Decision-Making Models in Operations Management

The Nature of Operations Management

  • Operations management involves the development and administration of activities that transform resources into goods and services.
  • Historically referred to as "production" or "manufacturing," the term has evolved to "operations" to acknowledge the increasing significance of service and idea-oriented organizations.
  • The modern use of "operations" reflects a holistic perspective, viewing the function as a whole, rather than just an analysis of inputs and outputs.

Manufacturing, Production and Operations

  • Manufacturing: Activities and processes used in making tangible products; also called production.
  • Production: Activities and processes used in making tangible products; also called manufacturing.
  • Operations: Activities used in making both tangible and intangible products.

The Transformation Process

  • The transformation process converts inputs into products.
  • Inputs: Resources like labor, money, materials, and energy.
  • Products: Goods, services, and ideas resulting from the conversion of inputs.
  • Transformation can occur through one or more processes.
  • Example: Blaze Pizza's inputs include pepperoni, mozzarella, mushrooms, onions, and sausage, which are transformed into customized pizzas.

Operations Management in Service Businesses

  • Services necessitate distinct transformation processes.
  • High customer contact is a key feature of services.
  • The ideal service provider balances high technology with high touch.
  • Service products are typically intangible and often perishable.

Characteristics of Services

  • Intangibility: Services cannot be touched or seen, e.g., going to a concert or sports event.
  • Inseparability of production and consumption: Services are produced and consumed simultaneously, e.g., going to a chiropractor, air travel, veterinary services.
  • Perishability: Services cannot be stored, e.g., seats at a speaker’s presentation.
  • Customization: Services are often tailored to individual needs, e.g., haircut, legal services, tax consultation.
  • Customer contact: High interaction with customers, e.g., restaurants, retailing such as Macy’s.

Service vs. Tangible Product

  • Services demand more customer interaction.
  • Service performance usually happens at the point of consumption.
  • Service providers have less control over resource variability.
  • Services are frequently customized to each customer.

Uniformity of Product

  • The human element in services leads to variability in performance.

Labor Required

  • Services are more labor-intensive because of high customer contact.

Measurement of Productivity

  • The intangibility of services makes productivity measurement challenging.

Planning and Designing Operations Systems

  • Planning the Product
    • Determine consumer desires through marketing research.
    • Product development is often lengthy and costly.
    • Companies aim to cut development time and costs.
    • Some firms develop products jointly.
    • Create a workable design for the transformation process.
    • Involve research and development.
  • Designing the Operations Processes
    • Standardization
      • Involves creating identical, interchangeable components or complete products.
      • Cheaper than custom designs.
    • Modular design
      • A standardization form where components are divided into easily replaceable or interchangeable modules.

Modular Design vs. Standardization

  • Modular design promotes flexibility and interchangeability through independent modules.
  • Standardization seeks uniformity and consistency across an entire system or process.

Customization and Mass Customization

  • Designing the Operations Processes
    • Customization involves making products to meet specific customer needs.
    • Mass customization.
    • Blockchain.
      • Secure, public database recording all transactions and spread across multiple computers.
      • Difficult to tamper.
      • Rapidly growing.
      • Blockchain technology can alter processes across industries, including supply chain, healthcare, and online advertising.
      • The blockchain is a secure database (or ledger) that records all transactions and is spread across multiple computers.

Planning Capacity

  • Capacity is the maximum load an organizational unit can handle.
  • Measured in terms of workers, machines, departments, branches, or an entire plant.
  • Expressed through inputs or products.
  • Operations managers must plan for capacity needs.
    • Too low: unmet demand and lost customers.
    • Too high: increased operating costs.

Planning Facilities

  • Location
    • Consider availability of raw materials, transportation, power, and labor.
    • Take into account climatic influences and community characteristics.
    • Address taxes and inducements.

Facility Layout

  • Fixed-position layout

    • Involves bringing all resources to a central location.
    • Common for large, complex projects (e.g., construction).
    • Referred to as project organization.

  • Process layout

    • Organizes transformation processes into departments based on related processes.
    • Non-linear flow of workstations.
    • Arranges workflow around the production process, grouping workers performing similar tasks.
    • Products move from one workstation to another.

  • Product layout

    • Also known as line layout or assembly line layout.
    • Common in continuous manufacturing organizations.
    • Workstations and equipment are located along the production line.
    • Arranges machines and workstations in a linear sequence.

Technology in Operations

  • Computer-assisted design (CAD) helps engineers design components, products, and processes on the computer.
  • Computer-assisted manufacturing (CAM) uses specialized computer systems to guide and control transformation processes.
  • Use of drones, robotics, and AI.
  • Flexible manufacturing.
  • Computer-integrated manufacturing (CIM): Computers direct machinery to adapt to different versions of similar operations.

Sustainability and Manufacturing

  • Sustainability involves conducting activities to provide long-term well-being for the natural environment.
  • Sustainability issues are increasingly important to stakeholders and consumers.
  • Concerns include:
    • Pollution of land, air, and water.
    • Climate change.
    • Waste management.
    • Deforestation; protection of biodiversity; urban sprawl.
    • Genetically modified foods.

Managing the Supply Chain

  • Supply chain management connects and integrates all parties in the distribution system to satisfy customers.
  • Procurement.
  • Logistics.
    • Inbound logistics: Moves raw materials, packaging, and information from suppliers to producers.
    • Outbound logistics: Distributes finished products and information to the final consumer.
    • Third-party logistics: Employs outside firms to move goods more efficiently.
  • AI and blockchain are rapidly impacting supply chain functions.

Procurement

  • Procurement involves buying all materials needed by the organization; also called purchasing.
  • Aims to obtain desired quality items in the right quantities at the lowest cost.
  • Companies may choose to make some component parts if more economical.
  • Can arrange to lease items from another company.
  • Decision depends on cost, product availability, and supplier reliability.

Managing Inventory

  • Inventory includes all raw materials, components, completed or partially completed products, and equipment a firm uses.
  • Basic types of inventory:
    • Finished-goods inventory: Products ready for sale.
    • Work-in-process inventory: Partly completed products in the transformation process.
    • Raw materials inventory: Materials purchased for use as inputs.

Inventory Control

  • Inventory control is the process of determining needed supplies and tracking quantities on hand.
  • Economic order quantity (EOQ) model: Identifies the optimum number of items to order to minimize costs.
  • Just-in-time (JIT) inventory management: Minimizes waste by using smaller quantities of materials that arrive "just in time" for use.
  • Material-requirements planning (MRP): A planning system that schedules the precise quantity of materials needed to make the product.

Outsourcing

  • Outsourcing involves contracting manufacturing or other tasks to independent companies.
  • Globalization requires supply chain managers to improve speed and balance resources.
  • Linked with competitive advantage.
  • May raise negative public opinion.

Routing and Scheduling

  • Routing
    • The sequencing of operations through which the product must pass.
    • Sequence depends on the product specifications.
  • Scheduling
    • The assignment of required tasks to departments or specific machines, workers, or teams.

Program Evaluation and Review Technique (PERT)

  • Identifies all major activities to complete a project.
  • Arranges them in a sequence or path.
  • Determines the critical path:
    • The longest time from start to finish.
    • Determines the minimum time to complete the process.
    • If activities on the critical path are delayed, the entire process is delayed.
  • Estimates the time required for each event.

Managing Quality

  • Quality is the degree to which a good or service meets customer demands and requirements.
  • Determining quality can be difficult because it depends on customers’ perceptions.
  • Quality is especially difficult to measure for services.
  • Companies must define measurable quality characteristics.

Malcom Baldridge National Quality Award

  • Awarded annually to companies meeting rigorous quality standards.
  • Criteria include:
    • Leadership.
    • Information and analysis.
    • Strategic planning.
    • Human resource development and management.
    • Process management.
    • Business results.
    • Customer focus and satisfaction.

Quality Control and Management

  • Quality control:
    • The process an organization uses to maintain its established quality standards.
  • Total quality management (TQM):
    • A philosophy that uniform commitment to quality in all areas of the organization will promote a culture that meets customers’ perceptions of quality.
  • Statistical process control:
    • A system in which management collects and analyzes information about the production process to pinpoint quality problems in the production system.

International Organization for Standardization (ISO)

  • ISO 9000:
    • A series of quality assurance standards designed to ensure the customer’s quality standards are met.
  • ISO 14000:
    • A comprehensive set of environmental standards that encourages a cleaner and safer world.
  • ISO 19600:
    • A comprehensive set of guidelines for compliance management that addresses risks, legal requirements, and stakeholder needs.

Inspection and Sampling

  • Inspection:
    • Reveals whether a product meets quality standards.
    • Inspecting finished items determines quality level.
    • Inspecting work-in-process items finds defects before the product is completed so corrections can be made.
  • Sampling:
    • Testing only a sample of the products.
    • If the sample passes, the inspector may assume all items in the lot also pass inspection.
    • There is always a risk of making an incorrect conclusion.
    • Likely to be used when inspection tests are destructive.

Integrating Operations and Supply Chain Management

  • Managing various partners is important because stakeholders hold the firm responsible.
  • Firms can adopt a Global Supplier Code of Conduct and ensure it’s communicated.
  • Supply chain and procurement managers must work together to make operational decisions.
  • Must regularly audit suppliers and take action where necessary.