OPERATIONS

MANAGEMENT
CHAPTER 1
 DEFINITION & MEANING

• Operations management (OM) is the administration of business practices

to create the highest level of efficiency possible within an organization. It is
concerned with converting materials and labor into goods and services as
efficiently as possible to maximize the profit of an organization.
• Operations management involves utilizing resources from Labour,
Materials, Capital, Energy, Equipment, Information and Technology.
• Operations managers acquire, develop, and deliver goods to clients
based on client needs and the abilities of the company
 KEY POINTS

• Operations management (OM) is the administration of business practices to

create the highest level of efficiency possible within an organization.
• Operations management is concerned with converting materials and labor
into goods and services as efficiently as possible.
• Corporate operations management professionals try to balance costs with
revenue to maximize net operating profit.
Scope of operations Management
1. Facilities Location
2. Product Selection and Design
3. Process Design
4. Plant Layout
5. Capacity Planning
6. Material Management
7. Quality Control
8. Maintenance Management
 1. Facilities Location:
• Facilities location refers to the process of determining the
optimal physical location for a business or production facility.
It involves analyzing factors such as transportation, proximity
to suppliers and customers, labor availability, and cost
considerations to identify the most suitable location.
 2. Product Selection and Design:

• Product selection and design involve identifying and

developing products that meet customer needs and
align with the company's strategic goals. This includes
market research, concept development, prototyping,
and finalizing product specifications.
 3 .Process Design:
• Process design entails creating efficient and effective processes
for producing goods or delivering services. It involves
determining the sequence of activities, resource allocation, and
the layout of equipment and workstations to maximize
productivity and minimize waste.
 4. Plant Layout
• Plant layout involves arranging the physical layout of a
manufacturing facility to optimize the flow of materials, equipment,
and people. It aims to create an organized and efficient layout that
minimizes bottlenecks, reduces travel distances, and promotes safety
and productivity.
 5. Capacity Planning:
• Capacity planning involves determining the optimal level of
production or service capacity to meet customer demand while
balancing costs and resources. It includes analyzing demand patterns,
forecasting future requirements, and making decisions on factors such
as workforce, equipment, and inventory levels
 6. Material Management
• Material management encompasses the processes involved in
planning, procuring, storing, and controlling materials needed for
production or service delivery. It includes inventory management,
supplier selection, purchasing, and ensuring timely availability of
materials while minimizing costs and waste.
 7. Quality Control:
• Quality control refers to the measures and processes
implemented to ensure that products or services meet or
exceed customer expectations. It involves inspecting, testing,
and monitoring products or processes at various stages to
identify and rectify any defects or deviations from quality
standards.
 8. Maintenance Management:
Maintenance management involves planning, organizing, and
controlling activities related to the upkeep and maintenance of
equipment, machinery, and facilities. It includes preventive
maintenance, repair work, and ensuring minimal downtime to
maximize operational efficiency and reduce breakdowns
 Objectives of Operations Management
The objectives of operations management refer to the goals or targets
that organizations aim to achieve through effective management of
their operational processes. These objectives can vary depending on
the industry, organizational priorities, and specific circumstances.
However, some common objectives of operations management
include
Objectives of OM

1. Utilization of machinery and equipment

2. Material control
3. Manpower utilization
4. Manufacturing services
5. Customer services
6. Reduce cost of production
7. Improve product Quality
8. Fix time schedule
Utilization of Machinery and Equipment:
• The objective of utilizing machinery and equipment is to
maximize their usage to achieve optimal productivity and
output. This involves ensuring that these resources are
efficiently used, minimizing downtime, and balancing
workloads to avoid underutilization or overloading.
Material Control:
• The objective of material control is to effectively manage
and control the flow of materials throughout the
production process. It includes activities such as
inventory management, procurement, storage, and
distribution to ensure the availability of materials when
needed, minimize waste, and optimize material usage.
Manpower Utilization:
• The objective of manpower utilization is to effectively
utilize the workforce to meet production or service
delivery requirements. This involves aligning work tasks,
skill sets, and schedules to ensure that employees are
efficiently utilized, optimizing productivity and
minimizing idle time
Manufacturing Services:
• The objective of manufacturing services is to efficiently
produce goods or provide manufacturing-related services
to customers. This includes activities such as production
planning, process design, quality control, and equipment
maintenance, aimed at ensuring smooth and efficient
manufacturing operations
Customer Services:
• The objective of customer services is to meet or exceed
customer expectations by delivering high-quality products
and excellent service. This involves understanding customer
needs, providing timely and accurate information, resolving
customer issues, and maintaining strong relationships to
enhance customer satisfaction and loyalty.
Reduce Cost of Production
• The objective of reducing the cost of production is to
minimize expenses associated with manufacturing
processes while maintaining product quality. This involves
identifying and implementing cost-saving measures,
optimizing resource allocation, streamlining processes, and
eliminating waste to enhance efficiency and profitability.
Improve Product Quality:
• The objective of improving product quality is to deliver
products that consistently meet or exceed customer
requirements and expectations. This involves implementing
quality control measures, monitoring and improving
processes, and continuously striving for higher levels of
product excellence and customer satisfaction
Fix Time Schedule:
• The objective of fixing a time schedule is to establish and
adhere to predetermined timelines for production or
service delivery. This involves effective planning,
scheduling, and coordination to ensure that tasks are
completed within specified timeframes, promoting
efficiency, and meeting customer deadlines.
These objectives of operations management aim to
optimize resources, enhance efficiency, deliver high-
quality products and services, and meet customer needs
while minimizing costs and adhering to schedules.
 Additional objectives
1. Innovation and Continuous Improvement
2. Risk Management
3. Environmental Sustainability
4. Compliance and Ethical Standards
5. Supply Chain Optimization
6. Employee Safety and Well-being
7. Stakeholder Satisfaction

These additional objectives reflect the broader scope of operations management, highlighting its role in driving
organizational success, sustainability, and stakeholder satisfaction.
Innovation and Continuous Improvement:
• Operations management seeks to foster a culture of
innovation and continuous improvement within the
organization. This involves encouraging employees to
identify and implement new ideas, technologies, and
processes to enhance productivity, quality, and overall
performance.
Risk Management:
• Operations management aims to identify and manage
operational risks that could impact the organization's
ability to meet its objectives. This involves assessing
potential risks, developing contingency plans, and
implementing strategies to mitigate or minimize the
impact of disruptions or unforeseen events.
Environmental Sustainability:
• Operations management includes objectives related to
environmental sustainability, such as reducing carbon
footprint, minimizing waste generation, and promoting eco-
friendly practices. It involves implementing sustainable
manufacturing processes, sourcing materials responsibly,
and ensuring compliance with environmental regulations.
Compliance and Ethical Standards:
• Operations management aims to ensure that operations
comply with relevant laws, regulations, and ethical
standards. This includes maintaining ethical practices,
fair labor standards, and responsible sourcing of
materials to meet legal and ethical obligations.
Supply Chain Optimization:
• Operations management focuses on optimizing the
supply chain to enhance efficiency and reduce costs. This
involves building strong relationships with suppliers,
implementing effective procurement strategies, and
streamlining logistics and distribution processes to
ensure timely delivery of materials and products.
Employee Safety and Well-being:
• Operations management prioritizes the safety and well-
being of employees by implementing appropriate safety
measures, providing training programs, and maintaining
a healthy work environment. This objective aims to
protect employees from occupational hazards and
promote their overall well-being
Stakeholder Satisfaction:
• Operations management seeks to ensure the satisfaction
of various stakeholders, including employees, customers,
suppliers, and shareholders. By considering the needs
and expectations of these stakeholders, operations
management strives to build positive relationships and
create value for all parties involved.
Decision areas in operations management

1. Location Decision
2. Product and Service Design Decision
3. Production Decision
4. Distribution Decision
5. Inventory Decision
• Each of these decision areas in operations management plays a critical
role in optimizing the efficiency, cost-effectiveness, and overall
performance of the organization's operational processes. By making
informed decisions in these areas, organizations can improve customer
satisfaction, reduce costs, and gain a competitive advantage in the
marketplace.
Location Decision:
• Location decisions involve selecting the optimal physical
location for a business or production facility. Factors
considered include market proximity, access to
transportation and suppliers, labor availability,
infrastructure, costs, and regulatory considerations.
 Product and Service Design Decision:
• Product and service design decisions involve determining
the features, specifications, and attributes of the product or
service. This includes decisions regarding product design,
packaging, customization options, service levels, and
aligning them with customer needs and preferences.
Production Decision:
• Production decisions revolve around the planning and
management of production processes. This includes
decisions regarding the selection and utilization of
resources, capacity planning, process flow, equipment
selection, production scheduling, and workforce
management
Distribution Decision:
• Distribution decisions encompass the management of the
distribution network and the efficient movement of goods
or services from the production facility to the end
customers. This includes decisions regarding distribution
channels, transportation modes, warehouse management,
order fulfillment strategies, and logistics network design.
Inventory Decision:
• Inventory decisions involve managing the levels of inventory
within the organization. This includes decisions about the
optimal inventory levels, order quantities, reorder points,
safety stock levels, and inventory replenishment strategies.
Effective inventory management aims to balance customer
demand, production or procurement lead times, and carrying
costs.
OPERATIONS MANAGEMENT FUNCTIONS

1. Design Functions
2. Operational Control Functions
3. Long term Functions
4. Short Term Functions
Design Functions:
Design functions in operations management involve the development
and design of products, services, and processes. This includes activities
such as product design, process design, facility layout design, and
supply chain design. Design functions aim to create efficient and
effective systems that meet customer needs, optimize resource
utilization, and facilitate smooth operations.
Operational Control Functions:

Operational control functions focus on managing day-to-day

operations to ensure the efficient execution of planned activities. This
includes activities such as production scheduling, quality control,
inventory management, maintenance management, and capacity
utilization. Operational control functions aim to monitor and control
operations in real-time, making adjustments as necessary to ensure
smooth workflow and adherence to quality standards.
 Long-Term Functions:

Long-term functions in operations management involve strategic

planning and decision-making for future operations. This includes
activities such as capacity planning, facility expansion or relocation,
technology adoption, market analysis, and product/service portfolio
management. Long-term functions aim to align operations with
overall organizational goals and anticipate future needs and
challenges.
 Short-Term Functions:

Short-term functions in operations management focus on tactical and

immediate decision-making to address short-term operational issues and
challenges. This includes activities such as demand forecasting,
production scheduling, resource allocation, order management, and
supplier coordination. Short-term functions aim to optimize operational
efficiency and responsiveness to meet current demand and customer
expectations
Historical Evolution of Operations Management

Industrial revolution
Scientific management
Human relations movement
Management Science
The Computer age
Just in Time
Total Quality Management
Supply Chain Management
Environmental Issues
Electronic Commerce
Industrial revolution 4
7

 The Industrial Revolution brought the growth of the factory

system, enlarged markets and new scale technologies. The
factory system brought large concentrations of workers and
raw materials together, posing the problems of organizing,
directing and controlling work
 1764 development of steam engine by James Watt
 1776 division of labour
Scientific management 4
8

 Developed by F W Taylor
 Scientificmanagement theory is a method of improving
efficiency in the workforce by using scientific methods to
assess work processes.
 Piecerate incentives – wages have direct impact on the
output they produced
 Time standard for performing a task
 Technical aspect of job or operations
Human relations movement 4
9

 Hawthorne studies 1930 at Western electric plant in Hawthorne -

Conducted by the scientist named Elton Mayo
 The Hawthorne Studies led to the development of the Human
Relations Movement in business management. The experiment was
about measuring the impact of different working conditions by the
company itself (such as levels of lighting, payment systems, and
hours of work) on the output of the employees.
 Workers were actually motivated by the attention they were given
 Human aspect of OM
 Management Science 5
0

 Management science is a mathematically oriented field that provides

operations management with tools that can be used to assist in decision
making
 Management science focused on developing quantitative techniques for
solving operations problems.
 Developed by F W Harris in 1913
 Producers were developed for statistical sampling theory and quality
control
 World war II needs even grater need for the ability to quantitatively
solve complex problems of logistic control, weapon system design and
development of missiles
 The Computer age 5
1
 1970 – wide spread use of computers in business operations and
productions
 Many of the management science developments and quantitative equations
were able to use in larger scale
 Data processing was made easier
 Forecasting, scheduling and inventory management all are made easy.
 The evolution continued during the 1980s and 1990s, as new generations
of digital technology began to revolutionize the fundamentals of operating
excellence and extend the field to the management of companies delivering
software-based products and services.
JUST IN TIME - JIT 5
2
 management strategy that aligns raw-material orders from
suppliers directly with production schedules.
 Companies employ this inventory strategy to increase
efficiency and decrease waste by receiving goods only as
they need them for the production process, which reduces
inventory costs
 Just-In-time
System was first introduced in the Toyota
System Production System
 Taiichi Ohno is frequently referred to as the father of JIT. 
Total Quality Management - TQM 5
3
 TQM is considered a customer-focused process that focuses on
consistently improving business operations management. It strives to
ensure all associated employees work toward the common goals of
improving product or service quality, as well as improving the procedures
that are in place for production.
 Management framework based on the belief that an organization can build
long-term success by having all its members -- from low level workers to
its highest ranking executives -- focus on improving quality and, thus,
delivering customer satisfaction.
 Supply Chain Management
5
 SCM is the Centralized management of the flow of goods and services and4
includes all processes that transform raw materials into final products.
 supply chain management (SCM) is management of the flow of goods, data,
and finances related to a product or service, from the procurement of raw
materials to the delivery of the product at its final destination.
 By managing the supply chain, companies can cut excess costs and deliver
products to the consumer faster and more efficiently
 Environmental Issues 5
5
 The environmental impact of a business often refers to practices related to
use of natural resources, waste, toxicity, and pollution.
 For manufacturing companies, the environmental impact can be large and
efforts are generally made to reduce waste, toxicity, and pollution within the
manufacturing process.
 Environmental issues are becoming increasingly important within operations
management as customers, suppliers, and the public demand that
manufacturers minimize any negative environmental effects of their products
and operations
 5
 Operations managers play a critical role in determining the 6
environmental impact of manufacturing operations through choices of
raw materials used, energy consumed, pollutants emitted, and wastes
generated
 The integration of environmental issues and policies in operations
management is viewed as connected with many barriers and affected by
external aspects, including governmental regulations
Electronic Commerce 5
7
 Ecommerce is a method of buying and selling goods and
services online
 E-commerce has had a significant impact on the development of
operations management. It is revolutionizing supply-chain
management and has enormous potential for manufacturing,
retail, and service operations
 E - commerce has changed manufacturing systems from mass
production to demand-driven, possibly customized, just-in-time
manufacturing systems
INTERACTION OF OPERATIONS
MANAGEMENT WITH OTHER AREAS

Organization

Finance Operations Marketing

 Finance, operations, and marketing are all important functional areas within an 5
organization that interact with each other. 9
 Operations management is responsible for collaborating with other managers and
executives to determine how operational planning can contribute to the long-term
strategy of the organization.
 It includes working with the finance department to ensure that operations are carried out
within budgetary guidelines and that resources are used as efficiently as possible.
 It also interacts with the marketing department to ensure that the products and services
being produced meet customer demand and that the production process is aligned with
the company's marketing strategy.
 By coordinating activities between these departments, operations management helps to
improve efficiency and focus within the organization.
Interaction of OM with other areas 6
0

Three basic functions

1.Finance/Accounting
 Budgets (plan financial requirements)
 Economic analysis of investment proposals

Provision of funds (the necessary funding of the operations)

2. Operations/Production
 Goods oriented (manufacturing and assembly)
 Service oriented (health care, transportation and retailing)
 Value-added (the essence of the operations functions)
 6
1
Organization of Businesses (Cont.)
3. Marketing
Selling
Promoting
Assessing customer wants and needs
Communicating those needs to operations
THE THREE MAJOR FUNCTIONS OF
BUSINESS ORGANIZATIONS OVERLAP

Operations

Marketing Finance
• Finance, operations, and marketing - often overlap and interact with each
other.
• Finance is responsible for managing the financial resources of the organization
and ensuring that operations are carried out within budgetary guidelines.
• Operations management is responsible for the production process and
ensuring that products and services are produced efficiently and meet
customer demand.
• Marketing is responsible for promoting the company’s products and services
and ensuring that they meet the needs of the target market.
• These three functions work together to ensure the success of the organization
by coordinating their activities and sharing information to make informed
decisions.
Value Added 6
4

Value added: The difference between cost of inputs and price of

outputs.
Is this definition right? Should value added include profit?
Value added: The difference between the cost of inputs and the
(market or fair) value or price of outputs.
 6
5
 Value-added refers to the enhancement or improvement of a product or
service through the production process.
 Itis the difference between the cost of inputs (raw materials, labor, and
overhead) and the value or price of outputs (finished goods or services).
 Value-added activities are those that transform or change raw materials
into finished products or services that customers are willing to pay for.
 By adding value to their products or services, companies can increase their
profitability and competitiveness in the market.
 Examples… 6
6

 A furniture manufacturer purchases raw wood and transforms it into

finished furniture through a series of value-added activities such as cutting,
sanding, and finishing.
 A clothing manufacturer purchases raw fabric and transforms it into
finished garments through a series of value-added activities such as
cutting, sewing, and finishing.
 A restaurantpurchases raw ingredients and transforms them into finished
dishes through a series of value-added activities such as cooking,
seasoning, and plating.
 6
7

Value added
Inputs
Transformation/ Outputs /
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Control
Feedback Feedback
Manufacturing and non - manufacturing operations6 (
Goods Vs Services) 8

 Production of goods (goods oriented)

 Tangible products
 Automobile
 Refrigerator
 Services (TV and auto repair, lawn care)
 Medical services
 Financial services
 Education
 Goods are tangible, as in these have a physical presence and they can be touched
 services are intangible in nature. The purpose of both goods and services is to provide utility
and satisfaction to the consumer.
 6
9

 Goods' are the physical objects while 'Services' is

an activity of performing work for others
Goods vs. Service Operations (Cont) 7
0

 Differences
1. Tangible / intangible nature of output
2. Consumption of output
3. Nature of work (job)
4. Degree of customer contact
5. Customer participation in conversion
6. Measurement of performance
7. Amount of inventory
 BASIS FOR
GOODS SERVICES
COMPARISON 7
Meaning Goods are the material items Services are amenities, facilities, 1
that can be seen, touched or felt benefits or help provided by other
and are ready for sale to the people.
customers.
Nature Tangible Intangible
Transfer of Yes No
ownership
Evaluation Very simple and easy Complicated
Return Goods can be returned. Services cannot be returned back once
they are provided.
Production and There is a time lag between Production and Consumption of
Consumption production and consumption of services occurs simultaneously.
goods.
 7
2

Separable Yes, goods can be separated No, services cannot be separated from the
from the seller. service provider.
Variability Identical Diversified
Storage Goods can be stored for use in Services cannot be stored.
future or multiple use.
Manufacturing vs. Services 7
3

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
Thank You