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Operations Management
The field of management that specializes in the physical production of goods or services and uses quantitative techniques for solving manufacturing problems
Production System
Inputs
Materials Capital Labor Manag. Res.
Outputs Organization
Goods Services
Operations Management
Operations Management is the conversion of inputs into outputs, using physical resources, so as to provide the desired utility/utilities of form, place, possession or state or a combination there of to the customer while meeting the other organizational objectives of effectiveness, efficiency and adaptability.
Goods & service design Quality Process & capacity design Location selection Layout design Human resource and job design Supply-chain management Inventory Scheduling Maintenance
Inputs
Flow units
(customers, data, material, cash, etc.)
Outputs
Goods Services
Resources
Process Management
A business process is a network of activities performed by resources that transforms inputs into outputs
Operations Management
Outputs Products Services Products & Facilities Structure Product design Reporting relationships Facilities layout Teams Capacity planning Facilities location Control Processes Inventory management Productivity Quality
Services:
Intangible product Product cannot be inventoried High customer contact Short response time Labor intensive
Manufacturers:
Tangible product Product can be inventoried Low customer contact Longer response time Capital intensive
All use technology Both have quality, productivity, & response issues All must forecast demand Each will have capacity, layout, and location issues All have customers and suppliers All have scheduling and staffing issues
Products
Product Attributes
Inputs-Outputs
Tangible Inputs
Intangible Inputs
Information Time
Buildings Cars Outgoing patient (hospital) Delivered message (advertising company)
Tangible Outputs
Intangible Outputs
Transformations
Physical--manufacturing
Locational--transportation Exchange--retailing Storage--warehousing Physiological--health care Informational--telecommunications
All managers must transform inputs into outputs Example: Accounting Manager
Inputs: data, information, labor Transformation: application of accounting principles and knowledge Outputs: accounting reports, knowledge of performance, ...
Therefore, all managers are in some sense Operations managers All managers have an operation to run
Operations Management
Value Proposition Operations Strategy Operation Priorities Cost Quality Delivery Flexibility Innovation Service System Design Product/Service Design Process Selection Planning & Control Aggregate Planning Inventory Systems Project Management Scheduling MRP Statistical Process Control
TQM
Facility location Facility Layout JIT
Scheduling Must obtain materials and supplies Both must be concerned with quality and productivity
Materials Methods Machines and Equipments Estimating Loading and Scheduling Routing
OM Decisions
Strategic:
Product/Service Design Process Selection Capacity Planning Facility Location Facility Layout Job Design
Tactical:
Quality Control Demand Forecasting Supply Chain Management Production Planning Inventory Control Scheduling
Product Design
Product design deals with its form and function. Form implies the shape and appearance of the product while function is related to the working of the product.
3 4
Producibility
Cost
3 4 5
Quality
Reliability
Timing
Characteristics of Goods
Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction
Characteristics of Service
Intangible product Produced & consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed
75
50
25
25
50
75
100
Four Important Operations Questions: Will you compete on Cost? Quality? Time? Flexibility? All of the above? Some? Tradeoffs?
Competing on Cost?
Typically high volume products Often limit product range & offer little customization May invest in automation to reduce unit costs
Competing on Quality?
Competing on Time?
Fast delivery:
On-time delivery:
Competing on Flexibility?
Product flexibility:
Easily switch production from one item to another Easily customize product/service to meet specific requirements of a customer
Volume flexibility:
Growth
Practical to change price or quality image Strengthen niche
Maturity
Poor time to change image, price or quality Competitive costs become critical Defend market position
Decline
Cost control critical
Sales Time
Frequent product and process changes Short production runs High production costs Limited models Attention to quality
Forecasting critical Products and process reliability Increase capacity Shift towards product focus Enhance distribution
Standardization minor product changes Optimum capacity Process stability Long production runs
Little product differentiation Overcapacity in the industry Reduce capacity and eventually prune line to eliminate items not returning good margin
Product Development
The aim of Product development is to (i) provide the goods the market demands with time,(ii) adjust with the variation in quantity required and (iii) charge the prices which the customer is willing to pay as well as under conditions that it may have net profit also.
Sales
Color copiers
CD-ROM Internet
HDTV
Product design and development critical OM Strategy/Issues Frequent product and process design changes Short production runs High production costs Limited models Attention to quality Forecasting critical Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focused Enhance distribution Standardization Less rapid product changes - more minor changes Optimum capacity Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning good margin Reduce capacity
Needs Identification
Advance design
Needs Identification
Once a product idea surfaces, it must be demonstrated that the product fulfils some consumer need, and that existing products do not already fulfill that need.
Advance design
Promising design alternatives are evaluated according to critical parameters to determine whether design support such as analytical testing, experimentation, physical modeling, and prototype testing will be required.
2. 3. 4.
Support systems might Educate users on specific applications of the product Provide warranty and repair service Distribute replacement parts; or Upgrade the product with design improvements.
Standardization
Standardization means fixation of some appropriate size, shape, quality, manufacturing process, weight and other characteristics as standards to manufacture a product of desired variety and utility.
Simplification
Simplification in an enterprise connotes the elimination of excessive and undesirable or marginal lines of product to hammer out waste and to attain economy coupled with the main object of improving quality and reducing costs and prices leading to increased sales.
Specialization
Specialization implies expertise in some particular area or field. Specialization implies reduction in the variety of products manufactured by the organisation.
Diversification
It implies policy of producing different types of products by an enterprise. Diversification can be adopted for the purpose of Utilisation of idle/surplus resources Stabilisation of sales To cope with demand fluctuations and For survival of the organisation.
Process Selection
Project
Project technology deals with one-of-a kind products that are tailored to the unique requirements of each customer.Since the products cannot be standardized, the conversion process must be flexible in its equipment capabilities, human skills, and procedures.
Intermittent System
Intermittent System
In this system, the goods are manufactured specially to fulfill orders made by customers rather than for stock. Here the flow of material is intermittent. Intermittent production system are those where the production facilities are flexible to handle a wide variety of products and sizes.
Job Shop
Job shop technology is appropriate for manufacturers of small batches of many different products, each of which is custom designed and, consequently, requires its own unique set of processing steps, or routing, through the production process. For example, printing shop, restaurant, etc.
Batch
This process is adopted when batches or lots of items are to be produced using the same set of machines in the same sequence.For example, Bakery, Chemical industry, Printing press, etc.
Mass Process
Continuous production system is the specialized manufacture of identical products on which the machinery and equipment is fully engaged. The continuous production is normally associated with large quantities and with high rate of demand.
Process Design
High
Process-focused
Job Shops
(Print shop, emergency room , machine shop, fine dining Variety of Products
Moderate
Mass Customization
(Dell Computers PC) Repetitive (modular) focus
Assembly line
(Cars, appliances, TVs, fast-food restaurants) Product-focused
Continuous
(steel, beer, paper, bread)
Low Low Moderate
Volume
High
S2,1
S2,2
S2,i
S2,m
Product-Process Mix
Typical combinations of product-process structures are illustrated in Figure.As the product shifts to a different stage, the manufacturing process structure also shifts, and new manufacturing priorities emerge. Whereas manufacturing flexibility and quality are competitive priorities in earlier stages, priorities shift toward dependable delivery and competitive cost in later stages.
Process structure process life-cycle stages Jumbled flow (job shop) Disconnected line flow (batch) Connected line flow (assembly line) Continuous flow
Commercial printer
Void
Heavy equipment
Auto assembly
Void
Facility Location
A facility (plant) is a place where men, materials, money, machinery and equipment, etc., are brought together for manufacturing product.
Facility Location
Cost-benefit analysis most common approach to selecting a site for a new location
New location scouting software is helping managers turn facilities location into a science
Location Factors
Primary factors
Availability of raw material Nearness to market Transport facilities Availability of labour Availability of fuel and power Availability of water
Secondary factors
Soil and climate Industrial atmosphere Financial and other aids Availability of facilities like housing, schools, hospitals and recreation clubs Momentum of an early start
Secondary factors
Special advantage of the place Personal factors Historical factors Political stability
Rural
Availability of local market: Due to large population the local The market place is far away from demand for the product is fairly the industries, therefore cost of high. distribution of finished products is more. Labour: Ample availability of It is rather difficult to get skilled diversified labour. labour in rural areas.
Transport facilities: Good transport facilities are available. Allied Industries: Proximity to allied industries are available.
Rural
There are fewer educational, social and recreational facilities. Sufficient land is available at cheaper rates.
There are few restrictions on construction of factory buildings. Municipal facilities and public utility services are not available.
Rural
Prompt postal and communication services are not available. The rates of taxes are quite low. Labour is available at cheaper rate. Absence of banking facilities, credit facilities and insurance facilities. Labour force is more stable.
Rural
Trade union movement is not very strong. Absence of training facilities and management institutes. Storing and warehouse facilities are not available. Problems of air pollution, water pollution, etc. are less and the rural environment is conducive to good health of workers.
Rural
Less danger of bombardment in war time. Government provides financial assistance and land at cheaper rates to attract the entrepreneurs to start industries in rural areas.
Resources Labor skills and productivity Land availability and cost Raw materials Subcontractors Transportation facilities Utility availability and rates
Local Conditions Community receptivity to business Construction cost Organized industrial complexes Quality of life: climate, housing, recreation, schools Taxes
Sources of Information
After identifying key location requirements, management undertakes a search to find alternative locations that are consistent with these requirements.
Detailed Analysis
Once the preliminary screening narrows alternative sites to just a few, more detailed analysis begins.
Factor Ratings
Steps in using Factor Rating
List the most relevant factors in the location decision (column 1) Each factor is rated , say from 1 (very low) to 5 (very high),according to its importance (column 2) Each location is rated, say from 1 (very low) to 10 (very high), according to its merits on each characteristic (column 3) The factor rating is multiplied by the location rating for each factor The sum of the product yields the total rating score for that location
Factor
Tax advantages Suitability of labor skills Proximity to customers Proximity to suppliers Adequacy of water Receptivity of community Quality of educational system Access to rail and air transp. Suitability of climate Availability of power
32 6 18 10 3 20 4 30 14 12 149
Fixed cost include expenditure on land, building, machines and other equipments etc. Operational costs are the expenditure incurred on inputs, transformation process and the distribution of output.
Total costs
5 4 3 2 1
3
2 1
B Locations
Break-even Chart
Labor Transportation
Material
Costs of Facts
Volume of Units
Break-even Chart
E B
B C A D
Total Costs
A D E C
Volume of Output
Dimensional Analysis
MA = [CA1] [CB1]
W 1
[CA2] [CB2]
MB
.
2
[CA n] [CB n]
If
MA MB
Facility Layout
Layout are concerned with arrangement of production, support, customer service and other facilities used in operation.
Facilities Layout
Product and material specification Location and site of the Plant Manufacturing process Material Handling Storage of in-process inventory Plant personnel and employee facilities
Service facilities Design of building Flexibility Work areas and equipment Working conditions Disposal of waste and dangerous gases
Capacity Planning
Capacity is the rate of productive capability of a facility. Capacity is usually expressed as volume of output per time period.
Capacity Planning
Assessing existing capacity Forecasting capacity needs Identifying alternative ways to modify capacity Evaluating financial, economical, and technological capacity alternatives Selecting a capacity alternative most suited to achieving strategic mission
Production planning and control is the organisation and planning of the manufacturing process. It co-ordinates supply and movement of materials and labor, ensures economic and balanced utilization of machines and equipment as well as other activities related with production to achieve the desired manufacturing results in terms of quantity, quality, time and place.
Routing Scheduling Loading Programming Ordering Dispatching Progressing or Follow-up Inventory Control
Work Study
Work study is simply the study of work. It is the analysis of work into smaller parts followed by rearrangement of these parts to give the same effectiveness at lesser cost. It examines both the method and duration of the work involved in a process.
Method Study
Work Measurement
Select the task be studied Record the facts Analyze the facts Measure the tasks Define the methods and related time Maintain the work
Productivity
Productivity is the ratio between the amount produced and the amount of resources used in the course of production. The resources may be any combination of materials, machines, men and space.
Productivity
Productivity
Measuring Productivity
Productivity = organizations output of products and services divided by its inputs Total factor Productivity =
Output Labor + Capital + Materials + Energy
Labor = Productivity
Improving Productivity
1.
2.
3.
Labor
basic education diet social infrastructure like transportation and sanitation labor utilization and motivation
Capital
Steady and well-planned investments on equipment and its timely maintenance Research & Development Controlling of the cost of capital Exploitation of new (information) technologies Utilization of accumulated knowledge Education
Management
Productivity
Outputs P Inputs
Measuring Productivity
Productivity = output/input
Labor Productivity
Example:
Assume two workers paint twenty-four tables in eight hours: Inputs: 16 hours of labor (2 workers x 8 hours) Outputs: 24 painted tables
Is the productivity measure of 1.41 in the previous example good or bad? Cant tell without a reference point Compare to previous measures (e.g.: last week) or to another benchmark
Can be used to compare a processs productivity at a given time (P2) to the same process productivity at an earlier time (P1)
P2 P 1 Growth Rate P 1
Last week a company produced 150 units using 200 hours of labor This week, the same company produced 180 units using 250 hours of labor
150 units P 0.75 units / hour 1 200 hours P2 180 units 0.72 units / hour 250 hours
Productivity Example - An automobile manufacturer has presented the following data for the past three years in its annual report. As a potential investor, you are interested in calculating yearly productivity and year to year productivity gains as one of several factors in your investment analysis.
2007 Unit car sales Employees 2,700,000 2006 2,400,000 2005 2,100,000 Labor Productivity Unit Car Sales/Employee 112,000 113,000 115,000 24.1 21.2 18.3 2004 2006 2005
15.8%
Rs49,000
Rs41,000
Rs38,000
1.19 4.2%
Rs39,000
Rs33,000
Rs32,000
Year-to-year Improvement