Production and Operations

management
Unit 1 –
production Function
❖ Concepts
❖ Production as an organisation function, its
importance and scope
❖ Operations as a system
❖ 5ps & 9ms
❖ Types of production
❖ Strategic operations management
 MANAGEMENT

Management is
the Art and Science of 
continuous process of Planning, Organizing, Leading & Controlling
external as well as internal activities; 
so as to achieve the organizational objective, 
by effectively and efficiently utilizing the resources.
 OPERATIONS

Operations:
The part of a business organization that is responsible for
producing Goods or Services.
❖ Goods are tangible consumable articles that are offered by
business organizations to the customers to get value in
return.
❖ They have physical characteristics, i.e. shape, appearance, size,
weight, etc.
❖ When the buyer purchases goods and pays the price, the
ownership is passed from seller to buyer.
Examples:
 SERVICE

❖ Service is a type of economic activity that is intangible and

are offered by business organizations to the customers to
get value in return.
❖ It is not stored and does not result in ownership.
❖ It can only be delivered at a particular moment and hence
they are perishable in nature.
❖ They lack physical identity. Services cannot be distinguished
from the service provider. The point of sale is the basis for
consumption of services. (A service is consumed at the
point of sale.)
❖ Services cannot be owned but can only be utilized.
❖ You can understand this by an example: If you buy a ticket
for watching a movie at the multiplex, it doesn’t mean that
you purchased the multiplex, but you have paid the price of
availing services.
 The majority of service jobs fall into following categories:
Professional services (e.g., financial, health care, legal).
Mass services (e.g., utilities).
Service shops (e.g., tailoring, appliance repair, car wash, automobile
/machinery   repair & maintenance).
Personal care (e.g., beauty salon, spa, barbershop).
Government (e.g., Medicare, mail, social services, police, fire rescue
etc)
Education (e.g., schools, universities).
SERVICE

Food service (e.g., restaurants, fast foods, catering, bakeries).

Services within organizations (e.g., Payroll, Accounting, Maintenance,
IT,
HR, Janitorial).
Retailing, Wholesaling and Distribution.
Transportation (e.g., Road, Rail, Air, Water etc; Mass/Individual transit;
GoodsTransit).
Travel and hospitality (e.g., travel bureaus, hotels, resorts etc)
Residential services (eg: lawn care, painting, general repair, interior
design etc).
Information Services (Internet, Communication etc)
Arts, Entertainment & Recreation
Waste Management
 DEVELOPMENT OF MIS – Building a System

4 Ps In Marketing Mix 7 Ps In Marketing Mix

- Physical Evidence
- People
- Process
Quality of the product is easily Quality of the product is not easy
measured to measure
GOODS-SERVICE COMBINATION IS A CONTINUUM

The goods–service combination is a continuum; and often occur

jointly.
For example, having the oil changed in a car is a service, but the oil
that is delivered is a good. Similarly, house painting is a
service, but the paint is a good.

The goods–service continuum can range from primarily goods, with

little service; to primarily service, with few goods.

(Following Figure in next slide illustrates this continuum.)

Because there are relatively few pure goods or pure services,

companies usually sell product packages, which are a combination
of goods and services.

There are elements of both goods production and service delivery in

these product packages. This makes managing operations more
interesting and also more challenging.
GOODS-SERVICE COMBINATION IS A CONTINUUM

Goods Services

Surgery, Teaching

Songwriting, Software Development

Computer Repair, Restaurant Meal

Home Remodeling, Retail Sales

Automobile Assembly, Steelmaking

 OPERATIONS MANAGEMENT
Operations Management:
The management of processes
that transform inputs into Tangible (Goods) and
Intangible (Services) outputs;
so as to provide desired utility to the customer
while meeting the organizational objective.
OM includes :
The design of goods and/or services;
The processes that create them;
The day-to-day management of those processes;
Resource Management; and
The continual improvement of these goods, services
as well as processes.
 OPERATIONS MANAGEMENT
Scope:
Scope of production management is limited to the
production of goods.
As compared to Production Management; Operations
Management has a larger scope to look after:
❖ The product design;
❖ The process design;
❖ Quality & Quantity of products;
❖ Location of facilities;
❖ Resource planning;
❖ Warehouse management;
❖ Transportation;
❖ Inventory management;
❖ Maintenance management;
❖ Waste management etc.
Source : Operations Management; Collier, Evans, Ganguly;
Cengage Learning
 OPERATIONS MANAGEMENT As a System
Value-
Added
Inputs Transformation/ Outputs
• Land Conversion • Goods
• Labor • Services
Process
• Capital
• Information

Feedback

Feedback Control Feedback

❖ The creation of goods or services involves transforming or converting inputs

into outputs.
❖ A key aspect of operations management is process management. A process
consists of one or more actions that transform inputs into outputs.
❖ Various inputs such as capital, labor, and information are used to create goods
or services using one or more transformation processes (e.g., Storing,
Transporting, Repairing etc).
❖ To ensure that the desired outputs are obtained, an organization takes
measurements at various points in the transformation process (feedback ) and
then compares them with previously established standards to determine
whether corrective action is needed (Control ).
 OPERATIONS MANAGEMENT As a System

❖ Below table provides some specific illustrations of the transformation

process.

Inputs Processing Output

Food Processor Raw vegetables Cleaning Canned

Metal sheets Making cans Vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
Doctors,nurses
Hospital Examination
Hospital Surgery Treated
Medical supplies Patients
Equipment Monitoring
Laboratories MedicationTherapy
 OPERATIONS as a Value addition process
The essence of the operations function is to add value during the
transformation process.
CUSTOMER VALUE or CUSTOMER PERCEIVED VALUE:
It is the customer’s evaluation of the difference between all the
benefits (tangible and intangible) and all the costs of a market offering,
relative to those of competing offers.
To provide any product or service, one has to use resources like
money, materials, labor, time, information. etc
The goal is to provide the greatest amount of value to customers
while utilizing the least amount of your resources.

Value-added is the term used to describe the difference between

the cost of inputs and the value or price of outputs.
Value addition makes customers willing to pay.
If a business is not providing benefits that the customer would be
willing to pay for, then the business is not providing value to the
customer.
OPERATIONS as a Value addition process
 Historical Evolution of OM

Craft Production
Mass Production (Industrial Revolution)
❖ Interchangeable parts
❖ Division of labor
❖ Assembly Line
Scientific Management
Human Relations Movement
Decision Models and Management Science
Influence of Japanese Manufacturers
Influence of Information and Communication Technology in OM
A) CRAFT PRODUCTION
 A) CRAFT PRODUCTION
A) Craft production –
The process of manufacturing by hand with or without the aid of
tools; and the final product will be unique.
The workers involved are highly skilled (and if tools are used, they
will be simple) & produce small quantities of customized goods.

Prior to Industrial Revolution; which began in the 1770s in England;

goods were produced in small shops by craftsmen and their
apprentices.

Under that system, it was common for one person to be

responsible for making a product; such as a horse-drawn wagon or a
piece of furniture; from start to finish. Only simple tools were
available; unlike the machines in use today.

Also referred to as Cottage System, as the production took place

in homes or cottages where craftsmen directed apprentices in
performing handwork on products.
 A) CRAFT PRODUCTION

Craft production had major shortcomings.

Because products were made by skilled craftsmen who custom fitted
parts, production was slow and costly.
When parts failed, the replacements also had to be custom made,
which was also slow and costly.
Another shortcoming was that production costs did not decrease as
volume increased; there were no Economies Of Scale, which
would have provided a major incentive for companies to expand.
Instead, many small companies emerged, each with its own set of
standards.
B) Mass Production
 B) Mass Production
B) Mass production :
A system of production in which large volumes of similar
and standardized goods are produced by low-skilled or
semiskilled workers using highly specialized, and often
costly equipment; especially on assembly lines.
Key concept that launched mass production was
interchangeable parts, attributed to Eli Whitney,
an American inventor who applied the concept to
assembling muskets in the late 1700s.

The basis for interchangeable parts was to standardize parts.

This meant that parts did not have to be custom fitted, as
they were in craft production. The standardized parts could
also be used for replacement parts. The result was a
tremendous decrease in assembly time and cost. This is
accomplished by standardizing the gauges used to measure
parts during production and by using newly developed
processes to produce uniform parts.
 B) Mass Production

B) Mass production (Continued….Division of Labor):

Another concept that evolved in Mass Production

was the division of labor, which Adam Smith
wrote about in The Wealth of Nations (1776).

Division of labor means that an operation, such as

assembling an automobile, is divided up into a
series of many small tasks, and individual workers
are assigned to one of those tasks.

Unlike craft production, where each worker was

responsible for doing many tasks, and thus required
skill, with division of labor the tasks were so
narrow that virtually no skill was required.

Labor specialization refers to the number of

tasks that a worker performs and usually performs
only a narrow range of activities.
 B) Mass Production
Advantages of Labor specialization
High production rates because of repetitive work
Low skill requirements
Can be trained quickly
Disadvantages of Labor specialization
High turnover, absenteeism, tardiness, union grievances, job
related sickness etc.
Low production quality because:
❖ Motivation level might be low to produce high quality
❖ Since workers make only a small part of a product, no
single worker is accountable for the quality of the whole
product.
 B) Mass Production
B) Mass production (Continued….Assembly Line) :
An assembly line is a manufacturing process (also called
a  progressive assembly) in which parts (usually interchangeable
parts) are added in sequence until the final assembly is produced;
as the semi-finished assembly moves from workstation to
workstation.
By mechanically moving the parts to the assembly work and
moving the semi-finished assembly from work station to work
station, a finished product can be assembled faster and with less
labor than by having workers carry parts to a stationary piece for
assembly.
 B) Mass Production
B) Mass production (Assembly Line Contd….) :
Assembly lines are common methods of assembling complex items
such as automobiles and other transportation equipment,
household appliances and electronic goods.
The motion of workers is minimized to the extent possible. All parts
or assemblies are handled either by conveyors or motorized vehicles
such as fork lifts, or gravity, with no manual trucking.
The assemblies pass by on a conveyor, or if they are heavy, hung
from an overhead crane or monorail.
In a factory for a complex product, rather than one assembly line,
there may be many auxiliary assembly lines feeding sub-assemblies (i.e.
car engines or seats) to a backbone "main" assembly line.
A diagram of a typical mass-production factory looks more like the
skeleton of a fish than a single line.
B) Mass production (Assembly Line Contd….) :
B) Mass production (Assembly Line Contd….) :
Summary of Historical Evolution - OM
 Types of Production System

PRODUCTION SYSTEM

CONTINUOUS INTERMITTENT
PRODUCTION SYSTEM PRODUCTION SYSTEM

FLOW PRODUCTION BATCH PRODUCTION

MASS PRODUCTION JOB PRODUCTION

PROJECTS
 Types of Production System

1) Continuous production is a production method used

to manufacture, produce, or process materials without
interruption.

Continuous production is called a continuous

process because the materials, either dry bulk or fluids
that are being processed are continuously in motion,
undergoing chemical reactions or subject to mechanical or
heat treatment.
 Types of Production System
1 A) Flow production involves a continuous movement of
items through the production process. This means that
when one task is finished the next task must start
immediately. Therefore, the time taken on each task must be
the same.
Flow Production usually means operating 24 hours per day,
seven days per week with infrequent maintenance shutdowns,
such as semi-annual or annual.
Some chemical plants can operate for more than one or two
years without a shutdown. Blast furnaces can run four to ten
years without stopping.
Example : Power Plant, Oil Refinery etc
 Types of Production System
1 B) Mass Production : Pl refer to earlier slides
2) Intermittent production :
Here, the flow of production is intermittent (irregular).
In other words, the flow of production is not continuous.
In this system, large varieties of products are produced,
but on a small scale compared to continuous production
system.
These products are of different sizes. The design of these
products goes on changing. It keeps changing according to
the design and size of the product. Therefore, this system
is very flexible.
Capable of producing several different products on the
same production line. After an initial production run has
been made with one product, a second product will be
produced, and so on. Thus it allows maximizing
productivity on the production line.
 Types of Production System
2 A) Batch production is a technique used in manufacturing,
in which the object in question is created stage by stage
over a series of workstations, and different batches of
products are made.

Batch production is most common in bakeries and in the

manufacture of sports shoes, pharmaceutical ingredients,
purifying water, inks, paints, adhesives manufacturing of
drugs and pharmaceuticals, medium and heavy machineries,
etc.
 Types of Production System

Advantages of Batch production:

Reduces initial capital outlay, compared to continuous
production (the cost of setting up the machines) because a
single production line can be used to produce
several products.
Useful for small businesses that cannot afford to run
continuous production lines.
Also useful for a factory that makes seasonal items,
products for which it is difficult to forecast demand, a trial
run for production, or products that have a high profit
margin.
Disadvantages of Batch production:
Inefficiencies are associated with batch production, as
equipment must be stopped, re-configured and its output
tested before the next batch can be produced.
 Types of Production System

2 B) Job production, sometimes called jobbing or one-off

production, involves producing custom work, such as a one-off
product for a specific customer or a small batch of work in
quantities usually less than those of mass-market products.
Job production can be classical craft production by small firms or
that is done by large firms.
Normally takes a lot of skill; requires times & effort for
completion.
The end result will be predominantly expensive
Fabrication shops and machine shops whose work is primarily of
the job production type are often called job shops.
The associated people or corporations are sometimes
called jobbers.
Examples include: Services given by repair shops, tailoring shops,
manufacturer of special machine tools, building/repairing a
computer for a specific customer, making flower arrangements/
wedding cake for a specific wedding etc.
Types of Production System
 Types of Production System

2 C) Project:
Is a set of interrelated tasks to be executed over a
fixed period and within certain cost and other
limitations.
Projects are temporary activities undertaken to
create a unique product, service or result under
time constraints.
Choice of Production System affects
numerous activities/functions
 5 P’s of Operations Management

The division of production management functions in

to 5 P’s will provide useful conceptual framework for
the various activities performed by production/
operations manager.

The 5 Ps are :
1) Product,
2) Plant,
3) Processes,
4) Programme and
5) People.
 5 Ps of Operations Management
1. The Product:
A good, idea, method, information, object or service
created as a result of a process and serves a need or
satisfies a want.
A product should also yield enough profit to justify its
continued existence.
It has a combination of tangible and intangible
attributes (benefits, features, functions, uses) that a
seller offers a buyer for purchase.

For example a seller of a

toothbrush not only offers the
physical product but also the
idea that the consumer will be
improving the health of their
teeth.
 5 Ps of Operations Management
2. The Plant:
is an industrial site, usually consisting of buildings and
machinery, or more commonly a complex having several
buildings, where workers manufacture goods or operate
machines processing one product into another.
The plant accounts for major investment (fixed assets)
The plant should match the needs of the product; market, the
worker and the organization.
The plant is concerned with;
1) Design and layout of building and offices
2) Reliability & Maintenance of equipments
3) Safety of operations
4) The financial constraint
 5 Ps of Operations Management
3. The Process:

Defined as a designed sequence of activities for changing the

properties or attributes of an object or system.
It is required to select the best method from a number of
alternative methods of creating a product; which attains the
objectives.
In deciding about the best process it is necessary to examine
the following factors:
1) Available capacity
2) Manpower skills available
3) Type of production
4) Layout of plant
5) Safety
6) Maintenance required
7) Manufacturing costs
 5 Ps of Operations Management
4. The Programme:
Defined as a planned series of events
The programme here refers to the timetable of production.
Thus, the programme prepares schedules for:
1) Purchasing
2) Transforming
3) Maintenance
4) Cash
5) Storage and transport
 5 Ps of Operations Management
5. The People:
The personnel of a business or organization, regarded
as a significant asset in terms of skills and abilities.
The people vary in their attitudes, skill and expectations
from the work.
Thus, to make best use of available human resource, it is
required to have a good match between people and their
allotted jobs which should lead to job satisfaction.
The production manager should be involved in issues like:
1) Wages/salary administration
2) Conditions of work/safety
3) Motivation
4) Training of employees
9 Ms of Operations Management

1) Man Power
2) Money 
3) Materials 
4) Machinery 
5) Methods 
6) Measurements
7) Minutes/Time Management
8) Markets/Marketing 
9) Motivation/Morale
 9 Ms of Operations Management
1. Man Power
The most important resource.
Hiring/Developing and Retaining the right manpower is one
of the major challenges in current competitive world.
Untrained Manpower can cause damage to goods and
services.
 9 Ms of Operations Management

2. Money
The driving force of any business.
It’s a medium of exchange generally accepted as
payment for goods/services and repayments of
debts.
Coined from the name of ancient Rome Goddess
Juno Moneta (Temple of Juno Moneta in ancient
Rome, where Roman coins were first minted.
Managing the inflow &
outflow of cash (Cash flow) in a business
is of great importance.
 9 Ms of Operations Management
3. Materials
The inputs into the production.
Can be a finished product in its own right or an
unprocessed raw material.
 9 Ms of Operations Management
4. Machines
The aide to simplification of work.
Any device that uses energy to perform some activity
for transforming inputs into outputs.
Prior to the birth of the Industrial Revolution,
manufacturing was done largely through the use of
human hands aided by simple hand tools.
 9 Ms of Operations Management
5. Methods
The technology/techniques of production.
A set of procedures and instructions is known as method.
Methods are systems, policies, procedures & processes
seamlessly put together for the transformation of a raw
material to goods & services.
❖ GAAP is a method for evaluating financial performance
❖ ISO 9000 is a method for evaluating Quality performance
 9 Ms of Operations Management
6. Measurement
The gauge of effectiveness.
The score-keeping & in-process continuous monitoring on
results achieved with due feedback to keep on-course; on
time; for individual employees, group of employees and
entire organisation.
Laws and regulations specifying standards of conduct and
control that must be complied by organisations
Types of Controls:
1. Preventive Control
2. Detective Control
3. Reactive Control
 9 Ms of Operations Management
7. Minutes / Time Management
Optimum Time, with highest quality
A set of principles, practices, skills, tools and systems
that work together to have more value out of time
with the aim of improving the quality of work.
Skills associated are: planning, prioritizing, goal setting, 
scheduling and managing workload.
 9 Ms of Operations Management

POSEC Method
Prioritize your time.
Inherent in
P
the acronym
is Abraham
Organizing things you have to
Maslow’s
O accomplish regularly
Hierarchy of
Needs which
suggests that by Streamlining things you may not
attending like to do but must do
S
to one’s personal
responsibilities Economizing things you should/
first, an individual like to do, but not pressingly
is better E urgent
positioned to
Contributing by paying attention to
shoulder few remaining things that make a 
collective C difference
responsibilities.
 9 Ms of Operations Management
8. Market/Marketing
Market refers to the group of consumers or organizations that is
interested in the product, has the resources to purchase the
product, and is permitted by law and other regulations to acquire
the product.
The sum total of all the buyers and sellers in the area or region
under consideration.
is a medium that allows buyers and sellers of a specific good or
service to interact in order to facilitate an exchange. It may either
be a physical marketplace where people come together to
exchange goods and services in person, as in a bazaar or shopping
center, or a virtual market wherein buyers and sellers do not
physically interact, as in an online market.
Marketing is a set of processes for
exploring, creating, communicating and
delivering value; different from
competitors; to satisfy the needs of target
market and build strong customer
relationships in order to capture value
from customers in return.
 9 Ms of Operations Management
9. Motivation/Morale
Strategic Operations Management : Competitiveness

Competitiveness:
Relates to the effectiveness of an organization to meet the needs and
wants of customers relative to others that offer similar goods or
services.
Business organizations compete through some combination of their
marketing and operations functions.
Marketing influences competitiveness in several ways; mainly:
i. Identifying consumer want & needs,
ii. Pricing, and
iii. Advertising & promotion;
iv. Combined with Segmentation, Targetting and Positioning, etc
Operations influence competitiveness through following interrelated
aspects:
i. Product & Service design
ii. Cost & Productivity
iii. Location
iv. Quality
Strategic Operations Management : Competitiveness

v. Quick Response
Time to Market-quickly bringing new or improved
products or services to the market.
To quickly deliver existing products and services to a
customer after they are ordered, and
To quickly handling customer complaints.
vi. Flexibility
the ability to respond to changes. (Agility)
Changes might relate to:
❖ alterations in design features of a product or service,
or
❖ to the volume demanded by customers, or
❖ the mix of products or services offered by an
organization.
vii. Inventory Management
viii. Supply Chain Management
Strategic Operations Management : Competitiveness

ix. Service
After-sales activities such as delivery, setup, warranty
work & technical support.
Extra attention while work is in progress, such as
courtesy, keeping the customer informed and attention
to details.
Service Quality
People - competent and motivated, they can provide a
distinct competitive edge by their skills and the ideas
they create.
Customer Care
 Strategic Operations Management :
Mission, Goal, Strategy, Tactics

The overall
relationship that
exists from the
mission down to
actual operations is
hierarchical.
 Strategic Operations Management :
Mission, Goal, Strategy, Tactics
Mission :
The reason for the existence of an organization. It is expressed in its
Mission Statement.
Mission Statement :
States the purpose of an organization.
It should answer the question “What business are we in?”
serves as the basis for organizational goals
Goal :
Provide more details and describe scope of the mission.
Serve as a foundation for the development of organizational
strategies.
Mission & Goals often relate to how an organization wants to be
perceived by the general public, and by its employees, suppliers,
and customers.
Strategies :
Plans for achieving organizational goals.
Should be differentiated from competitors.
Goals are destinations and strategies are the roadmaps for
reaching the destinations.
 Strategic Operations Management :
Mission, Goal, Strategy, Tactics

Strategies :
Strategies related to entire organisation are Organisational
Strategies.
This lead to Functional Strategies which relate to each of the
functional areas of the organization.
The functional strategies should support the overall strategies of
the organization, just as the organizational strategies should
support the goals and mission of the organization.
Tactics :
Methods and actions used to accomplish strategies.
They are more specific and detailed than strategies and they
provide guidance and direction for carrying out actual
operations.
Tactics are the “how to” part of the process (e.g., how to reach
the destination, following the strategy roadmap) and operations
as the actual “doing” part of the process.
 Strategic Operations Management :
Core Competencies

Core competencies :
The special attributes or abilities that give an organization a
competitive edge.
It is formulated by assessing the organisation’s own strengths and
weaknesses.
By taking advantage of core competencies, organisation should
exceed the competitor by gaining an edge through excelling in
one or more dimensions.
To formulate an effective strategy, managers must take into
account the core competencies of the organizations and also
scan the environment.(SWOT Analysis).
Strengths and Weaknesses have an internal focus while Threats
and Opportunities have an external focus.
 Strategic Management

Strategic Management:
Strategic management is the continuous planning, monitoring,
analysis and assessment of all resources that is necessary for an
organization to meet its goals and objectives.
 Strategic Operations Management

Operations Strategy:
The approach that deals primarily with the operations functions
of the organisation, consistent with the overall organisational
strategy.
Operations strategy relates to products, processes, methods,
operating resources, quality, costs, lead times, and scheduling.
Operations strategy must be consistent with the overall strategy
of the organization, and with the other functional units of the
organization.
Strategic Operations Management
Strategic Operations Management :
Examples
 Elements of Operations Strategy

1) Positioning the production system

2) Product/Service plans

3) Outsourcing plans

4) Process & Technology plans

5) Strategic allocation of resources; and

6) Facility plans : Capacity, Location and Layout

 Elements of Operations Strategy
1) Positioning the production system, means :
a) selecting the type of product design,
b) type of production processing system, and
c) type of finished goods inventory policy for each product group in
the business strategy.

1a) Two basic types of product design are : custom and standard.
Custom products are designed according to the needs of
individual customers, thus resulting in many different products,
each being produced in small batches.
Flexibility and on-time delivery are usually needed for this type
of product. E.g.: A luxury cruise ship, super computer etc.
The choice of standard products results in only a few product
models that are typically produced either continuously or in very
large batches.
Fast delivery and low production costs are the usual
characteristics. E.g.: TV Set, Packed foods etc.
 Elements of Operations Strategy
1b) Two classic types of production processes are product focused
and process focused.
In Product focused production (also known as line flow
production, production lines, assembly lines etc), the machines and
workers needed to produce a particular product are grouped
together.
Its suitable for a few standard products, high volume and are not
flexible resulting difficult and expensive to change to other product
designs / production volumes.
Process focused production is best suited when producing many
unique products, each with relatively low volume. Each production
department performs only one type of process.
Its relatively easy and less expensive to bring changes in products
produced and in production volumes, thus offering flexibility.
Process layout Product layout
 Elements of Operations Strategy

1c) There are two types of finished goods inventory policies :

produce to-stock and produce-to-order.
In the former policy, products are produced ahead of time and
placed in inventory.
When orders are received, the products are shipped
immediately from inventory.
In produce-to-order policy, production starts once the orders
are received.
If fast delivery of products is important, then produce-to-stock
is preferred and if customised orders are important then
produce-to-order is preferred.

Once the type of product design, production process and

finished goods inventory policy had been decided, much of
the structure required for the production system has been
established.
 2) Product/Service Plans
An important part of business strategy is to plan, design, develop and
introduce new products and services.
Elements of Operations Strategy

During product design, detailed characteristics/features of each

product is established.
Each product characteristics/features directly affects how the product
is produced.
How the product is made determines the design of production
system, which is the heart of operations strategy.
With the current trend poised towards shortened product life cycles, it
marks three effects in operations strategy:
The amount of spending on product design & development is
increasing.
Production system design needs to be continuously changed with the
changing product models. This necessitates the need for flexible
production systems
New product designs need to be launched in market quickly. This
necessitates the use of Computer Aided Design & Manufacturing
(CAD/CAM) in operations strategy to aid faster designing & re-
designing of products and launching production quickly.
 3) Outsourcing plans
Refers to hiring out or subcontracting some of the work that a
company needs to do..
Elements of Operations Strategy

Outsourcing has many advantages and disadvantages.

At one extreme, a company could design a new product, purchase all
the raw materials, process all subcomponents, sub / major assemblies
leading to finished products.
At the other extreme, a company could design a new product then
outsource all the production to one or more sub-contractors and
distribute in its own brand name.
The company could even outsource the technical design work and the
distribution function too.
Now major trends in outsourcing is in outsourcing HR functions such
as recruitment, payroll; billing & order processing; developing &
maintaining web site; facility maintenance, computer maintenance etc.
If outsourcing is less, company needs to invest more in equipments,
facility, more employees thus a sensitive issue to labor unions and
overall leading to higher costs & even leading to lose in their core
competency. However it has advantages like more control over quality,
inherent technology & IPRs.
 Elements of Operations Strategy

4) Process and Technology plans

An important part of operations strategy is to determine

how products/service will be produced and which technology
will be utilized for such planned production.
The technology is advancing rapidly in present ages,
necessitating to contently update with the changes and might
even require to change the production process.
Adapting high-technology equipments and automated
technology is important to capture global market shares.
 Elements of Operations Strategy

5) Strategic Allocation of Resources

All businesses operates with limited resources like capital, capacity,
R&D labs, manpower, engineers, machines/equipments, materials
etc.
Allocation of these limited resources throws a major constraint
during strategic decisions made by operations managers.
6) Facility plans: Capacity, Location and Layout
How to provide the long range capacity to produce the products/
service for a firm is a critical part of setting the operations strategy.
Enormous capital investment is required to provide necessary land,
production capacity including facilities/machinery, necessary
specialized technology etc.
Such decisions involve a great risks.
The End