Operations Management (EMB 108) - unext.inOperations Management (EMB –108) ... • Introduction to the subject of Operations Management (OM) • Introduction to the Course ... Tata

5/31/2011Operations Management, Session 1A. Ramachandran, May 31, 2011

11

Operations Management (EMB – 108)

Session 1(Units 1 & 2)

A. Ramachandran

May 31, 2011


2

Agenda today

• Introduction to the Class

• Introduction to the subject of Operations Management (OM)

• Introduction to the Course

• Today‟s session

– Unit 1: Introduction to OM

• Definition

• Historical development of the field

• The production process

• Goods vs. services

• Relationship with other functions

• Objectives and scope of OM

• Role of technology in this function

• Productivity


3

Agenda today (cont‟d)

• Today‟s session (cont‟d)

– Unit 2: Manufacturing systems

• Product design and process selection

• Basic types of manufacturing policies

• Basic types of processes

• Criteria for process selection

• Competitive priorities

• Adopting technology appropriate for marketing requirements

• Product design and process selection for manufacturing

• Basic types of production process structures and the mapping of each with

product characteristics

• The product-process matrix


4

Introduction to the Class


5

Need for the course on OM

• Operational excellence is a vital prerequisite for every organization for achieving and sustaining competitiveness.

• Hence OM deals with the principles and best practices essential for the design, development, implementation, operation and maintenance of processes and systems, FOR FIRMS TO CRATE AND DELIVER SUSTAINABLE VALUE, from the beginning till the end of the life cycle phases, i.e. from the stage of sourcing of the necessary inputs, through transformation, delivery and service – and also the retirement – of products and/or services.


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Need for OM (cont‟d)

• In the MBA curriculum, a first course on OM is a prerequisite for subsequent specialization courses/course modules, e.g.

– Supply chain management

– Materials/inventory management

– Project management

– Total Quality Management (TQM) and Six Sigma

– Operations strategy

– Services operations management

– Operations analytics, and so on.


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Course objectives

• To improve one‟s current comfort in appreciating the

issues/concerns of OM, from a rational standpoint.

• To give a managerial overview of the essential concepts and

tools/techniques in the area of OM.

• To enhance one‟s familiarity with the commonly encountered

requirements and/or problem situations in OM, as they arise in

contemporary industry.

• To gain a working knowledge of how the concepts and

techniques might be applied in specific (illustrative) situations.


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The textbook

• UBS Official Curriculum: Operations Management

(EMB – 108). Gurgaon: UBS, 2010. (Produced and

printed by Vikas Publishing House Pvt. Ltd., Noida,

U. P., for UBS.)

• Optional reference:

– Richard B. Chase, Ravi Shankar, F. Robert Jacobs, and

Nicholas J. Aquilano: Operations & Supply Management

(12th Edition). New Delhi: Tata McGraw-Hill, 2010.

(Hereafter, simply „Chase, 12/e.‟)


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Evaluation

• Evaluation may consist of a quiz/assignment, and an end-

semester examination.

• Emphasis will be on testing essential conceptual insights and

application skills.


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The Body of Knowledge (BoK) of OM, and the course content

• The structure of the BoK of OM (and the course itself) reflects the birth-to-

maturity life cycle of a production/operations system.

• The FIVE stages of this life cycle are:

– Birth of the production/operations system. (The 1st Part of the BoK, viz.

Operations Strategy and Managing Change.)

– Product design and process selection. (The 2nd Part, viz. Process Selection and

Design.)

– Design of the system. (The 3rd Part, viz. Supply Chain Design.)

– Managing the supply chain. (The 4th Part, viz. Planning and Controlling the

Supply Chain.)

– Revising the system. (The 5th Part, viz. System Improvement. This, in turn,

leads back to „birth!‟)


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Birth of the system

• Birth of the system (1st Part of the BoK:Operations Strategy

and Managing Change)

– What are the goals of the firm? And how does OM strategy relate to the

goals? (Sections of Units 1 & 2 deal with some of the aspects of

operations strategy and competitiveness.)

– How do you manage a project (for change)? (Unit 5 deals with project

management.)


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Product design and process selection

• Product design and process selection (2nd Part: Product

Design and Process Selection)

– What is the form of the manufactured product, and how is it developed?

(Unit 4 deals with product design, while Unit 2 deals with process

selection, in the context of manufacturing.)

– How do you select the technology to make the product or service?

(Sections of Units 4 and 2.)

– How do you design a service*? (i.e. product design and process

selection – services) (* Not in the course.)

– How do you achieve high quality? (Unit 9 on JIT and Quality.)


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Design of the system

• Design of the system (3rd Part: Supply Chain Design.)

– How much capacity do you need? (Unit 7 deals with capacity

planning.)

– Where should the facility be located? (Unit 6 deals with plant location.)

– What physical arrangement (of the work centers within a located

facility) is best? (Unit 6 also deals with plant layout.)

– How do you design a Just-in-Time (JIT) system? (Vide Unit 9 on JIT

and Quality.)

– How will the jobs be performed and measured? (Unit 8 deals with work

study.)

– How will workers be compensated*? (* Not in the course.)

– How will you measure learning*? (* Not in the course.)


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Managing the supply chain

• Managing the supply chain (4th Part: Planning and

Controlling the Supply Chain.)

– How do you manage the supply chain? (Unit 10 deals with SC strategy

and management.)

– How do you manage suppliers and purchasing? (Parts of Unit 12 on

inventory management.)

– How do you forecast demand on an ongoing basis*? (* Not in the course.)

– How do you manage day-to-day activities of production planning

(aggregate planning), scheduling, and inventories (inventory systems

for independent demand, and dependent demand (MRP-type systems))?

(Units 3 and 12.)


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Revising the system

• Revising the system*. (* Not in the course.)– How do you manage growth and change over time*?

• Operations consulting*

• Business process reengineering*

• Synchronous manufacturing and the Theory of Constraints (TOC) *


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Additional readings (optional)

• Krajewski and Ritzman (2008). Operations Management: Processes and

Value Chains. New Delhi: Pearson.

• Gaither, N. (2004). Operations Management. New Delhi: Cengage.

• Some Web-based references:

– Albert Porter (2009). Operations Management. Freely downloadable from

http://bookboon.com.

– The CD accompanying Chase has a number of web-based as well as other

resources.

• Further resources will be added/communicated later.

http://bookboon.com/


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Operational competitiveness – value creation

• Some preliminary notions/concepts relating to value creation:

– Porter‟s 5-force model of industry competition (1980)

(Suppliers, buyers, potential new entrants,and substitutes – all

impacting upon industry competitors including the firm under study)

– The Value System Model (Porter and Millar, 1985, HBR) – based on

the notion of a Value Chain (VC)

(Supplier VCs –> Firm VC –> Channel VCs –> Buyer VCs, i.e.

Upstream value –> Firm value –> Downstream value)

– The Firm Value-Chain Analysis model (Porter and Millar, 1985) – How

Information Technology permeates the value chain (“How information

gives you competitive advantage,” HBR)


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• Primary activities (core processes): Inbound logistics, Operations,

Outbound logistics, Marketing and sales, and Service (from left to right,

within the Firm, the end-user Customer being at the right end, external to

the Firm, while the supplier being at the left end, also external to the firm)

• Value should increase as one moves from left to right, from supplier‟s

supplier to customer‟s customer…!

• Support activities (support processes): Firm infrastructure, Human

resource management, Technology development, and Procurement.

• At the right end interface point of every Firm, there is scope for “Margin.”


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• Notion of “Manufacturing strategic intent”:

– World-Class manufacturing companies,e.g. Toyota are driven by

AGILE manufacturing objective.

– Agility: Focus on EFFECTIVENESS in meeting external customer‟s

requirement (or even expectation or delight).

• This is achievable through achieving 100% OPERABLE RATE OF

EQUIPMENT, with OPERATING RATE OF EQUIPMENT being

determined by DEMAND.

– Whereas MANY Indian companies used to FOCUS on Internal

efficiency-centered objective, such as capacity utilization!


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• What is the purpose of business?

(Pause …)


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• The purpose of business is to show profit by creating value

through production of products/services based on resources

that cost LESS than the price of the products/services.


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• What is the purpose of management?

(Pause …)


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• The purpose of management is to lead, plan, organize, execute

and coordinate with all members of the firm to ACHIEVE

PROFITABLE VALUE CREATION.

– IT has transformed how firms create value and how managers manage.

-----

• Notion of a system: a system is a set of inter-related parts,

interacting with each other, to achieve a common objective.

– Using information, we improve the quality of decision making, in the

SYSTEM. (Because information serves to reduce uncertainty about

some state or event, thus improving quality of decision making.)


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OM defined

• Production/operations system (or process) technology

DEFINED (both hard and soft technologies):

– It is the ability for you to create, access, manipulate and transmit value-

added products/services in myriad forms, by the application of

manufacturing, computing, communication, management and related

technologies.

• Operations Management – DEFINED

– It‟s the design, operation and improvement of the systems that create

and deliver the firm‟s products and services.


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OM defined

• The American Production and Inventory Control Society

(APICS) defines OM as “the field of study that focuses on the

effective planning, scheduling, use and control of

manufacturing or service organizations, through the study of

concepts from design engineering, industrial engineering,

MIS, quality management, production management, industrial

management and other functions, as they affect the

organization.”


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OM uses decision-making tools

• OM uses decision-making tools embodied in operations

research, industrial and systems engineering, statistics, shop-

floor control, organizational behavior, maintenance and safety

management etc.


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Why should a student of Business study OM?

• Because of the following reasons:• It provides a systematic approach to studying and understanding an

organization‟s processes.

• Nowadays, a business education is incomplete without it for several

reasons.

• It has opened up new career opportunities.

• Cross-functional applications need an exposure to OM.


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What is meant by „production process?‟

• It transforms inputs into some desired outputs, using resources

in the process.

• INPUT PROCESS OUTPUT.

• There is also feedback in this system.

• Six types of transformation: physical (steel mill), locational

(transportation or courier service), exchange (retail outlet),

storage (warehousing), physiological (hospital), and

informational (telecommunication).


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Manufactured good vs. delivered service

• Differences between a Good and a Service

– Tangible? (physical feel, vs. cognitive experience)

– Ability to produce, store, and transport? (value is embedded in the

product, vs. inability to produce beforehand,stored or transported –

value is conveyed as the service is experienced)

– Close customer involvement/collaboration in „production?‟ (products

are produced in a factory away from customer; services are created and

delivered in the presence of customer)

– Goods are often standardized? (Services are customized.)

– Quality inherent in the product. (Inherent in the process of crating and

delivering service.)


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Operations as service

• Core services (the basic products that customers want – cost or

price, time, quality, flexibility or functionality are the basic

competitive dimensions)

• Value-added services (that differentiate the manufacturer or

service providing firm from competitors through building

binding relationships with customers in a useful way)


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Operations function – related to all other functions

• Production/operations function is very closely related to all the

other managerial functions in the organization, such as

– Marketing

– Finance

– HR

– Materials (purchase and stores)

– R & D

– Legal

– PR, etc.


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Operations function – key objectives

• Production/operations function helps deliver effectively on the Customer Value Proposition the firm has strategically set, through predominant emphasis on product leadership OR operational excellence OR customer intimacy.

• CVP dimensions: product/service attributes (price or cost, quality, time, functionality including flexibility), relationship and service, brand or image. TO ENHANCE CUSTOMER SATISFACTION/DELIGHT.

• Ultimately, results in achieving sustained business profitability and stakeholder value.


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Operations function – scope

• Scope of the production/operations function, AS SEEN

EARLIER, extends the entire life cycle phases – from the birth

of the system, through product design and process selection,

supply chain design, managing the supply chain, and finally

system refurbishment.


34

Operations function – role of technology

• To stay competitive, the production/operations capabilities of a

firm need to grow so as to address the enhanced levels of

flexibility required, in terms of

– Flexible facilities (mass production to mass customization; producing

in an environment of shortening product life cycles, and ever smaller

lot sizes…)

– Flexible processes

– Flexible people


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Historical development of OM

• Major milestones in the development of OM

– The early developments: Era of Industrial Revolution, Era of scientific management, Era of behavioral perspectives about management, Era of rational optimization (O. R., systems approach etc., from World War II on …)

– Total Quality Control (TQC) and Just-In-Time (JIT) manufacturing.

– Manufacturing strategy paradigms – Plant-Within-Plant (PWP), focused factory, ..

– Service quality and productivity.

– Total Quality Management (TQM), Total Productive Maintenance (TPM), and quality certification (and evolving standards) (ISO, Deming Prize, Six Sigma, …).

– Business Process Reengineering (BPR).

– Supply Chain Management (SCM).

– E-commerce, and so on.


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Operations management – current concerns

• Current concerns in OM

– How can we effectively consolidate operations when mergers and

acquisitions take place?

– How can we develop adaptive/flexible and global supply chains to

enable mass customization?

– How do we manage the networks of supply chain partners (suppliers,

producers/manufacturers, and distributors) globally?

– Increased “commoditization” of suppliers

– How can we achieve the “service factory?”

– How do we enhance value-added services

– How can we make more efficient use of Internet technology?

– How do we achieve better service from service firms?


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Efficiency, effectiveness, and productivity

• Efficiency – doing something at the lowest possible cost

• Effectiveness – doing the right thing to create the most value

for the company

• Productivity gives a measure of how well resources are being

used. It is usually measured as the ratio: Outputs/Inputs.

– The above ratio also refers to total factor productivity. That is, it is the

ratio: Value of goods and services produced/Value of all resources

consumed.


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Efficiency, effectiveness, and productivity

• Partial factor productivity measures:

– Output/Labor, or Output/capital, or Output/Materials, or

Output/Energy.

• Multifactor productivity measures:

– Output/(Labor + Capital + Energy)

– Output/(Labor + Capital + Materials)


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• Product design:

– IDEO Product Development – the world‟s most celebrated design firm. Their novel design process is centered around two activities, viz. (i) Brainstorming, and (ii) Rapid prototyping (right, rapid, and right), repeated iteratively.

– Recent trend – outsourcing:

• Contract manufacturing

• Core competency

– Two extremes of activity spread and control: fully vertically integrated, end-to-end; OR, only sell the products, and outsource the entire design and manufacturing function.


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• The 6-phase generic product development process.

– 0. Planning.

– 1. Concept development.

– 2. System-level design.

– 3. Design detail.

– 4. Testing and refinement.

– 5. Production ramp-up


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• Design for the customer:

– The QFD (Quality Function Deployment approach – the HOQ (House

of Quality) matrix.

– Value Analysis/Value Engineering (VA/VE).

• Design for manufacturing and assembly.

• Design for further downstream stages – testing, logistics,

installation (or commissioning or deployment or

implementation), maintenance, and retirement/disposal


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Technical

Requirements

Customer

Requirements

Relationship between

customer and

technical requirements

Priorities of technical

requirements

Priorities of

customer

requirements

Inter -

relationships

Competitive

Evaluation

(Customer

Priority Vs

Competitive

Situation)

House of Quality


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Basic types of manufacturing policies

• These are:

– Manufacture to Order

– Assemble to Order

– Manufacture to Stock


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Basic types of production processes

• These are:

– Single-stage process

INPUT PROCESS OUTPUT

– Multi-stage process

“PROCESS” block consists of a sequence of stages.

Notions of buffering, blocking, starving, and bottleneck.

– INPUT leads to two parallel stages of PROCESSING (say, stage 1 and

stage 2), which in turn lead into the FINAL OUTPUT.

– INPUT leads to two independent but simultaneous downstream paths

(See UBS textbook, pp. 22 – 23.)


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Criteria for production process selection

• These are:

– The process meets product specifications and quality

standards.

– Cost of production with the process is feasible.

– Process is sustainable, i.e. dependable to produce for the

estimated duration.

– Process adheres to all the environmental and regulatory

requirements.


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Major competitive priorities of the firm

• The four major priorities are:

– Cost

– Time (to deliver to customer; to develop the product or hit

the market)

– Quality

– Functionality/ flexibility (volume flexibility, variety

flexibility, customization)


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Adoption of appropriate technology to meet market requirement

• E.g. Full-service airline for passenger transportation,

vs. low-cost airline

• The two process models are significantly different,

consistent with each business model and related

revenue model.


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Product design and process selection – mfg., and service

• Process analysis:

– Definition of terms: process, cycle time, utilization; process

flowcharting; process performance measures.

– Process throughput time reduction.

• Process selection and design:

– Manufacturing process-intensive context – five basic

process flow structures; the product-process matrix; mfg

process flow chart.


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Product – Process Matrix

Describes the relationship between Process structure and Volume requirement.

Low

volume &

Low

Standrdn

Low

volume &

Multiple

products

High vol

& a few

major

products

High vol &

High

Standardis

ation

Vol

Structure

Not

feasible

Not

feasibleJob shop

Batch

production

Assembly

line

Continuous

flow

Commercial

Products

Heavy

equipment

Automobiles

Sugar

refinery

Product structure

P

r

o

c

e

s

S

t

r

u

c

u

r

e


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The fifth type of process structure

• It is the PROJECT structure!

• It is a one-time activity, so not repetitive, unlike the other four process structures

• Each project has a distinct Purpose; is Unique (i.e. has significant unfamiliar requirements and/or technologies of execution); is Temporary in nature/duration; is Inter-organizational; involves significant Risk for its satisfactory completion; the project executing organization has significant reputation and/or cost at Stake; and it is always executed as a Process. (The nemonic PUTIRSP.)


51 5/31/2011Operations Management, Module 3A. Ramachandran, Nov., 2010

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Service process-intensive context…

– Service process-intensive context – customer-centric view of service mgt; high/low contact service systems; structuring the service encounter – service-system design matrix; service blueprinting and fail-safing; three contrasting service designs.


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The Service Triangle

The Customer

Systems

Service Strategy

People


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Service System Design Matrix

Mail

Phone

Face to

Face

Face to

Face

Face to

Face

Tight specs

Loose specs

Customised

Buffered core Permeable system Reactive system

Degree of customer / server contact

None Some High

Low High

LowHigh

S

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S

O

P

P

O

R

T

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P

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Documents

Operations Management (EMB 108) - unext.inOperations Management (EMB –108) ... • Introduction to the subject of Operations Management (OM) • Introduction to the Course ... Tata