Operations Management: Principles for Success

Operations Management

Principles for

Success

Operations Management

Principles for Success

Radha Agarwal

Operations Management

Principles for Success

Radha Agarwal

ISBN - 9789361525148

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Preface

The purpose of this book is to help prepare you to be successful in this new business environment. Operations management will give you an understanding of how to help your organization gain a competitive advantage in the marketplace. Regardless of whether your area of expertise in marketing, finance, MIS, or operations, the techniques and concepts in this book will help you in your business career. The material will teach you how your company can offer goods and services cheaper, better, and faster. You will also learn that operations management concepts are far-reaching, affecting every aspect of the organization and even everyday life.

The book is designed primarily for students taking courses on business and other undergraduate and post-experience courses at universities and polytechnics. Many books in the series will also be suitable for professional examinations and well-informed managers of small and growing businesses.

Content

Chapter 1. What Is Operations Management? 1

1.1 Introduction 1

1.2 What is Management? 2

1.3 Operation Management 2

1.4 Management functions 3

1.5 Levels of management 7

1.6 Operation management decisions 8

1.7 Summary 10

1.8 Short questions 11

References11

Chapter 2. Why Operations Management? 13

2.1 Introduction 13

2.2 Industrial revolution 14

2.3 Management science 16

2.4 Key Benefits of Effective Operations Management 17

2.5 The scope of operations management 18

2.6 Summary 19

2.7 Short questions 19

References19

Chapter 3. Supply Chain Management 21

3.1 introduction 21

3.2 Why supply chain management? 23

3.3 What are the benefits of supply chain management? 24

3.4 The Supply Chain’s Strategic Importance 26

3.5 Supply Chain Risk 30

3.6 Managing the Integrated Supply Chain 33

3.7 Opportunities in Managing the Integrated Supply Chain 34

3.8 Coca-Cola Amatil’s Supply-Chain Solutions 37

3.9 Building the Supply Base 37

3.10 Negotiations 38

3.11 Logistics Management 41

3.12 Distribution Management 44

3.13 Supply Chain Management Ethics 46

3.14 Measuring Supply Chain Performance 47

3.15 Short Questions 48

References49

Chapter 4. Principles of operation management 51

4.1 Introduction 51

4.2 Principles of operation management 52

4.3 International production 53

4.4 The Nature of International Operations Management 54

4.5 Required skills 56

4.6 New trends 57

4.6 Effective Operations Management Benefits 59

4.7 Short Questions 61

References61

Chapter 5. Business Policies And International Operations Management 63

5.1 Introduction 63

5.2 Features of business policies 64

5.3 Types of policies 65

5.4 The Foundational Role of Policies in the Organization 71

5.5 Economic policies in Canada 72

5.6 Economic policies in the USA 74

5.7 Summary 77

5.8 Short questions 78

References78

Chapter 6. Reliability and Maintainability in Operations Management 80

6.1 Introduction 80

6.2 Reliability basics 81

6.3 Maintenance Considerations 89

6.4 Time-dependent reliability models 90

6.5 Hazard function 90

6.6 Repairable systems 92

6.7 Availability 94

6.8 General model of minimal repair 96

6.9 Summary 96

6.10 Short questions 96

References97

Chapter 7. Strategies Of Operations Management 99

7.1 Introduction 99

7.2 Global-View 101

7.3 Mission and Strategy 104

7.4 Competitive Advantage 104

7.5 Decision Making in Operations Management 106

7.6 Quality Management 107

7.7 Benefits of Quality Management 111

7.8 Core Competencies 111

7.9 Staffing 112

7.10 SWOT Analysis 115

7.11 Summary 117

7.12 Short questions 117

References117

Chapter 8. Quality Management and International Standards 120

8.1 Introduction 120

8.1 Strategy 121

8.2 Defining Quality 122

8.3 Total Quality Management 125

8.4 TQM in Services 136

8.5 Summary 138

8.6 Short questions 138

References139

Chapter 9. Strategies And Policies Of Different Companies 141

9.1 Introduction 141

9.2 Strategic objectives of honda motors 141

9.3 Tool for analysis of the strategic objectives of honda motors 142

9.4 Toyota Motor Corporation 143

9.5 Strategic management of the Dell Corporation 146

9.6 Apple’s Global Operations management Strategy 149

9.7 Summary 150

9.8 Short questions 150

References151

Chapter 10. Sustainability in the Supply Chain 152

10.1 Introduction 152

10.2 Corporate Social Responsibility 153

10.3 Sustainability 153

10.4 End-of-Life Phase 156

10.5 Regulations and Industry Standards 156

10.6 International Environmental Policies and Standards 157

10.7 Summary 158

10.8 Short questions 158

References159

Chapter 11. Project Management 161

11.1 Introduction 161

11.2 The Importance of Project Management 162

11.3 Project framework 164

11.4 The Role of Project Management in a Small Business 165

11.5 The value of PM for Business Administration 166

11.6 Different views of financial results. 167

11.7 The Value of a PMO 167

11.8 PMO vs. Business Administration 168

11.9 PMO in large organizations 169

11.10 Project Management Techniques: PERT and CPM 170

11.11 Summary 174

11.12 Short questions 174

References174

Chapter 12. Maintenance and Reliability 176

12.1 Introduction 176

12.2 The Strategic Importance of Maintenance and Reliability 177

12.3 Reliability 178

12.4 Maintenance 179

12.5 Summary 183

12.6 Short questions 183

References183

Chapter 13. Capacity and Constraint Management 185

13.1 Introduction 185

13.2 Capacity 185

13.3 Capacity and Strategy 187

13.4 Service-Sector Demand and Capacity Management 190

13.5 Bottleneck Analysis and the Theory of Constraints 190

13.6 Summary 193

13.7 Short questions 193

References194

Glossary 195

Index 197

Chapter 1. What Is Operations Management?

1.1 Introduction

Managing any organization that produces products demanded by customers presents a greater challenge today than ever before. While all other functional managers are involved in planning, organizing, and controlling in their field of work, production/operations managers who are in charge of manufacturing the products have the direct responsibility of getting the job done. They must be the leaders in producing products demanded by the customers most efficiently and effectively. The production/operations managers are involved in planning, organizing, coordinating, executing, and controlling all activities that create goods and/or services to satisfy the needs of their customers.

Of all the functional areas of management, production management (which is also referred to as operations management) is considered to be crucial in any manufacturing organization because it is responsible for converting raw materials into finished goods, ensuring that the objectives regarding the volume of production (quantity), quality of outputs (i.e., products), cost of production (i.e., productivity), the timeliness of production (i.e., delivery schedules to meet customer demand), customer service and ultimately maximum possible customer satisfaction are met. Production/Operation management is the process that combines and transforms various resources used in the production/operation subsystem of the organization into value-added products/services in a controlled manner as per the policies of the organization.

1.2 What is Management?

There is no universally accepted definition for management. The definitions run the gamut from very simple to very complex. Management is defined as "the application of planning, organizing, staffing, directing, and controlling functions in the most efficient manner possible to accomplish meaningful organizational objectives. Put more simply, management is all about achieving organizational objectives through people and other resources.

Management principles apply to all organizations—large or small, for-profit or not-for-profit. Even one-person small businesses need to be concerned about management principles because, without a fundamental understanding of how businesses are managed, there can be no realistic expectation of success. Remember that the most common reason attributed to small business failure is a failure on the part of management.

1.3 Operation Management

Operations management (OM) is the business function that plans, organizes, coordinates, and controls the resources needed to produce a company’s goods and services. Operations management is a management function. It involves managing people, equipment, technology, information, and many other resources. Operations management is the central core function of every company. This is true whether the company is large or small, provides a physical good or a service, is for-profit or not-for-profit. Every company has an operations management function. All the other organizational functions are there primarily to support the operations function. Without operations, there would be no goods or services to sell. Consider a retailer such as The Gap, which sells casual apparel. The marketing function provides promotions for the merchandise, and the finance function provides the needed capital. It is the operations function, however, that plans and coordinates all the resources needed to design, produce, and deliver the merchandise to the various retail locations. Without operations, there would be no goods or services to sell to customers.

Fig 1.1: Operation Management

Operations management is responsible for orchestrating all the resources needed to produce the final product. This includes designing the product; deciding what resources are needed, arranging schedules, equipment, and facilities; managing inventory, controlling quality, designing the jobs to make the product, and designing work methods. Operations management is responsible for all aspects of the process of transforming inputs into outputs. Customer feedback and performance information are used to continually adjust the inputs, the transformation process, and the characteristics of the outputs. This transformation process is dynamic to adapt to changes in the environment.

Operations management designs and operates productive systems or operating systems such as banks, hospitals, hotels, government agencies, and manufacturing plants. Operations management includes organizing work, selecting processes, arranging layouts, locating facilities, designing jobs, measuring performance, controlling quality, scheduling work, managing inventory, and planning production. From the above definition of production management and operations management, it becomes clear that there is hardly any difference between the two terms. But the two apparent differences between production management and operations management are:

1. The term production management is mainly used for a productive system where tangible goods are produced, whereas the term operations management is more frequently used where various inputs are transformed into intangible services.

2. Operations management is the more recent term used to activities involved in the process of transforming inputs into outputs (goods and/or services) in a productive system, whereas the term production management (or manufacturing management) was used earlier to refer to activities related to the process of transforming inputs into outputs (mainly tangible goods).

1.4 Management functions

On any given day, small business owners and managers will engage in a mix of many different kinds of activities—for example, deal with crises as they arise, read, think, write, talk to people, arrange for things to be done, have meetings, send e-mails, conduct performance evaluations, and plan. Although the amount of time that is spent on each activity will vary, all the activities can be assigned to one or more of the five management functions: planning, organizing, staffing, directing, and controlling.

5 Functions of management are planning, organizing, leading, and controlling that managers perform to accomplish business goals efficiently.

Planning

Planning "is the process of anticipating future events and conditions and determining courses of action for achieving organizational objectives. It is the one step in running a small business that is most commonly skipped, but it is the one thing that can keep a business on track and keep it there. Planning helps a business realize its vision, get things done, show when things cannot get done and why they may not have been done right, avoid costly mistakes, and determine the resources needed to get things done. Looking ahead into the future and predicting possible trends or occurrences that are likely to influence the working situation is the most vital quality and the job of a manager.

Planning means setting an organization’s goals and deciding how best to achieve them. Planning is decision-making regarding the goals and setting the future course of action from a set of alternatives to reach them.

The plan helps maintain managerial effectiveness as it works as a guide for future activities. Selecting goals as well as the paths to achieve them is what planning involves. Planning involves selecting missions and objectives and the actions to achieve them; it requires decision-making or choosing future courses of action from among alternatives. In short, planning means determining what the organization’s position and the situation should be in the future and decide how best to bring about that situation. Planning helps maintain managerial effectiveness by guiding future activities. For a manager, planning and decision-making require an ability to foresee, visualize, and look ahead purposefully.

Organizing

Organizing "consists of grouping people and assigning activities so that job tasks and the mission can be properly carried out. Establishing a management hierarchy is the foundation for carrying out the organizing function.

Contrary to what some people may believe, the principle of organizing is not dead. Rather, it is important "to both the organization and its workers because both the effectiveness of organizations and worker satisfaction requires that there be clear and decisive direction from leadership; clarity of responsibilities, authorities, and accountabilities; an authority that is commensurate with responsibility and accountability; unified command (each employee has one boss); a clear approval process; and, rules governing acceptable employee behavior. Except for a small business run solely by its owner, every small business needs a management hierarchy—no matter how small. Each person in the business should know who is responsible for what, have the authority to carry out his or her responsibilities, and not get conflicting instructions from different bosses. The absence of these things can have debilitating consequences for the employees and the business in general.

The organizational design and structure of a small business are important parts of organizing. According to Henry Fayol, To organize a business is to provide it with everything useful or its functioning, i.e., raw material, tools, capital and personnel’s. Thus the function of organizing involves the determination of activities that need to be done to reach the company goals, assigning these activities to the proper personnel, and delegating the necessary authority to carry out these activities in a coordinated and cohesive manner.

It follows, therefore, that the function of organizing is concerned with:

•Identifying the tasks that must be performed and grouping them whenever necessary

•Assigning these tasks to the personnel while defining their authority and responsibility.

•Delegating this authority to these employees

•Establishing a relationship between authority and responsibility

•Coordinating these activities

Fig 1.2: Management Functions

Staffing

The staffing function involves selecting, placing, training, developing, compensating, and evaluating. Small businesses need to be staffed with competent people who can do the necessary work to make the business a success. It would also be extremely helpful if these people could be retained. Staffing is the function of hiring and retaining a suitable workforce for the enterprise, both at managerial and non-managerial levels. It involves recruiting, training, developing, compensating, and evaluating employees and maintaining this workforce with proper incentives and motivations. Since the human element is the most vital factor in management, it is important to recruit the right personnel.

According to Kootz & O’Donnell, Managerial function of staffing involves manning the organization structure through the proper and effective selection, appraisal & development of personnel to fill the roles designed in the structure.

This function is even more critically important since people differ in their intelligence, knowledge, skills, experience, physical condition, age and attitudes, complicating the function. Hence, management must understand, in addition to the technical and operational competence, the sociological and psychological structure of the workforce.

Directing

Directing is the managerial function that initiates action: issuing directives, assignments, and instructions; building an effective group of subordinates who are motivated to do what must be done; explaining procedures; issuing orders, and making sure that mistakes are corrected. The directing function is concerned with leadership, communication, motivation, and supervision so that the employees perform their activities in the most efficient manner possible to achieve the desired goals. Directing is part of the job for every small business owner or manager. Leading and motivating work together in the directing function. Leading "is the process of influencing people to work toward a common goal [and] motivating is the process of providing reasons for people to work in the best interests of an organization.

•The leadership element involves issuing instructions and guiding the subordinates about procedures and methods.

•The communication must be open both ways so that the information can be passed on to the subordinates and the feedback received from them.

•Motivation is very important since highly motivated people show excellent performance with less direction from superiors.

•Supervising subordinates would lead to continuous progress reports and assure the superiors that the directions are being properly carried out.

Controlling

Controlling is about keeping an eye on things. It is "the process of evaluating and regulating ongoing activities to ensure that goals are achieved. The function of control consists of activities undertaken to ensure that the events do not deviate from the pre-arranged plans. The activities consist of establishing standards for work performance, measuring performance and comparing it to these set standards, and taking corrective actions as and when needed to correct any deviations. Controlling provides feedback for future planning activities and aims to modify behavior and performance when deviations from plans are discovered.

According to Koontz & O’Donnell, Controlling is the measurement & correction of performance activities of subordinates to make sure that the enterprise objectives and plans desired to obtain them as being accomplished.

There are four commonly identified steps in the controlling process.

The controlling function involves:

•Establishment of standard performance.

•Measurement of actual performance.

•Measuring actual performance with the pre-determined standard and finding out the deviations.

•Taking corrective action.

All these five functions of management are closely interrelated. However, these functions are highly indistinguishable and virtually unrecognizable on the job. It is necessary, though, to put each function separately into focus and deal with it.

Fig 1.3: The Controlling Function

1.5 Levels of management

As a small business grows, it should be concerned about the levels or the layers of management. Also referred to as the management hierarchy, there are typically three levels of management: top or executive, middle, and first-line or supervisory. In order to meet a company’s goals, there should be coordination at all three levels.