Introduction to Operations Management PDF

Introduction to Operations Management Agenda 1.20 – 1.45: Part 1: Operations management & the role of operations managers 1.45-2.15: Part 2: Metrics in Operations 2.15-3: Part 3: Capacity Analysis & Activity...

Introduction to Operations Management Agenda 1.20 – 1.45: Part 1: Operations management & the role of operations managers 1.45-2.15: Part 2: Metrics in Operations 2.15-3: Part 3: Capacity Analysis & Activity 2 PART 1: THE ROLE OF OPERATIONS 3 Let’s hear about what you already know about operations management: Who currently works for a business? What departments are in that business? Who manages the operations? How would you define operations management? 4 WHAT IS OPERATIONS MANAGEMENT ? Operations management is a business function that plans, organizes, co-ordinates and controls the resources needed to produce a company’s goods and services! 5  OPERATIONS AT THE HEART OF THE BUSINESS Marketin IS/IT Finance g Current Operating Financial Capabilities Capital Investments Custom planned measure er Inventory s Deman Levels Informati Capital Budgets Customer Output on Needs Requirements d Feedback Rates Technologi Capacitie Stockhold Need for cal s er new requireme products Operations Capabilitie s nts Management Billing Informati Operatio Labour Labour on ns Product Requirem skills Capabilit Specs ents available Process Current ies Improveme Performan Design Labour nts ce Technologi requireme cost Measures cal Trade nts offs Human Accounti Engineer Resource ng ing s 6 Information Flow between operations and other business functions (Reid & Sanders, 2010) Operations as a Transformation Process The ‘value chain’ TRANSFORMATION PROCESS Feedback 7 Example of a Value Adding Transformation Process Assembly Process Map Individual parts TRANSFORMATION PROCESS Why operations management is important Finance/ Marketing Accounting OM Option Option Option Increase Reduce Reduce Sales Finance Production Current Revenue 50% Costs 50% Costs 20% Sales £100,000 £ 150,000 £ 100,000 £ 100,000 Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000 Gross Margin 20,000 30,000 20,000 36,000 Finance Costs – 6,000 – 6,000 – 3,000 – 6,000 Subtotal 14,000 24,000 17,000 30,000 Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500 Contribution £ 10,500 £ 18,000 £ 12,750 £ 22,500 ACTIVITY: What Do Operations Managers Do?  10 mins to discuss with people next to you. Write out a list.  What are the three main jobs of the operations manager? Implement the operations strategy Gain competitive advantage Increase productivity 10 Nine Categories of Operations Management Decisions Product plans Competitive Priorities Positioning Strategies Location Technological Choices Quality management and control Inventory management and control Materials Management Master production scheduling 11  Operations differentiation: 4 Vs Volume – how many products or services are made by the operation? Variety – how many different types of products or services are made by the operation? Variation – how much does the level of demand change over time? Visibility – how much of the operation’s internal working are ‘exposed’ to its customers? 12 Source: Slack N., Chambers S. and Johnston R., Operations Management, 4 ed., Pearson Education th MANUFACTURING VS SERVICES Differences between Manufacturing & Service Organizations? Degree of Customer Contact Lo Hig w h  Physical Product Manufacturin  Product can be Tangible Product g Degree of Tangibility of inventoried Organization  Low Customer Contact  Capital Intensive  Long Response Time Product Offering  Intangible Product  Product cannot be inventoried Intangible  High Customer Product Contact Service  Labour Intensive Organizations  Short Response 13 Time PART 2: METRICS IN OPERATIONS – EFFICIENCY, EFFECTIVENESS & PRODUCTIVITY 14 Defining the terms Effectiveness is doing the right things. Efficiency refers to how well you then do something, Effectiveness = right thing Efficiency = doing the right thing well Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labour and capital) and is a measure of process improvement 15 Efficiency Versus Effectiveness For example, if a company is not doing well and they decide to train their workforce on a new technology. The training goes really well - they train all their employees in a very short time and tests show they have absorbed the training well. – But overall productivity doesn't improve. In this case the company's strategy was efficient but not effective. 16  If you want to have an effective and efficient business, start with making sure you are doing the right things (effective) then how do you do them well (efficiently) If you do things effectively and efficiently you will have high productivity 17 Productivity Challenge Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labour and capital) Output Productivity = Input Measure of process improvement Represents output relative to input 18  Productivity Calculations Labour Productivity Units produced Productivity = Labour-hours used 1,000 = = 4 units/labour-hour 250 One resource input  single-factor productivity 19 Productivity Variables 1. Labour 2. Capital 3. Management 20 Multi-Factor & Total Factor Productivity Output Productivity = Labor + Material + Energy + Capital + Miscellaneous Also known as total factor productivity Output and inputs are often expressed in monetary values Multiple resource inputs  multi-factor productivity 21 Productivity Tutorial Activity (10 mins) 1. A company requires 2700 units of product to be produced each 8-hour shift. Calculate their single-factor productivity. 2. After further analysis the company provides the following additional pieces of information: They operate a 24-hour production line each unit has a material cost of £8 their electricity tariff charges at £0.23 per kWh. They consume 429 kWh per 24 hour day. each unit retails at £21 Each production shift runs with 3 operators paid £9.50 per hour Calculate the multifactor productivity ratio. 3. If the company decided to increase the wages of staff, what would happen to the multifactor productivity ratio? 4. If the company were to reduce wages to £8 per hour, materials to £5 per unit and electricity tariff to £0.05 per kWh, how would the new productivity ratio compare to the ratio calculated in 2. 22  1. A company requires 2700 units of product to be produced each 8-hour shift. Calculate their single-factor productivity. Answer: 2700/8 =337.5 units per labour hour 2. After further analysis the company provides the following additional pieces of information: – They operate a 24-hour production line – each unit has a material cost of £8 – their electricity tariff charges at £0.23 per kWh. They consume 429 kWh per 24 hour day. – each unit retails at £21 – Production runs with 3 operators paid £9.50 per hour – Calculate the multifactor productivity ratio. Answer: Outputs = 2700 x 3 = 8100 units per 24 hours – 8100 x £21 = £170,100 Inputs = £65,582.67 labour cost – 3 operators x £9.50 x 8 hours x 3 shifts = £684 material cost – 8100 units per 24 hours x £8 = £64,800 Electricity Cost – 429kWh x £0.23 per kWh = £98.67 per 24 hours Productivity = 170100/65582.67 = 2.59 How can you improve productivity? Increasing efficiency – Increase output with little or no increase in input Expand – Increase input and grow output more rapidly Achieve breakthroughs/ Innovation – output increases while input decreases Downsize – Reduce input while maintaining output Retrench – decrease output and decrease input, with input decreasing at a faster rate PART 3: CAPACITY ANALYSIS 28 Capacity definitions Theoretical capacity: capacity that can be achieved under ideal conditions for a short period of time (no equipment breakdown, maintenance, set-up time, bottlenecks, worker errors) Normal Capacity: maximum producible output when plants and equipment are operated for an average period of time to produce a normal mix of output. 29 Process times A Three-Station Assembly Line Process time of each station: 10, 20 and 15 sec/unit Overall System Process time: 20 sec/unit Process Cycle Time (or throughput time) = 10 + 20 + 15 = 45 sec/unit System Capacity = 1/20*60(sec)*60(min)= 180 units/hour (=1/system process time!) A B C 10 sec/unit 20 sec/unit 15 sec/unit 30  Capacity Analysis Two identical sandwich lines Lines have two workers (one each) and three operations All completed sandwiches are wrapped Bread Fill Toast 2 sec/sandwich 3 sec/sandwich 6 sec/sandwich Order Wrap 4 sec/sandwich 5 sec/sandwich Bread Fill Toast 2 sec/sandwich 3 sec/sandwich 6 sec/sandwich Questions: Process time of stations – how long at each station? Process time for the system – intervals between finished goods coming off the line Process Cycle Time - how long from start to finish? System Capacity - how many can it produce per hour? 31  Bread Fill Toast 2 sec/sandwich 3 sec/sandwich 6 sec/sandwich Order Wrap 4 sec/sandwich 5 sec/sandwich Bread Fill Toast 2 sec/sandwich 3 sec/sandwich 6 sec/sandwich Process time of stations: 4, 2, 3, 6, 5 sec/unit Process time for the system: 5 sec/unit Process Cycle Time (or throughput time) = 4 + 2 + 3 +6 + 5= 20 sec/unit System Capacity (per hour) = (1/5)*60*60 (seconds) = 720 units/hour 32  In each scenario: 1.Where is the bottleneck? 2. What is the system process time? 3. What is the Process Cycle Time? 4. What is the System Capacity? Scenario 1. Customers entering a store firstly received assistance from a customer assistant, before then being served at the checkout and then having their goods gift wrapped. Scenario 2. The operations manager decides to open a second checkout. 33 1. Where is the bottleneck? Service at Checkout 2. What is the system process time? 3 minutes 3. What is the Process Cycle Time? 6 minutes 4. What is the System Capacity? (1/3)*60 = 20 customers per hour 1. Where is the bottleneck? Assistance from Customer Assistant 2. What is the system process time? 2 minutes 3. What is the Process Cycle Time? 6 minutes 4. What is the System Capacity? (1/2)*60 = 30 customers per hour  In each scenario: 1.Where is the bottleneck? 2. What is the system process time? 3. What is the Process Cycle Time? 4. What is the System Capacity? Scenario 3. All staff receive training and new support tools are embedded in the organisation to improve efficiency. As a result, process cycle time is reduced in the system. 36 1. Where is the bottleneck? Do we have one?? 2. What is the system process time? 1 minutes 3. What is the Process Cycle Time? 4 minutes 4. What is the System Capacity? (1/1)*60 = 60 customers per hour