Operations Management Exam #1
Influences all of the rest of the organization
The actual doing part of the business process
There is a significant amount of interaction and collaboration amongst the functional areas
Supply ? Demand is wastefully costly
Supply < Demand causes Opportunity Loss/Customer Dissatisfaction Supply = Demand is Ideal
They may result in additional costs, delays and shortages, poor quality, and inefficient work systems.
physical items that include raw materials, parts, subassemblies, and final products.
activities that provide some combination of time, location, form or psychological value.
Forecasting (we won’t cover, but important)
Facilities and layout
Deciding where to locate facilities
And more . . .
A primary role of the operations manager is to guide the system by decision making.
-System Design Decisions
-System Operation Decisions
-Product and service planning
These are typically strategic decisions
-usually require long-term commitment of resources
-determine parameters of system operation
-Management of personnel
-Inventory management and control
Typical operations decisions include:
What: What resources are needed, and in what amounts?
When: When will each resource be needed? When should the work be scheduled? When should materials and other supplies be ordered?
Where: Where will the work be done?
How: How will he product or service be designed? How will the work be done? How will resources be allocated?
Who: Who will do the work?
-Look like their real-life counterparts
-Graphs, Charts, Blueprints, Drawings, etc.
Focus on the most important aspects of the real-life system & omit unimportant details
Serve as a consistent tool for evaluation and provide a standardized format for analyzing a problem
Require users to organize and sometimes quantify information
Increase understanding of the problem
Enable managers to analyze “What if?” questions
Quantitative information may be emphasized over qualitative
Models may be incorrectly applied and results misinterpreted
Nonqualified users may use the model incorrectly
Decision Models and Management Science
Influence of Japanese Manufacturers
-Began in England in the 1770s
-Division of labor – Adam Smith, 1776
-Application of the steam engine, 1780s
-Cotton Gin and Interchangeable parts – Eli Whitney, 1792
Substituting machine power for human power.
Management theory and practice did not advance appreciably during this period
Management is responsible for:
-planning, carefully selecting and training workers
-finding the best way to perform each job
Emphasis was on maximizing output
-Ford Model-T, 1908-1927
Mathematical model for inventory management (F.W. Harris, 1915)
Statistical procedures for sampling and quality control (Dodge, Romig & Shewart , 1930s)
Statistical sampling theory (Tippett, 1935)
Linear programming (George Dantzig , 1947)
Refined and developed management practices that increased productivity
-Credited for the “quality revolution”
-Lean Operations / Just-in-Time production
The Internet, e-commerce, e-business
Supply chain management
Competing in a global economy
Doesn’t include marketing or finance because those are the two other functions of an organization next to operations
Underestimating the importance of internal communication and cooperation between functional areas
Putting too much emphasis on short term financial performance
Not focusing enough on process design and improvement
Failure to correctly focus on customer wants and needs
Organizations compete over:
can be qualifiers or order winners
-States the purpose of the organization
-Answer the question: “What business are we in?”
-narrow product lines or limited services
-innovation to create new products or services
-various aspects of service (e.g., helpful, reliable, etc.)
-environmentally friendly and energy efficient operations
Responsiveness (time-based strategies)
-reduction of time needed to complete products or perform services
Goals can be viewed as organizational destinations
The basis for organizational strategies
Serves as a roadmap for reaching the organizational destinations
2. Environmental Scanning (SWOT)
3. Order Qualifiers & Order Winners
organization a competitive edge
To be effective core competencies and strategies need to be aligned
Internal Factors (Strengths and Weaknesses)
External Factors (Opportunities and Threats)
Skills of workforce, expertise, experience, loyalty to the organization
Facilities and equipment
Capacities, locations, age, maintenance costs
Cash flow, access to additional funding, debt, cost of capital
Loyalty, wants and needs
Products and services
Existing, potential for new ones
Existing, ability to integrate new and its impact on current and future operations
Relationships, dependency, quality, flexibility, service
Labor relations, company image, distribution channels etc.
Health and directions of the economy, inflation, deflation, interest rates, taxes, tariffs.
Attitude towards business, political stability, wars
Antitrust laws, regulations, trade restrictions, minimum wages
laws, liability laws, labor laws, patents
Innovations rate, future process technology, design technology
Number and strength of competitors, basis of competitions (price, quality etc.)
Size, location, brand loyalty, ease of entry, growth potential, long term stability, demographics.
But… Organization Strategy should take into account the realities of operations strengths and weaknesses
The “how to” part of the process
Productivity measures are useful for:
-Tracking an operating unit’s performance over time
-Planning workforce requirements
High productivity is linked to higher standards of living -> Have more, work less.
Manufacturing multiplier (1.6-16): manufacturing has beneficial side effect -> service jobs.
Manufacturing incorporates R&D -> competitive edge.
Partial Productivity Measures
Units produced: 5,000
Standard price: $30/unit
Labor input: 500 hours
Cost of labor: $25/hour
Cost of materials: $5,000
Cost of overhead: 2x labor cost
The higher the better
involves intellectual activities
has a high degree of variability
-INCREASE: Calculators, Computers, Faxes, copiers, Internet search engines, Voice mail, cell phones, email
-REDUCE: inflexibility, high costs, mismatched operations, non-work activities
2. Determine critical (bottleneck) operations
3. Develop methods for productivity improvements
4. Establish (reasonable) goals
5. Make it clear that management supports and encourages productivity improvement
6. Measure and publicize improvements
7. Don’t confuse productivity with efficiency
Product and Service Design
Every aspect of the organization is structured around them
Product and Service design (or redesign) should be closely tied to an organization’s strategy
-Low demand, need to reduce costs, quality problems
Social and Demographic
-Aging populations, population shifts
Political, Liability, or Legal
-Regulations, safety issues
-New or changed products and services
Cost or Availability
-Raw materials, components, labor, energy
-Product components, processes
-Organized efforts to increase (scientific) knowledge or product innovation
-Objective: advancing the state of knowledge about a subject without any near-term expectation of commercial applications
-Objective: achieving commercial applications
-Converts the results of applied research into useful commercial applications.
The purpose is to ensure that customer requirements are factored into every aspect of the process
-Demand, development and production cost, potential profit, technical analysis, capacity req., skills needed, fit with mission.
2. Product specifications
-What’s needed to meet customer wants
3. Process specifications
-Weigh alternative processes in terms of cost, resources, profit, quality
4. Prototype development
-Few units are made to find problems with the product or process
5. Design review
-Changes are made or project is abandoned
6. Market test
-Determine customer acceptance. If unsuccessful return to Design-review.
7. Product introduction
8. Follow-up evaluation
-Based on feedback changes may be made.
Products are made in large quantities of identical items
Every unit [customer] processed goes through the same process [receives essentially the same service]
Reduced training costs and time
More routine purchasing, handling, and inspection procedures
Orders fillable from inventory
Opportunities for long production runs and automation
Decreased variety results in less consumer appeal
e.g., Produce a piece of furniture, but do not stain it; the customer will choose the stain or personalized M&Ms
-simplification of manufacturing and assembly
-relatively low training costs
-easier diagnosis and remedy of failures
-easier repair and replacement
-Limited number of possible product configurations
-Limited ability to repair a faulty module; the entire module must often be scrapped
2. Computer-Assisted Design (CAD)
3. Production requirements
4. Component commonality
-manufacturing personnel, marketing and purchasing personnel in loosely integrated cross-functional teams
-Views of suppliers and customers may also be sought
-achieve product designs that reflect customer wants as well as manufacturing capabilities
Directly provides information to manufacturing (dimensions, material – BOM).
Perform analysis: engineering ,cost.
-Types of materials
When Opportunities and Capabilities do not match management must consider expanding or changing capabilities.
a. Design For Manufacturing (DFM)
c. Design For Assembly (DFA)
-designing products that are compatible with an organization’s abilities
-Ease of fabrication and/or assembly
-Has important implications for cost, productivity and quality
Design for Assembly (DFA)
-reducing the number of parts in a product and on assembly methods and sequence.
-Savings in design time
-Standard training for assembly and installation
-Opportunities to buy in bulk from suppliers
-Commonality of parts for repair
-Fewer inventory items must be handled
Key issues in service design
-Degree of variation in service requirements
-Degree of customer contact and involvement
2. Services cannot be inventoried -> capacity issues.
3. Services are highly visible to consumers. Importance of process design.
4. Service systems range from those with little or no customer contact (similar to product design) to those that have a very high degree of customer contact
5. Location is often important to service design, with convenience as a major factor.
6. Demand variability – time & requirements – alternately creates waiting lines or idle service resources. Cost and efficiency perspective vs. customer perspective.
-Standardizing at the risk of eliminating features that customers value – reduce customer choices (e.g., cable channels bundle)
-Increase flexibility by employing temporary workers
Services cannot be stored.
Balancing supply and demand:
possible (e.g., doctor’s appointments)
impossible (e.g., emergency room).
Difficult to predict customer requirements
especially when there is direct contact with the customer.
1. Establish boundaries and decide the level of detail needed.
2. Identify and determine the sequence of customer and service actions and interactions. Picture the service from the customer’s perspective.
3. Develop time estimates for each phase of the process, as well as time variability.
4. Identify potential failure points and develop a plan to prevent or minimize them, as well as a response plan.
Reliability is expressed as a probability:
-The probability that the product or system will function when activated
-The probability that the product or system will function for a given length of time
Requires the use of probabilities for independent events
Events whose occurrence or non-occurrence do not influence one another
the probability of success is
equal to the product of the probabilities of the
(#1 works AND #2 works)
Overall reliability is less than the least reliable component. Though individual system components may have high reliabilities, the system’s reliability may be considerably lower because all components that are in series must function
1.00 minus that probability (it fails…)
multiplied by the probability the other occurs
1 – (#1 fails AND #2 fails AND #3 fails)
Can also be calculated by using Rule 2 multiple times.
Preventive maintenance procedures
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