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Amity School of Business

PRODUCTION AND OPERATIONS MANAGEMENT

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Module I: Overview of Production and Operation Management

Coverage

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Brief history of Production and Operation Management The Service Revolution Definition & Affecting Operations Management Role- Scope and Function of Production and Operation Management Criteria of Performance for the Production and Operation Management Operation Strategies Effect of Growth of Service Sector on Operations Management.

Operations Management

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Operations management is an area of business concerned with the production of goods and services, and involves the responsibility of ensuring that business operations are efficient in terms of using as little resource as needed, and effective in terms of meeting customer requirements. It is concerned with managing the process that converts inputs (in the forms of materials, labour and energy) into outputs (in the form of goods and services).

Primary Functions of an Org.


Operation Marketing Finance/accounting HRM
Marketing

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Finance

Operations

HRM

Origin

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The origins of operations management can be traced back through cultural changes of the 18th, 19th, and 20th centuries, including the Industrial Revolution , the development of interchangeable manufacture, the American system of manufacturing, scientific management, the development of assembly line practice and mass production, and the Toyota Production System. Combined, these ideas allowed for the standardization and continuous improvement of production processes.

Contd.

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Key features of these early production systems were the departure from skilled craftsmen to a more thorough division of labor and the transfer of knowledge from within the minds of skilled, experienced workers into the equipment, documentation, and systems. Operations research as a subdiscipline gained prominence during World War II, when mathematicians applied analytical tools to optimize operational questions, initially with a military context, and later also within general operations.

Evolution of POM Different Phases


The industrial revolution Scientific management The service revolution The computer revolution

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History of OM

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Pre Industrial Revolution - Public works or projects for the government. - Pyramids of Egypt, Great Wall Of China etc. - Craft Production

Industrial Revolution

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1770s in England Replaced manpower with machine power Invention of machines e.g. steam engine

The Industrial Revolution

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1764: Invention of steam engine by James Watt. Led to :1. Provided source of power to operate machines for factories. 2. Increased productivity. 3. Gathering of workers into factories from villages.

The Industrial Revolution

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1776 Publication of Adam Smiths The wealth of Nations Led To :1. Highlighted the economic benefits of the division of labor, i.e. specialization of labor. 2. Broke the production of products into small, specialized tasks. 3. Concept of ways of planning & controlling the work of production workers.

The Industrial Revolution

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1790 Eli Whitney developed the concept of interchangeable parts. Led To:1.Displaced the old method of either sorting through parts to find one that fit or modifying a part so that it would fit. 2. Standardization of design & manufacturing processes.

The Industrial Revolution

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1800 Development of gasoline engines & electricity. Led To :Old cottage system of producing products replaced by the factory system.

The Industrial Revolution


By 20th Century:

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1. Massive influx of farmers to the cities provided a large

workforce for the rapidly developing urban industrial centers. 2. Large capital arranged through the establishment of joint stock companies. 3. More demand of goods in market after 2nd WW, leading to urbanization & necessity of big companies. 4. Increased capital, higher production capacity, expanded urban work force, new markets, effective national transportation system set the stage for the great production explosion.

Scientific Management

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Focused on observation , measurement, analysis & improvement of work design. Scientific management met the challenges for mass production & efficiency.Replaced craft production by mass production. Low skilled workers replaced highly skilled workers.

Scientific Management
Management Pioneers: Frederick Taylor Henry Gantt Harrington Emerson Henry Ford

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Scientific Management : The Players & Their Parts


Contributors Contribution

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FW Taylor
Frank B Gilbreth Lillian M Gilbreth

Scientific management principles, Time study, Method analysis


Motion study, Methods Fatigue studies, Human factor in work, Employee selection & training Gantt charts, Incentive pay system, Humanistic approach to labor, Training Mathematical analysis, Feeds & speeds studies Principles of efficiency, Methods of control Scientific management application to education and government

Henry L Grant Carl G Barth Harrington Emerson Morris L Cooke

Human Relations Movement


Emphasized on the human factor in production. Emergence of motivational theories by: - Frederick Herzberg - Douglas Mcgregor - Abraham Maslow

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Japanese Influences

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Developed and redefined existing management practices Introduced the concept of quality, continual improvement, and time based management.

Recent Trends

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Internet & Electronic Business SCM - Supply chain is a sequence of activities and organizations involved in producing a good or a service.

The Service Revolution

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One important development of present time is the growth of service organizations. More than two-thirds of the workforce is employed in service. There are diversity of private service industries in India today. Impact of this explosion on operations management is enormous.

The Computer Revolution

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Advances in computer & communication technologies have significant impact on the ways organizations manage their operations. Many operations decisions are made quickly because of availability of computer technologies & various software.

The Computer Revolution

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A recent supplement to the Harvard Business Review listed the following developments that have impacted POM:1. CAD 2. SCM 3. CAM 4. JIT 5. Benchmarking 6. SPC 7. ISO Standards 8. BPR 9. Outsourcing 10. Virtual Organization

Importance of OM

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1. Operations activity is the core of all business organizations. 2. A large percentage of job is in the field of operations. 3. All activities in the other areas of business are interrelated with operations management. 4. Responsible for a large portion of the companys assets. 5. It has a major impact on quality and is the face of the company to its customers.

Factors affecting Operations Management Today


Quality, customer service and cost challenges. Scarcity of operations resources. Expansion of advanced technologies. Continued growth of service sector. Reality of global competition. Social responsibility issues.

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Decision Making in POM

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Strategic Decisions: Decisions about products, processes, and facilities. These have long term significance for the org. Operating Decisions: Decisions about planning production to meet demand. These are necessary for the ongoing production. Control Decisions: Decisions about planning & controlling operations. These are concerned to day-to-day production activities, quality of products & services, maintenance of equipment.

Ways to remain competitive through operations


Price Quality Product / Service differentiation Flexibility Time Service Management & Workers

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Developing Mission & Strategies

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An effective OM effort must have a mission so it knows where it is going and a strategy so it knows how to get there. Mission: The purpose or rationale for an organizations existence. Strategy: How an organization expects to achieve its mission and goals / or an organizations action plan to achieve the mission.

Strategic Concepts

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Firms achieve mission in three conceptual ways: - Differentiation (Better , or atleast different) - Cost leadership ( Cheaper) - Response ( More responsive)

Operation Strategies
Global Strategy Transnational Strategy International Strategy Multidomestic Strategy

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Operation strategies
High

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Cost Reduction Considerations

Global Strategy

Transnational Strategy

International strategy Low Low

Multidomestic Strategy

Local Responsiveness Considerations ( Quick response and/or Differentiation )

High

Global Strategy

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High Degree of Centralization, with HQ coordinating the organization to seek out standardization and learning between plants, thus generating economies of scale. Strategy is appropriate when the strategic focus is cost reduction but has little to recommend it when the demand for local responsiveness is high. E.g. Texas instruments, Caterpillar, Otis elevator.

Transnational Strategy

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Exploits economies of scale and learning, as well as pressure for responsiveness, by recognizing that core competence does not reside in just the home country but can exist anywhere in the organization. Transnational describes a condition in which material, people, and ideas cross- or transgress- national boundaries. Key activities are neither centralized nor decentralized , each subsidiary can carry out its own tasks on a local basis. E.g. Nestle ( Swiss 95% assets 98% sales outside ), ABB ( Asea Brown Boveri an engg. Firm that is Swedish but HQ in Switzerland ), Reuters ( a news agency), Citicorp ( a banking Corporation), Bertlesmann (publisher)

International Strategy

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A strategy in which global markets are penetrated using exports and licenses. Low local responsiveness since we are exporting or licensing a good from the home country. Low cost advantage using the existing production process at some distance from the new market. E.g. U.S. steel, Harley-Davidson

Multidomestic strategy

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A strategy in which operating decisions are decentralized to each country to enhance local responsiveness. These are typically subsidiaries, JVs , franchises with substantial independence. Adv: Maximizing a competitive response for the local market strategy has little or no cost advantage. E.g. Heinz , McDonalds , Hard Rock Cafe

Elements of Operations Strategy


Positioning the production system. Product/ service plan. Outsourcing plans. Process & technology plans. Strategic allocation. Facility plans : capacity, location and layout.

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Positioning of Production System

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It means selecting the type of product design, type of production processing system and type of finished goods inventory policy for each product group in the business strategy.

Product/ Service plan

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As products are designed, all the detailed characteristics of each product are established. Each product characteristics directly affects how the product can be produced. How the product is made determines the design of the production system, and the design of the production system is the heart of the operation strategy.

Outsourcing Plans

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Outsourcing refers to hiring out or subcontracting some of the work that a company needs to do. Outsourcing is an integral part of a companys supply chain.

Process & Technology Plans

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It determines how products and services will be produced. It involves planning every detail of production process and facilities by combining high technology equipment with conventional equipments.

Strategic Allocation of Resources Amity School of Business


Resources like cash, capital funds, capacity, workers, machines, materials are divided among other products or business utilities. These resources are allocated optimally to maximize the achievements of the objectives of operations. Allocation decisions which are constrained by the availability of resources constitute a common type of strategic decision.

Facility Plans: Capacity, Location, and Amity School of Business Layout


Enormous capital investment is required to make facilities. A poor decision will live with the company for many years which can affect the companys operations.

Effect of Global Competition

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Fluctuations of International Financial Conditions: Inflation, fluctuating currency exchange rates, turbulent interest rates, volatility of international stock markets, huge national debts of many countries, and imbalances among international trading partners have created complex financial conditions for global business.

Effect of Global Competition

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Need for international companies : The market dynamics create the need of MNCs whose scope of operations spans the globe as they buy, produce, and sell in world markets. Strategic alliance & production sharing: In the face of world free trade agreements and the formation of regional trading blocks, the scope of the firm shifts national to global. Such shifts create need for formation of Strategic alliance, which are joint ventures among international companies.