Chapter 1

Operations
Management:
Trends & Issues

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 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 inputs into output
– & fetch revenue

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Operations Management (OM)
Salient Aspects
• OM is a systematic approach
– scientific tools & techniques
– solution methodologies
– to analyze problems
• OM is about addressing several issues
– varying in terms of time horizon and decisions
• Transformation processes
• Focusing on costs
• Developing a set of measures to assess performance

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
The Service – Product Continuum
Product Domination Service Domination

Materials, Assets, Products… Services, People, Interactions…

Passenger Cars, Machine Tools

Facilities Maintenance, Turnkey Project Execution …

Logistics, Tourism, Travel and Entertainment Sectors

Health Care System (Hospitals)

Restaurants, Fitness Centres

Professional Consulting, Legal Services

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Services Sector in India
Share of GDP in percentage

2008-09 2009-10 2010-11 2011-12 2012-13#

Service Sector Growth rates in GDP
Trade, Hotels, Transport, 16.9 16.5 17.2 18.0 25.1
Communications
Transport, Storage & 7.8 7.7 7.3 7.1
Communications
Financial Services, Insurance, Real 15.9 15.8 16.0 16.6 17.2
Estate & business services
Community, Social & Personal 13.3 14.5 14.0 14.0 14.3
Services
Construction 8.5 8.2 8.2 8.2 8.2
Total (including construction) 62.4 62.7 62.6 63.9 64.8

# Advanced Estimate
* Compiled from Chapter 10 on Services Sector in Economic Survey 2012 – 13, Government of India, Ministry of Finance,
Economic Division. For more details see http://indiabudget.nic.in

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Service Operations
Salient Features
• Tangibility: -performances and actions
• Heterogeneity:
• Simultaneous Production & Consumption: High customer
contact
• Perishability: cannot be inventoried

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd 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 (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Manufacturing & Service
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
Quality, productivity & timely response to its customers
Choices about capacity, location, layout
Deal with suppliers
Plan its operations, schedules and resources
Balance capacity with demand by a careful choice of resources
Has to make an estimate of demand
Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Operations Management
• What is Operations Management?
– Design, operation, and improvement of productive systems
• What is Operations?
– a function or system that transforms inputs into outputs of greater
value
• What is a Transformation Process?
– a series of activities along a value chain extending from supplier to
customer
– activities that do not add value are superfluous and should be
eliminated

Copyright 2011 John Wiley & Sons, Inc. 1-9

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Transformation Process
• Physical: as in manufacturing operations
• Locational: as in transportation or warehouse
operations
• Exchange: as in retail operations
• Physiological: as in health care
• Psychological: as in entertainment
• Informational: as in communication

Copyright 2011 John Wiley & Sons, Inc. 1-10

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Evolution of Operations
• Craft production
– process of handcrafting products or services for individual
customers
• Division of labor
– dividing a job into a series of small tasks each performed by
a different worker
• Interchangeable parts
– standardization of parts initially as replacement parts;
enabled mass production

Copyright 2011 John Wiley & Sons, Inc. 1-11

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Evolution of Operations
• Scientific management
– systematic analysis of work study / methods study/Gantt
• Mass production
– high-volume production of a standardized product for a
mass market
• Lean production
– adaptation of mass production that prizes quality and
flexibility

Copyright 2011 John Wiley & Sons, Inc. 1-12

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Historical Events in
Operations Management
Era Events/Concepts Dates Originator
Steam engine 1769 James Watt
Industrial
Division of labor 1776 Adam Smith
Revolution
Interchangeable parts 1790 Eli Whitney
Principles of scientific
1911 Frederick W. Taylor
management
Frank and Lillian
Scientific Time and motion studies 1911 Gilbreth
Management Activity scheduling chart 1912 Henry Gantt
Moving assembly line 1913 Henry Ford

Copyright 2011 John Wiley & Sons, Inc. 1-13

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Historical Events in
Operations Management
Era Events/Concepts Dates Originator
JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (total quality W. Edwards Deming,
1980s
Quality management) Joseph Juran
Revolution Reengineering Michael Hammer,
1990s
James Champy
Six Sigma 1990s GE, Motorola

Copyright 2011 John Wiley & Sons, Inc. 1-15

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Historical Events in
Operations Management
Era Events/Concepts Dates Originator
Internet Internet, WWW, ERP, 1990s ARPANET, Tim
Revolution Berners-Lee SAP,
i2 Technologies,
ORACLE, Dell
E-commerce 2000s Amazon, Yahoo,
eBay, Google,
Globalization WTO, European Union, 1990s China, India,
Global supply chains, 2000s emerging
Outsourcing, Service economies
Science

Copyright 2011 John Wiley & Sons, Inc. 1-16

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Globalization
• Why “go global”?
– favorable cost
– access to international markets
– response to changes in demand
– reliable sources of supply
– latest trends and technologies
• Increased globalization
– results from the Internet
– falling trade barriers

Copyright 2011 John Wiley & Sons, Inc. 1-17

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
Hourly Compensation

1-18
Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
GDP per Capita

1-19
Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
Trade in Goods, % of GDP

Copyright 2011 John Wiley &

1-20
Sons, Inc.
Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Productivity and Competitiveness
• Competitiveness
– goods and services that meet the test of international
markets
• Productivity
– ratio of output to input
• Output
– sales, products produced, customers served, meals
delivered, or calls answered
• Input
– labor hours, investment in equipment, material usage,

Copyright 2011 John 1-21

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Measures of Productivity

Copyright 2011 John Wiley & Sons, Inc. 1-22

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Operations
A key functional area in an Organisation

Finance

Operations

Marketing HRM

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd 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 (2015), “Operations Management: Theory & Practice”, 3rd 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 (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Operations Management
Functions
Design Issues Operational Control Issues
Product & Service Design Forecasting the Demand
Process Design Operations Planning & Control
Quality Management Supply Chain Management
Location & Layout of Facilities Maintenance Management
Capacity Planning Continuous Improvement of
Operations

• Design issues with constraints

• Operational Control issues -optimizing the resources while

delivering goods / services under the given design constraints

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Operations Management
Challenges-1
• Competitive Pressures due to economic reforms
– Falling Prices
• The on road price of a Hyundai Santro has not changed much
between 2000 and 2014
– Shrinking Delivery Quote
• Textile Manufacturers are expected to cut their lead time from
order placement to final delivery down to 2 months
– Build-to-Order Requirements
• Need systems that allows customers to self-configure, customize
and visualize their own version of products & services

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Operations Management
Challenges-2
• Growing customer expectations
– Tariff plans and options provided by mobile operators,
– Passenger car
– Customers demands more and refine expectations
– Must learn to respond to these expectations
– To develop capabilities to bring newer products /services
faster and yet profitably

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Operations Management
Challenges-3

• Today’s businesses are constantly challenged by the

rapid technological advancements
– ATMs & Internet Banking

– Buying a train ticket

– Procurement of goods & services..

– New Product Development

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Operations Management
Challenges-4
• Environmental Issues
– SEZ, industrialization etc. generated controversies.
– Depletion of natural resources
– waste generated
– Scarcity of available resources
– Consumption of energy and water ,

– Responsibility of restoring, sustaining,

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Operations Management
Implications & Priorities
• Relate operations system to Market/ Customer
• Acquire Capabilities to fulfil surge in demand
• Develop systems and procedures that promote
learning
• Develop Green Manufacturing Practices

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Scope of Operations Management
• Operations Management includes:
– Forecasting
– Capacity planning
– Scheduling
– Managing inventories
– Assuring quality
– Motivating employees
– Deciding where to locate facilities
– And more . . .

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
Figure 1.4
U.S. Manufacturing vs. Service Employment
Year Mfg. Service
45 79 21
100
50 72 28
55 72 28 80
60 68 32
Percent 60
65 64 36
70 64 36 40
75 58 42
80 44 46 20
85 43 57
0
90 35 65
95 32 68 45 50 55 60 65 70 75 80 85 90 95 00
00 30 70 Year

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
Responsibilities of Operations Management

Planning Organizing
– Capacity – Degree of centralization
– Location – Process selection
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling/Improving – Issuance of work orders
– Inventory – Job assignments
– Quality
– Costs
– Productivity
Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Key Decisions of Operations Managers

• What
What resources/what amounts
• When
Needed/scheduled/ordered
• Where
Work to be done
• How
Designed
• Who
To do the work
Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Operations Interfaces
Industrial
Engineering
Maintenance
Distribution

Purchasing Public
Operations Relations

Legal
Personnel

Accounting MIS

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
Thanks

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Video Insight 1.1
Operations Management Issues in a Healthcare
System

Right click on the URL below to open the hyperlink in the web browser…

http://www.youtube.com/watch?v=Or9dvnuST-g

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Video Insight 1.2
Manufacturing of Mahindra’s XUV 500

Right click on the URL below to open the hyperlink in the web browser…

http://www.youtube.com/watch?v= q5-7ZeORixk

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education