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Operations Management
Production & Operations Management
Course Outline: MB202
Operations Management
Product Design and Development
Process Selection
Facility Location
Facility Layout
Capacity Planning
PPC
Work Study & Method Study
Plus …….
What is Operations Management?
Inputs Outputs
•Materials •Goods
•Capital Organization •Services
•Labor
•Manag. Res.
Operations Management
Operations Management is the
conversion of inputs into outputs, using
physical resources, so as to provide the
desired utility/utilities of form, place,
possession or state or a combination
there of to the customer while meeting
the other organizational objectives of
effectiveness, efficiency and
adaptability.
Ten Decision Areas of OM
Goods & service design
Quality
Process & capacity design
Location selection
Layout design
Human resource and job design
Supply-chain management
Inventory
Scheduling
Maintenance
A Process Management
Perspective
We all manageProcess
processes...
Information Management
structure
Network of
Activities and Buffers
Inputs Outputs
Flow units Goods
(customers, data,
material, cash, etc.) Services
Operations Strategy
Operations Management
Inputs
Raw materials Outputs
Human Products
resources Services
Land, buildings Products & Facilities Structure Control Processes
Information Product design Reporting relationships Inventory management
Technology Facilities layout Teams Productivity
Capacity planning Quality
Facilities location
Locational--transportation
Exchange--retailing
Storage--warehousing
Physiological--health care
Informational--telecommunications
All Managers are Ops
Managers!
All managers must transform inputs into outputs
Example: Accounting Manager
Inputs: data, information, labor
Transformation: application of accounting principles and
knowledge
Outputs: accounting reports, knowledge of performance, ...
Therefore, all managers are in some sense
Operations managers
All managers have an “operation” to run
Operations Management
Value Proposition System Design Planning & Control
Scheduling
Must obtain materials and supplies
Both must be concerned with
quality and productivity
Functions of Operations
Management
Materials
Methods
Machines and Equipments
Estimating
Loading and Scheduling
Routing
Functions of Operations
Management
Dispatching
Expediting or Follow up
Inspection
Evaluation
OM Decisions
Operations Management
Decisions
Strategic: Tactical:
Product/Service Quality Control
Design Demand Forecasting
Process Selection Supply Chain
Capacity Planning Management
Facility Location Production Planning
Facility Layout Inventory Control
Job Design Scheduling
Product Design and
Development
Product Design
Product design deals with its form
and function. Form implies the
shape and appearance of the
product while function is related to
the working of the product.
Product Design Objectives
1 Producibility
2 Cost
3 Quality
4 Reliability
Service Design Objectives
1 Producibility
2 Cost
3 Quality
4 Reliability
5 Timing
Characteristics of Goods
Tangible product
Consistent product
definition
Production usually
separate from
consumption
Can be inventoried
Low customer
interaction
Characteristics of Service
Intangible product
Produced & consumed at
same time
Often unique
High customer
interaction
Inconsistent product
definition
Often knowledge-based
Frequently dispersed
Goods Contain Services / Services
Contain Goods
Automobile
Computer
Installed Carpeting
Fast-food Meal
Restaurant Meal
Auto Repair
Hospital Care
Advertising Agency
Investment Management
Consulting Service
Counseling
100 75 50 25 0 25 50 75 100
Percent of Product that is a Good Percent of Product that is a Service
Competitive Priorities- The Edge
Four Important Operations Questions:
Will you compete on –
Cost?
Quality?
Time?
Flexibility?
All of the above? Some? Tradeoffs?
Competing on Cost?
Typically high volume products
Often limit product range & offer little customization
May invest in automation to reduce unit costs
Can use lower skill labor
Probably use product focused layouts
Competing on Quality?
High performance design:
Superior features, high durability, & excellent customer
service
On-time delivery:
Deliver product exactly when needed every time
Volume flexibility:
Ability to ramp production up and down to match market
demands
Characteristics of a Good
Design
Repairability
Modular Design
Redesigning Capability
Miniaturization
Wires and Tubing
Characteristics of a Good
Design
Design by Computers
Drawings and specifications
Warranties
Reliability
Maintainability
Strategy and Issues during a Product’s Life
Time
• Frequent product •Forecasting •Standardization - •Little product
and process critical minor product differentiation
changes •Products and changes •Overcapacity in
•Short production process reliability •Optimum capacity the industry
runs •Increase capacity •Process stability •Reduce capacity
•High production •Shift towards •Long production and eventually
costs product focus runs prune line to
•Limited models •Enhance eliminate items not
•Attention to distribution returning good
quality margin
Product Development
The aim of Product development is to
(i) provide the goods the market
demands with time,(ii) adjust with the
variation in quantity required and (iii)
charge the prices which the customer is
willing to pay as well as under
conditions that it may have net profit
also.
Strategy and Issues During a
Product’s Life
Introduction
Best period to
Growth
Practical to change
Maturity Decline
Poor time to change image, Cost control
increase market price or quality image price, or quality critical
share
Strengthen niche Competitive costs become
R&D product critical
Company Strategy/Issues
engineering critical
Defend market position
Drive-thru restaurants Fax machines
3 1/2”
CD-ROM Floppy
disks
Sales
Station
Internet wagons
Color copiers
HDTV
Detailed engineering
design
Assembly line
Moderate (Cars, appliances, TVs,
fast-food restaurants)
Product-focused
Continuous
(steel, beer, paper, bread)
Low
Low Moderate High
Volume
Discrete vs. Continuous Flow and
Repetitive Manufacturing Systems
Operation Process Chart
for discrete part manufacturing
A typical Organization of the Production
Activity in Repetitive Manufacturing
Jumbled flow
Commercial Void
(job shop)
printer
Disconnected
line flow Heavy
equipment
(batch)
Connected
line flow Auto
(assembly assembly
line)
Continuous Sugar
flow Void refinery
Product structure
Product life-cycle stages
Facility Location
A facility (plant) is a place where men,
materials, money, machinery and
equipment, etc., are brought together
for manufacturing product.
Facility Location
Cost-benefit analysis – most common
approach to selecting a site for a new
location
New location scouting software is
helping managers turn facilities location
into a science
Importance of Facility Location
Competition
Cost
Hidden Effects
Location Factors
Primary factors
Secondary factors
Primary factors
Availability of raw material
Nearness to market
Transport facilities
Availability of labour
Availability of fuel and power
Availability of water
Secondary factors
Soil and climate
Industrial atmosphere
Financial and other aids
Availability of facilities like housing,
schools, hospitals and recreation clubs
Momentum of an early start
Secondary factors
Special advantage of the place
Personal factors
Historical factors
Political stability
Comparison between Urban
and Rural area
Urban Rural
Availability of local market:
Due to large population the local The market place is far away from
demand for the product is fairly the industries, therefore cost of
high. distribution of finished products is
more.
Labour: Ample availability of It is rather difficult to get skilled
diversified labour. labour in rural areas.
A B C D
Locations
Break-even Chart
Labor Transportation
Material
Costs of
Facts
Total Fixed Costs
Volume of Units
Break-even Chart
E B
C
A
B D
Total A
Costs
D
E
C
Volume of Output
Dimensional Analysis
MA [CA1] W
1 [CA2] W [CA n] W
= ……….2 n
Process Layout
Product Layout
Cellular Layout
Fixed-position
Layout
Factors affecting the Plant
Layout
Product and material specification
Location and site of the Plant
Manufacturing process
Material Handling
Storage of in-process inventory
Plant personnel and employee facilities
Factors affecting the Plant
Layout
Service facilities
Design of building
Flexibility
Work areas and equipment
Working conditions
Disposal of waste and dangerous gases
Types of Plant Layout
Process Layout
Product Layout
Group Layout
Capacity Planning
Capacity is the rate of productive
capability of a facility. Capacity is
usually expressed as volume of output
per time period.
Capacity Planning
Labor = Output
Labor dollars
Productivity
Improving Productivity
1. Technological productivity
2. Employee productivity
3. Managerial productivity
Major Productivity Variables and their
contribution to productivity increase
Labor
Better basic education
Better diet
Better social infrastructure like transportation and sanitation
Better labor utilization and motivation
Capital
Steady and well-planned investments on equipment and its
timely maintenance
Research & Development
Controlling of the cost of capital
Management
Exploitation of new (information) technologies
Utilization of accumulated knowledge
Education
Productivity
Outputs
P
Inputs
Measuring Productivity
Productivity is a measure of how efficiently inputs are
converted to outputs
Productivity = output/input
Total Productivity Measure
Productivity relative to all inputs
Partial Productivity Measure
Productivity relative to a single input (e.g., labor hours)
Multifactor Productivity Measure
Productivity relative to a subgroup of inputs (e.g.,
labor and materials)
Labor Productivity
Example:
Assume two workers paint twenty-four tables in
eight hours:
Inputs: 16 hours of labor (2 workers x 8 hours)
Outputs: 24 painted tables
Outputs 24 tables
1.5 tables / hour
Inputs 16 hours
Interpreting Productivity
Measures
Is the productivity measure of 1.41 in
the previous example good or bad?
Can’t tell without a reference point
Compare to previous measures (e.g.:
last week) or to another benchmark
Productivity Growth Rate
Can be used to compare a process’s
productivity at a given time (P2) to the
same process’ productivity at an earlier
time (P1)
P2 P1
Growth Rate
P1
Productivity Growth Rate
Example:
Last week a company produced 150 units using 200 hours of labor
This week, the same company produced 180 units using 250 hours of
labor
150 units
P1 0.75 units / hour
200 hours
180 units
P2 0.72 units / hour
250 hours
P2 P1 0.72 0.75
Growth Rate 0.04
P1 0.75
or a negative 4% growth rate
Productivity Example - An automobile manufacturer has presented the
following data for the past three years in its annual report. As a potential
investor, you are interested in calculating yearly productivity and year to
year productivity gains as one of several factors in your investment
analysis.
Total Productivity
Rs Sales Rs49,000 Rs41,000 Rs38,000
(billions Rs)
Total Cost Productivity 1.26 1.24 1.19