Operations Conspectus

Basics of Operations Management

Operations Management Operations Management deals with the design and management of
products, processes, services and supply chains. It considers the acquisition, development, and
utilization of resources that firms need to deliver the goods and services their clients want. The purview
of OM ranges from strategic to tactical and operational levels. Representative strategic issues include
determining the size and location of manufacturing plants, deciding the structure of service or
telecommunications networks, and designing technology supply chains. Tactical issues include plant
layout and structure, project management methods, and equipment selection and replacement.
Operational issues include production scheduling and control, inventory management, quality control
and inspection, traffic and materials handling, and equipment maintenance policies.
Production process A production process is defined as a user of resources to transform inputs into
desired output. For a plant that manufactures tyres, raw material, labour and capital can be inputs while
the finished rubber tyre will be the output. The steps through which the raw material is converted into a
finished good can be referred to as a process.
A simple parameter to measure efficiency of a process is productivity. In a broad sense, productivity is
the ratio of goods/services produced to resources used (output to input).
Bottleneck A point of congestion in a system that occurs when workloads arrive at a given point more
quickly than that point can handle them. The inefficiencies brought about by the bottleneck often create
a queue and a longer overall cycle time.
The primary objective of a manager in the operations department is to eliminate the bottleneck that
exists in the process. By removing this inefficiency, the manager can increase profits by reducing time to
produce.
Inventory Management Inventory management refers mainly to when a firm strives to attain and
uphold an optimal inventory of goods while also taking note of all orders, shipping and handling, and
other associated costs. Inventory management is mainly about identifying the amount and the position of
the goods that a firm has in their inventory. Inventory management is imperative as it helps to defend
the intended course of production against the chance of running out of important materials or goods.
Inventory management also includes making essential connections between the
replenishment lead time of goods, asset management, carrying costs of inventory, future inventory price
forecasting, physical inventory, and available space for inventory, demand forecasting and much more.
By balancing these competing requirements, a company will discover their optimal
inventory levels. This is an on-going process, as the firm will need to shift and adjust as it changes and
expands.
Planning & Forecasting Planning is defined as The establishment of objectives, and the
formulation, evaluation and selection of the policies, strategies, tactics and action required to achieve
them. Planning comprises long term/strategic planning and short term/operational planning. The latter
is usually for a period of up to one year.
Forecasting is an attempt to estimate the future. It is based on available past data, the extrapolation of
trends and the application of judgement. There are 3 basic models of forecasting:
Time series analysis and projection
Qualitative Techniques
Casual Methods

Operations Conspectus
As an operations manager, material requirement planning or demand estimation needs to be done on a
regular basis. This is to ensure that the company meets the customers requirements within time. The
plans may be short-range plans (less than 3 months) or long-range plans (over 1 year). Efficient planning
will lead to reduction in costs due to sudden variations in demand. Planning and scheduling is a popular
exercise undertaken by companies that manufacture seasonal products.
SCM Supply chain management is the management of a network of all business processes and
activities involving procurement of raw materials, manufacturing and distribution management of
finished goods. SCM is also called the art of management of providing the Right Product, At the Right
Time, Right Place and at the Right Cost to the Customer.

JIT Just in time (JIT) is a production strategy that strives to improve a business return on investment
by reducing in-process inventory and associated carrying costs. The philosophy of JIT is simple:
Inventory is waste & all efforts are made to eliminate waste (Muda).

Operations Conspectus
Lean Manufacturing -Lean Manufacturing is also called Just in Time (JIT). It is based on the
principle of doing more less inventory, fewer workers, less space. It is about smoothing the flow of
material to arrive just as it is needed. So, JIT and Lean Manufacturing are used interchangeably.

Kanban Kanban is one of the many methods through which JIT is achieved. It is a scheduling system
for lean and just-in-time (JIT) production that helps determine what to produce, when to produce it, and
how much to produce.

TQM Total Quality Management (TQM) is a comprehensive and structured approach to organizational
management that seeks to improve the quality of products and services through on-going refinements in
response to continuous feedback.

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Kaizen - The Japanese word "Kaizen" means improvement, improvements without spending much
money, involving everyone from managers to workers, and using much common sense. The Japanese
way encourages small improvements day after day, continuously. The key aspect of Kaizen is that it is an
on-going, never-ending improvement process. It's a soft and gradual method opposed to more usual
western habits to scrap everything and start with new.

TOC Theory of Constraints (TOC) is a holistic way of thinking about a system (i.e. optimize the system
globally and not locally). Traditional cost accounting and productivity measure may promote local
optimization. TOC recognizes that the bottlenecks or constraints are present in the system which limits
system output.
VALUE CHAIN - A typical value chain consists of an interlinking of activities that convert inputs into
the desirable outputs.

Operations Conspectus
Importance of location on cost reduction of critical activities in the value chain:
Normally there is a trade-off between cost reduction in the inbound and outbound activities of the value
chain. Location plays a major role in this context as proximity to the supplier ensures lower inbound
costs while proximity to the end user or intermediaries ensures lower outbound costs.
The methods normally applied to select an appropriate site location are centre of gravity method, load
distance technique, Brown & Gibson model etc. While the first two take only objective factors into
consideration and compute the coordinates of the site location by a weighted average of the various
factors like inter-site distance and no of employees per site etc. Brown & Gibson also takes subjective
factors into consideration as off late they have become a deciding factor in locating a site and its
subsequent level of profitability.