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lecture 7Operations
Management
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Operations: The different activities involved
in creating an organizations products and
services.
Operations managers: People who manage
operations.
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Productivity: The output produced by a given
input.
Productivity = Output/Input
Productivity of labor: Unit output divided by
some measure of labor input.
Productivity of capital: Sales divided by the
total capital (money) invested in a business.
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Job shop: Production systems used whenitems are ordered individually.
Small batch production: Production systemsused when customers order in small batches butwhen each order is different.
Continuous flow (assembly-line) production:
Production systems that continuously produce astandardized output that flows out of thesystem.
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Flexible production technology: A set ofmethodologies that allows enterprises to produce a
wider range of end products from a given productionsystem without incurring a cost penalty.
Mass customization: The ability to customize the
final output of a product to individual customerrequirements without suffering a cost penalty.
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Mass customization is possible only
when an organization is small. As it
grows in size, the organization must
move to mass production. Do you
agree? Explain.
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1. Physically place adjacent processes near one another, whichcan accelerate work flow.
2. Standardize procedures at each step in the work flow, which
makes it easier for replacement workers to fill in for an absentindividual.
3. Eliminate loop backs (work returns to a previous stage forfurther processing).
4. Balance work loads across different stages to make sure there
are no bottlenecks for excessive work and no stage hasinsufficient work.
5. Separate nonroutine complex work and pass them tospecialists, so that the flow of routine work is not sloweddown by the need to deal with a complex transaction.
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1. A clear business model
2. The philosophy that mistakes, defects, and poormaterials MUST be eliminated
3. Improved quality of supervision4. An environment that fosters reporting problems and
recommending improvements
5. Work standards in terms of quantity AND quality
6. Employee training in new skills to keep pace withchange
7. Sustained commitment from everyone in the company
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Inventory holding costs: The capital cost ofmoney tied up in inventory and the cost of the
warehouse space required to store inventory. Inventory turnover: The speed with which
inventory is replaced.
Just in time (JIT): Inventory that enters aproduction process just in time to be used, after an
order has been placed.
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Cost of restocking excess inventory: 20-25% of the value of the
goods
Retail industry looses $2.5 billion annually in obsolete inventory
Henceforth, the need for just-in-time system
Other options used by retailersdrop shipment, centralized
distribution centers, utilizing effective supply chain
communication electronically (like Wal-Mart), and utilizing
bricks and click model
- Example: While Barnes & Noble carries 100,000 titles in its store,
its online offerings are over 2 million which requires a centralized
distribution center
Source: Forbes, Leaner Shelves, Leaner Profits? November 15, 2006
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The optimal inventory level that minimizes inventory
holding and ordering costs
EOQ = (2 X D X FC)/(VC X K)
- D = Annual demand
- FC = Fixed costs of producing/procuring inventory
- VC = Variable costs of inventory
- K = Inventory holding costs
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Build-to-stock: Stocking a distribution
channel in the anticipation that a customer will
purchase those products.
Build-to-order: Taking an order first, then
building the product.
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Supply chain: The chain that provides raw
materials, partly finished products, or finished
products to an organization.