Operations Management City

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Operations Management

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The design, operation and improvement of the processes that create and deliver the firm's primary products and services. It deals with managing activities and resources which add value to the firm.

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4V's

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Volume - the number of products and services offered and sold over a period of time.

Variety - the number of different products and services offered and sold.

Variation - the fluctuation of demand over a period of time.

Visibility - how much of the process is experienced by the customer.

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Performance Objectives / Value Equation

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Quality + Speed + Dependability + Flexibility - Cost

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Operations Strategy

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The decisions which shape the long-term capabilities of the company's operations in relation to shifting market requirements.

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Hayes and Wheelwright's Four Stage Model of Business Contribution

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Operations Strategy Four Perspectives

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I. Corporate Strategy: What the business wants Operations to do.

II. Operational Experience: What daily experience suggests Operations to do.

III. Resources Perspective: What given resources can do.

IV. Market Requirement: What the market position requires Operations to do.

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Order-Decision Factors

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Order Winners tip competition in your favor.

Order Qualifiers get you on the short list.

Order Losers bar your product from being considered.

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Product Lifecycle

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Manufacturing Process Types

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Project: Movies

Jobbing: Machine Tools

Batch: Brownies

Mass: Cars

Continuous: Petrol

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Process Design

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The organization of activity types and sequences in order to maximize the efficiency of input-output production.

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Process Maps

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A simple means of recording the details of a process in order to help analyze, improve and aggree the process. Activity Types:

Operation, Transportation, Inspection, Delay, Storage.

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Little's Law

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Throughput Rate: number of units produced per unit time.

Work-in-Progress: number of units in the process as an average over a period of time.

Cycle Time: the time needed to produce one unit in succession.

Little's Law: TT = WiP x CT

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Balancing Efficiency

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Perfect Balance = work allocated equally with no waiting for other processes to finish.

Balancing Loss = % time wasted through unequal utilization.

Bottleneck = longest delay stage.

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Queuing Theory

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Thin Line: focuses on one at a time to maximize cycle time, but comes at the cost of increased WiP and reduced Throughput Rate. Useful on low volume.

Fat Line: increased cycle time but greater efficiency on higher volume periods. This happens because components no longer have to wait for next order.

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Process Variability

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Demand and Process Variability = fluctuation in the number of customers and time taken to perform a task. Exponential model when dealing with high volume.

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Process Design: Drivers and Motives

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Cost-Function: the need to produce in close proximity to the customer to reduce time-based competition and shipping costs and the labor pool to reduce wage costs.

Suppy-Side: Costs.

Demand-Side: Customer Service - labor skills, customer proximity, suitability, image.

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Fixed-Position Layout

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A production technique used to assemble products that cannot be moved around.

Example: Construction Sites, Ship-building.

A: Low Capital Investment, Continuity Ensured, Greater Flexibility.

D: Very High Unit Costs, Skilled Labor Needed.

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Functional Layout

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A production technique where equipment is grouped according to the function it performs and not on the sequence of operations.

Example: Uni Library, Restaurant Kitchen

A: High Pr.&Mix Flexibility, Easy to Supervise, Robust in case of disruptions.

D: Expensive Handling, Increased Complexity.

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Cell Layout

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A production technique where resources are grouped according to the specific needs of customers.

Example: Department Store with multiple sections such as perfume, books, men and women's wear, etc.

A: Good Compromise, Fast Throughput.

B: Inadequate Combinations, Increased Investment.

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Line Layout

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Production technique where products pass through the same sequence.

Example: Voting, Cafeteria

A: Economical, Less Waste, Lower Costs.

D: Less Flexibility, Large Investment, Sensible to Disruption.

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Supply Network Management

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The management of the interconnected organizations through the stream linkages that produce value to customers.

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Do-or-Buy Decision

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Strategic Importance?

Specialized Knowledge?

Superior Operations Performance?

Operations Improvement Likely?

If none of the above are favorable, consider outsourcing.

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Single-Sourcing

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A: economies of scale, relationship management, indirect costs reduction.

D: position of weakness, potential disruptions, supplier complacency.

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Multiple Sourcing

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A: continuity of supply, short-term price reductions, volume and mix flexibility, visibility.

D: price over indirect costs, low integration, low knowledge sharing.

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Indirect Costs

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Costs associated with delivery, transactions, quality, training, inventory, downtime, inspection and environmental factors.

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The Bullwhip Effect

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The tendency of supply chains to amplify relatively small changes on the demand side such that the disruption is much greater at the supply end.

Causes: panic ordering, forecast errors, long lead times and variability, order batching, no communication.

Consequences: revenue lost, higher inventory and order costs, quality disruption, poor service.

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Capacity Management

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Capacity management deals with mismatches between demand and supply.

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Forecasting Demand Factors

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• Base demand (ave demand)

• Seasonality factors

• Trend components

• Promotional activities

• Random quantity (error)

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Level Capacity Plan

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• Ignore demand fluctuations & keep capacity constant:

Have excess capacity

Make customer wait

Approaches adopted under level capacity: Promoting off peak demand

Queue Management

Booking Systems

High Volume, Low Flexibility

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Chase Demand Plan

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Adjust capacity to reflect thefluctuations in demand

Provision of ready and rapidaccess

Focus on flexibility, varieddemand

High Volume, High Flexibility

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Demand Management Plan

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Constraining customer access;

•Reservations and appointments

• Price differentials

• Negotiate delivery dates withcustomers

• Advertising/Promotion

• Restricting service; e.g. limited serviceat peak times

• Develop alternative off-peak demand

Foreseeable Demand, Fixed Capacity

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Yield Management

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Used where capacity is fixed (airlines, hotels) and produce is sold in advance to a clearly defined market segmentation through the use of booking and price discounting (agents).

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Inventory Management

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Inventory compensates for differences in timing or rate between supply and demand. IM helps create independence between processes, meet anticipated demand, take advantage of economies of scale and strategic stock.

D: Holding cost, deterioration, duplication, high administration and insurance costs.

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Inventory Costs

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Ordering (administrative)

Storage (renting, lighting)

Opportunity (working capital)

Stock Out (lost sales)

Obsolescence (outdated / food)

Price Discounts (small vs large orders)

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Breakthrough Improvement

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Short-term - Dramatic - Large steps - Intermittent - Abrupt - volatile - Few champions - Individual ideas & effort - Scrap and rebuild - New inventions/theories - Large investment - Low effort - Technology - Profit

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Continuous Improvement

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Long-term - undramatic - Small stepsContinuous - incremental - Gradual and consistent - Everyone - Group efforts - systematic - Protect and improve - Established know-how - Low investment - Large maintenance - effort - PeopleProcess

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Business Process Reengineering (BPR)

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A radical approach toimprovement that attempts to redesign operations along customer-focusedprocesses rather than on the traditional functional basis.

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Total Quality Management (TQM)

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Puts quality and improvement at theheart of everything that is done by an operation.

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Lean

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An approach that emphasizes the smooth flow of itemssynchronized to demand so as to identify waste.

1. Use of Cellular Layout

2. Demand Pull

3. Level Production

4. Quality at the Source

5. Standardization of Work and Maintenance6. Use of Safety Capacity

7. Improving Visibility of Performance

8. Employee Involvement

9. Supplier Management

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Six Sigma

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A disciplined methodology of improving every product,process, and transaction.

1. DMAIC Cycle

2. Organizational Structure

3. Deming Improvement Cycle