Unit 1

Concepts of Managing Operations

Chapter 1: Operations and Productivity
Lesson 1: Operations function & evolution of POM

Learning Objectives
After reading this lesson you will be able to understand
Operations system in manufacturing and service organizations
Conversion process
Historical evolution of POM

Good Morning students, today we are going to embark on a journey to understand and
appreciate the meaning and significance of operations function in a contemporary organization.
We are going to trace the evolution of POM briefly.
I welcome you all and hope you have an eminently enjoyable and enriching experience.
With that, I seek your permission to get on with the proceedings.
Here we go.

An Overview
To put the things in the right perspective, let me start by giving you an overview—the shape of
things to come.
At the onset of the 1980s, while Japan's productivity continued its healthy surge the leaders of
business and government worldwide were alarmed that productivity" stagnating in the United States.

What had happened to the giant of commerce and industry?

What led to its lethargy?
 What have we learned in the ensuing years?
What can be done to restore its stately posture?

Answers to these questions reside in the way we manage our organizations and their operations.

While U.S. productivity waned, Americans grew increasingly concerned about other related
issues: maintaining adequate energy sources, protecting the environment and meeting the demand for
goods and services at home and abroad. These facts continue to impose complex demands on our
organizations. Today management faces unparalleled challenges from a society more educated,
affluent, demanding, and concerned than ever before, and from international competition keener than
ever before. Never before have this challenges-and the costs of failure-been greater.

What is operations system?

Let us now turn our attention to an operation system.
Can you define it?
Well ,essentially two characteristics

Part of an organization.
Produces the organization’s physical goods and services

Let us first understand the reasons for what many feel over-emphasis on operations management.
The complexities of our contemporary world have heightened our dependence on organizations and
the people who manage them, yet often we fail to understand and appreciate the process of
management. Moreover, as we've learned from foreign competitors, we have seriously neglected the
operations of our organizations. We have taken for granted our preeminence as capable producers. No
longer can we afford to do so. We need to reexamine the processes by which goods and services are
created and to revitalize the ways that we manage the human and material resources for doing so. This
book aims to meet these needs. It presents the concepts, terminology, problems, and opportunities that
comprise operations management.

What is conversion process?

All of us, I am sure, are aware of the conversion process.
Can we say it is a:
Change process.
Changes/ converts inputs into outputs.
Inputs are- land, labour, capital (Others?)
Output is-well, goods and services, what else?

Time to consider an example.

Can you tell me how the operations system works for let’s say a farm?
Start thinking, Organize your thoughts and Focus on the components, one by one.
(Got it? Good.)
Inputs-what are they going to be?
Well, quite a few. i.e.

Land
Farmer labor
Tractors
Combines
Plows
Buildings
Management skills of farmer
On a farm the operations system is the transformation that occurs when the farmer's inputs (land,
equipment, labor, etc.) are converted into such outputs as corn, wheat, or milk. The exact form of the
conversion process varies from industry to industry, but it is an economic phenomenon that exists in
every industry. Economists refer to this transformation of resources into goods and services as the
production.

Inputs go into what you call, Transformation/conversion process. But there would be something
called Random fluctuations. Can you think of examples of Random fluctuations?
How about:
Weather
Inflation
Equipment breakdown
Government controls

Would these suffice?

o.k. then.
Let’s define Random fluctuations.
What are these? Any ideas?
It is unplanned or uncontrollable environmental influences.
What do they do?
It causes planned and actual output to differ.
It creates a bit of problem. Does not it?

Moving over to outputs.

Tell me the produce of a farm.
Outputs of farm are easy to comprehend i.e.
Grain
 Meat products
while in others it is a service (insurance, health care for the, elderly) What do such diverse organization

Taken in this context, the operations system (function) of an organization is the part that produces
the organization's products. In some organizations the product is a physical good (refrigerators,
breakfast cereal), while in others it is a service (insurance, health care for the elderly).
On the other hand,
Can you guess the pertinent aspects of Service-oriented businesses such as say, a dental health
clinic?
There is a custom-tailored conversion.
Inputs would be the unique combination of:
Tools
Chemicals
Customer situations
Professional skills.
What would be the output?
Obviously, optimal dental care for the patient.

Let’s now turn our attention to:

Distinction between Manufacturing and service organizations
A conversion process that includes manufacturing (or production) yields a tangible output: a product.
In contrast, a conversion process that includes service yields an intangible output:
A deed,
A performance,
An effort.
Consider McDonnell Douglas Corporation (MDC), an aerospace firm and the United States' largest
defense contractor. Subsidiary Douglas Aircraft Company produces airplanes, clearly a product. Yet,
other MDC components, such as the Information Systems Group (ISG), provide services. ISG, for
example, delivers computer services to hospitals, architects, and other businesses-services such as
programming, data analysis, and data storage using ISG's computers. Other MDC components launch
spacecraft, provide contract research services, assemble missiles, and design and manufacture fighter
aircraft. This mixture of service and manufacturing is typical of most aerospace firms.
What points assume importance in this regard?
The relevant points are:
Nature of output (Tangible/Intangible?)
Consumption of output
Nature of work/jobs
Degree of consumer contact
Customer participation in conversion
Measurement of performance
The conversion of inputs into outputs varies considerably with the technology used. By technology,
we mean the level of scientific sophistication in plant, equipment, skills, and product (or service) in
the conversion (transformation) process. A soft-drink bottling operation, for example, features a
highly mechanized, capital-intensive conversion process. A scientific research laboratory utilizes
highly trained, professional scientists and specialized equipment. Other industries use low-skilled
labor, minimal equipment, and simple processes to provide products and services.

We have already seem above how a Service-oriented businesses such as dental health clinic utilizes
custom-tailored conversion of the unique combination of tools, chemicals, customer situations, and
professional skill that provide the output of quality dental care for the patient.

To oversimplify, manufacturing is characterized by tangible outputs (products), Outputs that

customers consume over time, jobs that use less labor and more equipment, little customer contact, no
customer participation in the conversion process (in production), and sophisticated methods for
measuring production activities and resource consumption, as products are made.

Service, on the other hand, is characterized by intangible outputs, outputs that customers consume
immediately, jobs that use more labor and less equipment, direct customer contact, frequent customer
participation in the conversion process, and elementary methods for measuring conversion activities
and resource consumption. Some service is equipment-based-computer programming services,
railroad services, and telephone services-whereas other service is people-based-tax accounting
services, hair styling and golf instruction.

Let's look a little closer at the extent to which customers participate in the conversion process. In
service operations, managers sometimes find it useful to distinguish between output and throughput
types of customer participation. Output is a generated service; throughput is an item going through the
process. In a pediatrics clinic the output is the medical service to the child who by going through the
conversion process. is also the throughput. At a fast-food restaurant, in contrast the customer does not
go through the conversion process. The outputs are hamburgers and french fries served in a hurry
(both goods and services). While the throughputs are the food items as they are prepared and
converted, the customer is neither a throughput nor an output. Both the clinic and the restaurant
provide services, even though the outputs and throughputs differ considerably.

Let us now take a brief and systematic journey in the evolution of POM.

Historical evolution of POM

Till 1930s: scientific management & F.W.Taylor
1930s-50s: Production management
1970s: Operations management
For over two centuries operations management has been recognized as an important factor in a
country's economic well being. Progressing through a series of names - manufacturing
management, production management, and operations management-all of which describe the same
general discipline, the evolution of the term reflects the evolution of modern operations
management. The traditional view of manufacturing management began in the eighteenth century
when Adam Smith recognized the economic benefits of specialization of labor. He recommended
breaking jobs down into subtasks and reassigning workers to specialized tasks in which they would
become highly skilled and efficient. In the early twentieth century, Frederick W. Taylor
implemented Smith's theories and crusaded for scientific management throughout the vast
manufacturing complex of his day. Till about 1930, the traditional view prevailed, and many
techniques we still use-- today were developed.

Production management became the more widely accepted term from the 1930s through the
1950s. As Frederick Taylor's-work became more widely known, managers developed techniques
that focused on economic efficiency in manufacturing. Workers were "put under a microscope"
and studied in great detail to eliminate wasteful efforts and achieve greater efficiency. At this
same time, however, management also began discovering that workers have multiple needs, not
just economic needs. Psychologists, sociologists, and other social scientists began to study people
and human behavior in the work environment. In addition, economists, mathematicians, and
computer scientists 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 the service sector became more prominent, the change from "production" to
"operations" emphasized the broadening of our field to service organizations. The second, more
subtle change was the beginning of an emphasis on synthesis, rather than just analysis, in
management practices. Spearheaded most notably by Wickham Skinner, American industry was
awakened to its ignorance of the operations function as a vital weapon in the organization's overall
competitive strategy. Previously preoccupied with an intensive analytical orientation and an
emphasis on marketing and finance, managers had failed to integrate operations activities
coherently into the highest levels of strategy and policy. Today, the operations function is
experiencing a renewed role as a vital strategic element. Consequently, organizational goals are
better focused to meet consumers' needs throughout the world.

Table 1: Historical Summary of OM

Year Concept Tool Originator
1910s Principles of scientific Formalized time-study Frederick W. Taylor (U S.)
management and work-study concepts
Industrial psychology Motion study Frank and Lillian Gilbreth (U.S.)
Moving assembly line Activity scheduling chart Henry Ford and Henry L. Gantt
(U.S.)
Economic lot size EOQ applied to F. W. Harris (U.S.)
inventory control
1930s Quality control Sampling inspection and Walter Shewhart, H. F. Dodge, and
statistical tables for H.G. Roming (U.S.)
quality control
Hawthorne studies of Activity sampling for Elton Mayo (U.S.) and L. H. C.
worker motivation work analysis Tippett (England)
1940s Multidisciplinary team Simplex method of Operations research groups
approaches to complex linear programming (England) and George B. Dantzig
system problems (U.S.)
1950- Extensive development Simulation, waiting-line Many researchers in the U.S. and
60s of operations research theory, decision theory, Western Europe
tools mathematical
programming, project
 scheduling techniques of
PERT and CPM
1970s Widespread use of Shop scheduling, Led by computer manufacturers, in
computers in business inventory control, particular, IBM; Joseph Orlicky and
forecasting. Project Oliver Wight were the major MRP
management, MRP innovators (U.S.)
Service quality and Mass production in the McDonald’s restaurants
productivity service sector
1980s Manufacturing strategy Manufacturing as a Harvard Business School faculty
paradigm competitive weapon (U.S.)
JIT, TQC, and factory Kanban, poka-yokes, Tai-Ichi Ohno of Toyota Motors
automation CIM, FMS, CAD/CAM, (Japan), W. E. Deming and J. M.
robots, etc. Juran (U.S.), and engineering
disciplines (U.S., Germany, and
Japan)
Synchronous Bottleneck analysis, Eliyahu M. Goldratt (Israel)
manufacturing OPT, theory of
constraints
1990s Total quality Baldrige quality award, National Institute of Standards and
management ISO 9000, quality Technology. American Society of
function development, Quality Control (U. S.), and
value and concurrent International Organization for
engineering continuous Standardization (Europe)
improvement paradigm Michael Hammer and major
Radical change consulting firms (U.S.)
paradigm
 Business process Internet, World Wide U.S. government, Netscape
reengineering Web Communication Corporation, and
Electronic enterprise Microsoft Corporation

Supply chain SAP/R3, client/server SAP (Germany), Oracle (U.S.)

management software
2000s E-commerce Internet, World Wide Amazon, eBay, America Online,
Web Yahoo!

Systems view of operations

Before we focus our attention on the systems view, let us first attempt to define a system:

What is a system?
Collection of objects related by regular interaction and interdependence.
What is operations management?
Management of conversion processes.
Converts inputs into outputs (as explained earlier)
Classical school
Scientific management
Process orientation
Behavioral school
Human relations
Social systems
Modeling school
Decision-making
Systems theory
Mathematical modeling.
What then is a system?
In a very general sense, a system is a collection of objects related by regular interaction and
interdependence. Systems can vary from the large-nationwide communications networks, for
example--a system for processing paperwork in an office, to help people communicate about a
system, proper systems are required to be installed in place.

A systems model of the organization identifies the subsystems, or subcomponents, that make up the
organization. A business firm might well have finance, marketing, accounting, personnel, engineering,
purchasing, and physical distribution systems in addition co the operations system. These systems are
not independent but are interrelated co one another in many vital ways. We have chosen to show
production/operations with major interactions between finance and marketing and lesser interactions
with other functions. Decisions made in the production/ operations subsystem often affect the
behavior and performance of other subsystems. Finally, we should understand that the boundaries
separating the various subsystems are not clear and distinct.
Where do the responsibilities of production/operations end and those of physical distribution
begin?
The answers to such questions are often unclear and sometimes never resolved.

What is mathematical modeling all about?

You all know very well what modeling is all about and what a model really is? Some of you might
also be aware of the effect it has on others.
What do you think should be the characteristic of a good model?
What do you say: 36-24-36? No one could possibly disagree with you.
But:

Mathematical Models
Mathematical models show the functional relationships among different variables by using
mathematical symbols and equations. In any equation, x. y. and similar symbols arc used to express
precise functional relationships among the variables.

The context in which we use the term Mathematical models refers to the creation of mathematical
representations of management problems and organizations in order to determine outcomes of
proposed courses of action. In spite of their utility, we must recognize models for what they are-
artificial representations of things that are real. As such, they fall short of fully duplicating their real
world counterparts. This incompleteness of models should not be interpreted as a strictly negative
feature. In fact, it can be desirable, because it clears away extraneous elements and concentrates on the
heart of the problem. The modeling process can give us a simplified version of the situation, a
representation in which all the minor considerations have been stripped away so the major factors are
clearly visible.

Thus, Mathematical modeling refers to the creation of mathematical representations of management

problems and organizations in order to determine outcomes of proposed courses of action.
They show functional relationship among variables by using mathematical symbols and equations.

Types of mathematical models

Commonly two types of mathematical models are used:
Optimization models
Optimization Operations managers often use models to help analyze problems and suggest solutions.
To assist, they often find it helpful to use an algorithm, a prescribed set of steps (a procedure) that
attains a goal. In optimization models, for example, we want to find the best solution (the goal), and an
optimization algorithm identifies the steps for doing so. In operations management we strive for
optimization algorithms as aids in problem solving.

Heuristic models
Heuristics In other cases, a heuristic approach is used. A heuristic is a way (a strategy) of using rules
of thumb or defined decision procedures to attack a problem. In general, when we use heuristics we do
not expect to obtain the best possible solution to a problem; instead, we hope for a satisfactory
solution quickly. Formally developed heuristic procedures are called heuristic algorithms. They are
useful for problems for which optimization algorithms have not yet been developed.

Any problems?
Well, recognize models for what they are- artificial representation of things that are real.
Hence, they fall short of fully duplicating real life counterparts.
Right perspective
You get a simplified version of the situation-a representation in which all the minor considerations
have been stripped away so the major factors are clearly visible.

Problem Classification
Since the operations analyst encounters many different kinds of problems, it is a good idea to have a
convenient starting point, or frame of reference, for initiating the analysis. Classifying problems into
different types makes it easier to select models and criteria to use in the analysis. We'll consider two
ways of classifying problems: by the degree to which the outcome is uncertain. and by the degree to
which the decisions arc interdependent.
Element of Chance and Uncertainty
When we know for sure what the outcome of each decision will be, we are dealing with a problem
under conditions of certainty. When a decision has more than one possible outcome and we know the
likelihood of each outcome, we are dealing with a problem under conditions of risk. Finally, when a
decision has more than one possible outcome and we do not know the likelihood of each outcome, we
are dealing with a problem under conditions of uncertainty. Some examples may clarify these
conditions of certainty, risk, and uncertainty.

Focus on the systems view of a contemporary business organization given below:

Product
demand
Marketing Operations

R & D and
Engineering

Information Human resources

systems

Financial
And
Accounting

Activity
You have been working hard. Take a break now. Go to the market. Shop. Come back home.
It’s approaching suppertime. Why don’t you help mother in preparing dishes?
Good.
Now illustrate the various components of operations system of a departmental store and your
kitchen. Also draw a flow chart for the above activities.
Points to ponder

What is Operations Management?

Defined

Operations management (OM) is

defined as the design, operation, and
improvement of the systems that
create and deliver the firm’s primary
products and services

©The McGraw-Hill Companies, Inc., 2004

Why Study Operations Management?

Systematic Approach
to Org. Processes

Business Education Operations Career Opportunities

Management

Cross-Functional
Applications

©The McGraw-Hill Companies, Inc., 2004

 6

W h at is a P ro d u ctio n S yste m ?
D efin ed

A p ro d u c tio n s ys tem is d e fin e d a s a

u s e r o f re so u rc e s to tran sfo rm in p u ts
in to s o m e d es ire d o u tp u ts

© T h e M cG ra w -H ill C o m p a nie s, Inc., 2 0 0 4

T ra n s fo rm a tio n s

• P h y s ic a l--m a n u fa c tu rin g

• L o c a tio n a l--tra n s p o rta tio n

• E x c h a n g e --re ta ilin g

• S to ra g e --w a re h o u s in g

• P h y s io lo g ic a l--h e a lth c a re

• In fo rm a tio n a l--te le c o m m u n ic a tio n s

© T h e M cG r a w - H ill C o m p a n ies, I n c., 2 0 0 4

What is a Service and What is a

Good?
• “If you drop it on your foot, it won’t hurt
you.” (Good or service?)

• “Services never include goods and

goods never include services.” (True or
false?)

©The McGraw-Hill Companies, Inc., 2004

 15

Historical Development of OM

• JIT and TQC

• Manufacturing Strategy Paradigm

• Service Quality and Productivity

• Total Quality Management and

Quality Certification

©The McGraw-Hill Companies, Inc., 2004

16

Historical Development of OM (cont’d)

• Business Process Reengineering

• Supply Chain Management

• Electronic Commerce

©The McGraw-Hill Companies, Inc., 2004