M.

del Mar Vias

Operations Management

Production & Operations Management

PRODUCTION is defined as the collection of

processes, procedures, methods and techniques
that result in goods and services. This is possible
thanks to decisions that increase the value of these
products in order to satisfy the customer needs.

OPERATIONS MANAGEMENT implies the

management of the production system which
transform the inputs (raw material, machinery,
labor,) into outputs (goods and services).
Operations Management

Production & Operations Management

Production
Production
factors
factors

Value
Value
transformation
transformation
process
process

Final
Final goods
goods
and
services
and services

Control
system

PRODUCTION SUBSYSTEM includes the

planning, decisions and activities that convert the
inputs (raw material, machinery, labour,) into
outputs (goods and services).
Operations Management

MARKET

Sources
Sources of
of
supply
supply

Operations Management at present

PRODUCTION DIRECTOR
Experis Espaa - Barcelona
Published 24 days ago
SENIOR PRODUCT EXPERT
DOGA - Barcelona y alrededores, Espaa
Published 19 days ago
PROCESS ENGINEER
Concep Arquitectura y Diseo de Farmacias Rentables SA Barcelona y alrededores, Espaa
Published 31 days ago
CUSTOMER SERVICE SUPERVISOR
Abertis autopistas Espaa - Barcelona y
alrededores, Espaa
Published 25 days ago

Operations Management

Strategic and tactical decisions

Decisions concerning Operations Management can

be divided in :
Strategic decisions in the long term.
Tactical decisions in the short term.

Characteristics of Strategic Decisions:

They affect products, processes and installations in the
long term.
Usually theyre unstructured.
Difficult or very expensive to correct them in the short
term.
Important to coordinate with other functional
departments.
Operations Management

Strategic and tactical decisions

Examples of Strategic Decisions:

The selection of the good or service to be produced.
Appropriate design for the good or service to be
produced.
Machinery and technology selection to produce the goods
and services of the company according to cost, quality
and time delivery requirements.
Strategic planning of the operations system.
Production capacity of the company facilities.
Facilities location taking into account the market and
suppliers location.
Plant distribution of machinery and labour to assure an
efficient production flux.

Operations Management

Strategic and tactical decisions

Characteristics of Tactical Decisions:

They affect products, processes and installations in the
short term.
Usually theyre structured and repetitive.
Possibility to correct them in the short term.
Also related to planning control to detect deviations
between the reality and the planning. Possibility to apply
corrective actions.

Operations Management

Strategic and tactical decisions

Examples of Tactical Decisions:

Medium term planning and production programming.
Level of stocks to cover the market demands.
Development of standard procedures.
Decisions to assure the quality level of the products.
Decisions about preventive maintenance of the
machinery.

Operations Management

Production subsystem

Strategic level:
Product or service?
Capacity?
Dimension?
Resources?
Location?
Plant distribution?

Tactical level:
Production objectives
Planning of global quantities and
timing of goods/services
production.
Programming of specific product
quantities and the purchase of its
components .
Short term programming.
Activities in different production
plants.
Planning of resources and
capacities.
Planning and management of
stocks (raw material, product
models,)

Operations Management

Operations function

Planning
Projecting the future: resources and activities

Production
Control
Integral management

Operations Management

Operations Planning

Strategic planning

Operational Planning

3 5 years

1 year Several weeks

Senior Management

Problems in the long term

Refines the strategic

planning

Tactical planning

1 3 years

Connection between
strategic and Operational
planning

Operations Management

Adaptative Planning

Removal of deviations
between real results and
objectives

Planning and control process

Strategic Planning
Objectives, Strategies, Global
policies and Long term Business
Plan.

Tactical Planning
Mid term objectives and plans

Operational Planning
Short term objectives and plans

Objectives
Execution

Comparison
Operations Management

Adaptive planning
Corrections of divergences

Units

Components. Elements that compose the final

product.

Products. Final result of the production process

that its delivered to the market.

Families. Group of products that have similar

market requirements, production process,
materials,..

Types. Group of families that share a similar

market behaviour.
Operations Management

Production planning and control

Strategic planning

Aggregate planning

(Long Term)

(Medium Term)

Demand forecasts L.T.

Objective: To carry out

strategic planning at least
cost.

Sales planning L.T.

Production planning L.T.

18 months planning. Monthly

periods.

Financial planning L.T.

Family level
Capacity evaluation.

Operations Management

Production planning and control

Master Production
Schedule (M.P.S)
Specific products planning.
1 year planning. Weekly
periods.

Materials Planning
Detailed components
programming.
Detailed capacity
programming.

Execution and control

Stable and flexible

Components programming

Capacity analysis (rough

cut).

Purchase orders

Operations Management

Production planning and control

Step
Strategic

Long term planning

Long term
production planning

Capacity aggregate
planning

Master Production
programming

Master Production
Schedule

Approximate
capacity planning

Components
programming

Materials
Requirement
Planning

Detailed capcity
planning

Shop floor
management

Operations
programming

Capacity Control
Priority Control
Purchase actions

Execution &
control

Purchases

manag
ement

Operations Management

Long term capacity

planning

Aggregate planning

Tactical

Operacional

Activity

Capac
ity

Business planning

Mid term planning

Planning

Stocks
Suppliers
Raw Material
External items

Production
Intermediate
products

Assembly
Final products

CUSTOMERS
Operations Management

Industrial
supplies and
spare parts

Planning and Control of Stocks

Inventory. Resources that are not being used.

They are kept in the warehouse waiting to be used.

Stocks = Retained capital

Profitability equation.
Pe Pr ofit
Ec . profitabil ity

A
Assets

Operations Management

Why do we need inventories?

To satisfy the market demands of our final products.
To avoid interruptions in the production process.
External supplies
Internal supplies
To balance the production.
To obtain economic benefits.
Low fitting between production and market demands.
To get savings or speculation.
Operations Management

Fundamental questions
in materials planning

When do we need to order the materials?

How many materials/elements do we have to order?

Which is the adequate lot size for each material?

The answer depends on several factors

Operations Management

Factors to be considered

Demand characteristics Inventory costs

Unique inventory
planning
Multi-periodic inventory
planning
Independent demand

Cp: Possession cost

Ce: Emission cost
Cr: Breakup cost
Ca: Acquisition cost

Dependent demand

Supply timing

Operations Management

Cp: Possession cost

Associated cost to maintain an inventory.

Proportional to the level of stocks
Includes:
Fixed capital in stocks BUT also in space, buildings,
equipment,...
Taxes, insurances, labour, energy, materials
depreciation, materials damage, materials theft.

Operations Management

Ce: Emission cost

Associated costs that appear each time that we set

an order.

Independent to the lot size of the different

orders

Proportional to the number of orders

Includes: Cost of preparing the order (necessary
documentation, phone calls, emails,...), reception and
inspection, manipulation and transport.

In case of internal orders Launching order. This includes:

machinery preparation and tooling changes.

Operations Management

Cr: Breakup cost

It appears when we need an article and it is not

available.

Proportional to the unsatisfied market

demand.

Includes:
Breakup in internal supplies: Machinery stops due to
lack of material. Costs are incremented due to
acceleration of the production process (overtime
hours, subcontracting)
Breakup in customer orders: loss of sales, company
image,...
Operations Management

Ca: Acquisition cost

It is the purchase cost (in external orders) or

production cost (in internal orders) of the lots
required.

Independent of the lot size and number of

orders. Sometimes this is NOT accurate :
discounts for quantities, lower production costs for
higher batches.

Operations Management

Supply time

Interval of time that passes from the request of a

materials order to the moment that the order
material is available to be used (after inspection
and storage).
External supply
Internal supply

Operations Management

External supply time

Its determined based on:

Supplier compromise
Past supplier behaviour
Security time

The company looses control over it. It

depends on the supplier.

Operations Management

Internal supply times

Order preparation time: Necessary time to prepare the

order documentation and to send to the workplace.

Travelling and transport time: Travelling of materials to

the workplace, transfer of intermediate products to the
workplace and transfer of final products to workplace.

Queue time: Waiting time of the material in the

workplace before it enter the production process.

Operations Management

Internal supply times

Preparation time in the workplace to carry out the

order.

Execution time of the order.

Waiting time: Time that passes from the end of the
production process until the lot is transferred to
another workplace or to the warehouse.

Inspection time.

Operations Management