Operations Management Notes

Managing Operations Module

Role of Operations Management (OM)

  • Operations management: the transformation process that converts resources into finished goods and services.

Services and Manufacturing

  • Manufacturing organizations: organizations that produce physical goods.

  • Service organizations: organizations that produce nonphysical products in the form of services.

Services

  • Intangible product

  • Product cannot be inventoried

  • High customer contact

  • Labor intensive

Manufacturers

  • Tangible product

  • Product is inventoried

  • Low customer contact

  • Capital intensive

Similarities

  • Both have quality, productivity, & response issues

  • Both must forecast demand

  • Both can have capacity, scheduling, layout, and location issues

  • Both have customers, suppliers, and staffing issues

OM Decisions

Strategic Decisions

  • Broad in scope

  • Long-term in nature

  • All encompassing.

    • e.g., What are the unique features of our product that make us competitive?

    • Should we invest in a new (fully automated) production line?

Tactical Decisions

  • More narrow in scope

  • Short-term in nature

  • Concerning a small number of issues.

    • e.g., Who will work the 2nd shift tomorrow?

    • How many products do we have to produce to meet the demand of next month?

Strategic Role of Operations Management

  • Successful organizations recognize the crucial role that operations management plays as part of the overall organizational strategy to establish and maintain global leadership.

OM and Other Business Functions

  • Most businesses are supported by the functions of operations, marketing, and finance.

  • The major functional areas must interact to achieve the organization goals.

Value Chain Management

Value

  • The performance characteristics, features, and attributes, and any other aspects of goods and services for which customers are willing to give up resources.

Value Chain

  • The entire series of organizational work activities that add value at each step from raw materials to finished product.

Value Chain Management

  • The process of managing the sequence of activities and information along the entire value chain.

  • Goal: To create a value chain strategy that meets and exceeds customers’ needs and desires and allows for full and seamless integration among all members of the chain.

Organizational Processes

  • Organizational processes: the ways that organizational work is done.

The Operations System

  • Inputs: People, technology, capital, equipment, materials, information.

  • Transformation Process.

  • Outputs: Goods, Services.

OM and the Transformation Role

  • A process perspective.

Process Performance

Effectiveness

  • The extent to which an objective (output) has been achieved.

Efficiency

  • The degree to which resources (input) have been used economically.

  • "Efficiency is doing things right; effectiveness is doing the right things." ~ Peter Drucker

  • Productivity is determined by looking at the production obtained (effectiveness) versus the invested effort in order to achieve the result (efficiency).

Effectiveness Formula

  • Effectiveness=(actual output / norm output)×100Effectiveness = (actual \ output \ / \ norm \ output) \times 100

  • Example: If actual output is $90,000 and norm output is $80,000, then:

    • Effectiveness=(90,000 / 80,000)×100=112.5%Effectiveness = (90,000 \ / \ 80,000) \times 100 = 112.5\%

Efficiency Formula

  • Efficiency=(norm input / actual input)×100Efficiency = (norm \ input \ / \ actual \ input) \times 100

  • Example: If norm input is 75 hours and actual input is 90 hours, then:

    • Efficiency=(75 / 90)×100=83.3%Efficiency = (75 \ / \ 90) \times 100 = 83.3\%

Productivity Formula

  • Productivity=Output / InputProductivity = Output \ / \ Input

  • Example:

    • If output is $90,000 and input is 1,400 labor hours, then:

      • Productivity = 90,000 \ / \ 1,400 = $64 \ per \ hour

    • If output is $90,000 and there are 30 employees:

      • Productivity = 90,000 \ / \ 30 = $3,000 \ per \ employee

Visualizing a Process

Flowchart

  • A type of diagram representing a process using different symbols containing information about steps or a sequence of events.

  • Each of these symbols is linked with arrows to illustrate the flow direction of the process.

    • Aiding understanding of relationships among different process steps

    • Helping with decision making

    • Measuring the performance of a process

    • Highlighting important steps and eliminating the unnecessary steps

Basic Flowchart Shapes and Definitions

  • Start / End: The start or end of a workflow.

  • Action / Process or Task: Action, process, or task.

  • Decision: Decision point in a process or workflow.

  • Document: Document or report.

  • Manual Input: Prompt for information, manually entered into a system.

  • Delay: Delay.

Swimming Lanes

  • In swim lane maps, parallel lines divide the chart into lanes, with one lane for each location, department, person, group, or sub-process.

Managing Productivity

  • For countries, high productivity can lead to economic growth and development.

  • For individual organizations, increased productivity gives them a more competitive cost structure and the ability to offer more competitive prices.

Benefits of Value Chain Management

  • Four primary benefits:

    • Improved procurement

    • Improved logistics

    • Improved product development

    • Enhanced customer order management

Value Chain Strategy

  • Six main requirements of a successful value chain strategy:

    • Coordination and collaboration

    • Technology investment

    • Organizational processes

    • Leadership

    • Employees

    • Organizational culture and attitudes

Obstacles to Value Chain Management

  • Organizational barriers

  • Cultural attitudes

    • Intellectual property: proprietary information that’s critical to an organization’s efficient and effective functioning and competitiveness

  • Required capabilities

  • People

Technology’s Role in Operations Management

  • Smart companies are looking at ways to harness technology to improve operations management.

Quality Initiatives

  • Quality: the ability of a product or service to reliably do what it’s supposed to do and to satisfy customer expectations

  • Quality initiatives:

    • Planning for quality

    • Organizing and leading for quality

    • Controlling for quality

Quality Goals

  • ISO 9001: a series of international quality management standards that set uniform guidelines for processes to ensure products conform to customer requirements

  • Six Sigma: a quality program designed to reduce defects and help lower costs, save time, and improve customer satisfaction

Mass Customization and Lean Organization

  • Mass customization: providing customers with a product when, where, and how they want it

  • Lean organization: an organization that understands what customers want, identifies customer value by analyzing all activities required to produce products, and then optimizes the entire process from the customer’s perspective