Chapter One [Handouts]

7/31/2019 Chapter One [Handouts]

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Chapter One

Introduction

An operation is defined in terms of the mission it serves for the organization, technology it

employs and the human and managerial processes it involves. Operations in an organization

can be categorised into manufacturing operations and service operations. Manufacturing

operations is a conversion process that includes manufacturing yields a tangible output: a

product, whereas, a conversion process that includes service yields an intangible output: a

deed, a performance, an effort. In short, The term operation management is composed of

two terms operation and management. Operation refers to activities and management refers

to art of managing activities (planning, organising, controlling, implementing and

feedback).

Definition

Chase, Richard B. Aquilano J. and Jacobs F. Robert, Operation management may be

defined as the design, operation and improvement operations of the production systems that

create the firms primary products or services.

Managing Operations

Managing operations can be enclosed in a frame of general management function.

Operation managers are concerned with planning, organizing, and controlling the activities

which affect human behaviour through models.

Planning

Activities that establishes a course of action and guide future decision-making is

planning. The operations manager defines the objectives for the operations subsystem of

the organization, and the policies, and procedures for achieving the objectives. This

stage includes clarifying the role and focus of operations in the organizations overall

strategy. It also involves product planning, facility designing and using the conversion

process.

Organising

Activities that establishes a structure of tasks and authority. Operation managers establish

a structure of roles and the flow of information within the operations subsystem. They

determine the activities required to achieve the goals and assign authority and

responsibility for carrying them out.

Controlling

Activities that assure the actual performance in accordance with planned performance.

To ensure that the plans for the operations subsystems are accomplished, the

operations manager must exercise control by measuring actual outputs and comparing


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them to planned operations management. Controlling costs, quality, and schedules are

the important functions here.

Behaviour

Operation managers are concerned with how their efforts to plan, organize, and control

affect human behaviour. They also want to know how the behaviour of subordinates can

affect managements planning, organizing, and controlling actions. Their interest lies indecision-making behaviour.

Models

As operation managers plan, organise, and control the conversion process, they encounter

many problems and must make many decisions. They can simplify their difficulties using

models like aggregate planning models for examining how best to use existing

capacity in short-term, break even analysis to identify break even volumes, linear

programming and computer simulation for capacity utilisation, decision tree analysis

for long-term capacity problem of facility expansion, simple median model for

determining best locations of facilities etc.

Types of production system

The production system can be categorised into

a. Intermittent (break down) production systemsb. Continuous production systems

Intermittent system: In this system, products and services are produced in small

amount to meet the demand of customer rather than keeping them in stock for future

use. There will be imbalanced work centres, highly skilled manpower, immediate change inplanning, scheduling and high unit costs are main features of intermittent production

system. The inputs and conversion process are regularly managed and changed as per the

design size and quantity of input. Work shop, Hospitals, Furniture manufacturing, movie

making, building, bridges are example of intermittent system.

Types of intermittent system

a. Job or Unit production systemb. Batch production system.

i. Job shop or unit production system: In this system a single unit or a job is completed

by one or group at one time in accordance to the order of customer e.g. making

furniture, bridge.

ii. Batch production system: Batch production system: In this system production is done

on large amount of similar products at one time. The more products will be kept for future

demand of customer. The batch production starts after finishing of first batch only. Eg.

Producing electronic goods, book printing.


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b. Continuous Production System: In this system, production is carried out accordance to

sales forecast and stock position. Here, raw material, process and products are

standardised. Eg. Production of soaps, biscuits, noodles,

Approaches to operation management

The approaches are

Classical Management Behavioural Management Modelling Management

Classical Management

This concept is based on core production systems. In another word, this concept explains

about the increment of production / output. This management concept has following

theories

i. Scientific Managementii. Administrative Management

i. Scientific Management: The scientific management refers to the use of scientific

method to determine the one best way for a job to be done. This theory concentrated on the

problems of shop-floor management and efficiency of production. This theory was specially

based on Standardisation, Time and Task Study, Pay Incentives, Close Cooperation,

between Managers and Operatives.

ii. Administrative Management: Scientific Management Theory focuses on jobs ofindividual employee but administrative management focuses on managing the total

organisation.

Functions of operation manger

As we know, operations function is about producing the right amount of a good or

service at the right time, of the right quality and at the right cost to meet customer

demand. Operation managers are responsible for managing activities of the production of

goods and services. The responsibilities include managing the operations process ofdesigning, planning, controlling, improving, and operations strategy. Their indirect

responsibilities include interacting with managers in other functional areas within the

organization whose roles have an impact on operations ; marketing, accounting, human

resource and engineering.

In short, the main responsibilities of operation managers are

a. Asset managementthis category includes buildings, facilities, equipment and otherdirect operation functions.


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b. Cost managementthis category includes managing cost regarding to producinggoods, services related with directly or indirectly to get resources or transforming

them or delivery mechanism.

Operation management (production) function / system

Fig1: Simple model

Fig2; General model for operation management

Difference between manufacturing and service operations

Difference between manufacturing and service operations

Base Manufacturing Service

Output natureYields tangible output. Eg. Pen Yields intangible output. Eg.

Teaching

Inputs

- Raw materials- Capital

- Information

-

In ut Monitorin Monitorin

Processin

Out ut Monitorin

Output

- Goods- Services

Feedback

(Deviation)


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Output

consumption

Can be consumed over time. Eg.

Taking lunch after some time

Immediately consumable e.g

laughing

Work nature

Need more capital and uses more

machines and equipment than

labour. Eg. Investment,Plant/equipment

Need low capital investment,

machines, equipment and uses

more labour

Frequency of

public relationcustomer contact frequency is

lower

Higher frequency of customer

contact

Customer follow

up

Customer follow up will be less

because once order is placed,

then customers do not need to

follow more

Customer follow up will be

higher for conversion process

Performance

measurementComplex type of quantitative

methods should be applied tocheck performance

Simple qualitative methods can

applied to measure theperformance

Market accessible It needs local, national and

international market

It needs local but very limited

market

Production

process It needs complicated process It needs simple process.

Input-Transformation-Output relationship for typical systems

System Primary inputs Resources Transformation Output

Hospital Patients Nurses, medical

supplies, equipment

Physical healthcare Healthy person

Restaurant Customers Food, waiter,

environment

Hygienic food Satisfied customers

Automobile factory Engine parts, sheet

steel

Tools, equipment,

workers

Fabrication and

assembly of vehicles

High quality

vehicles

College / university School graduates Teachers, books,classrooms

Impartingknowledge

Graduated students

Department store Shoppers Display, stock of

goods, sales persons

Promote products,

fill orders

(exchange)

Sales to satisfy

customers

Airlines Passengers Crews, ticketingsystems, scheduling

Fly to destination Safe and on timelanding (delivery)

Historical development of operation management

- Adam Smith first introduced a concept about division of labour- Charles Babbage emphasises the concept about base for pay fixation- F.W. Taylor introduced a concept of scientific management technique (selection, training,

high pay for high productivity, safety needs, right person to right job, training, scientific

tools, job security)


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- Henry Gantt introduced a concept of Gantt Chart- Walter Shewart introduced a concept of Statistical Quality Control.

Ancient Era (Trade

Focus)

Cost base -Early Era

(Before 1900s)

Quality base-Lean era

(1990s to 2000s)

Welfare Base-Mass

customisation (After 200s)

Specialisation of labour Assembly line movement JIT concept GlobalisationUse of standardised

parts Statistical techniques CAD Use of internet

Scientific Management PERT / CPM TQM ISO

Gantt Chart

Malcolm Baldrige

Award Supply chain management

Motion study Kanban E-commerce

Queuing theory WTO

Historical summary of operations management

Date Contribution Contributor1776

1799

1832

1900

1900

1901

1915

1927

1931

1935

1940

1946

1947

1950

1951

1960

1970

1980

Specialization of labour in manufacturing

Interchangeable parts, cost accounting

Division of labour by skill; assignment of jobs by skill;

basics of time study

Scientific management time study and work study

developed; dividing planning and doing of work

Motion of study of jobs

Scheduling techniques for employees, machines jobs in

manufacturing

Economic lot sizes for inventory control

Human relations; the Hawthorne studies

Statistical inference applied to product quality: qualitycontrol charts

Statistical sampling applied to quality control: inspection

sampling plans

Operations research applications in World War II

Digital computer

Linear programming

Mathematical programming, on-linear and

stochastic processes

Commercial digital computer: large-scale

computations available.

Organizational behaviour: continued study of peopleat work

Integrating operations into overall strategy and policy,

Computer applications to manufacturing, Scheduling

and control, Material requirement planning (MRP)

Quality and productivity applications from Japan:

robotics, CAD-CAM

Adam Smith

Eli Whitney and others

Charles Babbage

Frederick W. Taylor

Frank B. Gilbreth

Henry L. Gantt

F.W. Harris

Elton Mayo

W.A. Shewart

H.F. Dodge & H.G. Roming

P.M. Blacker and others.

John Mauchlly and

J.P. Eckert

G.B. Dantzig, Williams &

others

A. Charnes, W.W. Cooper

& others

Sperry Univac

L. Cummings, L. Porter

W. Skinner J. Orlicky and

G. Wright

W.E. Deming and

J. Juran.

Scope of operation management

Operations management concerns with the conversion of inputs into outputs, using


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physical resources, so as to provide the desired utilities to the customer while meeting the

other organisational objectives of effectiveness, efficiency and adoptability. It distinguishes

itself from other functions such as personnel, marketing, finance, etc., by its primary

concern for conversion by using physical resources. Following are the activities which

are listed under production and operations management functions:

Facilities location

Location of facilities for operations is a long-term capacity decision which involves a long

term commitment about the geographically static factors that affect a business

organization. It is an important strategic level decision-making for an organization. It

deals with the questions such as

Where our main operations should be based?

The selection of location is a key-decision as large investment is made in building plant

and machinery. An improper location of plant may lead to waste of all the investments

made in plant and machinery equipment. Hence, location of plant should be based on the

companys expansion plan and policy, diversification plan for the products, changing

sources of raw materials and many other factors. The purpose of the location study is to

find the optimal location that will results in the greatest advantage to the organization.

Plant layout and material handling

Plant layout refers to the physical arrangement of facilities. It is the configuration of

departments, work centres and equipment in the conversion process. The overall

objective of the plant layout is to design a physical arrangement that meets the required

output quality and quantity most economically.


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Material Handling refers to the moving of materials from the store room to the

machine and from one machine to the next during the process of manufacture. It is also

defined as the art and science of moving, packing and storing of products in any

form. It is a specialised activity for a modern manufacturing concern, with 50 to 75% of

the cost of production. This cost can be reduced by proper section, operation andmaintenance of material handling devices. Material handling devices increases the output,

improves quality, speeds up the deliveries and decreases the cost of production. Hence,

material handling is a prime consideration in the designing new plant and several existing

plants.

Product design

Product design deals with conversion of ideas into reality. Every business organization has

to design, develop and introduce new products as a survival and growth strategy.

Developing the new products and launching them in the market is the biggest challengefaced by the organizations. The entire process of need identification to physical

manufactures of product involves three functions: marketing, product development, and

manufacturing. Product development translates the needs of customers given by marketing

into technical specifications and designing the various features into the product to these

specifications. Manufacturing has the responsibility of selecting the processes by which the

product can be manufactured. Product design and development provides link between

marketing, customer needs and expectations and the activities required to manufacture the

product.

Process design

Process design is a macroscopic decision-making of an overall process route for

converting the raw material into finished goods. These decisions encompass the

selection of a process, choice of technology, process flow analysis and layout of the

facilities. Hence, the important decisions in process design are to analyse the workflow

for converting raw material into finished product and to select the workstation for each

included in the workflow.

Production planning and control

Production planning and control can be defined as the process of planning the production in

advance, setting the exact route of each item, fixing the starting and finishing dates for each

item, to give production orders to shops and to follow up the progress of products

according to orders.

The principle of production planning and control lies in the statement First Plan Your

Workand then Work on Your Plan. Main functions of production planning and control

includes planning, routing, scheduling, dispatching and follow-up.

Planning is deciding in advance what to do, how to do it, when to do it and who is to


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do it. Planning bridges the gap from where we are, to where we want to go. It makes itpossible for things to occur which would not otherwise happen.

Routing may be defined as the selection of path which each part of the product willfollow, which being transformed from raw material to finished products. Routing determines

the most advantageous path to be followed from department to department and machineto machine till raw material gets its final shape.

Scheduling determines the programme for the operations. Scheduling may be defined

as the fixation of time and date for each operation as well as it determines the sequence of

operations to be followed.

Dispatching is concerned with the starting the processes. It gives necessary authority

so as to start a particular work, which has already been planned under Routing and

Scheduling. Therefore, dispatching is release of orders and instruction for the starting of

production for any item in acceptance with the route sheet and schedule charts.

The function of follow-up is to report daily the progress of work in each shop in a

prescribed proforma and to investigate the causes of deviations from the planned

performance.

Quality control

Quality Control (QC) may be defined as a system that is used to maintain a desired

level of quality in a product or service. It is a systematic control of various factors that

affect the quality of the product. Quality control aims at prevention of defects at the

source, relies on effective feedb ack system and corrective action procedure.

Quality control can also be defined as that industrial management technique by means of

which product of uniform acceptable quality is manufactured. It is the entire collection of

activities which ensures that the operation will produce the optimum quality products at

minimum cost.

The main objectives of quality control are:

- To improve the companies income by making the production more acceptable to thecustomers i.e., by providing long life, greater usefulness, maintainability, etc.

- To reduce companies cost through reduction of losses due to defects.- To achieve interchangeable manufacturing in large scale production.- To produce optimal quality at reduced price.

- To ensure satisfaction of customers with productions or services or high quality level, tobuild customer goodwill, confidence and reputation of manufacturer.

- To make inspection prompt to ensure quality control.- To check the variation during manufacturing.Material management

Materials management is that aspect of management function which is primarily


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concerned with the acquisition, control and use of materials needed and flow of goods

and services connected with the production process having some predetermined

objectives in view.

The main objectives of materials management are:

- To minimise material cost.-

To purchase, receive, transport and store materials efficiently and to reduce the related cost.- To cut down costs through simplification, standardisation, value analysis, import substitution, etc.- To trace new sources of supply and to develop cordial relations with them in order to

ensure continuous supply at reasonable rates.

- To reduce investment tied in the inventories for use in other productive purposes and todevelop high inventory turnover ratios.

Maintenance management

In modern industry, equipment and machinery are a very important part of the total

productive effort. Therefore, their idleness or downtime becomes are very expensive.Hence, it is very important that the plant machinery should be properly maintained.

The main objectives of maintenance management are:

1. To achieve minimum breakdown and to keep the plant in good working conditionat the lowest possible cost.

2. To keep the machines and other facilities in such a condition that permits them tobe used at their optimal capacity without interruption.

3. To ensure the availability of the machines, buildings and services required by othersections of the factory for the performance of their functions at optimal return on

investment.

Product life cycle approach

Life cycle concept is applied in operational management for any production system which

takes input and produces some output by using some process.

The life cycle concept of any product is similar to any life cycle of a living being. The major

stages in the life cycle concept are 1) Development 2) Introduction or Birth 3) Growth 4)

Maturity 5) Decline or Death. The similar Life cycle concept we can apply to any product in

production system.

Start-up is the initial stage, where products have no high demand. The product goes through

the series of different stages. The time periods vary with products or services. Some

products may have different life time. Some may have a week or some may have a month

or other time span.


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Product Life Cycle

Operation

activities Startup Growth Maturity Decline

Product variety Many varieties More

standardisation

Dominant design Commodity

features

Product volume Low volume Increasing volume High volume High volume

Industry structure Lowcompetition

Fall out andconsolidation

Few large companies Survivors

Competition Product features Product quantity andavailability Price and dependability Price

Productivity and competitiveness

Productivity

Productivity is the amount ofoutput per unit of input such as labour, equipment, capital.

There are many different ways of measuring productivity. For example, in a factory

productivity might be measured based on the number ofhours it takes to produce a good,

while in the service sector productivity might be measured based on the revenue generated

by an employee divided by his/her salary.

Productivity =Output

Input

Types of productivity measurement

a. Partial productivity measure- Related with ratio of output to a single input. Eg.Productivity =

Output

Labour.
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b. Multifactor productivity measure- Related with ratio of output to a multi input.Eg. Productivity=

Output

Labour+Capital

c. Total factor productivity measure- Related with ratio of output to all inputs. Eg.Productivity =

Output

Inputs

Eg.

Outputs Amount (Rs) InputsAmount

(Rs)

Finished goods 20000 Human 6000

Work in process 5000 Material 300

Dividend 2000 Capital 20000

Bonds Energy 1080

Other income Other expenses 3000

Total 27000 Total 30380

Competitiveness

The term competitiveness can be defined as

a. For the company, Competitiveness is the ability to provide products and services asor more effectively and efficiently than the relevant competitors.

b. In the traded sector, this means sustained success in international markets withoutprotection or subsidies.

Measures of competitiveness in the traded sector include firm profitability, the firm's export

quotient (exports or foreign sales divided by output), and regional or global market share. In

the traded sector, performance in the international marketplace provides a direct measure of

the firm's competitiveness. In the non-traded sector, competitiveness is the ability to match

or beat the world's best firms in cost and quality of goods or services. Measuring

competitiveness in the non-traded sector is often difficult, since there is no direct market

performance test. Measures of competitiveness in this part of the economy include firm

profitability and measures of cost and quality. In industries characterized by foreign direct

investment, the firm's percentage of foreign sales (foreign sales divided by total sales) and

its share of regional or global markets provide measures of firm competitiveness.

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