Operations Strategy and Strategic Decisons in Operations Management

1 – 1Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Operations Strategy and Strategic Decisions in Operations Management


Operations Strategy

Figure 1.5

Corporate Strategy• Environmental scanning• Core competencies• Core processes• Global strategies

Market Analysis• Market segmentation• Needs assessment

Competitive Priorities and Capabilities

Operations Strategy

DecisionsCompetitive Capabilities• Current• Needed• Planned

Performance Gap?

No

Yes


Corporate Strategy

Environmental scanning Developing core competencies

1. Workforce

2. Facilities

3. Market and financial know-how

4. Systems and technologies

Developing core processes Global strategies


Market Analysis

Market segmentationNeeds assessment

Service or product needs (prices, quality, degree of customization)

Delivery system needs (availability, delivery dependability, delivery speed)

Volume needs (high or low volume, degree of variability in volume)

Other needs (after sales support)


Competitive Priorities

DEFINITIONS

COST Definition

1. Low-cost operations

Delivering a service or a product at the lowest possible cost

QUALITY

2. Top quality Delivering an outstanding service or product

3. Consistent quality

Producing services or products that meet design specifications on a consistent basis

TIME

4. Delivery speed Quickly filling a customer’s order

5. On-time delivery

Meeting delivery-time promises

6. Development speed

Quickly introducing a new science or a product


Competitive Priorities

DEFINITIONS

FLEXIBILITY Definition

7. Customization Satisfying the unique needs of each customer by changing service or products designs

8. Variety Handling a wide assortment of services or products efficiently

9. Volume flexibility

Accelerating or decelerating the rate of production of service or products quickly to handle large fluctuations in demand

1 – 7

Order Winners and Qualifiers

Order Winning CriteriaFeatures which

collectively provide an important edge over the competition

If products/services meet these criteria, they will gain orders from competitors,who are not as good

Order Qualifying CriteriaUnless

products/services meet the criteria, they will lose orders to competitors, who already have them.


Options for Strategic Decisions in Operations (Operations Strategy Decision Areas)

Process StrategyCapacity ManagementSupply Chain DesignTHE PROCEDURE FOR ASSESSING AN OPERATIONS STRATEGY BEGINS WITH IDENTIFYING GOOD MEASURES FOR EACH PRIORITY FOLLOWED BY GATHERING OF DATA TO DETERMINE CURRENT CAPABILITIES AND COMPARING THE LATTER TO CORRESPONDING TARGETS. UNACCEPTABLE GAPS ARE CLOSED BY APPROPRIATE ACTIONS.

1 – 9

Operations Strategy-Definition

The total pattern of decisions which shape the long-term capabilities of any kind of operation and their contribution to the overall strategy.

1 – 10

PROCESS STRATEGY

1 – 11

Effective Process Design

Major Decisions for Effective Processes

Vertical Integration• In-house• Outsource

Capital Intensity• Low automation• High automation

Customer Involvement• Low involvement• High involvement

Resource Flexibility• Specialized• Enlarged

• Process Structure• Layout

1 – 12

Manufacturing Process Structure (based on Product-Process Matrix)

Job shop (ex. customized manufacture of spectacles/opthalmics)

Batch (ex. manufacture of various types of earth moving machinery)

Assembly Line (ex. manufacture of a single model automobile )

Continuous Flow (ex. petroleum refinery)

1 – 13

Choice of Process Design Facets

Process Focus

Inter.Focus

Product Focus

More customer involvementMore resource flexibility

Less capital intensityLess vertical integration

Less customer involvementLess resource flexibilityMore capital intensity

More vertical integration

Volume HighLow

1 – 14

Process Layout

Human and capital resources used by processes must be arranged physically within their facilities which gives the process structure a physical form.

The choice of process layouts largely depends on the process structure.

Good process layouts can improve coordination across departmental lines and functional area boundaries.

1 – 15

Process Layout Types

Product layout-ideal for high volume/low variety/low level of customer contact (ex. continuous flow and assembly line).

Process layout-ideal for low volume/high variety/high level of customer contact (ex. batch and job shop).

Hybrid layout-combines elements of Product and Process layouts.

Fixed position layout-this is required when the product is massive and cannot be moved-eg.shipbuilding.

1 – 16

Product Layout

A Product layout arranges work stations in sequence. The line is only as fast as its slowest workstation.

Line balancing is done to achieve the desired output rate with the smallest number of workstations.


Product Layout-Typical method for assigning work elements to workstations

1.Draw the Precedence Diagram based on Precedence Relationships of the work elements.

2.Create one work station at a time. Start with the assignment of the first work element to the first work station.

3.Calculate the Idle Time for the work station by subtracting the cumulative time of the assigned work elements from the cycle time.

4.Identify potential immediate successor candidates for assigning the remaining work elements such that the duration of the work elements is less than or equal to the Idle Time of the work station.

5.Assign the work element from the potential candidates based on the following priority rules:

The work element having most followers. The longest work element (maximum time).

6.Continue with steps 3 through 5 till no further work element can be assigned to the work station.

7.Continue with the assignment of the remaining work elements to the subsequent work stations all work elements have been assigned to work stations.

1 – 18

Product Layout-Line Balancing example

Work element Time (sec.)

A 40

B 30

C 50

D 40

E 6

F 25

G 15

H 20

I 18

1 – 19

Product Layout-Line Balancing example

For the given example, a production line is to be designed considering demand of 2,400 nos. of the product per week. The plant will operate 40 hours per week.

a. What should be the line’s cycle time?

b. What is the smallest number of workstations?

c. What would be the line’s efficiency?

1 – 20

Calculating Cycle Time, TM, Efficiency

SOLUTION

a. First convert the desired output rate (2,400 units per week) to an hourly rate by dividing the weekly output rate by 40 hours per week to get units per hour. Then the cycle time is

c = 1/r =

b. Now calculate the theoretical minimum for the number of stations by dividing the total time, t, by the cycle time, c = 60 seconds. Assuming perfect balance, we have

TM =tc

244 seconds

60 seconds= = 4.067 or 5 stations

1/60 (hr/unit) = 1 minute/unit = 60 seconds/unit

1 – 21

Calculating Cycle Time, TM, Efficiency

c. Now calculate the efficiency of a five-station solution, assuming for now that one can be found:

Efficiency = (100) =tnc

244

5(60)= 81.3%

1 – 22

Process layout-Design

Gather information-required space, available space, closeness factors.

Develop a Block Plan.Apply the weighted distance method.

1 – 23

Gather Information

100'

150'

3 6 4

1 2 5

Current Block Plan

Department Area Needed (ft2)

1. Administration 3,5002. Social services 2,6003. Institutions 2,4004. Accounting 1,6005. Education 1,5006. Internal audit 3,400

Total 15,000

Space Requirements

1 – 24

Closeness Matrix

Trips between Departments

Department 1 2 3 4 5 6

1. Administration —

2. Social services —

3. Institutions —

4. Accounting —

5. Education —

6. Internal audit —

3 6 5 6 10

8 1 1

3 9

2

1

Departments 1 and 6 have the most interaction.Departments 3 and 5 have the next highest.Departments 2 and 3 have next priority.

1 – 25

100'

150'

Proposed Block Plan

First put departments 1 and 6 close together

1

6

Next put departments 3 and 5 close together

5

3

Then put departments 2 and 3 close together

2

4

1 – 26

Weighted-distance method: A mathematical model used to evaluate flexible-flow layouts based on proximity factors.

Euclidean distance is the straight-line distance, or shortest possible path, between two points.

Rectilinear distance: The distance between two points with a series of 90 degree turns, as along city blocks.

Applying the Weighted- Distance Method

1 – 27

Distance Measures

Rectilinear Distance

dAB = |xA – xB| + |yA – yB|

Euclidian Distance

dAB = (xA – xB)2 + (yA – yB)2

1 – 28

Rectilinear Distance

dAB = |20 – 80| + |10 – 60| = 110

Euclidian Distance

dAB = (20 – 80)2 + (10 – 60)2

= 78.1

What is the distance between (20,10) and (80,60)?

Example

1 – 29

© 2007 Pearson Education

Load Distance Analysis

Current Plan Proposed Plan

Dept Closeness Distance DistancePair Factor, w d wd Score d wd Score

1,2 3 1 3 2 61,3 6 1 6 3 181,4 5 3 15 1 51,5 6 2 12 2 121,6 10 2 20 1 102,3 8 2 16 1 82,4 1 2 2 1 12,5 1 1 1 2 23,4 3 2 6 2 63,5 9 3 27 1 94,5 2 1 2 1 25,6 1 2 2 3 3

ld = 112 ld = 82

Calculating the WD Score

Current Plan Proposed Plan

Dept Closeness Distance DistancePair Factor, w d wd Score d wd Score

1,2 3 1 3 2 61,3 6 1 6 3 181,4 5 3 15 1 51,5 6 2 12 2 121,6 10 2 20 1 102,3 8 2 16 1 82,4 1 2 2 1 12,5 1 1 1 2 23,4 3 2 6 2 63,5 9 3 27 1 94,5 2 1 2 1 25,6 1 2 2 3 3

ld = 112 ld = 82

1 – 30

Hybrid layouts

Two techniques for creating hybrid layouts One-worker, multiple-machines (OWMM). Group technology (GT) cells-grouping products or

parts with similar characteristics.

1 – 31

Machine 1

Machine 2

Machine 3

Machine 4Machine

5

Materials in

Finished goods out

One Worker, Multiple Machines

1 – 32

Before Group Technology

Drilling

D D

D D

Grinding

G G

G G

G G

Milling

M M

M M

M M

Assembly

A A

A A

Lathing

Receiving and shipping

L

L L

L L

L L

L

Jumbled flows in a job shop without GT cells

1 – 33

Applied Group TechnologyLine flows in a job shop with three GT cells

Cell 3

L M G G

Cell 1 Cell 2

Assembly area

A A

L M DL

L MShipping

D

Receiving

G

1 – 34

Capacity Management

1 – 35

Capacity Management

Capacity denotes the extent of availability of resources including labour and machines for use by various processes. It also denotes the maximum output of products and services one can achieve by using these resources.

Capacity can therefore be defined by the following two methods: Input Measures (high product variety) Output Measures (little product variety)

1 – 36

Decisions in Capacity Management

Long-Term Capacity Planning Short-Term Capacity Planning

1 – 37

Long-Term Capacity Planning

Capacity Timing and Sizing strategies.A systematic approach to decisions.

1 – 38

Capacity Timing and Sizing Strategies

Capacity Cushion=100-Average Utilization Rate

Large Cushions-uncertainty of future demand (peaks, growth, product mix), supply related reasons (absenteeism, policies with respect to subcontracting/overtime)

Small Cushions-ROI in case of high capital intensity

1 – 39

Capacity Timing and Strategies

Expansionist strategy (large, infrequent jumps in capacity).

Wait-and-see strategy (smaller,more frequent jumps in capacity).

1 – 40

Expansionist strategy

When economies of scale effects are strong, a firm can reduce its cost and compete on price.

A form of preemptive marketing-using capacity as a competitive weapon.

1 – 41

Wait-and-see strategy

Reduces risks of overly optimistic demand forecasts,technological change that would make the facility obsolete and unpredictable competitive reactions.

1 – 42

A systematic approach to decisions

Estimate capacity requirements. (processing and set-up time)

Identify gaps (vis-à-vis available capacity).Develop Alternatives.Evaluate the Alternatives qualitatively and

quantitatively. Cash flow analysis used for quantitative evaluation.

1 – 43

Quantitative Decision Making-Decision Trees A Decision Tree is a schematic model of alternatives available and

their possible consequences to the decision maker. It consists of a number of nodes with emanating branches (to be read

from left to right). Square nodes represent the decision points and branches leaving

them, the alternatives. Circular nodes represent events and branches leaving them, the

chance events. Each chance event is associated with a probability (the sum of the probabilities of the chance events for a particular circular node is 1.0).

Payoff (present value of net profits) is calculated for each chance event at the outset.

Payoff for each circular node is the sum of the product of the probability and payoff of the chance events corresponding to the circular node.

The alternative with maximum payoff is chosen for each decision node.

1 – 44

Execution of an Operations Management-Use of Project

Management

1 – 45

Agenda

What is a Project?Project Management Processes and

Knowledge Areas.Using Project Management to implement

the Operations Strategy.Project Time Management (in detail).

Activity Sequencing and Duration Estimating. Schedule Development

(Case ABC in the background)

1 – 46

What is a Project?

Project is an interrelated set of activities with a definite start and ending point, which results in a unique outcome for a specific allocation of resources.

1 – 47

Project Management Processes

Initiating-authorizing the project.Planning-defining and refining project

objectives.Executing-coordinating people and other

resources to carry out the project plan.Controlling-ensuring that the project

objectives are met by monitoring and measuring progress regularly to identify variances from the plan and take corrective actions when necessary.

Closing-formalizing acceptance of the project and bring it to an orderly end.

1 – 48

Project Management Knowledge AreasScope-to ensure that the project includes all the work required to

complete the project successfully (i.e. Work Breakdown Structure).

Time-to ensure timely completion of the project. Cost-to ensure that the project is completed within the approved

budget.Quality-to ensure that the project will satisfy the needs for which

it was undertaken. Human Resource-to make effective use of the people involved

with the project. Communications-to ensure timely and appropriate

generation,collection,dissemination,storage and ultimate disposition of project information.

Risk-identifying, analyzing and responding to project risk. Procurement-to acquire the goods and services required for the

project. Integration-to ensure that the various elements of the project are

properly coordinated.

1 – 49

Using Project Management to implement the Operations StrategyProject Management provides the

methodology for planning and undertaking the necessary activities to implement a strategic initiative.

Projects and the application of Project Management facilitate the implementation of operations strategy.

1 – 50

PROJECT TIME MANAGEMENT

1 – 51

Activity Duration Estimating

Durations are often difficult to estimate and hence Expert Judgment based on historical information should be used whenever possible.

Quantitatively based durations The quantities to be performed for each specific

work category (eg. number of drawings, meters of cable, tons of steel,etc.) defined by the engineering/design effort, when multiplied by the productivity unit rate (eg. hours per drawing, meters of cable per hour,etc.) can be used to estimate activity durations.

1 – 52

Activity Sequencing

Precedence Diagram Diagram that uses nodes to represent the

activities and connects them with arrows that show the following dependencies:

Finish-to-start(initiation of work of the successor depends upon the completion of the work of the predecessor). This is most commonly used.

Finish-to-finish(completion of work of the successor depends upon the completion of the work of the predecessor).

Start-to-start(initiation of work of the successor depends upon the initiation of the work of the predecessor).

Start-to-finish(completion of work of the successor depends upon the initiation of the work of the predecessor).

This method is also called the Activity On Node (AON)

1 – 53

Schedule Development

Mathematical analysis Critical Path Method (CPM) is the most widely

used technique. It calculates early and late start and finish date for each activity based on specified, sequential network logic and duration estimate. The focus is on calculating the “float” or “slack” to determine which activities have the least scheduling flexibility.

1 – 54

Critical Path Method (CPM)-A Computing Algorithm

Network activities ES-the earliest time an activity can start,

assuming all preceding activities start as early as possible.

EF-the earliest time the activity can finish. LS-the latest time the activity can start and not

delay the project. LF-the latest time the activity can finish and not

delay the project.

1 – 55

Critical Path Method (CPM)-Rules for the Computing AlgorithmForward Pass

For each path, start at the left side of the diagram and work to the right side.

For each beginning activity ES=0. For each activity EF=ES+activity time For the following activity ES=EF of the preceding

activity. If an activity has multiple immediate preceding

activities, its ES is equal to the largest EF of its immediate preceding activities.

1 – 56

Critical Path Method (CPM)-Rules for the Computing AlgorithmBackward Pass

For each path, start at the right side of the diagram and work to the left side.

Use the largest EF as the LF for all the ending activities.

For each activity LS=LF-activity time For the preceding activity LF=LS of the following

activity. If an activity has multiple immediate following

activities, its LF is equal to the smallest LS of the following activities.

1 – 57

Critical Path Method (CPM)-Computing Slack Times

Slack Time=LS-ES or LF-EFCritical Path using the computing

algorithm is denoted by activities with zero Slack Time.

Documents

Operations Strategy and Strategic Decisons in Operations Management