Operations Management (ME-601)

Prof. S. N. Varma
Ref. Stevenson WJ; Operations Management; TMH Hopp WJ and Spearman ML; Factory Physics; McGraw-Hill Chary SN; Production and OM; TMH

Learning Objectives

Define the term operations management Compare and contrast service and manufacturing operations Describe the operations function and the nature of the operations managers job Briefly describe the historical evolution of operations management Identify current trends that impact operations management

Operations Management
Operations Management (OM) is defined as:

OM is management of input resources and the process of conversion to value added output of goods and/ or services to provide utility and satisfaction to customers. The management of organization resources and systems/ processes that create/provide goods and/or services OM affects: Organizations ability to compete Efficiency and effectiveness of non-profit organizations Nations ability to compete internationally

The Organization
The Three Basic Functions Actual functional division may be more e.g. Outsourcing, Info management(MIS)
Organization

Finance

Operations

Marketing

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Value-Added Conversion Process

The operations function involves the conversion of inputs into outputs
Value added
Inputs
Money, Man, Machine, Material, INFO

Transformation/ Conversion process

Outputs Goods Services

Efficiency Feedback

Feedback and control

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Control
Effectiveness Feedback
Prof. S.N. Varma 1-5

The Resources Recycle

INPUTS MONEY- LAND, BUILDING EQUIPMEN, MACHINES MANAGERS(PLAN ETC) LABOUR (OPERATION) RAW-MATERIAL REGULATIONS LOBBYING PROCSSING OUTPUTS

TRANSFORMATION / PROCESSING SYSTEM OF THE ENTERPRISE

PRODUCT /SERVICES CONSUMER

SUPPLIERS LABOUR MANAGERS

WAGES
SALARY

FINANCIAL INST
RISK MONEY

STOCK-HOLDERS
Dr. S.N. VARMA

INTEREST DIVIDENDS, APPRECIATION

REVENUE

GOVERNMENT

CONSUMERADVOCACY TAXES COST

Types of Operations
Operations
Goods Producing Storage/Transportation

Examples
Farming, mining, construction, manufacturing, power generation Warehousing, trucking, mail service, moving, taxis, buses, hotels, airlines Retailing, wholesaling, banking, renting, leasing, library, loans Films, radio and television, concerts, recording Newspapers, radio and television newscasts, telephone, satellites
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Exchange

Entertainment
Communication

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Prof. S.N. Varma

Goods-services Continuum
Goods Service

Surgery, teaching
Song writing, software development Computer repair, restaurant meal Automobile Repair, fast food Home remodeling, retail sales Automobile assembly, steel making

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Value added Food Processor

Inputs
Raw Vegetables Metal Sheets Water Energy Labor Building Equipment

Processing
Cleaning Making cans Cutting Cooking Packing Labeling

Outputs
Canned vegetables

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Value added Hospital Process

Inputs
Doctors, nurses Hospital Medical Supplies Equipment Laboratories

Processing
Examination Surgery Monitoring Medication Therapy

Outputs
Healthy patients

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Manufacturing or Service?

Tangible

Act

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Key differences- Goods v/s Services

Characteristic Output Production and delivery time Variability of input Labor content Variability of output Measurement of productivity Goods Service Tangible Intangible Different-seq Same Low Low Low Easy High High High Difficult Low Low Difficult Not usual
1-12

Opportunity to correct problems High Inventory Evaluation of output Patentable High Easier Usually

Scope of Operations Management

OM is a major component of SCM. decisions: Deciding where to locate facilities What type of layout Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating employees Marketing and Distribution management And more . . .

Shift in Jobs v/s National Development

Three Basic Area
Agriculture

Under Develop Developed developed ing

80% 40% 40% 20% 8% 30% 62%

Manufacturing 12% Services 8%

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Development of Service Economy

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Prof. S N Varma 1-15

U.S. Manufacturing vs. Service Employment

Year Mfg. Service 45 79 21 90 Mfg. 50 72 28 80 Service 55 72 28 70 60 68 32 60 65 64 36 50 70 64 36 40 75 58 42 30 80 44 46 20 85 43 57 10 90 35 65 0 95 25 75 45 50 55 60 65 70 75 80 85 90 95 00 02 05 00 30 70 Year 25 75

02

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Percent

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Decline in Jobs, but they are important

Why Decline in jobs? Due to success in mgt (objective)
Productivity: Increasing productivity allows companies to maintain

or increase their output using fewer workers Outsourcing (win-win, divide and improve): Some mfg. work has been outsourced to more productive companies.

Importance of Farming/ Mfg. Food is a primary physical need

Mfg. - Over 30% jobs with lucrative salary Mfg. - Accounts for over 70% of value of U.S. exports Average full-time compensation in mfg. about 20% higher than

average of all workers Manufacturing workers more likely to have benefits Productivity growth in manufacturing in the last 5 years is more than double in U.S. economy

Challenges of Managing Services

Service jobs are often less structured than

manufacturing jobs Customer contact is higher Worker skill levels are lower Services hire many low-skill, entry-level workers Employee turnover is higher Input variability is higher Service performance can be affected by workers personal factors

Basic Product-Process matrix

Low ----------------VOLUME----------------- High High --------Time between parts-------------- Low Jumbled--Flow smoothness---------------- Smooth Low --VARIETY (parts)-- High Low--Process Flexibility- High High --Standardization---Low

One of a Multiple Kind Low Products Volume Moderate Volumes

Few Major Products High Volume

Commodity Products

Project
Job Shop Batch

Very Poor Fit (Genious)

Line/ Mass Pr
Continuous Flow

Very Poor Fit (Unskilled)

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Basic Plant Layouts

Basic Processes
Continuous Flow Production (Fluid) Mass Production

Layout
Product piping Product Layout, Connected mechanized material transfer, assembly lines

Examples
Refinery, Sugar Commodities Automobile, TV, Packed Food

Batch Production

Mixed Flow, Cellular Layout, Watches, Drilling Rigs Disconnected lines,

Job-shop Prod., Jumbled Flow Project work, Jumbled Flow

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Process Layout Site work layout

Tools, Dams, Ships, Houses

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Decision Making
System DesignStructural capacity location System operationinfrastructural -- Personnel

Forecast, Aggregate plan Product mix arrangement of departments Master Prod Schedule Inventory, Shop Floor C product and service planning -- Quality assurance acquisition and placement of --Demand synch, Pull, CONWIP Equipments - project works

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Use of Models in Decision Making

A model is an abstraction of reality.
1. Physical or Iconic models e.g. 3D-models of plane, car, bldg 2. Analogue or schematic models e.g. graphs, contours, pie diagram 3. Symbolic or mathematical models e.g. algebraic, differential equation

Tradeoffs

What are the pros and cons of models?

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Mathematical Models
Mathematical models: Deterministic models

Allocation: LPP, IPP, Goal Prog, TPP, Assignment, Sequencing, Network models; Deterministic Inventory models, Dynamic P Non linear prog.; Capital Investment;
Forecasting Decision theory, games and competitive strategy. Queuing and waiting models Probabilistic Dynamic programming Probabilistic Inventory Replacement

Probabilistic models

Simulation and Meta-heuristics algorithms for non-LP and combinatorial optimization:

Tabu search, simulated annealing, Genetic A, DE, teacher learner algo.

Dr S. N. VARMA

Merits and Demerits of Modeling

Advantages of Modeling:
Easy to use, less expensive Require user to organize, define problem and analysis Increase understanding of the problem Enable what if questions Consistent tool for evaluation and standardized format Power of mathematics

Disadvantages of modeling:
Quantitative information may be emphasized over qualitative Models may be incorrectly applied and results misinterpreted Use of models does not guarantee good decisions

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How models are used?

1. 2. 3. 4. 5. 6.

Phases/ methodology of Modeling: Search, define and formulate problem, list alternatives to evaluate. Make hypothesis, construct model and validate with the real system Experiment and deduct results leading to model conclusion & theory Evaluate alternatives & compare/ verify with real system attributes Select best solution, establish controls and implement. Post audit
Formulate/ Inductive generalize Real System Hypothesis and modeling Experiment, deductions Model conclusions, theory

Draw conclusions Real system attributes

Test theory, verify

Dr S. N. VARMA

Pareto Phenomenon
A few factors account for a high percentage of the occurrence of some event(s).

80/20 Rule - 80% of problems are caused by 20% of the activities.

How do we identify the vital few?

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Business Operations Overlap

Operations

Marketing

Finance

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Operations Interfaces
Industrial Engineering Distribution Maintenance

Purchasing

Operations

Public Relations

Legal
Personnel Accounting
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MIS
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Simple Product Supply Chain

Suppliers Suppliers Direct Suppliers

Producer

Distributor

Final Consumer

Supply Chain: A sequence of activities And organizations involved in producing And delivering a good or service

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A Supply Chain for Bread

Stage of Production
Farmer produces and harvests wheat Wheat transported to mill Mill produces flour Flour transported to baker

Value Added
$0.15 $0.08 $0.15 $0.08

Value of Product
$0.15 $0.23 $0.38 $0.46

Baker produces bread

Bread transported to grocery store Grocery store displays and sells bread Total Value-Added

$0.54
$0.08 $0.21 $1.29

$1.00
$1.08 $1.29

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Historical Evolution of OM
From craft production to Industrial revolution (1770s) Scientific Management, Work Study (1911-FW Taylor)
Mass production Interchangeable parts Division of labor

Human relations movement (1920-80)

Ergonomics, fatigue (Gilberth) Hawthorn Experiment (Not illumination but Motivation- Elton Mayo) Need hierarchy, hygienic-motivating factors (Maslow, Hertzberg) Theory-X and theory-Y (Mc Gregory) Theory Z, JIT Lean Mfg., TQM (Ohno Taichi)

Decision models (1915, 1960-80s) Influence of Japanese manufacturers, Outsourcing

Management and IT Revolution

Technology: The application of scientific discoveries to

the development and improvement of goods and services Product and service technology Process technology Information technology revolution
The Internet, ERP, e-business, e-commerce Management technology Globalization Management of supply chains Outsourcing Agility

The Heritage of Operations Management

Division of labor (Adam Smith 1776 and Charles Babbage 1852) Standardized parts (Whitney 1800) Scientific Management (Taylor 1881) Coordinated assembly line (Ford/Sorenson/Avery 1913) Gantt charts (Gantt 1916) Motion study (Frank and Lillian Gilbreth 1922) Quality control (Shewhart 1924; Deming 1950) Computer (Atanasoff 1938)
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CPM/PERT (DuPont 1957)

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The Heritage of O M -Contd

Material requirements planning (Orlicky 1960) Computer aided design (CAD 1970)

Flexible manufacturing system (FMS 1975)

Baldrige Quality Awards (1980) Computer integrated manufacturing (1990) Globalization(1992)

Internet (1995)

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1-34

Eli Whitney
Born 1765; died 1825 In 1798, received government contract to make 10,000 muskets Showed that machine tools could make standardized parts to exact specifications
1995 Corel Corp.

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Musket parts could be used in any musket

1-35

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Frederick W. Taylor
Born 1856; died 1915 Known as father of scientific management In 1881, as chief engineer for Midvale Steel, studied how tasks were done

Began first motion & time studies

Created efficiency principles

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1995 Corel Corp.

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1-36

Taylor: Management Should Take More Responsibility for

Matching employees to right job Providing the proper training Providing proper work methods and tools Establishing legitimate incentives for work to be

accomplished

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Frank & Lillian Gilbreth

Frank (1868-1924); Lillian (18781972) Husband-and-wife engineering team Further developed work measurement methods Applied efficiency methods to their home & 12 children! (Book & Movie: Cheaper by the Dozen, book: Bells on Their Toes)
1995 Corel Corp.

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Henry Ford
Born 1863; died 1947 In 1903, created Ford Motor Company In 1913, first used moving assembly line to make Model T

Make them all alike!

Unfinished product moved by conveyor past work station

1995 Corel Corp.

Paid workers very well for 1911 ($5/day!)

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W. Edwards Deming
Born 1900; died 1993 Engineer & physicist Credited with teaching Japan quality control methods in post-WW2 Used statistics to analyze process His methods involve workers in decisions
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Contributions From
Human factors
Industrial engineering Management science

Biological science
Physical sciences Information science

Transparency Masters to accompany Heizer/Render Principles of Operations Management, 5e, and Operations Management, 7e

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Significant Events in OM

Division of labor (Smith, 1776) Standardized parts (Whitney, 1800) Scientific management (Taylor, 1881) Coordinated assembly line (Ford 1913) Gantt charts (Gantt, 1916) Motion study (the Gilbreths, 1922) Quality control (Shewhart, 1924) CPM/PERT (Dupont, 1957) MRP (Orlicky, 1960) CAD and Flexible manufacturing systems (FMS) Manufacturing automation protocol (MAP) Computer integrated manufacturing (CIM)
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From

New Challenges in OM To
Global focus Just-in-time Supply chain partnering Rapid product development, alliances Mass customization Empowered employees, teams

Local or national

focus Batch shipments Low price bid purchasing Lengthy product development Standard products Job specialization
Transparency Masters to accompany Heizer/Render Principles of Operations Management, 5e, and Operations Management, 7e

2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

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Ethical Issues

Financial statements Worker safety Product safety Quality Environment Community Hiring/firing workers Closing facilities Workers rights

Factory Physics and dynamics

Definitions
Workstations: a collection of one or more identical machines. Parts: a component, sub-assembly, or an assembly that moves
through the workstations.

End Items: parts sold directly to customers; relationship to

constituent parts defined in bill of material (BOM).

Consumables: bits, chemicals, gasses, etc., used in process

but do not become part of the product that is sold.

Routing: sequence of workstations needed to make a part. Order: request from customer. Job: transfer quantity on the line.

Definitions (cont.)
Throughput (TH): for a line, throughput is the average quantity
of good (non-defective) parts produced per unit time.

Work in Process (WIP): inventory between the start and

endpoints of a product routing.

Raw Material Inventory (RMI): material stocked at

beginning of routing.

Crib and Finished Goods Inventory (FGI): crib inventory

is material held in a stock-point at the end of a routing; FGI is material held in inventory prior to shipping to the customer.

Mfg. Lead/ Cycle Time (CT): time between release of the job
at the beginning of the routing until it reaches an inventory point at the end of the routing. Customer Lead Time: Time between customer order and delivery

Definitions (cont.)
Definition: A manufacturing system is a goal-oriented

network of processes through which parts flow.

Structure: Plant is made up of routings (lines), which

in turn are made up of processes.

Focus: Factory Physics is concerned with the

network and flows at the routing (line) level.

Parameters
Descriptors of a Line:

1) Bottleneck Rate (rb): Rate (parts/unit time or

jobs/unit time) of the process center having the highest long-term utilization, thus slowest flow.

2) Raw Process Time (T0): Sum of the long-term

average process times of each station in the line.

3) Congestion Coefficient (): A unit less measure

of congestion.
= 0. Practical worst case, = 1. Worst possible case, = W0.
Zero variability case,

Littles law
This is a non-congestion, steady-state system flow law:

Time in system/ cycle time, CT=WIP/rb

Insights:
Fundamental relationship Simple units transformation Definition of cycle time (CT = WIP/TH) WIP is main reason for delays, not process variance (though exp.

process variance with high capacity utilization causes high WIP)

Relationship:
Critical WIP (W0): WIP level in which a line having no congestion

would achieve maximum throughput (i.e., rb) with minimum cycle time (i.e., T0).

W0 = rb T0

The Penny-Fab-1 example

Characteristics: Four identical in series. Each takes 2 hours per piece (penny). No variability. CONWIP job releases. Parameters:
rb T0 = = 0.5 pennies/hour 8 hours 0.5 8 = 4 pennies 0 (no variability, best case conditions)

W0

=
=

The Penny-Fab-1 (WIP=1)

Time = 0 to 8 hours

Penny Fab-1 Performance

WIP 1 2 3 4 5 6 TH 0.125 0.250 0.375 0.500 CT 8 8 8 8 THCT 1 2 3 4

The Penny Fab-1 (WIP=5)

Time = 0 to 10 hours

Penny Fab-1 Performance

WIP 1 2 3 4 5 6 TH 0.125 0.250 0.375 0.500 0.500 0.500 CT 8 8 8 8 10 12 THCT 1 2 3 4 5 6

TH vs. WIP: Best Case

0.6
rb

0.5 0.4

TH

0.3 0.2 0.1 0 0 1 2

1/T0

3 4 W0

9 10 11 12

WIP

CT vs. WIP: Best Case

26 24 22 20 18 16 14 12 10 8 6 4 2 0
W0

T0

CT

1/rb

0 1 2 3 4 5 6 7 8 9 10 11 12

WIP

Best Case Performance

Best Case Law:

The minimum cycle time (CTbest) for a given WIP level, w, is given by
CTbest = T0 , if w W0

= w / rb, otherwise

The maximum throughput (THbest) for a given WIP level, w is given by,
THbest = w/ T0 if w W0

= rb otherwise

Best Case Performance (cont.)

Example: For Penny Fab-1, rb = 0.5 and T0 = 8, so

W0 = 0.5 8 = 4,

if w 4 8, CTbest 2w, otherwise.

THbest

w / 8, if w 4 0.5, otherwise.

which are exactly the curves we plotted.

Worst Case
Observation: The Best Case yields the minimum cycle

time and maximum throughput for each WIP level. Question: What conditions would cause the maximum cycle time and minimum throughput? Experiment:
Set process times same as Best Case (so rb and T0

unchanged) follow a marked job through system imagine marked job experiences maximum queueing

Worst Case Penny Fab

Time = 0 hours

Worst Case Penny Fab

Time = 8 hours

Worst Case Penny Fab

Time = 16 hours

Worst Case Penny Fab

Time = 24 hours

Worst Case Penny Fab

Time = 32 hours

Note: CT = 32 hours = 4 8 = wT0 TH = 4/32 = 1/8 = 1/T0

TH vs. WIP: Worst Case

0.6
rb Best Case

0.5 0.4

TH

0.3 0.2
Worst Case

1/T0

0.1 0 0 1 2 3 4
W0

9 10 11 12

WIP

CT vs. WIP: Worst Case

32 28 24 20 16 12 8 4 0
W0 Worst Case

CT

Best Case

T0

0 1 2 3 4 5 6 7 8 9 10 11 12

WIP

Worst Case Performance

Worst Case Law:
The worst case cycle time for a given WIP level, w, is given by,

CTworst = w T0 ( CTbest= w/rb ,=wT0 / W0 )

The worst case throughput for a given WIP level, w, is given by,

THworst = 1 / T0 (Thbest = rb = W0 / T0 )
Randomness?
None ! perfectly predictable, but bad!

Practical Worst Case

Observation: There is a BIG GAP between the Best

Case and Worst Case performance. Question: Can we find an intermediate case that:
divides good and bad lines, and is computable?

Experiment: consider a line with a given rb and T0 and

variable process time of maximum variability (exp.):

single machine stations balanced lines, each station has same average time variability such that all WIP configurations (states) are

equally likely (possible with memory-less exp Process T)

PWC Example 3 jobs, 4 stations

clumped up states

State 1 2 3 4 5 6 7 8 9 10

Vector (3,0,0,0) (0,3,0,0) (0,0,3,0) (0,0,0,3) (2,1,0,0) (2,0,1,0) (2,0,0,1) (1,2,0,0) (0,2,1,0) (0,2,0,1)

State 11 12 13 14 15 16 17 18 19 20

Vector (1,0,2,0) (0,1,2,0) (0,0,2,1) (1,0,0,2) (0,1,0,2) (0,0,1,2) (1,1,1,0) (1,1,0,1) (1,0,1,1) (0,1,1,1)

Note: average WIP at any station is 15/20 = 0.75, so jobs are spread evenly between stations.

spread out states

Practical Worst Case

Let w = no. of jobs in system, N = no. stations in line,

and t = average process time at all stations: Average time at a station= time for (this + other) jobs

CT(single) CT(line)

= (1 + (w-1)/N) t = N [1 + (w-1)/N] t = Nt + (w-1)t = T0 + (w-1)/rb = (W0 + w 1)/ rb From Littles Law = WIP/CT = [w/(w+W0-1)] rb

TH

Practical Worst Case Performance

Practical Worst Case Definition: The practical worst

case (PWC) cycle time for a given WIP level, w, is given by,
CTpwc = T0 + (w-1)/ rb
The PWC throughput for a given WIP level, w, is given by, THpwc = w rb / (W0 + w 1) where W0 is the critical WIP.

TH vs. WIP: Practical Worst Case

0.6 0.5
rb Best Case

0.4 0.3 0.2

Good (lean)

TH

PWC
Bad (fat)

Worst Case

1/T0.1 0

0 0 1 2 3 4
W0

10 11 12

WIP

CT vs. WIP: Practical Worst Case

32 28 24 20 16 12 T0 8 4 0 0 1 2
Worst Case
PWC
Bad (fat) Good (lean)

CT

Best Case

3
W0

9 10 11 12

WIP

Penny Fab Two

2 hr 5 hr 3 hr

10 hr

Penny Fab Two

Station Number 1 2 3 4 Number of Machines 1 2 6 2 Process Time 2 hr 5 hr 10 hr 3 hr Station Rate 0.5 j/hr

0.4 j/hr 0.6 j/hr

0.67 j/hr

0.4 p/hr 20 hr rb = ____________ T0 = ____________ W0 = 8 pennies ____________

Penny Fab Two Simulation (Time=0)

2 hr 5 hr 3 hr

10 hr

Penny Fab Two Performance

0.5
Best Case

rb 0.4

Intelligence region
0.3

TH
0.2

Note: process times in PF2 have var equal to PWC. But unlike PWC, it has unbalanced line and multi machine stations.

Ignorance region
0.1
Worst Case

1/T0
0 0 2 4 6 8 10 12 14 16 18 20 22 24 26

W0

WIP

Penny Fab Two Performance (cont.)

80 70 60 50
Worst Case

CT

40 30

1/rb

T0 20
10 0 0 2

Best Case

10

12

14

16

18

20

22

24

26

W0

WIP

Qualitative categories of Variability

Quantitatively we have many discrete (Binomial- tossing

coin/dice, Poisson-Q system) and continuous variable (Expnl. Normal) distributions.

Qualitatively we can categories the variability as follows:
Adverse variability
Favorable variability Fair variability (Equal rectangular probability- random) Maximum variability (Exponential, memory-less distr.) Minimum var. (Any distr. with low Coeff. Of Var. /)

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Surprise conclusions
1. Variability can be due to Bad control or Randomness or both, but

badly controlled variability , knowingly or unknowingly, is worse than randomness. e.g. in a card game why we want random card? Why we select random person among all equal assumed. 2. Contrary to the balancing of connected and paced assembly line( no waiting Q), throughput of a non paced balanced flow shop with exponential distributed process time can be improved by unbalancing a station of the line. Since all stations are balanced and have TH equal to rb , a station can be unbalanced only by increasing TH of any station, which in turn (1). Reduces T0 , W0 (2). Reduce Q and BN mc 3. Contrary to the belief that throughput can only be increased by improving TH of a BN mc, increasing TH of non BN station will result in less congestion and slightly better results.
TH w
21-Feb-12 Prof. S.N. Varma 81

Break 2. Time?
21-Feb-12 Prof. S.N. Varma 82

Learning Objectives
Explain Planning-controlling terms; strategic, tactical,

operation; interrelation- without plan what to control? Describe and give examples of time-based strategies List and briefly discuss the primary ways that business organizations compete. List reasons for the poor competitiveness of some companies. Explain why strategy is important for competitiveness Contrast strategy and tactics MIS (ERP) as a strategic Tool for competitiveness
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Learning Objectives
Define the term productivity and explain why it is

important to organizations and to countries. Relation between productivity and standard of living Relation between Standard of living and happiness Productivity, distribution of benefits and social justice Productivity and employment shift to services List some of the reasons for poor productivity and some ways of improving it.

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Planning and Control Concepts

Why planning?
Planning is a significant and ongoing activity for mgt and individuals. It

provide a framework for taking decisions leading towards the Mission. A Plan is necessary for any activity, though many times it is informal, not on form. What is a plan: Def. A plan is predetermined course of actions to achieve certain goals A plan is necessary to measure deviations and control the activities
General What MISSION VISION How Policies, Rules

Goals
Objectives Specific

Strategies
Tactics Plans, Budgets

Definition of terms

Planning Terminology
Example

Term Mission Vision Goals

Definition

Broad statement of purpose of Provide high quality product and organization, assignment, task service Dream, Aspiration, future state Gen. statement of what to achieve Become fortune 500 Co Reduce service-response time without increasing staff Improve process for handling service-requests Reduce service completion time to 2 days

Strategies Objective Plan, budgets Policy

Gen. approach to achieve goals Specific measurable results

Schedule of activities to achieve Revise service call request objectives Limit to acceptable behavior Design user friendly interface

Planning Example
Rita is a high school student. She would like to have a career in business, have a good job, and earn enough income to live comfortably.

Mission: Goal: Strategy: Tactics: Operations:

Live a good life

Successful career, good income
Obtain a college education Select a college and a major

Register, buy books, take courses, study, graduate, get job

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Planning and Decision Making

Mission Goals

Organizational Strategies
Functional Goals Finance Strategies Marketing Strategies Operations Strategies

Tactics Operating procedures

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Tactics Operating procedures

Tactics Operating procedures

Why Planning is difficult?

Why Planning is frequently neglected ?
It is a difficult cognitive (hard mental) activity. Avoid cognitive strain. It expose future uncertainties, human tend to avoid uncertainties.

It reduce freedom of action (perceived), human avoid restrictions.

It needs intensive efforts and concentration so need shut out other activities It take decision without actual evaluation of envir., assumptions can be wrong. Due to unreal planning or changes in environment, they are ignored many times

so people become reluctant to planning. It introduce inflexibility in action

Plans have Hierarchy as well network dependency

Strategic plan- time fencing few years (1-5, or more), refer to STRUCTURE Tactical plan- time few months (1-15), refer to INFRASTRUCTURE/ OPERATION Operational plan- time fencing freeze to few weeks (1-12), refer to CONTROL

Other plans
Contingency plan (when some distant (Im-) possibility happen) Daily, weekly, monthly, Five year plans with nesting.
Dr. S.N. VARMA

Strategies, policies, SWOT

Strategy is from Greek strategos (=general)= long-term course of action Policies are general statements/ understandings to guide mgt decisions; but strategies are to guide resource applications to achieve the goals. Strategic plans must be supported by tactical and operational planning. Strategic (general) planning means to analyze current situation, form mission and decide course of actions using resources to achieve goals. The strategic plan process involve consideration of input (including goal), enterprise profile, top manager orientation, environment & alternative Opport WO strategy (mini-maxi) e.g. development strategy to unity (maxi) overcome weakness and take advantage of opportunity Extern WT strategy (mini-mini) al fact Threat (mini) e.g. retrenchment, liquidation or joint venture by merging SO strategy (maxi-maxi) Most successful, utilize strength to take advantage of Opportunities

ST strategy (maxi-mini)
e.g. use of strength to cope with or avoid threats

Weakness (mini)--------Internal factors------------------Strength (maxi)

Core Competency and Strategy

Distinctive/ Core Competencies The special attributes or abilities that give an organization a competitive edge
Locations Distinctive/ core competency, specialization Product mix and services Cost, quality, time, flexibility Scale-based strategies

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Examples of Competitive Strategies

Cost Quality Time Flexibility Service Location
Low Cost U.S. first-class postage Motel-6, Red Roof Inns Sony TV Lexus, Cadillac Pepsi, Kodak, Motorola Express Mail, Fedex, One-hour photo, UPS Burger King Supermarkets Disneyland Nordstroms Banks, ATMs
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High-performance design or high quality Consistent quality Rapid delivery On-time delivery Variety Volume Superior customer service Convenience

Strategy Formulation
Distinctive/ Core competencies Environmental scanning SWOT Order qualifiers Order winners

Strategic decisions must consider globalization

What works in one country may not work in another Other issues Political, social, cultural, and economic differences

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Strategy Formulation
Order qualifiers
Characteristics that customers perceive as

minimum standards of acceptability to be considered as a potential purchase Order winners Characteristics of an organizations goods or services that cause it to be perceived as better than the competition

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Key External and Internal Factors

External Factors Economic conditions Political conditions Legal environment Technology Competition Markets

Internal Factors Human Resources Facilities and equipment Financial resources Customers Products and services Technology Suppliers

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Strategy must be followed by tactical/ operation plans

Tactical strategyto take decisions for infrastructure

and resources to achieve organization objectives Operations strategy The approach, consistent with organization strategy, that is used to guide the operations function.

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Strategic OM Decisions
Decision Area
Product/ service design Capacity Process and layout

Affects
Costs, quality liability and environment Cost structure, flexibility Costs, flexibility, skill level, capacity

Work design
Location Quality Inventory Maintenance Scheduling Supply chains Projects

Quality of work life, employee safety, productivity

Costs, visibility Ability to meet or exceed customer expectations Costs, shortages Costs, equipment reliability, productivity Flexibility, efficiency Costs, quality, agility, shortages, vendor relations New products, services, or systems
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Quality and Time Strategies

Quality-based strategies Focuses on maintaining or improving the quality of an organizations products or services Quality at the source Time-based strategies Focuses on reduction of time needed to accomplish tasks

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Competitiveness:
How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services

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Product-Portfolio matrix by BCG

Capital Investment and returns are key issues in strategic plan as well in project plan since it is an important resource; returns vary in rate, risk Product-Portfolio matrix (Henderson, Boston Consultancy Group, 1970) help in deciding where capital and other resources should be invested
High Industry growth Low Q-MARK ? PRODUCTS Release funds by divesting DOGS STAR PRODUCTS Generate funds to invest CASH COWS

Low ------------------------Market Share--------------------------- High

Porter Competition-Model,1980
Five basic forces affecting competency

and profit potential of industry

NEW ENTRY Threat

Bargaining Power of SUPPLIERS

Existing Intra industry Rivalry

Bargaining Power of BUYERS

SUBSTITUTE Threat

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Bargaining Power of Suppliers/Buyers

For Suppliers this includes: Input differentiation Supplier concentration Volume Cost relative to total dollars For Buyers this includes: Buyer concentration Volume Integration

Entry Barriers
Economies of scale
Product Differences

Brand Identity
Access to distribution

Cost advantages
Government policy

Competitive Marketing, Operation Functions

Competitive Marketing Functions:
Identifying consumer wants and needs Pricing Advertising and promotion

Competitive Operation Functions:

Product and service design Cost Location

Quality
Quick response

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Why Some Organizations Fail

Too much emphasis on short-term financial performance Failing to take advantage of strengths and opportunities Neglecting operations strategy Failing to recognize competitive threats Too much emphasis in product and service design and

not enough on improvement Neglecting investments in capital and human resources Failing to establish good internal communications Failing to consider customer wants and needs .

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Push/Pull View of Supply Chains

A Pull process is one driven by customer order and A Push process is one started by supplier/ mfr in anticipation of customer order Procurement, Manufacturing and Replenishment cycles Customer Order Cycle

PUSH PROCESSES

PULL PROCESSES

Customer Order Arrives

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Push-Pull view of Manufacturing Strategies

A Pull process is one driven by customer order and A Push process is one started by supplier/ mfr in anticipation of customer order A supply/ demand chain can be a pull process (ETO) or a combination of Push and Pull processes depending on the customer order decoupling point Customer Order
Inventory Location Cust.-order decoupling pt Mfg strategy/ environment Supplier Raw Material ^ ^ WIP ^ Finished Goods ^

ETO

MTO

ATO

MTS

Push-Pull Boundary Push Process ETO = Engineer To Order; ATO = Assemble To Order (Modular Mfg); Pull process MTO = Make To Order MTS = Make To Stock/ Store
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Productivity
Productivity: A measure of the effective use of

resources, usually expressed as the ratio of output to input; P = Output / Input (This is a Total measure)
Value of this ratio must be more than 1 (synergy)

Partial measures = output/(single input) E.g. Output ; Output ; Output ; Output ;

Labour Raw Material Machine Energy

Multi-factor measures = output/(multiple inputs) E.g. Output ; Output

Labour+Capital+Energy Labour+Machine

Productivity Growth = Current P Previous P

Previous P
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Partial Productivity Examples

Labor Productivity
Machine Productivity Capital Productivity
Units of output per labor hour Units of output per shift Value-added per labor hour Units of output per machine hour Value added / machine cost Units of output per dollar input Dollar value of output per dollar input Units of output per kilowatt-hour Dollar value of output per kilowatt-hour

Energy Productivity
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Factors Affecting Productivity

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Capital Technology Management Quality Standardization Searching for lost or misplaced items Scrap rates Labor turnover, New workers, Layoffs Safety Use of Internet, Computer viruses, IT Design of the workspace Hygienic Policy and Motivation Incentive plans that reward productivity

Improving Productivity
Get management support Develop productivity measures

Work study, Method Improvement, Time Standards

Measure and publicize improvements Establish reasonable goals

Determine critical (bottleneck) operations

Dont confuse productivity (P>1); efficiency (E< 1)

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Standard Of Living and Happiness

Improving Productivity generate surplus

and increases material wellbeing- SOL

High SOL does not guarantee Happiness.
Answer is in statistics- a high SOL has high

positive correlation with Happiness

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Productivity and Employment

Objective of productivity improvements is to produce

more with less worker So we should not wonder or worry for job shift! Presumption- there are infinite work to be done. It is the responsibility of Society and Government to distribute benefits of productivity with social justice. Leisure time increases with increased productivity (If your needs are minimum, you can rest without work) Energy can save labor and we feel better- happy. Not only happy but energy also improve longevity.
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