Operations Management

Systematic direction, control, and evaluation

of the entire range of processes that transform
inputs into finished goods or services.

Environmental factors-culture, political,

and market influences

Inputs-HR, capital, materials, land,

energy, information, customer

Transformations-convert inputs into

outputs
Outputs-goods or services, and waste
Performance Feedback-repair records,
customer comments MMS Sem I SIBM 1
Operations managers: responsible for the transformation process
from inputs to outputs.

Operations management seeks to increase the quality, efficiency, and

responsiveness of the firm.

Seeks to provide a competitive advantage (Order Winner)

– Quality: goods and services that are reliable and

perform correctly.
• Quality allows customers to receive the performance
that they expect.
– Efficiency: the amount of input to produce a
given output.
• Less input required lowers cost and waste.
– Responsiveness to customers: actions taken to
respond to customer needs.
• Firm can react quickly and correctly to customer
needs as they arise.
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 Typical Characteristics of Services and Goods Producers

Primarily Service Producers Primarily Goods Producers

Intangible, Tangible, durable

nondurable Output can be
Output can’t be inventoried
inventoried Low customer
High customer contact
contact Long response
Short response time time
Labor intensive Capital intensive

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 On the other hand…
• Both use technology
• Both have quality, productivity, & response issues
• Both must forecast demand
• Both will have capacity, layout, and location issues
• Both have customers, suppliers, scheduling and staffing
issues
• Manufacturing often provides services
• Services often provides tangible goods

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 Hybrid organizations
• Some organizations are a blend of
service/manufacturing
[i.e. quasi-manufacturing (QM)] organizations]

• QM characteristics include
– Low customer contact & Capital Intensive

(Ex. Fast food chain, Interior decorators and spare part

manufacturers)

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Growth of the Service Sector
• Service sector growing
to 50-80% of non-
farm jobs
• Global
competitiveness
• Demands for higher
quality
• Huge technology
changes
• Time based
competition
• Work force diversity

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Indian Scenario

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Strategies for transformational processes
Process Focus Characteristics Product
Process Focus-layout of Custom made Ship Building/Operation
plant and equipment Low Volume Theatre in hospital
around each production
unit
Product Focus-arranging Many of one product Factory Lines
plant and equipment High-volume, highly Dedicated
around one or a few automated Cells/Counters in banks
output types
Low flexibility
Intermediate Strategy- Batches of products Automobile
plant and equipment Manufacturing
layout reflects some of Local Restaurant
both strategies
(Poli Bhaji Centre)
Airlines
Agile Strategy Mass customization Ready made Garments
Loan Mela of Banks

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Flexibility
• Product Flexibility-speed with which products
are created, ability to customize, ability to
modify products for special needs
• Volume Flexibility-ability to respond to sudden
changes in demand, change from small to full
scale
• Process Flexibility-ability to manufacture a
variety of goods in a short time, adjust to
product mix over time, ability to accommodate
changes in raw materials

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 Core Positioning Strategies
Continuous
process Product focus
(stable)
Auto assembly
Resource flows

Mass plant
production
Intermediate Mail processing
Garment
Large industry
batch
Process focus
Branch banks
Space shuttle
Legal practice
Sporadic
(unstable)
Custom products, Mixture of custom and standard Standard products,
low volume products, moderate volume high volume
Product volume

Sources: Adapted from Brown, H.K., Clark, K.B., Holloway, C.A., and Wheelwright, S.C. The Perpetual Enterprise Machine:
Seven Keys to Corporate Renewal Through Successful Product and Process Development. New York: Oxford University
Press, 1994; Upton, D.M. “The management of manufacturing
MMS Sem flexibility.”
I SIBM California Management Review, Winter 1994, 72–89.
10
Customers’ Responsiveness
– Without customers, organizations cease to exist.
• Non-profit and for-profit firms all have customers.
• Managers need to identify who the customer is and their needs.
– What do customers want? Usually customers prefer:
• A lower price to a higher price.
• High quality over low quality.
• Fast service over slow service.
– Also good after sale support.
• Many features over few features.
• Products tailored to their specific needs.

Quality-how well a product does what the customer expects

• Internal View-within the organization

• External View-value customers expect

• Value-the relationship
MMS Sem I SIBM
between quality and price 11
 Competitiveness Value Map
Higher Premium
Poor value
value
Relative Price

Average
value

Economy
value Outstanding
value
Lower
Inferior Superior
Relative Quality
Source: Adapted from Gale, B.T., and Buzzell, R.D. “Market perceived quality: Key strategic
concept.” Planning Review, March-April,MMS
1989,Sem10.
I SIBM 12
 Price v. Attributes
– Firms offering high quality, fast service and other
customer desires, often must raise price.
– Customers must tradeoff price for attributes.
– Operations management tries to push the
price/attribute curve to the right with better
production.
• Provides more attributes at the same cost.
– By enhancing the price/attribute relationship, the
firm can increase its competitive position.

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Customer Responsive Production Systems
– An output’s attributes is determined by the
production system.
• Firms must strike a balance between cost and
attributes
– Improving Quality: can apply to firms
producing goods and services.
• A firm that provides higher quality than others at
the same price is more responsive to customers.
• Higher quality can also lead to better efficiency.
– Lowers waste levels and operating costs.

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 OM Decisions
• All organizations make decisions and follow a
similar path
– First decisions very broad – Strategic decisions
• Strategic Decisions – set the direction for the entire
company; they are broad in scope and long-term in
nature

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 OM Decisions

• Following decisions focus on specifics - Tactical

decision
– Tactical decisions: focus on specific day-to-day issues
like resource needs, schedules, & quantities to produce
– are frequent
• Strategic decisions less frequent
• Tactical and Strategic decisions must align

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OM Decisions

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Micro topics on Types of OM Decisions

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 Historical Development of OM
• Industrial revolution Late 1700s

• Scientific management Early 1900s

– Hawthorne Effect # 1930s
• Human relations movement 1930s-
• Management science 1940s-
• Computer age 1960s-
• Environmental Issues 1970s-
• JIT & TQM* 1980s-

#The Hawthorne effect was first seen in the 1920s at the Western
Electric Company's Hawthorne Works, from which the term derives. The
Hawthorne studies were designed to find ways to increase worker
productivity. An increase in the level of workplace illumination had a
measurable positive effect on employee productivity

*JIT= Just in Time, TQM= Total Quality Management

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 Historical Development con’t
• Reengineering 1990-
• Global competition 1980-
• Flexibility 1990-
• Time-Based Competition 1990-
• Supply chain Management 1990-
• Electronic Commerce 2000-
• Outsourcing & flattening of world 2000-

For long-run success, companies must place much importance on

their operations

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 Today’s OM Environment
• Customers demand better quality, greater speed, and
lower costs
• Companies implementing lean system concepts – a
total systems approach to efficient operations
• Recognized need to better manage information using
ERP and CRM systems
• Increased cross-functional decision making

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 OM in Practice
• OM has the most diverse organizational function

• Manages the transformation process

• OM has many faces and names such as;

– V. P. operations, Director of supply chains, Manufacturing
manager
– Plant manger, Quality specialists, etc.

• All business functions need information from OM in

order to perform their tasks

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Business Information Flow

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 OM Across the Organization

• Most businesses are supported by the functions

of operations, marketing, and finance

• The major functional areas must interact to

achieve the organization goals

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 OM Across the Organization – con’t
• Marketing is not fully able to meet customer needs if they do
not understand what operations can produce

• Finance cannot judge the need for capital investments if they do

not understand operations concepts and needs

• Information systems enables the information flow throughout

the organization

• Human resources must understand job requirements and

worker skills

• Accounting needs to consider inventory management, capacity

information, and labor standards

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 Highlights
• OM is the business function that is responsible for managing
and coordinating the resources needed to produce a
company’s products and services.
• The role of OM is to transform organizational inputs into
company’s products or services outputs
• OM is responsible for a wide range of decisions, ranging from
strategic to tactical.
• Organizations can be divided into manufacturing and service
organizations, which differ in the tangibility of the product or
service

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 Highlights – con’t
• Many historical milestones have shaped OM. Some of these
are the Industrial Revolution, scientific management, the
human relations movement, management science, and the
computer age
• OM is highly important function in today’s dynamic business
environment. Among the trends with significant impact are
just-in-time, TQM, reengineering, flexibility, time-based
competition, SCM, global marketplace, and environmental
issues
• OM works closely with all other business functions

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The Makoffee production system

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 The End
References
• Operations Management – Buffa and Sarin
• Operations Management – Samson and Singh
• Operations Management – Stevension
• Operations Management – Chary
• Operations Management - R. Dan Reid &
Nada R. Sanders

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