CHAPTER 1

OPERATION MANAGEMENT: AN INTRODUCTION

1.1 Definition of operations management
Operations management is concerned with managing the resources that
directly produce the organization’s service or product. The resources will
usually consist of people, materials, technology and information but may go
wider than this. These resources are brought together by a series of
processes so that they are utilized to deliver the primary service or product
of the organization. Thus, operations are concerned with managing inputs
(resources) through transformation processes to deliver outputs (service or
products).
Expressed in this way it can be seen that the term ‘operations’ covers a wide
range of organizations. Manufacturing, commercial service, public service
and other not-for-profit sectors are all included within its scope. One way of
defining the operations function of the organization is to define what the end
service or product actually is. Once this is clear, the people who directly
contribute to the delivery of the end service or product, and the people who
closely support them in this task, can be said to be the operational personnel
of the organization. However, in order to have a clear idea of Operations
Management, one must have an idea of ‘Operating Systems’.
An Operating System is defined as a configuration of resources combined
for the provision of goods or services. Retail organizations, hospitals, bus and
taxi services, tailors, hotels and dentists are all examples of operating
systems. Any operating system converts inputs, using physical resources, to
create outputs, the function of which is to satisfy customer’s wants. The
creation of goods or services involves transforming or converting inputs into
outputs. Various inputs such as capital, labour, and information are used to
create goods or services using one or more transformation processes (e.g.,
storing, transporting, and cutting). To ensure that the desired output are
obtained, an organization takes measurements at various points in the
transformation process (feedback) and then compares with them with
previously established standards to determine whether corrective action is
needed (control).
It is important to note that goods and services often occur jointly. For
example, having the oil changed in your car is a service, but the oil that is
delivered is a good. Similarly, house painting is a service, but the paint is a
good. The goods-service combination is a continuum. It can range from
primarily goods, with little service, to primarily service, with few goods.
Because there are relatively few pure goods or pure services, companies
usually sell product packages, which are a combination of goods and
services. There are elements of both goods production and service delivery
in these product packages. This makes managing operations more
interesting, and also more challenging.
1.2 Objectives of Operation Management
Operations management involves overseeing, designing, and controlling the
processes and resources that create and deliver goods and services. This
involves management of the entire process responsible for converting inputs
into outputs. The following are the objectives of Operations Management.
1. To provide customer service
The main objective of any operating management systems is to utilize
resources judiciously for the satisfaction of customer needs and wants.
Therefore, customer satisfaction is a key objective of operations
management. Operation management focuses on providing the right
products at a right price at the right time. Hence, this objective will influence
the operations manager’s decisions to achieve the required customer
service. Meeting customer needs and expectations by delivering products or
services that are reliable, timely, and of high quality. Customer satisfaction is
crucial for building loyalty and maintaining a competitive advantage.
2. Effective utilization of resources
Resources that are used in the business organization must be carefully
utilized. Inefficient use of resources leads to commercial failure of an
organization. Operations management is concerned essentially with the
utilization of resources. It aims at obtaining maximum output from the
available resources with minimum cost. Maximizing the utilization of
resources such as labor, materials, and equipment to minimize waste and
reduce costs. This involves optimizing processes and workflows to achieve
higher productivity.
3. To reduce cost of production
Operation management aims at reduction in the cost of production of goods
and services. The cost per unit of the product has to be set properly and all
efforts should be taken to control the actual cost to pre-determined cost of
production. Cost can be classified in to fixed cost and variable cost. The
variable cost changes with every level of production. This variable cost can
be checked by means of inventory and labour control techniques. Reduction
of cost also means identifying opportunities to reduce costs without
sacrificing quality or efficiency. This may involve streamlining processes,
negotiating better terms with suppliers, or implementing lean manufacturing
principles.
4. To improve product quality
Quality control consists of all those activities, which are designed to define,
maintain and control specific quality of products within reasonable limits. It is
the systematic regulation of all variables affecting the goodness of the final
product. In other words, quality control involves determination of quality
standards and its actual measurement. It is necessary to ensure that the
established standards are practiced and maintained. It does not attempt to
achieve the perfect quality but to secure satisfactory or reasonable quality at
a reasonable level of cost. Quality management techniques such as Total
Quality Management (TQM) and Six Sigma are often employed to
continuously improve processes and eliminate defects.
5. Material control
Based on the sales forecast and production plans, the materials planning and
control is done. This involves estimating the individual requirements of parts,
preparing materials budget, forecasting the levels of inventories, scheduling
the orders and monitoring the performance in relation to production and
sales.
6. Process Flexibility
Being able to respond quickly to changes in market demand, technological
advancements, or other external factors. Operations managers aim to design
systems that can adapt to shifting conditions without significant disruption.
7. Innovation
Encouraging and fostering a culture of innovation within the organization to
drive continuous improvement and stay ahead of competitors. This may
involve investing in research and development, adopting new technologies,
or exploring alternative production methods.
8. To fix time schedule
Another important objective of operation management is to establish time
schedule for various operation activities. The schedule fixation includes the
operating cycle time, inventory turnover rate, machine utilization rate,
capacity utilization, etc.
9. Risk Management
Identifying and mitigating potential risks that could disrupt operations or
impact performance. This includes developing contingency plans,
diversifying suppliers, and implementing robust quality control measures.
10. Sustainability
Incorporating environmental and social considerations into operations
management practices to minimize negative impacts on the planet and
society. This may involve reducing waste, conserving resources, and
adhering to ethical labor practices.
1.3 Functions of Operation Managers
Operations Management
concerns with the conversion of
inputs into outputs, using
physical resources, so as to
provide the desired utilities to
the customer while meeting
the other organizational
objectives of effectiveness,
efficiency and adoptability. It
distinguishes itself from other
functions such as personnel,
marketing, finance, etc. by its
primary concern for
‘conversion by using physical
resources’. Following are the
activities, which are listed
under Production and Operations Management functions:
1. Location of facilities.
2. Plant layouts and Material Handling.
3. Product Design.
4. Process Design.
5. Production Planning and Control.
6. Quality Control.
7. Materials Management.
8. Maintenance Management.
An important feature of operations is that they are dynamic systems. In
other words, the inputs, the processes and the outputs are all liable to
change over time. It is the role of the operations manager to make sure that
these changes are planned and controlled so that the output conforms to
what is required. This role demands that the operations manager undertakes
a range of demanding tasks. The operations manager must understand what
the overall objectives of the operation are.
1. 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.
2. 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.
3. 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.
4. Process Design
Designing of manufacturing process is another functional area of operation
management. It deals with how the process required to produce a product is
selected. These decisions encompass the selection of a process, choice of
technology, process flow analysis and layout of the facilities. The major
consideration in process design is to analyse the workflow for converting raw
materials into final products.
5. 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.
6. 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.
5. To build customer good will, confidence and reputation of manufacturer.
6. To make inspection prompt to ensure quality control.
7. To check the variation during manufacturing.
7. 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.
8. Maintenance Management
In modern industry, equipment and machinery are a very important part of
the total productive effort. Therefore their idleness or downtime becomes are
very expensive. Hence, it is very important that the plant machinery should
be properly maintained. 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.
1.4 Recent Trends in Production/Operations Management
Many recent trends in production/operations management relate to global
competition and the impact it has on manufacturing firms. Some of the
recent trends are:
1. Global Market Place: Globalization of business has compelled many
manufacturing firms to have operations in many countries where they have
certain economic advantage. This has resulted in a steep increase in the
level of competition among manufacturing firms throughout the world.
2. Production/Operations Strategy: More and more firms are recognizing
the importance of production/ operations strategy for the overall success of
their business and the necessity for relating it to their overall business
strategy.
3. Total Quality Management (TQM): TQM approach has been adopted
by many firms to achieve customer satisfaction by a never-ending quest for
improving the quality of goods and services.
4. Flexibility: The ability to adapt quickly to changes in volume of demand,
in the product mix demanded, and in product design or in delivery
schedules, has become a major competitive strategy and a competitive
advantage to the firms. This is sometimes called as agile manufacturing.
5. Time Reduction: Reduction of manufacturing cycle time and speed to
market for a new product provide competitive edge to a firm over other
firms. When companies can provide products at the same price and quality,
quicker delivery (short lead times) provides one firm with competitive edge
over the other.
6. Technology: Advances in technology have led to a vast array of new
products, new processes and new materials and components. Automation,
computerization, information and communication technologies have
revolutionized the way companies operate. Technological changes in
products and processes can have great impact on competitiveness and
quality, if the advanced technology is carefully integrated into the existing
system.
7. Worker Involvement: The recent trend is to assign responsibility for
decision making and problem solving to the lower levels in the organization.
This is known as employee involvement and empowerment. Examples of
worker involvement are quality circles and use of work teams or quality
improvement teams.
8. Re-engineering: This involves drastic measures or break-through
improvements to improve the performance of a firm. It involves the concept
of clean-slate approach or starting from scratch in redesigning the business
processes.
9. Environmental Issues: Today’s production managers are concerned
more and more with pollution control and waste disposal which are key
issues in protection of environment and social responsibility. There is
increasing emphasis on reducing waste, recycling waste, using less-toxic
chemicals and using biodegradable materials for packaging.
10. Corporate Downsizing (or Right Sizing): Downsizing or right sizing
has been forced on firms to shed their obesity. This has become necessary
due to competition, lowering productivity, need for improved profit and for
higher dividend payment to shareholders.
11. Supply-Chain Management: Management of supply chain, from
suppliers to final customers reduces the cost of transportation, warehousing
and distribution throughout the supply chain.
12. Lean Production: Production systems have become lean production
systems which use minimal amounts of resources to produce a high volume
of high quality goods with some variety. These systems use flexible
manufacturing systems and multi-skilled workforce to have advantages of
both mass production and job production (or craft production).
1.5 Manufacturing and Non-manufacturing Operations and their
Characteristics
Manufacturing and service 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. Decisions on size of the building needed, location,
schedule, control of operations and allocation of scarce resources are
applicable to both manufacturing and service organizations. However, the
major difference between manufacturing and service organisations is that
the first is goods-oriented while the latter is act-oriented.
Following characteristics can be considered for distinguishing
Manufacturing Operations with Service Operations:
1. Customer Contact: Service involves a much higher degree of customer
contact than manufacturing. The performance of service often occurs at the
point of consumption whereas manufacturing allows a separation between
production and consumption. This permits a fair degree of latitude in
selecting work methods, assigning jobs, scheduling work and exercising
control over operations. Service operations, because of their contact with
customers, can be much more limited in their range of options.
Manufacturing operations can build up inventories of finished goods whereas
service operations cannot build up inventories of time and are much more
sensitive to demand variability.
2. Uniformity of Input: Service operations are subject to greater variability
of inputs than manufacturing operations. Manufacturing operations can
control the amount of variability of inputs.
3. Labour Content of Jobs: Because of the on-site consumption of services
and the high degree of variation of inputs, services require a higher labour
content than manufacturing which is more capital intensive.
4. Uniformity of Output: Manufacturing tends to produce products with
low variability because of high mechanization whereas service activities
sometimes appear to be slow and awkward and output is more variable or
non-uniform.
5. Measurement of Productivity: Productivity can be measured more
directly in manufacturing due to the high degree of uniformity of most
manufactured items. In service operations, variations in demand intensity
and in requirements from job to job make productivity measurement more
difficult.
6. Quality Assurance: Is more challenging in services when production and
consumption occur at the same time. In manufacturing operations, errors
can be corrected before the customer receives the output.
1.6 Interaction of Operations Management with other areas
To create goods and services, all organisations, whether manufacturing
goods or providing services, perform three basic functions. They are:
(i) Marketing which generates the demand or takes customers’ orders for a
product or service.
(ii) Production/Operations which creates the product (goods or services).
(iii) Finance/Accounting which keeps track of how well the organisation is
performing, and takes care of cash inflow and cash outflow.
Production/operations managers need to build and maintain strong
relationships both intra-organisationally and interorganisationally. Inter-
organisational relationship exists between production/ operations
department and suppliers, whereas intra-organisational relationship calls for
cross functional coordination. Cross functional coordination is essential for
effective production/operations management. For example, marketing
function determines the need for new products and services and the demand
for existing ones and operations managers must bring together human and
capital resources to meet these demands effectively. Also, operations
managers must consider facility location and relocations to serve new
markets and the design of layouts for service organisations must match the
image that marketing seeks to project to the customers. Operations
managers must plan output rates and capacities to match the demand
forecasts and delivery promises made to the customers.