OPERATIONS Ch 28

STRATEGY
INFLUENCE ON OPERATIONS
DECISIONS
Strategic operations decisions include:
• expanding or reducing capacity (refer to slides on Capacity
utilisation)
• locating a business or relocating it
• offshoring or reshoring
• outsourcing
• changing operations (production) methods
• application of IT and AI.
 ERP- ENTERPRISE RESOURCE
PLANNING
With the use of more and more computerized system single database program in all
departments of the biz is being used
Use of single computer application to plan, purchase and use resources in an organization to
improve efficiency of operations
Link all the support systems together:
1. Stock control and order
2. Invoice to customers
3. HR planning
4. Production planning
 SCM- SUPPLY CHAIN
MANAGEMENT
Supply chain involves all stages of production from obtaining raw material till the point of consumption
SCM is becoming an increasingly significant application of the ERP software
Operations use SCM to improve customer choice and gain competitive advantage
6stages (all include ERP):
1. Plan- decide resources
2. Suppliers- best and most cost effective one
3. Costs- at each stage cost is calculated for price
4. Manufacturing-check quality and monitor speed
5. Deliver- pick transport sys that delivers on time and rapidly
6. Return-costs to be reimbursed if products are returned
USEFULNESS OF ERP
Benefits
Supply according to demand –lean
production is used- min resources used
and lowers waste
JIT
Decrease costs at all stages of supply
chain and e-track all stages
Depts linked more closely together
more coordination and less waste
Management info is increased, more data
available and better, more informed
decisions
Limitations
Cost of database and computerized sys is
high
Multiple ways of operation have to reduce
to one common sys ( no trial and error)
may cause resentment
Full implementation of ERP will take 3
yrs . Tech might become advanced in that
time and hence ERP obsolete
CONCLUSION:
Effective way of increasing effectiveness
and reducing cost
Can be used for b2b and b2c
THE CHANGING ROLE OF IT AND AI
IN OPERATIONS MANAGEMENT

CAD/CAM, AI AND PROCESS INNOVATION

AI applications in business operations
The use of AI to enhance business operations is developing rapidly.
These applications can automate repetitive and commonly occurring tasks to increase
productivity and improve customer service.
AI customer call centre applications can answer customer calls within 5 seconds on a 24/7/365-
accurately aolve customers’ problems on the first call 90%
Research has shown that under half of the customers know that they are interacting with a
machine.
The great benefit of these and similar AI applications stems from their ability to reduce search
time and process more data to inform decisions. This is how they can boost productivity.
They also free up employees’ time so that they can perform higher-level work that requires human
flexibility and
creativity.
AI applications in business operations can improve operational efficiency, customer satisfaction
and the working experience of employees.
AI
Other AI applications in business operations include:
• banking applications for processing loan requests, which give
customers a much quicker response .online payment systems
which identify potential fraud
• legal applications for identifying relevant previous court cases
• manufacturing applications for scheduling the best time to
maintain equipment
• pharmaceutical research and development applications for
predicting the success of medical drugs that are being developed
• cyber security software to monitor online behaviour, detect
abnormal behaviour, issue alerts and respond to threats.
 FLEXIBILITY AND INNOVATION
Future demand patterns are not easy to predict accurately. If actual demand turns out to be either higher or lower
than forecast, there is a great need for operational flexibility.

The importance of operational flexibility

This flexibility can improve business efficiency by:

• adapting the volume of output to changes in market demand

• changing delivery time schedules to meet changes in the timing of customer requirements

• responding to the demand from customers for unique or unusual product specifications.

Operational flexibility can be improved in a number of ways, as listed below.

• Increasing capacity by extending buildings and buying more equipment

• Outsourcing some production so that output can be varied rapidly

• Holding high inventories just in case consumer demand increases in unpredictable ways

• Employing a flexible and adaptable labour force

• Investing in production systems that allow for mass customisation

Process innovation

• robots in manufacturing

• faster machines to manufacture microchips for computers

• computer tracking of inventories (e.g. by using bar codes and scanners)

LEAN PRODUCTION AND
QUALITY
Improves operational efficiency and productivity
Increases output and keeps up with quality
Lean production- Japanese method which states “getting it
right first time”
Producing goods/services with min amount of resources
wasted while maintaining quality
Lean- cutting out anything in prod process that adds
complexity, cost, time + doesn’t add value to customer
-quality circles
-empowerment of workers
-efficient use of capacity
-JIT – conditions, adv, disadv
7 MAIN SOURCES OF WASTE
IN THE INDUSTRY
Excessive transport of components/products
Excessive inventory holding
Too much movement by working people
Waiting time- delays
Over prod- producing ahead of demand
Over process-make goods complex
Defects- products that don’t come up to quality std. Have
to be rejected/ corrected
HOW CAN AIM OF WASTE
REDUCTION BE ACHIEVED
Lean production
(1)Simultaneous engineering –dev new products by
ensuring design, market research, costing and engineering
Product dev is organized so that diff stages are done at the
same time instead of sequence
More products become complicated, longer to dev new
designs. NPD may become out of date (tech) or obsolete
Adv- new products can be in the mkt place months/yrs
earlier than sequential. (CPA)
CELL PRODUCTION
Flow production form
Splitting flow production into self contained grps that are resp
for whole work units
Prod line split into several self contained mini prod
units-”cells”
Each cell produces complete units of work
Each cell has a team leader+below single level of hierarchy
(multi-skilled workers)
Performance of each cell is measured against pre-set targets
Targets, output levels, quality and lead time
Cells are resp for quality of their own units of work. TQM
CELL PRODUCTION
It leads to:
Improvement in worker commitment/motivation due to
team work and sense ownership
Job rotation within the cell
Increased productivity and efficiency
Success of cell prod depends on:
Well trained/multi-skilled/flexible workforce
Accept a resp style of working
FLEXIBLE SPECIALIZATION-
AKA TIME BASED MANAGEMENT
Linked to mass customization
Eliminates buffers, reduces distance, delivery to customers +
quick/better quality
Changing from one design to the other design requires flexible working
in 3 areas:
Flexible employment contracts- demand changes
Flexible, adaptable machinery- comp controlled
Flexible, multiskilled workers-perform diff jobs on diff product ranges
Adv:1.quick response to changes in demand
2.wider range of products to customers
3. reduced stock holding
4.incresaed productivity
4.JIT- CONTROL PRINCIPLE
Part of lean production
Fewer resources tied up in buffer inventory
Adv, disadv and conditions for JIT imp (AS)

5. KAIZEN (Japanese term )

Continuous improvement
All workers have sth to contribute to improve the way biz operates and way the
product is made
KAIZEN
Series of small steps overtime big improvement in efficiency rather than
one-off big changes
Kaizen is workers know more than managers as they are hands on
How a job is done + productivity increases
Advocates of theory Y
Theory X approach can not rely on this
KAIZEN
Conditions for Kaizen:
1. Mgmt culture must be directed towards involving staff and giving views, ideas
2. Teamworking- discuss ideas for improving quality, productivity is best done in
grps
3. Empowerment- giving each grp the power to take decisions regarding workplace
improvement, intro of new ideas and motivating employees
4. All employees should be involved
KAIZEN
Needs to be adopted by an org throughout
Limitations:
1. Some changes can’t be intro gradually. Need a radical/expensive solution e.g
analog to digital tech
2. Resistance from managers especially authoritarian will find it impossible
3. Short term- tangible costs e.g. training
4. Imp advances but during kaizen changes can be lost significantly
QUALITY CIRCLES
(JAPANESE)
Staff involvement in improving quality
Small groups of workers to discuss quality
Teamwork and participation is seen
Benefits:
1. Improve quality through joint discussion of ideas and solution
2. Improve motivation through participation
3. Full use of knowledge and experience of staff
Conditions for success:
1. Members must be committed
2. Training given for meetings/problem solving
3. Full support from mgmt
4. Team should be empowered to implement
QUALITY CIRCLES
Evaluation:
Quality is not an option
Applicable for secondary, tertiary and competitive markets
Quality has cost advantages
Benefits are also there
Staff inequality and motivation is high
Satisfy customer expectations
ADV OF LEAN PRODUCTION
Wastage of time and resources is reduced
Unit cost decreases, profits increase
Work area less crowded, easier to operate
Less risk of damage to stock, equipment
New products launched more quickly
Are lean prod,JIT appropriate in all biz situations?
Cant be intro overnight, conditions necessary
1. Finance- tech is not cheap, machinery is exp, retraining of
staff not cheap
2. Workforce- existing mgmt will need to be adapted. Culture
needs acceptance. Work commitment is imp
LEAN PRODUCTION
When is it suitable?
Biz have diff in forecasting demand and have zero stocks. Major prob is if demand
increases what do you do
prod processes are v expensive to set up after break in prod esp. huge repair bills
Device for redundancies job losses therefore less support from workforce
Biz have customer service as their USP- more certain delivery date and more choices
Cost of new tech and retraining might be substantial
 LINKS BETWEEN LEAN PRODUCTION
AND OTHER OPERATIONS ISSUES
• Inventory control-JIT.
• Quality. The principles of TQM and zero-defects are important because they aim to
reduce waste
• Employees’ roles. The need for flexibility, which is an important feature of lean
production, can impact on employees’ roles in three ways:
• more need for flexible employment contracts that allow non-core workers to be called
in as required
• willingness to participate in groups to suggest ways to reduce waste and improve
efficiency (e.g. in kaizen groups and quality circles)
• preparedness to be retrained to gain multi-skills, which allow employees to perform
different jobs on different products.
• Capacity management. Flexible and lean operations lead to more effective use of
available capacity. For example, spare capacity can be reduced by adapting existing
designs to meet consumer demands in niche markets. This should lead to increased
demand and output.
• Efficiency. This section has examined ways in which lean production techniques
improve business efficiency by reducing waste. These efficiency improvements will
make businesses more competitive by driving down the average cost of production