Operations Management PDF

# Operations Management ## Module 1: Process Analysis ### Session: 1st - 2nd **Dr. Neelkanth Chandrakant Dhone** Fellow of National Institute of Industrial Engineering (NITIE), Mumbai. B.E (Mechanical), M.B.A(Marketing/Operations), UGC.NET-2010 (Management). **Faculty (Productions & Operations...

# Operations Management ## Module 1: Process Analysis ### Session: 1st - 2nd **Dr. Neelkanth Chandrakant Dhone** Fellow of National Institute of Industrial Engineering (NITIE), Mumbai. B.E (Mechanical), M.B.A(Marketing/Operations), UGC.NET-2010 (Management). **Faculty (Productions & Operations Management)** Indian Institute of Management-Nagpur *Strictly for the internal circulations only* ## Session Plan 1. Introduction to Operations Management 2. Competitive Dimensions 3. Four Steps for Strategy Formulation 4. Competitive Priorities 5. Strategic Decisions in Operations 6. Strategic Planning 7. Issues and Trends in Operations 8. Changing Corporation... 9. Value Stream Mapping & Concurrent Engineering 10. Developing New Products ## 1. What Is Operations Management? * The design, operation, and improvement of the systems that create and deliver the firm's primary products and services. * Operations management is a functional field of business with clear lines management responsibilities. * It is concerned with the management of the entire production. **"Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs." **(Chase et al.) ## 2. Competitive Dimensions | Dimensions | Description| |---|---| | Cost | Make the product or deliver the service cheap| | Quality | Make a great product or delivery a great service | | Delivery Speed | Make the product or deliver the service quickly | | Delivery Reliability | Deliver it when promised | | Coping with Changes in Demand | Change its volume | | Flexibility and New-Product Introduction Speed | Change it | ### 2.1 Other Product-Specific Criteria: "Support It" | Criteria | Description| |---|---| | Technical liaison and support| A supplier may be expected to provide technical assistance for product development | | Meeting a launch date | A firm may be required to coordinate with other firms on a complex project | | Supplier after-sale support | An important competitive dimension may be the ability of a firm to support its product after the sale | | Environmental impact | This dimension is related to environmental/green criteria | | Other dimensions | These typically include such factors as colors available, size, weight, location of the fabrication site | ### 2.2 Strategic Initiatives at Tesla to Address Major Obstacles for Battery-Powered Car 1. Built thousands of "supercharging" stations 2. Building a giant battery plant 3. Introduced "battery swap" technology ### 2.3 Success Depends On...... * Clever integration of a great operations-related strategy * Processes to deliver products and services * Analytics to support the decisions needed to manage the firm ## 3. Four Steps for Strategy Formulation 1. Defining a primary task * What is the firm in the business of doing? 2. Assessing core competencies * What does the firm do better than anyone else? 3. Determining order winners and order qualifiers * What wins the order? * What qualifies an item to be considered for purchase? 4. Positioning the firm * How will the firm compete? ### 3.1 Order Winners and Order Qualifiers * **Order qualifiers**: those dimensions that are necessary for a firm's products to be considered for purchase by customers. Features customers will not forget. * **Order winners**: criteria used by customers to differentiate the products and services of one firm from those of other firms. Features that customers use to determine which product to purchase ultimately. * **Walmart** used quality products (order qualifier) to enter the market and low pricing (order winner) to compete with other retailers. ## 4. Competitive Priorities | No. | Competitive Priorities | Parameters | |---|---|---| | 1 | Cost | Low Cost Operations| | 2 | Quality | Top-level Quality, Consistent Quality | | 3 | Flexibility | Customization, Variety, Volume Flexibility| | 4 | Speed | Delivery Speed, On-time Delivery, Developmental Speed | ### 4.1 Competitive Priorities: Cost * **Lincoln Electric** * Reduced costs by $10 million a year for ten years. * Skilled machine operators save the company millions that would have been spent on automated equipment. * **Southwest Airlines** * Direct flights mean no baggage transfers. * $30 million annual savings in travel agent commissions by requiring customers to contact the airline directly. ### 4.2 Competitive Priorities: Quality * **Ritz-Carlton - one customer at a time** * Every employee is empowered. * Teams at all levels set objectives and devise quality action plans. * Each hotel has a quality leader. * **Quality reports tracks:** * Guest room preventive maintenance cycles * Percentage of check-ins with no waiting * Time spent to achieve the industry-best clean room appearance * Guest Preference Reports are recorded in a database ### 4.3 Competitive Priorities: Flexibility * **Example 1: Amazon** * With an ambitious aim to cater to diverse needs, Amazon has curated an extraordinary assortment of over 12 million products, encompassing books, media, wine, services, and beyond. * Considering the inclusion of Amazon Marketplace sellers, this expansive catalog extends to an astounding figure of over 350 million products. * **Example 2: Custom Foot Shoe Store:** * Customer's feet are scanned electronically to capture measurements * Custom shoes are mailed to the customer's home in we * Prices are comparable to off-the-shelf shoes. ### 4.4 Competitive Priorities: Speed | LOGO | Organization| Speed | |---|---|---| | CITICORPO | Citicorp | Advertises a 10-minute mortgage approval | | Walmart | Wal-Mart | Replenishes its stock twice a week | | hp | Hewlett-Packard | Produces electronic testing equipment in five days | | GE | General Electric | Reduces time to manufacture circuit-breaker boxes into three days and dishwashers into 18 hours | | DELL | Dell | Ships custom-built computers in two days| ## 5. Strategic Decisions in Operations * Product * Service * Process and Technology * Human Resources * Quality * Capacity * Facilities * Sourcing * Operating Systems ### 5.1 Operations' Role in Corporate Strategy * Operations provides support for a differentiated strategy. * Operations serves as a firm's distinctive competence in executing similar strategies better than competitors. **Wal-Mart Operations Strategy** * **Mission**: Provide value for our customers * **Competitive Priority**: Low prices, everyday * **Operations Strategy**: * Low inventory levels * Short flow times * **Operations Structure**: * Linked communications between stores * Fast transportation system * **Enabling Processes and Technologies**: * EDI/satellites * Cross-docking * Focused locations ### 5.2 Operations Strategy: Products and Services * **Make-to-Order** * Products and services are made to customer specifications after an order has been received. * **Make-to-Stock** * Products and services are made in anticipation of demand. * **Assemble-to-Order** * Products and services add options according to customer specifications. ### 5.3 Production Strategy: Processes and Technology | No. | Production Strategy | Details | |---|---|---| | 1 | Project | One-at-a-time production of a product to customer order | | 2 | Batch Production | Systems process many different jobs at the same time in groups (or batches) | | 3 | Mass Production | Large volumes of a standard product for a mass market | | 4 | Continuous Production | Used for very high-volume commodity products | ### 5.4 Product-Process Matrix A diagram showing the relationship between volume and standardization in a product-process matrix. * **Projects** are low volume and low standardization. * **Batch Production** is moderate volume and moderate standardization. * **Mass Production** is high volume and moderate standardization. * **Continuous Production** is high volume and high standardization. Source: Adapted from Robert Hayes and Steven Wheelwright, Restoring the Competitive Edge: Competing Through Manufacturing (New York: John Wiley & Sons, 1984), p. 209 ### 5.5 Service Strategy: Processes and Technology | No | Production Strategy | Details | |---|---|---| | 1 | Professional Service | highly customized | | 2 | Service Shop | customized and labor intensive | | 3 | Mass Service | less customized and less labor intensive | | 4 | Service Factory | least customized and least labor intensive | A diagram showing the relationship between labor intensity and customization in a service strategy. * **Professional Services** are high labor intensity and high customization. * **Service Shops** are moderate labor intensity and moderate customization. * **Mass Service** is low labor intensity and moderate customization. * **Service Factory** is low labor intensity and low customization. Source: Adapted from Roger Schmenner, "How Can Service Businesses Survive and Prosper?" Sloan Management Review 27(3):29 ### 5.6 Operations Strategy: Capacity and Facility * **Capacity strategic decisions include:** When, how much, and in what form to alter capacity. * **Facility strategic decisions include:** * Whether facilities should focus on serving certain geographic regions, product lines, or customers. * Facility location can also be a strategic decision. ### 5.7 Operations Strategy: Human Resources * What are the skill levels and degree of autonomy required to operate the production system? * What are the training requirements and selection criteria? * What are the policies on performance evaluations, compensation, and incentives? * Will workers be salaried, paid hourly, or paid a piece rate? * Will profit sharing be allowed, and on what criteria? ### 5.8 Operations Strategy: Quality * What is the target level of quality for our products and services? * How will it be measured? * How will employees be involved with quality? * What will the responsibilities of the quality department be? ### 5.9 Operations Strategy: Sourcing * **Vertical Integration**: The degree to which a firm produces parts that go into its products. * **Strategic Decisions** * How much work should be done outside the firm? (*Buy*) * On what basis should particular items be made in-house? (*Make*) * How should suppliers be selected? (*Supplier Selection*) ### 5.10 Operations Strategy: Operating Systems * How does one align information technology and operations strategic goals? * How does information technology support customer and worker demands for rapid information access, storage, and retrieval? * How does information technology support decisions-making processes related to inventory levels, scheduling priorities, and reward systems? **History of Operations Management** 1. **1st: Mechanization, water power, steam power** 2. **2nd: Mass production, assembly line, electricity** 3. **3rd: Computer and automation** 4. **4th: Cyber Physical Systems** **Industry 4.0** ## 6. Strategic Planning * **Mission and Vision** * **Voice of the Business** * **Corporate Strategy** * **Voice of the Customer** * **Marketing Strategy** * **Operations Strategy** * **Financial Strategy** ### 6.1 Operations Strategy To Policy Deployment * Example of operations strategy to policy deployment using a table. ## 7. Issues and Trends in Operations 1. Global Sourcing, and Global Operations, Global Markets 2. Virtual Companies 3. Greater Choice, More Individualism 4. Emphasis on Service 5. Collaborative Commerce 6. Technological Advances 7. Knowledge and Ability to Learn 8. Environmental and Social Responsibilities ## 8. Changing Corporation..... | Characteristic | Corporation in 1990 | Corporation in 2020 | |---|---|---| | Organization | Pyramid | Digital | | Focus | Internal | External | | Style | Structures | Flexible, Change | | Source of strength | Stability | Interdependencies | | Structure | Self-sufficiency | Information | | Resources | Physical assets | - | *Source: Reprinted from John Byrne, "Management by Web," Business Week (August 28, 2020), p. 87 by special permission, copyright 2020 by The McGraw-Hill Companies, Inc.* **Changing Corporation... continued** | Characteristic | Corporation in 1990 | Corporation in 2020 | |---|---|---| | Operations | Vertical integration | Virtual integration | | Products | Mass production | Mass customization | | Reach | Domestic | Global | | Financials | Quarterly | Real-Time, Hours | | Inventories | Months | Bottom-up | | Strategy | Top-down | - | *Source: Reprinted from John Byrne, "Management by Web," Business Week (August 28, 2020), p. 87 by special permission, copyright 2020 by The McGraw-Hill Companies, Inc.* ## 9. Value-Stream Mapping 1. Begin with symbols for customer, supplier, and production to ensure the big picture 2. Enter customer order requirements 3. Calculate the daily production requirements 4. Enter the outbound shipping requirements and delivery frequency 5. Determine inbound shipping method and delivery frequency 6. Add the process steps (i.e., machine, assemble) in sequence, left to right 7. Add communication methods, add their frequency, and show the direction with arrows 8. Add inventory quantities between every step of the entire flow 9. Determine total working time (value-added time) and delay (non-value-added time) ### 9.1 Value-Stream Mapping A diagram showing a value stream map. ## 10. Developing New Products 1. Understanding the customer 2. Economic change 3. Sociological and demographic change 4. Technological change 5. Political and legal change ### 10.1 Product Development A diagram showing the steps in product development. * **Concept** * **Feasibility** * **Customer Requirements** * **Functional Specifications** * **Product Specifications** * **Design Review** * **Test Market** * **Introduction** * **Evaluation** ### 10.1 Quality Function Deployment 1. Identify customer wants 2. Identify how the good/service will satisfy customer wants 3. Relate customer wants to product hows 4. Identify relationships between the firm's hows 5. Develop our importance ratings 6. Evaluate competing products 7. Compare performance to desirable technical attributes ### 10.2 Organizing for Product Development | No | Approach | Details | |---|---|---| | 1 | Traditionally - distinct departments | Duties and responsibilities are defined. Difficult to foster forward thinking. | | 2 | A Champion | "Product manager drives the product through the product development system and related organizations." | | 3 | Team approach | "Cross functional teams" | | 4 | Japanese "whole organization" approach | No organizational divisions. | | 5 | Product development teams | Cross-functional teams often involving vendors. Open, highly participative environment. | | 6 | Concurrent engineering | Simultaneous performance of product development stages, focuses on "Time factor". | ### 10.3 Manufacturability and Value Engineering "Value engineering can be defined as an organized effort directed at analyzing designed building features, systems, equipment, and material selections for the purpose of achieving essential functions at the lowest life cycle cost consistent with required performance, quality, reliability, and safety." **Advantages** 1. Reduced complexity of the product 2. Reduction of environmental impact 3. Additional standardization of components 4. Improvement of functional aspects of the product 5. Improved job design and job safety 6. Improved maintainability (serviceability) of the product ### Exa. Cost Reduction of a Bracket via Value Engineering A diagram showing three different versions of a bracket. * Version 1 costs $3.50. * Version 2 costs $2.00. * Version 3 costs $0.80. ### 10.5 Concurrent Engineering "Concurrent engineering uses technology to automatically connect and communicate product data across globally distributed engineering teams using one or more design tools. This approach fuels the collaborative culture that underpins highly engaged and successful engineering organizations that produce market-winning products." A famous example of concurrent engineering is the development of the Boeing 777 commercial aircraft.. **"Normal" Engineering vs. Concurrent Engineering** A diagram showing the difference between "Normal" Engineering and Concurrent Engineering. * "Normal" Engineering is sequential with steps for Requirements, Design, Implementation, Verification, Production. * Concurrent Engineering is parallel with steps for Requirements, Design, Implementation, Verification, Production **Benefits of Concurrent Engineering** * Reduced lead time ### 10.5 Issues for Product Design 1. **Robust design**: Product is designed so that small variations in production or assembly do not adversely affect the product. Typically results in lower cost and higher quality. 2. **Modular design**: Products designed in easily segmented components. Adds flexibility to both production and marketing. Improved ability to satisfy customer requirements. 3. **Computer-aided design (CAD)**: Shorter development cycles, improved accuracy, lower cost. 4. **Computer-aided manufacturing (CAM)**: Utilizing specialized computers and program to control manufacturing equipment 5. **Virtual reality technology**: 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. 6. **Value analysis**: Focuses on design improvement during production. Seeks improvements leading either to a better product or a product which can be produced more economically with less environmental impact. 7. **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. ## Thank You