Some concepts of operations management


Mostly production engineering and management are confused with each other. Production management is involved in a conversion process, and its management. Production engineering is an advisory function. It provides expert support to run the equipment and carry process technologies. Production management is a business function, and is not just an engineering function. In small businesses, perhaps both functions may merge with each other, but it is just an exception. Production management provides business orientation to the organization.

Distinction between Operations Management and Operation Research (OR)

Both Operations management and Operations research have a common term ‘operations’. It is also true that most of the operations research techniques are used in the area of operations management. Operations research techniques are optimizing techniques e.g. linear programming and are used extensively in production function. Though they have been treated in books of production management in pre-1980 period, their role and relevance have now been questioned in production management area, though a few of these techniques still cast their shadow on this area.

Remote processing

Because of telecom revolution (Telegraph, 1833; Telephone, 1877; Television, 1928), it has now become possible to do remote processing of major operations several thousand miles away. A company in India processes GE’s credit cards in Europe. Several companies in India transcribe the doctor’s prescriptions for the health care industry in the US. Several companies process loan applications for foreign companies. Call centers are established to answer customer queries. Many companies do data conversion work. Back office work is outsourced e.g. pay-roll accounting, internal auditing, credit appraisals.

Cost Center

Production function accounts for nearly 80% of all costs incurred by an organization. All direct costs related to employees and materials and part of overhead costs fall within its scope.

Operations Management and Strategic planning

In the late forties and early sixties, planning was more or less production-oriented, since the output that was available would be easily sold off. During late sixties to early eighties, marketing occupied the center stage, as companies experienced that selling products have become increasingly difficult. Planning thus became marketing-oriented. By early 80s and during the concluding decade of this century, both marketing and finance started to drive the strategy formulation. There are corporate failures, and financial problems. This led to finances contributing a great deal to strategy formulation.

It is now seen that critical operational inputs are not considered in strategic planning. Some of the reasons are historical, as we have already observed. There are other reasons too. Operations people are reluctant to put things in black and white. They are mostly reactive, rather than pro-active. Their role is limited to short-term perspective, and is considered tactical. Operation management’s inputs are thus considered too late in the strategy formulation process, which undermined their very contribution. Later, this may affect operations function, and may lead to conflicts. Besides, inappropriate strategies may shackle an organization for a long time, since large resources get committed to operations for a long time. We must, therefore attempt an interface of operations and marketing.