OPERATIONS MANAGEMENT STUDY NOTES
CONTENTS
1. Meaning of operations management
2. Product development and design
3. Production planning and control
4. Plant and equipment maintenance
5. Location and layout in operations management
6. Technologies in 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
OPERATIONS MANAGEMENT NOTES PREPARED By Mr Antony Ambia Page 1
,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
OPERATIONS MANAGEMENT NOTES PREPARED By Mr Antony Ambia Page 2
,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
OPERATIONS MANAGEMENT NOTES PREPARED By Mr Antony Ambia Page 3
, PRODUCT DEVELOPMENT AND DESIGN
Meaning of product development
It refers to the creation of products with new or different characteristics that offer new or additional
benefits to the customer.
Product development may involve modification of an existing product or its presentation, or formulation of
an entirely new product that satisfies a newly defined customer want or market niche.
Meaning of product design
Product design is the process of creating a new product to be sold by a business to its customers. A very
broad concept, it is essentially the efficient and effective generation and development of ideas through a
process that leads to new products. In a systematic approach, product designers conceptualize and evaluate
ideas, turning them into tangible inventions and products.
Why the need for product development
1. Changes in consumer tastes and preferences
Consumer needs and wants continuously change. Firms should respond to these changes through their
products and services. Otherwise consumers will switch to competitor products that satisfy their "needs and
wants". For example consumers are becoming more health conscious, this is forcing companies to introduce
low sugar, salt and fat products.
2. Product reaches the end of its product life cycle
The product maybe at the end of its Product Life Cycle, so the company may introduce new and improved
updated versions.
3. Product is at the maturity stage of the product life cycle
The product might be at the maturity stage of its Product Life Cycle and need modifications to stimulate an
increase in sales.
4. Technological Changes
There may be new technological changes which the company wants to capitalise on. Music companies are
now selling more music via internet downloads than through traditional retail shops.
5. Competition
Competitors may force change. The product may be facing competition from other similar products being
offered by competitors, hence the need to develop it further.
Sources of new product ideas
1. Internal sources
Internal sources are the great way to find new ideas. Internal sources can be divided into two parts. They
are as follows-
(i) R & D (Research and Development) department: It is the formal department of any
organization that has the responsibility of generating new ideas. However the importance
of R&D in the organization does not only depend on the idea generation, they also do
some other important things.
(ii) Employees: Companies can use the brain of their employees. If customers are
the Oxygen of any company then employees are the heart of that company. All level of
employees from executive to lower management can be great source of ideas. . However,
picking up the great idea of it and rewarding the employees can encourage your employees
to be more creative and contribute more in future.
2. Customers
Most probably customers are the most important sources to get new product development ideas. The
customer knows best what they need and what they are looking for. It is the most important thing to
deliver satisfaction by providing exactly what your customers want.
3. Distributors
Distributors works very closely with the market and they know consumer problems and their need.
Distributors can give the ideas for new product possibilities.
4. Suppliers
OPERATIONS MANAGEMENT NOTES PREPARED By Mr Antony Ambia Page 4
CONTENTS
1. Meaning of operations management
2. Product development and design
3. Production planning and control
4. Plant and equipment maintenance
5. Location and layout in operations management
6. Technologies in 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
OPERATIONS MANAGEMENT NOTES PREPARED By Mr Antony Ambia Page 1
,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
OPERATIONS MANAGEMENT NOTES PREPARED By Mr Antony Ambia Page 2
,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
OPERATIONS MANAGEMENT NOTES PREPARED By Mr Antony Ambia Page 3
, PRODUCT DEVELOPMENT AND DESIGN
Meaning of product development
It refers to the creation of products with new or different characteristics that offer new or additional
benefits to the customer.
Product development may involve modification of an existing product or its presentation, or formulation of
an entirely new product that satisfies a newly defined customer want or market niche.
Meaning of product design
Product design is the process of creating a new product to be sold by a business to its customers. A very
broad concept, it is essentially the efficient and effective generation and development of ideas through a
process that leads to new products. In a systematic approach, product designers conceptualize and evaluate
ideas, turning them into tangible inventions and products.
Why the need for product development
1. Changes in consumer tastes and preferences
Consumer needs and wants continuously change. Firms should respond to these changes through their
products and services. Otherwise consumers will switch to competitor products that satisfy their "needs and
wants". For example consumers are becoming more health conscious, this is forcing companies to introduce
low sugar, salt and fat products.
2. Product reaches the end of its product life cycle
The product maybe at the end of its Product Life Cycle, so the company may introduce new and improved
updated versions.
3. Product is at the maturity stage of the product life cycle
The product might be at the maturity stage of its Product Life Cycle and need modifications to stimulate an
increase in sales.
4. Technological Changes
There may be new technological changes which the company wants to capitalise on. Music companies are
now selling more music via internet downloads than through traditional retail shops.
5. Competition
Competitors may force change. The product may be facing competition from other similar products being
offered by competitors, hence the need to develop it further.
Sources of new product ideas
1. Internal sources
Internal sources are the great way to find new ideas. Internal sources can be divided into two parts. They
are as follows-
(i) R & D (Research and Development) department: It is the formal department of any
organization that has the responsibility of generating new ideas. However the importance
of R&D in the organization does not only depend on the idea generation, they also do
some other important things.
(ii) Employees: Companies can use the brain of their employees. If customers are
the Oxygen of any company then employees are the heart of that company. All level of
employees from executive to lower management can be great source of ideas. . However,
picking up the great idea of it and rewarding the employees can encourage your employees
to be more creative and contribute more in future.
2. Customers
Most probably customers are the most important sources to get new product development ideas. The
customer knows best what they need and what they are looking for. It is the most important thing to
deliver satisfaction by providing exactly what your customers want.
3. Distributors
Distributors works very closely with the market and they know consumer problems and their need.
Distributors can give the ideas for new product possibilities.
4. Suppliers
OPERATIONS MANAGEMENT NOTES PREPARED By Mr Antony Ambia Page 4
