Introduction to OM

Krishnendu Shaw
IIT (ISM) Dhanbad
 Operations Management

• 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
A systems Perspective

Forecasting

PROCESSING
Labour Process & Purchasing & Goods
Inventory

OUTPUT
Product
INPUT

Design Control
Material

Capital Operations Material & Services

Planning & Capacity
Control Planning

Feedback
Quality Maintenance Process
Management Management Improvement
 Back office Kitchen unit
operation in a manufacturing
bank operation

They are all

operations

Take-out /
Retail restaurant
operation operation
Operations in the Organization
• The operations function is key to an organization because it
produces the goods and services, but it is neither the only, nor
necessarily the most important, function. The three core
functions of any organization are:
• The marketing function – responsible for communicating
the organization’s product and services to its markets in
order to generate customer request for goods and services.

• The product/service development function – responsible

for creating new and modified products and services in
order to generate future customers requests.

• The operations functions – responsible for fulfilling

customer requests for service throughout the production
and delivery of goods and services.
The support functions of any organization are:
• The accounting and finance function – provides the
information to help economic decision making and
manages the financial resources of the organization

• The human resources function - recruits and develops the

organization’s staff as well as looking after their welfare.

In practice, functional names, boundaries and responsibilities do

vary significantly between organizations.
 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 Management (OM)

• OM is a systematic approach
– using scientific tools & techniques and solution
methodologies to analyze problems

• Focusing on keeping costs to the minimum

• Developing a set of measures to assess performance

of the system
What Do Operations Managers Do?
• Forecasting
• Supply chain management
• Facility layout and design
• Technology selection
• Quality management
• Purchasing
• Resource and capacity management
• Process design
• Service design
• Scheduling
Operations and Supply Chain
Processes
Process Steps for Men’s Nylon
Supplex Parkas
 Goods versus Services
G S
o er
v
o ic
d e
s s

Tangible Intangible
Less interaction Interaction with customer
required
with customers
Inherently heterogeneous
Often homogeneous Perishable/time dependent
Not perishable – can Defined and evaluated as a
be inventoried package of features
The Service – Product Continuum
Product Domination Service Domination

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

Passenger Cars, Machine Tools

Facilities Maintenance, Turnkey Project Execution …

Travel and Entertainment Sectors

Health Care System (Hospitals)

Restaurants, Fitness Centres

Professional Consulting, Legal Services

 Historical Development of
Operations and Supply Chain
Management
Manufacturing strategy developed
Late 1970s
Just-in-time (JIT) production
Early 1980s pioneered by the Japanese
Mid 1980s Service quality and productivity
Total quality management Early 1990s
(TQM) and Quality Six-sigma quality
certification programs Mid 1990s Supply chain
Business process management (SCM)
Late 1990s
reengineering (BPR)
Electronic commerce
Early 2000s Service science

Mid 2010s
Business analytics
 Operations Management
Functions
Design Issues Operational Control Issues
Product & Service Design Forecasting the Demand
Process Design Operations Planning & Control
Quality Management Supply Chain Management
Location & Layout of Facilities Maintenance Management
Capacity Planning 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
 Lower prices
(or higher profits)

Faster customer Cost

On-time
response Depend- deliveries
Speed
ability

Quality Flexibility
Error-free products Wider variety
and services More customisation
More innovation
Cope with volume
fluctuations
20
 Consequences of the Supply and Demand mismatch are Severe

Air travel Emergency room Retailing Iron ore plant Pacemakers

Supply Seats on specific Medical service Consumer Iron ore Medical equipment
flight electronics

Demand Travel for specific Urgent need for Consumers buying a Steel mills Heart surgeon
time and destination medical service new video system requires pacemaker
at exact time and
location

Supply Empty seat Doctors, nurses, and High inventory costs; Prices fall Pacemaker sits in
exceeds infrastructure are few inventory turns inventory
demand under-utilized

Demand Overbooking; Crowding and delays Foregone profit Prices rise Foregone profit
exceeds customer has to take in the ER, potential opportunity; (typically not
supply different flight (profit diversion of consumer associated with
loss) ambulances dissatisfaction medical risk)

Actions to Dynamic pricing; Staffing to predicted Forecasting; quick If prices fall too low, Distribution system
match supply booking policies demand; priorities response production facility is holding pacemakers
and demand shut down at various locations

Managerial About 30% of all Delays in treatment or Per unit inventory Prices are so Most products
importance seats fly empty; a 1- transfer have been costs for consumer competitive that the (valued $20k) spend
2% increase in seat linked to death; electronics retailing primary emphasis is 4-5 months waiting in
utilization makes commonly exceed on reducing the a trunk of a sales
difference between net profits. cost of supply person before being
profits and losses used
 Particular Examples of Demand-Supply Mismatch

• Compaq estimated that it lost $0.5 B to $1 B in sales in 1995 because laptops were
not available when and where needed

• In 02-03 flu season, 12 M of 95 M doses of flu vaccines were not used in the US. For
03-04 season, 83=95-12 M doses were produced. In 03-04 season, there were
widespread vaccine shortages causing flu-related deaths.

• British Airways had seat utilization of 70.3% in the early 2000s. If it could increase
utilization by 0.33% (by flying one more person on a 300 seat aircraft), it would
create additional revenues equal to quarter 2 profits of 2001, which was $65 M.

• In 2000, Playstation 2 of Sony were backordered by several weeks due to high

demand. But X-Box of Microsoft did not sell well and was discounted by $100 per
unit.
– Discounting is a symptom of a problem in operations rather than being a usual
practice.
 A Typology of Operations
IMPLICATIONS IMPLICATIONS
Low repetition High repeatability
Each staff member performs Low Volume High Specialization
more of job Systemization
Less systemization Capital intensive
High unit costs Low unit cost

Well defined
Flexible
Routine
Complex High Variety Low Standardized
Match customer needs
Regular
High unit cost
Low unit costs

Changing capacity Stable

Anticipation Routine
Flexibility High Variation in demand Low Predictable
In touch with demand High utilization
High unit cost Low unit costs

Time lag between production

Short waiting tolerance and consumption
Satisfaction governed by Standardized
customer perception
Low contact skills
Customer contact skills
needed High Visibility Low High staff utilization
Received variety is high Centralization
High unit cost Low unit costs
Thank You