Operations ManagementBA-339
R.M.ZahrowskiOperations and Productivity
Chapter 1
What Is Operations Management?
Production is the creation of goods and services
Operations management is the set of activities that creates value in the form of goods and services by transforming
inputs into outputs
Organizational Functions
• Marketing– Gets customers
• Operations– creates product or service
• Finance/Accounting– Obtains funds– Tracks money
© 1995 Corel Corp.
Organizational ChartsCommercial Bank
OperationsTeller SchedulingCheck ClearingTransactions processingFacilities design/layoutVault operationsMaintenanceSecurity
FinanceInvestmentsSecurityReal Estate
Accounting
Auditing
MarketingLoans Commercial Industrial Financial Personal Mortgage
Trust Department
What Operations Managers Do
Plan - Organize - Staff - Lead - Control
Ten Critical Decisions• Service, product design……………..• Quality management…………………• Process, capacity design…………..• Location …………….
…………………• Layout design ………………………..• Human resources, job design……..• Supply-chain management…………• Inventory management …………….• Scheduling
……………………………• Maintenance
………………………….
Ch. 5Ch. 6, 6SCh. 7, 7SCh. 8Ch. 9Ch. 10, 10SCh. 11,11sCh. 12, 14, 16Ch. 3, 13, 15Ch. 17
Why Study OM?• OM is one of three major functions
(marketing, finance, and operations) of any organization.
• We want (and need) to know how goods and services are produced.
• We want to understand what operations managers do.
• OM is such a costly part of an organization.
Why Study OM?• OM is one of three major functions
(marketing, finance, and operations) of any organization.
• We want (and need) to know how goods and services are produced.
• We want to understand what operations managers do.
• OM is such a costly part of an organization.
Operations Management
R.M.ZahrowskiOperations Strategy in a Global
EnvironmentChapter 2
The Role of
• Maquiladoras
• World Trade Organization (WTC)
• North American Free Trade Agreement (NAFTA)
• European Union (EU)
Supply-Chain Management
• Sourcing
• Vertical integration
• Make-or-buy decisions
• Partnering
Location Decisions
• Country-related issues
• Product-related issues
• Government policy/political risk
• Organizational issues
Materials Management
• Flow of materials
• Transportation options and speed
• Inventory levels
• Packaging
• Storage
Mission
• Mission - where are you going?– Organization’s purpose for
being
– Provides boundaries & focus
– Answers ‘What do we provide society?’
© 1995 Corel Corp.
Mission/Strategy
• Mission - where you are going
• Strategy - how you are going to get there; an action plan
Strategy
• Action plan to achieve mission
• Shows how mission will be achieved
• Company has a business strategy
• Functional areas have strategies © 1995 Corel Corp.
Process Design
Low Moderate HighVolume
High
Moderate
Low
Varie
ty o
f Pro
duct
s
Process-focusedJob Shops
(Print shop, emergencyroom , machine shop,
fine diningRepetitive (modular)
focusAssembly line
(Cars, appliances, TVs, fast-food restaurants) Product-focused
Continuous(steel, beer, paper, bread, institutional
kitchen)
Mass Customization
Customization at high Volume
(Dell Computer’s PC)
SWOT Analysis Process
• Environmental Analysis
• Determine Corporate Mission
• Form a Strategy
Operations Management
Supply-Chain ManagementChapter 11
• Planning, organizing, directing, & controlling flows of materials – Begins with raw materials
– Continues through internal operations
– Ends with distribution of finished goods
• Involves everyone in supply-chain– Example: Your supplier’s supplier
• Objective: Maximize value & lower waste
Supply-Chain Management
Make/Buy Considerations
1. Maintain core competencies and protect personnel from layoff
2. Lower production cost
3. Unsuitable suppliers
4. Assure adequate supply
5. Utilize surplus labor and make a marginal contribution
1. Frees management to deal with its primary business
2. Lower acquisition cost3. Preserve supplier
commitment4. Obtain technical or
management ability5. Inadequate capacity
Reasons for Making Reasons for Buying
• Plans to help achieve company mission
• Affect long-term competitive position
• Strategic options– Many suppliers– Few suppliers– Keiretsu network– Vertical integration– Virtual company
Plan
Supply-Chain Strategies
Supply-Chain Strategies• Negotiate with many suppliers; play one supplier against
another• Develop long-term “partnering” arrangements with a few
suppliers who will work with you to satisfy the end customer
• Vertically integrate; buy the actual supplier• Keiretsu - have your suppliers become part of a company
coalition• Create a virtual company that uses suppliers on an as-
needed basis.
Operations Management
Inventory ManagementChapter 12
• Stock of materials
• Stored capacity
• Examples
What is Inventory?
1 Run time: Job is at machine and being worked on2 Setup time: Job is at the work station, and the work station is
being "setup."3 Queue time: Job is where it should be, but is not being
processed because other work precedes it.4 Move time: The time a job spends in transit5 Wait time: When one process is finished, but the job is
waiting to be moved to the next work area.6 Other: "Just-in-case" inventory.
The Material Flow Cycle
Other WaitTime
MoveTime
QueueTime
SetupTime
RunTimeInput
Cycle Time
Output
• Divides on-hand inventory into 3 classes– A class, B class, C class
• Basis is usually annual $ volume– $ volume = Annual demand x Unit cost
• Policies based on ABC analysis– Develop class A suppliers more– Give tighter physical control of A items– Forecast A items more carefully
ABC Analysis
Advantages of Cycle Counting• Eliminates shutdown and interruption of
production necessary for annual physical inventories
• Eliminates annual inventory adjustments• Provides trained personnel to audit the accuracy of
inventory• Allows the cause of errors to be identified and
remedial action to be taken• Maintains accurate inventory records
Operations Management
Aggregate Planning = Aggregate Scheduling Chapter 13
Aggregate Planning Requires
• Logical overall unit for measuring sales and outputs
• Forecast of demand for intermediate planning period in these aggregate units
• Method for determining costs
• Model that combines forecasts and costs so that planning decisions can be made
• Setting goals & objectives– Example: Meet demand within the limits
of available resources at the least cost
• Determining steps to achieve goals– Example: Hire more workers
• Setting start & completion dates– Example: Begin hiring in Jan.; finish, Mar.
• Assigning responsibility
Planning
Planning Tasks and Responsibilities
Operations Management
Material Requirements Planning (MRP) & ERP
Chapter 14
Inputs to the Production Plan
Aggregate Production Plan
MarketingCustomerDemand
EngineeringDesign
Completion
ManagementReturn on
InvestmentCapital
HumanResourcesManpowerPlanning
ProcurementSupplier
Performance
FinanceCash Flow
ProductionCapacityInventory
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available 25 23 33 33 8
Net Requirements 7
Planned Order Receipts 7
Planned Order Releases 7
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available 25 23 33 33 8
Net Requirements 7
Planned Order Receipts 7
Planned Order Releases 7
• Manufacturing computer information system
• Determines quantity & timing of dependent demand items
© 1995 Corel Corp.
Material Requirements Planning (MRP)
• Computer system
• Mainly discrete products
• Accurate bill-of-material
• Accurate inventory status– 99% inventory accuracy
• Stable lead times (calculated)© 1984-1994 T/Maker Co.
MRP Requirements
Structure of the MRP System
Master ProductionScheduleBOM
Lead Times
(Item Master File)
Inventory Data
Purchasing data
MRP planning programs
(computer and software)
MRP by Period Report
MRP by date report
Planned order report
Purchase advice
Exception report
Exception report
MRP in Services
• Can be used when demand for service or service items is directly related to or derived from demand for other services– restaurant - rolls required for each meal– hospitals - implements for surgery– etc.
Operations Management
Short-Term SchedulingChapter 15
Forward and Backward Scheduling
• Forward scheduling: begins the schedule as soon as the requirements are known– jobs performed to customer order
– schedule can be accomplished even if due date is missed
– often causes buildup of WIP
• Backward scheduling: begins with the due date of the final operation; schedules jobs in reverse order– used in many manufacturing environments, catering,
scheduling surgery
The Goals of Short-Term Scheduling
• Minimize completion time
• Maximize utilization (make effective use of personnel and equipment)
• Minimize WIP inventory (keep inventory levels low)
• Minimize customer wait time
Priority Rules for Dispatching Jobs First come, first served The first job to arrive at a work center is processed first Earliest due date The job with the earliest due date is processed first
Shortest processing time The job with the shortest processing time is processed first
Longest processing time The job with the longest processing time is processed first Critical ratio The ratio of time remaining to required work time remaining is calculated,
and jobs are scheduled in order of increasing ratio.
FCFS
EDD
SPT
LPT
CR
Theory of ConstraintsA Five Step Process
Identify the constraintsDevelop a plan for overcoming the identified
constraintsFocus resources on accomplishing the constraints
identified in step 2Reduce the effects of the constraints by off-
loading work or by expanding capabilityOnce one set of constraints is overcome, return to
the first step and identify new constraints
• Bottleneck work centers have less capacity than prior or following work centers
• They limit production output
© 1995 Corel Corp.
Bottleneck Work Centers
Techniques for Dealing With Bottlenecks
1. Increase the capacity of the constraint2. Ensure well-trained and cross-trained employees are
available to operate and maintain the work center causing the constraint
3. Develop alternate routings, processing procedures, or subcontractors
4. Move inspections and tests to a position just before the constraint
5. Schedule throughput to match the capacity of the bottleneck
Operations Management
Just-in-Time and Lean Production Systems
Chapter 16
• Management philosophy of continuous and forced problem solving
• Supplies and components are ‘pulled’ through system to arrive where they are needed when they are needed.
What is Just-in-Time?
Lean Production
• Lean Production supplies customers with exactly what the customer wants, when the customer wants, without waste, through continuous improvement.
• Overproduction
• Waiting
• Transportation
• Inefficient processing
• Inventory
• Unnecessary motion
• Product defects
Types of Waste
Suppliers
Preventive Maintenance
Layout
Inventory
Scheduling
Quality
Employee Empowerment
JIT
Just-in-TimeSuccess Factors
• Get employees involved in product & process improvements– Employees know job best!
• JIT requires– Empowerment
– Cross-training
– Training support
– Few job classifications
© 1995 Corel Corp.
Employee Empowerment
Operations Management
Maintenance and ReliabilityChapter 17
• All activities involved in keeping a system’s equipment working
• Objective: Maintain system capability & minimize total costs
© 1995 Corel Corp.
Maintenance Management
Lower operating
costs
Continuous improvement
Faster, more dependable throughput
Higher productivity
Improved quality
Improved capacity
Reduced inventory
Maintenance
Maintenance Benefits
Preventive Breakdown
Routine inspection & servicing
Prevents failures Bases for doing
Time: Every day Usage: Every 300 pieces Inspection: Control chart
deviations
• Non-routine inspection & servicing
• Remedial
• Basis for doing– Equipment failure
Types of Maintenance
A Computerized Maintenance System
A Key To Success
High utilization of facilities, tight scheduling, low inventory and consistent quality demand reliability - total preventive maintenance is the key to reliability.
Best wishes on your final!More than that – I wish you
success in your careers!
• Chapters– 1&2
– 11-17
• Be sure to bring!– Blue Book
– Scan-tron• Short form