Introduction to Operations Management

Kamran Rahat Cells: 0345-8114486, 0315-9222848
MBA-University of Karachi Direct Tel: 92-21-38455508
ME (Construction Management)-NED University URL: www.kamranrahat.webs.com
BE (Civil)-NED University
PGC (Advanced Project Management)-NED University

Operations Management/
Production Management
At a Glance

Chapter-1
Operations as a
Competitive Weapon
(An Introduction to Operations/Production Management for Beginners)

Kamran Rahat
www.kamranrahat.webs.com


MANAGEMENT AND MANAGERIAL FUNCTIONS

Management is “The organization and coordination of
the activities of an enterprise in accordance with certain
policies and in achievement of defined objectives”.
There are four basic functions of Management. These are:
-Planning: Planning relates to decisions on about the
present and the future. It relates to developing
objectives, strategies, policies etc.
-Organizing: In this function, managers have to decide
the optimum usage of all resources
-Staffing: Filling positions in organizational chart, i.e
recruitment/selection etc.
-Leading: Leading deals with proper communication of
goals and plans and motivating the employees to achieve
Management them.
Defined -Controlling: Keeping a check on the progress of plans
and monitor actual performance.

FUNCTIONAL DEPARTMENTS IN ORGANIZATIONS
Basic Functional Departments in any organization may be
Finance/Accounting/Internal Audit, Marketing/Sales/Business Development,
Operations/Production/ Manufacturing, Human Resources/Personnel.
Other Departments may be Procurement/Purchasing/Outsourcing, Engineering,
Research and Development (R & D) etc., as per requirement of organization.

TYPES OF ORGANIZATIONS W.R.T BUSINESS

Manufacturing Organizations: They deal in converting raw materials,
components, or parts into finished goods that meet a customer's expectations or
specifications. Manufacturing commonly employs a man-machine setup with division
of labor in a large scale production. Example: P & G, Mitsubishi Japan etc.


Assembling Organizations: They usually deal in getting component parts from
manufacturers and combine them on assembly lines to get fininshed goods.
Example: Toyota Indus Motor, Karachi, Pakistan imports components of automobiles
from Japan and assembles them in Karachi.

Service Organizations: They deal in providing services to their Clients/Customers.
Example: Hospitals, Lawyer’s Office, Cellular Networks etc.

Trading Organizations: They deal in goods manufactured or assembled by other
organizations. Example: Distributors, Wholesalers, Retailers.
Macro Cash and Carry etc.

CORE AND SUPPORT OPERATIONS OF ORGANIZATION

Core Operations of an organization means the types of
operations through which an organization primarily achieves
its objectives of profitability and/or growth.
Support Operations are the operations which are necessary
to support and sustain the core operations.
Core Operation of PEPSICO is manufacturing/ processing of
Foods and Beverages, whereas its Support Operations are
HR, Finance, Marketing/Sales and IT.
Similarly Core Operation of an Advertising Agency is
Marketing, and that of a Recruitment Agency is HRM.


WHAT IS A PROCESS?

A Process is any activity
or group of activities that
takes one or more inputs,
transforms and adds value
to them, and provides one
or more outputs for its
customers.
External Customer is
either End User of a
company’s product or an
Intermediary like
Distributor, Wholesaler,
and Retailer.
Different Sections within
an organization are
Internal Customers of
each other as they all rely
each other for different
internal inputs and
products.

Within an organization, Intra-organizational Relationships develop (i.e
Professional Relationships between two or more sections/departments of an
organization) in order to achieve organizational objectives.

Process Illustration Showing Inputs and Outputs


Nested Processes
The Concept of processes within a process is called Nested Process.

Nested Processes at a Bank

BANK

Operations Retail Products Wholesale

Cash Management Distribution Auto Finance Trading
Loan operations Compliance Cards Loan administration
Trading operations Finance Mortgages Leasing
Others Human resources Others Others

ATM support Teller line transactions Credit applications Fund management
Customer transactions Track branch sales Manage retail products Market making spot
Service quality ATM hotline Originate lease portfolio Dealer support
Others Others Others Others

Maintain cards Process deposits Loan documentation Prepare reports
Research problems Cash checks Review credit standing Attend meetings
Site analysis Safe deposit boxes Obtain manager approval Input funds deals
Others Others Others Others

Some Examples of Common Processes

Customer/Patient Processing An information processing operation at a
Operation at a Hospital Commercial Bank


WHAT IS OPERATIONS/PRODUCTION MANAGEMENT (OM/PM)?
The business function responsible for planning, coordinating, and controlling the
resources needed to produce a company’s products and services is called
Operations or Production. The management of systems or processes that create
goods and/or provide services is called Operations or Production Management.
Production not only means manufacturing goods. Services are also
produced.

OM/PM Decisions

Strategic Decisions Tactical Decisions
 Product/Service Design  Quality Control
 Process Selection  Demand Forecasting
 Capacity Planning  Supply Chain Management
 Facility Location  Production Planning
 Facility Layout  Inventory Control
 Job Design  Scheduling


Cross-Functional Nature of OM/PM
OM/PM has an impact on all aspects and functional departments of an organization.
Thus OM/PM is not an isolated phenomenon as shown in following figure.


GOODS V/S SERVICES

Manufacturing, Assembling and Trading Organizations deal in Goods.
No Organization is 100% Goods Organization. And No Organization is 100%
Service Organization. The orientation of Goods Organization is more towards
goods and less towards services and vice-versa.

The Goods-Services Continuum is shown below:


FRONT OFFICE AND BACKOFFICE OPERATIONS
The study of service operations has led to the development of some useful concepts
in addition to those that have emerged from the study of manufacturing. One such
concept is that of the difference between the Front Office and the Back Office
Operations. The area in which contact with customers occurs is termed the front
office. This primarily involves customer processing operations. The area where there
is normally no contact with customers is termed the back office. This may involve
information and/or materials processing operations.

TRENDS IN OM/PM
• Exponential Growth of Service Sector
• Productivity Issues and Challenges
• The Internet, e-commerce, and e-business.
• Management of technology.
• Globalization & Global Competition
• Quality, Time and Technology Considerations
• Management of supply chains.
• Outsourcing.
• Agility.
• Ethical behavior.
• Workforce Diversity
• Operations strategy
• Working with fewer resources
• Revenue management
• Process analysis and improvement, and quality improvement
• Increased regulation and product liability issues
• Lean production


CONCEPT OF SUPPLY CHAIN
A Supply Chain is a system of organizations, people, technology, activities,
information and resources involved in moving a product or service from supplier to
customer. Supply chain activities transform natural resources, raw materials and
components into a finished product that is delivered to the end customer.

For a typical Manufacturer, the Backward Side of its Supply Chain consists of Raw
Material Suppliers, Component Parts Supplier, and Other Main and Support Services
Suppliers like Legal Services, Security Services and Medical Services. And the
Forward Side of Supply Chain consists of Distributor, Wholesalers, Retailers, End
Users/Consumers etc.

This Supply Chain creates Inter-organizational Relationships i.e Professional
Relationship between Supply Chain Members. Failure of one member of supply chain
may result in overall supply chain failure.

RESOURCES: DEFINITION AND TYPES

Resources are stock or supply of money,
materials, staff, and other assets that can
be drawn on by a person or organization in
order to function effectively.

Types of Resources are:
Human Resources (Executives and Labour
with their Skills and Capabilities)
Material Resources (Tangible Consumable
Items like Raw Material Inventory)
Tool, Machinery, Equipment, Plant
(Tangible, Non-Consumable Items)
Methods and Procedures, Money and Other
Assets


INTRODUCTION TO PRODUCTIVITY

Productivity is the value of Outputs (goods,
services, results) produced divided by the values of
Inputs (resources). Mathematically it can be shown
as:

Productivity = Output / Input

Labour Productivity
Output per Person or Output per Man-Hour
eg 50 Cases Processed per Processing Offices, 10
Cases Processed per Man-Hour

Machine Productivity
Output per Machine or Output per Machine-Hour
eg 50 Units Produced per Machine, 10 Units
Produced per Machine-Hour

Multifactor Productivity
It is an index of output provided by more than one
of the resources (inputs) used in production.

SCOPE OF OPERATIONS/PRODUCTION MANAGEMENT

Other things included in the Scope of OM/PM are:
Strategic Considerations, Managing Project Processes, Technology Management,
TQM, Statistical Process Control, Facility Layout, Supply Chain, Resource
Management, Production Planning/Scheduling


EXERCISE

Q-1: Services are also produced. Do you agree? If yes then briefly elaborate.

Q-2: List down key processes and core operations in following type of organizations:
Commercial Bank, Investment Bank, Fast Food Chain, Car Assembling Company,
FMCG Distributor.

Q-3: Briefly explain any three points of differentiation between Goods and Services.

Q-4: A typical manufacturing organization deals only in providing goods to its
customers, not services. What is your opinion? Justify your answer.

Q-5: How Strong Intra-organizational Relationships can contribute to overall
Organizational Productivity and consequently profitability?

Q-6: Use the transformation model (Figure 1.1) to analyze the following types of
organization. In each case, list the transformed resources, the transforming
resources and the outputs produced.
Clothing manufacturer, School, Dentist, Accountancy, Restaurant, Bank

Q-7: List down the Front Office and Back Office Operations in a Mega Departmental
Store like Macro Cash and Carry.

Introduction to Operations Management

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