OPERATIONS MANAGEMENT LECTURE NOTES

 

OPERATIONS MANAGEMENT

Meaning of operations management

An operation may be defined as the process of changing inputs into outputs thereby adding value to some entity. Right quality, right quantity, right time and right price are the four basic requirements of the customers and as such they determine the extent of customer satisfaction.  And if these can be provided at a minimum cost, then the value of goods produced or services rendered increases.

Operations management is concerned with managing the resources that directly produce the organisation services and products. The resources are generally consist of people, material, technology and information but may go wider than this. These resources are brought together by a series of processes so that they are utilized to deliver the primary service or product of the organization. Thus operation management is concerned with managing inputs (resources) through transformation processes to deliver outputs (service or products).

Objectives of operations management

• Producing the right kind of goods and services that satisfy customers’ needs (effectiveness objective).
• Maximizing output of goods and services with minimum resource inputs (efficiency objective).
• Ensuring that goods and services produced conform to pre-set quality specifications (quality objective).
• Minimizing throughput-time- the time that elapses in the conversion process- by reducing delays, waiting time and idle time (lead time objective).
• Maximizing utilization of manpower, machines, etc. (Capacity utilization objective).
• Minimizing cost of producing goods or rendering a service (Cost objective).

Transformation process in operations

A transformation process is any activity or group of activities that takes one or more inputs, transforms and adds value to them, and provides outputs for customers or clients.

Manufacturing and service operations

Organizations can be divided into two broad categories: manufacturing organizations and service organizations, each posing unique challenges for the operations function. There are two primary distinctions between these categories. First, manufacturing organizations produce physical, tangible goods that can be stored in inventory before they are needed. By contrast, service organizations produce intangible products that cannot be produced ahead of time. Second, in manufacturing organizations most customers have no direct contact with the operation. Customer contact occurs through distributors and retailers. For example, a customer buying a car at a car dealership never comes into contact with the automobile factory. However, in service organizations the customers are typically present during the creation of the service. Hospitals, colleges, theatres, and barber shops are examples of service organizations in which the customer is present during the creation of the service.

Manufacturing organizations

Organizations that primarily produce a tangible product and typically have low customer contact.

Service organizations

Organizations that primarily produce an intangible product, such as ideas, assistance, or information, and ...

Characteristics of Products

1.       Products are tangible – they are physical in nature such that they can be touched, smelled, felt and even seen. Services are intangible and they can only be felt not seen.

2.         Need vs. Relationship– a product is specifically designed to satisfy the needs and wants of the customers and can be carried away. However, with a service, satisfaction is obtained but nothing is carried away. Essentially, marketing of a service is primarily concerned with creation of customer relationship.

3.        Perishability- Products are perishable. For example, fresh farm and other food products are perishable and these can also be stored for later use or sale.   

4.        Quantity- products can be numerically quantified and they come in different forms, shapes and sizes.

5.         Inseparability-   product can be separated from the owner once the purchase has been completed.   6

6.        Quality- quality of products can be compared since these are physical features that can be held. However, it may be difficult to compare the quality of the services rendered by different service providers.

7.         Returnability- it is easier to return a product to the seller if the customer is not satisfied about it. In turn, the customer will get a replacement of the returned product. However, a service cannot be returned to the service provider since it is something that is intangible.

8.       Value perspective- the value of a service is offered by the service provider while the value of the product is derived from using it by the customer. Value of a service cannot be separated from the provider while the value of a product can be taken or created by the final user of the product offered on the market.

9.         Shelf line- A product can be sold at a later date if it fails to sell on a given period. This is different with regard to a service that has a short shelve line and should be sold earlier.

 

Characteristics of a service

1. Perishability:

Service is highly perishable and time element has great significance in service marketing. Service if not used in time is lost forever. Service cannot be stored.

 

2. Fluctuating Demand

Service demand has high degree of fluctuations. The changes in demand can be seasonal or by weeks, days or even hours. Most of the services have peak demand in peak hours, normal demand and low demand on off-period time.

 

3. Intangibility

Unlike product, service cannot be touched or sensed, tested or felt before they are availed. A service is an abstract phenomenon.

 

4. Inseparability:

Personal service cannot be separated from the individual and some personalised services are created and consumed simultaneously. For example hair cut is not possible without the presence of an individual. A doctor can only treat when his patient is present.

 

5. Heterogeneity:

The features of service by a provider cannot be uniform or standardised. A Doctor can charge much higher fee to a rich client and take much low from a poor patient.

 

6. Pricing of Services:

Pricing decision about services are influenced by perishability, fluctuation in demand and inseparability. Quality of a service cannot be carefully standardised. Pricing of services is dependent on demand and competition where variable pricing may be used.

 

7. Service quality is not statistically measurable

It is defined in form of reliability, responsiveness, empathy and assurance all of which are in control of employee’s direction interacting with customers. For service, customers satisfaction and delight are very important. Employees directly interacting with customers are to be very special and important. People include internal marketing, external marketing and interactive marketing.

 

Role of material management in business organizations

Material management is directly associated with the operational efficiency of an organization. A good material management system ensures the availability right materials in the production process with minimum wastage so as to cut losses. Here are the few ways which show the role of material management and how it influences your project performance: –

Time

Time is widely recognized as a primary criterion for performance measurement. Poor material management can have a negative effect on project time, like the insufficient stock of materials, lead to idling time as workers try not to exhaust the stockpile or it is worsened by the work stoppage. Due to this shortage, materials need to be reordered and causes longer idling time. Consequently, the work progress will be delayed. Therefore, the availability of sufficient quantity of materials affects the projects time.
A proper material management system ensures that there is enough buffer stock so as to prevent any stoppage in production.

Cost

Cost is one of the major considerations in the entire cycle of projects. Effective material management is able to reduce the overall cost of material. For example, in the purchasing process, discounts and bulk order may be economical as it reduced the transportation and ordering cost, thus, by minimizing the procurement cost of materials, the higher chances for reducing the overall project cost and concurrently increasing company profit.
However, the reasonable time needs to be considered so that the materials are not ordered too early or it may affect the company capital, interest charges, and storage charges. Wrong calculations can lead to over or under stocking which will be bad for the industry.

Quality

Availability of resources such as materials and equipment as planned during project duration is one of the factors contributing to quality performance. The available raw materials need to be of good condition and in sufficient quantity. Without the proper and sufficient raw materials, quality of the products can be jeopardized. Similarly, the materials itself also needs to be of appropriate quality according to the specification to ensure the products produced are of the right quality.

Productivity

The productivity is measured in terms of unit completely accomplished during given period and the related costs in terms of man-hours or money.
Efficient movement of materials increases productivity whilst reduces material travel time. Besides, the availability of material and equipment motivates workers to improve work productivity.

Waste

In simple words, waste is a product or material that is unwanted and required to be transported out. Inappropriate material storage and purchase of materials of poor quality contributes to waste generation in the production process.

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