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OPERATIONS MANAGEMENT 
AN INTRODUCTION
MAJOR DEPARTMENTS IN AN ORGANIZATION 
Finance 
Marketing 
Operations 
HR 
R&D
PROCESSING/OPERATIONS 
INPUT OUTPUT 
“Operations Management is the management of an 
organization’s productive resources or its 
production system, which converts inputs into 
products or services.” 
The essence lies in “adding value”
VALUE ADDITION 
 Difference between the cost of input and value of 
output 
 The value of output is measured by the prices that 
the customers are willing to pay for those goods or 
services
Difference between Manufacturing and Service 
Organizations 
 Major points of differentiation are as follows: 
1. Degree of Customer Contact 
2. Uniformity of Input 
3. Uniformity of Output 
4. Measurement of Productivity 
5. Production and Delivery 
6. Quality Assurance 
7. Amount of Inventory 
8. Output
Factors Affecting Operations Management 
 Global Competition 
 Quality, customer service and cost challenges 
 Rapid expansion of advanced technologies 
 Growth of service sector 
 Social Responsibility issues 
 Scarcity of capital, materials etc.
Evolution of Operations Management 
Following are the historical developments that 
impacted evolution of Operations Management 
 The Industrial Revolution 
 Scientific Management 
 The HR Movement 
 Decision Models and Management Science 
 Influence of Japanese Manufacturers 
 Trends in Business 
 Other Important Trends
Industrial Revolution 
 Era of pre-1700: Age of Cottage Systems 
 Industrial Revolution (1700, England) 
Substitution of human 
power with machines. 
 Ample supplies of coal and iron ore 
 Development of steam engine and electricity 
 Emergence of other industries and more factories. 
 Economies of scale was observed 
 Opportunities for jobs 
Establishment of 
factory system
Post- Civil War Period 
 Post Civil war period set the platform for great 
expansion of production capacity 
 Large workforce for rapidly developing industries: 
Abolition of slave labour, migration of farmers 
from rural to urban areas, influx of immigrants 
during 1865-1900 
 Development of extensive rail lines- effective and 
economic transportation system 
 All the above factors played pivotal role in 
production explosion of the early 20th century
Scientific Management 
 Father of Scientific Management: Frederick Winslow 
Taylor- emphasized on maximising output 
 Science Management: Observation, measurement, 
analysis and improvement of work methods. 
 Thrust on identifying the best method for doing each 
job, training of workers, planning, cooperation 
between management and workers.
Human Relations and Behavioralism 
 Earlier workers were forced to work under rigid 
conditions and controls 
 Emphasis was laid on the human motivation. 
 Hawthorne studies conducted by Elton Mayo 
established the notion to encourage employees. 
 Theory X and Theory Y approach introduced by 
Douglas McGregor
Decision Models and Management Science 
 The factory movement was accompanied by the 
development of several quantitative techniques (inventory 
management, sampling and quality control) 
 WW-II generated immense pressures on manufacturing 
output. 
 After the war, efforts to develop and refine quantitative 
tools for decision making continued. 
 Operations research was developed to address management 
issues.
 It uses quantitative techniques, models to evaluate 
alternatives and provide an optimal solution for 
informed decision making 
 Following are its characteristics: 
1) Problem solving and decision making approach 
2) Draws techniques from science 
3) Builds a model for experiment 
4) Extensive use of computers
Influence of Japanese Manufacturers 
 Many Japanese manufacturers developed and 
refined management practices that increased their 
productivity and quality of products 
 Focussed on continuous improvement, workers 
empowerment and achieving customer satisfaction. 
 Approaches like JIT, Kaizen etc were introduced
Trends in Business 
 Information technology has had huge impact on the ways an organization manages 
operations. 
 Operating decisions can be made more quickly because of more information and 
easy access to data 
Eg: Enterprise Resource Planning (SAP, PeopleSoft, Oracle) 
 Communication technologies have helped to manage international affairs easily. 
 E-commerce and E-business 
 Management of technology (medical diagnosis, production planning and 
scheduling, data processing, communication) 
 Globalization: NAFTA, GATT 
 Agility: Ability of an organization to respond quickly to demands or opportunities 
 Outsourcing: Obtaining a product or service from outside the organization.
Other Important Trends 
 Six Sigma: Process for reducing costs, improving 
quality and increasing customer satisfaction. 
 Total Quality Management 
 Lean Productions
Scope of Operations Management 
 Forecasting 
 Capacity planning 
 Location planning 
 Facility planning 
 Selection of technology 
 Managing inventory 
 Scheduling 
 Motivating and Training Employees
Decision Making 
 Operations managers make a number of key 
decisions like: 
 What 
What resources/what amounts 
 When 
Needed/scheduled/ordered 
 Where 
Work to be done 
 How 
Designed/ Resource allocation 
 Who 
To do the work
General Approaches to Decision Making 
 The decisions involve many possible alternatives that can 
affect the profitability of the organization. 
 To take the aforesaid decisions, various tools are 
available to the managers. 
 These include: 
 Models 
 Quantitative Approaches 
 Analysis of Trade-offs 
 Systems Approach 
 Establishing Priorities 
 Ethics
Models 
A model is an abstraction of reality. 
– Physical (toy cars, globe etc) 
– Schematic (graphs, blueprints, charts etc) 
– Mathematical (EOQ model, transportation model) 
What are the pros and cons of models?
Advantages of Models 
 Models omit unimportant details so that attention 
can be concentrated on the important aspects of a 
situation. 
 Easy to use 
 Less expensive than dealing with the actual situation 
 Increase understanding of the problem 
 Serves as a consistent tool 
 Provides a standardized format for analyzing a 
problem
Limitations of Models 
 Models can be incorrectly applied and the results 
misinterpreted 
 Use of models do not guarantee good decisions
Quantitative Approaches 
 Attempt to obtain mathematically optimal solutions 
to managerial problems 
 Linear Programming (allocation of resources) 
 Queuing Techniques (analyzing situations in which 
waiting lines form) 
 Inventory Models (control inventories) 
 Project Models (PERT and CPM to coordinate large 
projects)
Tradeoffs 
 Decision makers deal with decisions by listing the 
advantages and disadvantages of a course of action 
to understand the consequences of the decision. 
 This helps to “net out” the potential impacts of the 
trade-offs on their decision. 
Eg: Cost of equipment vs benefits 
 Increased cost of storing inventory vs meeting 
customer demands
Establishing Priorities 
 Certain factors are more important than other 
factors. 
 Manager should examine each situation, searching 
for the factors that will have the greatest impact and 
give them highest priority. 
 Pareto Principle: A few factors account for a high 
percentage of the occurrence of some events.
Systems Approach 
 System : A set of interrelated parts that must work 
together. 
 “The whole is greater than the sum of its individual 
parts”
Ethics 
 In making decisions, managers must consider how their decisions 
will affect shareholders, management, employees, customers, 
community and the environment. 
 Financial statements (represent information accurately) 
 Safety of Workers (adequate training, maintaining equipment in 
good working condition) 
 Quality (avoiding hidden defects) 
 Environment (not harming the environment) 
 Community (not affecting the quality of life of the community) 
 Avoiding false pretences 
 Workers’ Rights (dealing with workers’ problems quickly and fairly)
Business Operations Overlap
Operations Interfaces
Career Opportunities 
 Operations Manager 
 Production Analyst 
 Inventory Manager 
 Purchasing Manager 
 Supply Chain Manager 
 Distribution Manager 
 Schedule Coordinator
Operations management

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Operations management

  • 2. MAJOR DEPARTMENTS IN AN ORGANIZATION Finance Marketing Operations HR R&D
  • 3. PROCESSING/OPERATIONS INPUT OUTPUT “Operations Management is the management of an organization’s productive resources or its production system, which converts inputs into products or services.” The essence lies in “adding value”
  • 4. VALUE ADDITION  Difference between the cost of input and value of output  The value of output is measured by the prices that the customers are willing to pay for those goods or services
  • 5. Difference between Manufacturing and Service Organizations  Major points of differentiation are as follows: 1. Degree of Customer Contact 2. Uniformity of Input 3. Uniformity of Output 4. Measurement of Productivity 5. Production and Delivery 6. Quality Assurance 7. Amount of Inventory 8. Output
  • 6. Factors Affecting Operations Management  Global Competition  Quality, customer service and cost challenges  Rapid expansion of advanced technologies  Growth of service sector  Social Responsibility issues  Scarcity of capital, materials etc.
  • 7. Evolution of Operations Management Following are the historical developments that impacted evolution of Operations Management  The Industrial Revolution  Scientific Management  The HR Movement  Decision Models and Management Science  Influence of Japanese Manufacturers  Trends in Business  Other Important Trends
  • 8. Industrial Revolution  Era of pre-1700: Age of Cottage Systems  Industrial Revolution (1700, England) Substitution of human power with machines.  Ample supplies of coal and iron ore  Development of steam engine and electricity  Emergence of other industries and more factories.  Economies of scale was observed  Opportunities for jobs Establishment of factory system
  • 9. Post- Civil War Period  Post Civil war period set the platform for great expansion of production capacity  Large workforce for rapidly developing industries: Abolition of slave labour, migration of farmers from rural to urban areas, influx of immigrants during 1865-1900  Development of extensive rail lines- effective and economic transportation system  All the above factors played pivotal role in production explosion of the early 20th century
  • 10. Scientific Management  Father of Scientific Management: Frederick Winslow Taylor- emphasized on maximising output  Science Management: Observation, measurement, analysis and improvement of work methods.  Thrust on identifying the best method for doing each job, training of workers, planning, cooperation between management and workers.
  • 11. Human Relations and Behavioralism  Earlier workers were forced to work under rigid conditions and controls  Emphasis was laid on the human motivation.  Hawthorne studies conducted by Elton Mayo established the notion to encourage employees.  Theory X and Theory Y approach introduced by Douglas McGregor
  • 12. Decision Models and Management Science  The factory movement was accompanied by the development of several quantitative techniques (inventory management, sampling and quality control)  WW-II generated immense pressures on manufacturing output.  After the war, efforts to develop and refine quantitative tools for decision making continued.  Operations research was developed to address management issues.
  • 13.  It uses quantitative techniques, models to evaluate alternatives and provide an optimal solution for informed decision making  Following are its characteristics: 1) Problem solving and decision making approach 2) Draws techniques from science 3) Builds a model for experiment 4) Extensive use of computers
  • 14. Influence of Japanese Manufacturers  Many Japanese manufacturers developed and refined management practices that increased their productivity and quality of products  Focussed on continuous improvement, workers empowerment and achieving customer satisfaction.  Approaches like JIT, Kaizen etc were introduced
  • 15. Trends in Business  Information technology has had huge impact on the ways an organization manages operations.  Operating decisions can be made more quickly because of more information and easy access to data Eg: Enterprise Resource Planning (SAP, PeopleSoft, Oracle)  Communication technologies have helped to manage international affairs easily.  E-commerce and E-business  Management of technology (medical diagnosis, production planning and scheduling, data processing, communication)  Globalization: NAFTA, GATT  Agility: Ability of an organization to respond quickly to demands or opportunities  Outsourcing: Obtaining a product or service from outside the organization.
  • 16. Other Important Trends  Six Sigma: Process for reducing costs, improving quality and increasing customer satisfaction.  Total Quality Management  Lean Productions
  • 17. Scope of Operations Management  Forecasting  Capacity planning  Location planning  Facility planning  Selection of technology  Managing inventory  Scheduling  Motivating and Training Employees
  • 18. Decision Making  Operations managers make a number of key decisions like:  What What resources/what amounts  When Needed/scheduled/ordered  Where Work to be done  How Designed/ Resource allocation  Who To do the work
  • 19. General Approaches to Decision Making  The decisions involve many possible alternatives that can affect the profitability of the organization.  To take the aforesaid decisions, various tools are available to the managers.  These include:  Models  Quantitative Approaches  Analysis of Trade-offs  Systems Approach  Establishing Priorities  Ethics
  • 20. Models A model is an abstraction of reality. – Physical (toy cars, globe etc) – Schematic (graphs, blueprints, charts etc) – Mathematical (EOQ model, transportation model) What are the pros and cons of models?
  • 21. Advantages of Models  Models omit unimportant details so that attention can be concentrated on the important aspects of a situation.  Easy to use  Less expensive than dealing with the actual situation  Increase understanding of the problem  Serves as a consistent tool  Provides a standardized format for analyzing a problem
  • 22. Limitations of Models  Models can be incorrectly applied and the results misinterpreted  Use of models do not guarantee good decisions
  • 23. Quantitative Approaches  Attempt to obtain mathematically optimal solutions to managerial problems  Linear Programming (allocation of resources)  Queuing Techniques (analyzing situations in which waiting lines form)  Inventory Models (control inventories)  Project Models (PERT and CPM to coordinate large projects)
  • 24. Tradeoffs  Decision makers deal with decisions by listing the advantages and disadvantages of a course of action to understand the consequences of the decision.  This helps to “net out” the potential impacts of the trade-offs on their decision. Eg: Cost of equipment vs benefits  Increased cost of storing inventory vs meeting customer demands
  • 25. Establishing Priorities  Certain factors are more important than other factors.  Manager should examine each situation, searching for the factors that will have the greatest impact and give them highest priority.  Pareto Principle: A few factors account for a high percentage of the occurrence of some events.
  • 26. Systems Approach  System : A set of interrelated parts that must work together.  “The whole is greater than the sum of its individual parts”
  • 27. Ethics  In making decisions, managers must consider how their decisions will affect shareholders, management, employees, customers, community and the environment.  Financial statements (represent information accurately)  Safety of Workers (adequate training, maintaining equipment in good working condition)  Quality (avoiding hidden defects)  Environment (not harming the environment)  Community (not affecting the quality of life of the community)  Avoiding false pretences  Workers’ Rights (dealing with workers’ problems quickly and fairly)
  • 30. Career Opportunities  Operations Manager  Production Analyst  Inventory Manager  Purchasing Manager  Supply Chain Manager  Distribution Manager  Schedule Coordinator