What is meant by Operation?

OPERATION is the System of processes which mainly deals with the conversion of various Input Resources into useful Outputs with efficiency, effectiveness, flexibility & adaptability.

Operation is a part of Production

[ All activities included in Operation are included also in Production but all activities included in Production are not necessarily included in Operation. Exception : PROJECT ACTIVITIES are included in Operation but not included in Production (because, only after Project activities are completed, Production activities start).

What are Input Resources for Operation?

Materials

Raw materials & Components

Man power (HR) :

Operators/ Laborers (Skilled and/or Semi-skilled and/or Unskilled) Supervisors Managers

Machineries

(Plants & Equipment) for :

Processing Measuring Instrumentation Instrumentation & Control Material-handling Testing & Inspection Water & Effluent Treatment, Prevention of Occupational Hazard, Environment-control, etc.

Resources for production & operation (contd)

Utilities :
1. 2. 3. 4. 5. 6. 7. Electric Power (for Drive, Heating, Lighting, Fan, etc) Fuel (generating heat in Furnace or Kiln)) Water (for Cooling, Hydraulic m/cs, Instrument, Conveying, washing, Cleaning, etc) Air (for Cooling, Pneumatic-control Instrument, Conveying, Cleaning, etc) Steam ( for Heating, Drying, etc) Illumination System Sanitation & Occupational Safety - Process Sequence (Process Flow diagram) - Procedure & Work Instructions - Process Control Parameters - Material requirement (Material Balance) - Equipment Requirement (Capacity Balance) - Utility Requirement (Utility Balance : water, energy, etc)

Technologies (Process know-how) :

Functional Activities of Production - Operation Management

1. 2. Selection of Location of facilities (Plant / operational Site) Selection of Technology / Process know-how , Plant Capacity, Plant & Machineries Plant Layout Design, Materials Balancing, Capacity Balancing Project Planning & Scheduling, Monitoring, Coordination and Control Product Design & Product Development Process Design / Planning Job Design Materials Management (Procurement, Storage & Inventory Control) Material Handling Materials Allocation Plant & Machines Loading and Balancing Production Scheduling Production activities (Manufacturing or Service activities) Maintenance Occupational Safety and Environmental Safety Inspection, Testing, Quality Control and Quality Management

3. 4.
5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.

MANUFACTURING
MANUFACTURING

Vs

SERVICE OPERATION
SERVICE Output is physically intangible Output is not durable Output can not be inventoried Labour intensive Pricing is based mainly on labour only

1. Output is physically tangible 2. Output is durable 3. Output can be inventoried 4. Capital intensive 5. Pricing is based mainly on materials and labour

6. Generally low Customer-contact

7. Response-time is long 8. Time schedule is Market-based

Generally high Customer-contact

Response-time is short Time schedule is customers requirement-based

9. Quality can be measured easily and directly 10. Market may be regional, national or international

Quality can not be measured easily Market is usually (preferably) local

VALUE CHAIN
Suppliers PURCHASE
Materials

INVENTORY

Materials

PRODUCTION

Products

Customers
Suppliers

MARKETING

Products

INVENTORY

Customers

Value
c

VALUE MAPPING
Slope = Value Addition
b

b>c>a Activity Stages

Purchase

Inventory

Production

Inventory

Marketing

VALUE CHAIN

The link among the set of activities in the business that create value or add value to the products and services to be delivered to the consumer/customer.
Suppliers Production Distribution Retailers Customer

Marketing

Objectives of Operation Management

1. 2. 3. Customer Satisfaction Increased Efficiency (higher Productivity) Higher Effectiveness to achieve the Objectives of the organization

PRODUCTIVITY
PRODUCTIVITY = Value of Output Products (Goods/ Services) Cost of Input Resources (Materials, Manpower, Utilities, Machines,, Engineering, Technology, OH, etc)

WAYS TO IMPROVE PRODUCTIVITY

1. 2. 3. Increase in value of output with same cost of resource input Decrease in cost of input resources for the same Value of output Simultaneous increase in value of output and decrease in cost of input resources Proportionately more increase in value of output than the increase in cost of resource input Proportionately less decrease in value of output than the decrease in cost of resource input

4.
5.

Problem 1 Productivity Marpet Corporation is producing 10,000 items per week, using 5 M.T. of raw materials of unit cost $ 1000 per M.T. The labour-hour being used to accomplish the job is 500 per week. The labour cost is $ 9 per labour-hour while the proportionate over-head cost for the product is $ 25000 per week. If the selling price of the product is $ 10 per item, find (i) Labour Productivity and (ii) Multifactor Productivity (Overall Productivity). Solution Input Labour Cost =500 labour-hour x $ 9 per labour-hour= $ 4,500 Input Raw materials cost = 5 MT x $1000 per MT = $ 5,000 Total cost of Inputs = Lab cost + Mat cost + OH cost = 4500 + 5000 + 25000 = $ 34,500 Value of Output = 10,000 items x $ 10 per item = $ 100,000 (i) Labour Productivity = Value of output = 100,000 = 22.22 Cost of Lab input 4,500 (ii) Overall Productivity = Value of output = 100,000 = 2.9 Total Cost of input 34,500

Problem 2 Productivity Walcot Industry Ltd. was producing 50 pieces of bushes per day, using 150 kg of gunmetal per day having unit cost Rs 100 per kg and 20 semi-skilled labours & 2 skilled labours. The Utility cost was Rs 2000 per day. The labour rate is Rs 2100 per week for semi skilled labour and Rs 3500 per week for skilled labour. The overhead cost of the unit is Rs 70,000 per week. The selling price of the bush is Rs 1400 per item. Recently the company changed the labour strength to 24 semiskilled and 1 skilled labour and thereby achieved production of 70 pieces of bushes per day, using 210 kg of gunmetal per day and utility of Rs 2300 per day. Compare the present Labour Productivity and Multifactor Productivity with those previous values.

Solution-2
Semiskilled Labour rate = 2100 / 7 = Rs 300 per day, Skilled Labour rate = 3500 / 7 = Rs 500 per day, OH cost = Rs 70,000/ 7 = Rs 10,000 per day, Previously, Labour Cost per day=(20 x Rs 300) + (2 x Rs 500) = Rs 6000 + 1000 = Rs 7,000 Raw materials cost per day = 150 kg x Rs100 per kg = Rs 15,000 Utility Cost = Rs 2,000 /day (given) Total cost of Inputs = Lab cost + Mat cost + Utility cost + OH cost = 7,000 + 15,000 + 2,000 + 10,000 = Rs 34,000 per day Value of Output = 50 items x Rs 1400 per item = Rs 70,000 per day (i) Labour Productivity = Value of output = 70,000 = 10 Cost of Lab input 7,000 (ii) Overall Productivity = Value of output = 70,000 = 2.059 Total Cost of input 34,000 Recently, Labour Cost per day=(24 x Rs 2100/ 7) + (1 x Rs 3500/7) = Rs 7,700 Raw materials cost per day = 210 kg x Rs100 per kg = Rs 21,000 Utility Cost = Rs 2,300 /day (given) Total cost of Inputs = Lab cost + Mat cost + Utility cost + OH cost =7,700 + 21,000 + 2,300 + 10,000 = Rs 41,000 per day Value of Output = 70 items x Rs 1400 per item = Rs 98,000 per day (i) Labour Productivity = = 98,000 / 7,700 = 12.727 (ii) Overall Productivity = 98,000 / 41,000 = 2.39

INFLUENCING FACTORS / WAYS for PRODUCTIVITY IMPROVEMENT

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Standardizing the process Improvement of Product Design Reduction of SCRAP generation by improved product & process design Reduction (eliminating) of DEFECTS by effective Quality Control Reducing INVENTORY (avoiding over-inventory) Avoiding under-utilization or un-utilization of RESOURCES (manpower, materials, machines, etc) Reducing BREAK-DOWN time (idle time) of equipment by effectively improving Maintenance Improved Motivation and Effective Incentive Plan Using Improved TECHNOLOGY. All-out Participation & Involvement of employees Using multi-skill labour in place of single-skill labour Total Quality Management

Inter-relationship of Operations with other Areas :

FINANCE
1) 2) 3) 4) 1) 3) Production & Inventory data Capital Budget Requirement Expansion Program Technology Plan 2) Quality Data 4) Design details 1) 2) 3) 4) 1) 3) Budget (Fund) Cost Analysis Capital Investment Share Capital

Material Availability Delivery Schedule

Production & Service Availability 2) Lead Time Status of Order processing 3) Delivery Schedule

SUPPLIERS
1) 2) 3) 4)

OPERATION
1) 2) 3) 4)

MARKETING
Sales Forecast Customer Order Customer Feed back Marketing Promotions

Material Purchase Order Production & Delivery Schedule Enquiry (Quantity & Quality Requirement) Design & Performance Spec

1) 2) 3) 4) 5)

Personal need Skill set Performance Evaluation Job Design Work Measurement

1) 2) 3) 4)

Hiring & Firing Training Requirement Legal requirement Trade Union

HR

OPERATIONS STRATEGY
Strategies are the Road-maps & Plans for achieving organizational goals. Strategies provide focus for decision making. Strategy is time and situation based. Strategy is confidential plan and not open document. Strategy is not long term decision. Tactics are the methods and actions to be taken up to accomplish strategies. Operations Strategies is the approach, consistent with organizational strategies, that is used to guide the operational functions of the organization. Operations Strategies may be (i) Quality-based : which focuses mainly on quality of products and services in all phases of the organization. (ii) Cost-based (ii) Time-based : which focuses on reduction of the following time for products & services, needed to accomplish tasks, 1) Planning time, 2) Design time, 3) Processing time, 4) Change-over time, 5) Delivery time, 6) Complaint Response time

Basic Type of Operation Strategy :

1. QUALITY BASED Operation Strategy : focuses on quality in all phases of operation. Mainly two types of quality issues are (i) ORDER QUALIFIER : Characteristics those the customer perceives as minimum quality standards of Acceptability to be considered as a potential aspect for the purchase. (ii) ORDER WINNER : Characteristics of products those cause them to be perceived by the customer as better & attractive than those of the competitors. COST BASED Operation Strategy : focuses mainly on reduction of production cost by the way of reducing the wastes. eg Lean Production TIMED BASED Operation Strategy : focuses on reduction of time needed to accomplish tasks. It may be time reduction in, (i) Planning, (ii) Processing, (iii) Product Design, (iv) Change-over time between the lots, (v) Delivery, (vi) Response time to complaints and calls from end users. [Adopting ;- Group Technology (GT), Flexible Manufacturing System (FMS), Quick Changeovers or Single Minute Exchange of Die (SMED) Technique, selecting Distribution Channel, Call Center for receiving and reacting Customer Calls, etc]

2.

3.

Steps of Operation Strategy Formulation :

1. 2. 3. Defining the Primary Task (the purpose) in accordance with the vision and mission of the organization. Assessing Core Competency (expertise, knowledge, skill, experience, technology & know-how, other strength). Determining the basic Strategy on path & characteristics Issues : Order-Winner or Order-Qualifier. [ Order-Qualifier characteristic means those the customer perceives as
minimum standards of acceptability to be considered as a potential for their purpose. Order-Winner characteristic of an organization's goods and services which cause it to be perceived by the customer as better than those of the competitors in the market.]

4.

Environment Scanning (Considering all the existing events and trends that present as threats and opportunities for the organization. It includes External : (i) Economic condition, (ii) Political condition, (iii) Legal environment, (iv) Technology development, (v) External Customer, (vi) Market competition, potential & trend. Internal : (i) Human Resource, (ii) Facilities & Equipment, (iii) Financial Resources, (iv) Existing Products & Services, (v) Existing Technology, (vi) Suppliers.

Steps of Strategy Formulation

5. 6.

Determining the Position of the firm in the market competition (by SWOT analysis). Decision on Competition Priority : Competition on (i) Cost, (ii) Quality, (iii) Delivery, (iv) Speed & Timeliness, and (v) Flexibility [ability to adjust with the change in : (a) Product Mix, (b) Production Volume, (c) Product Design, (d) Process Design, (e) Technology Development, (f) Delivery Time, (g) Service Requirement.]

Areas of Strategic Decisions in Operations Management :

Strategic Decisions in Operations Management are generally on, 1. Products : like (i) Make or Buy, (ii) Make-to-Order (Pull System) or Make to-Stock (Push System), (iii) Product Design modification / improvement Process & Technology : (i) Process Technology Improvement, (ii) Adopting advanced Technology, (iii) Job-shop or Batch or Continuous/Mass or Assembly-line production CAPACITY : (i) Capacity Lead strategy, (ii) Capacity Lag strategy, or (iii) Average Capacity strategy

2.

3.

4.
5. 6. 7. 7.

Sourcing : Extent of Vertical Integration (ie degree to which the firm produces input material/parts that go into its final products)
Quality : (i) Order Winning or (ii) Order Qualifying Operating System : (i) Inventory, (ii) Job Scheduling, (iii) Job Sequencing Human Resource : (i) Incentive plan, (ii) Motivation & Involvement, (iii) Skill Level, (iv) Multi-skill or Single-skill, (v) Training