Operations Management PDF

Operations Management Operations Management (OM) is the study of how goods get manufactured, and service gets delivered. Originally, it was founded on studies of how best to organize factories manufacturing automobiles and other consumer goods. But from the 1970s onwards, a greater emphasis was...

Operations Management Operations Management (OM) is the study of how goods get manufactured, and service gets delivered. Originally, it was founded on studies of how best to organize factories manufacturing automobiles and other consumer goods. But from the 1970s onwards, a greater emphasis was placed on understanding service operations. The collection of people, technology, and systems within a company that has primary responsibility for providing the organization's products or services. The management of the direct recourses that are required to produce and deliver an organization's goods and services. Operations Management A discipline and profession that studies and practices the process of planning, designing, and operating production systems and subsystems to achieve the goals of the organization. The business function responsible for planning, coordinating, and controlling the resources needed to produce a company's products and services. The management of the conversion process that transforms inputs into outputs in the form of finished goods and services. Operations Management Theory 1. Theory of Process Choice 2. Theory of Swift and Even Flow 3. Theory of Lean Manufacturing 4. Theory of Performance Frontiers 5. Theory of Service Experience Theory of Process Choice Hayes and Wheelwright (1979) identified that firms adopted different types of process in order to manufacture products. In their original analysis, they saw this as evolutionary. Firms in an industry would start with hand-making articles, applying craft skills in 'job-shop operation', move on to batch production and then adopt mass production principles. However, it was quickly realized that in some industry sectors, firms did not follow this evolutionary path, but simply adopted the process that best matched their product and their market. Process choice in the hospitality industry In hospitality operations process design, Jones (1988) identified anumber of trends, two of which relate to process choice: production lining and decoupling. Production lining refers to the concept of breaking down production activities into simple tasks so that they may be organized on a production-line basis, just as Henry Ford production lined the motor manufacturing process in the 1920s. It has long been argued (Levitt 1972) that services, in general, are moving towards more industrialized processes. Indeed, this has actually been termed the McDonaldization of society (Ritzer 2000). Theory of Swift and Even Flow The Theory of Swift and Even Flow 'holds that the more swift and even the flow of materials through the process, the more productive the process is' (Schmenner and Swink 1998). This applies to all types of operation, whether they are job shops, batch production or assembly lines producing goods, or they are professional, batch or mass service operations There are three laws associated with the Theory of Swift and Even Flow (Schmenner and Swink 1998). These are as follows: 1. Law of variability 1 - the greater the randomness of the process, the lower the productivity. 2. Law of variability 2 - the greater the variability of the requirements of the process, the lower the productivity. 3. Law of bottlenecks - the greater the difference in the rate of flow through stages in a process, the less productive the process. To these we can add a fourth law: 4. Law of prioritization - in operations of inherent instability, the greater the instability , the greater the prioritization of orders (Westbrook 1994). Swift and even flow in the hospitality industry Ensuring 'balance at all stages of the process is a key feature of designing and operating hospitality operations. When hotels and restaurants are designed, the capacity of each part should match the expected operational needs. For instance, the car park should have sufficient spaces for guests driving to the property; the number of restaurant seats should accommodate the demand for dining; and so on. Likewise, operations seek to reduce randomness and variability. For instance, most hospitality companies adopt standard operating procedures. They also encourage their customers to book ahead, which enables the operation to schedule its labor to meet forecast levels of demand. Theory of Lean Manufacturing This theory basically states that productivity is enhanced by applying principles designed to eliminate waste of all kinds. Seven types of waste The Japanese guru Taiichi Ohno, former Chief Engineer for Toyota, has identified seven types of waste: 1. doing too much 2. waiting 3. transporting 4. too much inflexible capacity or lack of process flexibility 5. unnecessary stocks 6. unnecessary motions 7. defects Four laws are associated with the Theory of Lean Manufacturing 1. Law of scientific methods - labour productivity is improved by applying scientific management principles. 2. Law of quality - productivity improves as quality improves, since waste is eliminated. This is a controversial law that may not hold in all cases, although there is widespread anecdotal evidence that it is generally true. 3. Law of limited tasks - factories that perform a limited number of tasks will be more productive than similar factor-ies with a broad range of tasks. 4. Law of value added - a process will be more productive if non-value-added steps are reduced or eliminated. Lean manufacturing in hospitality A major trend that has been in all industries is automation, which is the gradual replacement of a human workforce with machines such as computers and robots. In the hospitality industry, this has been most marked with regard to information processing. Examples of this include front-office operations in hotels, point of sale in fast food restaurants and procurement and inventory management. It can be argued that the McDonalds service delivery system, along with many other delivery systems derived from this, applied many of the ideas developed by Ohno. Theory of Performance Frontiers Schmenner and Swink (1998) propose the Theory of Performance Frontiers. The theory is called so because the authors use a production function or performance frontier curve to illustrate this theory. Production function method- ology maps the maximum output that can be produced from any given set of inputs, given technical considerations'. Schmenner and Swink (1998) expand this economic model by defining inputs to include 'all dimensions of manufacturing performance', as well as defining technical considerations as all choices affecting the design and operation of the manufactur- ing unit. Laws of the Theory of Performance Frontiers Within this theory, there are a number of proposed laws: Law of diminishing synergy - the law of cumulative capabilities suggest there is collaboration between policies and procedures. This collaboration diminishes as a plant approaches its asset frontier. Law of cumulative capabilities - an improvement in one manufacturing capability leads to improvements in others. Schmenner and Swink (1998) suggest that such improvements are made over time. Moreover, there may be certain sequences or trajectories of improvement that build one upon the other; for instance quality leads to lower cost, followed by increased speed of delivery. Law of diminishing returns - as improvement (or betterment) moves a manufacturing plant nearer and nearer to its operating frontier (or asset frontier), more and more resources must be expended in order to achieve each additional incremental benefit". Theory of Service Experience Hence customers are different to materials in that they sense and respond to their environment. Hence, they interact with the operation and form opinions about their experience. Another trend identified by Jones (1988) is customer participation, otherwise known as self-service. Many hospitality operations now enable their customers to do things for themselves that were previously done for them. It is possible to check into a hotel by using a swipe card system, select salad items for a self-help salad bar and check out of a hotel using the in-room television set. Laws associated with the Theory of Service Experience The following are the laws associated with the Theory of Service Experience (Johnston and Jones 2005) are as follows: Law of adaptive experience - a customer process is more productive when customer feedback adapts the process, both immediately (during the transaction) and over the long term. Law of matching expectations - a customer process will be more productive if customer expectations are matched with their perceptions. Law of cumulative effect - productive customer processes have a cumulative effect on customer expectations. Operations as a transformation process Inputs Machines, Labor, Capital, Customer External: Legal, Economic, Social, Technological Market: Competition, Customer Desires, Product Info. Primary Resources: Materials, Personnel, Capital, Utilities, output Direct| Products  Services Indirect Waste Pollution Technological Advances Operations as a transformation process Operations management is the set of activities that create value in the form of goods and services by transforming inputs into outputs Value added is the net increase between output product value and input material value (The value of the outputs is greater than the value of the inputs, resulting in the profit or the benefit for government or non-profit organizations) All types of organizations, manufacturing or service, large or small, transform inputs into outputs. Every organization has OM function, since all organizations provide products or services, but the function may be formal or informal In many smaller organizations operations management may be done by people who perform many other types of task such as marketing and accounting) What responsibilities do operations managers have? Direct responsibilities: the activities which are directly related to producing and delivering products and services. Indirect responsibilities: ・ロthe activities involved in interfacing with other parts of the organisation. Broad responsibilities: ・ロ a wider set of tasks that involve scanning the business, social and political environment in which the organization exists in order to understand its context. Importance of Operations Management 1. Operations is an important part of every organization, we should know how goods and services are produced (All managers should have an understanding the main principles and tools of OM) 2. It is responsible for the customer fulfillment aspects of an organization. Thus, it manages customer satisfaction. 3. OM is such a costly part of an organization. (For most organizations it absorbs a huge percentage of required capital) Companies need to have efficient operations to survive. To succeed, a firm must have a strong operations function teaming with the other organization functions. Importance of Operations Management 1. OM responsible to increase productivity and profitability. Increasing overall productivity leads to economic growth and a higher standard of living. 2. Operational decision-making requires a long- term perspective and requires inputs from all business functions. Main Operational Decisions Where should we locate our facility? How much capacity do we need? What should we make, what should we buy? What technology should we use? How do we insure appropriate quality? Who should we use as vendors? How much inventory do we need? How should we schedule our resources? Critical decisions of OM Product & service design. Quality management. Process design. Capacity & location of facilities. Layout of facilities. Human resource & Job design. Supply-chain management. Inventory management. Scheduling. Maintenance. Strategic Decisions senior management responsibility More broad in nature Determine the success of an organization's strategy, Very risky and hard to reverse Have significant long - term impact, , and less frequent. Examples: How will we make the product? Where do we locate the facility? ・ How much capacity do we need? When should we add more capacity? Tactical decisions Medium- range decisions focus on resource needs, schedules, & quantities to produce Tactical decisions are frequent, must align with strategic decisions. Involves resource allocation and utilization. Involves a moderate degree of uncertainty and risk. They are the link between lower and high-level management Examples: How many workers do we need? When do we need them? Should we work overtime or put on a second sift? When should we have material delivered? Operational decisions Involves a short time horizon. Involves very little uncertainty and risk. Examples: What jobs do we work on today or this week? To whom do we assign what task? What jobs have priority? OM's contributions to society Higher Standard of Living Better Quality Goods and Services Concern for the Environment Improved Working Conditions Service and manufacturing similarities All use technology Both have quality, productivity, & response issues All must forecast demand Each will have capacity, layout, and location issues All have customers and suppliers All have scheduling and staffing issues 1. Customer contact: Service, by nature, involves a much high degree of customer contact than manufacturing. The performance of service often occurs at the point of consumption. Manufacturing allows a separation between production and consumption, so that manufacturing can occur away from the consumer. Customer are sometimes apart of the system (self-service operations-shopping +gas stations) so tight control on process is impossible 2- Uniformity of input: Service operations are subject to greater variability of input than typical manufacturing operations. Each patient, each client and each auto repair present a specific problem that often must be diagnosed before it can be remedied Manufacturing operations often have the ability to carefully control the amount of variability of input and thus achieve low variability in outputs. 3- Labor content of jobs: Many services involve a higher labor content than manufacturing operations 4- Uniformity of output Because high mechanization generates products with low variability, manufacturing tends to be smooth and efficient, service activities sometimes appear to be slow and awkward and output is more variable. Automated services are exception to this. 5- Measurement of productivity Measurement of productivity is more straightforward in manufacturing due to the high degree of uniformity of most manufacturing items. In service operations, variations in demand intensity and in requirements from job to job make productivity measurement more difficult Operations management is continuously changing to meet the new and exciting challenges of today's business world. This ever-changing world is characterized by increasing global competition and advances in technology. Emphasis is also shifting within the operations function to link it more closely with both customers and suppliers. Issues in Operations Management Increased global competition Global (economy, village, and landscape): are terms used to describe how the world becoming smaller, and countries are becoming more dependent on each other. The world is rapidly transforming itself into a single global economy, which referred to as a global village or global landscape. Markets once dominated by local or national companies are now vulnerable to competition from literally all corners of the world. For example, in the 1960s, only 7 percent of the firms in the United States exposed to foreign competition; by the late 1980s, This figure exceeded 70 percent, and that percentage has continued to grow. Consequently, as companies expand their business to include foreign markets, so too must the operations management function take a more global perspective in order for companies to remain competitive. To prosper in such a global marketplace companies must excel in more than one dimension, which previously was the norm. Issues in Operations Management 2. Advances in technology Advance in technology in recent years have had a significant effect on the OM function: IT+ automation + Internet Competition Product life cycle New jobs Robots 3. Linking OM to customers and suppliers In the past, most manufacturing organizations viewed operations strictly as an internal function that had to be buffered from the external environment by other organizational functions.  Orders were generated by the marketing function; supplies and raw materials were obtained through the purchasing function; capital for equipment purchases came from the finance function; the labor force was obtained through the human resources function; and the product was delivered by the distribution function Now more and more firms are recognizing the competitive advantage achieved when the transformation process is not isolated, as when customers are invited to view their operating facilities firsthand