Introduction

Fundamentals of Operations Management

Operations management is a process of systemic approach of transformation process of inputs
to finished goods and services, with regular evaluation and control to achieve best possible
result.

The inputs may be investment(capital), materials (raw or semifinished), manpower (skilled,

semiskilled, unskilled, and intellectual), energy (electricity, solar and other utilities) and
information on customers’ expectation. The use of technology in the transformation process is
also an inevitable part.

The transformation process generally leads to three types of output i.e main product(to be used
by end user or customer), by product ( to be reused after modification or reprocessing) and
waste product (to be disposed of scientifically).

For example, in a steel plant the input would be iron ore, coal and other alloy material. The
output would be steel for further processing (as main product), scarp steel (as bye product to
be melted and used in caster) and waste product like some chemical effluents and fume to be
disposed of with effective treatment.

In case of a service operation like hospital the inputs would be patients with infrastructural
inputs like surgical equipment’s, skilled manpower and pharmaceutical items. The primary
output would be cured patients, bye product would be excess pharmaceutical items and bio
waste would be waste product.

It is to be noted that the process of transformation in operations management is dynamic and

subject to modification based on customer/end user feedback. The operations manager is
primarily responsible for the entire transformation process ensuring quality, efficiency and
firm’s responsiveness to customers’ changing demand pattern. He/she is instrumental in
making a firm from order qualifier (satisfying minimum criteria of customers’ need) to order
winner (being superior to competitor in some aspect may be price, aesthetic, after sales service
etc). The parameters of quality, efficiency and responsiveness are considered under the
following parameters.
 – Quality: goods and services that are reliable and perform correctly.
• Quality allows customers to receive the performance that they expect.
– Efficiency: the amount of input to produce a given output.
• Less input required lowers cost and waste.
– Responsiveness to customers: actions taken to respond to customer needs.
• Firm can react quickly and correctly to customer needs as they arise.

Characteristics of Services and Goods Operations

A. Service Operations
The output in a service operation is intangible and the output cannot be stored ( or
inventoried). It means it is to be executed by provider and experienced by service taker at
one instant. Therefore it is done with active participation of customer or service taker and
must be executed as fast as possible and instantly in case of emergency. As the service
provider and service taker are to be in tandem with each other service operation is more
dependent/ rely on service provider (human resource) in comparison to technology used to
provide the service.

Example: In a health care service the patient is more focused to be treated by a competent
doctor with quick attention. The service of treatment cannot be stored for a different time
slot and all supporting devices (diagnostic equipment) are useful provided the doctor is
competent.

B. Manufacturing/ Goods Production Operation

In manufacturing or goods production operation the product or output are tangible in nature
and can be stored for certain duration to be delivered to a consumer in a later period. This
type of operation sometime requires high end automated machinery with huge capital
investment. Generally, the customer is not interested in understanding the intricacies of
technology of production; hence customer contact is less. Here the customer feedback is
taken through retail outlets about the performance of the product and customers’ perception.
Based on customer feedback necessary modifications are made to the existing product after
a certain duration which may vary from months to years.
Example: A bicycle manufacturer sales its product through its retail outlets. A customer is
never interested in knowing or understanding the intricacies of manufacturing process of
 bicycle. He/she is more interested in the performance and cost of the product. Customers
may aspire for more features with changing time like an attachment of goods carrier. Based
on this fee back the manufacturer may come with an upgraded model by attaching this
accessory. But this is not going to happen until a few months of production is over and
being assured of the new product being acceptable on the market.
Commonalities between Manufacturing and Service Operations
Despite strategic difference between manufacturing and service operation there exists some
commonalities. They are
a. Need of technology
Whether a manufacturing or service operation, both use or takes the assistance of
technology for better functioning. When a manufacturing operation uses high end
computerized numerical control machines for large and flawless production, a service
operation like hospital do use high end electronic instruments for diagnostic purpose
like ECG, X-ray etc.

b. Issue of Productivity, Efficiency and Quality

Manufacturing and service operations have issue of productivity like getting better out
put with existing setup and better efficiency by reducing waste and reducing non value
added activity. In manufacturing or in service this is achieved by reducing unnecessary
movements, taking care of incoming materials and putting right skill at right point of
action. This would ensure better, cost effective and quality output.

c. Necessity of Forecasting
All business whether production(manufacturing) or service depends upon the need of
customer and the way that need can be satisfied. To understand the need of customer
both in quantity(volume) and quality the business needs to predict the demand in a
scientific manner. For example, in a country like India the festivity season along with
wedding activities starts from August and continues till December. So there is
escalation of demand say for clothes and readymade garments during this period. A
business entity involved in this production activity will have anticipate the demand
pattern based on previous experience and gear up itself for the possible market scenario.
Producing more would lead to unsold finished product inventory and producing less
would lead to lost sales. In the same period there will also be enhanced demand for
electronic gadgets, let us say LEDS. But a LED purchase is accompanied by delivery
 and installation. So, the logistics service provider for this delivery and installation also
has to enhance its serviceability for this higher demand. Hence, they too need a
scientific approach for forecasting.

d. Issue of capacity, layout and location

Every operation has a limitation. It depends upon operators’ physical capacity, financial
ability, skill, and technical capability. Based on this the capacity of an organization
decides to venture into a particular product or service and its capacity to cater to the
market size. Again, the capacity may be enhanced or squeezed as per demand pattern.
For example, a readymade garment manufacturer need to work at the fullest capacity
during festivity period and must squeeze its capacity at the slack demand period.

Layout of any workplace is based on the type of operation. An automobile plant need
to have a line type of layout with specialized work center and the product need to
traverse a typical path (Figure. 1).

Chassis Body Interior Electronic

fittings

Figure. 1 Rough Sketch of Layout of an Auto assembly shop

Likewise in a service operation one room can be converted into a software development
center, an extension counter of a bank, a classroom, or a diagnostic center. For each of
these operations the layout of the room needs to be changed.

As an enterprise is meant to generate business and ultimate profit, locating the certre of
operation or production facility is important. For example Pune has been a preferred
location for various auto manufacturing company due to its advantage of having better
connectivity, availability of power, water resources, skilled manpower and cheaper land
price. Later this has become an IT hub designated as Silicon Valley of Maharashtra.

For that matter most of steel plants in India are located in Eastern part(Chhatishgarh,
Jharkhand, West Bengal, Odisha and Vishakapatanam of Andhra Pradesh) due
abundance of iron ore and other mineral resources.
 Bad decision in location will lead to huge loss. Take the case of opening a Mercedes
Benz showroom in a rural area due to cheaper land price. But you will not get any
customer and ultimately it would be a big loss

e. Issue of customer, supplier, scheduling and staffing

Customer is the prime focus in any activity. It’s important to understand the need of
perspective customer and place a product or service before them. As an operation
manager we need to understand the real requirement and also the paying capacity of a
customer before placing a product. Suppose we need to produce cell phone. The we
must understand the type of customer we are targeting, their requirement(like camera
quality, memory capacity etc) and their paying capacity too. Just placing a high end cell
phone beyond the capacity is not going to work. Like wise in a service operation like
restaurant we need to enhance the quality of seating arrangement, interior, a/c facility,
quality of utensil based o the potential customers and their paying capacity. We may
compromise some attributes like very high grade interior in order to reduce the over all
cost of a meal. Of course in both the case the basic quality parameter like calling clarity
in cell phone and quality of food in restaurant cannot be compromised.
And when we take customer satisfaction into consideration we do need good inputs
with appropriate cost to achieve our goal. Hence supplier plays an important role for
this achievement, so also properly educated, equipped, skilled and supporting staff or
human resources.
Timely delivery of output or service is very important for customer satisfaction. Hence
scheduling of all activities i.e starting from procurement of raw material to placing the
product/ service in market need to minutely scheduled in order to satisfy the predicted
demand at right point of time. Or else all efforts will lead to a big loss.

f. Manufacturing often provides services

In case of some manufacturing activity is incomplete if not accompanied by service.
For example if a person purchases an air conditioner, then only procuring the machine
is not enough. It has to be accompanied by installation which is service operation.
Likewise OEM (Original Equipment Manufacturer) or spare part manufacturer for
automobiles are licensed auto components manufacturer located at various parts. They
supply spare parts to parent company and to different retail outlets. Though they are
 manufacturing unit they essentially serve the parent company directly and customers
indirectly.

g. Services often provides tangible goods

Many software companies located in India basically provide service to giant software
product manufacturer like Microsoft, Oracle etc by doing part of their job which
ultimately incorporated into their software product. Though it’s a service operation it
comes in form of a tangible good as the final product. Same is case of project software
development. In this case a company’s requirement say pay roll package is developed
by software service provider customizing for company using standard software tools.
It’s a service but comes in form of a final output.

Hybrid organisations
Some organizations are a blend of service and manufacturing, that means though activity are
manufacturing process but the objective is to provide a satisfactory service. They are better
termed as quasi manufacturing operation. Here customers are consulted for their requirement
but the process of fulfilling that requirement is done without direct involvement of customer.
And these operations do use sophisticated and capital-intensive equipment.

Growth Trajectory of Manufacturing and service Operations

The figure 2 and figure 3 indicated that there is high growth of service export and proportionate
growth in service sector in last few decades. It clearly emphasised the fact that economy is very
much driven by service industry as compared to manufacturing industry. Hence service
operation has become more focal and vocal to drive the world economy. Hence the concept of
operations management must take service into consideration as an integral part of overall
business scenario.

Figure 2: Worldwide Service export vs Manufacturing export Ref: IMF

 AUS-Australia,DEU-Gemany,GBR-Great Britain, ITEA-Italy,USA-United States of America

Figure 3: Growth of Manufacturing and Service Industry Ref: SH. Roberts, BD. Foran, CJ. Axon, &
AV. Stamp (2021). Is the service industry really lowcarbon? Energy, jobs and realistic country GHG emissions
reductions. Applied Energy, 292, Article no: 116878, DOI: 10.1016/j.apenergy.2021.116878

Figure 4: Sectoral growth in India Source Mospi , D&B India

Looking at the sectoral growth in India (Figure 4) it can be inferred that there is steady growth
of both manufacturing and service sector during the period of 2006-10, 2011-15 and 2016-20.
Agriculture has a fluctuating trend showing a downward trend during 2011-15. In overall
analysis we can conclude that the industry, i.e manufacturing and service sector are very
important as far as the health of an economy is concerned.