8/8/2019 Chapter I - Intro. & Goal of Opr.mgmt.- 30.6.04

1/3

Chapter I:

Introduction to Operations Management

The true goal of any organisation is to profit from its operations. If thecompany is not able to generate profit from operations, its existence in the

future is at stake. Like a living organism cannot live through without air, light

and water, similarly an organisation cannot exist without making profit. No

organisation on this mother earth can be propped up and sustained from

outside support. Temporary and initial outside support may at times be

required, but such support cannot be on long-term basis. The company has to

stand on its own legs and walked to make progress. This is possible only when

the company has been able to clock profits.

After India gained political independence, under the Stewardship of

Jawaharlal Nehru, Government of India participated directly in nation

building by setting up several Public Sector Undertakings( PSUs ). These

units, most of them, were not able to make profits, and were supported by

GOI by offering outside financial support. However, today these are being

sold off to the private entrepreneurs on a disinvestments spree. No body

can, therefore, support a loss-making company from outside. To sustain its

operations the organisation has to make profits.

In order to make profits, the companys sales must be more than its

costs. Operations Management (OM) is defined as the design, operation and

improvement of the systems that create and deliver the firms primary

products and services, at its lowest costs so as to maximise the firms

profits, which is a prime organisational objective, to ensure that the

organisation exists tomorrow.

Like marketing and finance, OM is a functional field of business with

clear line management responsibilities. This point is important because

operations management is frequently confused with Operations Researchand, Management Science (OR/MS) and Industrial Engineering (IE). The

essential difference is that OM is a field of management, whereas OR/MS is

the application of quantitative methods to decision making in all fields, and

IE, is an engineering discipline. Thus, while operations managers use the

decision making tools of OR/MS (such as critical path scheduling) and are

8/8/2019 Chapter I - Intro. & Goal of Opr.mgmt.- 30.6.04

2/3

concerned with may of the same issues as IE (such as factory automation),

OMs distinct management role distinguished it from these other disciplines.

As shown in Fig.1, OM, is concerned with the management of the

entire system that produces a good, or delivers a product. Producing aproduct such as a cell phone or providing a service such as a cellular phone

account, involves a complete service of transformation processes. Fig. 1 is a

supply network for an Original Equipment Manufacturer (OEM ) such the

finish make of cell phones.

Fig. 1: Supply Chain of a Typical Original Equipment Manufacturer:-

To actually produce the phones and get them to the customer, many

transformations must take place. For example the suppliers purchase raw

materials and produce the parts for the phone. The Nokia manufacturing

plant takes these parts and assembles the various cell phones that have

become popular. Orders for the phones are taken over the Internet from all

the distributors, dealers and warehouse sites around the world. Local

retailers work directly with customers in setting up and managing cell phone

accounts. OM is concerned with managing all of these individual processes as

effectively as possible.

Within the operations function, management decisions can be divided

in three broad areas:

Strategic (Long-term) decisions.

Tactical (intermediateterm) decisions.

T3

T3

T3

T3

T3

T3

T3

T2

T2

T2

T2

T2

T1

T1

T1

OEM

Distributor

Dealer

Wave house

Web site

Direct Sales

Force

Retailer

Retailer

Retailer

Customer

Customer

Customer

Customer

Customer

Customer

Tier 2 & 3 Suppliers

Tier 1 Suppliers

ManufacturingCom an

8/8/2019 Chapter I - Intro. & Goal of Opr.mgmt.- 30.6.04

3/3

Operational planning and control (short-term) decisions.

The strategic issues are usually abroad, addressing such questions as these:

How will we make the product? Where do we locate the facility, or,

facilities? How much capacity do we need? When should we add morecapacity? Thus, by necessity, the timeframe for strategic decisions is

typically long-usually several years, or more, depending upon the specific

industry.

Operations management decisions at the strategic level impact the

companys long-range effectiveness in terms of how it can address its

customers needs. Thus for a firm to succeed, these decisions must be in

alignment with the corporate strategy. Decisions made at the strategic level

become the fixed conditions, or, operating constraints under which the firmmust operate in both the intermediate and short term.

At the next level in the decision-making process, tactical planning

primarily addresses how to efficiently schedule material and labour within

the constraints of previously made strategic decisions. Issues on which OM

concentrates on this level include these:

How many workers do we need?

When do we need them?

Should we work overtime, or put on a second shift?

When do we have material delivered?

Should we have a finished goods inventory? These tactical decisions,

in turn, become the operating constraints under which operational

planning and control decisions are made.

Management decisions with respect to operational planning and control are

narrow and short-term by comparison. Issues at this level include these:

What jobs do we work on, today, or, this week?

Whom do we assign to what tasks?

What jobs have priority?