Amity Business School
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Amity Business School
MBA Class of 2011, Semester II Welcome to the course on Operations Management (MBAOM 10201) S S Pal (Former DGM, ITI Ltd., Bangalore / Raebareli) AP-OM, ABS-AUUP, NOIDA
Amity Business School
Operations Management: Trends & Issues
Amity Business School
Operations Management Definition • An operations system is defined as one in which – several activities are performed – to transform a set of inputs into useful output – using a transformation process.
• Operations Management is – a systematic approach to – address all the issues pertaining to – the transformation process that converts some inputs into output that are useful, and – could fetch revenue to the operations system
Amity Business School
Operations Management Salient Aspects • A systematic approach using scientific tools & techniques and solution methodologies to analyse problems • Addressing several issues varying in terms of time horizon, nature of decisions • Addressing design & operational control issues in the transformation process • Focusing on keeping costs to the minimum • Developing a set of measures to assess performance of the system
Amity Business School
Manufacturing Sector Salient Aspects 1998-99 1999-00 2000-01 2001-02 2002-03 Index of Industrial Production (Growth % over previous year)* Manufacturing 4.4 7.2 5.4 2.9 6.0 Capital Goods 12.6 7.0 1.7 -3.4 10.5 Consumer Goods 2.2 5.7 8.0 6.0 7.1 Intermediate Goods 6.1 8.8 4.7 1.6 3.9 Automobile Sector 3.2 21.0 -5.7 6.1 8.1 Corporate Sector Performance (Manufacturing)* Sales 8.4 16.9 17.2 -0.3 11.1 PBIT 1.0 8.3 7.3 1.2 23.5 Components of cost (As % of net sales)# Raw material expenses 39.8 40.3 39.8 41.8 44.0 Salaries & Wages 6.6 6.2 6.1 6.2 5.9 Interest Payments 5.5 4.8 4.4 4.2 3.2 Components of cost (Growth % over previous year)# Raw material expenses 7.1 19.6 17.3 4.5 20.8 Salaries & Wages 11.8 11.6 17.3 4.5 8.8 Interest Payments 13.4 3.7 9.8 -3.2 -12.2 Source * Monthly Review of the Indian Economy, CMIE, May 2005 # Joshi, D. (2004), "Indian Manufacturing: Price Vs Margin dilemma", CRISIL Rating Scan, November 2004, 21 - 25.
2003-04 7.4 13.6 7.2 6.4 19.6 12.7 20.1 44.0 5.8 2.2 10.7 8.6 -23.0
Amity Business School
Indian Manufacturing Export Potential of Sectors Electrical & Electronics
Current Exports $ 1.25 b
Potential Exports $ 15 - 18 b
Apparel Manufacturing
$ 6.10 b
$ 25 - 30 b
Auto-components
$ 1.10 b
$ 20 - 25 b
Specialty chemicals
$ 1.60 b
$ 12 - 15 b
Sector of Industry
Strengths
Weaknesses
Design & Engineering Lack of scale, Low skills, vendor base domestic demand Vertical integration, skilled labour, design skills Engineering and continuous improvement of skills Low cost manpower and process innovation skills
Lack of scale, operational expertise Fragmented industry and poor OEM linkages Application R & D and marketing
Amity Business School
Service – Manufacturing Continuum Pure Product
Pure Service Ayurvedic Healing Treatment Legal/Tax Consulting Cyber Café – Telephone Booths Emergency Maintenance Services Facilities Maintenance High quality restaurant meal Fast food in a eat out joint Customised durable goods Fast moving commodities Vending Machines
Adopted from Hill, T. (2005), Operations Management (Palgrave Macmillan), 2nd Edition, pp 14.
Amity Business School
Service Sector in India GDP growth rate
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 Service Sector Growth rates in GDP (% change over last year) Service (Overall) 8.4 10.1 5.5 6.8 7.9 9.1 Trade, Hotels, Transport, Communications 7.7 8.5 6.8 9.0 9.8 11.8 Financial Services 7.4 10.6 3.5 4.5 8.7 7.1 Coomunity, Social & Personal Services 10.4 12.2 5.2 5.1 3.9 5.8 Source Economic Survey of India, 2004-2005, Government of India, Ministry of Finance, Economic Division
Amity Business School
Service Operations Salient Features • Tangibility: Services are performances and actions rather than objects, therefore having poor tangibility • Heterogeneity: High variability in the operation system performance • Simultaneous Production & Consumption: Degree of customer contact is very high • Perishability: Services cannot be inventoried as in the case of manufactured products.
Operations Management in Services Amity Business School Process flow diagram for passport application processing
Source: Ravichandran, N and D. Bahuguna (2006), “Rule Bound Government Agency to Customer Centric Service Facility: Can Indian Passport Offices make the leap?” IIMB Management Review, 18(1), 59 – 66.
Amity Business School
Manufacturing & Service Similarities & Differences Manufacturing Organisations Service Organisations Differences Physical durable product Intangible, perishable product Output can be inventoried Output can’t be inventoried Low customer contact High customer contact Long response time Short response time Regional, national, Intl. markets Local markets Large facilities Small facilities Capital intensive Labour intensive Quality easily measured Quality not easily measured Similarities Is concerned about quality, productivity & timely response to its customers Must make choices about capacity, location, layout Has suppliers to deal with Has to plan its operations, schedules and resources Balance capacity with demand by a careful choice of resources Has to make an estimate of demand
Operations Amity Business School A key functional area in an Organisation
Finance
Operations
Marketing
HRM
Operations Function Amity Business School Linkages with other functions Customer Layer Ultimate Customer
Operations Support Layer Marketing
Dealers Retailers
Core Operations Layer
Layer of Innovation Innovation Strategy Research & Development
Testing Fabrication
Maintenance
Costing
Planning
Material
IT
Quality
Tooling
Design
IE
Assembly Machining
Service Delivery system
Supplier Layer Sub-contractors
Suppliers
Other service providers
Operations Management Amity Business School A systems Perspective Forecasting
PROCESSING
Operations Planning & Control
Quality Management
Purchasing & Inventory Control Material & Capacity Planning
Maintenance Management
Process Improvement
Goods
Services
Feedback
Capital
INPUT
Material
Process & Product Design
OUTPUT
Labour
Amity Business School
Operations Management Functions Design of Operations
Product Design & Development Process Design Quality Management Location and Layout of facilities Capacity Planning
Operational Control of Operations
Forecasting Production Planning and Control Supply Chain Management Maintenance Management Continuous improvement of operations
• Design issues in Operations Management lay down overall constraints under which the operations system functions. • Operational Control issues focuses on optimising the use of available resources in the short-term while delivering goods and services as per plan.
Amity Business School
Operations Management Impact of Economic Reforms in India •
Tariff reduction has exposed Indian companies to global competition – Chelliah Committee tax reforms proposed during 1992 – 94 triggered this process • Abolition licensing policies had enabled several new players to enter into business increasing domestic competition and capacity build up – Examples include liberalisation of two wheelers and LCV segment in early 1980’s and passenger car segment in early 1990’s • Indian customers are more demanding in terms of quality, cost and delivery of goods & services
Amity Business School
Operations Management Challenges & Priorities Challenges • Quality Management issues need greater attention • Long lead time for order fulfillment • Low labour productivity offsets cost advantages Priorities • Acquire Capabilities to tolerate product proliferation • Relate operations system to Customer/Market • Develop systems and procedures that promote learning
Amity Business School
Operations Management: Trends & Issues Session Highlights • Operations Management is a systematic approach to address all issues pertaining to the transformation process that converts some inputs into useful output • Globally, India is emerging as an important manufacturing base. Several recent studies point to emerging opportunities for Indian manufacturing to grow and attain a global presence. • From an operations management perspective, the notion of a ‘pure product’ and ‘pure service’ is just the two ends of the spectrum. In reality, a vast majority of operations share a continuum of products and services.
Amity Business School
Operations Management: Trends & Issues Session Highlights • Despite several important differences between products & services, from an operations management perspective there are several similarities between the two settings • The decision context in operations management can be broadly classified as – Design and operations control issues. – Long term and short term decisions • Some of the challenges faced by operation firms include – low productivity and long lead time – quality management – inability to relate the system to market/customer – Promoting a culture of learning
MBA Class of 2011, Semester II Welcome to the course on Operations Management (MBAOM 10201) S S Pal (Former DGM, ITI Ltd., Bangalore / Raebareli) AP-OM, ABS-AUUP, NOIDA
Amity Business School
Operations Management: Trends & Issues
Amity Business School
Operations Management Definition • An operations system is defined as one in which – several activities are performed – to transform a set of inputs into useful output – using a transformation process.
• Operations Management is – a systematic approach to – address all the issues pertaining to – the transformation process that converts some inputs into output that are useful, and – could fetch revenue to the operations system
Amity Business School
Operations Management Salient Aspects • A systematic approach using scientific tools & techniques and solution methodologies to analyse problems • Addressing several issues varying in terms of time horizon, nature of decisions • Addressing design & operational control issues in the transformation process • Focusing on keeping costs to the minimum • Developing a set of measures to assess performance of the system
Amity Business School
Manufacturing Sector Salient Aspects 1998-99 1999-00 2000-01 2001-02 2002-03 Index of Industrial Production (Growth % over previous year)* Manufacturing 4.4 7.2 5.4 2.9 6.0 Capital Goods 12.6 7.0 1.7 -3.4 10.5 Consumer Goods 2.2 5.7 8.0 6.0 7.1 Intermediate Goods 6.1 8.8 4.7 1.6 3.9 Automobile Sector 3.2 21.0 -5.7 6.1 8.1 Corporate Sector Performance (Manufacturing)* Sales 8.4 16.9 17.2 -0.3 11.1 PBIT 1.0 8.3 7.3 1.2 23.5 Components of cost (As % of net sales)# Raw material expenses 39.8 40.3 39.8 41.8 44.0 Salaries & Wages 6.6 6.2 6.1 6.2 5.9 Interest Payments 5.5 4.8 4.4 4.2 3.2 Components of cost (Growth % over previous year)# Raw material expenses 7.1 19.6 17.3 4.5 20.8 Salaries & Wages 11.8 11.6 17.3 4.5 8.8 Interest Payments 13.4 3.7 9.8 -3.2 -12.2 Source * Monthly Review of the Indian Economy, CMIE, May 2005 # Joshi, D. (2004), "Indian Manufacturing: Price Vs Margin dilemma", CRISIL Rating Scan, November 2004, 21 - 25.
2003-04 7.4 13.6 7.2 6.4 19.6 12.7 20.1 44.0 5.8 2.2 10.7 8.6 -23.0
Amity Business School
Indian Manufacturing Export Potential of Sectors Electrical & Electronics
Current Exports $ 1.25 b
Potential Exports $ 15 - 18 b
Apparel Manufacturing
$ 6.10 b
$ 25 - 30 b
Auto-components
$ 1.10 b
$ 20 - 25 b
Specialty chemicals
$ 1.60 b
$ 12 - 15 b
Sector of Industry
Strengths
Weaknesses
Design & Engineering Lack of scale, Low skills, vendor base domestic demand Vertical integration, skilled labour, design skills Engineering and continuous improvement of skills Low cost manpower and process innovation skills
Lack of scale, operational expertise Fragmented industry and poor OEM linkages Application R & D and marketing
Amity Business School
Service – Manufacturing Continuum Pure Product
Pure Service Ayurvedic Healing Treatment Legal/Tax Consulting Cyber Café – Telephone Booths Emergency Maintenance Services Facilities Maintenance High quality restaurant meal Fast food in a eat out joint Customised durable goods Fast moving commodities Vending Machines
Adopted from Hill, T. (2005), Operations Management (Palgrave Macmillan), 2nd Edition, pp 14.
Amity Business School
Service Sector in India GDP growth rate
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 Service Sector Growth rates in GDP (% change over last year) Service (Overall) 8.4 10.1 5.5 6.8 7.9 9.1 Trade, Hotels, Transport, Communications 7.7 8.5 6.8 9.0 9.8 11.8 Financial Services 7.4 10.6 3.5 4.5 8.7 7.1 Coomunity, Social & Personal Services 10.4 12.2 5.2 5.1 3.9 5.8 Source Economic Survey of India, 2004-2005, Government of India, Ministry of Finance, Economic Division
Amity Business School
Service Operations Salient Features • Tangibility: Services are performances and actions rather than objects, therefore having poor tangibility • Heterogeneity: High variability in the operation system performance • Simultaneous Production & Consumption: Degree of customer contact is very high • Perishability: Services cannot be inventoried as in the case of manufactured products.
Operations Management in Services Amity Business School Process flow diagram for passport application processing
Source: Ravichandran, N and D. Bahuguna (2006), “Rule Bound Government Agency to Customer Centric Service Facility: Can Indian Passport Offices make the leap?” IIMB Management Review, 18(1), 59 – 66.
Amity Business School
Manufacturing & Service Similarities & Differences Manufacturing Organisations Service Organisations Differences Physical durable product Intangible, perishable product Output can be inventoried Output can’t be inventoried Low customer contact High customer contact Long response time Short response time Regional, national, Intl. markets Local markets Large facilities Small facilities Capital intensive Labour intensive Quality easily measured Quality not easily measured Similarities Is concerned about quality, productivity & timely response to its customers Must make choices about capacity, location, layout Has suppliers to deal with Has to plan its operations, schedules and resources Balance capacity with demand by a careful choice of resources Has to make an estimate of demand
Operations Amity Business School A key functional area in an Organisation
Finance
Operations
Marketing
HRM
Operations Function Amity Business School Linkages with other functions Customer Layer Ultimate Customer
Operations Support Layer Marketing
Dealers Retailers
Core Operations Layer
Layer of Innovation Innovation Strategy Research & Development
Testing Fabrication
Maintenance
Costing
Planning
Material
IT
Quality
Tooling
Design
IE
Assembly Machining
Service Delivery system
Supplier Layer Sub-contractors
Suppliers
Other service providers
Operations Management Amity Business School A systems Perspective Forecasting
PROCESSING
Operations Planning & Control
Quality Management
Purchasing & Inventory Control Material & Capacity Planning
Maintenance Management
Process Improvement
Goods
Services
Feedback
Capital
INPUT
Material
Process & Product Design
OUTPUT
Labour
Amity Business School
Operations Management Functions Design of Operations
Product Design & Development Process Design Quality Management Location and Layout of facilities Capacity Planning
Operational Control of Operations
Forecasting Production Planning and Control Supply Chain Management Maintenance Management Continuous improvement of operations
• Design issues in Operations Management lay down overall constraints under which the operations system functions. • Operational Control issues focuses on optimising the use of available resources in the short-term while delivering goods and services as per plan.
Amity Business School
Operations Management Impact of Economic Reforms in India •
Tariff reduction has exposed Indian companies to global competition – Chelliah Committee tax reforms proposed during 1992 – 94 triggered this process • Abolition licensing policies had enabled several new players to enter into business increasing domestic competition and capacity build up – Examples include liberalisation of two wheelers and LCV segment in early 1980’s and passenger car segment in early 1990’s • Indian customers are more demanding in terms of quality, cost and delivery of goods & services
Amity Business School
Operations Management Challenges & Priorities Challenges • Quality Management issues need greater attention • Long lead time for order fulfillment • Low labour productivity offsets cost advantages Priorities • Acquire Capabilities to tolerate product proliferation • Relate operations system to Customer/Market • Develop systems and procedures that promote learning
Amity Business School
Operations Management: Trends & Issues Session Highlights • Operations Management is a systematic approach to address all issues pertaining to the transformation process that converts some inputs into useful output • Globally, India is emerging as an important manufacturing base. Several recent studies point to emerging opportunities for Indian manufacturing to grow and attain a global presence. • From an operations management perspective, the notion of a ‘pure product’ and ‘pure service’ is just the two ends of the spectrum. In reality, a vast majority of operations share a continuum of products and services.
Amity Business School
Operations Management: Trends & Issues Session Highlights • Despite several important differences between products & services, from an operations management perspective there are several similarities between the two settings • The decision context in operations management can be broadly classified as – Design and operations control issues. – Long term and short term decisions • Some of the challenges faced by operation firms include – low productivity and long lead time – quality management – inability to relate the system to market/customer – Promoting a culture of learning
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