Operations Management

BBA
Academic Year 2022-23

Dr. Hasanuzzaman
Assistant Professor
Operations & Information Technology
ICFAI Business School Hyderabad
 Introduction
■ Operations is that part of a business organization that is responsible for producing goods
and/ or services.
■ Goods are physical items that include
– Raw materials,
– Parts,
– Subassemblies such as motherboards that go into computers, and
– Final products such as cell phones and automobiles.
■ Services are activities that provide some combination of time, location, form, or
psychological value
 Introduction
Assessing consumer wants and needs
Promote goods or services
Gets sales order

Marketing
Producing the goods or providing
the services offered by the
organization

Operations

Supporting function which

plans and provides man power Personnel Finance Provides authorization and
to all other subsystems of the control to all other subsystem
organization and to itself by to utilize money more
formulating proper recruitment effectively through a well
and training programs designed mechanism
 Introduction
■ Operations management is the management of systems or processes that create goods
and/or provide services.

Suppliers’ Direct Final

Producer Distributor
suppliers suppliers Customers

■ A supply chain is the sequence of organizations—their facilities, functions, and

activities—that are involved in producing and delivering a product or service.
■ Facilities might include
– Warehouses, factories,
– Processing centers,
– Offices,
– Distribution centers, and
– Retail outlets
 Introduction
■ Functions and activities include
– Forecasting,
– Purchasing,
– Inventory management,
– Information management,
– Quality assurance,
– Scheduling,
– Production,
– Distribution,
– Delivery, and
– Customer service
Introduction
 Operations – Value Addition
■ Production/operations management is the process, which combines and transforms
various resources used in the production/operations subsystem of the organization into
value added product/services in a controlled manner as per the policies of the
organization. Therefore, it is that part of an organization, which is concerned with the
transformation of a range of inputs into the required (products/services) having the
requisite quality level.

Value Added

Transformations/ Output
Input
Conversion Process Goods
Materials
Labor Services
Feedback
Capital
Information

Feedback Feedback
Control
Operations – Value Addition
Stage of Production Value Value
Added of
Product
Farmer produces and $0.25 $0.25
harvests wheat
Wheat transported to mill $0.08 $0.33
Mill produces flour $0.15 $0.48
Flour transported to baker $0.08 $0.56
Baker produces bread $0.44 $1.00
Bread transported to grocery $0.08 $1.08
store
Grocery store displays and $0.21 $1.29
sells bread
Total Value-Added $1.29
 Operations – Value Addition

Transformation Transformation
Input Input Input
Process Process
 Operations System - Input
■ Some inputs are used up in the process of creating goods or services; others play a part
in the creation process but are not used up. To distinguish between these.
■ Transformed Resources: Transformed in someway by operation to produce goods of
service that are its out put
– Materials – the physical input to the process
– Information – it is processed or used in the process (Consultancy service)
– Customer – the people who are transformed in someway (hair dressing, hospital)
■ Transforming Resources: used to performed the transformation process
– Staff – Peoples involved directly in the transformation process or support it
– Facilities – land, building, facilities, equipment
 Operations System - Output
■ Tangible Goods – It has physical existence
– Car, Food Items, Computer
■ Intangible Services – No physical existence
– Downloadable Music, Mobile Apps
■ Combination of Both
– A restaurant provides a service, but also produces goods such as food and drinks
 Operations System - Transformation
One useful way of categorizing different types of transformation is into:
■ Manufacture – Physical creation of Product (example car)
■ Transport – Movement of materials or customers (example taxi service)
■ Supply – Change in ownership of goods (example retailing)
■ Service – The treatment of customers or storage of materials (example hospital wards or
warehouses)
Feedback
■ Feedback information is used to control the operations system, by adjusting the inputs and
transformation processes that are used to achieve desired outputs.
 Goods vs. Services

Tangible Act

■ Output ■ Quality assurance

■ Degree of customer contact ■ Inventory
■ Labor content of jobs ■ Wages
■ Uniformity of inputs ■ Ability to patent
■ Measurement of productivity
 Goods and Services Similarities
■ Forecasting and capacity planning to match supply and demand
■ Process management
■ Managing variations
■ Monitoring and controlling costs and productivity
■ Supply Chain Management
■ Location Planning
■ Inventory Management
■ Quality Control
■ Scheduling
 Goods-Service Continuum
■ Products are typically neither purely service- or purely goods-based

Goods Services
Surgery, Teaching

Songwriting, Software Development

Computer Repair, Restaurant Meal

Home Remodeling, Retail Sales

Automobile Assembly, Steelmaking

 Operations Management - Scope
■ Forecasting
■ Capacity planning
■ Facilities and Layout
■ Scheduling
■ Managing inventories
■ Assuring quality
■ Motivating and training employees
■ Deciding where to locate facilities
■ And more……
 Operations Management - Responsibilities
■ Planning ■ Directing or leading
– Capacity – Incentive Plans
– Location – Issuance of work order
– Products & services
– Job Assignment
– Make or Buy
– Layout ■ Controlling and Improving
– Projects – Inventory
– Scheduling – Quality
■ Organizing – Cost
– Degree of Centralizing – Productivity
– Process Selection
■ Staffing
– Hiring or Laying off
– Use of Overtime
 Why Operations Management ?
Industrial
Engineering
Maintenance
Distribution

Purchasing Public
Operations Relations

Legal
Personnel

Accounting MIS
 Operational Decision
■ Consists of all activities directly related to producing goods or providing services.
■ What
– What resources/what amounts
■ When
– Needed/scheduled/ordered
■ Where
– Work to be done
■ How
– Designed
■ Who
– To do the work
 Operational Decision
Models
■ Physical
■ Schematic
■ Mathematical
Approach
■ Quantitative approaches
■ Analysis of trade-offs
■ Systems approach
 Operational Decision
System Design
■ Capacity
■ Locations
■ Arrangement of departments
■ Product and service planning
■ Acquisition and placement of
System Operations
■ Personnel
■ Project,
■ Inventory
■ Scheduling
■ Project management
■ Quality assurance
 Operational Decision

Mission

Goals

Organizational Strategies

Functional Goals

Finance Marketing Operations

Strategies Strategies Strategies

Tactics Tactics Tactics

Operating Operating Operating

procedures procedures procedures
 Career Opportunities in Operations Management?
■ Financial Service ■ Information Services
– Stock market analyst – Corporate intelligent
– Broker – Library services
– Invest banker
– MIS design services
– Loan officer
■ Marketing
– Marketing analyst
– Marketing researcher
– Advertising manager
– Product manager
■ Accounting
– Corporate account
– Budget analyst
– Public account
 Why Operations Management ?
■ Two different functional line
– Operations
– Sales
Operations
Others are
■ Accounting
■ Finance
■ Marketing
Marketing Finance
■ IT and so on
 Competitiveness
■ How effectively an organization addresses customer value relative to other firms/players
in the industry that offer similar goods or services.
Competitiveness
Porter’s Value Chain Model
■ Company will prospers
■ Company barely gets or
■ Company fails
 Competitiveness
■ Marketing
– Identifying the customer's wants and needs
– Price and quality
– Advertising and promotion
■ Operations
– Product and service design
– Cost
Why some
– Location
organization
– Quality
– Quick response
fails?
– Flexibility
– Inventory management
– Supply chain management
– Service
– managers and workers
 Competitive Dimension
Price

•Make the product or deliver the service cheap

Quality

•Make a great product or delivery a great service

Delivery Speed

•Make the product or deliver the service quickly

Delivery Reliability

•Deliver it when promised

Coping with Changes in Demand

•Change its volume

Flexibility and New-Product Introduction Speed

•Change it
 Mission and Strategy
■ Mission
– The reason for existence for an organization
■ Mission Statement
– Answers the question “What business are we in?”
■ Goals
– Provide detail and scope of mission
■ Strategies
– Plans for achieving organizational goals
■ Tactics
– The methods and actions taken to accomplish strategies
 Mission and Strategy - Example
■ Rita is a high school student. She would like to have a career in business, have a good
job, and earn enough income to live comfortably

■ Mission: Live a good life

■ Goal: Successful career, good income
■ Strategy: Obtain a college education
■ Tactics: Select a college and a major
■ Operations: Take courses, study, graduate, get job
 Management Strategy

Ø Defining Goal
Ø Making policies
Ø Determination of organization objectives
Ø Acquisition of resources
Ø Plant location
Ø New product establishments
Ø Monitoring of budget
Effective Use of resources and
facilities to carry activities with
budget constraint
 Different Strategies
■ Low cost
■ Scale based strategies
■ Specialization
■ Newness
■ Flexible operations
■ High quality
■ Service
■ sustainability
 How to formulate strategy?
■ SWOT analysis
■ S – Strength
■ W – Weakness
■ O – Opportunity
■ T – Threats

■ Order qualifiers
– Characteristics that customers
perceive as minimum standards of
acceptability to be considered as a
potential purchase
■ Order winners
– Characteristics of an organization’s
goods or services that cause it to be
perceived as better than the
competition
 Strategy Formulation - Environment Scanning
External Factor Internal Factor
■ Economical Conditions ■ Human Resources
■ Political Conditions ■ Facilities and Equipment
■ Legal Environment ■ Financial Resources
■ Technology ■ Customers
■ Competition ■ Products and Services
■ Markets ■ Technology
■ Suppliers
 Production
What is Production?
■ Production is basically an activity of transformation , which connects factor inputs and
outputs.
■ Inputs are considered variable or fixed depending on how readily their usage can be changed
Fixed input
■ An input for which the level of usage cannot readily be changed
■ In economic sense, a fixed input is one whose supply is inelastic in the short run.
■ In technical sense, a fixed input is one that remains fixed (or constant) for certain level of
output.
Variable input
■ A variable input is one whose supply in the short run is elastic, example, labor, raw materials,
and the like. Users of such inputs can employ a larger quantity in the short run.
■ Technically, a variable input is one that changes with changes in output. In the long run, all
inputs are variable.
 Productivity
■ Important tool to measure the growth of an organization
■ A simple way of looking at productivity in an organization to see how well an organization
(or individual, country) convert its input (labor, materials, machines, etc.) resources into
outputs (goods and services).
■ ILO defines the productivity as the relation between “output of work” and “input of
resources” used in the process of creating wealth.
 Productivity Measurement
■ Productivity can be measured as the amount of output per unit of input.
■ In a factory, it might be measured based on the number of hours it takes to produce a
good.
■ While in service industry, might be measured based on the income generated by an
employee divided by his/her salary.
■ Productivity is the ratio of the outputs of an activity to the inputs consumed to make
those activity.
Output
Productivity =
Input
■ Output is in the form of product quantity and input is in the form of resources.
■ The resources are in the form of
– Land acquired
– Salaries paid to employees
– Amount paid to purchase material
– Amount spent in infrastructure
 Productivity Measurement
Productivity

Single Factor Multi Factor

Partial Productivity Total Productivity Total Factor Productivity

(Only one input is considered) (Sum of all input is considered) (Labor and Capital Input is
considered)

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Single Factor Productivity = .&/"# $"%&#'#( )* +%,"-

!"# $"%&#'#( )* +%,"-

Multifactor productivity = ,%0)*12%/'#%,13%#-*'%,41-&-*5(1)#6-*4
×100
Productivity Measurement
Productivity Measurement
Productivity Measurement
 Productivity Measurement - Example
Compute the productivity. Multifactor and partial productivity
■ 7040 Units Produced
■ Sold for $1.10/unit
■ Cost of labor of $1,000
■ Cost of materials: $520
■ Cost of overhead: $2000
 Productivity Growth
E;88FG= HF8>9: H89:;<=>?>=@ − 78F?>9;J HF8>9: H89:;<?>=@
789:;<=>?>=@ A89B=ℎ =
78F?>9;J HF8>9: H89:;<=>?>=@

■ Productivity of production house x has been increased from 80 to 84. What will be the
productivity growth?
 Factors Affecting Productivity
■ Input Related Factors ■ Technical Factors
– Man – Research and Development
– Machine Techniques
– Material – Improvement in technology that can
lead to increase the output, which
– Time ultimately affects
– Space
■ Managerial Factors
– Energy
– Production manager should
– Finance perform his duties properly for
■ Organizational Factor getting higher output
– Design and transformation process – Work force
required to produce item – Scheduling
– Training and others skill of the – Financial management
workers, – Layout
– Control and – Work environment
– Different incentives given to the – Personnel policies
workers
– Materials management
 Factors Affecting Productivity
■ Labor Factor ■ Quality improvement
– Degree of scale of the worker – Quality should be according to
– Health customer satisfaction
– Attitude to management – It should be checked at regular
interval using control charts and
– Training etc. inspection
■ External Factor
– Power supply
– Transport facility
– Taxes
– Law and order etc.
 Ways to Improve Productivity
■ Labor Factor
– Degree of scale of the worker
– Health
– Attitude to management
– Training etc.
■ External Factor
– Power supply
– Transport facility
– Taxes
– Law and order etc.
 Ways to Improve Productivity
■ Labor Factor
– Degree of scale of the worker
– Health
– Attitude to management
– Training etc.
■ External Factor
– Power supply
– Transport facility
– Taxes
– Law and order etc.
 Operations Management – Historical Evaluation
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 Operations Management – Historical Evaluation
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