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Amity School of Business

FUNDAMENTALS OF PRODUCTION ANDOPERATION MANAGEMENT

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Module I: UnderstandingOperations

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Operations management: trends and issues.Operations management in service systems.

Operations managementa system

perspective.

Challenges of operations management.Priorities of operations management.

Operations strategy and its formulation process.

Determinants of process characteristics in

operations.Process design issues in service systems.

Coverage

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Amity School of BusinessOrigin

The origins of operations management can be

traced back through cultural changes of the 18th,

19th, and 20th centuries, including the Industrial

Revolution , the development of interchangeablemanufacture, the American system of

manufacturing, scientific management, the

development of assembly line practice and mass

production, and the Toyota Production System. Combined, these ideas allowed for the

standardization and continuous improvement of

production processes.

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Amity School of BusinessContd.

Key features of these early production systemswere the departure from skilled craftsmen to amore thorough division of labor and the transfer ofknowledge from within the minds of skilled,

experienced workers into the equipment,documentation, and systems.

Operations research as a subdiscipline gained

prominence during World War II, whenmathematicians applied analytical tools to optimizeoperational questions, initially with a militarycontext, and later also within general operations.

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Amity School of BusinessPrimary Functions of an Org.

Operation

Marketing

Finance/accounting

HRM

Marketing HRM

Finance

Operations

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Amity School of BusinessEvolution of POMDifferent

Phases

The industrial revolution

Scientific management

The service revolution The computer revolution

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Amity School of BusinessHistory of OM

Pre Industrial Revolution

- Public works or projects for the

government.

- Pyramids of Egypt, Great Wall Of China

etc.

- Craft Production

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Amity School of BusinessIndustrial Revolution

1770s in England

Replaced manpower with machine power

Invention of machines e.g. steam engine

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Amity School of BusinessThe Industrial Revolution

1764: Invention of steam engine byJames Watt.

Led to:-

1. Provided machines for factories.

2. Increased productivity.

3. Gathering of workers into factories from

villages.

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1776 Publication of Adam Smiths Thewealth of Nations

Led To :-

1.Highlighted the economic benefitsof thedivision of labor, i.e. specialization of labor.2. Broke the production of products into small,specialized tasks.

3.Concept of ways of planning & controlling the

work of production workers.

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1790 Eli Whitney developed the concept of

interchangeable parts.

Led To:-

1.Displaced the old method of either sortingthrough parts to find one that fit or modifying a

part so that it would fit.

2. Standardization of design & manufacturingprocesses.

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1800 Development of gasoline engines

& electricity.

Led To :-

Old cottage system of producing

products replaced by the factory system.

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By 20thCentury:

1. Massive influx of farmers to the cities provided a largeworkforce for the rapidly developing urban industrialcenters.

2. Large capital arranged through the establishment ofjoint stock companies.

3. More demand of goods in market after 2ndWW, leadingto urbanization & necessity of big companies.

4. Increased capital, higher production capacity, expandedurban work force, new markets, effective nationaltransportation systemset the stage for the greatproduction explosion.

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Amity School of BusinessScientific Management

Focused on observation , measurement,

analysis & improvement of work design.

Scientific management met the challenges

for mass production & efficiency.Replaced

craft production by mass production.

Low skilled workers replaced highly skilled

workers.

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Amity School of BusinessScientific Management

Management Pioneers:

- Frederick Taylor

- Henry Gantt- Harrington Emerson

- Henry Ford

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Amity School of BusinessScientific Management : The

Players & Their PartsContributors Contribution

FW Taylor Scientific management principles, Time study, Method analysis

Frank B Gilbreth Motion study, Methods

Lillian M Gilbreth Fatigue studies, Human factor in work, Employee selection & training

Henry L Grant

Gantt charts, Incentive pay system, Humanistic approach to labor,

Training

Carl G Barth Mathematical analysis, Feeds & speeds studies

Harrington Emerson Principles of efficiency, Methods of control

Morris L Cooke Scientific management application to education and government

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Amity School of BusinessHuman Relations Movement

Emphasized on the human factor in

production.

Emergence of motivational theories by:

- Frederick Herzberg

- Douglas Mcgregor

- Abraham Maslow

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Amity School of BusinessJapanese Influences

Developed and redefined existing

management practices

Introduced the concept of quality,

continual improvement, and time based

management.

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Amity School of BusinessRecent Trends

Internet & Electronic Business

SCM

- Supply chain is a sequence of activitiesand organizations involved in producing a

good or a service.

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Amity School of BusinessThe Service Revolution

One important development of present time is

the growth of service organizations.

More than two-thirds of the workforce is

employed in service. There are diversity of private service industries

in India today.

Impact of this explosion on operationsmanagement is enormous.

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Amity School of BusinessThe Computer Revolution

Advances in computer & communication

technologies have significant impact on

the ways organizations manage their

operations.

Many operations decisions are made

quickly because of availability of computer

technologies & various software.

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Amity School of BusinessThe Computer Revolution

A recent supplement to the Harvard BusinessReview listed the following developments thathave impacted POM:-

1. CAD 2. SCM3. CAM 4. JIT

5. Benchmarking 6. SPC

7. ISO Standards 8. BPR

9. Outsourcing 10. Virtual Organization

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Amity School of BusinessImportance of OM

1. Operations activity is the core of all businessorganizations.

2. A large percentage of job is in the field ofoperations.

3. All activities in the other areas of business areinterrelated with operations management.

4. Responsible for a large portion of thecompanys assets.

5. It has a major impact on quality and is the faceof the company to its customers.

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Amity School of BusinessFactors affecting Operations

Management Today Quality, customer service and cost

challenges.

Scarcity of operations resources.

Expansion of advanced technologies.

Continued growth of service sector.

Reality of global competition.

Social responsibility issues.

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Amity School of BusinessDecision Making in POM

Strategic Decisions: Decisions aboutproducts, processes, and facilities. These havelong term significance for the org.

Operating Decisions: Decisions about

planning production to meet demand. These arenecessary for the ongoing production.

Control Decisions: Decisionsabout planning &controlling operations. These are concerned to

day-to-day production activities, quality ofproducts & services, maintenance of equipment.

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Amity School of BusinessWays to remain competitive

through operations Price

Quality

Product / Service differentiation

Flexibility

Time

Service

Management & Workers

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Amity School of BusinessDeveloping Mission & Strategies

An effective OM effort must have a mission so itknows where it is going and a strategy so itknows how to get there.

Mission: The purpose or rationale for anorganizations existence.

Strategy: How an organization expects toachieve its mission and goals / or an

organizations action plan to achieve themission.

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Amity School of BusinessStrategic Concepts

Firms achieve mission in three conceptual

ways:

- Differentiation (Better , or atleast different)

- Cost leadership ( Cheaper)

- Response ( More responsive)

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Amity School of BusinessOperation Strategies

Global Strategy

Transnational Strategy

International Strategy Multidomestic Strategy

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Amity School of BusinessOperation strategies

Global

Strategy

Internationalstrategy

MultidomesticStrategy

Transnational

StrategyCost Reduction

Considerations

Local Responsiveness Considerations

( Quick response and/or Differentiation )

Low High

Low

High

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Amity School of BusinessGlobal Strategy

High Degree of Centralization, with HQcoordinating the organization to seek outstandardization and learning between

plants, thus generating economies of scale. Strategy is appropriate when the strategic

focus is cost reduction but has little torecommend it when the demand for localresponsiveness is high.

E.g. Texas instruments, Caterpillar, Otiselevator.

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Amity School of BusinessTransnational Strategy

Exploits economies of scale and learning, as well aspressure for responsiveness, by recognizing that corecompetence does not reside in just the home country butcan exist anywhere in the organization.

Transnational describes a condition in which material,people, and ideas cross- or transgress- nationalboundaries.

Key activities are neither centralized nor decentralized ,each subsidiary can carry out its own tasks on a localbasis.

E.g. Nestle ( Swiss95% assets98% sales outside ),ABB ( Asea Brown Boverian engg. Firm that is Swedishbut HQ in Switzerland ), Reuters ( a news agency),Citicorp ( a banking Corporation), Bertlesmann (publisher)

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Amity School of BusinessInternational Strategy

A strategy in which global markets arepenetrated using exports and licenses.

Low local responsivenesssince we areexporting or licensing a good from the homecountry.

Low cost advantageusing the existingproduction process at some distance from the

new market. E.g. U.S. steel, Harley-Davidson

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Amity School of BusinessMultidomestic strategy

A strategy in which operating decisions aredecentralized to each country to enhance localresponsiveness.

These are typically subsidiaries, JVs , franchiseswith substantial independence.

Adv: Maximizing a competitive response for thelocal marketstrategy has little or no costadvantage.

E.g. Heinz , McDonalds , Hard Rock Cafe

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Amity School of BusinessElements of Operations Strategy

Positioning the production system.

Product/ service plan.

Outsourcing plans.

Process & technology plans.

Strategic allocation.

Facility plans : capacity, location and

layout.

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Amity School of BusinessPositioning of Production

System

It means selecting the type of product

design, type of production processing

system and type of finished goods

inventory policy for each product group inthe business strategy.

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Amity School of BusinessProduct/ Service plan

As products are designed, all the detailed

characteristics of each product are established.

Each product characteristics directly affects how

the product can be produced. How the product is made determines the design

of the production system, and the design of the

production system is the heart of the operation

strategy.

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Amity School of BusinessOutsourcing Plans

Outsourcing refers to hiring out or

subcontracting some of the work that a

company needs to do.

Outsourcing is an integral part of a

companys supply chain.

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Amity School of BusinessProcess & Technology Plans

It determines how products and services

will be produced.

It involves planning every detail of

production process and facilities by

combining high technology equipment with

conventional equipments.

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Amity School of BusinessStrategic Allocation of Resources

Resources like cash, capital funds, capacity,workers, machines, materials are divided amongother products or business utilities.

These resources are allocated optimally tomaximize the achievements of the objectives ofoperations.

Allocation decisions which are constrained bythe availability of resources constitute a commontype of strategic decision.

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Amity School of BusinessEffect of Global Competition

Fluctuations of International FinancialConditions: Inflation, fluctuating currencyexchange rates, turbulent interest rates,

volatility of international stock markets,huge national debts of many countries,and imbalances among internationaltrading partners have created complex

financial conditions for global business.

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Amity School of BusinessEffect of Global Competition

Need for international companies : The marketdynamics create the need of MNCs whose scope ofoperations spans the globe as they buy, produce, andsell in world markets.

Strategic alliance & production sharing: In the face ofworld free trade agreements and the formation ofregional trading blocks, the scope of the firm shiftsnational to global. Such shifts create need for formationof Strategic alliance, which are joint ventures among

international companies.

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