INTRODUCTION TO OPERATIONS MANAGEMENT

An overview
What is Operations Management and where does it fit in the business model? How did OM evolve into what it is today? Why is OM becoming more important? The broad areas of responsibility of an Operations Manager Current issues in OM.

 To get an idea of the first question, we need to understand the purpose/objective of any business. Broadly speaking, the purpose of any business is to identify a product or service for which a demand exists, which it can profitably satisfy and then proceed to manufacture/provide (service) the product, deliver it to the customer and profit by it.

 In this context, OMs ambit begins after the product/service has been identified, delineated and a consistent business strategy formulated and ends with the successful handover of the finished product to marketing or logistics for ultimate delivery to the customer all in the most cost effective way. In other words, OM deals with the planning, execution and delivery of the proposed product.

 Each of these has a different time horizon: depending on the context, the decisions need to be taken with a certain time frame long, medium or short. Long term decisions are usually strategic in nature and once executed cannot easily be unwound; planning horizons are typically 5 years or more. The market segment to be addressed, the product characteristics and the technology to be adopted for its manufacture these are examples of strategic decisions.

 Medium term decisions are more tactical in nature, with a time horizon of 1 to 3 years. Aggregate Sales and Production plans, Rolling plans, Inventory policy and Purchasing policy are examples of these. Short term decisions are concerned with day-to-day or week-to-week decisions like Operations Scheduling, Break-down maintenance, Personnel Shift allocation etc.

 In the first 24/27 sessions we will be covering the bulk of the long term or strategic issues in OM. These involve answering questions like: What will our Operating Strategy be? How will the product be created and what are the processes that we will adopt for this? What is the capacity that we will plan for? Where will we locate our facility to create the product? Having decided on the location, how will we arrange our sequence of the creation process within the location?

 In the later part of 21/24 sessions, we will cover medium term and immediate term issues like: How much do we produce over the next planning period (a Year, say)? How much do we stock and why? How much of raw materials and components do we need and how do we plan to procure them? What will be our quality specifications and how do we meet them consistently? How are we going to manage the individual product creation processes and systems?

Evolution of OM into its present form

The Industrial Revolution resulted in concentration of the means of production at a single location with capacities far in excess of what could be consumed in the immediate neighbourhood. Hence, markets had to be found far afield while raw materials had to be brought in from afar. Location and transportation became important factors for the success of any factory.

 Technology was evolving rapidly. So, once the factory had been established, continuous effort had to be expended in keeping up with the improvements in technology. Further since the whole system was new, considerable time and effort had to be devoted to keeping the system functioning. The products were sold with relative ease since they were usually cheaper substitutes to what existed. If it could be produced, it could be sold.

 Naturally, the initial emphasis was on the study of the production systems. Industrial Engineering was the beginning which evolved into Production management, onto Production planning and inventory control and finally Operations management. Every stage of the evolution has enlarged the scope of the study of the system as a whole to its present day avatar.

Historical Summary of OM
Year Concept 1910s Principles of scientific
management

Tool
Formalized time and work studies

Originator
Frederick W. Taylor (USA)
Frank & Lillian Gilbreth (USA)

Industrial Psychology

Motion studies
Activity scheduling chart EOQ applied to inventory control
Sampling inspection and statistical tables for quality control

1920s Moving assembly line

Economic lot size

Henry Ford F. W. Harris (USA)

Walter Shewhart, Dodge & Romig

1930s Quality control

1940s Multidisciplinary
approaches to complex system problems

Simplex method of OR groups linear programming and Dantzig (USA)

Simulation, waitingline theory, project
scheduling techniques

1950- Extensive development of OR tools 60s

Mathematical programming, PERT, CPM

Historical Summary of OM
Year 1970s Concept
Widespread use of computers Service quality and productivity

Tool
Shop scheduling, inventory control, forecasting, MRP Mass production in the service sector

Originator
IBMcomputers McDonalds

1980s

Manufacturing strategy Manufacturing as a Harvard paradigm competitive weapon Business School

faculty

JIT, TQM, factory automation Synchronous manufacturing

Kanban, poka-yoke, FMS, CAD/CAM, robots, etc. Bottleneck analysis, OPT, theory of constraints

Tai-Ichi Ono of Toyota

Eliyahu M Goldratt (Israel)

1990s- Supply chain 2000s management, Ecommerce

SAP/R3, Internet, World wide web

SAP, Oracle, eBay, Amazon Yahoo! Etc.

The Growing Importance of OM

In the 80s and early 90s, the industrialized economies were moving away from a manufacturing intensive to a service oriented economy. Hence the relative importance of OM was in a state of secular decline. However with globalization, technology, information and the Internet have spread rapidly, drastically reducing the competitive advantage of many of the established companies. Companies have been forced to go global in search of more efficient manufacturing and sourcing locations.

 This has brought back the importance of OM though in the changed context of a global system. Supply Chain management, which forms an integral part of OM, has become the defining characteristic of successful companies. OM and SCM have thus become important dimensions in the success spectrum of companies.

Current Challenges in OM
Effective integration and consolidation of the operations of merged entities for example: HP with Compaq, Oracle with Peoplesoft, Tata Motors and JLR, Mittal Steel & Arccelor etc. Building flexible and cost effective supply chains with global sourcing and distribution and mass customization like Wal-Mart, Dell Computers etc. Improving and standardizing global delivery of service by global service firms like FedEx, UPS etc.

 Achieving the Service factory. Enhancing value-added services and increased co-production of goods and services. Increased commoditization of suppliers. Making efficient use of the Internet.