operation management and operation strategy

BY PAWAN KUMAR ROHIT KUMAR ANAND VERMA PARAS AGGARWAL Please listen carefully our ppt because you might get rewarded for this.... OPERATIONS STRATEGIES



Transcript of operation management and operation strategy

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Please listen carefully our ppt because you might get rewarded for this....


“Operations management may be defined as 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 organizations.”

It attempts to balance cost with revenue to achieve highest operating profits possible. What operation management

department do is, that they design a methods by which inputs is converted into output that is most beneficial to the organization


A systematic approach involves understanding the nature of issues and problems to be studied , collecting relevant data, and developing effective as well as efficient solutions to the problem

The second aspect of OM pertains to addressing several issues that an organisation faces. These issues vary markedly in terms of :time framenature of problemcommitment of required resourcesFor eg: deciding how to re-route jobs when a machine

breaksdown on a shop floor .

Transformation processes are central to operations systems. The transformation process ensures that inputs are converted into useful output. For eg: converting sugarcane to sugar crystals.

Finally the goal of the organization is to reduce costs and increase revenues. In order to ensure this an appropriate performance evaluation system is required .

Operations as key functional area





For example , Organizations typically begin their yearly plan with the marketing function making an estimate of the next year’s sales. This input forms the basis for production planning in the operations area of business. Depending on the production plans, procurement planning is done and all these factors lead to a certain estimate of the fund requirements. This forms an important input for the finance function. At the time these plans are executed, the interactions between these functions are even greater. The HRM function influences the productivity capacity of labour available in real time. The actual production of goods and services influences the marketing activities to be undertaken and the quantity and timing of available funds from sales. Such interactions are common in most organizations.

Operations function and its linkages

Customer layer• Ultimate

customer• Dealers• Retailers

• Marketing• Maintenance• Quality• Costing• Planning

• Tooling• Material• IT• Design• Industrial


Operations support layer

Core operations layer

• Testing• Assembly• Fabrication• Machining• Service delivery


Layer of innovation

• Innovation strategy

• Research & development

Supplier layer• Sub contractors• Suppliers• Other service


Services as a part of Operational Management The service sector encompasses a wide spectrum of activities in

every country. The growth of the service sector in India in the last five years has been very significant.

Although services are often classified separately from manufacturing in a macroeconomic sense, from the perspective of OM, the separation is artificial. From the OM perspective the

notion of a pure product and pure service is just two ends of the spectrum. In reality a vast majority of operations share a

continuum of services and products. Therefore most of the principles and tools and techniques of OM apply to both these


Difference between services and manufacturing Intangibility Heterogeneity Simultaneous production and consumption Perishability

Provide overall Management of the ongoing Production operations including Inventory Control, Scheduling, Documentation, Equipment Maintenance, Calibration, Shipping, and Quality Control/Inspection.

Assist in creation of efficient processes through hands-on development and training.

Track quality of all processes through analysis of recorded data and formation of additional test-points.

To ensure that the people involved in production and public are protected.

To ensure safe working conditions and encourage application of proper working methods.

Responsibilities Of OM

Provide workers with the necessary individual protective equipment free of cost.

Comply with the Act respecting occupational health and safety, as well as the other laws and regulations relating to health and safety.

Ensure that existing and potential hazards reported by the members of the production crew are eliminated.

Ensure proper disposal of chemicals and waste materials released during the production process.

Recycling of all materials possible.

OM : A System Perspective A system perspective means identifying the input, output ,

processing and feedback mechanisms for the system .The basic inputs to the operating system are

Labour Capital Material

Processing Processing section includes Process and product design Purchasing and inventory control Operations planning and control Material and capacity planning


Production operation management is a component of organization which concerned with the creation of utility in raw material through conversion process:

As a part of management it has following functions:

Planning Organizing Controlling Behavior Models

PLANNING Activities that establishes a course of action

and guide future decision making is called planning

POM defines the objectives for the POM subsystem of the organization.

It defines the policies, and procedures for achieving the objectives.

This stage includes clarifying the role and focus of POM in the organization’s overall strategy.

It involves product planning, facility designing and using the conversion process.

ORGANIZING Activities that establish a structure of roles

and the flow of information within the POM subsystem.

POM establish a structure of roles and the flow of information within the POM subsystem.

POM determine the activities required to achieve the goals and assign authority and responsibility for carrying them out.

It includes: Job design Work measurement Project management

CONTROLLING Activities that assure that actual

performance in accordance with planned performance is called controlling.

To ensure that the plans for the POM subsystems are accomplished, the po manager must exercise control by measuring actual outputs and comparing them to planned operation management.

Controlling costs, quality, and schedules are the important functions for POM

Material control Material requirement planning.

BEHAVIOUR Human aspects on the job is called

behaviour Po manager are concerned with how their effort to

plan, organize, and control affect human behaviour.

They also want to know how the behaviour of subordinates can affect the management’s planning, organizing, and controlling actions.

The behavior is affected by the leadership, motivation, communication, inter-intra personnel relationship and their attitudes.

MODELS The techniques which are used for problem

solving is called models. As a process of plan, organize and control the

conversion process, po manager encounter many problems and must make many decisions.

s/he can simplify their difficulties using models. The models are: 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 utilization. Decision tree analysis for long term capacity

problem of facility expansion.

Priorities for OM

Acquire capabilities to tolerate product proliferation every organisation needs to understand customer needs and incorporate them into new product initiatives.According to which various process of the organisation need to be altered.

Relate operation system to customer/marketChoices related to manufacturing and services cannot be made on the basis of internal conveniences but instead customer be central to the demand.If customer has difficulty in using the product then it should be rectified.

Develop system and procedures that promote learningContinuous improvement is very important for the organisation. These improvements do not take place in isolation but because of continuous learning by the employees in an organisation.

Summary of OM Operational 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 organizations.

Manufacturing and services are parts of OM OM is a system perspective means identifying the input,

output , processing and feedback mechanisms for the system .

There are five functions of OM Planning Organising Controlling Behaviour Models There are 3 priorities of OM Acquire capabilities to tolerate product proliferation Relate the operations system to customer/market Develop system and procedures that promote learning


Operations strategy is a process by which key

operations decisions are made that are consistent with the

overall strategic objectives of the firm.

Relevance of OS

Due to several factors, the competitive dynamics will change and the expectations of the customer also change on account of this.

Organisations need a structural approach to scan the market and distil the changing needs at the market place. Moreover they also need a mechanism to chalk out a plan for responding to these changes in the most effective way.

With the changes in the market place the competitive priorities for an organisation must also change. Organisation need to tune their operations to match with the competitive priorities.

Therefore it is important for organisation to develop the capability to devise strategies for operations and revisit the strategy formulation exercise and when there is a need for it.

Strategy Formulation


Step 1• Understand the

Competitive Market Dynamics.

“Any Strategy-making exercise begins with the scanning of marketplace and understanding its dynamics. Market dynamics direct the organizations toward the issues it should consider while formulation its operations strategy. It provides useful information on competitors, the nature of offerings that they make to the customer, customer expectations, missing links between expectations and current offerings, and the intensity of competition.”

Step 2• Identify Order-

qualifying and Order-winning attributes.


• These are the set of attributes that customer expect in the product and service they consider for purchase. The absence of any of these attributes will result in the customer removing the product or service from his/her list of consideration. On the other hand, the mere presence of these attributes does not guarantee that the customer will buy the product. It only indicate the minimum or threshold levels of requirement for considering the product.

Order-winning • The other attributes that have the potential to sufficiently motivate the

customer to buy the product. Such attributes are order winning attributes. The perception of the customer is that the presence of these attributes indicates him or her that the product/service under consideration surpass the basic level of requirement and therefore, has the potential to provide better value for money. Presence of order winning attributes in a product/service helps the customer differentiate it from the competitors offering unambigously.it also favorably influence the customers buying decision with respect to the product/service. The more the number of attributes that customer perceives in a product/service, the greater the chance that the customer may buy the product or service.

Step 3• Identify Strategic

Options for Sustaining Competitive Advantage.

After an analysis of the competitive dynamics, an organization can be in a position to identify the order-qualifying and order-winning attributes for the products/services that it offers.

At the end of the exercise, the order winning and qualifying attributes provide the organization with a set of options for sustaining competitive advantage. Competition analysis may indicates that the organization will do better by providing high-quality goods, or that a wider variety of options will bring success.

Step 4• Devise the overall

Corporate Strategy

Organizations may not be in position to make use of all the strategic options available to them because of constraints in operating with the resources available to them.

“for instance: Top management may have certain preferences and views on how desirable the options are from an internal perspective. Moreover, the organization culture and values may not permit it to exploit the available options fully.”

Therefore, the next critical step is to match the strategic options available for sustaining the competitive advantage with the available resources and constraints and to develop an appropriate strategic plan that fulfills the organizations objectives, taking into considerations its strengths and weaknesses.

Step 5• Arrive at the

Operations Strategy.

Once the corporate strategy is arrived at, it serves as the basis for the operations strategy.

For instance, if the overall strategy of an organization is to provide low-cot goods, then the choices made in operations will be consistent with this overall strategy.

Strategic options for options

Translating the corporate strategy into operations strategy essentials boils down to making certain choices with respect to design and operational control of the operations system in the following fields:

Product PortfolioProduct portfolio pertains to decisions on what are the products that the organisation wants to produce, the number of variations in each product line and extend of customisation that it can offer to its customers. Eg: Jet Airways and Deccan Airways

ProcessProcess design provides another option to translate strategic objectives to operations by the appropriate choice of processes. Process designs refers to the overall configuration of the operations sysytem such that the various production activities happen I n a particular fashion consistent to the process choice.

TechnologyTechnological advancement in the recent years have given new opportunities for creating competitive advantage for firms. New technology in manufacturing process helps to react faster to costumers needs. Eg: Asian Paints

Capacity It is defines as the maximum number of units of goods that can be produced per unit time in the case of manufacturing and the maximum number of service offering per unit of time in case of a service system. Capacity decisions in operations have an important strategic dimension as they directly and significantly influence the cost of goods sold and services offered.




Air Deccan –India’s first low cost airline

Introduction of Air Deccan: The entry of air Deccan into the Indian civil aviation sector heralds a new era in the air travel . Air Deccan’s basic strategy is to make air travel accessible to every Indian by reducing their prices 30-40% of regular airline.

Characteristics of current Air Deccan OS: 1. More flying hours per aircraft2. Cutting out all frills3. Elimination of inter alia arrangement for baggage.4. Air Deccan uses air buses on heavy traffic routes5. Smaller aircrafts for lower traffic routes.6. Elimination of inflight food, business class and lounges at air ports.

Problem that Air Deccan faced:Conventionally , 90%ticketing is done through travel agents. An agent gets an commission of 7-10%. So problem was multiple booking by travel agents , fluctuating occupancy levels, high cost of administering such a system.Further printing and distribution cost of tickets are also enormous. In addition more cost is incurred in using proprietary reservation systems.

Solution to the ProblemThe ticket distribution system and cash collection model of Air Deccan factors several local conditions and operation strategy. Air Deccan has developed its own computerised reservation system and has a call center that can book tickets 24 hours, makes use of local phone numbers as opposed to costly nationwide toll free numbers and uses multiple modes of cash collection and ticket delivery. They pioneered the system of e-ticketing in country, which really cut the cost in distribution . They also used internet and VSAT technology to cut the cost in flight yield management and ticketing.

Some other important decisions in operational aspects The hub and spoke model results in delays because of which Air Deccan has adopted point to point flying. This means each customer has a contract of one flight only . Inter airline arrangements results in added cost and delay eventually result in fewer flying hours. The other aspect was to outsource facilities in all airports. For example at the Hubli airport, one Air Deccan flight per day means one hour of work at the airport. If the Air Deccan invests in facilities it results in poor utilisation and high cost. By outsourcing the airport operations in several such airports, Air Deccan cuts cost incurred on account of poor utilisation and also generates local employment.Conclusion :The overall strategy of Air Deccan os to provide affordable air travel . It estimates that 30% of travellers in every Air Deccan flight are first time travellers in India

Ab uth jao case study khatam

Summary of OS

Operations strategy is a process by which key operations decisions are made that are consistent with the overall strategic objectives of the firm

Strategy formulation has three stepso Identifying competitive advantage o Making corporate strategyo Making operations strategy Order qualifying attributes Order winning attributes Translating corporate stategy to operational

strategy requires choices in following fields:o Product portfolioo Process o Technologyo Capacity Finally an Air Deccan case study.


Q1 What is operational management and operational strategy?

Q2 Is services part of operational management ?

Q3 Can other functions perform without operation management and why?

Q4 What are steps in strategy formulation?

Q5 What is difference between order qualifying and order winning attributes?