Introduction to Operations Management

What is production?

What is a product?

Satisfies someone's need

Some one is willing to buy!

Product is a result of a process, a set of

activities which creates a sellable output

Such a process is called production

Production is a process and product is the

result

Types of Products Tangible/Intangible Consumer /Industrial Consumer durable & Non-durable Discrete/Continuous Standard/Customized

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 Products and services Expanded concept of product and activity that creates it - operation Factory and facility

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When does someone buy a product? Need experience and satisfaction Choice of a particular product from variety? Concept of value How can we create value [function/cost]? Can we define operation now?

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VA/NVA Value is created by value adding activities Wastes are created by non-value adding activities

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What activities add value?

(Such activities are operations)

Alter physical state-water to ice

Alter form-blacksmith

Alter chemical composition-chemical

products Alter metallurgical condition-alloys
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Store, preserve-refrigerate deep freeze

Impart knowledge-teach, train, give

information

Give advice-medical advice, legal opinion

Give medical treatment

Transport mangoes from Ratnagiri to

Mumbai
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What is the result of such activities?

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Result of operations (value adding

activities) is a product which may be tangible

or intangible
Product or service Why do customers buy a product? Every product is finally a service!

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What is core service?

Products meeting QCD expectations of

customer

What is Value added service?

Help external customers use the core

service effectively
Help internal customers perform effectively
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1. Information on product and product

performance-safety, cost etc.

2. Problem solving-product support, workers

visiting customers works to learn product

performance for C/CA/PA

3. Sales support- technology demonstration

4. Field support-parts replacement, stock

replenishment
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Product Vs Service
Result of a process A process itself

Tangible
Inventoriable

Intangible
Non inventoriable Customer is on the shop floor and involved in creation of service
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Customer is away,
product is to be delivered to the customer

What is management? Important features of management Facilitation Resource allocation Accountability Review PDCA Efficiency & Effectiveness Visualization & Planning
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What is Operations Management? A function of Corporate Management

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CORPORATE MANAGEMENT

OPERATIONS

HRD

FINANCE

MARKETING

ENGINEERING

LOGISTICS

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What is a function?

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Function is a set of goal focused activities Goals are subsets of corporate objectives Corporate objectives are aimed at customer satisfaction customer satisfaction is the result of

meeting customers expectations

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What are customers expectations?

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QCD of the product

How are they fulfilled?

P,Q,C,D,E,F,S,H,E, the Objectives of

Operations Management

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Definition of Operations Management

Design, operation and improvement of

systems that create and deliver the firms

primary products and services

O/M is a function of general management

O/M is a line function

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O/M uses tools of OR (Operations

Research), MS (Method Study) & IE

(Industrial Engineering), hence closely

associated with these functions

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Functions of production management

Planning
Product-selection, design, development

Location, layout
Capacity planning

Production planning

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Organizing Work-study Staffing Materials management

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Controlling Stores management Value analysis Quality control Maintenance management Inventory management
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Operations Management Objectives

Performance Objectives

Efficiency & Effectiveness

Quality

Lead times
Capacity utilization

Flexibility
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Cost Objectives
Explicit [visible] costs: material, labor, scrap,

rework, maintenance
Implicit [invisible]costs: inventory, stock-outs,

shortages, delayed deliveries, mat.handling,

inspection, grievances, dissatisfaction, opportunity
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Importance of Operations Management

1. Important part of Business education

Central to every business activity

Knowledge of issues in the field is critical in

manufacturing or service, private or public

2. Government is moving towards customer

service models
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Reinventing Government in the US 1990

(David Osborne and Ted Gaebler-1992 book

Reinventing Government)

It applies the customer service

model to government and the PSUs

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 In India many of the PSUs are either

getting privatized or following the customer

service model as in the US

Customer sensitiveness

Productivity orientation
Importance of conservation

Process focus for result

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This approach focuses on results and

promotes competition inside and outside

government

Reinventing Government initiatives draw

from the concepts of Supply Chain

Management, TQM, BPR and JIT delivery,

concepts that fall under OM umbrella
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3. Operations Management provides a

systematic way of looking at organizational

processes
Analytical approach to a situation

Problem solving
Respect for standards

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4. O/M presents interesting carrier

opportunities

Line positions-direct supervision of

operations

Staff positions-Supply Chain Management,

Quality Assurance

Consulting opportunities-BPR, ERP, JIT,

TQM
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5. Concepts and tools of O/M are used in all

functions of management

Quality Control (prevention of defectives)

Productivity improvement(resource

utilization)
Internal customer concept, who is customer?

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6. Competitive edge through O/M to business

and to management professionals

Huge potential to boost the productivity of

the process, offer products at lower cost and

high quality
Meeting the QCD expectations of the

customers with improved flexibility

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History of Operations Management

Concept of O/M - an evolution: House hold

trades to factories as investment

opportunities

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1910s

Frederic Taylor
Principles of scientific management

Concept of productivity, time study

Frank and Lillian Gilbreth

Motion study

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Henry Ford and Henry Gantt

Moving assembly line and activity scheduling,

Gantt Chart

F.W. Harris
Inventory Control, concept of EOQ

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1930s
Walter Shewhart & H.F. Dodge and H.G.

Romig
Quality control, sampling inspection &

statistical tables for quality control

Elton Mayo & L.H.C. Tippet

Hawthorne studies of worker motivation

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1940
George B. Dantzig

Simplex method of linear programming to

solve complex multidisciplinary problems

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1950s -1960s Many researchers in US & Western Europe Extensive development of OR tools like simulation, waiting line theory, decision theory, mathematical programming, PERT & CPM

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1970 Many computer manufacturers lead by IBM in US Wide spread use of computers in business for production scheduling, inventory control, forecasting, project management, MRP Mc Donald's restaurants in US Service Quality and Productivity, mass production in service sector
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1980

Harvard Business School Faculty

Manufacturing as a competitive weapon

Tai-ichi Uhno of Toyota Motors,

D E Deming & J E Juran

Kanban, Pokayoke, CIM, FMS, CAD/CAM,

robots etc.
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Eliyahu M. Goldratt
Synchronous manufacturing-Lean principles

to variety production, Theory Of Constraints:

bottleneck analysis-methodology for solving

problems, goal-performance-constraints

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1990 National Institute of Standards and Technology, American Society of Quality Control and International Organization for Standardization

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Total Quality Management, Balridge quality

award, ISO 9000, Quality Functional

Deployment, value engineering and

concurrent engineering-modern approach to

product development
Michael Hammer and other major

consulting firms
Business Process Re-engineering
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US government, Netscape Communication Corporation and Microsoft Corporation SAP (Germany), Oracle (US) ERP Council of Logistics Management, Council of Supply Chain Management Supply chain management, 2000 Amazon, eBay, American Online, Yahoo E-commerce, Internet, World Wide Web

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What is Operations Strategy?

Evaluating most Cost effective methodology of

producing goods while achieving desired Quality

and Delivery objectives

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A planning process to organize the resources to

fulfill the long term objectives of operations,

which are focused on organizational objectives

Organizational objectives are dynamic as they

are competitive - post war US and Japan

Objectives are flexible to meet changing

expectations of customers
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Operations strategy is a process by which key operations decisions are made that are consistent with overall strategic objectives of the firm Operations Strategy leads to operational excellence

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What are operational decisions? Decisions are at the core of a strategy. Operational Decisions are the strategic options selected by the organization. Product & Process Product portfolio- products, product line, extent of customization Product design
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Process design
Technology selection

Capacity planning
Inventory decisions

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Infrastructure Plant and equipment Process location Planning systems, MRP? DRP? ERP? Control systems, Manual? Automatic? Computerized? Quality assurance and control Work payment structure Organization of Operations function
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Relevance of Operations Strategy 1.Changing expectations of customers due to the competitive dynamics 2. Need for a cost effective plan to respond to these changes 3. Need for adaptation to competitive priorities, Quality? Cost? Delivery?

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4. Competitive pressure on price line, lead

time and quality

5. Challenges of modern business- pushes

and pulls, customers, suppliers, investors,

workers, government, NGOs

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COMPETITIVE DIMENTIONS IN OPERATIONS STRATEGY Make it cheap- cost reduction, post war demand for volumes Make it good- quality and reliability as a dimension, competition from Japanese products Make it quick- lead time reduction Deliver it when promised-OTD
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Change its volume-Meeting rising demand

and scaling down

Change it-new product introduction

Support it-competitive dimensions related

to service

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COMPETITIVE ADVANTAGE

Competitive Advantage creates value for the

customer

Firms profit exceeds the competition

average

Cost advantages-core service is delivered at

lower cost

Differentiation advantage (service advantage)

-benefits delivered are superior
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Resources Cost Advantage or Differentiation Advantage

Distinctive Competencies

Value Creation

Capabilities
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Resources Firms resources and capabilities are to be superior to competition- Without this superiority, any advantage quickly would disappear Patents and trademarks Proprietary know-how Installed customer base Reputation of the firm
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Brand equity-is the value that customers

PERCEIVE in a brand. It is measured based

on how much trust a customer has in the

brand.

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Capabilities

Firm's ability to utilize its resources

effectively Aspects that are difficult to document Embedded strengths of the company

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Distinctive Competencies
The firm's resources and capabilities

together form its distinctive competencies

competencies enable innovation, efficiency, quality, and customer responsiveness, all of which can be leveraged to create a cost advantage or a differentiation advantage.
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TIME BASED COMPETITION Business organizations seek competitive advantage to attract customers Focus of the competition changed with time post war focus in the US was cost (concept of 'make it cheap') Japanese introduced quality focus in 1980s (concept of 'make it better')
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As the cost and quality become qualifiers in competitive business. Now focus comes on time. (concept of 'make it quick')

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Classical ILO approach to work talks about

work content and ineffective time

TBC as an initiative puts the focus on NVA

elimination/reduction
As the NVAs shrink changes occur in O/S

Productivity goes up, Output rises,

Business prospers
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Satisfying 'D' expectation became the

winner characteristic in competitive business

Lead-time came under the scanner of

business managers

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TBC has a methodology for implementation Process mapping Value stream mapping Prioritization with respect to product delivery Selecting focus area Reduce NVAs

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Tools used: SMED, KANBAN, 5S, Process

mapping, layout change, Technology,

Logistical Management, Supply Chain

Management

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