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# Operations Management

Akanksha Trigun
Indian Institute of Management
Bangalore
June 17, 2014

Finance
Operatio
ns

Marketin
g

HRM

## Systematic approach to addressing issues in the

transformation process that converts inputs into
useful, revenue generating outputs.
Source: Operations Management, Second Edition, Prof. B Mahadevan

## Bare minimum requirements (for the

test)
Decision Tree Approach
Littles law Application in queuing theory
Critical Path Method (CPM) & Programme
Evaluation and Review Technique (PERT) :
Project Management
Basic Mathematics Bell curve calculations,
Expected Values, Linear Programming, Et al.

ONE SITUATION
A manufacturer of air conditioner compressors in concerned that too much
money is tied up in its value chain.
Average raw material and work in process inventory is \$ 50 million.
Sales are \$20 million per week and finished goods inventory average \$30
million.
The average outstanding accounts receivable is \$ 60 million. Production
takes on average, 1 week to produce a compressor and the typical sales flow
time is 2 weeks. Assume 50 weeks in 1 year.

## MOST BASIC QUEUING

THEORY

Arrival
Time

10

15

12

20

16

25

20

30

10

24

35

11

28

40

12

32
36

45
50

13
14

10

Customer Number

Departure Time in
System
Time

Customer
Number

10

## What is the queue size?

What is the capacity utilization?

20

30
50
Time

40

Arrival
Time

Departure
Time

Time in
System

11

12

17

18

23

24

29

30

35

36

41

42

47

48

53

10

54

59

Customer Number

Customer
Number

10

20

## is the queue size?

is the capacity utilization?

30
60
Time

40

50

Arrival
Time

10

20

22

32

33

14

36

15

43

16

52

12

10

54

Time in
System

20

30

40

Queue Fluctuation

50

60

70

Time

11

3
2

## What is the queue size?

What is the capacity

10

Number

Processing
Time

Customer

Customer
Number

1
0
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64
Time

Customer
Number

Arrival
Time

Processing
Time

Time in
System

1
0

10

20

22

32

33

36

43

52

10

54

## What is the queue size?

What is the cap

4
3
2
1
0

1
0

2
0

3
0

4
0

5
0

6
0

7
0

Multipleservers,

singl stag
e
e
No. of customers being
served

Proces Rat
s
e

Arriva Rat
l
e
Queue Length, Lq

Server
s

## No. of customers in the

system,

Ls

Performance
Metrics
Server utilisation

spends in system

Ws

## Average time customer

spends in queue

Wq =

Average number of
customers in system

Ls = L q +

(assuming < 1)

S
Ls

Lq

PRODUCTION PLANNING

Hierarchical approach to
planning
Long range

Marketing Plan

Financial Plan
Aggregate Production Planning
(rough cut capacity)

Medium range

Materials
Requirement

## Master Production Schedule

Capacity
Requirement Plan

Plan
Detailed Scheduling
Short range

## Shop Floor Control

Aggregate Product
planning
In level strategy, the emphasis is not to disturb the existing
production rate

## another; the supply demand mismatch is addressed during each

period by employing a variety of capacity related alternatives

APP Strategy
Level Strategy

## APP alternatives applicable

Inventory based alternatives
(a) Build Inventory
(b) Backlog/Backorder/Shortage

Chase Strategy

(a) Over Time/Under Time
(b) Vary no. of shifts
(c) Hire/Lay-off workers
Capacity augmentation alternatives
(a) Sub-contract/Outsource
(b) De-bottleneck

Key features
Inventory as the critical link between
environments; Products with low risks
of obsolescence
No inventory carried from one period
environments; Several service
systems

INVENTORY

Inventory Management

Types of inventories:
Seasonal: Consumer durables during festive
season
Decoupling:
Multi
processes
Production
Systemstage
without any
decoupling inventory
1

Decoupling Inventory

1
Stage 1

Stage 2

Stage 3

10

10

Inventory Management

Quantity

Contd.
Cyclic: Syringes at hospitals
Pipeline: Lead Time * Demand per
unit time
Safety Stock: Hedging against
uncertainties
Cyclic Stock
Pipeline inventory
L
Time

Safety stock

Total Cost
C
O
S
T

Holding
Costs

Ordering Costs

EOQ

## EOQ Formulae and Shortcomings

D Q
TC = S + H
Q 2

2SD
2(Order or Setup Cost)(Annual Outflow)
Q =
=
H
Annual Holding Cost
*

## Problems lie in the assumptions made:

1.Demand is certain and continuous
over time
2.Instantaneous replenishment
3.No order quantity related issues exist
4.All inventory sourced externally

## The concept of safety stock

Inventory on hand
Q

order

order

order

ROP
R

safety stock
Time t
L

Mean Demand

INVENTORY

Imax

Q
Q

Q
R

LT
Order
Placed

t1
Order

Order
Placed

Imin

TIME

INVENTORY

TI
Imax

Q1

Q2
Q3

Q1

Q2

Q3
Imin

LT
Order
Placed

T
Order

LT
Order
Placed

T
Order

LT
Order
Placed

Order

TIME

Formulae
Q System

2 DS
EOQ
H
ROP SS LT
SS z r LT

P System

RP EOQ /
TIL SS ( RP LT )
SS z r RP LT