POM 1

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Introductionto

Production and Operations Management

20/01/2011

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OverviewOverview

IntroductionIntroduction Historical Milestones in OMHistorical Milestones in OM Factors Affecting OM TodayFactors Affecting OM Today Computer approach to solve Problems related to Computer approach to solve Problems related to

POMPOM

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IntroductionIntroduction

Operations management Operations management is the management of an is the management of an organization’s resources or its production system.organization’s resources or its production system.

A A production system production system takes inputs and converts them takes inputs and converts them into outputs.into outputs.

The The conversion process conversion process is the predominant activity of is the predominant activity of a production system.a production system.

The primary concern of an The primary concern of an operations manager operations manager is the is the activities of the conversion process.activities of the conversion process.

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CreateCreate operational systems.operational systems. Manage Manage (plan, organize, staff, direct and (plan, organize, staff, direct and

control) the activities relating to the production of control) the activities relating to the production of goods and/or services with maximum efficiency goods and/or services with maximum efficiency (at the lowest cost) and effectiveness (in the (at the lowest cost) and effectiveness (in the eyes of the customer).eyes of the customer).

Improve Improve those processes continuously to those processes continuously to create competitive advantage.create competitive advantage.

IntroductionIntroduction

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Competitive Priorities for the Operational Competitive Priorities for the Operational FunctionFunction

Price or CostPrice or Cost QualityQuality

Short Run: Conformance, Design (Fitness for Use)Short Run: Conformance, Design (Fitness for Use) Long Run: Continuous Improvement Through the Learning OrganizationLong Run: Continuous Improvement Through the Learning Organization

FlexibilityFlexibility Product Mix: make various products and adjust mixProduct Mix: make various products and adjust mix Handle volume SurgeHandle volume Surge

Time - DependabilityTime - Dependability Speed of Delivery (Lead Time)Speed of Delivery (Lead Time) Speed to Market (New Product Development Time)Speed to Market (New Product Development Time)

ServiceService Delivering a comprehensive solution – products & augmenting services – Delivering a comprehensive solution – products & augmenting services –

to the customer’s needs to the customer’s needs

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New Challenges in OMNew Challenges in OM

Local or national Local or national focusfocus

Batch shipmentsBatch shipments Low bid purchasingLow bid purchasing

Lengthy product Lengthy product developmentdevelopment

Standard productsStandard products Job specializationJob specialization

Global focus

Just-in-time Supply chain

partnering

Rapid product development,

Mass customization Empowered

employees, teams

FromFrom ToTo

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Characteristics of Goods and ServicesCharacteristics of Goods and Services

Tangible product Consistent

product definition Production usually

separate from consumption

Can be inventoried Low customer

interaction

Intangible product Produced & consumed

at same time Often unique High customer

interaction Inconsistent product

definition Often knowledge-based Frequently dispersed

Goods Services

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Historical Milestones in OMHistorical Milestones in OM

The Industrial RevolutionThe Industrial Revolution Post-Civil War PeriodPost-Civil War Period Scientific ManagementScientific Management Human Relations and BehaviorismHuman Relations and Behaviorism Operations ResearchOperations Research The Service RevolutionThe Service Revolution

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Historical Events in Operations ManagementHistorical Events in Operations Management

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The Industrial RevolutionThe Industrial Revolution

The The industrial revolution industrial revolution developed in England in the developed in England in the 1700s.1700s.

The steam engine, invented by James Watt in 1764, The steam engine, invented by James Watt in 1764, largely replaced human and water power for factories.largely replaced human and water power for factories.

Adam Smith’s Adam Smith’s The Wealth of NationsThe Wealth of Nations in 1776 touted in 1776 touted the economic benefits of the the economic benefits of the specialization of laborspecialization of labor..

Thus the late-1700s factories had not only machine Thus the late-1700s factories had not only machine power but also ways of power but also ways of planning and controlling planning and controlling the the tasks of workers.tasks of workers.

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Scientific ManagementScientific Management

Frederick TaylorFrederick Taylor is known as the father of is known as the father of scientific scientific managementmanagement. His . His shop system shop system employed these steps:employed these steps: Each worker’s Each worker’s skill, strength, and learning ability skill, strength, and learning ability

were determined.were determined. Stopwatch studies Stopwatch studies were conducted to precisely set were conducted to precisely set

standard output per worker on each task.standard output per worker on each task. Material specifications, work methods, and routing Material specifications, work methods, and routing

sequencessequences were used to organize the shop. were used to organize the shop. SupervisorsSupervisors were carefully selected and trained. were carefully selected and trained. Incentive pay systems Incentive pay systems were initiated.were initiated.

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Scientific ManagementScientific Management

In the 1920s, Ford Motor Company’s operation In the 1920s, Ford Motor Company’s operation embodied the key elements of scientific management:embodied the key elements of scientific management: standardized product designsstandardized product designs mass productionmass production low manufacturing costslow manufacturing costs mechanized assembly linesmechanized assembly lines specialization of laborspecialization of labor interchangeable partsinterchangeable parts

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Human Relations and BehavioralismHuman Relations and Behavioralism

In the 1927-1932 period, researchers in the In the 1927-1932 period, researchers in the Hawthorne Studies realized that human factors were Hawthorne Studies realized that human factors were affecting production.affecting production.

Researchers and managers alike were recognizing Researchers and managers alike were recognizing that psychological and sociological factors affected that psychological and sociological factors affected production.production.

From the work of From the work of behavioralistsbehavioralists came a gradual came a gradual change in the way managers thought about and change in the way managers thought about and treated workers.treated workers.

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Operations ResearchOperations Research

During World War II, enormous quantities of During World War II, enormous quantities of resources (resources (personnel, supplies, equipmentpersonnel, supplies, equipment, …) had to , …) had to be deployed.be deployed.

Military Military operations research operations research (OR) teams were formed (OR) teams were formed to deal with the complexity of the deployment.to deal with the complexity of the deployment.

After the war, After the war, operations researchers found their way operations researchers found their way back to universities, industry, government, and back to universities, industry, government, and consulting firmsconsulting firms..

OR helps OR helps operations managers make decisions operations managers make decisions when when problems are complex and wrong decisions are problems are complex and wrong decisions are costly.costly.

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The Service RevolutionThe Service Revolution

The creation of services organizations accelerated The creation of services organizations accelerated sharply after sharply after World War IIWorld War II..

Today, more than Today, more than two-thirds of the US workforce two-thirds of the US workforce is is employed in services.employed in services.

About About two-thirds of the US GDP is from servicestwo-thirds of the US GDP is from services.. There is a huge trade surplus in services.There is a huge trade surplus in services. Investment per office worker now exceeds the Investment per office worker now exceeds the

investment per factory worker.investment per factory worker. Thus there is a growing need for Thus there is a growing need for service operations service operations

management.management.

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The Computer RevolutionThe Computer Revolution

Explosive Explosive growth of computer and communication growth of computer and communication technologiestechnologies

Easy access to information and the Easy access to information and the availability of availability of more informationmore information

Advances in software applications Advances in software applications such as such as Enterprise Enterprise Resource Planning (ERP)Resource Planning (ERP) software software

Widespread use of emailWidespread use of email More and more firms becoming involved in More and more firms becoming involved in E-E-

Business using the InternetBusiness using the Internet Result:Result: faster, better decisions over greater distancesfaster, better decisions over greater distances

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Today's Factors Affecting OMToday's Factors Affecting OM

Global CompetitionGlobal Competition Quality, Customer Service, and Cost ChallengesQuality, Customer Service, and Cost Challenges Rapid Expansion of Advanced TechnologiesRapid Expansion of Advanced Technologies Continued Growth of the Service SectorContinued Growth of the Service Sector Social-Responsibility IssuesSocial-Responsibility Issues

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Studying Operations ManagementStudying Operations Management

Operations as a SystemOperations as a System Decision Making in OMDecision Making in OM

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Operations as a SystemOperations as a System

InputsInputs OutputsOutputsConversionConversionSubsystemSubsystem

Production SystemProduction System

ControlControlSubsystemSubsystem

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Inputs of an Operations SystemInputs of an Operations System

ExternalExternal Legal, Economic, Social, TechnologicalLegal, Economic, Social, Technological

MarketMarket Competition, Customer Desires, Product InfoCompetition, Customer Desires, Product Info..

Primary ResourcesPrimary Resources Materials, Personnel, Capital, UtilitiesMaterials, Personnel, Capital, Utilities

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Conversion SubsystemConversion Subsystem

Physical Physical (Manufacturing)(Manufacturing) Locational Services Locational Services (Transportation)(Transportation) Exchange Services Exchange Services (Retailing)(Retailing) Storage Services Storage Services (Warehousing)(Warehousing) Other Private ServicesOther Private Services (Insurance) (Insurance) Government ServicesGovernment Services (Federal) (Federal)

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Outputs of an Operations SystemOutputs of an Operations System

DirectDirect ProductsProducts ServicesServices

IndirectIndirect WasteWaste PollutionPollution Technological AdvancesTechnological Advances

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Decision Making in OMDecision Making in OM

Strategic DecisionsStrategic Decisions Operating DecisionsOperating Decisions Control DecisionsControl Decisions

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Strategic DecisionsStrategic Decisions

These decisions are of strategic importance and have These decisions are of strategic importance and have long-term significance for the organization.long-term significance for the organization.

Examples include deciding:Examples include deciding: the design for a new product’s production processthe design for a new product’s production process where to locate a new factorywhere to locate a new factory whether to launch a new-product development planwhether to launch a new-product development plan

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Corporate StrategyCorporate Strategy

Materials &Customers

Products &Services

Input Output

Operations Management

Marketing StrategyFinance Strategy

Corporate Strategy

Operations Strategy

People Plants Parts Processes

Planning and Control

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Operations StrategyOperations Strategy

ExampleStrategy Process

Customer Needs

Corporate Strategy

Operations Strategy

More Product

Increase Org. Size

Increase Production Capacity

Build New FactoryDecisions on Processes

and Infrastructure

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Control DecisionsControl Decisions

These decisions concern the day-to-day activities of These decisions concern the day-to-day activities of workers, quality of products and services, production workers, quality of products and services, production and overhead costs, and machine maintenance.and overhead costs, and machine maintenance.

Examples include deciding:Examples include deciding: labor cost standards for a new productlabor cost standards for a new product frequency of preventive maintenancefrequency of preventive maintenance new quality control acceptance criterianew quality control acceptance criteria

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What Controls the Operations System?What Controls the Operations System?

Information about the outputs, the conversions, and Information about the outputs, the conversions, and the inputs is feed back to management.the inputs is feed back to management.

This information is matched with management’s This information is matched with management’s expectationsexpectations

When there is a difference, management must take When there is a difference, management must take corrective action to maintain control of the systemcorrective action to maintain control of the system

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Operations FunctionOperations Function

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QualityManagement

StatisticalProcess Control

Just in Time

Materials Requirement Planning

Inventory Control

AggregatePlanning

Operations Management - Overview

ProjectManagement

Supply Chain Management

Process Controland Improvement

Waiting Line Analysis and Simulation

Services

Manufacturing

OperationsStrategy

Facility Layout

Consulting andReengineering

Process Analysis

Job Design

Capacity Management

Planning for Production

Supply ChainStrategy

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Operatio

ns Stra

tegy

Operatio

ns Stra

tegy

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Strategy FormulationStrategy Formulation

1.1. Define a primary taskDefine a primary task2.2. Assess core Assess core

competenciescompetencies3.3. Determine order Determine order

winners & order qualifierswinners & order qualifiers4.4. Positioning the firmPositioning the firm

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Primary TaskPrimary Task

What business the firm sees itself inWhat business the firm sees itself in How the firm adds value to its customerHow the firm adds value to its customer What is firm’s value propositionWhat is firm’s value proposition

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Core CompetenciesCore Competencies

What a firm does better than anyone elseWhat a firm does better than anyone else Based on experience and knowledgeBased on experience and knowledge

NOT products and services, equipment and NOT products and services, equipment and technologies or customers and marketstechnologies or customers and markets

Core competencies need to align with the firm’s value Core competencies need to align with the firm’s value propositionproposition

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Order Winners and Core CompetenciesOrder Winners and Core Competencies

Ideally, the marketplace order winner should align Ideally, the marketplace order winner should align with a firm’s core competencywith a firm’s core competency

Order Winner

Core Competencies

Value Proposition

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PositioningPositioning

Making strategic choicesMaking strategic choices No firm can supply all things to all peopleNo firm can supply all things to all people Choosing one or two important dimensions and doing Choosing one or two important dimensions and doing

them extremely wellthem extremely well An effective positioning strategy considers the needs An effective positioning strategy considers the needs

of the marketplace, strengths/weaknesses of the of the marketplace, strengths/weaknesses of the organization, and position of competitorsorganization, and position of competitors..

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Dimensions of CompetitionDimensions of Competition

CostCost QualityQuality FlexibilityFlexibility SpeedSpeed

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Competing on CostCompeting on Cost

Eliminate all wasteEliminate all waste Invest inInvest in

Updated facilities & equipmentUpdated facilities & equipment Streamlining operationsStreamlining operations Training & developmentTraining & development

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Competing on QualityCompeting on Quality

Please the customerPlease the customer Understand customer Understand customer

attitudes toward and attitudes toward and expectations of quality expectations of quality

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Competing on FlexibilityCompeting on Flexibility

Produce wide variety of Produce wide variety of productsproducts

Introduce new productsIntroduce new products Modify existing products Modify existing products

quicklyquickly Respond to customer needsRespond to customer needs

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Competing on SpeedCompeting on Speed

Fast movesFast moves Fast adaptationsFast adaptations Rapid product Rapid product

developmentdevelopment

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Operations Role in Operations Role in Corporate StrategyCorporate Strategy

Provide support for overall strategy of Provide support for overall strategy of a firma firm

Serve as firm’s distinctive competenceServe as firm’s distinctive competence Must be consistent with overall Must be consistent with overall

strategystrategy

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Strategic Decisions in OperationsStrategic Decisions in Operations

Products Processes and Technology

CapacityHuman Resources Quality

Facilities Sourcing

Services

Operating Systems

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Products & ServicesProducts & Services

Make-to-orderMake-to-order Made to customer specifications after Made to customer specifications after

order receivedorder received Make-to-stockMake-to-stock

Made in anticipation of demandMade in anticipation of demand Assemble-to-orderAssemble-to-order

Add options according to customer Add options according to customer specificationspecification

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Processes & TechnologyProcesses & Technology

ProjectProject One-time production of product to customer orderOne-time production of product to customer order

Batch productionBatch production Process many jobs at same time in batchProcess many jobs at same time in batch

Mass productionMass production Produce large volumes of standard product for Produce large volumes of standard product for

mass marketmass market Continuous productionContinuous production

Very high volume commodity productVery high volume commodity product

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Product-Process MatrixProduct-Process MatrixVo

lum

eVo

lum

e

LowLowLowLow HighHigh

HighHigh

Projects

BatchProduction

MassProduction

ContinuousProduction

StandardizationStandardization

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Capacity & FacilitiesCapacity & Facilities

How much capacity to provideHow much capacity to provide Size of capacity changesSize of capacity changes Handling excess demandHandling excess demand Hiring/firing of workersHiring/firing of workers Need for new facilitiesNeed for new facilities

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FacilitiesFacilities

Best size for facility?Best size for facility? Large or small facilitiesLarge or small facilities Facility focusFacility focus Facility locationFacility location Global facilityGlobal facility

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Human ResourcesHuman Resources

Skill levels requiredSkill levels required Degree of autonomyDegree of autonomy PoliciesPolicies Profit sharingProfit sharing Individual or team workIndividual or team work Supervision methodsSupervision methods Levels of managementLevels of management TrainingTraining

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QualityQuality

Target levelTarget level MeasurementMeasurement Employee involvementEmployee involvement TrainingTraining Systems needed to ensure qualitySystems needed to ensure quality Maintaining quality awarenessMaintaining quality awareness Evaluating quality effortsEvaluating quality efforts Determining customer perceptionsDetermining customer perceptions

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SourcingSourcing

Supplier selectionSupplier selection Supplier relationshipSupplier relationship Supplier qualitySupplier quality Supplier cooperationSupplier cooperation

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Operating SystemsOperating Systems

Execute strategy dailyExecute strategy daily Information technology supportInformation technology support Effective planning & control systemsEffective planning & control systems Alignment of inventory levels, Alignment of inventory levels,

scheduling priorities, & reward scheduling priorities, & reward systemssystems

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Strategic PlanningStrategic Planning

Mission and Vision

Corporate Strategy

Voice of the Business

Voice of the Customer

Marketing Strategy

Operations Strategy

Financial Strategy

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Policy DeploymentPolicy Deployment

Focuses employees on common goals & Focuses employees on common goals & prioritiespriorities

Translates strategy into measurable Translates strategy into measurable objectivesobjectives

Aligns day-to-day decisions with Aligns day-to-day decisions with strategic planstrategic plan

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Home AssignmentHome Assignment

Q1. Define Operations Management. How is it related Q1. Define Operations Management. How is it related with other functional area such as Marketing, Finance, with other functional area such as Marketing, Finance, HR, etc?HR, etc?

Q2. How is corporate strategy related to operations Q2. How is corporate strategy related to operations strategy? Explain.strategy? Explain.

Q3. Define and classify the production systems.Q3. Define and classify the production systems.Q4. Differentiate flexibility and agility.Q4. Differentiate flexibility and agility.Q5. Write short notes onQ5. Write short notes on

(i) Scientific Management(i) Scientific Management (iii) Operations Strategy(iii) Operations Strategy(ii) Industrial Revolution(ii) Industrial Revolution (iv) Sourcing(iv) Sourcing

POM 1

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