Assignment Part of PGDBA

Nature, Scope, Elements and Process of

Operations Management. Operations Management.

SUBMITTED BY

DIPANJAN MUKHERJEE

COURSE: POST GRADUATE DIPLOMA BUSINESS

ADMINISTRATION

SEMESTER/YEAR: 2020-21

ENROLLMENT NUMBER: 200755156336

SUBMITTED TO
SINGHANIA UNIVERSITY
Submitted By Dipanjan Mukherjee
Enrollment Number 200755156336
Assignment Part of PGDBA

Nature, Scope, Elements and Process of Operations Management. Operations Management.

Abstract

The very essence of any business is to cater needs of customer by providing services and goods,
and in process create value for customers and solve their problems. Production and operations
management talks about applying business organization and management concepts in creation of
goods and services. Successful organizations have well defined and efficient line function and
support function. Production comes under the category of line function which directly affects
customer experience and there by future of organization itself. Aim of production function is to
add value to product or service which will create a strong and long lasting customer relationship
or association. And this can be achieved by healthy and productive association between
Marketing and Production people. Marketing function people are frontline representative of the
company and provide insights to real product needs of customers. An effective planning and
control on production parameters to achieve or create value for customers is called production
management.

Keywords: Operation Management, Production, Supply chain, Policy

Operation management means the administration of business activities for attaining higher
efficiency. It is a process of planning, organizing, and supervising the operations of the business
for better productivity. Operation management aims at reducing the cost to business by avoiding
any wastage of resources.

Operations management has been recognized as an important factor in a country‘s economic

growth. The traditional view of manufacturing management is the concept of Production
Management with the focus on economic efficiency in manufacturing. Later the new name
Operations Management was identified, as service sector became more prominent. Rapid
changes in technology have posed numerous opportunities and challenges, which have resulted
in enhancement of manufacturing capabilities through new materials, facilities, techniques and
procedures. Hence, managing a service system has become a major challenge in the global
competitive environment.
Operations Management has been a key element in the improvement and productivity in business
around the world. Operations Management leads the way for the organizations to achieve its
goals with minimum effort.
Operation is as part of an organization, which is concerned with the transformation of a range of
inputs into the required output (services) having the requisite quality level. Management is

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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.
The operations managers have the prime responsibility for processing inputs into outputs. They
must bring together under production plan that effectively uses the materials, capacity and
knowledge available in the production facility. Given a demand on the system work must be
scheduled and controlled to produce goods and/or services required. Control must be exercised
over such parameters such as costs, quality and inventory levels.

Resources
Resources are the human, material and capital inputs to the production process. Human resources
are the key assets of an organization. As the technology advances, a large proportion
of human input is in planning and controlling activities. By using the intellectual capabilities of
people, managers can multiply the value of their employees into by many times. Material
resources are the physical facilities and materials such as plant equipment, inventories and
supplies. These are the major assets of an organization. Capital in the form of stock, bonds,
and/or taxes and contributions is a vital asset. Capital is a store of value, which is used to
regulate the flow of the other resources

Systems

Systems are the arrangement of components designed to achieve objectives according to the
plan. The business systems are subsystem of large social systems. In turn, it contains subsystem
such as personnel, engineering, finance and operations, which will function for the good of the
organization. A systems approach to operations management recognizes the hierarchical
management responsibilities. If subsystems goals are pursued independently, it will results in
sub-optimization. A consistent and integrative approach will lead to optimization of overall
system goals.

The ability of any system to achieve its objective depends on its design and its control.

System design is a predetermined arrangement of components. It establishes the relationships

that must exist between inputs, transformation activities and outputs in order to achieve the
system objectives. With the most structured design, there will be less planning and decision-
making in the operations of the system. System control consists of all actions necessary to ensure
that activities conform to preconceived plans or goals.

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The objective of combining resources under controlled conditions is to transform them into
goods and services having a higher value than the original inputs. The transformation process
applied will be in the form of technology to the inputs. The effectiveness of the production
factors in the transformation process is known as productivity. The productivity refers to the
ratio between values of output per work hour to the cost of inputs. The firms overall ratio must
be greater than 1, then we can say value is added to the product. Operations manager should
concentrate improving the transformation efficiency and to increase the ratio.

WHY STUDY OPERATION MANAGEMENT?

 OPERATION MANAGEMENT (OM) is one of the three major functions of any

organization, and it is integrally related to all the other business functions. All
organizations market (sell), finance (account), and produce (operate), and it is important
to know how the OM activity functions. Therefore, we study how people organize
themselves for productive enterprise.
 We study OM because we want to know how goods and services are produced. The
production function is the segment of our society that creates the products and services
we use.
 We study OM to understand what operations managers do. Regardless of your job in an
organization, you can perform better if you understand what operation managers do. In
addition, understanding OM will help you explore the numerous and lucrative career
opportunities in the field.
 We study OM because it is such a costly part of an organization. A large percentage of
the revenue of most firms is spent in the OM function. Indeed, OM provides a major
opportunity for an organization to improve its profitability and enhance its service to
society.

HISTORICAL DEVELOPMENT 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 labour. He recommended breaking of jobs down into subtasks
and recognizes workers to specialized tasks in which they would become highly skilled and
efficient. 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 the Table 1.2.

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Production Management becomes the acceptable term from 1930s to 1950s. As F.W.
Taylor‘s works become more widely known, managers developed techniques that focused on
economic efficiency in manufacturing. Workers were studied in great detail to eliminate
wasteful efforts and achieve greater efficiency. At the same time, psychologists, socialists
and other social scientists began to study people and human behavior in the working
environment. In addition, economists, mathematicians, and computer socialists contributed
newer, more sophisticated analytical approaches.

MANUFACTURING OPERATIONS AND SERVICE OPERATIONS

MANUFACTURING OPERATIONS

Manufacturing is the transformation of raw materials into finished goods for sale, or
intermediate processes involving the production or finishing of semi-manufactures.
Manufacturing implies production of a tangible output such as an automobile while service
generally implies as act such as a doctor‘s examination.

SERVICE OPERATIONS

Service is defined as either as Services are deeds, processes, and performances or a service is
a time-perishable, intangible experience performed for a customer acting in the role of a co
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producer. Service enterprises are organizations that facilitate the production and distribution
of goods, support other firms in meeting their goals, and add value to our personal lives.
Manufacturing and services are often similar in terms of what is done but different in terms
of how it is done. For example, both involve design and operating decisions. Manufacturers
must decide how large a factory is needed and service organizations (e.g. hospitals) must
decide how large a building they need. Both must make locations decision and both involved
in scheduling and controlling operations and allocating scarce resources. Most of the
differences between manufacturing and service organizations relate to manufacturing being
product-oriented and service being act-oriented.

Following characteristics can be considered for distinguishing Manufacturing Operations

with Service Operations:

 The nature and customer contact

 Uniformity of input
 Labor content of jobs
 Uniformity of output
 Measurement of productivity

The nature and customer contact

Service involves a much higher degree of customer contact than manufacturing does. The
performance of a service typically occurs at the point of consumption. That is, the two often
occurs simultaneously. On the other hand, manufacturing allows a separation of production and
consumption, so that manufacturing often occurs in an isolated environment away from the
customers. Service operations because of their contact with customers can sometimes be much
more limited in their range of options in these areas. The product oriented operations can build
up inventories of finished goods, which enable them to absorb some of the shocks caused by
varying demand. However, service operations cannot build up inventories of time, so service
capacity is much more sensitive to demand variability

Uniformity of inputs

Services operations are subject to more variability of inputs than manufacturing operations.
There is often the ability in manufacturing to carefully control the amount of variability of
inputs, so it is often possible to achieve low variability. Consequently, job requirement for
manufacturing are generally more uniform than for services.

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Labor content of Jobs

Because of on the site consumption of services and because of the high degree of variation of
output, service requires high labor content where as manufacturing can be more capital intensive
(i.e. mechanized).

Uniformity of output

High mechanizations generates products with low variability, so manufacturing tends to be

smooth and efficient; service activities sometimes appear to be slow and awkward, and output is
more variable

Measurement of productivity

Measurement of productivity is relatively straight forward in manufacturing due to the high

degree of uniformity of most manufactured items. However, in many cases variations in demand
intensity as well as variations in service requirement from job to job, make productivity
measurement considered by more difficult. For example, the work load of the two doctors might
be compared. One may have had a large number of routine cases while the other did not, so their
productivity would appear to differ unless a very careful analysis is made.

Quality Assurance

Quality assurance is more challenging in services when production and consumption occurs at
the same time. Moreover, the higher variability of input creates additional opportunity for the
quality of output to suffer unless quality assurance is actively managed. Quality at the point of
creation is typically more important for services than for manufacturing, where errors can be
corrected before the customer receives the outputs

OPERATIONS DECISION MAKING

Thousand of business decisions are made every day. Not all the decisions will make or break the
organization. But each one adds a measure of success or failure to the operations. Even minor
decisions determine the company‘s success or failure. It ranges from simple judgmental to
complex analysis which can also involve judgment (past experience & common sense). They
involve a way of blending objective and subjective data to arrive at a choice. The use of
quantitative methods of analysis adds to the objectivity of such decisions.

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Operations Management Decisions

The major areas in which operations managers make decisions are:

 Strategic (long term) decision

 Tactical (intermediate term) decision
 Operational planning and control (short term) decision

Strategic (long term) decision

It involves high amount, more effort and it is periodical. The strategic decision includes Product
design, Process design, and selection and Location decision. The strategic issue usually broad,
addressing questions such as How will we make the product? When do we locate the facility
or facilities? How much capacity do we need? When should we add more capacity?
Operations management decisions at the strategic level affect the company's long range
effectiveness in terms of how it can address its customers' needs. Thus, for the firm to succeed,
these decisions must be in alignment with the corporate strategy. Decision made at the strategic
level become the fixed conditions or operating constraints under which the firm must operate in
both the intermediate and short term

Tactical (intermediate term) decisions

The tactical decision primarily address how to efficiently schedule material and labor within the
constraints of previously made strategic decisions. An issue on which OM concentrates on this
level includes: How many workers do we need? When do we need them? Should we work
over time? When should we have material delivered? Should we have a finished goods
inventory? These tactical decisions, in turn, become the operating constraints under which
operations planning and control decisions are made.

Operational planning & control (short term) decision.

Management with the respect to operational planning control is narrow and short term. Issues at
this level include: What jobs do we work on today or this week? Whom do we assign to what
tasks? What jobs have priority?

MANAGEMENT AS A SCIENCE

Management scientists hold that, education, scientific training and experience can improve a
person‘s ability to make decisions. Scientific decision-making rests upon organized principles of
knowledge and depends largely upon the collection of empirical data and analysis of the data in a
way that repeatable results will be obtained. The association of management with the scientific
method involves drawing objective conclusions from the facts. Facts come from the analysis of
data, which must be gathered, compiled and digested into meaningful form, such as graphs and
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summary statistics. Computers are helpful in these tasks because they can easily store data and us
with the more sophisticated and statistical analysis. But not all variables are quantifiable, so
decision makers must still use some value-based judgments in a decision process. Thus
management as a science is characterized by

 Organized principle of knowledge

 Use of empirical data.
 Systematic analysis of data
 Repeatable results

Differences between Manufacturing and Service Organizations

Organizations can be divided into two broad categories: manufacturing organizations and service
organizations, each posing unique challenges for the operations function. There are two primary
distinctions between these categories. First, manufacturing organizations produce physical,
tangible goods that can be stored in inventory before they are needed. By contrast, service
organizations produce intangible products that cannot be produced ahead of time. Second, in
manufacturing organizations most customers have no direct contact with the operation. Customer
contact occurs through distributors and retailers. For example, a customer buying a car at a car
dealership never comes into contact with the automobile factory. However, in service
organizations the customers are typically present during the creation of the service. Hospitals,
colleges, theaters, and barber shops are examples of service organizations in which the customer
is present during the creation of the service.
The differences between manufacturing and service organizations are not as clear-cut as they
might appear, and there is much overlap between them. Most manufacturers provide services as
part of their business, and many service firms manufacture physical goods that they deliver to
their customers or consume during service delivery. For example, a manufacturer of furniture
may also provide shipment of goods and assembly of furniture. A barber shop may sell its own
line of hair care products. You might not know that General Motors’ greatest return on capital
does not come from selling cars, but rather from post-sales parts and service. Figure 1 shows the
differences between manufacturing and services, focusing on the dimensions of product
tangibility and the degree of customer

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Figure : Characteristics of manufacturing and service organizations

contact. It shows the extremes of pure manufacturing and pure service, as well as the overlap
between them. Even in pure service companies some segments of the operation may have low
customer contact while others have high customer contact. The former can be thought of as
“back room” or “behind the scenes” segments. Think of a fast-food operation such as Wendy’s,
for which customer service and customer contact are important parts of the business. However,
the kitchen segment of Wendy’s operation has no direct customer contact and can be managed
like a manufacturing operation. Similarly, a hospital is a high-contact service operation, but the
patient is not present in certain segments, such as the lab where specimen analysis is done. In
addition to pure manufacturing and pure service, there are companies that have some
characteristics of each type of organization. It is difficult to tell whether these companies are
actually manufacturing or service organizations. Think of a post office, an automated warehouse,
or a mail-order catalog business. They have low customer contact and are capital intensive, yet
they provide a service. We call these companies quasi-manufacturing organizations.

Differences between Production and Operation Management

The field of management that deals with the supervision, planning and redesigning business
operations in the manufacture of services as well as goods is called as Operations Management.
This comprises the responsibility of making certain that the operations in a business are carried
out in an efficient as well as effective manner for both parties. The organizational lifecycle
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operation inside a firm that deals with the forecasting, planning or marketing of products or a
particular product at all stages of the life cycle of that product is called as Product management.

Figure: Production and Operation Management Process

Both Operations Management and Production Management have a big impact on our industries.
While Operations Management is about the administration and planning of the business
operations in the production as well as the service of goods, Product Management is the
organizational life cycle procedure inside a company that is concerned with the prediction,
planning and marketing goods at all phases of the life cycle of that particular product or
products. Production is the part of a business venture that produces, builds or manufactures a
product for use and distribution. Management if the area of a business that deals with clerical
issues, generally including hiring, payroll, acquiring necessary raw materials, bill paying and
other related "office" duties. Production management is the planning, organisation, staffing,
leading, control and coordinating of human and material resources for excution of the facility in
a specific function to meet predetermined objectives in the constraints of time cost and quality.
Tasks and a completion date. This is further explained as the management of a specific project. A
Project Manager would typically oversee the delivering of projects on time, assigning tasks to
developers and designers and ensuring client satisfaction. Operations Management refers to the
ongoing management of daily works of a company, such as technical support, network
management, etc. With Operations Management, there is no set end point. An Operations
Manager would typically be involved in all operations of a company, ensuring that everything is
running smoothly and that staffs are delivering correctly. Let's look at an example - A web
agency may have many projects running at the same time and once these projects are deployed,
the project is finished, in terms of operations management, the operations manager is still
occupied with the day to day support and management of the deployed project, ensuring that it is
still running correctly, fixing various problems and so forth.

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Distinction between Production Management and Operations Management

Production Management refers to the application of management principles to the production

function in a productive system such as a factory or a manufacturing plant. (e.g., steel plant,
cement plant, etc.). It involves application of planning, organising, directing and controlling the
production processes employed for the conversion of inputs into outputs in a productive system.

Operations Management refers to a set of activities that creates value in the form of goods and/
or services by transforming inputs into outputs. Operations management designs and operates
productive systems or operating systems such as banks, hospitals, hotels, government agencies
and manufacturing plants. Operations management includes activities such as organising work,
selecting processes, arranging layouts, locating facilities, designing jobs, measuring
performance, controlling quality, scheduling work, managing inventory and planning production.
From the above definition of production management and operations management, it becomes
clear that there is hardly any difference between the two terms. But the two apparent differences
between production management and operations management are:

(i) The term “production management” is mainly used for a productive system where
tangible goods are produced; whereas the term “operations management” is more
frequently used where various inputs are transformed into intangible services.
(ii) Operations management is the more recent term used to activities involved in the
process of transforming inputs into outputs (goods and/or services) in a productive
system, whereas the term “production management” (or manufacturing management)
was used earlier to refer to activities related to the process of transforming inputs into
outputs (mainly tangible goods).
Because of the narrow difference between the two terms, we use these two – Production
Management and Operations Management terms interchangeably in this book.

Objectives of Production/Operations Management

Some of the important objectives of production/operations management are :

 Maximum customer satisfaction through quality, reliability, cost and delivery time.
 Minimum scrap/rework resulting in better product quality.
 Minimum possible inventory levels (i.e.,optimum inventory levels).
 Maximum utilisation of all kinds of resources needed.
 Minimum cash outflow.
 Maximum employee satisfaction.
 Maximum possible production (i.e., outputs).
 Higher operating efficiency.
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 Minimum production cycle time.

 Maximum possible profit or return on investment.
 Concern for protection of environment.
 Maximum possible productivity

Responsibilities of Production/Operations Managers

The following are the major responsibilities of production/operations managers :

i. Meeting requirements of quality demanded by customers.

ii. Establishing realistic delivery or completion dates.
iii. Producing the required volume of products to meet the demand.
iv. Selection and application of most economic methods or processes.
v. Controlling the cost of inputs and conversion process and thereby keeping the cost of
outputs within the desired limits.

Production managers are responsible for the amalgamation of five Ps namely Product, Plant,
Processes, Programs and People. The product is the most obvious interface between production
and marketing. It includes characteristics such as performance, aesthetics, quality, reliability,
selling price, delivery dates and/ or lead times.
The plant includes buildings, equipment and machinery required to produce the product. The
plant should have the capacities to meet the present needs as well as that of the future. The
considerations are : (i) design and layout of buildings, (ii) performance and reliability of
machines and equipment, (iii) maintenance of machines and equipment, (iv) safety of installation
and operation of machinery and equipment and (v) environment protection.
The processes include the transformation or conversion processes which convert the inputs into
outputs. The factors to be examined in deciding upon a process are : (i) available capacity, (ii)
available labour skills, (iii) type of production, (iv) layout of plant and equipment, (v) safety
requirements in operations and (vi) costs to be achieved.
The programs consist of schedules or timetables which set times for delivery of products or
services to customers. These delivery schedules in turn decide the time schedules for various
activities such as design, purchase, manufacture, assembly, packing and despatch etc.
The people aspect of production management includes the skills, knowledge, intelligence, etc., of
labour and managerial personnel which is crucial for the efficient and effective utilisation of
resources for the production of outputs.

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DECISION MAKING IN PRODUCTION/OPERATIONS MANAGEMENT

What Production/Operations Managers Do?

The production/operations managers manage all activities of the production/operations systems

which convert inputs into the desired outputs (goods and services). The production/operations
managers have the ultimate responsibility for the creation of goods or provision of services. Even
though the kind of jobs that production/operations managers oversee vary from organisation to
organisation, (because of the different products or services involved) their job is essentially
managerial. They must co-ordinate the use of resources through the managerial process of
planning, organising, staffing, directing (or influencing) and controlling.

A better insight to how production/operations managers manage can be had by examining the
decisions in production and operations management, since all managerial functions such as
planning, organising, staffing, directing and controlling involve decision making. The decisions
which production/operations managers make may be classified into three general categories:

i. Strategic Decisions: Decisions about products, processes and facilities. These decisions
are strategically important and have long-term significance for the organisation.
ii. Operating Decisions: Decisions about planning production to meet demand.
iii. Control Decisions: Decisions about controlling operations concerned with day-to-day
activities of the workers, quality of products and services, production costs, overhead
costs and maintenance of plant and equipment. Some examples of strategic, operating and
controlling decisions are discussed below :

Strategic Decisions: These are decisions concerning long range production/operations strategies.
Some of the examples of strategic production/operations management (POM) decisions are :

i. Deciding about launching of a new-product development project.

ii. Deciding on the design for a production process for a new product.
iii. Deciding on how to allocate scarce resources such as materials, machine and labour
capacities and utilities.
iv. Deciding about what new facilities are needed and where to locate them. Operating
Decisions: These decisions must help to resolve the issues concerned with planning
production to meet customers’ demands for products and services and to achieve
customer satisfaction at reasonable costs.

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Operating Decisions: These decisions must help to resolve the issues concerned with planning
production to meet customers’ demands for products and services and to achieve customer
satisfaction at reasonable costs. Examples of operating decisions are :
i. Deciding how much finished goods inventory to be carried for each product.
ii. Deciding the next month’s production schedule for producing the products.
iii. Deciding about hiring of casual (temporary) workers for the next month.
iv. Deciding about the volume of purchase from each vendor for the next month.

Control Decisions: These decisions are concerned with problems in production such as
variations in labour output (productivity), variations in product quality, breakdown of production
equipment, etc. Production/ operations managers need to control poor worker performance,
inferior product quality and excessive equipment breakdowns so that the profitable operation of
the productive system is not affected. Examples of control decisions are :
i. Deciding the course of action about a department’s failure to meet the planned labour
cost target.
ii. Developing labour cost standards for a new or modified product design which is about to
be taken up for production.
iii. Deciding about the new quality control acceptance criteria for a product for which the
design has been changed.
iv. Deciding about the frequency of preventive maintenance for key machinery or
equipment.

PROBLEMS OF PRODUCTION/OPERATIONS MANAGEMENT

The problems involved in production management require two major types of decisions relating
to :
(i) Design of the production system and
(ii) Operation and control of the production system.

Decisions related to the design of production system are long-run decisions whereas, decisions
related to operations and control of the production system are short-run decisions. The problems
involve the relative balance of the emphasis on such factors as cost, service and reliability of
both functional and time performance, which depends on the basic purposes of the total
enterprise and on the general nature of goods and services produced. In general, manufacturing
organizations emphasize more on cost, consistent with quality and delivery commitments
whereas, service organizations may emphasize reliability and service, consistent with cost
objectives (for example, hospitals).

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Long-Run Decisions

Long-run decisions related to the design of the production system are:

i. Selection and Design of Products: Product selections and designs with productive
capability (i.e., reducibility of products) are interdependent.
ii. Selection of Equipment and Processes: Selection of the most economic equipment and
processes among the various alternatives considered, the firm's capability to invest in
capital assets and its basic approach to production (i.e., job, batch, mass or continuous
production) must be considered.
iii. Production Design of Parts Processed: Production design aims at selection of equipment,
processes, and tools for economic production which set limits on the cost of outputs.
iv. Job Design: It involves basic organization of work as well as matching workers to their
jobs in order to reduce fatigue and improve productivity.
v. Location of the System: It is a trade-off decision since there is no one best location for a
productive system to be located. The balance of cost factors determined by various
considerations is critical.
vi. Facility Layout: This involves decisions related to design capacity, basic modes of
production, shifts of working, use of overtime and subcontracting. In addition, operations
and equipment must be located in relation to each other such that the overall material
handling cost is minimized. Other factors involved are heating, lighting and other utility
requirements, the allocation of storage space, washing space and the design of the
building to house the layout

Short-Run Decisions

Short-run decisions related to the operations and control of the system are :

(i) Inventory and Production Control: Decisions made are concerned with allocation of
productive capacity consistent with demand and inventory policy. Feasible schedules
must be worked out and the load on machines and labour and the flow of production must
be controlled.
(ii) Maintenance and Reliability of the System: Decisions must be made regarding the
maintenance effort, maintenance policy and practice recognising the fact that machine
down time may lead to idling of labour and production stoppage resulting in lost sales.
(iii) Quality Control: Decisions must be made to set permissible levels of risk that bad
parts are produced and shipped or the risk that good parts are scrapped due to sampling
inspection. Inspection costs must be balanced with the probable losses due to passing
defective materials or products. Decisions regarding controlling the quality of on-going
processes must be taken.
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(iv)Labour Control: Labour is the major cost element in most products and services. Hence,
work measurement and wage incentive systems must be developed to control labour costs
and to increase labour productivity.
(v) Cost Control and Improvement: Day-to-day decisions which involve the balance of
labour, material and overhead costs must be made by production supervisors.

The relative importance of these problems of production management varies considerably

depending on the nature of the production system. The production manager must be able to
sense the relative importance of these various problems in a given situation and take
appropriate decisions to solve these problems.

THE HISTORICAL EVOLUTION OF PRODUCTION/OPERATIONS

MANAGEMENT

Even though systems of production have existed since ancient times (for example, the great
wall of China and Egyptian pyramids were built long time ago) the production of goods for
sale and the modern factory system had their roots in the Industrial Revolution (which began
in the 1770's in England and spread to other countries in Europe and later to the US in 19th
century).
However, the substitution of machine power to human power started with the most
significant invention of steam engine by James Watt in 1764. followed by invention of
spinning jenny (1770) and powerloom (1785). Adam Smith advocated the concept of
"division of labour" in his book "The Wealth of Nations" in 1776 and in 1832, Charles
Babbage recommended the use of scientific methods for analysing production problems.
However, the era of scientific management started with the work of F.W. Taylor in 1878 who
studied work methods in great detail to identify the best methods for doing each job. Taylor's
book "The Principles of Scientific Management" published in 1911, laid the foundation for
the field of production management. A number of other pioneers also contributed to this
movement including the following : Frank Gilbreth and his wife Lillian Gilbreth were
recognised for their contribution to the development of the "Principles of motion economy"
and the concept of "Therbligs" in 1911.

Henry Gantt recognised the value of non-monetary rewards to motivate workers and
developed widely used system of scheduling (machine loading) called "Gantt chart" in 1912,
Harrington Emerson applied Taylor's ideas to develop organisational structure and
encouraged the use of experts to improve organisational efficiency.
Henry Ford developed the concept of mass production and assembly lines with conveyors in
1913, in his automobile plant. Ford also used the concepts of "interchangeable parts" and
division of labour (of Adam Smith) which enabled him to tremendously increase the
production rate in his factories.
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F.W. Harris developed the concept of "Economic Order Quantity" in 1915 which is still
recognised as a classical work in inventory control systems. In 1931, Dodge and Romig and
W. Shewhart developed the concept of sampling inspection and use of statistical tables for
acceptance sampling plans. Earlier in 1924, Shewhart developed the concept of statistical
quality control and use of control charts to control the quality of on-going processes.

The "human relations movement" was started by Elton Mayo in 1930’s, through his famous
experiments at Western Electric's Hawthorne plant and his findings came to be known as
"Hawthorne effect". His studies revealed that in addition to physical and technical aspects of
work, worker motivation is critical for improving productivity.

During the 1940's, Abraham Maslow developed motivational theory known as "Hierarchy of
Needs Theory" which was later refined by Frederick Herzberg as "Motivation-Hygiene"
theory in 1950s. Douglas McGregor added "Theory X" and "Theory Y" in 1960. In 1970,
William Ouchi added "Theory Z" which combined the Japanese approach and the traditional
Western approach to management. After World War II, operations research and quantitative
techniques were applied to production management resulting in decision models for
forecasting, inventory management, project management and other areas of production
management. Widespread use of personal computers and user-friendly softwares have
popularised application of these quantitative techniques in production management since the
1980's. Development in Management Information Systems (MIS) and Decision Support
Systems (DSS) provided a further boost to the developments in production management.

Advanced manufacturing technology enabled production managers to use Computer-Aided-

Design (CAD), Computer-Aided-Manufacturing (CAM), Computer Numerically Controlled
(CNC) machines, Robots, Computer Integrated Manufacturing (CIM), Flexible
Manufacturing System (FMS), etc., in the field of production management.
Moreover, a number of Japanese manufacturers have developed modern management
practices that have increased the productivity of their operations and the quality of their
products. The new approaches in production management emphasise quality (Total Quality
Management) and continuous improvement (Kaizen), worker teams and empowerment to
achieve customer satisfaction. The Japanese have spawned the "quality revolution" and
adopted Just-In-Time (JIT) production system to put themselves in the forefront of timebased
competition.

THE SCOPE OF OPERATIONS MANAGEMENT

Operations management has been gaining increased recognition in recent years because of
the following reasons:
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(i) The application of operations management concepts in service operations.

(ii) The growing importance of quality.
(iii) The introduction of operation management concepts to other areas such as
marketing and human resources and
(iv)The realization that the operations management function can add value to the end
product. The above reasons are briefly discussed in the following paragraphs:

 Application of operations management concepts in service operations: Initially,

operations management concepts focused mostly on manufacturing. But as countries
become more developed, services grow and represent a larger percentage of the
economies of developed countries. This led to the expansion of application of operations
management from manufacturing/production systems to service systems also in order to
improve the productivity of service organisations. This is quite obvious because majority
of the production systems have outputs consisting of both tangible goods and intangible
services
 Growing importance of quality: Quality is a key component of operations management.
Quality is no longer limited to manufacturing function but important in all functional
areas throughout the organisation. With the integration of manufacturing and services
operations, quality is no longer limited to technical requirement of tangible goods but
also equally important for service. Improvement in quality in all areas of the business
improves customer satisfaction and increases customer loyalty.
 Expansion of operations management concepts to other functions: In addition to quality,
concepts of operations functions such as product design and process analysis are applied
in other functional areas such as marketing, software development, finance and
accounting, human resources, etc.
 A new paradigm for operations management: In the post World Wide II period, upto
1970s, with demand significantly exceeding supply, operations managers emphasized on
utilization of available production capacity — a reactive approach rather than planning
pro-active for the future. In the early 1970s, competition world-wide became intensive
and forced operations managers to assume a proactive role in developing the overall
strategy for an organisation. They realized the role of operations function in adding value
to the products manufactured (that is affecting how much a customer is willing to pay for
the products). In this paradigm shift, operations strategies included other dimensions such
as quality, speed of delivery and process flexibility for adding value to products, other
than cost to increase profit margins. This approach to operations strategy resulted in a
new paradigm for the operations functions.

Today, the scope of operations management ranges across the organisation. Operations
management people are involved in product and service design, process selection, technology
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choice, design of work systems, location planning, facilities planning and quality planning and
control. The operations function includes many inter-related activities such as forecasting,
capacity planning, scheduling, inventory management, quality assurance, employee motivation,
facilities location and layout, etc. There are other areas which are interrelated with operations
function, for example, purchasing, industrial engineering, maintenance and physical distribution
operations managers apply ideas and knowledge to:

i. Cut production time to improve speed of launching new products to market.

ii. Improve flexibility to meet rapidly changing customer needs.
iii. Enhance product quality.
iv. Improve customer service and
v. Increase productivity and reduce costs and thereby improve profitability of the company.

Operations management is the management of productive resources that are used to create
saleable products or services. It is that sale of products and services that provide an opportunity
for profitability for an organization. Profitability results from the creation of value and a strategy
for maintaining a link to the customers who define value for the goods or services offered. The
creation of value at a level that exceeds the cost of creating it provides the potential for
profitability. Operations management has responded well to four dominant environmental forces
affecting the business: (i) competition resulting from globalization of business (ii) increasing
levels of communication and competition brought about by the Internet and other disruptive
technologies (iii) the impact of natural environment and (iv) regional pressures having impact on
business decisions.

References

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5129–5145.
3. Basnet, C. and J.M.Y. Leung (2005). Inventory lot-sizing with supplier selection,
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8. Hayes, R. H. and Wheelwright, S. C. (1984) Restoring Our Competitive Edge, New

York, John Wiley.
9. Hounshell, D. (1984) From the American System to Mass Production, 1800–1932: The
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The Story of Lean Production, Harper Perennial.

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