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Chapter One
Introduction
An operation is defined in terms of the mission it serves for the organization, technology it
employs and the human and managerial processes it involves. Operations in an organization
can be categorised into manufacturing operations and service operations. Manufacturing
operations is a conversion process that includes manufacturing yields a tangible output: a
product, whereas, a conversion process that includes service yields an intangible output: a
deed, a performance, an effort. In short, The term operation management is composed of
two terms operation and management. Operation refers to activities and management refers
to art of managing activities (planning, organising, controlling, implementing and
feedback).
Definition
Chase, Richard B. Aquilano J. and Jacobs F. Robert, Operation management may be
defined as the design, operation and improvement operations of the production systems that
create the firms primary products or services.
Managing Operations
Managing operations can be enclosed in a frame of general management function.
Operation managers are concerned with planning, organizing, and controlling the activities
which affect human behaviour through models.
Planning
Activities that establishes a course of action and guide future decision-making is
planning. The operations manager defines the objectives for the operations subsystem of
the organization, and the policies, and procedures for achieving the objectives. This
stage includes clarifying the role and focus of operations in the organizations overall
strategy. It also involves product planning, facility designing and using the conversion
process.
Organising
Activities that establishes a structure of tasks and authority. Operation managers establish
a structure of roles and the flow of information within the operations subsystem. They
determine the activities required to achieve the goals and assign authority and
responsibility for carrying them out.
Controlling
Activities that assure the actual performance in accordance with planned performance.
To ensure that the plans for the operations subsystems are accomplished, the
operations manager must exercise control by measuring actual outputs and comparing
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them to planned operations management. Controlling costs, quality, and schedules are
the important functions here.
Behaviour
Operation managers are concerned with how their efforts to plan, organize, and control
affect human behaviour. They also want to know how the behaviour of subordinates can
affect managements planning, organizing, and controlling actions. Their interest lies indecision-making behaviour.
Models
As operation managers plan, organise, and control the conversion process, they encounter
many problems and must make many decisions. They can simplify their difficulties using
models like 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 capacity utilisation, decision tree analysis
for long-term capacity problem of facility expansion, simple median model for
determining best locations of facilities etc.
Types of production system
The production system can be categorised into
a. Intermittent (break down) production systemsb. Continuous production systems
Intermittent system: In this system, products and services are produced in small
amount to meet the demand of customer rather than keeping them in stock for future
use. There will be imbalanced work centres, highly skilled manpower, immediate change inplanning, scheduling and high unit costs are main features of intermittent production
system. The inputs and conversion process are regularly managed and changed as per the
design size and quantity of input. Work shop, Hospitals, Furniture manufacturing, movie
making, building, bridges are example of intermittent system.
Types of intermittent system
a. Job or Unit production systemb. Batch production system.
i. Job shop or unit production system: In this system a single unit or a job is completed
by one or group at one time in accordance to the order of customer e.g. making
furniture, bridge.
ii. Batch production system: Batch production system: In this system production is done
on large amount of similar products at one time. The more products will be kept for future
demand of customer. The batch production starts after finishing of first batch only. Eg.
Producing electronic goods, book printing.
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b. Continuous Production System: In this system, production is carried out accordance to
sales forecast and stock position. Here, raw material, process and products are
standardised. Eg. Production of soaps, biscuits, noodles,
Approaches to operation management
The approaches are
Classical Management Behavioural Management Modelling Management
Classical Management
This concept is based on core production systems. In another word, this concept explains
about the increment of production / output. This management concept has following
theories
i. Scientific Managementii. Administrative Management
i. Scientific Management: The scientific management refers to the use of scientific
method to determine the one best way for a job to be done. This theory concentrated on the
problems of shop-floor management and efficiency of production. This theory was specially
based on Standardisation, Time and Task Study, Pay Incentives, Close Cooperation,
between Managers and Operatives.
ii. Administrative Management: Scientific Management Theory focuses on jobs ofindividual employee but administrative management focuses on managing the total
organisation.
Functions of operation manger
As we know, operations function is about producing the right amount of a good or
service at the right time, of the right quality and at the right cost to meet customer
demand. Operation managers are responsible for managing activities of the production of
goods and services. The responsibilities include managing the operations process ofdesigning, planning, controlling, improving, and operations strategy. Their indirect
responsibilities include interacting with managers in other functional areas within the
organization whose roles have an impact on operations ; marketing, accounting, human
resource and engineering.
In short, the main responsibilities of operation managers are
a. Asset management- this category includes buildings, facilities, equipment and otherdirect operation functions.
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b. Cost managementthis category includes managing cost regarding to producinggoods, services related with directly or indirectly to get resources or transforming
them or delivery mechanism.
Operation management (production) function / system
Fig1: Simple model
Fig2; General model for operation management
Difference between manufacturing and service operations
Difference between manufacturing and service operations
Base Manufacturing Service
Output natureYields tangible output. Eg. Pen Yields intangible output. Eg.
Teaching
Inputs
- Raw materials- Capital
- Information
-
In ut Monitorin Monitorin
Processin
Out ut Monitorin
Output
- Goods- Services
Feedback
(Deviation)
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Output
consumption
Can be consumed over time. Eg.
Taking lunch after some time
Immediately consumable e.g
laughing
Work nature
Need more capital and uses more
machines and equipment than
labour. Eg. Investment,Plant/equipment
Need low capital investment,
machines, equipment and uses
more labour
Frequency of
public relationcustomer contact frequency is
lower
Higher frequency of customer
contact
Customer follow
up
Customer follow up will be less
because once order is placed,
then customers do not need to
follow more
Customer follow up will be
higher for conversion process
Performance
measurementComplex type of quantitative
methods should be applied tocheck performance
Simple qualitative methods can
applied to measure theperformance
Market accessible It needs local, national and
international market
It needs local but very limited
market
Production
process It needs complicated process It needs simple process.
Input-Transformation-Output relationship for typical systems
System Primary inputs Resources Transformation Output
Hospital Patients Nurses, medical
supplies, equipment
Physical healthcare Healthy person
Restaurant Customers Food, waiter,
environment
Hygienic food Satisfied customers
Automobile factory Engine parts, sheet
steel
Tools, equipment,
workers
Fabrication and
assembly of vehicles
High quality
vehicles
College / university School graduates Teachers, books,classrooms
Impartingknowledge
Graduated students
Department store Shoppers Display, stock of
goods, sales persons
Promote products,
fill orders
(exchange)
Sales to satisfy
customers
Airlines Passengers Crews, ticketingsystems, scheduling
Fly to destination Safe and on timelanding (delivery)
Historical development of operation management
- Adam Smith first introduced a concept about division of labour- Charles Babbage emphasises the concept about base for pay fixation- F.W. Taylor introduced a concept of scientific management technique (selection, training,
high pay for high productivity, safety needs, right person to right job, training, scientific
tools, job security)
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- Henry Gantt introduced a concept of Gantt Chart- Walter Shewart introduced a concept of Statistical Quality Control.
Ancient Era (Trade
Focus)
Cost base -Early Era
(Before 1900s)
Quality base-Lean era
(1990s to 2000s)
Welfare Base-Mass
customisation (After 200s)
Specialisation of labour Assembly line movement JIT concept GlobalisationUse of standardised
parts Statistical techniques CAD Use of internet
Scientific Management PERT / CPM TQM ISO
Gantt Chart
Malcolm Baldrige
Award Supply chain management
Motion study Kanban E-commerce
Queuing theory WTO
Historical summary of operations management
Date Contribution Contributor1776
1799
1832
1900
1900
1901
1915
1927
1931
1935
1940
1946
1947
1950
1951
1960
1970
1980
Specialization of labour in manufacturing
Interchangeable parts, cost accounting
Division of labour by skill; assignment of jobs by skill;
basics of time study
Scientific management time study and work study
developed; dividing planning and doing of work
Motion of study of jobs
Scheduling techniques for employees, machines jobs in
manufacturing
Economic lot sizes for inventory control
Human relations; the Hawthorne studies
Statistical inference applied to product quality: qualitycontrol charts
Statistical sampling applied to quality control: inspection
sampling plans
Operations research applications in World War II
Digital computer
Linear programming
Mathematical programming, on-linear and
stochastic processes
Commercial digital computer: large-scale
computations available.
Organizational behaviour: continued study of peopleat work
Integrating operations into overall strategy and policy,
Computer applications to manufacturing, Scheduling
and control, Material requirement planning (MRP)
Quality and productivity applications from Japan:
robotics, CAD-CAM
Adam Smith
Eli Whitney and others
Charles Babbage
Frederick W. Taylor
Frank B. Gilbreth
Henry L. Gantt
F.W. Harris
Elton Mayo
W.A. Shewart
H.F. Dodge & H.G. Roming
P.M. Blacker and others.
John Mauchlly and
J.P. Eckert
G.B. Dantzig, Williams &
others
A. Charnes, W.W. Cooper
& others
Sperry Univac
L. Cummings, L. Porter
W. Skinner J. Orlicky and
G. Wright
W.E. Deming and
J. Juran.
Scope of operation management
Operations management concerns with the conversion of inputs into outputs, using
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physical resources, so as to provide the desired utilities to the customer while meeting the
other organisational objectives of effectiveness, efficiency and adoptability. It distinguishes
itself from other functions such as personnel, marketing, finance, etc., by its primary
concern for conversion by using physical resources. Following are the activities which
are listed under production and operations management functions:
Facilities location
Location of facilities for operations is a long-term capacity decision which involves a long
term commitment about the geographically static factors that affect a business
organization. It is an important strategic level decision-making for an organization. It
deals with the questions such as
Where our main operations should be based?
The selection of location is a key-decision as large investment is made in building plant
and machinery. An improper location of plant may lead to waste of all the investments
made in plant and machinery equipment. Hence, location of plant should be based on the
companys expansion plan and policy, diversification plan for the products, changing
sources of raw materials and many other factors. The purpose of the location study is to
find the optimal location that will results in the greatest advantage to the organization.
Plant layout and material handling
Plant layout refers to the physical arrangement of facilities. It is the configuration of
departments, work centres and equipment in the conversion process. The overall
objective of the plant layout is to design a physical arrangement that meets the required
output quality and quantity most economically.
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Material Handling refers to the moving of materials from the store room to the
machine and from one machine to the next during the process of manufacture. It is also
defined as the art and science of moving, packing and storing of products in any
form. It is a specialised activity for a modern manufacturing concern, with 50 to 75% of
the cost of production. This cost can be reduced by proper section, operation andmaintenance of material handling devices. Material handling devices increases the output,
improves quality, speeds up the deliveries and decreases the cost of production. Hence,
material handling is a prime consideration in the designing new plant and several existing
plants.
Product design
Product design deals with conversion of ideas into reality. Every business organization has
to design, develop and introduce new products as a survival and growth strategy.
Developing the new products and launching them in the market is the biggest challengefaced by the organizations. The entire process of need identification to physical
manufactures of product involves three functions: marketing, product development, and
manufacturing. Product development translates the needs of customers given by marketing
into technical specifications and designing the various features into the product to these
specifications. Manufacturing has the responsibility of selecting the processes by which the
product can be manufactured. Product design and development provides link between
marketing, customer needs and expectations and the activities required to manufacture the
product.
Process design
Process design is a macroscopic decision-making of an overall process route for
converting the raw material into finished goods. These decisions encompass the
selection of a process, choice of technology, process flow analysis and layout of the
facilities. Hence, the important decisions in process design are to analyse the workflow
for converting raw material into finished product and to select the workstation for each
included in the workflow.
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
Workand then Work on Your Plan. Main functions of production planning and control
includes 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
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do it. Planning bridges the gap from where we are, to where we want to go. It makes itpossible for things to occur which would not otherwise happen.
Routing may be defined as the selection of path which each part of the product willfollow, which being transformed from raw material to finished products. Routing determines
the most advantageous path to be followed from department to department and machineto machine till raw material gets its final shape.
Scheduling determines the 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 necessary authority
so as to start a particular work, which has already been planned under Routing and
Scheduling. Therefore, dispatching is release of orders and instruction for the starting of
production for any item in acceptance with the route sheet and schedule charts.
The function of follow-up is to report daily the progress of work in each shop in a
prescribed proforma and to investigate the causes of deviations from the planned
performance.
Quality control
Quality Control (QC) 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 feedb ack system and corrective action procedure.
Quality control can also be defined as that industrial management technique by means of
which product of uniform acceptable 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:
- To improve the companies income by making the production more acceptable to thecustomers i.e., by providing long life, greater usefulness, maintainability, etc.
- To reduce companies cost through reduction of losses due to defects.- To achieve interchangeable manufacturing in large scale production.- To produce optimal quality at reduced price.
- To ensure satisfaction of customers with productions or services or high quality level, tobuild customer goodwill, confidence and reputation of manufacturer.
- To make inspection prompt to ensure quality control.- To check the variation during manufacturing.Material management
Materials management is that aspect of management function which is primarily
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concerned with the acquisition, control and use of materials needed and flow of goods
and services connected with the production process having some predetermined
objectives in view.
The main objectives of materials management are:
- To minimise material cost.-
To purchase, receive, transport and store materials efficiently and to reduce the related cost.- To cut down costs through simplification, standardisation, value analysis, import substitution, etc.- To trace new sources of supply and to develop cordial relations with them in order to
ensure continuous supply at reasonable rates.
- To reduce investment tied in the inventories for use in other productive purposes and todevelop high inventory turnover ratios.
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:
1. To achieve minimum breakdown and to keep the plant in good working conditionat the lowest possible cost.
2. To keep the machines and other facilities in such a condition that permits them tobe used at their optimal capacity without interruption.
3. To ensure the availability of the machines, buildings and services required by othersections of the factory for the performance of their functions at optimal return on
investment.
Product life cycle approach
Life cycle concept is applied in operational management for any production system which
takes input and produces some output by using some process.
The life cycle concept of any product is similar to any life cycle of a living being. The major
stages in the life cycle concept are 1) Development 2) Introduction or Birth 3) Growth 4)
Maturity 5) Decline or Death. The similar Life cycle concept we can apply to any product in
production system.
Start-up is the initial stage, where products have no high demand. The product goes through
the series of different stages. The time periods vary with products or services. Some
products may have different life time. Some may have a week or some may have a month
or other time span.
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Product Life Cycle
Operation
activities Startup Growth Maturity Decline
Product variety Many varieties More
standardisation
Dominant design Commodity
features
Product volume Low volume Increasing volume High volume High volume
Industry structure Lowcompetition
Fall out andconsolidation
Few large companies Survivors
Competition Product features Product quantity andavailability Price and dependability Price
Productivity and competitiveness
Productivity
Productivity is the amount ofoutput per unit of input such as labour, equipment, capital.
There are many different ways of measuring productivity. For example, in a factory
productivity might be measured based on the number ofhours it takes to produce a good,
while in the service sector productivity might be measured based on the revenue generated
by an employee divided by his/her salary.
Productivity =Output
Input
Types of productivity measurement
a. Partial productivity measure- Related with ratio of output to a single input. Eg.Productivity =
Output
Labour.
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b. Multifactor productivity measure- Related with ratio of output to a multi input.Eg. Productivity=
Output
Labour+Capital
c. Total factor productivity measure- Related with ratio of output to all inputs. Eg.Productivity =
Output
Inputs
Eg.
Outputs Amount (Rs) InputsAmount
(Rs)
Finished goods 20000 Human 6000
Work in process 5000 Material 300
Dividend 2000 Capital 20000
Bonds Energy 1080
Other income Other expenses 3000
Total 27000 Total 30380
Competitiveness
The term competitiveness can be defined as
a. For the company, Competitiveness is the ability to provide products and services asor more effectively and efficiently than the relevant competitors.
b. In the traded sector, this means sustained success in international markets withoutprotection or subsidies.
Measures of competitiveness in the traded sector include firm profitability, the firm's export
quotient (exports or foreign sales divided by output), and regional or global market share. In
the traded sector, performance in the international marketplace provides a direct measure of
the firm's competitiveness. In the non-traded sector, competitiveness is the ability to match
or beat the world's best firms in cost and quality of goods or services. Measuring
competitiveness in the non-traded sector is often difficult, since there is no direct market
performance test. Measures of competitiveness in this part of the economy include firm
profitability and measures of cost and quality. In industries characterized by foreign direct
investment, the firm's percentage of foreign sales (foreign sales divided by total sales) and
its share of regional or global markets provide measures of firm competitiveness.