FACULTY:

Dr. CH. VENKATAIAH

B.Tech, MBA, PhD
Professor (Operations, Quality & Project Management)
E-Mail: venkat.chitti@gitam.edu

Operations Management: Theory and Practice, 3e

 C
H
V

What is operations management?

Why is operations management important in all types of
organization?
What is the input-transformation-output process?
What is the process hierarchy?
How do operations processes have different
characteristics?
What are the activities of operations management?
 C
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V

What is operations management?

Operations management defined C
H
V

Operations management is the activity

of managing the resources which are
devoted to the production and delivery
of products and services.
 Slack et al’s model of operations C
H
management V

Transformed
resources
•Materials Direct
•Information
•Customers
Operations
Design Management Output
Input Develop
resource products Customers
s and services
Deliver
Transforming
resources
•Facilities
•Staff
 Operations management is fashionable! C
H
V
The consultancy services market - % of world
revenues of 40 largest consultancy firms

Financial Marketing/sales
6 2
Organizational
design
Operations and process
11
management
31
Benefits/Actuarial
16

IT strategy Corporate strategy

17 17
 Operations management at..... IKEA C
H
Design a store layout
V
Design elegant which gives smooth Ensure that the jobs
products which can be and effective flow of all staff encourage
flat-packed efficiently their contribution to
business success

Site stores of an Continually examine

appropriate size in and improve
the most effective operations practice
locations

Maintain
cleanliness and Monitor and enhance
safety of storage Arrange for fast quality of service to
area replenishment of customers
products
 C
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V

1. How is the IKEA operations design

different from that of most furniture retail
operations?
2. What do you think might be the major
problems in running an operation like
IKEA?
3. What do you identify as the ‘operations
function’ within IKEA? How is this
different from the ‘sales function’?
 They are all operations C
H
Back office Kitchen unit V
operation in a bank manufacturing
operation

Take-out / restaurant
operation
Retail operation
 Operations are everywhere C
H
V
The best way to start understanding the nature of
“Operations” is to look around you

Everything you can see around you (except the flesh and
blood) has been produced by an operation

Every service you consumed today (radio station, bus

service, lecture, etc.) has also been produced by an
operation

Operations Managers create everything you buy, sit on,

wear, eat, throw at people, and throw away
 C
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Engineering/ Product/service
technical Understanding of
the capabilities and development
function constraints of the function
operations process
Analysis of new
technology options Understanding of
process technology
needs New product and
Accounting service ideas
and finance Provision Understanding of the
of relevant capabilities and
function data
Operations constraints of the
Financial analysis function operations process
for performance
and decisions Market
requirements Marketing
Understanding of function
human resource needs Understanding Provision of systems for
of infrastructural design, planning and
Recruitment and system control, and improvement
development needs
and training
Human Information
resources technology
function (IT) function
 Prêt a Manger C
H
V

“High-end” sandwich and snack retailer

Use only “wholesome” ingredients

All shops have own kitchens which makes fresh
sandwiches every day
Fresh ingredients delivered early every morning

Same staff who serve you at lunch made the sandwiches

that morning
“We don’t work nights, we wear jeans, we party…”
 The three basic functions at Prêt a Manger C
H
V
Nutritional “mechanical”
and aesthetic design of
the sandwiches and
snacks

Design, location
and management
of stores and in-
store processes
Promotional and the network
activities, that supplies them
market
research, etc.
Operations management in all types of C
H
organization V
Automobile assembly factory -
Operations management uses machines to
efficiently assemble products that satisfy
current customer demands
 C
H
V
Physician (General
practitioner) - Operations
management uses
knowledge to effectively
diagnose conditions in
order to treat real and
perceived patient concerns
 C
H
Management consultant - V
Operations management uses
people to effectively create the
services that will address current
and potential client needs
Operations management C
H
in all types of organization V
 Disaster relief
charity -
Operations
management uses
ours and our
partners’
resources to
speedily provide
the supplies and
services that
relieve community
suffering
Operations management in all types of organization C
H
 Advertising agency - Operations V
management uses our staff’s
knowledge and experience to
creatively present ideas that delight
clients and address their real needs
Operations management uses………… C
H
machines to efficiently assemble products V

diagnose to treat real and

knowledge to effectively perceived patient
conditions
concerns

people to effectively create services that will

address current and
potential client
needs

ours and our to speedily provide supplies and

partners’ services that relieve
resources community suffering

our staff’s to creatively present ideas that delight

knowledge and clients and address
experience their real needs
 Operations management is changing
The business environment is
changing, for example……
 Increased cost-based competition
 Higher quality expectations
 Demands for better service
 More choice and variety
 Rapidly developing technologies
 Frequent new product/service
introduction
 Increased ethical sensitivity
 Environmental impacts are more
transparent
 More legal regulation
 Greater security awareness
C
H
Prompting operations responses, for V
example…….
Globalization of operations networking
Information-based technologies
Internet-based integration of operations
activities
Supply chain management
Customer relationship management
Flexible working patterns
Mass customization
Fast time-to-market methods
Lean process design
Environmentally sensitive design
Supplier ‘partnership’ and development
Failure analysis
Business recovery planning
 C
All operations are input-transformation- H
output processes V

Inputs Transformation process Outputs

 Operations input resources and outputs C
H
V
Transformed
resources
•Materials
•Information
•Customers

Input Output
Transformation process products Customers
resource
s and services

Transforming
resources
•Facilities
Outputs are products and services
•Staff that add value for customers
 Inputs and outputs at Prêt a Manger C
H
V
Transformed
resources
Ingredients
Packaging
Customers

Input Served and

resource satisfied Customers
s customers

Transformin
g resources

Equipment
Fittings
Staff
 Most operations produce products and C
services H
Pure products – V
Crude oil production
Outputs that are
Acme whistles exclusively tangible
Aluminium smelting

Specialist machine tool

production Mixture of products
Prèt a manger and services –Outputs
Restaurant that are a mixture of
the tangible and
IKEA
Information systems intangible
provider

Management consultancy
Pure services –
Mwagusi Safari
Outputs that are
Psychotherapy clinic Lodge
exclusively intangible
Operations can be analyzed at three levels C
H
V
Flow between operations

The level of the supply network

Flow between processes

The level of the operation

The level of the process

Flow between resources
 Operations can be analyzed at three levels
Flow between operations
Flow between processes
C
H
Operations management is V
concerned with the flow of
transformed resources
between operations,
processes, where….
External operations interact
with internal processes to form
the external supply network

Processes form an internal

“supply network” and
become each others
customers and suppliers
Flow between resources
 Example of analysis at three levels C
H
The supply network - Flow between operations V

Studios Promotion A programme

agency
and video
Casting Broadcasting supply network
agency company
Program /
video
Creative maker
agency

The operation - Flow between processes

The
programme
and video
operation
 C
Example of analysis at three levels H
The supply network - Flow between operations V

Programme
and video
maker

The operation - Flow between processes

Enginee
r-ing

Marketing Finance Production Post

and sales and unit productio
accounting n
Set and props
manufacture

The programme and video operation

 Example of analysis at three levels C
H
The supply network - Flow between operations V

Programme
and video
maker

The operation - Flow between processes

Set and props

manufacture

The ‘Set and Set

construction
props Set Set
manufacturing design Props finishing
’ process acquisition
The television and video company divided into two ‘end-C
H
to-end’ business processes, V V
End-to-end process for programme production
Engineering
Programme
marketing and Programme finance Programme Programme
sales and accounting production unit post
Programme and
Programme set and production
props manufacture
video maker
End-to-end process for music video production
Music video
finance and
Music video accounting
marketing and Music video Music video
sales production post
Music video set unit production
and props
manufacture
 C
All functions use processes to provide service
H
V

Human
resources

Operations
Marketing
Information
systems

Finance Sales
o r g a n iz a tio n uses
any
EveryAny
part oforganization
d u c e p ro du c ts o r
pr o
processes to s f o r e x te rn al or
vi c e
(usually) ser a l c u stomers
in ter n
(usually)
Differences within sectors are often greater than the C
H
differences between sector V
Financial services
An account Financial analyst
management centre at advising a client at an
a large retail bank investment bank

Furniture manufacturing

Mass production of Craft production of

kitchen units reproduction
‘antique’ furniture

Hotels

Value-for-money Lobby of an
hotel international
luxury hotel
 A typology of operations and processes C
H
The 4 vs............ V

Low Volume High

High

High Variety Low

High Variation in demand Low

High Visibility Low

 A typology of operations and processes C
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V
The implications of high and low Volume in operations and
processes.......

Implications Implications

•Low repetition
•Each staff Low Volume High •High repeatability
member performs
more of each task •Specialization
•Less •Capital intensive
systemization •Low unit costs
•High unit costs
 A typology of operations and processes C
H
V
The implications of high and low Variety in operations and
processes.......

Implications Implications

•Flexible •Well defined

•Complex High Variety High
Low •Routine
•Match customer •Standardized
needs •Regular
•High unit costs •Low unit costs
 A typology of operations and processes C
H
V
The implications of high and low Variation in operations and
processes.......

Implications Implications

•Changing •Stable
capacity Variation in
High High
Low •Routine
•Anticipation demand
•Predictable
•Flexibility
•High utilization
•In touch with
demand •Low unit costs
•High unit costs
 A typology of operations and processes C
H
V
The implications of high and low Visibility in operations and
processes.......

Implications Implications

•Short waiting •Time lag

tolerance High Visibility High
Low between
•Satisfaction production and
governed by consumption
customer •Standardization
perception •Low contact
•Customer contact skills
skills needed •High staff
•Received variety utilization
is high •Centralization
•High unit costs •Low unit costs
A 4 Vs profile of two operations C
H
V
Low Volume High

High Variety Low

High Variation Low

High Visibility Low

Important to understand how different operations are

positioned on the 4 V’s.
 Goods-service Continuum

Steel production Home remodeling Auto Repair Maid Service Teaching

Automobile fabrication Retail sales Appliance repair Manual car wash Lawn mowing

High percentage goods Low percentage goods

Low percentage service High percentage service
 Food Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
 Hospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
 Production of Goods vs. Delivery of Services

 Production of goods – tangible output

 Delivery of services – an act

 Service job categories

 Government
 Wholesale/retail

 Financial services

 Healthcare

 Personal services

 Business services

 Education
 Key Differences

1. Customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
 Manufacturing vs Service

Characteristic Manufacturing Service

Output Tangible Intangible
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Measurement of productivity Easy Difficult
Opportunity to correct High Low
quality problems
High
 Scope of Operations Management
 Operations Management includes:
 Forecasting
 Capacity planning

 Scheduling

 Managing inventories

 Assuring quality

 Motivating employees

 Deciding where to locate facilities

 And more . . .
 Types of Operations

Operations Examples
Goods Producing Farming, mining, construction,
manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites
 Responsibilities of Operations Management

Planning Organizing
– Capacity – Degree of centralization
– Location – Process selection
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling/Improving – Issuance of work orders
– Inventory – Job assignments
– Quality
– Costs
– Productivity
 Key Decisions of Operations Managers

 What
What resources/what amounts
 When
Needed/scheduled/ordered
 Where
Work to be done
 How
Designed
 Who
To do the work
 Historical Evolution of Operations Management

 Industrial revolution (1770’s)

 Scientific management (1911)
 Mass production
 Interchangeable parts

 Division of labor

 Human relations movement (1920-60)

 Decision models (1915, 1960-70’s)

 Influence of Japanese manufacturers

 Trends in Business

 Major trends
 The Internet, e-commerce, e-business
 Management technology

 Globalization

 Management of supply chains

 Agility
 Other Important Trends

 Ethical behavior
 Operations strategy

 Working with fewer resources

 Cost control and productivity

 Quality and process improvement

 Increased regulation and product liability

 Lean production
CHV

FACULTY:
Dr. CH. VENKATAIAH
B.Tech, MBA, PhD

Professor (Operations, Quality & Project Management)

E-Mail: venkat.chitti@gitam.edu

Operations Management: Theory and Practice, 3e

CHV

• To sensitize the notion of strategy and its relevance in

organizations.
• To Show how the strategy formulation exercise is
carried out.
• To Discuss in some detail commonly used elements of
an operations strategy and some of the decision
choices involved in the process.
• Bring to the attention of some of the emerging trends
in business and their implication for operations strategy
and operations management.

Operations Management: Theory and Practice, 3e

CHV

 No organization can tell exactly what will

happen in the future.
 But all organizations need strategic
direction and can benefit from some idea of
where they are heading and how they could
get there.
 Once the operations function has
understood its role in the business, it needs
to formulate a set of general principles
which will guide its decision making. This is
the operations strategy of the company.
54
 LOW-COST AIRLINES THAT WE HAVE IN
CHV THE COUNTRY

55
CHV
Differences??
 How the low-cost airlines are different
from a full fare airlines such as Indian
airlines???
 Which of the two airlines is better-
low-cost airline or full fare airline??
 ANSWER IS…
 Both are good in their own way provided
they design the service with a strategy
(or an objective) and deliver it flawlessly
to the chosen customer segment. 56
What is strategy?

Setting broad objectives that direct an enterprise towards its

overall goal

Planning the path (in general rather than specific terms) that
will achieve these goals

Stressing long-term rather than short-term objectives

Dealing with the total picture rather than stressing individual

activities

Being detached from, and above, the confusion and

distractions of day-to-day activities.
Strategic decisions

Strategic decisions are those decisions which: are

widespread in their effect on the organization to which the
strategy refers, define the position of the organization
relative to its environment, and move the organization
closer to its long-term goals.
‘Operations’ is not the same as ‘operational’

‘Operations’ are the resources that create products and

services.

‘Operational’ is the opposite of strategic, meaning day-to-

day and detailed.

So, one can examine both the operational and the

strategic aspects of operations.
CHV

• Strategic planning exercise

Enables an organization to respond to the market needs in the
most effective manner by :
– By aligning various resources and activities in the organization
– To deliver products & services that are likely to succeed in the
market
• Operations Strategy
– Is a process by which key operations decisions are made that are
consistent with the overall strategic objectives of a firm
– Decisions in the operations function are made on the basis of
the inputs from the overall corporate strategy
Corporate strategy is hierarchically the highest strategic plan of the organization,
which defines the corporate goals and ways of their achieving within
strategic management. A vision and mission are parts of the strategy. When
developing the strategy, numerous analytical techniques are used (PESTLE, SWOT,
VRIO)
Operations Management: Theory and Practice, 3e
CHV

• Competitive dynamics & expectations of customers change

with time
• Due to the changes in market place, competitive priorities
for an organization is likely to change
– While it was customary for people to book for a passenger car and
wait for a few months to get delivery of the car, today a
manufacturer of passenger cars cannot afford to make customers
wait that long
– Triveni Engineering, a manufacturer of Turbines faced a 40%
reduction in the price of turbines in the less than 3.5 million watts
category over the last six years
• Need a mechanism to systematically respond to these
changes in the most effective way
• Need to tune their operations to match with the
competitive priorities

Operations Management: Theory and Practice, 3e

CHV
• Step 1: Understanding the Competitive Dynamics at the
Marketplace 
• Step 2: Identifying Order-Qualifying & Order-Winning
Attributes 
• Step 3: Deciding on Strategic Options for Sustaining
Competitive Advantage
• Step 4: Matching the strategic options with resources,
constraints, values & objectives to arrive at the overall
Corporate Strategy
• Step 5: Developing an Operations Strategy on the basis of the
corporate strategy
• Step 6: Selecting appropriate options for configuring an
Operations systems & establishing relevant measures for
operational excellence
Operations Management: Theory and Practice, 3e
CHV

Competitive
Order winners
Dynamics at
Order Qualifiers
the marketplace

Strategic options for Generic Competitive Priorities

Sustaining Quality, Cost,
competitive advantage Delivery, Flexibility

Firm level
Strengths & Corporate Strategy
Weaknesses

Strategic decisions for Measures for

Operations Strategy
Operations System Operational Excellence

Operations Management: Theory and Practice, 3e

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• Order qualifying attributes are the set of attributes that

customers expect in the product or service they consider
for buying
• Order winning attributes are other attributes that have
the potential to sufficiently motivate the customer to buy
the product or service
• What constitutes order winning and order qualifying
might change from time to time
– During the early 1980’s providing superior quality products was
an order winning attribute. However, in the 1990’s quality
became an order qualifying attribute as customers began to
expect high levels of quality
– Order winning attributes include efficient consumer response,
speed, variety and convenience

Operations Management: Theory and Practice, 3e

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Operations Management: Theory and Practice, 3e

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• Provide critical linkage between order winning and order

qualifying attributes and choices made in operations
• Help organisations evaluate how well the operations system
is responding to the requirements at the marketplace
• Serve a useful purpose in comparing performances
amongst competitors and for benchmarking
• Four generic options are useful for developing measures for
operational excellence; this includes Quality, Cost, Delivery
and Flexibility

Operations Management: Theory and Practice, 3e

CHV
Quality
First Pass Yield
Quality Costs
Defects per Million Opportunities
Number of suggestions per employee
Process Capability Indices
Delivery
Lead time for order fulfillment
Procurement and Manufacturing Lead time
On time delivery for supplies
Schedule adherence
Indirect Measures
Indirect-labour to Direct-labour ratio
Ratio of Lead time to work content
Process rate to sales rate ratio
Average training time per employee
Operations Management: Theory and Practice, 3e
Cost
Average days of inventory (No. of inventory turns)
Manufacturing cost as percent of sales
Procurement costs, total cost of ownership
Value of import substitution, cost reduction
Target cost reduction efforts
Flexibility
Number of models introduced
New product development time
Breadth and depth of the product and service offerings
Process flexibility
 
Number of suggestions per employee
Non-value added content in processes
No. of certified deliveries
Delivery quote for customized products and services
CHV

Operations Management: Theory and Practice, 3e

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• Product portfolio pertains to decisions on

– what products the organization wants to produce
– the number of variations in each product line
– the extent of customization offered to customers
• Product portfolio as a strategic option
– Wide product portfolio: Overall strategic objective is to provide highly
differentiated set of products and services to the customer
– Narrow product portfolio: Overall strategic objective is one of cost
leadership
• Examples in Services & Manufacturing
– Air travel from Bangalore to Delhi: Indigo and Jet Airways differ vastly
in terms of the service offered
– Computer manufacturers, Dell and Lenova: Overall strategic objective
of Dell appears to be one of providing highly differentiated products,
Lenova appears to emphasize on robust and reliable computing power

Operations Management: Theory and Practice, 3e

CHV

• Three types of flow happen on account of process

choices:
– Continuous streamlined flow
– Intermittent or batch flow
– Jumbled flow
• Choice of process will be consistent with product
portfolio decisions
– A manufacturer emphasizing on production volumes, fewer varieties
and less cost will make process choices pertaining to continuous
streamlined flow (Hero Honda)
– An organization wishing to satisfy an objective of providing wide range
of products to the customers will adopt batch/intermittent flow type
– the need to provide a very large variety and practically a production
volume of one or few will adopt jumbled flow (BHEL)

Operations Management: Theory and Practice, 3e

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• Supply chain refers to the network of entities supplying

components and raw material to an organization as well as
those distributing the finished goods of an organization to the
customers through alternative channels
• Designing an appropriate supply chain calls for a better
understanding of the product profile for which the supply chain
is configured
• Two types of supply chains can be configured:
– Efficient supply chain: objective is cost optimization and better
utilization of resources employed in supply chain operations; typically
used in the case of functional products (machine tools, engineered
equipments)
– Responsive supply chain: the key objective is to develop a capability to
respond fast to the market requirements; typically used in the case of
innovative products (iPhone, Fancy Garments, trendy Electronics Goods)

Operations Management: Theory and Practice, 3e

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• Technological advancements in recent years have given new

opportunities for creating competitive advantage for firms
– Case of Asian Paints utilizing technological advancements
for mixing of basic pigments to distribute paints in large
varieties of colours and in large assortment of sizes
• Using new technology options for manufacturing processes,
organizations can
– react faster to customer needs
– manage a wide portfolio of product offerings and
– yet maintain high levels of productivity
• Organizations making a strategic choice to operate in the
manufacture of mid-volume, mid-variety products could utilize
new technology
Operations Management: Theory and Practice, 3e
CHV

• Increased machine utilisation

• Scheduling flexibility: Permits an organisation to have flexibility in
scheduling thereby enabling the organisation to react to changes fast
• Ease of engineering challenges: Changes in engineering design and
process plans can be easily accommodated by use of technology
based manufacturing and process design.
• Ease of expansion: Provides volume flexibility to the organisation,
making it much easier to expand in response to a growing market
• Reduced manufacturing lead time
• Lower in-process inventory: Several of the above benefits directly
translate to lower work in process inventory and reduced cost of
manufacturing

Operations Management: Theory and Practice, 3e

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• Capacity is defined as:

– maximum number of units of goods that can be produced
per unit time in the case of manufacturing system
– the maximum number of service offerings that can be
made per unit time in the case of a service system
• Capacity decision influences the cost of goods & services
offered in three ways:
– Accrued cost advantage due to economies of scale
– Ability to spread fixed costs over a larger capacity
– additional cost advantages in procuring other factors of
production

Operations Management: Theory and Practice, 3e

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• WCM firms perform very well in all the four

parameters of Quality, Cost, Delivery and Flexibility
at the same time using better operations
management practices
• The new operations management tools that form the
core building blocks of WCM are:
– Just in Time (JIT)
– Total Quality Management (TQM)
– Total Productive Maintenance (TPM)
– Employee Involvement (EI)
– Simplicity

Operations Management: Theory and Practice, 3e

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Weak companies are plagued by Trade-off obstacles

WCMs have gained an upper hand over the trade-off obstacles
Operations Management: Theory and Practice, 3e 76
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QUESTIONS H
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COMMENTS

THANK YOU…