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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 Management A system Perspective

Forecasting

INPUT

PROCESSING

Output

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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 Services Feedback- Quality Management, Maintenance Management, Process Improvement Hospital Inputs Doctors Hospital Medical Supplies Equipment Laboratories Processing Examination Surgery Monitoring Medication Therapy Output Treated Patients

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.

Pure Product

Pure Service Ayurvedic Healing Treatment Legal/ tax consulting Cyber caf- telephone books Emergency Maintenance Services Facilities Maintenance High Quality restaurant meal

Fast food in a eat out joint Customized durable goods Fast moving Commodities General purpose machines

The Service Product 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 the operations 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 the passenger 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, they cannot 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 system performance. Since the experiential component is dominant in a service, it is likely that no 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 presence of 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

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 customers Must 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
FINANCE

OPERTAIONS

MARKETING

HRM

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

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

Competitive Dyanmics at the market place

Order winners Order Qualifiers

Strategic Options for sustain competitive advantage

Generic Competitive priorities quality, cost, delivery, flexibility

Firm level strengths & Weaknesses

Corporate Strategy

Strategic decisions for operations system

Operations Strategy

Measures for operational excellence

Steps in the strategy formulation process 1. Identify strategic options for sustain competitive advantage 2. Devise overall corporate strategy 3. Develop an appropriate operations strategy

Competitive Dynamics at the market place it 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 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. 2. 3. 4. Quality Delivery Cost Flexibility A simple list of operations measures Quality Yield Quality costs Defects( parts per million0 Process capability indices Delivery Lead time for order fulfillment Procurement and order lead time On time delivery for supplies Schedule adherence

Cost Average days of inventory Manufacturing Costs as percent of sales Procurement costs Value of important substitution Flexibility Number of models introduced New product development time Breadth and depth of the product offerings Process and manufacturing flexibility

Strategic Options for operations Product Portfolio Process Supply Chain Capacity Technology

The historical Evolution of Operations Management 1. 2. 3. 4. 5. Industrial revolution Scientific Management The Human relations Management Decision Models and Management Science The influence of Japanese Manufactures II- Module Break Even Analysis Factors influencing Make or Buy analysis 1. 2. 3. 4. 5. 6. Cost Core versus Non core Activities Managing Capacity Expansion Strategic Restructuring Quality Consideration The nature of Demand

Equipment Selection decisions 1. 2. 3. 4. 5. 6. 7. 8. Cost of the equipment Numbers of labors required Technology Flexibility Variety of products to be produced Maintenance Technological Obsolescence 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 to produce goods and provide services 2. How much variety in products or services will the system need to handle 3. What degree of equipment flexibility will be needed 4. What is the expected volume of output

Managerial Uses of Break Even Analysis 1. 2. 3. 4. 5. 6. 7. 8. Margin of Safety calculation Volume needed to attain target profit Decision on price changes Whether to expand capacity or not Profitability at different price levels Make or Buy analysis decisions Equipment selection decisions 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 sold There is no change in the quantity of goods held in the inventory at the beginning of the period 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. An increase 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 certainty 5. 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 semi variable. 7. Break Even Analysis assumes that profit is function of output ignoring the fact that other factors 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 output and 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 EgMaintenance Expenses 10. Break Even Analysis is Static- It is useful when situations are stable. Slow moving rather than volatile , erratic or changing ones, 11. It is not an effective tool for long term but useful on in the short run.

Module 3 Forecasting Forecasting Based on Time Series Data A time series is time ordered sequence of observations taken at regular intervals ( e.g- hourly, daily, weekly, monthly, quarterly, annually) Analysis of time series data requires the analyst to identify 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. Population shifts , changing incomes, and cultural changes often account for such movements 2. Seasonality- refers to short term, fairly regular variations generally related to factors such as 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 related to a variety of economic, political and even agricultural conditions. 4. Irregular Variations are due to unusual circumstances such as severe weather conditions, 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 have been accounted for.

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PROCESS

Output

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