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1. Introduction to Operations Management
Operations 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 organization.
A systematic approach involves understanding the nature of issues and problems to be studied,
establishing measures of performance, collecting relevant data, using scientific tools and
techniques and solution methodologies to analyze and developing effective as well as efficient
solutions to the problem at hand
The second aspect of operations management pertains to addressing several issues that an
organization faces. These issues very markedly in terms of the time horizon, the nature of the
problem to be solved and the commitment of the required resources.
Transformation processes are central to operations systems. The transformation process ensures
that inputs are converted to useful output. Therefore, the focus of the operations management
discipline is to address the various aspects of design in the transformation process as well as
planning and operational control.
Finally, the goal of operations management is to ensure that through care planning and control of
the operations the organization is able to keep costs to the minimum and obtain revenue in excess
of costs.
Transformation process or
Operations ManagementA system Perspective
PROCESSINGINPUT Output
Feedback
Forecastin
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Input- Labour, Material and Capital
Processing- Process & product Design, Purchasing & Inventory control, Operations Planning &
Control, Material & Capacity Planning.
Output- Goods and ServicesFeedback- Quality Management, Maintenance Management, Process Improvement
Hospital
Inputs Processing Output
Doctors Examination Treated Patients
Hospital Surgery
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
SERVICES AS A PART OF OPERATIONS MANAGEMENT
From the operations management perspective The notion of a pure product to pure service
Is just the two ends of the spectrum.
General purpose machines
Fast moving Commodities
Ayurvedic Healing Treatment
Customized durable goods
Legal/ tax consulting
Cyber caf- telephone books
Facilities Maintenance
High Quality restaurant meal
Emergency Maintenance Services
Fast food in a eat out joint
Pure Product Pure Service
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The ServiceProduct Spectrum.
Although Services are often classified separately from manufacturing in a macro economic
sense, from the perspective of operations management the separation is artificial. From theoperations management perspective the notion of a pure product to pure service Is just the
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 operations
management apply to both these sectors.
Services such as management consulting, health spas, and education have dominant service
attributes. They from one end of the spectrum. Similarly manufacture and supply of machine
tools, gadgets, and consumables have a dominant product attribute and they form the other end
of the spectrum. However several other share both service and product attributes. Take the case
of automobiles. There is a product attribute in it since it involves physical structure of thepassenger car. On the other hand, there is a experiential component of using the car, which forms
a significant part of the product. This is service component similarly in the case of restaurant, the
food items share both product and service attributes. A closer examination of the figure
illustrates the important difference between services and manufacturing.
1. Intangibility- because services are performances and actions rather than objects, theycannot be touched, tasted or felt as in the case of objects. There is nothing to touch or feel
in the case of a consulting assignment or education.
2. Heterogeneity- High heterogeneity means high variability in the operations systemperformance. Since the experiential component is dominant in a service, it is likely thatno two services are exactly alike. The differences are attributed to the differences in the
service receivers (customers), the service providers and other parameters of the service
delivery system.
3. Simultaneous production and Consumption- More often, service happens in the presenceof the customer and the customer may also be involved at the time the service is produced
for his / her consumption. The doctors and the patients are in the system together to
produce and consume the service.
4. Perishability- Service cannot be inventoried.A Comparison of manufacturing and service organizations
Differences
Manufacturing Organization Service organizations
Physical, Durable product Intangible, perishable product
Output can be inventoried Output cannot be inventoried
Low customer contact High customer contact
Long response time Short response time
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Regional, national, international markets Local markets
Large facilities Small facilities
Capital intensive Labour intensive
Quality easily Measured Difficult to measure
Similarities
Is concerned about quality, productivity and timely response to its customersMust make choices about capacity, location, layout
Has suppliers to deal with
Has to plan operations, schedules and resources
Has to make an estimate of demand.
Operations as a key functional area in an organization
As shown in the figure, the four functions have mutual interactions among them. The decisions
taken in each of these functional areas could form an important input in another functional area.
For example, typically, organizations begin their yearly plan with marketing function making an
estimate of the next years sales. This input forms the basis for production planning in the
operations area of the business. Depending on the production plans, procurement planning is
done and all these lead to a certain estimate of the fund requirements. This forms an important
input for the finance function. While planning has a such a sequence of information flow and
interactions, at the time of execution the interactions are even more. The HRM function
influences the productive capacity of manpower available in real time. The actual production of
OPERTAIONS
MARKETINGHRM
FINANCE
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goods and services influences the marketing activities to be undertaken and the quantaum and
timing of funds availability from sales. Such interactions are many and common in any
organization.
Operations Strategy formulation Process
Steps in the strategy formulation process
1. Identify strategic options for sustain competitive advantage2. Devise overall corporate strategy3. Develop an appropriate operations strategy
Competitive Dynamics at the market placeit provides useful information about competitors, the
nature of offerings that they make to the customer. The customer expectations, any missing links
between expectations and current offerings and the intensity of the competition.
Order qualifying Attributes- are the set of attributes that customers expect in the product or service
they for buying. On the other hand, the mere presence of these attributes does not guarantee that
customer will buy the product. It only indicates the minimum, or threshold levels of requirements for
considering the product.
Order winners
Order Qualifiers
Competitive
Dyanmics at the
market place
Strategic Options for sustain
competitive advantage
Strategic decisions for
operations system
Firm level
strengths &
Weaknesses
Measures for operational
excellenceOperations Strategy
Corporate Strategy
Generic Competitive priorities
quality, cost, delivery,
flexibilit
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Order winging Attributes- are those attributes are other attributes that have the potential to sufficiently
motivate the customer to buy the product. Presence order winning attributes in a product / service that
help the customer differentiate from his competitors.
Operational excellence measures provide the critical linkage between order winning and order qualifying
attributes identified through the strategic planning exercise and the choices made in the operations.
Four generic options are generally found to be useful for any operations strategy exercise
1. Quality2. Delivery3. Cost4. Flexibility
A simple list of operations measures
Quality Cost
Yield Average days of inventory
Quality costs Manufacturing Costs as percent of sales
Defects( parts per million0 Procurement costs
Process capability indices Value of important substitution
Delivery Flexibility
Lead time for order fulfillment Number of models introduced
Procurement and order lead time New product development time
On time delivery for supplies Breadth and depth of the product offerings
Schedule adherence Process and manufacturing flexibility
Strategic Options for operations
Product Portfolio
Process
Supply Chain
Capacity
Technology
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The historical Evolution of Operations Management
1. Industrial revolution2. Scientific Management3. The Human relations Management4. Decision Models and Management Science5. The influence of Japanese Manufactures
II- ModuleBreak Even Analysis
Factors influencing Make or Buy analysis
1. Cost2. Core versus Non core Activities3. Managing Capacity Expansion4. Strategic Restructuring5. Quality Consideration6. The nature of Demand
Equipment Selection decisions
1. Cost of the equipment2. Numbers of labors required3. Technology4. Flexibility5. Variety of products to be produced6. Maintenance7. Technological Obsolescence8. Volume of output
Process Selection Decisions
Process selection refers to the way production of goods or services is organized. It is the basis for
decisions regarding capacity planning, facilities ( or plant ) layout, equipments and design of
work systems. Process selection is necessary when a firm takes up production of new products or
services to be offered to the customers.
1. Process Technology- Automation- includes methods, procedures, and equipment used toproduce goods and provide services
2. How much variety in products or services will the system need to handle3. What degree of equipment flexibility will be needed4. What is the expected volume of output
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Managerial Uses of Break Even Analysis
1. Margin of Safety calculation2. Volume needed to attain target profit3. Decision on price changes4. Whether to expand capacity or not5. Profitability at different price levels6. Make or Buy analysis decisions7. Equipment selection decisions8. Break Even Quantity determination The volume of output at which total cost is
exactly equal to the Total revenue
Limitations of Break Even Analysis
1. It assumes that the quantity of goods produced is equal to the quantity of goods soldThere is no change in the quantity of goods held in the inventory at the beginning of theperiod and the quantity of goods held in inventory at the end of the period
2. It assumes that Fixed Costs (FC) is constant although this is true in the short run. Anincrease in the scale of production is likely to cause Fixed cost to raise
3. It assumes average Variable Cost are constant per Unit of output( Linearity)4. In ability to deal in a direct way with certainty5. Assumptions that all costs, volume of output and selling price per unit etc.. are known
with certainty
6. Difficulty in classifying all costs as fixed or variable, some costs appear to be semivariable.
7. Break Even Analysis assumes that profit is function of output ignoring the fact that otherfactors such as an efficient management, introduction of new technologies and
improvement of productivity.
8. Selling costs are difficult to handle in Break Even Analysis; Relationship between outputand selling expenses is unstable over time. Thus projection of past relationship into
futures becomes inappropriate and in accurate.
9. Costs attributed to a period may not have been caused during that period Eg-Maintenance Expenses
10.Break Even Analysis is Static- It is useful when situations are stable. Slow moving ratherthan volatile , erratic or changing ones,
11.It is not an effective tool for long term but useful on in the short run.
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Module3 Forecasting
Forecasting Based on TimeSeries Data
A time series is timeordered sequence of observations taken at regular intervals ( e.g- hourly,
daily, weekly, monthly, quarterly, annually) Analysis of time series data requires the analyst toidentify the underlying behavior of the series . This can often be accomplished by merely
plotting the data and visually examining the plot.
One or more patterns might appear trends, seasonal variations, cycles,
1. Trend refers to a long term upward or downward movement in the data. Populationshifts , changing incomes, and cultural changes often account for such movements
2. Seasonality- refers to short term, fairly regular variations generally related to factors suchas the calendar or time of day. Restaurants, supermarkets, and theaters experience weekly
and even daily seasonal variations.
3. Cycles- are wavelike variations of more than one years duration. These are often relatedto a variety of economic, political and even agricultural conditions.
4. Irregular Variations are due to unusual circumstances such as severe weatherconditions, strikes, or a major change in a product or service. They do not reflect typical
behavior, and their inclusion in the series can distort the overall picture. Whenever
possible, these should be identified and removed from the data.
5. Random Variations- are residual variations that remain after all other behaviors havebeen accounted for.
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PROCESSINPUT Output
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