UNIT 1

AN OVERVIEW OF OPERATIONS AND PRODUCTION MANAGEMENT

INTRODUCTION

 Efficient and effective management of production resources (human resource, raw

materials, etc) is crucial for success in the global economy.
 Operations and production management involves designing and controlling systems to use
resources for developing products or services.
 Operations management focuses on managing productive resources like human resources,
raw materials, equipment, and facilities.
 Managing productive resources is essential for strategic growth and competitiveness.
 Production management used to be associated with manufacturing but now applies to
various sectors like services, healthcare, banking, education, and more.
 The field is now known as production/operations management (POM) or simply
Operations Management (OM) to reflect its diverse applications.

Production /operations Management

 Operations and production management involves producing goods and services that
people use every day.
 It helps organizations achieve their goals by efficiently using resources.
 Operations Management (OM) controls the process of turning inputs into finished
products.
 It designs, operates, and improves production systems for creating a company's main
products or services.
 OM manages the resources needed to produce goods and services based on the
organization's strategy.
 OM focuses on effectively and efficiently managing the transformation process.
 Effectiveness in OM means meeting customer needs and contributing to the company's
goals.
 Efficiency in OM relates to the costs involved in delivering outputs compared to the
value or cost of the output.
 Effectiveness deals with customer satisfaction and strategic positioning, while efficiency
focuses on productivity, cost control, and variance analysis.

Operation system
 Operations management is essential for businesses.
 It involves creating goods or services using inputs and transformation processes.
 Measurements and evaluations are taken throughout the process to ensure desired
outputs.
 Feedback is used to compare results to established standards and take corrective action
if needed.
 The goal of operations is to add value during the transformation process.
 Value added is the difference between input costs and the value of outputs.

OPERATION FUNCTIONS AND ITS ENVIRONMENT

 Operations management is a key function in every business.

 It involves creating products or services that meet customer needs.
 Success in business relies on having efficient production processes.
 Operations function interacts with other parts of the business like marketing and
finance.
 This interaction helps protect the production process from external influences.
 It ensures that production runs smoothly and efficiently.
 Different skills are needed for managing production compared to other business
functions.
Operations Decision making

 Operations activity involves making numerous decisions daily that impact the
company's success.
 Decisions range from simple judgments to complex analyses, often based on past
experience and common sense.
 Objective and subjective data are combined to make choices, sometimes using
quantitative methods for added objectivity.
 Operations managers make decisions in key areas like:

Strategic decisions:

- Product and service planning

- Competitive priorities (e.g., TQM, statistical processes)
- Location, capacity, and layout decisions
Design decisions:
- Focuses on the production system
- Includes process design technology and job design

Operating decisions:
 - Involves running the production system
- Includes forecasting, materials management, inventory management, aggregate
planning, and scheduling.

Quantitative Approaches

- Quantitative approaches to problem solving aim to find mathematically optimal

solutions for managerial issues.
- Commonly used quantitative methods include:
- Linear programming
- Queuing techniques
- Inventory models
- Forecasting techniques
- Statistical models
- Operational decisions become more complex when:
- Involving many variables
- Variables are highly interdependent
- Data describing the variables are incomplete or uncertain
- Decision makers face challenges when working with incomplete and uncertain
data.

Certainty Risk uncertainty

Algebra, Breakeven analysis Statistical analysis Game theory
Cost benefit analysis Queuing theory Decision theory
Calculus, mathematical Simulation
Programming, linear and Net Work analysis;
Non linear, integer, dynamic PERT/CPM
Programming etc. Decision tree, Utility theory etc

A systematic framework for decision-making involves several steps:

- Define the problem and its parameters

- Establish decision criteria and set objectives
- Formulate a model relating parameters to criteria
- Generate alternatives by varying parameter values
- Choose the action that best aligns with organizational goals
- Implement the decision and monitor results
- The next section will cover how to apply quantitative tools in solving operations
problems, focusing on a model applicable to various decision-making scenarios.
Decision Making under Certainty
 Breakeven Analysis (BEA)
- Breakeven Analysis (BEA) is a helpful tool for decision-making.
- It determines the level of output where there is neither profit nor loss.
- Operating below this point leads to a loss, while operating above it brings in profit.
- Understanding the breakeven point helps companies make informed decisions about
production levels.

Decision making under Risk

Decision Tree
- Decision tree is a schematic diagram used to determine expected value.
- It shows the alternative outcomes and independence of choice.
- It is used in risk situation where there is only probabilistic information stated in
probabilistic value.

Decision making under uncertainty

At the opposite extreme is complete uncertainty, no information is available on how likely

the various states of nature are under these condition, four possible decision criteria are:

- Minimax regret – determine the worst regret for each alternative, and choose the
alternative with “ best worst”
- Maximax – determine the best possible payoff and choose the alternative with that
payoff.
- Laplace – determine the average payoff, and choose the alternative with the best
average.
- Maximin- determine the worst possible pay off for each alternative, and then choose
the alternative that has the “best worst”

Difference between Manufacturing and service operations

- Operations management involves designing, operating, and improving production
systems for a company's primary products or services.
- Services are intangible processes, while goods are physical outputs of a process.
- In services, the location of the facility and direct customer involvement are crucial,
while in goods production, they are usually not as important.
- Manufacturing and service are similar in what is done but differ in how it is done.

Customer Contact

- Service operations have higher customer contact compared to manufacturing.

- Service performance often happens at the point of consumption, while manufacturing
can occur in an isolated environment away from customers.

Uniformity of inputs

- Service operations have more variability in inputs compared to manufacturing.

Labor content of Jobs

- Service operations are more labor-intensive, while manufacturing is capital-intensive.

Uniformity of output

- Manufacturing outputs are usually more uniform than service outputs.

Measurement of productivity

- Productivity measurement is simpler in manufacturing compared to service operations.

Difference between manufacturing and service operations (Summary)

-Manufacturers often provide services along with their products, and some services
involve manufacturing physical products.
-Goods can be seen as a way to deliver services.
-Services cannot be stored or inventoried, while goods can be.
-Services involve more customer contact compared to goods.
-Services are typically delivered quickly, while goods have longer lead times.
-Measuring service quality is challenging, while product quality is easier to determine.

HISTORICAL EVOLUTION OF PRODUCTION AND OPERATION

MANAGEMENT
-Operation management has been around since people started producing things
-Efficiency and productivity have always been important throughout history
-Large organizations like governments, armies, and religious institutions have always
focused on productivity
-Adam Smith in the 18th century recognized the benefits of specialized labor
-F.W. Taylor developed scientific management in the early 20th century
-Production management was the accepted term from the 1930s to the 1950s
-Operations management emerged in the 1970s, focusing on both service and
manufacturing sectors
-There is now a shift towards synthesis in management practices
-Operations management is becoming a vital strategic element in organizations
-Contributions from various disciplines such as industrial engineering and management
science are helping progress operations management
-Information sciences play a big role in operations management by organizing data to
make useful information
-This helps boost productivity and offer more goods and services to society
-Operations management decisions need people who understand management science,
information science, and sometimes a biological or physical science

Historical summary of operations management

Productivity measurement
Productivity is a common measure of how well a country, industry or business unit
is using its resources (or factors of production). In its broadest sense, productivity is
defined as:
 Productivity = Input
Output
- Productivity is about getting more output from the resources we put in
- It's important to compare productivity with similar operations or over time
- Productivity can be measured in different ways: partial, multifactor, or total
- Partial measures look at output compared to one input, multifactor measures
compare output to a group of inputs, and total measures look at all outputs
compared to all inputs
- Total measures can describe the productivity of a whole organization or even a
country
Productivity Variables
- Labor, capital, and management are key factors for improving productivity
- Improving labor productivity involves having a healthy, well-educated, and well-fed
workforce
- Capital investment provides tools for workers and is crucial for productivity growth
- Management plays a significant role in ensuring efficient use of labor and capital to boost
productivity
- Knowledge and technology are essential in postindustrial societies for increasing
productivity
- Operations managers are responsible for selecting the best capital investments and
improving existing ones to enhance productivity
- High-quality inputs, including well-educated labor, adequate capital, and up-to-date
technology, are needed for high productivity and quality outputs

Productivity and the Service Sector

- Labor, capital, and management are key factors for improving productivity
- Improving labor productivity involves having a healthy, well-educated, and well-fed
workforce
- Capital investment provides tools for workers and is crucial for productivity growth
- Management plays a significant role in ensuring efficient use of labor and capital to boost
productivity
- Knowledge and technology are essential in postindustrial societies for increasing
productivity
- Operations managers are responsible for selecting the best capital investments and
improving existing ones to enhance productivity
- High-quality inputs, including well-educated labor, adequate capital, and up-to-date
technology, are needed for high productivity and quality outputs

Improving Productivity
 Factors Affecting Productivity and Improving
Factors affecting productivity include methods, capital, quality, technology, and
management

Steps to improve productivity:

1. Develop productivity measures for all operations

2. Focus on the overall system rather than individual operations
3. Develop methods for improving productivity
4. Set achievable improvement goals
5. Ensure management supports and encourages productivity improvement
6. Measure improvements and share the results

Ethics and Social Responsibility

- Operations managers face constant changes and challenges in building systems to
produce goods and services
- Stakeholders like customers, distributors, suppliers, owners, lenders, and employees have
different perspectives that need to be considered
- Ethical challenges for operations managers include developing safe, quality products,
maintaining a clean environment, providing a safe workplace, and honoring community
commitments
- Managers must address these challenges ethically and responsibly while meeting
marketplace demands
- By focusing on increasing productivity in a system where all stakeholders benefit, ethical
challenges can be minimized, the market satisfied, and the ethical climate improved

CHAPTER TWO
OPERATIONS STRATEGY AND COMPETITIVENESS
Introduction
- Corporate strategy coordinates overall goals and core competencies
- Determines target customers, new products/services, responses to changes, and
international market strategy
- Market analysis categorizes customers, identifies needs, and assesses competitors
- Competitive priorities are developed based on customer needs and competitor strengths
- Functional strategies are created based on competitive priorities and corporate directives
- Each functional area develops capabilities to achieve goals and support corporate strategy
- Feedback loop ensures alignment between functional strategies and corporate goals
- Operations strategy implements corporate strategy through operational means
- Links between corporate strategy and operations strategy are described
- Operations strategy defined in relation to competitive priorities
- Focus on operations strategy in manufacturing and services and performance
measurement.

The strategic importance of operations

- Strategy is a plan to reach a goal using resources effectively

- Three forms of strategy: corporate, business, and operational/functional
- Corporate strategy focuses on overall objectives and mission of the organization
- Business strategy determines how the organization will compete in the market
- Operational/functional strategies guide individual functions to support corporate and
business goals
- Operations strategy involves decisions and actions to create goods/services that align
with business strategy
- Operations resources are managed effectively to meet organizational goals

Competitive advantage and competitive priorities

- Competitive advantage is when a company does something better than its competitors to
attract customers
- To gain competitive advantage, a company needs to offer more value to customers than its
rivals
- There are 8 competitive priorities that can help a company stand out in the market
- Two key priorities are cost (being the low-cost producer) and quality (meeting customer
expectations consistently)
- Quality can be seen through high performance design and consistent quality
- To compete on cost, operations managers must lower costs per unit of product or service
- To compete on quality, managers need to ensure products or services consistently meet
customer expectations
- Time is important in business and can impact competitiveness
- Fast delivery time: how quickly an order is filled
- Depends on the product, like a year for a complex machine or minutes for an ambulance
- Can be improved by storing inventory or having extra capacity
- On-time delivery: how often delivery promises are met
- Development speed: how quickly new products or services are introduced, crucial in
industries like fashion
- Flexibility is crucial for responding to customer needs
- Customization: changing products or services to meet unique customer needs
- Like a hairdresser creating a unique hairstyle for a customer
- Volume flexibility: ability to adjust production quickly to handle demand fluctuations
- Important for supporting other competitive priorities

Operations Strategy

- Operations strategy is about making plans to use a company's resources to support its
long-term competitive goals
- It affects how the organization works and competes
- Strategies are plans to achieve goals, with organization strategy covering the whole
company and operations strategy focusing on operations
- Operations strategy involves products, processes, quality, costs, lead times, and
scheduling
- New strategies are emerging based on quality and time
- Time-based strategies aim to reduce the time needed for activities like product
development or customer service to gain a competitive edge
- Benefits include lower costs, higher productivity, better quality, faster innovation, and
improved customer service
- Areas where organizations reduce time include planning, design, processing, changeover,
delivery, and complaint response
- Quality-based strategies focus on integrating quality into all aspects of the organization to
satisfy customers

Selecting competitive priorities

- Firms can improve on all competitive priorities simultaneously by reducing defects and
improving quality in operations
- This can lead to cost reduction, improved productivity, and faster delivery times
- Further improvements in one area may require a trade-off with others
- Manufacturers may need to choose a selected set of competitive priorities to emphasize
- Some competitive priorities become requirements in certain market segments, known as
order qualifiers
- Fulfilling order qualifiers positions a firm to compete but does not guarantee success
- Operations strategy must be linked vertically to customers and horizontally to other parts
of the enterprise
- It can be a key element in achieving strategic corporate objectives
- Input from all functional areas, including operations, is essential in formulating corporate
strategy

Service and manufacturing strategies

- Operations strategy must be connected to customers and other parts of the enterprise
- It is important for achieving corporate objectives
- Input from all functional areas, including operations, is needed for formulating corporate
strategy
- Service firms' operations strategy is closely tied to their corporate strategy
- Service delivery systems are a crucial part of the business
- Competitive priorities help in designing processes for service delivery
- Different strategies like standardized services, assemble-to-order, and customized services
are used in service operations
- Standardize service strategy: for high-volume services with little variety, focusing on
consistent quality, on-time delivery, and low cost
- Assemble-to-order strategy: combining standardized services with custom offerings for
individual customer needs, emphasizing customization and fast delivery
- Customized-services strategy: providing personalized services with high performance
design and customization, suitable for low-volume high variety services

Manufacturing strategies
- Manufacturing strategies differ from service strategies due to the ability to use
inventories
- Make-to-stock strategy: firms hold items in stock for immediate delivery, suitable for
standardized products with high volumes and accurate forecasts
- Assemble-to-order strategy: customized products are made from few assemblies and
components after customer orders, focusing on customization and fast delivery
- Make-to-order strategy: products are made to customer specifications in low volumes,
providing high customization and flexibility

Summary
- Strategic plan provides the frame work with reference to which other functional plans
could be formulated. This is to mean that operations strategies are derivations from
strategic plans.
- Customer driven operations strategy requires translating market needs into desirable
capabilities for the operations function called competitive priorities. There are eight
priorities: low-cost operations, high performance design, consistent quality, fast delivery
time, on time delivery, development speed, customization and volume flexibility. Trade-
offs among them are sometimes necessary. Management must decide on which
dimensions the firm‟s processes should excel.
- With time based competition, managers seek to save time on the various steps taken to
deliver a product or service.
- Process devoted to producing services choose one of the following three operations
strategies: standardized services, which facilitates low-cost operations, consistent quality,
and on time delivery, assemble-to-order services, which facilitates customization and fast
delivery time, and customized services, which facilitates high performance design and
customization.