OPERATIONS MANAGEMENT

BASICS
Bernoud A.J. Jonker MBA

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Operations Management Basics

OPERATIONS MANAGEMENT Objectives

Objectives of this lecture are to introduce Operations Management its place and connections within organisation and some important concepts:
Efficiency Batch production Quality Customer Order Decouple Point Process layout Production Planning

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OPERATIONS MANAGEMENT BASICS

Operations Management Basics

OPERATIONS MANAGEMENT Introduction

What is Operations? How does the role of Operations relate to other functional areas? What Operations Management concepts do you know?

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Operations Management Basics

OPERATIONS MANAGEMENT What is Operations?

Operations can be defined as a transformation process where e. g. materials, labour is transformed into e.g. goods, services
INPUT
Material Machines Labour Energy Management Capital

OPERATIONS
1 2 3 4

OUTPUT
5 Goods Services

Feedback Requirements

Feedback

Source: Russel & Taylor, 2009

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OPERATIONS MANAGEMENT Transformation processes

Transformation can be: Physical Locational Exchange Physiological Psychological Informational Example: Manufacturing operations Transportation/warehousing Retail Health care Entertainment Communication

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Operations Management Basics

OPERATIONS MANAGEMENT Strategic planning hierarchy

Mission and Vision

Voice of the Business

Corporate Strategy

Voice of the Customer

Marketing Strategy

Operations Strategy

Financial Strategy

Source: Russell & Taylor, 4th Edition, 2003

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OPERATIONS MANAGEMENT Supply Chain perspective

Supply Chain Supply side Demand side

Transformation process

Tier 3 suppliers

Tier 2 suppliers

Tier 1 suppliers

Warehouses/ Wholesale

Retail

Customers

Source: David Barnes, 2008

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OPERATIONS MANAGEMENT Operations within organisation

General General management management

Marketing Marketing

Operations Operations

Finance Finance

Human Human Resources Resources

Availability Lead time Sales forecast Customer orders

Budgets Cost analysis Production- and inventory data

Job design Employee evaluation Hiring/firing Training

Source: Own compilation

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Operations Management Basics

OPERATIONS MANAGEMENT Productivity and Competitiveness

Productivity = ratio of output to input
Output Output Productivity = ------------- = ----------------input Labour

Competitiveness = degree to which an countries can produce goods and services that meet the test of international markets.

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OPERATIONS MANAGEMENT Production process selection

High Continuous production Volume Mass production Batch production Projects Low Low Standardisation High
Source: Russel & Taylor, 2009
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Examples
Production of oil, electricity, paper, steel, foodstuffs. Production of automobiles, televisions, personal computers, fast food. Machine shops, bakeries, education, furniture making.

Building ship, rock concert, development new product.

THE OPERATING SYSTEM Customer-order-decoupling-point

The logistic chain make-to-stock

assemble-to-order

Customer

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Supplier

make-to-order

design-to-order

Source: Own compilation

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OPERATIONS MANAGEMENT Customer-order-decouple-point

Examples from manufacturing industry
Make-to-order Assemble-to-order Make-to-stock

Ship building industry

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Car building industry

Operations Management Basics

Many industries
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OPERATIONS MANAGEMENT Different layout types

Process layout Product layout

Fixed position layout

Hybrid layout

Adopted from: Russel & Taylor, 2009

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OPERATIONS MANAGEMENT Line balancing

1
4 minutes

2
4 minutes

3
4 minutes

1
3 minutes

2
4 minutes

3
3 minutes

Flow time = 4 + 4 + 4 = 12 Cycle time = max{ 4, 4, 4} = 4 Idle time = 0 Balance delay = 0

Flow time = 3 + 4 + 3 = 10 Cycle time = max{3, 4, 3} = 4 Idle time = 1 Balance delay = 2

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Operations Management Basics

OPERATIONS MANAGEMENT The supply chain

Supplier Manufacturer Wholesale Retail Customer

Purchasing Production Physical distribution Retailing Supply chain Reverse logistics Source: Own compilation
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OPERATIONS MANAGEMENT Information in the supply chain

Supplier Manufacturer Retail Customer

EDI

EDI

EDI

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OPERATIONS MANAGEMENT Planning hierarchy

Operations planning hierarchy:

Forecasting Planning Scheduling

Input from sales/marketing in combination with historic data

Input from forecasting in combination with rough capacity calculations

Input from planning in combination with machine capacity calculations Source: own compilation

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OPERATIONS MANAGEMENT Levels of scheduling

Make-to-stock Assemble-to-order Make-to-order

Master schedule finished products

Master schedule major subassemblies or modules

Master schedule components or materials

Source: Russell & Taylor, 2009, p. 652

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LEAN MANUFACTURING Reduction of lead time

Lead time is typically made up of four components:

Storage

Transportation

Set-up machine

Production

Storage

Waiting time, reduce or eliminate Moving time, reduce by shorter distances Set-up time, reduce by smart set-up Processing time, reduce by increasing speed
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OPERATIONS MANAGEMENT Inventory management elements

Raw material

Production step 1

In-process buffer

Production step 2

Finished product

Raw material buffers: to cover for variations in suppliers deliveries; buffer inventories: so that production can run smoothly in case of temporary machine breakdowns, or other work stoppages. Finished goods inventories: to cover for fluctuations in demand and work stoppage.
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PLANNING AND SCHEDULING Economic order quantity models

Inventory level

The Inventory Order Cycle

Order quantity, Q Demand rate

Reorder point, R

Order placed

Lead time

Order received

Order placed

Lead time

Time Order received Source: Russell & Taylor, 2009

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OPERATIONS MANAGEMENT ERP modules

Customer order Order status Customers Sales & marketing Forecast & Sales orders Cost & Estimates Hiring & Training Job description Human Resources Payroll data Hiring info

Sales data

Sales analysis Cost analysis Production data & Inventory

Purchase order Delivery Confirmation

Suppliers

Production & Material Management

Finance & Accounting Source: Russell & Taylor, 2009, p. 670

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Operations Management Basics

OPERATIONS MANAGEMENT Evolution of quality management

Total Quality Management Quality Assurance Quality Control Quality inspection

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OPERATIONS MANAGEMENT Integrated overview

General Management
Integrating all functional areas

Marketing
Availability Lead time Sales forecast Customer orders

Operations
Budgets Cost analysis Production- and inventory data Job design Employee evaluation Hiring/firing Training

Finance
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Human Resource Management

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OPERATIONS MANAGEMENT Issues and trends in Operations

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Globalisation of markets, sourcing, operations Virtual companies Greater choice more individualism Emphasis on service Speed and flexibility Supply chains C(ollaborative)-commerce Technological advances Knowledge Environmental and social responsibilities
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