Operations Strategy and Strategic Decisons in Operations Management

Operations Strategy and Strategic Decisions in Operations Management

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Operations Strategy

Figure 1.5

Corporate Strategy

Environmental scanning

Core competencies

Core processes

Global strategies

Market Analysis

Market segmentation

Needs assessment

Competitive Priorities and Capabilities

Operations Strategy

Decisions

Competitive Capabilities

Current

Needed

Planned

Performance Gap?

No

Yes

New Service/Product Development

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Corporate Strategy

Environmental scanning (Competition, PESTLE)

Developing core competencies

Workforce

Facilities

Market and financial know-how

Systems and technologies

Developing core processes

Supplier relationship management

New product development

Order fulfillment

Customer relationship management

Global strategies

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Market Analysis

Market segmentation

Needs assessment

Service or product needs (prices, quality, degree of customization)

Delivery system needs (availability, delivery dependability, delivery speed)

Volume needs (high or low volume, degree of variability in volume)

Other needs (after sales support)

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Competitive Priorities

DEFINITIONS COSTDefinitionLow-cost operationsDelivering a service or a product at the lowest possible costQUALITYTop qualityDelivering an outstanding service or productConsistent qualityProducing services or products that meet design specifications on a consistent basisTIMEDelivery speedQuickly filling a customers orderOn-time deliveryMeeting delivery-time promisesDevelopment speedQuickly introducing a new science or a product

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Competitive Priorities

DEFINITIONS FLEXIBILITYDefinitionCustomizationSatisfying the unique needs of each customer by changing service or products designsVarietyHandling a wide assortment of services or products efficientlyVolume flexibilityAccelerating or decelerating the rate of production of service or products quickly to handle large fluctuations in demand

Order Winners and Qualifiers

Order Winning Criteria

Features which collectively provide an important edge over the competition

If products/services meet these criteria, they will gain orders from competitors,who are not as good

Order Qualifying Criteria

Unless products/services meet the criteria, they will lose orders to competitors, who already have them.

Operations Strategy Decisions

DESIGN

Information System

Facility location (supply chain network)

Technology

Work Systems

Facility layout

Capacity

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Operations Strategy-Definition

The total pattern of decisions which shape the long-term capabilities of any kind of operation and their contribution to the overall strategy.

Design of Work Systems

Design of Work Systems-Approaches

Specialization

Behavioral

Methods Analysis

Motion Study

Working Conditions

Specialization : Advantages

For

Management:

1. Simplifies training

2. High productivity

3. Low wage costs

For

Labor:

1

.

Low education and

skill requirements

2.

Minimum

responsibilities

3.

Little mental effort

needed

Specialization: Disadvantages

For

Management:

1.

Difficult to motivate

quality

2. Worker dissatisfaction,

possibly resulting in

absenteeism, high

turnover, disruptive

tactics, poor attention

to quality

For

Labor:

1. Monotonous work

2. Limited opportunities

for advancement

3. Little control over work

4. Little opportunity for

self-fulfillment

Behavioral Approaches to Job Design

Job Enlargement

Giving a worker a larger portion of the total task by horizontal loading

Job Rotation

Workers periodically exchange jobs

Job Enrichment

Increasing responsibility for planning and coordination tasks, by vertical loading

Methods Analysis

Methods analysis

Analyzing how a job gets done

Begins with overall analysis

Moves to specific details

Methods Analysis

Changes in tools and equipment

Changes in product designor new products

Changes in materials or procedures

Other factors (e.g. accidents, quality problems)

The need for methods analysis can come from a number of different sources:

Methods Analysis Procedure

Identify the operation to be studied

Get employee input

Study and document current method

Analyze the job

Propose new methods

Install new methods

Follow-up to ensure improvements have been achieved

Analyzing the Job

Flow process chart

Chart used to examine the overall sequence of an operation by focusing on movements of the operator or flow of materials

FLOW PROCESS CHART

Job Requisition of petty cash

Details of Method

ANALYST

D. Kolb

Operation

Movement

Inspection

Delay

Storage

Requisition made by department head

Put in pick-up basket

To accounting department

Account and signature verified

Amount approved by treasurer

Amount counted by cashier

Amount recorded by bookkeeper

Petty cash sealed in envelope

Petty cash carried to department

Petty cash checked against requisition

Receipt signed

Petty cash stored in safety box

Motion Study

Motion study is the systematic

study of the human motions used

to perform an operation.

Motion Study Techniques

Motion study principles - guidelines for designing motion-efficient work procedures

Analysis of therbligs - basic elemental motions into which a job can be broken down

Micromotion study - use of motion pictures and slow motion to study motions that otherwise would be too rapid to analyze

Charts

Eliminate unnecessary motions

Combine activities

Reduce fatigue

Improve the arrangement of the workplace

Improve the design of tools and equipment

Developing Work Methods

Working Conditions

Working Conditions (contd)

Noise & Vibration

Causes of Accidents

Safety

Work Breaks

Design of Layouts

Manufacturing Process Structure (based on Product-Process Matrix)

Job shop (ex. customized manufacture of spectacles/opthalmics)

Batch (ex. manufacture of various types of earth moving machinery)

Assembly Line (ex. manufacture of a single model automobile )

Continuous Flow (ex. petroleum refinery)

26

12

Choice of Process Design Facets

Process Focus

Inter.

Focus

Product Focus

More customer involvement

More resource flexibility

Less capital intensity

Less vertical integration

Less customer involvement

Less resource flexibility

More capital intensity

More vertical integration

Volume

High

Low

Process Layout

Human and capital resources used by processes must be arranged physically within their facilities which gives the process structure a physical form.

The choice of process layouts largely depends on the process structure.

Good process layouts can improve coordination across departmental lines and functional area boundaries.

Process Layout Types

Product layout-ideal for high volume/low variety/low level of customer contact (ex. continuous flow and assembly line).

Process layout-ideal for low volume/high variety/high level of customer contact (ex. batch and job shop).

Hybrid layout-combines elements of Product and Process layouts.

Fixed position layout-this is required when the product is massive and cannot be moved-eg.shipbuilding.

Product Layout

A Product layout arranges work stations in sequence. The line is only as fast as its slowest workstation.

Line balancing is done to achieve the desired output rate with the smallest number of workstations.

Product Layout-Typical method for assigning work elements to workstations

1.Draw the Precedence Diagram based on Precedence Relationships of the work elements.

2.Create one work station at a time. Start with the assignment of the first work element to the first work station.

3.Calculate the Idle Time for the work station by subtracting the cumulative time of the assigned work elements from the cycle time.

4.Identify potential immediate successor candidates for assigning the remaining work elements such that the duration of the work elements is less than or equal to the Idle Time of the work station.

5.Assign the work element from the potential candidates based on the following priority rules:

The work element having most followers.

The longest work element (maximum time).

6.Continue with steps 3 through 5 till no further work element can be assigned to the work station.

7.Continue with the assignment of the remaining work elements to the subsequent work stations all work elements have been assigned to work stations.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Product Layout-Line Balancing example

Work elementTime (sec.)A40B30C50D40E6F25G15H20I18

Product Layout-Line Balancing example

For the given example, a production line is to be designed considering demand of 2,400 nos. of the product per week. The plant will operate 40 hours per week.

a.What should be the lines cycle time?

b.What is the smallest number of workstations?

c. What would be the lines efficiency?

Calculating Cycle Time, TM, Efficiency

SOLUTION

a.First convert the desired output rate (2,400 units per week) to an hourly rate by dividing the weekly output rate by 40 hours per week to get units per hour. Then the cycle time is

c = 1/r =

b.Now calculate the theoretical minimum for the number of stations by dividing the total time, t, by the cycle time, c = 60 seconds. Assuming perfect balance, we have

TM =

t

c

244 seconds

60 seconds

= = 4.067 or 5 stations

1/60 (hr/unit) = 1 minute/unit = 60 seconds/unit

Calculating Cycle Time, TM, Efficiency

c.Now calculate the efficiency of a five-station solution, assuming for now that one can be found:

Efficiency = (100) =

t

nc

244

5(60)

= 81.3%

Process layout-Design

Gather information-required space, available space, closeness factors.

Develop a Block Plan.

Apply the weighted distance method.

Gather Information

100'

150'

3

6

4

1

2

5

Current Block Plan

Department Area Needed (ft2)

1. Administration3,500

2. Social services2,600

3. Institutions2,400

4. Accounting1,600

5. Education1,500

6. Internal audit3,400

Total15,000

Space Requirements

23

Closeness Matrix

Trips between Departments

Department123456

1. Administration

2. Social services

3. Institutions

4. Accounting

5. Education

6. Internal audit

365610

811

39

2

1

Departments 1 and 6 have the most interaction.

Departments 3 and 5 have the next highest.

Departments 2 and 3 have next priority.

23

100'

150'

Proposed Block Plan

First put departments 1 and 6 close together

1

6

Next put departments 3 and 5 close together

5

3

Then put departments 2 and 3 close together

2

4

23

Weighted-distance method: A mathematical model used to evaluate flexible-flow layouts based on proximity factors.

Euclidean distance is the straight-line distance, or shortest possible path, between two points.

Rectilinear distance: The distance between two points with a series of 90 degree turns, as along city blocks.

Applying the Weighted- Distance Method

Distance Measures

Rectilinear Distance

dAB = |xA xB| + |yA yB|

Euclidian Distance

dAB = (xA xB)2 + (yA yB)2

Rectilinear Distance

dAB = |20 80| + |10 60| = 110

Euclidian Distance

dAB = (20 80)2 + (10 60)2

= 78.1

What is the distance between (20,10) and (80,60)?

Example

2007 Pearson Education

Load Distance Analysis

Current Plan Proposed Plan

DeptClosenessDistanceDistance

PairFactor, wd wd Scoredwd Score

1,231326

1,3616318

1,4531515

1,56212212

1,610220110

2,3821618

2,412211

2,511122

3,432626

3,5932719

4,521212

5,612233

ld =112 ld =82

Calculating the WD Score

Current Plan Proposed Plan

DeptClosenessDistanceDistance

PairFactor, wd wd Scoredwd Score

1,231326

1,3616318

1,4531515

1,56212212

1,610220110

2,3821618

2,412211

2,511122

3,432626

3,5932719

4,521212

5,612233

ld =112 ld =82

23

Hybrid layouts

Two techniques for creating hybrid layouts

One-worker, multiple-machines (OWMM).

Group technology (GT) cells-grouping products or parts with similar characteristics.

Machine 1

Machine 2

Machine 3

Machine 4

Machine 5

Materials in

Finished goods out

One Worker, Multiple Machines

14

Before Group Technology

Drilling

D

D

D

D

Grinding

G

G

G

G

G

G

Milling

M

M

M

M

M

M

Assembly

A

A

A

A

Lathing

Receiving and shipping

L

L

L

L

L

L

L

L

Jumbled flows in a job shop without GT cells

14

Applied Group Technology

Line flows in a job shop with three GT cells

Cell 3

L

M

G

G

Cell 1

Cell 2

Assembly area

A

A

L

M

D

L

L

M

Shipping

D

Receiving

G

18

Capacity Management

Capacity Management

Capacity denotes the extent of availability of resources including labour and machines for use by various processes. It also denotes the maximum output of products and services one can achieve by using these resources.

Capacity can therefore be defined by the following two methods:

Input Measures (high product variety)

Output Measures (little product variety)

Decisions in Capacity Management

Long-Term Capacity Planning

Short-Term Capacity Planning

Long-Term Capacity Planning

Capacity Timing and Sizing strategies.

A systematic approach to decisions.

Capacity Timing and Sizing Strategies

Capacity Cushion=100-Average Utilization Rate

Large Cushions-uncertainty of future demand (peaks, growth, product mix), supply related reasons (absenteeism, policies with respect to subcontracting/overtime)

Small Cushions-ROI in case of high capital intensity

Capacity Timing and Strategies

Expansionist strategy (large, infrequent jumps in capacity).

Wait-and-see strategy (smaller,more frequent jumps in capacity).

Expansionist strategy

When economies of scale effects are strong, a firm can reduce its cost and compete on price.

A form of preemptive marketing-using capacity as a competitive weapon.

Wait-and-see strategy

Reduces risks of overly optimistic demand forecasts,technological change that would make the facility obsolete and unpredictable competitive reactions.

A systematic approach to decisions

Estimate capacity requirements. (processing and set-up time)

Identify gaps (vis--vis available capacity).

Develop Alternatives.

Evaluate the Alternatives qualitatively and quantitatively. Cash flow analysis used for quantitative evaluation.

Quantitative Decision Making-Decision Trees

A Decision Tree is a schematic model of alternatives available and their possible consequences to the decision maker.

It consists of a number of nodes with emanating branches (to be read from left to right).

Square nodes represent the decision points and branches leaving them, the alternatives.

Circular nodes represent events and branches leaving them, the chance events. Each chance event is associated with a probability (the sum of the probabilities of the chance events for a particular circular node is 1.0).

Payoff (present value of net profits) is calculated for each chance event at the outset.

Payoff for each circular node is the sum of the product of the probability and payoff of the chance events corresponding to the circular node.

The alternative with maximum payoff is chosen for each decision node.

Execution of an Operations Management-Use of Project Management

Agenda

What is a Project?

Project Management Processes and Knowledge Areas.

Using Project Management to implement the Operations Strategy.

Project Time Management (in detail).

Activity Sequencing and Duration Estimating.

Schedule Development

Case Study

What is a Project?

Project is an interrelated set of activities with a definite start and ending point, which results in a unique outcome for a specific allocation of resources.

Project Management Processes

Initiating-authorizing the project.

Planning-defining and refining project deliverables and objectives.

Executing-coordinating people and other resources to carry out the project plan.

Controlling-ensuring that the project deliverables and objectives are met by monitoring and measuring progress regularly to identify variances from the plan and take corrective actions when necessary.

Closing-formalizing acceptance of the project and bring it to an orderly end.

Project Management Knowledge Areas

Scope-to ensure that the project includes all the work required to complete the project successfully (i.e. Work Breakdown Structure).

Time-to ensure timely completion of the project.

Cost-to ensure that the project is completed within the approved budget.

Quality-to ensure that the project will satisfy the needs for which it was undertaken.

Human Resource-to make effective use of the people involved with the project.

Communications-to ensure timely and appropriate generation,collection,dissemination,storage and ultimate disposition of project information.

Risk-identifying, analyzing and responding to project risk.

Procurement-to acquire the goods and services required for the project.

Integration-to ensure that the various elements of the project are properly coordinated.

Using Project Management to implement the Operations Strategy

Project Management provides the methodology for planning and undertaking the necessary activities to implement a strategic initiative.

Projects and the application of Project Management facilitate the implementation of operations strategy.

Project time management

Activity Duration Estimating

Durations are often difficult to estimate and hence Expert Judgment based on historical information should be used whenever possible.

Quantitatively based durations

The quantities to be performed for each specific work category (eg. number of drawings, meters of cable, tons of steel,etc.) defined by the engineering/design effort, when multiplied by the productivity unit rate (eg. hours per drawing, meters of cable per hour,etc.) can be used to estimate activity durations.

Activity Sequencing

Precedence Diagram

Diagram that uses nodes to represent the activities and connects them with arrows that show the following dependencies:

Finish-to-start(initiation of work of the successor depends upon the completion of the work of the predecessor). This is most commonly used.

Finish-to-finish(completion of work of the successor depends upon the completion of the work of the predecessor).

Start-to-start(initiation of work of the successor depends upon the initiation of the work of the predecessor).

Start-to-finish(completion of work of the successor depends upon the initiation of the work of the predecessor).

This method is also called the Activity On Node (AON)

Schedule Development

Mathematical analysis

Critical Path Method (CPM) is the most widely used technique. It calculates early and late start and finish date for each activity based on specified, sequential network logic and duration estimate. The focus is on calculating the float or slack to determine which activities have the least scheduling flexibility.

Critical Path Method (CPM)-A Computing Algorithm

Network activities

ES-the earliest time an activity can start, assuming all preceding activities start as early as possible.

EF-the earliest time the activity can finish.

LS-the latest time the activity can start and not delay the project.

LF-the latest time the activity can finish and not delay the project.

Critical Path Method (CPM)-Rules for the Computing Algorithm

Forward Pass

For each path, start at the left side of the diagram and work to the right side.

For each beginning activity ES=0.

For each activity EF=ES+activity time

For the following activity ES=EF of the preceding activity.

If an activity has multiple immediate preceding activities, its ES is equal to the largest EF of its immediate preceding activities.

Critical Path Method (CPM)-Rules for the Computing Algorithm

Backward Pass

For each path, start at the right side of the diagram and work to the left side.

Use the largest EF as the LF for all the ending activities.

For each activity LS=LF-activity time

For the preceding activity LF=LS of the following activity.

If an activity has multiple immediate following activities, its LF is equal to the smallest LS of the following activities.

Critical Path Method (CPM)-Computing Slack Times

Slack Time=LS-ES or LF-EF

Critical Path using the computing algorithm is denoted by activities with zero Slack Time.