Operation Management a complete overview

1. Production Operation Management Junaid Zamir SP06-BB-0010

2. Chapter 1 – Operations and Productivity

3. What Is Operations Management? Production is the creation of goods and services Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs

12. Productivity Challenge Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital)

15. Chapter 4 – Forecasting

19. Product Life Cycle Product design and development critical Frequent product and process design changes Process modifications High production costs Limited models Research & development Forecasting critical Product and process reliability Competitive product improvements and options Increase ability Standardization minor changes Increasing stability of process Product improvement and cost cutting Little product differentiation Cost minimization commonality Introduction Growth Maturity Decline

26. Exponential Smoothing New forecast = Last period’s forecast + a ( Last period’s actual demand – Last period’s forecast ) F t = F t – 1 + a( A t – 1 - F t – 1 ) where F t = new forecast F t – 1 = previous forecast a = smoothing (or weighting) constant (0 ≤ a ≤ 1)

32. Chapter 5 – Design of Goods and Services

35. Product Life Cycle Product design and development critical Frequent product and process design changes Process modifications High production costs Limited models Research & development Forecasting critical Product and process reliability Competitive product improvements and options Increase ability Standardization minor changes Increasing stability of process Product improvement and cost cutting Little product differentiation Cost minimization commonality Introduction Growth Maturity Decline

43. Chapter 6 – Managing Quality

44. Defining Quality The totality of features and characteristics of a product or service that bears on its ability to satisfy stated or implied needs American Society for Quality

46. The Flow of Activities Organizational Practices Leadership, Mission statement, Effective operating procedures, Staff support, Training Yields: What is important and what is to be accomplished Quality Principles Customer focus, Continuous improvement, Benchmarking, Just-in-time, Tools of TQM Yields: How to do what is important and to be accomplished Employee Fulfillment Empowerment, Organizational commitment Yields: Employee attitudes that can accomplish what is important Customer Satisfaction Winning orders, Repeat customers Yields: An effective organization with a competitive advantage

62. Chapter 11 – Supply Chain Management

63. The Supply Chain Supply chain management is the integration of the activities that procure materials and services, transform them into intermediate goods and the final product, and deliver them to customers

69. Vertical Integration Figure 11.2 Baked goods Computers Watches Calculators Dealers Finished goods (customers) Circuit boards Distribution systems Forward integration Flour milling Integrated circuits Automobiles Current transformation Steel Backward integration Farming Silicon Iron ore Raw material (suppliers) Vertical Integration Examples of Vertical Integration

75. Chapter 12 – Inventory Management

79. ABC Analysis ABC analysis is a business term used to define an inventory categorization technique often used in material management. Analysis of a range of items which have different levels of significance and should be handled or controlled differently.

88. Production Order Quantity Model Used when units are produced and sold simultaneously

89. Production Order Quantity Model Inventory level Time Demand part of cycle with no production Part of inventory cycle during which production (and usage) is taking place t Maximum inventory

92. Chapter 13 – Aggregate Planning

93. Aggregate Planning Aggregate planning is an operational activity which does an aggregate plan for the productions process, in advance of 2 to 18 months, to give an idea to management as to what quantity of materials and other resources are to be procured and when .

95. The Planning Process Long-range plans (over one year) Research and Development New product plans Capital investments Facility location/expansion Intermediate-range plans (3 to 18 months) Sales planning Production planning and budgeting Setting employment, inventory, subcontracting levels Analyzing operating plans Short-range plans (up to 3 months) Job assignments Ordering Job scheduling Dispatching Overtime Part-time help Top executives Operations managers Operations managers, supervisors, foremen Responsibility Planning tasks and horizon

97. Aggregate Planning Options Hiring, layoff, and training costs may be significant. Avoids the costs of other alternatives. Varying workforce size by hiring or layoffs Inventory holding cost may increase. Shortages may result in lost sales. Changes in human resources. Changing inventory levels Disadvantages Advantages Option

98. Aggregate Planning Options Loss of quality control; reduced profits; loss of future business. Permits flexibility and smoothing of the firm’s output. Sub-contracting Overtime premiums; tired workers; may not meet demand. Matches seasonal fluctuations without hiring/ training costs. Varying production rates through overtime or idle time Disadvantages Advantages Option

99. Aggregate Planning Options Uncertainty in demand. Hard to match demand to supply exactly. Tries to use excess capacity. Discounts draw new customers. Influencing demand High turnover/ training costs; quality suffers; scheduling difficult. Is less costly and more flexible than full-time workers. Using part-time workers Disadvantages Advantages Option

100. Aggregate Planning Options Customer must be willing to wait, but goodwill is lost. May avoid overtime. Keeps capacity constant. Back ordering during high-demand periods Disadvantages Advantages Option

101. Summary of Aggregate Planning Methods LP software available; permits sensitivity analysis and new constraints; linear functions may not be realistic. Optimization Transportation method of linear programming Simple to understand and easy to use. Many solutions; one chosen may not be optimal. Trial and error Graphical methods Important Aspects Solution Approaches Techniques

102. Summary of Aggregate Planning Methods Complex; may be difficult to build and for managers to understand. Change parameters Simulation Important Aspects Solution Approaches Techniques

103. Yield Management Yield management , also known as revenue management , is the process of understanding, anticipating and influencing consumer behavior in order to maximize revenue or profits (such as airline seats or hotel room reservations) The challenge is to sell the right resources to the right customer at the right time for the right price.

104. Yield Management Matrix Duration of use Unpredictable Predictable Price Tend to be fixed Tend to be variable Quadrant 1: Quadrant 2: Movies Hotels Stadiums/arenas Airlines Convention centers Rental cars Hotel meeting space Cruise lines Quadrant 3: Quadrant 4: Restaurants Continuing care Golf courses hospitals Internet service providers

105. Chapter 14 – Material Requirements Planning (MRP) and ERP

111. Master Production Schedule (MPS)

112. The Planning Process Figure 14.1 Change production plan? Master production schedule Management Return on investment Capital Engineering Design completion Aggregate production plan Procurement Supplier performance Human resources Manpower planning Production Capacity Inventory Marketing Customer demand Finance Cash flow

113. The Planning Process Is capacity plan being met? Is execution meeting the plan? Change master production schedule? Change capacity? Change requirements? No Execute material plans Execute capacity plans Yes Realistic? Capacity requirements plan Material requirements plan Master production schedule

114. Focus for Different Process Strategies Stock to Forecast (Product Focus) Schedule finished product Assemble to Order or Forecast (Repetitive) Schedule modules Make to Order (Process Focus) Schedule orders Examples: Print shop Motorcycles Steel, Beer, Bread Machine shop Autos, TVs Lightbulbs Fine-dining restaurant Fast-food restaurant Paper Typical focus of the master production schedule Number of end items Number of inputs