Operations Management

QMZG526 (Lecture No. 1)

BITS Pilani PB Venkataraman
Mechanical Engineering
Pilani Campus
 BITS Pilani
Pilani Campus

Preface to the course & lectures

Course Structure

Course has three parts:

1. Operations Strategy

2. Management of processes in operations

3. Business analytics
The course hand-out will be adhered to most of the time
with some exceptions to the needs of the students
Some of the topics will require math hence students are
expected to refresh their math fundamentals such as
probability and statistics

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Lecture style

Expect diet-slides. Calories added in conversation

Concepts with cases and intriguing questions
Lectures commence with a catch-up and end with a re-
cap
Expect interactions

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 BITS Pilani
Pilani Campus

Introduction to Operations
Management
 Some Fundamentals
Operations include both goods and services
A restaurant is a good or a service?

Production is creation of goods or services

What is created in a Church Operations?

Operations management is transforming inputs into outputs through a

set of activities
What are the input and output for a private detective agency?

Operations is one of the three functions of any organization, the other

two being marketing and finance
Can you identify the operations function in a beach resort?

Operations permeate the entire Supply chain that includes raw material
supplier, sub-vendors, manufacturer, distributor and retailer
After sales service is an operations function or a marketing function? 6
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 Impact of OM on Business
Fisher Technologies must double its contribution (to fixed cost) and profit in order to fund its
growth plans else face a slow death against the market competition. They have three options:

Marketing Finance OM Option

Option Option
Current Increase sales Reduce finance Reduce
by 50% cost by 50% production cost
by 20%
Sales ($) 100,000 150,000 100,000 100,000
Direct cost ($) 80,000 120,000 80,000 64,000
Gross margin 20,000 30,000 20,000 36,000
($)
Finance cost ($) -6,000 -6,000 -3,000 -6,000
Subtotal ($) 14,000 24,000 17,000 30,000
Taxes @ 25% -3,500 -6,000 -4,250 -7,500
($)
Contribution ($) 10,500 18,000 12,750 22,500
Impact on
contribution +71% +21% +114%
Which is your choice? 7
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 Ten Strategic OM Decisions

1. Design of Goods & Services

e ?
2. Managing Quality
v ic
e r
3. Design Process & Capacity s -s
l e ! ! !
- s a n
4. Location Strategy r ti o
fte u c
a d
5. Layout Strategy is ro
re s p
he i
6. Human resources & Job Design
W e re
h
7. Supply chain management W
8. Inventory management

9. Scheduling

10. Maintenance
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OM Progression

Globalizatio
Cost Customizat
Quality n
- Labour ion
specialization - Lean
- Mass - Global
- Scientific - TQM, TPM customization supply chain
management - Malcom -
- Mass Baldridge
- ERP
Sustainability
production - SCM
- Ethics

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 Services/Goods An OM
Perspective
Service Goods
e ?
Intangible Tangible
v ic
e r
Consumed as it is produced Stocked and used / sold
s -s
Unique to every consumer Standardized foraall le ! !!
r- s i o n
High consumer interaction
f t
Limited / noteconsumer cinteraction
a d u
Fragmented Largelyisstandardizedro
re p
Knowledge based e
Automated
h is
Location non-specific re
WLocalizedeproduction
h
Difficult to objectively evaluate W
Objectively evaluated
No reselling Has a residual value

Why US outsources service business to India?

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 Productivity

Transformati
Labor on Goods
Capital Process Services
Material Management
Energy

Inputs Output

1. One hundred units produced by a man

2. Two hundred units produced by two men

3. Four hundred units produced by three men

Which is most productive?

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 Measures of Productivity

1. Single Factor Productivity, indicates the ratio of one resource (input)

to the goods and services produced (output)

Productivity = Units produced / Labor-hours used

2. Multifactor productivity, indicates the ratio of many or all resources

(inputs) to the goods and services produced (output)

Productivity = Output / (Labor + Material + Energy + Capital)

Compute multifactor productivity for an organization that produces 100

units consuming 10 labor-hours, 250 kg of raw material, 100 units of
electricity and an investment of $200!!!

Productivity = 100/(10+250+100+200) = 0.18?!#@&

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 The Measurement Problem

As an Operations Manager of a unit, you invest $20,000 in an

automation equipment to double the labor productivity, will
you consider this as a right decision?
What factors will you consider to assess?
If the unit is a Service Industry, will you have a different
assessment?
What if the unit is a restaurant with both production and
service?

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 New Challenges in OM

Globalization, due to enhanced telecommunication and

reducing transportation costs
Supply chain partnering, to meet the instant customer needs
and reducing product and service life-cycle
Sustainability, to reduce impact on environment

Rapid product development due to technology advancements

Mass customization to meet a fragmented market

Just-in-time performance to reduce inventory thus liberating

expensive capital
Knowledge society expecting dignity of labor
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 Quick Test

Productivity increases when, Productivity,

a. Input increases while output a. Can use many factors as the
remains the same numerator

b. Input decreases while output b. Is the same thing as

remains the same production

c. Output decreases while input c. Increases at about 0.5% an

remains the same year

d. Input and output increase d. Is dependent upon labor,

proportionately management and capital

e. Input increases at the same e. Is the same thing as

rate as output effectiveness

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 Quick Test

Single-factor Productivity, Multifactor Productivity,

a. Remains constant a. Remains constant

b. Is never constant b. Is never constant

c. Usually uses labor as a factor c. Usually uses substitutes as

d. Seldom uses labor as a factor common variables for the

e. Uses management as a factor factors of production

d. Seldom uses labor as a factor

e. Always uses management as a

factor

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 BITS Pilani
Pilani Campus

End of Lecture 1

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