MODULE 1
Module I
Operations Management
Meaning
Operation is that part of as organization, which is concerned with the transformation of a range of inputs into the required output (services) having the requisite quality level. Management is the process, which combines and transforms various resources used in the operations subsystem of the organization into value added services in a controlled manner as per the policies of the organization.
The set of interrelated management activities, which are involved in manufacturing certain products, is called as production management. If the same concept is extended to services management, then the corresponding set of management activities is called as operations management.
Definition of Operation Management
According to S. Buffa ‘production or operation management deals with decision making related to production process so that the resulting goods and services are produced according to specifications, in the amount and by the schedule demanded and at a minimum cost’. The Association of Operation Management defines operation management as ‘the field of study that focuses on the effective planning, scheduling, use and control of manufacturing or service organisations through the study of concepts from design engineering, industrial engineering, MIS, quality management, industrial management and other functions as they affect the organisation’. Operation management is the business function that manages that part of a business that transforms raw materials and human inputs in to goods and services of higher value. Operation management is a business activity that deals with the production of goods and services. The term operation includes management of materials, machines, and inventory control and storage functions. Operations management includes a set of activities performed to manage the available resources in an efficient manner in order to convert inputs in to desired outputs. The value addition to an input can be done in the following ways. They are mentioned below:
1. Alteration: It refers to the transformation of the state of input. This transformation can be a physical change in the input to produce goods.
2. Transportation: It refers to physical movement of goods from one location to another.
3. Storage: It refers to preserving goods in a protected environment.
4. Inspection: It refers to the verification of and confirmation towards the requirements of an entity.
All the above activities in one way or another are making a product more useful. The operations managers have the prime responsibility for processing inputs into outputs. They must bring together the materials, capacity and knowledge available for the purpose achieving its production objectives.
Resources
Resources are in the forms of the human, material and capital inputs. Human resources are the key resources of an organisation. As the technology advances, a large proportion of human input is in planning and controlling activities. By using the intellectual capabilities of people, managers can multiply the value of their employees into by many times. Material resources are the physical facilities and materials such as plant equipment, inventories and supplies.
Systems
Systems are the arrangement of components designed to achieve objectives. The business systems are subsystem of large social systems. Business system contains subsystem such as personnel, engineering, finance and operations. The ability of any systemto achieve its objective depends on its design and control mechanism. System design is a predetermined arrangement of components. It establishes the relationships between inputs, transformation activities and outputs in order to achieve the system objectives. System control consists of all actions necessary to ensure that activities conform to pre-conceived plans.
Transformation and Value Addition Activities
The objective of combining resources is to transform the inputs into goods and services having a higher value than the original inputs. The effectiveness of the production factors in the transformation process is known as productivity. The firms overall ratio must be greater than 1, then we can say value is added to the product. Operations manager should concentrate improving the transformation efficiency and to increase the ratio. Scope of Operations Management As stated earlier, Operations Management is concerned with the conversion of inputs into outputs using physical resources so as to provide the desired utilities to the customers. It involves a number of well planned activities. Following are the activities that come under Production and Operations Management functions:
1. Location of facilities.
2. Plant layouts and Material Handling.
3. Product Design.
4. Process Design.
5. Production and Planning Control.
6. Quality Control.
7. Materials Management.
8. Maintenance Management
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 organisation. It deals with Operation Management 9 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 rawmaterials 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 centres 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 optimumarrangement 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 organisation has to design, develop and introduce newproducts 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 flowanalysis and layout of the facilities. The major consideration in process design is to analyse the workflow for converting rawmaterials 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 uniformacceptable 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 minimise material cost.
2. To purchase, receive, transport and store materials efficiently.
3. To reduce costs through simplification, standardisation, 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.
Operations Management Decisions
A better insight to how production/operations managers manage can be had by examining the decisions in production and operations management, since all managerial functions such as planning, organising, staffing, directing and controlling involve decision making. The decisions which production/operations managers make may be classified into three general categories:
(i) Strategic Decisions: Decisions about products, processes and facilities. These decisions are strategically important and have long-term significance for the organisation.
(ii) Operating Decisions: Decisions about planning production to meet demand.
(iii) Control Decisions: Decisions about controlling operations concerned with day-to-day activities of the workers, quality of products and services, production costs, overhead costs and maintenance of plant and equipment.
| Production management decisions and their applications |
| Type of Decisions | Area of Involvement | Nature of Activities |
|
1. Strategic decisions (Planning products, processes and facilities)
2. Operating decisions (Matching production with demand)
3. Control decisions
|
(i) (ii) (iii) Manufacturing processes and technology design Plant location and plant layout Long range capacity planning (Equipment and labour capacity) (i) Production planning Inventory (ii) planning (iii) Resource requirement (iv)planning Production scheduling (v)Procurement planning
(i) Labour productivity (ii)Quality (iii)Projects (iv)Maintenance
|
(i) Product design, process design (ii) Choice of production technology (iii) Choosing the best location (iv) Deciding about the type of plant layout and shop layout. (v) Deciding the installed capacity of the plant
(i) Preparing the master production schedule (ii) Planning inventorylevels for raw materials, work-in-process and finished goods (iii) Planning for requirements of materials &capacities (Labour and equipment) (iv) Detailed scheduling and machine loading charts (v) Vendor selection
(i) Controlling labour output through establishment of performance standards (ii) Controlling quality of incoming materials, semifinished goods and finished goods. (iii) Controlling projects (Costs and completion dates) using PERT/CPMtechniques. (iv) Controlling machine down-time and repair time by good maintenance practices. |
Historical Evolution of Operation Management
The traditional view of manufacturing management began in eighteenth century when Adam Smith recognised the economic benefits of specialization of labour. He recommended breaking of jobs down into subtasks and recognises workers to specialized tasks in which they would become highly skilled and efficient. In the early twentieth century, F.W. Taylor implemented Smith’s theories and developed scientific management. From then till 1930, many techniques were developed prevailing the traditional view.
Production Management became the acceptable term from1930s to 1950s. As F.W. Taylor’s works become more widely known, managers developed techniques that focused on economic efficiency in manufacturing. Workers were studied in great detail to eliminate wasteful efforts and achieve greater efficiency. At the same time, psychologists, socialists and other social scientists began to study people and human behaviour in the working environment. In addition, economists, mathematicians, and computer socialists contributed newer approaches.
With the 1970s emerged other two distinct changes. The most obvious of these, reflected in the new name Operations Management was a shift in the service and manufacturing sectors of the economy. As service sector became more prominent, the change from ‘production’ to ‘operations’ emphasized the broadening of field to service organizations. The second, more suitable change was the beginning of an emphasis on synthesis, rather than just analysis, in management practices. A brief account of development of operations and production management is given below:
| Year | Contribution | Contrib utors |
| 1776 | Specialization of labour in manufacturing | Adam Smith |
| 1799 | Interchangeable parts, cost accounting | Eli Whitney & others |
| 1832 | Division of labour by skill; assignment of jobs by Skill; basics of time study | Charles Babbage |
| 1900 | Scientific management time study and work study Developed; dividing planning and doing of work | Frederick W.Taylor |
| 1900 | Motion of study of jobs | Frank B. Gilbreth |
| 1901 | Scheduling techniques for employees, machines Jobs in manufacturing | Henry L. Gantt |
| 1915 | Economic lot sizes for inventory control | F.W. Harris |
| 1927 | Human relations; the Hawthorne studies | Elton Mayo |
| 1931 | Statistical inference applied to product quality: quality control charts | W.A. Shewart |
| 1935 | Statistical Sampling applied to quality control: inspection sampling plans | H.F. Dodge &H.G. Roming |
| 1940 | Operations research applications in world war II | P.M. Blacker & others |
| 1946 | Digital Computer | John Mauchlly and J.P. Eckert |
| 1950 | Mathematical programming, on-linear and stochastic processes | A. Char nes, W.W. Cooper&others |
| 1960 | Organisational behaviour: continued study of people at work | L. Cummin gs, L. Porter |
| 1970 | Integrating operations into overall strategy and policy Computer applications to manufacturing, scheduling, and control, Material Requirement Planning (MRP) | W. Skinner J. Orlicky & G. Wright |
| 1980 | 0 Quality and productivity applications from Japan: robotics, CAD-CAM | W.E. Deming & J. Juran |
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: Globalisation 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 recognising 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, computerisation, information and communication technologies have revolutionised 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 organisation. 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).
Objectives of Operation Management
Operation Management 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.
2. Effective utilisation of resources
Resources that are used in the business organisation must be carefully utilised. Inefficient use of resources or inadequate customer service leads to commercial failure of an organisation. Operations management is concerned essentially with the utilisation of resources. It aims at obtaining maximum output from the available resources with minimum cost.
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.
4. To improve product quality
Quality control and maintenance are the two important objectives of operations management. 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.
5. 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 utilisation rate, capacity utilisation, etc.,
6. Proper utilisation of Machinery
Operation management has to take number of decisions with regard to machinery and equipment. New machines should be installed and the old machines are to be replaced. It has to ensure judicious utilisation of machinery and equipment.
7. 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.
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 organisations. 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 mechanisation 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. The differences between production of goods and service operations can be summarised as below:
| Differences between Goods and Services |
| Characteristics | Goods | Services |
| Output | Tangible | Intangible |
| Customer contact | Low | High |
| Uniformity of input | High | Low |
| Labour content | Low | High |
| Uniformity of output | High | Low |
| Measurement of productivity | Easy | Difficult |
| Opportunity to correct quality problems before delivery to customer | High | Low |
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 inter- organisationally. Inter-organisational relationship exists between production/ operations department and suppliers, whereas intra-organisational relationship calls for crossfunctional 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.
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