Operation Management

Topic 1: Operations and Productivity

1. What Is Operations Management?

Production is the creation of goods and services. Operations management (OM) is the set of
activities that creates value in the form of goods and services by transforming inputs into
outputs

2. The Strategic Decisions

1) Design of goods and services
– Defines what is required of operations
– Product design determines quality, sustainability and human resources
2) Managing quality
– Determine the customer’s quality expectations – Establish policies and procedures to identify
and achieve that quality
3) Process and capacity design
▶ How is a good or service produced?
▶ Commits management to specific technology, quality, resources, and investment.
4) Location strategy
▶ Nearness to customers, suppliers, and talent.
▶ Considering costs, infrastructure, logistics, and government.
5) Layout strategy
▶ Integrate capacity needs, personnel levels, technology, and inventory
▶ Determine the efficient flow of materials, people, and information.
6) Human resources and job design
▶ Recruit, motivate, and retain personnel with the required talent and skills.
▶ Integral and expensive part of the total system design.
7) Supply-chain management
▶ Integrate supply chain into the firm’s strategy.
▶ Determine what is to be purchased, from whom, and under what conditions.
8) Inventory management
▶ Inventory ordering and holding decisions.
▶ Optimize considering customer satisfaction, supplier capability, and production schedules.
9) Scheduling
▶ Determine and implement intermediateand short-term schedules.
▶ Utilize personnel and facilities while meeting customer demands.
10) Maintenance
▶ Consider facility capacity, production demands, and personnel.
▶ Maintain a reliable and stable process.
3. Productivity
Productivity = Units produced/ Input used
 Measure of process improvement
 Represents output relative to input
 Only through productivity increases can our standard of living improve

Labor Productivity

Productivity = Units produced/ Labor-hours used

 Multi-Factor Productivity

Productivity =Output/ Labor + Material + Energy + Capital + Miscellaneous

 Also known as total factor productivity

 Output and inputs are often expressed in dollars
4. New Challenges in OM
1. Global focus (telecommunication & transport cost, resources) – creative design, efficient, high
quality pdt, int’l collaboration.
2. Supply-chain partnering (short PLC, demanding customers, fast changing tech., mat., process)
– need unique expertise fr. supplier, outsource, build LT r/ship)
3. Sustainability – design pdt & process – ecologically sustainable – min. resource use, eg. Green
pdt & packaging
4. Rapid product development – digital tech, int’l communication, lifestyles, creative alliances
5. Mass customization – cultural & ind. Different. Response to creative pdt design & flexible
production.
6. Just-in-time performance – inventory hides quality issues, constrains response to short PLC,
cut inventory in every level in supply chain.
7. Empowered employees – knowledge workers – enrich job by moving decision making to ind.
Contributor
5. Reasons to Globalize
1. Improve the supply chain – locating facilities closer to unique resources
2. Reduce costs (labor, taxes, tariffs, etc.) – WTO, NAFTA, EU…
3. Improve operations – how buss. Handled in other countries (competiveness). JPN-inventory
mgmt
4. Understand markets – interact with foreign customer, suppliers.. Find new opportunities
5. Improve products – free flow ideas & Joint R&D (Samsung & Bosch – batteries)
6. Attract and retain global talent – relocation
6. Strategies for Competitive Advantage (SBU)
1) Competing on Differentiation
Uniqueness can go beyond both the physical characteristics and service attributes to
encompass everything that impacts customer’s perception of value
2) Competing on Cost
Provide the maximum value as perceived by customer. Does not imply low quality.
3) Competing on Response
I. Flexibility is matching market changes in design innovation and volumes
-A way of life at Hewlett-Packard
II. Reliability is meeting schedules ▶ FedEx – on time delivery
III. Timeliness is quickness in design, production, and delivery
7. Issues In Operations Strategy
▶ Resources view – fin, physical, HR, tech. resource – available & compatible strategy
▶ Value-chain analysis – where -add unique value?
▶ Porter’s Five Forces model – industry rivalry.
▶ Operating in a system with many external factors – PEST, culture
▶ Constant change – Internal change - PLC, resource, tech…
8. Product Life Cycle

9. Strategy Development Process

10. Implementing Strategic Decision

11. Risks of Outsourcing

 Topic 2: Design of Goods and Services
1. Product Decision
Effective design can provide a competitive edge
a. matches product or service characteristics with customer requirements
b. ensures that customer requirements are met in the simplest and least costly manner
c. reduces time required to design a new product or service
d. minimizes revisions necessary to make a design workable
2. Product Strategy Options
 Differentiation
• Shouldice Hospital
• Offers unique & high quality product
• Hernia-repair service
 Low cost
• Taco Bell
• Menu (easy to produce-low labor & small kitchen)
 Rapid response (Flexi, Reliability, Timeliness)
• Toyota
• Rapid response to changing customer demand
• Speed of product development < 2 years
3. Product Life Cycle
i) Introduction stage
• Fine tuning period
• Research – what’s customers want
• Product development
• Process modification and enhancement
• Supplier development
ii) Growth stage
• Product design begins to stabilize
• Effective forecasting of capacity becomes necessary
• Adding or enhancing capacity may be necessary
• Location, space, layout, employees, machine, capital
iii) Maturity stage
• Competitors now established
• High volume, innovative production may be needed
• Improved cost control, reduction in options, paring down of product line
• Standardize pdt & tech.
iv) Decline stage
• Unless product makes a special contribution to the organization, must plan to terminate
offering. Transfer access capacity to dev. New product
4. Quality Function Deployment (QFD)
7 Steps of developing house of quality
1. Identify customer wants
2. Identify how the good/service will satisfy customer wants (characteristic, features)
3. Relate customer wants to product hows (built matrix show r/ship)
4. Identify relationships between the firm’s “hows” (how we tied together)
5. Develop importance ratings (our rating)
6. Evaluate competing products (how well competing pdt -meet customer wants)
7. Determine technical attribute and evaluation (own & competitors)
5. Benefits of Quality Function Deployment (QFD)
 Promotes better understanding of customer demands
 Promotes better understanding of design interactions
 Involves manufacturing in design process
 Breaks down barriers between functions and departments
 Provides documentation of design process
6. Manufacturability and Value Engineering
• Activities are concerned with improvement of design & specifications at the research,
development, design, & pre-production stages of product development.
Benefits:
1. Cost reduction
2. Reduced complexity/ Simplification (reducing number of parts, assemblies, or
options in a product) of products
3. Reduction of env. impact
4. Additional standardization (using commonly available and interchangeable parts) of
products
5. Improved functional aspects of product
6. Improved job design and job safety
7. Improved maintainability (serviceability) of the product
8. Robust design
7. Issues for Product Development
I. Robust Design
• Product is designed so that small variations in production or assembly do not adversely
affect the product quality
• A design that can be produced to requirements even with unfavorable conditions in
production process
• Typically results in lower cost and higher quality
II. Modular Design
Parts / components of a product are subdivided into modules that are easily interchanged /
replaced
 Combining standardized building blocks, or modules, to create unique finished products
 Products designed in easily segmented components
 Adds flexibility to both production and marketing
 Improved ability to satisfy customer requirements
 Customization provided by modularity allows customers to mix & match to their own taste
III. Computer Aided Design (CAD)
 Using computers to design products and prepare engineering documentation
 Shorter development cycles, improved accuracy, lower cost
 Information and designs can be deployed worldwide

Extensions of CAD

 Design for Manufacturing and Assembly (DFMA) - software

• Solve manufacturing problems during the design stage (see effects)
 3-D Object Modeling
• Tech.- Small prototype
development
 CAD through the internet -purchasing, o/s
 Std. International exchange pdt data through STEP
 IV. Computer-Aided Manufacturing (CAM)
 Utilizing specialized computers and program to control manufacturing equipment
 Often driven by the CAD system (CAD/CAM)
Benefits of CAD/CAM
1. Product quality improved (more alternative, potential prob. & danger)
2. Shorter design time
3. Production cost reductions (redesign)
4. Database availability (sharing info.)
5. New range of capabilities (rotate, relates…tools)
V. Virtual Reality Technology
• A visual form of communication in which images substitute for reality & typically allow
the user to respond interactively
 Computer technology used to develop an interactive, 3-D model of a product from the basic
CAD data
 Allows people to ‘see’ the finished design before a physical model is built
 Very effective in large-scale designs such as plant layout
VI. Value Analysis
 Focuses on design improvement during production process
 Seeks improvements leading either to a better product or a product which can be produced
more economically (less env. Impact)
 Higher quality and lower cost.
VII. Sustainability and Life Cycle Assessment (LCA)
► Sustainability means meeting the needs of the present without compromising the ability of
future generations to meet their needs
► LCA is a formal evaluation of the environmental impact of a product
8. Environmentally Friendly Designs
It is possible to enhance productivity, drive down costs, and preserve resources
1. View product design from a systems perspective (input->process -> output) economical for
society?
2. Consider the entire life cycle of the product (design->pdtn->disposal)
9. Design for Environment
• Design for environment
– designing a product from material that can be recycled
– design from recycled material
– design for ease of repair
– minimize packaging
– minimize material and energy used during manufacture, consumption and disposal
– Lighter components – car ->less energy used
– Less harmful ingredients
• Extended producer responsibility (legal)
– holds companies responsible for their product even after its useful life
10. Goals for Environmentally Friendly Designs
1. Develop safe and more environmentally sound products
2. Minimize waste of raw materials and energy
3. Reduce environmental liabilities
4. Increase cost-effectiveness of complying with environmental regulations
5. Be recognized as a good corporate citizen
11. Acquiring Technology
(i) By Purchasing a Firm
 Speeds development
 Issues concern the fit between the acquired organization and product and the host
(ii) Through Joint Ventures (joint ownership to pursue new pdt / mkt- new entity)
 Both organizations learn
 Risks are shared
(iii) Through Alliances
Cooperative agreements between independent organizations – own mission
12. Group Technology
 Parts grouped into families with similar characteristics
 Coding system describes processing and physical characteristics
 Part families can be produced
in dedicated manufacturing cells
13. Group Technology Benefits
1. Improved design (fewer components)
2. Reduced raw material and purchases
3. Simplified production planning and control
4. Improved layout, routing, and machine loading
5. Reduced tooling setup time, work-in-process, and production time
14. Service Design
 Service typically includes direct interaction with the customer
 Increased opportunity for customization
 Reduced productivity
 Process-chain-network (PCN) analysis:
(i) Direct interaction – order & make
(ii) surrogate (substitute) interaction – buffet ingredient & cust. assemble himself – limited
interaction
(iii) independent processing – prepackaged
 Cost and quality are still determined at the design stage.
 Techniques to reduce cost & enhance product quality:
1. Delay customization (salon, salad dressing)
2. Modularization (mixed & match)
3. Reduce customer interaction, often through automation (ATM, ticketless)
4. Moment of truth (smile)
5. Limited options
 Topic 3: Forecasting
1. What is Forecasting?
 Process – art/science of predicting a future event
 Underlying basis of all business decisions
o Production planning
o Personnel – Workforce Scheduling
o Facilities – new factory & new process design
o Inventory
2. Forecasting Time Horizons
 Short-range forecast
o Up to 1 year, generally less than 3 months
o Purchasing, job scheduling, workforce levels, job assignments, production levels
 Medium-range forecast
o 3 months to 3 years
o Sales and production planning, budgeting
 Long-range forecast
o 3 + years
o New product planning, process, facility location, research and development\
3. Distinguishing Differences
 Medium/long range forecasts deal with more comprehensive issues and support
management decisions regarding planning and products, plants and processes
 Short-term forecasting usually employs different methodologies (MA,ES) than longer-term
forecasting
 Short-term forecasts tend to be more accurate than longer-term forecasts
4. Types of Forecasts
 Economic forecasts
o Address business cycle – inflation rate, money supply, housing starts, etc. (LT)
 Technological forecasts
o Predict rate of technological progress
o Impacts development of new products, plant & equipment (LT)
 Demand forecasts / sales forecast
o Predict sales of existing product.
o drive pdtn, capacity, schd. Sys & input for mktg, fin & HR planning
5. Strategic Importance of Forecasting
► Supply-Chain Management – Good supplier relations, advantages in product innovation, cost
and speed to market
► Human Resources – Hiring, training, laying off workers
► Capacity – Capacity shortages can result in undependable delivery, loss of customers, loss of
market share
6. Forecasting Approaches
(i) Qualitative Methods
 Used when situation is vague and little data exist
o New products
o New technology
 Involves intuition, experience, emotion, value system, knowledge
o e.g., forecasting sales on Internet
 A. Jury of Executive Opinion
 Pool opinions of small group of high-level managers, sometimes augment by
statistical models
 Group estimates demand by working together
 Combines managerial experience with statistical models
 Bristol-Myers Squibb - uses 220 well know scientist – medical research
 Relatively quick
 ‘Group-think’ disadvantage
B. Delphi Method

C. Sales Force Composite

 Estimates from individual salespersons are reviewed for reasonableness,
then aggregated
 Combined at district and national levels
 Sales reps know customers’ wants
 Tends to be overly optimistic
D. Consumer Market Survey
 Ask customers about purchasing plans
 What consumers say, and what they actually do are often different
 Sometimes difficult to answer
7. Seven Steps in Forecasting
1. Determine the use of the forecast
2. Select the items to be forecasted
3. Determine the time horizon of the forecast (ST,LT-monthly, quarterly..)
4. Select the forecasting model(s)
5. Gather the data
6. Make the forecast
7. Validate and implement results – ensure model, assumption & data are valid