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

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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