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Operations management

A Bird view of Production System

Research Plant
Marketing Engineering
& Engineering
department Department
Development Department

Customer Materials
In Management
Division Production
Target Market
Raw (shop floor)
Vendor/ Materials
Suppliers Stores
Factory Assurance
Sales Management Department
Department &
Customer Human Information
Finance System
Support Resource
Department Department
Department Department


Operations management (OM) is defined as the design, operation,

and improvement of the systems that create and deliver the firm’s
primary products and services

Operations Management provides timely, essential information for operations professionals

at all types of financial firms. Each monthly issue breaks news on operations strategies at broker-
dealers and investment advisers, regulatory affairs, new products and the people who move the
The broker-dealer and investment adviser search charts provide, at a glance, the latest
information on securities firms' searches for new operations vendors.

Reading Operations Management will keep you abreast on the latest operations news,
such as developments in straight through processing, the latest technology the competition is
implementingh and new custodial relationships.

Operations Management is a monthly newsletter that offers focused, in-depth articles and
coverage on the mutual funds, compliance and prime brokerage industries and also gives insight
into hedge fund operations and over-the-counter derivatives


At the turn of the 20th century, the economic structure in most of the developed countries
of today was fast changing from a feudalistic economy to that of an industrial or
capitalistic economy. The nature of the industrial workers was changing and methods of
exercising control over the workers, to get the desired output, had also to be changed.
This changed economic climate produced the new techniques and concepts.

Individual Efficiency:

Fredric W Taylor studied the simple output to time relationship for manual labor such as
brick-laying. This formed the precursor of the present day ‘time study’. Around the same
time, Frank Gilberth and his leaned wife Lillian Gilberth examined the motions of the
limbs of the workers (such as the hands, legs, eyes etc) in performing the jobs and tried to
standardize these motions into certain categories and utilize the classification to arrive at
standards for time required to perform a given job. This was the precursor to the present
day ‘motion study’. Although to this day Gilberth’s classification of movements is used
extensively, there have been various modifications and newer classifications.

Collective Efficiency:

So far focus was on controlling the work output of the manual laborer or the machine
operator. The primary objective of production management was that of efficiency –
efficiency of the individual operator. The aspects of collective efficiency came into being
later, expressed through the efforts of scientists such as Gantt who shifted the attention to
scheduling of the operations. Even now, we use the Gantt charts in operations scheduling.
The considerations of efficiency in the use of materials followed later. It was almost
1930, before a basic inventory model was presented by F W Harris.

After the progress of applications of scientific principles to the manufacturing aspects,
thought progressed to control over the quality of the finished material itself. Till then, the
focus was on the quantitative aspects; later on it shifted to the quality aspects. Quality
which is an important customer service objective came to be recognized for scientific
analysis. The analysis of productive system, therefore, now also included the
effectiveness criterion in addition to efficiency. In 1931, Walter Shewart came up with
theory regarding Control Charts for quality or what is known as ‘process control’. These
charts suggested a simple graphical methodology to monitor the quality characteristics of
the output and how to control it. In 1935, H F Dodge and HG Romig came up with
application of statistical principles to the acceptance and/or rejection of the consignments
supplied by the suppliers to exercise control over the quality. This field, which has
developed over the years is now known as; acceptance sampling.

Effectiveness as a Function of Internal Climate:

In addition to effectiveness for the customer, the concept of effectiveness as a function of

internal climate dawned on management scientists through the Hawthorne experiments
which actually had the purpose of increasing the efficiency of the individual worker.
These experiments showed that worker efficiency went up when the intensity of
illumination was gradually increased, and even when it was gradually decreased, the
worker efficiency still kept rising. This puzzle could be explained only through the angle
of human psychology; the very fact that somebody cared, mattered much to the workers
who gave increased output. Till now, it was Taylor’s theory of elementalisation of task
and thus the specialization in one task which found much use in Henry Ford’s Assembly

Advent of Operations Research Techniques:

The birth of Operations Research (OR) during the World War II period saw a big boost in
the application of scientific techniques in management. During this war, the Allied Force
took the help of statisticians, scientists, engineers etc to analyze and answers questions
such as: What is the optimum way of mining the harbors of the areas occupied by the
Japanese? What should be the optimum size of the fleet of the supply ships, taking into
account the costs of loss due to enemy attack and the costs of employing the defense
fleet? Such studies about the military operations was termed as OR. After World War II,
this field was further investigated and developed by academic institutions. Various
techniques such as linear programming game theory, queuing theory and the like
developed by people such as George Dantzig A Charnes and W.W Cooper have become
indispensable tools for management decision making today.

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The origins of Operations Management can be traced back to the Industrial Revolution,
the same as Scientific Management and Operations Research. Adam Smith treats the
topic of the division of labor when opening his 1776 book: An Inquiry into the Nature
and Causes of the Wealth of Nations also commonly known as The Wealth of Nations.
The first documented effort to solve operation management issues comes from Eli
Whitney back in 1798, leading to the birth of the American System of Manufacturers
(ASM) by the mid-1800s. It was not until the late 1950's that the scholars noted the
importance of viewing production operations as systems.[4] [5]

Historically, the body of knowledge stemming from industrial engineering formed the
basis of the first MBA programs, and is central to operations management as used across
diverse business sectors, industry, consulting and non-profit organizations.

Operations Management Planning Criteria

The task of production and operations management is to manage the efforts and activities
of people, capital, and equipment resources in changing raw materials into finished goods
and services.
Operations Management (OM) provides timely, essential information for operations professionals
at all types of financial firms. Each monthly issue breaks news on operations strategies at broker-
dealers and investment advisers, regulatory affairs, new products and the people who move the

Why need the operation management?

–The Future of Operations

–Outsourcing everything
–Smart factories

–Talking inventory
–Industrial army of robots
–What’s in the box
–Mass customization
–Personalized recommendations
The Basics of Operations Management

•Operations Management

–The process of managing the resources that are needed to produce

an organization’s goods and services.
–Operations managers focus on managing the “five Ps” of the firm’s
•People, plants, parts, processes, and planning and control systems.
The Production System

–A resource required for the manufacture of a product or service.

•Conversion System
–A production system that converts inputs (material and human

resources) into outputs (products or services); also the production

process or technology.

A direct outcome (actual product or service) or indirect outcome
(taxes, wages, salaries) of a production system.

Basic Types of Production Processes

•Intermittent Production System

–Production is performed on a start-and-stop basis, such as for the
manufacture of made-to-order products.

•Mass Production

–A special type of intermittent production process using standardized

methods and single-use machines to produce long runs of
standardized items.

Mass Customization

–Designing, producing, and delivering customized products to

customers for at or near the cost and convenience of mass-produced

–Mass customization combines high production volume with high

product variety.

–Elements of mass customization:

•Modular product design

•Modular process design
•Agile supply networks

Continuous Production Processes

–A production process, such as those used by chemical plants or
refineries, that runs for very long periods without the start-and-stop
behavior associated with intermittent production.

–Enormous capital investments are required for highly automated

facilities that use special-purpose equipment designed for high
volumes of production and little or no variation in the type of outputs.
Mass Production System (Flow)

Continuous Production

•Anticipation of demand
•May not have uniform production
•Standardized Raw material
•Big volume of limited product line
•Standard facility- high standardization.
•Fixed sequence of operation
•Material handling is easier
•High skilled operator not required
•More Human problem is foreseen
•Huge investment.
•High raw material inventory.
Processing Production System

•Extended form of mass production system

•F.G of one stage is fed to next stage
•More automatic machines
•One basic raw material is transferred into several products at several
•Less highly skilled workers required
•More human problems foreseen
•Highly standardized system

Batch Production System

•Highly specialized Human resource is required
•Highly specialized multi tasking machines
•Machines are shared.
•Production in batches
•Production lots are based on customer demand or order.
•No single sequence of operation
•Finished goods are heterogeneous

Custom built / job order production system

•Highly specialized Human resource is required

•Highly specialized multi tasking machines
•Machines are shared
•Raw material is not standardized