Managing OperationsDr. Ananda Sabil Hussein

Operations

Operations: The different activities involved in creating an organization’s products and services.

Operations managers: People who manage operations.

Productivity and Efficiency

Productivity: The output produced by a given input.

Productivity = Output/Input

Productivity of labor: Unit output divided by some measure of labor input.

Productivity of capital: Sales divided by the total capital (money) invested in a business.

Production System

Production system: How the flow of work is configured.

Job shop: Production systems used when items are ordered individually.

Small batch: Production systems used when customers order in small batches but when each order is different.

Assembly-line production: Systems used to mass-produce large volumes of a standardized product.

Continuous flow production: Production systems that continuously produce a standardized output that flows out of the system.

Production Systems – Costs and Flexibility

Continuousflow

Assemblyline

Smallbatch

Jobshop

Newproduction

technologies

Low cost

High cost

Inflexible/standardized

Flexible/standardized

Natu

re o

f te

chnolo

gy/p

roduct

New Production Technologies

Flexible production technology: A set of methodologies that allows enterprises to produce a wider range of end products from a given production system without incurring a cost penalty.

Mass customization: The ability to customize the final output of a product to individual customer requirements without suffering a cost penalty.

Question

Mass customization is possible when an organization is small. As it grows in size, the organization must move to mass production. Do you agree? Explain.

Mass Customization

Unto This Last – Selling directly to customers, this European company manufactures the furniture to the customer’s measurement, in one week, at a mass customized price. The company utilizes the latest 3D modeling software to design and produce innovative and inexpensive furniture

Design Your Own – Steve Madden, an American Shoe designer, has opened a customized shoe website, where customers can select the type of shoe, color, heel, etc to their preference and in total offers some 4,221 possible combinations

Source: www.madeforone.com

Principles of Reengineering

1. Physically place adjacent processes near one another, which can accelerate work flow.

2. Standardize procedures at each step in the work flow, which makes it easier for replacement workers to fill in for an absent individual.

3. Eliminate loop backs in which work returns to a previous stage for further processing.

4. Balance work loads across different stages to make sure there are no bottlenecks and no stage has insufficient work.

5. Separate nonroutine complex and pass them to specialists so the flow of routine work is not slowed down by the need to deal with a complex transaction.

Increasing Asset Utilization

Real-time

pricing

Assetutilization

Optimizecapacity

Efficientscheduling

Quickturnaround

Asset Utilization in European Airlines

Since the terrorism scare of August 10, 2006, British low cost carrier EasyJet has cancelled 500 flights and Ireland’s Ryanair ahs cancelled more than one-third of its daily departures.

These cancellations are not due to lack of business but due to new airport security rules at the British airports.

An airline can loose as much as $190,000 a day in lost revenue if an aircraft were to sit on the ground

The low cost airline business model calls for the planes to be in the air within 25-30 minutes of its landing

Result – Significant underutilization of the assets.Source: Business Week Online, August 16, 2006

Superior Product Reliability and Costs

Improvedproduct reliability

Increasedproductivity

Lower reworkand scrap costs

Lower warranty costs

Improvedreputation

Greatersales volume

Lower costs andhigher profitability

Scaleeconomies

Deming’s Quality Improvement Steps

1. A company should have a clear business model to specify where it is going and how it is going to get there.

2. Management should embrace the philosophy that mistakes, defects, and poor materials are not accepted and should be eliminated.

3. Quality of supervision should be improved by allowing more time for supervisors to work with employees and giving them appropriate skills for the job.

4. Management should create an environment in which employees will not fear reporting problems and recommending improvements.

Deming’s Quality Improvement Steps

5. Work standards should be defined not only as numbers or quotas but should also include some notion of quality to promote the production of defect-free output.

6. Management is responsible for training employees in new skills to keep pace with change in the workplace.

7. Achieving better quality requires the commitment of everyone in the company.

Managing Inventory

Inventory holding costs: The capital cost of money tied up in inventory and the cost of the warehouse space required to store inventory.

Just in time: Inventory that enters a production process just in time to be used.

Inventory turnover: The speed with which inventory is replaced.

Just-In-Time

Cost of restocking excess inventory: 20-25% of the value of the goods

Retail industry looses $2.5 billion annually in obsolete inventory

Henceforth, the need for just-in-time system

Other options used by retailers – drop shipment, centralized distribution centers, utilizing effective supply chain communication electronically (like Wal-Mart), and utilizing bricks and click model

Example: While Barnes & Noble carries 100,000 titles in its store, its online offerings are over 2 million which requires a centralized distribution centerSource: Forbes, Leaner Shelves, Leaner Profits? November 15, 2006

Economic Order Quantity

EOQ = (2 X D X FC)/(VC X K)

D = Annual demand

FC = Fixed costs of producing/procuring inventory

VC = Variable costs of inventory

K = Inventory holding costs

Build to Order and Inventory

Build-to-stock: Stocking a distribution channel in the anticipation that a customer will purchase those products.

Build-to-order: Taking an order first, then building the product.

Supply Chain Management and Information Systems

Supply chain: The chain that provides raw materials, partly finished products, or finished products to an organization.

Electronic data interchange (EDI): Coordinates the flow of materials into manufacturing, and out to customers.