CHAPTER-1
Operations and Productivity
Introduction
Operations management is the set of
activities that creates value in the form of
goods and services by transforming inputs
into outputs.
Production is the creation of goods and
services.
Operation management is equally important
for both production and service industries
although practice of OM is much obvious and
tangible in goods industry.
Organizing to Produce Goods and
Services
In transformation process, all organizations
perform three functions.
1) Marketing: generates demand, takes order.
2) Production: creates product
3) Finance: tracks financial position, pays bills
and collects money.
For fruit juice industry, following supply chain
occurs before it reach to customer:
Farmer-----Syrup producer----- Bottler-----
Distributor-----Retailer-----Customer
Objectives
Design of goods and services: Defines much of
what is required. Product design usually
determines the lower limits of cost and upper
limit of quality.
Managing quality: Determines the customer’s
quality expectations and establishes policies
and procedures to identify and achieve that
quality.
Process and capacity design: determines how
goods and service is produced and commits
management to specific technology, quality,
HR and capital structures.
Location strategy: require judgement
regarding nearness to customers, suppliers,
talent considering costs, infrastructure,
logistics and government.
Layout strategy
HR and job design: determines how to
motivate, recruit and retain personnel with
the required talent and skills.
Supply chain management: decides how to
integrate supply chain into firm’s strategy
including decisions what is to be purchased
from whom and under what conditions.
Inventory management: considers inventory
ordering and holding decisions and their
proper optimizations.
Scheduling and maintenance.
Heritage of OM
Pre-Industrial Revolution
One of the first people to address the issues of
operations management was the Scottish
philosopher -- and father of modern economics --
Adam Smith. In 1776 Smith wrote "The Wealth of
Nations," in which he described the division of
labor. According to Smith, if workers divided their
tasks, then they could produce their products
more efficiently than if the same number of
workers each built products from start to finish.
This concept would later be used by Henry Ford
with the introduction of the assembly line.
Post-Industrial Revolution
During the industrial revolution, machinery allowed
factories to grow in capacity and greatly increased their
output. Despite this growth, there was considerable
inefficiency in production. Two individuals helped to
overcome these inefficiencies in the early 20th century:
Frederick Winslow Taylor and Ford. Taylor developed a
scientific approach for operations management,
collecting data about production, analyzing this data and
using it to make improvements to operations. Ford
increased efficiency in production by introducing
assembly line production and improved the supply chain
through just-in-time delivery.
Post-World War II
Technological developments during the second world war
created new possibilities for managers looking to improve
their operations. Specifically, the development of
computational technology allowed for a greater degree of
data to be analyzed by firms. The abilities of computers
have continued to increase exponentially, allowing for a
high degree of data analysis and communication. Modern
producers are now able to track their inventory from raw
materials, through production and delivery.
Modern Day
Quality management systems are popular in today's
operations management. Quality management is a
system for mapping, improving and monitoring
operations processes. A variety of quality management
systems are in use among top firms, the most notable
systems being the ISO systems and Six Sigma. These
systems aim to increase the efficiency of business
processes. Although operations management has
typically dealt with the manufacturing process, the
growth of the service industry has created a field of
service operations management.
Operations for Service Sector
Operations management for
services has the functional responsibility for
producing the services of an organization and
providing them directly to its customers. It
specifically deals with decisions required by
operations managers for simultaneous production
and consumption of an intangible product. These
decisions concern the process, people, information
and the system that produces and delivers the
service. It differs from operations management, since
the processes of service
organizations differ from those of
manufacturing organizations.
Trends in Operations Management
Mass customization
Efficient supply chain management
Outsourcing
Lean manufacturing
E-commerce
Efficient HRM
Efficient scheduling (CPM, PERT)
Productivity Challenges
The creation of goods and services requires
changing resources into goods and services.
The more efficiently we make this change, the
more productive we are.
Productivity is the ratio of outputs( goods and
services) divided by the inputs( resources).
The operation’s manager job is to enhance
the productivity.
This improvement can be achieved in two
ways: reducing inputs while keeping outputs
constant or vice versa.
Quality may change while the quantity of
inputs and outputs remain constant. Compare
modern 4k TV with 1970’s black and white.
Both are TV but quality has improved over
time.
External elements may cause increase or
decrease in productivity like politics, electric
power variation etc.
Productivity management for service sector is
difficult and precise units of measurements
are lacking. Eg- quality of hair cut, doctor
checkups etc.
Labor, Capital, Management are productivity
variables.
Challenges in OM
Global focus
Supply chain management
Sustainability (to environment and to
product)
Rapid product development
Mass customization
Just in time performance
Empowered employees
