Session 2

Production & Operations
Management
Session-2
Program: FT MBA Core

Trim: III
Instructor: Dr. Abhinav Sharma
What?
Tesla built thousands of supercharging statins around US that can charge car in 30
minutes
Why?
This will enable people to mass adopt Tesla cars.
To?
Mark the start of a new era in highway transportation.
Production & Operations Management, Dr. A.K. Sharma, SBM, NMIMS Mumbai 2
Mission: To accelerate the world’s transition to sustainable energy.
To accomplish: Design products that are far superior to their fossil fuel
counterparts in every way, source and manufacture them as sustainable as possible
and sell as many of them as we can.
Goal: Build and deliver 20 million vehicles a year by 2030.
Competitiveness
Competitiveness is a major factor in determining whether a company prospers,
barely gets by, or fails.
Formal definition: How effectively an organization meets the wants and needs of
customers relative to others that offer similar goods or services
Competitiveness
Marketing influences it via:
• Identifying consumer wants and/or needs
• Pricing and quality
• Advertising and promotion
Competitiveness
Operations influences it via:
1. Product and service design
2. Cost
3. Location
4. Quality
5. Quick response
6. Flexibility
7. Inventory management
8. Supply chain management
9. Service
10. Managers and workers
Competitive dimensions
Price
• Make the product or deliver the service cheap
Quality
• Make a great product or delivery a great service
Delivery Speed
• Make the product or deliver the service quickly
Delivery Reliability
• Deliver it when promised
Coping with Changes in Demand

• Change its volume
Flexibility and New-Product Introduction Speed

• Change it
Operations Strategy
• Operations strategy is concerned with setting broad policies and plans for using
the resources of a firm.
• Major focus to the operations strategy is operations effectiveness.
• Operations effectiveness: performing activities in a manner that best implements
strategic priorities at a minimum cost.
• Operations effectiveness relates to core business processes needed to run the
business.
• Operations strategy must be designed to anticipate future needs.
Operations Strategy
Why do organizations fail?
1. Neglecting operations strategy.
2. Failing to take advantage of strengths and opportunities and/or failing to
recognize competitive threats
3. Too much emphasis on short-term financial performance at the expense of R&D
4. Too much emphasis in product and service design and not enough on process
design and improvement
5. Neglecting investments in capital and human resources
6. Failing to establish good internal communications and cooperation
7. Failing to consider customer wants and needs
Mission, Goals, and Strategies
• Mission
 The reason for an organization’s existence
 It answers the question “What business are we in?”
• Goals
 Provide detail and the scope of the mission. Goals can be viewed as organizational destinations
• Strategy
 A plan for achieving organizational goals. It serves as a roadmap for reaching the organizational
destinations
 The organizational strategy guides the organization by providing direction for, and alignment of, the goals
and strategies of the functional units
 The organizational strategy is a major success/failure factor
Tactics, Operations, and Core Competency
• Tactics
 The methods and actions taken to accomplish
strategies
 The “how to” part of the process
• Operations
 The actual “doing” part of the process
• Core Competencies: The special attributes or

abilities that give an organization a competitive
edge
 To be effective core competencies and strategies
need to be aligned
Some Examples
Strategy Formulation
• Effective strategy formulation requires taking into account:

 Core competencies
 Environmental scanning (SWOT)
• Successful strategy formulation also requires taking into account:

 Order qualifiers: Characteristics that customers perceive as minimum standards of
acceptability for a product or service to be considered as a potential for purchase
 Order winners: Characteristics of an organization’s goods or services that cause it to
be perceived as better than the competition
Operations Strategy
• The organization strategy provides the overall direction for the organization. It is
broad in scope, covering the entire organization.
• Operations strategy is narrower in scope, dealing primarily with the operations

aspect of the organization.
• Operations strategy relates to products, processes, methods, operating resources,

quality, costs, lead times, and scheduling.
Operations Strategy
Risks against some specific operations strategies
Comparison of mission, organization strategy, and operations strategy
Quality Based and Time Based Strategy
Traditional strategies of business organizations have tended to emphasize on cost

minimization or product differentiation. Quality based strategy and time based
strategy are also embraced.
Quality-based strategy: Strategy that focuses on quality in all phases of an

organization. Pursuit of such a strategy is rooted in a number of factors:
• Trying to overcome a poor quality reputation
• Desire to maintain a quality image
• A desire to catch up with the competition
• A part of a cost reduction strategy

Quality Based and Time Based Strategy
Time-based strategies: Strategies that focus on the reduction of time needed to accomplish
tasks. It is believed that by reducing time, costs are lower, quality is higher, productivity
is higher, time-to-market is faster, and customer service is improved
Areas where organisations have achieved time reductions:

• Planning time
• Product/service design time
• Processing time
• Changeover time
• Delivery time
• Response time for complaints
Agile Operations
A strategic approach for competitive advantage that emphasizes the use of

flexibility to adapt and prosper in an environment of change. Involves the blending
of several core competencies:
• Cost
• Quality
• Reliability
• Flexibility
Productivity
• A measure of the effective use of resources, usually expressed as the ratio of output
to input
• Productivity measures are useful for
Tracking an operating unit’s performance over time
Judging the performance of single operation, department, organization,
• Productivity is especially important for organization that use a strategy of low cost.
• Productivity ratios are used for: workforce requirement, scheduling, financial

analysis
• Productivity tells how competitive a company is!

Productivity
• Productivity measures are based on:

Single input (partial productivity)
Multiple inputs (multifactor productivity)
All inputs (total productivity)
• Note: Partial productivity measures are often of greatest use.
• Take care of units too.
Productivity
Productivity Measures:
Output
Productivity=
Input
Output Ouput Output

Partial Measures ; ;
Single Input Labor Capital
Output Ouput Output

Multifactor Measures ; ;
Multiple Inputs Labor + Machine Labor + Capital + Energy

Goods or services produced
Total Measure
All inputs used to produce them

 Production & Operations Management, Dr. A.K. Sharma, SBM, NMIMS Mumbai 23
Productivity
Some examples of partial productivity measures:
Productivity
1. 4 workers installed 720 square yards of carpeting in 8 hours. What is the
productivity?
2. A machine produced 70 pieces in two hours. However, 2 pieces were unusable.
3. Total output: 7040 units
Labor = $1000
Material = $520
Overhead = $2000
Productivity
4.
Units produced = 5,000
Standard price = $30/unit
Labor input = 500 hours
Cost of labor = $25/hour
Cost of materials = $5,000
Cost of overhead = 2x labor cost
Productivity Growth
Current productivity - Previous productivity
Productivity Growth = 100%
Previous productivity

Service Sector Productivity
• Service sector productivity is difficult to measure and manage
• A useful measure related to productivity is process yield
• Where products are involved
ratio of output of good product to the quantity of raw material input.
• Where services are involved, process yield measurement is often dependent on the
particular process:
ratio of cars rented to cars available for a given day
ratio of student acceptances to the total number of students approved for admission.
ratio of people subscribed to the total number of people contacted
Factors Affecting Productivity
Methods
Capital Quality
Technology Management
Some other factors:

1. Standardizing 9. Shortage of tech-savvy
2. Quality difference workers
10. Layoffs
3. Use of internet
11. Labor turnover
4. Computer virus 12. Design of workspace
5. Searching for lost or misplaced items 13. Incentive plans
6. Scrap rates
7. New workers
8. Safety
How to improve productivity?
1. Develop productivity measures for all operations
2. Determine critical (bottleneck) operations
3. Develop methods for productivity improvements

4. Establish reasonable goals
5. Make it clear that management supports and encourages productivity
improvement
6. Measure and publicize improvements
“Is productivity same as efficiency?”
OCED Productivity Manual
K-capital, L-labor, E-energy, M-materials, and S-purchased services
Test!
Organisation Strategy How can be achieved/Implication for OM
Low Price Requires low variation in products/services and a high-volume, steady flow of
goods results in maximum use of resources through the system. Standardized work,
material, and inventory requirements.
High quality Entails higher initial cost for product and service design, and process design, and
more emphasis on assuring supplier quality.
Quick response Requires flexibility, extra capacity, and higher levels of some inventory items.
Newness/innovation Entails large investment in research and development for new or improved
products and services plus the need to adapt operations and supply processes to suit
new products or services.
Product or service Requires high variation in resource and more emphasis on product and service
variety design; higher worker skills needed, cost estimation more difficult; scheduling
more complex; quality assurance more involved; inventory management more
complex; and matching supply to demand more difficult.
Sustainability Affects location planning, product and service design, process design, outsourcing
decisions, returns policies, and waste management.

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Production & Operations

Program: FT MBA Core

Coping with Changes in Demand

Flexibility and New-Product Introduction Speed

 It answers the question “What business are we in?”

• Core Competencies: The special attributes or

• Effective strategy formulation requires taking into account:

 Environmental scanning (SWOT)

• Successful strategy formulation also requires taking into account:

• Operations strategy is narrower in scope, dealing primarily with the operations

• Operations strategy relates to products, processes, methods, operating resources,

Risks against some specific operations strategies

Traditional strategies of business organizations have tended to emphasize on cost

Quality-based strategy: Strategy that focuses on quality in all phases of an

• Desire to maintain a quality image

• A desire to catch up with the competition

• A part of a cost reduction strategy

Areas where organisations have achieved time reductions:

• Product/service design time

• Response time for complaints

A strategic approach for competitive advantage that emphasizes the use of

• Productivity measures are useful for

Tracking an operating unit’s performance over time

Judging the performance of single operation, department, organization,

• Productivity ratios are used for: workforce requirement, scheduling, financial

• Productivity tells how competitive a company is!

• Productivity measures are based on:

Multiple inputs (multifactor productivity)

All inputs (total productivity)

• Note: Partial productivity measures are often of greatest use.

• Take care of units too.

Output Ouput Output

Output Ouput Output

Some examples of partial productivity measures:

• Service sector productivity is difficult to measure and manage

• A useful measure related to productivity is process yield

• Where products are involved

ratio of output of good product to the quantity of raw material input.

ratio of people subscribed to the total number of people contacted

Some other factors:

3. Develop methods for productivity improvements

K-capital, L-labor, E-energy, M-materials, and S-purchased services

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