Unit 1

Management of Operations
(Goods ‘n’ Services)
An Introduction
 Session Objectives
• Explain what operations management is and why it is important.
• Understand the linkages and implications of Operations on Sales,
Marketing, Finance, HRM, etc.
• Understand the key principles of Operations Management
• Define the planning activities associated with managing operations
across the supply chain.
• Discuss and understand OM Challenges and Emerging Trends
 Apple designs cool products.
But its enormous profit margins 2 to 4 times more than
other hardware companies – come it large part from its
priority and focus on Operations Management
It Takes More than Cool Products to
Make Apple Great

Unified Strategy Sync with

• Eliminate Demand
complexity and • Track demand near
cost time and adjust
Supplier production plans
Relations
• Improve processes

Volume
• Capitalizes on
volume across
supply chain
 Operations Management at its best:
Apple’s Success Story
PRODUCT
DESIGN/MIX

VOLUME LOW COST

SUPPLY

DEMAND
SUPPLIERS VISIBILITY

“Operations expertise is as big an asset for Apple as product

innovation or marketing.”
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Scope of Operations Management
 South West Airlines
Operations Strategy
Aligning OM with the company’s competitive strategy
On-time Service
Low Fare
Flights Quality
 On-time Service
Low Fare
Flights Quality

10-Minute Turnaround, Fuel Hedging, Organisation Culture

 Operations Management
A systems Perspective

Forecasting

PROCESSING
Labour Process & Purchasing & Goods

OUTPUT
Product Inventory
INPUT
Design Control
Material

Capital Operations Material & Services

Planning & Capacity
Control Planning

Feedback
Quality Maintenance Process
Management Management Improvement
 Operations Function
Linkages with other functions
Operations Support Layer
Customer Layer
Marketing Maintenance Quality

Ultimate Dealers
Customer Retailers Costing Planning Tooling

Material IT Design IE

Core Operations Layer

Testing Assembly
Layer of
Innovation Fabrication Machining
Innovation Supplier Layer
Strategy Service Delivery system
Sub-contractors Suppliers
Research &
Development
Other service providers
 Operations
A key functional area in an Organization

Finance

Operations

Marketing HRM
Why Operations Management?
‘It Matters to People’
Why study OM? – Part I

• OM involves using resources and managing

organizational relationships
• When done well, effective OM can:
– Use resources more efficiently
– Improve business processes effectiveness
– Improve relationships between business entities
– Help meet strategic goals
– Increase customer service
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Delivering Nearly $1 Billion in Customer Savings and Economic Benefits to Hawaii

customer-first approach which has resulted in

residential bills that are approximately 30
percent lower than the national average and
leading service reliability to customers of 99.98
percent
self-service kiosks, online and mobile - prevents long waiting
in queues and improves leisure time
 Customer-Friendly Process

Opening an Savings Bank Account with ICICI without visiting branch

No need to wait for suitable leisure time
No need to avail leave/permission during office hours
No need to travel distances
No need to wait / stand in queue/contact banker
From Anywhere, At Anytime (even during weekends)
Speedy Emergency Operations can Save a Life
Responsible Business Operations Leads to
Responsible
Business
Operations
Means
 Operations Management (OM):
Common Challenges

• Lowering costs
• Improving quality & efficiency
• Enhancing product desirability
• Aligning OM with the
company’s competitive
strategy
• Evolving with the needs of
customers, competition, and
technology

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Emerging Trends
Ford is using 3D printing for car parts
3D-Printed Sneakers Gaining Traction
Virtual Tooling brings ‘flexible manufacturing’ in the body shops of Ford
FMS enabling meeting of variety with efficiency
 Uber Eats delivers ice cream by
drones to delighted Singaporeans
 Drones to help Amazon, Uber Eats, etc., in fast delivery
Evolving with the needs of customers, competition and technology
Audi is testing two types of drones – one which can carry items such as
steering wheels around, another that can be used to offer camera-
based repair and maintenance work.
Self-Service Kiosks in Airports, Hotels, Healthcare, Banks, etc.,
Evolving with the needs of customers, competition and technology
 Operations Management (OM)
is everywhere – Part II

Schools Construction
Restaurants
Hospitality Banks

Military

Agriculture Transportation
Health Sport Teams
Care Municipalities

Government
Manufacturers Services Not-for-Profit Entertainment
Retail
Organizations
Operations Management (OM):
A Basic Definition

Operations
Management (OM): is
the management of
processes used to
design, supply,
produce, and deliver
valuable goods and
services to customers

1–42
 Operations Management
Definition

• An operations system is defined as one in which

– several activities are performed
– to transform a set of inputs into useful output
– using a transformation process
• Operations Management is
– a systematic approach to
– address all the issues pertaining to
– the transformation process that converts some inputs into
output that are useful, and
– could fetch revenue to the operations system
 Operations Management (OM)
Salient Aspects
• OM is a systematic approach
– using scientific tools & techniques and solution methodologies to
analyze problems
• OM is about addressing several issues
– varying in terms of time horizon, nature of decisions
• Transformation processes are central to Operations
• Focusing on keeping costs to the minimum
• Developing a set of measures to assess performance of
the system
Important Decisions in OM:
What?

• What types of activities and what types of goods or

services are to be delivered by the system?
• What product features do our intended customers
care about?
• What activities and resources are needed, and how
should they be developed, allocated, and controlled?

1–45
 Important Decisions in OM:
How?

• How is the good or service to be designed, made,

and delivered?
• How much should our transformation process be
able to deliver (and under what conditions)?
• How should we measure and assess performance?

1–46
 Important Decisions in OM:
When? Where? Who?

• When should products be made, activities be

carried out, services be delivered, or
capacities/facilities come on line?
• Where should certain activities be done, and
• Who should do them: suppliers, partners, or the
firm? is the good or service to be designed, made,
and delivered?

1–47
Foundational Concepts in
Supply Chain Operations Management
Sustainable Operations
Unilever’s SCM – Sustainable SCM

• Raw material  Manufacturing 

Distribution  Use  Disposal
• Core Idea for Sustainable SCM
– Collaboration with Suppliers
– Collaboration with distributors
– Collaboration with Customers
 Environmental impact in SCM
1. Usage by consumer 3. Disposal
2. Raw material 4. Distribution
procurement 5. Manufacturing
 Why study Operations Management?
‘Matters to People’ (Summary)
• Improve effectiveness of business
firms/NPOs/Govt.,in providing goods and services
• Impacts sustainability – environment, fair-
treatment of people, safety
• Quality of Life around the world
• Personal Life is affected
– Speed of service improves leisure time, can save a life
– Affects disposable income, health, outlook on life
– Ability to deliver/fulfill promises made
 What Research Says
• Operationally excellent organisations outperform their
competitors (financially and other terms)
– 50 % higher net profit margins
– 20 % low (SG & A) sales, general & administration expenses
– 12 % lower average inventories
– 30% less working capital expenses
– Twice the return on assets (RoA)
– Twice the return on equity (RoE)
– 44 % higher economic value added

“Does Becoming a Top Supply Chain Company Really Pay Off?....”

Supply Chain Management Review, March 2010, PP 14-21
Differences in Goods and Services Operations
 Manufacturing & Service
Similarities & Differences
Manufacturing Organizations Service Organizations
Differences
Physical durable product Intangible, perishable product
Output can be inventoried Output can’t be inventoried
Low customer contact High customer contact
Long response time Short response time
Regional, national, Intl. markets Local markets
Large facilities Small facilities
Capital intensive Labour intensive

Quality easily measured Quality not easily measured

Similarities
Is concerned about quality, productivity & timely response to its customers
Must make choices about capacity, location, layout
Has suppliers to deal with
Has to plan its operations, schedules and resources
Balance capacity with demand by a careful choice of resources
Has to make an estimate of demand
 Service Operations
Salient Features
• Tangibility: Services are performances and actions rather
than objects, therefore having poor tangibility
• Heterogeneity: High variability in the operation system
performance
• Simultaneous Production & Consumption: Degree of
customer contact is very high
• Perishability: Services cannot be inventoried as in the
case of manufactured products.
 Operations
Goods Vs. Service
• Goods- Source-Make-Deliver Operations
– Use inventories to smooth out imbalances between production
capacity and customer demand
– Quality standards can be established and controlled
– Processes are separated
– Transformation/Processes applied to material
• Service Operations
– Producer of service should maintain enough capacity to meet
demand during peak periods; Otherwise postpone the demand
(backlog)
– Quality control is more difficult for services, may have to survey
customers to gauge their levels of satisfaction
– Processes are not separated
– Transformation/Processes applied to information or customer
The Service – Product Continuum
Product Domination Service Domination

Materials, Assets, Products… Services, People, Interactions…

Passenger Cars, Machine Tools

Facilities Maintenance, Turnkey Project Execution …

Logistics, Tourism, Travel and Entertainment Sectors

Health Care System (Hospitals)

Restaurants, Fitness Centres

Professional Consulting, Legal Services

‘Pure Goods’ or ‘Pure services’ are rare
>>>>>Total Product Experience
 Operations Management in Services
Process flow diagram for passport application processing

Source: Ravichandran, N and D. Bahuguna (2006), “Rule Bound Government Agency to Customer Centric Service Facility: Can
Indian Passport Offices make the leap?” IIMB Management Review, 18(1), 59 – 66.
 From OM to SCM

The evolution from focusing on OM to focusing

on SCM has primarily been driven by:
– Technology and Infrastructure
– Barriers to trade
– Core capabilities
– Collaborative networks

1–76
 From OM to SCM:
Technology and Infrastructure
Advances in communication, computers,
and transportation:
• Faster more extensive connectivity
• Strengthening of partnerships with better
communication
• Faster, more reliable, and more economical
shipping
• Growing transportation infrastructure in
developing and emerging

1–77
 From OM to SCM:
Barriers to Trade
Shifting economies,
governmental control and
societal expectations:
•Economic decentralization in
favor of free market systems
•Growing potential for improved
product costs and quality
•Increased complexity and
exposure to risk
1–78
 From OM to SCM:
Core Capabilities
Unique sets of skills that confer competitive
advantages to a firm, because rival firms cannot
easily duplicate them:
• Concentration on few skills and areas of knowledge
that make the firm distinct and competitive
• Ability to focus the firm’s efforts in what it does
best, thus producing greater product value through
higher quality and greater efficiencies
• Increased interdependence along the supply chain

1–79
 From OM to SCM:
Collaborative Networks
Greater influence of, and reliance upon,
business partners:
• Firms becoming more reliant on their
suppliers
• Product value improvements are achieved
through better coordination and collaboration

1–80
 OM Partners Across the Supply Chain

Operations managers interact with three

important groups that are external to the
firm:
•Customers, who use or consume output
•Suppliers, who provide inputs
•Stakeholders, who have an interest in
organizational well being and performance
 OM Partners Across the Supply Chain:
Customers
• Individuals or organizations that use or
consume products
• Customers can be:
– Internal

– Intermediate

– Final
 OM Partners Across the Supply Chain:
Suppliers
Individuals or organizations that provide inputs
to operational processes. Suppliers can be:
• Upstream product suppliers
• Downstream product suppliers
• Resource and technology suppliers
• Aftermarket suppliers
 SC Partners Across the Supply Chain:
Stakeholders
• People other than customers and suppliers who
have an interest in the well-being of a firm.
• Stakeholders include:
– Employees
– Unions
– Local community and social groups
– Government
– Financial investors
1–84
 Functional Activities that Connect
Operations Managers

• Customer Management: mediation/interfacing

between customers and the order processing
and fulfillment side of the operation

• Supply Management: processes to identify,

acquire and administer inputs

• Logistics Management: movement of materials

and information within, into and out of the firm

1–87
 Functional Activities that Connect
Operations Managers: Customers Mgmt.

Relevant Functional groups:

• Distribution
• Sales
• Order fulfillment
• Customer service

1–88
 Functional Activities that Connect
Operations Managers: Supply Mgmt.

Relevant Functional groups:

• Purchasing
• Sourcing
• Procurement

1–89
 Functional Activities that Connect
Operations Managers: Logistics Mgmt.

Relevant Functional groups:

• Transportation/traffic management
• Warehousing
• Materials managers

1–90
 Levels of Planning

• Strategic Planning: long term decisions

defining the objectives and capabilities
• Tactical Planning: intermediate term decisions
defining how capacity is used to meet
demand
• Operational Planning: short term priorities and
schedules for resource allocation
Planning activities associated with managing operations
 Operations Management
Functions

Design Issues Operational Control Issues

Product & Service Design
Process Design
Quality Management
Location & Layout of Facilities
Capacity Planning
Forecasting the Demand
Operations Planning & Control
Supply Chain Management
Maintenance Management
Continuous Improvement of
Operations

• Design issues in Operations Management lay down overall

constraints under which the operations system functions

• Operational Control issues focuses on optimizing the use of

available resources in the short-term while delivering goods and
services as per plan under the given design constraints
 Operations Management
Challenges

• Competitive Pressures due to economic reforms

– Falling Prices
• The on road price of a Hyundai Santro has not changed much
between 2000 and 2014
– Shrinking Delivery Quote
• Textile Manufacturers are expected to cut their lead time from
order placement to final delivery down to 2 months
– Build-to-Order Requirements
• Need systems that allows customers to self-configure, customize
and visualize their own version of products & services
 Operations Management
Challenges

• Growing customer expectations

– Examples: Tariff plans and options provided by mobile
operators, options in passenger car
– Customers tend to demand more and refine their
expectations
– Manufacturing & Service organizations must learn to
respond to these expectations
– Need to develop capabilities to bring newer products and
services faster and yet profitably
 Operations Management
Challenges
• Today’s businesses are constantly challenged by the
rapid technological advancements
– Example 1: ATMs & Internet Banking. Customers need not visit a bank branch.
Drafts and cheques replaced with electronic payment gateways & fund
transfer mechanisms.
– Example 2: Buying a train ticket. By visiting a Web site like
http://www.irctc.co.in/, a customer can accomplish all tasks pertaining to
ticket booking and cancellation at leisure.
– Example 3: Procurement of goods & services. A manufacturing organization
can procure goods & services by organizing a reverse auction on the Internet.
In 3 to 4 hours, the best price for a component and the supplier willing to
provide the component at a desired quality can be located.
– Example 4: New Product Development. A team of design personnel from
across different geographical locations can participate in new product
development using technological tools.
 Operations Management
Challenges
• Environmental Issues
– When Government of India announced a scheme for special economic zones
(SEZs), it generated controversies and social concerns.
– Growing industrialization raises concerns regarding the depletion of natural
resources and the waste generated from production systems and end-of-life
products.
– Growing urbanization creates societal problems arising out of scarcity of
available resources and generation of solid wastes.
– Consumption of energy and water in countries like India is on the rise. Such
a situation requires better practices and newer methods of addressing these
requirements using better operational practices.
– Increasingly, firms are under pressure to take responsibility of restoring,
sustaining, and expanding the planet’s ecosystem instead of merely
exploiting it.
• OM practices must address environmental concerns in order
to ensure a sustainable world
 Operations Management
Implications & Priorities

• Relate operations system to Customer/ Market

• Acquire Capabilities to tolerate product proliferation
• Develop systems and procedures that promote
learning
• Develop Green Manufacturing Practices
Operations Management: Trends & Issues

• Operations Management is a systematic approach

to address all issues pertaining to the
transformation process that converts some inputs
into useful output
• Globally, India is emerging as an important
manufacturing base.
• Several recent studies point to emerging
opportunities for Indian manufacturing to grow and
attain a global presence.
• From an operations management perspective, the
notion of a ‘pure product’ and ‘pure service’ is just
the two ends of the spectrum.
– In reality, a vast majority of operations share a
continuum of products and services.
Operations Management: Trends & Issues
Chapter Highlights…
• Despite several important differences between
products & services, from an OM perspective there
are several similarities between the two
• Decision context in operations management can be
broadly classified as
– Design and operations control issues
– Long term and short term decisions
• Some of the challenges faced by operation firms
include
– Need to address increased competition due to economic
reforms
– Addressing the growing expectations of the customers
– Rapid technological advances
– Emerging environmental concerns
 Introduction to Managing Operations
Across the Supply Chain: Summary - I
1. Operations helps deliver superior products to a firm's targeted
customers.
2. Operations manages the effective and efficient transformation
of inputs into outputs.
3. Operations management partners include customers,
suppliers, stakeholders and other business functions within
the firm.
4. Operations management decisions determine firm capabilities
and success
5. Operations management focuses on managing processes,
SCM is managing flow and relationships
6. Operations management is dynamic, it is constantly evolving