OPERATIONS MANAGEMENT

PICT
July 2008

Pramod Wadikar
“A firm lacking in proper operations
management is like an anchored
ship. Finance, design, and
marketing may set the rudder and
expect the ship to steam off, but
with anchor set, the ship wont
move or move reluctantly
dragging its burden”
Wickham Skinner
 MANUFACTURING
• To make or process (a raw
material) into a finished product,
especially by means of a large-
scale industrial operation.
• To make or process (a product),
especially with the use of
industrial machines.
 MANUFACTURING

 Manufacturing is the transformation

of raw materials into finished goods
for sale, by means of tools and a
processing medium , and including
all intermediate processes involving
the production or finishing of
component part ("semi-
manufactures").
 PRODUCTION
 The act or process of producing: timber
used for the production of lumber and
paper.
 The creation of value or wealth by
producing goods and services.

 PRODUCTION
• in economics, all those activities that have to do
with the creation of commodities, by imparting to
raw materials utility, added value, or the ability to
satisfy human wants.
• The farmer who grows wheat, the miller who
grinds the wheat into flour, and the baker who
transforms flour into bread are examples of
producers who, each in his own way, impart
utility to a natural or partially processed material.
 OPERATIONS
• The act or process of operating or functioning.
• The state of being operative or functional: a
factory in operation.
• business especially one run on a large scale
• a planned activity involving many people
performing various actions
• process or series of acts especially of a
practical or mechanical nature involved in a
particular form of work
 Operations management
 It is an area of business that is concerned
with the production of goods and services,
and involves the responsibility of ensuring
that business operation are efficient and
effective.
 It also is the management of resources and
the distribution of goods and services to
customers.
 Operations Management
• It may be defined as the design,
operation, and improvement of the
production systems that create the
firm's primary products or services.

• Operations management is concerned

with the production, distribution and
project management activities carried
out in an organization.
 The Heritage of Operations Management
Division of labor (Adam Smith 1776 and Charles Babbage 1852)
Standardized parts (Whitney 1800)
Scientific Management (Taylor 1881)
Coordinated assembly line (Ford/Sorenson/Avery 1913)
Gantt charts (Gantt 1916)
Motion study (Frank and Lillian Gilbreth 1922
Quality control (Shewhart 1924; Deming 1950)

Computer (Atanasoff 1938)

CPM/PERT (DuPont 1957)

The Heritage of Operations Management -Contd

Material requirements planning (Orlicky 1960)

Computer aided design (CAD 1970)
Flexible manufacturing system (FMS 1975)
Baldrige Quality Awards (1980)
Computer integrated manufacturing (1990)
Globalization(1992)
Internet (1995)
 Operations Management
The management of systems or processes that
create goods and/or provide services

Organization

Finance Operations Marketing

Text Book Definition

Operations management is the set of activities that creates value
in the form of goods and services by transforming inputs into
outputs
THE BIG GUNS OF OPERATIONS
MANAGEMENT
Eli Whitney
• Born 1765; died 1825
• In 1798, received
government contract to
make 10,000 muskets
• Showed that machine
tools could make
standardized parts to
exact specifications
© 1995 Corel Corp. – Musket parts could be used
in any musket
the Big Guns of Operations management
Frederick W. Taylor
• Born 1856; died 1915
• Known as ‘father of scientific
management’
• In 1881, as chief engineer for
Midvale Steel, studied how
tasks were done
– Began first motion & time
studies
• Created efficiency principles
© 1995 Corel Corp.
The Big Guns Of Operations Management

Frank & Lillian Gilbreth

• Frank (1868-1924);
Lillian (1878-1972)
• Husband-and-wife
engineering team
• Further developed work
measurement methods
• Applied efficiency
methods to their home &
12 children!
• (Book & Movie:
“Cheaper by the Dozen,”
book: “Bells on Their © 1995 Corel Corp.

Toes”)
The Big Guns Of Operations
Management
Henry Ford
• In 1903, created Ford ‘Make them all
Motor Company alike!’
• Born 1863; died 1947
• In 1913, first used
moving assembly line
to make Model T © 1995 Corel
Corp.

– Unfinished product
moved by conveyor
past work station
• Paid workers very well for 1911 ($5/day!)
 The Big Guns of Operations Management
W. Edward Deming

• Born 1900; died 1993

• Engineer & physicist
• Credited with teaching
Japan quality control
methods in post-WW2
• Used statistics to
analyze process
• His methods involve
workers in decisions
 AIMS
• The overall aims of operations
management are:
• 1. To create added value for the
organization and
2. Help to achieve sustainable
competitive advantage by
satisfying the demands and needs
of customers for the    company's
products.
 These overall aims are achieved by:
 The systematic planning and control of all
production management activities;
 Setting and attaining high levels of throughput,
quality, and customer service in terms of meeting
needs (conforming to specification), delivery on
schedule and after-sales service;
 Maximizing productivity;
 Optimizing the use of resources - people, plant,
equipment, tools, inventory, premises and
information systems;
• Managing projects in accordance with a planned
timetable to deliver required results;
• Minimizing manufacturing, inventory,
maintenance and distribution costs;
• Taking necessary steps to increase the levels of
skill, motivation and commitment in the
workforce;
• Making the best use of computers to achieve
maximum efficiency, especially in the planning
and control of operations.
INTEGRATED OPERATIONS MANAGEMENT

 Operations management can be described as

part of an integrated process which is involved
with all the other aspects of the business :
namely, business planning, marketing and sales,
finance, human resource management,
purchasing, research and development and
distribution.
 This process necessarily involves both the all-
important customer, and the supplier upon
whom the organization will be heavily
dependent, especially in a just-in-time operation.
The relationships between the different parts of the process are
illustrated in the following figure:
Competitive Advantage

The terminology used in the field

of strategic management that might
possibly garner the prize for the most
overworked and least understood catch-
phrase is "competitive advantage."
The extension of that phrase into
"sustainable competitive advantage" is
currently an elaboration of ambiguity.
that which one firm can do better than another to
satisfy customer requirements.

Some benefit value provided by a product or

company, often unique to the organization
concerned, that gives it superiority in the market
place.
– Condition which enables a company to operate in a
more efficient otherwise higher-quality manner than
the companies it competes with, and which results in
benefits accruing to that company.
process by which a company studies the
actions of its major competitors in order
to determine what specific strategies they
are following and how those strategies
affect its own; also used by marketers as
they try to develop competitive
advantages, ...
Sustainable competitive advantage
Sustainable competitive advantage
is invulnerable to quick response.
Only sustainable competitive
advantage can maintain market
share and retain margins beyond
the measure of months.
Companies such as Wal-Mart, 3M, Banc One, and
Charles Schwab have achieved incredible
growth and success despite the existence of
powerful and formidable competitors.
Netscape's advantage over Microsoft was at one
point measured in years. Microsoft did it to
Apple, Apple did it to IBM, and IBM did it to
NCR Each of these companies enjoyed a lead
over their competition that went beyond mere
competitive advantage. They discovered how to
make their lead sustainable.
Microsoft and Levi Strauss are excellent
companies, both of whom are losing
valuable competitive advantage. The
Edge is a two way sword. Learn to
master the Edge and you can delight
your customers, boost innovation, and
discover untapped markets. Ignore the
Edge, and you will have lost your
greatest weapon for achieving a
sustainable competitive advantage.
 Operations Management
• Operations Management includes:
– Forecasting
– Capacity planning
– Scheduling
– Managing inventories
– Assuring quality
– Motivating employees
– And more . . .
 Business Operations Overlap

Operations

Marketing Finance
 Operations Management Enables
You To Be Competitive On:

• Cost
• Quality
• Flexibility
• Speed To Market
 Goods-service continuum
Steel production
Automobile fabrication

House building
Low service content Road construction
High goods content
Dressmaking
Farming

Auto Repair
Appliance repair

Maid Service
Increasing Manual car wash
goods content
Increasing Teaching
service content Lawn mowing
High service content
Low goods content
 Ops Management Is All About Value Added

Stage of Production Value Added Value of

Product
Farmer produces and harvests $0.15 $0.15
wheat
Wheat transported to mill $0.08 $0.23
Mill produces flour $0.15 $0.38
Flour transported to baker $0.08 $0.46
Baker produces bread $0.54 $1.00
Bread transported to grocery store $0.08 $1.08
Grocery store displays and sells $0.21 $1.29
bread
Total Value-Added $1.29
 Value-Added
The difference between the cost of inputs
and the value or price of outputs.

Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Management

Feedback Feedback
 Operations Management Interfaces

Industrial Maintenance
Engineering
MIS

Distribution Public Relations

Operations

Purchasing Personnel
Accounting
OM Strategy/Decision Making Determines:

System Design
– Capacity/based on Forecasts
– Location/based on customers
– Arrangement of departments/based on productivity
– Product and service planning/based on customer demands
– Acquisition and placement of
equipment/based on productivity
OM Strategy/Decision Making Determines:
System operation
– personnel
– inventory
– scheduling
– project
management
– quality assurance
Type of Operations Project
Aircraft carrier
Batch production
Printers
Mass production
Automobiles
Continuous production
Gasoline
 Key Differences Between
Production & Services
• Amount of Customer contact
• Uniformity of inputs
• Labor content
• Uniformity of output
• Measurement of productivity
• Quality assurance

These differences are beginning to fade

in many cases
 Manufacturing vs Service

Characteristic Manufacturing Service

Output Tangible Intangible
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Measurement of productivity Easy Difficult
Opportunity to correct High Low
quality problems
High
 Type of Models
A model is an abstraction of reality used to
aid management decision making.

– Physical/ e.g. Plant Layout

– Schematic/Product Blueprint
– Mathematical/Forecast Model
Tradeoffs

What are the pros and cons of models?

 Quantitative Modeling
Approaches
• Linear programming
• Queuing Techniques
• Inventory models
• Project models
• Statistical models
Responsibilities of an Operations Manager

Planning Organizing
– Capacity – Degree of centralization
– Location – Subcontracting
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling – Issuance of work orders
– Inventory – Job assignments
– Quality
 Systems Approach
“The whole is greater than the sum of the parts.”
But what is the whole system? Peter Checkland has pointed out that there
are no such things as systems in the real world waiting to be identified;
rather we choose to identify a certain collection of people and things as a
system. To talk about systems is to talk about “a” way of looking at the
world, not “the” way.

Suboptimization
 Pareto Phenomenon

• A vital few things are important for reaching

an objective or solving a problem.
• 80/20 Rule - 80% of problems are caused by
20% of the activities.

How do we identify the vital few?

 Pareto and Juran
PARETO AND JURAN

How Pareto got credit proving that you

can get credit even when you don’t deserve it.
All you need is to have it sound good.
• In 1906, Italian economist Vilfredo Pareto
created a mathematical formula to
describe the unequal distribution of wealth
in his country, observing that twenty
percent of the people owned eighty
percent of the wealth.
• In the late 1940s, Dr. Joseph M. Juran
inaccurately attributed the 80/20 Rule to
Pareto, calling it Pareto's Principle.
• While it may be misnamed, Pareto's
Principle or Pareto's Law as it is
sometimes called, can be a very effective
tool to help you manage effectively.
• Where It Came From
After Pareto made his observation and created
his formula, many others observed similar
phenomena in their own areas of expertise.
• Quality Management pioneer, Dr. Joseph Juran,
working in the US in the 1930s and 40s
recognized a universal principle he called the
"vital few and trivial many" and reduced it to
writing. In an early work, a lack of precision on
Juran's part made it appear that he was applying
Pareto's observations about economics to a
broader body of work. The name Pareto's
Principle stuck, probably because it sounded
better than Juran's Principle.
• As a result, Dr. Juran's observation
of the "vital few and trivial many",
the principle that 20 percent of
something always are responsible for
80 percent of the results, became
known as Pareto's Principle or the
80/20 Rule. You can read his own
description of the events in the Juran
Institute article titled Juran's
Non-Pareto Principle.
 Recent Trends (Last 10 Years)
Effecting/Changing
OM Principles

• The Internet
• E-Business
• Supply Chain Management
• technology
 Simple Product Supply Chain
(But It Never Really Looks Like This)

Suppliers’ Direct Final

Producer Distributor
Suppliers Suppliers Consumer
 The Things In OM That Haven’t Changed
• Quality and process improvement
• Technology
• Globalization
• Operations strategy
• Environmental issues