System Engineering 3(3+0)

LESSON 1. Systems Concept: Operations Management

2. OPERATION MANAGEMENT

Operations management is defined as that activity whereby resources, flowing within a defined system, are combined and transformed in a controlled manner to add value in accordance with policies communicated by management.

Whereas the term "production," in a narrow sense, is often associated with a quantity of goods, or with an assembly or perhaps a chemical process, "production management" has always been concerned with the productivity of the transformation process. In a very real sense the above definition of operations management also encompasses production management. We shall recognize this understanding, using the word "production" to connote the vital concepts of transformation and value added. But we shall not necessarily restrict transformations to physical processes, nor assume that value added represents only material values that can be expressed in monetary terms (as opposed to human and immaterial values).

The production activity is dynamic and takes place in an uncertain economic and social environment that changes over time. Management has the task of acting upon and reacting to the environment by making decisions which direct productive efforts toward the achievement of organizational objectives, Key elements in the definition of operations management are the concepts of (1) resources, (2) systems, (3) transformation and value-adding activities, and (4) managerial policy.

2.1. Resources

An organization's resources are the material and nonmaterial assets available to achieve desired objectives. Resource inputs to the production system may be conveniently classified into material and equipment, human, and capital resources.

2.2. Material and Equipment

These are the physical facilities and equipment such as plant, inventories, and supplies. Included are operating and control equipment like computers and the physical energies (for example, electrical, mechanical) used in operations. In an accounting sense, the material and equipment usually constitute the major assets of an organization.

2.3. Human Resources

The human input is both physical and intellectual. Early production efforts relied heavily upon human physical labour, but as production technology and methodology advanced, a higher proportion of the human input became devoted to planning, organizing, and controlling efforts. By using the intellectual capabilities of people, labor inputs are magnified many times, resulting in increased productivity as well as a much closer worker-machine interface. This closer integration of human and physical systems has in turn presented new challenges in job design to achieve worker satisfaction.

The labour resource, although it is often the key asset of an organization, is typically not accounted for in the balance sheet of the organization. It is the human resource, in the form of managerial talent, engineering skill, employee cooperation, etc. that has provided the primary impetus for the growth and development of the large-scale organizations that flourish today.

People bring human values into an organization, and some of these values are essentially institutionalized into the resulting organizational society. They become traditions, standards, and ethical guidelines, both for internal operations and for dealing with "the public." These values often play a strong but difficult to define role in the organizational decision process.

 2.4. Capital

Funds are essential to establish and regulate the amount of material and human inputs. In an aggregate sense they help to determine the level of technology and the tradeoff between the use of labour versus equipment. As more capital is allocated to a given phase of a produc­tion process, the level of technology typically rises and through automation, equipment replaces human labour.

In free enterprise organizations, capital becomes available in the form of equity (stock) or debt (bonds) funds and is replenished through profits. In nonprofit organiza­tions, taxes or contributions are a continuing source of funds to finance operations deemed to be in the group or public interest. However, whether an organization is profit- or nonprofit-oriented, efficient and effective use of resources rests heavily upon fundamental principles of operations management.

3. SYSTEM CONCEPT

A system is an arrangement of components designed to achieve a particular objective (or objectives) according to plan. The components may be either physical or conceptual or both, but they all share a unique relationship with each other and with the overall objective of the system. A health care delivery system, for example, has doctors and physical facilities plus conceptual operating policies which combine to ultimately provide patients with a specified level of medical care.

Our cultural environment includes a multitude of economic and social systems, many of which are interrelated and function simultaneously for the benefit of society as a whole. For example, we have a national monetary system which facilitates the exchange of goods and a transportation network which can move these goods quickly and efficiently to any part of the country.

The individual business and government organizations are essentially subsystems of larger social systems. They, in turn, are typically composed of their own sub­systems, which theoretically function for the good of their individual organizations. The production, marketing, and finance functions are traditional subsystems of the formal organization of a firm. However, many firms are now reorganizing their formal structure to better account for the interdependency of such subsystems. As a result, business systems are emerging which are based more upon information flows and decision responsibilities than upon strict functional lines.

A systems approach to operations management problems places strong emphasis upon the integrative nature of management responsibilities, recognizing both the interdependence and the hierarchical nature of subsystems.   In essence, systems theory stresses the understanding and re­lationships of the whole system, recognizing that a combined effect of components can be greater than the sum total of individual effects, that is, can be synergistic. Problems must first be abstracted from the overall (macro) environment, then they can be broken down into parts (micro), analyzed, and solutions proposed. But ul­timately the components must again be restructured or synthesized (macro) to discover and evaluate the impact of new interrelationships that arise from proposed changes in the system.

The ability of any system to achieve its objectives depends upon fl) the design of the system and (2) the control exercised by the system.

4. TYPES OF SYSTEMS

System is  classified in various ways.

4.1. According to the Creation

Natural system: Existing naturally- solar system, river system etc.

Man-made system: Transportation system, lighting system. Man-made system is designed and operated by man. The man utilizes the inputs taken from the natural systems.

4.2. According to the Flexibility

Flexible system: The system which is adjusting to maintain the balance or equilibrium between the system and is changing environment. Example: most of the life forms, economic, political and social systems.

Rigid system: which cannot be modified or will not adjust for modification. Example: highway. Even the man tries to build some flexibility into every system designed or constructed. Example: Building.

4.3. Based on Human Involvement

Manual system:  A production system completely man operated one. Example: Coir thread making.

Automatic machine system: completely automated.

To have equilibrium, man-machine relationships exist for production.

4.4. Based on System Output:

System that produces: a production system

System that serves clients/ customers: hospital, restaurant, etc.

5. COMPONENTS OF SYSTEM

If  units are designed and operated as a system, each segment or subsystem can be viewed as a self contained unit & its relationships or contribution to the next level can be performed and measured. Inputs, transformation process and output are the components of any system. Input and output are mere significant than the actual transformation process. ‘Black box’ approach is used to demonstrate the relationship let computes and systems. A component is a basic unit or black box which performs or provides the facility for performing some part of the transformation process.  A teacher – component in education or university system, may be taken for medical illustration as a system with several sub systems. The definition of what is a system, subsystem, components occurs when the objectives of those systems are determined.

6. SYSTEM DESIGN

Most managers realize that the independent optimization of individual sub­systems, such as marketing or production functions, does not necessarily result in optimization of the objectives of the total system. Production may favour a steady manufacturing rate and low inventories while marketing is anxious to meet highly seasonal demands. If any form of total system optimization is to be achieved, the subsystem objectives must be integrated and coordinated in light of overall system goals. It makes sense to start with a clearly delineated set of overall system objectives and to develop a hierarchy of subsystem goals which, when consistently pursued, will most effectively facilitate the overall objectives.

 

 Fig. 1. Components of a system

A design is simply a predetermined arrangement of components or operating parameters, such as the set of drawings for a plant expansion or the plans and pro­cedures for enforcing statewide air pollution controls.   The systems design process thus involves identifying and bound­ing the relevant parameters so as to isolate them from numerous irrelevant variables. Following this, many considerations enter into the analysis and design (or redesign) stage of a systems design, such as the economics of use of available resources, level of technology to be used, safety and reliability of the system itself, and impact of the system upon the environment outside the organization.

One of the most vital inputs to systems design comes from the consumers or users. They embody the service objectives of the organization and are also the ultimate source of funds for the operations. Since the system functions to serve the consumers, their quantity and cost requirements, as well as quality and other technological desires, should be incorporated into the production systems design. Business history has vividly proved that orientation to the consumers is a key element in an organiza­tion's success. This holds true for public and nonprofit organizations as well as profit-making firms.

The more structured the design is, the less planning and decision making will be involved in the operation of the system. Similarly, a highly structured design, although suitable for high-volume production of standardized products, is inherently less adaptable to meeting competitive pressures of broader product lines in smaller volumes upon shorter notice from the customer. An increasingly important con­sideration in modern systems design arises from the need for flexibility and adaptability, of the system to meet new and unexpected demands. Fortunately, both physical equipment and human components can be geared to accept change, especially if the system has been designed with this inevitability in mind.

Production systems are often categorized as continuous or intermittent, although many systems are a combination of the two. In continuous designs, the physical flow of products is continuous and production is usually in high volumes accomplished through  line-type operations. Plant layout is arranged to accommodate the product, such as paper, and specialized equipment is used. In intermittent designs, the physical flow of products is intermittent and production is on a batch or job-order basis. Layout is arranged according to process, and general-purpose equipment is used.

Fig.2 shows a simplified theoretical model of a production system design. Note that the essential elements are inputs, transformation activities, and outputs.

 Fig.2. A simple production system

7. SYSTEMS CONTROL

Systems control consists of all actions necessary to ensure that activities conform to preconceived plans or goals. Control involves measurement, feedback, comparison with standards, and corrective action.

Fig.3 adds a control mechanism to the production system shown in Fig.2. The measurement function must be accomplished by some appropriately accurate sensory device. Data are then fed back for comparison and correction, with the feedback activity depending heavily upon the physical or organizational communication network. An effective information system having appropriate response times is essential to the operation of an effective control system. Standards for comparison are based upon historical or engineered criteria and may be in the form of physical measurements, control limits, cost variances, etc. Finally, corrective action implies both an authority to change the system and the ability to implement those changes.

 Fig. 3.  System with feedback

The system described in Fig.3 is a closed-loop arrangement because it can automatically function on the basis of data from within its own system to ensure that the outputs will continuously meet control standards. Open-loop control systems do not have sufficient internal feedback with automatic control to maintain desired standards for they are influenced by "outside" information. Any system that inter­faces with the environment is open to the extent that it receives stimuli from outside its own control. For example, a spaceship that depends upon navigational information from computers on earth would be operating (at least partly) as an open system.

8. TRANSFORMATION AND VALUE ADDED ACTIVITIES

The objective of combining resources (that is, factors of production) under controlled conditions is to transform them into goods or services having a higher (material or immaterial) value than the original inputs. The effectiveness of the use of the factors of production to produce goods and services is commonly referred to as productivity. Basically, productivity connotes a relationship of output to input such that:

This concept of value added is in contrast to the notion of engineering efficiency where energy losses within any physical system prohibit the ratio of output to input from being greater than one.

The values placed on goods or services differ with consumers. But as a large volume of output enters a competitive market, monetary amounts typically emerge as indicators of value. However, many outputs from a production system, such as employee satisfactions, social and environmental impacts, and so forth, are unique, and are difficult to value on a monetary basis. In the past, such intangible values and side effects of production decisions were often overlooked. Today we recognize the reality of these outputs and managers are forced to deal with them in terms of different individual and group value systems.

Measures of physical productivity serve as means of comparison for two or more individual units or organizations, as well as for whole industries and even nations. The resource base, population growth, ethic of the people, and existing level of technology all contribute to the economic growth rate of a nation. The productivity of the employees depends on (i) the level of training and education of the employees and (2) the substantially higher capital investment in automated production equipment.

Since organizations operate in a dynamic environment that charges over time, the inputs and outputs are best described as flows of inputs and outputs. In the physical sense, production (as a noun) results from maintaining the system flows. For a given level of inputs, improvements in the design or control of the system will increase productivity and the value of the outputs will be greater.

Production operations managers are concerned with both the technology of the transformation process and the methodology of managing the process. The tech­nology is often unique to given industries, such as steel or paper processing, and is not the central focus of this text. However, the methodology of planning, organizing, directing, and controlling activities has a theoretical base which is common to most, or perhaps all, production activities. The development and use of this type of analytical base is the concern of this text.