Operation Management

1. Introduction2. Operation management as a

competitive tool for business3. Productivity System4. Inventory System5. Just In Time (JIT)6. Supply Chain Management

What Is PRODUCTIVITY?

PRODUCTIVITYProduce = Product = Productivity

?1–2

What is PRODUCTIVITY?

A measure of the efficiency of a person, machine, factory, and system in converting inputs into useful outputs. High productivity = High capital gains

Productivity (p) =

Importance of PRODUCTIVITY in Business

• Providing more goods and services to consumers translates to higher profits.

The consultancy services market

% of world revenues of 40 largest firms

Marketing/sales2

Operations and process management

31

Corporate strategy17

IT strategy17

Benefits/Actuarial16

Organizational design

11

Financial6

The Future of Operations

• Outsourcing everything• Smart factories• Talking inventory• Industrial army of robots• What’s in the box• Mass customization• Personalized recommendations• Sign here, please

New Challenges in OM

Global focus Just-in-time Supply chain

partnering Rapid product

development, alliances

Mass customization

Empowered employees, teams

ToFrom Local or national focus Batch shipments Low bid purchasing

Lengthy product development

Standard products

Job specialization

OM as Competitive Tools for Business

• Competing on Cost

• Competing on Quality

• Competing on Flexibility

• Competing on Speed

Competing on Cost

Elimination of all waste

Tighten productivity standards

Competing on Quality

• Quality in defense:Minimize defect rate

Conform to design specifications

• Opportunity to please the customerUnderstand attitudes towards and expectations of quality

Competing on Flexibility

• Ability to produce variety of products

• Introduce new products• Modify existing products• Respond quickly to customer

needs• Marketing wants variety for

customers

Competing on Speed

• Fast moves

• Fast adaptations

• Tight linkage with suppliers

Production System

A production system is defined as a user of resources to transform inputs into some desired output

Transformations

Physical--manufacturing

Locational--transportation

Exchange--retailing

Storage--warehousing

Physiological--health care

Informational--telecommunications

OM in the Organization Chart

OperationsOperations

Plant Manager

Plant Manager

OperationsManager

OperationsManager

DirectorDirector

Manufacturing, Production control, Quality assurance, Engineering, Purchasing, Maintenance, etc

Manufacturing, Production control, Quality assurance, Engineering, Purchasing, Maintenance, etc

Finance Marketing

What is Inventory?

Inventory is stock of items held to meet future demand.

It is a list for goods and materials, or those goods and materials themselves, held available in stock by a business

Inventory Management Flow

Tasks in Inventory Management

1. Track Inventory – To look after the amount of inventory.

2. How much to order? – To specify units of inventory to be used by organizations.

3. When to order?

4. Specify the duration of getting the inventory.

Reasons to keep Inventories

1. Time lags require to maintain certain amounts of inventory.

2. Consumption during ‘variation in lead time’

3. To meet uncertainties in demand.

4. Economies of Scale

Uses a systems approach to develop and operate a manufacturing system

Organizes the production process so that parts are available when they are needed

A method for optimizing processes that involves continual reduction of waste

Just-in-time: A definition

"Only what is needed, when it is needed, and in the amount

needed."

Pull schedulingA system of controlling materials

whereby the use signals to the maker or provider that more material is

needed.

Push schedulingA system of controlling materials

whereby makers and providers make or send material in response to a pre-set schedule, regardless of whether the next process needs them at the time.

supplier

buyer

Push: traditional way

Pull: Just-in-time

What is a Supply Chain?

A supply chain is the system of organizations, people, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform raw materials and components into a finished product that is delivered to the end customer.

Supply Chain

Supplier

Manufacturer

Distributor

Retailer

Customers

Supply Chain ManagementSupply Chain Management is

the design and management of processes

across organizational boundaries with the goal of matching supply and

demand in the most cost effective way. Suppl

yDemand

Why so Difficult to Match Supply and Demand?

• Uncertainty in demand and/or supply• Changing customer requirements• Decreasing product life cycles• Fragmentation of supply chain ownership

• Conflicting objectives in the supply chain• Conflicting objectives even within a single firm

Marketing/Sales wants: more FGI inventory, fast delivery, many package types, special wishes/promotionsProduction wants: bigger batch size, depots at factory, latest ship date, decrease changeovers, stable production planDistribution wants: full truckload, low depot costs, low distribution costs, small # of SKUs, stable distribution plan

Why so Difficult to Match Supply and Demand?

Supply Chain Performance Measures

�Cost�Total Supply Chain Cost is the sum of all supply chain costs for all products processed through a supply chain during a given period�Inventory Turnover is the ratio of the cost of goods sold to the value of average inventory.�Weeks of inventory is the ratio of average inventory to the average weekly sales

Supply Chain Performance Measures

�Customer Service�Average Response Time is the sum of delays of ordering, processing, and transportation between the time an order is placed at a customer zone and the time the order arrives at the customer zone