2. OPERATIONS MANAGEMENT
“Operations management may be defined as a systematic
approach to address all the issues pertaining to the
transformation process that converts some inputs into output that
are useful and could fetch revenue to the organizations.”
It attempts to balance cost with revenue to achieve highest operating
profits possible. What operation management department do is, that
they design a methods by which inputs is converted into output that is
most beneficial to the organization
3. A systematic approach involves understanding the
nature of issues and problems to be studied , collecting
relevant data, and developing effective as well as efficient
solutions to the problem
The second aspect of OM pertains to addressing several
issues that an organisation faces. These issues vary markedly
in terms of :
nature of problem
commitment of required resources
For eg: deciding how to re-route jobs when a machine breaks
down on a shop floor .
Transformation processes are central to operations
systems. The transformation process ensures that inputs
are converted into useful output. For eg: converting
sugarcane to sugar crystals.
Finally the goal of the organization is to reduce costs and
increase revenues. In order to ensure this an appropriate
performance evaluation system is required .
4. Operations as key functional area
For example , Organizations typically begin their yearly plan with the marketing function
making an estimate of the next year’s sales. This input forms the basis for production
planning in the operations area of business. Depending on the production plans,
procurement planning is done and all these factors lead to a certain estimate of the fund
requirements. This forms an important input for the finance function. At the time these
plans are executed, the interactions between these functions are even greater. The HRM
function influences the productivity capacity of labour available in real time. The actual
production of goods and services influences the marketing activities to be undertaken and
the quantity and timing of available funds from sales. Such interactions are common in
5. Operations function and its linkages
Operations support layer
6. Services as a part of Operational Management
The service sector encompasses a wide spectrum of activities in every
country. The growth of the service sector in India in the last five years
has been very significant.
Although services are often classified separately from manufacturing
in a macroeconomic sense, from the perspective of OM, the separation
is artificial. From the OM perspective the notion of a pure product
and pure service is just two ends of the spectrum. In reality a vast
majority of operations share a continuum of services and products.
Therefore most of the principles and tools and techniques of OM apply
to both these sectors.
Difference between services and manufacturing
Simultaneous production and consumption
7. Responsibilities Of OM
Provide overall Management of the ongoing Production
operations including Inventory Control, Scheduling,
Documentation, Equipment Maintenance, Calibration,
Shipping, and Quality Control/Inspection.
Assist in creation of efficient processes through hands-on
development and training.
Track quality of all processes through analysis of recorded
data and formation of additional test-points.
To ensure that the people involved in production and
public are protected.
To ensure safe working conditions and encourage
application of proper working methods.
Provide workers with the necessary individual protective
equipment free of cost.
Comply with the Act respecting occupational health and
safety, as well as the other laws and regulations relating
to health and safety.
Ensure that existing and potential hazards reported by the
members of the production crew are eliminated.
Ensure proper disposal of chemicals and waste materials
released during the production process.
Recycling of all materials possible.
9. OM : A System Perspective
A system perspective means identifying the input, output ,
processing and feedback mechanisms for the system .
The basic inputs to the operating system are
Processing section includes
Process and product design
Purchasing and inventory control
Operations planning and control
Material and capacity planning
11. FUNCTIONS OF PRODUCTION
AND OPERATION MANAGEMENT
Production operation management is a
component of organization which concerned with
the creation of utility in raw material through
As a part of management it has following
Activities that establishes a course of action and
guide future decision making is called planning
POM defines the objectives for the POM subsystem of
It defines the policies, and procedures for achieving
This stage includes clarifying the role and focus of
POM in the organization’s overall strategy.
It involves product planning, facility designing and
using the conversion process.
Activities that establish a structure of roles and
the flow of information within the POM
POM establish a structure of roles and the flow of
information within the POM subsystem.
POM determine the activities required to achieve the
goals and assign authority and responsibility for
carrying them out.
Activities that assure that actual performance in
accordance with planned performance is called
To ensure that the plans for the POM subsystems are
accomplished, the po manager must exercise control by
measuring actual outputs and comparing them to
planned operation management.
Controlling costs, quality, and schedules are the
important functions for POM
Material requirement planning.
Human aspects on the job is called behaviour
Po manager are concerned with how their effort to
plan, organize, and control affect human behaviour.
They also want to know how the behaviour of
subordinates can affect the management’s planning,
organizing, and controlling actions.
The behavior is affected by the leadership, motivation,
communication, inter-intra personnel relationship and
The techniques which are used for problem solving
is called models.
As a process of plan, organize and control the conversion
process, po manager encounter many problems and must
make many decisions.
s/he can simplify their difficulties using models.
The models are:
Aggregate planning models for examining how best to
use existing capacity in short-term.
Break even analysis to identify break even volumes.
Linear programming and computer simulation for
Decision tree analysis for long term capacity problem
of facility expansion.
17. Priorities for OM
Acquire capabilities to tolerate product proliferation
every organisation needs to understand customer needs and
incorporate them into new product initiatives.
According to which various process of the organisation need to be
Relate operation system to customer/market
Choices related to manufacturing and services cannot be made on the
basis of internal conveniences but instead customer be central to the
If customer has difficulty in using the product then it should be
Develop system and procedures that promote learning
Continuous improvement is very important for the organisation. These
improvements do not take place in isolation but because of continuous
learning by the employees in an organisation.
18. Summary of OM
Operational management is a systematic approach to address
all the issues pertaining to the transformation process that
converts some inputs into output that are useful and could
fetch revenue to the organizations.
Manufacturing and services are parts of OM
OM is a system perspective means identifying the input,
output , processing and feedback mechanisms for the system .
There are five functions of OM
There are 3 priorities of OM
Acquire capabilities to tolerate product proliferation
Relate the operations system to customer/market
Develop system and procedures that promote learning
20. Relevance of OS
Due to several factors, the competitive dynamics will change and the
expectations of the customer also change on account of this.
Organisations need a structural approach to scan the market and distil
the changing needs at the market place. Moreover they also need a
mechanism to chalk out a plan for responding to these changes in the
most effective way.
With the changes in the market place the competitive priorities for an
organisation must also change. Organisation need to tune their
operations to match with the competitive priorities.
Therefore it is important for organisation to develop the capability to
devise strategies for operations and revisit the strategy formulation
exercise and when there is a need for it.
22. Step 1
•Understand the Competitive
“Any Strategy-making exercise begins with the scanning
of marketplace and understanding its dynamics. Market
dynamics direct the organizations toward the issues it
should consider while formulation its operations
strategy. It provides useful information on competitors,
the nature of offerings that they make to the customer,
customer expectations, missing links between
expectations and current offerings, and the intensity of
23. •Identify Order-qualifying and Orderwinning attributes.
• These are the set of attributes that customer expect in the product and service
they consider for purchase. The absence of any of these attributes will result in
the customer removing the product or service from his/her list of consideration.
On the other hand, the mere presence of these attributes does not guarantee
that the customer will buy the product. It only indicate the minimum or threshold
levels of requirement for considering the product.
• The other attributes that have the potential to sufficiently motivate the customer to
buy the product. Such attributes are order winning attributes. The perception of the
customer is that the presence of these attributes indicates him or her that the
product/service under consideration surpass the basic level of requirement and
therefore, has the potential to provide better value for money. Presence of order
winning attributes in a product/service helps the customer differentiate it from the
competitors offering unambigously.it also favorably influence the customers buying
decision with respect to the product/service. The more the number of attributes that
customer perceives in a product/service, the greater the chance that the customer
may buy the product or service.
24. •Identify Strategic Options for
Sustaining Competitive Advantage.
After an analysis of the competitive dynamics, an
organization can be in a position to identify the orderqualifying and order-winning attributes for the
products/services that it offers.
At the end of the exercise, the order winning and
qualifying attributes provide the organization with a set
of options for sustaining competitive advantage.
Competition analysis may indicates that the organization
will do better by providing high-quality goods, or that a
wider variety of options will bring success.
25. Step 4
•Devise the overall Corporate Strategy
Organizations may not be in position to make use of all the
strategic options available to them because of constraints in
operating with the resources available to them.
“for instance: Top management may have certain
preferences and views on how desirable the options are from an
internal perspective. Moreover, the organization culture and values
may not permit it to exploit the available options fully.”
Therefore, the next critical step is to match the strategic options
available for sustaining the competitive advantage with the
available resources and constraints and to develop an appropriate
strategic plan that fulfills the organizations objectives, taking into
considerations its strengths and weaknesses.
26. Step 5
•Arrive at the Operations Strategy.
Once the corporate strategy is arrived at, it
serves as the basis for the operations strategy.
For instance, if the overall strategy of an organization is to provide lowcot goods, then the choices made in operations will be consistent with
this overall strategy.
27. Strategic options for options
Translating the corporate strategy into operations strategy essentials
boils down to making certain choices with respect to design and
operational control of the operations system in the following fields:
Product portfolio pertains to decisions on what are the products that the
organisation wants to produce, the number of variations in each product
line and extend of customisation that it can offer to its customers. Eg:
Jet Airways and Deccan Airways
Process design provides another option to translate strategic objectives
to operations by the appropriate choice of processes. Process designs
refers to the overall configuration of the operations sysytem such that
the various production activities happen I n a particular fashion
consistent to the process choice.
Technological advancement in the recent years have
given new opportunities for creating competitive
advantage for firms. New technology in manufacturing
process helps to react faster to costumers needs. Eg:
It is defines as the maximum number of units of goods
that can be produced per unit time in the case of
manufacturing and the maximum number of service
offering per unit of time in case of a service system.
Capacity decisions in operations have an important
strategic dimension as they directly and significantly
influence the cost of goods sold and services offered.
30. Air Deccan –India’s first low cost airline
Introduction of Air Deccan:
The entry of air Deccan into the Indian civil aviation sector heralds a new era
in the air travel . Air Deccan’s basic strategy is to make air travel accessible
to every Indian by reducing their prices 30-40% of regular airline.
Characteristics of current Air Deccan OS:
More flying hours per aircraft
Cutting out all frills
Elimination of inter alia arrangement for baggage.
Air Deccan uses air buses on heavy traffic routes
Smaller aircrafts for lower traffic routes.
Elimination of inflight food, business class and lounges at air ports.
31. Problem that Air Deccan faced:
Conventionally , 90%ticketing is done through travel agents. An
agent gets an commission of 7-10%. So problem was multiple
booking by travel agents , fluctuating occupancy levels, high cost
of administering such a system.
Further printing and distribution cost of tickets are also
enormous. In addition more cost is incurred in using proprietary
Solution to the Problem
The ticket distribution system and cash collection model of Air Deccan
factors several local conditions and operation strategy. Air Deccan has
developed its own computerised reservation system and has a call
center that can book tickets 24 hours, makes use of local phone numbers
as opposed to costly nationwide toll free numbers and uses multiple
modes of cash collection and ticket delivery. They pioneered the system
of e-ticketing in country, which really cut the cost in distribution . They
also used internet and VSAT technology to cut the cost in flight yield
management and ticketing.
32. Some other important decisions in operational
The hub and spoke model results in delays because of which
Air Deccan has adopted point to point flying. This means
each customer has a contract of one flight only . Inter airline
arrangements results in added cost and delay eventually
result in fewer flying hours.
The other aspect was to outsource facilities in all airports. For
example at the Hubli airport, one Air Deccan flight per day
means one hour of work at the airport. If the Air Deccan
invests in facilities it results in poor utilisation and high cost.
By outsourcing the airport operations in several such airports,
Air Deccan cuts cost incurred on account of poor utilisation
and also generates local employment.
The overall strategy of Air Deccan os to provide affordable air
travel . It estimates that 30% of travellers in every Air Deccan
flight are first time travellers in India
Ab uth jao case study khatam
33. Summary of OS
Operations strategy is a process by which key
operations decisions are made that are consistent with
the overall strategic objectives of the firm
Strategy formulation has three steps
o Identifying competitive advantage
o Making corporate strategy
o Making operations strategy
Order qualifying attributes
Order winning attributes
Translating corporate stategy to operational strategy
requires choices in following fields:
o Product portfolio
Finally an Air Deccan case study.
35. Q1 What is operational management and operational strategy?
Q2 Is services part of operational management ?
Q3 Can other functions perform without operation management
Q4 What are steps in strategy formulation?
Q5 What is difference between order qualifying and order