Operations Management

Operations Management

Recommended Reading:

1. Operations & Supply Management

Richard B. Chase et al

12th Edition

Tata McGraw Hill Education Private Limited

2. Operations Mgt strategy and Analysis ---- Krajweski & Ritzman

3. Operations Management ---- Norman Gaither & Greg Fraizer

Curriculum Overview

1. Operation Strategy & Competitiveness

2. Process Analysis

3. Product Design & Process Selection – Mfg

4. Product Design and Process Selection - Services

5. Facility Location

6. Facility Layout

7. Waiting Line Management

8. Strategic Capacity Management

9. Aggregate Sales & Operations Planning

10. Inventory Control

11. Material Requirements Planning

12. Supply Chain Strategy

13. Total Quality management

14. Just in time & Lean Systems

15. Project Management

Important objective of Operations function:

Providing Products, what the customers want.

Elements of Operations function:

Quality / Cost / Delivery / Service with Flexibility

Historical development of Operations Management :

1910s

>> > Principles of scientific management

Industrial psychology

Moving assembly line / Economic Order Quantity

1930s

>>> Quality control

Hawthorne studies of worker motivation

1940s

>>> Linear programming concepts

1960s

>>> Development of Operations Research tools

1970s

>>> Inventory control / Forecasting / Project management

1980s

>>> Manufacturing as a competitive weapon

KANBAN / Poka-Yoke / CAD / CAM / CIM ……

1990s

>>> Malcom Baldrige Quality Award

ISO 9000

Quality Function Deployment

Kaizen

ERP

Lean

Supply chain management

Management Function Levels

Strategic >> Long term decisions

Tactical >> Medium term decisions

Operational >> Short term decisions

Basic concepts in Operations Management :

Plan your work

Control quality

Ensure productivity

Five Ps of Ops. Mgt :

People

Plant

Parts

Process

Planning

Operations strategies over a time period :

Upto 1980 1980 – 90 1990 – 2000 Beyond 2000

Ops focus Mass production Lean production Agile mfg.

Competitive Cost Quality Delivery Flexibility

strategy

Process criteria Economy Kaizen Quick Integration

of scale response Economy of

knowledge

Source Capital Work teams IT enabled Intelligent

of value addition automation CFTs processes systems

Operations management :

Can be defined as the Design, Operation and Improvement of the production

systems that create the firm’s primary products or services.

Operations Management is a functional field of business

Market place

Corporate strategy

Fin. strategy Ops. strategy Mkt. strategy

Operations Mgt

People Plant Parts Process Planning

and Control

Operations strategy :

is concerned with setting up of broad policies and plans for using the resources of

the firm to best support the firm’s long-term competitive strategy.

Operation strategy needs to get integrated with firm’s corporate strategy.

Operations priorities

>> Cost

>> Product quality and reliability

>> Delivery reliability

>> Coping with changes in demand

>> Flexibility

>> New product introduction speed

>> Technical liaison and support

>> After sale support

Developing a Manufacturing Strategy :

Theme :

$$ Translate the required priorities (obtained from marketing) into specific

performance requirements for operations.

$$ Make the necessary plans to assure that operations capabilities are

sufficient to accomplish them.

Steps for developing priorities :

1. Segment the market according to product group

2. Identify the product requirements, demand patterns and profit margins of

each group.

3. Determine the order winners and order qualifiers for each group.

4. Convert order winners into specific performance requirements.

Framework for Operations Strategy in Manufacturing

Customer needs

Existing and New Products

Performance prioritiesand requirements

Quality / Dependability / Flexibility / Price / Speed

Operational capabilities / Supplier capabilities / R&D /

Systems / TQM / JIT / People

Service

New productDevelopment

Productions Systems

Examples of transformation :

Physical >>> Manufacturing

Locational >>> Transportation / Ware-housing

Exchanges >>> Retailing

Physiological >>> Health-care

Psychological >>> Entertainment

Informational >>> Communication

Transformation processInput Output

Feedback

Transformation Process happening in :

Hospital

Restaurant

Automobile Factory

College

Dept. Store

Examples of Operation Systems :

System Input Process Output

Hospital Patients Health care Healthy individuals

Restaurant Hungry well prepared Satisfied customers

customers food

Automobile Steel, Plastic… Fabrication and High quality cars

Factory assembly

College High school Imparting Educated

graduates knowledge individuals

Dept. Store Shoppers Fill orders Sales to satisfied

customers

Operation priorities :

>> Cost

>> Product quality

>> Reliability

>> Delivery speed

>> Delivery adherence

>> Flexibility

>> New product introduction speed

Elements of Operations Strategy

>> Positioning the production system

>> Product / Service plans

>> Outsourcing plans

>> Process and Technology plans

>> Strategic allocation of resources

>> Facility plans : Capacity / Location / Layout

Operations StrategyExampleStrategy Process

Customer Needs

Corporate Strategy

Operations Strategy

Decisions on Processes and Infrastructure

More Product

Increase Org. Size

Increase Production Capacity

Build New Factory

Competitive Dimensions• Product Quality and Reliability

• Cost

• Delivery Speed

• Service Reliability

• Coping with Changes in Demand

• Flexibility and New Product Introduction Speed

Order Qualifiers and Winners•Order qualifiers? • They are the basic criteria that permit the firm’s products to be considered as candidates for purchase by customers.

•Order winners? •They are the criteria that differentiates the products and services of one firm from another.

Examples • A brand name car

can be an “order qualifier”

Repair services can be “order winners”

Other Examples:

Warranty, Roadside Assistance, Lease facilities etc;

Operations Strategy FrameworkCustomer Needs

New and Oldproducts

CompetitiveDimensions

Quality, Cost, Delivery,Service & Flexibility

Operations & Supplier capabilities

Technology PeopleSystems R&D CIM JIT TQM Distribution

Support Platforms

Financial management Human resource management Information management

Enterprise capabilities

Discussion point :

Holiday Candle Company

Bob Venture is the owner of Holiday Candle Company and would like to expand his

Company’s operations. For the past two years Bob has sold candles via the Internet, but sales have steadily grown beyond his ability to produce the candles alone from his garage workshop. Because future sales growth looks very promising, Bob has decided to open a small manufacturing plant to produce the candles. Sales have primarily been to customers in the United States with occasional orders from other countries. In addition to selling via the Internet, Bob would like to start selling his candles to specialty stores in the United States. With the new plant, he would also like to consider expanding the products he offers in the new future.

Discuss:

1. What do you think should be Bob’s competitive priorities ?

2. Different aspects of the operations strategy that you think Bob needs to develop.

Operations – some commonly used terminologies

Competitive capabilities:

Cost / Quality / Delivery / Service / Flexibility

Low-cost operations:

Producing a product at the lowest possible cost

Top Quality:

Delivering an outstanding product or service

Consistent Quality:

Producing products that meet design specifications on a consistent basis

Delivery Speed :

Quickly filling a customer’s order

Lead Time :

A measure often used for delivery speed

On-time Delivery :

Meeting delivery time promises

Development Speed :

Quickly introducing a new product or a service

Time-based competition :

Focuses on delivery speed and development speed

Customisation :

Satisfying the unique need of each customer by changing service or product designs

Variety :

A wide assortment of products and services

Volume Flexibility :

Accelerating or slowing down the rate of production to handle large fluctuations

In demand.

Productivity :A common measure of how well a country, industry or business unit is using

its resources (or factors of production).

Productivity = Quantity of products or services produced Amount of resources used

Productivity = Total output Total Input

Some productivity measures :

Business Productivity Measure

Restaurant

Customers per labour hour

Retail store

Sales per square feet

Utility plant

Kilowatts per ton of coal

Paper mill

Tons of paper per cord of wood

Total Measure Productivity• Total measure Productivity = Outputs

Inputs

or

• = Goods and services produced

All resources used

Partial Measure Productivity

• Partial measures of productivity =

• Output or Output or Output or Output Labor Capital Materials Energy

Multifactor Measure Productivity

• Multifactor measures of productivity =

• Output . Labor + Capital + Energy

or

• Output . Labor + Capital + Materials

Example of Productivity Measurement

• You have just determined that your service employees have used a total of 2400 hours of labor this week to process 560 insurance forms. Last week the same crew used only 2000 hours of labor to process 480 forms.

• Is productivity increasing or decreasing?

• Answer: Last week’s productivity = 480/2000 = 0.24 This week’s productivity is = 560/2400 = 0.23 Here productivity is decreasing slightly.

Characteristics of Services and Manufactured products

Services Manufactured products

$$ Intangible outputs Tangible products

$$ Outputs can not be stored Products can be inventoried

$$ Extensive customer contact Little customer contact

$$ Short lead times Long lead times

$$ Labour intensive Capital intensive

$$ Service quality subjectively Product quality objectively

determined determined