Operations Management - Nature & Scope of Operations & Operations Strategy, 2010, SIMSR

Operations Management – Nature and scope of Operations

& Operations Strategy

ByProf. Nadpurohit

Course PlanSession Topics to be covered

1 Introduction & Course plan Nature and scope of Operations, Operations Strategy.

2 Types of Production SystemsProcess Selection / Design, New Product Development

3 Facilities LocationPlant Location Factors affecting Location, Plant Layout Types of Layouts

4 Strategic Capacity planningCapacity expansion strategies , Forecasting methods,

5 Production Planning and Scheduling Aggregate Planning, MPS, MRP

6 Scheduling Methods Scheduling Objectives, Rules. Mid- term Test

7 JIT Methods SMED , TPM, Lean manufacturing, Kanban

8 Inventory Management Inventory Planning, EOQ, Inventory Control, ABC classification

9 Value Analysis/Project ManagementConcept of Value, Methods of analysis.

10 Supply Chain ManagementCase study

11 Quality Control TQM, QC Tools, ISO discussion.

12 Recent Advances in OMCAD/CAM, Productivity improvement, Recent advances in OM,ERP

End –Term Examinations

July - Nov 2010 Slide 2 of 80 Operations Management By Prof.

Nadpurohit

Reference MaterialText: Operations Management by B. Mahadevan.

Suggested Readings:a)Operations Management by William J Stevensonb)Production & Operations Management by Chase ,Aquilino. Jacobs.c)Quality Management .by P.N.Mukherjeed) Production and Operations Management by K Ashwathapa & Bhat.


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Evaluation

•Class attendance 10 marks (for those classes above 75 % )•Case study Report/presentation (Group) 20 marks•Mid Term exam 20 marks.•End Term exam 50 marks


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Learning Objectives

• Define the term operations management• Identify the three major functional areas of

organizations and describe how they interrelate

• Compare and contrast service and manufacturing operations

• Describe the operations function and the nature of the operations manager’s job


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Learning Objectives

• Differentiate between design and operation of production systems

• Describe the key aspects of operations management decision making

• Briefly describe the historicalevolution of operations management

• Identify current trends that impact operations management


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Business Organizations'

Marketing Finance

Operations

OrganizationVision,

Mission,Goal


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Food ProcessorFood Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned vegetables Metal Sheets Making cans

Water CuttingEnergy CookingLabor PackingBuilding LabelingEquipment


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Hospital ProcessHospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy patientsHospital Surgery

Medical Supplies MonitoringEquipment MedicationLaboratories Therapy


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Value-Added ProcessValue-Added Process

The operations function involves the conversion of inputs into outputs

Inputs Land Labor Capital

Transformation/Conversion

process

Outputs Goods Services

Control

Feedback

FeedbackFeedback

Value added


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INPUTSMaterialsEquipmentCustomersStaffTechnologyFacilities

SERVICE OPERATION

Operation

PROCESS

Goods and services

OUTPUTS

The service operation

OUTCOMESValue

EmotionsJudgements

Intentions

SERVICE PRODUCT

Customer

EXPERIENCE

INPUTSTimeEffortCost

Service = experience + outcome

INPUTSMaterialsEquipmentCustomersStaffTechnologyFacilities

PROCESS

SERVICE OPERATION

EXPERIENCE

OUTCOMESValue

EmotionsJudgements

Intentions

SERVICE PRODUCTCustomer

Operation

Managing service and service operations

Service OperationsSalient Features

• Tangibility: Services are performances and actions rather than objects, therefore having poor tangibility

• Heterogeneity: High variability in the operation system performance

• Simultaneous Production & Consumption: Degree of customer contact is very high

• Perishability: Services cannot be inventoried as in the case of manufactured products.


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Goods v/s ServiceCharacteristic Goods Service

Customer contact Low High

Uniformity of input High Low

Labor content Low High

Uniformity of output High Low

Output Tangible Intangible

Measurement of productivity Easy Difficult

Opportunity to correct problems High Low

Inventory Much Little

Evaluation Easier Difficult

Patentable Usually Not usual


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Manufacturing & ServiceSimilarities & Differences

Manufacturing Organisations Service Organisations

Physical durable product Intangible, perishable product Output can be inventoried Output can’t be inventoried Low customer contact High customer contact Long response time Short response time Regional, national, Intl. markets Large facilities Small facilities Capital intensive Labour intensive

Quality easily measured Quality not easily measured

Differences

SimilaritiesIs concerned about quality, productivity & timely response to its customers Must make choices about capacity, location, layout Has suppliers to deal with Has to plan its operations, schedules and resources Balance capacity with demand by a careful choice of resources Has to make an estimate of demand

Regional, national, Intl. markets


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Service – Manufacturing Continuum

Pure Product Pure Service

Ayurvedic Healing Treatment

Legal/Tax Consulting

Cyber Café – Telephone Booths

Emergency Maintenance Services

Facilities Maintenance

High quality restaurant meal

Fast food in a eat out joint

Customised durable goods

Fast moving commodities

Vending Machines

Adopted from Hill, T. (2005), Operations Management (Palgrave Macmillan), 2nd Edition, pp 14.July - Nov 2010 Slide 17 of 80

Operations Management By Prof. Nadpurohit

Manufacturing SectorSalient Aspects

1998-99 1999-00 2000-01 2001-02 2002-03 2003-04

Manufacturing 4.4 7.2 5.4 2.9 6.0 7.4Capital Goods 12.6 7.0 1.7 -3.4 10.5 13.6Consumer Goods 2.2 5.7 8.0 6.0 7.1 7.2Intermediate Goods 6.1 8.8 4.7 1.6 3.9 6.4Automobile Sector 3.2 21.0 -5.7 6.1 8.1 19.6

Sales 8.4 16.9 17.2 -0.3 11.1 12.7PBIT 1.0 8.3 7.3 1.2 23.5 20.1

Raw material expenses 39.8 40.3 39.8 41.8 44.0 44.0Salaries & Wages 6.6 6.2 6.1 6.2 5.9 5.8Interest Payments 5.5 4.8 4.4 4.2 3.2 2.2

Raw material expenses 7.1 19.6 17.3 4.5 20.8 10.7Salaries & Wages 11.8 11.6 17.3 4.5 8.8 8.6Interest Payments 13.4 3.7 9.8 -3.2 -12.2 -23.0

Source* Monthly Review of the Indian Economy, CMIE, May 2005

# Joshi, D. (2004), "Indian Manufacturing: Price Vs Margin dilemma", CRISIL Rating Scan, November 2004, 21 - 25.

Index of Industrial Production (Growth % over previous year)*

Corporate Sector Performance (Manufacturing)*

Components of cost (As % of net sales)#

Components of cost (Growth % over previous year)#


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Indian Manufacturing Export Potential of Sectors

Sector of IndustryCurrent Exports

Potential Exports

Strengths Weaknesses

Electrical & Electronics $ 1.25 b $ 15 - 18 b Design & Engineering skills, vendor base

Lack of scale, Low domestic demand

Apparel Manufacturing $ 6.10 b $ 25 - 30 b Vertical integration, skilled labour, design skills

Lack of scale, operational expertise

Auto-components $ 1.10 b $ 20 - 25 b Engineering and continuous improvement of skills

Fragmented industry and poor OEM linkages

Specialty chemicals $ 1.60 b $ 12 - 15 b Low cost manpower and process innovation skills

Application R & D and marketing


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Service Sector in India GDP growth rate

1998-99 1999-00 2000-01 2001-02 2002-03 2003-04

Service (Overall) 8.4 10.1 5.5 6.8 7.9 9.1Trade, Hotels, Transport, Communications 7.7 8.5 6.8 9.0 9.8 11.8Financial Services 7.4 10.6 3.5 4.5 8.7 7.1Coomunity, Social & Personal Services 10.4 12.2 5.2 5.1 3.9 5.8

SourceEconomic Survey of India, 2004-2005, Government of India, Ministry of Finance, Economic Division

Service Sector Growth rates in GDP (% change over last year)


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Operations ManagementDefinition

• An operations system is defined as one in which – several activities are performed – to transform a set of inputs into useful output – using a transformation process.

• Operations 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 operations system


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Operations A key functional area in an Organisation

Operations

Finance

Marketing H R M


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Operations InterfacesOperations Interfaces

Public Relations

Accounting

IndustrialEngineering

Operations

Maintenance

Personnel

Purchasing

Distribution

MIS

Legal


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Operations Function Linkages with other functions

I T

Operations Support Layer

Marketing

Design

Costing

Quality

Planning

Material

Maintenance

Tooling

I E

UltimateCustomer

DealersRetailers

Customer Layer

SuppliersSub-contractors

Other service providers

Supplier Layer

InnovationStrategy

Research & Development

Layer of Innovation

Service Delivery system

MachiningFabrication

AssemblyTesting

Core Operations Layer


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Operations ManagementA systems Perspective

INP

UT

OU

TP

UT

Labour

Capital

Material

Goods

Services

Forecasting

Operations Planning &

Control

Process &Product Design

Material &Capacity Planning

Fee

db

ack

Purchasing &Inventory Control

MaintenanceManagement

ProcessImprovement

QualityManagement

PROCESSING


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Operations ManagementFunctions

Product Design & Development Forecasting Process Design Production Planning and Control Quality Management Supply Chain Management Location and Layout of facilities Maintenance Management Capacity Planning Continuous improvement of operations

Design of Operations Operational Control of Operations

• Design issues in Operations Management lay down overall constraints under which the operations system functions.

• Operational Control issues focuses on optimising the use of available resources in the short-term while delivering goods and services as per plan.


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Operations ManagementSalient Aspects

• A systematic approach using scientific tools & techniques and solution methodologies to analyse problems

• Addressing several issues varying in terms of time horizon, nature of decisions

• Addressing design & operational control issues in the transformation process

• Focusing on keeping costs to the minimum• Developing a set of measures to assess performance of

the system


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Historical Evolution of Operations Management

• Industrial revolution (1770’s)• Scientific management (1911)

– Mass production– Interchangeable parts– Division of labor

• Human relations movement (1920-60)• Decision models (1915, 1960-70’s)• Influence of Japanese manufacturers


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Trends in Business• Major trends

– The Internet, e-commerce, e-business– Management technology– Globalization– Management of supply chains– Outsourcing– Agility– Ethical behavior


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Management Technology

• Technology: The application of scientific discoveries to the development and improvement of goods and services

• Product and service technology• Process technology• Information technology


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Other Important Trends

• Ethical behavior• Operations strategy• Working with fewer resources• Revenue management• Process analysis and improvement• Increased regulation and product liability• Lean production


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Operations ManagementImpact of Economic Reforms in India

• Tariff reduction has exposed Indian companies to global competition– Chelliah Committee tax reforms proposed during 1992 –

94 triggered this process• Abolition licensing policies had enabled several new players

to enter into business increasing domestic competition and capacity build up– Examples include liberalisation of two wheelers and LCV

segment in early 1980’s and passenger car segment in early 1990’s

• Indian customers are more demanding in terms of quality, cost and delivery of goods & services


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Operations ManagementChallenges & Priorities

ChallengesChallenges• Quality Management issues need greater attention• Long lead time for order fulfillment• Low labour productivity offsets cost advantagesPrioritiesPriorities• Acquire Capabilities to tolerate product proliferation• Relate operations system to Customer/Market• Develop systems and procedures that promote learning


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Understanding Operations Management

Operations Management:

Trends & Issues

Operations Strategy

ProcessDesign

ProductDevelopment

Total QualityManagement

StatisticalQuality Control

FacilitiesLocation

PlantLayout

CapacityPlanning

DemandForecasting

AggregateProductionPlanning

ResourcesPlanning

Scheduling

Just in TimeManufacturing

Project Management

1

2

3

4

5

6

7

8

910

11

12

14

13

15

MaintenanceManagement

InventoryPlanning &

Control

Purchasing & Supply

Management

Supply Chain Management

ContinuousImprovement

Understanding Operations

Designing Operations

Planning & Control of Operations

Operations &the value chain

Improving Operations

20

19

18

17

16


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Operations Management: Trends & IssuesHighlights

• Operations Management is a systematic approach to address all issues pertaining to the transformation process that converts some inputs into useful output

• Globally, India is emerging as an important manufacturing base. Several recent studies point to emerging opportunities for Indian manufacturing to grow and attain a global presence.

• From an operations management perspective, the notion of a ‘pure product’ and ‘pure service’ is just the two ends of the spectrum. In reality, a vast majority of operations share a continuum of products and services.


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Operations Management: Trends & IssuesHighlights

• Despite several important differences between products & services, from an operations management perspective there are several similarities between the two settings

• The decision context in operations management can be broadly classified as – Design and operations control issues. – Long term and short term decisions

• Some of the challenges faced by operation firms include – low productivity and long lead time– quality management– inability to relate the system to market/customer – Promoting a culture of learning


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Learning Objectives• List and briefly discuss the primary ways that

business organizations compete. • List five reasons for the poor competitiveness of

some companies. • Define the term strategy and explain why

strategy is important for competitiveness. • Contrast strategy and tactics.


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Learning Objectives

• Discuss and compare organization strategy and operations strategy, and explain why it is important to link the two.

• Describe and give examples of time-based strategies.


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Mission/Strategy/Tactics

How does mission, strategies and tactics relate todecision making and distinctive competencies?

StrategyStrategy TacticsTacticsMissionMission


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Strategy

• Mission– The reason for existence for an organization

• Mission Statement– States the purpose of an organization

• Goals– Provide detail and scope of mission

• Strategies–Plans for achieving organizational goals

• Tactics– The methods and actions taken to accomplish strategies


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Strategy Example

A student. Would like to have a career in business, have a good job, and earn enough income to live comfortably

Mission: Live a good life• Goal: Successful career, good income• Strategy: Obtain a Mgmt PG qualification• Tactics: Select an Institute and a major• Operations: Register, buy books, take

courses, study, Get PG degree, get job

Example


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Competitiveness:Competitiveness:

How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services


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Strategy and Tactics

• Distinctive CompetenciesThe special attributes or abilities that give anorganization a competitive edge.

• Strategy Factors– Price– Quality– Time– Flexibility– Service– Location


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Examples of Strategies

• Low cost• Scale-based strategies• Specialization• Flexible operations• High quality• Service


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Quality and Time Strategies

• Quality-based strategies– Focuses on maintaining or

improving the quality of an organization’s products or services

– Quality at the source

• Time-based strategies– Focuses on reduction of time

needed to accomplish tasks


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Time-based Strategies

JAN FEB MAR APR MAY JUN

Planning

Processing

Changeover On time!

Designing

Delivery


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Businesses Compete Using Marketing

• Identifying consumer wants and needs• Pricing• Advertising and promotion


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Businesses Compete Using Operations

• Product and service design• Cost• Location• Quality• Quick response


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Businesses Compete Using Operations

• Flexibility• Inventory management• Supply chain management• Service and service quality• Managers and workers


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Planning and Decision Making

Mission

Goals

Organizational Strategies

Functional Goals

Finance Strategies

MarketingStrategies

OperationsStrategies

Tactics Tactics Tactics

Operatingprocedures

Operatingprocedures

Operatingprocedures


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Operations Strategy

• Operations strategy – The approach, consistent with organization strategy, that is used to guide the operations function.


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Banks, ATMsConvenienceLocationLocation

DisneylandNordstroms

Superior customer service

ServiceService

Burger KingSupermarkets

VarietyVolume

FlexibilityFlexibility

Express Mail, Fedex,One-hour photo, UPS

Rapid deliveryOn-time delivery

TimeTime

Sony TVLexus, CadillacPepsi, Kodak, Motorola

High-performance design or Consistent quality

QualityQuality

U.S. first-class postageMotel-6, Red Roof Inns

Low CostPricePrice

Examples of Operations Strategies


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Operations Strategy• Strategic planning exercise

– Enables an organisation to respond to the market needs in the most effective manner

– By aligning various resources and activities in the organisation– To deliver products & services that are likely to succeed in the

market• Operations Strategy

– Is a process by which key operations decisions are made that are consistent with the overall strategic objectives of a firm

– Decisions in the operations function are made on the basis of the inputs from the overall corporate strategy


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Strategic OM DecisionsDecision Area Affects

Product and service design Costs, quality liability and environmental

Capacity Cost structure, flexibility

Process selection and layout Costs, flexibility, skill level, capacity

Work design Quality of work life, employee safety, productivity

Location Costs, visibility

Quality Ability to meet or exceed customer expectations

Inventory Costs, shortages

Maintenance Costs, equipment reliability, productivity

Scheduling Flexibility, efficiency

Supply chains Costs, quality, agility, shortages, vendor relations

Projects Costs, new products, services, or operating systems


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• Economic conditions• Political conditions• Legal environment• Technology• Competition• Markets

Key External Factors


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• Human Resources• Facilities and equipment• Financial resources• Customers• Products and services• Technology• Suppliers

Key Internal Factors


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Need for Operations Strategy• Competitive dynamics & expectations of customers change with time• Due the changes in market place, competitive priorities for an

organisation is likely to change– While it was customary for people to book for a passenger car and wait for a

few months to get delivery of the car, today a manufacturer of passenger cars cannot afford to make customers wait that long

– ABB Ltd. reported that the price of a 33 KV circuit braker dropped from Rs. 275,000 in 1990 to Rs. 180,000 in 1999.

– Triveni Engineering, a manufacturer of Turbines faced a 40% reduction in the price of turbines in the less than 3.5 million watts category over the last six years

• Need a mechanism to systematically respond to these changes in the most effective way

• Need to tune their operations to match with the competitive priorities


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Strategy formulation processCompetitiveDynamics at

the marketplace

Strategic options forSustaining

competitive advantage

Order winnersOrder Qualifiers

Firm levelStrengths &Weaknesses

Corporate Strategy

Operations StrategyMeasures for

Operational ExcellenceStrategic decisions for

Operations System

Generic Competitive PrioritiesQuality, Cost,

Delivery, Flexibility


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Order Qualifiers & Order Winners

• Order qualifying attributes are the set of attributes that customers expect in the product or service they consider for buying

• Order winning attributes are other attributes that have the potential to sufficiently motivate the customer to buy the product or service

• What constitutes order winning and order qualifying might change from time to time– During the early 1980’s providing superior quality products was an

order winning attribute. However, in the 1990’s quality became an order qualifying attribute as customers began to expect high levels of quality

– Order winning attributes include efficient consumer response, speed, variety and convenience


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Operational ExcellencePerformance Measures

• Provide critical linkage between order winning and order qualifying attributes and choices made in operations

• Help organisations evaluate how well the operations system is responding to the requirements at the marketplace

• Serve a useful purpose in comparing performances amongst competitors and for benchmarking

• Four generic options are useful for developing measures for operational excellence; this includes Quality, Cost, Delivery and Flexibility


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Measures for operational excellence: An example

Performance Criterion for Comparison (1987) Japan@ U.S.*

Production of vehicles (Million) 4 8Number of employees 37,000 850,000Parts on which detailed Engg. is done (%) 30 81No. of employees in purchasing 337 6000Number of suppliers for upholstery 1# 25**Design to customer delivery time (million Hrs.) 1.7 3Design to customer delivery time (months) 46 60

Group A Group B Group C

61.6 1.4 0.4380.3 370.0 46.4

1.4 11 1246.2 60.4 57.3

47 to 84 43 to 49 36 to 532100 1475 1100170 238 50945% 35% 15%None 10 n.a.

No. of suppliers per plantProportion of parts delivered JITNo. of plants closed down during 1987-90

Source: Womack, J.P., Jones, D.T. and Roos, D. (1990), “The Machine that changed the world”, Rawson Associates.

@ - Data pertaining to Toyota; * - Data pertaining to GM# - Single supplier; ** - 25 Suppliers were supplying components to seat buiding department.

Performance Criterion for comparison

Suggestions/EmployeeTraining of new production workers (Hrs.)Return to normal quality after new model introduction (months)Average development time per new car (months)No. of models between 1982 & 1989No. of patents in motor vehicle industry (1986)


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Operational ExcellencePerformance measures

Quality Cost

First Pass Yield Average days of inventory (No. of inventory turns)Quality Costs Manufacturing cost as percent of salesDefects (Parts per Million) Procurement costsNumber of suggestions per employee Value of import substitution, cost reductionProcess Capability Indices Target cost reduction effortsDelivery FlexibilityLead time for order fulfillment Number of models introducedProcurement and Manufacturing Lead time New product development timeOn time delivery for supplies Breadth and depth of the product offeringsSchedule adherence Process & Manufacturing flexibilityIndirect MeasuresDirect labour to Indirect labour ratio Number of suggestions per employeeLead time to work content Non-value added content in processesProcess rate to sales rate ratio No. of certified deliveriesAverage training time per employee Delivery quote for customised products


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Options for Strategic Decision in Operations

Operations SystemStrategic Options

Product Portfolio

ProcessSu

pply

Cha

inT

echnology

Capacity


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Operation Strategy OptionsProduct Portfolio

• Product portfolio pertains to decisions on – what products the organisation wants to produce– the number of variations in each product line– the extent of customisation offered to customers

• Product portfolio as a strategic option – Wide product portfolio: Overall strategic objective is to provide highly

differentiated set of products and services to the customer– Narrow product portfolio: Overall strategic objective is one of cost

leadership• Examples in Services & Manufacturing

– Air travel from Bangalore to Delhi: JetLite and Kingfisher Airlines differ vastly in terms of the service offered

– Computer manufacturers, Dell and IBM (Lenova): Overall strategic objective of Dell appears to be one of providing highly differentiated products, IBM appears to emphasise on robust and reliable computing power


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Operation Strategy OptionsProcess Choices

• Three types of flow happen on account of process choices: – Continuous streamlined flow– Intermittent or batch flow– Jumbled flow

• Choice of process will be consistent with product portfolio decisions– A manufacturer emphasising on production volumes, fewer varieties

and less cost will make process choices pertaining to continuous streamlined flow

– An organisation wishing to satisfy an objective of providing wide range of products to the customers will adopt batch/intermittent flow type

– the need to provide a very large variety and practically a production volume of one or few will adopt jumbled flow


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Operation Strategy OptionsTechnology Choices

• Technological advancements in recent years have given new opportunities for creating competitive advantage for firms– Case of Asian Paints utilising technological advancements for mixing of basic

pigments to distribute paints in large varieties of colours and in large assortment of sizes

• Using new technology options for manufacturing processes, organisations can – react faster to customer needs – manage a wide portfolio of product offerings and – yet maintain high levels of productivity

• Organisations making a strategic choice to operate in the manufacture of mid-volume, mid-variety products could utilise new technology


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New Technology OptionsStrategic Advantages

• Increased machine utilisation • Scheduling flexibility: Permits an organisation to have flexibility in scheduling

thereby enabling the organisation to react to changes fast• Ease of engineering challenges: Changes in engineering design and process

plans can be easily accommodated by use of technology based manufacturing and process design.

• Ease of expansion: Provides volume flexibility to the organisation, making it much easier to expand in response to a growing market

• Reduced manufacturing lead time • Lower in-process inventory: Several of the above benefits directly translate to

lower work in process inventory and reduced cost of manufacturing


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Operation Strategy OptionsCapacity

• Capacity is defined as – maximum number of units of goods that can be produced per unit

time in the case of manufacturing system – the maximum number of service offerings that can be made per unit

time in the case of a service system • Capacity decision influences the cost of goods and services offered in

three ways:– accrued cost advantage due to economies of scale – Ability to spread fixed costs over a larger capacity– additional cost advantages in procuring other factors of production


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Operation Strategy OptionsSupply Chain issues

• Supply chain refers to the network of entities supplying components and raw material to an organisation as well as those distributing the finished goods of an organisation to the customers through alternative channels

• Designing an appropriate supply chain calls for a better understanding of the product profile for which the supply chain is configured

• Two types of supply chains can be configured: – Efficient supply chain: objective is cost optimisation and better utilisation

of resources employed in supply chain operations; typically used in the case of functional products

– Responsive supply chain: the key objective is to develop a capability to respond fast to the market requirements; typically used in the case of innovative products


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Flexibility – Cost Trade-off

Flexibility

Cos

t Flexibility and Cost are often viewed as competing dimensions in Operations Strategy


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World Class Manufacturing (WCM)Core building blocks

• WCM firms perform very well in all the four parameters of Quality, Cost, Delivery and Flexibility at the same time using better operations management practices

• The new operations management tools that form the core building blocks of WCM are: – Just in Time (JIT)– Total Quality Management (TQM)– Total Productive Maintenance (TPM)– Employee Involvement (EI)– Simplicity


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Changing Competitive Priorities for WCM

Weak companies are plagued by Trade-off obstacles. WCMs have gained an upper hand over the trade-off obstacles.

CompetitivePriorities of

WCM

Quality

DeliveryCost

Flex

ibili

ty CompetitivePriorities of

WCM

Quality

Speed

Value

Flex

ibili

ty

19861986 19961996


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Strategic OM DecisionsDecision Area Affects

Product and service design Costs, quality liability and environmental

Capacity Cost structure, flexibility

Process selection and layout Costs, flexibility, skill level, capacity

Work design Quality of work life, employee safety, productivity

Location Costs, visibility

Quality Ability to meet or exceed customer expectations

Inventory Costs, shortages

Maintenance Costs, equipment reliability, productivity

Scheduling Flexibility, efficiency

Supply chains Costs, quality, agility, shortages, vendor relations

Projects Costs, new products, services, or operating systems


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Operations StrategyEmerging Trends & Implications

• Trend 1: Dismantling of trade barriers:– Cost pressures from overseas players and large scale dumping of goods (from low

cost countries such as China)– Tougher terms from regional trading blocks such as EU, NAFTA and ASEAN – Chinese manufacturers are a major threat to Indian manufacturing firms as they

have installed large capacities to benefit from capacity related cost advantages Implications

– Indian manufacturing firms can provide goods and services at a fraction of the cost of that in the developed countries due to factor cost advantages

– India has a large installed base of technical manpower, manufacturing know-how and experience in manufacturing management

– Indian manufacturing firms need to equip themselves with the required operations management practices to enlarge the global trading opportunities

– Operations management practices in the country should focus on providing other advantages in addition to narrowing down the cost differentials with China


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• Trend 2: Outsourcing – a major wave– Business Process Outsourcing (BPO) is an arrangement by which some of

the business processes are done by a third party on behalf of the organisation

– The key motivation for a firm to outsource some of its processes stems from three factors: Cost, Capacity and Core competency

Implications– Primary consideration for BPO is cost, operations strategy for BPO firms

must emphasise on cost leadership– Since an organisation often out-sources the entire operations pertaining

to a business process to a third party, quality considerations are to be met with stringent norms.

– Stringent delivery requirements may also have to be met as the processes may be in the intermediate stages of the value creation process.


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BPO applications in Organisations: Process View

Vendor Evaluation & Selection Stores Management

Asset Mgmt.Accounts Receivables & Payables R& D

Manufacturing Fabrication Assembly Testing

Warehouse Management Market Survey Telemarketing

Installation & Servicing Systems Integration &Consulting,

OPERATIONAL PROCESSES

Consulting Services Change Management Workflow Enhancements New Product Development Brand Management E-business/E-governance

Employee welfare support, Facilities upkeep IT Enabled ServicesRecruitment & Training Services, Employee Surveys Transaction Processing, Auditing of Books of accountsContract Labor, Marketing & Sales support

STRATEGIC PROCESSES

ENABLING PROCESSES


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• Trend 3: Collaborative commerce thru Internet– Collaborative commerce is defined as the electronic mechanism that

enables the trading partners to transact several aspects related to commerce

Implication– Collaborative commerce opens up new areas for consideration in

operations management • procurement and supply management practices• design and new product development

– Trading partners can exchange vital production planning and other technical information between them for mutual benefit

– Organisations are benefiting from greater efficiency and lower costs


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Why Some Organizations Fail

• Too much emphasis on short-term financial performance

• Failing to take advantage of strengths and opportunities

• Neglecting operations strategy• Failing to recognize competitive threats


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Why Some Organizations Fail

• Too much emphasis in product and service design and not enough on improvement

• Neglecting investments in capital and human resources

• Failing to establish good internal communications

• Failing to consider customer wants and needs


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Operations StrategySummary

• A strategic planning exercise enables an organisation to respond to the market by aligning the resources and activities in the organisation to the market needs

• Operations strategy is the process of making appropriate decisions in the operations function on the basis of inputs from the corporate strategy

• A strategy formulation exercise enables an organisation to identify order winners and order qualifiers.


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Operations StrategySummary

• Four generic performance measures are useful in any operations strategy exercise. These pertain to quality, cost, delivery & flexibility.

• Translating corporate strategy to operations strategy boils down to making appropriate choices with respect to product portfolio, processes, technology, capacity and supply chain.

• World Class Manufacturing organisations feature five basic elements of operational excellence. These include Just in Time (JIT), Total Quality Management (TQM), Total Productive Maintenance (TPM), Employee Involvement (EI) and Simplicity.

• Dismantling of trade practices demands that Indian manufacturing & service organisations equip themselves with the required operations management practices to tap global trading opportunities.


Nadpurohit

Operations Management - Nature & Scope of Operations & Operations Strategy, 2010, SIMSR

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Transcript of Operations Management - Nature & Scope of Operations & Operations Strategy, 2010, SIMSR