Operations Management-Systems

Perspective
Term 3

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 Recap
• Why is operations management important?
• Economics Paradigm – Matching supply with demand
• Strategy Paradigm – Competitive priorities and tradeoffs
– Operations strategy and strategic fit
• Operations frontier
– What does it mean?
– How does a firm position itself?
– How does the operations frontier move?
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 Systems Perspective
• Comprehensive understanding of operations management
• Inputs
– Labor, Material, Capital (Remember Managerial Economics!)
– Production curve - W = f (L, K)
• Outputs
– Goods and Services
• Processing
– Design and Development, Production planning, Inventory control
• Feedback Mechanisms
– Quality Management, Process improvements
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 Systems Perspective

Process Management

Labour
Network of Activities and Buffers
Material Goods
Inputs Outputs
Capital

Services

Quality Maintenance Process

Management Management Improvement
Feedback Mechanism Feedback Mechanism
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 Classification of layouts
• Functional Focus Product 1
– Job shop D E F

Product 2
A B C

= Pool of resources (People

in X-ray department, set of
machines etc.)
Product 1
D E F
• Product Focus
– Assembly line Product 2
A B C

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 Types of Production Systems
• Make to Stock (MTS) – In anticipation of demand
Customer Order

Design and Source Make components Assemble Components Deliver Product

• Make to Order (MTO) – Made to specific customer

requirements after receiving the order

Customer Order

Design and Source Make components Assemble Components Deliver Product

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 Types of Production systems
• Assemble to order – Adding components based on customer
specifications or requirements
Customer Order

Design and Source Make components Assemble Components Deliver Product

• Design to order – Design starts after customer specifies his

requirements
Customer Order

Design and Source Make components Assemble Components Deliver Product

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 Product-Process fit

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 Process Measures
• Flow unit
– Customer in case of service and Product in case of manufacturing
• Flow time or Throughput time
– Time it takes for a flow unit from beginning to end of the process
• Flow rate
– Number of flow units going through the process per unit time
• Inventory
– Number of flow units in process at any moment in time
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 Examples
Auto company Wine manufacturer Hospital PGP
Flow unit Automobile Wine bottle Patients Student
Flow rate Sales per year Number sold per Patients served per Graduating class
year day
Flow time Production time+ Average time in Duration of stay in 2 years
Idle time before cellar the hospital
consumed
Inventory Number of Number of bottles in Total number of Total PGP strength
automobiles in the the cellar patients in the (1st and 2nd years)
pipeline + storage hospital

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 More Process Vocabulary
• Processing time - The time the worker/machine spends on a
particular task
• Capacity – Number of units the worker/machine makes per unit
time (1/processing time)
– What is the capacity if there are n number of workers?
• Bottleneck – Process step (activity) which has the highest
processing time (or) which has the least capacity
– Why is it called a bottleneck?

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 And more …
• Process capacity – Capacity of the bottleneck
• Flow rate – Minimum {Demand, Process Capacity}
• Cycle Time – 1/Process Capacity (Time gap between two
successive outputs)
• Utilization – Flow rate/capacity

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 Little’s law – Small but powerful!
• A stable process is “one in which in the long run, the average inflow
rate is equal to average outflow rate”

Little’s law states that, in a stable process,

Average Inventory (I) = Flow rate (R) * Average Flow Time (T)

• Average Flow rate is also referred to as Throughput

• What is so special about little’s law?
• Out of these fundamental performance measurements, the
management can chose to work on any two of them, the other is a
derived measure
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 Little’s Law
• If High Average Inventory is perceived as bad for the company, how
can you reduce it? (I = R x T)
– Decrease Average Flow rate while keeping flow time constant
– Decrease Average Flow time while keeping flow rate constant
– Decrease Average Flow time and Flow rate
• If the objective of firm is to improve Flow rate, how can it be done?
(R = I/T)
– Increase Average inventory while keeping flow time constant
– Decrease Average flow time while keeping inventory constant
– Increase Average inventory and Decrease Average flow rate
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 Examples
• The CCD in IIM Trichy (oops NIT Trichy) serves, on average 75
customers per day. On a typical day CCD is open for 15 hours. Also,
at any point in time, on average there are 5 customers in the
restaurant. How long does a customer spend inside the CCD?

• Micromax bills ₹ 300 crore worth of cellphone equipment per year

to its resellers and other outlets. At any point in time, it has an
accounts receivable of ₹ 90 crore. How much time does an average
institutional customer take to pay after billing is done?
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 THANK YOU!

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