UNIT

01 Introduction to Operations
Management

Names of Sub-Units

Introduction to Operations Management, Operations Management, Importance of Operations

Management, Functions of Operations Management, Activities Part of Operations Management,
Relationship between Operations and Other Functions in the Organisation, Operations Management
in Manufacturing and Services, Operations Performance Objectives, Production and Operations,
Nature of Production and Operations, Differences between Production and Operations Management,
Systems Approach to Operations Management

Overview
The unit starts with an introduction to operations management, its importance and functions. The
unit further goes into explaining the relationship between operations and other functions in the
organisation. The unit also discusses operations management in manufacturing and services. The
unit moves to understand operations performance objectives, production and operations. The unit
also sheds light on the nature of production and operations. It further goes to illustrate the differences
between production and operations management. The unit then highlights the systems approach to
operations management.

Learning Objectives

In this unit, you will learn to:

 Define operations management
 Explain the relationship between operations and other functions in the organisation
 Discuss the operations performance objectives
 Differentiate between production and operations management
 Describe the Operations Management in Manufacturing and Services
 Relate the systems approaches to operations management
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Operations Management

Learning Outcomes

At the end of this unit, you would:

 Analyse the crucial role of Operations management
 Assess the interface between operations management and information systems
 Evaluate the important factors involved with operations performance objectives
 Evaluate the Managerial transformation process
 Explore the Various functions involved in operations management
 Examine the different kinds of functions involved with service management
 State the various activities involved with the management of operations and production functions

Pre-Unit Preparatory Material

 https://www.newagepublishers.com/samplechapter/001233.pdf
 https://www.agri-bm.kkwagh.edu.in/uploads/department_course/NOTES_OF_ABM-357.pdf
 https://sciendo.com/pdf/10.30657/pea.2020.26.03
 http://elearning.nokomis.in/uploaddocuments/Production%20And%20Operation%20
Mgt/Chp.1%20Nature%20and%20Scope%20of%20Production%20and%20Operations%20
Management/PPT/CH1Nature&%20scope%20Of%20Production%20Mgt.pdf

1.1 INTRODUCTION
Organisations today are competing in a different environment and to survive, they must focus on
innovation, quality, efficiency, improving customer relationships, focuses on diverse and international
perspectives to gain a competitive advantage. The advances in technologies, e-business and global
competition requires effective responsiveness and flexibility. The focus of business enterprises today is to
create a lean and agile organisation that is free of waste with a strong focus on operations management.
The main focus of operations management is to transform various inputs into goods and services using
different managerial functions such as planning, organising, decision making, controlling and so on.
Operations are involved everywhere in the organisation is it finance, marketing and human resources.
Operations management has a crucial role to play in managing the day-to-day operations since it is an
important functional area that determines the satisfaction level of their customers. Most organisations
are involved in the production of goods or services due to which the organisations are involved with
operational processes which are necessary for achieving the targets of organisations for their long-
term survival.

1.2 OPERATIONS MANAGEMENT

To define operations management, let us first understand the two terms ‘operations’ and ‘management’
separately. Operation is concerned with transforming an array of inputs into the desired output
(services) having the required level of quality. On the other hand, management is a process of combining
various resources used in the operations subsystem of the organisation into value-added services in a
controlled manner as per the set organisational policies. A set of interconnected management activities

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involved in producing certain products is called production management. If these management

activities are involved in producing services, then it is called operations management. According to
Joseph G. Monks, “Operations management is 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 various processes, such as:
 Designing products
 Taking decisions on the required resources
 Arranging schedules, equipment and facilities
 Managing inventory
 Controlling quality
 Designing work methods
 Devising and designing jobs for making the product

1.2.1 Importance of Operations Management

Efficient and effective operations management is needed for ensuring the smooth running of the
production without any kind of unexpected situations. The following points explain the importance of
operations management:
 Ensuring product quality: Operations management is necessary for ensuring and monitoring
the durability and reliability of a product that would suit customers’ requirements. Operations
management ensures that the products meet the required quality standards by identifying areas of
improvement and taking quality measures. Also, it ensures timely delivery of products and effective
aftersales services.
 Increasing productivity: In the context of people, productivity measures how efficiently people are
employed in the production process to generate a given level of output. Operations management
ensures that the right people with the right skills are assigned the right type of work. If the employees
have the required skills to perform their duties, they tend to commit fewer or no errors. As a result,
productivity increases.
 Achieving high customer satisfaction: Customer satisfaction is crucial for any organisation in
today’s competitive business environment as it ensures repeat business for the organisation.
Operations management attempts to fulfill the needs of customers by manufacturing high-quality
products and services and making on-time delivery of those products and services.
 Achieving competitive advantage: Effective operations management helps with keeping the
business ahead of the competition through continued application of advanced production
techniques, producing high-quality products and services and ensuring a high level of customer
satisfaction.
 Reduced operating cost: Operations management ensures the application of cost-effective methods
of production such as lean manufacturing strategies and JIT scheduling. It also attempts to produce
products and services as planned, which reduces wastage and saves unnecessary costs.

1.2.2 Functions of Operations Management

Operations management deals with managing various processes and functions in an organisation with
an aim to make judicious use of resources for the successful delivery of products and services.

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Operations Management

Various functions involved in operations management are:

 Finance: Finance plays a significant role in operations management in effectively planning the
usage of resources without wasting them on unproductive tasks. The finance should be well planned
and utilised for manufacturing useful goods or services according to the demand and wants to
customers.
 Forecasting: It is all about predicting the demand for a product in the future. Through this, a
manager gets to know what to produce, when to produce and how to produce in accordance with
the customer’s needs.
 Strategy: Successful operations management requires effective marketing, sales and supply chain
strategies so that resources can be used optimally.
 Product design: Operations management involves using innovative methods and technologies for
designing a product/service according to the current market trends. Since the customers today are
more concerned about the quality of the product, hence the operations manager needs to ensure
that the product is designed for meeting the needs of the customers.
 Quality control: Quality control is essential for selling and marketing a product. It is necessary
for operations managers ensure a better quality of products by identifying product defects and
rectifying them. Also, strict monitoring and supervision should be in place in order to produce
superior quality products and services.
 Scheduling: Operations involve setting beginning and ending times for each step in the production
process. It includes planning and checking the use of labour, machinery and materials so that
production moves smoothly. Scheduling ensures that work will be finished on time.

1.2.3 Activities Part of Operations Management

Operations management involves a set of activities involved in ensuring that the resources are combined
and transformed in a controlled manner to add value in accordance with policies communicated by
management. The important activities involved with operations management are:
 Planning: Any form of activity requires thorough planning or focussing on workload, capacity,
resources, finance, and more. Also, choosing an appropriate location for production also comes
under the ambit of the planning part of operations management. Before choosing a location, an
organisation needs to consider various factors such as nearness to markets, availability of raw
materials, supply of labour and transportation facilities.
 Organising: Once the process of planning is over, the next stage is organising. The organising
activity is all about establishing a structure of tasks (organisational structure) and authority as
well as the flow of information within the operations subsystem. It also involves determining the
activities required to achieve goals and assigning authority and responsibility for carrying them
out.
 Controlling: It is all about ensuring that the actual performance is in accordance with the planned
performance. In case of any deviations, corrective actions are taken. Controlling costs, quality and
schedules are the important measures here.

1.3 RELATIONSHIP BETWEEN OPERATIONS AND OTHER FUNCTIONS IN THE

ORGANISATION
Well-designed operations require distinctive competencies of an organisation. Such competencies
can be a skilled workforce, strong distribution networks, ability to change production-output rates.
A good operations manager always strives to interface with other organisational functions so that

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all the competencies of the organisation can be exploited. Such interface requirements can also be
analysed from another point of view, i.e. process involved in production management. Under normal
circumstances, processes involve a combination of inputs, such as people, machines, tools, materials,
etc., in a systematic way. Inputs typically are selected by the operations function in association with
other functions. The interface between operations and other functions of the organisation are discussed
as follows:
 Interface between operations management and marketing: The marketing function of an
organisation is concerned with understanding the needs of customers, generating and maintaining
demand for services, achieving customer satisfaction and extending the business to new markets.
The market segmentation decisions of an organisation to a great extent help in determining the
production strategy. This is because the marketing function focuses on identifying the kind of
service a customer value. This starts prior to production of service, positioning, pricing, forecasting
and promotions. Interdisciplinary co-operation involving operations management and marketing
decisions go hand in hand for many decades.
 Interface between operations management and finance: Capital equipment, cost-control policies,
price-volume decisions and inventories form the interface with financial decision making. Finance
provides insight into service costs that help managers evaluate operational performance. It
is important for operations managers to have knowledge of financial procedures, limits and
capabilities. The effectiveness of operational planning and budgeting is driven by the level of co-
operation between these two areas.
 Interface between operations management and design: Introducing new services faster than
competitors require strict integration between the design and operations management functions.
Also, process development and engineering functions provide guidance on methods to be used
for designing and delivering services. This function has a great impact on production. Therefore,
co-operation between these three functions, i.e., process engineering, design and operations
management results in improved organisational performance.
 Interface between operations management and human resource: Availability of a skilled workforce
is the need of the hour in every function of an organisation. In services, the customer’s perceptions
of an organisation are generally formed by the interaction of human resources with customer
contact personnel. Operations management and human resource departments need to coordinate
with each other for recruiting and training employees, motivating them from time to time so that
they remain focused on the accomplishment of organisational goals.
 Interface between operations management and information systems: Information systems serve
the information needs of the operations management department. The operational plans require
information related to recruiting, cash flows, marketing promotions and so on. Such information
needs are fulfilled by information systems.

1.4 OPERATIONS MANAGEMENT IN MANUFACTURING AND SERVICES

Operations management is involved with all the activities involved in designing and transforming a
product into a finished product for the consumption of consumers. Manufacturing operations involve
a framework where man, machines, and material are integrated manufacturing a tangible product.
It deals with several functions involving activities of the supply chain, collecting information on the
customer requirements, purchasing raw materials, maintaining inventory levels, planning capacity,
allocating resources, scheduling the production and delivering the final products. Different processes
are needed for transforming inputs into outputs in the manufacturing process which involve:
 Production planning: Planning is required for determining processes involved in producing goods.
Effective planning is needed to how the goods will be produced.

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 Production control: Once the production process starts it is necessary to continuously monitor
activities and keep a track of the schedule that makes up the process. Production control involves
the process of taking care of purchasing raw materials and handling inventories along with keeping
a track of feedback for making adjustments wherever needed.
 Quality control: It is necessary to ensure that goods are produced according to required specifications
and by maintaining the quality standards desired by the customers.
On the other hand, operations management services is involved with offering goods and services to
customers. The services are required to satisfy the needs and requirements of the customers through
product and service requirements, formulating quality goals and cost-effective targets, documenting
and making the required changes to the existing products and services. Hence, services involve all
the activities associated with operational functions and processes executed by service providers or by
users and customers. The main objectives of service operations are to coordinate and perform activities
and processes required to deliver and manage the delivery of goods and services at different levels for
business users and customers. The different kinds of functions involved with service management are:-
 Planning and processes
 Quality management
 Capacity and scheduling management
 Inventory management
 Information technology
 Service supply chain
 Customer support services

1.5 OPERATIONS PERFORMANCE OBJECTIVES

Operations management is involved in the appropriate allocation of resources with proper monitoring,
recording and reviewing various aspects of operations performance. The important task involved
in the processes is to identify the appropriate measures of performance relating to the internal and
external factors of the business enterprise that play a significant role in organising competitiveness.
The important factors involved with operations performance objectives for measuring the performance
of its operations are based on:
 Speed: It is the time taken between customers ordering a product or service and the time in which
they receive it. Delivery of goods and services on time keeps customers happy and satisfied with
their experience.
 Quality: It is an important factor that determines the acceptability of the product by the customers
according to their expectations. Quality is a fundamental factor of performance that helps with
creating a potential for better services and products and it has a major influence on customer
satisfaction.
 Flexibility: It is being flexible in terms of changing or modifying an operation for matching the needs
and requirements of customers. It could mean introducing new products or services, modifying the
product, being able to produce different quantities or volumes, availability of various products, and
more. Flexibility provides the business entity with a competitive edge because of their large variety,
varying delivery dates, and providing different quantities.
 Cost-effectiveness: Cost is an important factor for every organisation. Keeping the costs low can
also be beneficial for organisations as they can accordingly reduce the price of their commodities
for customers.

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 Dependability: It is an important factor that provides reliable delivery of service and products
which means that the customers can rely on the organisation for receiving their goods or services
on time. It plays a major part in influencing the customer’s desires for making a future purchase
and further recommendations regarding the business.

1.6 PRODUCTION AND OPERATIONS

Operations management is a term that encompasses a large number of functions under its framework
of management. Production and operations are part of a manufacturing organisation where
production is involved with transforming inputs and resources of an organisation into final goods
through systematic and controlled methods. Both the terms are jointly used for turning raw materials,
human resources and capital into different products and services for selling to the customers. The focus
of the production function is to add value to a product or service that helps with satisfying the needs
of customers and creates a strong and long-lasting customer relationship. The focus of the production
function is to achieve or create value for customers through effective planning and control of the factors
of production.
Operations management is involved with identifying the customer’s needs and requirements and
accordingly determining the requirements of the raw material, and thereafter making use of the
supply chain services through internal and external vendors for final delivery to customers. Operations
management is essential in all types of business, manufacturing, and services industries and is critical
in achieving the objective of the business. Operations management helps with achieving the objective
of the organisation in a structured and disciplined manner ensuring effective coordination between
various departments of the business. This is done by utilising resources at the optimum level, helping
with enhancing the productivity of the employees by deploying different techniques like improving
internal systems or monitoring the internal procedures.

1.6.1 Nature of Production and Operations

Production and operations are involved with using physical resources for converting inputs into output
with the provisions of the desired or required utilities to the customer. This is done effectively along
by meeting the objectives of the organisation in terms of efficiency, effectiveness and adaptability.
Production is involved with the manufacturing of goods and services for satisfying human wants. The
main focus of production is to produce goods services in the right quality, the right quantity, at the right
time, cost-effectively.
Operations involve organising and directing the activities to achieve the set targets that add value to
the manufacturing process. The operating system is used for manufacturing the final product that is
needed by the customers to satisfy their wants by providing some utility to them.
The various activities involved with the management of operations and production functions are:
 Production planning and control
 Product design
 Process designing
 Location of facilities
 Plant layout and material handling
 Quality control
 Material management
 Maintenance and service management

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1.6.2 Differences between Production and Operations Management

The main objective of a business entity is to produce goods and services for meeting the needs of
customers. Production management and operations management are terms used technically and are
concerned with the manufacturing of products. The main objective of production management is to
produce goods and services that are of the right quality, quantity, at the right time with minimum cost.
Operation management is focused more on processes and how they can be optimised with minimum
wastage of available resources. The major differences between production and operation management
are:
 Production management is a part of operations management, which is concerned with managing
activities related to production. On the other hand, operations management is concerned with
the management of overall business operations that includes the stages of production and post-
production.
 The scope of production management is limited to only production whereas operations management
has a much wider scope and it is involved with every aspect and normal business activities of the
organisation.
 The focus of production management is to provide a product to customers that are high in quality
is cost-effective on time, whereas the main focus of operations management is to allocate resources
appropriately and use them in the best way possible.
 Production management is found in business involved with manufacturing and having a
manufacturing unit and ensures its efficient performance. On the other hand, operations
management is found in every business and it manages non-production factors too.

1.7 SYSTEMS APPROACH TO OPERATIONS MANAGEMENT

In literal terms, a system is a group of interrelated elements that act according to a set of rules to form a
unified whole. A system, surrounded and influenced by its environment, is described by its boundaries,
structure and purpose and expressed in its functioning. An organisation cannot exist in a vacuum and
depends upon the external environment. It is a part of larger systems, which are the industry that it
belongs to, the economic system, and society. The organisation receives inputs from the environment,
transforms them and delivers them back to the environment. However, this simple model needs to be
developed into an operations management model that indicates how the various inputs are transformed
through various managerial functions of planning, organising, staffing, leading and controlling. The
following are the components of operations management as a system:
 Inputs and claimants: An organisation procures inputs such as people, capital and managerial
skills, as well as technical knowledge and skills from the external environment. Various groups of
people demand differs from the organisation. For example, employees want higher pay, benefits
and job security; consumers demand safe and reliable products at reasonable prices; suppliers
want assurance that their products will be bought; shareholders want not only a high return on
their investment but also security for their money; governments depends on taxes paid by the
organisation and so on. Since different stakeholders demand differently, it is crucial for managers
to integrate the legitimate objectives of the claimants.
 Managerial transformation process: Managers are responsible for transforming the inputs
procured from the external environment into desirable output by exercising various managerial
functions, such as planning, organising, staffing, leading and controlling.

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 Communication system: Communication is important in all phases of the managerial process.

For instance, the objectives set in planning are communicated to people so that the appropriate
organisation structure can be devised. Communication is essential in the selection, appraisal and
training of managers to fill the roles in this structure. In addition, sound communication in place
can determine whether events and performance conform to plans. Thus, it is communication that
makes managing possible. Another purpose of the communication system is to link the organisation
with its external environment, which comprises customers, suppliers, shareholders and so on.
 External variables: These include threats and opportunities for the organisation. For example,
the emergence of new markets, reduction in entry barriers, strict government controls, and so on.
Managers should scan the external environment on a day to day basis. Although external factors
are uncontrollable, managers have no alternative but to respond to them.
 Outputs: Although the types of outputs vary across organisations, they generally include products,
services, profits, satisfaction and integration of the goals of various claimants to the organisation.

Conclusion 1.8 CONCLUSION

 A set of interconnected management activities involved in producing certain products is called

production management. If these management activities are involved in producing services then it
is called operations management.
 Efficient and effective operations management are needed for ensuring the smooth running of
production without any kind of unexpected situations.
 Operations management deals with managing various processes and functions in an organisation
with an aim to make judicious use of resources for the successful delivery of products and services.
 Operations management involves a set of activities involved in ensuring that the resources
are combined and transformed in a controlled manner to add value in accordance with policies
communicated by management.
 Operations management is involved with all the activities involved in designing and transforming
a product into a finished product for the consumption of consumers. Manufacturing operations
involve a framework where man, machines, and material are integrated manufacturing a tangible
product.
 Production and operations are part of a manufacturing organisation where production is involved
by transforming inputs and resources of an organisation into final goods through systematic and
controlled methods.
 Production and operations are involved with using physical resources for converting inputs into
output with the provisions of the desired or required utilities to the customer.
 The main objective of a business entity is to produce goods and services for meeting the needs of
customers. Production management and operations management are terms used technically and
are concerned with the manufacturing of products.
 In literal terms, a system is a group of interrelated elements that act according to a set of rules to
form a unified whole. A system, surrounded and influenced by its environment, is described by its
boundaries, structure and purpose and expressed in its functioning.

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Operations Management

1.9 GLOSSARY

 Forecasting: An important aspect of operations management for predicting the demand for the
product in the future
 Manufacturing: Production of tangible items in one location and purchased in another
 Operations management: A management function that is involved with managing functions,
people, technology, information, resources and various types of equipment
 Operations: Major functions in an organisation along with supply chains, marketing, finance and
human resources
 Production: A method used for the conversion of inputs into output through a transformation
process
 Systems: A part of a collection of tasks that pool their resources and capabilities together

1.10 CASE STUDY: STRATEGIC DECISION MAKING

Case Objective
The purpose of this case study is to explain the issues that General Motors encountered and how they
used operations research solutions to make strategic decisions.

Om Star is the two-way vehicle communication system for General Motors that can provide several
benefits to the company in terms of improving safety, providing security, entertainment, and enhancing
their productivity.
In 1997, General Motors were faced with certain fundamental strategic decisions regarding Om Star
and the market for telematics (that provides communications services to cars). General Motors had to
analyse and study the evolutionary and revolutionary strategies by analysing the situation for deciding
whether to make use of Om Star as a car feature or as a service. To make the situation more complicated
was the least technical knowledge that General Motors had in regards to the technological advancements,
significant competitors, and to understand the emergence of what competitive and complementary
technologies would come up with. The situation was challenging and it required operations research
expertise for further processes of developing decision support systems, strategic planning, and creating
mathematical models of uncertainty.

The Operation Research Solution

General Motors along with the Om Star team was able to develop a multi-method modelling approach
for evaluating the strategic alternatives. They made use of the dynamic modelling system for working
through certain essential and critical decisions faced by General Motors in 1997. These decisions were
based on choosing between incremental and aggressive marketing strategies for Om Star. The integrated
simulation model was used by them for analysing the new telematics industry which consisted of the
following sectors:
 Customer acquisition
 Customer choice
 Alliances

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 Customer service
 Financial dynamics
 Dealer behaviour

Conclusion
Om Star was successful in their venture and they were able to garner 2 million subscribers and a market
share of more than 80% of the emerging telematics market and their market value was between $5 and
$11 billion. General Motors was able to yield billions of dollars in incremental earnings with the Om Star
project that set the stage for a broader General Motors initiative in service businesses. Om Star was
also able to save lives that otherwise would have been lost in vehicle accidents which were even more
significant than the financial benefits for General Motors.
Source: https://www2.slideshare.net/chhatrapalsurve/operations-research-with-case-study-on-gm-and-ford

Questions
1. What were the challenges faced by General Motors?
(Hint: Little technical knowledge, technological advancements, significant competitors etc.)
2. How did General Motors utilise the operations research solutions for their decision-making?
(Hint: They develop a multi-method modelling approach, evaluating the strategic alternatives,
making use of the dynamic modelling system for critical decisions)

1.11 SELF-ASSESSMENT QUESTIONS

A. Essay Type Questions

1. What is operations management?
2. Explain the importance of operations management.
3. What is the role of operations management in manufacturing and services?
4. Explain the need for operations performance objectives.
5. What are the differences between production and operations management?

1.12 ANSWERS AND HINTS FOR SELF-ASSESSMENT QUESTIONS

A. Hints for Essay Type Questions

1. A set of interconnected management activities involved in producing certain products is called
production management. If these management activities are involved in producing services then it
is called operations management. Refer to Section Operations Management
2. Efficient and effective operations management is needed for ensuring the smooth running of
production without any kind of unexpected situations. Refer to Section Operations Management
3. Operations management is involved with all the activities involved in designing and transforming
a product into a finished product for the consumption of consumers. Refer to Section Operations
Management in Manufacturing and Services

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Operations Management
4. Operations management is involved in the appropriate allocation of resources with proper
monitoring, recording and reviewing various aspects of operations performance. The important
task involved in the processes is to identify the appropriate measures of performance relating to the
internal and external factors of the business enterprise that play a significant role in organisation’
competitiveness. Refer to Section Operations Performance Objectives

5. The main objective of a business entity is to produce goods and services for meeting the needs of
customers. Production management and operations management are terms used technically and
are concerned with the manufacturing of products. Refer to Section Production and Operations

@ 1.13 POST-UNIT READING MATERIAL

 https://www.aucd.org/docs/lend/hadmin/op_overview.pdf
 https://mrcet.com/downloads/digital_notes/ME/III%20year/POM%20NOTES.pdf
 https://www.vssut.ac.in/lecture_notes/lecture1429900757.pdf
 https://www.davuniversity.org/images/files/study-material/MEC250-Production%20and%20
Operations%20Management.pdf

1.14 TOPICS FOR DISCUSSION FORUMS

 Discuss with your friends the advantages of operations management in day to day working of
a business enterprise. Discuss the ways to increase productivity through effective operations
management.

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