Operations Management: Concepts & best practices for maximizing efficiency

Understand the role of Operations Management in business success. Learn more about the key principles for effective Operations Management.

Operations management (OM) is the process of using operations within an organization, and creating practices to achieve an optimum level of efficiency within the firm.

Important Operations Management concepts, which can be applied to companies, include:

• 4 Vs (Volume, Variety, Variability and Visibility)
• 5 Objectives (Cost / Speed / Quality / Flexibility / Dependability)
• Process Type (Project / Job / Batch / Mass / Continuous)
• Layout Type (Fixed, Process, Product, Cellular)

More Operations Management topics include: Inventory management (Holding, Ordering costs, Economic Order Quantity), Planning and controlling of operations (Loading / Sequencing / Scheduling), Capacity management (Level capacity, Chase capacity, Demand Management)  Push and Pull philosophies (Make to Order; Make to Stock; or Resource to Order), Quality Management, Lean Management, Which performance objective in operations is company trying to achieve (Cost / Speed / Quality / Flexibility / Dependability).

Related: Useful Supply Chain management concepts

Operations strategy refers to the approach that a firm takes to achieve its long-term objectives related to operations management.

Operations strategy: Performance objectives, Capacity planning, Process design, Procurement and inventory Management, Supply Chain Management, Technology, Queuing methods, Statistical process control, Quality management, Project management.

Academic Questions on this topic

Management/MBA question / Case study on this topic:

Question: Produce a case study of an organisation. The case study needs to draw on Strategy, innovation and operations concepts  to appraise the case organisation. Format of the Report:

• Introduction: you should provide some background information on the chosen case study organisation.
• Summary of the current strategy at the case organisation or discuss what should be the key elements of the organisational strategy.
• Literature review of challenges of sustaining innovation.
• Application of the challenges of sustaining innovation in the formulation of the organisation strategy.
• Literature review of strategic operations management concepts.
• Evaluation of the strategic operations management concepts in relation to the case organisation.
• Select three operations management concepts from the following list that are relevant to your case organisation. Quality Management/ Forecasting/Capacity Planning/ Location strategy / Physical layouts/ Process design. Procurement and Inventory management/ Technology / Lean and waste management. Risk and Recovery management /Supply Chain Management. For each of the three concepts selected, provide a short literature review (850 words) and a discussion on how these can contribute to organisational competitiveness in your case organisation.
• Summary 
• References

Q) Calculate the productivity for the following operations:
a) Three employees process 600 insurance policies in a week. They work 8 hours per day, 5 days per week.
b) A team of workers makes 400 units or a product, which is sold in the market for $10 each. The accounting department reports that for this job the actual costs are $400 for labour, $1000, for materials, and $300 for overhead.

Question: Use simplex method to solve the given LPP

Question: Solve the given transportation problem to minimize the cost:

Warehouses Factories Capacity 1 2 3 A 6 11 8 100
B 7 3 5 200
C 5 4 3 450
D 4 5 6 400
E 8 4 5 200
F 6 3 8 350
G 7 2 4 300
Factory production 700 400 1000

Question: 1. Discuss various steps of Goal programming model Formulation. How does GP help in decision making 2. Give the characteristics of integer programming. Explain the cutting plane method.

Question: A salesman located on a city A decided to travel to city B. He knew the distances of alternative routes from city A to city B. He then drew the highway network map as shown below. The city of origin, city A, is city 1. Destination city, city B, is city 10. Other cities through which the salesman will have to pass are given the numbers 2 to 9. The arrows represent routes between cities and distances in km are indicated for each route. The salesman’s problem is to find the shortest route that covers all of the selected cities from city A to city B.

Questions on Total Quality Management (TQM)

Question: Nomad Classics company has tabulated actual demand data for the past 4 (four) years as given below for one of its top selling products. Compute Quarter wise demand forecasts for the year 5 (all figures are in thousands of units)

Question: Ms.Pinky Shah, an enterprising lady is currently working a total of 12 hours per day to produce 50 dolls. Total material cost of each doll is approximately Rs.50 and her electricity requirement costs Rs.200 per day. She thinks she should be making Rs.100 per hour for her times (consider this as labor charges). By changing the paint used for facial features and fingernails she expects to increase her output to 60 dolls in 12 hours. She sells each doll at Rs.100.

Viewing this from a multifactor productivity perspective, what is her productivity at present and with new paint? How would the multifactor productivity change if using the new paint raised the material cost by Rs.5 per doll? Would recommend Pinky to go for new paint or not and why?

Question: M/s Picanol, Belgium was contemplating setting up a new Weaving machines manufacturing plant in Asia. The profits forecasted were as per given below table if they set up their plant in the 3 countries they are looking at given two market scenarios. Help them make a proper decision to choose a right location to set up their manufacturing facility based on following decision criteria (write all steps involved)

Question The operation times for last two activities of a production process of a product are listed in the following table. As this custom made product has different specifications for various customers, they have different time requirements for each operation. All figures are in hours. Use Johnson’s rule to determine the optimal sequence. Draw a Gantt Chart for each operation.

Question: What are the issues in locating a facility and explain them briefly. Write in detail how a factor rating method is used for identifying the correct location. What are the basic elements of JIT and explain any 3 in detail.

Question: Panorama Garments Manufacturing Co. produces cotton trousers. The company wants to establish p-chart with 3 sigma limits (Z=3). The company takes 15 samples (one per day for 15 days) each containing 100 pairs of trousers (n=100) and inspected them for defects. The results are as follows: Find the control limits and draw the graph to find out whether the process is in control or not using P-chart?

Question: Shipra Industries Inc. has the following information for one of its critical parts, which is used in the production of its products. Annual consumption = 625,000 units (50 weeks / year) Inventory carrying cost = $20 / unit / year. Ordering cost = $ 200 / order. Lead time = 3 weeks. Standard deviation of weekly demand = 300 units.

What is the EOQ for this item? What is the desired safety stock (assuming Z=1.28). What is the reorder point? Calculate the total number of orders per year

Question: A consulting firm got into a new office and it has to assign 6 cabins to its 6 analysts in a particular department. The following matrix shows frequency of contact between analysts. Cabin layout is also given. Assume rectilinear distances and equal size offices. Owing to their tasks analyst A must be assigned cabin 4 and cabin 3 to analyst D. What are the best locations for the other four analysts? What is the ld score of your allocated layout.

Question: The operation times for last two activities of a production process of a product are listed in the following table. As this custom made product has different specifications for various customers, they have different time requirements for each operation. Use Johnson’s rule to determine the optimal sequence. Draw a Gantt Chart for each operation.

Question: Explain various types of forecasting techniques and their application in detail

Question Calculate the following -CFE, MSE, Standard Deviation, MAD

Question: Read the following case carefully and answer the questions which are being given at the end.

The Watermelon Seller: Once upon a time there was a simple watermelon seller called Simon. Every day he would sit in the shade of the banyan trees beside the road with all the other watermelon sellers and sell his stock of watermelons. He bought the watermelons he sold from the same farmer that all the other watermelon sellers used.

Now, Simon, although he was a simple man, was very observant. He could see that all the watermelons in the markets were sold at the same price and were the same size and quality and that as a result the customer didn’t really care which watermelon seller they bought their watermelon from. He also saw that by the middle of the afternoon the watermelons had all sold out even though there were still customers at the market. One day he heard a customer grumbling. “Oh my,” she said to her friend, “My back is aching. I wish I didn’t have to carry this watermelon around all day, but I’m never sure that there will be any left at the end of the day if I don’t buy it as soon as I arrive.”

Simon thought about this and on the next day he put up a big sign that said ‘Buy your watermelon from me and pick it up when you leave’. Customers were intrigued by this and asked what he meant. Simon explained that when they bought one of his watermelons he would write the customers name on the watermelon and keep it safe under his banyan tree until the customer was ready to go home. Well, the customers liked this idea and for the next couple of days flocked to Simon’s stall. Simon sold out of his watermelons far more quickly than the other sellers and was very pleased. At the end of the week, though, things had returned to normal. All of the watermelon sellers had copied Simon’s idea and once again the customer had no reason to shop with Simon. Simon wondered what to do next. He remembered that his customers were often complaining of being thirsty or of tired feet so the next day he provided a chair for his customers to sit on and water for them to drink. Again for a couple of days the customers would come to Simon first but once again the other watermelon sellers copied his ideas and he was back where he was. While this was going on Simon was doing some more thinking. ‘Hmmm,’ he thought, ‘Even when I sold my watermelons quicker than everyone else I didn’t sell any more since I only had one cart load to sell. There are always some customers around in the afternoon. I wonder what would happen if I didn’t sell out of watermelons by mid day. Trouble is, I can’t afford to buy any more from the farmer.’ Well, Simon was an enterprising man and didn’t let this put him off. He went to the farmer to talk about his problem. “If I buy two cart loads of watermelons I think I can sell them all but I can only afford to pay for half of what I buy today and half tomorrow,’ Simon told the farmer. The farmer, who had heard about Simon’s good ideas, said that this was fine with him, since it meant that he would sell more watermelons, and not only that, he provided a cart and someone to pull it to take the additional melons to market.

The other watermelon sellers laughed when they heard what Simon had done. “Simon will ruin himself,” they all said, chuckling. They didn’t laugh so much when Simon had easily sold his second cart load of watermelons to the customers who arrived at the market in the afternoon and as a result had made more money than they did. Soon they were all trying the same idea, although not all of them were able to persuade the farmer to help. Again, while this worked for a short time, very soon all the watermelon sellers who bought additional watermelons found that at the end of the day they were left with a few which they didn’t sell. They weren’t making as much money as they thought they would and they started to buy less watermelons again. Not Simon though. Simon had realized that although his remaining watermelons would not sell at full price there were some people who would pay a lower price. So, at the end of the day, when the market was starting to close he put up a big sign saying ‘All Watermelons Half Price’. His remaining stock quickly sold. The other watermelon sellers were aghast. “Now Simon is trying to ruin us all!,” they wailed. “Everyone is going to expect watermelons at half price.”

And once again they were wrong. Simon had realized that people going to miss their last bus home just so that they could buy a watermelon at half price. Although one or two people hung around until the end of the day to get a bargain most people were happy to pay the usual price. Soon all the watermelon sellers were reducing the price of their remaining stocks at the end of the day. They were happy and the customers were happy. Simon was already thinking about what to do next. ‘If I do anything new for my customers, everyone copies me and I quickly lose any advantage I have,’ he thought. ‘Even though I reduce the price at the end of the day, so does everyone else and I’ve already noticed that I even have some watermelons left even though I’m selling them at half price. What else can I do?’

One day while he was pondering on this problem Simon overheard another customer talking to her friend. “Oh I really like watermelons but don’t you know it gets so boring having the same thing day after day,” she said. “I wish we had a choice.” “You’re right,” her friend agreed, “And don’t you find that there is so much waste in such a big melon.” Simon realized what was needed and went to the farmer, who was now a good friend of his, to see if he could help. “I need a new watermelon,” Simon told the farmer. The farmer smiled and brought out a strange, small watermelon and cut off a piece for Simon. It was sweeter and tastier than any watermelon he had ever tasted. “It’s a new variety,” explained the farmer, “I’d heard it is very popular abroad and I thought I’d try a few. I thought you might be interested,” he added. Simon knew that this was exactly what the customer needed -a smaller watermelon with a new taste and with less waste. He instantly agreed with the farmer to buy the full crop. The farmer in his turn agreed that he wouldn’t supply the new watermelon variety to any of the other sellers.

The next day Simon put up another sign ‘New Watermelons Available : Small and Sweet’. Sure enough customers started to come and see what this was all about. Simon gave every customer a sample to try and every customer who tried a piece was so impressed they bought a whole watermelon. The new watermelons quickly sold out. Simon was especially pleased since he had been able to sell the new stock at a higher price than the old variety, even though it was smaller.

The other watermelon sellers rushed to the farmer and tried to buy the new variety but the farmer stuck to his deal with Simon and refused to sell to them. The other watermelon suppliers were forced to go to another farmer who told them he could supply the new variety but only in three months. The other watermelon sellers could do nothing but grumble until the new farmer was ready with his crops. They didn’t make as much money as before and some of them even stopped selling watermelons themselves and went to work for Simon!

Within the next three months everyone was selling the new watermelon variety. Simon didn’t mind because by then he had already introduced another new exclusive variety, developed especially for him by the farmer. Because he made so much money on the new varieties of watermelon he was even able to sell the older varieties at a cheaper price all the time, something which his customers thought was an excellent idea, but which made his competitors even more unhappy.

Simon and the farmer, on the other hand, were very happy, as were Simon’s customers. Simon and the farmer were happy because they were making plenty of money. The customers were happy because they had a lot more choice of product and because Simon’s products were better value. Time passed and in not too many years, Simon was selling his watermelons, along with many other types of fruit and vegetables, from proper shops in many towns. Simon still dealt with the same farmer that he had bought his watermelons from all those years ago and they had both become very prosperous. And although he now had a big chain of shops he still did what he could to make his customer’s lives easier. He still provided chairs for the customers to sit on, although they were now much more comfortable, and gave theme a cool glass of water if they wanted one along with many other services, some of which the customers hadn’t even realized they needed. He still gave his customers good value and reduced the price of each product at the end of the day to clear out the old stock, although he had now become much better at knowing how much he had to buy to make the most money. He still introduced new products regularly and his customers now ate many more types of food than they ever had before, including things they had never ever heard of and never even realized that they would like until Simon had put them on sale. And Simon called his chain of shops ‘The Banyan Tree Greengrocers’, because Simon knew it was important to always remember where it was he started. As a simple watermelon seller sitting in the dust under a banyan tree.

Now answer the following questions carefully: What basic quality principles Simon has followed to improve his business? Explain the effect of quality initiatives taken by Simon? What SQC techniques would you suggest to Simon to fine tune his strategies? How you relate his business objectives to his quality objectives?

Question: A Company VOL Pvt. Ltd. has recently started its operations in manufacturing automobile parts. With the perspective of starting and making the operations smooth in the organization, the Capacity management needs to be properly ensured.
a. Discuss what Capacity Management is and how the capacity requirement will be done by VOL Pvt. Ltd.
b. Discuss the process of capacity planning done by VOL Pvt. Ltd. and its advantages to the organization.

Question: Identify an organisation with operations management issues (avoid Ikea, Toyota, KFC, Starbucks, Cocacola, McDonalds etc.). For your chosen organisation: What does operations management mean for this organisation? You should consider factors such as the 4Vs, the five operations performance objectives, operations strategy and/or any other factors you consider relevant to your analysis. How do the process (es) and layout (s) of the organisation enable it to deliver goods and/or services to its customers? (How do they do what they do with the resources they have?).

The suggested format is: Executive summary. Introduction and background to the chosen organisation. What does operations management mean for this organisation? How do the processes and layouts of the organisation enable it to deliver goods and/or services to its customers? Conclusions. References.

Question on Theory of Constraints.

Bhanji has spent nearly two decades working at Metro Brands, which was started by her grandfather as a stand alone store in Colaba in 1947 and has since grown to over 500 stores across the country. She radiates enthusiasm for retail. “I’ve only ever worked here. I came here straight after my undergraduation. It’s not like a business where you don’t see an end result. You put something in the store, within a week you know how that shoe is working. You see new creations, you see new ranges,” she says. Keeping in touch with the ground realities of retail is essential to corporate strategy. “From being purely a product brand, we have become a retail brand. When you walk into the Colaba Metro store, the collection will be different from the Linking Road store. We curate the product for each store. I want the best collection for a customer who walks into a store,” she says.

Two years ago, Bhanji and her team implemented Eli Goldratt’s Theory of Constraints (TOC), a management philosophy that leads to profit improvement through greater efficiency in business processes. “Theory of Constraints brought efficiency to our front end, helping the way we sell go from art to science. For example, 40 new designs are introduced into our system every week. After four weeks, we address how they have sold. We had thumb rules to check what happens, and decide if a design worked. It is like an art, but applying
TOC helped us make it a science.”

The project came with management challenges for Bhanji, including getting on board the front line supply chain teams who had to adopt the new technology. “TOC wasn’t so tough from a technology angle, but it was supremely difficult from our mindset angle. How do you tell someone that the computer may know some
things better than you?” she says, as the legacy brand has a number of long-time employees.
a. Explain the concept of “Theory of Constraints (TOC)”. 
b. What all possible challenges Bhanji might face with the TOC?