OM IBA December 18, 2015

7/21/2019 OM IBA December 18, 2015

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PRESENTED BY

Syed Mahbubul Haque ChowdhurySupply Chain Manager, Business Development, Gemcon Group

Consultant, Organic Origin Firms Ltd.; Advanced Insight Ltd .

IBA, University of Dhaka

December 18, 2015

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FOUR DIMENSIONS OF PERFORMANCE

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Important for

- Performance measurement

- Defining a business strategy

Cost

▪ Efficiency

Quality▪ Product quality (how good?)

▪ Process quality (as good as

promised?)

Variety

▪ Customer heterogeneity

Time

▪ Responsiveness to demand

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Cost

▪ Efficiency

▪ Measured by:

- cost per unit

- utilization

Time

▪ Responsiveness to demand▪ Measured by:

- customer lead time

- flow time

Quality

▪ Product quality (how good?)

=> Price

▪ Process quality (as good as

promised?)

=> Defect rate

FOUR DIMENSIONS OF PERFORMANCE: TRADE-OFFS

Variety

▪ Customer heterogeneity

▪ Measured by:

- number of options

- flexibility / set-ups

- make-to-order

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Example: Call center of a large retail bank

- objective: 80% of incoming calls wait less than 20 seconds

- starting point: 30% of incoming calls wait less than 20 seconds

- Problem: staffing levels of call centers / impact on efficiency

OM helps: Provides tools to support strategic trade-offs

Responsiveness

Labor Productivity

(e.g. $/call)

Low

High

Low labor

productivity

High labor

productivity

Trade-off

Very short waiting times,

Comes at the expense of

Frequent operator idle time

Long waiting times,

yet operators are almost

fully utilized

WHAT CAN OPS MANAGEMENT DO TO HELP?

STEP 1: HELP MAKING OPERATIONAL TRADE-OFFS

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Responsiveness

Low

High

Eliminate

inefficiencies

Current frontier

In the industry

Labor Productivity

(e.g. $/call)

Low labor

productivity

High labor

productivity

Competitor A

Competitor C

Competitor B

Example:• Benchmarking shows the pattern above

• Don’t just manage the current system… Change it!

Provides tools to identify and eliminate inefficiencies => Define Efficient Frontier

Types of inefficiencies:

-Poor process design- Inconsistencies in activity network


STEP 2: OVERCOME INEFFICIENCIES

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Example:

• What will happen if we develop / purchase technology X?

• Better technologies are always (?) nice to have, but will they pay?

OM helps: Evaluates system designs before they occur

Responsiveness

Low

High

Redesign

process

Current frontier

In the industry

Labor Productivity(e.g. $/call)

Low labor productivity

High labor productivity

New frontier


STEP 3: EVALUATE PROPOSED REDESIGNS /NEW TECHNOLOGIES

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Responsiveness

Low

High

Eliminate

inefficiencies

Current frontier

In the industry

Labor Productivity

(e.g. $/call)

Low labor

productivity

High labor

productivity

Competitor A

Competitor C

Competitor B

There exists a tension between productivity and responsiveness

Efficient frontier

THE EFFICIENT FRONTIER

Competitor D

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UNDERSTANDING OPERATIONS MANAGEMENT

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Operations Management is defined as the process of

designing, operating and controlling a productive system

capable of transforming physical resources and human

talent into needed goods and services.

It encompasses forecasting, capacity planning,

scheduling, managing inventories, assuring quality,

motivating employees, deciding where to locate facilities,

buying materials and equipments and maintaining them,

and more.

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OM AT THE CORE OF BUSINESSES

Three basic functions Operations/Production

Goods oriented (manufacturing and assembly)

Service oriented (health care, transportation and retailing)

Value-added (the essence of the operations functions)

Finance-Accounting Budgets (plan financial requirements)

Provision of funds (the necessary funding of the operations)

Marketing Selling, Promoting

Assessing customer wants and needs

Organization

Finance Operations Marketing

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OBJECTIVE AREAS OF OPERATIONS MANAGEMENT

Quality Speed

Dependability

Flexibility Cost

Innovation

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THE TRANSFORMATION PROCESS

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Inputs•Land

•Labor

•Capital

•Information

Outputs•Goods

•Services

Transformation/

Conversion

Process

Control

Measurement

and Feedback

Measurement

and Feedback

Measurement

and Feedback

Value-Added

Feedback = measurements taken at various points in the transformation process

Control = The comparison of feedback against previously established standards to

determine if corrective action is needed.

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OM: AN ORGANIZATIONAL PERSPECTIVE

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Strategic (long-range) Needs of customers

(capacity planning)

Tactical (medium-range) Efficient scheduling of

resources

Operational planningand control (short-range)

Immediate tasks and

activities

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OM: AN OPERATIONAL PERSPECTIVE

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Some examples of the different types of transformations are:

Physical, as in manufacturing

Locational, as in transportation

Exchange, as in retailing

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INPUT-TRANSFORMATION-OUTPUT

RELATIONSHIPS FOR T YPICAL S YSTEMS

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MARKETING – OM – FINANCE

SHOULD WORK TOGETHER

Operations

FinanceMarketing

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OPERATIONS ARE EVERYWHERE !

Operations Examples

Goods producing Farming, mining, construction

Storage/transportation Warehousing, trucking, mail, taxis, buses, hotels

Exchange Trade, retailing, wholesaling, renting, leasing, loans

Entertainment Radio, movies, TV, concerts, recording

Communication Newspapers, journals, radio, TV, telephones, satellite

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THE VALUE CHAIN AND ITS SUPPORT FUNCTIONS

(LINKING OM TO CUSTOMERS AND SUPPLIERS)

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MANUFACTURING VS. SERVICE OPERATIONS

Production of goods Tangible products

Automobiles, Refrigerators, Aircrafts, Coats, Books, Sodas

Services

Repairs, Improvements, Transportation, Regulation

Regulatory bodies: Government, Judicial system

Entertainment services: Theaters, Sport activities

Exchange services: Wholesale/retail

Appraisal services: Valuation, House appraisal

Security services: Police force, Army

Financial services: Banks

Education: Universities, Colleges, Schools.

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CHARACTERISTICS OF SERVICE

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OM: MANUFACTURING VS. SERVICES

Characteristics Differences between Goods & Services

Characteristics Goods Services

Output Tangible Intangible

Customer Contact Low High

Uniformity of Input High Low

Labor Content Low High

Measurement of Productivity Easy Difficult

Opportunity to correct quality

Problems

High Low

Input variability Lower Greater

M P A “B ”

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MOST PRODUCTS ARE A “BUNDLE”

OF GOODS AND SERVICES

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OM: EXAMPLE OF SERVICE

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OM: EXAMPLE OF GOODS

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IMPORTANT QUALITY DIMENSIONS IN

MANUFACTURING

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Performance

Features

Reliability Conformance

Durability

Serviceability

Aesthetics Perceived Quality

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IMPORTANT QUALITY DIMENSIONS IN

SERVICES

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Time

Timeliness

Completeness Courtesy

Consistency

Accessibility & Convenience

Accuracy Responsiveness

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10 DECISION AREAS OF OM

1. Product Design: What good or service should we offer?

2. Quality: How to define quality?

3. Process: What process will these products require?

4. Location: Where should we put the facility?

5. Layout: How should we arrange the facility?

6. Human Resources :How to provide a reasonable workenvironment?

7. Supply Chain Management: should we make or buy this

component?

8. Inventory: How much inventory of each item should we have?9. Planning (aggregate and short-term): which job do we perform

next?

10. Maintenance: who is responsible for maintenance?

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OPERATIONS MANAGEMENT ACTIVITIES

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Operations Management Activities

Periodic Continual

Selecting Designing UpdatingOperating - Controlling

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NEW CHALLENGES OF OM

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RESPONSIBILITIES OF OPERATIONS MANAGEMENT

Planning Capacity, utilization

Location

Choosing products orservices

Make or buy

Layout

Projects

Scheduling

Market share

Plan for risk reduction,

plan B? Forecasting

SUPPLY SIDE DEMAND SIDE

Controlling

Inventory

Quality

Costs

Organization

Degree of standardization

Subcontracting Process selection

Staffing

Hiring/lay off

Use of overtime

Incentive plans

In a nutshell, the challenge is

“Matching the Supply with Demand”

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Supply Does Not Naturally Match Demand

Inventory results from a mismatch between supply and demand Mismatch can take one of the following two forms

Supply waits for Demand

Inventory = Finished goods and resources

Demand waits for Supply Inventory is negative or said to be backordered in manufacturing

Inventory = Waiting customers in services

Mismatch happens because

the demand varies the capacity is rigid and finite.

If the capacity is infinite, products (or services) can be provided at an infinite rate

and instantaneously as the demand happens. Then there is no mismatch.

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OM: PROCESS TECHNOLOGY

Job shop technology: suitable for a variety of custom

designed products in small volume; e.g., Consulting firms

Batch technology: suitable for a variety of products invarying volume; e.g., Bakery

Assembly line: suitable for a narrow range of standardized products in high volume; e.g., RMG Manufacturing

Continuous flow technology: suitable for producing acontinuous flow of products; e.g., Beverage

Project technology: is unique and not repetitious activitywith well defined objective that cuts across manyorganizational and functional lines involving cost & time;e.g., Padma Bridge Project

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PRODUCT LIFE C YCLE

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PRODUCT DESIGN & DEVELOPMENT SEQUENCE

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Search for consumer needs Searching for Alternatives

Market Analysis

Economic Analysis

General Feasibility

Evaluation of alternative designs with regard to

reliability, maintainability, and service life

Development and testing of process, compatibility

& simulation studies

Key Activities Steps

Idea Generation

Product Selection

Preliminary Design

Final Design

Selection & ranking of best Ideas

Choice of specific product features

Selection of best design

Final specification in the form of

assembly drawings, processing

formulas, procedure statements etc.

Key Outputs

Facilities Exist New facilities required

Process selectionEvaluation alternative technologies & methods Major & minor tech choice

Choice of specific equipment & process flow.

Downstream production decision

Capacity Planning

Production planning

Scheduling

W T OM?

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- WHAT ARE THE TOOLS OF OM?

- THEY ARE THE MODELS

Model: A structure which has been built purposefully to exhibitfeatures and characteristics of another object. A map is a model of ……………………

A toy car is a model of ……………………

A movie is a model of ……………………

An OM course is a model of ……………………

For Improved understanding and communication Easy to use, less expensive

Experimentation Analysis of tradeoffs

Enable “what if” questions

Standardization and organization for analysis Increase understanding of the problem

Consistent tool

Standardized format

Specific objectives

Abstraction vs. computability

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T YPES OF MODELS

Physical models (prototypes) Schematic models (Graphs, charts, pictures)

Mathematical models, by application area Statistical models

Linear regression

Linear programming

Queuing techniques

Inventory models

EOQ model EPQ model

Project management models

Networks

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Inventory Management

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Functions of Inventory

To meet anticipated demand To smooth production requirements

To decouple components of the production

To protect against stockouts To take advantage of order cycles

To hedge against price increases, or to take advantage

of quantity discounts

To permit operations (work in process)

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Objectives of Inventory Control

Maximize level of customer service Minimize costs (carrying costs and ordering costs)

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Requirements for Effective Inventory Management

A system to keep track of the inventory

– periodic, perpetual, two-bin, and universal product code (UPC)

A reliable forecast of demand

Knowledge of lead times and lead time variability

-lead time time between submitting a purchase order and receiving it

-lead time variability reliability of the supplier

Estimates of inventory holding costs, ordering costs, and shortage costs

– Holding cost

– Ordering cost

– Stockout cost

A classif ication system for inventory items – ABC approach – classifies inventory

– according to some measure of importance ($ value) where A – very

important, C – least important

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Finding the optimal quantity to order … EOQ

Let’s say we decide to order in batches of Q…

Number of

periods will be

D

Q

Time

Total Time

Period over which demand for Q has occurred

Q

Inventory position

The average

inventory for

each period is…

Q

2

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Finding the optimal quantity to order…

Purchasing cost = D x C

Inventory cost =

Ordering cost =D

Qx S

Q2

x H

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So what is the total cost?

TC = D C + +

In order now to find the optimal quantity we need tooptimize the total cost with respect to the decision

variable (the variable we control)

Which one is

the decision

variable?

D

QS

Q

2H

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What is the main insight from EOQ?

There is a tradeoff between holding costs and ordering costs

Order Quantity (Q*)

Cost

Total cost

Holding costs

Ordering costs

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Economic Order Quantity - EOQ

Q* =2SD

H

Example:

Assume a car dealer that faces demand for 5,000 cars per year, and

that it costs $15,000 to have the cars shipped to the dealership.

Holding cost is estimated at $500 per car per year. How many

times should the dealer order, and what should be the order size?

548500

)000,5)(000,15(2*Q

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Receive

order

Time

I n v e n t o r y

Order

Quantity

Q

Place

order

Lead Time

If delivery is not instantaneous, but there is a

lead time L:

When to order? How much to order?

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Example (continued)…

What if the lead time to receive cars is 10 days?(when should you place your order?)

10

365D =R =

10

3655000 = 137

So, when the number of cars on the lot reaches 137,

order 548 more cars.

Since D is given in years, first convert: 10 days = 10/365yrs

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Documents

OM IBA December 18, 2015