Introduction to Operation Management

Club Kaizen, IIM Indore

OPERATIONS MANAGEMENT (OM) is the process of managing resources to deliver Goods & Services to Customers

What OM covers?
Production process Aggregate planning Location Planning Inventory Management Models Analytical Hierarchy Process (AHP) Supply Chain Management

Elements of a Process
What is a Process ?
Inputs Outputs

Inputs: labour, material, utilities & capital Outputs: goods & services Activities: equipment Flows: material & information Storage: RM, WIP, FG

Process Concepts
Time: Cycle Time, Idle Time, Lead Time/Throughput

Time
Capacity: Rated Capacity, Effective Capacity,

Utilization
Inventory: RM, WIP (buffer), FG Bottleneck Lot Size/Batch Size

Types of Processes
Single-stage Process
Stage 1

Multi-stage Process
Stage 1 Stage 2 Stage 3

Types of Processes (Continued)

A buffer refers to a storage area between stages where the output of a stage is placed prior to being used in a downstream stage

Multi-stage Process with Buffer Buffer Stage 1 Stage 2

Other Process Terminology

Blocking Occurs when the activities in a stage must stop because there is no place to deposit the item just completed If there is no room for an employee to place a unit of work down, the employee will hold on to it not able to continue working on the next unit Starving Occurs when the activities in a stage must stop because there is no work If an employee is waiting at a work station and no work is coming to the employee to process, the employee will remain idle until the next unit of work comes

Other Process Terminology (Continued)

Bottleneck Occurs when the limited capacity of a process causes work to pile up or become unevenly distributed in the flow of a process If an employee works too slow in a multi-stage process, work will begin to pile up in front of that employee. In this is case the employee represents the limited capacity causing the bottleneck.

Pacing Refers to the fixed timing of the movement of items through the process

Other Types of Processes

Make-to-order Only activated in response to an actual order Both work-in-process and finished goods inventory kept to a minimum Make-to-stock Process activated to meet expected or forecast demand

Type of Process Layout

Process Layout (Functional layout ) Similar equipment / functions are grouped together e.g. layout of typical hospital , machine shop
Product Layout (Flow Shop layout) Equipment / work processes are arranged according to the progressive steps by which product is manufactured. The path therefore is a straight line e.g. shoes, chemical plant

Process Performance Metrics

Operation time = Setup time + Run time

Throughput time = Average time for a unit to move through the system
Productivity = Output Input Utilization = Time Activated Time Available

Process Performance Metrics (Continued)

Cycle time = Average time between completion of units Throughput rate = 1 . Cycle time

Efficiency = Actual output Standard Output

Cycle Time Example

Suppose you had to produce 600 units in 80 hours to meet the demand requirements of a product. What is the cycle time to meet this demand requirement?

Answer: There are 4,800 minutes (60 minutes/hour x 80 hours) in 80 hours. So the average time between completions would have to be: Cycle time = 4,800/600 units = 8 minutes.

Capacity Bottlenecks

Inputs

1 200/hr

2 50/hr

3 200/hr

To customers

Operation 2 is a bottleneck

Capacity Bottlenecks

Inputs

1 200/hr

2 200/hr

3 200/hr

To customers

All operations are bottlenecks

Types of Production Processes

Job Shop

Batch Process
Assembly Line Continuous Process Project

Job Shop
Variety of products Customization Variable time production Low volume, fluctuations in volume

Small scale operations

Process layout e.g., fabrication units, machine shop

Batch Process
Goods produced in discrete batches (or lot sizes) Moderate processing demand Economies of scale Process flow more or less routine Little or no variability in product selection - known in

advance
e.g., apparel manufacturer

Assembly Lines
Worker paced assembly line

e.g., fast food outlet Machine paced assembly line e.g., automobile assembly Large to medium volume/standard products High processing turnover Predefined standard BOM High degree of labour & equipment utilization Routing & scheduling fixed System fairly inflexible

Continuous Process
Continuous rapid movement of goods High volume operations Highly standardized product Product based layout High levels of automation

e.g., oil refinery, paper, fertilizer

Project

One of a kind Customized-High Variety Dedication of resources/Sharing across projects

e.g., construction, software

The Planning Process

Long-range plans (over one year)
Research & Development New product plans Capital investment Facility location/expansion Top executives

Intermediate-range plans (3 to 18 months)

Sales planning Production planning and budgeting Setting employment, inventory, subcontracting levels Analyzing cooperating plans

Operations managers

Short-range plans (up to 3 months)

Operations managers, supervisors, foremen Job assignments Ordering Job scheduling Dispatching Overtime Part-time help

Aggregate Planning
Product decisions

Marketplace and demand

Research and technology

Demand forecasts, orders

Process planning and capacity decisions Workforce Aggregate plan for production Raw materials available Inventory on hand

Master production schedule and MRP systems

External capacity (subcontractors)

Detailed work schedules

Location Planning
The decision problem involving the selection of

specific site on which to locate one or more facilities, considering appropriate objectives. For example, Locate country wide distribution center(s) for a product Locate a hospital/fire station/police station/library in a metropolitan area Locate a new classroom building on a college campus Locate RMC plant(s) in geographical area

Need for Location changes/decisions

Shift in demand of goods and services (e.g., shift in

geography of demand, demand increase requires extra capacity which can not be provided from the existing location) Changes in Supply of inputs to the operations (changes in cost, e.g., land cost, availability e.g., stock depleted of the input to the operations) New Facilities/Business, Merger Political and economic conditions may change

Hierarchy of Location Decisions

Location decision may involve geographic and

informational hierarchy. I. Regional (choosing the region/country in which to locate the operation) II. Local (choosing the area of the region/country) III. Site (choosing the specific site within the area)

Inventory
What do you mean by inventory? Stock on hand of materials All physical assets Value of stock of goods Types of inventory Supplies Raw materials In process goods Finished goods

Managing Inventory
HIGH inventory levels yield: Better customer service (traditionally) Stock-out protection (+ wide variety and selection) Short lead times (since its available) Lower costs/unit purchased, made, transported Large lot production and transportation

economies Quantity discounts and inflation hedging LOW inventory levels yield: Low holding costs (inventory carrying costs) Easier and more accurate control of inventory A focus on quality execution (no room for error)

Analytic Hierarchy Process

The Analytic Hierarchy Process (AHP), is a procedure

designed to quantify managerial judgments of the relative importance of each of several conflicting criteria used in the decision making process. Application: Selection of contractors for the project Selection of equipments for project work Selection of project delivery methods Route selection of pipeline projects Facility location selection

Supply Chain Management

Network of facilities and distribution options that

performs the functions of procurement of materials, transformation of these material into intermediate and finished products, and distribution of these finished products to customers Total flow of material, information and cash, from the suppliers, right through an enterprise to the customers Different stages: Procurement, Inbound Logistics, Planning and Manufacturing, and Outbound Logistics/Distribution

End of Deck
Club Kaizen