Operations Managements 1

What is operations management

Activities that create value by transforming inputs into outputs

What is production

Creation of goods and services

What are inputs in OM

Customers and materials

What is the transformation process

Activities that convert inputs into outputs

What are outputs

Finished goods and services

Goods features

Tangible, Can be inventoried, no interaction between customer and processes

Services features

Intangible, Cannot be inventoried, direct interaction

Main functions of an organization

Operations marketing finance accounting

What does marketing do

Generates demand

What does finance accounting do

Manages money and performance

What does operations do

Produces goods and services

Purpose of Sales and Operations Planning

Coordinates marketing finance operations

How many OM strategic decisions exist

Ten

Wjat are the ten strategic decisions in OM

1. Design of goods and services

2. Managing quality

3. Process and capacity strategy

4. Location strategy

5. Layout strategy

6. Human resources and job design

7. Supply-chain management

8. Inventory management

9. Scheduling

10. Maintenance

Why study OM

To understand how goods and services are produced

Economic properties of a product

Price cost margin

Product lifespan

Years the product functions

Product lifecycle

Duration the product stays on the market

Planned obsolescence

Designing limited lifespan products

Does variety require flexibility

Yes

What is traceability

Ability to track products

What is unit production

Custom production one by one

What is mass production

Large scale fast standardized output

What is a production line

Sequential workstation flow

Line productivity and flexibility

High productivity low flexibility

What is a job shop

Flexible production with low productivity

Example: A paint shop that creates customized products in small batches.

What is a flow shop

Medium productivity medium flexibility

Example: A university canteen.

What drives system choice

Flexibility productivity trade off

Push production

Based on forecast, Materials are pushed from upstream to downstream.

Pull production

Based on customer orders, Downstream stations pull what they need from upstream.

Push pull strategy

1. Push (Forecast): Do the generic, predictable, time-consuming work in advance.

2. Hold Inventory (S1): Keep a stock of raw materials, components, or finished goods at a strategic point.

3. Pull (Order): Complete the final, customized steps only after a real customer order is received.

What is S1

Inventory buffer between push and pull

Productions strategies (Defined by the Decoupling Point):

Make-to-Stock (MTS):

Assemble-to-Order (ATO):

Make-to-Order (MTO):

Engineer-to-Order (ETO):

Make-to-Forecast (MTF):

Make to stock (MTS)

Produce finished goods to forecast

Assemble to order (ATO)

Produce components to forecast assemble to order

Make to order (MTO)

Start production after order

Engineer to order (ETO)

Design and produce after order

Make to forcast (MTF)

A hybrid strategy where major models are launched to forecast (MTS) and then modified as orders arrive (MTO).

Capacity definition

Maximum output over time

Types of capacity measures

Production rate storage service capacity, time, labor

Capacity planning horizons

Long : Greater than 3 years

intermediate : 3 to 36 month

short : Up to 3 month

Design capacity

Theoretical maximum output

Effective capacity

Design capacity minus planned losses (Maintenance, coffee breaks, scheduling conflicts, etc.)

Actual output

Effective capacity minus unplanned losses (Machine breakdowns, employee absenteeism, component stockouts, and demand variability.)

Product assembly time calculations

Is the calculation of the available production time divided by customer demand

T = Ta / D

Where ;

T = product assembly time required to met demand

Ta = net time available to work

D = Customer demand

What is utilization

Utilization is the percentage of the theoretical maximum capacity (Design Capacity) that is actually achieved. It measures how much of the total possible capacity is being put to use.

Utilization Formula

Actual Output / Design capacity

What is efficiency ? 

Efficiency is the percentage of the realistic, planned capacity (Effective Capacity) that is actually achieved. It measures how well a resource is performing compared to what it is expected to perform under normal conditions.

Efficiency formula

Actual output / effective capacity

What is demand

This represents the external need for products or services. It is typically fluctuating data, influenced by market trends, seasonality, and various other external factors.

What is capacity

This refers to the internal ability to produce goods or services. It is generally less variable and represents the maximum output achievable with current resources (e.g., machinery, labor, facilities).

What is Load leveling

Smoothing out fluctuations in demand or workload, aiming to achieve a more consistent and efficient utilization of resources (capacity). It addresses the challenges posed by load variation.

What is serial smoothing

Concept: This method involves distributing the workload or demand over different time periods. Instead of handling peak loads entirely within a short period, the work is spread out to utilize capacity more evenly across a longer duration.

Goal: To avoid overloading capacity during peak times and underutilizing it during off-peak times.

What is parallel smoothing

Concept: This method involves distributing the workload or demand across multiple available resources or locations (i.e., "in space") at the same time. Instead of one resource handling all the load, it's shared among several.

Goal: To prevent any single resource from becoming a bottleneck and to leverage the collective capacity of multiple units.

Short term capacity actions

Human Resources:

* Overtime: Extending working hours for existing staff.

* Number of teams: Adjusting the active number of work teams.

* Interim: Utilizing temporary staff or contractors.

External Resources:

* Subcontracting: Outsourcing specific tasks or production to external providers.

Mid term capacity actions

Human Resources:

* Hiring / Training: Recruiting new permanent staff and developing their skills.

* Versatility: Training existing staff to perform multiple roles, increasing flexibility.

Technical Resources:

* Investments: Acquiring or upgrading machinery, equipment, or technology (e.g., leasing new equipment, minor facility modifications).

External Resources:

* Partnership: Forming strategic alliances or collaborations to share capacity or resources.

Long term capacity actions

New sites major investments

What is the theory of constraints

Even if system is very big and have huge capacity, it will be limited by the lowest bottleneck

Bottleneck definition

Lowest capacity resource

Theory of constraints five step to improve

1. Identify the constraint: Pinpoint the single weakest link or bottleneck that limits the system's overall output (e.g., Process 3 in the example above).

2. Exploit the constraint: Maximize the utilization and efficiency of the identified constraint using existing resources. Ensure it is never idle and is always working on the most critical tasks.

3. Subordinate everything to the constraint: Align all other non-constraint processes to support the constraint's needs. This means ensuring the constraint always has work, and that upstream processes don't overproduce, creating excess inventory before the bottleneck.

4. Elevate the constraint: If, after exploiting and subordinating, the constraint still limits desired throughput, consider investing in increasing its capacity (e.g., adding more resources, improving technology, or redesigning the process at the constraint).

5. Find the new constraints and repeat the steps: Once the original constraint is elevated, another part of the system will likely become the new constraint. The process is continuous, requiring constant re-evaluation and application of these steps to achieve ongoing improvement.

What is the waiting line strategy

Branch of applied statistics that provides tools for managers to analyze and understand the dynamics of waiting lines (queues).

What is Little law

Fundamental principle that provides a powerful and intuitive understanding of the relationship between three key performance metrics:

1. Average inventory (or average number of units in the system)

2. Average arrival rate (or throughput rate)

3. Average time a unit spends in the system (or throughput time)

Litlle law calculations

I = R x T

Where:

I = average number of units in the system (also commonly referred to as *inventory**)

R = average arrival rate (also known as *throughput rate**, the rate at which units enter and leave the system)

T = average time a unit spends in the system (also known as *throughput time** or lead time, the average time from entry to exit)