Course Overview

Operations Management
Credit: 2
No. of Sessions: 15
Lectures / week: 2 hrs.

Book:
Operations Management- Russel & Taylor
Wiley
 Session Headings

1. Introductions
2. Ops Strategy & Competitiveness
3. Process Analysis
4. Location Decisions
5. Layout Considerations
6. Product- Process Matrix
7. Job Sequencing
8. Inventory Management
9. Inventory Control Models
10. Inventory Control: Quantity Discounts
11. TQM
12. JIT & Lean
13. Six Sigma
14. QFD
15. TOC
 Unit 1 & 2

Introduction to Operations,
Strategy & Competitiveness
 Operations Management

• What is Operations Management?

• design, operation, and improvement of productive
systems
• What is Operations?
• a function or system that transforms inputs into
outputs of greater value
• What is a Value Chain?
• a series of activities from supplier to customer that add
value to a product or service

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-4
 Transformation Process

• A series of activities along a value chain extending from

supplier to customer
• Activities that do not add value are superfluous and
should be eliminated

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-5
 Transformation Process

• Physical: as in manufacturing operations

• Locational: as in transportation or warehouse
operations
• Exchange: as in retail operations
• Physiological: as in health care
• Psychological: as in entertainment
• Informational: as in communication

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-6
 Operations as a
Transformation Process

INPUT
•Material
TRANSFORMATION OUTPUT
•Machines
PROCESS •Goods
•Labor
•Services
•Management
•Capital

Feedback & Requirements

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-7
 The Operations Function
• Organizing work
• Selecting processes
• Arranging layouts
• Locating facilities
• Designing jobs
• Measuring performance
• Controlling quality
• Scheduling work
• Managing inventory
• Planning production

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e

 Operations Function

• Operations
• Marketing
• Finance and
Accounting
• Human
Resources
• Suppliers

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-9
 Sample Organizational Structure
CEO
Chief Executive Officer

CFO COO CIO

Chief Financial Officer Chief Operating Officer Chief Information Officer

VP Human Resources

VP Operations

VP Supply Chain
Management

VP Marketing

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e C3-10
 How is Operations Relevant?

• Accounting • “You must understand the fundamentals

of operations management.”

• Information • “IT is a tool, and there’s no better place to

Technology apply it than in operations.”

• Management • “We use so many things you learn in an

operations class—scheduling, lean
production, theory of constraints, and
tons of quality tools.”

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-11
 How is Operations Relevant?

• Economics • “It’s all about processes. I live by

flowcharts and Pareto analysis.”
• Marketing • “How can you do a good job marketing a
product if you’re unsure of its quality or
delivery status?”
• Finance • “Most of our capital budgeting requests
are from operations, and most of our
cost savings, too.”

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-12
 Evolution of Operations and Supply Chain
Management
• Craft production
• process of handcrafting products or services for
individual customers
• Division of labor
• dividing a job into a series of small tasks each
performed by a different worker
• Interchangeable parts
• standardization of parts that enabled mass production
• Scientific management
• systematic analysis of work methods

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-13
 Evolution of Operations and Supply Chain
Management
• Mass production
• high-volume production of a standardized product for
a mass market
• Quality revolution
• an emphasis on quality and the strategic role of
operations
• Lean production
• adaptation of mass production that prizes quality and
flexibility

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-14
 Globalization
• Why “go global”?
– favorable cost
– access to international markets
– response to changes in demand
– reliable sources of supply
– latest trends and technologies
• Increased globalization
– results from the Internet and falling trade barriers

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-15
 Hourly Compensation

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-16
 GDP
16.00
14.99 GDP (in trillions $US)
14.00

12.00

10.00

8.00 7.32

5.87
6.00

4.00 3.60
2.77
2.48 2.44
2.19
1.86 1.85
2.00

0.00
U.S. China Japan Germany France Brazil U.K. Italy Russian India
Federation

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-17
 Productivity and Competitiveness

• Competitiveness
• degree to which a nation can produce goods and
services that meet the test of international markets
• Productivity
• ratio of output to input
• Output
• sales made, products produced, customers served,
meals delivered, or calls answered
• Input
• labor hours, investment in equipment, material usage,
or square footage

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-20
 Measures of Productivity

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-21
 Strategy and Operations

• How the mission of a company is accomplished

• Provides direction for achieving a mission
• Unites the organization
• Provides consistency in decisions
• Keeps organization moving in the right direction

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-22
 Strategy Formulation

1. Defining a primary task

• What is the firm in the business of doing?
2. Assessing core competencies
• What does the firm do better than anyone else?
3. Determining order winners and order qualifiers
• What qualifies an item to be considered for
purchase?
• What wins the order?
4. Positioning the firm
• How will the firm compete?
5. Deploying the strategy

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-23
 Strategic Planning

Mission
and Vision

Corporate
Strategy

Marketing Operations Financial

Strategy Strategy Strategy

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-24
 Order Winners and Order Qualifiers

Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan Betts,
Operations and Process Management, Prentice Hall, 2006, p. 47

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-25
 Positioning the Firm
Wining on which Parameters?

• Cost
• Speed
• Quality
• Flexibility

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-26
 Positioning the Firm: Cost

• Waste elimination
• relentlessly pursuing the removal of all waste
• Examination of cost structure
• looking at the entire cost structure for reduction potential
• Lean production
• providing low costs through disciplined operations

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-27
 Positioning the Firm: Speed
• Fast moves, Fast adaptations, Tight linkages
• Internet
• Customers expect immediate responses
• Service organizations
• always competed on speed (McDonald’s and Federal
Express)
• Manufacturers
• time-based competition: build-to-order production and
efficient supply chains
• Fashion industry
• two-week design-to-rack lead time of Spanish retailer, Zara

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-28
 Positioning the Firm: Quality

• Minimizing defect rates or conforming to design

specifications
• Ritz-Carlton - one customer at a time
• Service system designed to “move heaven and earth”
to satisfy customer
• Employees empowered to satisfy a guest’s wish
• Teams set objectives and devise quality action plans
• Each hotel has a quality leader

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-29
 Positioning the Firm: Flexibility

• Ability to adjust to changes in product mix,

production volume, or design
• Mass customization
• mass production of customized parts
• National Bicycle Industrial Company
• offers 11,231,862 variations
• delivers within two weeks at costs only 10% above
standard models

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-30
 Policy Deployment

• Policy deployment
• translates corporate strategy into measurable
objectives
• Hoshins
• action plans generated from the policy
deployment process

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-31
 Balanced Scorecard

• Balanced scorecard
• measuring more than financial performance
• finances
• customers
• processes
• learning and growing
• Key performance indicators
• set of measures to help managers evaluate
performance in critical areas

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-32
Unit 3 (contd.) & Unit 6

Process Analysis
Process Matrix
 Process Planning

• Process
• Group of related tasks with specific inputs &
outputs
• Process design
• tasks to be done & how they are coordinated
among functions, people, & organizations
• Process strategy
• an organization’s overall approach for
physically producing goods and services
• Process planning
• converts designs into workable instructions for
manufacture or delivery
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
6-34
 Process Strategy
• Vertical integration
• extent to which firm will produce inputs and control
outputs of each stage of production process
• Capital intensity
• mix of capital (i.e., equipment, automation) and labor
resources used in production process
• Process flexibility
• ease with which resources can be adjusted in
response to changes in demand, technology, products
or services, and resource availability
• Customer involvement
• role of customer in production process

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-35
 Outsourcing
• Cost
• Is it cheaper to make or buy the item
• Capacity
• Does the company have the capacity
• Quality
• Easier to control quality in your own factory
• Speed
• Shipping time can reduce savings
• Reliability
• Quality and timing are reliability measures
• Expertise
• Protect proprietary information

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-36
 Sourcing Continuum

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-37
 Process Selection

• Projects
• one-of-a-kind production of a product to customer
order
• Batch production
• process many different jobs at the same time in
groups or batches
• Mass production
• produce large volumes of a standard product for
a mass market
• Continuous production
• used for very-high volume commodity products
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-38
 Product-Process Matrix

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-39
 Types of Processes

PROJECT BATCH MASS CONT.

Type of Made-to- Made-to-

Unique order stock Commodity
product
(customized) (standardized )

One-at-a- Few
Type of Mass Mass
customer time individual
market market
customers

Product
demand Infrequent Fluctuates Stable Very stable

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-40
 Types of Processes

PROJECT BATCH MASS CONT.

Demand Low to
Very low High Very high
volume medium

No. of Infinite
different Many, varied Few Very few
products variety

Repetitive, Continuous,
Production Long-term Discrete, job
system assembly process
project shops
lines industries

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-41
 Types of Processes

PROJECT BATCH MASS CONT.

Varied General- Special- Highly

Equipment
purpose purpose automated

Mixing,
Primary type Specialized
of work Fabrication Assembly treating,
contracts
refining

Experts, Limited
Worker skills Wide range Equipment
crafts- range of
of skills monitors
persons skills

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-42
 Types of Processes

PROJECT BATCH MASS CONT.

Efficiency, Highly efficient,

Custom work, Flexibility,
Advantages latest technology quality
speed, large capacity,
low cost ease of control

Capital
Non-repetitive, Costly, slow, Difficult to change,
Dis- investment;
small customer difficult to far-reaching errors,
advantages lack of
base, expensive manage limited variety
responsiveness
Machine shops, Automobiles,
Construction, print shops, televisions, Paint, chemicals,
Examples shipbuilding,
bakeries, computers, foodstuffs
spacecraft
education fast food

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-43
 Process Selection With
Break-Even Analysis
• Study cost trade-offs based on demand volume
• Cost
• Fixed costs
• constant regardless of the number of units produced
• Variable costs
• vary with the volume of units produced
• Revenue
• price at which an item is sold

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-44
 Process Selection With
Break-Even Analysis
• Total revenue
• price times volume sold
• Profit
• difference between total revenue and total cost

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-45
 Break-Even Analysis: Graph

Dollars

$3,000 — Total
cost
line

$2,000 —

$1,000 —

Total
revenue
line
40 Units
Break-even point

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-46
 Process Plans

• Set of documents that detail manufacturing and

service delivery specifications
• assembly charts
• operations sheets
• quality-control check-sheets

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-47
 Assembly Chart

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-48
 Operations Sheet for Plastic Part
Part name Crevice Tool
Part No. 52074
Usage Hand-Vac
Assembly No. 520

Oper. No. Description Dept. Machine/Tools Time

10 Pour in plastic bits 041 Injection molding 2 min
20 Insert mold 041 #076 2 min
30 Check settings 041 113, 67, 650 20 min
& start machine
40 Collect parts & lay flat 051 Plastics finishing 10 min
50 Remove & clean mold 042 Parts washer 15 min
60 Break off rough edges 051 Plastics finishing 10 min

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-49
 Process Analysis
• Systematic study of all aspects of a process
• make it faster
• more efficient
• less costly
• more responsive
• Basic tools
• process flowcharts
• diagrams
• maps

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-50
 Building a Flowchart

• Determine objectives
• Define process boundaries
• Define units of flow
• Choose type of chart
• Observe process and collect data
• Map out process
• Validate chart

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-51
 Process Flowcharts

• Look at manufacture of product or delivery of

service from broad perspective
• Incorporate
• nonproductive activities (inspection,
transportation, delay, storage)
• productive activities (operations)

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-52
 Process Flowchart Symbols

Operation
Inspection
Transportation
Delay
Storage

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-53
 Process Flowchart of Apple Processing

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-54
 Process Map
or Swimlane
Chart of
Restaurant
Service

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-55
 Simple Value Chain Flowchart

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-56
 Process Innovation
Total redesign of a process for breakthrough improvements

Continuous
improvement refines
the breakthrough

Breakthrough
Improvement

Continuous improvement
activities peak; time to
reengineer process

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-57
 From Function to Process

Product Development

Manufacturing
Purchasing
Accounting

Order Fulfillment

Sales
Supply Chain Management

Customer Service

Function Process

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-58
Process Strategic
Innovation Directives

Baseline Data
Customer Goals for Process Benchmark
Requirements Performance
Data

High - level Innovative

Process map Ideas Design
Principles

Detailed Model
Process Map Validation Key
Performance
Measures
Pilot Study
of New Design

Goals Full Scale

No Met? Yes Implementation

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-59
 High-Level Process Map

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 6-60
 Unit 4

Location Decisions
 Location Decisions

• Type of Facilities
• Site Selection: Where to Locate
• Global Supply Chain Factors
• Location Analysis Techniques
• Factors influencing location decisions
• Methods for location decisions
 Type of Facilities

• Heavy Manufacturing facility

• Lot of space
• Construction costs
• Land cost
• Transportation
• Bulk suppliers
• Environmental issues
 Type of Facilities

• Light Manufacturing facility

• Cleaner plants
• Smaller
• Less costly
• E.g. – Electronics, pharma, logistics
 Type of Facilities

• Retail & Distribution facilities

• Smallest
• Less Costly
• E.g. – Hotels, Banks, restaurants, groceries
stores, universities, departmental strores
 Site Selection: Where to locate
• “Right place in the Right Time”
• Convenient
• Easy accessible
• Overall Market Strategy for the delivery of the product/
services
• Nature of labour force
• Saturation
• Proximity to suppliers
• Mkt distribution
• Transportation cost
• Community infrastructure
• Quality of Life
• Govt. regulations- Country, region, community
 Global Supply Chain Factors

• Why US/ EU are focusing on Emerging

Markets?
• Economy
• Costs
• Quality
• TAT
• Supply Chain
• Market Economy
• Allies
 Global Supply Chain Factors
• Govt. Stability
• Govt. Regulations
• Political & Economic Systems
• Exchange rates
• Culture
• Climate
• EXIM Duties
• Raw material Availability
• Suppliers 'proximity/ Supplier Value Chain
• Labour (input) costs
• Commercial travel
• Technical Expertise
• Cross Border trade regulations
• Group Trade Agreements
• Location Incentives
Geographic Information Systems (GIS)

• Computerized system for storing, managing,

creating, analyzing, integrating, and digitally
displaying geographic, i.e., spatial, data
• Specifically used for site selection
• Enables users to integrate large quantities of
information about potential sites and analyze
these data with many different, powerful
analytical tools
Geographical Information Systems (GIS)
 Locational Analysis Techniques

1. Location Factor Rating

2. Centre of Gravity Technique
3. Load Distance Technique
 1. Location Factor Rating

• Identify & Weigh important location factors

• Each Factor weighted from 0 to 1.00 for
prioritization and reflect its importance
• Identify Attractiveness: Subjective score 0-100 is
assigned to each factor
• A good way to organize and Rank factors

Also need Benefit Cost Analysis for Final Selection

 2. Centre of Gravity Technique

• Quantitative Method of location a facility such as

a warehouse at a center of movement in a grog.
Area based on weight and distance

Keep in mind this is Straight Line distance, check for Actual Road distance