OperationsManagement part1

8/2/2019 OperationsManagement part1

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Introduction to this fieldDr Indrajit Mukherjee

Asst. Professor

Operations Management


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Reference booksReference books Operations Management for competitiveOperations Management for competitive

advantageadvantage-- Ch ase, R.B., Jaco b et alCh ase, R.B., Jacob et al .,.,11th Edition, McGraw11th Edition, McGraw--Hill CompaniesHill Companies

Product ion and Operat ions ManagementProduct ion and Operat ions Management--SS

N Ch ar yN Ch ar y , 3rd Edition, McGraw, 3rd Edition, McGraw--HillHillCompaniesCompanies

Operat ions ManagementOperat ions Management-- Process & ValueProcess & Value

ChainChain, 8e, 8e,L,L K r a j e w s k iK r a j e w s k i , L, L Rizw anRizw an , M, MM a l h o t r aM a l h o t r a , Pearson Education, 2008, Pearson Education, 2008


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I n t r o d u ct i on t o t h e Fi el dI n t r o d u ct i on t o t h e Fi el d

Oper a t i ons St r a t egy andOper a t i ons St r a t egy and

Compe t i t i venessCompe t i t i veness

Faci l i t y Layo u tFaci l i t y Layo u t Pr od u ct an d Pr ocess DesignPr od u ct and Pr ocess Design

Qua l i t yQua l i t y

I n v en t o r y , an d JI TI n v en t o r y , an d JI T

Tim e and Mo t i on St ud yTim e and Mo t i on St ud y

OBJECTIVE


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Think about the changes in thoughtThink about the changes in thought

of people on products and servicesof people on products and services

Telecommunication Industry in IndiaTelecommunication Industry in India(meeting arrangement)(meeting arrangement)

Indian Railways (Reservation, eIndian Railways (Reservation, e--ticketticket

and other services from anywhere)and other services from anywhere) Low Cost Airlines in India (cheap TicketLow Cost Airlines in India (cheap Ticket

to compete with Railways)to compete with Railways)

TataTata motors (NANO)motors (NANO)--Attract twoAttract twowheeler Customerwheeler Customer

Private Hospital In south IndiaPrivate Hospital In south India


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What is Operations Management?What is Operations Management?

DefinedDefined

Op er at i on s m an a g em en t ( OM)Op er at i on s m an a g em en t ( OM) isis

de f i ned as t h e design , ope r a t i on ,de f i ned as t h e design , ope r a t i on ,an d im p r o v em en t o f t h e f i r m san d i m p r o v em en t o f t h e f i r m s

s y s t e m ss y s t e ms t ha t cr ea te and d el ive rt ha t cr ea te and d el ive r

v a lu e t o t h e cu st o m er sv a lu e t o t h e cu st o m er s


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Why Study OperationsWhy Study Operations

Management?Management?

Business Education

Systematic Approachto Org. Processes

Career Opportunities

Cross-Functional

Applications

OperationsManagement

Analytical thinkingExpand globally

No of lines in bank teller

To talk knowledgably

SCM, JIT,

BPReengineering

ERP

SCM, QualityProcess Reengineering

Tools needed in Marketing and finance to perform task effectively


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Definition and CriteriaDefinition and CriteriaOperations management (OM)Operations management (OM)

concerns itself with theconcerns itself with theconv er si on o f i npu t s i n t oconv er si on o f i npu t s i n t oo u t p u t so u t p u t s (product or service) using(product or service) using

ph y sica l r esou r cesph y sica l r esou r ces so as to meetso as to meetitsits cr i t er i a o f per f o r m ancecr i t er i a o f per f o r m ance ..

Cr i t er ia o f Per fo r m anceCr i t er i a o f Per fo r m ance Cust om er sat i sfact ion o r Cus t om ers De l igh tCus t om er sat i sfact ion o r Cus t om ers De l igh t

Effect ivenessEf fect iveness

Eff ic iencyEff ic iency

Value add i t ionValue add i t ion


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Assembly ProcessAssembly Process


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EfficiencyEfficiency

Doing something at theDoing something at the l ow est possib le l ow est possib le cost cost

Goal of an efficient process is to produce aGoal of an efficient process is to produce agood or provide a service by using thegood or provide a service by using the

smallest inputsmallest input InIn cus tom er ser v i ce coun t er i n b ank cust om er ser v i ce coun t er i n b ank --

Be ing e f f i c i en t m eans using few est Be ing e f f i ci en t m eans using f ew est peop le possib le at t he coun t e r peop le possib le at t h e coun t e r

Productivity indices is a measure ofProductivity indices is a measure ofefficiencyefficiency


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EffectivenessEffectiveness

Doing right thing to createDoing right thing to create m o s t m o s t va lue f o r t he cust om er va lue f o r t he cust om er

There is often aThere is often a t r ad eo f f w i t h t r ad eo f f w i t h

e f f i c iency e f f i c iency InIn bank cus tom er ser v i ce bank cus tom er ser v i ce

coun te r coun te r --be ing ef f ect i ve m eans be ing ef f ect i ve m eans

m in im izin g t h e am o u n t o f t im e m in im izin g t h e am o u n t o f t i m e cu st o m er n e ed s t o w ai t i n l in e cu st o m er n e ed s t o w ai t i n l in e


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Operations as a transformationOperations as a transformation

processprocessOperations as theOperations as the

technical coretechnical core

The OperationsThe OperationsFunctionFunction


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What is a Transformation Process?What is a Transformation Process?

DefinedDefined

AA t r an sf o rm at i on p r o cesst r an sf o rm at i on p r o cess isis

de f in ed as a user o f r esou r ces t ode f in ed as a user o f r esou r ces t o

t r an sf o rm i n p u t s i n t o so m e d esi r edt r an sf o rm i n p u t s i n t o so m e d esi r e d

o u t p u t so u t p u t s


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Operations as a TransformationOperations as a TransformationProcessProcess

INPUTMaterial

MachinesLaborManagementCapital

OUTPUT

GoodsServices

TRANSFORMATIONPROCESS


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Operations as a TransformationOperations as a TransformationProcessProcess

FeedbackFeedback

INPUTMaterial

MachinesLaborManagementCapital

OUTPUT

GoodsServices

TRANSFORMATIONPROCESS


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Transformation ProcessesTransformation Processes

PhysicalPhysical (as in manufacturing)(as in manufacturing) LocationalLocational (as in transportation/(as in transportation/

warehouse)warehouse)

ExchangeExchange (as in retail shop)(as in retail shop)

PhysiologicalPhysiological (as in health care)(as in health care)

PsychologicalPsychological (as in entertainment)(as in entertainment)

Informational (as in communications)Informational (as in communications)


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ProcessesProcesses

Processes shouldProcesses should add va lueadd va lue ((W e w i l lW e w i l ld i scuss t h i s i n n ex t sl i ded iscuss t h i s i n n ex t sl i de ))..

Processes can beProcesses can be b r o k en d o w n i n t o su bb r o k en d o w n i n t o su b --

processesprocesses , which in turn can be broken down, which in turn can be broken down

further.further.

Any process that isAny process that is par t o f a l ar ge r p r ocesspar t o f a l ar ge r p r ocess

is considered a is considered a nes t ed p r ocessnes t ed p r ocess ..

Each pr ocess and each n est ed p r ocessEach pr ocess and each n est ed p r ocess hashas

i n p u t s an d o u t p u t si n p u t s an d o u tp u t s ..


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ValueValue

It isIt is q u a l i t yq u a l i t y divided bydivided by pr i cep r i ce

If we can provide aIf we can provide a be t t er carbe t t er car

w i t h o u t ch a n g e i n p r i cew i t h o u t ch a n g e i n p r i ce ,, va lueva luegoes u pgoes u p ..

If we can provide aIf we can provide a b et t er car w i t hb et t er car w i t h

r edu ced p r i cer edu ced p r i ce ,, v a lu e g o es w ay u pv a lu e g o es w ay u p


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External vs. Internal CustomersExternal vs. Internal Customers External CustomersExternal Customers are those whoare those who

purchase the goods and services.purchase the goods and services. Internal CustomersInternal Customers are those whoare those who

receive the output of others within thereceive the output of others within the

firm. They are part of thefirm. They are part of thetransformation process.transformation process.

Inputs from

otherprocesses

Transformation Processes(Adding value)

Outputs to

Internal orto Externalcustomers


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Service Processes andService Processes and

Manufacturing ProcessesManufacturing Processes

Manu fact u r i ng p r ocessesMan u f act u r i ng p r ocesses changechange

materials in one or more of the followingmaterials in one or more of the followingdimensions:dimensions:

Physical propertiesPhysical properties

ShapeShape

Fixed dimensionsFixed dimensions

Surface finishSurface finish

Joining parts and materialsJoining parts and materials

If a processIf a process i sn t do ing a t l east one o f t heseisn t do ing a t l east one o f t hese ,,

then it is athen it is a serv iceserv ice (non(non--manufacturing)manufacturing) processprocess ..


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ManufacturingManufacturing

and Serviceand Service

GoodsGoodsProduc t i onProduc t i on

TangibleTangible

Can be inventoriedCan be inventoried

Low customerLow customercontactcontact

Capital IntensiveCapital Intensive Quality easilyQuality easily

measuredmeasured

Ser v ice Pr od u ct ionSer v ice Pr od u ct ion

IntangibleIntangible

Cant be inventoriedCant be inventoried High customer contactHigh customer contact

Labor IntensiveLabor Intensive

Quality hard toQuality hard tomeasuremeasure

Most firms provide both goods and services.


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What are the Core Processes in BusinessWhat are the Core Processes in Business

1 .1 . Cus t om er r e la t i on sh ip p r ocesses ( Mar k e t in g )Cus t om er r e la t i on sh ip p r ocesses ( Mar k e t in g ) Identify, attract, and build relationships with externalIdentify, attract, and build relationships with external

customers and facilitate the placement of orders.customers and facilitate the placement of orders.

2 .2 .

N ew ser v i ce/ p r o d u ct d ev e lo p m en t p r o cessesN ew ser v i ce/ p r o d u ct d ev e lo p m en t p r o cesses( Desig n / R & D)( Desig n / R & D) Design and develop new services or products from inputsDesign and develop new services or products from inputs

received from external customer specifications.received from external customer specifications.

3 .3 . Or der fu l f i l lm en t p r ocesses ( Pr oduc t ion Plann ingOr de r fu l f i l lm en t p r ocesses ( Pr oduc t ion Plann ing& Con t r o l , Qua l i t y )& Con t r o l , Qua l i t y ) The activities required to produce and deliver the service orThe activities required to produce and deliver the service or

product to the external customers.product to the external customers.

4 .4 . Sup p l ie r r e lat ionsh ip p r ocesses ( Sup p l ie rSup p l ie r r e lat ionsh ip p r ocesses ( Sup p l ie rDeve lopmen t )Deve lopmen t ) Select suppliers of services, materials and information andSelect suppliers of services, materials and information and

facilitate the timely and efficient flow of these items into thefacilitate the timely and efficient flow of these items into the

firm.firm.


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Operations as the Technical CoreOperations as the Technical Core

Operations

Finance/Accounting

Human Resources

Marketing

Suppliers

Production and

Inventory dataCapital budgeting requests

Capacity expansion andTechnology plans

Budgets

Cost analysisCapital investmentsStockholder

requirements

Orders for materialsProduction and delivery

Schedules Quality

Requirements Design/Performance specs

Material availabilityQuality data

Delivery schedulesDesigns

Product/ServiceAvailability

Lead-time estimates

Status of orderDelivery schedules

Sales forecastsCustomer orders

Customer feedbackPromotions

Personnel needsSkill sets

Performance evaluationsJob design/work

measurement

Hiring/firingTrainingLegal requirementsUnion contract negotiations


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Historical Events in OMHistorical Events in OM

Scientific ManagementScientific Management

Time and motion studiesTime and motion studies 19111911 Frank &Frank &

Lillian GilbrethLillian Gilbreth

Activity scheduling chartActivity scheduling chart 19121912 HenryHenry

GantGant

Moving assembly lineMoving assembly line 19131913 Henry FordHenry Ford


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Ford Assembly Line 1913Ford Assembly Line 1913


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Management ScienceManagement ScienceLinear programmingLinear programming 19471947 George DantzigGeorge Dantzig

PERT/CPM,PERT/CPM, 1950s1950s

Waiting line theoryWaiting line theory

MRPMRP 1960s1960s


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Quality RevolutionQuality Revolution

JIT 1970sJIT 1970s Taiichi Ohno, ToyotaTaiichi Ohno, ToyotaTQM 1980sTQM 1980s W. Edwards Deming,W. Edwards Deming,

Joseph Juran, et. al.Joseph Juran, et. al.


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Historical Events in OMHistorical Events in OMInformation Age/Information Age/

Internet RevolutionInternet Revolutionwww, ERP 1990swww, ERP 1990s

Supply chainSupply chain SAP, i2SAP, i2

management,management, Technologies, ORACLE,Technologies, ORACLE,

EE--commercecommerce PeopleSoft, Amazon,PeopleSoft, Amazon,

Yahoo, eBay,Yahoo, eBay,

and othersand others


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OM: MilestonesOM: Milestones

Individual efficiencyIndividual efficiency Work studyWork study

Collective efficiencyCollective efficiency Production control, Assembly line balancingProduction control, Assembly line balancing

Quality and materialsQuality and materials Statistical quality control, Inventory control,Statistical quality control, Inventory control,

Designed ExperimentationDesigned Experimentation

Operations ResearchOperations Research Queuing models, Game theory, LPP, NLPQueuing models, Game theory, LPP, NLP

Computer eraComputer era ERPERP

Service & Relationships eraService & Relationships era


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Manufacturing SystemsManufacturing Systems Continuous flowContinuous flow

Mass productionMass production

Batch productionBatch production

JobJob--shopshopproductionproduction


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Continuous Flow (Petrochemical)Continuous Flow (Petrochemical)


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Mass Production (Airlines/Mass Production (Airlines/

Automobile)Automobile)


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Batch ProductionBatch Production


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Job Shop (Artisans)Job Shop (Artisans)


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ServiceService

Every organization is in the serviceEvery organization is in the servicebusiness, whether it makes plane orbusiness, whether it makes plane or

foodfood

Airlines, Hotel, hospitalAirlines, Hotel, hospital


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What is a Service and What is aWhat is a Service and What is a

Good?Good?

I f y o u d r o p i t o n y o u r f o o t , i tI f y o u d r o p i t o n y o u r f o ot , i t

w o n t h u r t y o u . ( Go od orw o n t h u r t y o u . ( Go od orserv ice?)serv ice?)

Se rv i ces neve r i nc lud e goods Serv i ces neve r i nclud e goodsand g oods neve r i ncl udeand good s neve r i n clude

serv i ces. ( Tr u e o r fa l se?)se rv i ces. ( Tr u e o r fa l se?)


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Core servicesCore services are basic thingsare basic thingsthat customers want fromthat customers want from

products they purchaseproducts they purchase

Quality, flexibility, speed andQuality, flexibility, speed and

priceprice

Core Services Defined


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Core Services Performance ObjectivesCore Services Performance Objectives

Operations

Management

Flexibility

Quality

Speed

Price (or cost

Reduction)


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ValueValue--added servicesadded servicesdifferentiate the organizationdifferentiate the organization

from competitors and buildfrom competitors and buildrelationships that bindrelationships that bind

customers to the firm in acustomers to the firm in a

positive waypositive way

Value-Added ServicesDefined


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The Importance of OperationsThe Importance of Operations

ManagementManagement

SynergiesSynergies must exist with othermust exist with otherfunctional areas of thefunctional areas of the

organizationorganization

Operations account for 60Operations account for 60--80%80%

of the direct expenses thatof the direct expenses that

burden a firms profit.burden a firms profit.


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Some Decision AreasSome Decision Areas Produc tProduc t -- cen t r i c o r se l fcen t r i c o r se l f -- cen t r i ccen t r i c::

Technology selectionTechnology selection

Capacity (available capacity for demand fluctuation)Capacity (available capacity for demand fluctuation) Scheduling (timing of various activities)Scheduling (timing of various activities)

System maintenance (quality checks, technologySystem maintenance (quality checks, technologyselection, corrective action)selection, corrective action)

PeoplePeople -- cen t r i c: Re la t i on sh ip w i t h peop lecen t r i c : Relat i onsh ip w i t h peop lei n t er a ct i n g w i t h f i r m ( cu st o m er , su p p l ier ,i n t er a ct i n g w i t h f i r m ( cu st o m er , su p p l ier ,emp loyee )emp loyee )

HR (Employees)HR (Employees) Supply (Associates or suppliers)Supply (Associates or suppliers)

Timing (Customer timeliness of delivery)Timing (Customer timeliness of delivery)

Spatial (location of business associate, plant,Spatial (location of business associate, plant,

layouts etc)layouts etc)


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Value ChainsValue Chains Value ch a insValu e ch a ins are an interrelated seriesare an interrelated series

of processes that produce a service orof processes that produce a service orproduct to the satisfaction of customers.product to the satisfaction of customers.

Value chains may have core processes orValue chains may have core processes or

support processes.support processes.

Cor e p r ocessesCor e p r ocesses deliver value to externaldeliver value to external

customers.customers.

Su pp or t p r ocessesSu pp or t p r ocesses provide vital inputsprovide vital inputs

for the core processes.for the core processes.


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Value ChainValue Chain AA pr ocess v iewpr ocess v iew of firmof firm

Pr ocesses m u st add v a lue fo rPr ocesses m u st add v a lue fo r

c u s t o me rc u s t o me r TheThe cu m u l at i v e w o rk o f p r o cessescu m u l at i v e w o rk o f p r o cesses ofof

a firm is aa firm is a v a lue ch a inv a lue ch a in

Cor e p r ocessCor e p r ocess -- Chain of activities thatChain of activities that

delivers value to external customerdelivers value to external customer

Su pp or t Pr ocessSu pp or t Pr ocess -- Provide vitalProvide vitalresources to support core process. E.g.resources to support core process. E.g.

budgeting, recruiting, schedulingbudgeting, recruiting, scheduling


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An IntegratedAn IntegratedValue ChainValue Chain

Manufacturer SupplierCustomer

Flow of information (customer order)Flow of information (customer order)


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An IntegratedAn IntegratedValue ChainValue Chain

Manufacturer SupplierCustomer

Flow of information (customer order)Flow of information (customer order)

Flow of product (order fulfillment)Flow of product (order fulfillment)


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A New Value ChainA New Value Chain

ManufacturerManufacturerWholesaler/distributor

Wholesaler/distributor Retailer

Retailer ConsumerConsumer

(a) Traditional Value Chain(a) Traditional Value Chain


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(b) Intermediaries Eliminated (Deintermediation)(b) Intermediaries Eliminated (Deintermediation)


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ManufacturerManufacturer Wholesaler/distributor



InfomediaryInfomediaryManufacturerManufacturer E-RetailerE-Retailer PortalPortal ConsumerConsumer





(b) Intermediaries Eliminated (Deintermediation)(b) Intermediaries Eliminated (Deintermediation)

(b) New Intermediaries Introduced (Reintermediation)(b) New Intermediaries Introduced (Reintermediation)


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Current Issues in OMCurrent Issues in OM

Coord in a te t he r e la t i onsh ips be tw eenCoord in a te t he r e l at i onsh ips bet w een

m u t u a l l y su p p o r t i ve b u t sep ar a t em u t u a l l y su p p o r t i ve b u t sep a r at e

o rgan i za t i ons .o rgan i za t i ons .

Opt im i zi ng g l obal sup p l i er , p r oduc t i on ,Op t im i zi ng g l obal supp l ie r , p r oduc t i on ,an d d ist r i b u t i on n et w o r k s.an d d ist r i b u t io n n et w o r k s.

Lean M an u f act u r i n g , JI T I n v en t o r yLean Man u f act u r i n g , JI T I n ve n t o r y

SystemSystem


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HowHow Operations As a Competitive WeaponOperations As a Competitive Weapon

fits the Operations Management Philosophyfits the Operations Management Philosophy

Operations StrategyProject Management

Process StrategyProcess Analysis

Process Performance and QualityConstraint Management

Process LayoutLean SystemsJIT Philosophy

Supply Chain StrategyLocation & Facility Design

Inventory ManagementForecasting

Sales and Operations PlanningResource Planning

Scheduling


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Operations Strategy and Competitiveness


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Opera t i ons St r a tegyOper a t ion s St r a t egy

Com pe t i t i ve D im ens ionsCom pe t i t i ve D im ens ions

Or der Qu a l i f i er s and W inn e rsOr de r Qua l i f i er s and W inn e rs

Pr odu ct i v i t y Measur esPr odu ct i v i t y Measur es

OBJECTIVES

DHL or DTDCDHL or DTDC


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DHL or DTDCDHL or DTDC

Why are they successful?Why are they successful? FastFast

OnOn--time deliveriestime deliveries

Relatively low costRelatively low cost

Technology in shipment trackingTechnology in shipment tracking

Progressive InsuranceProgressive Insurance


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Progressive InsuranceProgressive Insurance

Grew from $1.3 billion to $11 in 13 years.Grew from $1.3 billion to $11 in 13 years.

How did they do it?How did they do it?

Op er a t i o n a l I n n o v a t i o nOp er a t i o n a l I n n o v a t i o n (Designing new(Designing newprocesses)processes)

I m m ed iat e Response Claim sI m m ed ia te Response Cla im s Handling (24 hours aHandling (24 hours a

day).day).

St ream l ined c laim s p rocess ingSt r eam l ined c la im s p rocess ing , from 7, from 7--10 days to10 days to

9 hours.9 hours.

W eb si t e f o r agen tsW eb si t e f o r agen t s only.only.

W e b si t e f o r cu s t o m e r i n f o r m a t i o nW e b si t e f o r cu s t o m e r in f o r m a t i o n , inquiries and, inquiries androutine processing.routine processing.

Agen t s qu i ck l y g o t o scene o f acciden tAgen t s qu i ck l y go t o scene o f acciden t ..


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DefinitionDefinition

Strategy is theStrategy is the d e t e r m i n a t i o nd e t e r m i n a t i o n

o f t h e basi c l ongo f t h e basi c l ong -- t er m g o alst er m g o als

and objectives of an enterprise,and objectives of an enterprise,and the adoption ofand the adoption ofcou r ses o fcou r ses o f

act i on an d a l l oca t i on o fact i on an d a l l oca t i on o f

r esou r ces f o r car r y i ng ou tr esou r ces f o r ca r r y i ng ou tt h ese goa lst h ese goa ls


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The Role of Operations StrategyThe Role of Operations Strategy Provide a plan that makes best useProvide a plan that makes best use

of resources which;of resources which; Specifies the policies and plans for usingSpecifies the policies and plans for using

organizational resourcesorganizational resources

Supports Business Strategy as shownSupports Business Strategy as shownon next slideon next slide


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Business/Functional StrategyBusiness/Functional Strategy


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Strategy FormulationStrategy Formulation

1.1. Define a primary taskDefine a primary task

2.2. AssessAssess corecore

competenc iescompetenc ies3.3. DetermineDetermine o rde ro rde r

w i n n er s & o r d er q u al i f i er sw i n n er s & o r d er q u al i f i er s4.4. Positioning the firmPositioning the firm


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Operations StrategyOperations StrategyExampleStrategy Process

Customer Needs

Corporate Strategy

Operations Strategy

Decisions on Processesand Infrastructure

More Product

Increase Org. Size

Increase Production Capacity

Build New Factory


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Strategies of operations have to beStrategies of operations have to bealigned with the overall business and itsaligned with the overall business and its

environment:environment: What are theWhat are the k ey success fac t o r sk ey success fac t o r s for thefor the

business?*business?*

-- p r o d u ct p er f o r m a n cep r o d u ct p er f o r m an ce-- t echn o logy leader sh ipt echn o logy leader sh ip

-- n ew p r o d u ct i n t r o d u ct i onn ew p r o d u ct i n t r o d u ct i o n

-- access t o k ey dec isionaccess t o k ey d ecis ion -- m ak e r s/ i n f lu en cer sm ak e r s/ i n f lu en cer s

-- de l i ve r y se rv icede l i ve r y se rv ice

Key Success FactorsKey Success Factors

Operations strategies is decided based onOperations strategies is decided based on


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p gp g

Strength and WeaknessStrength and Weakness What are the strengths, weaknesses,What are the strengths, weaknesses,

opportunities and threats* for the businessopportunities and threats* for the business

firm?firm?

S t r e n g t h sS t r e n g t h s , e.g. capacity, skills, e.g. capacity, skills

WeaknessesWeaknesses , e.g. industrial relations,, e.g. industrial relations,old machinesold machines

O p p o r t u n i t i e sO p p o r t u n i t i e s, e.g. new markets,, e.g. new markets,

government policy changesgovernment policy changesThrea tsThrea ts , e.g. new competitors, new, e.g. new competitors, new

technologiestechnologies

*called as*called as SW OT an aly s isSW OT an aly s is

Competitive DimensionsCompetitive Dimensions


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Cost or Pr iceCost or Pr ice Make the Product or Deliver the ServiceMake the Product or Deliver the Service CheapCheap

Qua l i t yQua l i t y Make a Gr ea t Prod uc t o r De l i ve r a Gr ea t Serv iceMake a Gr ea t Prod uc t o r De l i ve r a Gr ea t Serv ice

Del iver y SpeedDel iver y Speed Make the Product or Deliver the ServiceMake the Product or Deliver the Service Quick lyQu ick ly

Del ive r y Re l iab i l i t yDel i ve r y Re l iab i l i t y Deliver ItDeliver It W hen Prom isedW hen Prom ised

Cop ing w i t h Chang es in Dem andCop ing w i t h Changes in Dem and Change ItsChange Its V o l u m eV o l u m e

Fl ex i b i l i t y an d N e w Pr o d u ct I n t r o d u ct i onFl ex i b i l i t y an d N e w Pr o d u ct I n t r o d u ct i onSpeedSpeed

Change I tChange I t Ot her Pr odu ctOt her Pr odu ct -- Spec i f i c Cr i t e r iaSpec i f i c Cr i t e r ia

Su p p or t I tSu p p or t I t


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Competitive PrioritiesCompetitive Priorities-- The EdgeThe Edge Four Important OperationsFour Important Operations

Questions: Will you compete onQuestions: Will you compete on Cost?Cost?

Quality?Quality?

Time?Time?

Flexibility?Flexibility?

All of the above? Some? Tradeoffs?All of the above? Some? Tradeoffs?


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Competing on CostCompeting on Cost El im ina t e a l l w ast eEl im ina t e a l l w ast e

Invest inInvest in Upd at ed faci l i t i esUpd a t ed faci l i t i es & equipment& equipment

St r eam l in i n g o p er at i on sSt r eam l in i n g o p er at i on s

Tr a i n i n g & d ev e lo p m en tTr a i n i n g & d ev e lo p m en t

Competing onCompeting on CostCost??


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Competing onCompeting on CostCost??

Offering product at a low price relative toOffering product at a low price relative to

competitioncompetition

TypicallyTypically h i g h v o lu m e p r o d u ct sh i g h v o lu m e p r o d u ct s

OftenOften l im i t p r o d u ct r a n g el im i t p r o d u ct r a n g e & offer little& offer little

customizationcustomization

May invest inMay invest in au t o m at i on t o r e d u ce u n i tau t o m at i on t o r e d u ce u n i t

cos tscos ts

Can useCan use l ow e r sk i l l l abo rl ow er sk i l l labo r Probably useProbably use p rodu ct f ocused l ayou t sp r oduct f ocused l ayou t s

Lo w co st d o es n o t m ean l o w q u a l i t yLo w co st d o es n o t m ean l o w q u a l i t y


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Competing on QualityCompeting on Quality

Please the customerPlease the customerUnders tandUnde rs tand

c u s t o me rc u s t o me ra t t i t u d e sa t t i t u d e s towardtoward

andand expec ta t i onsexpec ta t i ons

o f q u al i t yo f q u a l i t y


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Competing on Speed /TimeCompeting on Speed /Time

FastFast m o v e sm o v e s FastFast adap ta t i onsadap ta t i ons

TightTight l i nkagesl i nkages

Competing onCompeting on TimeTime??


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p gp g

Time/speed one of most important competitionTime/speed one of most important competition

prioritiespriorities First that canFirst that can d el iv er o f t e n w i n s t h e r a cede l i ver o f t en w ins t he race

Time related issues involveTime related issues involve

Rap id d e l ive r y :Rap id de l i ve ry :

Focused onFocused on sh o r t e r t i m e b et w e en o r d e r p l a ce m e n tsh o r t e r t i m e b et w e en o r d e r p l a ce m e n t

and de l i ve ryand de l i ve ry

OnOn -- t i m e d el iv e r y :t i m e d el iv e r y : Deliver product exactly when needed every timeDeliver product exactly when needed every time


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Competing onCompeting on FlexibilityFlexibility?? Com pany env i r onm en t changes rap id l yCom pany env i r onm en t changes rap id l y

Com pany m us t accom m odat e change byCom pany m us t accom m odat e change by

be ing f l ex ib lebe ing f l ex ib le

Produ ct f l ex i b i l i t y :Produ ct f l ex i b i l i t y :

EasilyEasily sw i t ch p r o d u ct i o n f r o m o n e i t e m t o a n o t h e rsw i t ch p r o d u ct i o n f r o m o n e i t e m t o an o t h e r

EasilyEasily cus tom ize p rodu ct / se rv i ce t o m eet speci f i ccus tom ize p rodu ct / se rv i ce t o m eet speci f i c

requ i r em en ts of a cus tom errequ i r em en ts of a cus tom er

Volum e f l ex i b i l i t y :Vo lum e f l ex i b i l i t y :

Ability toAbility to r a m p p r o d u ct i o n u p a n d d ow n t o m a t chr a m p p r o d u ct i o n u p an d d o w n t o m at c h

m ar k e t d em a n d sm a r k et d em a n ds


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Service BreakthroughsService Breakthroughs

AA b r an d n a m e carb r an d n a m e car can be ancan b e an o r de r qu al i f i ero r de r qu a l i f i er

Repair services can be orderwinners

Examples: Warranty, Roadside Assistance,

Leases, etc


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Steps in Developing a ManufacturingSteps in Developing a Manufacturing


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StrategyStrategy 1 . Seg m en t t h e m ar k et1 . Seg m en t t h e m ar k et according to theaccording to the

p r o d u ct g r o u pp r o d u ct g r o u p

2.2. I d en t i f y p r o d u ct r eq u i r em en t sI d en t i f y p r o d u ct r eq u i r em en t s ,, d e m a n dd e m a n d

p at t er n s , an d p r o f i t m ar g i n sp at t er n s , an d p r o f i t m ar g i n s of each groupof each group

3.3. Det erm ine o rde r qu a l i f i er sDet erm ine o rde r qu a l i f i er s andand w i n n e r sw i n n e r s forfor

each groupeach group 4.4. Co n v er t o r d e r w i n n er sCo n v er t o r d e r w i n n er s intointo spec i f i cspec i f i c

p er f o r m an ce r e q u i r em en t sp er f o r m an ce r e q u i r em en t s

Operations StrategyOperations StrategyDesigningDesigning


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the Operations Functionthe Operations Function

Product and Service Strategy


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Product and Service Strategygy

Type of operation is directly relatedType of operation is directly related

to product and service strategyto product and service strategy Three basic strategies includeThree basic strategies include

MakeMake -- t ot o -- s tocks tock ; in anticipation of; in anticipation of

demanddemand AssembleAssemb le -- t ot o -- o rde ro rde r ; built from; built from

standard components on orderstandard components on order

MakeMake -- t ot o -- o rde ro rde r ; produce to customer; produce to customerspecification at time of orderspecification at time of order


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Process DecisionsProcess Decisions--Vertical IntegrationVertical Integration


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& Make or Buy& Make or Buy Ver t i ca l i n t eg ra t i on Ve r t i ca l i n t eg ra t i on refers to the degree arefers to the degree a f i rm chooses t of i rm chooses t o

do p r ocesses i t se l fdo p r ocesses i t se l f -- r a w m a t e r i al t o sa le sr a w m a t e r i al t o sa le s

Ba ck w ar d I n t e g r a t i onBa ck w a r d I n t e g r at i o n meansmeans m o v i n g cl o se r t o p r i m a r ym o v i n g cl o se r t o p r i m a r yope ra t i onsope ra t i ons

Fo r w a r d I n t e g r a t i onFo r w a r d I n t e g r at i o n meansmeans m ov ing close r t o cus tom ersm ov ing close r t o cus tom ers

A f ir m sA f i r m s Make Make --o ro r--Bu yBu y cho ices shou ld be based on t hecho ices shou ld be based on t hefo l l ow ing cons ide ra t i ons :f o l l ow ing cons ide ra t i ons :

Strategic impactStrategic impact

Ava i lab le capaci t yAva i lab le capaci t y

Exper t iseExper t ise

Qua l i t yQua l i t y considerationsconsiderations

SpeedSpeed CostCost (fixed cost + variable cost)(fixed cost + variable cost)makemake = Cost (fixed cost + Variable cost)= Cost (fixed cost + Variable cost)buybuy

Bus iness a re t r end ing t ow a rd l ess Bus iness a re t r end ing t ow a rd l ess b a ck w a r d in t e g r at i o n b a ck w a r d i n t e g r a t i o n , m o r e , m o r e ou t sou rc ing ou t sou rc ing

Wh i P d i i i b d ?Wh i P d i i i b d ?


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What is Productivity in broad sense?What is Productivity in broad sense?

Produc t i v i t yP roduc t i v i t y is a commonis a common

measure onmeasure on h ow w el lh ow w el l

r esou r ces a r e be ing u sedr esou r ces a re b e in g u sed ..


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Chapter 3 Measuring Performance in OperationsProductivity

P d ti it Q tit f O t t/Q tit f I t


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Productivity = Quantity of Output/Quantity of Input

Productivity is expressed in one of three forms:

1. Total Product ivit y= Total Output/Total Input

2. Mult ifact or Product ivit y= Total Output/Subset of Inputs

3. Part ial Factor Product ivit y

= Total Output/Single Input


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P ti l M P d ti itP ti l M P d ti it


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Partial Measure ProductivityPartial Measure Productivity

Partial measures of productivityPartial measures of productivity ==

OutputOutput oror OutputOutput oror OutputOutput oror OutputOutputLabor Cap i t a l Mat er ia ls En er gyLabor Cap i t a l Mat er ia ls En er gy

Productivity CalculationProductivity Calculation

E lE l


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ExampleExample

1. Single factor

Three employees process 600 insurancepolicies in a week. They work 8 hours perday, 5 days per week. Calculate theproductivity in policies per hour.

Labor productivity =Policies Processed

Employee Hours

600 Policies(3 Employees) (40 hours/employee)

= = 5 policies/hr


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Multifactor Measure ProductivityMultifactor Measure Productivity

Mul t i f act o r m easu r es o f p rodu ct i v i t y =Mu l t i f act o r m easu r es o f p rodu ct i v i t y =

O u t p u t .O u t p u t .

Labo r + Cap it a l + Ene rgyLabor + Cap i t a l + Ene rgy

o ro r

O u t p u t .O u t p u t .

Labor + Cap i t a l + Mat e r i al sLabor + Cap i t a l + Mat e r i al s

Quantity at standard cost/ (Labour cost+ Material cost+ Overhead cost


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Productivity and the ServiceProductivity and the Service

SectorSector


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SectorSectorMeasuring service sector productivityMeasuring service sector productivity

is ais a u n iq u e ch a l l eng eu n iqu e ch a l l en ge Traditional measures focus onTraditional measures focus on t a n g i b l et a n g i b l eo u t c o m e so u t c o m e s

Service industries primarilyService industries primarily p roducep r o d u cei n t an g i b l e o u t co m esi n t an g i b l e o u t co m es

MeasuringMeasuring i n t ang ib les i s ch a l len g in gin t ang ib les is cha l l eng ing


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Location is a Strategic DecisionLocation is a Strategic Decision


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Location is a Strategic DecisionLocation is a Strategic Decision Location choice involvesLocation choice involves l ong t er m l ong t er m

i nv es t m en t i n v es t m en t ..

Such investment has to fit into the firmsSuch investment has to fit into the firms

strategic framework.strategic framework.

Several factors get into theSeveral factors get into thes t ra teg i cs t r a teg i c

dec is ion :dec is ion :

Mark e t , Com pe t i t i on , Ow n s t r eng t hs &Mark e t , Com pe t i t i on , Ow n s t r eng t hs &

w eak nesses w eak nesses

Po l i t i cal , Gove rn m en t , Legal env i ron m en t Po l i t i ca l , Gove rn m en t , Legal env i ron m en t ..

Tech n olo g i cal , Soc ia l , Geog r aph ica l Tech n olo g i cal , Soc ia l , Geog r aph ica l

f ac to r s f ac to r s ..

Choosing a SiteChoosing a Site


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Choosing a country, state or region is aChoosing a country, state or region is a

strategic decision as mentioned earlier.strategic decision as mentioned earlier. But,But, ch oos ing a si t ech oos in g a si t e could be based oncould be based on

cos tscos ts -- ob jec t i veob jec t i ve ..

Costs that enter into analysis could beCosts that enter into analysis could be

of:of:

Pow er , w at er , l and , r aw m at er i a ls,Pow er , w at er , l and , r aw m at er i a l s,t r anspo r t , l abou r , m anage r i a l , h i t r anspo r t , l abou r , m anager i al , h i --tech tech

st af f , env i r onm en t a l st a f f , env i r on m en t a l ..


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Plant LayoutPlant LayoutI m p o r t an t Asp ect f o r p l an t La y ou t Desi g nI m p o r t a n t Asp ect f o r p l a n t Lay o u t Desi g n

A)A) Size or p lan t capaci t ySize or p lan t capaci t y


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A)) Size or p lan t capaci t ySize or p lan t capaci t y

B)B) Locat ionLocat ion (Customer, Raw material, and Key personal(Customer, Raw material, and Key personalaccessibility)accessibility)

C)C) Ar r an g em en t s w i t h i n p l an tAr r an g em en t s w i t h i n p l an t

Easy and un in t er r up t ed f l owEasy and un in t er r up t ed f l ow of materialof material

Reduced t im e t o m anu fact u r eRed u ced t i m e t o m an u fa ct u r e ,, Lo w in v en t o r y an d W I PLo w in v en t o r y an d W I P

Easy fo r w o rk ingEasy fo r w o rk ing ,, m ax i m u m saf et ym ax i m u m saf et y , and minimum, and minimumhealth hazardhealth hazard

Mi n im u m m at er i a l h a n d l in gMi n im u m m at er i a l h a n d l in g Mi n im u m d am ag eMi n im u m d am ag e or spoil of materialor spoil of material

Reduce con gest ion o f m anReduce con gest ion o f m an , material and machine, material and machine

F lex ib i l i t yF lex ib i l i t y for change (for change (v o l u m e o r t ech n o l o g yv o l u m e o r t ech n o l o g y ))


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Process Flow StructuresProcess Flow Structures


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Process Flow StructuresProcess Flow Structures

Job shop ( ex . Copy cen t e r m ak in g aJob shop ( ex . Copy cen t e r m ak in g a

sing le copy o f a st uden t t e rm paper )si ng le copy o f a st uden t t e rm paper )

Batch shop ( ex . Copy cen t e r m ak in gBa tch shop ( ex . Copy cen t e r m ak in g10 ,00 0 cop ies o f an ad p iece fo r a10 ,00 0 cop ies o f an ad p iece fo r abus iness)bus iness)

Assem b ly Line ( ex . Au t om ob i l eAssem b ly Line ( ex . Au t om ob i l e

m a n u f a c t u r e r )m a n u f a c t u r e r )

Cont inu ous Flow ( ex . Pe t r o leumCon t inu ous Flow ( ex . Pe t r o leumm a n u f a c t u r e r )m a n u f a c t u r e r )

Basic Production Layout FormatsBasic Production Layout Formats


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Pr ocess Layo u t ( a lso ca l ledPr ocess Layo u t ( a lso ca l led j obj ob--shop shop

oro r f un ct i ona l layou t f u nct i ona l l ayou t ))

Pr odu ct Layou t ( a l so ca l ledPr odu ct Layou t ( a l so ca l l ed f l ow f l ow --shop shop

l ayou t l ayou t ))

Gr ou p Tech n o logy (Gr ou p Tech n o logy ( Cel lu lar Cel lu lar ) Layo u t) Layo u t

FixedFixed -- Pos i t i on Layou tPosi t i on Layou t

A Product LayoutA Product Layout


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InIn

OutOut

Process Layout in ServicesProcess Layout in Services


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Womens saris

Womens Salwar

Womenssportswear

Shoes

Cosmetics andjewelry

Entry and displayarea

House decorative

Childrens Dress

Mens Dress

ProductProduct--Process Matrix for ProcessesProcess Matrix for Processes

(1)(1) (2)(2) (3)(3) (4)(4)

Less Customization and Higher VolumeLess Customization and Higher Volume

Product DesignProduct Design


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2007 Pearson Education

LowLow--volumevolume Multiple products with lowMultiple products with low Few majorFew major High volume, highHigh volume, highproducts, madeproducts, made to moderate volumeto moderate volume productsproducts standardization,standardization,to customerto customer higherhigher Continuous FlowContinuous Flow

orderorder volumevolumeProcessProcess

CharacteristicsCharacteristics

(1)(1)Complex and highlyComplex and highlycustomized process,customized process,unique sequence ofunique sequence oftaskstasks

(2)(2)

Disconnected lineDisconnected lineflows, moderatelyflows, moderatelycomplex workcomplex work

(3)(3)

Connected line, ,Connected line, ,

highly repetitive workhighly repetitive work

(4)(4)

Continuous flowsContinuous flows

LessComplexity,

LessDivergence,

MoreLin

eFlows

LessComplexity,

LessDivergence,

MoreLin

eFlows

Continuous

process

Job

process

Lineprocess

Large batchprocess

Small batch

process

BatchProc

esses

Designing Process LayoutsDesigning Process Layouts


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Minimize material handlingMinimize material handlingcostscosts

Block DiagrammingBlock Diagramming Minimize nonadjacent loadsMinimize nonadjacent loads

Use when quantitative dataUse when quantitative datais availableis available

Design of a Process LayoutDesign of a Process Layout


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Generally, theGenerally, the criterioncriterion for the layout offor the layout of

departments (work centres) is:departments (work centres) is:Minimize interMinimize inter--departmental materialdepartmental material

movement costs,movement costs,

i.e. Minimizei.e. Minimize

wherewhere,,

LLijij = number of loads per unit time moved= number of loads per unit time moved

between departments i and jbetween departments i and jccijij = cost per load per unit time= cost per load per unit time betweenbetween

departmentsdepartments i and ji and j

cij X Lijij

Block DiagramsBlock Diagrams


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3

2

5

1 4

(a) Initial block diagram(a) Initial block diagram

Figure 5.4Figure 5.4

Block DiagramsBlock Diagrams


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12

3

4

53

2

5

1 4

(a) Initial block diagram(a) Initial block diagram (b) Final block diagram(b) Final block diagram

A Simple Problem of a Toy Industry Layout DesignA Simple Problem of a Toy Industry Layout Design

Large ToyLarge ToySmall ToySmall ToyMetalMetalPlasticPlastic

Flow between departments (Number of Moves)


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MechanismMechanismAssemblAssembly (8)y (8)

77Painting (7)Painting (7)103103374374

Large ToyLarge Toy

AssemblAssembly (6)y (6)

18718718018000Small ToySmall Toy

AssemblAssembly (5)y (5)

252500552020Sewing (4)Sewing (4)

180180999912512588881717MetalMetal

FormingForming(3)(3)

909080809090757510010000PlasticPlastic

MouldinMouldingg (2)(2)

252520202002003030005050175175Shipping &Shipping &

RecRec (1)(1)

MechanismMechanismAssemblyAssembly(8)(8)

PaintingPainting(7)(7)

Large ToyLarge ToyAsseAssemblymbly(6)(6)

Small ToySmall ToyAsseAssemblymbly(5)(5)

SewingSewing(4)(4)

MetalMetalFormForminging(3)(3)

PlasticPlasticMoulMouldingding(2)(2)

Shipping &Shipping &RecRec(1)(1)


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Cost Matrix (Total cost Rs 3474)Cost Matrix (Total cost Rs 3474)

175175

MechanismMechanism

AssemblyAssembly(8)(8)Painting (7)Painting (7)

Large ToyLarge ToyAssemAssem

blybly(6)(6)

Small ToySmall ToyAssemAssem

blybly(5)(5)Sewing (4)Sewing (4)

MetalMetal

FormiForming (3)ng (3)

PlasticPlastic

MouldiMouldingng (2)(2)

Shipping &Shipping &

RecRec(1)(1)


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MechanismMechanismAssemblyAssembly

(8)(8)

77Painting (7)Painting (7)103103374374

Large ToyLarge ToyAssemblyAssembly

(6)(6)

18718718018000Small ToySmall Toy

AssemblyAssembly(5)(5)

505000552020Sewing (4)Sewing (4)

36036019819812512588881717Metal FormingMetal Forming

(3)(3)

27027024024018018015015010010000PlasticPlastic MouldingMoulding

(2)(2)

757560604 0 04 0 0

60 (Rs60 (Rs

22

X3X30)0)005050

175175

(Rs(Rs

1 X1 X

17175)5)

Shipping &Shipping &RecRec(1)(1)

ProblemProblemInterchanged Department 4 with Department 6


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88446622

77553311

Find cost and see if you can reduce cost by this feasible change

Process Layout: CRAFT (Process Layout: CRAFT (Computerized relativeComputerized relativeallocation of facilities technique ) Approachallocation of facilities technique ) Approach

I t i s a h eu r i st i c p r o g r a m ; i t u s es a si m p l e r u l e o f t h u m bI t i s a h eu r i s t i c p r o g r a m ; i t u s es a si m p l e r u l e o f t h u m bin m ak ing evalua t i ons :i n m ak ing evalua t i ons :


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" Co m p a r e t w o d ep a r t m e n t s a t a t i m e a n d ex c h an g e" Co m p a r e t w o d ep a r t m e n t s a t a t i m e a n d ex c h an g et hem i f i t r educes t he t o t a l cost o f t he l ayou t ."t hem i f i t r educes t he t o t a l cost o f t he l ayou t ."

I t d o es n o t g u a r a n t e e a n o p t i m a l so l u t i o nI t d o es n o t g u a r a n t e e a n o p t i m a l so l u t i o n

CRAFT need s in p u t s:CRAFT need s in p u t s:

l oad su m m ar y ( f r e qu en cy o f m o v em en t f o r ml oad su m m ar y ( f r e qu en cy o f m o v em en t f o r mo n e d ep ar t m en t t o t h e o t h e r )o n e d ep ar t m en t t o t h e o t h e r )

ex i st i ng l ayou t and d i st ances be tw een d i f f e ren tex i st i ng l ayou t and d i st ances bet w een d i f f e ren t

d e p a r t m e n t sd e p a r t m e n t s

f l oo r a rea requ i r em en t s o f d i f f e ren tf l oo r a rea requ i r em en ts o f d i f f eren t

d e p a r t m e n t sd e p a r t m e n t s

CRAFT add i t i on a l l y cons iders cos ts o f m at er ia l h and l ingCRAFT add i t i ona l l y con s iders cos ts o f m at er ia l h and l ing

b e t w e en d i f f er e n t p a ir s of d e p ar t m e n t s .b e t w e en d i f f er e n t p a ir s of d e p ar t m e n t s.


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Continual Improvement andContinual Improvement and

BreakthroughsBreakthroughs


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BreakthroughBreakthrough

ImprovementImprovement

Continual improvementContinual improvement

refines the breakthroughrefines the breakthrough

Continual improvement activitiesContinual improvement activities

peak; time to reengineer processpeak; time to reengineer process

Process Flowchart SymbolsProcess Flowchart Symbols

OperationsOperations


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OperationsOperations

InspectionInspectionTransportationTransportation

DelayDelay

StorageStorage

Process FlowchartProcess Flowchart

n t e

Date: 9-30-07

Analyst: TLR

Location: Graves Mountain

Process: Apple Sauce


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Step

Operation

Transport

Inspect

Delay

Storage

Distance

(feet)

Time

(min)Description

ofprocess

1

2

3

4

5

6

7

8

9

10

11

Unload apples from truck

Move to inspection station

Weigh, inspect, sort

Move to storage

Wait until needed

Move to peeler

Apples peeled and cored

Soak in water until needed

Place in conveyor

Move to mixing area

Weigh, inspect, sort

Total 480

30

5

20

15

360

30

20

190 ft

20 ft

20 ft

50 ft

100 ft


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