PRODUCTION AND

OPERATIONS
MANAGEMENT
@ Manipal University
 Unit 2 :: OPERATIONS
MANAGEMENT
Operations management is an area of
business that is concerned with the
production of goods and services, and
involves the responsibility of ensuring that
business operations are efficient and
effective. It is the management of
resources, the distribution of goods and
services to customers, and the analysis of
queue systems.
Decisions and Activities of
Operations Manager
 Operations Strategy
Strategic Decisions
Long term oriented
Broad in nature
Usually have a time period > 5 years
Deals with production and process
design, facility location and layout,
capacity, expansion of existing facilities
etc.. These impact the long term
profitability of organization.
 Tactical Decisions
Medium term in nature
Usual time frame 1 year 2 years.
Deals with identifying manpower
requirements, determining the appropriate
inventory level for various materials,
determining the recording level and other
quantity, identifying vendors, and so on..
These decisions are aligned with strategic
decisions.
 Operational Decisions
Short term in nature
Usual time frame is less than a week.
These are specific in nature that
deals with problems and
requirements at operational level.
 Benchmarking historic
practices in OM.
SCIENTIFIC MANAGEMENT
F W Taylor
According to the scientific concept
introduced by F W Taylor, scientific
rules govern the productivity of a
worker. He proposed a systematic
approach called shop work.
 Key concepts of Scientific
Management (Shop
System)
Task allotment based on employee skill
and strength.
Standardization of output results.
Coordination and improved scheduling
by using instruction cards, routing
sequences and material specification.
Proper supervision.
Monetary Motivation by Incentive pays.
 Moving Assembly Line
- Henry Ford
Henry Ford further (1911) applied the
scientific management to a moving assembly
line.
This method was applied for manufacturing
Model T ford automobile by employing
- Standardized product designs, mechanized
assembly lines, specialized labor and
interchangeable parts in production units.
This resulted in ford reducing the production
time from 12.5 hours to 90 mins.
 Hawthorne Studies
Around 1927, a research team from Harvard Business school, in
supervision of Elton Mayo, did a study at Western Electrics
Hawthorne plant in Chicago.
The initial research was initiated to study the relationship
between light and productivity. When the team increased the
intensity of the light, they found increase in productivity as
well. The team then reduced the density of light but to the
teams surprise they still saw increased productivity.
This led to conclusion that it was not the light or any physical
condition that effected but the attention and importance
received during the study.
This further led to a wide range of study on worker behavior and
various motivation factors like monetary, intangible etc
 Operation Strategy as
Competitive weapon
Shorter Product cycle
Production Flexibility
Low-cost Process
Convenience and Location
Product Variety and Facility size
Quality
 Elements of Operation
Strategy
Designing the Production System
Product design
- Customized product design
When the level of customization is high and
the quantity is low, products are designed
and produced to satisfy the consumers
needs. Emphasizes on quality and on-time
delivery rather than on cost. Eg. Industrial
products like boilers and turbines.
 - Standard product design
When the production is of limited variety of
products, and the batch size is in large
amount. Emphasize is on cost-control and
quality than on customization.
Production System
Finished Goods Inventory policy
- Produce to Stock policy
In this policy, the products are produced and well in advance
and stored in warehouses, from where they are dispatched as
per customer orders. This is best suited for organizations
having seasonal demand, e.g. Air conditioners, Heaters etc..
Or organizations having general products like nuts, bolts etc..
- Produce to Order policy
In this policy, the production is done only on receiving the
orders and halts the production until further order is received.
This is best suited for organizations producing high value
products, or products meant for specific purposes e.g. dyes,
casting etc..
Product / Service Design &
Development
 Technology selection and
process development
Once the design of the product is finalized, managers
concentrate on determining how the product would be
produced. This involves thorough analysis and
planning of the production processes and facilities.
Every step in the process for production is detailed.
The technology to be used is the production process is
selected from a range of options.
Allocation of resources to strategic alternatives
There is always a threat of scarcity of resource. It could
be any resource like capital, men, machines etc.. Since
it is vital to have the resource at the right time, the
managers have to plan optimal use of these resources.
It is put to optimal use by minimizing wastages and by
allotting it for best strategic use of the resource.

Facility Planning
The location of the production facilities is one of the key
decision in operation management. This acts as a
critical factor to the competitiveness of the
organization.
This also requires massive initial investment.
Impacts the future plans on facility expansion plans
Availability of raw materials and accessibility to market
has to be considered.
 Strategic Management
Nature
Strategic management is the process of formulating, implementing
and evaluating strategies to achieve organizational goals
Strategic Management Involves Five Steps
Step 1 : Select the corporate mission and major corporate
goals.
Step 2 :Analyze the opportunities and threats or constraints
that exist in the external environment. Also analyze the strengths
and weaknesses that exist in internal environment.
Step 3 : Formulate strategies that will match the
organization's strengths and weaknesses with the
environment's threats and opportunities.
Step 4 : Implement the strategies.
Step 5 : Evaluate and control activities to ensure that the
organization's objectives are achieved.
 Strategic Planning
Mission
Mission
and
and Vision
Vision

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Bussiinneesss m eerr
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Corporate C
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Strategy
Strategy

Marketing
Marketing Operations
Operations Financial
Financial
Strategy
Strategy Strategy
Strategy Strategy
Strategy
 Elements of
Production\Operations
Strategy
Operations strategy comprises six components :
1. Positioning the production system,
2. Focus of factories and service facilities,
3. Product/Service design and
development,
4. Technology selection and process
development,
5. Allocation of resources to strategic
alternatives, and
6. Facility planning.
The organizational processes depend upon the:
Structure of the organization
The hierarchical levels
Decision arrival mechanism
Communication systems
Authorization processes
Implementation procedures
Feedback & monitoring devices
To formulate and implement strategies.
 Purpose of Strategies
To leverage the companys advantages
To prepare for the eventualities of
uncertain external happenings
To maximize the chances of success in
the endeavors
To ensure effective & efficient process
To avoid loss
The actual activities which result in
outcomes are called Operations.
 STRATEGIC DECISION
MAKING
Decision making is the crucial management
function. Decisions commit the organization &
its members to perform activities which have
financial repercussions & affect the
functioning of others who are connected with
those.

Factors which form the basis of decision making:

Environmental Scanning
Core Competencies
 Environmental Scanning- Becoming aware
about the threats & opportunities and their
impact on the firm by a process of analysis.
Core competencies- The unique strengths on
the basis of which the entrepreneur started
the organization. Some additional strengths
& competencies have been acquired to
augment the existing business built.
The developments and improvements both in
knowledge and skills make the core
strengths better.
 CORE PROCESSES
Core processes of an organization are
determined by the core
competencies.
Four main core processes are:
Customer relationship
New product/ service development
Supplier relationship
Order fulfillment
Strategic Decisions in
Operations
Process
Products Services and
Technology

Human
Capacity Quality
Resources

Sourcing Operating
Facilities
Systems
 DIFFERENTIATION
STRATEGIES
Differentiation is a process by which a
company distinguishes itself from its
competitors and their offerings.
The difference should be perceived by
the customers as- important,
distinctive, superior & affordable.
Nonetheless, they have to make the
companys offerings I.e. products &
services profitable.
 Citicorp
advertises a 15-minute mortgage approval
L.L. Bean
ships orders the day they are received
Wal-Mart
replenishes its stock twice a week
Hewlett-Packard
produces electronic testing equipment in five days
General Electric
reduces time to manufacture circuit-breaker boxes into
three days and dishwashers into 18 hours
Dell
ships custom-built computers in two days
Motorola
needs less than 30 minutes to build to order pagers
Tools for implementation
of Operations
Set of specialized techniques are known as
tools which can be standardized for ease of
implementation and control.
IMPLEMENTATION OF OPERATIONS:
Implementation is the process of executing the
planned operations. Estimating, routing,
loading are the planning processes and
dispatching and progressing are processes
which are conducted while the manufacturing
is going on. We call the former PLANNING and
the latter CONTROLING function. Put together
they are considered IMPLEMENTATION.
Tools for implementation: GANTT charts are
used to record progress comparing the
actual against the planned activities and
keep track of the flow of the material.
Line Balancing & Line of Balance are two more
tools to ensure that machining centers are
loaded uniformly.
Simulation Models are used to predict
utilization of Machines and Production levels.
Microsoft Operations Manager 2005 is a useful
tool in this regard.
 INDUSTRY BEST
PRACTICES
Each industry would have developed over
years or decades. Materials would have
changed, processes would have changed.
All products & services are meant to serve
needs of the customers, are undergo
continuous changes both in shapes &
features.
Industry best practices open up the field for
benchmarking by companies which need
to improve their performance.
 Pragmatic Bench
Marking
It is a method of measuring a companys
processes, methods, procedures and in a way all
functions in great detail. Benchmarking is used
to understand how these got into the system
and what circumstances brought them about.
The metrics that could be used are- number of
pieces per hour, cost per unit, number of
breakdowns per week, customer alienation per
week, return on investment, number of returns
from customers in a month and inventory
turnover.
 Types Of Benchmarking
Process benchmarking- Business
Process
Financial benchmarking
Performance benchmarking
Product benchmarking
Strategic benchmarking
Functional benchmarking
Benchmarking Operation
Planning
Analysis
Integration
Action
It is necessary to set achievable targets
keeping in view the availability of resources,
technology and spread awareness about the
importance of what is attempted & how
success improves the image of the company.
 The BCG Growth-Share Matrix is a portfolio
planning model developed by Bruce Henderson of the
Boston Consulting Group in the early 1970's. It is
based on the observation that a company's business
units can be classified into four categories based on
combinations of market growth and market share
relative to the largest competitor, hence the name
"growth-share". Market growth serves as a proxy for
industry attractiveness, and relative market share
serves as a proxy for competitive advantage. The
growth-share matrix thus maps the business unit
positions within these two important determinants of
profitability.
This framework assumes that an increase in
relative market share will result in an increase
in the generation of cash.
The four categories are:
Dogs - Dogs have low market share and a low
growth rate and thus neither generate nor
consume a large amount of cash. However,
dogs are cash traps because of the money
tied up in a business that has little potential.
Such businesses are candidates for
divestiture.
 Question marks - Question marks are growing rapidly
and thus consume large amounts of cash, but because
they have low market shares they do not generate much
cash. The result is a large net cash consumption. A
question mark (also known as a "problem child") has the
potential to gain market share and become a star, and
eventually a cash cow when the market growth slows. If
the question mark does not succeed in becoming the
market leader, then after perhaps years of cash
consumption it will degenerate into a dog when the
market growth declines. Question marks must be
analyzed carefully in order to determine whether they
are worth the investment required to grow market share.
 Stars - Stars generate large amounts of cash
because of their strong relative market share,
but also consume large amounts of cash
because of their high growth rate; therefore
the cash in each direction approximately nets
out. If a star can maintain its large market
share, it will become a cash cow when the
market growth rate declines. The portfolio of
a diversified company always should have
stars that will become the next cash cows
and ensure future cash generation.
 Cash cows - As leaders in a mature market, cash cows
exhibit a return on assets that is greater than the market
growth rate, and thus generate more cash than they
consume. Such business units should be "milked",
extracting the profits and investing as little cash as
possible. Cash cows provide the cash required to turn
question marks into market leaders, to cover the
administrative costs of the company, to fund research
and development, to service the corporate debt, and to
pay dividends to shareholders. Because the cash cow
generates a relatively stable cash flow, its value can be
determined with reasonable accuracy by calculating the
present value of its cash stream using a discounted cash
flow analysis.
 Under the growth-share matrix
model, as an industry matures and
its growth rate declines, a business
unit will become either a cash cow or
a dog, determined solely by whether
it had become the market leader
during the period of high growth.