Post on 16-Jan-2016
CHAPTER 18: OPERATIONS MANAGEMENT
Putting It All Together
OPERATIONS MANAGEMENT: IT ISN’T GLAMOROUS, BUT IT MATTERS….
Operations Management – all of the activities involved in creating goods and
services and distributing them to customers.
Operations Management – all of the activities involved in creating goods and
services and distributing them to customers.
GOOD OPERATIONS MANAGEMENT
Most efficient and effective processes
Produce the right goods and services
Produce the right quantities
Distribute products to the right customers at the right time
THE COST OF GOODS FOR SALE Unit cost
the cost to make one sensor(car, computer, cup of coffee, etc.)
Material cost … plus … the cost of the “stuff” you use to make your sensor smaller, faster, more reliable = higher cost
Labor cost the cost to assemble your product
Low tech• Position
size= 13.2 performance= 6.8
• MTBF = 20,000
High tech• Position
size= 10.2 performance= 9.8
• MTBF = 23,000
• Bigger size• Slower performance• Lower reliability
Lower material cost
• Smaller size• Faster performance• Higher reliability
Higher material cost
MATERIAL COST
POSITIONING IMPACT ON MATERIAL COSTS
02468
101214161820
Size
0 2 4 6 8 10 12 14 16 18 20
Performance
The higher the technology, the higher the material costs… therefore, for Low Tech sensors, less aggressive positioning will reduce costs
LABOR COSTS
Everything is based on How Many sensors you want to make (now and in the future)
Capacity how many sensors you can make - one shift at regular hours how “big” your factory is
Overtime workers work extra hours at a higher wage
Automation mix between machines and human labor
GOODS VS. SERVICES
GOODS SERVICES
Tangible, physical form, can be touched, seen, handled
Intangible, they can be “experienced”, no physical form
Can be stored and inventoried
Must be consumed when they are produced
Can be shipped Must be consumed, where they are provided
Are produced independently of the consumer
Often require customer involvement
Can measure some aspects of quality
Quality is based on customer perceptions
EFFECTIVENESS VS. EFFICIENCY
Efficiency – producing output
or achieving a goal at the lowest cost.
Effectiveness – completing tasks
and producing products that
create the greatest value.
“There is nothing so useless as doing efficiently that which should not be done at all”
- Peter Drucker
WHAT DO OPERATIONS MANAGERS DO?
Facility Location
Process Selection and Facility Layout
Inventory Control
Scheduling
FACILITY LOCATION
GOING OVERSEAS
Low-wage labor is a key reason firms focus overseas but, low wages do not always translate into low cost
There are a variety of opportunities in rapidly growing foreign markets
Key to balance advantages with drawbacks: Different laws and customs Inadequate infrastructure Inexperienced workers Political instability
PROCESS SELECTION AND FACILITY LAYOUT
Flow Shops Produce Large Batches Standardized Products Specialized Machinery Standardized Tasks Assembly Line is a Flow Shop Process
Job Shops Produce Small Batches Variety of Products General-purpose Machinery Flexible Processes
MANAGING PROJECTS
Production of some products are projects
Projects are usually complex and expensive New House/Building Filming a Movie
Managers use Gantt charts and critical path method to manage projects
INVENTORY CONTROL: DON’T JUST SIT THERE
Why hold inventories… Smooth out production
schedules
Meet demand increases
Reduce switching costs
Compensate for forecast errors
Why not… Unsold inventory ties
up funds Inventory must be
warehoused and managed
Risk of losses due to spoilage, obsolescence and pilferage
PROJECT SCHEDULING
Operations Managers must manage and schedule projects
Scheduling starts with identifying the required activities, the time required and the order in which they must happen
GANTT CHART
CRITICAL PATH METHOD
AUTOMATION: LET THE MACHINES DO IT
Automation – replacing human operations and control of machinery
and equipment with some form of programmed control. Robot – a
programmable machine that is capable of manipulating
materials in order to perform tasks.
ROBOTS
• Robots are well suited for dangerous, tedious, dirty and physically demanding tasks.
• Robots don’t get tired
• Robots are flexible
Machinery: Automation
Level of robotics: from 1 – 10
Automation level of 1Labor cost of $11.20 per unit
Machinery: Automation
Level of robotics: from 1 – 10
Automation level of 1- $11.20 per unit
Automation level of 2Labor cost is 10% ($1.12) lower… $10.08
Machinery: Automation
Level of robotics: from 1 – 10
Automation level of 1 $11.20 per unit
Automation level of 2 $10.08 per unit
Automation level of 3 $8.96 per unit
Labor Cost Per Unit
1….. $11.20
2…. ($1.12)$10.08
3…. ($1.12) $_____ 4…. ($1.12) $_____ 5…. ($1.12) $_____ 6…. ($1.12) $_____ 7…. ($1.12) $_____ 8…. ($1.12) $_____ 9…. ($1.12) $_____ 10. ($1.12) $ 1.12
Question: If you invest into bring automation to Level 5, what will your labor cost per unit be?a. $8.96b. $7.84c. $6.72d. $5.60e. $4.48
Labor Cost Per Unit
1….. $11.20 2…. ($1.12) $10.08 3…. ($1.12) $ 8.96 4…. ($1.12) $ 7.84 5…. ($1.12) $ 6.72 6…. ($1.12) $ 5.60 7…. ($1.12) $ 4.48 8…. ($1.12) $ 3.36 9…. ($1.12) $ 2.24 10. ($1.12) $ 1.12
Question: If you invest into bring automation to Level 5, what will your labor cost per unit be?a. $8.96b. $7.84c. $6.72d. $5.60e. $4.48
MANAGING SUPPLY CHAINS
Supply chains can be complex Wide range of functions Involve many firms Heavy use of
technology
TRADE-OFF BETWEEN VERTICAL INTEGRATION AND OUTSOURCING
Vertical Integration Gain control over
supply chain Begin producing
its own parts Buying suppliers
Outsourcing Use outside firm
for producing supplies
Focus on key production areas
Cost savingsThe trend has been to rely more on outsourcing
which has become a controversial issue.
ENTERPRISE RESOURCE PLANNING (ERP) : CREATING ONE BIG SYSTEM
The goal of ERP is to integrate the flow of information
ERP systems can be costly and challenging to implement
Most firms that complete implementation of ERP systems, report being satisfied with the results
FOCUS ON QUALITY
Quality improves effectiveness and efficiency
Quality helps achieve competitive advantage
Lower costs, increases value Poor quality costs
DEMING CHAIN REACTION
Costs decrease because of less rework, fewer mistakes, fewer delays and snags,
and better use of time and materials
Improve Quality
Productivity Improves
Capture the market with better quality and lower price
Stay in business
Provide jobs and more jobs
W. Edwards Deming, viewed as the father of
the quality movement, first
proposed the relationship
between quality and business in the early 1950s.
HOW AMERICAN FIRMS RESPONDED TO THE QUALITY CHALLENGE
A broad concept of quality: Total Quality Management: Customer Focus Build quality throughout the organization Empowerment of employees Focus on prevention of errors Long-run commitment to continuous
improvement
POKA-YOKES
Japanese term for
“mistake proofing”
Procedures built into the production
process that prevent workers from
making mistakes… …or catch and correct mistakes
SIX SIGMA
Focus on quality improvement and commitment
Standard is no more that one error (defect) per 3.4 million opportunities
Requires a high level of expertise
Focus on employee training
INTERNATIONAL ORGANIZATION FOR STANDARDIZATION
Founded in 1947 Network of national standards institutes
in 150 nations ISO 9000 Certification
Generic quality standards Updated and modified, latest version is ISO
9000:2005 Environmental management focused
standards: ISO 14000
THE BALDRIGE NATIONAL QUALITY PROGRAM
Created by Congress in 1987 to encourage global competition
Participating firms are extensively evaluated
Detailed reports of company strengths and weaknesses
LEAN PRODUCTION:CUTTING WASTE TO IMPROVE PERFORMANCE
Strategies and practices to eliminate waste
Remove activities that don’t contribute value
VALUE STREAM MAPPING
A tool used to show the flows of materials and information in the production process to identify waste.
REDUCING INVESTMENT IN INVENTORY: JUST-IN-TIME TO THE RESCUE
Produce goods and services to meet actual demand. Minimize inventoriesat all stages of the supply chain through coordination.
LEAN THINKING IN THE SERVICE SECTOR
Standardize
Minimize costs
High utilization
Simplified processes