Finance
Operations Management Functions
Product Design and Development Forecasting
Process Design Production planning and
control
Operations
Quality Management Supply Chain Management
Location and Layout of Facility Maintenance Management
Materials Management Inventory Management
Marketing HRM
Capacity Planning Continuous Improvement
Importance of OM
Why to study OM?
Cost and profit breakdown at a typical manufacturing company shows that 20% of their
cost comes from Operations Management
The active role of operations is to understand how Inputs become Outputs after some
Transformation (Process or Operation)
Let us try and understand this by a food processing example:
Manufacturing vs Service Operations
Inputs Transformation Outputs
Manufacturing includes -
Tangible products like Automobiles, Refrigerators, Aircrafts, Coats, Books,
Energy, Raw vegetables Cleaning Clean vegetables
Sodas
Customer contact
Uniformity of input
Labor content of jobs
Uniformity of output
Measurement of productivity
Production and delivery
Quality assurance
Amount of Inventory
Responsibilities of an Operations Manager
The basic building block of creating goods and services is the process. Production usually involves multiple
processes. The basic idea is that a process takes inputs (raw materials, labor, equipment/technology,
knowledge, energy) and creates output that are of greater value to end users.
Elements of a Process
Essentially the process shows three things:
Storage - Storage is where things are being held. In this example we have
inputs waiting to be used, and final goods waiting to be shipped. We also
need to store information. One could also imagine storage between tasks.
So if the patient first sees the nurse who takes his/her vital signs and then
they go to a second waiting area to see the doctor, we could show this
second waiting area as a storage stage between task 1 and 2.
Flows - The arrows show Flows. There are two types of flows: physical
flows shown by solid arrows, and information flows shown by dotted
arrows.
Measuring the Performance of a Process
Task Time the time it takes to complete a specific task within a process. In the above example they are 30
and 90 seconds, respectively.
Cycle Time (CT) the average time between completions of successive units. How long does it take to finish
one unit? In the above example, the cycle time will be 90 seconds.
Throughput time the length of time spent in the process. How long does it take to produce a unit of
output? Note that this is different from cycle time. In above example, throughput time is 30+90 = 120
seconds
Productivity - It is the ratio of output from the process to input given to the process to check how well the
process is utilizing the given inputs while delivering the output.
Measuring the Performance of a Process
Efficiency It is the ratio of actual output to the standard output to be obtained from the process.
Capacity It is the maximum rate of output from the process and is measured in units of output per unit of
time. Typically this is easy to define but hard to measure.
Cycle time and capacity are related if the cycle time of a task is 30 minutes per unit, then the capacity of
that task is 2 units per hour. In the example since cycle time is 90 seconds per unit, then capacity will be 40
per hour (60*60=3600 seconds in an hour, so 3600/90 = 40 cups per hour)
Capacity Utilization how much output was actually achieved relative to actual capacity. If the capacity of a
process is 500 units per day and on a given day 480 are produced, then capacity utilization is 480/500 = 96%.
Measuring the Performance of a Process
Flexibility This measures how long it takes to change the process so that it could produce a different
output, or use a different set of inputs
Bottleneck is the factor which limits production. Often the task with the longest cycle time is the
bottleneck. Alternatively, the availability of labor (or waiting for other inputs) can determine a bottleneck.
The bottleneck affects both the process cycle time and capacity and so it is important to identify where
bottlenecks exists in a process. In above example task 2, making the cup of coffee is the bottle neck.
Theory of Constraints an approach to management that focuses on whatever impedes progress toward the
goal of maximizing the flow of total value added.
Idle Time the time when useful work is not being performed.
Measuring the Performance of a Process
Mass Production
A special type of intermittent production process using standardized methods and single-
use machines to produce long runs of standardized items.
Mass Customization
Designing, producing, and delivering customized products to customers
for at or near the cost and convenience of mass-produced items.
Enormous capital investments are required for highly automated facilities that use
special- purpose equipment designed for high volumes of production and little or no
variation in the type of outputs.
Facility Layout
The configuration of all the machines, employee workstations, storage areas, internal
walls, and so forth that constitute the facility used to create a firms product or service.
Product Layout
A production system design in which every item to be produced
follows the same sequence of operations from beginning to end,
such as an assembly line.
A production system design in which similar machines or functions are grouped together A
Fixed-Position Layout
A production system arrangement in which the product being built or produced stays at one location and
the machines, workers, and tools required to build the product are brought to that location as needed, as for
the building of ships or other bulky products.
A combination of process and product layouts, in which machines and personnel are grouped into cells
containing all the tools and operations required to produce a particular product or family of products.
This could be in customer demand, production process, product dimensions or any other variation in raw
materials, product prices etc.
Operations manager has a daunting task of keeping this variability low in order to keep the system working
in a predictable and profitable manner. This, though sounds simple but is a very challenging task.
Total Quality Management (TQM)
Quality- It is the degree to which the
product is fit for its intended use. It is
an important aspect of operations
recognized world over and given the
most importance by many
management gurus. In many cases it
acts as a competitive advantage to a
firm. Quality control is seen as a
major function in manufacturing
organizations.
TQM (Total Quality Management) is
the philosophy of continuous
improvement of quality to get the
right thing, first time and every time.
Dr. Joseph Juran, Shewart, Dr.
Ishikawa and many other quality
gurus have heavily contributed to the
TQM philosophy.
Some of the important quality control
tools are Cause and
effect/Ishikawa/Fish-bone diagram,
Pareto chart, Checklists, Histograms,
Control Charts etc.
Total Quality Management (TQM)
The TQM System
Goal of TQM Do the right things RIGHT
the first time and every time.
Each process or activity is an opportunity
for a defect to occur
Techniques
Quality Circles
Taguchi concept
Quality robustness
Quality loss function
Target oriented quality
Relationship to quality
Every company in order to improve its profits tries to minimize these waste. Lean
manufacturing is, thus, a production philosophy is used in order to reduce the waste and
utilize the available resources optimally to get the maximum productivity.
In order to minimize inventory and costs associated with it, organizations follow Just-
in- Time manufacturing. Here they manufacture only when the customer places an
order for the product. If all the players in supply chain follow JIT then at each link in the
chain, inventory will be zero and thus the supply chain shall achieve greater overall
profits.
Supply Chain Management- It is a set of approaches utilized to efficiently integrate
suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and
distributed at the right quantities, to the right locations, and at the right time, in order to
minimize system wide costs while satisfying service level requirements.
SCM aims to achieve fit between customer demand and the organization strategy known as
strategic fit. Responsive (timely delivery, high cost) vs efficient (delayed delivery, low cost)
supply chain is the trade-off to be solved by operations manager. Supply chain can be
analyzed looking at various points depending upon the organization strategy such as cost,
quality and flexibility.