Section A
Introduction to Operations Management
What is Operations Management (OM)?
Operations Management (OM) encompasses the people, technology, and systems responsible for providing an organization's products or services.
It involves managing direct resources to produce and deliver goods and services.
OM is a discipline focused on planning, designing, and operating production systems to achieve organizational goals.
It is the business function that plans, coordinates, and controls the resources needed to produce a company's products and services.
OM manages the conversion process, transforming inputs into finished goods and services.
Operations as a Transformation Process
Inputs: Material, machines, labor, management, capital, and customers.
Transformation Process: The activities that convert inputs into outputs.
Outputs: Goods and services.
Feedback: Information used to adjust the transformation process.
Inputs and Outputs of a Production System
Inputs:
External: Legal, economic, social, and technological factors.
Market: Competition, customer desires, and product information.
Primary Resources: Materials, personnel, capital, and utilities.
Outputs:
Direct: Products and services.
Indirect: Waste, pollution, and technological advances.
The Transformation Process within OM
External factors influence the transformation process.
The process involves measuring and adjusting inputs to produce outputs.
Feedback components are used to refine the transformation process.
Input-Transformation-Output Relationships for Typical Systems
Hospital:
Inputs: Patients, medical supplies.
Transformation: Health care.
Output: Healthy individuals.
Restaurant:
Inputs: Hungry customers, food.
Transformation: Food preparation and service.
Output: Satisfied customers.
Automobile Factory:
Inputs: Sheet steel, engine parts.
Transformation: Fabrication and assembly of cars.
Output: High-quality cars.
College/University:
Inputs: Students, books.
Transformation: Developing knowledge and skills.
Output: Educated individuals.
Department Store:
Inputs: Shoppers, stock of goods.
Transformation: Attract shoppers, promote products, fill orders.
Output: Sales to satisfied customers.
Distribution Center:
Inputs: Stockkeeping units (SKUs).
Transformation: Storage and redistribution.
Output: Fast delivery, availability of SKUs.
Value Creation in Operations Management
Operations management creates value by transforming inputs into outputs.
Value added is the net increase between output product value and input material value.
All organizations, regardless of size or type, transform inputs into outputs.
Every organization has an OM function, whether formal or informal.
Difference Between Production Management (PM) and Operations Management (OM)
Some consider PM and OM as the same thing under different names.
Others view PM as a subset of OM.
OM encompasses more than just production by including services.
Adding a service concept to production management can be termed operations management.
Responsibilities of Operations Managers
Direct Responsibilities: Activities directly related to producing and delivering products and services.
Indirect Responsibilities: Activities interfacing with other parts of the organization.
Broad Responsibilities: Scanning the business, social, and political environment.
Responsibilities of OM - The POLC Framework
Planning: Capacity, location, products & services, make or buy, layout, projects.
Organizing: Degree of centralization, process selection, staffing, hiring/laying off, use of overtime.
Directing: Incentive plans, issuance of work orders, job assignments.
Controlling/Improving: Inventory, quality, costs, productivity, scheduling.
Importance of Operations Management
OM is a critical part of every organization.
Understanding how goods and services are produced is essential for all managers.
OM manages customer satisfaction by overseeing the customer fulfillment aspects.
OM absorbs a large percentage of required capital for most organizations.
Efficient operations are necessary for a company to survive and thrive.
OM is responsible for increasing productivity and profitability.
Increased productivity leads to economic growth and a higher standard of living.
Operational decision-making requires a long-term perspective and inputs from all business functions.
OM decisions are often costly and difficult to reverse.
OM's Role in Society
OM plays a vital role in societies, impacting various aspects of daily life.
It is responsible for providing food, clothing, transportation, and recreational items.
Operations management affects nearly all aspects of our day-to-day activities.
Some Definitions Used in OM
Productivity: The ratio of output to input.
Efficiency: Producing something at the lowest possible cost.
Effectiveness: Doing the right things to create the most value for the firm.
Value: Quality divided by price.
Competitive Advantage: Gained by offering consumers greater value through lower prices or superior benefits and service.
Main Operational Decisions
Facility location.
Capacity planning.
Make or buy decisions.
Technology selection.
Quality assurance.
Vendor selection.
Inventory management.
Resource scheduling.
Critical Decisions of OM
Product and service design.
Quality management.
Process design.
Capacity and location of facilities.
Layout of facilities.
Human resource and job design.
Supply-chain management.
Inventory management.
Scheduling.
Maintenance.
OM Decision Levels
Strategic: Broad, long-term decisions made by senior management.
Tactical: Medium-range decisions focusing on resource needs and schedules.
Operational: Short-term decisions involving day-to-day activities. Examples: Job assignments, task prioritization
Strategic Decisions
Senior management is responsible.
Broad in nature.
Determine the success of an organization's strategy.
Risky and hard to reverse.
Have significant long-term impact.
Less frequent.
Examples: Product manufacturing, facility location, capacity planning, and capacity addition.
Tactical Decisions
Medium-range decisions focused on resource needs, schedules, and quantities to produce.
Frequent, must align with strategic decisions.
Involve resource allocation and utilization.
Involve a moderate degree of uncertainty and risk.
Act as the link between lower and high-level management.
Examples: Workforce planning, overtime scheduling, material delivery, and inventory management.
Operational Decisions
Involve a short time horizon.
Involve very little uncertainty and risk.
Examples: Job assignments, task prioritization. What jobs do we work on today or this week?
Characteristics of OM Decisions
Characteristic | Strategic | Tactical | Operational |
|---|---|---|---|
Time Horizon | Longer term | Medium term | Shorter term |
Responsibility | Senior management | Middle and senior managers | Middle and lower management |
Capital Investment | High | Moderate | Low |
Scope | Broad | Narrow | Day-to-day activities |
OM's Contributions to Society
Higher Standard of Living
Better Quality Goods and Services
Concern for the Environment
Improved Working Conditions
Higher Standard of Living
Increased productivity is a major factor in raising the standard of living.
Higher productivity results from increased efficiency in operations.
This translates into lower-cost goods and services.
Consumers have more discretionary income, contributing to a higher standard of living.
Better Quality of Goods and Services
Increased competition leads to higher-quality products.
Quality standards are continually increasing.
Many companies have adopted Six-Sigma quality standards (pioneered by Motorola).
This results in no more than 3.4 defects per million opportunities.
High quality is not only possible but also results in lower costs through reduced waste and rework.
Concern for the Environment
Many companies are producing environmentally friendly products using environmentally friendly processes.
This includes recycling and addressing air and water quality.
Improved Working Conditions
Managers recognize the benefits of providing better working conditions.
This includes the work environment and job design.
Workers are encouraged to participate in improving operations through suggestions.
There is a relationship between satisfied workers and satisfied customers, especially in service operations.
Empowerment is key - encouraging and authorizing workers to take the initiative to improve operations, reduce costs, improve product quality and customer service.
OM of Service and Manufacturing Organizations
Initially, operations management focused on manufacturing.
Services represent a larger percentage of developed economies.
Less than 20% of jobs are in manufacturing and declining.
Almost 80% of jobs are in the service sector and increasing.
Nearly half of all jobs are in Production and Operations Mangement.
Activities in Operations Management
Forecasting: Basis of corporate long-term planning. Production and operation personnel use forecasts to make periodic decisions involving process selection, capacity planning, and facility layout.
Qualitative techniques are subjective and based on estimates and opinions.
Time series analysis is based on past demand data to predict future demand.
Causal Relationships assumes demand is related to underlying factors.
Simulation models allow forecasters to run through a range of assumptions.
Facility Location: Critical for a company’s success and is based on:
Proximity to customers
Business climate
Total costs
Infrastructure
Quality of labor
Suppliers
Free trade zones
Political risk
Government barriers
Trading blocks
Environmental regulations
Host community
Competitive advantage
Facility Layout and Design: Determine the placement of departments, workgroups, workstations, machines, and stock holding points within a facility. A good layout can enhance material and information flow, and improve employee work life.
Technology: Technological advances impact manufacturing firms through:
Hardware systems: Machining centers, industrial robots, automated handling systems, computer-controlled devices.
Software-based systems: Computer-aided design and automated manufacturing planning and control systems.
Quality: Total quality management involves managing the entire organization to excel on all dimensions of products and services important to the customer. Goals are careful product/service design and ensuring consistent production.
Design quality refers to the inherent value of the product in the marketplace.
Conformance quality refers to the degree to which design specifications are met.
Inventory/Capacity: Inventory is the stock of an item or resource. An inventory system controls inventory levels and determines when and how much to replenish.
Types of manufacturing inventory: Raw material, finished products, component parts, supplies, work in process.
Process Selection and Design: Strategic decision to select the type of production processes in a plant.
Major process flow structures: Job shop, batch shop, assembly line, continuous flow.
Service Selection and Design: Services contain tangible and intangible attributes.
Service operations management exists in service businesses (e.g., banks, airlines, hospitals) and internal services (e.g., data processing, accounting).
Scheduling: A timetable for performing activities, utilizing resources, or allocating facilities.
Operation scheduling, often referred to as Manufacturing Execution System (MES), schedules, dispatches, tracks, monitors, and controls production.
Goods vs. Services
Attributes of Goods:
Tangible product, product can be inventoried
Some aspect of quality are measurable
Selling is distinct from production
Site of facility is important for cost
Often easy to automate
Revenue is generated primarily from the tangible product
Capital intensive
Attributes of Services
Intangible Products, many services cannot be inventoried
Many aspects of quality are difficult to measure
Selling is often a part of the service
Provider, not product, is often transportable
Site of facility is important for customer contact
Service is often difficult to automate
Revenue is generated primarily from the intangible service
Labor intensive
How Goods and Services Affect Operations Management Activities
OM Activity | Goods | Services |
|---|---|---|
Forecasting | Forecasts involve longer-term time horizons. Manufacturers can use physical inventory as a buffer to mitigate forecast errors. Forecasts can be aggregated over larger time frames. | Forecast horizons are shorter, and forecasts are more variable and time-dependent. Forecasting must often be done on a daily or hourly basis, or sometimes even more frequently. |
Facility Location | Manufacturing facilities can be located close to raw materials, suppliers, labor, or customers/markets. | Service facilities must be located close to customers/markets for convenience and speed of service. |
Facility Layout | Factories and warehouses can be designed for efficiency because few, if any, customers are present. | The facility must be designed for customer interaction. |
Technology | Manufacturing facilities use various types of automation to produce goods. | Service facilities tend to rely more on information-based hardware and software. |
Quality | Manufacturers can define clear, physical, and measurable quality standards and capture measurements using various physical devices. | Quality measurements must account for customer perception of service quality and must be gathered through surveys or personal contact. |
Inventory/Capacity | Manufacturers use physical inventory as a buffer for fluctuations in demand. | Service capacity is the substitute for inventory. |
Process Design | Customers have no involvement in manufacturing processes so the processes can be more mechanistic | Customers usually participate extensively in service creation and delivery, requiring more flexibility and adaptation to special circumstances. |
Job/Service Design | Manufacturing employees require strong technical skills | Service employees need more behavioral and service management skills. |
Scheduling | Scheduling revolves around movement and location of materials, parts, and subassemblies and can be accomplished at the discretion and for the benefit of the manufacturer | Scheduling revolves around capacity, availability, and customer needs, often leaving little discretion for the service provider. |
Facility Layout
Meaning: Arrangement of machinery, equipment, and other industrial facilities to achieve quick production at least cost.
Objectives of Good Layout
Minimize material handling costs.
Optimize movement of people and material.
Reduce hazards to personnel.
Prevent accidents.
Maximize production capacity.
Increase labor efficiency.
Improve employee morale.
Optimize space utilization.
Ease of supervision and maintenance.
Facility Layout and Design: Layout Decisions determine the placement of departments, work groups within the departments, workstations, machines and stock holding points within a production facility. A good factory layout can provide real competitive advantage by facilitating material and information flow process. It can enhance employees work life.
*Factors Influencing Facility Layout: Managerial policies, Material, Product, man power, Location, Type of industry, Machinery.
Importance of Facility Layout
Economies in handling
Effective use of available area
Minimization of production delays
Improved quality control
Avoidance of bottlenecks
Better production control
Better supervision
Improved utilization of labor
Improved employee morale
Avoidance of unnecessary and costly changes
Types of Layout
Product Layout
Fixed Position Layout
Service Facility Layout
Process Layout
Cellular Manufacturing Layout
Combined Layout
Product Layout
Straight Line or Layout for Serialized Manufacture.
Arrangement of machines in ONE LINE depending on the sequence of operations.
Materials are fed in the first machine & finished products comes out from the last machine.
Eg:Sugarcane mill and paper mill
Product layout makes sense when the batch size of a given product is large Relative to the number of different products or parts produced
Assembly lines: are special case of product layout using material handling devices like: belt,roller conveyor, overhead cranes and different workstations.
Workstation: Work is performed on a product by adding parts or by completing assembly operation
Workstation cycle time is a uniform time interval in an assembly line of a moving conveyor that passes a series of workstations.
Assembly line balancing problem is one of assigning all tasks to a series of workstation so that each workstation has no more than can be done in the workstation cycle time and so that the idle time across all work stations is minimized.
Precedence relationship: The order in which tasks must be performed in the assembly process.
Fixed Position Layout
Movement of men and machines to the product.
Bulky product. Example: Aircraft assembling, ships etc.
Service Facility Layout
Service oriented industries like Banks, Hospitals etc
Process Layout
Functional layout/job lot manufacture or batch production layout.
Involves grouping of like machines in one department
General purpose machines
Designing a process layout: CRAFT: Computerized Relative Allocation of Facilities Technique. A method to help devise a good process layouts. The technique is designed to minimize material handling costs in the facility and works by iteratively exchanging pairs of departments until no further cost reductions are possible Systematic Layout Planning: A technique for solving process layout problems when use of numerical flow data between departments is not practical. The technique uses an activity relationship diagram that is adjusted by trial and error until a satisfactory adjacency pattern is obtained.
Cellular Manufacturing
Machines grouped into cells
Each cell is formed to produce a few parts with common characters
Combined Layout
Combination of different types of layout viz. product layout and process layout.
Why Layout Revision?
Expansion
Technological advancements
Improvement in the layout
Difference
Product Layout | Process Layout |
|---|---|
Single product can be produced | Multiple products can be produced |
Cycle time is less | Cycle time is more |
Expensive | Relatively cheaper |
Lower space requirements | Higher space requirements |
Product specialization | Process specialization |
Tools for Plant Layout Planning Key Points:
Computer-Aided Design (CAD): Use of CAD software for creating detailed layouts and visualizing the plant design.
Simulation Software: Tools like Arena, AnyLogic, and FlexSim for simulating plant operations and identifying bottlenecks.
Flow Process Charts: Diagrams that map out the flow of materials and processes within the plant.
Space Utilization Tools: Software and techniques for optimizing the use of available space.