Intro - OM, Strategy, Productvity

Introduction
to
Operations Management
Suhas Rane
10/17/08 ranesuhas@hotmail.com 1
Agenda
Historical Development of OM
Taylor, Henry Ford, Hawthorne Studies
Operations Research, Computers & Adv. Opn.
Technology.
OM in the Organisation Chart

Six Basic Functions of Business
O M. Definition
Scope of Operations Mgmt.
Mfg. Industry v/s Service Industry
Production Systems
“Input –Transformation –Output” Relationships
Productivity Measurements
Decisions & Activities in OM
 In olden days, did Production Systems
exist ?
 Great Wall of China,
 Egyptian Pyramids,
 Taj Mahal
 Village Activities
 Features of Old production activities

 Cottage System
 Hand Work
 Unorganized
 Unique.
(Contd.)
 1770 - 1800 : Series of events took place in UK

 8 Great Inventions in UK, France, USA , mainly in Yarn
Spinning
 Increase of UK colonies.
 Use of Machine Power facilitated gathering of workers in factories.
 Need to organize workers.
 Division of workers ranesuhas@hotmail.com

10/17/08 into Small Specialized Task 4
(Contd.)
 All this led to Industrial Revolution.
 Spread from UK
 to Europe
 to USA.
 The missing factor – “Management”

later provided by Management Thinkers,
Researchers, Business
leaders , Consultants.
Evolution of OM
Phases in evolution of OM
 Craft Production
 Mass Production
 Lean Management
 Mass Customisation
Historical Evolution of OM
 F.W. Taylor (1856-1915) –

Father of Sc. Management
 Each worker trained for suitable job
(according to his skill, strength, learning

ability )
 Standard Output Norms set per worker.
 Instructions Card, Routing Sheets, Material

Specs
-All Standardized.
 Supervision
 Incentive for motivation & increasing

10/17/08
productivity ranesuhas@hotmail.com 7
 Henry Ford (1913) –

Moving Assembly Line concept
 Standardized product design
 Mechanized assembly line
 Specialized labour
 Interchangeable parts
 Result : Av. labour per chassis

reduced from 12.5 hrs to 93 min.
 Hawthorne Studies
 Until 1920s – OM emphasised on role of Org.

Structure, Specialization,
Planning & Control.
(But not on human dimension)
 Late 1920s - Harvard Research Team (led by

Elton Mayo) conducted studies and
established relationship between
behaviour of workers & their job
10/17/08
environments.
ranesuhas@hotmail.com 9
 Operations Research
 II World War - Complex problems of logistics

control due to massive
deployment of soldiers, supplies,
planes, ships.
For efficient utilization of resources,
Allies formed O.R. teams in military
branches.
 Effective use of O.R techniques to solve

10/17/08 complex problems led to their applications in
 Computers & Advanced Operations
Technology
 1954 - GE - computers to reduce clerical
cost in pay roll.
 1960s - Op. managers started using
computers for demand
forecasting, purchasing, inventories,
and subsequently developed MRP.
 Late 80s – CAD, CAM, FMS,
ASRS (Automated Storage & Retrieval System),
AIS ( Automatic Id System- thru barcode), TQM,
MRP, JIT

10/17/08
1990s – Useranesuhas@hotmail.com
of reprogrammable m/cs (like11
Historical Events in O. M.
Era Events/Concepts Year Originator

Steam engine 1769 James Watt
Industrial
Division of labor 1776 Adam Smith
Revolution
Interchangeable parts 1790 Eli Whitney
Principles of scientific Frederick W.

1911 Taylor
management
Scientific Time and motion Frank and Lillian
1911 Gilbreth
Manageme studies
Activity scheduling
nt 1912 Henry Gantt
chart
Moving assembly line 1913 Henry Ford
Historical Events in O. M. (cont.)
Era Events/Concep Dates Originator

ts
Hawthorne studies 1930 Elton Mayo
Human 1940s Abraham Maslow
Relations Motivation theories 1950s Frederick Herzberg
1960s Douglas McGregor
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, waiting
Operation Operations
line theory, decision 1950s
s Research research groups
theory, PERT/CPM
1960s, Joseph Orlicky, IBM
MRP, EDI, EFT, CIM
1970s and others
Historical Events in O. M. (cont)
Era Events/Conce Date Originator

pts s
JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (total quality W. Edwards Deming,
1980s
Quality management) Joseph Juran
Revolutio Strategy and Wickham Skinner,
1990s
n operations Robert Hayes
Business process Michael Hammer,
1990s
reengineering James Champy
Historical Events in O. M. (cont)
Date
Era Events/Concepts Originator
s
Globalizatio WTO, European Union, 1990s Numerous
n and other trade 2000s countries
Internet agreements
Internet, WWW, ERP, 1990s ARPANET, Tim
and companies
Revolution Supply Chain Berners-Lee SAP,
Management i2 Technologies,
ORACLE,
PeopleSoft
E-commerce 2000s Amazon, Yahoo,
eBay, and others
OM in the Organisation Chart
 SIX BASIC FUNCTIONS OF BUSINESS
 CREATION : Product Selections / Idea Generation

 FINANCE : Managing Resources, Capital Acqn.,
keeping Financial Records.
 PERSONNEL : H.R., Labour Relations.
 PURCHASING : Buying of required
(Eqpt. + Material + Services)
 CONVERSION/ : Changing Raw Materials
(PRODUCTION) to Economic
Goods.
 DISTRIBUTION : Selling & Marketing (reaching the
Customer) .
O. M. Definition
Operations Management is the effective

and efficient management of processes.
A PROCESS has an input and value added

output.
The objective of a process is to add value
by conversion from input to output.
What does Operations Manager
Do?
 Operations -
 a function or system that transforms
inputs into outputs of greater value
 Transformation Process -
 a series of activities along a value chain
extending from supplier to end-
customer
 activities that do not add value are superfluous
and should be eliminated
 What is Operations Management?

 design, conversion, and improvement of productive
10/17/08
systems ranesuhas@hotmail.com 18
Transformation Processes
 Physical : as in manufacturing
operations
 Locational : as in transportation
operations
 Exchange : as in retail operations
 Physiological: as in health care
 Psychological: as in entertainment
 Informational: as in communication
Is there any Business / Industry

10/17/08
where an operation is not
Operations as a
Transformation Process
INPUT
•Material
TRANSFORMATION OUTPUT
•Machines
•Goods
•Labor PROCESS
•Services
•Management
•Capital
Feedback
Operations Management
Is functionally
related to –
 Marketing
 Finance and
Accounting
 Human
Resources
 Outside
Suppliers
INPUT RESOURCES
LAND, PLANT, MATERIAL ENERGY MANPOWER
BLDG M/C
OPERATIONS
MANAGEMENT
Obtains the facts
Plans,
Directs,
Coordinates,
Controls,
Motivates
in order to PRODUCE
OUTPUT
PRODUCTS AND SERVICES

Mfg. v/s Services – What’s the
difference?
Business Organization
Mfg. Industry Service

Industry
Creation of Providing
Goods Services
Production
Operations Mgmt
Mgmt
Mfg. v/s Services – What’s the
difference?
Manufacturing Services
1. Step by step conversion of Material Service to satisfy customer
2. Tangible & Stockable Output Non-Stockable Output
3. Mass Production with few variations Customisation
4. More M/c Oriented, Less Labour More Mind Skill / Labour Oriented
5. Factory Location – Near RM Near Customer

or Market, or Better Facilities
6. Low / No Customer involvement in Direct interaction between

Conversion Process Customer and Process
A Systems View of Operations
 Manufacturing System (e g. Television)
 Inputs : Equipment, labour, parts, etc

 Conversion Process: Producing parts, Assembling
 Output: Television set
 Feedback: Defect rates, Customer response
 Service System (e.g. Banking)
 Inputs : Clerks, equipment, cash,

etc..
 Conversion Process : Monetary transactions.
 Output : Loans, and deposits
 Feedback : Interest earned, Deposits received
“Input –Transformation –Output” Relationships
System Primary Resources Transformation Fn.(s) Typical Desired Output

Inputs
Automobile Sheet steel, Tools, Fabrication and Assy. of High-quality cars

Factory engine parts equipment, cars (physical)
workers
Hospital Patients MDs, nurses, Health care (physiological) Healthy individuals
medical
equipment
Restaurant Hungry Food, chef, Well-prepared, Satisfied customers
customers wait-staff, Well-served food;
environment Stimulating environment
College or High school Teachers, Imparting knowledge and Educated individuals

university graduates books, skills (informational)
classrooms
Department Shoppers Displays of Attract shoppers, Promote Satisfied customers
store goods, sales products, Fill orders
clerks (exchange)
Distribution SKUs Storage bins, Storage and redistribution Fast delivery, availability
Centre stock-pickers of SKUs
1. Planning
 Mix of goods & services, Plant locations

planning.
 Capacity planning, Production method.
 Equipment planning, Setting master
schedules .
 Deciding No. of Shifts & work hours.
2. Organizing
 Centralized or Decentralized
 Organized by functions, product or hybrid
 Assign responsibility for every activity
 Arrange supplier/ subcontractor network
 Establish maintenance policies
3. Controlling
 Compare costs to budget

 Inspect the quality
 Compare labour hours to standards
 Compare work progress to schedule
 Compare inventory to targets
4. Directing
 Personnel policies
 Employment contracts
 Issue job instructions
 Issue routings
 Issue despatch lists
5. Motivating
 Encourage thru praise , recognition ,
tangible rewards
 Motivate thru enriched jobs & challenging
assignments
6. Co-ordinating
 Common forecasts & Master Schedules
 Common standardised database
 Co-ordinate purchases, deliveries, design

changes, Maintenance, Tooling.
 Respond to customer
10/17/08 enquiries about
7. Training & Development
 Encourage employees to seek a

better way
 Give more advanced job assignments
 Support employees in training
programmes
Production Management
Definition: (by E. S. Buffa)
“Production Management deals with decision
making related to production processes, so
that
resulting goods & services are produced
according to specification, in the amount &
by
the schedule demanded and at minimum
cost.”
Objectives of Prod. Mgmt.

1. Manufacturing Cost
10/17/08
2. Product Quality
Operations Strategy
 Earlier : Concentration on Finance & Marketing

strategies
(Unaware of Operations Mgmt. as a
strategic function)
 1969 : Prof. Wickham Skinner (Harvard) described
“A firm lacking proper Operations Strategies is

like an anchored ship. Finance, design and
marketing may set the radar and expect the ship to
steam off , but with anchors set,
the ship won’t move, or moves reluctantly,
dragging its burden”
Scope of Operations Mgmt.
Long Term / Strategic Decisions
 Product Selection & Design

 Process Selection & Planning
 Facilities Location
 Facilities Layout
 Capacity Planning
Short Term / Operational Decisions
1. Production Planning & Control

2. Inventory Control
3. Quality Control
4. Method Study / Work Study
5. Maintenance & Replacement
Production & Productivity
 Production  Output (in No of Units)
Output
 Productivity  ------------  No. of
pcs./hr.
Input
Productivity Measures
( Output in terms of Input)
 Machines - Out put per Machine

Hour
 Men - Out put per Man Hour
 Materials - No of units produced per input

of R.M.
(e.g. - No of Screws per Kg of
wire)
 Power - No of Pcs. per KW Unit of

El. Power
10/17/08
 Boiler - Kgs. of Rubber cured / Kg37
ranesuhas@hotmail.com
Productivity Measurements and their
Need
Myth 1. - Higher production mean Higher
Productivity
Automobile Manufacturing Co. -

 Yr. 2004 : Annual Production = 50,000 Cars
 Yr. 2005 : Annual Production = 55,000 Cars
 This means Production Increase = 10%
 But in 2004 : 50,000 Cars with Cap. Invest. of 500 Cr.

2005 : 55,000 Cars with Cap. Invest. of 550 Cr.
 2004 Productivity = 100 Cars / Rs. 1 Cr. Invest.

2005 Productivity = 100 Cars / Rs. 1 Cr. Invest
i.e. Productivity Increase = Nil
 Myth 2 : Higher productivity mean
working Harder.
In fact adequate personal rest, contingency need to

be provided to get continuous good quality of out
put.
 Myth 3 : Higher productivity means

working faster.
It may unnecessarily lead to errors, accidents and

injuries.
 Due
10/17/08 to such misconception
ranesuhas@hotmail.com in people’s mind,
39
Productivity of an Organization
 Sugar Mill - Kg. of sugar produced /

Ton of sugar-cane
crushed
 Fabrication - Tons of Fabrication /

Kg. of Welding Rod
Productivity of a Service Function
 Transporter - Ton-km / Vehicle/

Month.
OR
Ton-km / 1000 Lit. Diesel
 Pharma. Marketing Div. -

Rs Order booked / MR /Month
Service Industry : Productivity
Measures
Business Productivity Measure
Restaurant Customers (meals) per hour
Retail Store Sale per Sq. foot
Chicken farm Kg. of meat per kg. of feed
Utility plant Kilowatts per ton of coal
Paper mill Tons of paper per ton of

wood

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Introduction

OM in the Organisation Chart

Mfg. Industry v/s Service Industry

 Features of Old production activities

 1770 - 1800 : Series of events took place in UK

 Use of Machine Power facilitated gathering of workers in factories.

 Need to organize workers.

 Division of workers ranesuhas@hotmail.com

 The missing factor – “Management”

 F.W. Taylor (1856-1915) –

(according to his skill, strength, learning

 Instructions Card, Routing Sheets, Material

 Incentive for motivation & increasing

 Henry Ford (1913) –

 Mechanized assembly line

 Result : Av. labour per chassis

 Until 1920s – OM emphasised on role of Org.

 Late 1920s - Harvard Research Team (led by

 II World War - Complex problems of logistics

 Effective use of O.R techniques to solve

Era Events/Concepts Year Originator

Principles of scientific Frederick W.

Era Events/Concep Dates Originator

Era Events/Conce Date Originator

 SIX BASIC FUNCTIONS OF BUSINESS

 CREATION : Product Selections / Idea Generation

Operations Management is the effective

A PROCESS has an input and value added

 What is Operations Management?

Is there any Business / Industry

PRODUCTS AND SERVICES

Mfg. Industry Service

2. Tangible & Stockable Output Non-Stockable Output

3. Mass Production with few variations Customisation

5. Factory Location – Near RM Near Customer

6. Low / No Customer involvement in Direct interaction between

 Manufacturing System (e g. Television)

 Inputs : Equipment, labour, parts, etc

 Service System (e.g. Banking)

 Inputs : Clerks, equipment, cash,

System Primary Resources Transformation Fn.(s) Typical Desired Output

Automobile Sheet steel, Tools, Fabrication and Assy. of High-quality cars

College or High school Teachers, Imparting knowledge and Educated individuals

 Mix of goods & services, Plant locations

 Compare costs to budget

 Co-ordinate purchases, deliveries, design

 Encourage employees to seek a

Objectives of Prod. Mgmt.

 Earlier : Concentration on Finance & Marketing

 1969 : Prof. Wickham Skinner (Harvard) described

“A firm lacking proper Operations Strategies is

Long Term / Strategic Decisions

 Product Selection & Design

Short Term / Operational Decisions

1. Production Planning & Control

 Production  Output (in No of Units)

 Machines - Out put per Machine

 Men - Out put per Man Hour

 Materials - No of units produced per input

 Power - No of Pcs. per KW Unit of

Automobile Manufacturing Co. -

 This means Production Increase = 10%