Ops Exam 1

Operations Management Defination

designing, directing, controlling processes that transform inputs into outputs for internal or external customers

Operations inputs

Material, people, equipment, energy, knowledge,skill, space, etc.

Operation Outputs

Products, services, knowledge

Manufacturers

Make the product

Tier 1 Suppliers

supply main components to manufacturers

Tier 2 suppliers

Supply raw materials to tier 1 suppliers

Order Qualifier

Characteristics that customers use or find important to consider the companys product/service or switch

Order winner

characteristic that mamke customer choose your product/service or switch

Competitive Priorities

Cost, Quality, Time, Flexability, Other. pick 2 or 3 and make decisons that reflect it

Triple Bottom Line

People, Planet, Profit

How is Operations performance Measured?

Efficiency (lowest cost), Effectiveness (meet customer requirements), Value (high quality relative to cost), productivity (highest outputs)

Productivity equation

output/input

Patual measures

output/labor

Multifactor measure

Output($)/labor+capital+materials($)

>1= adding value
<1= not adding value

Role of Operations

Manage the resources and capabilities of the firm. Work with other departments to used strategy for purposeful alignment to create value, compete, and win

Process

A series of sequential and/or parallel steps. transform inputs into outputs. Elemental unit of analysis for operations

Operations

groups of processes

Supply chains

Inter related series of operations within or across firms.

Core Processes

serve external customers

Support processes

Serve internal customers

Operational Capabilities

Collective resources, processes, and priorities of a firm. Determine what firm can and can’t do. “Operational DNA” that address issues of performance, resilience, innovation, and gowth

Operational Excellence

Getting better on purpose. Demands curiosity, understanding, action, andre-learning,

Corporate Strategy

Informed by industry/market trends and defines where to compete and how to win. Take advantage of core competancies

Operations Strategy

Informed by corporate strategy and is framework guiding short and long term decisions within a firm. Communicated broadly to decision makers using competitve priorities

Firm Priorities

Competitive priorities indicate what a firm intends to follow in order to compete while competitive capabilities deliver on those intentions

Societal Priorities

Triple bottom line

Market Priorities

Order winners and qualifiers signal customer decision criteria. Market based considerations the frim aspires to meet

% change

New-old/old

Job Shop

High customization, low volume, high labor intensity. Custome Furniture

Batch Process

Higher variety, lower vlume, disconnected process steps. Appliances

Assembly Line

Higher volume and lower customization. Connected process. Cars

Continuous Flow

High Volume, low customization. 24/7 operation with high capacity intensity. Beverages or steel.

Make to Stock

Produced before customers order based on forecast.
Short Customer Lead Time
Finish goods inventory=expensive

Assemble to Order

Some work before order
Component Inventory
Better Customer Lead Time
Added some value to investory
Custom and Speed
Cava

Make to Order

Produce when customer order recieved
Parts and raw material inventory (cheaper)

Long customer lead time

What determines cost structure

Process Choice

Lots of Equipment

High fixed costs

Vaiable cost is ____ dependent

Volume

Cons of customer involvement

Disruptive and takes time away from work
Customer may not want to do the work

Front Office

High customer involvement and low volume
Hostess, bank teller
Customer facing process

Hybrid office

Mediume customer involvement and volume
Some customer interaction
Chipotle

Back Office

Little customer involvment and high volume
Back of House
Kitchen

Process Strategy

Drives design decisions within and across firm involving HR, equipment and methods of transforming input to output

Process Design Decisions

reflect external demand characteristics and internal strategies.
4 major decisions; process structure, customer involvement, resource flexibility, and capital intensity

Manufacturing Processes

Job, Batch, Line, and Continuous Flow
Product process matric

Economics of Process Choice

Higher fixed costs structures have high breakeven volumes (higher volume risks) but offer greater opportunity (leverage) for margins to improve as volume increases

Capacity

The ability to process or hold demand.
Max output rate of a process

Output measures of capacity

If mix of products is relativly stable.
Low uncertainty

Input Measures of uncertainty

If mix of products varies
Higher uncertainy
Demand variability
# labor hours
# Patients/# of beds

Expansionist Pros and Cons

Pros:
First Mover
Cons:
Forcasted demand may be more than actual

Wait and See Pros and Cons

Pros:
Cheaper
Cons:
Loose out on demand, market share

Economies of Scale

As volume increases, fixed costs are spread out over more items.
Good with lots of FC
NOt much in high labor intensity

Capital intensive settings

higher fixed costs higher econ of scale (lower cost/unit)

Diseconomies of scale

Add fixed costs (overhead, buldings, utilities),
Fixed cost incr spread over same amount of items
Total cost per unit incr

Capacity Cushion

100% capacity- avg utilization rate

Capital Intensive Industries Capacity cushion

Lower (10%)
Less demand variability
Higher utilization

Labor Intensive Capacity Cushion

Higher custion
More demand variability
Lower Utilization

Capacity Utilization

Average output rate/ Max capacity*100

Short term capacity

Adjusted by changing employment levels, time avilable for work, inventory levels, or subcontracting.

Constraint

Determines max output rate fir capacity of system

Bottle neck

Constrained resource whose available capacity limits the organizations ability to meet demand
Defines capacity

Theory of Constraints (TOC)

1) Identify system constraint (calc rates and slowest demand/ look for inventory in front of bottle neck)

2) Decide how to exploit the system constraint (more output from existing capacity)

3) Subordinate everything else to that decision (produce at rate of bottle nexk)
4) Elevate the system constraint (add capactiy)
5) Repeat the process (practice continuous improvement)

Optimal Product Mix

Priorize profit per min at bottle neck

Throughput Time

Longest possible path

Symptoms of poor inventory management

Stock outs, purplus

inventory

Stock to satify internal/external demand

Reorder point

given on hand quanity left to cover demand during lead time

Safety Stock depends on

Lead time
Variability of Demand
Service level (managerial decision)

Presures for large inventories

Order more less often

Quanity discounts
Set up costs fixed per order

ordering costs fixed per order

Pressures for Small Inventories

Order less more often

Cost of capital

Holding costs

Shrinkage

Spoilage

Q system (Continuous Review)

Review for each item is individual

Fixed lot sizes (Q)

Lower safety stock with order point

data intensive

Order Q at reorder point

P system (Periodic Review)

convenient order when needed

combine orders

inventory position doesn’t need to be constantly monitored

higher safety stock to cover L and P

Order every P days/weeks. back up to a certain amount

Pareto Principle

Separating vital few from trivial many

80/20 Rule

EOQ (Economic Order Quantity)

Demand is constant, supply lead times are fixed inventory items are independent and there are no quanity discounts, then EOQ calc min total annual cost of ordering and holding inventory

High holding cost drive Q ____

Down

High ordering costs drive Q ____

Up

Cycle inventory

usage cycles

ABC System

Prioritizes inventory based on dollar usage. Usful to recognize disproportionate impact from certain SKUs

d

Daily demand

D

yearly demand

R

order quanity

S

Ordering costs

H

Holding costs

Important skills of Distributors

Collaboration, critical thinking, and strategic thinking

Apple supply chain

reserves capacity for when its needed after demand manifests itself

Engineer to order

no design/engineering until customer orders

Efficient supply chains

PRedictable demand

Low cost

consistent quality

infrequent new products

CM low

Variety low

Operation strategy make to stock

capacity cushion low

emphasize low prices and on time delivery

Responsive supply chain

Unpredictable demand

high costs

top quality

customization volume flexibility

More frequent new prodict

High CM

Low Product variety

Make/assemble to order

high capacity cushion

Functional lead time vs innovative lead time

Functional=longer

Outsourcing

Moving some of a firms internal activities and decision responsibility to outside providers

Pros of outsourcing

Turn FC into VC

Improve return on assets

not necessarily cheaper

Obtain expertise, skills, tech

Focus on core competencies

Incr flexibility

improve risk management

Incr in Inventory Turnover

more quickly capital becomes cash