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Chapter 1

Operations
Management:
Trends & Issues
Operations Management
Definition
 An operations system is defined as one in
which
 several activities are performed
 to transform a set of inputs into useful output
 using a transformation process
 Operations Management is
 a systematic approach to
 address all the issues pertaining to
 the transformation process that converts some
inputs into output that are useful, and
 could fetch revenue to the operations system

Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Operations Management (OM)
Salient Aspects
 OM is a systematic approach
 using scientific tools & techniques and solution
methodologies to analyze problems
 OM is about addressing several issues
 varying in terms of time horizon, nature of
decisions
 Transformation processes are central to
Operations
 Focusing on keeping costs to the minimum
 Developing a set of measures to assess
performance of the system
Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Manufacturing Sector
Salient Aspects
Index of Industrial Production* 2003‐04 2004‐05 2005‐06 2006‐07 Average
Manufacturing 9.20 9.10 12.50 10.27
Capital goods 13.60 13.90 15.80 18.20 15.38
Consumer goods 7.20 11.70 12.00 10.10 10.25
Intermediate goods 6.40 6.10 2.50 12.00 6.75
Corporate Sector Performance #

Sales/Income: Manufacturing 13.30 20.50 18.30 23.10 18.80


Sales/Income: Services (other than 
financial)  27.00 21.40 15.70 22.60 21.68 All number in the table
Sales/Income: Financial services  ‐9.10 ‐66.10 ‐13.90 32.60 ‐14.13 represent growth %
Wages and Salaries: Manufacturing  6.70 3.00 8.90 18.20 9.20 over the previous year

Wages and Salaries: Services (other than  * Compiled from


financial)  16.00 35.10 17.90 26.50 23.88 Economic Survey 2007
– 08, Government of
Wages and Salaries: Financial services  12.80 8.60 11.20 10.90 10.88 India, Ministry of
PAT: Manufacturing  147.80 58.30 17.30 58.40 70.45 Finance, Economic
PAT: Services (other than financial)  165.60 109.90 39.50 27.60 85.65 Division, Oxford
University Press, New
PAT: Financial services  62.30 ‐2.70 27.70 34.90 30.55 Delhi, 2008, pp 201
Total Assets: Manufacturing  7.00 12.50 18.80 20.70 14.75
# Compiled from
Total Assets: Services (other than  Economic Intelligence
financial)  11.10 13.30 18.10 21.60 16.03 Services (EIS) database
Total Assets: Financial services  14.70 14.60 18.60 23.80 17.93 on Corporate Sector

Gross Savings: Manufacturing  58.60 31.50 14.00 45.10 37.30


Gross Savings: Services (other than 
financial)  34.30 40.20 11.90 31.60 29.50
Gross Savings: Financial services  30.80 8.50 17.30 24.30 20.23
Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Indian Manufacturing
Export Potential of Sectors
Current Potential
Sector of Industry Strengths Weaknesses
Exports Exports
Electrical & Electronics $ 1.25 b $ 15 - 18 b Design & Lack of scale,
Engineering Low domestic
skills, vendor demand
base
Apparel Manufacturing $ 6.10 b $ 25 - 30 b Vertical Lack of scale,
integration, operational
skilled labour, expertise
design skills
Auto-components $ 1.10 b $ 20 - 25 b Engineering and Fragmented
continuous industry and
improvement of poor OEM
skills linkages
Specialty chemicals $ 1.60 b $ 12 - 15 b Low cost Application R & D
manpower and and marketing
process
innovation skills

Source: Based on Roshni Jayakar, “Manufacturing’s Next Export Wave,” Business Today, 24 April 2005 , pp.
66–72.

Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Service – Manufacturing
Continuum
Pure Product Pure Service

Ayurvedic Healing Treatment


Legal/Tax Consulting
Cyber Café – Telephone Booths
Emergency Maintenance Services
Facilities Maintenance
High quality restaurant meal
Fast food in a eat out joint
Customized durable goods
Fast moving commodities
Vending Machines
Adopted from Hill, T. (2005), Operations Management (Palgrave Macmillan), 2nd Edition, pp 14.

Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Service Sector in India
GDP growth rate

Service Sectors 2001 2002 2003- 2004 2005 2006-


-02 -03 04 -05 -06 07
Trade, Hotels, Transport, 9.2 9.4 12.0 10.7 11.5 11.8
Communications
Financial Services, 7.3 8.0 5.6 8.7 11.4 13.9
Insurance, Real Estate &
business services
Public administration & 4.1 3.9 5.4 6.9 7.2 6.9
defence and other services
All number in the table represent growth % over the previous year
* Compiled from Economic Survey 2007 – 08, Government of India, Ministry of Finance, Economic Division,
Oxford University Press, New Delhi, 2008, Table A-7.

Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Service Operations
Salient Features
 Tangibility: Services are performances and
actions rather than objects, therefore
having poor tangibility
 Heterogeneity: High variability in the
operation system performance
 Simultaneous Production & Consumption:
Degree of customer contact is very high
 Perishability: Services cannot be
inventoried as in the case of manufactured
products.

Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Operations Management in Services
Process flow diagram for passport application
processing

Source: Ravichandran, N and D. Bahuguna (2006), “Rule Bound Government Agency to Customer Centric Service
Facility: Can Indian Passport Offices make the leap?” IIMB Management Review, 18(1), 59 – 66.
Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Manufacturing & Service
Similarities & Differences
Manufacturing Organizations Service Organizations
Differences
Physical durable product Intangible, perishable product
Output can be inventoried Output can’t be inventoried
Low customer contact High customer contact
Long response time Short response time
Regional, national, Intl. markets Local markets
Large facilities Small facilities
Capital intensive Labour intensive

Quality easily measured Quality not easily measured


Similarities
Is concerned about quality, productivity & timely response to its customers
Must make choices about capacity, location, layout
Has suppliers to deal with
Has to plan its operations, schedules and resources
Balance capacity with demand by a careful choice of resources
Has to make an estimate of demand

Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Operations
A key functional area in an Organisation

Finance

Operations

Marketing HRM

Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Operations Function
Linkages with other functions
Customer Layer Operations Support Layer

Ultimate Dealers Marketing Maintenance Quality


Customer Retailers

Costing Planning Tooling

Core Operations Layer Material IT Design IE

Testing Assembly
Layer of
Innovation
Fabrication Machining
Innovation Supplier Layer
Strategy Service Delivery system
Sub-contractors Suppliers
Research &
Development Other service providers

Source: B Mahadevan, The New Manufacturing Architecture, Tata McGraw Hill, New Delhi, 1999.

Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Operations Management
A systems Perspective

Forecasting

PROCESSING
Labour Process & Purchasing & Goods

OUTPUT
Product Inventory
INPUT

Design Control
Material

Capital Operations Material & Services


Planning & Capacity
Control Planning

Feedback
Quality Maintenance Process
Management Management Improvement

Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Operations Management
Functions

Design of Operations Operational Control of Operations

Product Design & Development Forecasting


Process Design Production Planning and Control
Quality Management Supply Chain Management
Location and Layout of facilities Maintenance Management
Capacity Planning Continuous improvement of operations

• Design issues in Operations Management lay down overall


constraints under which the operations system functions
• Operational Control issues focuses on optimizing the use of
available resources in the short-term while delivering goods and
services as per plan under the given design constraints

Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Operations Management
Challenges
 Competitive Pressures due to economic
reforms
 Tariff reduction has exposed Indian companies to
global competition
 Chelliah Committee tax reforms proposed during 1992
– 94 triggered this process
 Abolition licensing policies had enabled several new
players to enter into business increasing domestic
competition and capacity build up
 Examples include liberalization of two wheelers and LCV
segment in early 1980’s and passenger car segment in
early 1990’s
 Indian customers are more demanding in terms of
quality, cost and delivery of goods & services

Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Operations Management
Challenges

 Growing customer expectations


 Examples: Tariff plans and options provided
by mobile operators, options in passenger
car
 Customers tend to demand more and refine
their expectations
 Manufacturing & Service organizations must
learn to respond to these expectations
 Need to develop capabilities to bring newer
products and services faster and yet
profitably

Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Operations Management
Challenges
 Today’s businesses are constantly challenged
by the rapid technological advancements
 Example 1: ATMs & Internet Banking. Customers need not
visit a bank branch. Drafts and cheques replaced with electronic
payment gateways & fund transfer mechanisms.
 Example 2: Buying a train ticket. By visiting a Web site like
http://www.irctc.co.in/, a customer can accomplish all tasks
pertaining to ticket booking and cancellation at leisure.
 Example 3: Procurement of goods & services. A
manufacturing organization can procure goods & services by
organizing a reverse auction on the Internet. In 3 to 4 hours, the
best price for a component and the supplier willing to provide the
component at a desired quality can be located.
 Example 4: New Product Development. A team of design
personnel from across different geographical locations can
participate in new product development using technological tools.

Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Operations Management
Challenges
 Environmental Issues
 When Government of India announced a scheme for special
economic zones (SEZs), it generated controversies and social
concerns.
 Growing industrialization raises concerns regarding the depletion
of natural resources and the waste generated from production
systems and end-of-life products.
 Growing urbanization creates societal problems arising out of
scarcity of available resources and generation of solid wastes.
 Consumption of energy and water in countries like India is on the
rise. Such a situation requires better practices and newer methods
of addressing these requirements using better operational
practices.
 Increasingly, firms are under pressure to take responsibility of
restoring, sustaining, and expanding the planet’s ecosystem
instead of merely exploiting it.
 OM practices must address environmental concerns in
order to ensure a sustainable world
Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Operations Management
Implications & Priorities

 Relate operations system to Customer/


Market
 Acquire Capabilities to tolerate product
proliferation
 Develop systems and procedures that
promote learning
 Develop Green Manufacturing Practices

Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Operations Management: Trends & Issues
Chapter Highlights
 Operations Management is a systematic
approach to address all issues pertaining to the
transformation process that converts some
inputs into useful output
 Globally, India is emerging as an important
manufacturing base.
 Several recent studies point to emerging
opportunities for Indian manufacturing to grow
and attain a global presence.
 From an operations management perspective,
the notion of a ‘pure product’ and ‘pure service’
is just the two ends of the spectrum.
 In reality, a vast majority of operations share a
continuum of products and services.

Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education
Operations Management: Trends & Issues
Chapter Highlights…
 Despite several important differences between
products & services, from an OM perspective
there are several similarities between the two
 Decision context in operations management
can be broadly classified as
 Design and operations control issues
 Long term and short term decisions
 Some of the challenges faced by operation
firms include
 Need to address increased competition due to
economic reforms
 Addressing the growing expectations of the
customers
 Rapid technological advances
 Emerging environmental concerns

Mahadevan (2010), “Operations Management: Theory & Practice”, 2nd Edition © Pearson Education