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Mba ii pmom_unit-1.1 introduction to production & operation management a - copy


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Introduction to Production & Operation Management

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Mba ii pmom_unit-1.1 introduction to production & operation management a - copy

  1. 1. Course:MBA Subject: Production & Operation Management Unit:1.1 Introduction to Production & Operation Management
  2. 2. Production Management  Production is a Broader Term that Spans both Manufacturing and Services Functions  Production is the Application of Resources, People and Machinery, to Convert Inputs into Finished Goods and Services
  3. 3. Mass Production Mass Production: Makes Outputs available in Large Quantities at Lower Unit Costs than Individually- Crafted Items Characteristics of Mass Production Labor Specialization Mechanization Standardization
  4. 4. Assembly Lines Assembly Line first Introduced by Eli Whitney (Cotton Gin Inventor) to build Muskets for the US Government In 1799 Used Ideas of Specialized Labor and Engineering Standards (Tolerances) to produce Assemblies from Parts in Repeatable Manner
  5. 5. HENRY FORD Introduced Moving Assembly Line: Dramatically Reduced Manufacturing Costs While Delivering Consistent, Low-Priced Product Factory based on Chicago Meat Cutting Plants
  6. 6. FORD MODEL “T” First Produced: October 1908 By 1927, 15,000,000 Produced Any Color so long as it’s Black…
  7. 7. ASSEMBLY LINE BENEFITS  Initially, took 14 hours to Assemble Model T - Mass Production reduced Time to 1 Hour and 33 Minutes  Model T’s Price dropped from $1,000 in 1908 to $360 in 1916  Result was Ford becoming Dominant Automobile Manufacturer and Assembly Line Method as Dominant Production Approach
  8. 8. FORD ASSEMBLY LINES Assembly Line pulled by Ropes Magneto Assembly
  9. 9. MASS PRODUCTION MODEL “T” – Machine that Changed the World  1914: Ford produced 308,162 cars, more than all 299 other auto manufacturers combined  1927: Automobile Produced every 24 seconds  Higher volumes → Lower cost → Lower Prices →Increased Sales → Higher Volumes
  10. 10. MASS PRODUCTION “PUSH” Strategy – Driven by Inputs and Objectives Control of Raw Materials and Labor plus Profit Goals = Production Rate separate from Customer Demands and Preferences Performance measured by Budget Variances and Quantitative Results (Defects or Unit Costs per Day, Week or Month), not Quality Standards
  11. 11. MASS PRODUCTION  Low Product Variety; Small Orders Not Feasible  Specialized Machinery and Centralized Manufacturing  “Economies of Scale” – High-Speed Sequential Production  Development Costs Spread Over Large Volume: Low Cost per Unit Produced  Low-Skill/Low-Wage Work Force  Large Advertising and Marketing Budgets
  12. 12. FORD WORKING CONDITIONS Monotony of Assembly Line Work: 300% Turnover  $2 per Day and a 9-Hour Shift Ford’s Response to Working Conditions Dilemma  Increase Pay to $5 per Day and Reduce Shifts from 9 Hours to 8 Hours “The Chain System you have is a Slave Driver. My God, Mr. Ford! My Husband has come Home and Thrown Himself Down and won’t Eat his Supper, He’s so done out. Can’t it be Remedied? That $5-a-day is a Blessing; a Bigger One than you Know. But, Oh, They Earn It!” - Wife of Ford Assembly Line Worker
  13. 13. MASS PRODUCTION Flaws of Mass Production Approach  Production Levels cannot Stop or Slow: Defects resolved outside Production (Added Costs of Rework)  Long Changeover Times limits Product Variety  Erratic Finished Products Inventory Levels Incentives and 0% Financing
  14. 14. MASS PRODUCTION Market Orientation Flaw
  15. 15. TOYOTA’S ORIGINS • Toyoda Automated Loom Works 1902 Modification: Loom Stopped Automatically if Thread Broke or Spool Empty - Signal for Attention Result: No Waste from Defective Work and Lower Production Costs
  16. 16. TOYOTA’S ORIGINS During WWII, Toyoda became Toyota and manufactured Motorcycles and Delivery Trucks After WWII, Japanese Industry needed to re-build
  17. 17. TOYOTA’S ORIGINS 1956 – Taiichi Ohno went to US to study Ford’s Manufacturing Facilities Found Mass Production Principles not Applicable: Scale of Japanese Markets Desire for Product Variety Unable to Afford Resources and Inventories
  18. 18. TOYOTA’S ORIGINS Before returning to Japan, Ohno went to an American Grocery Store Discovered Production and Operation Methods that Were Linked to Customer Actions: Inventories Replenished by Sales (“PULL” Strategy) Delivered Product Variety and Scale Minimized Waste
  19. 19. TOYOTA’S ORIGINS Toyota Exports its First Car: The Forgettable “Crown” Under-powered and Unstable at Freeway speeds, Production is stopped in 1959
  20. 20. TOYOTA PRODUCTION SYSTEM In 1961, Toyota adopts “Systems Perspective” KAIZEN – Continuous Improvement Attitude that Minimizes Waste and Emphasizes High Quality Processes are analyzed to eliminate flaws rather than fixing defective products WASTE – Comprehensive View that includes Time, Resources and Materials Over-Production Time Spent Waiting Unnecessary Movements of Items
  21. 21. TOYOTA PRODUCTION SYSTEM –Waste is anything other than the minimum amount of equipment, materials, parts, space, and workers’ time which are absolutely essential to add value to the product. – - Shoichiro Toyoda President, Toyota Motor Co.
  22. 22. TOYOTA PRODUCTION SYSTEM KANBAN- Downstream Demand drives Upstream Activity (“Pull Strategy”) Orders flow “Up” System, not from Top-down Only what is Needed is Ordered and Produced
  23. 23. TOYOTA PRODUCTION SYSTEM ANDON– Work Stops when Problem Encountered Counter-measures taken to Cure Cause, Not re-work Defective Result. Authority delegated to Production Team Production and Problem- solving Functions combined. No Special Trouble-shooting Teams
  24. 24. TOYOTA PRODUCTION SYSTEM Result of TPS is “Just-in-Time” Inventory System  Comes from System’s Operation, Not a Requirement of It: Element of “Waste” Management Philosophy  JIT relies on Supplier Relationships that Integrate Inventory Arrivals and Production Needs  JIT depends on Mutual Commitment of Toyota Loyalty and Supplier Performance
  25. 25. TOYOTA PRODUCTION SYSTEM Why Hasn’t TPS Been Universally Adopted?  Equipment Transition Costs: Short Turnover Times (High Variety) combined with High Quality  Different Management Paradigm: Empower Assembly Line Workers to Stop Production and Order Process- correcting Counter-measures
  26. 26. World’s Second Largest Manufacturer of Automobiles About 240,000 Employees Produces a Vehicle about every Six Seconds Consistently Profitable GM: $1.1 Billion Quarter Loss
  27. 27. What Is Operations Management? • Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs
  28. 28. Organizing to Produce Goods and Services • Essential functions: 1. Marketing – generates demand 2. Production/operations – creates the product 3. Finance/accounting – tracks how well the organization is doing, pays bills, collects the money 4. Human Resources – provides labor, wage and salary administration and job evaluation
  29. 29. Organizational Charts 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
  30. 30. Organizational Charts 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
  31. 31. Why Study OM? • OM is one of four major functions of any organization, we want to study how people organize themselves for productive enterprise • To know how goods and services are produced • We want to understand what operations managers do • OM is such a costly part of an organization
  32. 32. What Operations Managers Do • Basic Management Functions  Planning  Organizing  Staffing  Leading  Controlling
  33. 33. Ten Critical Decisions 1. Design of goods and services 2. Managing quality 3. Process and capacity design 4. Location strategy 5. Layout strategy 6. Human resources and job design 7. Supply-chain management 8. Inventory, MRP, JIT 9. Scheduling 10. Maintenance
  34. 34. The Critical Decisions 1. Design of goods and services – What good or service should we offer? – How should we design these products and services? 2. Managing quality – How do we define quality? – Who is responsible for quality?
  35. 35. The Critical Decisions 3. Process and capacity design – What process and what capacity will these products require? – What equipment and technology is necessary for these processes? 4. Location strategy – Where should we put the facility? – On what criteria should we base the location decision?
  36. 36. The Critical Decisions 5. Layout strategy – How should we arrange the facility? – How large must the facility be to meet our plan? 6. Human resources and job design – How do we provide a reasonable work environment? – How much can we expect our employees to produce?
  37. 37. The Critical Decisions 7. Supply-chain management – Should we make or buy this component? – Who should be our suppliers and how can we integrate them into our strategy? 8. Inventory, material requirements planning, and JIT – How much inventory of each item should we have? – When do we re-order?
  38. 38. The Critical Decisions 9. Intermediate and short–term scheduling – Are we better off keeping people on the payroll during slowdowns? – Which jobs do we perform next? 10. Maintenance – How do we build reliability into our processes? – Who is responsible for maintenance?
  39. 39. Significant Events in OM
  40. 40. Productivity Challenge • Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital) • The objective is to improve productivity! Important Note! Production is a measure of output only and not a measure of efficiency
  41. 41. Efficiency Versus Effectiveness • The difference between efficient and effective is that efficiency refers to how well you do something, whereas effectiveness refers to how useful it is. • “Efficiency is doing things right; effectiveness is doing the right things.” • Doing the Right Things is More Important than Doing Things Right
  42. 42. Efficiency Versus Effectivenes • For example, if a company is not doing well and they decide to train their workforce on a new technology. The training goes really well - they train all their employees in avery short time and tests show they have absorbed the training well. But overall productivity doesn't improve. In this case the company's strategy was efficient but not effective.
  43. 43. Productivity Productivity = Units produced Input used  Measure of process improvement  Represents output relative to input  Only through productivity increases can our standard of living improve
  44. 44. Productivity Calculations • Labor Productivity Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000 250 One resource input  single-factor productivity
  45. 45. Multi-Factor Productivity Output Labor + Material + Energy + Capital + Miscellaneous Productivity =  Also known as total factor productivity  Output and inputs are often expressed in dollars Multiple resource inputs  multi-factor productivity
  46. 46. Measurement Problems • Quality may change while the quantity of inputs and outputs remains constant (HDTV, iphones) • External elements may cause an increase or decrease in productivity (using more reliable electric power system) • Precise units of measure may be lacking
  47. 47. Key Variables for Improved Labor Productivity 1. Basic education appropriate for the labor force 2. Diet of the labor force 3. Social overhead that makes labor available such as transportation and sanitation  Challenge is in maintaining and enhancing skills in the midst of rapidly changing technology and knowledge
  48. 48. Service Productivity 1. Typically labor intensive (teaching, counseling) 2. Frequently focused on unique individual desires (customer representatives in banks) 3. Often an intellectual task performed by professionals 4. Often difficult to mechanize 5. Often difficult to evaluate for quality
  49. 49. Ethics and Social Responsibility Challenges facing operations managers:  Developing and producing safe, quality products  Maintaining a clean environment  Providing a safe workplace  Honoring stakeholder commitments
  50. 50. Entry-Level Jobs in PMOM – Purchasing planner/buyer – Production (or operations) supervisor – Production (or operations) scheduler/controller – Production (or operations) analyst – Inventory analyst – Quality specialist – Others …
  51. 51. Reference • • •