Useful Basic Tools

There was a time, not too long ago, when Production and Operations Management was considered to be highly mechanistic – a discipline which engineers would prefer due to their familiarity with machines and ability to solve complex mathematical problems. Operations management meant putting everything in a quantitative framework. It was assumed that most of the operations decision making, if not all, could be put into some mathematical relationship – the one relationship which they seemed to believe in strongly.

At the time when production Management as a discipline was taking root, there was a sudden spurt in Statistics. Additionally, Operations Research (OR) used in the World War II presented hitherto unforeseen opening in the industrial world. In order to fight the small ‘war’ of competitive cost minimization while meeting production schedules, manufacturing operations used OR techniques. Now that an era of human relationships – relationships upstream (with suppliers) and relationships down stream (with customers) had begun, would hard math based decision making tools be of any help?

The answer to the above query is in a strong affirmative. Although operations management now has as many ‘soft’ issues to handle as the ‘hard’ ones, this does not lessen the need for hardnosed mathematical analysis. In fact, help from such an analysis is all the more required because the number, variety and uncertainty of the needs has increased at a hypersonic speed.

The OR techniques of programming such as Linear Programming will guide an operations manger as to how he should produce the best results despite facing various limitations. Queuing Theory or Waiting Line Problem has had applications in the ‘waiting’ of jobs in a production department and in the ‘waiting’ of jobs (breakdowns) to attend to in maintenance. However, queuing theory could not have asked for a better ground than the service operations. No customer likes to wait, if she can help it. But, instant gratification comes at a price. So, a solution satisfactory to the customer and the operations persons has to be found. Waiting line problem has immense utility in these situations, in both the manufacturing and the service industries

Forecasting is a science that tries to locate or identify the trajectories of changes. In a world which is globalized i.e. where a lot many more players are interacting and where the moods of the market keep swinging, forecasting is all the more necessary. Several items need to be forecasted: future economies, future demands on the production and/or service system, future technological developments and even future social and political trends. Operations management is no loner confined to manufacturing in a factory. This has, however, only increased the need for the application of scientific tools and techniques of decision making.

It must be added that despite the changes in the character of the industry, from total emphasis on manufacturing to equal attention to service no one is ever against thrift in the use of resources and funds. Therefore attention to capital investments and various costs is essential. It is very necessary to analyze costs and investments and the good advice from such analysis should be taken due cognizance of Relevant Costs analysis and Capital Budgeting are such essential topics.

Science in decision making is good if used judiciously:

Whatever the criterion, cost is an important element in the decision making process. However, a distinction needs to be made between the costs for accounting purposes and the cost for managerial decision making. Financial accounting has basic objective of fulfilling the statutory requirements of a company in terms of the profits and losses incurred by the company being made public, which is quite different from costing for internal decisions making. Although Cost Accounting fills much of the later requirements, it is still not totally decision oriented. Every decision is made in the context of the circumstances which are unique to that decision. When the context of the decision varies the type of costs to be considered will also vary. This gives rise to the term relevant cost.