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Summary Operations Management - Summary Chapter 1-19 |

Operations Management
Operations Management (Tilburg University)

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Summary Operations management

Chapter 1

Operations management is the activity of managing the resources that create

and deliver services and products.
The operations function is one of the three core functions of any organization.
These are:
 The marketing (including sales function) – which is responsible for
communicating the organization’s services and product of its markets in
order to generate customer requests.
 The product/service development function – which is responsible for
coming up with new and modified services and products in order to
generate future customer requests.
 The operations function – which is responsible for the creation and
delivery of services and products based on customer requests.
Any business that creates something must use resources to do so, and so must have
an operations activity. Operations management use resources to appropriately
crate outputs that fulfill defined market requirements. Yet operations management
is also relevant to organizations whose purpose is not primarily to earn profits. All
operations crate and deliver services and products by changing input into outputs
using an input-transformation-output model.

One set of input to any operation’s process are transformed resources. These are
the resources that are treated; transformed or converted in the process they are
usually a mixture of the following:
 Materials – operations which process materials could do so to transform
their physical properties (shape or compositions). Other process materials
to change their location (parcel delivery companies). Some, like retail
operations, do so to change the possession of the materials. Finally, some
operations store materials, such as warehouses.

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 Information – Operations whish process information could do so to

transform their informational properties.
 Customers – Operations whish process customers might change their
physical properties in a similar way to materials processors; for example,
hairdressers or cosmetic surgeons. Some store customers: hotels for
example, Airlines, mass rapid transport systems transform the location of
their customers, while hospitals transform the physiological state. Some are
concerned with transforming the psychological state, like most
entertainments services.
The other set of inputs are transforming resources. These are the resources,
which act upon the transformed resources. There are two types of transforming
resources:
 Facilities – the buildings, equipment, plant and process technology of the
operation.
 Staff - the people who operate, maintain, plan and manage the operations.
(All people in the organization)
Output from the process – products and services. This can vary from pure
products (car, newspaper) to pure services (hairdresser). This can also be a mixture
of products and services, for example a restaurant. The product is the meal, and the
services are the delivery, making of the food and the ambiance. Customers may be
an input to many operations but they are also the reason for their existence. If
there were no customers there would be no operations. So it is critical that we are
aware of customers needs, both current and potential.

Operations management has two meanings:

Operations as a function – meaning the part of the organization, which creates
and delivers services and products for the organizing’s eternal customers.
Operations as an activity – meaning the management of the processes within any
of the organization’s functions.

Four V’s
 The volume of their outputs;
 The variety of their outputs;
 The variation of the demand for their outputs;
 The degree of visibility, which customers have of the creation of their
output.
High volume – McDonalds low volume – small cafeteria
High variety – taxi company (flexible) low variety – Bus company
High variation – season hotel low variation – off-season hotel
High visibility – retailer store, hair dresser low visibility – web shop, dry cleaner.

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Chapter 2
The triple bottom line also known as people, planet and profit is a
straightforward idea that organizations should measure themselves not jus ton the
traditional economic profit that they generate for their owners, but also on the
impact their operations have on society and the environment.
The idea behind the social bottom line performance is not just that there is a
connection between businesses and the society in which they operate – that is self-
evident. Rather it is that businesses should accept that they bear some
responsibility for the impact they have on society and balance the external ‘societal’
consequences of their actions with the more direct internal consequences, such as
profit.
Environmental sustainability means ensuring that the overall productivity of
accumulated human and physical capital resulting from development actions more
than compensates for the direct or indirect loss or degradation of the environment.
The organization’s top management represent the interest of the owners and
therefore are the direct custodians of the organization’s economic performance.
Broadly this means that operations mangers must use the operation’s resources
effectively, and there are many ways of measuring this economic bottom line.
The stakeholder perspective to judge the impact an operation has on its
stakeholders. Stakeholders are the people and groups who have a legitimate
interest in the operation’s activities.
Corporate social responsibility (CSR) is essentially about how business takes
account of its economic, social and environmental impact in the way it operates –
maximizing the benefits and minimizing the downsides. CSR has five dimensions:
 Environmental
 Social
 Economic
 Stakeholder
 Voluntariness
Also called the tripe P  people, planet, and profit.

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CSR is not the same as philanthropy (the practice of giving money and time to help
make life better for other people.)
The five operations performance objectives:
 Quality is consistent conformance to customers’ expectations. A customer
perception of a high-quality products and services means customer
satisfaction and therefore the likelihood that the customer will return.
Quality reduces costs. The fewer mistakes made by each process in the
operation, the less time will be needed to correct the mistakes and the less
confusion and irritation will be spread. Quality increases dependability. In a
hospital quality means patients who receive the most appropriate
treatment. In a supermarket  goods are in good condition. In a bus
company  bus is clean and tidy.
 Speed means the elapsed time between customers requesting products or
services and receiving them. Speed reduces inventory. Speed reduces risks.
In a hospital speed means the time between requiring treatment and the
receiving treatment kept to a minimum. In a supermarket speed means the
immediate availability of goods. In a bus company speed means the time
between a customer setting out the journey and reaching his or her
destination kept to a minimum.
 Dependability means doing thing in the time for customers to receive their
goods or services exactly when they are needed, or when promised.
Dependability saves time. Dependability saves money, and dependability
gives stability. Dependability in a hospital means proportion of
appointments, which are cancelled, kept to a minimum. In a supermarket
dependability means predictability of opening hours. In a bus company
dependability means keeping to the published timetable at all point on the
route.
 Flexibility means being able to change the operation in some way.
Examples of flexibility are:
- Product/service flexibility – the operations ability to introduce new or
modified products and services.
-Mix flexibility – the operations ability to produce a wide range or mix of
products or services.
-Volume flexibility – the operation’s ability to change its level of output or
activity to produce different quantities or volumes of products and services
over time.
-Delivery flexibility – the operation’s ability to change the timing of the
delivery.
Flexibility speeds up the process. Flexibility saves time. Flexibility maintains
dependability.
 Cost--.> keeping the cost as low as possible.

Mass customization has a high-volume to keep t cost down.

Agility means responding to market requirements by producing new and existing
products and services fast and flexible.

Productivity = Output from the operation/Input from the operation

Single-factor productivity = Output from the operation/One input to the operation
Multi-factor productivity = Output from the operation/All input to the operation

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Example
A health clinic has 5 employees and processes 200 patients per week. Each
employee works 35 hours per week. The clinic’s total wage bill is 3900 and its total
overhead expenses are 2000 per week.
Labour productivity = 200/(5*35)= 1,145 patients/labour hour
Multi-factor productivity = 200/(3900+2000)=0,0339 patiets/E

Polar diagrams are used to indicate the relative importance of each performance
objective to an operation or process. They can also be used to indicate the
difference between different products and services produced by an operation of
process.

Chapter 3
Operations strategy concerns the pattern of strategic decisions and actions which
set the role, objectives and activities of the operation. Operations are the resources
that create products and services. Operational is the opposite of strategic, meaning
day-to-day and detailed. At first you have to impellent a business strategy, than
support the strategy and after that drive the strategy.

Hayes and wheelwright’s four stages of operations contribution

Stage 1:internal neutrality. This is the very poorest level of contribution by the
operations function. It is holding the company back from competing effectively. It is
inward-looking and, at best, reactive with very little positive to contribute towards
competitive success. It is the goal to be ignored. The company holds back to avoid
making mistakes.
Stage 2: external neutrality. The first step of braking out of stage 1 is for the
operations function to begin comparing itself with similar companies or
organization in the outside market this may not immediately take it to the first
division of companies in the market, but at least it is measuring itself against its
competitors’ performance and trying to implement best practice.
Stage 3: internally supportive: Stage 3 operates still aspire to be clearly and
unambiguously the very best in the market. The achieve this by gaining a clear vies
of the company’s competitive or strategic coals and supporting it by developing
appropriate operations resources. The operation is try to be internally supportive
by providing a credible operations strategy.
Stage 4: externally supportive. The company vies the operations function as
providing the foundation for its competitive success. it forecast likely changes in
markets and supply, and it develops the operations-based capabilities which will be
required to compete in future market conditions. Stage 4 operations are innovative,
creative and proactive and are driving to the company’s strategy by being ‘one step
ahead’ of the competitors, what is called externally supportive.

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Top-down perspective provides an orthodox view of how functional strategies

should be put together. This business strategy builds the business in relation to its
customers, markets and competitors, and also the strategy of the corporate group
of which it is a part.
Bottom-up perspective: what day-to-day experience suggests operations should
do. Strategic ideas emerge over time. This idea of strategy bing shaped by
operational experience over time is sometimes called the concept of emergent
strategies.

Chapter 4
Process design makes sure that the performance of the process is appropriate for
whatever it I trying to achieve.

Throughput rate is the rate at which items emerge from the process, i.e. the
number of items passing through the process per unit of time.
Cycling time is the reciprocal of throughput rate – it is the time between items
emerging from the process.
By standardization we mean doing things the same way, or adopting a common
sequence of activities, methods and use of equipment.

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Manufacturing Process types

Process types are used to describe the different positions on the volume-variety
spectrum.
 Project processes deal with discrete, usually highly customized products;
often with a relatively long timescale between the completion of each item,
where each job has a well-defined start and finish. Project processes have
low volume and high variety. Activities involved in the process an be ill-
defined and uncertain. Transforming resources may have to be organized
especially for each item (because each item is so different). The process may
be complex. Examples are: software design, movie production and most
construction companies.
 Jobbing process also deals with high variety and low volumes.
However, while in project processes each item ahs resources devoted more
or less exclusively to it, in jobbing processes each product has to share the
operation’s resources with many others. Resources will process a series of
items but, although each one will require similar attention, they may differ
in their exact needs. Manu jobs will probably be one-off’s that are never
repeated. Jobbing process could be complex, but they often produce
physically smaller items, and involves fewer unpredictable circumstances.
Examples are: made-to-made measuring tailors, precision engineers such as
toolmakers, furniture restorers and the printer who produces tickets for the
local social event.
 Batch processes may look like jobbing processes, but do not have the same
degree of variety. Each time batch processes more than one item at a time.
Batch type of processes can be found over a wide range of volume and
variety levels. Examples are: special gourmet frozen foods and mass
produced assemblies such as automobiles.
 Mass production are those with produce items in high volume and
relatively narrow variety. The activities of mass processes are usually
repetitive and largely predictable. Examples are: mass production frozen
food, automatic packing lines, and DVD production.
 Continuous processes have an even higher volume and usually lower
variety than mass processes. They also usually operate for longer periods of
time. They often are relatively inflexible, capital-intenseive technologies
with highly predictable flow. Examples are: water processing, steel making
and some papermaking.

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Process types
 Professional services are high-contact processes where customers spend
a considerable time in the service process. They can provide high levels of
customization. Professional services tend to be people-based rather then
equipment-based, and usually staff are given considerable discretion in
servicing customers. Examples are management consultants, lawyers
practices, architects and doctor’s surgeries
 Service shops have levels of volume and variety between extremes of
professional and mass service. Services provided via mixes of front-and
back-offices activities. Examples are: banks, high street shops, holiday tour
operators and car rental companies.
 Mass services have many customers transactions, involving limited
contact time and little customization. Staff are likely to have a relatively
defined division of labour and have to follow set procedures. Examples are:
airport, supermarkets, library and the police service.

The most common method for illustrating the relationship between a process’s
volume-variety position and its design characteristics is shown in this figure:

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The diagonal represents the most appropriate process design for any volume-
variety position. Processes that are on the right of the ‘natural’ diagonal would
normally be associated with lower volumes and higher variety. This means than
they are likely to be more flexible than seems to be warranted by their actual
volume-variety position.

Process mapping simply involves describing the process in terms of how the
activities within the process relate to each other. Process mapping is needed to
expose the reality of process behavior.

Throughput time = Work-in-progress * cycle time

Percentage throughput efficiency = (work content / throughput time)* 100

We have assumed there is no significant variability either in the demand to which

the process is expected to respond, or in the time taken for the process to perform
its various activities. This it not the case in reality. There are two fundamental
types of variability:

 Variability in the demand for processing at an individual stage within the

process, usually expressed in terms of variation in the inter-arrival times of
items to be processed.
 Variation in the time to perform the activities at each stage.

Chapter 5
Innovation is simply about doing something new. Innovation creates a novel idea;
design makes it work in practice. The two concepts are intimately related. When
new ideas are introduced in services, products or processes, they rarely have an
impact that increases uniformly over time. Usually performance follows an S-
shaped progress. So in the early stages of a new idea’s introduction, although
often large amounts of resources, time and effort are needed to in to introduce the
idea, relatively small performance improvements are experienced. Over time when
knowledge and experience grow, the new idea grows, and the performance
increases. This is how innovation works: the limits of one idea being reached which
prompts a newer, better idea, with each new S-curve requiring some degree of re-
design.
Innovations can be incremental or radical. Radical innovations resulting in
discontinuous, breakthrough changes, while other innovations are more
incremental, leading to smaller, continuous changes. Radical innovations often
include large technological advancements, which may require completely new
knowledge and/or resources. Incremental innovation is more likely to involve
relatively modes technological changes, building upon existing knowledge and
resources.

The Henderson-Clark model refines the simple idea of the split between
incremental and radical innovation. In this model incremental innovation is built
upon existing components and architectural knowledge, whereas radical
innovation changes both component and architectural knowledge.

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All services and products can be considered as having three aspects:

1. A concept, which articulates the nature, use and value of the service or
product.
2. A package of component services and product that provide those benefits
defined in the concept.
3. The process defines the way in which the component services and products
will be created and delivered.

The stages of design:

1. Concept generation, this is where innovative ideas become the inspiration
for new service or product concepts. Ideas can come from customers,
competitor activity, staff and the R&D department
2. Concept screening, the purpose of it is to evaluate concepts by assessing
the worth or value of design options. This involves assessing each concept or
option against a number of design criteria. It is useful to think in terms of
three broad categories of design criteria:
1. The feasibility of the design option – can we do it?
2. The acceptability of the design option – do we want to do it?
3. The vulnerability of each design option – do we want to take the risk?
3. Preliminary design is to have a first attempt to both specifying the
component service and products in the package and defining the processes
to create the packages. There are a few methods to reduce design
complexity:
1. Standardization
2. Commonality: using common elements within a service or product.
3. Modularization: the use of modular design principles involves designing
standardized ‘sub-components’ of a service or product, which can be put
together in different ways.
4. Design evaluation and improvement, the purpose of this stage is to take
the preliminary design and see if it can be improved before the service or
product is tested in the market. Two techniques can be used to test the
product or service:
1. Quality function development (QFD) tries to ensure that the eventual
design of a service or product actually meets the needs of its customers.
2. Value engineering tries to reduce costs, and prevent any unnecessary cost.

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5. Prototyping and final design

Chapter 6
A supply network perspective means setting an operation in the context of all the
other operations with which it interact, some of which are its suppliers and its
customers. It is important to stand back and look at the whole supply network for
three reasons:
1. It helps an understanding of competitiveness
2. It helps identify significant link in the network
3. It helps focus on long-term issues.
The balance of capacity
 Capacity can either lead or lag demand
 Inventory can be used to smooth out the peaks
 Spare capacity can be used to supply other operations
 The danger of this is that the original operation may recede a lower lever of
service.
Advantages Disadvantages
Capacity-leading strategies
Always sufficient capacity to meet demand, Utilization of the plants is always
therefore revenue is maximized and relatively low, therefore cost will be
customers satisfied. high.
Most or the time there is a ‘capacity cushion’ Risk of even greater over-capacity if
which can absorb extra demand if forecasts demand does not reach forecast levels.
are pessimistic.
Any critical start-up problems with new Capital spending on plant early.
plants are less likely to affect supply to new
customers.
Capacity-lagging strategies
Always sufficient demand to keep the plants Insufficient capacity to meet demand
working at full capacity, therefore unit cost fully therefore reduced revenue and
are minimized. dissatisfied customers.
Over-capacity problems are minimized if No ability to exploit short-term
forecasts are optimistic. increases in demand.
Capital spending on the plants is delayed. Under-supply position even worse if
there are start-up problems with the
new plants.
Smoothing-with-inventory strategy
All demand is satisfied, therefore customers The cost of inventories in terms of
are satisfied and revenue is maximized. working capital requirements can be
high. This is especially serious at a time
when the company requires funds for its
capital expansion.
Utilization of capacity is high and therefore Risks of product deterioration and
costs are low. obsolesce.
Very short-term surges in demand can be
met from inventories.
Chapter 7

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The layout of an operation or process means how its transforming resources are
positioned relative to each other and how its various tasks are allocated to these
transforming resources. There are four basic layout types:
 Fixed position layout is in some ways a contraction in terms, since the
transformed resources do not move between the transforming resources.
Instead of materials, information or customers flowing through an
operation, the recipient of the processing is stationary and the equipment,
machinery, plant and people who do the processing move as necessary. This
could be because of the product or the recipient of the service is too large to
be moved; for example: motorway construction, open-heart surgery,
shipbuilding and mainframe computer maintenance.
 Functional layout, similar resources are located together. This may be
because it is convenient to group them together, or so that the utilization of
transforming resources is improved. It means that when products,
information or customers flow through the operation, they will take a route
from activity to activity according to their needs. Different products or
customers will have different needs and therefore take different routes.
Examples are: hospital processes as X-ray machines, supermarket (easy to
restock goods).
 Cell layout is one where the transformed resources entering the operation
are pre-selected to move to one part of the operation in which all the
transforming resources, to meet their immediate processing needs, are
allocated. The cell itself may be arranged in either a functional or product
layout. After being processed in the cell, the transformed resources may go
on to another cell. Examples are: ‘lunch’ products in a supermarket. So
customers don’t have to go through the whole store. Maternity unit in a
hospital. (Shop-within-a-shop layout)
 Product (line) layout involves locating the transforming resources
entirely for the convenience of the transformed resources. Each product,
piece of information or customer follows a prearranged route in which the
sequence of activities that are required matches the sequence in which the
processes have been located. The transformed resources flow along a line of
processes. Usually, it is the standardized requirement of the product or
service, which lead to operations choosing product layouts. Examples are:
Automobile assembly, mass immunization progamme and self-service
cafeteria.
Many operations choose for a mixed layout.

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Advantages Disadvantages
Fixed-position  Very high mix and product  Very high unit
flexibility. costs.
 Product or customer not  Scheduling of
moved or disturbed. space and
 High variety of task for staff. activates can be
difficult.
 Can mean much
movement of plant
and staff.
Process  High mix and product  Low facilities
flexibility. utilization.
 Relatively robust in the case of  Can have very high
disruptions. work-in-progress
 Relatively easy supervision of or customer
equipment or plant. queuing.
 Complex flow can
be difficult to
control.
Cell  Can give a good compromise  Can be costly to
between cost and flexibility for rearrange existing
relatively high-variety layout.
operations.  Can need more
 Fast throughput. plant and
 Group work can result in good equipment.
motivation.  Can give lower
plant utilization.
Product  Low unit cost for high volume.  Can have low mix
 Gives opportunities for flexibility.
specialization of equipment.  Not very robust if
 Materials or customer there is disruption.
movement is convenient.  Work can be very
repetitive.
Chapter 8

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Process technology is ‘the machines, equipment, and devices that crate and/or
deliver products and services’. Process technologies range from milking machines
to marking software, from body scanners to brad ovens. Process technology has a
very significant effect on QSFDC. Methods of distinguishing between different types
of process technology is by what the technology actually processes – materials,
information or customers.
 Material-processing technologies include, shapes, transports, stores, or in
any way changes physical objects. It obviously includes the machines and
equipment found in manufacturing operations, but also includes trucks,
conveyors, packaging machines, warehousing systems and even display
units.
 Information-processing technology is the most common single type of
technology within operations, and includes any device which collects,
manipulates, stores or distributes information.
 Customer-processing technology  In an airline flight for example, e-ticket
reservation technology. There are three types of customer-processing
technologies:
1. Active interaction technology such as automobiles, telephones, Internet
bookings and purchases, fitness equipment and cash machines. In all of
these, customers themselves are using the technology to create the service.
2. Passive interactive technologies; they process and control customers by
constraining their actions in some way. Examples include aircraft mass
transport systems, moving walkways and lifts, cinemas and tem parks.
3.The third category includes those technologies that are aware of
customers but not the other way round; for example, security monitoring
technologies in shopping malls.

New technologies that are emerging are:

 3D printing
 Internet
 Telemedicine is the use of telecommunication and information
technologies in order to provide clinical health care at a distance. It helps
eliminate distance barriers and can improve access to medical services that
would often not be consistently available in distant rural communities.

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Chapter 9
Human resource strategy is the overall long-term approach to ensuring that an
organization’s human resources provide a strategic advantage. It involves two
interrelated activities. First, identifying the number and type of people that are
needed to manage, run and develop the organization so that it meets its strategic
business objectives. Second, putting in place the programmes and initiatives that
attract, develop and retain appropriate staff. The first step to develop a HR
strategy is to understand the organization’s overall strategy.
It is generally accepted that stress can seriously undermine the quality of people’s
working lives and, in turn, their effectiveness in the workplace. Here is stress
defined as the adverse reaction people have to excessive pressures on other types of
demand placed on them. Some causes of stress are:

Causes of stress What can be done about it

Staff can become overloaded if they
cannot cope with the amount of work or
type of work they are asked to do.
Staff can feel dissatisfied and perform
poorly if they have no control or say
over how and when they do their work.
Staff feel unsupported: levels of sick
absence often rise if employees feel they
cannot talk to managers about issues
that are troubling them.
A failure to build relationships based on
good behavior and trust can lead to
problems related to discipline,
grievances and bullying.
Staff will feel anxious about their work
and the organization if they don’t know
their role and what is expected of them.
Change can lead to huge uncertainty
and insecurity.
Change the way the job is designed and
investigate training needs and whether
it is possible for employees to work more
flexible hours.
Actively involve staff in decision making,
the contribution made by teams, and
how reviewing performance can help
identify strengths and weaknesses.
Give staff the opportunity to talk about
the issues causing stress: be sympathetic
and keep them informed.
Check the organization’s policies for
handling grievances, unsatisfactory
performance, poor attendance and
misconduct, and for tackling bullying
and harassment.
Review the induction process, work out
an accurate job description and
maintain a close link between individual
targets and organizational goals.
Plan ahead so change is not unexpected;
consult with employees to they have a
real input, and work together to solve
problems.

Stress can be avoided and has some business-related benefits such as:
 Staff feels happier at work, their quality of working life is improved and they
perform better.
 Introducing improvements is easier when stress is managed effectively.
 Employment relationship – problems can be resolved more easily.
 Attendance levels increase and sickness absence reduce.

Now we look at the design of the individual job, the groups’ jobs, the allocation of
work times to people’s activities and the design of the working environment.

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Any operation must decide on the balance between using specialists and generalist.
This idea is related to the division of labour dividing the total task down into
smaller parts, each of which is accomplished by a single person or team. Job design
is used in most mass-produced products like fast food. Some benefits of division-of-
labour are:
 It promotes faster learning.
 Automation becomes easier.
 Reduced non-productive work.

Some back draws to highly divided jobs are:

 Monotony
 Physical injury
 Low flexibility change is difficult.
 Poor robustness  When some machine doesn’t work the whole process is
affected by this.

Scientific management involves two related topics: method study, which

determines the methods and activities to be in included in the jobs; and work
measurement, which is concerned with measuring the time that should be taken for
performing jobs.
Ergonomics is concerned primarily with the physiological aspects of job design.
Physiology is about the way the body functions. It involves two aspects: first, how a
person interfaces with his or her immediate working area; second, how people
react to environmental conditions. Both aspects are linked by two common ideas:
 There must be a fit between people and the job they do.
 It is important to take a scientific approach to job design.
Job design should also take into account the desire of individuals to fulfill their
needs for self-esteem and personal development.
Job rotation means moving individuals periodically between different sets of tasks
to provide some variety in their activities. Job rotation can increase skill flexibility
and make a small contrition to reduce monotony.
Job enlargement means allocating a large number of tasks to individuals, if these
extra tasks are broadly of the same type those in the original job.
Job enrichment means increasing the number of tasks, but also allocating extra
tasks, which involve more decision making, greater autonomy and control over the
job.
Empowerment is an extension of the autonomy job characteristic prominent in
the behavioral approach to job design. Empowerment means giving staff the
authority to make changes to the job itself, as well as how it is performed. The
benefits of this are, you can provide faster to customers needs. But it is has also
high costs. The concept of team working is more prescriptive and assumes a shared
set of objectives and responsibilities. Groups are described s teams when the virtues
of working together are being emphasized, such as the ability to make use of the
various skills within the team.
Flexible working knows three aspects:
 Skills flexibility
 Time flexibility
 Location flexibility
The ergonomics of the organization has different factors like:

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 Working temperature
 Illuminate levels
 Noise levels
 Ergonomics in the office

Chapter 10
Planning and control is concerned with the activities that attempt to reconcile the
demands of the market and the ability of the operation’s resources to delivers. It
provides the systems, procedures and decisions which brings different aspect of
supply and demand together. Planning is a formalization of what is intended to
happen at some time in the future. Control is the process of coping with these types
of change. Control activities make the adjustments which allow the operation to
achieve the objectives that the plan has set even when assumptions on which the
plan was based do not hold true. In the very long term, operation manages make
plans concerning what they intend to do, what resources they need and what
objective the hope to achieve. Medium-term planning and control is more detailed.
It looks ahead to assess the overall demand which the oration must met in a
partially disaggregated manner. In short-term planning and control, nah of the
resources will have been set and it will be difficult to make large changes.
As we have found previously, the volume and variety characteristics of an operation
will have an effect on its planning and control activities. Operations which produce
a high variety of services or products in relatively low volumes will have customers
with different requirements and use different processes from operations which
crate standardized services or products in high volume.

Uncertainty is important in planning and control because it makes it more difficult.

Some operation can predict demand with relative certainty because demand for
their services or products is dependent upon some other factor which is known.
This is known as dependent demand. For example, the demand for tires in an
automobile factory is not a totally random variable. The process of demand
forecasting is relatively straightforward. Some operations are subject to
independent demand. They need to supply future demand without knowing
exactly what that demand will be. For example tire fitting service. Demand for tires
is largely governed by random factors.
The P:D ratio of an operation indicates how long the customer ahs to wait for the
service or product as compared with the total time to carry out all the activities to
make the service or product available to the product. P is the total throughput time
from start to finish. D is the demand times which stands for the total length of time
customers have to wait between asking for the service or product and receiving it.
The larger the P:D ratio the more speculative the operation’s planning and control
activities will be. Loading is the amount of work that is allocated to a work center.
For example, a machine on the shop floor of a manufacturing business is available,
in theory, 168 hours a week. However this does not mean that 168 hours of work
can be loaded onto that machine.

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Finite loading is an approach which only allocates work to a work centre (a

person, a machine, or a group of people or machines) up to a set limit. This limit is
the estimate of capacity for the work centre (based on the times available for
loading). Work over and above this capacity is not accepted. Finite loading is
particularly relevant for operations where: it is possible to limit the load, it is
necessary to limit the load or the cost of limiting the load is not prohibitive.
Infinite loading is an approach to loading work which does not limit accepting
work, but instead tries to cope with it. This is relevant for operations where: it Is
not possible to limit the loading, it is not necessary to limit the load, or the cost of
limiting the load is prohibitive.

Decisions must be taken on the order to which the work will be tackled this is called
sequencing. The priorities given to work in an operation are often determined by
some predefined set of rules, some of which are relatively complex some of these
are:
 Physical constraints
 Customer priority
 Due date  work is sequenced according to when it is ‘due’ for delivery. Due
date sequencing usually improves the delivery dependability and average
delivery speed.
 Last in first out (LIFO)
 First in first out (FIFO)
 Longest operation time (LOT)
 Shortest operation time first (SOT)

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Forward scheduling involves starting work as soon as it arrives. Backward

scheduling involves starting jobs at the last possible moment to prevent them
form being late.

In a push system of control, activities are scheduled by means of a central system

and completed in line with central instruction, such as an MRP system. Each work
centre pushes out work without considering whether the succeeding work centre
can make use of it. In a pull system of control, the pace and specification of what is
done are set by the customer workstation, which pulls work from the preceding
(supplier) workstation. The bottleneck in the operation, is called the drum because
it sets of the beat for the rest of the process to follow. Therefore it is sensible to keep
a buffer of inventory. Some form of communication between the bottleneck and the
input to the process is needed to make sure that activities before the bottleneck do
not overproduce this is called the rope.

Chapter 11
The definition of the capacity of an operation is the maximum level of value-added
activity over a period of time that the process can achieve under normal operating
conditions. The decisions taken by operation mangers in devising their capacity
plans will affect server different aspect of performance:
 Cost
 Revenues
 Working capital
 Quality
 Speed
 Dependability
 Flexibility

Steps of capacity demand:

1. Measure the aggregate demand and capacity. There are three
requirements from a demand forecast:|
1. It is expressed in terms, which are useful for capacity management.
2. It is as accurate as possible.
3.It gives an indication of relative uncertainty.
2. Measuring capacity. Only when the operation is highly standardized and
repetitive capacity is easy to define unambitiously.
Utilization = Actual output/design capacity
Efficiency = Actual output/ effective capacity
3. Considering the alternative methods of responding to demand
fluctuations. There are three pure options available for coping with such
variation:
o Ignore the fluctuations and keep activity levels constant (level
capacity plan).
o Adjust capacity to reflect the fluctuations in demand (chase demand
plan).
o Attempt to change demand to fit capacity availability (demand
management).

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In operations that have relatively fixed capacity, such as airlines and hotels, it is
important to use the capacity of the operation to maximize its potential to
generate profit. On approach is called yield management; it is really a variety of
methods and analytical tools.

Chapter 12
Inventory is a term we use to describe the accumulations of materials, customers or
information as they flow through processes or networks. Inventory can act as a
buffer for safety reasons. Some benefits of having inventory are:
 Physical inventory is an insurance against uncertainty (buffer/safety
inventory).
 Physical inventory can counteract a lack of flexibility (Cycle inventory).
 Physical inventory allows operations to take advantage of short-term
opportunities.
 Physical inventory can be used to anticipate future demands(anticipation
inventory).
 Physical inventory can reduce overall costs(EOQ).
 Physical inventory can increase in value.
 Physical inventory fills the processing pipeline.
 Queues of customers help balance capacity and demand.
 Queues of customers enable prioritization.
 Queuing gives customers time to choose.
 Queues enable efficient use of resources.
 Databases provide efficient multi-level access.
 Databases of information allow single data capture.
 Databases of information speed the process

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Examples of inventory are:

Functions of inventory can be:

 Buffer/safety, a level of extra stock that is maintained to mitigate risk of
stock outs (shortfall in raw material or packaging) due to uncertainties in
supply and demand.
 Cycle/batch Stock will be needed to ensure supply when it is engaged on
other activities. For example, a baker makes three types of bread. Because of
the nature of the mixing and baking process, only one kind of bread can be
produced at any time. The baker will have to product each type of bread in
batches large enough to satisfy the demand for each kind of bread between
the times when each batch is ready for sale. So even when the demand is
steady and predictable, there will always be some inventory to compensate
for the intermittent supply of each type of bread.
 De-coupling  Inventory accumulated between two inter-dependent
operations as a buffer against breakdowns or unevenness in machine
production rates, thus reducing the need for output synchronization.
 Anticipation inventory  is most commonly used when demand
fluctuations are large but relatively predictable.
 Pipeline  inventory exists because transformed resources cannot be
moved instantaneously between the point of supply and the point of
demand.

The average inventory: Q/2 (Q = ordered items)

The time interval between deliveries Q/D (D=units per month)
The frequency of deliveries = D/Q
Total cost: C(o) * D/Q + C(h) *Q/2 (C(0) = bestelkosten per unit, C(h) =
voorraadkosten per unit)

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The economic order quantity (EOQ) attempts to find the best balance between
the advantages and disadvantages of holding stock.

The economic batch quantity (QBQ) provides the rate, which parts are being
made and put into the inventory (P) is higher than the rate at which demand is
depleting the inventory (D) then the size of the inventory will increase.

The continuous review approach makes the decision in a way, there must be a
process to review the stock level of each item continuously and then place an order
when the stock level reaches its re-order level. An advantage of this approach is the
order quantity can be set and an optimum quantity. A disadvantage is continuous
checking can be very time consuming. The periodic approach orders at a fixed
and regular time interval. An advantage is there is less administration (orders
placed at fixed intervals). A disadvantage is different quantities are ordered and
these may not bring benefits of the EOQ’s.

There are two alternative approaches to order timing: Two bin system, and three
bin system. The simple two-bin system involves storing the re-order point quantity
plus the safety inventory quantity in the second bin and using part form the first
bin. When the first bin empties, that is the signal to order the next re-order
quantity. Sometimes the safety inventory is stored in a third bin (three-bin
system).

In any inventory, which contains more than one stocks item, some items will be
more important to the organization than others. Some, for example, might have a
very high usage rate, so if they ran out many customers would be disappointed.
ABC inventory control allows different inventory managers to concentrate their
efforts on controlling the more significant items of stock:

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 Class A items are those 20 per cent or so of high-usage-value items, which

account for around 80 cent of the total usage value.
 Class B items are those of medium usage value, usually the next 30 percent
of items, which often account for around 10 per cent of the total usage
value.
 Class C items are those low-usage-value items which, although comprising
around 50 per cent of the total types of items stocked, probably only
account for around 10 per cent of the total usage value of the operation.

Chapter 14
Enterprise resource planning brings all relevant information for planning and
controlling operations together. SAP is the largest ERP system supplier. ERP
implementations typically large expensive time consuming projects, rarely
completed on time and within budget.
The basis of the foundation concept for enterprise resource planning (ERP), called
materials requirements planning (MRP). It is a process that helps companies make
volume and timing calculations. MRP uses product information in the form of a bill
of materials (BOM), which is similar to the ‘component structure’, together with
demand information in the form of a master production schedule (MPS).
Manufacturing resource planning (MRP 2) expanded out of MRP during the 1980’s.
it was technology innovation that allowed the development. So ERP systems allow
decisions and databases from all part of the organization to be integrated to that

the consequences of decisions in one part of the organization are reflected I the
planning and control systems of the rest of the organization.
The benefits of ERP are:
 Because of software communicates across al function, there is absolute
visibility of what is happening in all part of the business.
 The discipline of forcing business process-based changes is an effective
mechanism for making all part of the business more efficient.
 There is a better sense of control of operations that will form the basis for
continuous improvements.
 It enables far more sophisticated communication with customers,
suppliers, and other business patterns, often giving more accurate and
timely information.
 It is capable of integrating whole supply chains, including suppliers’
suppliers and customer’s customers.

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The master production schedule (MPS) forms the main input to materials
requirements planning and contains a statement of the volume and timing of the
end products to be made. MPS are time-phased records of each end product, which
contains a statement of demand and currently available stock of each finished item.
The first row is the known sales orders and any forecast are combined from
‘demand’. The second row ‘available’ shows how much inventory of this item is
expected to be in stock at the end of each weekly period. The opening inventory
balance, ‘on-hand’, is shown separately at the bottom of the record. The third row is
the master production schedule, this shows how many finished items need to be
completed and available in each week to satisfy demand. MPS can be level of chase.
Chase: Level:

The bill of materials (BOM) shows the product structure, it is the linking pin
between MPS and MRP-1 records. It consists of various levels, with the finished
product being level 0. Single-level BOM shows only the parts that go directly into
the product. Intended BOM shows several levels of the product structure at the
same time.
For calculations see example cases.

Chapter 15
Lean synchronization aims to meet demand instantaneously, with perfect quality
and no waste. This is also the general concept of just-in-time. The concept of lean
stresses the elimination of waste, while just-in-time emphasized the idea of
producing items only when they are needed. Reducing the level of inventory allows
operations management to see the problems in the operation and work to reduce
them. Lean synchronization has many benefits but these come at the cost of
capacity utilization.
Lean management has 3 pillars:
 Eliminate waste
 Involve everyone
 Continuous improvement
The Japanese vision on lean and especially the causes of waste:
 Mura means lack of consistency or unevenness that result in periodic
overloading of staff or equipment.
 Mudi means absurd or unreasonable. Unnecessary or unreasonable
requirements put on a process will result will poor outcomes.
 Muda are activities that are wasteful because they do not add value to the
operation or the customer.

There are seven types of waste according to Toyota:

1. Over-production
2. Waiting time

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3. Transport
4. Process
5. Inventory
6. Motion
7. Defectives

There are four main principles to reduce waste:

1. Eliminate waste through streamlined flow reduce throughput time
2. Eliminate waste through matching supply and demand exactly  a pull
system can often be a good way to match demand and supply. Also the use
of Kanbas is one method of operationalizing pull control. it controls items
between the stages of an operation. It is a card used by a customer stage to
instruct its supplier stage to send more items.
3. Eliminate waste through flexible processes.
4. Eliminate waste through minimizing variability

There are 5 Ss
1. Sort  Eliminate what is not needed and keep what is needed.
2. Straighten  Position things in such as way that hey can be easily reached
whenever they are needed.
3. Shine  Keep thins clean and tidy; no refuse or dirt in the work area.
4. Standardize  Maintain cleanliness and order.
5. Sustain  Develop a commitment and pride in keeping to standards.

The theory of constraints focuses on the constraints in the form of the weakest link
in the process (bottleneck) Optimized production technology (OPT) uses the
technology of ‘drum, buffer and rope’ to explain its planning and control approach.

Chapter 17
Perceived quality is governed by the magnitude and direction of the gap between
customers’ expectations and their perceptions of the service or product.
Quality externally  it enhances the product or service in the market, or at least
avoids customers complaints.
Quality internally  it brings other benefits to the operation:
 It prevents errors slowing down throughput speed.
 It prevents errors causing internal unreliability and low dependability.
 It prevents errors causing wasted time and effort, therefore saving cost.

Quality characteristics are:

 Functionality  how well the product or service does the job for which it
was intended.
 Appearance  aesthetic appeal, look, feel, sound and smell of the product
or service.
 Reliability  consistency of product or services performance over time.
 Durability  the total useful life of the product or service.
 Recovery  the ease with which problems with the product or service can
be rectified or resolved.
 Contact  the nature of the person-to-person contacts that take place.

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Although it reduces checking time, using a sample to make a decision about quality
does have its own inherent problems. Take the example of the pedestrian waiting to
cross a street he or she has two main decisions: whether to continue waiting or to
cross. If there is satisfactory break in the traffic and the pedestrian crosses then a
correct decision has been made. Similarly, if the person continues to wait cause the
traffic is too dense then he or she has again made a correct decision. There are two
types of incorrect decisions or errors, however. One incorrect decision would be if
he or she decides to cross when there is not an adequate break in the traffic,
resulting an accident – this is referred to as a type 1 error. Another incorrect
decision would occur if he or she decides not to cross even though there was an
adequate gap in the traffic – this is called a type 2 error.

Total quality management (TQM) is an effective system for integrating the

quality development, quality maintenance and quality improvement efforts of the
various group In an organization so as to enable production and service at the
most economical levels which allow for full customer satisfaction.
 Includes all parts of the organization
 Includes al staff of the organization
 Includes consideration of all costs
 Includes every opportunity to get things right
 Includes all the systems that effect quality
 And it never stops

The costs of quality are usually categorized as prevention costs, appraisal costs,
internal failure costs and external failure costs.
 Prevention costs are those cots incurred in trying to prevent problems;
failure and errors form occurring in the first place.
 Appraisal costs are those costs associated with controlling quality to check
to see if problems or errors have occurred during and after the creation of
the service or product.
 Internal failure costs are failure costs associated with errors, which are
dealt with inside the operation.
 External failure costs are those, which are associated with an error going
out of the operation to a customer.

Chapter 18

Innovation is important in organizations. Managers aim to get better at doing

business. Radical breakthrough improvement is a philosophy that assumes that
the main vehicle of improvement is major and dramatic change in the way the
operation works. For example: the introduction of a new more efficient machine in
a factory. The impact of such an improvement is relatively sudden, abrupt and
represents a step change in practice. Such improvements are rarely inexpensive,
usually calling for high investments, and disrupt the ongoing workings of the
operations. Continuous improvements adopt an approach to improving
performance, which assumes many small incremental improvements steps. For
example, modifying the way a product tis fixed to a machine to reduce changeover
time or simplifying the question sequence when taking a hotel reservation. There is
no guarantee that such small steps toward better performance will work but the

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philosophy attempt to ensure that they will work. They can be done relatively
painless by other small improvements. Continuous improvement is also known as
Kaizen.

Improvement cycles
PDCA cycle stands for
 Plan stage, which involves an examination of the current method or the
problem area being studies. This involves collecting and analyzing data so
as to formulate a plan of action, which is intended to improve performance.
 Do stage is the implementation stage during which the plan is tried out in
the operation.
 Check stage is a stage where the new implemented solution is evaluated to
see whether it has resulted in the expected performance improvements.
 Act stage, during this stage the change is consolidated or standardized if it
has been successful. Alternatively, if the change has not been successful, the
lessons learned from the ‘trial’ are formalized before the cycle starts again.
The DMAIC cycle is in some ways more intuitively obvious than de PDCA cycle
insomuch as it follows a more ‘experimental’ approach. The DMAIC cycle starts
with:
 Defining the problem or problems, partly to understand the scope of what
needs to be done and party to define exactly the requirements of the process
improvements.
 The measuring stage involves validating the problem to make sure that it
really is a problem worth solving, using data to refine the problem and
measure exactly what is happening.
 The analysis stage is sometimes seen as an opportunity to develop
hypotheses as to what the root causes of the problem really are.
 In the improvement process, ideas are developed to remove the root
causes of he problems, solutions are tested and those solutions that seem to
work are implemented, formalized and results measured.
 This process needs to be continually monitored and controlled, to check
that the improved level of performance is sustained.

Approaches to managing improvements are:

 Total quality management (TQM) puts quality and improvement at the
heart of everything that is done by an operation. Total quality lays
particular stress on the following elements like meeting the needs and
expectations of customers and improvement covers all part of the
organization and should be group-based. Improvement includes every
person in the organization. Including all cost of quality, getting things ‘right
first time’ and developing the systems and procedures, which support
improvements.
 The key elements of the lean when used as an improvement approach re as
follows: customer-centricity, internal customer-supplier relationships,
perfection is the goal, synchronized flow, reduce variation, include all people
and waste elimination.
 The idea of business process re-engineering (BPR) is that rather than
using technology to automate work, it would be better applied to doing

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away with the need for the work in the first place. The main principles of
BRP can be summarized in the following points:
o Rethink business processes in a cross-functional manner which
organizes work around the natural flow of information (or materials
or customers).
o Strive for dramatic improvements in performance by radically
rethinking and redesigning the process.
o Have those who use the output for a process perform the process.
Check to see if all internal customer can be their own supplier rather
than depending on another function in the business to supply them.
o Put decision point where the work is performed. Do not separate
those who do the work from those who control and manage the
work.
 Six sigma

Techniques used for process improvement are:

Chapter 19

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Risk management is about identifying things that could go wrong, stopping them
going wrong, reducing the consequences when things do go wrong, and recovering
after things have gong wrong. Dealing with failure, and therefore managing risk,
generally involves four sets of activities.
1. The first is concerned with understanding what failure could potentially
occur in the operation and assessing their seriousness.
2. The second task is to examine ways of preventing failures occurring.
3. The third is to minimize the negative consequences of failure.
4. The final task is to devise plans and procedures that will help the operation
to recover from failure when they do occur.

Identify the potential causes of failure. Failure sources are often classified as:
 Failures of supply
 Human failures
 Organizational failure
 Technology and facilities failures
 Product and service design failures
 Customer failure
 Environmental disruption
 E-security
How failure is measured  the bath-tub curves for parts of an operation. Curve A
represents a part with relatively predictable failure and curve B represents a part

with a more random failure pattern.

The three basic approaches to maintenance of failure are:
 Run to breakdown maintenance.
 Preventive maintenance.
 Condition-based maintenance.

Total productive maintenance (TPM) is the productive maintenance carried

out by all employees through small group activities, where productive maintenance

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is maintenance management which recognizes the importance of reliability,

maintenance and economic efficiency in plant design. TPM aims to establish good
maintenance practice in operations through the pursuit of the five goals of TPM:
1. Improve equipment effectiveness by examining all the losses which o cur.
2. Achieve autonomous maintenance by allowing staff to take responsibility
for some of the maintenance tasks and for the improvement of maintenance
performance.
3. Plan maintenance with fully worked out approach to all maintenance
activities.
4. Train all staff in relevant maintenance skills so that both maintenance and
operations staff have all the skills to carry out their roles.
5. Achieve early equipment management by maintenance prevention, which
involves considering failure causes and the maintainability of equipment
during its design, manufacture, installation and commissioning.

Risk mitigation actions are:

 Migration planning is the activity of ensuring that all possible failure
circumstances have been identified and the appropriate mitigation actions
identified.
 Economic mitigation includes actions such as insurance against losses
from failure, spreading the financial consequences of failure
 Containment (spatial) means stopping the failure physically spreading to
affect other parts of an internal or external supply network.
 Containment (temporal) means containing the spread of a failure over
time.
 Loss reduction covers any action that reduces the catastrophic
consequences of failure by removing the resources that are likely to suffer
those consequences.
 Substitution means compensating for failure by providing other resources
that can substitute for those rendered less effective by the failure.
The stages in failure planning are learn from your mistakes):

Chapter 20
In operations improvement should achieve ‘fit’ between market requirements and
operations performance.

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Performance measurement is the process of quantifying action, where

measurement means the process of quantification and the performance of the
operations is assumed to derive from actions taken by its management.
Performance here is defined as the degree to which an operation fulfills the five
performance objectives at any point in time, in order to satisfy its customers.
Performance measurement concerns three genetic issues:
 What factors to include as performance measures?
 Which are the most important performance measures?
 What detailed measures to use?
The balance scorecard attempts to bring together the elements that reflect a
business’s strategic position, including product or service quality ensures, product
and service development times, customer complaints, labour productivity, and so
on. At the same time it attempts to avoid performance-reporting becoming
unwieldy by restricting the number of measures and focusing especially on those
seen to be essential. The advantage of this approach is that is presents an overall
picture of the organization.

Several approaches to setting targets can be used, including the following:

 Historically based strategies - targets that compare current against
previous performance.
 Strategic targets - targets set to reflect the level of performance that is
regarded as appropriate to achieve strategic objectives.
 External performance-based targets – targets set to reflect the
performance that is achieved by similar, or competitor, external operations.
 Absolute performance targets – targets based on the theoretical upper
limit of performance.

Benchmarking is the process of learning from others and involves comparing

one’s own performance or methods against other comparable operations. It is a
broader issues than setting [performance targets, and includes investigating other
organization’s’ operations practice in order to derive ideas that could contribute to
performance improvements. It is rationally based on the idea that problems in
managing processes are almost certainly shared by processes, and that there is
probably another operation somewhere that has developed a better way of doing
things. For example a bank might learn some things from a supermarket about
how it could cope with demand fluctuations during the day. Benchmarking is

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essentially about simulating in improvement practice. There are many different

types of benchmarking some of these are:
 Internal benchmarking is a comparison between operations or parts of
operations, which are within the same total organization.
 External benchmarking is a comparison between an operation and other
operations, which are part of a different organization.
 Non-competitive benchmarking is benchmarking against external
organizations, which do not compete directly in the same markets.
 Competitive benchmarking is a comparison directly between competitors
in the same, or similar, markets.
 Performance benchmarking is a comparison between the levels of
achieved performance in different operations.
 Practice benchmarking is a comparison between an organization’s
operations practices and those adopted by another operation.

The priority for improvement, which each competitive factor should be given, can
be assessed from a comparison of their importance and performance. This can be
shown on an importance-performance matrix, which positions each competitive
factor according to its score or ratings on these criteria.

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The sandcone model of improvement; cost reduction relies on the cumulative

foundation of improvement in the other performance objectives.

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