Operations Basics PGP1

8/3/2019 Operations Basics PGP1

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Club Kaizen,

IIM Indore

Introduction to OperationManagement



OPERATIONS MANAGEMENT(OM)

isthe process of managing resourcesto deliver Goods & Services to

Customers



What OM covers?

Production process

Aggregate planning

Location Planning

Inventory Management Models

Analytical Hierarchy Process (AHP)

Supply Chain Management



Elements of a Process

What is a Process ?

• Inputs: labour, material, utilities & capital

• Outputs: goods & services

• Activities: equipment

• Flows: material & information• Storage: RM, WIP, FG

Inputs Outputs



Process Concepts

Time: Cycle Time, Idle Time, Lead Time/ThroughputTime

Capacity: Rated Capacity, Effective Capacity,

Utilization

Inventory: RM, WIP (buffer), FG

Bottleneck

Lot Size/Batch Size



Types of Processes

Single-stage Process

Stage 1

Stage 1 Stage 2 Stage 3

Multi-stage Process



Types of Processes (Continued)

Stage 1 Stage 2

Buffer

Multi-stage Process with Buffer

A buffer refers to a storage area between stages

where the output of a stage is placed prior to being

used in a downstream stage



Other Process Terminology

• Blocking

– Occurs when the activities in a stage must stop because

there is no place to deposit the item just completed

– If there is no room for an employee to place a unit of work

down, the employee will hold on to it not able to continueworking on the next unit

• Starving

– Occurs when the activities in a stage must stop because

there is no work – If an employee is waiting at a work station and no work is

coming to the employee to process, the employee will

remain idle until the next unit of work comes

O h P T i l



Other Process Terminology(Continued)

• Bottleneck – Occurs when the limited capacity of a process causeswork to pile up or become unevenly distributed in theflow of a process

– If an employee works too slow in a multi-stageprocess, work will begin to pile up in front of thatemployee. In this is case the employee represents thelimited capacity causing the bottleneck.

• Pacing – Refers to the fixed timing of the movement of items

through the process



Other Types of Processes

• Make-to-order

– Only activated in response to an actual order

– Both work-in-process and finished goods inventory

kept to a minimum

• Make-to-stock

– Process activated to meet expected or forecast

demand



Type of Process Layout

• Process Layout (Functional layout )

Similar equipment / functions are grouped together

e.g. layout of typical hospital , machine shop

• Product Layout (Flow Shop layout)

Equipment / work processes are arranged according to

the progressive steps by which product is manufactured.

The path therefore is a straight line

e.g. shoes, chemical plant



Process Performance Metrics

• Operation time = Setup time + Run time

• Throughput time = Average time for a unit to

move through the system

• Productivity = Output

Input

• Utilization = Time Activated

Time Available



Process Performance Metrics(Continued)

• Cycle time = Average time between completion of units

• Throughput rate = 1 .

Cycle time

• Efficiency = Actual output

Standard Output



Cycle Time Example

Suppose you had to produce 600 units in 80 hours tomeet the demand requirements of a product. What isthe cycle time to meet this demand requirement?

Answer: There are 4,800 minutes (60 minutes/hour x 80 hours) in 80 hours.

So the average time between completions would have to be: Cycletime = 4,800/600 units = 8 minutes.



Capacity Bottlenecks

Operation 2 is a bottleneck

Inputs

To customers

50/hr

1 2 3

200/hr 200/hr



All operations are bottlenecks

2 31Inputs

To customers

200/hr 200/hr 200/hr

Capacity Bottlenecks



Types of Production Processes

Job Shop

Batch Process

Assembly Line

Continuous Process

Project



Job Shop

Variety of products

Customization

Variable time production

Low volume, fluctuations in volume

Small scale operations

Process layout

e.g., fabrication units, machine shop



Batch Process

Goods produced in discrete batches (or lot sizes)

Moderate processing demand

Economies of scale

Process flow more or less routine

Little or no variability in product selection - known in

advance

e.g., apparel manufacturer



Assembly Lines

Worker paced assembly line

e.g., fast food outlet

Machine paced assembly line

e.g., automobile assembly

Large to medium volume/standard products High processing turnover

Predefined standard BOM

High degree of labour & equipment utilization

Routing & scheduling fixed

System fairly inflexible



Continuous Process

Continuous rapid movement of goods High volume operations

Highly standardized product

Product based layout

High levels of automation

e.g., oil refinery, paper, fertilizer



Project

One of a kind

Customized-High Variety

Dedication of resources/Sharing across projects

e.g., construction, software



The Planning Process

Long-range plans

(over one year)Research & DevelopmentNew product plansCapital investmentFacility location/expansion

Intermediate-range plans(3 to 18 months)Sales planningProduction planning and budgetingSetting employment, inventory,

subcontracting levelsAnalyzing cooperating plans

Short-range plans(up to 3 months)

Job assignmentsOrderingJob schedulingDispatchingOvertimePart-time help

Topexecutives

Operationsmanagers

Operationsmanagers,supervisors,foremen



Master production

schedule and MRP

systems

Detailed work

schedules

Process planning and

capacity

decisions

Aggregate plan for

production

Product decisions

Demand forecasts,

orders

Marketplace and

demand

Research

and

technology

Raw materials available

External capacity

(subcontractors)

Workforce

Inventory on

hand

Aggregate Planning



Location Planning

The decision problem involving the selection ofspecific site on which to locate one or more facilities,considering appropriate objectives.

For example,

Locate country wide distribution center(s) for aproduct

Locate a hospital/fire station/police station/library ina metropolitan area

Locate a new classroom building on a college

campus Locate RMC plant(s) in geographical area



Need for Locationchanges/decisions

Shift in demand of goods and services (e.g., shift ingeography of demand, demand increase requiresextra capacity which can not be provided from theexisting location)

Changes in Supply of inputs to the operations (changes in cost, e.g., land cost, availability e.g.,stock depleted of the input to the operations)

New Facilities/Business, Merger

Political and economic conditions may change



Hierarchy of Location Decisions

Location decision may involve geographic andinformational hierarchy.

I. Regional (choosing the region/country inwhich to locate the operation)

II. Local (choosing the area of theregion/country)

III. Site (choosing the specific site within the area)



Inventory

What do you mean by inventory? Stock on hand of materials

All physical assets

Value of stock of goods

Types of inventory

Supplies

Raw materials

In process goods Finished goods



Managing Inventory

HIGH inventory levels yield: Better customer service (traditionally)

Stock-out protection (+ wide variety and selection)

Short lead times (since it’s available)

Lower costs/unit purchased, made, transported Large lot production and transportation

economies

Quantity discounts and inflation hedging

LOW inventory levels yield:

Low holding costs (inventory carrying costs)

Easier and more accurate control of inventory

A focus on quality execution (no room for error)



Analytic Hierarchy Process

The Analytic Hierarchy Process (AHP), is a proceduredesigned to quantify managerial judgments of therelative importance of each of several conflictingcriteria used in the decision making process.

Application:• Selection of contractors for the project

• Selection of equipments for project work

• Selection of project delivery methods

• Route selection of pipeline projects

• Facility location selection



Supply Chain Management

Network of facilities and distribution options thatperforms the functions of procurement of materials,transformation of these material into intermediate andfinished products, and distribution of these finished

products to customers

Total flow of material, information and cash, from thesuppliers, right through an enterprise to the customers

Different stages: Procurement, Inbound Logistics,

Planning and Manufacturing, and OutboundLogistics/Distribution



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