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KEY STRATEGIC GOALS

IN OPERATIONS MANAGEMENT

– Enhancing Productivity and Profitability

– Enhancing Capacity Utilization
– Reducing Operating costs
– Upgrading Output & Outcome
– Enhancing Quality of Products & Services
Areas for Reduction of Operational Costs
• Labor costs
• Material costs
• Inventory costs
• Transportation or distribution costs
• Cost of Quality Failures & Rework
• Other costs
Framework For Operations Strategy
 PRODUCTIVITY

Productivity is a common measure of

performance in Operations.

It is a direct indicator of Resource Utilization

how well resources are being used.
In the broadest sense, it can be defined as a
Ratio :
Outputs
Inputs
 Concept of Total Productivity

Total Productivity = Outputs

Inputs

= Cost of Goods & Services produced

Cost of Input resources used
 Measuring Partial Productivity

Partial Productivity Ratios:

• Labor Productivity= Output / Labor Deployed

• Materials Productivity=Output /Materials Used

• Energy Productivity = Output / Energy Used

• Capital Productivity = Output / Capital Deployed

Measuring Multifactor Productivity
Multifactor Productivity Ratios:

Output
Labor + Capital + Energy
or

Output
Labor + Capital + Materials
Example of Productivity Measurement
• You have just determined that your service
employees have used a total of 2400 hours of labor
this week to process 560 insurance forms. Last week
the same crew used only 2000 hours of labor to
process 480 forms.
• Which productivity measure should be used?
• Answer: Both Total Productivity or Partial
Productivity Measures can be used.
• Is productivity increasing or decreasing?
• Answer: Last week’s productivity = 480/2000 = 0.24,
and this week’s productivity is = 560/2400 = 0.23.
So, productivity is decreasing slightly.
 Assessing Productivity at work
A travel agency processed 240 customers on Day 1
with a staff of 12, and 360 customers the on Day 2
with a staff of 15.
What is the change in Productivity from Day 1 to Day 2?

a. An increase in productivity from Day 1 to Day 2

b. A decrease in productivity from Day 1 to Day 2
c. The same productivity from Day 1 to Day 2
d. Can not be computed from data above
e. None of the above
 Assessing Productivity at work
A travel agency processed 240 customers on Day 1
with a staff of 12, and 360 customers the on Day 2
with a staff of 15. What can be said about the
productivity shift from Day 1 to Day 2?
a. An increase in productivity from Day 1 to Day 2
b. A decrease in productivity from Day 1 to Day 2
c. The same productivity from Day 1 to Day 2
d. Can not be computed from data above
e. None of the above

Answer: a. An increase in productivity from Day 1 to Day

2(Day 1 productivity = 240/12=20
Day 2 productivity = 360/15=24)
 TARGET AREAS for Reducing
Operating Costs
• Labor costs
• Material costs
• Inventory costs
• Transportation or distribution costs
• Cost of Rejects & Rework
• Losses on Waste & Pilferage
• Infructuous Expenditures
Case : Air Deccan-Low Cost Budget Airline