20-491-0201
Operations Management
Dr. Rajeswari.R
Module 1

Introduction
Among all the functional areas of management,
production is considered to be crucial in any
industrial organisation.
Production is the process by which raw materials and
other inputs are converted into finished products
Manufacturing refer to the process of producing only
tangible goods whereas production includes creation
of both tangible and the intangible services

Terms
 Production and operations management (POM) is the
management of an organization’s production system.
 A production system takes inputs and converts them into
outputs.
 The conversion process is the predominant activity of a
production system.
 The primary concern of an operations manager is the
activities of the conversion process.

Production Vs Operations
 Production: creation of goods and services
 Operations function consists of all activities directly
related to producing goods or providing services.
 Operations management (OM) is defined as the design,
operation, and improvement of the systems that create (transform
inputs into outputs) and deliver the firm’s primary products and
services
 Production and operations management are differentiated based
on tangibilities of finished goods/services.

Organizational Model
POM
Marketing
MIS
Engineering
HRM
QA
Accounting
Sales
Finance

Production as an organisational
function
The core production system is its
conversion sub-system, wherein workers,
materials and machines are used to
convert inputs into products and services.
The process of conversion is the heart of
production function.

Significance of production
function
 Significant contribution to the society’s well being
 The standard of living of people depends on production of
goods and services. – high productivity
 It creates national wealth
 Production can offer competitive advantage to a firm in the
following areas
 Shorter new-product-lead time
 More inventory turns
 Shorter manufacturing lead time
 Higher quality
 Greater flexibility
 Better customer service
 Reduced wastage

Characteristics of modern
production and operations function
Manufacturing as competitive advantage
Services orientation
Disappearance of smokestacks
Small has become beautiful (page 8 K. Aswathappa)

Operations Management as
a Function

Functions of Operations Management
Marketing
Production
Finance
 Relationship between Operations and Other Functions:
Three Primary Functions in Business:
 Broader Perspective of Operations Management:
An Integrated Production System Including:
Inventory Control / Aggregate Planning / Demand
Forecasting

Scheduling / Capacity Planning / Purchasing / Quality
Control / Facility Location & Layout / Production and
Process Design / Job Design / Maintenance / Project
Management / ……
Operations Manager’s Responsibility: (typically)
——— 75% of the Firm’s Investment
———80% of the Firm’s Personnel
———85% of Firm’s Expenditures for Materials
Functions of Operations Management

Operations as a System
Inputs Outputs
Conversion
Subsystem
Production System
Control
Subsystem

External
Legal/political
Social
Economic
technological
Market
Competition
Product information
Customer desires
Primary Resources
Materials and supplies
Personnel
Capital and capital
goods
Utilities
MIS
Inputs Physical
(Manufacturing
Mining)
Local services
(Transportation)
External services (
Retailing/Wholesaling)
Storage Services
(Warehousing)
Other private
services ( insurance,
Finance, Utilities,
Real estate, health,
business services,
and personal
service)
Government
Services (Local,
State, Federal)
Conversion
sub system
Direct outputs
Products
services
Indirect outputs
Taxes
Wages and salaries
Technological
Development
Environment impact
(Waste and
Pollution)
Employee impact
Social Impact
Out puts
Control
Subsystem
Feed
back
infor
mati
on
OM by Norman Gather, Greg

Concept of productivity
 Production refers to the total output.
 Productivity refers to the output relative to the inputs.
 Amount of goods and services produced with the resources
used.
 Productivity = Quantity of goods and services produced
Amount of resources used
Aswathappa Page -195

Evolution of operations
management discipline
 Industrial Revolution
 Post-civil war period
 Scientific management
 Human relations and behavioralism
 Operations research
 The service revolution
 The computer revolution
 Today’s developments
Norman Gaither, Greg Frazier

The Industrial Revolution
 The industrial revolution developed in England in the 1700s.
 The steam engine, invented by James Watt in 1764, largely
replaced human and water power for factories.
 Adam Smith’s The Wealth of Nations in 1776 touted the
economic benefits of the specialization of labor.
 Thus the late-1700s factories had not only machine power
but also ways of planning and controlling the tasks of
workers.

The Industrial Revolution
 The industrial revolution spread from England to other
European countries and to the United Sates.
 In 1790 an American, Eli Whitney, developed the concept of
interchangeable parts.
 The first great industry in the U.S. was the textile industry.
 In the 1800s the development of the gasoline engine and
electricity further advanced the revolution.
 By the mid-1800s, the old cottage system of production had
been replaced by the factory system.
 . . . more

Post-Civil War Period
 During the post-Civil War period great expansion of
production capacity occurred.
 By post-Civil War the following developments set the stage
for the great production explosion of the 20th century:
 increased capital and production capacity
 the expanded urban workforce
 new Western U.S. markets
 an effective national transportation system

Scientific Management
 Frederick Taylor is known as the father of scientific
management. His shop system employed these steps:
 Each worker’s skill, strength, and learning ability were
determined.
 Stopwatch studies were conducted to precisely set standard
output per worker on each task.
 Material specifications, work methods, and routing sequences
were used to organize the shop.
 Supervisors were carefully selected and trained.
 Incentive pay systems were initiated.
 . . . more

Scientific Management
 In the 1920s, Ford Motor Company’s operation embodied
the key elements of scientific management:
 standardized product designs
 mass production
 low manufacturing costs
 mechanized assembly lines
 specialization of labor
 interchangeable parts

Human Relations
and Behavioralism
 In the 1927-1932 period, researchers in the Hawthorne
Studies realized that human factors were affecting
production.
 Researchers and managers alike were recognizing that
psychological and sociological factors affected production.
 From the work of behavioralists came a gradual change in
the way managers thought about and treated workers.

Operations Research
 During World War II, enormous quantities of resources
(personnel, supplies, equipment, …) had to be deployed.
 Military operations research (OR) teams were formed to deal
with the complexity of the deployment.
 After the war, operations researchers found their way back
to universities, industry, government, and consulting firms.
 OR helps operations managers make decisions when
problems are complex and wrong decisions are costly.

The Service Revolution
 The creation of services organizations accelerated sharply
after World War II.
 Today, more than two-thirds of the U.S. workforce is
employed in services.
 About two-thirds of U.S. GDP is from services.
 There is a huge trade surplus in services.
 Investment per office worker now exceeds the investment
per factory worker.
 Thus there is a growing need for service operations
management.

Today's Factors Affecting POM
 Global Competition
 U.S. Quality, Customer Service, and Cost Challenges
 Computers and Advanced Production Technology
 Growth of U.S. Service Sector
 Scarcity of Production Resources
 Issues of Social Responsibility

Different Ways to Study POM
 Production as a System
 Production as an Organization Function
 Decision Making in POM

Operations strategies in global
economy
 Factors affecting today’s global business conditions
 Reality of global competition
 Quality, customer service, and cost challenges
 Rapid expansion of advanced technologies
 Continued growth of the service sector
 Scarcity of operations resources
 Social-responsibility issues
OM by Norman Gaither, Greg Frazi

Operations Strategy
 It is a high-level integrated plan for business effectiveness
or competitiveness.
 It is the road map for achieving the operations objectives
and form the long-range game plan for production of the
firm’s goods and services.
 It includes decisions about each major product line on such
issues, as what new production facilities are needed and
when they are needed, what major production technologies
and processes must be developed and what production
schemes will be followed to produce the sales forecast.
ICFAI and Aswathappa

Developing operations strategy
Operations Strategy
Corporate priorities Cost, Time, Quality, and flexibility
Product/service plans
Business Strategy
Corporate Mission
Assessment
of global
business
conditions
Distinctive
competencies
or
weaknesses
Positioning the production system
Product/Service Plans
Outsourcing plans
Process and Technology Plans
Strategic allocation of resources
Facility plans: Capacity, Location, and
Layout Norman Page 44

Elements of production/operations
strategy
 Designing /positioning the production system
 Focus of factories and service facilities
 Product/service design and development
 Technology selection and process development
 Allocation of resources to strategic alternatives
 Facility planning and location layout
ICFAI book and Aswathappa

Competitive priorities
Competitive
Priority
Definition Some ways of creating
Low production
cost
Unit cost of each product/service, including
labor, material, and overhead costs
Redesign of products/services
New Technology
Increase in production rates
Reduction of scrap or waste
Reduction of inventories
Delivery
performance
Fast Delivery Larger finished-goods inventories
Faster production rates
Quicker shipping methods
On-time delivery More realistic promises
Better control of production of orders
Better information systems
High-quality
products/
services
Customers’ perceptions of degree of
excellence exhibited by products/services
Improved product/services
Appearance
Malfunction or defect rates
Performance and function
Wear, endurance ability
After-sales service
Customer Service
and flexibility
Ability to quickly change production to
other products/ services, customer
responsiveness
Change in type of processes used
Use of advanced technologies
Reduction of amount of work in
process through lean manufacturing
Norman
P-45

Operations Strategy as a
competitive weapon
 Shorter product cycle
 Product flexibility
 Low cost process
 Convenience and location
 Product variety and facility size
 Quality
ICFAI

Elements of operations strategy
competitive positioning of products
and services
 Refer norman page 46-47

Strategic and tactical decisions of
operations management
Major decision areas in production management
 Strategic Decisions
 Tactical Decisions
 Operational Decisions
ZAD Materials

Strategic decisions
 Warehouse location
 Distribution systems
 Building a new plant
 Mergers and Acquisitions
 New product planning
 Compensation planning
 Quality assurance planning
 R&D Planning
 Forming new technology department
 Dropping a product from the existing product mix
 Social Responsibility planning etc.

Tactical Decisions
 Pricing a product
 Product improvement through value analysis
 Preventive maintenance policy
 Budget analysis
 Short term forecasting
 Make or buy analysis
 Credit evaluation
 Plan layout
 Project scheduling
 Reward system design
 Buying equipments etc.

Operational Decisions
 Designing sampling plan to inspect the raw materials and store
while receiving materials from vendors
 Deciding price discount at salesman level in the field.
 Scheduling of maintenance manpower
 Machine loading
 Daily operator scheduling
 Order entry
 Production scheduling
 Inventory control
 Buying software
 Approving loans etc.

Production /operation
subsystem
.
INPUT
Materi
al
Labour
Equip
ment
Capital
Forecast Location and Layout
Product design and analysis, work study
Production control
Aggregate planning Materials Requirement Scheduling and Control
Master Production Planning (MRP) Line Balancing
Scheduling Capacity Planning Line of Balance
single machine scheduling
flow shop scheduling
Job shop scheduling
Maintenance Management
R. Paneerselvam. P. 6
Inventory control Quality control
Out
Put
Prod
uct
/servi
ces M
ar
ke
t

video
 Feeler Taiwan, CNC Flexible Manufacturing System.avi

Refer
 Duties and responsibilities of Production managers in
manufacturing organisations.
 Recent trends in POM ( page 10 Aswathappa)
 Some typical production/operations system ( page 19
Norman Gather, Greg Frazier)