OPERATIONS MANAGEMENT 1 SEMESTER I

INTRODUCTION TO OPERATION
MANAGEMENT,
COMPETITIVE STRATEGY,
COMPETITIVE ADVANTAGE,
TIME BASED COMPETITION
TABLE OF CONTENTS
SR.NO PARTICULARS SR.NO

1 PRODUCTION MANAGEMENT 1
2 OPERATIONS MANAGEMENT IN 1
PLANNING CRITERIA
3 IMPORTANCE OF 2-3
PRODUCTION/OPERATIONS
MANAGEMENT
4 THE PRODUCTION 4
(MANUFACTURING) FUNCTION
5 OPERATION CONCEPT OF 4
PRODUCTION
6 PRODUCTION AS THE CONVERSION 5-6
PROCESS
7 PRODUCTIVITY OF CONVERSION 7
PROCESS
8 OBJECTIVES OF PRODUCTION 8
MANAGEMENT
9 COMPONENTS OF PRODUCTION 9-11
FUNCTION
10 FACILITIES (PLANT) LAYOUT AND 11-14
MATERIALS HANDLING
11 HISTORY OF PRODUCTION 14-19
MANAGEMENT
12 OPERATIONS STRATEGY 19-27
GENERIC ENTERPRISE STRATEGIES 28-30
AND THE OPERATIONS FUNCTION

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13 TIME BASED COMPETITION 30-36

14 CASE STUDY 37-40

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WHAT IS OPERATIONS MANAGEMENT?

Operations management is an area of business that is concerned with the

production of goods and services, and involves the responsibility of ensuring that
business operations are efficient and effective. It is also the management of
resources, the distribution of goods and services to customers, and the analysis of
queue systems.
APICS The Association for Operations Management also defines operations
management as "the field of study that focuses on the effective planning, scheduling,
use, and control of a manufacturing or service organization through the study of
concepts from design engineering, industrial engineering, management information
systems, quality management, production management, inventory management,
accounting, and other functions as they affect the organization" (APICS Dictionary,
11th edition).
Operations also refer to the production of goods and services, the set of value-added
activities that transform inputs into many outputs.[1] Fundamentally, these value-
adding creative activities should be aligned with market opportunity (see Marketing)
for optimal enterprise performance.

OPERATIONS MANAGEMENT PLANNING CRITERIA

• Control by creating and maintaining a positive flow of work by utilizing what
resources and facilities are available
• Lead by developing and cascading the organizations strategy/mission
statement to all staff
• Organize resources such as facilities and employees so as to ensure effective
production of goods and services
• Plan by prioritizing customer, employee and organizational requirements
• Maintaining and monitoring staffing, levels, Knowledge-Skill-Attitude
(KSA), expectations and motivation to fulfill organizational requirements
• Performance Measures for the measurement of performance and
consideration of efficiency versus effectiveness

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IMPORTANCE OF PRODUCTION/OPERATIONS MANAGEMENT:

Many people ask the question "Why do I need to know about production and
operations management or for that matter any other area, when basically I am a
finance (or accounting or marketing or HR) person?" In large organizations, many
people do not know what is happening in other departments, except their own. I call
this "Frog in a Pond" syndrome. There was a time when one could escape with this
thinking, but not any more. It has become imperative that all people in all functions
have at least a rudimentary understanding of all the areas of management.
Acquiring cross functional knowledge and skills is the need of the hour. However, a
good understanding of operations or production management is a must for all.

SUPPLY AND DEMAND:

In Economics, we have the supply and demand equation for goods and services. The
Production/Operations side of business management deals with the supply side,
whereas the Marketing side deals with the demand.

Marketing Managers need to understand what it takes to build and operate

production systems and this understanding makes them serve their markets well.
They must understand the capabilities and limitations of their total supply-demand
system.

Financial managers can plan for capacity expansion and will be able to better
understand inventories before they demand its reduction. They can also plan their
future cash flow requirements for new machines, labor, materials, energy and
overheads - just as if cash were another raw material.

Accountants and Controllers need to learn about modern computer based production
and inventory control systems which can provide cost, accounting information,
capacity utilization, various ratios, inventory valuation, cost of good sold and other
information for internal controls, auditing and financial reporting. Internal auditors
need to understand these to carry out their functions properly.

Certified public accountants would be severely hampered in their auditing of

manufacturing companies if they did not have an understanding of EOQ, ROP,
MRP, WIP, ABC analysis, methods of determining labor standards etc., Personnel

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and HRD managers can start appreciating the complexities of job design, functions
and the skills required to perform the jobs effectively. This understanding will
enable them design training programs, compensation systems and in proper
recruitment and selection of people.

Computer and IT systems specialists need to have a thorough understanding of the

various production and operating processes to design suitable programs.

Purchase managers are more than just buyers. Efficient purchasing can make a big
difference in highly competitive industries. Let us say the cost of making a product
is 90 and the selling price is 100. A good purchasing man comes in and manages to
reduce the purchase cost by 10% thus making the CP to 81. The selling price
remains the same because of extreme competitive pressure. The contribution or
profit goes up from 10 to 19.

One would observe that a 10% reduction in costs has led to 90% increase in profits!
If the manufacturing person also manages to reduce the other cost of manufacturing,
it is still better.

ASSET CONCENTRATION:

It is found that approximately 70 to 80% of all assets in manufacturing and

processing organizations are in inventories, plant and machinery. These assets are
directly under the control of production and operating personnel. With this
concentration of assets, one should know what these people do with them. Optimum
use of assets is a key factor in maintaining competitive edge. Most importantly, you
need good and competent people to manage these assets. As a result the
production/operations department has the maximum concentration of people. One
can learn management of people, the best, in this department.

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THE PRODUCTION (MANUFACTURING) FUNCTION

The production (or manufacturing) management since long has been associated with
a factory situation where goods arc produced in physical sense. Factory has been
defined –

As any premises in which persons are employed for the purpose of making, altering,
repairing, ornamenting, finishing, cleaning, washing, breaking, demolishing, or
adopting for sale, any article.

The foregoing definition, however, restricts the scope of production function. A

much broader and a generalized concept of production are as under: -

Production is the process by winch goods and services are produced.

This broader concept of production brings in a large number of seemingly non-

manufacturing sectors of economy such as transport, energy, health, agriculture,
warehousing, banking etc, within the preview of production management.

The essential feature of a production function is to bring together people, machines

and materials to provide goods and services thereby satisfying the wants of people.
Since both manufacturing and service organizations involve above mentioned
features, the term production management is gradually being replaced by Operations
Management.

OPERATION CONCEPT OF PRODUCTION:

The concept of "Operations" instead of "Production" includes both manufacturing as

well as service organizations. Operations in a manufacturing as well as in a service
organization represent purposeful activities of the organization. Operations function
is the heart of and indeed the very reason for existence of any organization. All
operations add value to the objects thereby enhance their usefulness.

An operation may be defined "as the process of changing inputs into outputs thereby
adding value to some entity". The value is added to the entity by one or more of the
following ways: -

Alteration refers to the change in form or state of inputs. Such a change may be
physical as in any machine shop or press shop or assembly shop operation, or

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psychological as the feeling of comfort after getting cured from illness.

Transportation refers to the movement of the entity from one place to another. The
entity has more value if it is located at somewhere other than where it currently is.

Storage refers to the process of keeping an entity in a protected environment (i.e.

storing food grains in warehouses) for some period of time.

Inspection refers to the process of verification of entity for its properties and
thereby taking more informed decisions concerning their purchase, use repair etc.

Since alteration, transportation, storage and inspection add value, organizations

such as manufacturing, transportation, warehousing, health– care, education etc.
come within the preview of operation or production management.

PRODUCTION AS THE CONVERSION PROCESS:

Since production is the process of changing inputs into output, every organization
therefore, can be considered essentially as the conversion system.
The inputs to the production system are raw materials, parts, consumables, energy,
engineering details, production schedules, information technology, capital or
management and output are the produced goods, transported goods, delivered
messages, cured patients, serviced customers.

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FOR EXAMPLE

In a manufacturing organization like steel plant, inputs are, materials like iron ore,
coke, lime stone, dolomite, etc., labor, machines, capital and outputs are steel
sections like channels, rods, bars, sheets, etc. In a service, organizations like banks,
inputs are customers and outputs are serviced customers.

In a hospital inputs are patients and outputs are cured patients.

In a public transport, inputs are commuters and outputs are serviced (or transported)
Commuters.

In a post and telegraph office, inputs are letters or messages and outputs are
delivered letters/messages.

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PRODUCTIVITY OF CONVERSION PROCESS

Effectiveness of production management may be viewed as the efficiency with

which inputs 1 are converted into outputs. This conversion efficiency can be' gauged
by the ratio of the output to the input and is commonly known as productivity of the
system.

Productivity = Output/Input

= Goods and services / Capital, manpower, materials, machines, land and building.

The higher the productivity of production system, more efficient the production
function is said to be.

Management of production system thus is essentially concerned with management of

productivity.

Another way of looking at the concept of productivity is to look at the amount of

waste generated in the system if the waste is unnecessary output and/or defective
output from the system, then the productivity of the system can be improved by
eliminating/ minimizing the waste occurring in the system.

Typical examples of wastes of the conversion process are: -

Idling of the resources (e.g. materials waiting in the form of inventory, in stores,
machines waiting to be loaded, job orders waiting to be processed, patients waiting
to be attended etc.) be attended etc.)

Production of defective goods and services (e.g. components/parts not conforming

to; specifications, wrongly delivered letters, etc)

Higher conversion costs (higher costs resulting from inefficient methods, poor
quality of tools, bad conditions of machines, wrong selection of materials, poorly
trained operators, ineffective supervision).

Higher total throughput time (due to waiting time, hunting time, queuing time,
buried waiting time etc). In an efficient production function, wastes of all kinds must
be eliminated or minimized.

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OBJECTIVES OF PRODUCTION MANAGEMENT

Right quality, right quantity, right time and right price, are the four basic
requirement of the customers and as such they determine the extent of customer
satisfaction. And if these can be provided at a minimum cost, then the value of
goods produced or services rendered increases. Thus the objectives of production
management are "to produce goods and services of the right quality, in the right
quantities, according to the time schedule and at a minimum cost".

Objectives of production management may be amplified as under:

Producing the right kind of goods and services that satisfy customers' needs
(effectiveness objective).

Maximizing output of goods and services with minimum resource inputs (efficiency
objective).

Ensuring that goods and services produced conform to pre-set quality specifications
(quality objective).

Minimizing throughput time - the time that elapses in the conversion process - by
reducing delays, waiting lime and idle, time (lead time objective).

Maximizing utilization of manpower, machines, etc. (capacity utilization objective).

Minimizing cost of producing goods or rendering a service (cost objective).

COMPONENTS OF PRODUCTION FUNCTION

Production Management is -not same as production engineering although there are

considerable areas of common interest. Broadly, production engineering is
concerned with the design of physical equipment while the production management
is concerned with the management of the use of equipment and other resources.
Production engineering is the domain of engineers while knowledge of engineering
of any sort is not necessary
requirement of production management.
Production management is essentially planning, organizing and controlling of
production function. Management of production can be described in terms of
fourteen components as under:

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Aspects of management Components of the production

function
PLANNING Product selection and design
(Planning the conversion process) & Process selection and planning
(Planning the use of conversion'' process) Facility layout and materials
and handling.
Capacity planning
Forecasting
Production planning

Aspects of management Components of the production function

. ORGANISING (Organizing for * Work study and job design

conversion)
(Controlling the conversion Production control
process) Inventory control (or stock) control
Quality control
Maintenance and replacement
Cost reduction and cost control

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A short description of each component is given below

PRODUCT SELECTION AND DESIGN: -

The right kind of products and good design of the products are. Crucial
for the success of an organization. A wrong selection of the product
and/or poor design of the products can render the company's operations
ineffective and non-competitive. Product/services, therefore, must be
chosen’ after detailed evaluation of the product/services alternatives in
conformity with the organization’s objectives. —Techniques like value
engineering may be employed in creating alternate designs, which are
free from unnecessary features and meet the intended functions at the'
lowest cost.

PROCESS SELECTION AND PLANNING

Selection of the optimal conversion system is as important as choice of

products/services and their design. Process' selection decisions include
decisions concerning choice of technology equipment machines, material
handling systems, mechanization and automation. Process planning
involves detailing of processes of resource conversion required and their
sequence.

FACILITIES (PLANT) LOCATION

A poor location of the plant can be constant source of higher cost,

difficult marketing and transportation, dissatisfaction among
employees and customer’s frequent disturbances in production, sub-
standard quality, competitive disadvantage etc.

Plant location decisions are strategic decisions and once plant is set up at
a location, it is comparatively immobile and can be shifted later only at a
considerable cost and interruption of production. Although problem of
locational choice does not fail within preview the production function and
it occurs infrequently, yet it is of crucial, importance because of its major
effect on the performance of every department including production.
Therefore, it is important to choose the right location which will
minimize total delivered-customer cost (production and distribution cost).
Locational decisions involve evaluation of locational alternatives against
multiplicity of relevant factors considering their relative importance to
the organization and selecting those which are operationally
advantageous to the organization.

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FACILITIES (PLANT) LAYOUT AND MATERIALS HANDLING

Plant layout is concerned with relative location of one department (work

centre) with another in order to facilitate material flow and processing of
a product in the-most efficient manner through the shortest possible
distance and through the shortest possible time. A good layout reduces
material handling cost, eliminates delays an congestion, improves co-
ordination, provides good housekeeping etc. while a poor layout results in
congestion, waste, frustration, inefficiency and loss of profit. Since the
layout integrates the factors of production, the selection of the layout
depends on the nature of the production systems. Good plant layout and
minimum materials handling are said to be akin to each other. Only a
good layout can ensure minimum materials handling. Most of the
concepts used in layout planning mode are based on the importance of
locating departments close to each other, depending upon their degree of
closeness desired in order to minimum cost of material handling. Layout'
decisions have also to consider the nature of the material handling
equipment. Since space requirements of the work centers, gangways etc.
depends on the type of material handling equipment the selection of the
proper material handling equipment such is conveyors, fork-lift, trolleys
etc. is the, components (related decision) of plant layout. Another related
aspect in product based layouts the balancing of the production or
assembly lines.

CAPACITY PLANNING: -

Capacity planning concerns determination and acquisition of productive

resources ensure that their availability matches the demand. Capacity
decisions have a direct influence on performance of the production,
system in respect of both resource productivity and customer service, (i.e.
delivery performance). Excess capacity results in low resource
productivity while inadequate capacity leads to poor customer service.
Capacity planning decisions can be short-term as well as long term
decisions. Long term capacity planning decisions concern
expansion/contraction of major facilities required in the conversion
process, economics-of multiple shift operation, development of vendors
for major components, etc, Short term capacity planning decisions
concerns issues like overtime working, sub-contracting, shift adjustments
etc. Break even analysis is a valuable tool for capacity planning.

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PRODUCTION PLANNING AND CONTROL (PPC)

Production planning is the system for specifying the production

procedure to obtain the desired output-in a given-time at optimum cost in
conformance with specified standard of quality, and control is essential to
ensure that manufacturing takes place in the manner stated in the plan.

Production planning is a pre-production activity associated with

determination of optimal projection schedule, sequence of operations,
economic batch quantity, optimal job machine assignment and
dispatching priorities for sequencing of jobs. Production control is a
complementary activity to production planning and it involves keeping
track of what is happening and taking remedial action when the progress
is behind schedule.

Production planning is a centralized activity and it includes functions

such as order preparation, materials control, process planning and
scheduling production control. On the other hand, is a diffused activity
(in the shops) and it includes functions such as dispatching, progressing
and expediting.

INVENTORY CONTROL

Inventory control deals with determination of optimal inventory levels of

raw materials, components, parts, tools, finished goods, spares and
supplies to ensure their availability with minimum capital lock up.
Material requirement planning (MRP) and Just-ln-Time (JIT) are the,
latest techniques that can help inventory control.

QUALITY ASSURANCE AND CONTROL

Quality is an important aspect of production system and it must ensure

that services and products produced by the company conform to the
declared quality standards at the minimum cost. A total quality assurance
system include such aspects as setting standards of quality, inspection of
purchased and sub-contracted parts, control of quality during manufacture
and inspection of finished product including performance testing etc.

WORK STUDY AND JOB DESIGN

Work study, also called time and motion study, is concerned with of
improvement of productivity in the existing jobs and the maximization of

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productivity in the design of new jobs. Two principal component of work

study are –

(i) Method study

(ii)Work measurement

Method study has been defined (BS 3138). as the; systematic recording
and critical examination of the existing and proposed ways of doing
work, as a means of developing and applying easier and more, effective
methods and reducing costs. Method study when applied to production
methods yields one or more (of the following benefits: -

• Improved work environment

• Improved facility layout
• Better utilization of facilities.
• Greater safety
• Lesser materials handling
• Smooth production flow
• Lower work-in-process
• Higher earnings for the workmen

Work Measurement is defined (BS 3138), as the application of techniques

design to establish the time for a qualified worker to carry out a specified
job und specified conditions and at a defined level of performance. Since
the correct standard of performance can be set appropriately only after the
work method has been standardized method study-should -precede work
measurement. Scientific work standards have lot many uses. They are
required for

• Manpower planning
• Production scheduling
• Cost estimating
• Cost reduction and cost control
• Financial incentives
• Manufacturing process selection
• Measuring employee progress
• Maintenance and replacement

Maintenance and replacement involve selection of optimal maintenance

(preventive and/or breakdown), (policy to ensure higher equipment
availability at minimum maintenance and repair cost. Preventive
maintenance which includes preventive inspection, planned lubrication,

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periodic cleaning and upkeep, planned replacement of parts, condition

monitoring of the equipment and machines, etc. is most appropriate for
critical machines.

Replacement decisions concerning machines are basically financial

investment decisions but have a major effect on efficiency of production
system. Other types of replacement decisions concern parts of machines
and most common problem is to decide between individual replacement
and group replacement.

COST REDUCTION AND COST CONTROL

Effective production management must ensure minimum cost of

production and in this context cost reduction and cost control acquires
significant importance.

SHORT HISTORY OF PRODUCTION MANAGEMENT: -

History of production management though not very old but it has passed
through various stages to reach its present formidable stage. Its roots go
back to the concept of "division of labor" advocated by Adam Smith in
his book. "The wealth of Nations" in 1776. Major contributors to the
development of production management, beginning with Adam Smith
(1776) are as under: -

ADAM SMITH (1776): -

Attention to the scientific production management for the first time was
drawn by the great Scottish economist, Adam Smith. Through his book
titled 'The Wealth of Nations', Adam Smith advocated division, of labor.
He gave three major benefits of the division of labor.
Workmen performing work in repetition attain higher skill and greater
dexterity. Saving in time result while changing from one activity to
another. Improvement in production methods result when workmen are
made to specialize on certain tasks. Since division of labor concept was
later to serve foundation of many other concepts, Adam Smith can be said
to be the originator of the concept of production management.

CHARLES' BABBAGE (1883): -

Charles Babbage, the English mathematician who followed Adam Smith

agreed with his predecessor in the former's theory of division of labor.
Babbage envisioned specialization as yet another (fourth) advantage of

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division of labor and advanced the concept of specialization as the next

logical stage to the division of labor. Through his book titled "The
Economy of Machinery and Manufacture", Babbage demonstrated to the
world the benefits of specialization. He referred to pin industry and its
seven operations: drawing, straightening, pointing, twisting, cutting heads,
heading and tinning to highlight the gains. The beginning of the twentieth
century provided impetus to his concept of specialization which later
developed into "workmen trades".

F.W.TAYLOR (1859 TO 1915): -

F.W. Taylor who later came to be known as 'Father of scientific

management gave the concept of "functional management": While
disagreeing with the management approach of ''allowing workmen to
choose their own tasks, decide their own methods and get; themselves
trained on the jobs, Taylor advocated four duties of management, namely:

• Development of science for each element of man's work to replace

old rule of-thumb methods.

• Selection of best worker for each particular task and then training
and developing .the workmen (in place of old practice of allowing a
'workman, to choose his won work and get himself trained as best as
he could) on individual basis.

• The performance of work by the workmen in accordance with the

scientifically devised methods by the management and striving
for co-operation between workmen and management to obtain
both maximum” production and higher worker wages.

• The division of work between workers and management, each

group taking responsibility of the work for which it was best suited.

The above four principles over I ho period developed into great

expansions without which an organization is inconceivable. Taylor
concept at. serial (1) developed into method study and “work
measurement" while concepts at serial (2) and (3) gave rise to ''Training,
Selection and Placement, and Industrial Relations" concept in the field of
personnel management. And concept at serial (4) concerning division of
labor today ‘is well recognized and has become inherent in the industry
wherein today management/ takes the function of planning and control
while first line supervisors and workmen are left to concentrate on
execution of the plans. Taylor also did remarkable work of direct
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advantage to production management. He envisioned motion study as a

complimentary technique of time study and devised ground rules for time
study. They are: -

• The task under study should be analyzed part by part, each part
being called an element.
• Elements should be examined and those which do not form part of
the work cycle should be dropped.
• Elements should be timed accurately using stop watch.
• A small allowance of time should be added to the time of each
element to compensate for the unforeseen contingencies.
• Elements should Declassified and carefully defined to enable future
reference.

Taylor's direct contribution to production management also includes

development of principles of functional organization. Financial incentive
plan called Taylor’s differential piece rate method.

(FRANK .B. GILBRETH (1917)

Frank B. Gilbreth is considered the founder father of Work study;

Assisted by his wife Lilian. Gilbreth envisioned the motion study as a
part of work analysis. Through his two books titled Motion Study (1911)
and Applied Motion Study (1917); Gilbreth emphasized the importance
of relationship between operator's output and his physical effort. He
devised a system of classifying motions into seventeen basic divisions
which he called Therbligs (founder’s name – Gilbreth spelled in the
reverse order) and suggested use of a chart called Simo Chart to record
motions employed by the workman to perform a task. Lilian, (Gilbreth’s
wife and psychologist by profession pioneered the concept of human
factor in industry. The couple conducted a series of experiments and
evolved .several laws as principles of motion economy to provide ground
rules around which an ideal method could be established. Gilbreth's
contribution to production management also includes the concept of
micro-motion studies (micro-motion camera studies as a substitute to stop
watch studies) to measure time of short cycle jobs.

HENRY FORD: -

Henry Ford gave to the world concept of mass production and organized
work stations (into a conveyors assembly line)

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HENRY GANTT (1913): -

Henry Gantt made his best known contribution (1913) using a visual
diagrammatic tool which is popularly known as "Gantt chart". This visual
diagrammatic tool still remains a •practical tool even today: for charting
the production schedules and machine load schedules.

HARRINGTON EMERSON (1913): -

Harrington Emerson evolved Emerson Efficiency Plan to emphasize labor

efficiency as basis for pavement of wages. Emerson’s concept of labor
efficiency is embodied in his two books respectively titled "Efficiency as
a basis for Operations and Wages (1911)"and "The Twelve Principles of
Efficiency (1913)".

F.W. HARRIS (1914)

F.W. Harris developed the first economic lot size (EOQ) model which is
still recognized as the classical work in the scientific inventory control
system. The present day-inventory models are essentially the
refinements of Wilson’s economic lot size formula. The contribution of
F.W. Raymond in this regard is also note worthy.

WALTER SHEWHART (1924)

In 1924 Walter Shewhart introduced the concept of statistical quality

control to the industry. He pioneered the concept of control, charts for
monitoring the quality of production.

F.H. DODGE, H.G. ROMING & W. SHEWHART (1931)

In 1931; F.H. Dodge, H.G. Roming and W. Shewhart developed the

concept of sampling inspection and published statistical sampling tables.

L.H.C. TIPPETT (1937)

L.H.C. Tippett developed the concept of work sampling to determine the

machine and manpower utilization and for setting performance standards
for long-cycle-jobs, operations involving team working and
heterogeneous activities.

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BETWEEN 1940 – 1980

In and around .1950, two major developments which influenced the

production management were the emergence of 'Operation Research (OR)
beyond military context and development of Value Engineering' by L.D.
Miles. The OR is the application of scientific methods to study and devise
solutions to managerial problems in decision making. Using
mathematical models and the systems approach OR has helped solve
resource allocation; scheduling, processing, inventory, location layout
and control problems. Value Analysis is ah organized approach to
identify unnecessary costs of products and systems by analysis of
function and efficiently eliminating them (unnecessary costs) without
impairing the quality, reliability and ability of the item to give service.
Developments in computers led to the computerized applications of
industrial engineering and OR techniques to production management
problems. Development in, MIS, and D$S (Decision Support Systems)
provided a further growth to the development of Operations Management.

In 1958, concepts of CPM and PERT were developed for analysis of

large projects and since then a number of network based techniques of
protect management have been developed. In late 1950's the techniques
of production were extended to other production organizations such as
petroleum, chemical and other process industries which led to the
emergence of production management as a functional management
discipline. In the late I960 the concept of production was amplified to
include a number seemingly non-manufacturing organizations such as
transport, hospitals, banks, agriculture, warehouses, educational institutes,
etc. which has led to the adoption of "operations management" in place of
"production management" so as to include both the production of goods
(manufacturing organizations) as well as Services (service organizations).

Systems approach which advocates integrated approach to problems

emerged in 1970s. Late 70s also saw the development of a large number
of computer packages such as CRAFT (Computerized Relative
Allocation of Facilities Techniques), CORELAP (Computerized
Relationship Layout Planning etc. to help facilities planning. Assembly
line balancing and Computer simulation for, integrated production
inventory system made big strides during this period.

More recently there has-been a major thrust on the adoption of Japanese

management techniques like 'Just-In-Time (JIT)' or "KANBAN System"
for solving production scheduling and inventory related problems and

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the concepts of "Quality Circles" for involving employees at all levels in

solving their work related problems. Other notable developments in the
recent past have been Group 'Technology (GT), Cellular Manufacturing
Systems (CMS), Flexible Manufacturing System (FMS), Computer aided
design manufacturing (CAD/CAM), etc. The process of development of
production management which has been dramatic is on and the future
looks promising.

PRESENT DAY POSITION: -

Production management today is over 200 years old since Adam' Smith.
Lot of changes has taken place. The industry today has well planned
layouts, materials handling equipments, vast buildings to accommodate
manufacturing facilities and trained manpower. Manufacturing activity is
organized into line production. A large number of SPMs have been
installed. The industry is today well informed. It has better knowledge of
materials, machines and labor. JA number of training institutes is there in
the country to impart training to workmen. Many Management institutes
have sprung up to train production managers of tomorrow. There are
several worker education centres in India who undertake training of labor.
Many a management consultants are the in our country to help industry to
conduct diagnostic surveys and offer consultancy services. Besides,
change in technology, there has been tremendous growth of techniques
and knowledge. In past, the education-was limited to knowledge of art,
literature, languages but today it has vast scope. Today, production man is
required to know commerce, economics, and technology. Production
management thus includes all this.

OPERATIONS STRATEGY- A KEY ELEMENT IN CORPORATE

STRATEGY

What is Strategy?

Strategy formulation is a process by which a firm determines how it will

compete in industry. It involves goal determination and development of
policies for achieving those goals. It must be broadly related to internal
factors such as strengths and weaknesses of company and external factors
such as industry economic forces and societal values.
One operations strategy is to be driven by sales and manufacture
whatever quantity the customer wants. But this strategy is often, from the
customer-point-of-view is linked with the lowest cost for the highest
quality. Within the firm desperate for business this disappointingly often
translates to "lowest cost with the lowest quality that we can get away
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with". In a buyers market - this may be the cul-de-sac the company is

forced into. If a footwear manufacturer decides to move from being a
safe, conservative design manufacturer to being a market/fashion leader
then its production and service operations must deliver the quality and
responsiveness that this requires. Production processes, supplier
relationships, uses of technology and design capabilities are key factors.
Yet sometimes there is a failure to give sufficient attention to the strategic
aspects of operations functions.
We can think of competitive strategy as a wheel: the firm’s goals and
how the firm will compete are in centre and the spokes of the wheel
radiate out carefully defined key operating policies to the functional
areas. Some of the functional areas are as follows:

• Marketing
• Sales
• Target Markets
• Product line
• Finance & Control
• Engineering & Research and Development
• Labor
• Purchasing
• Production
• Distribution

Five of the 10areas listed extremely important in the performance of the

broad operations function. The last three functions must be carefully
related in modern concept of operation function. The operational side of a
business directly contributes to competitiveness and market leader.
Management of operations therefore needs specified, consistent and
achievable objectives and sound implementation strategy. All the
activities in the line of material flow from suppliers through fabrication
and assembly and culminating in product distribution must be integrated
for sensible operations strategy formulation. If parts of this flow are left
out, there is risk of an uncoordinated strategy. In addition, the crucial
inputs of labor, job design must be included for an integrated strategy.

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COMPONENTS OF OPERATION STRATEGY

Major components of operation strategy are as follows:

• Positioning the Productive system

• Capacity decisions
• Product and Process Technology
• Work force and Job design
• Strategic Implications of operating decisions
• Suppliers and Vertical integration

These components are basic to operations strategy because there is wide

managerial choice available within each, and each affects the long term
competitive position of firm by impacting cost, quality, product
availability and flexibility of product or service. These above components
do not in themselves constitute a strategy. They must be integrated into
managerial framework that relates the components and provides basis for
implementing the strategy. For example the strategy concerning jobs and
process design needs to be carefully coordinated with strategic plans for
product or process technologies, which in turn needs to be coordinated
with capacity or location decisions. These strategies must be related to
positioning strategy and so on. Finally all the elements of operation
strategy must be related to enterprise or corporate strategy, shown
surrounding the entire process. Operations strategy must therefore fit in
the basic strategy of enterprise that must be carefully coordinated since
the function is so centrally involved. Now let us understand briefly each
component of operations strategy.

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DEVELOPING OPERATIONS STRATEGY

Corporate Mission
Assessment Distinctive
of Global Competencies
Business Strategy
Business or
Conditions Weaknesses
Product/Service Plans

Competitive Priorities

Operations Strategy

1) POSITIONING THE PRODUCTIVE SYSTEM

Although all the elements of operation strategy are important and all need
to be woven together, if positioning the productive system is wrong, the
operation strategy will be ineffective. If production is not made the part
of corporate strategy, there is likelihood that there is mismatch between
systems and markets is high, with resulting conflicts between production
function and marketing functions. Analyzing the firm's product portfolio
in marketing terms means considering
• the stage the firm occupies in its product life cycle
• whether to imitate or innovate
• the focus/coherence of the product range
As a product moves in the PLC from launch to growth, market maturity,
and, possibly to eventual decline - there are important implications for the
operations manager.

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AT THE DEVELOPMENT AND ENTRY STAGES

Operations flexibility is at a premium. The product may be made in low
volumes. Its design features are still being fined tuned and there are still
market uncertainties. In the early 1980's personal computer standards
were still unresolved. Product design and volumes were unpredictable.
Cash flow is negative. Development costs at the point that the first
product is sold or first customer served costs are at their height as the
launch itself demands marketing and promotional expenditure. This
continues until the product is established and even then promotion is a
normal cost of sale. Sales revenues must catch up.
INTO LATE GROWTH AND MATURITY
The product and market are stable. The aim is market share and cash
generation with operations achieving consistent, high quality, low cost
output. Predictability is a premium more than flexibility. Investment in
operational improvements aims to lower costs. Product moving into
decline may attract design changes which will require operations to
implement. For a car there may be a trim or body shell up-grade but the
changes may be just skin deep.
Improvement is the constant call as the firm strives to keep its existing
products from entering terminal decline.

2) CAPACITY DECISIONS

ILLUSTRATION:

Videotape prices in US and elsewhere began to decline in 1982 when Fuji

Photo Film, Hitachi Maxwell, and TDK collectively increased capacity to
more than 90%.The massive capacity increase lead to decrease in sales to
relatively 40%. This resulted in imbalance between demand and supply
which created havoc in industry. It was expected that Overcapacity would
not be absorbed for at least two years.

Thus poor capacity decisions can virtually negate good operation strategy
in other dimensions. The illustration stated above dealing with capacity
decisions suggests the importance of capacity decisions. In fact, these
kinds of decisions are the most significant ones made in terms of the
amount of capital involved and amount of care which they should be
made from the strategic point of view. The risks are great because future

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demand is uncertain. But in making such decisions forecasting

competitor’s behavior is even more important than predicting demand.
Thus in above example, if too many competitors add the capacity, all
firms in the industry is likely to suffer. Once installed, new capacity
remains and over-capacity can be a problem for the company and
industry far in future. The issue of capacity expansion immediately raises
the companion issues of where to expand in order to improve firm’s
competitive position, how to counter competitive moves, and how to tie
new capacity into distribution network effectively. The overcapacity that
results from any of structural causes discussed or from ineffective
capacity gaming can place manufacturer in a cost price vise even if
operation strategy is otherwise excellent in relation to competitors.
Advanced technology available can make production capacity more
flexible and therefore less subject to the effects of product and schedule
changes. Those firms that develop facilities with greater flexibility will
have competitive edge in reacting to major shifts in product design and
development.

3) PRODUCT AND PROCESS TECHNOLOGY

A company can have its production system positioned just right in

relation to market requirements but strategy can be ineffective if company
uses obsolete technology. Operations located at several points on a
continuum from labor-intensive operations to full automation.
Automating or retaining labor-intensive operations depends on many
factors - how far does the firm want to invest in either (do they have the
financial capability)? The operations manager needs clear policy and
agreed programmes for maintenance or change. A decision by an airline
to buy a new fleet of Boeing 747's ahead of its competitors would identify
the company as an innovator. The operations manager has to realize the
competitive potential by achieving the lower maintenance and running
Automation exploits available technology to speed up operations, make
them more reliable and to reduce unit costs and there are risks and costs.
Decisions affect staff: jobs, overtime, rewards, terms and conditions of
employment, training/skills and full-time/part-time staffing mix etc. The
technology may require fewer but more skilled and more committed staff.
The organization may become dependent on a small cohort of specialists.
They may understand more about the technology than the operations
managers themselves. Automation has implications of changes in
specialisms and relationships between people. The skill mix of jobs
change - often for the better. The type of automation may bring
flexibility to the operations system. it may bring less flexibility. For
certain kinds of production - the advantage of people is their ability to
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apply skills across a range of activities. Automation may involve fixed,

large scale expenditure which once installed demands a particular set of
operational arrangements which are difficult to change if the product mix
or requirement changes.
High tech, automated production processes require a supporting
infrastructure - educated employees, telecommunications support, and
expert suppliers. Note however how leading airlines have moved some of
their computerized data processing operations to India. The skilled
workforce exists and world wide telecommunications networks make it
viable to separate the physical location of processing from the points of
usage.
4) WORK FORCE AND JOB DESIGN

In spite of fact that advanced process technologies is reducing number of

workers in manufacturing process, labor will still continue to be an
important input. Therefore work rules, job design, wage rates and entire
labor-management relationship becomes extremely important element in
operations strategy. Labor is key to all the dimension of production
system. The role of the worker is crucial to the success of organization.
How automated or labor-intensive should the operation be (service or
manufacturing)? In an a la carte restaurant the customer-waiter
relationship is close. In fast food outlets pre-prepared meals are dispensed
from counters. Fill your own salad bowl or barbeque your own steak!
Home banking and the use of automated teller machines make banking
services available, independent of customer location, 24 hours per day.
5) STRATEGIC IMPLICATIONS OF OPERATING DECISIONS:

A successful way of making strategic impact on operating decisions is by

reducing costs and controlling quality
Not only capacity, process costs and labor costs have strategic importance
but also quality, costs and on-time delivery can be extremely important in
basic strategy of firm. Price competition calls for operational cost
reduction and improved efficiency (alongside all other objectives -
flexibility, variety and quality etc). Where price competition is less
intense, operations can concentrate on premium quality, more variety and
responsiveness (unless they become complacent). Monopoly producers
have less incentive to offer variety or to address issues of quality - after
all - the customer has no alternative source of supply. This is the classic
market-force argument for monopoly and competition regulation. Not all
markets are concerned about high quality so we must define what the
market requirement for "quality" actually is. What are the prevailing

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design standards? Higher quality than needed adds to costs and may not
be required competitively. Of course the firm may wish to be an
innovator/leader in terms of product/service design - an operation has to
be able to respond.
There should not be any distinction between long term strategic issues
and short term operating ones.
7) SUPPLIERS AND VERTICAL INTEGRATION:

Purchasing and relationships with suppliers must be consciously

formulated to be part of operations strategy. Supplier’s performance is
often important in plant-processes in achieving objectives. The results
should depend on operations strategy’s relative emphasis on cost, quality,
product availability, and flexibility or service. In examining supplier
relationships and purchasing strategy, the issue of whether vertical
integration is logical step is always a question. But more fundamental is
the nature of vertical integration issue, which is basically different from
the concerns dominating the mergers and acquisitions craze that has held
sway in recent years. In vertical integration decisions, the emphasis is on
the logic to change within the strategy of the firm to produce something
of economic value. It is not an investment portfolio concept.

COMPETITIVE ADVANTAGE

There are four dimensions of competitiveness that measure the

effectiveness of the operations function:

• Cost
• Quality
• Dependability as a supplier
• Flexibility/service

COST

Although price is the competitive weapon in the marketplace, profitability

is related to the difference between price and cost. Cost is the variable
that can allow lower prices that may be profitable. To compete on the
basis of price requires an operations function capable of producing at low
cost. Therefore, the effects of location, product design, equipment use and
replacement, labor productivity, good inventory management,
employment, employment of process technology, and so on all contribute
to the resulting costs. It is well known in manufacturing that unit costs are
usually reduced as experience is gained through production. It was
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originally thought that the cost improvement was simply the result of a
learning effect among workers, reflecting the development of skill and
dexterity that occurs when a task is performed repeatedly. Now, however,
this effect, is recognized as resulting from a wide variety of additional
sources, such as improved production methods and tools, improved
product design, standardization, improved material utilization, reduction
of system inventories, improved layout and flow, economies of scale, and
improved organization. The entire effect might be called organizational
learning. Actually, the worker learning effect. Although all the
dimensions of production performance are important in competitiveness
the cost factor is one factor that is particularly crucial for survival.

QUALITY

The effectiveness of this factor has been highlighted by Japanese market

dominance in consumer electronics, steel, automobiles, and machine
tools, where product quality has often been cited as a reason for
preferring the products purchased. Customers and clients are often willing
to pay more for or wait for delivery of superior products.

DEPENDABILITY AS A SUPPLIER

A reputation for dependability of supply or even off-the-shelf

availability is often a strong competitive weapon. Customers may
compromise on cost or even quality in order to obtain on-time delivery
when they need an item. The scheduling and coordination of all elements
of the productive system determine its ability to produce on time.

FLEXIBILITY/SERVICE

How standard is a product or service? Can variations in the product or

service be accommodated? The ability to be flexible will depend a great
deal on the design of the productive system and the process technology
employed. It is probably not worthwhile for a producer of a standardized
item in large volume to offer this kind of flexibility. Such a producer
would probably respond to a request for variation with the statement, ”I
am not in that kind of business.” Yet there may be a substantial market
for that kind of business. Therefore, a competitor could offer such
flexibility as a way of competing effectively. What services accompany
the sale? Are spare parts readily available? If problems in product
performance occur, will the item be serviced quickly and effectively?
Flexibility and service then are important elements in an enterprise
strategy that is provided by the production function.

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GENERIC ENTERPRISE STRATEGIES AND THE OPERATIONS

FUNCTION

OVERALL COST LEADERSHIP

This strategy requires the concentrations of the operations system on all

the elements of system design that make low cost possible: in-line
operations; fabrication and assembly lines; equipment dedicated to a
restricted mix of products; capital intensity in the form of specialized
equipment, mechanization, automation, and robotics, all especially
designed for the specific operations problem; and, commonly, specialized
and narrowly defined job designs. Usually, the cost leadership strategy
also involves production to stock since part of the strategy is to make the
product available on demand or off-the- shelf. Where economies of scale
are possible, they are used in this strategy, as are the benefits that come
from cumulative organizational learning and the experience curve.
Products and services are designed for producibility. The organizational
structure places emphasis on cost control and on getting product out the
door so as to minimize lost sales from not having the product available.
Specialization also makes cost minimization possible in other functional
areas, such as R&D, services, sales, advertising, personnel, and so on.
Low cost and product availability drives the entire strategy and, indeed,
the entire organization. Quality, service, and flexibility are not ignored;
however, they are not the emphasis. Nevertheless, it is difficult to have it
both ways-by specializing facilities, labor, and the entire organization, a
trade-off is made. A single purpose facility is not very flexible; it cannot
be easily retooled to make a different product. Quality controls are built
into the line operations, but it is not feasible to give the same attention to
quality in manufacturing a Honda as is given in building a Rolls Royce.
The entire momentum of the design of the system and the organization is
given to minimizing costs and maintaining the flow of products. The low
cost producer in an industry will earn higher than average returns, giving
it a defense against competitors. The low cost position provides excellent
entry barriers in terms of economies of scale and cost advantages. Even
product substitutes have amore difficult task in competing because of low
cost and availability. The strategy also provides bargaining power in
relation to the potential vertical integration of both suppliers and buyers
for the efficient producer in comparison to less efficient producers. Many
prominent manufacturers have built their competitive strategies around
low cost and high availability: Anheuser Busch with beer; Eastman
Kodak with photographic film and paper; Texas Instruments with silicon
chips, hand calculators, and digital watches; and many others. There are

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risks in following the cost leadership strategy. The production system

becomes inflexible. If consumer preferences take a sharp turn or if
technological changes make product designs, plant, and equipment
obsolete, the enterprise may have to reinvest huge sums in order to
recover. One of the most dramatic examples of the risks of inflexibility in
the low cost strategy was Henry Ford’s standardized Model T. Beginning
in 1908, Henry Ford embarked on a conscious policy of price and cost
reduction that reduced the price from more than $5000 to nearly $3000 in
1910(in 1958 constant dollars).From that point, the price declined 15
percent for each doubling of cumulative output during the Model T era,
culminating in a 1926 price of about $750. Market share increased from
10.7 percent in 1910 to a peak of 55.4 percent in 1921. However,
beginning in the middle 1920’s, General Motors successfully focused the
competitive arena on product innovation. The Ford Company was so
completely organized to produce a low-cost, standardized product that
effects of the change in consumer preferences nearly sunk the enterprise.
Although the company’s strategy had been a roaring success during the
long period of stable consumer behaviour, it had become a business
“dinosaur” and could not adapt easily to the realities of the changed
environment.

DIFFERENTIATION

The firm attempts to differentiate itself from the pack by offering

something that is perceived by the industry (and its customers) as being
unique. It could be the high quality (Rolls Royce or Mercedes Benz),
innovation (Hewlett Packard), or the willingness to be flexible in product
design (Ferrari or Maserati). All these examples of quality, innovation,
and flexibility have extremely important implications for the production
system and the way it is designed and managed. The requirement is to be
flexible in order to cope with the demands on the system. Brand image is
important to this strategy. There may be other ways that an organization
differentiates itself; for example, a strong dealer network (Zenith), an
extremely well-designed distribution system (Gillette or Hunt Wesson),
or excellent service. This strategy does not ignore costs, just as the cost
leadership strategy odes not ignore quality, but the central thrust of the
productive system and, indeed, of the entire organization is on the unique
character of the company’s products and services. Cost and availability
are less important in the company’s priorities since customers may be
willing to pay a little more and even wait in order to have a more unique
product.In relation to industry competitors, a company with a
differentiation strategy has less competition from both its direct
competitors and from potential substitutes because of the uniqueness of

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its position. Its customers have greater brand loyalty and, therefore, less
price sensitivity. Differentiation draws higher margins, so the higher costs
are less important. Barriers to entry are provided, and higher margins
make potential competition from suppliers’ forward integration less
important. Still there are risks. Customers will tolerate only some
maximum premium for uniqueness. If cost control becomes lax or if the
cost of providing the uniqueness is beyond the customers’ willingness to
pay, then advantage can turn to disadvantage. Since many of the ways of
providing high quality, innovation, and flexibility are labor intensive,
inflation in labor costs relative to the inflation in the costs of other factors
can price the product out of the market.

TIME BASED COMPETITION

DEFINITION
Time based competition is an operational strategy focusing on
compressing total throughput time in an organization. Compressing time
has a cascading affect on quality and cost. As cycle times are reduced,
productivity increases proportionally. A fifty percent reduction in cycle
time and a doubling in work-in-process inventory turn cause productivity
to increase from 20-70 percent. As productivity increases, resource
capacity is freed. Two things happen: costs decline, and the organization
becomes capable of producing significantly more output with less
resources: a winning combination
Most manufacturing companies spend anywhere from 5-10 percent total
time actually adding value to the product, i.e., transforming the part or
moving it closer to the customer. The rest of the time is waste, resulting
in higher costs occurring with loss of time.
Inducing velocity throughout a business has a profound effect on time
and cost. The need for no value-adding functions disappears, and the
functions designed to accommodate exceptional circumstances fall out.
The organization chart becomes flatter. Following this is a dramatic
reduction of overhead.
HOW TO REDUCE TOTAL CYCLE TIME
Understanding the way an organization functions is key to the redesign
for time-based competition. The structure dictates how labor is divided
and how power is allocated. Physical proximity normally follows
structure, both of which have a direct impact on ease of information
sharing and time.

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In a traditional functional organization, communication walls begin to

build as the organization grows. Over time, functional entities develop
and become self-serving, losing sight of the mission of serving the
customer.
Sequential decision-making becomes prevalent, coupled with poor or
non-existent communications. The organization develops functional
empires, fraught with politics and narrow points of view. The result is an
organization slow in decision-making, heavy with vertical layers of
management, bureaucratic in nature, low in productivity, and generally
ineffective.
Every business has basic cycles that govern the way that paper is
processed, parts are manufactured, and decisions are made. They may be
documented in the form of procedures or routings. Examples of business
cycles are customer order, product development, production, and
procurement.
A customer order cycle begins with the placement of an order by a
customer. It ends when you are finally paid for goods or services
rendered. But there are activities in between the two events that consume
time. Some add value, such as packing and shipping, and some are non-
value adding and delay time, such as moving the order around the
building from mailbox to mailbox, sitting on a desk, or repetitive
motions.
When a cycle ends, a lot of non-value adding time has been consumed
that may constitute 90-95 percent of total time. Some of the time is lost in
travel, some is lost in the processing backlog, and some may be lost
diverting a customer's order to a credit department for release. If you can
identify the non-value added time in the cycle, you can devise ways to
eliminate the causes.

THE TIME PARADIGM

Time is the secret weapon of business. Advantages in response time
provide leverage for all the other competitive differences that make up a
company's overall competitive advantage.
Many executives believe that competitive advantage is best achieved by
providing the most value for the lowest cost. This is the traditional
paradigm for corporate success. Providing the most value for the lowest
cost in the least amount of time is the new paradigm for corporate
success. An increasing number of companies are achieving success by

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establishing competitive response advantages. These time-based

competitors belong to a new generation of companies that manage and
compete in different ways.
New-paradigm companies:
• choose time consumption as a critical management and strategic
measure;
• use responsiveness to stay close to their customers, increasing their
customers' dependence on them;
• rapidly redirect their value-delivery systems to the most attractive
customers, forcing their competitors toward the less attractive ones;
• set the pace of business innovation in their industries; and
• Grow faster with higher profits than their competitors.
The new generation of competitors is obtaining remarkable results by
focusing its organizations on flexibility and responsiveness. The
companies in the table below use their response advantages to grow at
least three times as fast as their industries and to earn profits more than
twice the average of their competitors.
BECOMING A TIME-BASED COMPETITOR
You have become a time-based competitor when you have accomplished
three tasks:
• Your value-delivery system is two to three times as flexible and
responsive as those of your competitors;
• You have determined how your customers value these capabilities
and have priced accordingly; and
• You have a strategy for surprising your competitors with your
time-based advantage.
MAKE YOUR VALUE-DELIVERY SYSTEM FLEXIBLE AND
RESPONSIVE
Most of the time a product or service is in your value-delivery system is
spent waiting. Delays stem from these causes:
• procedural constraints, including minimum production or
information-processing batch sizes, scheduling practices, and
authorization schedules;

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• quality problems, including physical and intellectual rework

necessitated by inadequate design and attention to details; and
• Structural difficulties, including convoluted flows of product and
information, functional handoffs, and interrelated facilities located
at different sites.
The single greatest cause of inflexibility and slow responsiveness,
though, is organizing for economies of scale and control rather than for
fast throughput.
To improve its responsiveness a company needs to organize for
economies of time and for visibility. To do so, many companies
disassemble their functional organizations and reassemble them into
permanent, multifunctional teams. The members of these teams focus on
entire processes, products, projects, customers, and/or competitors. The
teams include everyone who can slow or speed the process and are often
in one location. Their performance measures are set to achieve goals
rather than efficiency.
One consumer appliance manufacturer formed development teams and
challenged them to reduce the company's development cycle from as
much as three years to less than 12 months. The teams identified many
opportunities. For example, they found that months could be cut from the
cycle by transferring several performance tests from the company's
central testing laboratories to the design team organization. As the result
of such changes, the company is well on its way to achieving its goal.
TECHNIQUES FOR REDUCING TIME
1. JUST IN TIME
2. KANBAN
3. SOVA
JUST IN TIME
APICS Definition of JIT
“A philosophy of manufacturing based on planned elimination of waste
and continuous improvement of productivity.” …...
APICS Definition of JIT
“The primary elements of Just-in-Time are to:
● have only the required inventory when needed,

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● improve quality to zero defects,

● reduce lead times by reducing setup times, queue lengths, and lot sizes,
● incrementally revise the operations themselves, and
● accomplish these things at minimum cost”.
JIT MANUFACTURING PHILOSOPHY
● The main objective of JIT manufacturing is to reduce manufacturing
lead times.
●This is primarily achieved by drastic reductions in work-in-process
(WIP).
●The result is a smooth, uninterrupted flow of small lots of products
throughout production.
KANBAN
Kanban Production Control
●At the core of JIT manufacturing at Toyota is Kanban, an amazingly
simple system of planning and controlling production.
● Kanban, in Japanese, means card or marquee.
●Kanban is the means of signaling to the upstream workstation that the
downstream workstation is ready for the upstream workstation to produce
another batch of parts.
Kanbans and Other Signals
● There are two types of Kanban cards:
● a conveyance card (C-Kanban)
● a production card (P-Kanban)
● Signals come in many forms other than cards, including:
● an empty crate
● an empty designated location on the floor
HOW KANBAN OPERATES
When a worker at d.ownstream Work Center #2 needs a
container of parts, she does the following:

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● She takes the C-Kanban from the container she just emptied.
● She finds a full container of the needed part in storage.
●She places the C-Kanban in the full container and removes the P-
Kanban from the full container and places it on a post at Work Center #1.
● She takes the full container of parts with its C-Kanban back to Work
Center #2.
CONTAINERS IN A KANBAN SYSTEM
●Kanban is based on the simple idea of replacement of containers of
parts, one at a time.
●Containers are reserved for specific parts, are purposely kept small, and
always contain the same standard number of parts for each part number.
●At Toyota the containers must not hold more than about 10% of a day’s
requirements.
●There is a minimum of two containers for each part number, one at the
upstream “producing” work center and one at the downstream “using”
work center.
STREAM OF VARIATION ANALYSIS (SOVA)
Manufacturers in the 21st century will face frequent and unpredictable
market changes.These changes include rapid-frequency introduction of
new products, increased demandfor new products and mix of products,
new parts for existing products, and overall newprocess technologies. To
gain the competitive advantage, manufacturing companies must be able to
analyze, predict and optimize manufacturing system performance during
the design phase (that is, do all design in the first time right “FTRDesign”
approach) and be able to identify and isolate root causes of all faults
during ramp-up time (do all fault isolation in the first time right
“FTRDiagnosis” approach).This leads to a new manufacturing strategy
namely, math-based SOVA system working in “FTRDesign/Diagnose”
mode for product/process performance analysis. In the last decade, the so-
called stream of variation analysis (SOVA) methodology has been
proposed and developed to overcome the aforementioned challenges
(Ceglarek and Shi, 1994, 1995,1996; Apley and Shi, 1998; Hu, 1997;
Ding, Ceglarek, and Shi, 2000, 2002a, 2002b; Ding,Shi, and Ceglarek,
2002c). SOVAis a generic math model for variation propagation analysis
in multistage manufacturing systems. SOVAintegrates multivariate
statistics, control theory as well as design/manufacturing knowledge
(CAD/CAM models) into a unified framework.

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SOVA serves two objectives :

• In the design phase, the SOVA can be used for analysis, prediction, and
optimization
of manufacturing system performance following the concept of
“FTRDesign”. Given the
process and tooling design information, SOVA can simulate the variation
propagating
throughout the process and then predict the final product-dimensional
variation and resultant product geometry.
• In the production ramp-up phase, SOVA can be used to identify and
isolate fault root
causes following the concept of “FTRDiagnosis”. Given the process and
tooling design
information, SOVA can demonstrate high responsiveness in identifying
and isolating
root causes of dimensional variation, that is, identifying the most severe
dimensional
faults, localizing the critical stations contributing most to the final
product variation and
speedily isolating the root causes of dimensional faults—achieving faster

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CASE STUDY:

OBJECTIVE OF THE CASE STUDY:

The case examines the initiatives taken by the Indian cement major
Gujarat Ambuja Cements Ltd. (GACL) to maintain profitability and
market share despite adverse industry and market conditions. The
company's efforts to improve its operational efficiency through
productivity enhancement, quality control, pollution control and cost-
cutting measures are explored in detail. The case also discusses the future
prospects of the company in light of the fact that the company might not
be able to continue to reap the benefits of the above measures.
ISSUES:
Importance of using innovative ideas (such as using groundnut husk and
sugarcane waste as fuel and using sea transportation instead of land/rail
transportation) to achieve superior results
1) BACKGROUND
Gujarat Ambuja Cements Ltd. (GACL) was established as Ambuja
Cements Private Ltd. (ACPL) in 1981 by Narotam Satyanarayan
Sekhsaria (Sekhsaria), a businessman from the western Indian state of
Gujarat. Originally a cotton trader, Sekhsaria entered the cement business
because of factors such as stable demand, lack of substitutes and limited
competition. With the support of Gujarat Industrial Investment
Corporation's (GIIC1), Sekhsaria and his two partners, Suresh and Vinod
Neotia, set up APCL. Suresh Neotia was appointed Chairman while
Sekhsaria was made the Managing Director. In 1983, the company
floated a public issue and its name was changed to GACL. The same
year, production started at a 0.7 million tons per annum (mtpa) plant,
named Ambuja Cements, in Ambuja Nagar, Gujarat. GIIC sold its stake
in GACL in two tranches to Sekhsaria in 1987 and 1990. In 1993, GACL
commissioned its second cement plant at Ambuja Nagar (capacity 1
mtpa), named Guj ambuja Cements. Attracted by buoyant cement
demand in the northern regions, GACL commissioned a 1.5 mtpa plant at
Suli in Himachal Pradesh (HP), named Ambuja Cements Himachal Unit
in 1995. In the same year, GACL floated a wholly owned subsidiary in
Mauritius - Cement Ambuja International Ltd. (CAIL). A year later,
GACL floated another subsidiary, Ceylon Ambuja Cements (Private)
Ltd., through which it acquired a small company, Midigama Cement, in
Sri Lanka. In 1996, GACL set up its third 1 mtpa plant at Ambuja Nagar,
named Guj Line - II (capacity 1 mtpa). In December 1999, GACL

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acquired a 51% stake in Delhi based DLF Cement for Rs 3.5 billion. DLF
Cement had started its operations in 1997 in Rajasthan with a plant of
capacity 1.4 mtpa. After this merger, GACL became the fourth largest
cement manufacturer in India after ACC, L&T and Grasim.
In the same month, GACL also acquired a 7.2% stake in Associated
Cement Companies (ACC) for Rs 4.55 billion. ACC was the largest
manufacturer of cement in India. With 14 manufacturing units in India, it
had a total capacity of over 11 mtpa. It was one of the largest integrated
cement companies in the world.
By the late 1990s, GACL had emerged as one of the most energy efficient
and technologically advanced cement manufacturers in India. In
December 2001, GACL began trial production at a new 2 mtpa plant in
Chandrapur, Maharashtra, taking its total capacity to 12.5 mtpa (Refer
Exhibit I). For the financial year 2000-01, the company recorded a
turnover of Rs 12.52 billion and a net profit of Rs 1.5 billion (Refer
Exhibit II). GACL had a large distribution network of 11,500 outlets. It
was one of the first cement companies in the country to recognize the
importance of brand building. The company's cement, sold under the
Gujarat Ambuja brand name, enjoyed good brand equity and sold at a
premium. The company was the overall market leader in the Indian
cement industry
GACL was not only the market leader, it ALSO ranked very high on the
profitability criteria. Its new plants, use of better quality limestone,
innovative energy management efforts, and strong retail presence in
Mumbai, Gujarat and Punjab gave it a strong edge over its peers .Its cost
per rupee of sales was much lower than most of its competitors, resulting
in much better operating margins
Industry observers unanimously agreed that GACL was the most efficient
cement manufacturer mainly because of its operational excellence. The
company had done well in spite of the fluctuations in the cement industry
by adopting aggressive productivity improvement and cost-cutting
measures. GACL had won a host of awards for management excellence,
quality, business strategy and environment management (Refer Exhibit
III). Ever since its inception, the company believed in doing things in an
innovative and unconventional way, so as to reap benefits in new ways,
using new methods...
2).Working Hard towards Operational Excellence
According to analysts, GACL's strategic farsightedness was evident in its
decision to locate its plants in backward areas, so as to take advantage of

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substantial sales tax and income tax incentives. GACL's units in the states
of Gujarat, HP and Punjab also received sales tax incentives. This was
possible as all new investments in cement after 1986 enjoyed a sales tax
benefit of up to 90% of the value of fixed assets for a period of 14 years...
Enhancing Productivity
GACL worked hard to reduce mining expenses. Cement companies
normally operate their own limestone mines. Mines were not only
extremely destructive environmentally, they were also expensive to
operate. The explosives used for mining were on the negative list of
imports and substantial costs were involved in implementing safety
measures. In 1997, GACL sent its engineers to Australia to study the
extraction of metals. On their return, GACL implemented new
technologies that could access limestone in smaller areas where blasting
was not possible. To reduce the noise and vibration that occurred during
the conventional drilling, blasting and crushing process, the company
introduced an Australian device called Surface Miner...
CUTTING COSTS:
1) Power
Power accounted for a large part of GACL's cost of production. GACL
realized that a captive power plant would increase savings substantially as
power sourced from the power grids was both unreliable and costly. So it
set up fuel based captive power plants in Gujarat (40 MW) and Himachal
Pradesh (12 MW) in 1998. GACL's captive power generation cost was
only Rs 1.30 per kilowatt (excluding interest and depreciation), compared
to Rs 4.50 per kilowatt for power supplied by the Electricity Boards.
Soon, the company was not only getting around 60.3% of its total power
requirement from these plants, it was also selling the excess power it
generated to the local state governments. B S Dulani, Vice President,
Operations, at the Gujambuja plant said, "Small measures like
modifications in higher capacity motors for fans, coolers etc. according to
specific requirements (shifting from AC to DC drive, which allows
regulation of current) wherever possible, and many other simple steps
helped reduce GACL's power consumption from 120 units/tonne of
cement in 1987 to 88-90 units per tonne in 1995 against an industry
average of 121 units per tonne."...
3) The Future
The continual capacity build-up in the Indian cement industry led to an
excess capacity situation by the beginning of the 21st century. During the

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same period, growth in the cement industry declined from 21% (April-
September 1999) to 11% (October 1999-March 2000) because of drought
in many parts of the country. Prices dropped because people feared that
construction activities would decline due to the drought.

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BIBLIOGRAPHY

Following books were consulted while making this project:

Operations Management- L.C. Jhamb

Operations Management- Buffa And Sarin.

Operations Management- Ashwathappa

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