OPERATIONS MANAGEMENT
WEEK 1
Historic Evolution of Operations Management
- Craft Production System
- The Industrial Revolution
- Scientific Management
- The Human Relations movement
- Decision Models and Management Science
- The influence of Japanese Manufacturers
Craft Production System
It is a system of production in which highly skilled workers use simple, flexible tools to produce
small quantities of customized goods according to customer specifications.
Shortcomings:
Production was slow and costly. Replacements or repairs were also slow and costly.
Production cost did not decrease as volume increased. No economies of scale.
Therefore, many small companies emerged, each with its own set of standards.
The Industrial Revolution
Development of standard gauging systems gave a major boost to the Industrial Revolution.
The effect was:
It reduced the need for custom-made goods.
Factories began to spring up and grow rapidly, providing jobs for countless people who were
attracted in large numbers from rural areas.
Scientific Management
Heavily focused on maximizing the output and enhancing the efficiency of the production
process.
Spear headed by Fedric Winslow Taylor (Father of Scientific Management)
Other industrialists and engineers who also contributed to scientific management.
- Frank Gilbrest
- Henry Gantt
- Harrington Emerson
- Henry Ford
Fedric Taylor studied work methods to identify the best method for doing a job.
There is one best way to do a particular job.
Workers should be assigned a job based on capability and competence.
Managers and workers should be allocated the work in such a way that the managers spent
their time planning and training, allowing the workers to perform their tasks efficiently.
He believed that management should be responsible for planning, selecting, training workers,
and finding the best way to perform each job. Therefore, his methods were primarily oriented
towards maximizing the outputs.
Frank Gilbreth (Father of Motion Study)
An industrial engineer who developed principles of motion economy that could be applied to
very small portions of a task.
Henry Gantt
Recognized the value of non-monetary rewards to motivate workers and developed a widely
used system for scheduling called Gantt Charts.
Harrington Emerson
Applied Taylor’s ideas to organizational structure and testified that railroads could save million
dollars a day by applying principles of scientific management.
Henry Ford
Employed scientific management techniques and moving assembly lines which had a
tremendous impact on production methods in many industries.
Used the concept of “Division of Labor”, the breaking up of production process into small tasks
so that each worker performs a small portion of the overall job.
His primary contribution was Mass Production.
The Human Relations Movement
Emphasized the importance of Human element in Job design and motivation.
Psychologists who contributed to Human Relations Management are:
- Lilian Gilbreth
- Elton Mayo
- Abraham Maslow
- Douglas McGregor
Lilian Gilbreth focused on human factors in work. Her studies dealt with worker fatigue.
Elton Mayo conducted studies and revealed that in addition to physical and technical aspects of
work, worker motivation is critical for improving productivity.
Abraham Maslow developed motivational theories during 1940s which is popularly known as
Maslow’s Hierarchy needs.
Physiological needs → Safety needs → Social needs → Esteem needs → Self-actualization needs
Douglas McGregor, introduced Theory X and Theory Y
Decision Models and Management Science
F W Harris developed a mathematical model for Inventory Management in 1915.
H F Dodge, H G Roming and W Shewhart at Bell Labs developed statistical procedures for
sampling and quality control in 1930s
L H C Tippett conducted studies that provided the groundwork for statistical sampling theory in
1935.
The Influence of Japanese Manufacturers
Brought “Quality revolution” by emphasizing on quality, continual improvement, worker teams,
empowerment and achieving customer satisfaction.
Widespread terms “Lean Production”, “Just in time Production”, “Toyota Production System
(TPS)”, Total Quality Management (TQM), all came from Japanese manufacturers.
Date Contribution/Concept Contributor
1776 Division of Labor Adam Smith
1790 Interchangeable Parts Eli Whitney
1911 Principles of Scientific Management Frederick W Taylor
Frank and Lillian
1911 Motion Study, use of Industrial Psychology Gilbreth
1912 Chart for Scheduling activities Henry Gantt
1913 Moving Assembly line Henry Ford
1915 Mathematical model for Inventory Management F W Harris
1930 Hawthorne Studies Elton Mayo
H.F. Dodge, H.G.
Roming, W.Shewart,
1935 Statistical Procedure for sampling and quality control L.H.C.Tippet
Operation Research
1940 Operation Research Applications in Warfare Group
1947 Linear Programming George Dantzig
Japanese
Manufacturers
(Toyota and Taiichi
1975 Emphasis on Quality, Lean Production Ohino)
Operations Management in a manufacturing and service organization
Operations management is the management of systems or process that create goods or provide
services.
Inputs → Value added → Outputs.
Various types of Operations
Types of Operations Examples
Farming. Mining, Construction, Manufacturing, Power
Goods Producing generating
Warehousing, Trucking, Mail Service, Moving, Taxis,
Storage/Transportation Buses, Hotels. Airlines
Retailing, Wholesaling, Financial advising, Renting or
Exchange Leasing, Stock Exchange
Entertainment Films, Radio, Television, Plays, Concert, Recording
Newspaper. Radio, TV newscasts, Telephone, Satellites,
Communication Internet
Production of Goods vs Delivery of Service.
- Tangibility of the output
- Manufacturing is goods oriented, and service is act oriented.
- Production of Goods and delivery of service differ in degree of customer contact,
uniformity of input and output, Labor content, measurement of productivity, Quality
assurance, inventory, evaluation, and patentable characteristics.
Characteristics Goods Services
Degree of customer contact Low High
Uniformity of Input High Low
Labor Content Low High
Uniformity of Output High Low
Output Tangible Intangible
Measurement of Productivity Easy Difficult
Quality assurance High Low
Inventory Much Little
Evaluation Easier Difficult
Not
Patentable Usually Usually
Competitiveness, Strategy and Productivity
Competitiveness refers to how effectively organization meets the wants and needs of customers
relative to others that offer similar goods or services.
Business organizations compete through a combination of marketing functions and operation
functions.
How marketing function influence competitiveness?
- Identifying the consumer want/needs.
- Pricing
- Advertising and promotion
How operation function influences competitiveness?
- Product and Service design: Special characteristics or features of a product or service
can be a key factor in consumer buying decisions.
- Cost: Cost of output is a key variable that affects pricing decisions and profit.
- Location: Location near markets can result in lower transportation costs and quicker
delivery times.
- Quality: Customers are generally willing to pay more for a product or service if they
perceive the product or service to have a higher quality than that of a competitor.
- Quick response: Quickly brining new or improved products or services and quickly
delivering existing products or services after they ordered can be a competitive
advantage.
- Flexibility: alterations in the design features to meet the customer requirements.
- Inventory: Effectively matching supplies of goods with demand.
- Supply Chain Management: Timely and cost effective delivery of goods is a competitive
advantage.
- Service quality: Service quality can be a key differentiator.
Why some organizations fail?
- Failing to consider customer wants and needs.
- Putting too much emphasis on short term financial performance at the expense of R&D.
- Failing to take advantage of strengths and opportunities and failing to recognize
competitive threats.
- Neglecting operations strategy
- Placing too much emphasis on product and service design and not enough on process
design and improvement.
- Neglecting investments in capital and human resources.
- Failing to establish good internal communications and cooperation among functional
areas.
Strategy
Strategy refers to plans for achieving organizational goals.
Mission: The reason for the existence of an organization.
Mission statement: States the purpose of an organization.
Goals. Provide detail and scope of the mission.
Difference between Strategies and Tactics
- Tactics are the methods and actions used to accomplish strategies.
- Tactics are often referred to as the “How to” part of the process.
Examples of different strategies
Low cost: Outsource operations to third world countries that have low labor cost.
Scale based strategies: Use capital intensive methods to achieve high out volume and low unit
cost.
Flexible operations: Focus on quick response or customization.
High Quality: Focus on achieving higher quality than competitors.
Service: Focus on various aspects of service.
Strategy Formulation
Scan the Environment: SWOT analysis.
Distinctive competencies: The spatial attributes or abilities that give an organization a
competitive advantage.
Order qualifiers: Characteristics that customers perceive as minimum standards of acceptability
to be considered as potential for purchase.
Order winners: Characteristics an organization’s goods or service that cause them to be
perceived as better than the competition.
Internal factors: Human resources. Facilities and equipment, Financial resources, customers,
product and services, Technology, Suppliers and others.
External factors: Economic and political conditions, legal environment, technology, competition
and markets.
Strategy can be divided into Quality based strategy and Time-based strategy.
Quality based strategy: Focuses on maintaining or improving the quality of an organization’s
product or services. It could be a part of cost reduction or increased productivity or time
strategy.
Time based strategy: Focuses on reducing time required to accomplish various activities such as
planning time, product/service design, processing, changeover, response time for complaints
and others.
Productivity
It is an index that measures output (goods and services) relative to the input (labor, materials,
and other sources) used to produce them. It is usually expressed as
Productivity = Output/Input
Productivity Growth = (Current Productivity - Previous Productivity) / Previous Productivity
Different types of productivity measures
Partial measures: Output / Labor, Output / Machine, Output / Capital, Output / Energy
Multifactor measures: Output / (Labor + Machine), Output / (Labor+Capital+Energy)
Total Measure: Goods or services produced / all inputs used to produce them.
Question: Determine the productivity for the following cases
A: Four workers installed 720 square yards of carpeting in 8 hours
B: A machine produced 68 usable pieces in two hours.
Answer:
A: Productivity = Output / Input
= Yards of carpet installed / Labor hours worked
= 720 / (4*8 hours)
= 720 yards / 32 hours
= 22.5 yards/hour
B: Productivity = usable pieces / production time
= 68 pieces / 2 hours
= 34 pieces/hour
Question: Determine the multifactor productivity for the combined input of labor and machine
time using the following data.
Output: 7040 units
Input: Labor – 1000$, Material – 520$. Overhead – 2000$
Productivity = 7040 / (1000+520+2000)
= 2 units per dollar input
Factors that affect productivity
Standardizing
Quality differences
Use of Internet
Computer viruses
Scrap rate
New workers
Safety
Shortage of IT or technical worker
Layoffs
Labor turnover
Design of Workspace
Incentives
WEEK 2
