Operations Management - Nature & Scope of Operations & Operations Strategy, 2010, SIMSR

Operations
Management – Nature
and scope of
Operations &
Operations Strategy
By
Prof. Nadpurohit
Course Plan
Session Topics to be covered
1 Introduction & Course plan
•Nature and scope of Operations, Operations Strategy.
2 Types of Production Systems
Process Selection / Design, New Product Development
3 Facilities Location
•Plant Location Factors affecting Location,
• Plant Layout Types of Layouts
4 Strategic Capacity planning
Capacity expansion strategies , Forecasting methods,
5 Production Planning and Scheduling
Aggregate Planning, MPS, MRP
6 Scheduling Methods
Scheduling Objectives, Rules. Mid- term Test
7 JIT Methods
SMED , TPM, Lean manufacturing, Kanban
8 Inventory Management
Inventory Planning, EOQ, Inventory Control, ABC classification
9 Value Analysis/Project Management
Concept of Value, Methods of analysis.
10 Supply Chain Management
Case study
11 Quality Control
TQM, QC Tools, ISO discussion.
12 Recent Advances in OM
CAD/CAM, Productivity improvement, Recent advances in OM,ERP
End –Term Examinations
Operations Management By Prof.
July - Nov 2010 Slide 2 of 80
Nadpurohit
Reference Material
Text: Operations Management by B. Mahadevan.
Suggested Readings:
a)Operations Management by William J Stevenson
b)Production & Operations Management by Chase ,Aquilino.
Jacobs.
c)Quality Management .by P.N.Mukherjee
d) Production and Operations Management by K Ashwathapa
& Bhat.

Nadpurohit
Evaluation
•Class attendance 10 marks (for those classes above 75
%)
•Case study Report/presentation (Group) 20 marks
•Mid Term exam 20 marks.
•End Term exam 50 marks

Nadpurohit
Learning Objectives
• Define the term operations management
• Identify the three major functional areas of
organizations and describe how they interrelate
• Compare and contrast service and
manufacturing operations
• Describe the operations function and the nature
of the operations manager’s job

Nadpurohit
Learning Objectives
• Differentiate between design and operation
of production systems
• Describe the key aspects of operations
management decision making
• Briefly describe the historicalevolution of
operations management
• Identify current trends that impact
operations management

Nadpurohit
Business Organizations'
Marketing Finance
Organization
Vision,
Mission,Goal
Operations

Nadpurohit
Food Processor
Inputs Processing Outputs

Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment

Nadpurohit
Hospital Process
Inputs Processing Outputs
Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy

Nadpurohit
Value-Added Process
The operations function involves the conversion of

inputs into outputs
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback
Control
Feedback Feedback

Nadpurohit
Operation
SERVICE OPERATION
INPUTS
Materials
Equipment
Customers PROCESS OUTPUTS
Staff
Technology Goods and
Facilities services
The service operation

OUTCOMES
INPUTS Value
Time Emotions
Effort EXPERIENCE Judgements
Cost Intentions
SERVICE PRODUCT
Customer
Service = experience + outcome

Operation
SERVICE OPERATION
INPUTS
Materials
Equipment OUTCOMES
Customers PROCESS Value
Staff Emotions
Technology EXPERIENCE Judgements
Facilities Intentions
SERVICE PRODUCT
Customer
Managing service and service operations
Service Operations
Salient Features
• Tangibility: Services are performances and
actions rather than objects, therefore having
poor tangibility
• Heterogeneity: High variability in the
operation system performance
• Simultaneous Production & Consumption:
Degree of customer contact is very high
• Perishability: Services cannot be inventoried
as in the case of manufactured products.

Nadpurohit
Goods v/s Service
Characteristic Goods Service
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Output Tangible Intangible
Measurement of productivity Easy Difficult
Opportunity to correct problems High Low
Inventory Much Little
Evaluation Easier Difficult
Patentable Usually Not usual
Nadpurohit
Manufacturing & Service
Similarities & Differences
Manufacturing Organisations Service Organisations
Differences
Physical durable product Intangible, perishable product
Output can be inventoried Output can’t be inventoried
Low customer contact High customer contact
Long response time Short response time
Regional, national, Intl. markets Regional, national, Intl. markets
Large facilities Small facilities
Capital intensive Labour intensive
Quality easily measured Quality not easily measured
Similarities
Is concerned about quality, productivity & timely response to its customers
Must make choices about capacity, location, layout
Has suppliers to deal with
Has to plan its operations, schedules and resources
Balance capacity with demand by a careful choice of resources
Has to make an estimate of demand
Nadpurohit
Service – Manufacturing
Continuum
Pure Product Pure Service
Ayurvedic Healing Treatment

Legal/Tax Consulting
Cyber Café – Telephone Booths
Emergency Maintenance Services
Facilities Maintenance
High quality restaurant meal
Fast food in a eat out joint
Customised durable goods
Fast moving commodities
Vending Machines
Adopted from Hill, T. (2005), OperationsOperations
Management (Palgrave Macmillan),
Management By Prof. 2nd Edition, pp 14.
Nadpurohit
Manufacturing Sector
Salient Aspects
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04
Index of Industrial Production (Growth %over previous year)*
Manufacturing 4.4 7.2 5.4 2.9 6.0 7.4
Capital Goods 12.6 7.0 1.7 -3.4 10.5 13.6
Consumer Goods 2.2 5.7 8.0 6.0 7.1 7.2
Intermediate Goods 6.1 8.8 4.7 1.6 3.9 6.4
Automobile Sector 3.2 21.0 -5.7 6.1 8.1 19.6
Corporate Sector Performance (Manufacturing)*
Sales 8.4 16.9 17.2 -0.3 11.1 12.7
PBIT 1.0 8.3 7.3 1.2 23.5 20.1
Components of cost (As %of net sales)#
Raw material expenses 39.8 40.3 39.8 41.8 44.0 44.0
Salaries & Wages 6.6 6.2 6.1 6.2 5.9 5.8
Interest Payments 5.5 4.8 4.4 4.2 3.2 2.2
Components of cost (Growth %over previous year)#
Raw material expenses 7.1 19.6 17.3 4.5 20.8 10.7
Salaries & Wages 11.8 11.6 17.3 4.5 8.8 8.6
Interest Payments 13.4 3.7 9.8 -3.2 -12.2 -23.0
Source
* Monthly Review of the Indian Economy, CMIE, May 2005
# Joshi, D. (2004), "Indian Manufacturing: Price Vs Margin dilemma", CRISIL Rating Scan, November 2004,
21 - 25.

Nadpurohit
Indian Manufacturing
Export Potential of Sectors
C u rre n t P o te n tia l
S ec to r o f In d u s try S tre n g th s W e a k n e s se s
E x p o rts E x p o rts
E le c trica l & E le c tro n ic s $ 1 .2 5 b $ 1 5 - 18 b D es ign & E n gin ee rin L ag ck o f s ca le , Lo w
s k ills , ven d o r b a se d o m e s tic de m an d
Ap p a rel M a n u fa ctu rin g $ 6 .1 0 b $ 2 5 - 30 b V e rtica l inte gra tio n ,L a ck o f s ca le ,
s k ille d lab o u r, de s igonp eratio n a l ex p ertis
s k ills
Au to -c o m p o n e n ts $ 1 .1 0 b $ 2 0 - 25 b E n gin ee rin g a nd F ra gm e nted in d us t
c o ntin u o us a n d p oo r O E M
im p ro ve m e n t of sk illslin k ag e s
S p e c ia lty ch e m ic als $ 1 .6 0 b $ 1 2 - 15 b L o w co s t m a n po w erA pp lic a tio n R & D a
a n d p ro ce ss m ark e tin g
in no va tio n sk ills

Nadpurohit
Service Sector in India
GDP growth rate
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04

Service Sector Growth rates in GDP (% change over last year)
Service (Overall) 8.4 10.1 5.5 6.8 7.9 9.1
Trade, Hotels, Transport,
Communications 7.7 8.5 6.8 9.0 9.8 11.8
Financial Services 7.4 10.6 3.5 4.5 8.7 7.1
Coomunity, Social &
Personal Services 10.4 12.2 5.2 5.1 3.9 5.8
Source
Economic Survey of India, 2004-2005, Government of India, Ministry of Finance, Economic Division

Nadpurohit
Operations Management
Definition
• 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
Nadpurohit
Operations
A key functional area in an Organisation
Finance
Operations
Marketing HRM

Nadpurohit
Operations Interfaces
Industrial
Engineering
Maintenance
Distribution
Purchasing Public
Operations Relations
Legal
Personnel
Accounting MIS
Nadpurohit
Operations Function
Linkages with other functions
Customer Layer Operations Support Layer
Ultimate Dealers Marketing Maintenance Quality

Customer Retailers
Costing Planning Tooling
Core Operations Layer Material IT Design IE
Testing Assembly
Layer of
Innovation Fabrication Machining
Innovation Supplier Layer
Strategy Service Delivery system
Sub-contractors Suppliers
Research &
Development Other service providers
Nadpurohit
A systems Perspective
Forecasting
PROCESSING
Labour Process & Purchasing & Goods
OUTPUT
Product Inventory
INPUT
Design Control
Material
Capital Operations Material & Services

Planning & Capacity
Control Planning
Feedback
Quality Maintenance Process
Management Management Improvement

Nadpurohit
Functions
Design of Operations Operational Control of Operations
Product Design & Development Forecasting

Process Design Production Planning and Control
Quality Management Supply Chain Management
Location and 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 optimising the use of
available resources in the short-term while delivering goods and
services as per plan.

Nadpurohit
Salient Aspects
• A systematic approach using scientific tools &
techniques and solution methodologies to
analyse problems
• Addressing several issues varying in terms of
time horizon, nature of decisions
• Addressing design & operational control
issues in the transformation process
• Focusing on keeping costs to the minimum
• Developing a set of measures to assess
performance of the system
Nadpurohit
Historical Evolution of Operations
Management
• Industrial revolution (1770’s)
• Scientific management (1911)
– Mass production
– Interchangeable parts
– Division of labor
• Human relations movement (1920-60)
• Decision models (1915, 1960-70’s)
• Influence of Japanese manufacturers

Nadpurohit
Trends in Business
• Major trends
– The Internet, e-commerce, e-business
– Management technology
– Globalization
– Management of supply chains
– Outsourcing
– Agility
– Ethical behavior

Nadpurohit
Management Technology
• Technology: The application of
scientific discoveries to the
development and improvement of
goods and services
• Product and service technology
• Process technology
• Information technology

Nadpurohit
Other Important Trends
• Ethical behavior
• Operations strategy
• Working with fewer resources
• Revenue management
• Process analysis and improvement
• Increased regulation and product
liability
• Lean production

Nadpurohit
Impact of Economic Reforms in India
• Tariff reduction has exposed Indian companies to
global competition
– Chelliah Committee tax reforms proposed
during 1992 – 94 triggered this process
• Abolition licensing policies had enabled several
new players to enter into business increasing
domestic competition and capacity build up
– Examples include liberalisation of two wheelers
and LCV segment in early 1980’s and
passenger car segment in early 1990’s
• Indian customers are more demanding in terms of
quality, cost and delivery of goods & services
Nadpurohit
Challenges & Priorities
Challenges
• Quality Management issues need greater attention
• Long lead time for order fulfillment
• Low labour productivity offsets cost advantages
Priorities
• Acquire Capabilities to tolerate product
proliferation
• Relate operations system to Customer/Market
• Develop systems and procedures that promote
learning

Nadpurohit
Understanding Operations Management
Understanding Designing Planning & Control Operations &
Operations Operations of Operations the value chain
15 16
3 Process Project Supply Chain
1 Management
Design Management
Operations 6 13 17
4
Management: Product Statistical Just in Time Purchasing &
Trends & Development Quality Manufacturing Supply
Issues Control Management
14
5 Total Quality
Scheduling 18
Management Inventory
12
Resources Planning &
7 Control
Facilities Planning
Location 11 19
Aggregate Maintenance
2 8 Plant Production Management
Layout Planning
Operations 20
Strategy 10 Continuous
9 Capacity
Demand Improvement
Planning Forecasting
Operations Management By Prof. Improving
Nadpurohit
Operations
Operations Management: Trends & Issues
Highlights
• Operations Management is a systematic

approach to address all issues pertaining to the
transformation process that converts some
inputs into useful output
• Globally, India is emerging as an important
manufacturing base. Several recent studies
point to emerging opportunities for Indian
manufacturing to grow and attain a global
presence.
• From an operations management perspective,
the notion of a ‘pure product’ and ‘pure service’
is just the two ends of the spectrum. In reality,
a vast majority of operations share a continuum
of products and services.
Nadpurohit
Operations Management: Trends & Issues
Highlights
• Despite several important differences between

products & services, from an operations
management perspective there are several
similarities between the two settings
• The decision context in operations management
can be broadly classified as
– Design and operations control issues.
– Long term and short term decisions
• Some of the challenges faced by operation firms
include
– low productivity and long lead time
– quality management
– inability to relate the system to market/customer
– Promoting a culture of learning

Nadpurohit
Nadpurohit
Learning Objectives
• List and briefly discuss the primary
ways that business organizations
compete.
• List five reasons for the poor
competitiveness of some companies.
• Define the term strategy and explain
why strategy is important for
competitiveness.
• Contrast strategy and tactics.
Nadpurohit
Learning Objectives
• Discuss and compare organization
strategy and operations strategy,
and explain why it is important to
link the two.
• Describe and give examples of time-
based strategies.

Nadpurohit
Mission/Strategy/Tactics
Mission Strategy Tactics
How does mission, strategies and tactics relate to

decision making and distinctive competencies?

Nadpurohit
Strategy
• Mission
– The reason for existence for an organization
• Mission Statement
– States the purpose of an organization
• Goals
– Provide detail and scope of mission
• Strategies
– Plans for achieving organizational goals
• Tactics
– The methods and actions taken to accomplish
strategies Operations Management By Prof.
Nadpurohit
Strategy Example
Example
A student. Would like to have a career in

business, have a good job, and earn enough
income to live comfortably
Mission: Live a good life
• Goal: Successful career, good income
• Strategy: Obtain a Mgmt PG qualification
• Tactics: Select an Institute and a major
• Operations: Register, buy books, take
courses, study, Get PG
degree, get job

Nadpurohit
Competitiveness:
How effectively an organization meets the

wants and needs of customers relative to
others that offer similar goods or services

Nadpurohit
Strategy and Tactics
• Distinctive Competencies
The special attributes or abilities that give an
organization a competitive edge.
• Strategy Factors
– Price
– Quality
– Time
– Flexibility
– Service
– Location

Nadpurohit
Examples of Strategies
• Low cost
• Scale-based strategies
• Specialization
• Flexible operations
• High quality
• Service

Nadpurohit
Quality and Time
Strategies
• Quality-based
strategies
– Focuses on maintaining or
improving the quality of
an organization’s products
or services
– Quality at the source
• Time-based strategies
– Focuses on reduction of
time needed to
accomplish tasks
Nadpurohit
Time-based Strategies
JAN FEB MAR APR MAY JUN
Planning
Designing
Processing
Changeover On time!
Delivery

Nadpurohit
Businesses Compete Using
Marketing
• Identifying consumer wants and needs
• Pricing
• Advertising and promotion

Nadpurohit
Operations
• Product and service design
• Cost
• Location
• Quality
• Quick response

Nadpurohit
Operations
• Flexibility
• Inventory management
• Supply chain management
• Service and service quality
• Managers and workers

Nadpurohit
Planning and Decision
Making
Mission
Goals
Organizational Strategies
Functional Goals
Finance Marketing Operations

Strategies Strategies Strategies
Tactics Tactics Tactics
Operating Operating Operating

procedures procedures procedures
Nadpurohit
Operations Strategy
• Operations strategy – The
approach, consistent with
organization strategy, that is used
to guide the operations function.

Nadpurohit
Examples of Operations
Strategies
Price Low Cost U.S. first-class postage

Motel-6, Red Roof Inns
Quality High-performance design Sony TV

or Consistent quality Lexus, Cadillac
Pepsi, Kodak, Motorola
Time Rapid delivery Express Mail, Fedex,

On-time delivery One-hour photo, UPS
Flexibility Variety Burger King

Volume Supermarkets
Service Superior customer Disneyland

service Nordstroms
Location Convenience Banks, ATMs

Nadpurohit
Operations Strategy
• Strategic planning exercise
– Enables an organisation to respond to the market needs
in the most effective manner
– By aligning various resources and activities in the
organisation
– To deliver products & services that are likely to succeed
in the market
• Operations Strategy
– Is a process by which key operations decisions are
made that are consistent with the overall strategic
objectives of a firm
– Decisions in the operations function are made on the
basis of the inputs from the overall corporate strategy

Nadpurohit
Strategic OM Decisions
Decision Area Affects
Product and service design Costs, quality liability and environmental
Capacity Cost structure, flexibility
Process selection and layout Costs, flexibility, skill level, capacity
Work design Quality of work life, employee safety, productivity
Location Costs, visibility

Quality Ability to meet or exceed customer expectations
Inventory Costs, shortages
Maintenance Costs, equipment reliability, productivity
Scheduling Flexibility, efficiency
Supply chains Costs, quality, agility, shortages, vendor relations
Projects Costs, new products, services, or operating systems

Nadpurohit
Key External Factors
• Economic conditions
• Political conditions
• Legal environment
• Technology
• Competition
• Markets

Nadpurohit
Key Internal Factors
• Human Resources
• Facilities and equipment
• Financial resources
• Customers
• Products and services
• Technology
• Suppliers

Nadpurohit
Need for Operations
Strategy
• Competitive dynamics & expectations of customers
change with time
• Due the changes in market place, competitive priorities
for an organisation is likely to change
– While it was customary for people to book for a passenger car
and wait for a few months to get delivery of the car, today a
manufacturer of passenger cars cannot afford to make
customers wait that long
– ABB Ltd. reported that the price of a 33 KV circuit braker
dropped from Rs. 275,000 in 1990 to Rs. 180,000 in 1999.
– Triveni Engineering, a manufacturer of Turbines faced a 40%
reduction in the price of turbines in the less than 3.5 million
watts category over the last six years
• Need a mechanism to systematically respond to these
changes in the most effective way
• Need to tune their operations to match with the
competitive priorities
Nadpurohit
Strategy formulation
process
Competitive
Order winners
Dynamics at
Order Qualifiers
the marketplace
Strategic options for Generic Competitive Priorities

Sustaining Quality, Cost,
competitive advantage Delivery, Flexibility
Firm level
Strengths & Corporate Strategy
Weaknesses
Strategic decisions for Measures for

Operations System Operations Strategy Operational Excellence

Nadpurohit
Order Qualifiers & Order Winners
• Order qualifying attributes are the set of
attributes that customers expect in the product or
service they consider for buying
• Order winning attributes are other attributes that
have the potential to sufficiently motivate the
customer to buy the product or service
• What constitutes order winning and order
qualifying might change from time to time
– During the early 1980’s providing superior quality
products was an order winning attribute. However, in the
1990’s quality became an order qualifying attribute as
customers began to expect high levels of quality
– Order winning attributes include efficient consumer
response, speed, variety and convenience

Nadpurohit
Operational Excellence
Performance Measures
• Provide critical linkage between order winning
and order qualifying attributes and choices
made in operations
• Help organisations evaluate how well the
operations system is responding to the
requirements at the marketplace
• Serve a useful purpose in comparing
performances amongst competitors and for
benchmarking
• Four generic options are useful for developing
measures for operational excellence; this
includes Quality, Cost, Delivery and Flexibility
Nadpurohit
Measures for operational excellence:
An example
Performance Criterion for Comparison (1987) Japan@ U.S.*
Production of vehicles (Million) 4 8
Number of employees 37,000 850,000
Parts on which detailed Engg. is done (%) 30 81
No. of employees in purchasing 337 6000
Number of suppliers for upholstery 1# 25**
Design to customer delivery time (million Hrs.) 1.7 3
Design to customer delivery time (months) 46 60
@ - Data pertaining to Toyota; * - Data pertaining to GM

# - Single supplier; ** - 25 Suppliers were supplying components to seat buiding department.
Performance Criterion for comparison Group A Group B Group C
Suggestions/Employee 61.6 1.4 0.4

Training of new production workers (Hrs.) 380.3 370.0 46.4
Return to normal quality after new model introduction (months) 1.4 11 12
Average development time per new car (months) 46.2 60.4 57.3
No. of models between 1982 & 1989 47 to 84 43 to 49 36 to 53
No. of patents in motor vehicle industry (1986) 2100 1475 1100
No. of suppliers per plant 170 238 509
Proportion of parts delivered JIT 45% 35% 15%
No. of plants closed down during 1987-90 None 10 n.a.
Source: Womack, J.P., Jones, D.T. and Roos, D. (1990), “The Machine that changed the world”, Rawson Associates.

Nadpurohit
Operational Excellence
Performance measures
Quality Cost
First Pass Yield Average days of inventory (No. of inventory turns)
Quality Costs Manufacturing cost as percent of sales
Defects (Parts per Million) Procurement costs
Number of suggestions per employee Value of import substitution, cost reduction
Process Capability Indices Target cost reduction efforts
Delivery Flexibility
Lead time for order fulfillment Number of models introduced
Procurement and Manufacturing Lead time New product development time
On time delivery for supplies Breadth and depth of the product offerings
Schedule adherence Process & Manufacturing flexibility
Indirect Measures
Direct labour to Indirect labour ratio Number of suggestions per employee
Lead time to work content Non-value added content in processes
Process rate to sales rate ratio No. of certified deliveries
Average training time per employee Delivery quote for customised products

Nadpurohit
Options for Strategic Decision
in Operations
Pro
ct
ess
d u
c
Pro tfolio
Por
Operatio
ns
l ogy no
System
Tec
S ai n
Strategic
ly
h
p
Ch
Options
up
Capa
city

Nadpurohit
Operation Strategy Options
Product Portfolio
• Product portfolio pertains to decisions on
– what products the organisation wants to produce
– the number of variations in each product line
– the extent of customisation offered to customers
• Product portfolio as a strategic option
– Wide product portfolio: Overall strategic objective is to
provide highly differentiated set of products and services to
the customer
– Narrow product portfolio: Overall strategic objective is one of
cost leadership
• Examples in Services & Manufacturing
– Air travel from Bangalore to Delhi: JetLite and Kingfisher
Airlines differ vastly in terms of the service offered
– Computer manufacturers, Dell and IBM (Lenova): Overall
strategic objective of Dell appears to be one of providing
highly differentiated products, IBM appears to emphasise on
robust and reliable computing power

Nadpurohit
Process Choices
• Three types of flow happen on account of

process choices:
– Continuous streamlined flow
– Intermittent or batch flow
– Jumbled flow
• Choice of process will be consistent with
product portfolio decisions
– A manufacturer emphasising on production volumes,
fewer varieties and less cost will make process choices
pertaining to continuous streamlined flow
– An organisation wishing to satisfy an objective of
providing wide range of products to the customers will
adopt batch/intermittent flow type
– the need to provide a very large variety and practically a
production volume of one or few will adopt jumbled flow

Nadpurohit
Technology Choices
• Technological advancements in recent years have given new
opportunities for creating competitive advantage for firms
– Case of Asian Paints utilising technological advancements for
mixing of basic pigments to distribute paints in large varieties
of colours and in large assortment of sizes
• Using new technology options for manufacturing processes,
organisations can
– react faster to customer needs
– manage a wide portfolio of product offerings and
– yet maintain high levels of productivity
• Organisations making a strategic choice to operate in the
manufacture of mid-volume, mid-variety products could utilise
new technology

Nadpurohit
New Technology Options
Strategic Advantages
• Increased machine utilisation
• Scheduling flexibility: Permits an organisation to have flexibility
in scheduling thereby enabling the organisation to react to
changes fast
• Ease of engineering challenges: Changes in engineering design
and process plans can be easily accommodated by use of
technology based manufacturing and process design.
• Ease of expansion: Provides volume flexibility to the
organisation, making it much easier to expand in response to a
growing market
• Reduced manufacturing lead time
• Lower in-process inventory: Several of the above benefits
directly translate to lower work in process inventory and
reduced cost of manufacturing

Nadpurohit
Capacity
• Capacity is defined as
– maximum number of units of goods that can be
produced per unit time in the case of manufacturing
system
– the maximum number of service offerings that can be
made per unit time in the case of a service system
• Capacity decision influences the cost of goods and
services offered in three ways:
– accrued cost advantage due to economies of scale
– Ability to spread fixed costs over a larger capacity
– additional cost advantages in procuring other factors of
production

Nadpurohit
Supply Chain issues
• Supply chain refers to the network of entities supplying
components and raw material to an organisation as well
as those distributing the finished goods of an
organisation to the customers through alternative
channels
• Designing an appropriate supply chain calls for a better
understanding of the product profile for which the supply
chain is configured
• Two types of supply chains can be configured:
– Efficient supply chain: objective is cost optimisation and
better utilisation of resources employed in supply chain
operations; typically used in the case of functional products
– Responsive supply chain: the key objective is to develop a
capability to respond fast to the market requirements;
typically used in the case of innovative products

Nadpurohit
Flexibility – Cost Trade-off
Flexibility and Cost are

Cost
often viewed as
competing dimensions in
Operations Strategy
Flexibility

Nadpurohit
World Class Manufacturing (WCM)
Core building blocks
• WCM firms perform very well in all the four

parameters of Quality, Cost, Delivery and
Flexibility at the same time using better
operations management practices
• The new operations management tools that
form the core building blocks of WCM are:
– Just in Time (JIT)
– Total Quality Management (TQM)
– Total Productive Maintenance (TPM)
– Employee Involvement (EI)
– Simplicity

Nadpurohit
Changing Competitive Priorities for
WCM
1986 1996
Qual Qual
ity ity
Competi Competi
Flexib
Flexib
tive tive
ility
ility
Val
Co
ue
Prioritie st Prioritie
s of s of
WCM WCM
Deliv Spe
ery ed
Weak companies are plagued by Trade-off obstacles.
WCMs have gained an upper hand over the trade-off obstacles.

Nadpurohit
Strategic OM Decisions
Decision Area Affects
Product and service design Costs, quality liability and environmental
Capacity Cost structure, flexibility
Process selection and layout Costs, flexibility, skill level, capacity
Work design Quality of work life, employee safety, productivity
Location Costs, visibility

Quality Ability to meet or exceed customer expectations
Inventory Costs, shortages
Maintenance Costs, equipment reliability, productivity
Scheduling Flexibility, efficiency
Supply chains Costs, quality, agility, shortages, vendor relations
Projects Costs, new products, services, or operating systems

Nadpurohit
Operations Strategy
Emerging Trends & Implications
• Trend 1: Dismantling of trade barriers:
– Cost pressures from overseas players and large scale dumping of goods
(from low cost countries such as China)
– Tougher terms from regional trading blocks such as EU, NAFTA and
ASEAN
– Chinese manufacturers are a major threat to Indian manufacturing firms
as they have installed large capacities to benefit from capacity related
cost advantages
Implications
– Indian manufacturing firms can provide goods and services at a fraction of
the cost of that in the developed countries due to factor cost advantages
– India has a large installed base of technical manpower, manufacturing
know-how and experience in manufacturing management
– Indian manufacturing firms need to equip themselves with the required
operations management practices to enlarge the global trading
opportunities
– Operations management practices in the country should focus on
providing other advantages in addition to narrowing down the cost
differentials with China

Nadpurohit
Operations Strategy
• Trend 2: Outsourcing – a major wave
– Business Process Outsourcing (BPO) is an arrangement by
which some of the business processes are done by a third
party on behalf of the organisation
– The key motivation for a firm to outsource some of its
processes stems from three factors: Cost, Capacity and
Core competency
Implications
– Primary consideration for BPO is cost, operations strategy
for BPO firms must emphasise on cost leadership
– Since an organisation often out-sources the entire
operations pertaining to a business process to a third party,
quality considerations are to be met with stringent norms.
– Stringent delivery requirements may also have to be met as
the processes may be in the intermediate stages of the
value creation process.

Nadpurohit
BPO applications in
Organisations: Process View
Consulting Services Change Management
STRATEGIC Workflow Enhancements New Product Development
PROCESSES Brand Management E-business/E-governance
Vendor Asset Mgmt. Manufacturing Warehouse Management Installation &

Evaluation & Accounts Receivables
Fabrication Market Survey Servicing
Selection Stores & Payables Assembly Telemarketing Systems Integration
Management R& D Testing &Consulting,
OPERATIONAL PROCESSES
Employee welfare support, Facilities upkeep

IT Enabled Services
ENABLING Recruitment & Training Services, Employee Surveys
PROCESSES Transaction Processing, Auditing of Books of accounts
Contract Labor, Marketing & Sales support

Nadpurohit
Operations Strategy
• Trend 3: Collaborative commerce thru Internet
– Collaborative commerce is defined as the electronic
mechanism that enables the trading partners to transact
several aspects related to commerce
Implication
– Collaborative commerce opens up new areas for
consideration in operations management
• procurement and supply management practices
• design and new product development
– Trading partners can exchange vital production planning
and other technical information between them for
mutual benefit
– Organisations are benefiting from greater efficiency and
lower costs

Nadpurohit
Why Some Organizations
Fail
• Too much emphasis on short-term
financial performance
• Failing to take advantage of
strengths and opportunities
• Neglecting operations strategy
• Failing to recognize competitive
threats

Nadpurohit
Why Some Organizations
Fail
• Too much emphasis in product and
service design and not enough on
improvement
• Neglecting investments in capital
and human resources
• Failing to establish good internal
communications
• Failing to consider customer wants
and needs
Nadpurohit
Operations Strategy
Summary
• A strategic planning exercise enables an
organisation to respond to the market by
aligning the resources and activities in the
organisation to the market needs
• Operations strategy is the process of making
appropriate decisions in the operations
function on the basis of inputs from the
corporate strategy
• A strategy formulation exercise enables an
organisation to identify order winners and
order qualifiers.

Nadpurohit
Operations Strategy
Summary
• Four generic performance measures are useful in any
operations strategy exercise. These pertain to quality,
cost, delivery & flexibility.
• Translating corporate strategy to operations strategy
boils down to making appropriate choices with respect
to product portfolio, processes, technology, capacity
and supply chain.
• World Class Manufacturing organisations feature five
basic elements of operational excellence. These
include Just in Time (JIT), Total Quality Management
(TQM), Total Productive Maintenance (TPM), Employee
Involvement (EI) and Simplicity.
• Dismantling of trade practices demands that Indian
manufacturing & service organisations equip
themselves with the required operations management
practices to tap global trading opportunities.
Nadpurohit

Operations Management - Nature &amp; Scope of Operations &amp; Operations Strategy, 2010, SIMSR

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Operations Management - Nature &amp; Scope of Operations &amp; Operations Strategy, 2010, SIMSR

Uploaded by

Copyright:

Available Formats

Operations

Operations Management By Prof.

Operations Management By Prof.

Operations Management By Prof.

Operations Management By Prof.

Operations Management By Prof.

Inputs Processing Outputs

Operations Management By Prof.

Inputs Processing Outputs

Doctors, nurses Examination Healthy

Operations Management By Prof.

The operations function involves the conversion of

Operations Management By Prof.

The service operation

Service = experience + outcome

Operations Management By Prof.

Ayurvedic Healing Treatment

Operations Management By Prof.

Operations Management By Prof.

1998-99 1999-00 2000-01 2001-02 2002-03 2003-04

Operations Management By Prof.

Operations Management By Prof.

Customer Layer Operations Support Layer

Ultimate Dealers Marketing Maintenance Quality

Costing Planning Tooling

Core Operations Layer Material IT Design IE

Capital Operations Material & Services

Operations Management By Prof.

Design of Operations Operational Control of Operations

Product Design & Development Forecasting

• Design issues in Operations Management lay down overall

Operations Management By Prof.

Operations Management By Prof.

Operations Management By Prof.

Operations Management By Prof.

Operations Management By Prof.

Operations Management By Prof.

• Operations Management is a systematic

• Despite several important differences between

Operations Management By Prof.

Operations Management By Prof.

Mission Strategy Tactics

How does mission, strategies and tactics relate to

Operations Management By Prof.

A student. Would like to have a career in

Operations Management By Prof.

How effectively an organization meets the

Operations Management By Prof.

Operations Management By Prof.

Operations Management By Prof.

Operations Management By Prof.

Operations Management By Prof.

Operations Management By Prof.

Operations Management By Prof.

Finance Marketing Operations

Tactics Tactics Tactics

Operating Operating Operating

Operations Management By Prof.

Price Low Cost U.S. first-class postage

Quality High-performance design Sony TV

Time Rapid delivery Express Mail, Fedex,

Flexibility Variety Burger King

Service Superior customer Disneyland

Operations Management - Nature & Scope of Operations & Operations Strategy, 2010, SIMSR

Operations Management - Nature & Scope of Operations & Operations Strategy, 2010, SIMSR