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Introducing Operations Management

Ch 20
 The operations function is concerned with the creation of goods and services
offered to consumers.
 We clearly associated operations with manufacturing industry when secondary
sector was dominated in the past; this was the reason that we used term
Production management when we talked about managing the operations in any
organization. But we can also see an operations function in department stores,
banks, schools, hospitals etc. In recent years the concept has been applied to the
non manufacturing sector and there has been an exchange of idea and techniques
with manufacturing sector. Due to increase the importance of tertiary sector and
primary sector, the term has been replaced with Operations management for
broader approach.

Operations Management
Operations management is concerned with the use of resources i.e. land, labor and capital
to provide goods and services that will satisfy the demand of customers identified by the
market research department.
 The operations function has a central role in most types of organization. It is
central to the organization’s success by providing what the customers require. It is
therefore concerned with issues that are crucial to the customer like quantity,
quality, availability and price; and issues that are crucial to the management like
productivity and cost.

The Production Process

In puts are converted into out put. See the Production Process on P. 312 Figure 20.1 as
well as attachment in the end “Operation as a System”.

Value Added
“Sales revenue less the value of bought in materials and components”. The degree of
value added depends on different factors like;
 Design of the product
 Efficiency in production process
 Strategies adopted by the organization

Value Analysis
“Value analysis is a procedure to evaluate a product after manufacturing to see how costs
may be reduced”. There are three main features involved in the design of any new
 Performance
 Appearance
 Economy of manufacture

Production is the measured quantity of output that a firm produces in a given period of

Productivity is a ratio of outputs to inputs in a production process.

How well inputs can be changed into out puts is called efficiency.

Production Methods
The long term production decision in a business must include the methods by which the
goods and services will be produce some constraints on this planning process include:
 The cost of the product
 Market size
 Business size
 Technology required
 Strength of business- skills available, financial position, etc
Production methods include,
1) Job Production
 “Job production is a method of production which involves employing all factors
to complete one unit of output at a time”.
 “Job production is a production of “one off” products”.
 Examples: servicing a car, making furniture according to the specification
of an individual customer, design of a computer system to meet the
requirement of an individual customer, dams in a country etc are the
examples of Job Production.
 Characteristics
 Highly skilled labor force required.
 Focus on customer
 Centralized management
 Flexible machinery required
 No repetition of work
 Advantages
 Easy to identify problem- because at on time one
task is completed- for example in a garage, customer complaints
about the standard of services, it is easy for owner to locate
which worker is responsible.
 Motivation of workers- opportunity to be a multi
 Unique designs of product can be introduced.
 Organization of job production is simple.
 Disadvantages
 High cost- no economy of scale
 High labor cost- cost on training,
high wage rate due to highly skilled
 Needed a wide range of equipments
 Selling cost may be high- if product
is so technical then selling force should be highly qualified.
2) Batch Production
 “A method which involves
completing one operation at a time on all units before performing the next is
called batch production”.
 “Batch production is a
method of production in which a number of items are processed at the same
 “It involves production of
identical product in separate batches where the whole units of product goes
through in the whole production process together”.
 Examples: A baker
uses batch production when baking bread or other bakery items. The
operations in the baking process are broken down in to different stages. In
each stage operation is completed for a group of products (the batch)
before the batch is moved on the next stage.
 Characteristics
 Organization of work in different stages
 Each operation is completed for a group of product before
the batch is moved to the next operation.
 Used for product having regular demand.
 Minor changes can be made on customer demand for the
whole batch.
 Repetition of work is involved.
 It falls between job and flow production methods.
 Advantages
 Flexibility in production even large quantities is produced. Each
batch can be change according to customer demand.
 Employees can concentrate on operation rather than the whole
task. This reduces the need of costly skilled labor.
 It provides opportunities for quality control as a batch moved
through different stages.
 Disadvantages
 Careful planning and coordination needed otherwise machinery
and workers may be idle waiting for a whole batch to finish its
previous operation.
 Workforce may be less motivated due to repetitive work.
 If batch is small then cost will be high.
 A large amount of capital is tied up in work in process.
3) Flow/Mass Production
 “The manufacturing of a product using a continuous production line.”
 “A method of organizing the work so that each item move to next stage as
soon as a process is completed without waiting for the other products.”
 Examples: Pepsi Cola production plant, sugar industry,
 Characteristics
 Large quantities are produced
 Standardized products
 Large amount of machinery required
 Semiskilled workforce needed, specializing in one operation only
 Large stocks of raw material and components
 Economies of scale
 High capital investment
 Advantages
 Low per unit cost
 Fewer workers required because work is highly automated. Only
supervisors are required to control the machinery.
 Quality control is easy.
 Planning is easy due to constant output rate
 Disadvantages
 Setup cost is very high
 Due to standardized product, it is not possible to
meet the individual demand.
 Lack of motivation due to repetitive work.
 Breakdowns can prove very costly
4) Mass Customization
It is advance form of flow production. By using latest technology (flexible
machinery) with multi skilled labor force, production lines are used to make variety
of products.
 Examples: A range of different cars can be produced on same production
line. Cars in the same model but different colour, engine size etc.

5) Cell Production
It is a form of flow production but flow production is separated into a number of self
contained mini production units known as cell. Aim of this approach is to remove de-
motivation and create friendly competition among different cells.
Location of Industry
Location of a business is usually considered either when the business is first setting up or
when its present location proves unsatisfactory for some reasons. The business may
decide to look for an alternative site or may decide to setup additional factories/shops
either in home country or abroad.

 Location decision will have an impact on;

 Fixed cost- on purchase or rent of land can vary
 Variable cost- labor wage rate, transportation of raw material and finished
 Revenue earned specially in service industry

 Factors Influencing the location decision

 Site cost
 Regional incentive
 Transport cost
 Labor cost
 Revenue generation
 Infrastructure
 Environmental and planning consideration
 Management preference
 Clustering- when all the organizations from the industry are in same region, new business
may also decide to operate in same area.
 Market
 Objectives
 Exchange rate- when deciding for overseas location
 Trade barriers
 Ethical consideration
 Political, legal and language
 Climate
 Personal preferences of the owners
 Govt. grants and restriction
 Security