Operations Management

Module 1
Semester 5
Session 2
WHY LEARN ABOUT OPERATIONS
MANAGEMENT?
• Operations and sales are the two line functions in a business organization. All
other functions—accounting, finance, marketing, IT, and so on—support the
two line functions

• Working together successfully means that all members of the organization

understand not only their own role, but they also understand the roles of
others.

• In practice, there is significant interfacing and collaboration among the

various functional areas, involving exchange of information and cooperative
decision making.

• For example, although the three primary functions in business organizations

perform different activities, many of their decisions impact the other areas of
the organization.
Sample operations management job
descriptions
PROCESS MANAGEMENT
• A process consists of one or more actions that transform inputs into
outputs. In essence, the central role of all management is process
management.
• Businesses are composed of many interrelated processes. Generally
speaking, there are three categories of business processes:
1. Upper-management processes.
These govern the operation of the entire organization. Examples include
organizational governance and organizational strategy.

2. Operational processes.
These are the core processes that make up the value stream. Examples include
purchasing, production and/or service, marketing, and sales.

3. Supporting processes.
These support the core processes. Examples include accounting, human resources,
and IT (information technology).
• Business processes, large and small, are composed of a series of
supplier–customer relationships, where every business
organization, every department, and every individual operation is
both a customer of the previous step in the process and a supplier
to the next step in the process
• A major process can consist of many sub processes, each having
its own goals that contribute to the goals of the overall process.

• Business organizations and supply chains have many such

processes and sub processes, and they benefit greatly when
management is using a process perspective.

• Business process management (BPM) activities include process

design, process execution, and process monitoring.

• Two basic aspects of this for operations and supply chain

management are managing processes to meet demand and dealing
with process variability.
• Ideally, the capacity of a process will be such that its output just
matches demand.

• Excess capacity is wasteful and costly; too little capacity means

dissatisfied customers and lost revenue.

• Having the right capacity requires having accurate forecasts of

demand, the ability to translate forecasts into capacity requirements,
and a process in place capable of meeting expected demand.

• Even so, process variation and demand variability can make the
achievement of a match between process output and demand difficult.

• Therefore, to be effective, it is also necessary for managers to be able to

deal with variation.
 Process Variation
• There are four basic sources of variation:
1. The variety of goods or services being offered.
The greater the variety of goods and services, the greater the variation in production
or service requirements.

2. Structural variation in demand.

These variations, which include trends and seasonal variations, are generally
predictable. They are particularly important for capacity planning.

3. Random variation.
This natural variability is present to some extent in all processes, as well as in demand
for services and products, and it cannot generally be influenced by managers.

4. Assignable variation.
These variations are caused by defective inputs, incorrect work methods, out-of-
adjustment equipment, and so on. This type of variation can be reduced or
eliminated by analysis and corrective action.
THE SCOPE OF OPERATIONS
MANAGEMENT
• The scope of operations management ranges across the organization.

• Operations management people are involved in product and service

design, process selection, selection and management of technology,
design of work systems, location planning, facilities planning, and
quality improvement of the organization’s products or services.

• The operations function includes many interrelated activities, such as

forecasting, capacity planning, scheduling, managing inventories,
assuring quality, motivating employees, deciding where to locate
facilities, and more
• Location facilities

• Location of the proposed factory building is an important consideration in

operation management.
• It is an important strategic level decision-making for an organization.
• It deals with the questions such as ‘where our main operations should be
based?’
• The selection of location is a key-decision because large amount of investment
is required in building plant and machinery.
• An improper location of plant may lead to waste of all the investments made in
plant and machinery.
• Hence, location of plant should be based on the company’s future plan about
expansion, diversification, nature of sources of raw materials and many other
factors.
• The very purpose of the location study is to identify the optimal location
facility that will results in the greatest advantage to the organization
• Plant layout and material handling

• Plant layout refers to the physical arrangement of facilities.

• It is the configuration of departments, work centers and equipment’s in

the inputs conversion process.

• The objective of the plant layout is to design a physical arrangement that

meets the required output quality and quantity most economically.

• According to James More ‘Plant layout is a plan of an optimum

arrangement of facilities including personnel, operating equipment,
storage space, material handling equipment and all other supporting
services along with the design of best structure to contain all these
facilities’.
• Material Handling refers to the moving of materials from the store
room to the machine and from one machine to the next machine during
the production process.

• It is the art and science of moving, packing and storing of products in

any form.

• Material cost can be reduced by judicious selection of materials and its

proper storage.

• Material handling devices increases the output, improves quality,

speeds up the deliveries and decreases the cost of production. Hence,
material handling should be a prime task in the designing of new
projects.
• Product design

• Product design deals with conversion of ideas into reality. Every business
organization has to design, develop and introduce new products as a
commercial strategy.

• Developing the new products and launching them in the market are the
biggest problems faced by the organizations.

• The entire process of need identification to physical manufactures of

product involves three functions— Design, Product Development, and
manufacturing.

• Operation management has the responsibility of selecting the processes

by which the product can be produced.
• Production Planning and Control

• Production planning and control can be defined as the process of

planning the production in advance, setting the exact route of each item,
fixing the starting and finishing dates for each item, to give production
orders to shops and to follow-up the progress of products according to
orders.

• The principle of production planning and control lies in the statement

‘First Plan Your Work and then Work on Your Plan’.

• Main functions of production planning and control include Planning,

Routing, Scheduling, Dispatching and Follow-up.
• Planning is deciding in advance what to do, how to do it, when to do it
and who is to do it.

• Planning bridges the gap from where we are and to where we want to
go.

• It makes it possible for things to occur which would not otherwise

happen.

• Routing is the process of selection of path, which each part of the

product will follow.

• Routing determines the most advantageous path to be followed for

department to department and machine to machine till raw material
gets its final shape.
• Scheduling determines the time programme for the operations.

• Scheduling may be defined as the fixation of time and date for each operation
as well as it determines the sequence of operations to be followed.

• Dispatching is concerned with the starting the processes. It gives authority so

as to start a particular work, which has been already been planned under
Routing and Scheduling.

• Therefore, dispatching is the release of orders and instruction for the starting
of production.

• Follow-up is the process of reporting daily progress of work in each shop in a

prescribed proforma and to investigate the causes of deviations from the
planned performance and to take necessary actions.
• QUALITY CONTROL

• Quality Control may be defined as a system that is used to maintain a

desired level of quality in a product or service.

• It is a systematic control of various factors that affect the quality of the

product.

• Quality Control aims at prevention of defects at the source, relies on

effective feedback system and corrective action procedure.

• Quality Control ensures that the product of uniform acceptable quality is

manufactured.

• It is the entire collection of activities, which ensures that the operation will
produce the optimum quality products at minimum cost
• The main objectives of Quality Control are:
1. To produce qualitative items
2. To reduce companies cost through reduction of losses due to defects.
3. To produce optimal quality at reduced price.
4. To ensure satisfaction of customers with productions or services or high
quality level, to build customer good will, confidence and reputation of
manufacturer.
5. To make inspection prompt to ensure quality control.
6. To check the variation during manufacturing.
• MATERIALS MANAGEMENT

• Materials Management is that aspect of operation management function, which

is concerned with the acquisition, control, and use of materials needed and
flow of goods and services connected with the production process.

• The main objectives of Material Management are given below:

1. To minimize material cost.
2. To purchase, receive, transport and store materials efficiently.
3. To reduce costs through simplification, standardization, value analysis etc.
4. To identify new sources of supply and to develop better relations with the
suppliers.
5. To reduce investment made in the inventories and to develop high
inventory turnover ratios.
• MAINTENANCE MANAGEMENT
• Equipment and machinery are very important parts of the total
production system. Therefore, their efficient usage is very
mandatory.

• It is very important to see that the organization maintains plant

and machinery properly.

• The main objectives of Maintenance Management are given

below:
1. To reduce breakdown of machineries
2. To keep the machines and other facilities in a good condition.
3. To ensure the availability of the machines, buildings and services
required by other sections of the factory also.
4. To keep the plant in good working condition
• We can use an airline company to illustrate a service organization’s
operations system.
• The system consists of the airplanes, airport facilities, and
maintenance facilities, sometimes spread out over a wide territory.
The activities include:

• Forecasting such things as weather and landing conditions, seat

demand for flights, and the growth in air travel.

• Capacity planning, essential for the airline to maintain cash

flow and make a reasonable profit. (Too few or too many planes,
or even the right number of planes but in the wrong places, will
hurt profits.)
• Locating facilities according to managers’ decisions on which
cities to provide service for, where to locate maintenance facilities,
and where to locate major and minor hubs.

• Facilities and layout, important in achieving effective use of

workers and equipment.

• Scheduling of planes for flights and for routine maintenance;

scheduling of pilots and flight attendants; and scheduling of
ground crews, counter staff, and baggage handlers.
• Managing inventories of such items as foods and beverages, first-
aid equipment, inflight magazines, pillows and blankets, and life
preservers.

• Assuring quality, essential in flying and maintenance operations,

where the emphasis is on safety, and important in dealing with
customers at ticket counters, check-in, telephone and electronic
reservations, and curb service, where the emphasis is on efficiency
and courtesy.

• Motivating and training employees in all phases of operations.

Thank You
• Finance and operations management personnel cooperate by
exchanging information and expertise in such activities as the
following
• 1. Budgeting. Budgets must be periodically prepared to plan financial
requirements. Budgets must sometimes be adjusted, and
performance relative to a budget must be evaluated. 2. Economic
analysis of investment proposals. Evaluation of alternative
investments in plant and equipment requires inputs from both
operations and finance people. 3. Provision of funds. The necessary
funding of operations and the amount and timing of funding can be
important and even critical when funds are tight. Careful planning can
help avoid cash-flow problems.
• Marketing is also responsible for assessing customer wants and needs, and for
communicating those to operations people (short term) and to design people
(long term). That is, operations needs information about demand over the short
to intermediate term so that it can plan accordingly (e.g., purchase materials or
schedule work), while design people need information that relates to improving
current products and services and designing new ones.
• Marketing also can supply information on consumer preferences so that design
will know the kinds of products and features needed; operations can supply
information about capacities and judge the manufacturability of designs.
Operations will also have advance warning if new equipment or skills will be
needed for new products or services. Finance people should be included in these
exchanges in order to provide information on what funds might be available
(short term) and to learn what funds might be needed for new products or
services (intermediate to long term)
• marketing, operations, and finance must interface on product and
process design, forecasting, setting realistic schedules, quality and
quantity decisions, and keeping each other informed on the other’s
strengths and weaknesses. People in every area of business need to
appreciate the importance of managing and coordinating operations
decisions that affect the supply chain and the matching of supply and
demand, and how those decisions impact other functions in an
organization. Operations also interacts with other functional areas of
the organization, including legal, management information systems
(MIS), accounting, personnel/human resources, and public relations
• Operations interfaces with a number
of supporting functions
• The legal department must be
consulted on contracts with
employees, customers, suppliers, and
transporters, as well as on liability
and environmental issues.
• Accounting supplies information to
management on costs of labor,
materials, and overhead, and may
provide reports on items such as
scrap, downtime, and inventories.
• Management information systems (MIS) is concerned with providing
management with the information it needs to effectively manage. This
occurs mainly through designing systems to capture relevant information
and designing reports. MIS is also important for managing the control and
decision-making tools used in operations management. The personnel or
human resources department is concerned with recruitment and training
of personnel, labor relations, contract negotiations, wage and salary
administration, assisting in manpower projections, and ensuring the health
and safety of employees. Public relations is responsible for building and
maintaining a positive public image of the organization. Good public
relations provides many potential benefits. An obvious one is in the
marketplace. Other potential benefits include public awareness of the
organization as a good place to work (labor supply), improved chances of
approval of zoning change requests, community acceptance of expansion
plans, and instilling a positive attitude among employees.