Management 12  Variance reduction

 Operation time reduction

Chapter 1
 Lead time reduction
PRODUCTION AND OPERATIONS MANAGEMENT
More World Class Principles
OVERVIEW
 Use advanced technology
 Operations function
 Involve workers in decision making and
 Operations objective
organization rewards
 Operations decision
 Apply reengineering
 World class principles
 Recognize environmental issue
 Competitiveness
 Note the rapid growth of services
Operations Function – consist of all activities directly
Competitiveness
related to producing goods or providing services
 Price
Organization – Finance; Product Operation; Marketing
 Quality
Operations Goals  Flexibility
 Time
𝑂𝑢𝑡𝑝𝑢𝑡𝑠
Productivity – 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =  Differentiation
𝐼𝑛𝑝𝑢𝑡𝑠

Quality = customer’s perception INFORMATION TECHNOLOGY OVERVIEW

Operations Decision  Performance criteria

 Scope
System Design
 New technology opportunities
 Capacity
Information Technology Performance Criteria
 Location
 Arrangement of departments  Accuracy
 Product and service planning  Timeliness
 Acquisition and placement of  Ease of use
equipment  Support of decision making
 Cost
System Operation
 Scope of coverage
 Personnel
Scope of Coverage
 Inventory
 Scheduling  Support all organizational function
 Project measurement  Supporting organizations such as vendors
 Quality assurance through Electronic Data Interchange (EDI)

World Class Principles New Technology Opportunities

 Continuous improvement (Kaizen)  Data warehousing

 Recognize global competition  Data mining
 Simultaneously pursue quality and efficiency  Internet / world wide web
 Total quality management (TQM)  Wireless communication
 Increased flexibility  Paperless office
  Electronic data interchange Mission – reason of existence of an organization

A World Wide Web Offers these Savings Mission Statement – statement of purpose

 Paper Strategy – plan for achieving organizational goals; basic

 Copying approach
 Phone
Tactics – methods and actions taken to accomplish
 Postage
strategies
 Advertising
 Time Operations Strategy – approach used to guide the
 Money corporations function

Chapter 2 STRATEGY FORMULATION

Productivity – measure of the effective use of the Distinctive Competences – special attributes / abilities
resources, measure of outputs
Environmental Scanning – considering events and
Productivity Measures – used to judge the performance trends / present threats
of the industry.
External Factors
Quality Differences – may distort productivity  Economic condition – general health
measurements and direction
 Political condition – favorable /
FACTORS THAT AFFECT PRODUCTIVITY
unfavorable attitudes
- Method  Legal environment – antitrust laws
- Capital  Technology – rate
- Quality  Competition – number of strength
- Technology  Market – size, location, and brand
- Management
Internal Factors
TECHNOLOGICAL IMPROVEMENTS
 Human resources – skills and abilities
- Paint rollers  Facilities and equipment – capacities,
- Copying machines location, age and cost
- Microwave ovens  Financial resources – cash flow
- Automation  Customers – loyalty, understanding
- Calculators wants and needs
- Computers  Products and services – products
- Cellular phone  Technology – existing technology
- Power lawn mowers  Suppliers – dependability of suppliers
 Other – patents, labor relation
COMPETETIVENESS
NEW STRATEGIES
 Price – amount the customer must pay
 Quality – materials Quality-based Strategies - focus on satisfying the
 Product differentiation – special features customers
 Flexibility – respond to change
 Time – number of different aspects Time-based Strategies – focus on reducing the time

 Planning time – time needed to react

  Product / service design time – time needed to
develop
 Processing time – needed to produce
 Changeover time – needed to change
 Delivery time – needed to fill orders
 Response time for complaints – customer
complaints
Lean Production – new time-based approach to the
production of manufactured goods; minimal
amount of resources
Craft Production – highly skilled workers
Mass Production – high volumes
Chapter 3
DECISION MAKING
Decision Maker – chief role of the operations
manager.
Decision Making – fundamental process of
management, and most of the efforts of managers
are related to this process; integral part of
operations management.
THE DECISION PROCESS
 Identify the problem
 Specify the objectives and the criteria for
choosing a solution
 Develop alternatives
 Analyze and compare alternatives
 Select the best alternative
 Implement the chosen alternative
 Monitor the results to ensure that desired
results are achieved
Identifying the Problem – the focal point of the
process. “Solutions must not address the basic problem,
not the symptoms.”
Identify the Criteria – costs, profits, return on
investment, increased productivity, risk, company
image, impact on demand, or similar variables.
Developing Suitable Alternatives – ability to
satisfactorily handle problems.
Analyzing and comparing alternatives – often
enhanced by the use of mathematical or statistical
techniques.
Selection of the Best Alternative – depend on the
objectives of the decision maker and the criteria that
are being used to evaluate alternatives.
Implementing a Solution – carrying out the actions
indicated by the chosen alternative.
“Effective decision making requires that the
results of the decision be monitored to make sure that
the desired consequences have been achieved.”
CAUSES OF POOR DECISIONS
Bounded Rationality – the limitations on decision
making caused by costs, human abilities, time,
technology and availability of information.
Sub optimization – the result of different departments
each attempting to reach a solution that is optimum for
that department.
DECISION ENVIRONMENTS
Basic Categories:
 Certainty – the relevant parameters such as
costs, capacity, and demand have known
values.
 Risk – means that certain parameters have
probabilistic outcomes.
 Uncertainty – means that it is impossible to
assess the likelihood of various possible future
events.
DECISION THEORY – general approach to decision
making that is useful in many different aspects of
operations management; provides framework for the
analysis of decisions
Elements:
 A set of possible future conditions exists that
will have a bearing on the results of the
decision.
  A list of alternatives for the manager to choose Expected Value of Perfect Information – expected gain;
from. the difference between the expected payoff under
 A known payoff for each alternative under each certainty and the expected payoff under risk.
possible future condition.
Two ways to determine EVPI:
Process:
 Compute the expected payoff under certainty
 Identify the possible future conditions and subtract the expected payoff under risk
 Develop a list of possible alternatives  Use the regret table to compute the EVPI
 Determine or estimate the payoff associated
SENSITIVITY ANALYSIS – determining the range of
with each alternative for every possible future
probability for which an alternative has the best
condition
expected payoff.
 Estimate the likelihood of each possible future
condition 2 Visual tools used for analyzing decision problems:
 Evaluate alternatives according to some
decision criterion  Decision trees
 Graphical sensitivity analysis
Decision Making under Certainty – choose the best
payoff for each state of nature

Four Possible Decision Criteria

 Maximin – determine the worst possible payoff

for each alternative and choose the alternative
that has the “best worst”
 Maximax - determine the best possible payoff
and choose the alternative with that payoff
 Laplace – determine the average payoff and
choose the alternative with the best average
 Minimax regret – determine the worst regret
for each alternative and choose the alternative
with the “best worst”

Decision Making under Risk – known probability; % = is

key

Expected value – the sum of the payoffs for an

alternative where each payoff is weighted by the
probability for the relevant state of nature.

Expected monetary value criterion – determine the

expected payoff of each alternative, and choose the
alternative that has the best expected payoff

DECISION TREE – schematic representation of the

available alternatives and their possible consequences.
It is composed of a number of nodes that have branches
emanating from them.