opman 2.pdf

Operations Management and TQM Topic 1: Introduction It's the actual "doing" part of the business. For example, in a  Operations restaurant, operations would include cooking the food, serving customers, and cleaning the kitchen. The part of a busin...

Operations Management and TQM Topic 1: Introduction It's the actual "doing" part of the business. For example, in a  Operations restaurant, operations would include cooking the food, serving customers, and cleaning the kitchen. The part of a business organization that is responsible for producing goods or services. the process of planning, organizing, and controlling  Operations Management these operations. It's how the business makes sure things run smoothly and efficiently The management of systems or processes that Process variation: create goods and/or provide services  Supply chain the steps from getting raw materials to making a product to delivering it to customers 1. This variety of goods or services being offered is like having a menu with lots of different options. The more choices A sequence of activities and organizations involved you offer, the more variation you'll have in the production or service in producing and delivering a good or service 2. process. structural variation in demand supplier's direct producer distributor final This is like knowing that you'll sell more ice cream in the summer than in supplier supplier customers the winter. It's predictable variation based on patterns. 3. random variation natural variation that is present in all processes 4. assignable variation variation that has identifiable sources Variations can be disruptive to operations and supply chain processes. They may result in additional costs, delays and shortages, poor quality, and inefficient work systems. The operations function includes many interrelated activities such as:  Forecasting  Capacity planning  Every aspect of business affects or is affected  Facilities and layout by operations  Scheduling  Many service jobs are closely related to  Managing inventories operations  Financial services  Assuring quality  Marketing services  Motivating employees  Accounting services  Deciding where to locate facilities  Information services The Operations function consists of all activities  Through learning about operations and supply directly related to producing goods or providing chains you will have a better understanding of: services.  The world you live in A primary function of the operations manager is  The global dependencies of companies to guide the system by decision making. and nations  System design decisions  Reasons that companies succeed or fail – Capacity  The importance of working with others – Facility location – Facility layout Why Study Operations Management? – Product and service planning Basic Functions of the Business Organization – Acquisition and placement of 1. Finance & operations equipment - Budgeting These are typically strategic decisions that - Economic analysis of investment proposals usually require long-term - Provision of funds commitment of resources 2. Marketing & operations determine parameters of system - Demand data operation - Product and service design - Competitor analysis  System operation decisions - Lead time data These are generally tactical and operational decisions Process - one or more actions that transform inputs  Management of personnel into outputs  Inventory management and control Operations Management and TQM  Scheduling - FUNCTIONAL STRATEGIES  Project management - TACTICS  Quality assurance  Operations managers spend more time on Strategy system operation decision than any other decision area - A plan of action designed to achieve a  They still have a vital stake in system major or overall aim. design - Is an aspect of operations management that is concerned with long term planning Topic 2: Competitiveness, Strategy, and for a company's customer service and Productivity business strategies. o Organizations have Competitiveness  Organizational strategies  How effectively an organization meets the  Overall strategies that relate to the wants and needs of customers relative to entire organization others that offer similar goods or services  Support the achievement of  Organizations compete through some organizational goals and mission combination of their marketing and  Functional level strategies operations  Strategies that relate to each of the - What do customers want? functional areas and that support - How can these customer needs best be achievement of the organizational satisfied? strategy - Tactics Marketing’s influence o The methods and actions taken  Identifiying consumer wants and/or to accomplish strategies needs  Pricing and Quality o The “how to” part of the  Advertising and promotion process - Operations Why Some Organizations Fail? o The actual “doing” part of the 1. Neglecting operations strategy. process 2. Failing to take advantage of strengths and - Core competencies opportunities, and/or failing to recognize o The special attributes or competitive threats. abilities that give an 3. Putting too much emphasis on short-term organization a competitive edge financial performance at the expense of - Strategy formulation research and development. o is almost always critical to the 4. Placing too much emphasis on product and success of a strategy. It is also the service design and not enough on process process of using available design and improvement. knowledge to document the 5. Neglecting investments in capital and human intended direction of a business resources. o Order qualifiers 6. Failing to establish good internal communications and cooperation among - Characteristics that customers perceive different functional areas. as minimum standards of acceptability 7. Failing to consider customer wants and needs for a product or service to be considered as a potential for purchase Hierarchical Planning o Order winners - MISSION - Characteristics of an organization’s - GOALS goods or services that cause it to be - ORGANIZATIONAL STRATEGIES Operations Management and TQM perceived as better than the Productivity competition o Environmental scanning is necessary to  A measure of the effective use of identify resources, usually expressed as o Internal factors the ratio of output to input  Strengths and weaknesses  Productivity measures are useful for o Human resources  Tracking an operating unit’s o Facilities and equipment performance over time o Financial resources  Judging the performance of an o Customers entire industry or country o Products and services o Technology Why productivity matters?Productivity is like making the most of your time and resources o Suppliers 1. High productivity is linked to higher o Other standards of living wealth they make more things, which leads to more and a better standard of living for everyone o External factors 2. Higher productivity relative to the  Opportunities and threats competition leads to competitive can make things cheaper or o Economic conditions advantage in the marketplacebetter than their competitors, which helps them sell more and o Political conditions 3. For an industry, high relative be successful o Legal environment productivity makes it less likely it will o Technology be supplanted by foreign industry they can compete with other countries and keep their jobs and industries o Competition strong o Markets Topic 3: Forecasting predicting the future value based on the availability of resources and demand  Forecast – a statement about the future  Operations strategy value of a variable of interest  The approach, consistent with  We make forecasts about such organization strategy, that is used to things as weather, demand, and guide the operations function resource availability  Time-based strategies  Forecasts are important to making  Strategies that focus on the reduction of informed decisions time needed to accomplish tasks Forecast Uses  It is believed that by reducing time,  Plan the system for long-term plans. it helps businesses decide what... costs are lower, quality is higher,  Generally involves long-range plans productivity is higher, time-to- related to: market is faster, and customer  Types of products and service is improved services to offer  Facility and equipment  Agile operations levels...they need  A strategic approach for  Facility location and where to locate their operations competitive advantage that  Plan the use of the system for short and medium-term plans. it helps businesses manage their operations daily like, figuring out how much...  Generally involves short- and emphasizes the use of flexibility medium-range plans related to: to adapt and prosper in an  Inventory management to keep environment of change  Workforce levels how many employees to hire  Involves the blending of several  Purchasing what to buy core competencies:  Production how much to produce  Cost  Budgeting how much money to budget  Quality  Scheduling when to schedule tasks  Reliability Features Common to all forecasts  Flexibility 1. Techniques assume some underlying causal system that existed in the past will persist into the future  Operations Management and TQM 2. Forecasts are not perfect  Time-series – a time-ordered - Because random variation is always sequence of observations taken at present, there will always be some residual regular time intervals Predicting for a error, even if all other factors have been  Assume that future values of the time-series bunch of things together is accounted for. can be estimated from past values of the easier and more accurate than 3. Forecasts for groups of items are more time-series predicting for each one accurate than those for individual items individually. 4. Forecast accuracy decreases as the Naïve forecast The further out you try to predict, forecasting horizon increases the less accurate your forecast will  Uses a single previous value of a time be. It's like you are trying to predict the weather tomorrow vs predicting series as the basis for a forecast the weather next month. Elements of a good forecast  The forecast for a time period is The forecast equal to the previous time  Should be timely period’s value  Should be accurate  Can be used with  Should be reliable  A stable time series  Should be expressed in meaningful units  Seasonal variations  Should be in writing  Trend  Technique should be simple to understand and use Time-series behaviors  Should be cost-effective  Trend long-term upward or downward in data Steps in the forecasting process (population shifts, changing income)  Seasonality 1. Determine the purpose of the forecast - Short-term, fairly regular variations related 2. Establish a time horizon to the calendar or time of day 3. Obtain, clean, and analyze appropriate data - Restaurants, service call centers, and 4. Select a forecasting technique theaters all experience seasonal demand 5. Make the forecast  Cycles 6. Monitor the forecast errors - Wavelike variations lasting more than one year Forecasting approaches These are often related to a variety of  Qualitative forecasting economic, political, or even agricultural  Qualitative techniques permit the conditions It's good for inclusion of soft information such as: things that are  Irregular variation hard to measure,  Human factors  Due to unusual circumstances that like new product demand.  Personal opinions do not reflect typical behavior  Hunches  Labor strike  These factors are difficult, or  Weather event impossible, to quantify  Random Variation  Quantitative forecasting  Residual variation that remains after Uses numbers and data to  These techniques rely on hard data all other behaviors have been predict the  Quantitative techniques involve accounted for future. It's good for things that either the projection of historical have a clear historical pattern, data or the development of  These techniques work best when a series like sales of a popular product. associative methods that attempt to tends to vary about an average use causal variables to make a  Averaging techniques smooth forecast variations in the data  They can handle step changes or Time-Series Forecasts gradual changes in the level of a  Forecasts that project patterns identified in series recent time-series observations  Techniques  Moving average  Operations Management and TQM  Weighted moving average  To achieve a match between the long-term  Exponential smoothing supply capabilities of an organization and the predicted level of long-term demand Monitoring the Forecast  Overcapacity  operating costs that are  Tracking forecast errors and analyzing them too high can provide useful insight into whether  Undercapacity  strained resources and forecasts are performing satisfactorily possible loss of customers  Control charts are useful for identifying the presence of non-random error in forecasts  Capacity decisions  Tracking signals can be used to detect 1. Impact the ability of the forecast bias organization to meet future demands Choosing a forecasting technique 2. Affect operating costs  Factors to consider 3. Are a major determinant of initial  Cost cost  Accuracy 4. Often involve long-term  Availability of historical data commitment of resources  Availability of forecasting software 5. Can affect competitiveness  Time needed to gather and analyze 6. Affect the ease of management data and prepare a forecast 7. Have become more important and  Forecast horizon complex due to globalization 8. Need to be planned for in advance Operations Strategy due to their consumption of  The better forecasts are, the more able financial and other resources organizations will be to take advantage of  Two useful definitions of capacity future opportunities and reduce potential 1. Design capacity ex. bike factory produces 100 bikes/day if everything runs perfectly risks  The maximum output rate  A worthwhile strategy is to work to or service capacity an improve short-term forecasts operation, process, or  Accurate up-to-date information facility is designed for can have a significant effect on 2. Effective capacity forecast accuracy: can produce each day, taking those real-  Design capacity minus is the real number of bikes the factory  Prices world factors into account. So, if a allowances such as personal factory needs to factor 20% downtime for  Demand breaks and maintenance then their time and maintenance capacity to produce is 80 bikes per day  Other important variables Steps in Capacity Planning  Reduce the time horizon forecasts have 1. Estimate future capacity requirements to cover 2. Evaluate existing capacity and facilities;  Sharing forecasts or demand data identify gaps through the supply chain can improve 3. Identify alternatives for meeting forecast quality requirements 4. Conduct financial analyses Topic 4: Strategic Capacity Planning for Products 5. Assess key qualitative issues and Services 6. Select the best alternative for the long term 7. Implement alternative chosen Capacity Planning how much a company can produce products or provide services based on the equipment, space, 8. Monitor results  Capacity and employee skills  The upper limit or ceiling on the load Service capacity planning can present a number that an operating unit can handle of challenges related to:  Capacity needs include  The need to be near customers  Equipment  Convenience  Space  The inability to store services  Employee skills  Goal  Operations Management and TQM  Cannot store services for  Policy consumption later  Cost-volume analysis is a viable tool for  The degree of demand volatility comparing capacity alternatives if certain  Volume and timing of assumptions are satisfied demand  One product is involved  Time required to service  Everything produced can be sold individual customers  The variable cost per unit is the same regardless of volume Demand Management strategies  Fixed costs do not change with  Strategies used to offset capacity limitations volume changes, or they are step and that are intended to achieve a closer changes match between supply and demand  The revenue per unit is the same  Pricing regardless of volume  Promotions  Revenue per unit exceeds variable  Discounts cost per unit  Other tactics to shift demand from  Capacity planning impacts all areas of the peak periods into slow periods organization In-House or Outsource?  It determines the conditions under  Once capacity requirements are determined, which operations will have to the organization must decide whether to function produce a good or service itself or outsource  Flexibility allows an organization to  Factors to consider: be agile  Available capacity  It reduces the organization’s  Expertise dependence on forecast  Quality considerations accuracy and reliability  The nature of demand  Many organizations utilize  Cost capacity cushions to achieve  Risks isthattheslows slowest operation line. It's like a narrow doorway down the entire process because everyone has flexibility Bottleneck Operation tothewait for it. No matter how fast the other operation work, production rate is limited by the slowest operation.  Bottleneck management is one way  An operation in a sequence of operations by which organizations can enhance whose capacity is lower than that of the their effective capacities other operations These occur when a company's production costs decrease as it  Capacity expansion strategies are  Economies of scale produces more goods or services. this often happens due to bulk purchasing discounts important organizational  If output rate is less than the considerations ex. if the bike factory produces 1,000 bikes. As they increase optimal level, increasing the output  Expand-early strategy get discounts on bulk materials, rate results in decreasing average production to 10,000 bikes, they  Wait-and-see strategy so the cost per bike decreases per unit costs occur when a company grows too large and faces  Capacity contraction is sometimes  Diseconomies of scale challenges in managing its operations effectively, leading to higher costs. necessary  If the output rate is more than the  Capacity disposal strategies optimal level, increasing the output become important under rate results in increasing average per these conditions unit costs increasing production output leads to higher Topic 5: Process Selection and Facility layout average costs per unit a decision on how you will produce g/s in terms of organizing, how you  Constraint Process selection will layout your facility. and this is where you identify what kind of process you have or you will going to use in your business  Something that limits the  Deciding on the way production of performance of a process or system goods or services will be organized in achieving its goals Major implications  Categories  Capacity planning  Market  Layout of facilities  Resource  Equipment  Material  Design of work systems  Financial  Knowledge or competency  Operations Management and TQM Process types Product layout repetitive & continuous process 1. job shop – customized goods or services advantages: 2. batch – semi-standardized goods or services High rate of output 3. repetitive – standardized goods or services Low unit cost 4. continuous – highly standardized goods or Labor specialization services Low material handling cost High utilization of labor and equipment Key aspects of process strategy:refers to how much equipment vs labor is used. Established routing and scheduling if a company is more invested in equipment it's  Capital intensity capital-intensive like for ex. Car manufacturer, it Routing accounting and purchasing uses automated robots to make the product. The mix of equipment and labor that will be used Disadvantages by the organization Creates dull, repetitive jobs  Process flexibility refers to how a company can easily adapt to changes Poorly skilled workers may not maintain The degree to which the system can be adjusted to equipment or quality of output changes in processing requirements due to such Fairly inflexible to changes in volume factors as Highly susceptible to shutdowns - Product and service design changesnew designs are introduced Needs preventive maintenance - Volume changes up and down of demand scale Individual incentive plans are impractical - Changes in technology Process layout job shop & batch process Process technology and information technology advantages can have a profound impact on: Can handle a variety of processing requirements o Costs with technology, it reduces costs, avoids wasteful product Not particularly vulnerable to equipment failures o Productivity it allows employees to work faster with less effort. Equipment used is less costly more on labor effort o Competitiveness aoffer company that uses advanced technology can better products making it standout from its Possible to use individual incentive plans competitors disavantages Layout isfocusing how you arrange your workspace, departments, and equipment, on how work (people or materials) moves through the system. In-process inventory costs can be high The configuration of departments, work centers, Challenging routing and scheduling and equipment, with particular emphasis on Equipment utilization rates are low movement of work (customers or materials) Material handling slow and inefficient through the system Complexities often reduce span of supervision Facilities layout decisions arise when: Special attention for each product or customer - Designing new facilities Accounting and purchasing are more involved - Re-designing existing facilities The goal of a product layout is to arrange workers Importance of Layout Decisions or machines in the sequence that operations Requires substantial investments of need to be performed money and effort costs a lot of money and effort Involves long-term commitments Topic 6: Inventory Management directly impact how Has significant impact on cost and  Inventory list of items a company owns efficiently your business runs efficiency of short-term operations  A stock or store of goods Like an assembly line, each station does a specific task (bread, Product layout meat, cheese) to make sandwiches quickly and efficiently. Ideal for  Independent demand items high volume, standardized products. (repetitive & continuous) Layout that uses standardized processing  Items that are ready to be sold or operations to achieve smooth, rapid, high- used volume flow  Inventories serve a number of functions Process layout itofbelongs here the job shop and batch process because it varies what type service a customer will be served such as: Layout that can handle varied processing  To meet anticipated customer requirements a project remains in one place, workers and demand Fixed Position layout equipment that come to that one work area. ex. highway, bridge, operating room in a hospital,  To smooth production requirements Layout in which the product or project  To decouple operations remains stationary, and workers, materials,  To protect against stockouts and equipment are moved as needed  To take advantage of order cycles  To hedge against price increases Operations Management and TQM  To permit operations Classifying inventory according to some measure  To take advantage of quantity of importance, and allocating control efforts discounts accordingly Effective Inventory Management  Economic order quantity models identify the  Requires: optimal order quantity by minimizing the 1. A system keep track of inventory sum of annual costs that vary with order size 2. A reliable forecast of demand and frequency 3. Knowledge of lead time and lead 1. The basic economic order quantity time variability model 4. Reasonable estimates of 2. The economic production quantity  Holding costs model  Ordering costs 3. The quantity discount model  Shortage costs  Reorder point 5. A classification system for inventory 1. When the quantity on hand of an items item drops to this amount, the item is reordered.  Periodic system monitored weekly, monthly, and annually (ex. big company like motor and car manufacturer 2. Determinants of the reorder point  Physical count of items in inventory  The rate of demand made at periodic intervals  The lead time  Perpetual inventory system monitored every transaction (ex. small stores like sari-sari store  The extent of demand  System that keeps track of removals and/or lead time variability from inventory continuously, thus  The degree of stockout risk monitoring current levels of each acceptable to management item  Demand or lead time uncertainty creates the  An order is placed when possibility that demand will be greater than inventory drops to a available supply predetermined minimum  To reduce the likelihood of a stockout, it level becomes necessary to carry safety stock  Two-bin system 1. Safety stock  Two containers of  Stock that is held in excess inventory; reorder of expected demand due to when the first is variable demand and/or empty lead time Inventory Costs  This improves customer  Purchase cost service level  The amount paid to buy the  The goal of the single-period model is to inventory identify the order quantity that will minimize  Holding (carrying) costs the long-run excess and shortage costs  Cost to carry an item in inventory for  Two categories of problem: a length of time, usually a year 1. Demand can be characterized by a  Ordering costs continuous distribution  Costs of ordering and receiving 2. Demand can be characterized by a inventory discrete distribution  Setup costs Basic EOQ Model  The costs involved in preparing - used to find a fixed order quantity that will minimize total annual inventory costs equipment for a job Assumptions:  Analogous to ordering costs 1. Only one product is involved 2. Annual demand requirements are known  Shortage costs 3. Demand is even throughout the year  Costs resulting when demand 4. Lead time does not vary 5. Each order is received in a single delivery exceeds the supply of inventory; 6. There are no quantity discounts often unrealized profit per unit  A-B-C approach A: highest value; low of sales (very important) ex. jewelry shop B: lower value; normal sales (moderately important) ex. C: lowest value; highest sales (least important) ex. supermarket