OPERATIONS MANAGEMENT
AN INTRODUCTION

MAJOR DEPARTMENTS IN AN ORGANIZATION
Finance
Marketing
Operations
HR
R&D

PROCESSING/OPERATIONS
INPUT OUTPUT
“Operations Management is the management of an
organization’s productive resources or its
production system, which converts inputs into
products or services.”
The essence lies in “adding value”

VALUE ADDITION
 Difference between the cost of input and value of
output
 The value of output is measured by the prices that
the customers are willing to pay for those goods or
services

Difference between Manufacturing and Service
Organizations
 Major points of differentiation are as follows:
1. Degree of Customer Contact
2. Uniformity of Input
3. Uniformity of Output
4. Measurement of Productivity
5. Production and Delivery
6. Quality Assurance
7. Amount of Inventory
8. Output

Factors Affecting Operations Management
 Global Competition
 Quality, customer service and cost challenges
 Rapid expansion of advanced technologies
 Growth of service sector
 Social Responsibility issues
 Scarcity of capital, materials etc.

Evolution of Operations Management
Following are the historical developments that
impacted evolution of Operations Management
 The Industrial Revolution
 Scientific Management
 The HR Movement
 Decision Models and Management Science
 Influence of Japanese Manufacturers
 Trends in Business
 Other Important Trends

Industrial Revolution
 Era of pre-1700: Age of Cottage Systems
 Industrial Revolution (1700, England)
Substitution of human
power with machines.
 Ample supplies of coal and iron ore
 Development of steam engine and electricity
 Emergence of other industries and more factories.
 Economies of scale was observed
 Opportunities for jobs
Establishment of
factory system

Post- Civil War Period
 Post Civil war period set the platform for great
expansion of production capacity
 Large workforce for rapidly developing industries:
Abolition of slave labour, migration of farmers
from rural to urban areas, influx of immigrants
during 1865-1900
 Development of extensive rail lines- effective and
economic transportation system
 All the above factors played pivotal role in
production explosion of the early 20th century

Scientific Management
 Father of Scientific Management: Frederick Winslow
Taylor- emphasized on maximising output
 Science Management: Observation, measurement,
analysis and improvement of work methods.
 Thrust on identifying the best method for doing each
job, training of workers, planning, cooperation
between management and workers.

Human Relations and Behavioralism
 Earlier workers were forced to work under rigid
conditions and controls
 Emphasis was laid on the human motivation.
 Hawthorne studies conducted by Elton Mayo
established the notion to encourage employees.
 Theory X and Theory Y approach introduced by
Douglas McGregor

Decision Models and Management Science
 The factory movement was accompanied by the
development of several quantitative techniques (inventory
management, sampling and quality control)
 WW-II generated immense pressures on manufacturing
output.
 After the war, efforts to develop and refine quantitative
tools for decision making continued.
 Operations research was developed to address management
issues.

 It uses quantitative techniques, models to evaluate
alternatives and provide an optimal solution for
informed decision making
 Following are its characteristics:
1) Problem solving and decision making approach
2) Draws techniques from science
3) Builds a model for experiment
4) Extensive use of computers

Influence of Japanese Manufacturers
 Many Japanese manufacturers developed and
refined management practices that increased their
productivity and quality of products
 Focussed on continuous improvement, workers
empowerment and achieving customer satisfaction.
 Approaches like JIT, Kaizen etc were introduced

Trends in Business
 Information technology has had huge impact on the ways an organization manages
operations.
 Operating decisions can be made more quickly because of more information and
easy access to data
Eg: Enterprise Resource Planning (SAP, PeopleSoft, Oracle)
 Communication technologies have helped to manage international affairs easily.
 E-commerce and E-business
 Management of technology (medical diagnosis, production planning and
scheduling, data processing, communication)
 Globalization: NAFTA, GATT
 Agility: Ability of an organization to respond quickly to demands or opportunities
 Outsourcing: Obtaining a product or service from outside the organization.

Other Important Trends
 Six Sigma: Process for reducing costs, improving
quality and increasing customer satisfaction.
 Total Quality Management
 Lean Productions

Scope of Operations Management
 Forecasting
 Capacity planning
 Location planning
 Facility planning
 Selection of technology
 Managing inventory
 Scheduling
 Motivating and Training Employees

Decision Making
 Operations managers make a number of key
decisions like:
 What
What resources/what amounts
 When
Needed/scheduled/ordered
 Where
Work to be done
 How
Designed/ Resource allocation
 Who
To do the work

General Approaches to Decision Making
 The decisions involve many possible alternatives that can
affect the profitability of the organization.
 To take the aforesaid decisions, various tools are
available to the managers.
 These include:
 Models
 Quantitative Approaches
 Analysis of Trade-offs
 Systems Approach
 Establishing Priorities
 Ethics

Models
A model is an abstraction of reality.
– Physical (toy cars, globe etc)
– Schematic (graphs, blueprints, charts etc)
– Mathematical (EOQ model, transportation model)
What are the pros and cons of models?

Advantages of Models
 Models omit unimportant details so that attention
can be concentrated on the important aspects of a
situation.
 Easy to use
 Less expensive than dealing with the actual situation
 Increase understanding of the problem
 Serves as a consistent tool
 Provides a standardized format for analyzing a
problem

Limitations of Models
 Models can be incorrectly applied and the results
misinterpreted
 Use of models do not guarantee good decisions

Quantitative Approaches
 Attempt to obtain mathematically optimal solutions
to managerial problems
 Linear Programming (allocation of resources)
 Queuing Techniques (analyzing situations in which
waiting lines form)
 Inventory Models (control inventories)
 Project Models (PERT and CPM to coordinate large
projects)

Tradeoffs
 Decision makers deal with decisions by listing the
advantages and disadvantages of a course of action
to understand the consequences of the decision.
 This helps to “net out” the potential impacts of the
trade-offs on their decision.
Eg: Cost of equipment vs benefits
 Increased cost of storing inventory vs meeting
customer demands

Establishing Priorities
 Certain factors are more important than other
factors.
 Manager should examine each situation, searching
for the factors that will have the greatest impact and
give them highest priority.
 Pareto Principle: A few factors account for a high
percentage of the occurrence of some events.

Systems Approach
 System : A set of interrelated parts that must work
together.
 “The whole is greater than the sum of its individual
parts”

Ethics
 In making decisions, managers must consider how their decisions
will affect shareholders, management, employees, customers,
community and the environment.
 Financial statements (represent information accurately)
 Safety of Workers (adequate training, maintaining equipment in
good working condition)
 Quality (avoiding hidden defects)
 Environment (not harming the environment)
 Community (not affecting the quality of life of the community)
 Avoiding false pretences
 Workers’ Rights (dealing with workers’ problems quickly and fairly)

Business Operations Overlap

Operations Interfaces

Career Opportunities
 Operations Manager
 Production Analyst
 Inventory Manager
 Purchasing Manager
 Supply Chain Manager
 Distribution Manager
 Schedule Coordinator