Operations Management: Key Concepts

• Operations management is the process of transforming inputs into goods and services, thereby creating value.

Basic Functions of a Firm

• A firm's three primary functions are operations, marketing, and finance.

10 Strategic Operations Management Decisions

• Design of goods and services.
• Managing quality.
• Process strategies.
• Location strategies.
• Layout strategies.
• Human resources.
• Supply chain management.
• Inventory management.
• Scheduling.
• Maintenance.

Goods vs. Services

• Goods are tangible, while services are intangible.

Production vs. Productivity

• Production is the creation of goods and services, while productivity is the efficiency of that creation, measured as the ratio of outputs to inputs.

Types of Productivity Measures

• Single-factor productivity: Measures output relative to a single input.
• Multifactor productivity: Measures output relative to a combination of inputs.

Reasons to Globalize

• Improve the supply chain.
• Reduce costs and exchange rate risk.
• Improve operations.
• Understand markets.
• Improve products.
• Attract and retain global talent.

Sustainability

• Sustainability is meeting present needs without compromising future generations' ability to meet their own needs.

Just-in-Time (JIT)

• Just-in-time (JIT) is a production strategy that emphasizes continuous improvement and problem-solving. It aims to produce or deliver goods exactly when needed, reducing waste and inefficiencies.

JIT, Lean Operations, and Toyota Production System (TPS)

• Lean operations are driven by customer demand focusing on waste elimination. JIT minimizes inventory, revealing quality issues for cost and quality improvements. TPS incorporates innovations like small lot sizes and level scheduling for efficient production.

Ohno’s 7 Wastes

• Overproduction.
• Queues.
• Transportation.
• Inventory.
• Motion.
• Overprocessing.
• Defective products.

Pull vs. Push Systems

• A pull system delivers units only when needed. A push system sends orders to the next workstation regardless of need or resource availability.

Kaizen

• Kaizen means "change for the good" or "continuous improvement."

JIT Focus Areas

• Inventory reduction.
• Quality improvement.
• Throughput enhancement.

Kanban

• Kanban means "card" in Japanese, It is a scheduling system that controls the logistical chain from a production point of view and is a vital part of JIT manufacturing.

Advantages of Kanban

• Reduced inventory.
• Improved efficiency.
• Flexibility.
• Enhanced visibility.
• Better quality control.
• Reduced lead time.
• Cost savings.

Supply Chain Management (SCM)

• Supply chain management includes managing activities related to procuring materials and services, transforming them into intermediate goods and final products, and distributing them.

Objective of SCM

• The goal is to coordinate supply chain activities to maximize competitive advantage and benefits for the end consumer.

Sourcing Strategies

• Many Suppliers: Used for commodity products, purchasing relies on price and suppliers compete with one another, while being responsible for technology, forecasting, cost, quality, and delivery.
• Few Suppliers: Long-term relationships with fewer suppliers allowing for the development of JIT programs and contributions to design and technology, as well as value creation through economies of scale and learning curve improvements.
• Vertical Integration: Developing the ability to produce previously purchased goods or services, improving cost, quality, and inventory. Risky with rapid technological changes and requiring capital, management skills, and demand.
• Joint Ventures: Formal collaboration enhancing skills, securing supply, and reducing costs without brand dilution or competitive disadvantage.
• Keiretsu Networks: A middle ground between few suppliers and vertical integration where the supplier becomes part of the company coalition offering long-term relationships with technical expertise and stable deliveries, also providing financial support to suppliers.
• Virtual Companies: The supply chain is the company. Relies on supplier relationships to provide services on demand creating unique enterprises to meet changing market demands.

Risks of SCM

• Greater reliance on the supply chain results in more risk.
• Fewer suppliers result in increased dependence.
• Vendor reliability and quality risks
• Risks are increased by globalization and logistical complexity.

Forecasting

• Forecasting involves predicting future events by using historical data and projecting it into the future via a mathematical model.

Forecasting Time Horizons

• Short-range: Up to one year, usually less than 3 months, focusing on purchasing, job scheduling, workforce levels, job assignments, and production levels.
• Medium-range: From 3 months to 3 years, involving sales and production planning and budgeting.
• Long-range: 3+ years, focusing on new product planning, facility location, and research and development.

Steps to Develop a Forecasting System

• Determine the use of the forecast.
• Select the items to be forecasted.
• Determine the time horizon of the forecast.
• Select the forecasting models.
• Gather the data.
• Make the forecast.
• Validate and implement results.

Forecasting Approaches

• Qualitative: Based on intuition and experience.
• Quantitative: Based on mathematical techniques; used when the situation is stable and historical data exists.

Qualitative Forecasting Model

• It should be used when a situation is vague and little data exists.

Qualitative Forecasting Methods

• Jury of executive opinion: A small group of high-level experts and managers combines managerial experience with statistical models.
• Delphi method: An iterative group process where decision-makers evaluate responses, staff administer surveys, and respondents provide valuable judgements, continuing until a consensus is reached.
• Sales force composite: Each salesperson projects their sales, which are combined at district and national levels.
• Customer market survey: Directly asking customers about their purchasing plans.

Time-Series vs. Associative Model

• A time-series model uses evenly spaced numerical data, forecasting based only on past values. An associative model forecasts an outcome based on predictor variables using the least squares technique.

Components of Time-Series Forecasting

• Naïve approach: Assumes demand in the next period will be the same as in the most recent period.
• Moving average method: Uses a series of arithmetic means, commonly used with monthly sales data to provide an overall impression of data over time when there is little or no trend.
• Weighted moving average: Assigns weights to data, with older data usually considered less important when some trend might be present.
• Exponential smoothing: A weighted moving average where weights decline exponentially, with the most recent data weighted the most, involving little record-keeping of past data.
• Trend projection: Involves fitting a trend line to historical data points to project into the medium to long-range, often using the least squares technique.

Correlation Coefficient

• The correlation coefficient measures the degree of association, with values ranging from –1 to 1.

Coefficient of Determination

• The coefficient of determination measures the percent change of y predicted by the change in x, with values ranging from 0 to 1.

Explore operations management principles, including the functions of a firm, strategic decisions, and the differences between goods and services. Understand productivity measures and reasons for globalization in operations.