Operations Management

Lecture 1: Introduction

Dr. Gyan Prakash

About me
Dr. Gyan Prakash,
PhD (IIT Kanpur)
Professor, ABV-Indian Institute of Information Technology and
Management Gwalior

Earlier:
Associate Professor, Asian Institute of Technology Bangkok
Assistant Professor, Indian Institute of Management Indore
How organizations compete?

Emirates
Singapore
Ethiad
British Airways Cathy
Swiss Air
United
Thai Airways Qatar
Virgin
Cost

Cost

China United Flexibility Delivery

JetStar
Quality
Rayan Air Air India

Performance

How these Airlines position themselves ?

 How organizations compete?...

Your organization to
Within Industry outperform
(Sector/ market) competitors

Your product to
Within Segment
outperform
(Sector /market)
alternatives available
(Customer / product
in the market
/geography)

Successful organizations deliver

Cost Leadership and Product Differentiation
through Operational Excellence
 Quest for operational excellence
Inter-organizational operational Integration

Suppliers Customers
Focal Firm Performance
Performance
Integration of physical, temporal and
spatial flows

Operational Excellence aims at influencing Value and

Cost
Productivity 𝑃𝑟𝑜𝑑𝑢𝑐𝑡 𝑃𝑒𝑟𝑓𝑜𝑟𝑚𝑎𝑛𝑐𝑒
Customer Value =
𝐶𝑜𝑠𝑡 𝑡𝑜 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟
𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑠 𝐷𝑒𝑙𝑖𝑣𝑒𝑟𝑒𝑑
Productivity =
𝐶𝑜𝑠𝑡 𝑡𝑜 𝑐𝑜𝑚𝑝𝑎𝑛𝑦
 Cost
 Quality
 Speed Differentiation
 Flexibility
Operations management and strategy
Operations Management is
managing the resources which are devoted to the production and delivery of
products and services.
refers to processes within a firm that are aimed at maximizing value through
efficient resource utilization (improved productivity).

Operational Strategy is
Decisions about choosing the right asset bundle, processes and activities
for developing future capabilities and business sustenance.
Not focused on individual processes rather is concerned about the collective
whole.
Aims at identifying resources and processes in the extended value chain that
may help realize future organizational goals.
Operations management and strategy…
Corporate
strategy

Finance Operations Marketing

strategy strategy strategy
Operations
Management

People Plants Parts Processes

Inputs Outputs

Planning and Control

Systems

Production System
 Operations management: definition
Transformed
resources …

•Materials Some inputs are

•Information
•Customers transformed resources

Input Transformation process Output Customers

resources products and
services
Transforming
resources …
Some inputs are Outputs are products and
•Facilities services that add value for
•Staff transforming resources
customers
 Operations management (OM)
Management of transformation process that create goods and services
 Exemplary activities: Scheduling, Quality management etc.
Criticality of OM
 Cost structure of a typical manufacturing company
Profit ~5%

OM Cost ~ 21% • Inventory decisions

Typical cost structure • Lean systems
for OM
Marketing
• JIT
Cost ~ 26%
• Competing through supply
chain

Manufacturing
Cost ~ 48%
 Operations management: generic view
The operation’s
strategic objectives
Transformed
resources …
Operations Operations The operation’s
•Materials strategy strategy competitive role and
•Information position
•Customers

Design Improvement
Input
resources Operations
management Output Customers
products
Transforming and services
resources … Planning and
•Facilities control
•Staff

Inventory, Process Flows, Queueing, JIT, SQC, TQM,

Aggregate Planning, Scheduling, Constraint , Lean Systems
 Operations management: across functions
Finance
Acquires financial resources and capital
for inputs

Material & Sales

Service Inputs Revenue

Support Functions
• Accounting
• Information Systems
• Human Resources
Operations • Engineering Marketing
Translates materials and Generates sales of
service into outputs outputs
Product & Service
Outputs
Operations management: process view
External environment

Internal and external

customers

Inputs Outputs
• Workers
Processes and • Goods
operations
• Managers • Services
• Equipment
1 3
• Facilities
5
• Materials

• Land 2 4
• Energy

Information on
performance
Operations: supply chain view
Support Processes

Focal Firm

External customers
External suppliers

New Customer
service/ relationship
product management
development
Supplier Order
relation fulfillmen
ship t process
process

Inbound logistics Internal logistics Outbound logistics

Operations: supply chain view…
 Core processes are sets of activities that deliver
value to external customers
1. Supplier relationship process
2. New service/product development process
3. Order fulfillment process
4. Customer relationship process
 Support processes provide vital resources and
inputs to the core processes
Support processes
Support Processes
Capital acquisition The provision of financial resources for the
organization to perform its work
Budgeting The process of deciding how funds will be
allocated over a period of time
Recruitment and hiring The acquisition of people to do the work of the
organization
Evaluation and compensation The assessment and payment of people for the
work and value they provide to the company
Human resource support and development The preparation of people for their current
jobs and future skills and knowledge needs
Regulatory compliance The processes that ensure that the company is
meeting all laws and legal obligations
Information systems The movement and processing of data and
information for timely decisions
Enterprise and functional management The systems and activities that provide
strategic direction and effective execution
Mixture of products and services
Crude oil production Pure products – Tangibility
Outputs that are with form &
Aluminium smelting exclusively tangible substance,
Transportable
Specialist machine tool
production Mixture of products
and services –
Outputs that are a
Restaurant mixture of the
tangible and the
Information systems provider intangible

Management consultancy Pure services – Simultaneity,

Outputs that are Perishability,
exclusively intangible Intangibility,
Psychotherapy clinic
Heterogeneity
Operations strategy
Corporate Strategy
• Environmental scanning Market Analysis
• Market segmentation
• Core competencies
• Needs assessment
• Core processes
• Global strategies
Competitive Priorities
• Cost
• Quality
• Time
• Flexibility

New Service/
Product Development
• Design
• Analysis
• Development No
• Full launch
Performance
Operations Strategy Yes Gap?

Decisions Competitive Capabilities

• Managing processes • Current

• Managing supply chains • Needed

• Planned
Operations management…
Operations management = Strategy execution
Time

Cost Flexibility

Quality

Designing, operating, and improving the systems that

deliver the firm’s primary products and services
Competitive priorities
Definitions, Process Considerations
Cost Definition Process Considerations Example
1.Low-cost Delivering a service or a Processes must be designed and Costco
operations product at the lowest operated to make them efficient
possible cost
Quality
2.Top quality Delivering an outstanding May require a high level of Ferrari, Omega
service or product customer contact and may require
superior product features
3.Consistent Producing services or Processes designed and monitored McDonald’s
quality products that meet design to reduce errors and prevent
specifications on a defects
consistent basis
Time
4.Delivery speed Quickly filling a customer’s Design processes to reduce lead Dell
order time
5.On-time delivery Meeting delivery-time Planning processes to increase Fed Express
promises percent of customer orders shipped
when promised
6.Development Quickly introducing a new Cross-functional integration and Samsung
speed science or a product involvement of critical external
suppliers
Competitive priorities…

Definitions, Process Considerations

Flexibility Definition Process Considerations Example
7.Customization Satisfying the unique Low volume, close customer High-end hotels
needs of each customer contact, and easily reconfigured
by changing service or
products designs
8.Variety Handling a wide Capable of larger volumes than Amazon.com
assortment of services or processes supporting
products efficiently customization
9.Volume Accelerating or Processes must be designed for DHL
flexibility decelerating the rate of excess capacity
production of service or
products quickly to
handle large fluctuations
in demand
Order winners and qualifiers
Order Order
Winner Qualifier
Sales (INR)

Sales (INR)
Low High Low Threshold High
Achievement of competitive priority Achievement of competitive priority
Performance

Leader

Follower

Time
Operations management: value addition
Value
of final
Input produ
Value ct
cost
added

Transformation process Output

Input Customers
products and
resources services

Feedback

Control
Feedback Feedback

22
Strategic roadmap
1. What is our strategy?

2. How do we design our operations to support it?

Product / Service
Development

Process Design Supply Chain

and Management Management
Product/service development
 Product design
 Voice of the customer
 Product/system architecture

integral or modular?
 Product development
 Project management & cost
 Design for manufacturing
 Technology strategy
 Use of technology to create a differential performance
Process design and management
 Process design: options & assessment
 Queueing analysis
 Capacity analysis
 Uncertainty analysis
 How did each company prepare for difficult-to-anticipate events?
 Inventory systems (JIT vs JIC)
 Production control
 Operations excellence
 Continuous improvement
 Just-in-time
 Quality management (SPC, 6σ)
Supply chain management
 Strategic supply chain design
 Make vs. Buy
 Supplier selection , sourcing
 Single vs. dual sourcing
 Supply chain management
 End-to-end coordination
 Supplier relations
 Delayed differentiation
What issues OM addresses?
Manufacturing: Supply chain management
Upstream Down
stream
First Tier Second Tier
Second Tier First Tier
Suppliers Suppliers Customers Customers C
.com
T3
T2
T3 T1
C
W
R
T3 OEM: C
T2 The Factory
T3
T1 C
W R
T3 T2
C
What issues OM addresses?...
Queue- Services: Bank services

Loans

Deposits

Credit
Cards
What issues OM addresses?...

R&D: New product development

Phase 0 Phase 1 Phase 2 Phase 3 Phase 4 Phase 5

Concept System-level Detail Design Testing and Production
Planning Development Design Refinement Ramp-Up
Operations management decisions

Operational
Decisions

ATP: available to promise

Operations decisions

1. How much capacity do we need? Manufacturing

2. How should our staff be trained? Services

3. Which projects should we invest in? Prod. development

1. Should we have finished goods inventory or should we

Manufacturing
make-to-order?
2. What types of queues should we employ ? Services

Prod. development
3. Do we need to exchange information with mfg?

1. Which product gets priority in front of machine A? Manufacturing

2. Should the service system be FCFS or something else? Services

3. What is the critical path of the project? Prod. development
OM: levels of analysis
Flow between operations

The level of the supply network

Flow between processes

The level of the operation

The level of the process

Flow between resources
OM: levels of analysis…
Flow between operations
Operations management is concerned
with the flow of transformed resources
between operations, processes and
transforming resources, where …
Flow between processes

External operations interact with

internal processes to form the
external supply network

Processes form an internal ‘supply

network’ and become each other’s
customers and suppliers
Flow between resources
 A typology of operations
Implications Implications
Low repetition
High repeatability
Each staff member performs
Specialization High Volume High
Low more of job
Capital intensive Less systemization
Low unit costs High unit costs
Well defined
Complex
Routine
Flexible
High Variety Low Standardized
Match customer needs
Regular
High unit costs
Low unit costs

Anticipation Stable
Changing capacity Variation in Predictable
Flexibility
High Low High utilization
demand
High unit costs Low unit costs

Satisfaction governed by Time lag between production

customer perception and consumption
Short waiting tolerance Standardization
Customer contact skills needed Low contact skills
High Visibility Low High staff utilization
Received variety is high
High unit costs Centralization
Low unit costs
Functional relationships
Engineering/ Product/service
Understanding of the
technical capabilities and constraints development
function of the operations process function
Analysis of new
technology options Understanding of
process technology
Accounting and needs New product and
Provision of service ideas
finance function Understanding of the
relevant data
capabilities and
Operations constraints of the
Financial analysis for function operations process
performance and
decisions Market requirements
Marketing
Understanding of human Provision of systems for function
resource needs Understanding of
infrastructural and design, planning and control,
system needs and improvement
Recruitment
development and
training
Human Information
resources technology (IT)
function function
Challenges in OM
From To
 Local or national focus  Global focus
 Batch shipments
 Just-in-time, lean
 Low bid purchasing  Supply chain partnering
 Lengthy product  Rapid product development,
development alliances
 Standard products  Mass customization
 Job specialization  Empowered employees,
teams and lean production
Milestones in OM
 Division of labor (Smith, 1776)
 Standardized parts (Whitney, 1800)
 Scientific management (Taylor, 1881)
 Coordinated assembly line (Ford, 1913)
 Gantt charts (Gantt, 1916)
 Motion study (Gilbreths, 1922)
 Quality control (Shewhart, 1924)
 CPM/PERT (Dupont, 1957)
 MRP (Orlicky, 1960)
 Computer aided design (CAD, 1970)
 Flexible manufacturing systems (FMS, 1975)
 Manufacturing automation protocol (MAP, 1982)
 Computer integrated manufacturing (CIM, 1990)
 Distributed manufacturing (2010…)
Ten critical decisions
 Service, product design………
 Quality management…………..
 Process, capacity design…….
 Location …………….…………..
 Layout design ………………….
 Human resources, job design.
 Supply chain management…..
 Inventory management ……….
 Scheduling ……………………..
 Maintenance …………………...
Thank you