UNIT 1

Introduction to
Operations Management

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 Learning Objectives
 Define the term operations management
 Identify the three major functional areas of
organizations and describe how they
interrelate
 Compare and contrast service and
manufacturing operations
 Describe the operations function and the
nature of the operations manager’s job

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 Learning Objectives
 Differentiate between design and operation
of production systems
 Describe the key aspects of operations
management decision making
 Briefly describe the historical evolution of
operations management
 Identify current trends that impact operations
management

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 Operations Management
 Operations Management is:
The management of systems or processes
that create goods and/or provide services

 Operations Management affects:

 Companies’ ability to compete
 Nation’s ability to compete internationally

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 Operations Management
 Operations management: The management of the efficient transformation of
inputs into outputs to effectively satisfy customers.
 The active role of operations:
– Inputs become Outputs after some Transformation (Process or
Operation)
– Food processing example:

Inputs Transformation Outputs

Energy, Raw vegetables Cleaning Clean vegetables
Energy, Metal sheets Cutting/Rolling/Welding Cans
Energy, Vegetables Cutting/Chopping Cut vegetables
Energy, Water, Vegetables Cooking Boiled vegetables

Energy, Cans, Boiled vegetables Placing Can food

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 Operations in services:
Health care
Inputs Processes Outputs
Doctors, nurses Examination Healthy
patients
Hospital Surgery
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy

Question: What are Inputs, Processes and Outputs in education?

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 The Organization
Figure 1.1

The Three Basic Functions

Organization

Finance Operations Marketing

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 Value-Added Process
Figure 1.2
The operations function involves the conversion of
inputs into outputs
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Control
Feedback Feedback

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 Value-Added & Product
Packages
 Value-added is the difference between the
cost of inputs and the value or price of
outputs.
 Product packages are a combination of
goods and services.
 Product packages can make a company
more competitive.

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 Goods-service Continuum
Figure 1.3

Goods Service

Surgery, teaching

Song writing, software development

Computer repair, restaurant meal

Automobile Repair, fast food

Home remodeling, retail sales

Automobile assembly, steel making

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Production of Goods vs. Delivery of
Services
 Production of goods – tangible output
 Delivery of services – an act
 Service job categories
 Government
 Wholesale/retail
 Financial services
 Healthcare
 Personal services
 Business services
 Education

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 Goods vs Service
Characteristic Goods Service
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Output Tangible Intangible
Measurement of productivity Easy Difficult
Opportunity to correct problems High Low
Inventory Much Little
Evaluation Easier Difficult
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Scope of Operations Management
 Operations Management includes:
 Forecasting
 Capacity planning
 Scheduling
 Managing inventories
 Assuring quality
 Motivating employees
 Deciding where to locate facilities
 Supply chain management
 And more . . .
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 Responsibilities of Operations
Management
 Planning  Controlling
 Capacity, utilization – Inventory
 Location – Quality
 Choosing products or – Costs
services  Organization
 Make or buy – Degree of standardization
 Layout – Subcontracting
 Projects – Process selection
 Scheduling  Staffing
 Market share – Hiring/lay off
 Plan for risk reduction, – Use of overtime
plan B? – Incentive plans
 Forecasting
In a nutshell, the challenge is
“Matching the Supply with Demand”

SUPPLY SIDE DEMAND SIDE

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 Key Decisions of Operations
Managers
 What
What resources/what amounts
 When
Needed/scheduled/ordered
 Where
Work to be done
 How
Designed
 Who
To do the work
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 Manufacturing Systems
 Manufacturing system is a method of organizing production.

 A combination of all activities or operations which are

required to produce goods or services are called
manufacturing systems.

 The manufacturing system can be viewed as an

interdependent group of sub-systems, each performing a
different function though yet united with others for
achievement of the overall system objectives.

 Manufacturing system interacts with both internal and

external environment.
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 Types of Manufacturing Systems
Manufacturing systems can be classified in two categories:

1. Intermittent System
(a) Job Production
(b) Batch Production

2. Continuous System
(a) Mass Production
(b) Batch Production

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 Intermittent System
 Goods are manufactured specially to fulfill orders made by
customers rather than for stock.

 Here the flow of material is intermittent.

 Production facilities are flexible enough to handle a wide

variety of products and sizes.

 Intermittent system is used to manufacture those products

where the basic nature of inputs changes with the change in
the design of the product and the production process
requires continuous adjustments.
 Examples: Machine shops; Hospitals; General Office.
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 Intermittent System
Chief characteristics of Intermittent System:

 Most products are produced in small quantities.

 Work loads are generally unbalanced.
 Highly skilled operators are required for efficient use of
machines and equipment.
 In-process inventory is large.
 Production process requires continuous adjustments.
 Flexible to suit production variety.

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 Intermittent System
Planning and control mechanism for intermittent System:

 Organization of production planning and control operations

in intermittent systems needs estimation of jobs, routing,
scheduling, preparation of manufacturing orders,
dispatching and production control.

 In this system customer provides the blue print and other

specifications regarding the product to be manufactured.
Then the organization formulates their production strategy to
suit the needs of the customers.

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 Intermittent System
Following points must be kept in mind while planning and
controlling for intermittent systems:

 This type of manufacturing system covers specialties of

every type and sub-assemblies or parts which are required
to manufacture the product. Due to this continuous planning
is needed for each fresh order.

 Due to variety of orders and different lot sizes, the system

needs wise and careful sequencing of operations.

 Proper regulation and close inspection is required at

different stages of production.
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 Intermittent System
Intermittent systems can be classified into two categories:
(a) Job Production
(b) Batch Production

Job Production:
 When any project is taken as one operation, then the
production of that single operation by a single operator or a
group of operators is known as job production. E.g. bridge
building, dam construction, ship building etc.
 Here whole project is considered as one operation and
work is completed on each product before passing on to
the next.

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 Intermittent System
Features/Characteristics of Job Production:

 A whole project is taken as one operation.

 When the work is completed on each product only then the
processing of next item shall take place.
 Manufacturing depends upon receipt of orders from
customers.
 Huge capital investment is required.
 Highly skilled labour is required.
 High unit cost of production.

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 Intermittent System
Advantages of Job Production:

 Usage of general purpose machines helps in producing

variety of products.
 Full potential of operators can be utilized.
 Operators will become more skilled and competent.
 Opportunity exists for creative methods and innovative
ideas.

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 Intermittent System
Disadvantages of Job Production:

 Higher cost due to frequent set up changes.

 Higher level of inventory at all levels and hence higher
inventory cost.
 Production planning is complicated.
 Larger space requirements.

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 Intermittent System
Batch Production:

In the system of batch production, any product is divided into

parts or operations and that each operation is to be completed
throughout the whole batch before the next operation is
undertaken.

The best example of batch production system is of chemical

industry, where different medicines are manufactured in
batches. Other examples can be production of electronic
instruments, machine tools, printing press etc.

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 Intermittent System
Features of Batch Production:
 After the production of one batch, the plant and machines
become available to other batch of similar type of
production.
 Specialized labour can be employed for each operation with
comparatively low investment.
 Organization and planning is more complicated.
 A batch is not passed to next operation until the work on the
previous operation is complete for the whole batch and no
new batch enters the production line, till all operations for
manufacturing any product are completed. This results in
considerable idle time for various operational centres.

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 Intermittent System
Advantages of Batch Production:

 Better utilization of plant and machinery.

 It promotes functional specialization.
 Cost per unit is lower as compared to job production.
 Lower investment required in plant and machinery.
 Flexibility for processing number of products.

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 Intermittent System
Disadvantages of Batch Production:
 Production planning and control is complex.
 Idle time for various operational centres.
 Material handling is complex because of irregular and longer
flows.

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 Continuous Manufacturing System
 In this system the items are produced for the stocks and not
for specific orders.

 In this system the product moves from one station to

another and each station performs a particular task in order
to get a finished product.

 In this system the inputs are standardised and a standard

set of processes and sequence of processes can be
adopted.

 The routing and scheduling for the whole process can be

standardised under this system.
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 Continuous Manufacturing System

Features of Continuous Manufacturing system:

 Products are standardized in nature.
 The demand for a product is continuous.
 Material should be as per specifications and must be
delivered in time.
 Standardized plant and equipment is used.
 Standard set of processes are used.

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 Continuous Manufacturing System

Planning and control mechanism for Continuous System:

In this system the control mechanism is not as elaborate and
complex as for intermittent system due to standardisation of
products and processes.

Following points of control mechanism are worth noting for

such a system:
1. This system does not involve diverse work, due to which
standardised routing and schedule sheets are prepared.
2. Work related to dispatching and follow-up is usually simple.

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 Continuous Manufacturing System

Continuous Manufacturing systems can be classified into two

Categories:
(a) Mass Production
(b) Process Production

Mass Production:
 Under mass production items are produced in large
quantities.
 The production is for stock and not for definite customer
order.
 Standardisation is the fundamental characteristic of this
system. (Standardisation w.r.t. materials and machines)
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 Continuous Manufacturing System

 Uniform and uninterrupted flow of material is maintained

through predetermined sequence of operations required to
produce the product.
 This system can produce only one type of product at one
time.
 Mass production is generally used to manufacture sub-
assemblies or particular parts/components of an item.
These parts are assembled together by the enterprise to get
the final product.
 One distinct advantage of this approach is that different
combinations of sub-assemblies or parts can be used to
manufacture different kinds of products.

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 Continuous Manufacturing System

Advantages of mass production:

 Low process inventory is required.
 Manufacturing cost per unit is very low.
 Less skilled operators are required.
 Higher capacity utilization due to line balancing.
 Higher rate of production with reduced cycle time.

Disadvantages of mass production:

 Breakdown of one machine will stop the production process.
 The cycle time is determined by the slowest operation.
 High investment in production facilities.

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 Continuous Manufacturing System

Process Production:
 In process production single raw material can be
transformed into different kinds of product at different stages
of the production process. E.g. in processing of crude oil in
refinery one gets kerosene, gasoline etc. at different stages
of production.
 It is similar to mass production with more emphasis on
automation in production process.

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 Historical Evolution of Operations
Management
 Industrial revolution (1770’s)
 Scientific management (1911)
 Mass production
 Interchangeable parts
 Division of labor
 Human relations movement (1920-60)
 Decision models (1915, 1960-70’s)
 Influence of Japanese manufacturers

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