Issues of Concern to Operations Manager

Operations Management (Om): Om is concerned with the

management of the physical reserves (including labor), systems or
processes required for production whether the product is a
manufactured item or service. In other words, OM is about the
production of goods and services.

Transforming inputs into outputs. Operations are classified into

manufacturing or service based on their eventual outputs.
Manufacturing is tangible and product oriented, while service is act
oriented.”

Manufacturing Service
Output Tangible Intangible
Customer Contact Low High
Uniformity of input/output High Low
Labor Content Low High
Measurability Easy Difficult
Inventory Yes No

Other Functions
OM is considered a prerequisite to and therefore more important than
the financial management and marketing management.
Particular Concern of OM:
Inventory Levels, schedules, deliveries, coordination, manufacturing
processes, training, transportation, and quality control. Within
manufacturing processes is included Production Technology which
includes automation, factory layout, job design, product design. OM
needs to consider what are the limitations of economics and
technology on operations.

Process Selection for OM functions:

These are based on forecasts of demand and product design. Om
needs to consider the impacts on physical plant layout and the
required labor.

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 Types of Production

Job Shop or small lots-unit costs and flexibility are high

Batch production: variety in larger lots, ie food processing, cans of
soup. All products are washed etc. Standardized job shop where
products follow flow
Assembly line: large volumes of standardized output. Discrete units
of products. Variety is low, processes are standard, unit costs low,
flexibility is
low and machine utilization is high. Car assembly.
Continuous processing: This is for large volumes of standardized
outputs. Products are measured on a continuous basis such as oil and
liquid chemicals. Effectively turning on a spigot.
Single Project Batch Assembly Line
Continuous Process
Efficiency-versus flexibility- As one moves from Job shop to
continuous type of processing, one gains efficiencies of large output but
loses ability to be flexible. There is little room for customization of the
process.
Productivity measures effectiveness of use of resources in
production of goods and services:
Productivity = Production Output
Input
Total productivity= Quantity of production at Standard Price
Cost of labor, facilities and raw materials
Production Line:What one has to watch for in any production line are Bottlenecks
and keeping a Balanced Line. A balanced line is one where assigned tasks are as
evenly distributed along the line as possible so as to spread the workload evenly
among stations. Bottlenecks occur when the capacity of a one stage holds up the
production in another stage. For example if it takes 60 seconds to make a product
in stage one, but only 40 seconds to make a product in stage 2, then stage 2 will
wait 20 seconds for it to receive a product from stage 1. Make or buy, relationships
with supplier See attached Charts

Inventory: When considering inventory amounts one considers trade offs of

having a large inventory or small inventory such as ordering costs (fixed costs
including clerical work, handling of goods), replenishing lead times vs. capital
costs (this includes carrying costs or loss of opportunity for the capital employed in
inventory), shortage costs (miscalculating stock requirements), Risk costs

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(including obsolescence of items held in inventory, monitoring of levels, proper
storage, theft, insurance and taxes-the higher the inventory levels the higher the
risk costs- which are approximated at 20-30% of value)
ABC inventory: classifies according to importance. A (very important)= 10-
20% of the number of units and 60-80% of value; B moderate 30% of
number and 25%-35% of value, C 50-60% of items and 5-15% of value.
These are guideline percentages and are not absolute. This affords the
opportunity to tightly control A since it’s the highest value; normally control
B and use a simple control on C to be most efficient.

Just-in-Time. The right quantity at the right place in the right amount of time.
Inventory is considered waste. A philosophy of the elimination of waste, simplicity,
continuous improvement and flexibility. This is a pull system, where the
customer’s purchase pulls output from final stage which in turn pulls from
prior stages. Requires high quality as time is short. Use of small lots, quick
set ups and continuous coordination of activities. Suppliers have to be
reliable. Low inventory levels now respected, risky for managers Traditional s
stem is a push s stem with ample inventor.

JIT Traditional
Movement of Work Pull Push
Quality Zero Defects Some Scrap
Lot Size Small Trade off between
inventory and set up
Set up Quick and frequent Not a factor
Inventory Minimal Higher

Work Systems:
Job Design which is employed to maximize efficiency and productivity.
Job measurement-sets standards and efficiency for task performance
Labor —job design, training, responsibility
Scheduling sequencing, priorities
Work Measurement- helps schedule operations; capacity planning;
performance evaluation
Project Scheduling sequence or path, including time. Total of all
—

activity times is Path Time. Critical Path is a path with the

longest time sequence. These are items critical to the
completion of the job. Job is delayed if activities on the path

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 are delayed.
Project completion time is sum of times on path. Items used are
earliest start, latest start, earliest finish, latest finish.

Operations Quality
Quality is important:
Malcolm Baldridge National Quality Awards- US National Institute for
Standards and Technology- customer satisfaction based; Given to companies to
recognize excellence in quality management.
ISO 9000 Standard- International Standard Organization from m9000-
9004 for design and development to procurement, production, installation and
servicing. Helps to compete and deal in a global market.
Deming Prize —Japanese for successful efforts, company wide to institute
statistical quality control principles

Total Quality Management (TQM). An integrated effort designed to improve

quality performance at every level of the organization. Quality monitoring, Use of
statistical quality control- acceptance sampling accepting or rejecting
production of a lot based on sample items. Used for large lots and quick
production, similar items, low consequences for poor quality (Single, double,
multiple sampling) inspection. Its focus is on serving customers, identifying the
causes of quality problems and building quality into the production process.1
Quality Costs:
Internal Failure costs: Production process defects, bad equipment,
settings and procedure, reworking, repairs, inspection costs
External Failure Costs: After delivery of product, warranty, customer
service, returns. Company seeks to prevent these.
Appraisal Costs: Costs of detecting defects in products- inspection,
testing, laboratory costs, equipment and costs of audits
Prevention Costs: activity costs incurred in advance of problems,
including planning, training and designing
Generic Approach to Improving Quality
Good design helps:
Quicker production Quality
Customer Satisfaction
Conforms to regulations
I. Be alert to deficiencies

1 Pg 164 Operations Management 2005 Reid and Sanders

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 2. Find Specific problems
3. Diagnose cause or causes
4. Determine remedies both systems and attitudes.
—

5. Implement remedies, including controls to hold gains

‘Ci Constable and CC New Operations Management: A systems approach Through text and cases, John
Wiley and
Sons, New York 1971
“Production and operations Management Research and Education Association New Jersey 2000