OM Final Exam

Operations Management

the set of activities that create value in the form of goods and services by transforming inputs into outputs

3 essential business functions

marketing- generates demand

operations- creates the product

finance- tracks how well the organization is doing, pays bills, collects the money

Supply Chain

a global network of organizations and activities that supply a firm with goods and services

10 strategic OM decisions

-people

-product

-process

-quality management

-inventory management

-supply chain management

-location

-layout

-scheduling

-maintenance

Productivity

the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital)

productivity in the service sector

1.Typically labor intensive

2.Frequently focused on unique individual attributes or desires

3.Often an intellectual task performed by professionals

4.Often difficult to mechanize and automate

5.Often difficult to evaluate for quality

Mission

the organization’s purpose for being

strategy

is an organization’s action plan to achieve the mission.

differentiation

better, or at least different, perceives as adding value (fresh market, Disney parks, etc.)

cost leadership

cheaper (aldi, southwest, etc)

response

more responsive, flexibility, reliability, timeliness (publix)

introduction

product design and development critical, attention to quality, frequent product and process design changes

growth

forecasting critical, increase capacity, enhance distribution, practical to change price or quality image

maturity

poor time to change image, price, or quality

competitive costs become more critical

defend market position

decline

cost control critical, little product differentiation, reduce capacity

outsourcing

transferring activities that traditionally been internal to external suppliers (legal services, IT services, travel services, payroll, surgery)

planning

goal setting, defining the project, team organization (develop work breakdown structure)

scheduling

relate people, money, and supplies to specific activities and activities to each other (CPM/PERT, Gantt charts, milestone charts, cash flow schedules)

Controlling

monitor resources, costs, quality, and budgets; revise plans and shift resources to meet time and cost demands (budgets, delayed activities report, slack activities report)

role of project manager

1)All necessary activities are finished in order and on time

2)The project comes in within budget

3)The project meets quality goals

4)The people assigned to the project receive motivation, direction, and information

ethical issues in project management

1)Offers of gifts from contractors

2)Pressure to alter status reports to mask delays

3)False reports for charges of time and expenses

4)Pressure to compromise quality to meet schedules

Critical Path Method

the longest time path through the network and the shortest time in which the project can be completed (zero slack time)

Steps in CPM

1.Define the project and prepare the work breakdown structure

2.Develop relationships among the activities – decide which activities must precede and which must follow others

3.Draw the network connecting all of the activities

4.Assign time and/or cost estimates to each activity

5.Compute the longest time path through the network – this is called the critical path

6.Use the network to help plan, schedule, monitor, and control the project

ES

earliest time at which an activity can start, assuming all predecessors have been completed

EF

earliest time at which an activity can be finished

LS

latest time at which an activity can start so as to not delay the completion time of the entire project

LF

latest time by which an activity has to be finished so as to not delay the completion time of the entire project

Project crashing

shortening the duration of the project

forecasting

process of predicting a future event

short range forecasting

–Up to 1 year, generally less than 3 months

–Purchasing, job scheduling, workforce levels, job assignments, production levels

medium range forecast

–3 months to 3 years

–Sales and production planning, budgeting

long range forecast

–3⁺ years

–New product planning, facility location, research and development (capital expenditures, expansion)

types of forecasts

economic, technological, demand

economic forecast

address business cycle- inflation rate, money supply, housing stats, etc.

technological forecasts

–Predict rate of technological progress

–Impacts development of new products

demand forecasts

–Predict sales of existing products and services

Qualitative methods

jury of executive opinion, delphi method, sales force composite, consumer market survery

jury of executive method

pool opinions of high level experts, quick, combines managerial experience with statitical models

delphi method

panel of experts, queried iteratively until decision is reached, three participants (decision makers, staff, respondents)

sales force composite

each salesperson projects their sales, overly optimistic, combined at district and national levels

consumer market survey

ask the customer, difficult to answer

Quantitative approaches

1.Naive approach (demand over a certain time period)

2.Moving averages

3.Exponential smoothing

4.Trend projection

5.linear regression (associate model, doesnt care about time)

naive approach

•Assumes demand in next period is the same as demand in most recent period, good starting point

moving averages

a series of arithmetic means, used if little or no trend present, used often for smoothing if we assume its going to stay the same

exponential smoothing

form of weighted MA, requires smoothing constant, involves little record keeping of past data

trend projection

fitting a trend line to historical data points to project into the medium to long range

linear regression

tool to find a straight-line relationship between two variables (like advertising spend and sales) to predict outcomes

time series components

trend, seasonal, cyclical, random

trend component

•Persistent, overall upward or downward pattern

•Changes due to population, technology, age, culture, etc.

•Typically several years duration

seasonal component

•Regular pattern of up and down flunctuations

•Due to weather, customs, etc.

•Occurs within a single unit of time.

cyclical component

•Repeating up and down movements

•Affected by business cycle, political, and economic factors

•Multiple years duration

•Often causal or associative relationships

random component

•Erratic, unsystematic, ‘residual’ fluctuations

•Due to random variation or unforeseen events

•Short duration and nonrepeating

Quality

•affects the entire organization from supplier to customer and from product design to maintenance

helps firms increase sales and reduce costs

different views of quality

user based, product based, manufacturing based

user based

better performance, more features

product based

specific and measureable attributes of the product

manufacturing based

conformance to standards, making it right the first time

costs of quality

prevention, appraisal, internal failure, external failure costs

prevention costs

reducing the potential for defects

appraisal costs

evaluating products, parts, and services

internal failure costs

producing defective parts or service before delivery

external failure costs

defects discovered after delivery

Total Quality Management

•Encompasses entire organization from supplier to customer

•Stresses a commitment by management to have a continuing companywide drive toward excellence in all aspects of products and services that are important to the customer.

Continuous improvement

•Never-ending process of continuous improvement

•Covers people, equipment, suppliers, materials, procedures

•Every operation can be improved

people, machinery, materials, procedures

(kaizen, TQM, and zero defects)

Six Sigma

a data-driven methodology for process improvement, aiming to eliminate defects and minimize variation to achieve near-perfect quality (3.4 defects per million opportunities) by using statistical tools and structured approaches like DMAIC (Define, Measure, Analyze, Improve, Control)

Employee Empowerment

•Getting employees involved in product and process improvements

–85% of quality problems are due to materials and process

benchmarking

Selecting best practices to use as a standard for performance

Just in time

•‘Pull’ system of production scheduling including supply management

•Allows reduced inventory levels

•Encourages improved process and product quality

statistical process control

•Uses statistics and control charts to tell when to take corrective action

•Drives process improvement

•Four key steps

–Measure the process

–When a change is indicated, find the assignable cause

–Eliminate or incorporate the cause

Restart the revised process

natural variations

• also called common causes

•Affect virtually all production processes

•Expected amount of variation

•Output measures follow a probability distribution

•For any distribution there is a measure of central tendency and dispersion

•If the distribution of outputs falls within acceptable limits, the process is said to be “in control”

assignable variations

•Also called special causes of variation

–Generally this is some change in the process

•Variations that can be traced to a specific reason

•The objective is to discover when assignable causes are present

–Eliminate the bad causes

Incorporate the good causes

sample vs number

total count of individual observations (50 ppl surveyed) number of samples is how many times its repeated

process capability

a statistical measure of how well a process consistently meets its specification limits

process strategy

The objective is to create a process to produce offerings that meet customer requirements within cost and other managerial constraints

process focus

•Facilities are organized around specific activities or processes

•General purpose equipment and skilled personnel

•High degree of product flexibilty

•Typically high costs and low equipment utilization

•Product flows may vary considerably making planning and scheduling a challenge

repetitive focus

•Facilities often organized as assembly lines

•Characterized by modules with parts and assemblies made previously

•Modules may be combined for many output options

•Less flexibility than process-focused facilities but more efficient

product focus

•Facilities are organized by product

•High volume but low variety of products

•Long, continuous production runs enable efficient processes

•Typically high fixed cost but low variable cost

•Generally less skilled labor

mass customization

•The rapid, low-cost production of goods and service to satisfy increasingly unique customer desires

•Combines the flexibility of a process focus with the efficiency of a product focus

capacity

•The throughput, or the number of units a facility can hold, receive, store, or produce in a period of time

•Determines fixed costs

•Determines if demand will be satisfied

•Three time horizons

design capacity

•the maximum theoretical output of a system

•Normally expressed as a rate

•Ideal conditions exist during the time that the system is available

effective capacity

•is the capacity a firm expects to achieve given current operating constraints

•Often lower than design capacity

•Includes planned resource unavailability, such as preventative maintenance, machine setups/changeovers, scheduled breaks

actual output

-reality.

-And account for unplanned events that we cannot foresee

bottleneck

the time of the slowest workstation in the production system

supply chain management

the objective of supply chain management is to structure the supply chain to maximize its competitive advantage and benefits to the ultimate consumer.

Strategic importance of supply chain management

improves innovation, speed design, reduce costs

many suppliers

•Commonly used for commodity products

•Purchasing is typically based on price

•Suppliers compete with one another

•Supplier is responsible for technology, expertise, forecasting, cost, quality, and delivery

few suppliers

•Buyer forms longer term relationships with fewer suppliers

•Create value87 through economies of scale and learning curve improvements

•Suppliers more willing to participate in J I T programs and contribute design and technological expertise

•Cost of changing suppliers is huge

Trade secrets and other alliances may be at risk

vertical integration

-Developing the ability to produce goods or service previously purchased
-Integration may be forward, towards the customer, or backward, towards suppliers
-Can improve cost, quality, and inventory but requires capital, managerial skills, and demand
-Risky in industries with rapid technological change

joint venture

•Formal collaboration

–Enhance skills

–Secure supply

–Reduce costs

•The challenge is to cooperation without diluting brand or conceding competitive advantage

keiretsu network

-A middle ground between few suppliers and vertical integration
-Supplier becomes part of the company coalition
-Often provide financial support for suppliers through ownership or loans
-Members expect long-term relationships and provide technical expertise and stable deliveries
-May extend through several levels of the supply chain

virtual companies

•Rely on a variety of supplier relationships to provide services on demand

•Fluid organizational boundaries that allow the creation of unique enterprises to meet changing market demands

•Relationships may be short- or long-term

•Exceptionally lean performance, low capital investment, flexibility, and speed

logistics management

•Objective is to obtain efficient operations through the integration of all material acquisition, movement, and storage activities

•Is a frequent candidate for outsourcing

•Allows competitive advantage to be gained through reduced costs and improved customer service

trucking

moves the vast majority of goods, flexible

railroads

can carry large roads, little flexibility

waterways

used for bulky low value cargo

airfreight

fast and flexible for light loads

bullwhip effect

occurs when orders are relayed through the supply chain with fluctuations increasing at each step

inventory management

The objective of inventory management is to strike a balance between inventory balance and inventory investment and customer service

raw material

purchased but not processed

work in process

–Undergone some change but not completed

–A function of cycle time for a product