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Unit 1: Operations Management for Companies

Systematic design, direction and control of processes that transform inputs into
services and products for internal, as well as external customers.
• Design
• Direction
• Control
• Transformation
Make sure that the activities that is being done inside add value to the final service or
product offered.

Operations Management Decisions:

1. Goods and Services: Looking for ways to implement consistency in costs, quality and
resources across all business divisions.
2. Quality Management: Implement consistency in costs, quality and resources.
3. Process and Capacity Design: Design strategies that support all production goals
including technology and resources.
4. Location: Consider supply chain and how the location will receive supplies, movement
of goods and services internally and to customers.
5. Layout Design and Strategy: How materials are delivered and used.
6. Human Resources and Job Design: Provide continuous training for employees and
institute employee satisfaction programs to achieve success.
7. Supply Chain Management: Determine the best strategies to streamline, be cost
effective and develop trusted partners.
8. Inventory: Process of ordering, storing, using and selling a company’s inventory.
9. Scheduling: Process of planning, coordinating and controlling the use of resources
to complete a production process. (Consider both production and people)
10. Maintenance: People and machines required to produce or deliver the final
product/service.

How Processes Work

Every process and every person in the organization has customers
• External Customers: Person who isn’t directly connected to the organization
other than by purchasing your product or service.
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• Internal Customers: An individual from an organization who receives a specific

service from a staff member within the same organization.

Every process and every person in the organization relies on suppliers:

• External Suppliers: A company or individual that provides goods or services to
another company under terms specified in a contract.
• Internal Suppliers: Part of the same company as its customer.

Nested Process
Process inside a process. It involves breaking down complex tasks into smaller, more
manageable subprocesses. Each subprocess contributes to the overall completion of the
main process. This hierarchical structure helps in organizing and understanding intricate
procedures, enhancing efficiency, and facilitating better management.

Characteristics of Services Characteristics of Goods

Intangible: Ride in an airline seat
Produced and consumed simultaneously
High Customer Interaction
Quality may be hard to evaluate
Often knowledge based
Tangible: The seat itself
Product can usually be kept in inventory
Limited customer involvement in production
Many aspects of quality for tangible products
are easy to evaluate
Standard tangible product tends to make
automation feasible

Competitive Priorities
A process or supply chain must possess to satisfy its internal and external customers,
both now and in the future.

Competitive Capabilities
Cost (Low-cost operations), quality (high performance design), time (fast delivery,
punctual delivery) and flexibility (development speed, customization, volume flexibility)
that process or supply chain actually possesses and is able to deliver.

Quality (Top and Consistent)

Quality Definition Process Considerations Example

Top Quality Delivering an May require a high level • Rolex
outstanding service or of customer contact • Luxury
product and may require Restaurant
superior product • Ferrari
features
Consistent Quality Producing services or Processes designed and • McDonald’s
products that meet monitored to reduce • Casio
design specifications on errors and prevent
a consisten basis defects
Delivery Speed Fast Quickly filling a Design Processes to • Netflix
Delivery customer’s order reduce lead time
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On- Time Delivery Meeting delivery-time Planning processes used • United Parcel
promises to increase percent of Service (UPS)
customer orders
shipped when promised
Development Speed Quickly introducing a Process involves cross- • Zara
new service or a functional integration
product and involvement of
critical external
suppliers
Customization Satisfying the unique Processes typically • Ritz Carlton
needs of each customer have low volume, close
by changing service or customer contact and
product designs can be easily
reconfigured to meet
unique customer needs
Variety Handling a wide Processes are capable • Amazon.com
assortment of services of larger volumes than
or products efficiently processes supporting
customization
Volume Flexibility Accelerating or Processes must be • The United
decelerating the rate designed for excess States Postal
of production of capacity and excess Service
services or products inventory (USPS)
quickly to handle large
fluctuations in demand

Order Winners
A criterion customers use to differentiate the services or products of one firm from
those of another.
Order Qualifiers
Minimum level required from a set of criteria for a firm to do business in a particular
market segment.
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Service and Manufacturing Processes

Physical, durable output

Output can be inventoried Output cannot be inventoried
Low customer contact High customer contact
Long response time Short response time
Capital intensive Labor intensive
Quality easily measured Quality not easily measured

Needs Assessment

• Service or Product Needs: Attributes of the service or product, such as price,

quality and degree of customization.
• Delivery System Needs: Attributes of the processes and the supporting systems,
and resources needed to deliver the service or product, such as availability,
convenience, courtesy, safety, accuracy, reliability, delivery speed and delivery
dependability.
• Volume Needs: Attributes of the demand for the service or product, such as high
or low volume, degree of variability in volume and degree of predictability in
volume.
• Other Needs: Other attributes, such as reputation and number of years in
business, aftersales technical support, ability to invest in international financial
markets and competent legal services.

Dimension Definition
Low-Cost Operations Delivering a service or product at the
lowest cost possible
Top Quality Delivering an outstanding service or
product
Consistent Quality Producing services or products that meet
design specifications on a consistent basis
Delivery Speed Quickly filling customer orders
On- Time Delivery Meeting delivery time promises
Development Speed Quickly introducing new services or
products
Customization Satisfying unique needs of customers
Variety A wide assortment of services or products
Volume Flexibility Accelerating or decelerating the rate of
production
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The Supply Chain View

Encompasses the entire process of bringing a product or service from its raw material
stage to the end consumer. It involves various interconnected activities such as
procurement, manufacturing, transportation, storage, and distribution. The goal is to
optimize each step for efficiency and cost-effectiveness.

Each activity in a process should add value to the preceding activities, waste and
unnecessary cost should be eliminated.

Interactions with Clients

• Transactional Level: One-Time interactions focused on a specific product or

service.
• Customer Service Level: Addressing client concerns or issues.
• Relationship Management Level: Understanding client needs, preferences and
providing personalized solutions.
• Consultative Level: Working closely with clients to meet their goals.
• Strategic Level: Involves understanding the client’s business strategy and aligning
services.

A Sipoc Diagram provides a high-level view of a process by documenting its suppliers,

inputs, process, outputs, and customers. (Excellent tool for analyzing and improving
business
processes)
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Suppliers:
• Usuarios solicitantes
• Usuarios autorizantes
• Autorizantes del área de compras
Input:
• Solicitud de compra
• Especificaciones técnicas
• Otros datos adicionales para efectuar la compra

Process
1. Emisión de requerimiento
2. Emisión de nota de pedido
3. Envío de notas de pedido
Output:
• Nota de pedido debidamente autorizada
Customer:
• Usuario interno
• Pago a proveedores

Elementos de los procesos: Emisión de nota de pedido

• Nombre del proceso
• Recursos asignados
• Métricas/Objetivos
• Dueño del proceso
• Unidad de medida

Recent trends, issues, and perspectives in operations management

• Productivity: Implementing lean operations and continuous improvement strategies

to eliminate waste, optimize resource utilization, and enhance productivity,
distribution and overall supply chain management.
• Global Competence: Adapting products, services, and operations to diverse global
markets, considering cultural preferences, legal requirements, and local business
practices.
• Technological Changes: Embracing digital technologies such as IoT (Internet of
things), AI, and automation to optimize processes, enhance decision-making, and
improve overall operational efficiency.
• Ethics, diversity, and environment (Sustainable and Inclusive Responsibility):
This approach emphasizes conducting operations in an ethical manner, promoting
diversity and inclusivity within the workforce, and prioritizing environmentally
sustainable practices.
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Value Chain Analysis

Strategic process that can increase profit margins and provide a competitive advantage
for companies of all sizes. Within this analysis business identify areas where the value of
specific production and sales activities can be increased.

Example: Apple's iPhone value chain spans the globe, from sourcing components worldwide
and assembly in China to global distribution, marketing, and customer service. This
integrated approach, supported by international procurement, research, and a diverse
workforce, underscores Apple's effective global business management.

Value chain analysis gives you a starting point for your entire sales and marketing approach.

The VCA chart is broken into two sections: Primary activities and supportive (or
secondary) activities. Primary activities focus on the manufacturing of goods and
services, while secondary activities back up primary activities.

Primary activities include:

• Inbound logistics: Availability of raw materials, warehousing, and distribution
• Operations: Creating products from raw materials
• Outbound logistics: Delivery of products to customers, including warehouse,
transportation, and distribution.
• Marketing and sales: All advertising and sales interactions and activities (also
a great place to use your sales forecasting data)
• Service: All forms of customer support interaction and brand credibility
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Secondary activities include:

• Infrastructure: Any administrative, finance, management, planning, or legal
operations needed to support primary activities
• Technology development: Technological improvements made to existing
machinery, hardware, or software in the name of supporting primary activities.
• Human resource management: Hiring and then placing workers in the correct
and most efficient positions.
• Procurement: All purchases related to buying raw materials or any fixed
assets (for example, vendor fees and selection)

Quality

The product or service that’s been offered meet and exceed all customer requirements,
standards, and specifications.

“The totality of featured and characteristics of a product or service that bears on its
ability to satisfy stated or implied needs.”

Defect

Any instance when a process fails to satisfy its customer.

Process is an activity that takes one or more inputs, transforms them, and provide one or
more outputs for its customers.
• Leadership Processes
• Operational Processes
• Support Processes
Supply Chain Management is the synchronization of a firm’s processes with those
of its suppliers and customers to match flow of materials, services, and information with
customer demand.
Supply Chain: An interrelated series of processes within and across firms that produces a
service or product to the satisfaction of costumers.

Sustainable Development Goals (SDG)

Are objectives set by individuals, organizations to promote sustainable practices and
address environmental, social, and economic challenges. These goals are designed to create
a more sustainable future for current and future generations by addressing issues such as
climate change, poverty, inequality.
• No poverty
• Quality Education
• Gender Equality
• Peace, justice, and strong institutions.
• Climate actions
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Circular Economy
Model of production and consumption, which involves sharing, leasing, repairing,
refurbishing, and recycling existing materials and products as long as possible.
it implies reducing waste to a minimum.

When a product reaches the end of its life, its materials are kept within the economy
wherever possible thanks to recycling. These can be productively used again and again,
thereby creating further value.

Productivity

Measuring output per unit of input to gauge (measure) the efficiency of production.

Multi-Factor Productivity (MFP)

Considers the combined efficiency of multiple inputs in the production process. It considers
various factors such as labor, capital, energy. Also known as total factor productivity.
Output and inputs are often expressed in dollars $

Example:
Calculate the productivity for the following operations:
a) A team of workers makes 400 units of a product, which is sold in the market for
$10 each. The accounting department reports that for this job the actual cost is
$400 for a labor, $1.000 for materials and $300 for overhead.

Single- Factor: Productivity Labor Productivity, units per hour.

Raw materials: Per meter, per kilo.
Incomplete view of total company contributions to productivity
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Example:
Calculate the productivity for the following operations:
a) Three employees process 600 insurance policies in a week.
b) They work 8 hours per day, 5 days per week.

1. Quality may change while the quantity of inputs and outputs remains constant.
2. External elements may cause an increase or decrease in productivity.
3. Precise units of measure may be lacking.

Breakeven Point

Production Level at which cost of production at which the costs of production equal the
revenues for a product.

“Nivel de ventas en el que los ingresos totales igualan los costos totales, lo que resulta en
cero ganancias ni pérdidas. En otras palabras, es el momento en el que una empresa cubre
todos sus costos fijos y variables, y no genera ni beneficios ni pérdidas netas.”

The above formula can also be expressed using the contribution margin:
Break Even Point (sales) = Fixed Costs / Contribution Margin

The contribution margin is obtained with the following formula:

Contribution Margin = Product Price – Variable Costs

Total Revenue: pQ
Total Cost: F( Fixed Cost) + cQ

Fixed Cost is the portion of the total cost that remains constant regardless of changes in
levels of output.
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Which one of the following statements about break – even analysis for evaluating
products or services is true?
• A restaurant’s opening of downsized facilities with only drive-through service is an
example of lowering fixed cost and the break-even quantity.

The Break-Even Quantity is the volume at which total revenues equal total costs.

“Cantidad de unidades que una empresa debe vender para alcanzar el punto de equilibrio.
Esta cantidad es el nivel de producción o ventas en el cual los ingresos totales igualan los
costos totales, resultando en cero ganancias ni pérdidas.”

Processes Formula

Total Cost to Buy (Option with the lowest fixed cost)

Fb + cbQ

Fb (Fixed cost per year)

CbQ (Variable cost per unit)

Total Cost to Make (Option with the highest fixed cost)

Fm + cmQ

Fm (Fixed cost)
CmQ (Variable Cost)
Break- Even Quantity Formula

Q= Quantity in which the cost of buying equal the cost of making. (Break Even Point)
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Decision Trees
Used in operations research, specifically in decision analysis, to help identify a strategy
most likely to reach goals.
Depicts the many options for solving an issue.

“Support tool with a tree-like structure that models probable outcomes, cost of
resources, utilities, and possible consequences. Decision trees provide a way to present
algorithms with conditional control statements.”

• We must build the tree from left to right.

• We are going to eliminate branches from right to left.
• As we cut the branches, every time we find a square (decision node) we’re going to
choose the best choice and cut the branches that contain the choices we haven’t
selected.
• Whenever you find a circle you can’t choose, as is something we can’t control.
(Calculate weighted average)
• A square represents that a decision has to be made.
• The lines coming from a square represent the possible choices.
• The circles show that there are outcomes as a result of a choice.
• The lines coming from a circle show the expected outcomes.

Those items that aren’t under my control are in circles. (Weather conditions, demand.)
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Unit 2: Process Strategy and Analysis

Pattern of decisions made in managing processes so that they will achieve their competitive
priorities.
• Cost
• Time
• Flexibility
• Quality

Process Structure in Services

(Criteria to take into account)

Customer Contact The customer is present, actively involved

and receives personal attention during the
service process.

Customization Service level ranging from highly

customized to standardized.

Process Divergence The process is highly customized with

considerable latitude as to how its tasks
are performed.

Flow How the work progresses through the

sequence of steps in a process.

Customer- Contact Matrix - Service Process Structuring

• Front Office: Customer-facing aspect of a business, dealing directly with clients

through functions like sales, marketing, and customer service. It shapes the
customer experience and serves as the public face of the company.

• Hybrid Office: Flexible work environment combining on-site and remote work.
Embracing technology, this model allows employees to work both in physical offices
and remotely. Recognizing the implications of the hybrid office is crucial for
understanding evolving work trends in a global business context. (Some interaction
with customers, standard service with some options)

• Back Office: Handles internal operations vital for overall business function,
including administration, HR, accounting, and IT support. While not customer-
facing, it ensures organizational efficiency and supports front office functions.
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Process Structure in Manufacturing

• Job Process: Tailored to produce unique, custom-made products. Each product is

typically made to order, and the production process is flexible and can be
customized to meet specific customer requirements.
Example: A craftsman creating custom furniture pieces.
• Batch Processes: Involves producing a set quantity of products at one time.
Products are typically standardized within each batch and the production process
is adjusted between batches to accommodate different products or
specifications.
Example: Pharmaceutical manufacturing producing batch of medication.
o Small Batch Process: Produce goods in limited quantities.
(The production volume is lowest than in mass production allowing more
flexibility and customization)

o Large Batch Process: Producing a significant quantity of standardized

products. (Repetitive work)

• Line Process: Products move along a production line and each station on the line is
responsible for a specific task. (Set up to produce a standard product
repeatedly at a high volume)
Example: Automobile assembly line producing standardized cars
Process Choice: Way of structuring the process by organizing resources around the
process or organizing them around the products.
• Job Process
• Bath Process (Small or Large)
• Line Process
• Continuous-Flow Process
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Production and Inventory Strategies

• Design to Order Strategy: Products are customized and designed based on

specific customer requirements. (Production processes are initiated only after
receiving a customer’s order)
• Make to Order Strategy: Products are manufactured only after receiving
customer orders. This strategy helps reduce inventory costs and can lead to
quicker response times compared to Design-to-Order.
• Assemble to Order Strategy: Producing standard components or sub-
assemblies in advance and assembling them into final products only after
receiving customer orders.
o Postponement: A company delays product differentiation until closer to
the point of sale. For example, a company might produce a generic
product and then add specific features or labels based on customer
requirements after receiving orders. This helps reduce the risk of
producing excess inventory.
o Mass Customization: The ability to customize products on a large scale
to meet individual customer needs. It involves designing flexible
production processes that can accommodate a wide range of product
variations.

• Make-to-Stock Strategy: Mass production. This strategy involves producing

goods based on demand forecasts and stocking them in anticipation of customer
orders. It is suitable for products with stable demand patterns and allows for
quicker order fulfillment. Mass production is often associated with this
strategy, as it involves producing large quantities of standardized products to
achieve economies of scale.

Layout: Arrangement of people, equipment, material, and methods to create products in

order of process in a continuous flow. (Focusing on short lead times, low inventory, and
flexibility to respond to changes in mix and volumes minimizes the total cost of product)

Operation: A group of human and capital resources performing all or part of one or more
processes.

Customer Involvement

Possible Advantages:
o Increased net value to the customer
o Better quality, faster delivery, greater flexibility, and lower cost
o Reduction in product, shipping, and inventory costs
o Coordination across the supply chain
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Possible Disadvantages:
o Can be disruptive.
o Managing timing and volume can be challenging.
o Could be favorable or unfavorable quality implications.
o Requires interpersonal skills.
o Multiple locations may be necessary.

Resource Flexibility

Workforce:
• Flexible Workforce

Equipment:
• General - Purpose
• Special – Purpose

Decision Patterns for Manufacturing Processes

Capital Intensity:
• Automating Manufacturing Processes
o Fixed Automation
o Flexible (Programmable) Automation
• Automating Service Processes
• Economies of Scope

Process Reengineering
The fundamental rethinking and radical redesign of processes to improve performance
dramatically in terms of cost, quality, service, and speed.
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Key Elements:
• Critical processes
• Strong leadership
• Cross - Functional Teams
• Information Technology
• Clean – slate philosophy
• Process Analysis

Process Improvement: Systematic study of the activities and flows of each process to
improve it.

Process Analysis: The documentation and detailed understanding of how work is performed
and how can be redesigned.

Six Sigma Process Improvement Model

Flowchart: A diagram that traces the flow of information, customers, equipment, or

materials through the various steps of a process. (Visual representation that groups
functional areas responsible for different subprocesses into lanes)

Service Blueprint: Special flowchart of a service process that shows which steps have high
customer contact.

Process Charts: An organized way of documenting all the activities performed by a person
or group of people, at a workstation with a customer or working with certain materials.
Activities are typically organized into five categories:
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For example:
- Average time to serve a customer is 4 hours.
- The variable cost is $25 per hour.
- 40 customers are served per year.
The total labor cost is:
4hrs/customer x $25/hr x 40 customers/yr= $4,000

Brainstorming: Letting a group of people, knowledgeable about the process, propose ideas
for change by saying whatever comes to mind.
Benchmarking: Systematic procedure that measures a firm’s processes, services and
products against those of industry leaders.

Human Resources Management plays a key role in helping companies deal with a fast –
changing environment and the greater demand for quality employees.
Dimensions of Customer Contact in Service Processes
Dimension High Contact Low Contact
Physical Presence Present Absent
What is proceed People Possesions of info
Contact Intensity Active, visible Passive out of sight
Personal Attention Personal Impersonal
Method of Delivery Face to Face Regular mail
Work/Job Design: Process of deciding the tasks and responsibilities that should form part
of a particular job.

Labor Standards: Amount of time required to perform a job or part of a job.

• Effective workforce planning is dependent on a knowledge of the labor required.
• Accurate labor standards help determine labor requirements, costs and fair work.
• Stated early in the 20th century.
It help determine:
• Staffing needs
• Cost and time estimates
• Expected Production
• Efficiency of Employees
May be set in four ways:
1. Historical Experience: How the task was perfomed last time, easy and inexpensive..
2. Time Studies: Involves timing a sample of a worker’s performance and using it to
set a standard. Required trained and experienced observers.
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3. Predetermined Time Standards: Can be set before the work is actually perfomed.
4. Work Sampling: Estimates percentage of time a worker spends on various tasks.
/Less expensive than time study.

Digital Monitoring Techniques

• Computer oriented jobs are now tracked by software.

• Similarly, for many physical tasks, labor standards are now built into software that
tracks, monitors and rates individual performance.
• Hospitals installing sensors to detect everything from the location of nurses to
handwashing practices.
• Restaurant software continues to be refined to track multiple metrics.

Ethics:
• Fairness, equity, and ethics are important constraints of job design.
• Important issues may relate to equal opportunity, equal pay for equal work and safe
working conditions.
• Helpful to work with government agencies, unions, trade associations, insurers, and
employees.

Unit 3: Managing Process Constraints

A constraint is any factor that limits the performance of any system and restricts its
output.

Bottleneck a capacity constraint resource (CRR) whose available capacity limits the
organization’s ability to meet the product volume, product mix or demand fluctuations
required by the marketplace.

Bottleneck Operation: An operation in a sequence of operations whose capacity is lower

than that of the other operations.
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Processing Capacity:
Employees/ Processing Times

60 x 0,05= 3
60 x 0,10= 6
60 x 0,6666= 4

Achieved cycle time (Mayor unidades producidas en x minutos): 6 Min/ Unit

What is the customer experience “Throughput Time”?
3 minutes + 6 minutes + 4 minutes= 13 minutes.
Theory of Constraint (TOC)
A systematic management approach that focuses on actively managing those constraints
that impede a firm’s progress toward its goals.
• An hour lost at a bottleneck or constrained resource is an hour lost for the whole
system.
• An hour saved at a nonbottleneck resource does not make the system more
productive.
• If you want to add inventories.
Inventory is needed only in front of (after) bottlenecks and in front of (after)
assembly and shipping points.
Steps:
1. Identify the System Bottleneck(s)
2. Exploit the Bottleneck(s)
3. Subordinate all other decisions to step 2.
4. Elevate the Bottleneck(s)
5. Do not let inertia set in.
Example:
1 hour = 60 minutes = 3600 seconds
Resource Station1 Station2 Station3 Units
Processing 37 46 37 Seconds/unit
Times

Capacity 1/37= 0,0270 1/46= 0,0217 1/37= 0,0270 Seconds/unit

Capacity x 0,0270 x 3600 0,0217 x 3600 0,0270 x 3600 Seconds/unit

Hour seconds= seconds= seconds=
97,2973 78,2608 97,2973
Process X= Bottleneck Seconds/unit
Capacity

Demand 50 50 50 Seconds/unit

Utilization= 0,513889= 0.638889= 0,513889= Seconds/unit

Demand/ 51,38% 63,88% 51,38%
Capacity x
hour x 100
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What happens when the demand is 500 units? An increase in utilization. Utilization can
never exceed 100%.

Flow Rate: Minimum of demand and process capacity.

Utilization: How well resource is being used. (Always between 0% and 100%)

Bottleneck Identification

What is the customer experience “Throughput Time”?

15 minutes + 20 minutes + 15 minutes + 10 minutes= 60 minutes.

Bottleneck is step 2: It has the highest time per loan processed.

Total Capacity for loan completions: 60 min/ 20 min = 3 loans x hour

Managing Bottlenecks in Service Processes Customer Experience
• Throughput Time: Total elapsed time from the start to the finish of a job or a
customer being processes at one or more work centers.

Which Product to Give Priority to:

• New Method will be based on Contribution Margin per time spent at bottleneck
station D, C,A,B

Assembly Line: Production Line where material moves continuously through a series of
workstations where assembly work is performed.