth stage
costs reduced due to economies of scale sales volume increases significantly profitability begins to rise public awareness increases competition begins to increase with a few new players in establishing market increased competition leads to price decreases
3.Mature stage Costs are lowered as a result of production volumes increasing and experience curve effects sales volume peaks and market saturation is reached increase in competitors entering the market prices tend to drop due to the proliferation of competing products brand differentiation and feature diversification is emphasized to maintain or increase market share Industrial profits go down
4.Saturation and decline stage costs become counter-optimal sales volume decline or stabilize prices, profitability diminish profit becomes more a challenge of production/distribution efficiency than increased sales
Types of Productive systems:
Productive systems can be divided into 2 types
A) Process focused systems:
Used for custom products High flexibility Specialization in generic process Material flow from 1 process to another Used for standardized product High efficiency High automation & low cost Continuous material flow High inventory
B) Product focus systems:
Types of Inventory systems:
Inventory systems can be divided into 2 types
A) To-order:
Product design flexibility Low inventory cost Better quality control Better product availability Reduce variable cost Improved market share
B) To-stock
Relationship between PLC & productive system type:
Process lifecycles & technology:
Introduction stage : Flexible technology, Low automation Growth stage: More specialized technology, High automation & mechanization. Maturity stage: Very high automation, Efficiency is the key to success.
Organization structure
A) Process focused organization
B) Product focused organization
Type of service system (based on labour work involve & customer contact):
A) Stagnant personal services:
B)
Direct contact with customer Highly labour oriented Low scope for productivity improvement
Substitutable personal services:
Technical alternative of stagnant personal services Low quality compared to stagnant personal services Good scope for productivity improvement
C) Progressive services
Service has two components. One required little labour other is labour intensive. Shows productivity growth & cost reduction at initial stage. After one level, cost starts increasing.
D) Explosive services
No customer contact. High productivity & technology improvement. Reduce cost.
