Operations management ebook

This page
intentionally left
blank



Copyright © 2009, New Age International (P) Ltd., Publishers
Published by New Age International (P) Ltd., Publishers
All rights reserved.
No part of this ebook may be reproduced in any form, by photostat, microfilm,
xerography, or any other means, or incorporated into any information retrieval
system, electronic or mechanical, without the written permission of the publisher.
All inquiries should be emailed to

ISBN (13) : 978-81-224-2883-4

PUBLISHING FOR ONE WORLD

NEW AGE INTERNATIONAL (P) LIMITED, PUBLISHERS
4835/24, Ansari Road, Daryaganj, New Delhi - 110002
Visit us at www.newagepublishers.com


PREFACE

Operations management has been recognised as an important factor in a country’s economic growth.
The traditional view of manufacturing management is the concept of Production Management
with the focus on economic efficiency in manufacturing. Later the new name Operations
Management was identified, as service sector became more prominent. Rapid changes in technology

have posed numerous opportunities and challenges, which have resulted in enhancement of
manufacturing capabilities through new materials, facilities, techniques and procedures. Hence,
managing a service system has become a major challenge in the global competitive environment.
Operations Management has been a key element in the improvement and productivity in business
around the world. Operations Management leads the way for the organisations to achieve its goals
with minimum effort. Hence, the study of the subject at undergraduate and postgraduate level has
more significance.
This book on ‘Operations Management’ covers the complete syllabus of Bachelor of Engineering
of Visvesvaraya Technical University, Karnataka, however the coverage is wide enough to include
the requirements of Bachelor and Master Degree courses of other Indian universities and professional
courses like MBA, PGDCA, BBA.
Being student friendly is the unique feature of this book. The subject matter has been presented
systematically in ten chapters, which can enable the reader master the topics covered without any
additional guidance.
Complete care has been taken to make the book error free. However, mistakes might have
crept inadvertently. Readers finding any error are requested to bring it to our notice, for enabling us
to rectify them in our future editions.
We are grateful to Mr. Saumya Gupta, Managing Director and Mr. Sudarshan of New Age
International (P) Limited Publishers for their commitment and encouragement in bringing out this
book in time with good quality and for providing us the opportunity to share our knowledge with you.


vi
vi

Contents
Preface

The authors wish to express their sincere thanks to Principals and Managements of respective
colleges. Our acknowledgements are also due to Dr. Poornima Anil Kumar and Mrs. Bharathi

Suresh without whose support and sacrifice this work would not have been completed by the
deadline.
Finally, our acknowledgement is due to the Almighty who has blessed us with the knowledge,
required for writing this book.
S. Anil Kumar
N. Suresh


Contents

vii

CONTENTS

Preface
1. OPERATIONS MANAGEMENT CONCEPTS
1.1
1.2
1.3
1.4
1.5

1.6
1.7
1.8
1.9
1.10
1.11

1.12

1.13

Introduction
Historical Development
Concept of Production
Production System
Classification of Production System
1.5.1 Job-Shop Production
1.5.2 Batch Production
1.5.3 Mass Production
1.5.4 Continuous Production
Production Management
1.6.1 Objectives of Production Management
Operations System
1.7.1 A Framework of Managing Operations
Operations Management
Operations Management Objectives
The Strategic Role of Operations
Strategic Planning
1.11.1 Strategic Planning for Production and Operations
1.11.2 Strategic Planning Approaches for Production/Operations
1.11.3 Strategic Planning—Forced Choice Model
1.11.4 A Strategic Planning Operations Model
The Trend: Information and Non Manufacturing Systems
Productivity
1.13.1 Modern Dynamic Concept of Productivity
1.13.2 Factor Productivity and Total Productivity
1.13.3 Productivity Analysis

v

1–26
1
1
3
3
4
4
5
5
6
7
7
7
8
9
11
13
15
15
15
15
16
17
18
18
18
19


Contents

viii

1.14
1.15
1.16
1.17

Factors Affecting Productivity
International Dimensions of Productivity
The Environment of Operations
Scope of Operations Management
Exercise
References

2. OPERATIONS DECISION-MAKING
2.1
2.2
2.3
2.4
2.5

2.6
2.7
2.8
2.9

Introduction
Management as a Science
Characteristics of Decisions

Framework for Decision-Making
Decision Methodology
2.5.1 Complete Certainty Methods
2.5.2 Risk and Uncertainty Methods
2.5.3 Extreme Uncertainty Methods
2.5.4 Decision-Making Under Uncertainty
2.5.5 Decision-Making Under Risk
Decision Support System
Economic Models
2.7.1 Break-even Analysis
Statistical Models
2.8.1 Equations for Discrete and Continuous Data
Decision Tree
Exercise
References

3. SYSTEMS DESIGN AND CAPACITY
3.1
3.2
3.3
3.4
3.5
3.6

Introduction
Manufacturing and Service Systems
Design and Systems Capacity
Capacity Planning
Process of Capacity Planning
Importance of Capacity Decisions

Exercise
References

4. FACILITY LOCATION AND LAYOUT
4.1 Introduction and Meaning
4.2 Need for Selecting a Suitable Location
4.3 Factors Influencing Plant Location/Facility Location

19
20
20
21
25
26
27–51
27
27
28
28
30
30
30
31
31
33
35
35
35
43
45

46
49
51
53–60
53
53
54
55
55
57
60
60
61–103
61
61
66


Contents

4.4
4.5

4.6
4.7

4.8

4.9
4.10

4.11
4.12

ix

4.3.1 General Locational Factors
4.3.2 Specific Locational Factors for Manufacturing Organisation
4.3.3 Specific Locational Factors for Service Organisation
Location Theories
Location Models
4.5.1 Factor Rating Method
4.5.2 Weighted Factor Rating Method
4.5.3 Load-distance Method
4.5.4 Centre of Gravity
4.5.5 Break-even Analysis
Locational Economics
Plant Layout
4.7.1 Objectives of Plant Layout
4.7.2 Principles of Plant Layout
Classification of Layout
4.8.1 Process Layout
4.8.2 Product Layout
4.8.3 Combination Layout
4.8.4 Fixed Position Layout
4.8.5 Group Layout (or Cellular Layout)
Design of Product Layout
Design of Process Layout
Service Layout
Organisation of Physical Facilities
Exercise

5. FORECASTING DEMAND
5.1
5.2
5.3
5.4

Introduction
Forecasting Objectives and Uses
Forecasting Decision Variables
Forecasting Methods
5.4.1 Opinion and Judgmental Methods
5.4.2 Time Series Methods
5.5 Exponential Smoothing
5.5.1 Adjusted Exponential Smoothing
5.6 Regression and Correlation Methods
5.6.1 Regression
5.6.2 Correlation
5.7 Applications and Control of Forecast
5.7.1 Forecast Controls
Exercise
References

66
70
71
72
73
73
74

75
77
78
80
81
81
82
82
82
83
84
85
85
87
91
94
95
102
105–128
105
105
105
106
106
106
112
113
114
114
117

119
119
125
128


Contents

x

6. PRODUCT DEVELOPMENT AND DESIGN

129–160

6.1 Introduction
6.2 Purpose of a Product Design
6.3 Product Analysis
6.3.1 Marketing Aspect
6.3.2 The Product Characteristics
6.3.3 Economic Analysis
6.3.4 Production Aspect
6.4 A Framework for Process Design
6.4.1 Product Planning
6.4.2 Process Design : MACRO
6.4.3 Process Design : MICRO
6.5 Design for Manufacture (DFM)
6.6 Design for Excellence
6.6.1 Concurrent Development Activities
Exercise
References

129
129
130
131
133
136
150
150
150
152
153
153
156
158
160
160

7. MATERIALS MANAGEMENT
7.1 Introduction and Meaning
7.2 Scope or Functions of Materials Management
7.3 Material Planning and Control
7.3.1 Techniques of Material Planning
7.4 Purchasing
7.4.1 Objectives of Purchasing
7.4.2 Parameters of Purchasing
7.4.3 Purchasing Procedure
7.4.4 Selection of Suppliers
7.4.5 Special Purchasing Systems
7.5 Stores Management

7.5.1 Codification
7.6 Inventory Control or Management
7.6.1 Meaning of Inventory
7.6.2 Reasons for Keeping Inventories
7.6.3 Meaning of Inventory Control
7.6.4 Objectives of Inventory Control
7.6.5 Benefits of Inventory Control
7.6.6 Techniques of Inventory Control
7.6.7 Inventory Model
7.7 Standardization
7.7.1 Advantages of Standardization
7.7.2 Disadvantages of Standardization

161–190
161
161
163
163
164
164
165
167
169
173
174
175
176
176
176
176

177
177
177
179
183
183
185


Contents

xi

7.8 Simplification
7.8.1 Advantages of Simplification
7.9 Value Analysis
7.9.1 Value Analysis Framework
7.9.2 Steps in Value Analysis
7.10 Ergonomics (Human Engineering)
7.10.1 Objectives of Human Engineering
7.11 Just-in-Time (JIT) Manufacturing
7.11.1 Seven Wastes
7.11.2 Benefits of JIT
Exercise
8. AGGREGATE PLANNING AND MASTER SCHEDULING
8.1
8.2
8.3
8.4
8.5

8.6

Introduction
Variables Used in Aggregate Planning
Aggregate Planning Strategies
Mixed Strategies
Mathematical Planning Models
Master Scheduling
8.6.1 Master Scheduling Planning Horizon
8.6.2 Master Scheduling Format
8.6.3 Available-to-Promise Quantities
Exercise
References

9. MATERIAL AND CAPACITY REQUIREMENTS PLANNING
(MRP AND CRP)
9.1 MRP and CRP Objectives
9.2 MRP Inputs and Outputs
9.2.1 Bill of Materials
9.2.2 Low-level Coding
9.3 MRP Logic
9.4 System Refinements
9.5 Safety Stock, Lot Sizing and System Updating
9.6 CRP Inputs and Outputs
9.7 Loading
9.7.1 Steps in the Loading
9.7.2 Loading Concepts
Exercise
References

185
185
185
186
186
187
187
188
188
189
190
191–216
191
192
195
198
200
202
203
204
205
213
216
217–235
217
219
219
219
224
227

227
231
231
232
233
234
235


Contents

xii

10. SCHEDULING AND CONTROLLING PRODUCTION ACTIVITIES
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9

10.10
10.11
10.12
10.13
10.14
10.15

Introduction
Concept of Single Machine Scheduling
Measures of Performance
Shortest Processing Time (SPT) Rule
WSPT Rule
Earliest Due Date (EDD) Rule
Minimizing the Number of Tardy Jobs
Flow Shop Scheduling
Johnson’s Problem
10.9.1 Johnson’s Algorithm
10.9.2 Extension of Johnson’s Rule
CDS Heuristic
Job-Shop Problem
Types of Schedules
Heuristic Procedures
Priority Dispatching Rules
Two Jobs and M Machines Scheduling
Exercise
References
Glossary

237–257
237
237
238
239
240
241
241

244
246
246
247
249
251
252
253
253
254
256
257
259–277


Operations Management Concepts

1

1
OPERATIONS MANAGEMENT CONCEPTS
CHAPTER OUTLINE
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8

1.9
1.10

1.1

Introduction
Historical Development
Concept of Production
Production System
Classification of Production System
Production Management
Operations System
Operations Management
Operations Management Objectives
The Strategic Role of Operations

1.11 Strategic Planning
1.12 The Trend: Information and Non Manufacturing System
1.13 Productivity
1.14 Factors Affecting Productivity
1.15 International Dimensions of Productivity
1.16 The Environment of Operations
1.17 Scope of Operations Management
• Exercise
• References

INTRODUCTION

Operation is that part of as organization, which is concerned with the transformation of a range of
inputs into the required output (services) having the requisite quality level. Management is the process,

which combines and transforms various resources used in the operations subsystem of the organization
into value added services in a controlled manner as per the policies of the organization.
The set of interrelated management activities, which are involved in manufacturing certain products,
is called as production management. If the same concept is extended to services management, then
the corresponding set of management activities is called as operations management.
1.2

HISTORICAL DEVELOPMENT

For over two centuries operations and production management has been recognized as an important
factor in a country’s economic growth.
The traditional view of manufacturing management began in eighteenth century when Adam
Smith recognised the economic benefits of specialization of labour. He recommended breaking of
jobs down into subtasks and recognises workers to specialized tasks in which they would become
highly skilled and efficient. In the early twentieth century, F.W. Taylor implemented Smith’s theories


Operations Management

2

and developed scientific management. From then till 1930, many techniques were developed prevailing
the traditional view. Brief information about the contributions to manufacturing management is shown
in the Table 1.1.
Production Management becomes the acceptable term from 1930s to 1950s. As F.W. Taylor’s
works become more widely known, managers developed techniques that focused on economic
efficiency in manufacturing. Workers were studied in great detail to eliminate wasteful efforts and
achieve greater efficiency. At the same time, psychologists, socialists and other social scientists
began to study people and human behaviour in the working environment. In addition, economists,
mathematicians, and computer socialists contributed newer, more sophisticated analytical approaches.

With the 1970s emerge two distinct changes in our views. The most obvious of these, reflected in
the new name Operations Management was a shift in the service and manufacturing sectors of the
economy. As service sector became more prominent, the change from ‘production’ to ‘operations’
emphasized the broadening of our field to service organizations. The second, more suitable change
was the beginning of an emphasis on synthesis, rather than just analysis, in management practices.
Table 1.1 Historical summary of operations management
Date

Contribution

Contributor

1776 Specialization of labour in manufacturing

Adam Smith

1799 Interchangeable parts, cost accounting

Eli Whitney & others

1832 Division of labour by skill; assignment of jobs by Skill; basics of
time study

Charles Babbage

1900 Scientific management time study and work study Developed;
dividing planning and doing of work

Frederick W.Taylor

1900 Motion of study of jobs

Frank B. Gilbreth

1901 Scheduling techniques for employees, machines Jobs in
manufacturing

Henry L. Gantt

1915 Economic lot sizes for inventory control

F.W. Harris

1927 Human relations; the Hawthorne studies

Elton Mayo

1931 Statistical inference applied to product quality: quality control
charts

W.A. Shewart

1935 Statistical Sampling applied to quality control: inspection
sampling plans

H.F.Dodge & H.G.Roming

1940 Operations research applications in world war II

P.M.Blacker & others

1946 Digital Computer

John Mauchlly and J.P.Eckert

1947 Linear Programming

G.B.Dantzig, Williams & others

1950 Mathematical programming, on-linear and stochastic processes

A.Charnes, W.W.Cooper & others

1951 Commercial digital computer: large-scale computations available Sperry Univac
1960 Organisational behaviour: continued study of people at work

L.Cummings, L.Porter

1970 Integrating operations into overall strategy and policy Computer
applications to manufacturing, scheduling, and control, Material
Requirement Planning (MRP)

W.Skinner J.Orlicky & G. Wright

1980 Quality and productivity applications from Japan: robotics,
CAD-CAM

W.E. Deming & J.Juran

Operations Management Concepts

1.3

3

CONCEPT OF PRODUCTION

Production function is ‘the part of an organisation, which is concerned with the transformation of
a range of inputs into the required outputs (products) having the requisite quality level’.
Production is defined as ‘the step-by-step conversion of one form of material into another
form through chemical or mechanical process to create or enhance the utility of the product to the
user’. Thus production is a value addition process. At each stage of processing, there will be value
addition.
Edwood Buffa defines production as ‘a process by which goods and services are created’.
Some examples of production are: manufacturing custom-made products like, boilers with a
specific capacity, constructing flats, some structural fabrication works for selected customers, etc.,
and manufacturing standardized products like, car, bus, motor cycle, radio, television, etc.
1.4

PRODUCTION SYSTEM

The production system is ‘that part of an organisation, which produces products of an organisation.
It is that activity whereby resources, flowing within a defined system, are combined and transformed
in a controlled manner to add value in accordance with the policies communicated by management’.
A simplified production system is shown below:

Fig.1.1 Schematic production system

The production system has the following characteristics:

1. Production is an organised activity, so every production system has an objective.
2. The system transforms the various inputs to useful outputs.
3. It does not operate in isolation from the other organisation system.
4. There exists a feedback about the activities, which is essential to control and improve system
performance.


Operations Management

4

1.5

CLASSIFICATION OF PRODUCTION SYSTEM

Production systems can be classified as Job-shop, Batch, Mass and Continuous production systems.

Fig. 1.2 Classifications of production systems

1.5.1 Job-Shop Production
Job-shop production are characterised by manufacturing one or few quantity of products designed
and produced as per the specification of customers within prefixed time and cost. The distinguishing
feature of this is low volume and high variety of products.
A job-shop comprises of general-purpose machines arranged into different departments. Each
job demands unique technological requirements, demands processing on machines in a certain
sequence.
Job-shop Production is characterised by
1. High variety of products and low volume.
2. Use of general purpose machines and facilities.
3. Highly skilled operators who can take up each job as a challenge because of uniqueness.

4. Large inventory of materials, tools, parts.
5. Detailed planning is essential for sequencing the requirements of each product, capacities for
each work centre and order priorities.
Advantages
Following are the advantages of Job-shop Production:
1. Because of general purpose machines and facilities variety of products can be produced.
2. Operators will become more skilled and competent, as each job gives them learning
opportunities.
3. Full potential of operators can be utilised.
4. Opportunity exists for Creative methods and innovative ideas.


Operations Management Concepts

5

Limitations
Following are the limitations of Job-shop Production:
1. Higher cost due to frequent set up changes.
2. Higher level of inventory at all levels and hence higher inventory cost.
3. Production planning is complicated.
4. Larger space requirements.
1.5.2 Batch Production
American Production and Inventory Control Society (APICS) defines Batch Production as a form
of manufacturing in which the job pass through the functional departments in lots or batches and
each lot may have a different routing. It is characterised by the manufacture of limited number of
products produced at regular intervals and stocked awaiting sales.
Batch Production is characterised by
1. Shorter production runs.
2. Plant and machinery are flexible.

3. Plant and machinery set up is used for the production of item in a batch and change of set up
is required for processing the next batch.
4. Manufacturing lead-time and cost are lower as compared to job order production.
Advantages
Following are the advantages of Batch Production:
1. Better utilisation of plant and machinery.
2. Promotes functional specialisation.
3. Cost per unit is lower as compared to job order production.
4. Lower investment in plant and machinery.
5. Flexibility to accommodate and process number of products.
6. Job satisfaction exists for operators.
Limitations
Following are the limitations of Batch Production:
1. Material handling is complex because of irregular and longer flows.
2. Production planning and control is complex.
3. Work in process inventory is higher compared to continuous production.
4. Higher set up costs due to frequent changes in set up.
1.5.3 Mass Production
Manufacture of discrete parts or assemblies using a continuous process are called Mass Production.
This production system is justified by very large volume of production. The machines are arranged
in a line or product layout. Product and process standardisation exists and all outputs follow the
same path.


Operations Management

6

Mass Production is characterised by
1. Standardisation of product and process sequence.

2. Dedicated special purpose machines having higher production capacities and output rates.
3. Large volume of products.
4. Shorter cycle time of production.
5. Lower in process inventory.
6. Perfectly balanced production lines.
7. Flow of materials, components and parts is continuous and without any back tracking.
8. Production planning and control is easy.
9. Material handling can be completely automatic.
Advantages
Following are the advantages of Mass Production:
1. Higher rate of production with reduced cycle time.
2. Higher capacity utilisation due to line balancing.
3. Less skilled operators are required.
4. Low process inventory.
5. Manufacturing cost per unit is low.
Limitations
Following are the limitations of Mass Production:
1. Breakdown of one machine will stop an entire production line.
2. Line layout needs major change with the changes in the product design.
3. High investment in production facilities.
4. The cycle time is determined by the slowest operation.
1.5.4 Continuous Production
Production facilities are arranged as per the sequence of production operations from the first operations
to the finished product. The items are made to flow through the sequence of operations through
material handling devices such as conveyors, transfer devices, etc.
Continuous Production is characterised by
1. Dedicated plant and equipment with zero flexibility.
2. Material handling is fully automated.
3. Process follows a predetermined sequence of operations.
4. Component materials cannot be readily identified with final product.

5. Planning and scheduling is a routine action.
Advantages
Following are the advantages of Continuous Production:
1. Standardisation of product and process sequence.
2. Higher rate of production with reduced cycle time.
3. Higher capacity utilisation due to line balancing.
4. Manpower is not required for material handling as it is completely automatic.


Operations Management Concepts

7

5. Person with limited skills can be used on the production line.
6. Unit cost is lower due to high volume of production.
Limitations
Following are the limitations of Continuous Production:
1. Flexibility to accommodate and process number of products does not exist.
2. Very high investment for setting flow lines.
3. Product differentiation is limited.
1.6

PRODUCTION MANAGEMENT

Production management is ‘a process of planning, organising, directing and controlling the activities
of the production function. It combines and transforms various resources used in the production
subsystem of the organization into value added product in a controlled manner as per the policies of
the organization’.
E.S.Buffa defines production management as follows:
‘Production management deals with decision-making related to production processes so that

the resulting goods or services are produced according to specifications, in the amount and by the
schedule demanded and out of minimum cost’.
1.6.1 Objectives of Production Management
The objective of the production management is ‘to produce goods and services of Right Quality and
Quantity at the Right time and Right manufacturing cost’.
1. Right Quality: The quality of product is established based upon the customers need. The
right quality is not necessarily being the best quality. It is determined by the cost of the product and
the technical characteristics as suited to the specific requirements.
2. Right Quantity: The manufacturing organisation should produce the products in right number.
If they are produced in excess of demand the capital will block up in the form of inventory and if the
quantity is produced in short of demand, leads to shortage of products.
3. Right Time: Timeliness of delivery is one of the important parameter to judge the
effectiveness of production department. So, the production department has to make the optimal
utilization of input resources to achieve its objective.
4. Right Manufacturing Cost: Manufacturing costs are established before the product is
actually manufactured. Hence, all attempts should be made to produce the products at pre-established
cost, so as to reduce the variation between actual and the standard (pre-established) cost.
1.7

OPERATIONS SYSTEM

An operation was defined in terms of the mission it serves for the organisation, technology it employs
and the human and managerial processes it involves. Operations in an organisation can be categorised
into Manufacturing Operations and Service Operations. Manufacturing Operations is a conversion
process that includes manufacturing yields a tangible output: a product, whereas, a conversion process
that includes service yields an intangible output: a deed, a performance, an effort.


Operations Management

8

Operations system converts inputs in order to provide outputs, which are required by a customer.
It converts physical resources into outputs, the function of which is to satisfy customer wants.
Everett E. Adam & Ronald J. Ebert defines as ‘An operating system is the part of an
organisation that produces the organistion’s physical goods and services’.
Ray Wild defines operations system as ‘a configuration of resources combined for the provision
of goods or services’.
In some of the organisation the product is a physical good (breakfast in hotels) while in others it
is a service (treatment in hospitals). Bus and taxi services, tailors, hospital and builders are the
examples of an operations system. The basic elements of an operation system show in Figure 1.3
with reference to departmental stores.
A departmental store's has an input like land upon which the building is located, labour as a stock
clerk, capital in the form of building, equipment and merchandise, management skills in the form of
the stores manager. Output will be serviced customer with desired merchandise. Random fluctuations
will be from external or internal sources, monitored through a feedback system.
Late delivery
Labour tumover

Fig.1.3 Operations system for department stores

1.7.1 A Framework of Managing Operations
Managing Operations can be enclosed in a frame of general management function as shown in
figure 1.3. Operation managers are concerned with planning, organising, and controlling the activities,
which affect human behaviour through models.
Planning is the activity that establishes a course of action and guide future decision-making. The
operations manager defines the objectives for the operations subsystem of the organisation, and the
policies, and procedures for achieving the objectives. This stage includes clarifying the role and
focus of operations in the organization’s overall strategy. It also involves product planning, facility
designing and using the conversion process.

Organizing is the activities that establish a structure of tasks and authority. Operation managers
establish a structure of roles and the flow of information within the operations subsystem. They
determine the activities required to achieve the goals and assign authority and responsibility for
carrying them out.
Controlling is the activities that assure the actual performance in accordance with planned
performance. To ensure that the plans for the operations subsystems are accomplished, the operations


Operations Management Concepts

9

manager must exercise control by measuring actual outputs and comparing them to planned operations
management. Controlling costs, quality, and schedules are the important functions here.
1. Behaviour: Operations managers are concerned with the activities, which affect human
behaviour through models. They want to know the behaviour of subordinates, which affects managerial
activities. Their main interest lies in the decision-making behaviour.
2. Models: Models represents schematic representation of the situation, which will be used
as a tool for decision-making. Following are some of the models used.
Aggregate planning models for examining how best to use existing capacity in short term,
break-even analysis to identify break-even volumes, Linear programming and computer simulation
for capacity utilisation, Decision tree analysis for long-term capacity problem of facility expansion,
simple median model for determining best locations of facilities, etc.

Fig. 1.4 General model for managing operations

1.8

OPERATIONS MANAGEMENT

Joseph G .Monks defines Operations Management as the process whereby resources, flowing
within a defined system, are combined and transformed by a controlled manner to add value
in accordance with policies communicated by management.


10

Operations Management

The operations managers have the prime responsibility for processing inputs into outputs. They
must bring together under production plan that effectively uses the materials, capacity and knowledge
available in the production facility. Given a demand on the system work must be scheduled and
controlled to produce goods and/or services required. Control must be exercised over such parameters
such as costs, quality and inventory levels.
The definition of the operations Management contains following keywords: Resources, Systems,
transformation and Value addition Activities.

RESOURCES
Resources are the human, material and capital inputs to the production process. Human resources
are the key assets of an organisation. As the technology advances, a large proportion of human input
is in planning and controlling activities. By using the intellectual capabilities of people, managers can
multiply the value of their employees into by many times. Material resources are the physical facilities
and materials such as plant equipment, inventories and supplies. These are the major assets of an
organisation. Capital in the form of stock, bonds, and/or taxes and contributions is a vital asset.
Capital is a store of value, which is used to regulate the flow of the other resources.

SYSTEMS
Systems are the arrangement of components designed to achieve objectives according to the plan.
The business systems are subsystem of large social systems. In turn, it contains subsystem such as
personnel, engineering, finance and operations, which will function for the good of the organisation.

A systems approach to operations management recognises the hierarchical management
responsibilities. If subsystems goals are pursued independently, it will results in sub-optimization. A
consistent and integrative approach will lead to optimization of overall system goals.
The system approach to specific problems requires that the problem first be identified and
isolated from the maze of the less relevant data that constitute the environment. The problem abstracted
from the overall (macro) environment. Then it can be broken into manageable (micro) parts and
analysed and solutions proposed. Doing this analysis is advantageous before making any changes. If
the solution appears to solve the problem in a satisfactory way, changes can be made to the real
system in an orderly and predictable way.
The ability of any system to achieve its objective depends on its design and its control. System
design is a predetermined arrangement of components. It establishes the relationships that must
exist between inputs, transformation activities and outputs in order to achieve the system objectives.
With the most structured design, there will be less planning and decision-making in the operations of
the system. System control consists of all actions necessary to ensure that activities conform to
preconceived plans or goals. It involves following four essential elements:
1. Measurement by an accurate sensory device.
2. Feedback of information in a timely manner.
3. Comparison with standards such as time and cost standards.
4. Corrective actions by someone with the authority and ability to correct.


Operations Management Concepts

11

A closed loop control system can automatically function on the basis of data from within its own
system.

TRANSFORMATION AND VALUE ADDING ACTIVITIES
The objective of combining resources under controlled conditions is to transform them into goods

and services having a higher value than the original inputs. The transformation process applied will
be in the form of technology to the inputs. The effectiveness of the production factors in the
transformation process is known as productivity.
The productivity refers to the ratio between values of output per work hour to the cost of inputs.
The firms overall ratio must be greater than 1, then we can say value is added to the product.
Operations manager should concentrate improving the transformation efficiency and to increase the
ratio.

Fig. 1.5 Schematic model for operations/production system

1.9

OPERATIONS MANAGEMENT OBJECTIVES

Joseph G . Monks defines Operations Management as the process whereby resources, flowing
within a defined system, are combined and transformed by a controlled manner to add value
in accordance with policies communicated by management.
Objectives of Operations Management can be categorized into Customer Service and Resource
Utilisation.

CUSTOMER SERVICE
The first objective of operating systems is to utilize resources for the satisfaction of customer
wants. Therefore, customer service is a key objective of operations management. The operating
system must provide something to a specification, which can satisfy the customer in terms of cost
and timing. Thus, providing the ‘right thing at a right price at the right time’ can satisfy primary
objective.


Operations Management

12

These aspects of customer service – specification, cost and timing – are described for four
functions in Table 1.1. They are the principal sources of customer satisfaction and must therefore
be the principal dimension of the customer service objective for operations managers.
Generally, an organisation will aim reliably and consistently to achieve certain standards and
operations manager will be influential in attempting to achieve these standards. Hence, this objective
will influence the operations manager’s decisions to achieve the required customer service.
Table 1.2 Aspects of customer service
Principal
function

Principal customer wants
Primary considerations

Other considerations

Manufacture

Goods of a given, requested
or acceptable specification

Cost, i.e. purchase price or cost of obtaining
goods. Timing, i.e. delivery delay from order or
request to receipt of goods.

Transport

Management of a given,
requested or acceptable

specification

Cost, i.e. cost of movements. Timing, i.e.
1. Duration or time to move.
2. Wait or delay from requesting to its
commencement.

Supply

Goods of a given, requested or
acceptable specification

Cost, i.e. purchase price or cost of obtaining
goods. Timing, i.e. delivery delay from order or
request to receipt of goods.

Service

Treatment of a given, requested
or acceptable specification

Cost, i.e. cost of movements. Timing, i.e.
1. Duration or time required for treatment.
2. Wait or delay from requesting treatment to its
commencement.

RESOURCE UTILISATION
Another major objective of operating systems is to utilize resources for the satisfaction of customer
wants effectively. Customer service must be provided with the achievement of effective operations
through efficient use of resources. Inefficient use of resources or inadequate customer service

leads to commercial failure of an operating system.
Operations management is concerned essentially with the utilisation of resources, i.e. obtaining
maximum effect from resources or minimising their loss, under utilisation or waste. The extent of
the utilisation of the resources’ potential might be expressed in terms of the proportion of available
time used or occupied, space utilisation, levels of activity, etc. Each measure indicates the extent to
which the potential or capacity of such resources is utilised. This is referred as the objective of
resource utilisation.
Operations management is concerned with the achievement of both satisfactory customer service
and resource utilisation. An improvement in one will often give rise to deterioration in the other.
Often both cannot be maximized, and hence a satisfactory performance must be achieved on both
objectives. All the activities of operations management must be tackled with these two objectives in