Operation Management
1. Introduction2. Operation management as a
competitive tool for business3. Productivity System4. Inventory System5. Just In Time (JIT)6. Supply Chain Management
What Is PRODUCTIVITY?
PRODUCTIVITYProduce = Product = Productivity
?1–2
What is PRODUCTIVITY?
A measure of the efficiency of a person, machine, factory, and system in converting inputs into useful outputs. High productivity = High capital gains
Productivity (p) =
Importance of PRODUCTIVITY in Business
• Providing more goods and services to consumers translates to higher profits.
The consultancy services market
% of world revenues of 40 largest firms
Marketing/sales2
Operations and process management
31
Corporate strategy17
IT strategy17
Benefits/Actuarial16
Organizational design
11
Financial6
The Future of Operations
• Outsourcing everything• Smart factories• Talking inventory• Industrial army of robots• What’s in the box• Mass customization• Personalized recommendations• Sign here, please
New Challenges in OM
Global focus Just-in-time Supply chain
partnering Rapid product
development, alliances
Mass customization
Empowered employees, teams
ToFrom Local or national focus Batch shipments Low bid purchasing
Lengthy product development
Standard products
Job specialization
OM as Competitive Tools for Business
• Competing on Cost
• Competing on Quality
• Competing on Flexibility
• Competing on Speed
Competing on Cost
Elimination of all waste
Tighten productivity standards
Competing on Quality
• Quality in defense:Minimize defect rate
Conform to design specifications
• Opportunity to please the customerUnderstand attitudes towards and expectations of quality
Competing on Flexibility
• Ability to produce variety of products
• Introduce new products• Modify existing products• Respond quickly to customer
needs• Marketing wants variety for
customers
Competing on Speed
• Fast moves
• Fast adaptations
• Tight linkage with suppliers
Production System
A production system is defined as a user of resources to transform inputs into some desired output
Transformations
Physical--manufacturing
Locational--transportation
Exchange--retailing
Storage--warehousing
Physiological--health care
Informational--telecommunications
OM in the Organization Chart
OperationsOperations
Plant Manager
Plant Manager
OperationsManager
OperationsManager
DirectorDirector
Manufacturing, Production control, Quality assurance, Engineering, Purchasing, Maintenance, etc
Manufacturing, Production control, Quality assurance, Engineering, Purchasing, Maintenance, etc
Finance Marketing
What is Inventory?
Inventory is stock of items held to meet future demand.
It is a list for goods and materials, or those goods and materials themselves, held available in stock by a business
Inventory Management Flow
Tasks in Inventory Management
1. Track Inventory – To look after the amount of inventory.
2. How much to order? – To specify units of inventory to be used by organizations.
3. When to order?
4. Specify the duration of getting the inventory.
Reasons to keep Inventories
1. Time lags require to maintain certain amounts of inventory.
2. Consumption during ‘variation in lead time’
3. To meet uncertainties in demand.
4. Economies of Scale
Uses a systems approach to develop and operate a manufacturing system
Organizes the production process so that parts are available when they are needed
A method for optimizing processes that involves continual reduction of waste
Just-in-time: A definition
"Only what is needed, when it is needed, and in the amount
needed."
Pull schedulingA system of controlling materials
whereby the use signals to the maker or provider that more material is
needed.
Push schedulingA system of controlling materials
whereby makers and providers make or send material in response to a pre-set schedule, regardless of whether the next process needs them at the time.
supplier
buyer
Push: traditional way
Pull: Just-in-time
What is a Supply Chain?
A supply chain is the system of organizations, people, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform raw materials and components into a finished product that is delivered to the end customer.
Supply Chain
Supplier
Manufacturer
Distributor
Retailer
Customers
Supply Chain ManagementSupply Chain Management is
the design and management of processes
across organizational boundaries with the goal of matching supply and
demand in the most cost effective way. Suppl
yDemand
Why so Difficult to Match Supply and Demand?
• Uncertainty in demand and/or supply• Changing customer requirements• Decreasing product life cycles• Fragmentation of supply chain ownership
• Conflicting objectives in the supply chain• Conflicting objectives even within a single firm
Marketing/Sales wants: more FGI inventory, fast delivery, many package types, special wishes/promotionsProduction wants: bigger batch size, depots at factory, latest ship date, decrease changeovers, stable production planDistribution wants: full truckload, low depot costs, low distribution costs, small # of SKUs, stable distribution plan
Why so Difficult to Match Supply and Demand?
Supply Chain Performance Measures
�Cost�Total Supply Chain Cost is the sum of all supply chain costs for all products processed through a supply chain during a given period�Inventory Turnover is the ratio of the cost of goods sold to the value of average inventory.�Weeks of inventory is the ratio of average inventory to the average weekly sales
Supply Chain Performance Measures
�Customer Service�Average Response Time is the sum of delays of ordering, processing, and transportation between the time an order is placed at a customer zone and the time the order arrives at the customer zone