Productions Operations Management

Chapter 1Book: Principles of Operations Management

By Raturi and Evans

IntroductionOperation Management

A business activity that involves design, development, maintenance of systems and processes that transforms raw materials, technology and labor into Goods and Services

An auto mobile factoryA hospital serving patients

OM’s PurposeOM purpose is to support the organization’s

business strategy and help create and sustain competitive advantage.

Principles of OMDesigning the VALUE CHAIN for

manufacturing goods and delivering services

Design and manage processes to support the value chain e-g product design, purchasing, materials management, storage, customer support, transportation, Tech development

Principles of OM (Continued)Control and improve the value chain and

support processes to achieve and sustain high level of business and organization performance

Managing interface with other functional areas such as marketing, finance an HR to derive competitive Operations functions

OM and Competitiveness OM is there to develop unique competencies for the

company e-g creative workforce, strong distribution network or ability to develop a new product rapidly

OM is linked directly with Product Development, Process Improvement, TQM, Supply chain management Technology and Innovation

OM function is to contribute to Organization by achieving lower costs, ever improving quality, shorter time and increased responsiveness

Case Study: BMWBMW’s plant in South Carolina

Established in 23 months for X5 and Z3First X5 in 35 Months22 Color Options for Z3123 Center Consoles options26 Wheel OptionsAim to reduce Product Development Cycles by

30 Percent

Case Study: BMWHow was it possible

BMW a master of logisticsFlexibility raising up to management and

peopleTwo 10 hours shiftsAttention to qualityTech Innovation SAP R3’s beta test siteGuidance from HONDA

ProductsProducts

Tangible itemsCan be transferred or storedCan be consumed after a while

ServicesIntangibleCannot be transferred or storedPerishable

ContractsBusiness ExchangeNeither services nor goods are transferredGoods and services will be provided on a need basis.

Case Study: Ritz CarltonOne of the largest hotels in United States

Uses more than one source to get informationTravel partners, focus groups, credit card companiesCustomer satisfaction and performance date are

gathered dailyComplaints, claims, feedback from sales forceTravel publications and even psychological studies on

customers. Each production and support process has an executive

owner at head office and at the hotel.Responsible for the improvement and success of the

process

Case Study: Ritz CarltonWhat it achieves

Minute attention to detail is achieved e-g language preference, customer’s culture etc.

Error free products and servicesOpportunities for improvementSense of authority for the employeesIncreased morale for employees; satisfaction

for the customer.

ComparisonOperation Factor Goods Services Contract

Value Provided by physical manufacturing

Provided by availability

The promise of service delivery when exercised

Tangibility Goods are inspect able

Difficult to inspect before usage

Intangibility is often accompanied by manufacturing

Process Design Isolated process design

Must occur in presence of customer

Accommodate demand surge and batches

Inventory Can be stored Consumer as created

Off line as well as online modes

Capacity Can be designed for average demand

For maximum demand

Flexible for high and low demand

Quality High level of precision and repeatability can be achieved

Consistency is hard to maintain; customer perception can differ

may be influenced by time and availability.

Location Facilities can be located to minimize costs

Must be located near customer

Centralization and economies of scale are likely

Processes and Supply chainProcess is a set of linked activities that perform some

manufacturing or service task to add valueBasic unit for defining and managing operations

Key processesPrimary processes; Value Creation process. Benefits for

customers and company by creating products. Such as design, manufacturing and service delivery

Support Process which does not add direct value to the product.

One core process can be secondary process for another

Operations as the Technical Core

Operations

Finance/Accounting

Human Resources

MarketingSu

pplie

rs

Production andInventory data

Capital budgeting requestsCapacity expansion and

Technology plans

BudgetsCost analysisCapital investmentsStockholder requirementsOrders for materials

Production and deliverySchedules QualityRequirements Design/Performance specs

Material availabilityQuality dataDelivery schedulesDesigns

Product/ServiceAvailabilityLead-time estimatesStatus of orderDelivery schedules

Sales forecastsCustomer ordersCustomer feedbackPromotionsPersonnel needs

Skill setsPerformance evaluations

Job design/workmeasurement

Hiring/firingTrainingLegal requirementsUnion contract negotiations

The Value Chain

Outputs• Service

s• Goods

Feedback-Internal andexternal customers

Feedback-Information on performance

Processes

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3

4

Inputs• Workers• Managers• Equipment• Facilities• Materials• Services• Land• Energy

Key conceptsExternal SuppliersInternal SuppliersMake or buy DecisionBackward IntegrationForward IntegrationSupply Chain

Procure, Transform, DeliverMake to Order : Pull SystemMake to Stock : Push System

Case Study Merrill LynchPrimary Processes Support Processes

Business DevelopmentMarketingClient ServicesUnder WritingLending ServicesPost Closing/Secondary

marketingLoan Administration

TechnologyInformation SystemsHuman ResourcesAdministrative ServicesLegal ServicesBusiness Services

Key Decisions in OMStructural Decisions

Product and Service DesignProcess Design and TechnologyCapacityFacilities

Infrastructural DecisionsQualityInventory and Supply ChainSchedulesProject Management

Decision Area Typical Questions Contemporary Challenges

Products (What)

Standard or Custom Products?Make to order or make to stock?

Product design?Ease of make?Coordination among design teams?

Processes(How)

What kind of equipment to use?Automation possibility?How to configure?

How to integrate new IT and Internet developments?

Capacity(How Much)

How much is needed?Why type?Increase or decrease?

Flexible options available?Competitive advantage?

Facilities(Where)

Where are the located?What products to be produced there?

How to manage and exploit global opportunities?

Structural Decisions

Infrastructural DecisionsDecision Area Typical Questions Contemporary

ChallengesQuality Management How to prevent

Defects?How to improve products?

Customer Experience?Achieve world class standards?

Inventory and Supply chain management

What products to outsource?How many suppliers to use

How to increase value from supply chain?Effects of IT and internet?

Schedule Management

Centralized or Decentralized scheduling?How to prioritize work or customer orders?

How to imply finance and cost information to scheduling?Integration or ERP with operations?

Infrastructural Decisions (Contd.)

Decision Area Typical Questions Contemporary Challenges

Project Management How to respond to special needs?Info needed to effectively manage a project?

To develop a learning organization?Manage projects through functional boundaries

Workforce Skills and training needed by workers?How to appraise and reward?

How to develop high performance work systems?How to align work systems for long range objectives?

Organization Hierarchal or Team Based?Train in house or outsource?

Structures best suited in different cultures?Flatten the organization?

Evolution of OMLean Manufacturing

1950 introduced by ToyotaFocuses on

Getting the product right the first time, Minimum inventories Continuous improvement High Quality Flexible productions Minimizing all sorts of waste

Evolution of OM (Contd.)Agile Manufacturing

Pre Requisite is Lean Manufacturing Blends automation and IT Economically produce a variety of products in any

quantity Adaptable to rapid changeovers

Challenges in OM To improve quality eight factors are

consideredPartneringLearning SystemsAdaptability and Speed of ChangeEnvironmental SustainabilityGlobalizationKnowledge FocusCustomization and DifferentiationShifting Demographics