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Operations management

  1. 1. Operations Management BHARTI KUMARI
  2. 2. © 2011 Pearson Education, Inc. publishing as Prentice Hall What Is Operations Management? ProductionProduction is the creation of goods and services Operations management (OM)Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs
  3. 3. What Is Operations Management? • Operations Management – Management of the conversion process which transforms inputs such as raw material and labor into outputs in the form of finished goods and services. Transformation ProcessTransformation Process (components)(components) InputsInputs (customers(customers and/orand/or materials)materials) OutputsOutputs (goods(goods andand services)services)
  4. 4. The Transformation Process within OM
  5. 5. Organizing to Produce Goods and Services • Essential functions: 1.1. MarketingMarketing – generates demand 2.2. Production/operationsProduction/operations – creates the product 3.3. Finance/accountingFinance/accounting – tracks how well the organization is doing, pays bills, collects the money 4.4. Human ResourcesHuman Resources – provides labor, wage and salary administration and job evaluation
  6. 6. Commercial Bank Operations Teller Scheduling Check Clearing Collection Transaction processing Facilities design/layout Vault operations Maintenance Security Finance Investments Security Real estate Accounting Auditing Marketing Loans Commercial Industrial Financial Personal Mortgage Trust Department Human Resources Recruitment Job evaluation Performance evaluation Wage and Salary Adm. Personnel records Organizational ChartsOrganizational Charts
  7. 7. Manufacturing Operations Facilities Construction; maintenance Production and inventory control Scheduling; materials control Quality assurance and control Supply-chain management Manufacturing Tooling; fabrication; assembly Design Product development and design Detailed product specifications Industrial engineering Efficient use of machines, space, and personnel Process analysis Development and installation of production tools and equipment Finance/ accounting Disbursements/ credits Receivables Payables General ledger Funds Management Money market International exchange Capital requirements Stock issue Bond issue and recall Marketing Sales promotion Advertising Sales Market research Human Resources Recruitment Job evaluation Performance evaluation Wage and Salary Adm. Personnel records Organizational ChartsOrganizational Charts
  8. 8. Why Study Operations Management? Operations Management Business Education/ Career Opportunities Systematic Approach to Org. Processes Increase Competitive Advantage/Survival Cross-Functional Applications 3
  9. 9. Operations Decision Making People Plants Parts Processes Planning and Control Materials & Customers Products & Services Input Output Operations Management Marketing StrategyFinance Strategy Marketplace Corporate Strategy Operations Strategy The Transformation Process (value adding) 4
  10. 10. Step 1 Prior to any production, Inventory Control Department and Production Department each performs a routine procedure. Inventory Status Report Inventory Status Report Factor Availability Report Factor Availability Report Production Control Production Department Inventory Control
  11. 11. Step 1 Inventory Status Report Inventory Status Report Factor Availability Report Factor Availability Report Production Control Production Department Inventory Control • Inventory Control Department performs a status check on the amount of raw materials and finished goods and then sends the report to Production Control Department. • This is to inform the Production Control Department the amount of available raw materials can go into production, and the amount of finished units can be used to fill customers orders.
  12. 12. Step 1 Inventory Status Report Inventory Status Report Factor Availability Report Factor Availability Report Production Control Production Department Inventory Control • Production Department checks the production capacity and issues a Factor Availability Report and sends it to Production Control Department. Factor Availability Report – states the available production capacity. It contains how much resource such as labor, land, capital etc are available. • With these information, the Production Control Department can make plans to schedule productions, so all orders can be met in time.
  13. 13. • Production Control Department issues production orders which authorize the unit production. a. A copy of the P.O. is sent to Cost Accounting Department. b. Another copy of the P.O. is sent to the Production Dept. which authorizes them to produce the order. c. The last copy of the P.O. is filed numerically in Production Control Department. Step 2 3 2 Production Control Production Department Cost Accounting Production Order 1 Production Order 2 Production Order 1 N Completed Production Order
  14. 14. • Production Control issues material requisition. a. Production Control send 3 copies of the Material Requisition to inventory control. b. The 4th copy of the Material Requisition is filed numerically in Production Control. Step 3 4 3 2 Material Req. 1 N 3 2 Material Req. 1 Production Control Production Department Inventory Control Cost Accounting
  15. 15. • Inventory Control receives 3 copies of the Material Requisition from Production Control. a. 1 copy goes to Cost Accounting. b. Another goes to the Production Dept. along with the requested amount of raw materials. c. The last copy is filed numerically in Inventory Control to keep track of the inflows and outflows of raw materials Step 4 3 2 Material Req. 1 Material Req. 2 N Production Control Production Department Inventory Control Cost Accounting Material Req. 1
  16. 16. • Production Control sends a copy of the Production Schedule to the Production Dept. This informs the Production Department the scheduled date of completion of that particular order. • The other copy of the Production Schedule is filed in Production Control by date. Step 5 2 Production Schedule 1 D Production Control Production Department Production Schedule 1
  17. 17. • Inventory Control creates a Journal Voucher which contains information about the amount of material used in production. And this journal voucher is used to update the general ledger. Journal Voucher updates general ledger. Step 6 Journal Voucher Inventory Control General Ledger Journal Voucher
  18. 18. • This is the actual production process. As the Production Department receives the production order, which is the approval of production from step (2), and the raw material required for production from step (4), the production takes place. • The material requisition form is attached to the production order form, and along with the finished production, they are sent to the Inventory Control Department. Step 7 Production Order 2 Production Department Inventory Control Completed Production Order 2 Production Order 2
  19. 19. 1. Inventory Control receives the Completed Production Order along with the Material Requisition from the Production Dept. (7) a. They post to the inventory records. Quantity produced Quantity of material used b. It is sent to Cost Accounting i. To summarize production ii. Record unit cost/total cost/quantity etc. Step 8 Completed Production Order 2 Inventory control Cost Accounting Completed Production Order 2
  20. 20. 1. The Production Dept. sends the Job Time Cards to Cost Accounting to calculate Labor Costs. a. Cost Accounting posts to WIP records. b. Direct Labor Cost c. Indirect Labor Cost Step 9 Job Time Card Production Department Cost Accounting Job Time Card
  21. 21. Step 10 Production Status Production Control Production Department Production Status Production Control receives a Production Status Report from the Production Dept.
  22. 22. Step 11 Production Order 1 Cost Accounting Post to WIP Records Cost Accounting posts the Production Order to WIP records. The Production order was received from Inventory Control earlier in step (2).
  23. 23. Cost Accounting posts the Material Requisition to WIP records. The Material Requisition was received from Inventory Control in step (4). Step 12 Material Req. 1 Cost Accounting Post to WIP Records
  24. 24. 1. Cost Accounting updates the General Ledger by using a Journal Voucher to record Conversion Costs = Direct Labor + Manufacturing Cost Overhead Cost Step 13 Journal Voucher Cost Accounting General Ledger Journal Voucher
  25. 25. Step 14 1. Cost Accounting updates the General Ledger by using the Journal Voucher to record the Cost of Goods Manufactured. Direct Material used + Direct Manufacturing Labor + Manufacturing Overhead Costs + Work in Process (beginning) - Work in Process (ending) = Cost of Goods Manufactured Journal Voucher Cost Accounting General Ledger Journal Voucher
  26. 26. Step 15 Completed Production Order 2 Cost Accounting General Ledger M M Management Cost Accounting sends the Completed Production Order to Management.
  27. 27. Classification of Operations • 1.Based on Demand Pattern: a) Make-to-Order (e.g. Airplane / Film Developing/……) Assembly-to-Order (e.g. Car/ Fast food/……) b) Make-to-Stock (e.g. Clothes/ Toys/……) Assembly-to-Stock (e.g. Electronic Products/ TV Sets/……)
  28. 28. Classification of Operations • 2.Based on Type of Conversion Process: Type of Conversion 1.Project Shop 2.Job Shop (Batch Shop) 3.Assembly Line 4.Continuous Process Goods House Building Printing Shop Automobile Oil Refinery Food Process Service Landscaping Dept. Store Airport Gas Station TV Channels
  29. 29. New Product Development (NPD)
  30. 30. New Product Development Process Step 1. Idea Generation Systematic Search for New Product Ideas Internal sources • Customers • Competitors • Distributors • Suppliers
  31. 31. New Product Development Process Step 2. Idea Screening Process to spot good ideas and drop poor ones • Criteria • Market Size • Product Price • Development Time & Costs • Manufacturing Costs • Rate of Return
  32. 32. New Product Development Process Step 3. Concept Development & Testing 1. Develop Product Ideas into Alternative Product Concepts 1. Develop Product Ideas into Alternative Product Concepts 2. Concept Testing - Test the Product Concepts with Groups of Target Customers 2. Concept Testing - Test the Product Concepts with Groups of Target Customers 3. Choose the Best One3. Choose the Best One
  33. 33. New Product Development Process Step 4. Marketing Strategy Development Part Two - Short-Term: Product’s Planned Price Distribution Marketing Budget Part Two - Short-Term: Product’s Planned Price Distribution Marketing Budget Part Three - Long-Term: Sales & Profit Goals Marketing Mix Strategy Part Three - Long-Term: Sales & Profit Goals Marketing Mix Strategy Part One - Overall: Target Market Planned Product Positioning Sales & Profit Goals Market Share Part One - Overall: Target Market Planned Product Positioning Sales & Profit Goals Market Share
  34. 34. New Product Development Process Step 5. Business Analysis Step 6. Product Development Business Analysis Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives Business Analysis Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives If Yes, Move to Product Development If Yes, Move to Product Development If No, Eliminate Product Concept If No, Eliminate Product Concept
  35. 35. New Product Development Process Step 7. Test Marketing Standard Test Market Full marketing campaign in a small number of representative cities. Standard Test Market Full marketing campaign in a small number of representative cities. Simulated Test Market Test in a simulated shopping environment to a sample of consumers. Simulated Test Market Test in a simulated shopping environment to a sample of consumers. Controlled Test Market A few stores that have agreed to carry new products for a fee. Controlled Test Market A few stores that have agreed to carry new products for a fee.
  36. 36. 8. Possible “roll-out” strategies during “commercialization” • By geography • By market size • By customer type (business/consumer/government) • By channel of distribution (Rx/OTC) • By use (special occasion/every day) • By benefit sought
  37. 37. © 2007 Wiley Product Design • Product design – the process of defining all of the companies product characteristics – Product design must supp0ort product manufacturability (the ease with which a product can be made) – Product design defines a product’s characteristics of; • appearance, • materials, • dimensions, • tolerances, and • performance standards
  38. 38. © 2007 Wiley The Product Design Process • Step 1 - Idea Development - Someone thinks of a need and a product/service design to satisfy it e.g. customers, marketing, engineering, competitors, benchmarking, reverse engineering • Step 2 - Product Screening - Every business needs a formal/structured evaluation process e.g. fit with facility and labor skills, size of market, contribution margin, break-even analysis, return on sales • Step 3 – Preliminary Design and Testing - Technical specifications are developed, prototypes built, testing starts • Step 4 – Final Design - Final design based on test results, facility, equipment, material, & labor skills defined, suppliers identified
  39. 39. © 2011 Pearson Education, Inc. publishing as Prentice Hall Issues for Product Development  Robust design  Modular design  Computer-aided design (CAD)  Computer-aided manufacturing (CAM)  Virtual reality technology  Value analysis  Environmentally friendly design
  40. 40. © 2011 Pearson Education, Inc. publishing as Prentice Hall Robust Design  Product is designed so that small variations in production or assembly do not adversely affect the product  Typically results in lower cost and higher quality
  41. 41. © 2011 Pearson Education, Inc. publishing as Prentice Hall Modular Design  Products designed in easily segmented components  Adds flexibility to both production and marketing  Improved ability to satisfy customer requirements
  42. 42. © 2011 Pearson Education, Inc. publishing as Prentice Hall  Using computers to design products and prepare engineering documentation  Shorter development cycles, improved accuracy, lower cost  Supports “mass customization”  3-D Object Modeling Small prototype development Computer Aided Design (CAD)
  43. 43. © 2011 Pearson Education, Inc. publishing as Prentice Hall Computer-Aided Manufacturing (CAM)  Utilizing specialized computers and program to control manufacturing equipment  Often driven by the CAD system (CAD/CAM)  CNC MachinesCNC Machines
  44. 44. © 2011 Pearson Education, Inc. publishing as Prentice Hall Virtual Reality Technology  Computer technology used to develop an interactive, 3-D model of a product from the basic CAD data  Allows people to ‘see’ the finished design before a physical model is built  Very effective in large-scale designs such as plant layout
  45. 45. Value AnalysisValue Analysis versus Valueversus Value EngineeringEngineering  While Value Engineering focuses on preproduction design improvement, Value Analysis takes place during the production process.  Value Analysis seeks improvements leading either to a better product or a product which can be produced more economically.
  46. 46. Ethics and Environmentally FriendlyEthics and Environmentally Friendly DesignsDesigns It is possible to enhance productivity,It is possible to enhance productivity, drive down costs, and preservedrive down costs, and preserve resourcesresources.. Effective at any stage of the product life cycleEffective at any stage of the product life cycle  DesignDesign  ProductionProduction  DestructionDestruction
  47. 47. Guidelines for Environmentally FriendlyGuidelines for Environmentally Friendly DesignsDesigns 1. Make products recyclable 2. Use recycled materials 3. Use less harmful ingredients (Using soy-based inks) 4. Use lighter components Mercedes is using banana plant fiber for car exteriors Biodegradable and lightweight 5. Use less energy 6. Use less material
  48. 48. © 2011 Pearson Education, Inc. publishing as Prentice Hall Service Design  Service typically includes direct interaction with the customer  Increased opportunity for customization  Reduced productivity  Cost and quality are still determined at the design stage  Delay customization  Modularization helps customization  Reduce customer interaction, often through automation
  49. 49. © 2011 Pearson Education, Inc. publishing as Prentice Hall Service Design Figure 5.12
  50. 50. Plant Location
  51. 51. Steps( Procedure) in choosing Location National DecisionNational DecisionNational DecisionNational Decision Regional DecisionRegional DecisionRegional DecisionRegional Decision Community DecisionCommunity DecisionCommunity DecisionCommunity Decision Site DecisionSite DecisionSite DecisionSite Decision Political, social, economic stability; Currency exchange rates; . . . . . Climate; Customer concentrations; Degree of unionization; . . . . . Transportation system availability; Preference of management; . . . . . Site size/cost; Environmental impact; Zoning restrictions; . . . . .
  52. 52. 8-52 Location Decision Factors Regional Factors Site-related Factors Multiple Plant Strategies Community Considerations
  53. 53. 8-53 • Location of raw materials • Location of markets • Labor factors • Climate and taxes Regional Factors
  54. 54. 8-54 • Quality of life • Services • Attitudes • Taxes • Environmental regulations • Utilities • Developer support Community Considerations
  55. 55. 8-55 • Land • Transportation • Environmental • Legal Site Related Factors
  56. 56. 8-56 • Product plant strategy • Market area plant strategy • Process plant strategy Multiple Plant Strategies
  57. 57. 8-57 Service and Retail Locations • Manufacturers – cost focused • Service and retail – revenue focused – Traffic volume and convenience most important – Demographics • Age • Income • Education – Location, location, location – Good transportation – Customer safety
  58. 58. Clientes Centro distribución Response Time 1 week-> 1 Distribution CenterResponse Time 1 week-> 1 Distribution Center
  59. 59. Clientes Centro distribución Response Time 5 days-> 2 Distribution CenterResponse Time 5 days-> 2 Distribution Center
  60. 60. Clientes Centro distribución Response Time 3 days-> 5 Distribution CenterResponse Time 3 days-> 5 Distribution Center
  61. 61. Clientes Centro distribución Response Time 1 day-> 13 Distribution CenterResponse Time 1 day-> 13 Distribution Center

Editor's Notes

  • Systematic approach to Org. Processes:
    An Organized way of Looking at work.
    Career Opportunities:
    Direct – Plant Manager, Production Supervisor
    Indirect – Material Manager, Consulting
    Cross-Functional Applications:
    Everyone needs to plan & control their work.
    Business Education:
    New ideas such as SCM, ERP, Reengineering, and six sigma
  • Long Range Decisions:
    Plants
    Locations
    Products
    Medium Range Decisions:
    # employees
    # shifts or hours
    Short Range Decisions
    Scheduling of products
    Inputs:
    Materials
    Supplies
    Labor
    Capital
    Output:
    Products
    Goods
    Services
    Process:
    Conversion
    Planning and control
  • ×