MBA 3315

OPERATIONS MANAGEMENT

SCHOOL OF BUSINESS

Bangladesh Open University

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SCHOOL OF BUSINESS

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MBA 3315
Operations Management
Course Development Team
Writers
Dr. M. Ziaul Haq Mamun
Professor, IBA
University of Dhaka
Professor Ali Ahsan
Department of Management Studies
University of Dhaka

Editor and Style Editor

Coordinator
Dr. M. Ekramul Hoque
Professor & Dean, School of Business
Bangladesh Open University

This book has been published after being refereed for the students of
School of Business, Bangladesh Open University

M6BA 3315
OPERATIONS MANAGEMENT

Published by: Publishing, Printing & Distribution Division (PPD), Bangladesh Open University,
Gazipur- 1705. School of Business, Bangladesh Open University. Date of Publication:
March, 2005, Re-pring: December, 2009, Cover Design: Monirul Islam, Cover graphics:
Abdul Malek, Computer Compose: Md. Ashrafuzzaman, Pre-press activities: DTP Pool, PPD
Division, BOU, Printed in: Uttara Press and Publications, 34, Northbrooke Hall Road, Dhaka1100

All rights reserved by the School of Business, Bangladesh Open University. No part of this book can be
reproduced in any form without proper permission from the publisher

Preface
Operations Management is primarily intended for the MBA students of Bangladesh Open
University. It is written in modular form and is the first of its kind on Operations Management in
Bangladesh. The lessons have been so designed that learners find them easy to understand.
The book has twelve units comprising 38 lessons. We do not claim it to be an original
contribution. Rather it should be regarded as a text book of ideas from various renowned
authorities in Operations Management. We have also quoted from different text books on
Operations Management usually followed by post-graduate students in our universities. Our
endeavour has been to present the lessons in a very lucid manner so that they can be
understood and assimilated by an average distance learner of the MBA programme within the
stipulated period of a semester.
Each unit is almost equivalent to one chapter of a conventional text book and divided into two to
four lessons. Each of them starts with "unit highlights". In fact the lessons are like the lecture
notes of a classroom teacher, each starts with "lesson objectives" and ends with "review
questions". The review questions include essay type questions, multiple choice questions and
some real life problems. Also some statements are included in the review questions, from which
the students will identify the true ones. We hope that self learners will not find much difficulty in
understanding the lessons by themselves and will need only a little help from the tutor.
Because of a severe time constraint, we have had to take the real life problems from conventional
text books of western origin. We hope to develop some cases extensively in the context of
Bangladesh soon so that our MBA students can relate their learning to their immediate
environment and reality.
We are grateful to the honorable Vice Chancellor of BOU, who gave us the most needed support
and enthusiasm to write this book. Dean, School of Business, Bangladesh Open University, has
made us indebted by suggesting us in designing each and every lesson.
We shall feel rewarded for our labour if both general readers and self-learners find this book
worthwhile and useful.

Professor M. Ziaul Haq Mamun

Contents
UNIT-1
Introduction to Operations Management ...................................................................................

01

Lesson-1
The Concept of Product: Goods & Service ...............................................................................
The Operation System ..............................................................................................................
The Production System and its Environment .............................................................................
Historical Development of Operations Management ..................................................................
Recent Issues of the Operations Management ..........................................................................
Operations Management Today - A System Viewpoint ..............................................................

03
04
06
09
11
12

Lesson-2
The Operations Objectives .......................................................................................................
The Product Life Cycle Approach and Operations Issues ..........................................................
The PLC-product life cycle ......................................................................................................
The Operations Issues ..............................................................................................................
Role of Operations Manager .....................................................................................................
Skilled required of the Operations Managers .............................................................................
Different schools of thought of Operational Management ..........................................................

14
14
15
16
17
19
20

UNIT-2
Competitiveness and Operations Strategy ..................................................................................

23

Lesson-1
Understanding competitiveness and its importance in Operations Strategies ...........................
Distinctive Competencies .........................................................................................................
Four Distinctive Competencies/Competitive Priorities ...............................................................
Traditional view of Competitiveness .........................................................................................
Modern view of Competitiveness ..............................................................................................
Importance of Competitiveness in Operations Strategy .............................................................
Cost Efficiency of Differentiation .............................................................................................
The causes of poor Competitiveness .........................................................................................

25
25
26
27
28
28
29
29

Lesson-2
Operations: A Vital Element in Strategy ...................................................................................
Corporate and Operation Strategies ..........................................................................................
Corporate Strategy provides focus to design operation strategy ...............................................
Different Strategies for Different Operations ............................................................................
Operations Strategy Framework ...............................................................................................
Operations function Positioning Decisions ................................................................................
Environmental Scanning ..........................................................................................................
New Strategies ........................................................................................................................
Operation Strategy for Service ................................................................................................
Summary .................................................................................................................................

31
31
31
32
34
36
37
39
40
41

Case Analysis: The Cosmetic Manufacturer .............................................................................

42
42

Lesson-3
Productivity ..............................................................................................................................
Quality .....................................................................................................................................
Technology and Its Adaptation ..................................................................................................
Misconception about Appropriate Technology in Developing Countries ....................................

44
45
46
47

Misplaced Relianec on Technology Transfer .............................................................................

47
47
48
49
49

UNIT-3
Forecasting ...................................................................................................................................

53

Lesson-1:
Forecast and its Implications ....................................................................................................
Subjects of Forecasts ...............................................................................................................
Factors affecting Product Demand Forecast ..............................................................................
Status of Economy ...................................................................................................................
The product Life Cycle and Forecasting ....................................................................................
Uses of Forecasting ..................................................................................................................
Need for Judgment in Forecasting .............................................................................................
Summary .................................................................................................................................

55
56
57
57
59
60
61
62

Lesson-2:
Steps in Forecasting System ....................................................................................................
Forecasting Time Horizons .......................................................................................................
Features of Short, Medium and Long Range Forecasting .........................................................
Characteristics of Different Ranges of Forecasting ....................................................................
Forecasting Error .....................................................................................................................
Summary .................................................................................................................................
Case Analysis: Power Shortage ................................................................................................
Lession-3:
Different Forecasting Approaches .............................................................................................
The Qualitative Methods of Forecasting ....................................................................................
The Quantitative Methods of Forecasting ..................................................................................
Summary
Case Analysis: Brother's Packing Box Company .......................................................................
Lesson-4:
Time Series Decomposition ......................................................................................................
Time Series Decomposition Model ...........................................................................................
General forms of time series decomposition models .................................................................
Calculation of trend component ................................................................................................
Calculation of Seasonal Co-efficient .........................................................................................
Regression Model .....................................................................................................................
Summary ..................................................................................................................................

64
64
65
66
66
67
69
71
72
73
77
78

81
82
83
84
85
85
89

UNIT-4
Performance Measurement ..........................................................................................................

91

Lesson-1:
Various Kind of Performance Measurement ..............................................................................
Why Performance Measurement is an important tool ................................................................

93
94

Lesson-2:
Performance Measurement Techniques ....................................................................................
Ignoring Formal Work Measurement .......................................................................................
Historical Data Approach ........................................................................................................
Direct Time Study ...................................................................................................................
Predetermined Time Study .......................................................................................................
Work Sampling .......................................................................................................................
Combining Work Measurement Techniques .............................................................................
Case Analysis: Cola for Picnic Demand ...................................................................................
Mahathir's View ..............................................................................................

97
97
97
98
100
101
102
103
103

Lesson-3:
Benchmarking .........................................................................................................................
Types of Benchmarking ..........................................................................................................
Benchmarking Process ............................................................................................................
Role of management in Benchmarking ....................................................................................
Prerequisite of Benchmarking ..................................................................................................
Obstacles to successful Benchmarking .....................................................................................
Key factors to Remember About Benchmarking .......................................................................
Case Analysis: S & U foods Business ......................................................................................

105
106
106
108
108
108
108
110

UNIT-5
Manufacture Product Design & Process Selection ...................................................................

113

Lesson-1:
Quality of Product ..................................................................................................................
Production Design ...................................................................................................................
The phases of Product Design ..................................................................................................
Research and Development in the Product Development Process............................................
Product Analysis and Testing ...................................................................................................

115
115
115
118
119

Lesson-2:
Strategies for New Product Development and Introduction ......................................................
Stages of Product Development Process ...................................................................................

121
122

Lesson-3:
The Process Flow Design .......................................................................................................
Process Selection .....................................................................................................................
Continuous and Semi-continuous Processing ............................................................................
Intermittent Processing ............................................................................................................
Types of Process .....................................................................................................................
Matching the Product and the Process .....................................................................................

126
127
127
127
128
129

Lesson-4:
Automation ............................................................................................................................
Benefits of CAD/CAM ............................................................................................................
Case Analysis: Blessings of Digital Technology .......................................................................
The Orion Group of Industries .........................................................................

131
132
134
134

UNIT-6
Service Product Design and Process Selection .......................................................................
Lesson-1:
What is Service? ....................................................................................................................
The Nature of Service .............................................................................................................
Difference between Manufactured Goods and Services ............................................................
Quality of services ..................................................................................................................
Operations Management Issues in Service Organizational Contexts ........................................
An Operational Classification of Services ................................................................................
Importance of Services ............................................................................................................
Case Analysis: Midland Bank's FirstDirect ..............................................................................
ATMs- Application and Strategies ...................................................................
Lesson-2:
Designing Service Organizations .............................................................................................
Remember the difference between Product and Service Designing ..........................................
Three Contrasting Service Designs Approach ..........................................................................
Seven Characteristics of a Well Designed Service System ......................................................
New Service Development Process ..........................................................................................
The Service Delivery System Kelated Issues:
Integrating marketing & operations to achieve competitive advantages ....................................
Strategies Uses of the Matrix .................................................................................................
Problems with New Technology: New Service Ideas ...............................................................
Lesson-3:
Service Blueprinting ...............................................................................................................
Service Fail-Safing Using Poka-Yokes ....................................................................................
Success Factors for Service Technologies ................................................................................
System Description Exercise ...................................................................................................
Case Analysis: Premium Service Banking in Dhaka .................................................................
UNIT-7
Waiting Line Management ....................................................................................................
Lesson-1:
Theories on Customer Satisfaction ..........................................................................................
Factors Affecting Customer Satisfaction ..................................................................................
Customer's Response to Delay .................................................................................................
Delay Management ..................................................................................................................
Lesson-2:
Characteristics of the Queuing System .....................................................................................

137
139
139
140
142
143
143
144
146
146
148
148
148
149
149
153
153
155
157
156
159
160
161

165
167
169
169
171
174

Lesson-3:
The Managerial Problems in Waiting Line ...............................................................................
Methodology of queuing Analysis ............................................................................................
The Kendall's Notations used in Queue Analysis ......................................................................
The Basic Poisson-Exponential Model Management Decision ..................................................
Case Analysis: Conquering Those Killer Queues ......................................................................
UNIT-8
Capacity Planning .......................................................................................................................
Lesson-1:
What is Capacity? ..................................................................................................................
Measuring Capacity ...............................................................................................................
Measures of System Effectiveness ..........................................................................................
Capacity Planning ..................................................................................................................
Capacity Planning Activities ..................................................................................................
Importance of Capacity Planning ............................................................................................
Lesson-2:
Capacity Requirement ............................................................................................................
Determinants of Effective Capacity ........................................................................................
Capacity Strategy ..................................................................................................................

182
184
188
196
199

203
205
206
206
207
208
210
213
213
214

UNIT-9
Facility Location ........................................................................................................................
Lesson-1:
Plant Location Decisions ........................................................................................................
Objective of Location Decisions ..............................................................................................
The Need for Location Decisions ............................................................................................
Importance of Location Decisions ...........................................................................................
Phases of Plant Location Theory .............................................................................................
Location Principles .................................................................................................................
The Nature of Location Decision Options ................................................................................
Effects of Location on Revenue and Costs ...............................................................................
Reasons for Location Change ..................................................................................................
Lesson-2:
Regional factors for Selecting Factory Location ......................................................................
The major factors in regional analysis .....................................................................................
Community and Site Considerations ........................................................................................
Trends in Locations and Possible Future Strategies ..................................................................

227
228
229
230

Lesson-3:
Steps and Procedures for Facility Location Decision ................................................................
General Procedures for Facility Location Planning ..................................................................
Evaluating Location Alternatives ............................................................................................
Case Analysis: River Blood Centre .........................................................................................

233
235
236
238

219
221
221
221
222
222
222
223
223
224

UNIT-10
Facility Layout ............................................................................................................................
Lesson-1:
Strategic Issues of Facility design ............................................................................................
Objectives of a Good Layout ...................................................................................................
Types of Layout .....................................................................................................................
Process Layout .......................................................................................................................
Product Layout .......................................................................................................................
Fixed Position Layout .............................................................................................................
Hybrid Layout ........................................................................................................................
Lesson-2:
Steps of Process Layout ..........................................................................................................
Layout Design of Some Special Service Outlets .......................................................................
Quantitative Techniques used in Process Layout ......................................................................
Lesson-3:
Factors considered in Product Layout Design ..........................................................................
Line Balancing Procedure .......................................................................................................
Others Balancing Considerations .............................................................................................
Lesson-4:
Designing Hybrid Layout .........................................................................................................
Major Characteristics of Hybrid Layout ...................................................................................
Types of Hybrid Layout ...........................................................................................................
Case Analysis: Hightec, Inc. .....................................................................................................
UNIT-11
Project Management ...................................................................................................................
Lesson-1:
Characteristics of Project ........................................................................................................
What is Project Management ..................................................................................................
Functions of Project Management ...........................................................................................
Pitfalls in Project Management ...............................................................................................
Lesson-2:
What is Planning ....................................................................................................................
Planning Procedure .................................................................................................................
Project Organization ...............................................................................................................
Push for Distinct Entity ..........................................................................................................
Pull for Integration .................................................................................................................
Types of Organization Structure .............................................................................................
Choice of Structure ................................................................................................................
Lesson-3:
Principles of Control ...............................................................................................................
Control of Activities ...............................................................................................................
Control of Events ....................................................................................................................

241
243
243
244
244
247
249
250
253
255
257
261
263
267
269
270
270
275

279
281
282
283
284
289
290
293
293
294
295
297
299
300
301

Lesson-4:
Definition of terms used in PERT and CPM .............................................................................

304

The PERT and CPM Procedures ..............................................................................................

305

Critique of PERT and CPM .....................................................................................................

309

Good points of PERT and CPM ..............................................................................................

310

Weak Points of PERT and CPM .............................................................................................

310

Case Analsysis: The Pert Studebaker .......................................................................................

312

UNIT-12:
Inventory Control .......................................................................................................................

315

Lesson-1:
What is Inventory ...................................................................................................................

317

Types of Inventory .................................................................................................................

318

Why Inventory .......................................................................................................................

318

Evils of Excess Inventory .......................................................................................................

320

Inventory Control ...................................................................................................................

320

Advantages of Inventory Control ............................................................................................

321

Which Inventory to Emphasize? ..............................................................................................

321

A-B-C Classification ...............................................................................................................

321

Exceptions to A-B-C Classification .........................................................................................

322

Lesson-2:
Cost of Inventory ....................................................................................................................

324

Cost of Tradeoff .....................................................................................................................

324

Economic Order Quantity Models ...........................................................................................

324

The Basic EOQ Model ............................................................................................................

325

Lead Time in Deterministic Model ...........................................................................................

327

Using Computers to Manage Independent Inventory .................................................................

328

Economic Order Quantity (EOQ) relevant cost determination ...................................................

328

Criteria for determining ordering cost .........................................................................................

328

Criteria for determining carrying cost ......................................................................................

329

Lesson-3:
What is Just-in-Time (JIT) inventory System ...........................................................................

330

Features of JIT ........................................................................................................................

331

Building Blocks of JIT ............................................................................................................

331

The JIT Goal ..........................................................................................................................

332

The Seven Wastes ...................................................................................................................

333

Benefits of JIT System ............................................................................................................

333

JIT: A success story ................................................................................................................

334

Drawbacks of JIT System .......................................................................................................

335

The Instances of Failure ...........................................................................................................

335

Comparison of JIT and Traditional Approach ...........................................................................

336

JIT in Bangladesh ....................................................................................................................

337