Operations Management

by

Dr. Ratri Parida

Operations Management at MTR Foods
• Packaged food company MTR Foods, supporting a product portfolio
of 120 products
• Setting up key performance indicators for supply chain
• Strong service level agreement between supply chain and logistics
partners
• lower pipeline inventory and higher sales
• improving overall profitability.
• Strategic Decision: It would produce almost 85 per cent of the value-
added products in-house and the rest would be outsourced.
• Hub-and-Spoke Distribution channel
• Limited Shelf life

• Forecasting is based on experience, seasonal variations, and company’s

growth rate.

• NPD is a challenge

• Cost implications

• Faces Planning Challenges (the absence of adequate data impacted its

forecast ability to predict the volume of products to be manufactured.)

• MTR revamps its SC and strengthen its back-end operations (BS, 2017)
 Questions
• What do you understand by the term operations management?

• What are the emerging opportunities and challenges for operations

management?

• Can the principles of operations management be applied to both

manufacturing and service organizations?

• What is the role of operations in an organization?

• What are the key components of an operations management system?

What is the nature of interaction among them?
• In the growing global competition, productivity is the key concern for
the survival of any business

• Production/operations function is a vital function that adds value to the

products/services

• Operations management is a systematic approach to addressing issues in

the transformation process that converts inputs into useful, revenue-
generating outputs.
 Various Aspects of OM
• It is a systematic approach: involves understanding the nature of issues and problems to be
studied; establishing measures of performance, developing effective solutions using
quantitative techniques and tools

• Operations management involves addressing various issues that an organization faces (in
terms of time frame, nature of the problem, commitment of the required resources). For eg.
Machine breakdown, handle increase in demand, types of products/services to offer, etc.

• Transformation process are central to operations systems: in the process of conversion, there
will be some deviations in product’s attributes. A few corrections may be required in order to
cope up the situation:
• A tight quality check on the incoming raw materials, change/adjustment of tools, machine
settings, proper allocation of skilled operators, change in production plans, avoid rework.

• To ensure that the organization is able to keep costs to a minimum and obtain revenue
through careful planning and control of operations.
 Key Terms in Operations Management
• Inputs (4M)
• Transformation Process (Equipment, Workers, Energy, Inventory)
• Outputs (Goods and Services)

• Equipment: Capability, Capacity, Flexibility, Reliability

• Workers: Work assignment, Performance, Reliability
• Energy: Type, Reliability
• Inventory: Function, Form, Amount
• Characteristics of Goods

• Characteristics of Service
Operations as a Key Functional Area

Organization consists of mainly 4 sub-functional

systems: marketing, production, finance and

human resource
Inputs Provided by OM to Other Functional Areas
Options for Increasing Contribution
Finance/
Marketing Accounting OM
Option Option Option

Increase Reduce Reduce

Sales Finance Production
Current Revenue 50% Costs 50% Costs 20%
Sales $100,000 $150,000 $100,000 $100,000
Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000
Gross Margin 20,000 30,000 20,000 36,000
Finance Costs – 6,000 – 6,000 – 3,000 – 6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500
Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500
Operations Function and its Linkages in an Organization
Operations Support Layer
Customer Layer •Maintenance
•Ultimate Customer •Marketing
•Dealers •Quality
•Retailers •Design
•Industrial Engg
•IT

Core Operations Layer

Layer of Innovation Supplier Layer
•Testing
•Innovation strategy •Sub-contractors
•Assembly
•R & D •Suppliers
•Fabrication
•Other service
•Machining
providers
•Service delivery system
Decisions at different levels of management

• Strategic decisions: top management level

• Tactical decisions: middle management level

• Operational decisions: bottom level of management

 Operations Management Functions

• The important functions can be understood by

categorizing them under

(a) Design Vs Operational Control Issues

(b) Long-term Vs Short-term Issues

 Design Vs Operational Control Issues

Design Issues Operational Control Issues

Product design and Forecasting
development

Process design Production planning and

control

Quality management Supply chain management

Location and layout of facilities Maintenance management

Capacity planning Continuous improvement

Challenges in Operations Management
• Competitive pressure

• Growing customer expectations

• Technological developments

• Environmental issues
 New Challenges in OM
From To
 Local or national focus  Global focus
 Batch shipments  Just-in-time
 Low bid purchasing  Supply-chain
partnering
 Lengthy product  Rapid product
development development,
alliances
 Standard products  Mass
customization
 Job specialization  Empowered
employees, teams
 Current Priorities in Operations Management
• Relate the operations system to customer/market
requirements

• Acquire capabilities to tolerate product/service

proliferation

• Develop systems and procedures that promote learning

• Develop green manufacturing practices

 The Critical Decisions
1. Design of goods and services
2. Managing quality
3. Process and capacity design
4. Location strategy
5. Layout strategy
6. Human resources and job design
7. Supply-chain management
8. Inventory, material requirements planning, and JIT
9. Intermediate and short–term scheduling
10. Maintenance
Significant Events in OM
Events in History
• The war- Resource Availability

• Computers – Cost and information control

• Quantitative methods – Doing things well

• Communication – Personal touch

• Electronic commerce – Doorstep

• Home offices
 Some more History
• Adams Smith and James Watt
• Up and down motion to rotary motion
• Desirability of a factory system (capital and labour)
• Watt showed how to do it

• Carnegie and Scale

• Steel industry with a large stable output
• Concept of cost control to increase profits
Some more History
• Ford and Speed
• Take the work to the man and not man to the work
• The moving assembly line
• Did not concentrate on variety

• Scientific Management
• Concentrate on Efficiency
• Work standards are the rate of work by a “first class
man”
• Carrot and stick - The worker who is fast and efficient
is rewarded while the inefficient is discarded
Some more History
• Scientific Management – Gantt
• Minimum money + bonus
• Known for Gantt Chart
• Emerson also agreed with Gantt
• Emerson dispatching rules

• Gilberth
• Motion study
• Human aspects of work study (Lillian)
Historical Development of OM
• Prior to 1900
• Cottage industry produced custom-made goods.
• Watt’s steam engine in 1785.
• Whitney’s standardized gun parts in 1801.
• Industrial Revolution began at mid-century.
Historical Development of OM (cont.)
• Scientific Management (Frederick W. Taylor)
• Systematic approach to increasing worker productivity through time study,
standardization of work, and incentives.
• Viewed workers as an interchangeable asset.
• Other Management Pioneers
• Frank and Lillian Gilbreth
• Motion study and industrial psychology
• Henry L. Gantt
• Scheduling and the Gantt chart
Historical Development of OM (cont.)
• Moving Assembly Line (1913)
• Labor specialization reduced assembly time.

• Hawthorne Studies
• Yielded unexpected results in the productivity of Western Electric plant
workers after changes in their production environment.
• Led to recognition of the importance of work design and employee
motivation.
Historical Development of OM (cont.)
• Operations Research (Management Science)
• Outgrowth of WWII needs for logistics control and weapons-systems design.
• Seeks to obtain mathematically optimal (quantitative) solutions to complex
problems.
• OM Emerges as a Field
• 1950–1960, OM moved beyond industrial engineering and operations
research to the view of the production operation as a system.
Historical Development of OM (cont.)
• OM Emerges as a Field
• 1950–1960, OM moved beyond industrial engineering and operations
research to the view of the production operation as a system.
• The Marriage of OM and IT
• Integrated solutions approaches
• Business process reengineering
• Supply chain management
• Systems integration (SAP)
Historical Development of OM (cont.)
• Operations Management in Services
• OM concepts can apply to both manufacturing and service operations.
• Integration of Manufacturing and Services
• Conducting world class operations requires compatible manufacturing and
service operations.
• Four Dimensions of Operational Performance

• Designing a Performance Measurement System

 Typical Factory Scene

• https://www.youtube.com/watch?v=6n9ESFJTnHs
 Operational Giants those have conquered the
world

• https://www.youtube.com/watch?v=wC4vITSVXoA

• https://www.youtube.com/watch?v=v-Q7Tmw85Xs

• https://www.youtube.com/watch?v=P-bDlYWuptM