Unit-1 Operations management notes - MBA

OM

1. Operations
Management:
An Overview
9
UNIT 1 OPERATIONS MANAGEMENT: AN
OVERVIEW
Objectives
After going through this unit, you should be able to understand:
• The scope and significance of the function of operations management.
• The importance of studying operations management.
• The role of operations managers in organisations.
• The productivity and factors of production.
• The ethics and social responsibility of operations managers
Structure
1.1 Introduction
1.2 What is operations management?
1.3 Nature of operations management (OM)
1.4 Scope and Significance
1.5 System View of Operations Management
1.6 Why Should Study OM?
1.7 Role of Production and operations manager
1.8 Understanding Goods and Services
1.9 Productivity
1.10 Productivity Measurement
1.11 Productivity Variables
1.12 Customer benefits packages (CBP)
1.13 Ethics and social responsibility
1.14 Environmental Concerns of Operations
1.15 Operations Manager in India
1.16 Summary
1.17 Self-assessment Exercises
1.18 Further Readings
1.1 INTRODUCTION
Operations management involves managing the various resources, activities,
processes, and procedures related to converting inputs into outputs. Every
manager must understand the role and responsibilities of operations managers
in manufacturing and service organisations to implement operations
management practices effectively. Reducing waste and improving the quality
of products and services with better practices is crucial to sustain in the
competitive business world. The operations management practices have

2. Operations
Management –
An Overview
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evolved over a period with significant developments. The advent of the
computer in product processes increased the efficient use of labour, material,
and equipment. Sophisticated production control techniques have been
developed to produce goods and services at a desired time and at a minimal
cost. Further, this course is more critical with globalisation and corporations
expanding their operations worldwide.
1.2 WHAT IS OPERATION MANAGEMENT?
Production involves Step by step conversion of one form of material to another through chemical or mechanical processes i.e., creating goods and services.
Production Management refers to planning, organizing, directing, and
controlling the activities of the production function. Production management
is the set of interrelated management activities involved in manufacturing
certain products.
Every organisation creates value by converting inputs into outputs, and these
outputs are generally two types of physical goods and services. Activities that
produce things are typically relatively visible in manufacturing organisations.
They demonstrate the production of physical goods like Tata-Motor’s
Vehicles or LG’s TVs.
Production management was formerly considered manufacturing
management only. Now after the inclusion of services into its scope, it is
broadly known as operations management.
Production implies products, i.e. manufacturing, whereas operations can
apply to products and services. Therefore, Operations have replaced the term
production.
“Good” = economic unit that is produced. It is tangible.
“Service” = economic activity that is performed. It is intangible.
Operations Management (OM) is the activities that create value in goods and
services by transforming inputs into outputs.
Some examples of Productions are:
a) Manufacturing custom-made products like, boilers with a specific
capacity, constructing flats, some structural fabrication works for
selected customers, etc.,
b) Manufacturing standardized products like cars, buses, motorcycles,
radio, television etc.,
Some examples of Services
are:
a) Custom-made services like, medical facilities and clinical tests, arranging food for parties, travel booking services etc., and
b) Standardized services like developing standard computer software, providing standard insurance policies etc.

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Management:
An Overview
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1.3 NATURE OF OPERATION MANAGEMENT
(OM)
Planning, organising, directing, and controlling are the four fundamental
tasks in traditional management. Planning serves as the foundation for future
operations by creating strategies, objectives, goals, and the rules, procedures,
and timetables for achieving them. Organising involves assembling the staff,
materials, infrastructure, equipment, information, and finance needed to carry
out planned tasks. Directing makes plans a reality by allocating precise tasks
and responsibilities to staff members, inspiring them, and coordinating their
efforts. Finally, controlling—monitoring results and taking remedial action -
is required to ensure that plans are carried out correctly or not. This also
entails using best practices and lessons learned from errors for long-term
operations improvement.
To satisfy customer demands for high-quality products and services, to create
the employees’ skills and keep them motivated, to maintain efficient
operations to ensure an adequate return on the investment, and to preserve the
environment, operations management must be effective. Operations
management is an approach that includes a number of essential tasks, such
as:
• Understanding consumer demands, assessing the satisfaction of
customers, and using that information for the organisation to create new
and better products and services that will be promoting the organisation’s
long-term plan.
• We are integrating data about consumers, products and services,
operations, staff, suppliers, charges and finance to make an appropriate
decision.
• Leveraging technology to create products, services, manufacturing
techniques, and service delivery methods that quickly and adapt to client
needs and maximise productivity;
• It is regularly evolving in response to the organisation to socio-
environmental changes while understanding from employees, competitor
companies, and consumers.
The concepts of operations management are simple. They are relatively easy,
but they do need vision and willpower to put into practice. Therefore, the
primary goal of operations management is to continuously enhance the
capacity and performance of the overall business to provide consumers with
ever-improving value.
1.4 SCOPE AND SIGNIFICANCE
If the nation’s entire economy is divided into agriculture and agriculture- based industry, manufacturing of tangible goods and service industry, the service sector is growing much faster. In the USA, it has already emerged as the largest employer. During the recent recession in the USA (1989-1993), the employment level in the manufacturing industries shrank. However, the

4. Operations
Management –
An Overview
12
number of persons working in the service sector increased, although at a
lower rate, in India also. Entrepreneurs with new, innovative and untried
ideas are entering the service sector to cater to the unmet needs of the
population.
The functional knowledge of operations management is distinct from other
functional areas of marketing, finance, human resources, information &
systems, public relations, corporate communications, legal etc. The more
basic learning has originated from it and transcended into other functional
areas. Some functional sub-areas have achieved such eminence that they are
being explored as full-fledged subjects of study, viz., quality management,
technology management, project management, purchasing and materials
management, productivity management and ergonomics, and safety and
environment management.
All the managers are involved in planning, organising and controlling, but
operations managers are directly responsible for “getting the job done”.
Operation managers act as a focal point in the relationship with other
functional departments in organisations and take the leadership to produce
products or services demanded by the customers.
The scope of operations management is vast, commencing with selecting the
plant’s location to deliver the products/services to customers. The operations
management covers such activities as
• Acquisition of land, constructing a building, procuring and installing
machinery, purchasing and storing raw materials and converting them
into a saleable product, product selection design, process selection and
planning: facilities location, facilities layout and materials handling and
capacity planning
Added to the above are other related topics of operational decisions, such as
• Quality management, maintenance management, production planning
and control (PPC), inventory control, method study, work simplification,
maintenance & replacement, cost reduction and power and other related
areas.
1.5 SYSTEM VIEW OF OPERATIONS
MANAGEMENT
There has been a sea-change in the scenario of operations management. Manufacturing facilities producing tangible goods were far removed from the customer, adversely impacting the customer - orientation of production personnel. Thanks to the importance given to the customer focus, operations managers had to re-orient their thinking and learn the true meaning of customising their work processes. Conversion of raw materials into finished products and delivering services to transform an unsatisfied customer into a satisfied one has been identified as the vital link in the primary value chain of an enterprise. Hence, operations are often defined as a value-added transformation process. Inputs (material, machines, labour, management, and capital) are transformed into outputs (goods and services).

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Operations are activities through which people perform organisational
transformations (input-process-output). In all organizations operations
usually involve a larger share of corporate resources. This does not mean,
however, that operations are more important than other functions, like
marketing, human resources management, finance, etc. On the contrary,
operations are best viewed as one of the essential functions of any
organisation and well-integrated into other functions of an organization.
Systems View of Operations Management is depicted in Figure1.1.

Figure 1.1: Systems View of Operations Management
Production is an organised activity, so every production system has an
objective. The system transforms the various inputs into valuable outputs.
The transformation process is performed efficiently, and the output is of more
excellent value than the sum of the inputs. The system does not operate in
isolation from the other organisation’s system. Feedback about the activities
exists, which is essential to control and improve system performance. Any
actions that do not add value are excessive and should be eliminated.
Examples of operating systems
System Inputs Conversion Output
(desired)
Hospital Patients, MDs, Nurses, Medical supplies, equipment
Health care Healthy individual
Restaurant Hungry customers, food, chef, servers, atmosphere
Prepare good, serve food
Satisfied customers
Automobile plant
Sheet steel, engine parts, tools, equipment, workers,
machines
Fabrication and
assembly of cars
High quality
automobiles
University High school grads, teachers, books, classroom etc
Transforming of knowledge and skills
Educated individuals

Inputs
Land
Labour
Capital
Information
Output
Goods
Services
Transformation/
Conversion Process
Control
Feedback Feedback
Feedback
Value Added

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Management –
An Overview
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1.6 WHY SHOULD STUDY OM?
OM is one of four primary functions of any organization, which is integrally
related to all the other business functions. One of the critical activities of any
organisation is OM, which is closely tied to all other daily operations. It is
critical to understand how the OM activity works since it affects all
companies that advertise (sell), finance (account), and produce (operate). As
a result, we research how individuals organise themselves for a successful
business.
We study OM because we’re interested in how goods and services are made.
The practical and efficient utilisation of resources is possible at the
operations department as the majority of resources in terms of raw material,
machinery, equipment, tools, and employees are in the operations
department.
We research OM to comprehend the work that operations managers do. You
can develop the skills required to be one of these managers by learning what
these managers do. This will assist you in investigating the diverse and
rewarding employment prospects in OM.
The operations department offers a significant opportunity for an
organization to improve its productivity and profitability. The OM function is
responsible for a considerable portion of the assets of most organizations, and
it is such a costly part of an organization. Nearly half of the employed people
over the world have jobs in operations.
1.7 ROLE OF PRODUCTION AND
OPERATIONS MANAGER
The Operations Function consists of all activities directly related to
producing goods or providing services. A primary function of the operations manager is to guide the system through decision-making. Usually, an operations manager involves two types of organisational decisions: system design decisions and system operation decisions. The system Design Decisions include plant capacity, facility location, facility layout, product and service planning, process planning, technology planning, acquisition and placement of equipment etc. These decisions are typically strategic decisions that require long-term resource commitment and determine system operation parameters.
Once the plant is established with a specific capacity, the operations manager
performs daily activities to produce the desired product and services. Hence
involved in various decisions like management of personnel, inventory
management and control, scheduling, project management, quality control
etc. Operations managers spend more time on system operation decisions
than any other decision area, but they still have a vital stake in system design
To do “operations Management,” you do not always require the title of
“operations Manager.” Operations management is a part of any task. Using
operations management concepts and techniques will help you accomplish

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Management:
An Overview
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your goals regardless of your functional business area. When you manage
financial, human resources or legal, accounting, operations, environmental,
supply chain, services, or marketing activities, you create value for your
clients and your company’s internal customers. Everyone who manages a
business process or activity should know some fundamental OM concepts.
Table 1.1 has discussed a few critical areas of operation manager and their
decisional role.
Table 1.1: Operational Areas and Decision Roles
Operational area Issues
Process and capacity
design
What procedures and quantity will be needed for
such products?
What tools and modern technology are required
for these processes?
Design of goods and services
What good or service should we offer? How should we design these products?
Managing quality
How should the quality be described? Who is in
responsible of quality?
Layout strategy
How should the facility be set up? How much of a facility does our proposal require?
Location strategy
Where should we locate the facility? What criterion should we use to decide where to put
this?
Human resources
and job design
How can we create a fair working environment?
How much output can we reasonably expect fro
m our staff?
Inventory, material
requirements planning, and JIT (just-in-time)
How much of each component do we have in stock?
When should we reorder?
Supply chain
management
Should we manufacture or purchase this part?
Who can we connect with our e-commerce
platform as suppliers?
Maintenance
Who is accountable for maintenance? When will
we perform maintenance?
1.8 UNDERSTANDING GOODS AND SERVICES
A comprehensive understanding of goods and services is essential to develop and executing the best system. You can view, touch, or consume a physical item is good. Fruits, blossoms, soap, telephones, computers, and industrial equipment are a few examples of products. A product is considered durable if it lasts at least three years. Some examples of stable things include furniture, automobiles, and appliances. Nondurable goods typically have a shelf life of fewer than three years and are known as perishable goods. Examples include vegetables, toothpaste, and shoes. Any primary or supplementary support for under three years is considered a service. Nondurable goods are perishable

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and typically last through processes that do not immediately result in physical
products. The non-goods element of a buyer’s (customer) and seller’s
relationship is represented by services. Resorts, law and finance firms,
aviation, hospitals, museums, and consulting companies are typical service-
based businesses.
Services and goods have many things in common. Customers who buy and
use them receive value and satisfaction. They can be personalised to a
person’s needs or standardised for the broader market. They are produced and
given to clients through a process that combines human labour and
technological advancement. Services that do not involve a lot of client
interaction, like “back office” credit card processing, can be handled in a
factory-like style. However, the “management of service-providing
organisations” differs from the “management of goods-producing
organisations”, and various demands are placed on the operations function
due to these very significant differences between commodities and services.
The following section discussed some important attributes that distinguish
the service and good.
1.9 PRODUCTIVITY
The precision with which products/services are produced can be called production process productivity. The most common method for calculating productivity is to compare an aggregate output through a single or aggregate output over time.
Productivity is an indicator of how quickly someone achieves a task. We can
describe it as the pace at which a corporation or nation produces things and
services (output), typically assessed based on the quantities of inputs (labour,
capital, energy, or other resources) utilised to supply those goods and
services.
So, if you’re wondering what productivity means in terms of economics, we
may define it as a measurement of output relative to input.
Resources must be transformed into goods and services to create new
products. Production efficiency creates more value in terms of offering goods
and services. The ratio of inputs (resources, such as capital and labour) to
outputs (goods or services) is known as productivity (see below figure).
Enhancing (improving) this ‘output-to-input’ ratio is the responsibility of the
operations manager. So, enhancing efficiency entails increasing productivity.
There are two approaches to improve this: decrease inputs while maintaining
output, or increase output while keeping inputs constant. Both indicate an
increase in production. In a production system, labour, capital, and
management are the inputs in an economic sense. The high output does not
necessarily translate to increased productivity; it may mean more people are
working and high employment levels (low unemployment).

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Management:
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1.10 PRODUCTIVITY MEASUREMENT
Productivity can be measured in a very straightforward manner. Such is the
case when work hours per tonne of a specific type of steel are used to
measure productivity. Although labour hours are a popular way to quantify
input, other metrics can also be employed, including capital (the amount of
money invested), materials (a ton of material), and energy (kilowatts of
electricity). Below are examples provide for understanding the above
discussion:
Productivity =

Example: - if units produced = 2,000 and labour-hours used is 500, then;
Productivity = = = 4
However, the above example uses one resource input (i.e., labour hour),
known as single-factor productivity. Multifactor productivity considers all
inputs and offers a more comprehensive perspective on productivity (e.g.,
labour, capital, material, and energy). Total factor productivity is another
name for multifactorial productivity. The input units are combined to
determine multifactor productivity, as seen here:
Productivity =

Managers can assess their performance with the help of productivity
measurements. However, the two metrics’ outcomes may differ. Measuring
only labour will produce inaccurate results if labour productivity increases
solely due to capital investments. Multifactor productivity is generally more
effective but more challenging. The multifactor productivity metrics give
better information on the trade-offs between factors, but significant
measurement issues remain.
1.11 PRODUCTIVITY VARIABLES
Labour: A healthier, more educated, and treated better labour will increase
labour’s contribution to production. A shortened workweek might be responsible for some of the growth. Historically, an increase in worker quality has been credited for around 10% of the annual increase in productivity. Three crucial factors can increase labour productivity:
• A productive workforce requires a certain level of education.
• Workforce dietary habits.
• The social costs of providing sanitation and transportation enable the
availability of labour. Countries’ productivity might be reduced by up to
20% due to illiteracy and poor diet.
Capital: Capital investment becomes increasingly expensive due to taxes and
inflation, raising the cost of capital. We can anticipate a decline in
productivity when the amount of money spent per employee falls. Utilising
labour instead of capital may minimise unemployment in the short term, but
it also reduces productivity and, as a result, wages over the long run. Capital

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investment is frequently a necessary but infrequently sufficient component in
the fight for higher productivity. The balance between labour and capital is
constantly shifting. The higher the interest rate, the more capital-intensive
projects that are “squeezed out”—or abandoned—because the possible return
on investment for a given risk has decreased. Managers modify their
investment strategies in response to variations in capital costs.
Management: Management is a production element and a resource for the
economy to boost productivity. Management must ensure that labour and
capital are employed effectively. More than half of the annual gain in
productivity is attributable to management. This enhancement encompasses
advancements made by the use of technology and knowledge. Technology
and knowledge use are essential in post-industrial society. As a result,
knowledge societies are another name for post-industrial society. Most of the
labour force has moved from manual labour to skilled and information-
processing jobs requiring continual education in knowledge societies.
Operations managers are accountable for investing in the necessary education
and training as they create organisations and workforces.
1.12 CUSTOMER BENEFITS PACKAGES (CBP)
A customer benefit package (CBP) is a properly defined combination of tangible (goods-content) and intangible (service-content) elements that the customer is aware of, pays for, makes use of, or experiences. In simple terms, it is a set of products and services that have been combined in a certain way to add value to clients and satisfy their desires and needs. The complete product offered to the customer comprises a core product and other goods and services.
Figure 1.2: CBP for Students Deciding on an Education Institute
These additional goods and services are called peripheral goods and services because they provide value to the main product but are not essential. Examples; of peripheral products and services in the cafe industry include meals for children and providing children’s play area inside. Figure 1.2

Medical
facility
Tuition
Reimbursement
facility

Canteen
facility

Vehicle parking
facility
Scholarship
opportunity

Quality education
&
Placement opportunity
Core/primary service
peripheral service

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presents CBP for students deciding on an education institute.
1.13 ETHICS AND SOCIAL RESPONSIBILITY
Changes and difficulties are constantly present for operations managers. The
mechanisms they use to transform resources into products and services are
intricate. Laws and values change together with the physical environment and
social climate. The opposing viewpoints of various stakeholders, including
customers, distributors, suppliers, owners, lenders, and employees, offer
several issues due to these changes. These stakeholders and different levels of
the government need to be constantly monitored, and deliberate responses are
needed.
Building effective systems while figuring out morally and socially acceptable
responses is not always straightforward. Efficiently creating and producing
high-quality, safe products is one of the numerous ethical difficulties
operations managers must face.
• Producing safe and well-quality goods in a more sustainable way
• Providing a secure work environment.
• Respecting community obligations.
While meeting the market’s needs, managers must carry out all of this
ethically and socially responsibly. Many ethical issues will be resolved if
operations managers have moral awareness and concentrate on boosting
productivity in a structure where all stakeholders have a voice. The firm
would use fewer resources, the workforce would be dedicated, the market
would be content, and the ethical climate will improve. This work highlights
several moral and socially conscientious steps operations managers can take
to address these issues successfully. Each chapter also includes an exercise
on an ethical dilemma.
1.14 ENVIRONMENTAL CONCERNS OF
OPERATIONS
In our pursuit of the insatiable thrust of “getting and begetting”, we have damaged our environment to such an extent that we are now facing the grim prospects of ozone layer puncture, the greenhouse effect of carbon-di-oxide emissions leading to global warming and suffocating level of atmospheric pollution in overpopulated cities like Delhi and Calcutta. In response to societal concerns about the alarming rise in corruption, most countries in the world have formulated statutes and legislated on the following types of pollutants:
• Solid Waste
• Liquid Waste
• Atmospheric Pollution
• Noise Pollution
The government of India has also enacted the following laws:

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An Overview
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The Hazard Wastes (Management & Handling) Rules, 1989, framed under
the Environment Protection Act 1986 for solid wastes.
• The Water (Prevention and Control) Act of 1974, amended in 1978,
1988 etc., for liquid wastes.
• The Air (Prevention and Control of Pollution) Act of 1981 relates to air
pollution.
There is no law at the national level on noise pollution. Local civic and police
authorities are empowered to ban the use of loudspeakers. Still, the regularity
with which these bans are shunned by religious organisations and for so-
called religious festivals, in general, is very annoying.
Also, there is no legislation on population explosion, and alleviation of
poverty, nor our national planners have succeeded in combating this problem.
Perhaps, the only salvation is to seek and secure a technological solution to
the baffling problems of population explosion and poverty eradication, the
world’s two biggest polluters.
1.15 OPERATIONS MANAGER IN INDIA
Whereas there is an urgent need to transform operations management by recruiting and positioning more and more multi-disciplinary freshers, the scene is not encouraging. There is an overabundance of technical specialties or graduates of the University of experience. As a result, their mindsets and culture are deeply embedded with conventional wisdom - a deep-seated paradigm that helps them reinforce, “this is the way things are done here”.
Most operations facilities are in a small town, away from the residential area,
and even in large cities and industrial areas. They are usually scattered
around the fringes. Working hours are longer (48 hours work as against the
general norm of 40 flours approximately in commercial offices), commuting
time and distances are longer, and there is more regimentation.
There is a higher premium on conformance, unity, and convergence. As a
result, although there is an urgent need to change in favour of qualified
engineers with MBA degrees, the profession does not seem to attract them.
They are armed with a postgraduate qualification. In management, engineers
are joining marketing, finance, personnel, information, administrative services
etc., in large numbers. It may not be wrong to say that the top layer of
engineering graduates are seeking pastures in functional areas other than
operations management or even migrating to other countries! Creativity
suffers until and unless society can attract and retain its best human assets in
operations management.
We have two models available in the current global scenario - Japanese, who
prioritised operations management and has innovated numerous management
systems to support and sustain excellence in all other functional areas. We
have the USA Model, which constantly reinforces a marketing-oriented
approach to business. A case can be easily made in favour of a synthesis for
India as this would ensure the best of both worlds. However, in no case

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Management:
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should we copy and adopt blindly. We must derive and develop our
management processes based on Indian ethos and values.
1.16 SUMMARY
The so-called production or manufacturing management has been renamed operations management. The system study of operations management encompasses the input-process output, where the conversion process adds value to raw materials by changing their shape, size or weight. Industrial managers effectively and efficiently utilise resources like men, machines, and materials—methods, management, etc. Operations management includes a vast and diverse array of bodies of knowledge, signifying that it is multi- disciplinary.
1.17 SELF-ASSESSMENT EXERCISES
a) Why have we changed the name from production to operations
management?
b) Take any service organization and draw up a schematic of its overall
process of inputs and outputs.
c) Take a typical agriculture, poultry or dairy farm, and draw up the
schematics of the overall process. What are the common features?
d) “We have entered the age of technology: henceforth, everything will be
knowledge-based.” Discuss the above in the context of increasing technology-based resources for achieving tasks.
e) Explain the complementary role of productivity and activity in
effectively utilising resources.
f) Can `space’ be construed as a resource? If so, how would you measure
its productivity?
g) What is the proactive management of environmental pollution?
h) What are the social issues involved in operations management?
i) What are the beneficial effects of industrial operations?
j) Justify that operations management is a multi-disciplinary function
1.18 FURTHER READINGS
a) T. Hill, Production7/Operations Management, Prentice Hall, London.
b) Nigel Slack, Stuart Chambers and Robert Johnson, Operations Management, Prentice Hall, London.
c) B. Mahadevan, Operations Management - Theory and Practice, Pearson.