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PREFACE
Operations management has been recognised as an important factor in a country’s economic growth.
The traditional view of manufacturing management is the concept of Production Management
with the focus on economic efficiency in manufacturing. Later the new name Operations
Management was identified, as service sector became more prominent. Rapid changes in technology
have posed numerous opportunities and challenges, which have resulted in enhancement of
manufacturing capabilities through new materials, facilities, techniques and procedures. Hence,
managing a service system has become a major challenge in the global competitive environment.
Operations Management has been a key element in the improvement and productivity in business
around the world. Operations Management leads the way for the organisations to achieve its goals
with minimum effort. Hence, the study of the subject at undergraduate and postgraduate level has
more significance.
This book on ‘Operations Management’ covers the complete syllabus of Bachelor of Engineering
of Visvesvaraya Technical University, Karnataka, however the coverage is wide enough to include
the requirements of Bachelor and Master Degree courses of other Indian universities and professional
courses like MBA, PGDCA, BBA.
Being student friendly is the unique feature of this book. The subject matter has been presented
systematically in ten chapters, which can enable the reader master the topics covered without any
additional guidance.
Complete care has been taken to make the book error free. However, mistakes might have
crept inadvertently. Readers finding any error are requested to bring it to our notice, for enabling us
to rectify them in our future editions.
We are grateful to Mr. Saumya Gupta, Managing Director and Mr. Sudarshan of New Age
International (P) Limited Publishers for their commitment and encouragement in bringing out this
book in time with good quality and for providing us the opportunity to share our knowledge with you.
1 INTRODUCTION
Operation is that part of as organization, which is concerned with the transformation of a range of
inputs into the required output (services) having the requisite quality level. Management is the process,
which combines and transforms various resources used in the operations subsystem of the organization
into value added services in a controlled manner as per the policies of the organization.
The set of interrelated management activities, which are involved in manufacturing certain products,
is called as production management. If the same concept is extended to services management, then
the corresponding set of management activities is called as operations management.
1.2 HISTORICAL DEVELOPMENT
For over two centuries operations and production management has been recognized as an important
factor in a country’s economic growth.
The traditional view of manufacturing management began in eighteenth century when Adam
Smith recognised the economic benefits of specialization of labour. He recommended breaking of
jobs down into subtasks and recognises workers to specialized tasks in which they would become
highly skilled and efficient. In the early twentieth century, F.W. Taylor implemented Smith’s theories and developed scientific management. From then till 1930, many techniques were developed prevailing
the traditional view. Brief information about the contributions to manufacturing management is shown
in the Table 1.1.
Production Management becomes the acceptable term from 1930s to 1950s. As F.W. Taylor’s
works become more widely known, managers developed techniques that focused on economic
efficiency in manufacturing. Workers were studied in great detail to eliminate wasteful efforts and
achieve greater efficiency. At the same time, psychologists, socialists and other social scientists
began to study people and human behaviour in the working environment. In addition, economists,
mathematicians, and computer socialists contributed newer, more sophisticated analytical approaches.
With the 1970s emerge two distinct changes in our views. The most obvious of these, reflected in
the new name Operations Management was a shift in the service and manufacturing sectors of the
economy. As service sector became more prominent, the change from ‘production’ to ‘operations’
emphasized the broadening of our field to service organizations. The second, more suitable change
was the beginning of an emphasis on synthesis, rather than just analysis, in management practices.
CONCEPT OF PRODUCTION
Production function is ‘the part of an organisation, which is concerned with the transformation of
a range of inputs into the required outputs (products) having the requisite quality level’.
Production is defined as ‘the step-by-step conversion of one form of material into another
form through chemical or mechanical process to create or enhance the utility of the product to the
user’. Thus production is a value addition process. At each stage of processing, there will be value
addition.
Edwood Buffa defines production as ‘a process by which goods and services are created’.
Some examples of production are: manufacturing custom-made products like, boilers with a
specific capacity, constructing flats, some structural fabrication works for selected customers, etc.,
and manufacturing standardized products like, car, bus, motor cycle, radio, television, etc.
1.4 PRODUCTION SYSTEM
The production system is ‘that part of an organisation, which produces products of an organisation.
It is that activity whereby resources, flowing within a defined system, are combined and transformed
in a controlled manner to add value in accordance with the policies communicated by management’.
Job-Shop Production
Job-shop production are characterised by manufacturing one or few quantity of products designed
and produced as per the specification of customers within prefixed time and cost. The distinguishing
feature of this is low volume and high variety of products.
A job-shop comprises of general-purpose machines arranged into different departments. Each
job demands unique technological requirements, demands processing on machines in a certain
sequence.
Job-shop Production is characterised by
1. High variety of products and low volume.
2. Use of general purpose machines and facilities.
3. Highly skilled operators who can take up each job as a challenge because of uniqueness.
4. Large inventory of materials, tools, parts.
5. Detailed planning is essential for sequencing the requirements of each product, capacities for
each work centre and order priorities.
Advantages
Following are the advantages of Job-shop Production:
1. Because of general purpose machines and facilities variety of products can be produced.
2. Operators will become more skilled and competent, as each job gives them learning
opportunities.
3. Full potential of operators can be utilised.
4. Opportunity exists for Creative methods and innovative ideas.
Limitations
Following are the limitations of Job-shop Production:
1. Higher cost due to frequent set up changes.
2. Higher level of inventory at all levels and hence higher inventory cost.
3. Production planning is complicated.
4. Larger space requirements.
1.5.2 Batch Production
American Production and Inventory Control Society (APICS) defines Batch Production as a form
of manufacturing in which the job pass through the functional departments in lots or batches and
each lot may have a different routing. It is characterised by the manufacture of limited number of
products produced at regular intervals and stocked awaiting sales.
Batch Production is characterised by
1. Shorter production runs.
2. Plant and machinery are flexible.
3. Plant and machinery set up is used for the production of item in a batch and change of set up
is required for processing the next batch.
4. Manufacturing lead-time and cost are lower as compared to job order production.
Advantages
Following are the advantages of Batch Production:
1. Better utilisation of plant and machinery.
2. Promotes functional specialisation.
3. Cost per unit is lower as compared to job order production.
4. Lower investment in plant and machinery.
5. Flexibility to accommodate and process number of products.
6. Job satisfaction exists for operators.
Limitations
Following are the limitations of Batch Production:
1. Material handling is complex because of irregular and longer flows.
2. Production planning and control is complex.
3. Work in process inventory is higher compared to continuous production.
4. Higher set up costs due to frequent changes in set up.
1.5.3 Mass Production
Manufacture of discrete parts or assemblies using a continuous process are called Mass Production.
This production system is justified by very large volume of production. The machines are arranged
in a line or product layout. Product and process standardisation exists and all outputs follow the
same path.
6 Operations Management
Mass Production is characterised by
1. Standardisation of product and process sequence.
2. Dedicated special purpose machines having higher production capacities and output rates.
3. Large volume of products.
4. Shorter cycle time of production.
5. Lower in process inventory.
6. Perfectly balanced production lines.
7. Flow of materials, components and parts is continuous and without any back tracking.
8. Production planning and control is easy.
9. Material handling can be completely automatic.
Advantages
Following are the advantages of Mass Production:
1. Higher rate of production with reduced cycle time.
2. Higher capacity utilisation due to line balancing.
3. Less skilled operators are required.
4. Low process inventory.
5. Manufacturing cost per unit is low.
Limitations
Following are the limitations of Mass Production:
1. Breakdown of one machine will stop an entire production line.
2. Line layout needs major change with the changes in the product design.
3. High investment in production facilities.
4. The cycle time is determined by the slowest operation.
1.5.4 Continuous Production
Production facilities are arranged as per the sequence of production operations from the first operations
to the finished product. The items are made to flow through the sequence of operations through
material handling devices such as conveyors, transfer devices, etc.
Continuous Production is characterised by
1. Dedicated plant and equipment with zero flexibility.
2. Material handling is fully automated.
3. Process follows a predetermined sequence of operations.
4. Component materials cannot be readily identified with final product.
5. Planning and scheduling is a routine action.
Advantages
Following are the advantages of Continuous Production:
1. Standardisation of product and process sequence.
2. Higher rate of production with reduced cycle time.
3. Higher capacity utilisation due to line balancing.
4. Manpower is not required for material handling as it is completely automatic.
Operations Management Concepts 7
5. Person with limited skills can be used on the production line.
6. Unit cost is lower due to high volume of production.
Limitations
Following are the limitations of Continuous Production:
1. Flexibility to accommodate and process number of products does not exist.
2. Very high investment for setting flow lines.
3. Product differentiation is limited.
1.6 PRODUCTION MANAGEMENT
Production management is ‘a process of planning, organising, directing and controlling the activities
of the production function. It combines and transforms various resources used in the production
subsystem of the organization into value added product in a controlled manner as per the policies of
the organization’.
E.S.Buffa defines production management as follows:
‘Production management deals with decision-making related to production processes so that
the resulting goods or services are produced according to specifications, in the amount and by the
schedule demanded and out of minimum cost’.
1.6.1 Objectives of Production Management
The objective of the production management is ‘to produce goods and services of Right Quality and
Quantity at the Right time and Right manufacturing cost’.
1. Right Quality: The quality of product is established based upon the customers need. The
right quality is not necessarily being the best quality. It is determined by the cost of the product and
the technical characteristics as suited to the specific requirements.
2. Right Quantity: The manufacturing organisation should produce the products in right number.
If they are produced in excess of demand the capital will block up in the form of inventory and if the
quantity is produced in short of demand, leads to shortage of products.
3. Right Time: Timeliness of delivery is one of the important parameter to judge the
effectiveness of production department. So, the production department has to make the optimal
utilization of input resources to achieve its objective.
4. Right Manufacturing Cost: Manufacturing costs are established before the product is
actually manufactured. Hence, all attempts should be made to produce the products at pre-established
cost, so as to reduce the variation between actual and the standard (pre-established) cost.
1.7 OPERATIONS SYSTEM
An operation was defined in terms of the mission it serves for the organisation, technology it employs
and the human and managerial processes it involves. Operations in an organisation can be categorised
into Manufacturing Operations and Service Operations. Manufacturing Operations is a conversion
process that includes manufacturing yields a tangible output: a product, whereas, a conversion process
that includes service yields an intangible output: a deed, a performance, an effort.
Operations system converts inputs in order to provide outputs, which are required by a customer.
It converts physical resources into outputs, the function of which is to satisfy customer wants.
Everett E. Adam & Ronald J. Ebert defines as ‘An operating system is the part of an
organisation that produces the organistion’s physical goods and services’.
Ray Wild defines operations system as ‘a configuration of resources combined for the provision
of goods or services’.
In some of the organisation the product is a physical good (breakfast in hotels) while in others it
is a service (treatment in hospitals). Bus and taxi services, tailors, hospital and builders are the
examples of an operations system. The basic elements of an operation system show in Figure 1.3
with reference to departmental stores.
A departmental store's has an input like land upon which the building is located, labour as a stock
clerk, capital in the form of building, equipment and merchandise, management skills in the form of
the stores manager. Output will be serviced customer with desired merchandise. Random fluctuations
will be from external or internal sources, monitored through a feedback system.
A Framework of Managing Operations
Managing Operations can be enclosed in a frame of general management function as shown in
figure 1.3. Operation managers are concerned with planning, organising, and controlling the activities,
which affect human behaviour through models.
Planning is the activity that establishes a course of action and guide future decision-making. The
operations manager defines the objectives for the operations subsystem of the organisation, and the
policies, and procedures for achieving the objectives. This stage includes clarifying the role and
focus of operations in the organization’s overall strategy. It also involves product planning, facility
designing and using the conversion process.
Organizing is the activities that establish a structure of tasks and authority. Operation managers
establish a structure of roles and the flow of information within the operations subsystem. They
determine the activities required to achieve the goals and assign authority and responsibility for
carrying them out.
Controlling is the activities that assure the actual performance in accordance with planned
performance. To ensure that the plans for the operations subsystems are accomplished, the operations manager must exercise control by measuring actual outputs and comparing them to planned operations
management. Controlling costs, quality, and schedules are the important functions here.
1. Behaviour: Operations managers are concerned with the activities, which affect human
behaviour through models. They want to know the behaviour of subordinates, which affects managerial
activities. Their main interest lies in the decision-making behaviour.
2. Models: Models represents schematic representation of the situation, which will be used
as a tool for decision-making. Following are some of the models used.
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 utilisation, Decision tree analysis for long-term capacity problem of facility expansion,
simple median model for determining best locations of facilities, etc.
OPERATIONS MANAGEMENT
Joseph G .Monks defines Operations Management as the process whereby resources, flowing
within a defined system, are combined and transformed by a controlled manner to add value
in accordance with policies communicated by management.
10 Operations Management
The operations managers have the prime responsibility for processing inputs into outputs. They
must bring together under production plan that effectively uses the materials, capacity and knowledge
available in the production facility. Given a demand on the system work must be scheduled and
controlled to produce goods and/or services required. Control must be exercised over such parameters
such as costs, quality and inventory levels.
The definition of the operations Management contains following keywords: Resources, Systems,
transformation and Value addition Activities.
RESOURCES
Resources are the human, material and capital inputs to the production process. Human resources
are the key assets of an organisation. As the technology advances, a large proportion of human input
is in planning and controlling activities. By using the intellectual capabilities of people, managers can
multiply the value of their employees into by many times. Material resources are the physical facilities
and materials such as plant equipment, inventories and supplies. These are the major assets of an
organisation. Capital in the form of stock, bonds, and/or taxes and contributions is a vital asset.
Capital is a store of value, which is used to regulate the flow of the other resources.
SYSTEMS
Systems are the arrangement of components designed to achieve objectives according to the plan.
The business systems are subsystem of large social systems. In turn, it contains subsystem such as
personnel, engineering, finance and operations, which will function for the good of the organisation.
A systems approach to operations management recognises the hierarchical management
responsibilities. If subsystems goals are pursued independently, it will results in sub-optimization. A
consistent and integrative approach will lead to optimization of overall system goals.
The system approach to specific problems requires that the problem first be identified and
isolated from the maze of the less relevant data that constitute the environment. The problem abstracted
from the overall (macro) environment. Then it can be broken into manageable (micro) parts and
analysed and solutions proposed. Doing this analysis is advantageous before making any changes. If
the solution appears to solve the problem in a satisfactory way, changes can be made to the real
system in an orderly and predictable way.
The ability of any system to achieve its objective depends on its design and its control. System
design is a predetermined arrangement of components. It establishes the relationships that must
exist between inputs, transformation activities and outputs in order to achieve the system objectives.
With the most structured design, there will be less planning and decision-making in the operations of
the system. System control consists of all actions necessary to ensure that activities conform to
preconceived plans or goals. It involves following four essential elements:
1. Measurement by an accurate sensory device.
2. Feedback of information in a timely manner.
3. Comparison with standards such as time and cost standards.
4. Corrective actions by someone with the authority and ability to correct.
Operations Management Concepts 11
A closed loop control system can automatically function on the basis of data from within its own
system.
TRANSFORMATION AND VALUE ADDING ACTIVITIES
The objective of combining resources under controlled conditions is to transform them into goods
and services having a higher value than the original inputs. The transformation process applied will
be in the form of technology to the inputs. The effectiveness of the production factors in the
transformation process is known as productivity.
The productivity refers to the ratio between values of output per work hour to the cost of inputs.
The firms overall ratio must be greater than 1, then we can say value is added to the product.
Operations manager should concentrate improving the transformation efficiency and to increase the ratio.
OPERATIONS MANAGEMENT OBJECTIVES
Joseph G .Monks defines Operations Management as the process whereby resources, flowing
within a defined system, are combined and transformed by a controlled manner to add value
in accordance with policies communicated by management.
Objectives of Operations Management can be categorized into Customer Service and Resource
Utilisation.
CUSTOMER SERVICE
The first objective of operating systems is to utilize resources for the satisfaction of customer
wants. Therefore, customer service is a key objective of operations management. The operating
system must provide something to a specification, which can satisfy the customer in terms of cost
and timing. Thus, providing the ‘right thing at a right price at the right time’ can satisfy primary
objective.