2. What is Operations Management?
The direction and control of the processes
that transform inputs into products and
services
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3. Operations Management
Operations Management is a set of
decisions that the Operations Manager
makes these could be strategic & tactical
namely:
• Strategic
• Process
• Quality
• Capacity, Location and Layout
• Operating decision
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4. Operations Management as a
Function
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5. OM Decisions
1. Strategic Choices
These decisions affect the company’s future
direction.
Operations
Managers
help
determine the company’s global strategy and
competitive priorities. How the OM’s will best
design the process to fit with its competitive
priorities.
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6. OM Decisions
2. Process
The Operations Managers make process
decisions about the types of work to be done
in-house, the amount of automation to be used,
methods to improve current processes and
technologies to pursue to become market
leaders.
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7. OM Decisions
3. Quality
Quality issues underlie all processes and work
activity. Operations Managers help in establish
quality objectives and seek ways to improve
the quality of the firms products/services and
use various statistical methods to monitor the
quality produced by various processes.
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8. OM Decisions
4. Capacity, Location and Layout
The types of decisions in this category require
long term commitments. Operations Managers
help to determine the systems capacity,
location of new facility including global
locations and organizing of the departments
physical layout.
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9. OM Decisions
5. Operating Decisions
These deal with operating the facility after it is
built, this requires Operations Managers to
help co-ordinate with internal and external
supply chain, manage inventory, control
output and staffing levels, do resource
planning, implement new techniques etc.
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10. Manufacturing v/s Services
Manufacturing
Services
Physical Product
Intangible product
Output can be inventoried
Output cannot be
inventoried
Low customer contact
High customer contact
Long response time
Short response time
Regional, national or
international markets
Local Markets
Large facilities
Small facilities
Capital intensive
Labor intensive
Quality easily measured
Quality not easily measured
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11. Operations Strategy a
Competitive Weapon
• An Organization that wants to succeed in a
competitive business needs needs a sound
strategy.
• A strategy is a broad long term plan
conceived in order to achieve business
objectives.
• Strategies are developed at 3 levels:
• Corporate level
• Business level
• Functional level
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12. Operations Strategy a
Competitive Weapon
Key objective of any business organization
is to attract more customers than its
competitors and they do that with:
• Product/Process Expertise
• E.g. Intel Corp using superior chip
technology
• Quick Delivery – An organization with
flexible capacity, an adaptive production
process and satisfy customer needs
• E.g. 1 hour photo
• “Same-day” dry-cleaning
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13. Elements of Operations Strategy
• Designing the production system.
• Product/Service design and development.
• Technology
selection
and
process
development.
• Allocation of resources to strategic
alternatives
• Facility planning
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14. Designing the Production System
• Product Design
• Customized product design: high level of
customization and quantity produced is
low. E.g. Rolls Royce, Handmade watches
etc.
• Standard Product design: Production of
limited variety of products but produced
in large batches. E.g. Ford Model T,
coolers, fan, televisions etc.
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15. Designing the Production System
• Production System
• Product-focused systems: used generally
employed in mass production units
where there are groups of machines,
tools and workers arranged according to
tasks. E.g. cars, televisions etc.
• Process-focused systems: Designed to
support departments that perform a
single task like painting or packing .
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16. Finished Good Inventory Policy
• Produce-to-stock: Products are produced
well in advance and are stored in
warehouses from where they are
dispatched as per customer orders
• Produce-to-order: This allows production
to start only after the company receives
customer orders and halts production until
another order is received
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17. Product/Service Design and
Development
The following are the important steps in
the development of new products:
• Idea Generation
• Feasibility Studies
• Prototype Design
• Prototype Testing
• Initial Design of Production Model
• Economic Evaluation
• Market Testing
• Final Design of Production Model
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18. Product/Service Life Cycle
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19. Product/Service Life Cycle
Once Product Design is finalized:
• Technology
selection
and
process
development: This involves thorough
analysis and planning or the production
process and facilities
• Allocation of resources to strategic
alternatives: Minimizing wastage and
optimal use of resources
• Facility Planning: Set up facility with
adequate capacity and proximity to raw
materials
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20. Developing Operations Strategy
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21. Financial and Economic Analysis
Productivity =
Output
--------------------Input
Two types of Productivity:
• Labor Productivity – Index of output per
person or per hour worked
• Multifactor Productivity – output provided
by more than 1 resource used in input
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22. Productivity Calculations
Calculate the productivity for the following
operations:
1. Three employees process 600 insurance
policies in a week. They work 8 hours per
day and 5 days per week
2. A team of workers make 400 units of a
product, which is valued by its standard
cost of $10 each. The accounting
department reports that for this job the
actual costs are $400 for labor, $1000 for
material and $300 for overhead
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23. Productivity Calculations
Policies Processed
------------------------Employee hours
Labor Productivity =
Labor Productivity =
600 policies
-------------------------
(3
employees)(40hrs/empl
oyee)
= 5 policies/hour
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24. Productivity Calculations
Quantity at standard cost
Multifactor Productivity =
-------------------------
Labor cost+Material cost+overhead cost
(400 units)($10/unit)
Multifactor Productivity =
------------------------$400+$1000+$300
= $4000/$1700
= 2.35
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25. Productivity Calculations
Calculate the productivity for the following
operations:
1. 5 employees create 800 units of chairs in a
week. They work 10 hours per day and 6
days per week
2. A team of workers make 500 units of
television, which is valued by its standard
cost of $150 each. The accounting
department reports that for this job the
actual costs are $300 for labor, $800 for
material and $400 for overhead
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26. Financial and Economic Analysis
Two methods to evaluate the
effectiveness of an investment:
• Payback Method
• Net Present Value (NPV) method
cost
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27. Financial and Economic Analysis
Payback Method:
Payback period =
Net Investment
--------------------Net Annual income
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28. Productivity Calculations
Calculate the productivity for Payback
Method:
1. The initial investment for a factory is 12
lakhs and is expected to generate an
income of 3 lakhs per annum what is the
payback period
2. The initial investment in a call center is 45
lakhs and is expected to generate a revenue
of $20,000/- per annum, what is the
payback period.
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29. Financial and Economic Analysis
Net Present Value (NPV):
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30. Financial and Economic Analysis
Net Present Value (NPV):
If the NPV is greater than 1 then the project is
acceptable. If the NPV is less than zero the
project is rejected.
The greater the NPV of a project the better the
profitability
When multiple projects are being considered
then project with highest NPV is selected
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