Operations Management

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 OM
• Operations management (OM) is defined as
the design, operation, and improvement of
the systems that create and deliver the firm’s
primary products and services

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 What is Operations Management?

The business function responsible for planning,

coordinating, and controlling the resources
needed to produce a company’s products and
services

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Efficiency versus Effectiveness

• Efficiency – doing something at the lowest

possible cost

• Effectiveness – doing the right thing to create

the most value to the company

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 What is Operations Management?

• It is a management function

• Organization’s core function

• Every organization has OM function

– Service or Manufacturing

– For profit or Not for profit

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 OM’s Transformation Role

• To add value
– Increase product value at each stage
– Value added is the net increase between output product value and
input material value

• Provide an efficient transformation

– Efficiency – perform activities well at lowest possible cost

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 Differences between Manufacturers and
Service Organizations
• Manufacturers:
• Services:
• Tangible product
• Intangible product
• Product can be
• Product inventoried
cannot be
• Low customer
inventoriedcontact
• • High
Longer response
customertime
contact
• • Short
Capital intensive
response time
• • Material
Raw Orientation
Labor intensive

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 Key Differences
Customer contact
Uniformity of input
Labor content of jobs
Uniformity of output
Measurement of productivity
Production and delivery
Quality assurance
Amount of inventory
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 Similarities-Service/Manufacturers

• All use technology

• Both have quality, productivity, & response issues
• All must forecast demand
• Each will have capacity, layout, and location issues
• All have customers, suppliers, scheduling and staffing
issues

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 Service - Manufacturing
• Manufacturing often provides services
• Services often provides tangible goods

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 Transformation Process
• Value of Output >> Cost of input + cost of
transforming

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 Operations as a System
Production System

Conversion
Inputs Outputs
Subsystem

Control
Subsystem

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IP, Transformation Process, Output
• Manufacturing
• Hospital
• Hotel
• Airlines
• Transportation
• Education
• Retailing
• Warehousing
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 Transformations
• Physical--manufacturing

• Locational--transportation

• Exchange--retailing
• Storage--warehousing

• Physiological--health care
• Informational--telecommunications

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Strategic Importance of Operations
• Dell
• SAS
• Wal-Mart
• MacDonald

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Strategic Importance of Operations
• Competitive Advantage/ Differentiation
– Quality – SONY, APPLE
– Price – Wal-Mart/ TATA NANO
– Availability-DELL
– Service -
– Innovation- APPLE
– Customization- DELL
• Role of operations

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 Balancing Demand V/s Supply
• Service – Hotel in a Hill Station
• Goods – Microwave Oven

• Concept of capacity in service v/s goods

production

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 Criteria of Performance for the POMS

• Customer Satisfaction
• Effectiveness
• Efficiency - Productivity

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 Jobs of Production & Operations Management
Long Term Horizon Intermediate Term Short Term
Product Design 0 Product
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Variations Production Scheduling
Quality Policy Method Selection Material Allocation
Technology to be used Quality Implementation Material Handling
Process Selection Forecasting Scheduling of
Manpower
Site Selection M/c & Man Loading Breakdown
Maintenance
Plant & M/c Overtime & Shift Progress Tracking
Manpower Temp & Contract Priority Decision
Material & Store Purchasing Supervision
Work Standards Make or Buy
Waste Disposal Inventory
Safety & Maintenance Transport & delivery
Maintenance Schedule
Implementation of Safety decision

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 Decision Areas of POMS
• Technology Selection & Management
• Capacity Management
• Scheduling
• System Maintenance

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 Operations Function
• In a typical business, OF employs the greatest
number of people
• And is responsible for the greatest portion of
firms controllable assets.

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 POM- Customer Focus
• Production & Operations Management are
important because
– Consumers demand quality products/services at
reasonable prices in a timely fashion
– Consumers also demand better service and
individualized attention
– Consumer seek customization

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 THREE MODES OF PRODUCTION

• Primary Industries (Extraction)

• Secondary Industries (Construction and

Manufacturing)
– Refinement, Conversion, Fabrication and Assembly

• Tertiary Industries (Services)

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 CLASSSIFICATION OF PRODUCTION
INDUSTRIES

Raw Industrial
Material Product

Basic Consumer
Resources Converter Fabricator
Producer Goods

Consumer
Items

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 CLASSIFICATION OF BASIC
INDUSTRIES

Basic
Industries

Production Project Services

Industries Industries Industries

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 PRODUCTION INDUSTRIES

• Process Industries (Flow-production or

Continuous-Process)
– Adds value by mixing, separating, forming, and/or
performing chemical reactions.
– May be done in either batch or continuous mode

• Discrete-Item Manufacturing Industries

– Characterized by discrete, countable products and
component parts

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 PROJECT INDUSTRIES

• An endeavor with a specific objective to be

met within the prescribed time and cost
limitations
– Single product
– Working for months or even years

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 Project Process Type
• Projects
– Nonroutine
– Unique set of objectives/custom
– Limited time frame
– Processes, people, materials are brought to the
location of the project activities

• Examples: house building, ship building, rock

concerts
 Fixed Position Layouts (Projects)
• Fixed Position Layout
– the item being worked on remains stationary
– workers, materials, and equipment are moved as needed
to the production site

• Management Issues
– focus on timing of materials/equipment delivers so as not
to clog up worksite
– avoid relocation of equipment
– high administrative burden of scheduling all activities to
take place on time/at allocated cost
MANUFACTURING ENVIRONMENTS

• Make to Stock (MTS)

• Assemble to Order (ATO)

• Make to Order (MTO)

• Engineer to Order (ETO)

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 MAKE TO STOCK (MTS)

• Immediate delivery of goods

• Based on a predicable demand pattern

• Customer orders cannot be identified in the

production process

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 MAKE TO STOCK (MTS)
Customer
Order

Stock as
Design Procure Assemble Pack and ship
Inventory

Customer
Lead Time

Total Production Required = Total Forecast + Back Order

+ Ending Inventory – Opening Inventory

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 ASSEMBLE TO ORDER (AT0)

• Produce and stock standard component

• Assemble the finished goods according to the

component selected by the customer

• Modular design
– Independent units which integrate as a whole

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 ASSEMBLE TO ORDER (AT0)

• Product family
– Generic Bill of Material
– Forecast the basic product
– Apply historic faction of demand to the option
features
• Slightly over-planned

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 ASSEMBLE TO ORDER (ATO )
Customer Order
Decoupling Point (CODP)

Stock
standard Final Pack and
Design Procure Assemble
components assemble ship
as inventory

<--- Customer Lead Time

--->
Total Production Required
= Sales plan for each components + Planned reduction in backlog of
the components + Planned increase in the components inventory

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 MAKE TO ORDER (MTO)

• Product start after order is received from customer

– Produced to customer specifications
– Customer is willing to wait
– Product is expensive to make and store
– Options of product

• Invest in capacity
– Capacity requirement plan (CRP)
– Shop floor control (SFC)

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 MAKE TO ORDER (MTO)

Customer Order
Decoupling Point (CODP)

Stock
standard Final Pack and
Design Procure Assemble
parts as Assemble ship
inventory

<----------------------- Customer Lead Time

------------------>

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 ENGINEER TO ORDER (ETO)

• Customer’s specifications unique

• Other characteristics common to MTO

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 ENGINEER TO ORDER (ETO)

Customer Order
Decoupling Point (CODP)

Final
Design Procure Assemble Pack and ship
Assemble

<---------------------------- Customer Lead Time ------------------------->

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 MANUFACTURING ENVIRONMENTS

Order Engineer to Order ， ETO Delivery

Make to Order ， MTO

Order
Assemble to Order ， ATO
Order
Make to Stock ， MTS
Order

Final Pack and

Design Procure Assemble
Assemble ship

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 Type of Operation System
• Based on the continuity of production
– Continuous Production
– Intermittent Production

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CLASSIFICATION OF PRODUCTION (Volume)

• Job Shop

• Batch or Intermittent Production

• Mass Production (Flow or Repetitive)

• Cellular Production
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 JOB SHOP PRODUCTION
• Low volume + Wide Varity
• Engineered-to-order / made-to-order
• General Purpose Production Equipment
• Employees with wide range of skills
• Flexible Material Handling Equipment
• Low Raw Mat & Finished Goods Inventory
• High Work in process inventory
• Challenging Production Planning
• high cost per unit of product but low investment
• jumbled work flows
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 INTERMITTENT PRODUCTION (Job-lot or
Batch)

• A form of manufacturing in which the jobs

pass through the functional departments in
lots, and each lot may have different routing

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 MASS PRODUCTION

• Flow production / Repetitive production

• Make-to-stock
• High volume + Less variety
• Specialized Production Equipment & Special MH
Equipment
• Low skills required
• High RM & Finished goods Inventory, Low WIP
• Simpler Production Planning
• short flow time
• low unit-processing costs
• high investment cost; needs mass production 45
 CELLULAR PRODUCTION

• A family of parts that have similar processing

requirements.

• Including equipments and human skills

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 Process
• A Manufacturing Process is a configuration of people,
technology, systems, and information, used to transform
inventories of physical inputs into physical outputs.

• A Service Process is a configuration of technologies and

service delivery personnel (and their associated methods,
training, information) used to deliver a service-product

• An e-Service Process is a configuration of digital technologies,

supporting physical technologies, and human service
personnel used to deliver an e-Service
 Classic Manufacturing Processes

– Job Shop
Low volume
• Unique items, customized, low volume High flexibility
– Batch Shop
• Moderate volume
• Make many items in a batch at a time
– Repetitive (Discrete) Flow
• Production line, high volume, standardized
– Continuous Flow
• Very high volumes
• Extremely standardized process

High volume
Low flexibility

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 Product – Process Matrix for Manufacturing Operations

Product Types
Process Custom Broad Demand
Type Low Volume High Volume
Appliance
repair
Job Shop Emergency
room
Commercial
bakery
Batch Shop
Classroom
Lecture
Automotive
Repetitive assembly
Flow Automatic
carwash
Continuous Oil refinery
Flow Water purification
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 Characteristics of Process Types

Dimension Job Shop Batch Repetitive Continuous

Job variety Very High Moderate Low Very low
Process Very High Moderate Low Very low
flexibility

Unit cost Very High Moderate Low Very low

Volume of Very Low Low High Very high
output
Set up Cost Low Moderate Very High Very High

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 Examples of 4 basic type production Systems

System Example

Job Shop Commercial Printer

Batch Processing Heavy Equipment

Flow Shop (Production Line) Car Assembly

Continuous Flow Sugar Refinery

Most Processes are some where between Job shop and Flow shop
Matching Process Choice with Strategy: Product-Process Matrix
Process
Flexibility
High
JOB SHOP
(Commercial Printer,
Architecture firm)

BATCH
(HeavyEquipment,
Auto Repair)

FLOW SHOP
(Auto Assembly,
Car lubrication shop)

CONTINUOUS
FLOW
Low (Oil Refinery)

Low High Product

Variety
 Process Selection
• Process Selection
– Deciding on the way production of goods or
services will be organized
• How much variety is needed?
These can
• How much volume is needed? guide us to a
• How much flexibility is needed? common process
type
 Process selection
• Process selection
– Deciding on the way production of goods or
services will be organized
• Major implications
– Capacity planning
– Layout of facilities
– Equipment
– Design of work systems
 Process Strategy

• Key aspects of process strategy

– Capital intensive – equipment/labor
– Process flexibility
– Adjust to changes
– Design
– Volume
– technology
 Process Selection

• Variety
– How much Batch
• Flexibility
– What degree
• Volume
Job Shop Repetitive
– Expected output

Continuous
 Once you choose a process type, it
affects many other decisions
These affect Process choice
process choice … determines these …

Facilities and
Forecasting Capacity Equipment
Planning

Product and Layout

Service Design

Process
Technological Selection Work
Change Design
 Operations Management Decision Types

• Strategic (long-term)
• Tactical (intermediate-term)
• Operational planning and control (short-term)

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 Why Study Operations
Management?
Systematic Approach
to Org. Processes

Business Education Operations Career Opportunities

Management

Cross-Functional
Applications

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