Operations Management 2 Test

What is the goal of operations management

matching supply with demand

Supply

business offers products to customers

demand

the set of products and services customers want

Utility

measure of the customer preference of a product or a service

Three components of utility

1. Consumer Utility

2. Price

3. Inconvenience

Tradeoffs

the need to sacrifice one capability in order to increase another one

Pareto Dominated

a firm’s product is inferior to competitors of cost and utility function

efficient frontier

the set of firms that are not Pareto dominated

Inefficiency

gap between a firm’s current position and the efficient frontier

Inefficiency results from 3 system inhibitors

• waste

• variability

• inflexibility

Process

a set of activities that take a collection of inputs, perform some work on activities with those inputs, and then yield a set of outputs

process scope

set of activities and processes included in the process

flow unit

unit of analysis that is considered in a process analysis, generally associated with outputs

three key process metrics

• inventory

• flow rate

• flow time

Littles Law

I = R*T

process analysis

rigorous framework for understanding the detailed operation of a business

process flow diagram

provides a visual chart that requires the steps of a process

resource

people and equipment that transform inputs into outputs, depicted by boxes

upstream and downstream

Upstream: parts of the process that are at the beginning of a process flow

Downstream: parts of the process that are at the end of a process flow

processing time

the time it takes a resource to complete one flow unit

capacity of a resource with one employee

1/ processing time

process capacity

= min {capacity i}

demand rate

number of flow unit’s customers want per unit of time

flow rate

= min {demand, process capacity}

capacity-constrained

the case in which demand exceeds supply and the flow rate is equal to the process capacity

demand constrained

the case in which process capacity exceeds demand and the flow rate is equal to the demand rate

utilization of a resource

flow rate/capacity (i)

utilization of a process

flow rate/process capacity

cycle time

= 1/flow rate

cycle time vs lead time

cycle time: the time between completing two consecutive flow units

lead time: the time between when an order is placed and when it is received

bottleneck

resource with the lowest capacity in a process

make-to-order

desired capability is flexibility

• ex: subway

make-to-stock

desired capability is efficiency

• ex: chick-fil-a

flow shop

efficiency

job shop

flexibility

profit maximization

primary goal of a firm

the measures of labor efficiency

1. Cost of direct labor = wages per unit in time/flow rate

2. labor content = sum of processing times

3. average labor utilization = average of utilization across resources

   1. = labor content/ labor content + idle time

   2. = labor content/number of employees/cycle time

idle time 

= cycle time - processing time

total idle time

= sum of idle times across resources

takt time

= 1/demand rate

= available time/required quantity

takt time vs cycle time

Cycle Time

• cycle time = 1/flow rate

• cycle time depends on process capacity and demand

• current reality of the process flow

Takt Time

• takt time = 1/demand rate

• takt time does not depend on process capacity. it is driven entirely by demand rate

• desired flow satisfying demand

target manpower

= labor content/takt time

leveling demand

setting an expected demand rate for a given period of time

off-loading the bottleneck

improvement strategy of moving work away from bottleneck

line balancing

allocate activities that need to be carried out in the process across the processes resources as evenly as possible so that all resources have a comparable utilization level

specialization

• having each worker only perform certain activities

• have shown a more balanced has less idle time and more labor utilization

Benefits of specialization

Benefits of specialization:
• Reduction in processing times due to elimination of setups
• Reduction in processing times due to learning
• Lower-skilled labor
• Equipment replication

fixed costs

firms pay anyways regardless of production

variable costs

costs that grow in proportion to the amount a firm produces and sells

financial impact of process improvement

Profits = Flow rate × (Avg price - Variable costs) - Fixed costs