to

Operations
Management
BBA 5th Semester
 What is
Operations?
Operations is the production activities that go on in the
organization, regardless of whether the end product is a
goods or a service.

Operations management refers to the

administration of business practices to create the highest level
of efficiency possible within an organization. Operations
management is concerned with converting materials and labor
into goods and services as efficiently as possible to maximize
the profit of an organization.
What Is Operations Management (OM)?
Operations management is defined as the
design, operation, and improvement of the systems
that create the firm’s primary products and services.
Operations management is the management
of systems or processes that creates value in the form
of goods and services by transforming inputs into
desired outputs.
 Value added
Inputs:
•Materials Transformation/ Outputs:
•Machines
Conversion Goods
•Labor
•Management Process Services
•Capital

Feedback

Control
Feedback Feedback
Contd….

Operations management focuses on carefully managing the

processes to produce and distribute products and services.
Major, overall activities often include product creation,
development, production and distribution. (These activities
are also associated with Product & Service Management.)
Related activities include managing purchases, inventory
control, quality control, storage, logistics and evaluations of
processes. A great deal of focus is on efficiency and
effectiveness of processes.
Contd…
Therefore, operations management often includes
substantial measurement and analysis of internal
processes. Ultimately, the nature of how operations
management is carried out in an organization depends
very much on the nature of the products or services in
the organization, for example, on retail,
manufacturing or wholesale.
Operations management is an area
of management concerned with overseeing, designing, and
controlling the process of production and redesigning business
operations in the production of goods or services. It involves the
responsibility of ensuring that business operations are efficient in
terms of using as few resources as needed, and effective in terms of
meeting customer requirements. It is concerned with managing the
process that converts inputs (in the forms of raw materials, labour,
and energy) into outputs (in the form of goods and/or services).
Contd….
The relationship of operations management to senior
management in commercial contexts can be compared to the
relationship of line officers to highest-level senior officers
in military science. The highest-level officers shape
the strategy and revise it over time, while the line officers
make tactical decisions in support of carrying out the strategy. In
business as in military affairs, the boundaries between levels are not
always distinct; tactical information dynamically informs strategy,
and individual people often move between roles over time.
 Why Study OM?
 OM is one of three major functions (marketing, finance, and
operations) of any organization.
 We want (and need) to know how goods and services are produced.
 We want to understand what operations managers do. By
understanding what these managers do, we can develop the skills
necessary to become such a manager.
 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.
 Objectives of operations
management
Four main objectives of operations
management:​
Managing product/service quality​
Planning quantity and capacity​
Timing product and service​
Achieving the best possible cost ​
All good managers perform the basic functions of the
management process. The management process consist of
planning, organizing, staffing, leading, and controlling.
Operation managers apply this management process to the
decisions they make in the OM functions.
The 10 major decisions of OM are taken by operation managers.
Successfully addressing each of these decisions requires planning,
organizing, staffing, leading, and controlling. Typical issues
relevant to these decisions will be discussed in this course.
 10 Decisions Taken By Operation Manager
The Decision Areas Issues
1. Design of goods & What goods or service should we offer?
services How should we design these products?

2. Managing quality How do we define the quality?

Who is responsible for quality?
3. Process & capacity What process & what capacity will these
design products require?
What equipment & technology is
necessary for these process?
4. Location strategy Where should we put the facility?
On what criteria should we base the
location decision?
5. Layout strategy How should we arrange the facility?
How large must the facility be to meet
our plan?
10 Decisions Taken By Operation Manager Contd………..
Ten Decision Areas Issues
6. Human resource & job design How do we provide a reasonable work environment?
How much can we except our employees to produce?

7. Supply chain management Should we make or buy this component?

Who are our suppliers and who can integrate into
our e- commerce program?

8. Inventory, material requirement How much inventory of each item should we have?
planning, and JIT When do we reorder?

9. Intermediate & short-term Are we better off keeping people on the payroll
scheduling during slowdowns?
Which job do we perform next?
10. Maintenance Who is responsible for maintenance?
When do we do maintenance?
 What does it covers

Basic Management Functions

 Planning
 Organizing
 Staffing
 Leading
 Controlling
 Areas it covers
 Design of goods and services
 What good or service should we offer?
 How should we design our products and services?

 Managing quality
 How do we define quality?
 Who is responsible for quality?
 Areas it covers
 Process design
 What process will the product require?
 What equipment and technology is necessary for these
processes?
 Location strategy
Where should we put the facility?
On what criteria should we base the location
decision?
 Areas it covers
 Layout strategy
 How should we arrange the facility?
 How large must the facility be to meet our plan?
 Human resources and job design
 How do we provide a reasonable work environment?
 How much can we expect our employees to produce?
It is clear that operations management covers all
aspect of an organization that is involved in the
creation and delivery of products and services to
customers. As such, operation management plays a
critical role in the success of organizations. The
exact role of OM can be viewed from multiple
perspectives.
At the most basic level, operations is frequently seen as a distinct
functional area alongside other key areas such as finance and marketing.
In this context, the role of the operations management function is limited
to simply producing goods and services.
Contd…
As examples:
In manufacturing firms, the operations area would be dealing
with the production and assembly tasks that takes place on the
factory-floor;
In the school education context, operations is what happens in the
classroom;
In the hospital, operations would be what happens in the surgical
theaters and wards;
In the hospitality industry, operations is about what happens in
the kitchens and bars.
Contd…

The standalone approach to operations management has many

weaknesses. Many organizations that face stiff competition in their
industries find that this structure makes them slow, cumbersome,
bureaucratic, and generally unresponsive to consumers. These
organizations have largely uncontrolled this form of organizational
structure in favor of one where there is a high level of inter-
functional interaction. A strong feature of these organizations is the
presence of teams in which members are drawn from different
functional groups.
As apposed to a separate function, it is possible to view operations management
as a ubiquitous concept that has a pervasive presence and permeates all aspects
of the organization.

Operations

Marketing Finance
Contd…
for example:
Operations management in a hospital involve determining
the size of the facility, deciding which types and quantities
of equipment to acquire, arranging these facilities and
equipment so the hospital is run efficiently, determining
staffing levels and schedule to provide quality care,
managing inventories of food and bedding, all in addition
to the activities that clinical and medical work that takes
place in the theaters and wards.
Contd…
When viewed from this wider perspective, it is marked
that operations are not confined to a specific area. The
broader role can be difficult to deal with as the traditional
functional boundaries are unclear, and members of the
organizational need to develop strong understanding of
what happens within other functional groups as well as
their own. Further, all functional groups need to be able to
practice effective operations management.
Does operations management have a strategic role in
organizations ? If an organization believes that the
efficient and timely delivery of quality products or
services to their customers leads them to generate
profits, which then leads to them developing a
sustainable competitive advantage over the rivals, then
the answer to the question is an definite ‘yes’.
Contd…
Operations strategy involves firms comparing with others along
several dimensions. These include compensation based on price,
focus on quality, speed of delivery, dependability, flexibility and
innovation. The conventional view has been that organization
need to choose one of these dimensions because there are
mutually exclusive of each other . However, many firms,
particularly Japanese multi-national corporations, have shown
that it is possible to compare successfully along multiple
dimensions.
 An indication of the strategic content in operations strategy
planning

•Process choice - The selection of the right approach to producing goods or delivering service;

•Innovation - The adaptation or renewal of the organisation’s processes or outputs to ensure they adapt to
changes in the external environment;

•Supply chain management - The external management of relationships with suppliers to ensure the
effective and efficient supply of inputs;

•Control of resources - The internal management of inventories;

•Production control - The effective and efficient management of processes;

•Work organisation - The management and organisation of the workforce within the organisation;

•Customer satisfaction - The management of quality.

 Specifics of Operations
Strategy
•Amounts of capacity required by the organisation to achieve its aims

•The range and locations of facilities

•Technology investment to support process and product developments

•Formation of strategic buyer-supplier relationships as part of the

organisation’s 'extended enterprise‘

•The rate of new product or service introduction

•Organisational structure - to reflect what the firm’ does best', often

involving outsourcing of other activities
 The Operations Function
 Operations as a
transformation process
 Operations as a
basic function
 Operations as the
technical core
R&D
Investment in new facilities and equipment
Paying workers
Paying for materials
Paying for general expenses
Profits
 Transformation Process of a
Canned Food Processor
Inputs Processing Outputs

• Raw vegetables • Cleaning Canned

• Metal sheets • Making cans vegetables
• Water • Cutting
• Energy
• Labor • Cooking
• Building • Packing
• Equipment • Labeling
Transformation Process of a
Hospital
Inputs Processing Outputs

• Doctors, nurses • Examination Healthy

• Hospital • Surgery patients
• Medical Supplies • Monitoring
• Equipment • Medication
• Laboratories • Therapy
 Examples of Various Operations
Operations Examples

Goods Producing Farming, mining, construction ,

manufacturing, power generation
Storage/ Warehousing, trucking, mail
Transportation service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites
 Physical Manufacturing
 Locational Transportation
 Exchange Retailing
 Storage Warehousing
 Physiological Health care
 Informational Telecommunications
 Psychological Entertainment
 Marketing
 Generate demand get
customers

 Operations
 Creates product or service

 Finance/Accounting
 Obtains funds
 Tracks organizational
performance
 Business Functions - Bank

Finance/
Marketing Operations
Accounting

Teller Check Transactions

Security
Scheduling Clearing Processing
Business Functions – Airline

Finance/
Marketing Operations
Accounting

Flight Ground Facility

Catering
Operations Support Maintenance
Business Functions – Manufacturer

Finance/
Marketing Operations
Accounting

Production Quality
Manufacturing Purchasing
Control Control
 PRODUCTIVITY
 Meaning and type of productivity
 Factors affecting productivity
 Measuring productivity
 Guides to productivity improvement
 Meaning of productivity
Productivity is the ratio of outputs to inputs. It refers to the
volume of output produced from a given volume of inputs or
resources. If the firm becomes more productive, then it has
become more efficient, since productivity is an efficiency measure.
Productivity is usually expressed as a ratio of output to inputs. It
can be expressed as units of a product (e.g. cars) per worker-hour
(total number of hours worked by all workers on that car). Given
the cost of the worker-hour, productivity can also measure the
efficiency of a company.
These measures are quantitative and relatively easy to measure.
However, other factors of productivity, such as creativity,
innovation, teamwork, and even quality are qualitative and more
difficult to measure.
 Production Vs Productivity
Production is concerned with conversion of input to desired
output operating under system (production system). A
management tools called “productivity” measures the
efficiency of this conversion. Productivity is the
relationship between the “output” generated by a
production system and the “input”.

Productivity = Output/ Input

Some times higher production is assumed as the higher

productivity and both are used synonymously. However
this does not always become true. The productivity
improvement can be observed from the following:
Increase output/decrease input
Increase output/constant input
Constant output/decrease input
Therefore, the difference between production & productivity can be outlined as follows:
Production Productivity
It is the transformation process of It is the relationship between output and
resources into desired goods and resources used to generate the output i.e.
services. goods & services.
It can be measured in terms of It is also measurable in terms of ratio like
unit like weight, size, and height, sales per employee, production per hour
in rupees etc. etc.
It is a function which determines It is a technique which measures
the quality and quantity of goods efficiency and effectiveness of
& services of organization. organization.
There is direct relationship There is inverse relationship between
between output and resources productivity and resources used for
used. production of output.
Production can be increased in There are many reasons for increasing
many ways. Out of them, the productivity. Therefore, higher production
higher productivity is a factor for may or may not ensure the higher
increasing production. productivity.
It is increased, it also increase It may or may not generate profit in the
profit. short run but ensures higher profit in the
 Productivity Measurement
Productivity measurement is derived from the ration between
output and input. Productivity is usually defined as follows:
Productivity = OUTPUT
INPUT
P= O
I

Therefore productivity measure how well input or resources

are utilized to obtained the desired output. The higher ratio,
the greater will be the productivity. Given similar situation
entrepreneur or an enterprises should try to improve this
ratio over time which indicates productivity improvements.
Before productivity measurement can be calculated both the
Output and Input should be measured.
 Measurement of Output
Output can be measured in three ways. It can be measured in:
Production quantity
Production value
Value added

Production quantity: This requires expressing output in

physical volume. These however can be done only if the output
is homogeneous. If not then weighting system must be
adopted to include all types of products.

Production value: Incase of different type of product,

expressing them in terms of money would be appropriate. This
comprises the sales value of the units of finished products
during a specified period of time. It can be calculated by
multiplying the physical output by its sales price.
Value added: Value added is the wealth created by an enterprises
through its production or service process. Value added is generally
regarded as the best output measurement when dealing with
heterogeneous output. The more productive an organization is,
the more is the value added. Value added is shown in diagram
below:
Company
 Calculation of Value Added
Value added = Net sales – value of purchase from outside - Change in inventory
Or
Value Added = Personnel expenses + Financial cost + Rent + Depreciation + taxes + Net profit before
tax + Non operating expenses

Where
Personnel expenses = Salaries, wages, bonuses, allowances etc.
Financial cost = Interest on loan
Rent = Rent fee charged for land, building, machinery, equipment and other fixed cost
Depreciations = Reductions in the original cost of machinery and equipment
Taxes = Import taxes, duties, excise duty etc. excluding income taxes
Net profit = Net profit before tax
Other non operating expenses = expenses not directly related to operation such as

donation/charitable contributions, bad debts, losses etc.

 Types of Productivity

Basically there are following three basic types of

productivity or types productivity measurements.
Partial productivity
Total factor productivity
Total productivity/Multifactor Productivity
Partial productivity: Partial productivity is the ratio
of output to partial input. It measures the
productivity of each input. It determines the
contribution of each factor in producing and
generating output. It can be measured as follows:
Partial productivity = Output/Partial Input
Different partial inputs can be Labor, Capital, Energy, Machinery
and Materials etc. Some of examples of partial productivity
measurements are given bellow:
Labor Productivity = Total output/Labor Input
Capital Productivity = Total Output/Capital Input
Material Productivity = Total Output/Total raw material used
Energy Productivity = Total Output/Total Energy used
Machinery Productivity = Total Output/Total machine hour used
Total factor productivity: This is the ratio between total output on the
one hand and labor and capital on the other hand. It can be expressed as:
Total factor productivity = Total output/Labor + Capital
Total factor productivity has benefit of easy calculation and more useful from economic
view points.
Total productivity: Total productivity is the ratio of total
output to the sum of all the inputs. Thus, total productivity
measures reflect the joint impact of all the inputs in
producing and generating of output.
Total Productivity = Total output/Total Input

Factor Affecting Productivity

Productivity is affected by various factors. These can

be divided into:
External Factors
Internal Factors
 External Factors
External factors are those factors, which are beyond the
control of management or individual enterprises. They
affect organizations productivity level but organization
cannot control them. These external factors are also called
macro-productivity factors. They can be listed as follows:
Structural adjustment
Natural resources
Government and infrastructures
Structural adjustment: Changes in social, economic,
political, demographic structure of nation directly
influence national and industrial productivity. However the
change in national & industrial productivity later has long
term affects on the socio, economical, political and
demographical structure of nation.
Natural resources : Natural resources like manpower, land energy,
raw material are important for improving productivity at
international, national, industry and firm level. In order to improve
productivity all these sources should be utilized efficiently and
effectively with proper policy and strategy.

Government and infrastructures : National and organizational

productivities are directly affected by governmental policies,
strategies and programs. The underlying factors under government
& infrastructures are as follows:
• Practices of government agencies
• Rules & regulations like pricing, income & wages policies
• Transportation and commutations
• Power supply
• Financial measure & incentives such as interest rates & tax rates
etc.
 Internal Factors
Internal factors could be adjusted with some ease compared to
external factors. However these factors very significant role in
improving productivity of an organization. Internal factors also
known as micro productivity factors. These factors can be
classified into following two groups.
Hard factors
Soft factors
Hard factors : Hard factors are internal factors which are
quite inflexible towards change, compared to soft
factors. These factors are as follows.
 Product
 Plant / equipment
 Technology
 Material and energy
Soft factors : Soft factors those internal
factors which are be changed as required by
management. Some of the soft factors are
as follows:
 Manpower
 Organization and system
 Work methods
 Management styles
 Guides to productivity improvement
The existing productivity of an organization could be improved
considering on the three factors. Viz. Human ware, Soft ware
and Hard ware. Content of these three factors is shown on the
following diagram and all the factors are dealt in details.
 Some Numerical Problems From Productivity
1. Steel furniture Manufacturing Company has provided the
following data. Compare the labor, raw material and supplies, and
total productivity of 2007 and 2008.

2007 2008

Output: Sales value of production Rs.24,000 Rs.36,000

Input :
Labor 11,000 16,000
Raw materials & supplies 8,500 12,500
Capital equipment depreciation 750 12,500
Other 2,000 5,000
2. Keen Carpet cleaned 65 rugs in October, consuming the following
resources:
labor: 520 hours @Rs.13 per hour
Solvent: 100 gallons @Rs.5 per gallon
Machine rental: 20 days @Rs.50 per day
a) What is the labor productivity per Rupee?
b) What is the multifactor productivity?
3. John Lucy makes wooden boxes in which to ship
motorcycles. John and his three employees invest a
total of 40 hours per day making the 120 boxes.
a) What is their productivity?
b) John and his employees have discussed redesigning the process to improve
efficiency. If they can increase the rate to 125 per day, what will be their new
productivity?
c) What will be their percentage increase in productivity and percentage?
4. Nepal seafood makes 500 wooden packing boxes for fresh
seafood per day, working in two 10-hour shifts. Due to
increased demand, plant managers have decides to operate
three 8-hour shifts instead. The plant is now able to produce
650 boxes per day. Calculate the company’s productivity
before the change in work rules and after the change. What is
the percent increase in productivity?
5. Mance Fraily, the Production Manager at Ralts Mills, can
currently expect his operations to produce 1000 square yards
of fabric for each ton of raw cotton. Each ton of raw cotton
requires 5 labor hours to process. He believes that he can buy
better quality raw cotton, which will enable him to produce
1200 square yards per ton of raw cotton with the same labor
hours. What will be the impact on productivity (measured in
square yards per labor hour) if he purchases the higher quality
raw cotton?