Operations Management

Module I
 Operations management
• Operations management focuses on how
organizations produce goods and services efficiently
and effectively. It concerns the improvement of
business operations and the transformation process
through which goods and services are created
(Schermerhorn, 2011).
Scope of Operations Management
 Introduction
• Operations- That part of the business that is
responsible for producing goods and/or
providing services.
• Ideal- Match between supply & demand
– More supply or excess capacity means waste and
excess expense.
– More demand means lost opportunity and
sometimes customer dissatisfaction.
 Basic Functions
• The three basic functions
– Finance
• Responsible for securing financial resources at
favorable prices and allocating those resources through
out the organization.
– Marketing
• Responsible for assessing consumer wants and needs,
and selling and promoting the organization’s goods and
services.
– Operations
 Supply Chain
• Operations and supply chain
– Intrinsically linked.
• Supply chain is the sequence of organizations-
their facilities, functions and activities- that
are involved in producing and delivering a
product or service.
• Value increases at every stage.
 A basic diagram of Supply Chain

Suppliers’ Direct Distribut Final

Producer
Suppliers Suppliers or Customers
 Transformation
• From Inputs to Outputs.
• Measurement & Feedback
• Control

Inputs
Labour Output
Transformation/
Land Goods
Conversion Process
Capital Services
Information
Measurement
Measurement & Feedback Measurement
& Feedback & Feedback
Control
 Transformation Process- Examples
Inputs Processing Output
Food Processor Raw Vegetables Cleaning Canned Vegetables
Metal Sheets Making cans
Water Cutting
Energy Cooking
Labour Packing
Building Labelling
Equipment
Hospital Doctors, nurses Examination Treated Patients
Hospital Surgery
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
 Process Management
• A key aspect of OM.
• Process consists of one or more actions that
transform inputs to output.
• Three levels of process
– Upper management processes
• Org. Governance
• Org. Strategy
– Operational processes
• Purchase, Production, Marketing & Sales
– Supporting processes
• HR, IT, Accounting
 The Scope of OM
• Forecasting
– Demand
• Capacity Planning
• Facilities and layout
• Scheduling
• Managing Inventories
• Assuring Quality
• Motivating and Training Employees
• Locating Facilities
 Approaches to decision making

• Use of models
• Quantitative methods
• Analysis of tradeoffs
• Establishing priorities
• Systems approach
Difference between Products &
Services
Production of Goods vs delivery of Services
• Goods- Tangible item
• Services- Act
– Professional
– Service shops
– Personal care
– Government
– Education
– Food Services
– Services within an organization
– Retailing and wholesaling
– Shipping and delivery
– Transportation
– Travel and Hospitality
 Comparison
Goods Services
Output Tangible Intangible
Degree of Customer Less More
Contact
Labour Content of Jobs Lower Higher
Uniformity of Inputs Lower variation Higher variation
Measurement of Easy Difficult
Productivity
Quality Assurance Easy Difficult
Inventory Inventoried Supplied on demand
Wages Less variation across industries More variation
Ability to Patent More patentable Less patentable
 5 P’s
1. Product
2. Plant
3. Process
4. Program (Schedule)
5. People
 9 M’s
1. Men
2. Management
3. Money
4. Make-up
5. Machinery
6. Methods
7. Markets
8. Materials
9. Management Information
 Craft
• 1770s – start of Industrial Revolution
• Prior to that goods were made by craftsmen.
• One person is responsible for making a piece of good from start to
finish.
• Highly skilled workers using simple, flexible tools produced goods
according to customer specifications.
• Drawbacks
– Production slow and costly
– Replacements also slow and costly
– No economies of scale
• Some Innovations that changed the situation.
– Replacement of muscle power by steam power.
– Introduction of standard gauging systems
 Mass Production
• Two Key Innovations
– Interchangeability of parts
– Division of Labour
• Assembly lines
– Able to use large number of unskilled workers
– Able to provide large number of products at
affordable prices.
– Industrialization of western countries
 Human Relations Movement

• Motivation, worker fatigue , Theory X &Y :

– Lillian Gilberth, Elton Mayo, Abraham Maslow, Hertzberg,
Douglas McGregor
• Decision models
• Influence of Japanese Manufacturers
 Lean manufacturing
• Lean manufacturing or lean production, often
simply "lean", is a systematic method for the
elimination of waste (“Muda") within a
manufacturing system.
• Lean also takes into account waste created through
overburden (“Muri") and waste created through
unevenness in work loads (“Mura").
– Working from the perspective of the client who consumes
a product or service, "value" is any action or process that a
customer would be willing to pay for.
 The Toyota Way
• There is a second approach to lean manufacturing,
which is promoted by Toyota, called The Toyota way, in
which the focus is upon improving the "flow" or
smoothness of work, thereby steadily eliminating mura
("unevenness") through the system and not upon
'waste reduction' per se.
• Techniques to improve flow include production
leveling, "pull" production (by means of kanban) and
the Heijunka Box.
– This is a fundamentally different approach from most
improvement methodologies, and requires considerably
more persistence than basic application of the tools, which
may partially account for its lack of popularity.
 The difference
• The difference between these two approaches is not the goal itself,
but rather the prime approach to achieving it.
– The implementation of smooth flow exposes quality problems that
already existed, and thus waste reduction naturally happens as a
consequence.
– The advantage claimed for this approach is that it naturally takes a
system-wide perspective, whereas a waste focus sometimes wrongly
assumes this perspective.
• Both lean and TPS can be seen as a loosely connected set of
potentially competing principles whose goal is cost reduction by the
elimination of waste.
• These principles include:
– pull processing, perfect first-time quality, waste minimization,
continuous improvement, flexibility, building and maintaining a long
term relationship with suppliers, automation, load leveling and
production flow and visual control.
 Business strategies
• Low Cost
• Differentiation
If you think of goals as destinations, strategies
are road maps for reaching the destinations.
Tactics are the methods and actions used to
accomplish strategies.
 Types of strategy
• Flexible operations
– Quick response/customization
• Higher quality
– Focus on quality better than competitors
• Service
– Helpful, courteous, reliable
• Sustainability
– Environment-friendly, energy efficient
 Operations Strategy- Examples
Organization strategy Operations Strategy Examples

Low Price Low cost Nano

Responsiveness Short Processing Time & MacDonald’s

On-Time Delivery

Differentiation: High High Performing Design Lexus

Quality and/or High Performing Disney Land
Processing
Differentiation: Newness Innovation 3M, Apple, Google

Differentiation: Variety Flexibility Toyota

Volume
Differentiation: Service Superior Customer Service Amazon

Differentiation: Location Convenience Supermarkets, Banks,

Service Stations, ATMs
 Strategic Operations Management
Decision Areas
Decision area What the decisions affect
Product and service design Costs, quality, liability and environmental issues

Capacity Cost structure, flexibility

Process selection and layout Costs, flexibility, skill level needed, capacity

Work design Quality of work life, employee safety, productivity

Location Costs, visibility

Quality Ability to meet or exceed expectations
Inventory Costs, shortage
Maintenance Costs, equipment reliability, productivity
Scheduling Flexibility, efficiency
Supply chains Costs, quality, agility, shortages, vendor relations

Projects Costs, new products, services or operating systems

 Operations as Service
• Ikea caselet
Why is process selection important

Facilities
Forecasti and
ng equipme
nt
Capacity
Planning
Product
Layout
& Service
Design
Process
Selection
Technolo Work
gy Design
 Process Selection
• Process selection refers to deciding on the way
goods and services will be organized.
• Three Primary Questions
– How much variety in products or services will the
system need to handle?
– What degree of equipment flexibility will be needed?
– What is the expected volume of output?

• 5 basic process types:

• Job shop, Batch , Repetitive, Continuous and Project.
 Process Types
• Job Shop
– It is used when low volume of high-variety goods or services will be
needed. E.g., Repair shop, Emergency room.
• Batch
– It is used when a moderate volume of goods or services and it can
handle a moderate variety in products and services. E.g.,
Commercial Bakery, Class Room Lecture.
• Repetitive/ Semi-continuous
– When higher volumes of more standardized goods or services are
needed, repetitive processing is used. E.g., Assembly Line,
Automatic Car Wash.
• Continuous
– When a very high volume of nondiscrete, highly standardized
output is desired, a continuous system is used. E.g., Steel
• Project
– It is used for work that is nonroutine, with a unique set of
objectives to be accomplished in a limited time frame. E.g., Dam,
Movie.
 Comparison
Job Shop Batch Repetitive/ Continuous
Assembly

Description Customized Semi- Standardized Highly

goods or standardized goods or standardized
services goods or services goods or
services services
Advantages Able to handle Flexibility; ease Low unit cost, Very efficient,
a wide variety to add or high volume, Very high
of work change efficient volume
products or
services
Disadvantages Slow, high cost Moderate cost Low flexibility, Very rigid, lack
per unit, per unit, high cost of of variety,
complex moderate downtime costly to
planning and scheduling change, very
scheduling complexity high cost of
 Activities/ Functions
Activity/ Job Shop Batch Repetitive Continuous Projects
Function
Cost Difficult Somewhat Routine Routine Simple to
estimation routine complex
Cost per High Moderate Low Low Very high
unit
Equipment General General Special Special Varied
used Purpose Purpose Purpose Purpose
Fixed Cost Low Moderate High Very high Varied

Variable High Moderate Low Very low High

costs
Labour skills High Moderate Low Low to high Low to high

Scheduling Complex Moderately Routine Routine Complex.

complex Subject to
change
 Job shop

• Low volume of high variety goods or services

• Processing is intermittent
• Work includes small jobs, each with different processing
requirements.
• High flexibility using general purpose equipment and skilled
workers are important.
• Eg: Tool and die shop, Veterinarian’s office.

• https://www.youtube.com/watch?v=V-9eMmfThD8
 Batch

• Moderate volume of goods or services

• Moderate variety in products/services
• Processing is intermittent, equipment need not be as flexible
as in job shop.
• Skill level of workers need not be as high as in job shop as
there is less variety in jobs.
• Eg: Bakeries, movie theatres, airlines, production of paint, ice
cream, soft drinks, beer, magazines and books.

• https://www.youtube.com/watch?v=K-7s7WrTX7k
 Repetitive

• Higher volumes of more standardized products.

• Only slight flexibility of equipment is required.
• Skill of workers is generally low.
• Eg: production lines and assembly lines of :
• Automobiles, TV sets , pencils and computers
• Automatic car wash.
• Cafeteria lines, ticket collectors at sports events and concerts.

• https://www.youtube.com/watch?v=gSMOkQ0eb2g
 Continuous

• Very high volume of non discrete, highly standardized output

• No variety in output
• Equipment flexibility not required.
• Worker’s skill requirement can vary from low to high
• Eg: petroleum products , steel, sugar, flour , salt etc.

• https://www.youtube.com/watch?v=R9J7pOU5FSg
 Review
• Job variety, process flexibility and unit cost are the highest in?
• Volume of output lowest in ?
• Volume of output highest in?
 Project

• A non repetitive set of activities directed towards a unique

goal within a limited time frame.
• Eg: making a motion picture, consulting, launching a new
product/service, publishing a book, building a dam/bridge.

• Hybrid processes can also be found in organizations.

 PROCESS PERFORMANCE METRICS

• Measurements of different process characteristics that

tell how a process is performing.
• An important way of ensuring that a process is
functioning properly is to regularly measure its
performance. Process performance metrics are
measurements of different process characteristics that
tell us how a process is performing. Just as accountants
and finance managers use financial metrics, operations
managers use process performance metrics to
determine how a process is performing and how it is
changing over time. There are many process
performance metrics that focus on different aspects of
the process
 Process
flow chart
of customer
flow at a
fast food
outlet
PROCESS ANALYSIS

GROUP MEMBERS:
AMALU MARIA
ARUNDHATHI
AKHIL KP
GOKUL KRISHNA
TOM SABY
• Process flow diagram
• Process performance measures
• Process analysis
• The process Bottleneck
• Starvation and Blocking
• Process improvement
An operation is composed of processes designed
to add value by transforming inputs into useful
outputs.

Inputs may be labour, energy and capital

equipment.

Outputs may be a physical product or a service.

Steps to improve a process is to analyze it in order
to understand the activities, their relationships and
the values . Process analysis generally involves the
following taks:
• Process boundaries – entry points of the process
inputs – exit points of the process outputs.
• Process flow diagram – various process activities
and their interrelationships.
• Determine the capacity of each step in the
process.
• Identify the bottleneck
• Evaluate further limitations
• Use the analysis to make operating decisions and
to improve the process.
 PROCESS FLOWCHARTING

• Process flowcharting is the use of a diagram

to present the major elements of a process.

• Task or operations
• Flow of materials or customers
• Storage areas
 Process Flowchart
Symbols

Tasks or operations Storage areas or queues

Decision Points Flows of materials or customers

 Process Flowchart
Example: Hamburger Making Process
in McDonald’s

CUSTOMER
ORDER

RAW
MATERIALS FINISHED
COOK ASSEMBLE BURGER DELIVERY
 PROCESS PERFORMANCE METRICS

• Operation time =setup time+Run time

• Cycle time =average time between completion of uni
• Throughput time =average time for a unit to move
through the system
• Throughput rate = 1/cycle time
• Productivity =output/input
• Efficiency =Actual output/standard output
 PROBLEM

• Suppose you had to produce 600 units in 80

hours to meet the demand requirements of a
product. What is the cycle time to meet this
demand requirement?

Answer:8 minutes
 OTHER PROCESS TERMINOLOGY
• BLOCKING
• Stoppage of flow because there is no storage place.
• If there is no room for an employee to place a unit of work down
,the employee will hold on to it not able to continue working on
the next unit.

• STARVING
• Stoppage of activity because of lack of material.
• Occurs when the activities in a stage must stop because there is
no work.
• If an employee is waiting at a work station and no work is
coming to an employee to process, the employee will remain
idle until the next unit of work comes.
• B0TTLENECK
• Occurs when the limited capacity of a process causes work
to pile up or become unevenly distributed in the flow of a
process.
• If an employee works too slow in a multi stage
process,work will begin to pile up in front of that
employee. In this case the employee represents the limited
capacity causing the bottleneck.

• PACING
• Refers to the fixed timing of the movement of items
through the process
• Eg. Every 30 sec there is a movement of items from stage
to stage.
 PROCESS IMPROVEMENT
• Process Improvement is the proactive task of
identifying, analyzing and improving upon
existing business processes within an
organization for optimization and to meet
standards of quality.

• Improvements in cost,quality,flexibility and

speed are commonly sought
WAYS THAT PROCESS CAN BE IMPROVED
• Reduce work in process inventory –reduce lead time
• Add additional resources to increase capacity of the
bottleneck
Eg; An additional machine can be added in parallel to
increase the capacity
• Improve efficiency of the bottleneck activity-
increase process capacity
• Increase availability of bottleneck resources, by
adding an additional shift
• Minimize non value adding resources – decrease
cost, reduces lead time(non value adding activities;
transport,rework,waiting,testing and inspecting, and
support activities.
• Redesign the product for better manufacturability-
can improve several or all process performance
measures.