Exam 1 - Ch. 1-5
operations management: the business function responsible for planning, coordinating, controlling, and leading the resources needed to produce a company’s products and or services
operations has the responsibility to coordinate human capital, equipment, technology, raw materials, and information to produce a product or service effectively and efficiently
quantity demanded
quality required in timely manner
at lowest cost
customer Is the center of all business focus
operations management tranforms inputs into value added outputs
inputs: human capital, buildings, processes, various technologies, and raw materials
outputs: the products and services sold
what is the goal of the transformation process? to add customer value in order for the company to make a profit
transformation process: coverts inputs into outputs with the intent of adding value to the customer and making a profit
physical transformation: manufacturing - rubber to tires
exchange transformation: retail sales - warehouse stores to local stores
locational transformation: transportation and distribution - car manufactuing and then to dealerships
informational transformation: sharing and communication - internet
physiological transformation: a human physical change - surgery
pyschologial transformation: state of mind - entertainment providing enjoyment
service operations transformation process: Include intangible products, few or no inventories, higher customer interactions, labor intensive, shorter response times to customer satisfaction
manufacturing operations transformation process: physical product, inventories, lower customer contact, capital intensive, longer response time
strategic decisions: establish the broad direction of the company and are heneral in scope with long-term hhorizon
tactical decisions: must be coordinated to facilitate the strategic decisions, are more short term in nature and more specific with operational objectives
James Watt: 1764 - inventor of steam engine
Adam Smith: 1776 - inventor of division of labors
Eli Whitney: 1790 - inventor of interchangeable parts
Henry Ford: Inventor of moving assembly line
W. Edwards Deming: Developed concepts of quality Improvement in Japan and America
Taiichi Ohno: Developed first lean system, toyota manufacturing
flexibility: greater variety of product and service choices on a mass scale (mass customization)
time based competition: developing new product designs and delivering customer orders quicker than competitors
supply chain management: cooperating with suppliers and customers to reduce overall costs of teh supply chain and increase responsiveness to customers
lean management: continually working to reduce costs and eliminate waste while increasing customer value and profits
what is the overall goal of a business strategy? to make money
what are the four competitive priorities of a business? cost, quality, time, and flexibility
cost: pricing below or above competitors for a better profit or market share
quality: performance and consistency = price premium
time: faster and consistent delivery = price premium
flexibility: product volume flexibility = price premium
competing on cost: eliminate waste, efficient process, limited customization, automation
competing on quality: design quality, process quality, luxury goods
competing on time: rapid delivery, lead time, consistency, on time delivery,
competing on flexibility: production flexibility, easy changeover, easy customization, volume flexibility
productivity: measures the amount of output compared to the level of inputs used
productivity equation: (outputs/ inputs)
How can you increase productivity?
increase outputs, decreasing inputs
decrease inputs, same outputs
increase outputs same inputs
increase outputs faster
productivity growth rate equation: (P2-P1)/P1
Steps in the forecasting process
decided what to forecast
evaluate and analyze data
select and test forecasting model
generate the forecast
monitor forecast accuracy over time
forecasting is a critical business strategy that involves strategic and tactical business decisions
most basic forecasting models are formula driven
Basic forecasting principles
forecasts are rarely perfect, they are a scientific and educated guess
grouped forecasts are moer accurate than individual items
forecast accuracy is higher for shoerter
types of forecasting methods
qualitative methods: forecasts are generated subjectively by the forecaster
strengths of qualitative methods: incorporates inside information; particularly useful when teh future is expected to be very different than the past
weaknesses of qualitative methods: forecasters bias can reduce the accuracy of the forecast
qualitative forecast types: executive opinion, market research, delphi method
characteristics of executive opinion: a group of managers meet to come up with a forecast
strengths of executive opinion: good for strategic or new product forecasting
weaknesses of executive opinion: one persons opinion can dominate the forecast
characteristics of market research: users surveys and interviews to identify customer preferences
strengths of market research: good determinant of customer preference
weaknesses of market research: It can be difficult to develop a reliable questionnaire
characteristics of delphi method: seeks to gain consensus among a group of experts
strengths of delphi method: excellent for forecasting long term product demand and technological change
weaknesses of delphi method: It can be a very time consuming process
quantitative methods: forecasts generated through mathematical modeling; time series and casual models
time series models: assumes to future will follow the same patterns as the past
casual models: explores cause and effect relationships, often using leading indicators to predict the future
naive: the forecast is equal to the actual value observed during the last period; useful when historical data is very stable at the same level or as if there is no historical data; assumption is that what just happened is likely to happen again
simple mean: the forecast is the average of all available data; this method is a relatively conservative in the absence of a consistent pattern in the data
moving average: the forecast is the average value over a set time period, where each new forecast drops the oldest data point and adds teh most recent observation; this method places all teh emphasis on a preset number of recent data periods, appropriate choice whne shifts in data occur, equals emphasis on the specified number of time periods
weighted moving average: the forecast is the average value over a set time period, where each new forecast drops the oldest data point and adds the most recent observation, but each time period can have a different weight, providing the possibility of emphasizing one or more time periods over others; all weights but add to 100%, allows forecaster to emphasize one period over others as more influential in forecasting demand
exponetial smoothing: adjusts the next forecast by some proportion of the previous forecast error; the forcast quality is highly dependent on selection of the smoothing constant, alpha; low alpha values generate more stable forecasts, responding slowly to changes in the data; high alpha values create forecasts that respond quickyl to data changes; issues arise when recent changes reflect random variation or some other pattern
low alpha values: results in more stable forecasts, responds slowly to changes in data
high alpha values: create forecasts that respond quickly to changes in data
tracking forecast errors:
what are the stages of a product life cycle? Introduction, growth, and maturity
product process development step 1: Idea development procedures and methods
brainstorming: soliciting many ideas without prejudice hoping for synergy of ideas, success rate is low, often done through surveys and focus groups
benchmarking: study “best in class” companies (even from other industries) and compare practices and performances
reverse engineering: disassembling/ analysing a competitors product or service for design ideas, solicites ideas from customers, suppliers, and emplyees, and routinesly examine technical advances, industry magazines, journals and conferences
product process development step 2: product screening for selecting a potential product or service
role of marketing in development: how large is the market niche, what is long term potential for market, is market growing or declining or emerging, what are expected demands in next years, would trademark or patent be feasible
role of operations in development: do we have or can we acquire required labor skills and raw materials needed, do we have enough existing capacity, what would be the eliminated costs of production, what is the breakeven point
role of finance in development: what is the expected return on investments, what is the necessary capital outlay, what risk would the capital of the company face
product process development step 3: preliminary design and testing; develop a prototype with function before form to begin translating general performance characteristics into technical specifications, perform some test marketing where bugs are worked out and designs are refined
product process development step 4: final design; specifications are set and then used to develop, guide, outline, negotiate, and then they are ready to begin production and service provisions
Out of 100 patents granted, only 10% ever make it to developmental stage, and only 1 out of 10 are profitable.
contribution margin formula: selling price - variable price
total cost formula: fixed costs + (variable costs * quantity)
total revenue formula: selling price * quantity
profit formula: total revenue - total cost
breakeven point formula: fixed costs / contribution margin
breakeven point with profit formula: (fixed costs + profit) / contribution margin
design for manufacture (DFM): the lean KISS - keep it simple stupid; use the minimun number of parts or steps, use standardized parts or steps, avoid the need for tools, simplify all operations
value engineering: each decisions and components should add value (market shares or unit selling price) or reduce fixed or unit variable costs
benefits from DMF: lower costs, lower inventories, less labor required, higher quality, simple easy to make products means fewer opportunities to make mistakes, improves functional performance, quality robust design is integrated into the process and product
concurrent engineering: multifuntional teams simaltaneously desing teh product and process to reduce design time by considering cost and design trade offs
remanufacturing: reusing of old compoonents and developing them into new products
indifference point between products which process to use: If the demand is higher than the amount produced, choose the process with the higher contribution margin
automated equipment which yields increased consistency and efficiency at increased fixed cost and loss of flexibility
intermittent processes: processes that are capable of producing large variety of product design In relatively low volumes, advantage is flexibility while disadvantages include material handling and high unit variable costs
continuous process: processes that are capable of producing one or few standardized designs in very high volume, advanatages include high efficiency in producing large numbers, while disadvantages inclide inflexibility to design changes, component failure, and high fixed costs for capital equipment
project process: Involves one at a time products made exactly to customer specifications
batch process: Involves processes that make small batches of product with high level of customizations
line process: are used for relatively high volumes with little customization
continuous process: are used for very high volume and standardized products
SOP: standardized operating process - very detailed instructions or tutorials for a specific process that must be completed in specific order
lean management: deals with the elimination and reduction of many types of non value added activities, often referred to as waste
principle 1 of lean: accurately specify value from customer’s perspective for both services and products
principle 2 of lean: Identify the value stream for products and services and remove non value added waste along the value system
principle 3 of lean: make the products and services flow without interruption across value stream
principle 4 of lean: authorize production of products and services based on the pull by the customer
principle 5 of lean: strive for perfection by constantly removing layers of waste
benefits of lean thinking and implementation
capacity : 20% increase
inventory turns: 33% Increase
lead time: 50% decrease
throughput time: decrease
prod. development time : decrease
space in use: decrease
scrap : decrease
delivery performance: decrease
lean tools and concepts
value stream mapping: what we can change, make it better, rearrange
poka-yoke: prevent human errors by dummy proofing, visuals
point of use storage: store things where they are needed
one piece flow production: toyota production - no WIP
total preventative maintenance: focus on equipment and labor to prevent breakdowns
level model mix production: assembly line making difference things on the same line
kanban systems: a signal to start producing more
demand pull system: being lean, not made until demand is there (JIT)
failure mode and effects analysis: where could failure occur and have contingency to fix it
quick changeover kaizen: blitz, group of employees to solve a problem from all departments to keep everyone on same page
standard work/standard operating procedures: SOP - step by step instructions
six sigma: lots of experience, training, and knowledge in lean manufacturing - black belt
things that are not lean
push systems: making lots in hope the demand is there to sell
material requirements planning: what do we need now and this week, short term material planning
end product inspection and acceptance sampling: waiting till the end to make sure its built right
Just in time Philosophy: stocking technique, not as lean as some but still saves themselves, often cuts too close on not having enough and in time
what are the basic building blocks of a lean system? kanbans and pull production, quick setups and small lots, uniform plant loading, flexible resources, efficient facility layouts
kanban formula: N = DT/C
internal set up time: must be done while machine is not running, have to shut down assembly line to fix, inside the machine
external set up time: can be done while machine is still running, everything you can do before the turnover
jidoka: authority to stop the like, anyone has the power to stop the line for any reason
poka - yoke: fool-proofing the process, involving mechanical or electrical sensors
total productive maintenance: 5S, inspections and service and repairs, keeping ahead of problems that may arise
Sort: differentiate between necessary and unnecessary - we dont need what we cant or dont use, remove all items from the workplace not needed for current operations, throwing junk away
set in order: a place for everything and everthing in its place, needed items in an easily accesible place, label things so its easy to find
shine: keep everything in a clean and orderly manner while you are working, leave things clean, personal and professional, pinpoint cause of dirt and eliminate
standardize: create a consistent way that tasks and procedures are done - SOPs, establish standards to measure by and practice simple visual management
sustain: make it a habit and responsibility to follow workplace rules, everyones responsibility, motivate through procedures to standardize and measure performance
operations management: the business function responsible for planning, coordinating, controlling, and leading the resources needed to produce a company’s products and or services
operations has the responsibility to coordinate human capital, equipment, technology, raw materials, and information to produce a product or service effectively and efficiently
quantity demanded
quality required in timely manner
at lowest cost
customer Is the center of all business focus
operations management tranforms inputs into value added outputs
inputs: human capital, buildings, processes, various technologies, and raw materials
outputs: the products and services sold
what is the goal of the transformation process? to add customer value in order for the company to make a profit
transformation process: coverts inputs into outputs with the intent of adding value to the customer and making a profit
physical transformation: manufacturing - rubber to tires
exchange transformation: retail sales - warehouse stores to local stores
locational transformation: transportation and distribution - car manufactuing and then to dealerships
informational transformation: sharing and communication - internet
physiological transformation: a human physical change - surgery
pyschologial transformation: state of mind - entertainment providing enjoyment
service operations transformation process: Include intangible products, few or no inventories, higher customer interactions, labor intensive, shorter response times to customer satisfaction
manufacturing operations transformation process: physical product, inventories, lower customer contact, capital intensive, longer response time
strategic decisions: establish the broad direction of the company and are heneral in scope with long-term hhorizon
tactical decisions: must be coordinated to facilitate the strategic decisions, are more short term in nature and more specific with operational objectives
James Watt: 1764 - inventor of steam engine
Adam Smith: 1776 - inventor of division of labors
Eli Whitney: 1790 - inventor of interchangeable parts
Henry Ford: Inventor of moving assembly line
W. Edwards Deming: Developed concepts of quality Improvement in Japan and America
Taiichi Ohno: Developed first lean system, toyota manufacturing
flexibility: greater variety of product and service choices on a mass scale (mass customization)
time based competition: developing new product designs and delivering customer orders quicker than competitors
supply chain management: cooperating with suppliers and customers to reduce overall costs of teh supply chain and increase responsiveness to customers
lean management: continually working to reduce costs and eliminate waste while increasing customer value and profits
what is the overall goal of a business strategy? to make money
what are the four competitive priorities of a business? cost, quality, time, and flexibility
cost: pricing below or above competitors for a better profit or market share
quality: performance and consistency = price premium
time: faster and consistent delivery = price premium
flexibility: product volume flexibility = price premium
competing on cost: eliminate waste, efficient process, limited customization, automation
competing on quality: design quality, process quality, luxury goods
competing on time: rapid delivery, lead time, consistency, on time delivery,
competing on flexibility: production flexibility, easy changeover, easy customization, volume flexibility
productivity: measures the amount of output compared to the level of inputs used
productivity equation: (outputs/ inputs)
How can you increase productivity?
increase outputs, decreasing inputs
decrease inputs, same outputs
increase outputs same inputs
increase outputs faster
productivity growth rate equation: (P2-P1)/P1
Steps in the forecasting process
decided what to forecast
evaluate and analyze data
select and test forecasting model
generate the forecast
monitor forecast accuracy over time
forecasting is a critical business strategy that involves strategic and tactical business decisions
most basic forecasting models are formula driven
Basic forecasting principles
forecasts are rarely perfect, they are a scientific and educated guess
grouped forecasts are moer accurate than individual items
forecast accuracy is higher for shoerter
types of forecasting methods
qualitative methods: forecasts are generated subjectively by the forecaster
strengths of qualitative methods: incorporates inside information; particularly useful when teh future is expected to be very different than the past
weaknesses of qualitative methods: forecasters bias can reduce the accuracy of the forecast
qualitative forecast types: executive opinion, market research, delphi method
characteristics of executive opinion: a group of managers meet to come up with a forecast
strengths of executive opinion: good for strategic or new product forecasting
weaknesses of executive opinion: one persons opinion can dominate the forecast
characteristics of market research: users surveys and interviews to identify customer preferences
strengths of market research: good determinant of customer preference
weaknesses of market research: It can be difficult to develop a reliable questionnaire
characteristics of delphi method: seeks to gain consensus among a group of experts
strengths of delphi method: excellent for forecasting long term product demand and technological change
weaknesses of delphi method: It can be a very time consuming process
quantitative methods: forecasts generated through mathematical modeling; time series and casual models
time series models: assumes to future will follow the same patterns as the past
casual models: explores cause and effect relationships, often using leading indicators to predict the future
naive: the forecast is equal to the actual value observed during the last period; useful when historical data is very stable at the same level or as if there is no historical data; assumption is that what just happened is likely to happen again
simple mean: the forecast is the average of all available data; this method is a relatively conservative in the absence of a consistent pattern in the data
moving average: the forecast is the average value over a set time period, where each new forecast drops the oldest data point and adds teh most recent observation; this method places all teh emphasis on a preset number of recent data periods, appropriate choice whne shifts in data occur, equals emphasis on the specified number of time periods
weighted moving average: the forecast is the average value over a set time period, where each new forecast drops the oldest data point and adds the most recent observation, but each time period can have a different weight, providing the possibility of emphasizing one or more time periods over others; all weights but add to 100%, allows forecaster to emphasize one period over others as more influential in forecasting demand
exponetial smoothing: adjusts the next forecast by some proportion of the previous forecast error; the forcast quality is highly dependent on selection of the smoothing constant, alpha; low alpha values generate more stable forecasts, responding slowly to changes in the data; high alpha values create forecasts that respond quickyl to data changes; issues arise when recent changes reflect random variation or some other pattern
low alpha values: results in more stable forecasts, responds slowly to changes in data
high alpha values: create forecasts that respond quickly to changes in data
tracking forecast errors:
what are the stages of a product life cycle? Introduction, growth, and maturity
product process development step 1: Idea development procedures and methods
brainstorming: soliciting many ideas without prejudice hoping for synergy of ideas, success rate is low, often done through surveys and focus groups
benchmarking: study “best in class” companies (even from other industries) and compare practices and performances
reverse engineering: disassembling/ analysing a competitors product or service for design ideas, solicites ideas from customers, suppliers, and emplyees, and routinesly examine technical advances, industry magazines, journals and conferences
product process development step 2: product screening for selecting a potential product or service
role of marketing in development: how large is the market niche, what is long term potential for market, is market growing or declining or emerging, what are expected demands in next years, would trademark or patent be feasible
role of operations in development: do we have or can we acquire required labor skills and raw materials needed, do we have enough existing capacity, what would be the eliminated costs of production, what is the breakeven point
role of finance in development: what is the expected return on investments, what is the necessary capital outlay, what risk would the capital of the company face
product process development step 3: preliminary design and testing; develop a prototype with function before form to begin translating general performance characteristics into technical specifications, perform some test marketing where bugs are worked out and designs are refined
product process development step 4: final design; specifications are set and then used to develop, guide, outline, negotiate, and then they are ready to begin production and service provisions
Out of 100 patents granted, only 10% ever make it to developmental stage, and only 1 out of 10 are profitable.
contribution margin formula: selling price - variable price
total cost formula: fixed costs + (variable costs * quantity)
total revenue formula: selling price * quantity
profit formula: total revenue - total cost
breakeven point formula: fixed costs / contribution margin
breakeven point with profit formula: (fixed costs + profit) / contribution margin
design for manufacture (DFM): the lean KISS - keep it simple stupid; use the minimun number of parts or steps, use standardized parts or steps, avoid the need for tools, simplify all operations
value engineering: each decisions and components should add value (market shares or unit selling price) or reduce fixed or unit variable costs
benefits from DMF: lower costs, lower inventories, less labor required, higher quality, simple easy to make products means fewer opportunities to make mistakes, improves functional performance, quality robust design is integrated into the process and product
concurrent engineering: multifuntional teams simaltaneously desing teh product and process to reduce design time by considering cost and design trade offs
remanufacturing: reusing of old compoonents and developing them into new products
indifference point between products which process to use: If the demand is higher than the amount produced, choose the process with the higher contribution margin
automated equipment which yields increased consistency and efficiency at increased fixed cost and loss of flexibility
intermittent processes: processes that are capable of producing large variety of product design In relatively low volumes, advantage is flexibility while disadvantages include material handling and high unit variable costs
continuous process: processes that are capable of producing one or few standardized designs in very high volume, advanatages include high efficiency in producing large numbers, while disadvantages inclide inflexibility to design changes, component failure, and high fixed costs for capital equipment
project process: Involves one at a time products made exactly to customer specifications
batch process: Involves processes that make small batches of product with high level of customizations
line process: are used for relatively high volumes with little customization
continuous process: are used for very high volume and standardized products
SOP: standardized operating process - very detailed instructions or tutorials for a specific process that must be completed in specific order
lean management: deals with the elimination and reduction of many types of non value added activities, often referred to as waste
principle 1 of lean: accurately specify value from customer’s perspective for both services and products
principle 2 of lean: Identify the value stream for products and services and remove non value added waste along the value system
principle 3 of lean: make the products and services flow without interruption across value stream
principle 4 of lean: authorize production of products and services based on the pull by the customer
principle 5 of lean: strive for perfection by constantly removing layers of waste
benefits of lean thinking and implementation
capacity : 20% increase
inventory turns: 33% Increase
lead time: 50% decrease
throughput time: decrease
prod. development time : decrease
space in use: decrease
scrap : decrease
delivery performance: decrease
lean tools and concepts
value stream mapping: what we can change, make it better, rearrange
poka-yoke: prevent human errors by dummy proofing, visuals
point of use storage: store things where they are needed
one piece flow production: toyota production - no WIP
total preventative maintenance: focus on equipment and labor to prevent breakdowns
level model mix production: assembly line making difference things on the same line
kanban systems: a signal to start producing more
demand pull system: being lean, not made until demand is there (JIT)
failure mode and effects analysis: where could failure occur and have contingency to fix it
quick changeover kaizen: blitz, group of employees to solve a problem from all departments to keep everyone on same page
standard work/standard operating procedures: SOP - step by step instructions
six sigma: lots of experience, training, and knowledge in lean manufacturing - black belt
things that are not lean
push systems: making lots in hope the demand is there to sell
material requirements planning: what do we need now and this week, short term material planning
end product inspection and acceptance sampling: waiting till the end to make sure its built right
Just in time Philosophy: stocking technique, not as lean as some but still saves themselves, often cuts too close on not having enough and in time
what are the basic building blocks of a lean system? kanbans and pull production, quick setups and small lots, uniform plant loading, flexible resources, efficient facility layouts
kanban formula: N = DT/C
internal set up time: must be done while machine is not running, have to shut down assembly line to fix, inside the machine
external set up time: can be done while machine is still running, everything you can do before the turnover
jidoka: authority to stop the like, anyone has the power to stop the line for any reason
poka - yoke: fool-proofing the process, involving mechanical or electrical sensors
total productive maintenance: 5S, inspections and service and repairs, keeping ahead of problems that may arise
Sort: differentiate between necessary and unnecessary - we dont need what we cant or dont use, remove all items from the workplace not needed for current operations, throwing junk away
set in order: a place for everything and everthing in its place, needed items in an easily accesible place, label things so its easy to find
shine: keep everything in a clean and orderly manner while you are working, leave things clean, personal and professional, pinpoint cause of dirt and eliminate
standardize: create a consistent way that tasks and procedures are done - SOPs, establish standards to measure by and practice simple visual management
sustain: make it a habit and responsibility to follow workplace rules, everyones responsibility, motivate through procedures to standardize and measure performance
