Operations Management

Module 01- Introduction By Rajitha Silva MBA(AUS), PG Dip(UK), BBA(Col)

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Operations Management

Process to ensure that the objectives of the production subsystem are achieved efficiently & effectively.

Operations Management
Refers to the management of the production system that transforms inputs into finished goods and services.
Production system: the way a firm acquires inputs then converts and disposes outputs. Operations managers: responsible for the transformation process from inputs to outputs.

Operations management seeks to increase the quality, efficiency, and responsiveness of the firm.
Seeks to provide a competitive advantage.
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Operations Management Concepts

Quality: goods and services that are reliable and perform correctly.
Quality allows customers to receive the performance that they expect.

Efficiency: the amount of input to produce a given output.

Less input required lowers cost and waste.

Responsiveness to customers: actions taken to respond to customer needs.

Firm can react quickly and correctly to customer needs as they arise.
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Roles of Operations Management

Production planning Controlling Quality Production Inventory Receiving inputs properly Proper operation of facilities (Maintenance)
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Operations Management
Corporate Strategy

Finance Strategy

Operations Strategy

Market Strategy

HR strategy

People

Plants

Parts

Processors

Planning & Controlling

Services
Core services E.g.: Main activities of an organization -: Production Value added/ supportive services E.g.: Not main but supportive services -: Sale support, Maintenance
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Differences Between Services and Goods

Information Asymmetry Intangible Inventory Customer Contact Response Time Labor Intensity

System

Inputs

Process / Transformation

Desired Out-put

Nine Categories of Operations Management Decisions

Product plans Competitive Priorities Positioning Strategies Location Technological Choices Quality management and control Inventory management and control Materials Management Master production scheduling
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Classification of processes
Manufacturing processes E.g.: Garments Location processes E.g.: Shipping Company Physiological processes E.g.: Health centre Psychological processes E.g.: Clubs, cinemas
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Classification of processes
Exchange processes E.g.: Retail shops Information processes E.g.: Communication Centre Warehouse processes E.g.: Self Storages Facilities

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Core Positioning Strategies

Continuous process (stable)

Product focus

Auto assembly
Intermediate
plant Mail processing

Resource flows

Mass production

Garment
Large batch

Process focus

industry Branch banks

Sporadic (unstable)

Space shuttle Legal practice

Custom products, Mixture of custom and standard low volume products, moderate volume Standard products, high volume

Product volume
Sources: Adapted from Brown, H.K., Clark, K.B., Holloway, C.A., and Wheelwright, S.C. The Perpetual Enterprise Machine: Seven Keys to Corporate Renewal Through Successful Product and Process Development. New York: Oxford University Press, 1994; Upton, D.M. The management of manufacturing flexibility. California Management Review, Winter 1994, 7289.

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 Without customers, organizations cease to exist. Non-profit and for-profit firms all have customers. Managers need to identify who the customer is and their needs. What do customers want? Usually customers prefer: A lower price to a higher price. High quality over low quality. Fast service over slow service. Also good after sale support. Many features over few features. Products tailored to their specific needs.
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Improving Responsiveness to Customers

Operation Strategy
Setting up of policies & plans for using resources of the firm to best support the firms long term competitive strategy

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Decision making in operations management

Strategic decisions E.g.: Product, Process & Location decisions Tactical decisions E.g.: Inventory control, Quality control Operational decisions E.g.: production scheduling

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Production Methods
Continuous production Once production started it will run until object converted in to finish product E.g.: Garment, Shoe Intermittent production production is done continuously but there will be interruption & intervals in-between
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Production Methods
Flow production Chemicals Repetitive production Garment Mass production Soap Job production House construction Unit production Plants & machineries Project production Bridge Batch production Shoe
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Types of Products
Standardize products

Customize products

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Goods vs. Services

Goods out-put of physical process & services Out-put of intangible process In service production customers direct involvement is needed

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Location Planning

Location planning refers to where the production system is to be located. This is amounted to a strategic decision.

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Objectives of Location Planning

Profit maximization Cost minimization Market objectives

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Factors to consider in location selection

Factors

Place

Area

Quantitative

Qualitative
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Place
Nature of the soil Space for expansion Parking space

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Quantitative Factors
Factors which make impact on profit Material price Labor rate Government incentives Cost of facilities Transportation cost
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Qualitative Factors
They make impact on profit but it cannot be measured Climate condition Availability of materials Population growth Culture & social environment Educational level
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Instances for Location Decision

When new commercial product to be launch When existing facilities become obsoletes Government intervention Expansion As a market strategy

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Evaluating Location Alternatives

Location Decision Quantitative Qualitative Factors

Collect Alternatives

Evaluation Technique

Evaluate

Select

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1.Location Break Even Analysis

In situation where quantitative factors (cost) has its own importance, then we can make use of location break-even analysis.

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Example-01
City Fixed Cost 500 400 350 300 Variable cost (P/U) 6 8 15 16 Total Total cost Variable cost 120 620 160 300 320 560 650 620
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Colombo Kandy Matara Vavuniya

Questions?
Assume above details are for 20000 units; if Production is, 10000 units 15000 units 35000 units 45000 units Explain your stand
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2. Factor Rating Method

In this method qualitative as well as quantitative factors can be considered 1. Select important factors to consider 2. Factors will be rated 3. Rated alternative will be compare with the weightages given
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Example - 2
Criteria Transpor -tation Material Climate Infrastruc ture Colombo 10 80 100 95 Kandy 30 10 30 60 Vavuniya 40 90 60 30 Matara 50 60 70 30
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Brown & Gibson Model

This has been developed in 1972 in U.S.A. by brown & Gibson. In this model both qualitative & quantitative factors will be considered & categorized in to, 1. Critical factors 2. Objective factors 3. Subjective factors
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Brown & Gibson Model

In this method outcome is in the form of cost index which is also known as Location Index. For each alternative location index will be calculated & the alternatives which is having the minimum value will be selected

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Location Index
LI = CFI { OFI )( + SFI(1- )} Where; LI = Location index CFI = Critical factor index OFI = Objective factor index SFI = Subjective factor index = Importance of objective factors
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Transportation Method
This method also useful in deciding the location based on the transportation cost. i.e. cost involve in transporting some items from one location (Source) to another (Destination)

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Different Situation
Source

Destination

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Different Situation
Destination

Source

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Example
Colombo Kandy Katunay ake Koggala Pannala 6 7 8 8 9 6 Anuradh Matara apura 10 10 7 9 5 10
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Capacity
Katunayake Koggala Pannala 12000 10000 8000

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Requirement
Colombo Kandy Anuradhapura Matara 15000 8000 4000 3000
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Layout Planning
The arrangement of physical component (Including people) is consider as lay out planning. The main objective is to ensure the Smooth flow of production (Factory) or control the respective traffic Patton (Service).

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Instances for lay-out decisions

Initial stage of a new factory A new product to be introduced Change of raw materials Change of product design For safety reason To motivate workers
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Types of Lay-outs
Product lay-out For mass production Process lay-out For job production Fixed position lay-out For Unit production Project lay-out For project production

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Product Lay-out
It is in which components are arranged according to the progressive steps in which the product is made. Generally there is an unbroken flow from raw materials to finish product. e.g.: Garment/ cat manufacturing assembly line

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Advantages of Product Lay-out

High efficiency Time for each work / work centre can be pre determine Unit labor cost will be low Specialization Quality inspection will be easy

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Disadvantages of Product Lay-out

Monotony Interdependency High investments needed Inflexibility

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Process Lay-out
The components are grouped according to the general functions of the work centre. E.g.: Computer production

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Advantages of process Lay-out

Independence Flexible High motivation

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Disadvantages of process Lay-out

Low efficiency Only skilled labor to be used Unit cost going to be high Difficult to control the quality
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Fixed Position Lay-out

This is useful for the product which can have high cost when it is transferred to another place. Therefore all the component are located at one place and production will be carried out. (0Produces will goes to the product rather than product mowing to the producer. e.g.: Aircraft. Big ships
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Project Lay-out

This lay-out is used for the products which cannot be moved. E.g.: Bridges, Shopping Centre

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Different situations in Project Layout

Busy Places In busy places it is not possible to do layout planning but there will be lay-out scheduling Relaxed places There will be sufficient space & all the components will be arranged accordingly
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Managerial problems in lay-outs

Allocation facilities Allocation of time Allocation of work

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Cycle Time
The time gap between two consecutive production process. In other time taken to produce one unit of output

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Example
1. There are 8 hours to produce 300 units to produce. What could be the cycle time. 2. What is the cycle time in following example? A B C D 1.0 1.2 0.7 0.7
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Maximum Cycle Time

This is the time available to produce one unit of product. This depends on the time availability & number of units to produce C = Ta P
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Minimum Cycle Time

Total time consumed on each work center is concerned as minimum cycle time C = Wc + Wc + Wc

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