Production and Operations

Management

02/26/10 1
 Figure 1: General Model of Operations Management
Input ENVIRONMENT operation’s
Transformed strategic objectives
Resources
Operations
strategy operation’s competitive
Materials Role and position

Information
Customers Design Improvement Goods
Input Output and
services
Planning/
control
Facilities
Staff
Input ENVIRONMENT
Transforming
Resources
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 Definitions
Operations function: arrangement of resources for
production of goods and services
Operations managers: staff of the organisation
Operations management: brings out activities,
decisions and responsibilities of operations
managers
Organisational Structure
Major functions: operations, marketing, accounting
and finance, product/service development
Support
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functions: human resource, purchasing,
3
engineering / technical
 Activities of Operations Management
All parts of organisation are operations
Operations managers have:
Indirect responsibility for some activities, and
Direct responsibility for some activities
Indirect responsibilities are
To inform other functions about opportunities and constraints
provided by the operation’s capabilities
To discuss with other functions modifications in all plans for
benefit to all
To encourage other functions to suggest ways in which
operations function can improve its ‘service’ to the rest of the
02/26/10 4
organisation
 Continued
Direct responsibilities are:
Understanding operations strategic objectives;
Developing operations strategy for organisation;
Designing operations products, services and processes;
Planning and controlling the operation;
Improving performance of operation
Performance characteristics/parameters/objectives: 5 in all
Quality of goods and services
Speed of delivery to customers
Dependability of delivery
Flexibility of operation to change
02/26/10 5
Cost of producing goods and services
 Figure 2: The Transformation Model
Transformation Process Model: used to describe nature of operations

Input
Transformed ENVIRONMENT
Resources
Materials
Information
Customers The
Input Output Customer
Facilities Transformation
Staff Process

Input
Transforming ENVIRONMENT
Resources
02/26/10 6
 Types of operations
Operations as a function
Operations as an activity
Four important measures to distinguish different operations:
the volume of their output
the variety of their output
the variation in the demand for their output
the degree of customer contact which is involved in
producing the output
Table 1: High-and-low volume operations
High-volume operations Low-volume operations
TV manufacture, Fast-food restaurant Aircraft manufacture, Taxi
Routine surgery, Theme park
02/26/10 Studio, High-class restaurant7
 Table 2: High-and-low variety operations
High-variety operations Low-variety operations

Customised birthday cake Mass production of birthday

cakes

Made-to-measure suit Off-the-peg suit manufacture

manufacture

Tax consultancy advice Financial audits

Department store Jeans shop

02/26/10 8
 Table 3: High and low ‘variation in demand’ operations
High-variation operations Low-variation operations

Electricity utility Bread bakery

Financial audits by accounting Consultancy advice by

companies accounting companies
Firework manufacturer Shopping mall security

Police and emergency services Frozen food transport

distribution
Underground metro network Cosmetic surgery unit

Maternity unit
02/26/10 9
 Table 4: High-, low- and mixed-customer
contact operations
High-contact Mixed-, high- and Low-contact
operations low-contact operations
operations
Health care service Computer field Most manufacturing
servicing
Dentist Bank branches Bank back office
operations
Music teacher University Distance-learning
college
Barber, Hairdresser Estate agent Dental technicians
Cook at your table Bistro-style Prepackaged
02/26/10 10
restaurant restaurant sandwich maker
 Table 5: Typology of Operations
Measures Implications
Volume-low Low repetition; each staff performs more of job; less
systematisation; high unit costs
Volume-high High repetition; capital intensive; specialisation;
systematisation; low unit costs
Variety-low Well defined; routine; standardised; regular; low unit
cost
Variety-high Flexible; complex; match customer needs; high unit
cost
Variation in demand-low Stable; routine; predictable; high utilisation; low unit
costs
Variation in demand-high Changing capacity; anticipation; flexibility; In touch
with demand; high unit cost
Customer contact-low Time lag between production and consumption;
standardised; low contact skills; high staff
utilisation;centralisation; low unit costs

Customer contact-high Short waiting tolerance; satisfaction governed by

02/26/10 customer perception; customer contact skills 11
needed;received variety is high; high unit cost
 The operations system hierarchy
Consists of:
Macro operations and Micro operations, e.g. TV
broadcasting operations
Macro comprises micro operations
Hierarchy of operations has 2 important implications:
Linkage of micro operations to form internal
customer - internal supplier relationships
View all parts of the organisation as operations,
requiring operations management
Internal customers/suppliers versus External
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customers/suppliers
 Strategic Role and Objectives of Operations
Roles: there are 3 in number (Skinner, 1985 at Harvard U)
as a support to business strategy
as the implementer of business strategy
as the driver of business strategy
Operations Contribution (assess ability to play roles, Hayes
& Wheelwright, 1984 at Harvard U, later Prof Chase, 1991, U
of Southern California) developed ‘Four-Stage model’
Stage1: Internal neutrality (‘necessary evil’)
Stage2: External neutrality (‘best practices’ from competitors,
‘support’)
Stage3: Internally supportive (excel, credible ops strategy,
‘implementer’)
Stage4: Externally supportive (provide competitive success, 13
02/26/10
proactive, ‘driver’)
 The Five Performance Objectives
1) Speed advantage
2) Quality advantage
3) Dependability advantage
4) Flexibility advantage
Business strategy
5) Cost advantage
Strategy Hierarchy
(Figure 3) R&D strategy

Finance strategy Operations strategy HRM strategy

Marketing strategy

Micro operations
Micro operations Micro operations
strategy
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strategy strategy
 Operations Strategy Formulation
Outline framework for developing operations strategy: 2 are Hill Methodology,
and Platts-Gregory procedure
HILL METHODOLOGY (Hill, 1993 of London Business School): largely connected
with manufacturing, 5-steps:
Step1: Corporate objectives (growth, profit, ROI, etc.)- ops strategy to be seen in terms
of contribution to Corp-objectives
Step2: Marketing strategy (product/service markets and segments, range, mix,
volumes, standardisation/customisation, innovation, leader or follower) how Mar-
strategy made which Ops-strategy must satisfy (p/s markets etc) and provide (r, m, v,
s/c)
Step3: How do products and services win orders? Mar-strategy translates into
‘competitive factors’, which are important to operations to win orders. Competitive
factors are distinguished as ‘order-winning’ (key to competitive stance), ‘qualifying’
(to be eligible for customer consideration), and ‘less important’ (no influence upon
customers). Some of the factors are price, quality, delivery speed and dependability,
product/service range, product/service design, brand image, etc
Step4: Process choice (conforming to volume/variety analysis, structural
characteristics defined, like process technology, capacity, size, location, role of
02/26/10 15
inventory, etc.)
 Figure 4: Product/Service Life Cycle

Sales
Volume
Introduction Growth Maturity Decline

Product/Service Product/Service Market needs Market needs

first introduced gains market start to be largely met
to market acceptance fulfilled

Slow growth Rapid growth in Sales slow down Sales decline

in sales sales volume and level off

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Figure 5: Effect of P/S Life Cycle on Organisation

Sales volume

Introduction Growth Maturity Decline

Volume Low Rapid growth High and level Declining
Customers Innovators Early adoptors Bulk of market Laggards
Competitors Few/None Increasing no. Stable no. Declining no.
Variety of Possible high Increasingly Emerging Possible move
Product/service Customisation standardised dominant to commodity
designs Or frequent types standardisa-
Design changes tion
Product/service Low price,
Likely order Availability of
characteristics, Dependable
winners quality p/s Low price
performance supply
Quality, Range Price, Range Range, Quality Dependable supply
Likely qualifiers
Dominant ops Flexibility, Speed, Quality, Cost, Cost
Performance
02/26/10 Quality Dependability Dependability 17
objectives
Figure 6: Design in Operations Management

Design of
Design of Processes
Products and Services

Concept generation Network design

Screening
Layout and
Flow
Preliminary design

Evaluation/improvement Process
Job design
Technology
Prototyping/Final design

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 Features of Design Activity and (Figure 7)
Purpose: to satisfy needs of customers
Applies to: products and services; systems and processes
Designing is: a transformation process
Starts and Ends: concept and specifications
Figure 7: Choices for Designer
100%
Percentage of final product
cost committed by the
design

Percentage of design
Costs incurred

0% 02/26/10 19
Start of the design activity Finish of the design activity
 Table 6: Impact of product/service and
process design on performance objectives
Performance Influence of good product/service Influence of good process
Objective design design

Quality Can provide resources capable

Can eliminate potential fail points of producing to design
& ‘error-prone’ aspects of product specifications
or service
Speed Can specify products which can be Can move inputs through each
made quickly (using modular design), stage of process without delays
or services with less delays

Dependability Help make each stage of process

predictable by using standardised
Can provide technology/staff
who are themselves
predictable processes dependable

Flexibility Can allow for variations thus giving a Can provide resources which
range of products/services to be can be changed quickly to
offered to customers create a range of product or
service

Cost 02/26/10 Can reduce cost of each component

part and assembly also
Ensures resources utilise
20
efficient, low cost processes
 Figure 8:Design as a transformation
process

Transformed
resources

Technical information
Market information
Time information

Input
The design Output Finished
activity Designs

Test and design equipment

Design and technical staff

Transforming
resources
02/26/10 21
 Continued and Figure 9
In addition to technical information, two types of information
important in all types of design activity:
Volume,
Time, or duration associated with each part of product/service or
process Concept Certainty regarding the
first design

Choice and
Evaluation Screens

Large no. of design options

Time Certainty
regarding
the final
design

02/26/10 Figure 9: Final design specification 22

 Figure 10: Identifying and Evaluating Options
Evaluating options: worth of each option on some design criteria
Feasibility (can we do it?); do we have skills, organisational
capacity, financial resources?
Acceptability (do we want to do it?); does option satisfy
performance criteria? Does it give satisfactory return?
Vulnerability (do we want to take the risk?); do we understand
consequences of adopting options? For a pessimist what could go
wrong? Consequences? (called ‘downside’ risk of options)

The difficulty and

cost of changing
the design

02/26/10 23
Start of design activity Finish of design activity
 Performance objectives and Four C’s of design
Performance objectives of design are:
High quality
Produced speedily
Produced on dependable basis
Produced flexibly, and
Produced at low cost
Four C’s (nature of design in all aspects of Operations
Management)
Creativity; not existing before
Complexity; overall configuration, performance to components,
materials, appearance, methods of manufacture
Compromise; balancing performance versus cost, appearance
versus use,materials versus durability
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Choice; many possible solutions
 Figure 11: Process Types in Manufacturing and
Services
Position of an operation on the volume-variety continuum
‘General approaches’ to managing transformation are
called process types Volume
In Manufacturing, these are Low High

Project processes High

Project
Jobbing processes Jobbing
Batch processes Batch
Mass Processes Variety
Continuous processes
Mass
Continuous
Figure 11
02/26/10 Low 25
 Details: Process Types in Manufacturing
Project: discrete, highly customised products, timescale long, low
volume and high variety, activities ill-defined and uncertain, each
job has well-defined start and finish, transforming well-organised,
e.g. shipbuilding, flyovers, installing computer system
Jobbing: volume low-variety high, most jobs ‘one-off’, small jobs,
degree of repetition low, e.g. specialist toolmakers, bespoke tailors
Batch: like jobbing but variety less, more than one product, more
repetitive jobs than above, e.g. machine tool manufacturing, frozen
foods, auto component parts, production of clothing
Mass: high volume-low variety, repetitive and predictable, e.g. auto
manufacture plant, autos in large numbers with several thousand
variants (option of engine size, colour, extra equipment, etc), most
consumer durables- TV plant, CD production
Continuous:
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higher volume-lower variety, endless flow, inflexible,
26
capital-intensive, e.g. medicines, electricity, petrochemical refinery
 Table 7: Volume-Variety effect on Design Parameters
Volume Variety Quality Speed Dependabi Flexibility Cost
means-- means-- lity means- means-- means-

LOW HIGH Specifi- Negotiated On-time P/S Variable

performan waiting time delivery flexibility
ce
Architect'
practice
Bespoke
tailor
Fast food
restaurant
Document
processing
Electricity
utility
HIGH LOW Confor- Instant Avail- Volume Constant
02/26/10 mance to delivery ability flexibility 27
standard
 Table 8: Volume-Variety affect Design Activity
Volume Variety Design Produc Location Flow Process Staff
emphasis t/Servic technology Skills
in design e
Standa
rdisatio
n

Low High Product/S Low Can be Intermittent General Task

ervice decentrali purpose
design sed

Process Usually Continuous Dedicated

High Low High System
design centralise
d
02/26/10 28
 Figure 12: Process Types in Service Operations
Professional services
Service shops Volume
Mass services Low High
High
Professional
Services

Service Shops
Variety

Mass Service

Low
02/26/10 29
 Details: Process types in Services
Professional services: high-contact organisation, high levels of
customisation, service process highly adaptable, staff spends time
with customers in front office, contact staff given considerable
discretion, ratio of staff to customer high, people-based rather than
equipment-based, emphasis on ‘process (how service delivered)
rather than ‘product’ (what is delivered), e.g. consultants, lawyers,
architects, doctors’ surgeries, auditors
Service shops: contact, customisation, volumes of customers, staff
discretion in-between, e.g. banks, high street shops, holiday tour
operators, schools, restaurants, hotels and travel agents
Mass service: limited contact, customisation, ‘equipment-based’,
‘product’ orientated, most value added in the back office, little
judgement applied by front-office staff, e.g. supermarkets, rail
network, airport, library, telecom service, TV station, police service,
02/26/10 30
enquiry desk at a utility
 Figure 13: Product-Process Matrix
In both manufacturing and service operations because of overlap,
organisations have a choice of what type of process to employ.
Choice affects operation in terms of cost and flexibility
Manufacturing high
Volume low Service
operations operations
process types low Variety high process types
(Hayes and Project
More process
Professional
Figure 13:
Wheelwright
flexibility None Deviating from
Jobbing than needed service the natural
Model) Less hence high
process cost diagonal on the
Batch Service
flexibility product-process
than needed shop matrix has
Mass hence high consequences
cost Mass for cost and
Continuous None service flexibility

02/26/10
The ‘natural’ line of fit of process to 31
volume/variety characteristics (lowest cost position)
 Design of Processes
Network design: why design the whole network?
It helps a co to understand how it can compete effectively
It helps to identify particularly significant links in the network
It helps the co to focus on its long-term position in the network
Figure 14: Total and Immediate Supply Networks
2nd tier supplier 1st tier supplier 1st tier customers 2nd tier customers

The Operation

02/26/10 32
Supply side Demand side
 Figure 15: Operations Network for a
plastic homewares manufacturer
Chemical Co Wholesaler
Plastic Retailer
Plastic
Paper Stockist
Homewares
Supplier manufacturer Retailer
Printer
Ink
Supplier Flow of goods
Flow of information

Figure 16: for a Shopping Mall

Recruitment Security
Agency Services
Cleaning Cleaning Shopping Retail
Materials Retailers
Services Mall Customers
Supplier
Equipment
02/26/10 Maintenance 33
Supplier Services
 Location
Importance of Location: Lord Seif, the boss of Marks &
Spencer, has this to say, “There are three important things in
retailing– location, location and location”
Examples are, retailing, fire service station, factory, petrol pump
Reasons for location decisions: stimuli are
Changes in demand for goods and services;
Changes in supply of inputs to the operation
Aim : to achieve an appropriate balance between the 3 objectives
Objectives: are
The spatially variable costs of the operation
The service the operation is able to provide to its customers
The revenue potential of the operation
02/26/10 34
 Figure 17: Supply-side and Demand-side
factors in Location Decisions

Supply-side Demand-side
The
Factors Factors
Which vary in operation Which vary in such a
such a way as to way as to influence
influence cost customer/service/revenue
as location varies as location varies

Labour costs Labour skills

Land costs Suitability of site
Energy costs Image
Transportation costs Convenience for customers
Community factors (e.g. speed and dependability)
02/26/10 35
 Levels of Location Decision
Choosing the area of the country or region;
Choosing the specific site within the area

Location Techniques: quantitative methods, they are

Weighted-scoring method and Centre-of-gravity method
Weighted-scoring method: procedure involves three steps
Identifying the criteria to be used to evaluate the various locations
Establishing the relative importance of each criterion and giving
weighting factors to them
Rating each location according to each criterion. The scale of the
score is arbitrary
Choosing the region / country in which to locate the operation;
Centre-of-gravity
02/26/10 method: is to find a location which minimises36
transportation costs
 Example 1:
An Indian company which prints and makes specialist packaging
materials for the pharmaceutical industry has decided to build a
new factory somewhere in the Benelux countries so as to provide a
speedy service for its customers in continental Europe. In order to
choose a site it has decided to evaluate all options against a number
of criteria. These criteria are listed. After consultation with its
property agents the company identifies three sites which seem to be
broadly acceptable. These are known as sites A, B, and C. the co
also investigates each site and draws up the weighted score table
shown shown in table 9. Remember that the scores shown are those
which the manager has given as an indication of how each site meets
the company’s needs specifically.
Table 9 indicates that location C has the highest total weighted score
and therefore would be the preferred choice
02/26/10 37
 Table 9: Weighted score method for the three sites
*Preferred option
Criteria Importance Scores
weighting Sites
A B C

Cost of the site 4 80 65 60

Local taxes 2 20 50 80
Skills availability 1 80 60 40
Access to motorways, etc 1 50 60 40
Access to airport 1 20 60 70
Potential for expansion 1 75 40 55
Total weighted score 585 580 605*
02/26/10 38
*Preferred option
 Centre-of-Gravity Method
Example 2: A company which operates four out-of-town garden
centres had decided to keep all its stocks of products in a single
warehouse. Each garden centre, instead of keeping large stocks of
products, will fax its orders to the warehouse staff who will then
deliver replenishment stocks to each garden centre as necessary. The
location of each garden centre is shown in the map in figure 18. A
reference grid is superimposed over the map. The centre-of-gravity
coordinates of the lowest cost location for the warehouse, x and y,
are given by the formulae:
x = > xi Vi and y = > yi Vi
> Vi > Vi
Where xi = the coordinate or source of destination i
yi = the coordinate or source of destination i
Vi =the amount to be shipped to or from source/destination
02/26/10 39 i
 Continued and Figure 18
Each of the garden centres is of a different size and has different
sales volumes in terms of the number of truck loads of products sold
each week (shown in table 10)

y 6

4
D
3 B

2
A
1 C
02/26/10 40
x
Table 10: Weekly demand levels (in truck loads) at
each of the four garden centre
Garden Centre Sales per week
(Truck loads)
A 5
B 10
C 12
D 8
Total 35

So the minimum cost location for the warehouse is at (5.34, 1.14). In

reality, optimum location might also be influenced by other factors
such as the transportation network. Poor access, or in a residential
area, or in the middle of a lake, adjustments will have to be made.
02/26/10 41
 Layout and Flow
Importance of layout decision: first time right, changing is
difficult
Layout is lengthy and difficult task because of physical size
of transforming resources
Re-layout of an existing operation can disrupt its smooth
running, leading to consumer dissatisfaction or lost production
If layout is wrong, it can lead to over-long or confused flow
patterns, inventory of materials, customer queues building up
in the operation, customers inconvenienced, long process
times, inflexible operations,unpredictable flow and high cost
Starting point is understanding operation’s strategic
objectives
02/26/10
(figure 19) 42
 Figure 19: Facilities Layout Decision
Volume and
Decision 1 Project process
Variety Professional
Jobbing process Service shops
Process type Batch process Mass service
Mass process
Strategic Continuous process
Performance
objectives Decision 2
Fixed position layout
Process layout
Basic layout type Cell layout
Product layout
Decision 3
Physical position of
Detailed design of all transforming
layout resources
02/26/10 43
Flow of operation’s transformed resources
 Table 11: Relationship between process
types and basic layout types
Manufacturing Basic layout types Service process types
process types
Professional services
Fixed position layout
Project processes

Jobbing processes Process layout Service shops

Mass services
Batch processes Cell layout

Mass processes Product layout

Continuous processes

02/26/10 44
 Basic Layout Types
Fixed position layout: equipment, machinery, plant and people
move;
effectiveness tied up with scheduling of access to the site;
 reliability of deliveries;
e. g. motorway construction, open-heart surgery, shipbuilding,
mainframe computer maintenance, high-class service restaurant.
Process layout: similar processes (or processes with similar needs)
are located together;
convenient for the operation to group them together;
utilisation of transforming resources is improved;
flow pattern complex;
e.g. hospital, supermarket, library, machine parts of aircraft engine
02/26/10 45
 Figure 20: Process layout in a Library
showing path of just one customer

On-line and CD-ROM

Loan books in subject order
access room
Study desks
To journal stack
Enquiries

Reference
Reference collection
section
Entrance
Exit

02/26/10 Store Counter staff 46

room Copying area
 Figure 21: Process Layout by Department

Receiving Shipping
department
Manufacturing

Order-picking
area

Materials inventory
storage area
Finished goods
inventory

Represents the flow of materials through the

02/26/10 47
production process
 Continued
Product layout: involves locating transforming resources entirely
for the convenience of the transformed resources
•each customer, product, or information follows pre-arranged route
•sequence of activities required matches sequence of processes laid;
•transformed resources ‘flow’ along a ‘line’ of processes;
•this type also called ‘flow’ or ‘line’ layout;
•easy to control, predictable, clear, less supervision, ease of ppc;
•predominantly standardised requirements of product and services;
•use of more expensive, fixed position, materials-handling equipment
such as overhead conveyors, less labour cost and training;
•use of specialised equipment to a particular product/service;
•difficult to change over to other product/services;
•e.g. automobile
02/26/10 assembly, mass-immunisation programme, self- 48
service cafeteria
 Figure 22: Product-Focused Production
Raw
materials 2 Components 4
Subassemblies
Components

Raw 7 Finished
1 Components 3 Subassemblies 5 Assemblies
materials Products

Assemblies
Purchased components
6
and Subassemblies

Product or material flow

02/26/10 49
Production Operations
 Continued
Flexible layout: include flexible manufacturing systems (FMS)
and cellular manufacturing systems
process layout in which flow of product can be altered ti permit
flexibility in product processing;
fully/partially computer system that permits rapid changeover to
accommodate different products;
hybrid between process and product layouts;
FMS layout designs are product orientated- flow is along sequence
of work centres as in assembly line;
process orientated- work centre activities can be routed by using
the department layout;
figure 23 shows layout and routing of materials which can permit
flexibility- WIP can travel to any work cell in any order;
developments in material handling (AGV, robots) have developed
02/26/10 50
flexible layouts
 Figure 23: Flexible Manufacturing Layout

Finished product
ready for
shipping

Work Work Work

Cell Cell Cell
A B C
Incoming
materials or
parts requiring
processing at
one or more of
the work cells
Possible routes
of AGV with
The WIP
02/26/10 51
 Cellular Layout
Cellular layout design: groups processes into work cells
subset of Group Technology
GT code number system defines the product’s various material
production processes used to help identify and create cells
capable of producing a limited variety of finished products that
share similar product characteristics
one product or many products
configurations can be U or C or S
used as implementation strategy for JIT production purposes
In JIT operation where flexibility is important, entire plants can
focus on production of single product family (a group of products
that share share similar production requirements, inventory
components, or both. Because parts with similar characteristics are
made in similar ways,the parts in a part families are typically made
02/26/10 52
on the same machines with similar tooling.)
 Group Technology
Cellular manufacturing is a subset of the broader group
technology concept, in which:
a coding system is developed for the parts made in a factory;
each part receives a multidigit code that describes the physical
characteristics of the part;
using code, production activities are simplified in following way;
easier to determine route for parts because production steps are
obvious from its code;
no of parts designs can be reduced because of part standardisation;
new design accesses database to identify similar parts;
part families have parts with similar characteristics;
some part families assigned to cells for production, usually one part
to a cell.
02/26/10 53
Figure 24: Cellular Layout for Cell A, Product X

X,Z
Z Robot X
Worker

Y
X,Y,Z
X,Y,Z
Route of Y,Z
Worker AGV as
Y,Z Product
Undergoes
X,Y,Z processing Worker X
Worker Finishing
work
Exit cell A
02/26/10 Enter cell A finished or on to 54
next cell