Section : Nature & Context of

Operations Management
Chapter 1: Introduction to the Field
Operations Management (OM)
Managing of the productive resources
(raw materials, human resources,
equipment, and facilities etc.)
Providing
direction in gaining and
maintaining competitive advantage
Delivering
high-quality,
costcompetitive products and services is
1
essential to survive in todays global
economy

Characteristics

A business education is incomplete

without an understanding of modern
approaches to managing operations.
OM provides a systematic way of
looking at organizational processes.
OM presents interesting career
opportunities.
The concept and tools of OM are
widely used in managing other
functions of a business.
2

Definition

OM may be defined as the design,

operation, and improvement of the
production systems that create the
firms
primary
products
and
services.
OM is a functional field of business
with
clear
line
management
responsibilities.
OMs distinct management role
distinguishes it from operations
research (OR) and management
3
science (MS).

Operations Decisions
Marketplace
Corporate Strategy
Finance Strategy

Operations Strategy

Marketing Strategy

OM

People

Plants

Parts

Planning and Control Systems

Processes

Levels of Management Decisions

OM decisions at the strategic level impact

the companys long-term effectiveness in
terms of how it can address its customers
needs.
Tactical planning primarily addresses how
to efficiently schedule material and labor
within the constraints of previously made
strategic
decisions.
These,
in
turn,
become the constraints under which
operational planning and control decisions
are made.
OM decisions with respect to operational
5
planning and control are narrow and
short-term.

Heart of OM

Management of production systems.

It uses operations resources (5Ps
People, Plants, Parts, Processes, and
Planning and Control Systems) to
transform inputs into some desired
outputs.
These
transformations
are
not
mutually exclusive. For example, a
department
store
can
allow
shoppers to compare prices and
quality, hold items in inventory until
6
needed, sell goods etc.

Differences
Production

Between

Services

and

The essential difference is that goods produced

are tangible and service is an intangible process.
In services, location of the service facility and
direct customer involvement in creating the
output are often essential factors: in goods
production, they usually are not.

On the contrary, there are many shades of gray

area.
Manufacturers provide many services as part of
their
product,
and
many
services
often
manufacture the physical product that they
7
deliver to their customers or consume goods in
creating the service.

Operations as Service
Every organization is in the service
business. This is true whether the
organization makes big planes or
big Macs.
Manufacturing operations as well as
every other part of any organization
are also in the service business
even if the customer is an internal
one.
In manufacturing, such services are
divided into two types- core and
8
value-added services.

Operations as Service Continued

Core Services services for making the
product
correctly,
customizing
the
products to the needs of the customers,
delivering product on time, and pricing
the
product
competitively
(quality,
flexibility, speed, and price).
Value-added Service - services that simply
make the external customers life easier
or, in the case of internal customers, help
them to better carry out their particular
function. Value-added services can be
classified into four broad categories:
Information,
Problem
Solving,
Sales
9
Support, and Field Support.

Chapter 2: Operations Strategy

and Competitiveness

A company that is considered to be

world class recognizes that its
ability
to
compete
in
the
marketplace depends on developing
an operations that is properly
aligned with its mission of serving
the customer.
A companys competitiveness refers
to
its
relative
position
in
comparison to other firms in the
10
local and global marketplace.

Operations Strategy

It is concerned with setting broad policies and plans

for using the resources of the firm to best support the
firms long term competitive strategy.
It is comprehensive through its integration with
corporate strategy. It involves a long term process
that must foster inevitable change.
An operations strategy involves decisions that relate
to the design of a process and the infrastructure
needed to support the process.
For example the selection of appropriate technology,
sizing the process over time, the role of inventory in
the process, and locating the process (Design of a
process), logic associated with planning and control
systems, quality assurance and control approaches,
work payment structure, and the organization of11the
operations functions.

Operations Strategy (Continued)

It coordinates operational goals with

those of the larger organization. It
must be designed to anticipate future
needs.
Keys to success in operations strategy
lie in identifying what the priority
choices are, in understanding the
consequences of each choice, and in
trade-offs involved.
Priorities
needed
to
remain
competitive are different for different
companies,
different products, and
12
different countries.

Operations Priorities

There can be many operations priorities. Such

as cost, product quality and reliability,
delivery speed, delivery reliability, ability to
cope with the change in demand, flexibility
and new product introduction speed, and
other criteria particular to a given product.

Cost Within every industry, there is usually a

segment of the market that buys strictly on
the basis of low cost. To successfully compete
in that market niche, a firm must be the low
cost producer.
For products sold strictly on the basis of cost,
customers cannot distinguish the products 13of
one firm from those of another.

Operations Priorities (Continued)

Product Quality and Reliability Quality can

be divided into two categories: Product
Quality and Process Quality.
The level of quality in a products design will
vary with the market segment to which it is
aimed. The goal is establishing the proper
level of product quality is to focus on the
requirements of the customer.
Process quality is critical as it relates directly
to the reliability of the product. Customer
want products without defects. The goal of
14
process quality is to produce error-free
products.

Operations Priorities (Continued)

Delivery Speed In some markets, a companys

ability to deliver more quickly than its competitors
may be very critical.
For example a company that can offer on-site
repair in only 1 or 2 hrs has a significant advantage
over a competing firm that only guarantees service
within 24 hrs.

Delivery Reliability This priority relates to the

ability of the firm to supply the product or service on
or before a promised delivery due date.

Coping With Changes in Demand In many markets,

a companys ability to respond to increase and
15
decrease in demand is an important factor in their
ability to compete.

Operations Priorities (Continued)

Flexibility and New Product Introduction

Speed Flexibility, from a strategic
perspective, refers to the ability of a
company to offer a wide variety of
products to its customers.
An important elements to offer different
products is the time required for a
company to develop a new product and to
convert its processes to offer the new
product.

Other Product-Specific Criteria Technical

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liaison and Support, Meeting a launch
Date, Supplier After-Sale Support etc.

The Notion of Trade-Offs

An
operation
cannot
excel
simultaneously on all performance
measures. Consequently, management
had to decide which parameters of
performance are critical to the firms
success, and then concentrate or focus
the resources of the firm to those
particular characteristics.

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Priorities and Marketplace

As a one-world economy evolves, companys

have to adopt an international perspective
toward both operations and marketing.
Competition is significantly more intense due
to both the greater number of players and
the tremendous opportunities that exist.

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Changing Competitive Priorities

Competitive priorities change with

time. The customer is looking for
the combination of quality and
related criteria.
A recently used term for this
combination
of
customer
requirements is value. Value to
the customer means buying a
product with the most important
19
attributes.

Order Winners and Order Qualifiers

Terry Hill of London Business School

has coined the terms order winners and
order qualifiers to describe marketingoriented priorities that are key to
competitive success.
An order-winner is a criterion that
differentiates the products or services
of one firm from another. It can be cost,
product quality, or any other priorities.
An
order-qualifier
is
a screening
criterion that permits a firms products
to even be considered as possible
20
candidates for purchase.

A Framework for Operations Strategy

in Manufacturing

Operations strategy cannot be done in a

vacuum. It must be linked vertically to
the customer and horizontally to other
parts of the enterprise.

There are linkages between customer

needs,
performance
priorities,
requirements
for
manufacturing
operations,
enterprises
resource
capabilities,
etc.
Overlying
this
21
framework
is
senior
managements
strategic vision of the firm.

Strategic Vision

Strategic vision identifies the target

market, the firms product line, and
its core enterprise and operations
capabilities.

The choice of target market can be

difficult, but it must be made.
Indeed, it may lead to turning away
business ruling out a customer
segment that would simply be
22
unprofitable or too hard to serve
given the firms capabilities.