Operations Management Prelims PDF

consumers prefer a cleaner hotel room MODULE 1: INTRODUCTION TO ➔​ Fit – the product matches the unique OPERATIONS MANAGEMENT characteristics of a part...

consumers prefer a cleaner hotel room MODULE 1: INTRODUCTION TO ➔​ Fit – the product matches the unique OPERATIONS MANAGEMENT characteristics of a particular customer ◆​ Example: different flavors of ice ➔​ Demand – the products or services that cream; different types of the customers want running shoes ➔​ Supply – the products or services that a ◆​ Heterogeneous preferences business provides to its customers mean that not all customers have the same utility function. Matching supply with demand ➔​ To succeed in business, the company PRICE must offer its customers what products or services they want. ➔​ “The total cost of owning the products or receiving the services.” UTILITY INCONVENIENCE OF OBTAINING THE ➔​ “A measure of the strength of PRODUCT OR RECEIVING THE customers’ preference for a given SERVICE product or service.” ➔​ Customers buy products or services that Two subcomponents: maximizes their utility ➔​ Location – the place where a consumer can obtain a product or service Components of Utility ◆​ Example: putting branches in ➔​ Consumption utility different areas will address the ➔​ Price accessibility issue ➔​ Inconvenience of obtaining the products ➔​ Timing – the time that passes between or receiving the service the consumer ordering a product or service obtaining it CONSUMPTION UTILITY Question: what drives your utility in terms of ➔​ “A measure of how much a customer choosing a tourist destination? enjoys a product or service, without ➔​ Performance considering its price and the ➔​ Price inconvenience of obtaining it.” ➔​ Inconvenience ◆​ Example: weight for bicycles, pixel count for cameras A firm’s strategic trade-offs ➔​ Companies cannot be good at everything Subcomponents of Consumption Utility ➔​ Capabilities – the dimensions of the ➔​ Performance – how much average customer’s utility a firm can satisfy. consumer desires a product or service ◆​ Example: to serve customers ◆​ Example: consumers prefer a within a few minutes more durable product;  ➔​ Trade-offs – the need to sacrifice one ➔​ Inflexibility – the inability to adjust to capability to increase another one either changes in the supply process or ◆​ Low cost with poor changes in customer demand responsiveness (or quality) ◆​ Example: inability to admit ◆​ Higher cost with good patients due to lack of advanced responsiveness (or quality) medical services Pareto Dominated KEY OPERATIONAL DECISIONS ➔​ “A firm’s product or service is inferior to one or multiple competitors on all dimensions of the customer utility ➔​ Who are the customers? function.” ➔​ What is the product or service? ➔​ How much do we charge? Efficient Frontier ➔​ How efficient are the products or ➔​ It refers to the “firms in the industry that services delivered? are not Pareto-dominated.” ➔​ Where will the demand be fulfilled?​ ➔​ When will the demand be fulfilled? THREE SYSTEM INHIBITORS (INEFFICIENCIES) MODULE 2: PROCESS ANALYSIS ➔​ Waste – the consumption of inputs and Process resources that do not add value to the customers ◆​ Example: why pay a waiter to ➔​ A set of activities that takes a collection bring food to the customers if of inputs, performs some work or the customers are willing to pick activities with those inputs, and then up the food? yields a set of outputs. ➔​ Variability – changes in the demand or ➔​ Example (Hospital): the supply process ◆​ Input: accepting patient ◆​ Demand variability example: ◆​ Performing work: surgery ​ Customer arrival ◆​ Output: discharging patients ​ Customer requests from hospital ​ Customer behavior ◆​ Supply variability example: Process Flow Diagram ​ Time to serve a customer (some ➔​ A graphical way to describe the process. employees are faster than the other) ​ Disruptions: sickness, bad weather, poor motivation ​ Defects due to human error  ➔​ The number of flow units within the process. ➔​ This is useful to know because inventory generally takes up space and may cost money. Flow Time ➔​ The time a flow unit spends in a process from start to finish. ➔​ Flow time influences the satisfaction of the customers. Process Scope Exercise ➔​ A call center agent answered 4 phone ➔​ The set of activities and processes inquiries. He spends 2, 5, 3, and 10 included in the process. minutes on those phone calls. What is the average flow time in taking these Flow Unit calls? ➔​ (2+5+3+10) / 4 = 5 ➔​ The basic unit that moves through a Flow Rate process. It is generally associated with ➔​ The rate at which flow units travel the output of the process. through a process. ➔​ Example: patients in the hospital ➔​ More units flowing through a process is generally desirable because the point of Rule in choosing the flow unit the process is to produce an output. ➔​ Choose a flow unit that corresponds to what you want to track and measure. Exercise ➔​ Over the course of an 8-hour day, a Resource dentist treats 24 patients. What is the flow rate of patients in the dentist’s ➔​ Workers of machines that transform clinic per hour? inputs into outputs ➔​ 24 patients/8 hours = 3 patients/hour Process Metric Little’s Law ➔​ A scale or measure of process ➔​ Linking process metrics together performance and capability. ➔​ The law that describes the relationship between three (3) key process metrics: inventory, flow rate, and flow time. Key Process Metrics ➔​ Inventory = flow rate x flow time (I = R x T) Inventory Illustration: Champagne Industry Labor Content ➔​ Flow unit: bottle of champagne ➔​ Flow rate: 250 million bottles per year ➔​ Flow time: 3.5 years ➔​ The sum of the processing time ➔​ Inventory: 875,000,000 involving labor ◆​ 250M x 3.5 = 875M ➔​ Measures how much work is required in serving one flow unit ➔​ A high number is less desirable MODULE 3: PROCESS IMPROVEMENT ➔​ Profit Maximization ◆​ Get the sum of the values from step 1-3 (5hrs, 15 mins per ➔​ The objective of an enterprise is to customer) maximize the difference between revenue and cost Average Labor Utilization ➔​ Profit: Revenue – Cost ➔​ The average utilization across Measures of Process Efficiency employees ➔​ Higher percentage is more desirable ➔​ Formula: labor content / (cycle time x Efficiency number of employees) ◆​ Cycle time = refers to the time it ➔​ A process is efficient if it is able to takes to produce 1 unit. (is the achieve a high flow rate with few bottleneck) resources Idle Time Cost of Direct Labor ➔​ The amount of time per flow unit for ➔​ The labor cost associated with serving which a resource is paid but is not one customer, which is the total wages actually working paid per unit of time divided by the flow ➔​ Lower idle time is more desirable rate. ➔​ Formula: cycle time x number of ➔​ Formula: employees - labor content ◆​ Cost of direct labor = wages per unit of time / flow rate How to Choose Staffing Level to Meet ➔​ Higher cost of direct labor, higher wage Demand to be paid per customer; business has inefficient workers. ◆​ Lower cost of direct labor is Takt Time always preferred.  ➔​ The ratio between the time available and ➔​ Efficiency is very important the quantity that has to be produced to ➔​ Minimize the customers’ waiting time serve demand ➔​ Bottleneck greatly affects the average ➔​ Formula: 1/demand time OR available labor utilization time/required quantity ➔​ Top management has a hard time ◆​ Available time measures the solving/determining this. amount of time available in the process to produce the quantity. Off-Loading the Bottleneck Target Manpower ➔​ Re-assign activities to other resources with more capacity ➔​ The ratio between the labor content and ➔​ Automate using available technology the takt time ➔​ Outsource the time consuming activity ➔​ Formula: labor content/takt time How to Balance a Process SEATWORK ➔​ IDEAL: Allocate the activities in the process as evenly as possible Line Balancing ➔​ The act of allocating the activities that need to be carried out in the process Cost of Direct Labor: wages per unit of across the process resources as evenly as time/flow rate possible so that all resources have a = 15(3) / 60 comparable utilization level. Cost of Direct Labor = 0.75 ➔​ Aim is to ensure that there is not waiting time between the work stations Labor Content: aggregate time = 30 + 10 + 60 Balancing for a Fixed Sequence of Labor Content = 100 seconds Activities Average Labor Utilization: labor content/(cycle time x number of employees) ➔​ Balancing a line in which the activities = 100/(60 x 3) have to be completed in a predefined Average Labor Utilization: 56% order The lower the cycle time, the higher the Average Labor Utilization. revenue is also higher MODULE 4: LEAN OPERATION AND THE TOYOTA PRODUCTION SYSTEM Bottleneck, A Problem in a Business Process LEAN OPERATION  Just in Time Operation’s goals: ➔​ Refining and coordinating each ➔​ To reduce, if not totally, eliminate waste production process so that they only from the system produce what is required by the next ➔​ To create value for customers process in a timely manner. TOYOTA PRODUCTION SYSTEM WASTE OF CAPACITY ➔​ A framework used to run operations ➔​ Performing non-value added work with the goal of reducing both waste of ➔​ Examples: capacity and waste of flow time, thereby ◆​ Reworking the returned making sure supply and demand are products matched just in time. ◆​ Transporting products through the factory wastes the time of an Jidoka employee pushing the cart ➔​ A japanese term that can be translated as “automation with a human touch” or VALUE ADDED WORK “intelligent automation” ➔​ A method to quickly identify and correct any issues that could lead to faulty ➔​ Those operations valued by the products. customers because they are absolutely ➔​ At any time of the manufacturing required to transform the flow unit from process, the members of Toyota can its inputs to being the output the “pull the andon” or to stop the customer wants. production line to avoid generating problems that others would find in the NON-VALUE ADDED WORK future. ➔​ Alerts all team members of the defect or ➔​ Those operations that do not add value problem found in the assembly line and in the eyes of the customer but must be the entire production stops to get it done under the current conditions of the fixed. process in order to complete a unit. ➔​ Automated processes and machinery are set up to automatically detect an issue and safely stop the production process. EXERCISE ◆​ This enables inspection and any necessary adjustments to be A secretary in a law office spends her time on made. the following: ➔​ Also applied in Toyota’s office to ensure that each task meets the needs of their (1)​ Waiting for a client – NON-VALUE internal customers. ADDED WORK ◆​ Less time is spent on re-work or (2)​ Initial interview of the client – VALUE other non-value added activities. ADDED WORK  (3)​ Accompanying the client to a specific law associate – VALUE ADDED WORK Determine the non-value added work, and the value added work. WASTE OF TIME IN A FLOW UNIT ➔​ The waste of time from the perspective of a flow unit, which makes the flow time of that flow unit longer than what is needed in the eyes of the customer TOTAL AVAILABLE TIME ➔​ The amount of available time a resource has to fulfill a demand. ➔​ ➔​ ➔​