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To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved.

Chapter 1 -

Operat ions

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DEFINITION:

DESIGN, OPERATION AND IMPROVEMENT

OF SYSTEMS THAT CREATE AND DELIVER

THE FIRMS PRIMARY PRODUCTS ANDSERVICES

CLEARLY „OM‟

IS A MANAGEMENT FUNCTION

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EXAMPLE

GETTING AN ITEM FROM GROCERY STORE MEANT

GOING TO THE SHOP WITH A BAG AND MONEY AND

GETTING THE PRODUCT.

HOWEVER, OPERATIONS CHANGED THE SYSTEM

SO THAT YOU CAN NOW ORDER ON PHONE AND

IT WILL BE HOME DELIVERED.

THIS OFCOURSE HAS BEEN MADE POSSIBLE WITH

THE HELP OF EASY AVAILABILITY OF PHONE

CONNECTIONS.

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EXAMPLE 2

ENCHASHING OF CHEQUE MEANT GOING TO BANK

STANDING IN QUEUE AND WAIT TO COLLECT CASH

IN PRECIOUS OFFICE TIME.

WITH THE CHANGE OF SYSTEM OF ATM‟S IT HAS

BEEN POSSIBLE TO COLLECT CASH AT ANY TIME

THOUGH THE FLEXIBILITY OF THE AMOUNT YOU

CAN COLLECT BEING LIMITED.

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Processes and

Operat ions

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Processes and

Operat ions

Inputs• Workers

• Managers

• Equipment

• Facilities

• Materials

• Services• Land

• Energy

Figure 1.1

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http://slidepdf.com/reader/full/om-class-1 7/55To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved.

Processes and

Operat ions

Processes andoperations

5

1

2

3

4

Inputs• Workers

• Managers

• Equipment

• Facilities

• Materials


• Energy

Figure 1.1

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Processes and

Operat ions Internal and

external customers


5

1

2

3

4

Inputs• Workers

• Managers

• Equipment

• Facilities

• Materials


• Energy

Figure 1.1

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Processes and

Operat ions

Outputs• Services

• Goods


5

1

2

3

4

Inputs• Workers

• Managers

• Equipment

• Facilities

• Materials


• Energy

Figure 1.1

Internal and

external customers

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Processes and

Operat ions

Outputs• Services

• Goods

Internal and

external customers

Information on

performance


5

1

2

3

4

Inputs• Workers

• Managers

• Equipment

• Facilities

• Materials


• Energy

Figure 1.1

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PROCESSES

PROCESSES CAN BE BROKEN DOWN INTO

SUB-PROCESSES. EACH OF THE PROCESSESCAN THEN BE TREATED AS PROCESS ITSELF

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Nested Processes at

Bank

Figure 1.2

BANK

Operations Retail Products Wholesale

Maintain cards

Research problems

Site analysis

Others

Process deposits

Cash checks

Safe deposit boxes

Others

Loan documentation

Review credit standing

Obtain manager approval

Others

Prepare reports

Attend meetings

Input funds deals

Others

ATM support

Customer transactionsService quality

Others

Teller line transactions

Track branch salesATM hotline

Others

Credit applications

Manage retail productsOriginate lease portfolio

Others

Fund management

Market making spotDealer support

Others

Cash Management

Loan operations

Trading operations

Others

Distribution

Compliance

Finance

Human resources

Auto Finance

Cards

Mortgages

Others

Trading

Loan administration

Leasing

Others

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Types o f OM Dec is ions

Strategic choices

Process

Quali ty

Capacity,

Locat ion,

Layout

Operat ing Decis ions

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Operat ions Management

as a Funct ion

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as a Funct ion

Figure 1.3

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As a Func t ion Skill Areas• Quantitative

methods

• Organizational

behavior

• General

management

• Information systems

• Economics• International

business

• Business ethics

and lawFigure 1.3

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FUNCTIONS OF

OPERATIONS MANAGER• STRATEGIC IN NATURE

• TACTICAL IN NATURE

• OPERATIONAL DECISIONS

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FUNCTIONS.. CONTD

STRATEGIC:

1. LOCATION AND CAPACITY PLANNING

2. PROCURE CAPITAL EQUIPMENT3. PLAN PRODUCT AND SERVICE MIX

4. CENTRALIZE OR DECENTRALIZE

5. DECIDE OPERATIONS ORG STRUCTURE

6. PROVIDE LEADERSHIP

IMPACTS LONG TERM EFFECTIVENESS THUS MUST

BE PLANNED IN ACCORDANCE WITH BUSINESS

STRATEGY

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FUNCTIONS .. CONTD

TACTICAL

1. PLAN MASTER SCHEDULE

2. PRODUCTION METHODS TO USE3. ESTABLISH QUALITY STANDARDS

4. JOB ASSIGNMENTS TO EMPLOYEES

5. REWARD SYSTEMS

6. JOB ENRICHMENT / ROTATION7. TRAINING AND DEVELOPMENT

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FUNCTIONS… CONTD

OPERATIONAL

1. DECIDING ON ALLOCATION OF SHIFTS

2. COMPARE LABOUR STANDARDS3. ALLOCATE JOBS TO MACHINES

4. ALLOCATE PERSONS TO JOBS

5. EVALUATE PROGRESS OF WORK

6. EVALUATE INVENTORY LEVELS7. MAINTAIN EQUIPMENT

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Con t inuum of Character is t ics

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More like amanufacturingorganization

More likea service

organization

Figure 1.4

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More likea service

organization

• Physical, durable product

• Output that can be inventoried

• Low customer contact

• Long response time

• Regional, national, or international markets

• Large facilities

• Capital intensive

• Quality easily measured

Figure 1.4

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More likea service

organization

• Physical, durable product

• Output that can be inventoried

• Low customer contact

• Long response time

• Regional, national, or

international markets

• Large facilities

• Capital intensive

• Quality easily measured

• Intangible, perishable product

• Output that cannot be

inventoried

• High customer contact

• Short response time

• Local markets

• Small facilities

• Labor intensive

• Quality not easily measured

Figure 1.4 ORG STRUCTURE CAN ALSO BE DIFFERENT

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SIMILARITY BETWEEN

MANUFACTURING AND SERVICE

WHILE WHAT IS DONE IS DIFFERENT BUT HOW IT IS

DONE IS SIMILAR.DESIGN AND OPERATIONS ARE SIMILAR

EX: MARUTI MUST DECIDE THE CAPACITY OF ITS

ASSEMBLY LINE AND THUS SIZE OF PLANT

SIMILARLY ICFAI MUST DECIDE THE CAPACITY

OF INTAKE OF STUDENTS AND THE SIZE OF

THE BUILDING IT MUST HAVE

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SIMILARITY BETWEEN

MANUFACTURING AND SERVICE

WHILE WHAT IS DONE IS DIFFERENT BUT HOW IT IS

DONE IS SIMILAR.DESIGN AND OPERATIONS ARE SIMILAR

EX: MARUTI MUST DECIDE THE DESIGN FOR THE

PRODUCT

SIMILARLY ICFAI MUST DECIDE THE COURSE

DESIGN WHICH WILL BE CALLED FOR BY

CORPORATE CUSTOMERS.

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APPROACH TO DECISION

MAKING1. QUANTITATIVE METHODS

METHODS SUCH AS LINEAR PROGRAMMINGPERT/CPM ANALYSIS

SIMULATION TECHNIQUES ETC

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2. ANALYSIS OF TRADE OFF‟S

THE DIFFERENCE BETWEEN INCREASED

LEVEL OF INVENTORY IS THE COST OF

HOLDING THAT INVENTORY AS AGAINST

LOSING CUSTOMER DUE TO STOCKOUT

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3. A SYSTEMS APPROACH

A SYSTEM BY WHICH WE DO NOT THINK

IN SILOS

QUALITY DEPT VS PRODUCTION

STORES VS PURCHASE ETCBUT THINK IN TERMS OF THE ENTIRE ORG

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3. A SYSTEMS APPROACH4. ESTABLISHING PRIORITIES

5. ETHICS

ESPECIALLY AFTER EXAMPLES OF

ENRON, ARTHUR ANDERSON ETC.

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HISTORICAL PERSPECTIVE

1770‟S -- INDUSTRIAL REVOLUTION

ADAM SMITH INTRODUCED DIVISION OF LABOR

1790‟S -- ELI WITNEY INTRODUCED THE CONCEPT OFINTERCHANGEABLE PARTS

1900‟S EARLY -- TAYLOR SCIENTIFIC MANAGEMENT

TIME AND MOTION STUDIES

LABOUR STANDARDS ,

DIVISION ON BASIS OF SKILL

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HISTORICAL PERSPECTIVE1927- HAWTHRONE STUDIES SHOWED HUMAN

RELATIONS AND WORK CONDITIONS PLAYED

IMPORTANT ROLE IN INCREASING PRODUCTIVITY

1940‟S WORLD WAR TIME- OPERATIONS RESEARCH ( OPTIMIZATION )

1970‟S COMPUTER APPLICATIONS TO MANUFACTURING

1980‟S CAD / CAM , JIT , TOTAL QUALITY

1990‟S DECISION SUPPORT SYSTEMS, SUPPLY CHAIN

2000‟S E- COMMERCE , VIRTUAL COMPANIES

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CURRENT ISSUES

1. CUSTOMERS NEED GREAT VARIETY YET

CUSTOMISED ( MASS CUSTOMIZATION)

2. CONSOLIDATION OF OPERATIONS AS ARESULT OF ACQUISITIONS / MERGERS

( GREATER ECONOMIES OF SCALE)

LIKE MITTAL STEEL , TATAS-CORUS

3. GLOBALIZED VENDOR SOURCINGLEADING TO COMPETITIVE PRESSURE

4. PROVIDE VALUE ADDED SERVICES

( EX: TAKE AMC AFTER SUPPLY)

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CURRENT ISSUES

5. ABILITY TO EFFICIENTLY USE TECHNOLOGY

6. GRABBING OPPORTUNITITES

( LAST MINUTE AUCTION OF AIRLINE TICKETSTO ENSURE NO SEAT GOES EMPTY. )

AND MANY MORE……………

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OPERATIONS STRATEGY

BEFORE YOU LOOK AT OPERATIONS STRATEGY

WE NEED TO UNDERSTAND ORGANISATION‟S

BUSINESS STRATEGY

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BUSINESS STRATEGY

THE PROCESS BY WHICH THE MISSION OF THE

FIRM IS PLANNED TO BE ACCOMPLISHED.

A BUSINESS STRATEGY WOULD THEREFORESTATE

“WHICH BUSINESSES TO PERSUE”

“WHICH MARKETS TO OPERATE”

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BUSINESS STRATEGY

WHICH BUSINESS TO PERSUE DEPEND ON

• CORE COMPETENCIES OF THE ORG

• SWOT ANALYSIS

• ORDER QUALIFIERS / ORDER WINNERS

• WHERE DOES THE FIRM POSITION ITSELF

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BUSINESS STRATEGY

CORE COMPETENCIES OF THE ORG

SWOT ANALYSIS

ORDER QUALIFIERS / ORDER WINNERS

WHERE DOES THE FIRM POSITION ITSELF

THESE INTURN DEPEND UPON

OPERATIONS STRATEGY

BUSINESS STRATEGY THUS GO HAND IN HAND

OPERATIONS STRATEGY

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HOW DO ORG COMPETE

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HOW DO ORG COMPETE

COMPETING ON COST IMPLIES:

• ELIMINATE ALL WASTE

• USE ECONOMIES OF SCALE ( VOLUME)

• HIGH INVESTMENT NOW TO REAP DIVIDENDS

LATER

• EXAMINE COST STRUCTURE OVER THE

ENTIRE VALUE CHAIN

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HOW DO ORG COMPETE

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HOW DO ORG COMPETE

FLEXIBILITY IMPLIES:

• ABILITY TO PROVIDE VARIETY ( CUSTOMISATION)

• ABILITY TO INTRODUCE NEW PRODUCTS

• ABILITY TO INNOVATE

EX: DELL GIVES YOU CONFIGURATION AS

REQUIRED BY CUSTOMER

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HOW DO ORG COMPETE

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HOW DO ORG COMPETE

QUALITY DOES NOT ONLY MEAN

• END PRODUCT QUALITY ( LOWER DEFECT RATE)

• CONFORMING TO DESIGN AND STANDARDS

BUT

• ENSURE PROCESS QUALITY

• HIGH PERFORMANCE DESIGN

• ENSURE TOTAL QUALITY AT ALL LEVELS

• ENSURE EMPLOYEE EMPOWERMENT

EX: GE , SONY ETC

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HOW DO ORG COMPETE

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HOW DO ORG COMPETESPEED IMPLIES

• AVAILABILITY OF RAW MATERIALS QUICKLY

• ABLE TO PROCESS FAST

• ADAPT FAST• TIGHT LINKAGES WITH VENDORS ETC

EXAMPLES:• 30 MINUTES FOR A PIZZA

• 7 DAYS TO DELIVER A CUSTOMIZED DELL LAPTOP

• PUMPS DELIVERY REDUCED FROM MONTHS TO

WEEKS

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ROLE OF OPERATIONS

•PERFORM ACTIVITIES DIFFERENT FROM THOSE

OF COMPETITION

• PERFORM SAME ACTIVITIES BETTER THAN

COMPETITION

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SOUTH WEST AIRLINE

• USES ONLY STANDARDIZED PLANES

CARRIES LESS SPARE PARTS INVENTORY

TRG FOR PILOTS STANDARDIZED

•OPERATES ONLY IN P-P SMALLER STATIONSNO DELAY IN TAKE OFF AND LANDING

MORE FLIGHTS PER AIRCRAFT

LEAN AND PRODUCTIVE CREW AND GROUND

• LIMITED PASSENGER SERVICE DUE TO SHORT

HAUL FLIGHTS• NO FRILLS, NO BAGGAGE TRANSFERS

• PAPER TICKETS

• NO AGENTS

• HENCE LOW TICKET PRICES

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OPERATIONS STRATEGY

(MANUFACTURING)MAKE – TO – STOCK STRATEGY

-- MINIMISE CUSTOMER DELIVERY TIMES

-- SUITABLE FOR STANDARDIZED PRODUCTS

-- WHERE REASONABLY ACCURACY FORECAST IS

POSSIBLE

-- HIGH VOLUMES / MASS PRODUCED

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OPERATIONS STRATEGY

(MANUFACTURING) ASSEMBLE -- TO -- ORDER STRATEGY

PRODUCED CUSTOMIZED PRODUCTS FROMRELATIVELY FEW ASSEMBLIES AND COMPONENTS

AFTER CUSTOMER ORDER IS RECEIVED

USUALLY KEEP IN STOCK (LOW)THE BASIC

INGREDIENTAND USE SAME TO ASSEMBLETHE VARIETY CUSTOMER ORDERS.

EX: PAINT INDUSTRY, DELL COMPUTERS

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OPERATIONS STRATEGY

(MANUFACTURING)MAKE TO ORDER STRATEGY

LOW VOLUMES , HIGHLY CUSTOMIZED PRODUCTS ARE MADE ONLY AFTER ORDER IS RECEIVED.

-- BUILDING A HOUSE, METRO ETC.

-- HIGH VALUE INDUSTRIAL PRODUCT-- PROCESSES ARE GEARED TO TAKE UP

VARIED TYPES OF WORK ARE RELATING TO

PROJECT ORIENTED .

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OPERATIONS STRATEGY

( SERVICES )STANDARDIZED SERVICES STRATEGY

EX: RAILWAY SERVICE , POSTAL SERVICE, COURIER

PROCESSES ARE STANDARDIZED AND THUS

HANDLE HIGH VOLUMES

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OPERATIONS STRATEGY

( SERVICES ) ASSEMBLE TO ORDER STRATEGY

EX: EVENT MANAGEMENT

DIFFERENT TYPES OF EVENTS WOULD INVOLVE

ASSEMBLING SEPARATE MODULES .

EACH MODULE IS STANDARDIZED AND THUS

CAN BE ASSEMBLED QUICKLY.

EX: SAME CURRY BUT DIFFERENT DISHES

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OPERATIONS STRATEGY

( SERVICES )CUSTOMIZED SERVICES STRATEGY

EX; DOCTOR , LAWYER PROVIDE CUSTOMISEDSERVICE.

PROCESS MAY BE SAME BUT EACH

CUSTOMER MUST BE LOOKED AT

THE PROCESS MUST BEGIN AFRESH.

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