Operations and Material Management

Unit-1
Introduction to Operations
Management
Learning Objectives

After completing this unit, students will be able to:

• Discuss operation management

• Explain the objectives of operation management

• Describe the scope of operations management

• Discuss the importance of operation

management in different functions of the
organization

• Analyze the responsibilities of operation

manager

• Explain differences in manufacturing and

services
Overview like manpower, material and machine, for producing goods.
Operations Management can be defined as the combination of
Operations Management is the function of an organization that tools and techniques to maximize operational efficiency and
creates a product or offers a service. This function uses resources effectiveness through optimum utilization of resources.
Goods and Services

• Goods are tangible physical items that can be touched, • Services are activities that are experience based
seen and experienced. and provide various combinations of time, place,
characteristics or psychological value.
• They include raw materials, work in progress material,
assemblies, sub-assemblies. • They include psychological value and experience.

For example, Central Processing Unit (CPU) that gets For example, these are achieved from whatever we do, eat,
assembled into computers and final products such as cell travel, rest, and wear.
phones and automobiles.

The optimum situation for any organization is to match supply demand side, there are sales and marketing.
and demand of goods or services. Having excess supply or excess
Production is the use of raw material and other resources for
capacity results in wastage and high costs, whereas, having too
producing goods, which may involve several stages of processes.
less means losing the battle in the marketplace and possible
opportunity that results in customer dissatisfaction. In both the A service does not produce anything tangible but only provides
situations, the organization loses the market. The key functions a feel or experience to the user. Customer must be physically
on the supply side are, operations and supply chains and on the present most of the times and be a part of service delivery. It is
completely experience based and the customer will remember Objectives of Operations Management
the experience after using that service. The operations in services
are different than in the manufacturing sector. The objectives of operations management include performance
objectives and cost objectives:
 1. Visible Cost or Direct Cost
• Raw material
• Rework
• Labour cost
• Maintenance cost
Cost
Objectives
2. Invisible Cost or Indirect Cost
• Inventory
• Non-availability of goods
• Late delivery
• Material handling cost
• Appraisal cost
• Machine stoppage time

The operations must work to achieve the above-mentioned functions. Management is a science of decision making hence,
objectives. Operations mainly affect management and its decision making is a basic process of operations management.
 These decisions are affected by operations and can be categorized into:

Periodic / Strategic Continual / Operational

The decisions that are taken occasionally The decisions that can be structured are
and cannot be reversed easily are called routine and can be reversed are called
periodic/strategic decisions. continual or operational decisions.

Generally, strategic decisions are taken by top management like

location planning, layout decision and capacity decisions. The
routine decisions are taken by functional managers like inventory
levels and production plans.

The Scope of Operations Management

Different organizations have a different scope for operations

management. Personnel engaged in Operations management
handle a vast array of tasks, which may sometimes overlap
also, such as quality control, inventory management, employee
motivation, forecasting and planning, geographical location Let’s take an example of a travel-based company running its own
management and many more. The scope of operations buses. Following activities come under the purview of a travel
management can be better understood with an example. company:

Locating
01 Forecasting
Facilities
08

Motivating and
02 Capacity Planning
Training
07

Facilities Assuring
03 and Layout 06
Quality

Managing
04 Scheduling
Inventories
05
1. Forecasting: It is about various important factors such as other essentials.
weather conditions, a seasonal spike in demand for tickets 6. Assuring Quality: Delivering high quality service every time
and growth prospects for road travel. and in every aspect is essential for smooth operations over
2. Capacity Planning: It is imperative for a travel company to an extended period. Attention to quality should be paid in
have a smooth cash flow and decent profit margins because those areas where the emphasis is on quality, such as the
having too many idle buses or selection of less busy routes behavior of Drivers and Conductor, dealing with customers,
will ultimately have a bearing on profits telephone and online reservations in flying and maintenance

3. Facilities and Layout: It is essential to ensure effective operations.

utilization of personnel and equipment. 7. Motivating and Training: All employees shall be properly

4. Scheduling: Various schedules need to be managed trained and highly motivated in various aspects of operations

properly to ensure optimum efficiency of operations. management.

Routine maintenance; roster of drivers and co-drivers and

scheduling of maintenance staff, office staff and counter
staff.

5. Managing Inventories: It is essential to ensure optimal

inventory levels for food and beverage, newspapers and
magazines, pillows and blankets, first aid equipment and
8. Locating Facilities: It involves taking decisions by managers Among the service jobs that are closely related to operations
on the cities to serve, location for maintenance facilities and are financial services (e.g., stock market analyst, broker and
major and minor hubs. investment banker), marketing services (e.g., market analyst,
marketing researcher, advertising manager and product
Importance of Operations Management manager), accounting services (e.g. corporate accountant, public
accountant, and budget analyst) and information services.

Operations Operations function is the backbone of every manufacturing and

services based business and is an intrinsic part of organizational
culture.

Finance Marketing

Figure 1.1: Overlapping Functions of an Organization

Finance, Marketing and Operations are three major functions of any

business organization, which overlap each other. All other functions
viz. Public Relation, Legal, Information Technology, Purchasing and
Human Resource and so on support the main functions.
 Why managers shall study operations management?

• Operations are the backbone of the organization, which others are all interrelated with operations management.
converts customers’ requirement into deliveries.
• The activities under operations are repetitive and non-
• The activities in all other areas of business organizations repetitive. The main part is the flawless execution of the
such as finance, accounting, human resource, marketing and activities.

Responsibilities of an Operations Manager

Operations as a Value-Added Process or transformation process. A process has an input, an output and
Transformation Process a conversion system, which converts the input into output. All
processes consume resources. It is important that processes add
Operations can be understood as a value-adding process or
value. The formula has been transformed from input to output.
 Consumes Resources • Manufacturing
• Services

The difference between manufacturing and services has been

Input Conversion System Output
classified below:

Figure 1.2: Process of Conversion System

Production Services
Characteristics
The processes must ensure the value addition, i.e. value of inputs
should be lower than the value of output. Output Tangible Intangible

Inventory Can be stored Immediate

Manufacturing and Services Industries
Work More equipment More labor

Operations can be broadly divided into two categories: Customer contact Low High

Participation of Low High

customer

Performance Complicated Simple

measurement

Ease of Location of
Location
manufacturing users
Summary

Operations Management is an important aspect of management which

involves optimum designing and management of production processes
and restructuring business functioning related to the production of goods
and services. It influences a vast array of sectors like banking, hospitality,
travel, hospitals, etc. Operations Management is an essential function of
every organization as it involves management of long-term as well as the
daily production of goods and services.

Review Questions

1. Differentiate between manufacturing and services.

2. Discuss various objectives of operations management.

3. Describe the process of management.

4. What are the performance criteria for operations manager?

5. Explain the different areas in which an operation manager has to be

involved in decision making.