What is operations management?

Management of ANY activities/processes that create goods and provide services

Or
A systematic approach to address all the issues pertaining to the transformation process that
converts some inputs into output that are useful and could fetch revenue to the organization.
- B.Mahadevan

Operations managers focus on managing the 5 Ps of the firms operations:

People, Plants, Parts, Processes, and Planning and control systems

Finance
Operations Management Functions
Product Design and Development Forecasting
Process Design Production planning and
control
Operations
Quality Management Supply Chain Management
Location and Layout of Facility Maintenance Management
Materials Management Inventory Management
Marketing HRM
Capacity Planning Continuous Improvement

Importance of OM
 Why to study OM?
Cost and profit breakdown at a typical manufacturing company shows that 20% of their
cost comes from Operations Management

As a result, Profit can be made by

Cost cutting
Identifying which costs affect the revenue
Management of operations is critical to create and maintain competitive advantage

The active role of operations is to understand how Inputs become Outputs after some
Transformation (Process or Operation)
Let us try and understand this by a food processing example:
Manufacturing vs Service Operations
Inputs Transformation Outputs
Manufacturing includes -
Tangible products like Automobiles, Refrigerators, Aircrafts, Coats, Books,
Energy, Raw vegetables Cleaning Clean vegetables
Sodas

Energy, Metal sheets Cutting/Rolling/Welding Cans Services include -

Energy, Vegetables Cutting/Chopping
Energy, Water, Vegetables
Energy, Cans, Boiled
vegetables
Repairs, Improvements, Transportation, Regulation
Cut vegetables
Regulatory bodies: Government, Judicial system, FAA, FDA
Cooking Boiled vegetables Entertainment services: Theatres, Sport activities
Exchange services: Wholesale/retail
Placing Can food Appraisal services: Valuation, House appraisal
Security services: Police force, Army
Financial services: Banks
Education: Universities, K-12 schools
Manufacturing vs Service operations
Characteristic Manufacturing Service
Output Tangible Intangible
Customer contact Low High
Uniformity of output High Low
Labor content Low High
Uniformity of input High Low
Measurement of productivity Easy Difficult
Opportunity to correct quality Easy Difficult
problems

Manufacturing and service operations are different with respect to:

Customer contact
Uniformity of input
Labor content of jobs
Uniformity of output
Measurement of productivity
Production and delivery
Quality assurance
Amount of Inventory
Responsibilities of an Operations Manager

In a nutshell Matching Supply with Demand

Supply Side Demand Side

PROCESS FUNDAMENTALS

The basic building block of creating goods and services is the process. Production usually involves multiple
processes. The basic idea is that a process takes inputs (raw materials, labor, equipment/technology,
knowledge, energy) and creates output that are of greater value to end users.

Elements of a Process
Essentially the process shows three things:

Storage - Storage is where things are being held. In this example we have
inputs waiting to be used, and final goods waiting to be shipped. We also
need to store information. One could also imagine storage between tasks.
So if the patient first sees the nurse who takes his/her vital signs and then
they go to a second waiting area to see the doctor, we could show this
second waiting area as a storage stage between task 1 and 2.

Tasks - Tasks are things are being done.

Flows - The arrows show Flows. There are two types of flows: physical
flows shown by solid arrows, and information flows shown by dotted
arrows.
 Measuring the Performance of a Process
Task Time the time it takes to complete a specific task within a process. In the above example they are 30
and 90 seconds, respectively.
Cycle Time (CT) the average time between completions of successive units. How long does it take to finish
one unit? In the above example, the cycle time will be 90 seconds.
Throughput time the length of time spent in the process. How long does it take to produce a unit of
output? Note that this is different from cycle time. In above example, throughput time is 30+90 = 120
seconds
Productivity - It is the ratio of output from the process to input given to the process to check how well the
process is utilizing the given inputs while delivering the output.
 Measuring the Performance of a Process

Efficiency It is the ratio of actual output to the standard output to be obtained from the process.
Capacity It is the maximum rate of output from the process and is measured in units of output per unit of
time. Typically this is easy to define but hard to measure.
Cycle time and capacity are related if the cycle time of a task is 30 minutes per unit, then the capacity of
that task is 2 units per hour. In the example since cycle time is 90 seconds per unit, then capacity will be 40
per hour (60*60=3600 seconds in an hour, so 3600/90 = 40 cups per hour)
Capacity Utilization how much output was actually achieved relative to actual capacity. If the capacity of a
process is 500 units per day and on a given day 480 are produced, then capacity utilization is 480/500 = 96%.
 Measuring the Performance of a Process

Flexibility This measures how long it takes to change the process so that it could produce a different
output, or use a different set of inputs
Bottleneck is the factor which limits production. Often the task with the longest cycle time is the
bottleneck. Alternatively, the availability of labor (or waiting for other inputs) can determine a bottleneck.
The bottleneck affects both the process cycle time and capacity and so it is important to identify where
bottlenecks exists in a process. In above example task 2, making the cup of coffee is the bottle neck.
Theory of Constraints an approach to management that focuses on whatever impedes progress toward the
goal of maximizing the flow of total value added.
Idle Time the time when useful work is not being performed.
 Measuring the Performance of a Process

Takt time It is the rate at which we need to

produce our product in order to satisfy customer
demand.
EXAMPLE
Suppose that 60 customers come to our coffee shop
per hour, then we need to be able to serve one
patient per minute. Thus our cycle time needs to be
less than or equal to our Takt time. So in the example
above we have troubles, since we need to produce 60
cups per hour, but our process is designed to only
produce 40 (assumption).
We would need to focus on the second task. Note it has nothing to do with the workers
unless the reason it is taking 90 seconds is because the worker is lazy or incompetent.
Firing the barista and hiring a more qualified one would not change anything. Likewise,
performance incentives (either carrots or sticks) would not have much affect either. The
only way to fix the problem would be to change the system. This is a key observation of
modern process improvement theory.
 Made to stock- Goods and services manufactured basically for the Push strategy

These systems are more important in supply chain management context.

Production Processes: Intermittent Production System

Production is performed on a start-and-stop basis, such as for the manufacture of made-to-

order products.

Mass Production

A special type of intermittent production process using standardized methods and single-
use machines to produce long runs of standardized items.
Mass Customization
Designing, producing, and delivering customized products to customers
for at or near the cost and convenience of mass-produced items.

Mass customization combines high production volume with high product

variety.

Elements of mass customization:

Modular product design

Modular process design

 Continuous Production Processes
A production process, such as those used by chemical plants or refineries, that runs
for very long periods without the start-and-stop behaviour associated with intermittent
production.

Enormous capital investments are required for highly automated facilities that use
special- purpose equipment designed for high volumes of production and little or no
variation in the type of outputs.

Facility Layout
The configuration of all the machines, employee workstations, storage areas, internal
walls, and so forth that constitute the facility used to create a firms product or service.
 Product Layout
A production system design in which every item to be produced
follows the same sequence of operations from beginning to end,
such as an assembly line.

Product Layout for Carwash

 Process Layout

A production system design in which similar machines or functions are grouped together A

manufacturing example of a process layout is a machine shop.

Fixed-Position Layout

A production system arrangement in which the product being built or produced stays at one location and
the machines, workers, and tools required to build the product are brought to that location as needed, as for
the building of ships or other bulky products.

Cellular Manufacturing Layout

A combination of process and product layouts, in which machines and personnel are grouped into cells
containing all the tools and operations required to produce a particular product or family of products.

Used in Flexible Manufacturing Systems as an integral part of FMS

The biggest problem faced by an Operations manager in industry is the variability.

This could be in customer demand, production process, product dimensions or any other variation in raw
materials, product prices etc.

Operations manager has a daunting task of keeping this variability low in order to keep the system working
in a predictable and profitable manner. This, though sounds simple but is a very challenging task.
 Total Quality Management (TQM)
Quality- It is the degree to which the
product is fit for its intended use. It is
an important aspect of operations
recognized world over and given the
most importance by many
management gurus. In many cases it
acts as a competitive advantage to a
firm. Quality control is seen as a
major function in manufacturing
organizations.
TQM (Total Quality Management) is
the philosophy of continuous
improvement of quality to get the
right thing, first time and every time.
Dr. Joseph Juran, Shewart, Dr.
Ishikawa and many other quality
gurus have heavily contributed to the
TQM philosophy.
Some of the important quality control
tools are Cause and
effect/Ishikawa/Fish-bone diagram,
Pareto chart, Checklists, Histograms,
Control Charts etc.
 Total Quality Management (TQM)
The TQM System
Goal of TQM Do the right things RIGHT
the first time and every time.
Each process or activity is an opportunity
for a defect to occur

The 6 Concepts of TQM

Kaizen (Continuous Improvement)
Employee Empowerment
Taguchi Concept
Benchmarking
Just-In-Time (JIT)
Knowledge of TQM tools
 Concept 1: Kaizen (Continuous Improvement)

The Continuous Process Improvement Cycle

Defines management's role for continuously
encouraging and implementing small
improvements in individuals and organization
Break complex process into sub-processes and
then improve the sub-process
Continuous improvements in small increments
Does not rely on more expensive or
sophisticated equipment and techniques
The 5S Method to Continuous Improvement
Seiri : Sorting
Seiton: Stabilizing or straightening out
Seiso: Sweeping or clean-up
Seiketsu: Standardizing
Shitsuke: Sustaining the practice
Employee Empowerment

Getting employees involved in product and process improvements

85% of quality problems are due to process and material

Techniques

Build communication networks that include employees

Create formal team structures

Build a high moral organization and move responsibility to employees

Quality Circles

Group of employees who meet regularly to solve problems

Trained in planning, problem solving and statistical methods

Often led by a facilitator

Very effective when done properly

Taguchi Concepts

Experimental design methods to improve product and process design

Identify key component and process variable affecting product variation

Taguchi concept
Quality robustness
Quality loss function
Target oriented quality

Eg. Quality loss Function

Benchmarking

Selecting best practices to use as a standard for performance

Determine what to benchmark

Form a benchmark team

Identify benchmarking partners

Collect and analyse benchmarking information

Take action to match or exceed the benchmark

Just-In-Time (JIT)
In order to minimize inventory and costs associated with it, organizations follow Just-in-
Time manufacturing. Here they manufacture only when the customer places an order for
the product. All the players in supply if follow JIT then at each link in the chain, inventory
will be zero and thus the supply chain can achieve greater overall profits.

Relationship to quality

Cuts the cost of quality but never compromises on quality itself

JIT improves process and product quality

Better quality means less inventory & better, easier-to-employ

Inventory costs money and hides process and material problems

It is the pull system of production scheduling including supply management

Production only when signalled

Lean Manufacturing- Waste in any activity of life is undesirable; same is the case with
business. In manufacturing, there are 8 types of wastes (Muda as they are known in
Japanese)

They are waste of

Manpower, Overproduction, Transportation, Inventory,
Defects, waiting, motion, over/non-value adding
Processing

Every company in order to improve its profits tries to minimize these waste. Lean
manufacturing is, thus, a production philosophy is used in order to reduce the waste and
utilize the available resources optimally to get the maximum productivity.

In order to minimize inventory and costs associated with it, organizations follow Just-
in- Time manufacturing. Here they manufacture only when the customer places an
order for the product. If all the players in supply chain follow JIT then at each link in the
chain, inventory will be zero and thus the supply chain shall achieve greater overall
profits.
Supply Chain Management- It is a set of approaches utilized to efficiently integrate
suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and
distributed at the right quantities, to the right locations, and at the right time, in order to
minimize system wide costs while satisfying service level requirements.

SCM aims to achieve fit between customer demand and the organization strategy known as
strategic fit. Responsive (timely delivery, high cost) vs efficient (delayed delivery, low cost)
supply chain is the trade-off to be solved by operations manager. Supply chain can be
analyzed looking at various points depending upon the organization strategy such as cost,
quality and flexibility.

Evolution of supply chain:

Fords Black T-Model Supply chain
Dell Supply Chain