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PGP 17
Term II
Operations Management I (OM-1)
Session 2
Dr. G. Anand
Associate Professor
QM & OM Area
IIM Kozhikode
Recap
Defined the following
System
Operations
Operations Management
Understood the following
Efficiency
Effectiveness
Value
Introduced systemic
view of operations
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Systemic View of Operations
The Operations System
The operations system transforms inputs into
desired goods and services.
OUTPUTS INPUTS PROCESS
EXTERNAL
FACTORS
FEEDBACK
Material flow
Information Flow
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Operating System contd.
Inputs
External
Legal, Economic,
Social, Technological
Market
Competition, Customer
Desires, Product Info.
Primary Resources
5M (Man, Materials,
Money, Machines,
Methods), Utilities
Outputs
Direct
Products
Services
Indirect
Waste
Pollution
The transformation process should add value such that the
output has financial value greater than the sum of the inputs
Conversion Process
Physical (Manufacturing)
Locational Services (Transportation)
Exchange Services (Retailing)
Storage Services (Warehousing)
Physiological (Health care)
Informational (Telecommunications)
Government Services (Federal, State, Local)
Other Private Services (Insurance)
These transformations are not mutually exclusive, as a department
store can allow shoppers to compare prices and quality
(informational) and hold items until needed (storage) and sell goods
(exchange)
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Outputs Goods/Service
Manufacturing/Goods
Tangible
Degree of customer
participation (Indirect)
Storage (in the form of
stock/inventory)
Standardization
Service
Intangible (cannot be
weighed, measured)
Customer participation is
high and they are part of
the process
Not possible
Customisation (except few
services such as
rail/university)
Feedback and Noise Factors
Internal Feedback
Performance measures
Utilisation
Efficiency
Defect rate
Inventory
Production rate
Lead time
Etc.
External Feedback
Customer wants
Competitors offering
Technological changes
Legal and social aspects
Etc.
Internal factors
Union/people issues
Absenteeism
Non availability of
materials
Machine breakdowns
Etc.
External factors
Governmental orders
Nature
Political issues
Etc.
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Operations applied to both
manufacturing and service
Differences between
Manufacturing/Goods and Service
Manufacturing/Goods
Tangible
Degree of customer
participation (Indirect)
Storage (in the form of
stock/inventory)
Standardization
Service
Intangible (cannot be
weighed, measured)
Customer participation is
high and they are part of
the process
Not possible
Customisation (except few
services such as
rail/university)
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Differences contd.
Services never include goods and goods
never include services. (True or false?)
Differences contd.
Goods-service continuum
Pure goods
Textbook, publishing book,
Chemicals
Core goods
Automobiles (after sales service,
insurance, etc.)
Core service
Restaurant (Food + way of serving,
waiting, etc.)
Pure service
Financial consulting, Medical
advice
In recent times, services have
outgrown manufacturing
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Most businesses are supported by the functions
of operations, marketing, and finance
The major functional areas must interact to
achieve the organization goals
Role of operations in the
organizational system
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Decisions involved in OM
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Decisions in OM
Within OM decisions
can be divided into
three broad areas
Strategic (long term)
Tactical (intermediate)
Operational or Planning
and Control (short-term)
Image obtained from
http://sandaionescu.files.wordpress.com/2011/05/decision-making-process.jpg
Decisions in OM - Examples
Strategic (long term)
What product to make?
Whether to make or buy this component?
Where do we locate the facilities?
How much capacity do we need?
All these are addressed as part of
OPERATIONS STRATEGY
These decisions affect the companys long
range effectiveness in terms of how it can
handle customers needs
These decisions become the fixed conditions or
operating constraints for intermediate and short
term decisions
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Decisions in OM - Examples
Tactical (intermediate term)
How many workers do we need for this quarter?
Should we work overtime or put on a second shift for
this month?
When should we have material delivered?
How to rearrange the machines?
Operational (short term)
What jobs do we work on today or this week?
Whom do we assign to what tasks?
What jobs have priority?
Operations
Operations
Plant
Manager
Plant
Manager
Operations
Manager
Operations
Manager
Director
Director
Manufacturing, Production control,
Quality assurance, Engineering,
Purchasing, Maintenance, etc
Manufacturing, Production control,
Quality assurance, Engineering,
Purchasing, Maintenance, etc
Finance Marketing
OM in the Organisation Chart
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Latest Developments in OM
JIT or Lean Thinking and TQC/Six Sigma
Manufacturing/Operating Strategy
paradigm
Mass production to customized production
Supply Chain Management
Electronic Commerce and Electronic
Business
Etc.
Current Issues in OM
Coordinate the relationships between mutually
supportive but separate organizations.
Optimizing global supplier, production, and
distribution networks.
Increased co-production of goods and services
Managing the customers experience during the
service encounter
Raising the awareness of operations as a
significant competitive weapon
Etc.
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What is OM? In summary
Create operational systems.
Manage (plan, organize, staff, direct and
control) the process/activities relating to
the production of goods and/or services
with maximum efficiency (at the lowest
cost) and effectiveness (in the eyes of the
customer).
Improve those processes continuously to
create competitive advantage.