BM201- Management Concepts and Practices

A. Ramesh PhD
Department of Management Studies
Indian Institute of Technology Roorkee
ramesh.anbanandam@gmail.com

Lecture 1: Introduction to Operations Management
Spring 2012-13
Syllabus
Lecture
No
Topic
1 Introduction to operations management
2 Operations strategies
3 Product, process, and service design
4 Facility capacity, location, layout design
5 Inventory management
6 Current trends in operations management
Evaluation Scheme
12.5 % Mid Term Evaluation
7.5 % Term Paper

Reference Books
Jay Heizer, Barry
Render and Jagadees
Rajashekhar: Operations
Management (Prentice
Hall India)

Reference Books
Nornam Gaither and
Greg Frazier: Operations
Managmeent, 9
th

Edition, Cengage
Learning India Private
Limited

Overview
1. Introduction
2. Historical Milestones in OM
3. Factors Affecting OM Today
4. Different Ways of Studying OM
1.Introduction
Operations management is the
management of an organizations
productive resources or its
production system.
A production system takes inputs
and converts them into outputs.
The conversion process is the
predominant activity of a
production system.
The primary concern of an
operations manager is the
activities of the conversion
process.
8
Typical Organization Chart
2.Historical Milestones in OM
2.1 The Industrial Revolution
The industrial revolution
developed in England in the
1700s.
The steam engine, invented by
James Watt in 1764, largely
replaced human and water power
for factories.
Adam Smiths The Wealth of
Nations in 1776 touted the
economic benefits of the
specialization of labor.
Thus the late-1700s factories had
not only machine power but also
ways of planning and controlling
the tasks of workers.


2.1 The Industrial Revolution
The industrial revolution spread
from England to other European
countries and to the United Sates.
In 1790 an American, Eli
Whitney, developed the concept of
interchangeable parts.
The first great industry in the US
was the textile industry.
In the 1800s the development of
the gasoline engine and electricity
further advanced the revolution.
By the mid-1800s, the old cottage
system of production had been
replaced by the factory system.

2.2 Post-Civil War Period
During the post-Civil War period great expansion of
production capacity occurred.
By post-Civil War the following developments set the
stage for the great production explosion of the 20th
century:
increased capital and production capacity
the expanded urban workforce
new Western US markets
an effective national transportation system
2.3 Scientific Management
Frederick Taylor is known as the
father of scientific management.
His shop system employed these
steps:
Each workers skill, strength, and
learning ability were determined.
Stopwatch studies were conducted
to precisely set standard output
per worker on each task.
Material specifications, work
methods, and routing sequences
were used to organize the shop.
Supervisors were carefully
selected and trained.
Incentive pay systems were
initiated.

2.3 Scientific Management
In the 1920s, Ford Motor
Companys operation
embodied the key elements
of scientific management:
standardized product designs
mass production
low manufacturing costs
mechanized assembly lines
specialization of labor
interchangeable parts



2.4 Human Relations and Behavioralism
In the 1927-1932 period, researchers in the
Hawthorne Studies realized that human factors were
affecting production.
Researchers and managers alike were recognizing
that psychological and sociological factors affected
production.
From the work of behavioralists came a gradual
change in the way managers thought about and
treated workers.


2.5 Operations Research
During World War II, enormous quantities of
resources (personnel, supplies, equipment, ) had to
be deployed.
Military operations research (OR) teams were formed
to deal with the complexity of the deployment.
After the war, operations researchers found their way
back to universities, industry, government, and
consulting firms.
OR helps operations managers make decisions when
problems are complex and wrong decisions are costly.
2.6 The Service Revolution
The creation of services
organizations accelerated
sharply after World War II.
Today, more than two-thirds
of the US workforce is
employed in services.
About two-thirds of the US
GDP is from services.
There is a huge trade surplus
in services.
Thus there is a growing need
for service operations
management.

2.7 The Computer Revolution
Explosive growth of computer and
communication technologies
Easy access to information and the
availability of more information
Advances in software applications
such as Enterprise Resource
Planning (ERP) software
Widespread use of email
More and more firms becoming
involved in E-Business using the
Internet faster, better decisions
over greater distances


3.Today's Factors Affecting OM
Global Competition
Quality, Customer Service, and Cost Challenges
Rapid Expansion of Advanced Technologies
Continued Growth of the Service Sector
Scarcity of Operations Resources
Social-Responsibility Issues
4. Studying Operations Management
4.1 Operations as a System
4.2 Decision Making in OM
4.1 Operations as a System
Inputs Outputs
Conversion
Subsystem
Production System
Control
Subsystem
4.1 Input-transformation-output relationship for typical systems
System Primary inputs Resources Primary
transformation
function(s)
Typical desired
output
Hospital Patients Doctors, nurses,
medical supplies,
equipment
Health care
(physiological)
Healthy individuals
Restaurant Hungry customers Food, cook, waiters,
environment
Well prepared, well
served food,
agreeable
environment
Satisfied customers
Automobile factory Sheet steel, engine
parts
Tools equipment,
workers
Fabrication and
assembly of cars
High quality cars
College or
university
High school
graduates
Teachers, books,
class rooms.
Imparting
knowledge and
skills
Educated
individuals
Department store Shoppers Displays, stocks of
goods, sales clerks
Attract shoppers,
promote producers,
fill orders
Sales or satisfied
customers
Distribution
center
Stock keeping
units(SKUs)
Storage bins,
stock pickers
Storage and
redistribution
On-time, safe
delivery to
destination
4.1 Inputs of an Operations System
External
Knowledge about the conditions outside the production
system
Legal- constraints
Economic-recession
Social-
Technological- trade journals
Market
Competition, Customer Desires, Product Info.
Primary Resources
Materials, Personnel, Capital, Utilities
4.1 Conversion Subsystem
Physical (Manufacturing)
Locational Services (Transportation)
Exchange Services (Retailing)
Storage Services (Warehousing)
Other Private Services (Insurance)
Government Services (Federal)
4.1 Outputs of an Operations System
Direct
Products
Services
Indirect
Waste
Pollution
Technological Advances
Production as an Organization Function
Companies cannot compete with marketing, finance,
accounting, and engineering alone.
We focus on OM as we think of global
competitiveness, because that is where the vast
majority of a firms workers, capital assets, and
expenses reside.
To succeed, a firm must have a strong operations
function teaming with the other organization
functions.
4.2 Decision Making in OM
4.2.1 Strategic Decisions
4.2.2 Operating Decisions
4.2.3 Control Decisions

4.2.1 Strategic Decisions
These decisions are of strategic importance and have
long-term significance for the organization.
Examples include deciding:
the design for a new products production process
where to locate a new factory
whether to launch a new-product development plan

4.2.2 Operating Decisions
These decisions are necessary if the ongoing
production of goods and services is to satisfy market
demands and provide profits.
Examples include deciding:
how much finished-goods inventory to carry
the amount of overtime to use next week
the details for purchasing raw material next month
4.2.3 Control Decisions
These decisions concern the day-to-day activities of
workers, quality of products and services, production
and overhead costs, and machine maintenance.
Examples include deciding:
labor cost standards for a new product
frequency of preventive maintenance
new quality control acceptance criteria
What Controls the Operations System?
Information about the outputs, the conversions, and
the inputs is fed back to management.
This information is matched with managements
expectations
When there is a difference, management must take
corrective action to maintain control of the system
Comparison of manufacturing & service- differences
Manufacturing organizations
Physical durable product
Output can be inventoried
Low customer contact
Long response time
Regional, national,
international markets
Large facilities
Capital intensive
Quality easily measured
Service organizations
Intangible, perishable
products
Output can not be inventoried
Higher customer contact
Short response time
Local markets
Small facilities
Labour intensive
Quality not easily measured
Efficiency Vs Effectiveness
Strategy (doing the right things)




Tactics
(doing things
right)
Ineffective Effective
Efficient Die
(quickly)
Thrive
Inefficient Die
(slowly)

Survive
Efficiency vs Effectiveness
Efficiency
Efficiency refers to quantity
or speed
Efficiency is all about
focusing on the process,
importance is given to the
means of doing things
Doing things right
Efficiency will look at
avoiding mistakes or errors
Effectiveness
Effectiveness refers to
quality.
Effectiveness focuses on
achieving the end goal.
Doing right things
Effectiveness is about
gaining success.
Operations Management Functions
Product design and development
Process design
Quality management
Location and layout of facilities
Capacity planning
Forecasting
Production planning & control
Supply chain management
Maintenance management
Continues improvement of operations



Core services are basic things that
customers want from products
they purchase
Core Services of OM
Core Services Performance Objectives
Operations
Management
Flexibility
Quality
Speed
Price (or cost
Reduction)
OM Performance indicators
Price or Cost
Quality
Short Run: Conformance, Design (Fitness for Use)
Long Run: Continuous Improvement Thru the Learning
Flexibility
Product Mix: make various products and adjust mix
Handle volume Surge
Time - Dependability
Speed of Delivery (Lead Time)
Speed to Market (New Product Development Time)
Service
Delivering a comprehensive solution
Theory of Slack Ropes
Quality
Flexibility Price
Service
Time
By pulling on one priority,
the others tend to get
pulled along with it.
Source: Duncan McDougall
Value-added services differentiate the
organization from competitors and
build relationships that bind
customers to the firm in a positive way
Value-Added Services of OM
Value-Added Service Categories
Operations
Management
Information
Problem Solving
Sales Support
Field Support
Current Issues in OM
Effectively consolidating the operations resulting from
mergers
Developing flexible supply chains to enable mass
customization of products and services
Managing global supplier, production and distribution
networks
Current Issues in OM (contd)
Achieving the Service Factory
Enhancing value added services
Making efficient use of Internet technology
Achieving good service from service firms