Production and operations management

MODULE 1 Engineering Department Finance Department Human Resource Department Management Information System Department Raw Materials Stores Materials Management Division Research &

MODULE 1

Engineering Department

Finance Department

Human Resource Department

Management Information System Department

Raw Materials Stores

Materials Management Division

Research

&

Development

Plant Engineering Department

Marketing department

Customer

In Target Market

Vendor/

Suppliers

Production Department (shop floor)

Quality Assurance Department

Customer

Support

Department

Sales Department

Factory Management

&

Liasioning

A Bird view of Production System

• The primary concern of an operations manager is the activities

of the conversion process

Today's Factors Affecting POM

• Global Competition

• U.S Quality, Customer Service, and Cost Challenges

• Computers and Advanced Production Technology

• Growth of U.S Service Sector

• Scarcity of Production Resources

• Issues of Social Responsibility

Different Ways to Study POM

• Production as a System

• Production as an Organization Function

• Decision Making in POM

Inputs of a Production System

• Location Services (Transportation)

• Exchange Services (Retailing)

• Storage Services (Warehousing)

• Other Private Services (Insurance)

• Government Services (Federal, State, Local)

Outputs of a Production System

Production as an Organization Function

• U.S companies cannot compete using marketing, finance, accounting, and engineering alone

• We focus on POM as we think of global competitiveness, because that is where the vast majority of a firm’s workers, capital assets, and expenses reside

• To succeed, a firm must have a strong operations function teaming with the other organization functions

Decision Making in POM

• Examples include deciding:

–the design for a new product’s production process

–where to locate a new factory

–whether to launch a new-product development plan

Operating Decisions

• These decisions are necessary if the ongoing production of goods and services is to satisfy market demands and provide profits

• Examples include deciding:

–how much finished-goods inventory to carry

–the amount of overtime to use next week

–the details for purchasing raw material next month

Control Decisions

• These decisions concern the day-to-day activities of workers, quality

of products and services, production and overhead costs, and machine maintenance

• Examples include deciding:

–labor cost standards for a new product

–frequency of preventive maintenance

–new quality control acceptance criteria

What Controls the Operations System?

• Information about the outputs, the conversions, and the inputs is fed back to management

• This information is matched with management’s expectations

• When there is a difference, management must take corrective action

to maintain control of the system

What is Operations Management?

Defined

Operations management (OM) is defined as the design, operation,

and improvement of the systems that create and deliver the firm’s primary products and services

• The Future of Operations

–Outsourcing everything

–Smart factories

–Talking inventory

–Industrial army of robots

–What’s in the box

–Mass customization

–Personalized recommendations

–Sign here, please

Why Study Operations

Operations Management

Operations Management Decision Types

• Strategic (long-term)

• Tactical (intermediate-term)

• Operational planning and control (short-term)

What is a Transformation Process?

The Importance of Operations Management

• Synergies must exist with other functional areas of the organization

• Operations account for 60-80% of the direct expenses that burden a firm’s profit

Core Services Performance Objectives

Operations Management

The Basics of Operations Management

• Operations Management

–The process of managing the resources that are needed to produce

an organization’s goods and services

–Operations managers focus on managing the “five Ps” of the firm’s operations:

•People, plants, parts, processes, and planning and control systems

The Production System

•Output

–A direct outcome (actual product or service) or indirect outcome (taxes, wages, salaries) of a production system

Basic Types of Production Processes

• Intermittent Production System

–Production is performed on a start-and-stop basis, such as for the manufacture of made-to-order products

• Mass Production

–A special type of intermittent production process using standardized methods and single-use machines to produce long runs of standardized items

Types of Production system

Manufacturing System Service System

Continuous Production Intermittent Production

Batch Production Job Production

Mass production( Flow) Processing Production

Mass Customization

–Designing, producing, and delivering customized products to customers for at or near the cost and convenience of mass-produced items

–Mass customization combines high production volume with high product variety

–Elements of mass customization:

•Modular product design

•Modular process design

•Agile supply networks

Continuous Production Processes

–A production process, such as those used by chemical plants or refineries, that runs for very long periods without the start-and-stop behavior associated with intermittent production

–Enormous capital investments are required for highly automated facilities that use special-purpose equipment designed for high volumes of production and little or no variation in the type of outputs Mass Production System (Flow)

Continuous Production

•Anticipation of demand

•May not have uniform production

•Standardized Raw material

•Big volume of limited product line

•Standard facility- high standardization

•Fixed sequence of operation

•Material handling is easier

•High skilled operator not required

•More Human problem is foreseen

•Huge investment

•High raw material inventory

Processing Production System

•Extended form of mass production system

•F.G of one stage is fed to next stage

•More automatic machines

•One basic raw material is transferred into several products at several stages

•Less highly skilled workers required

•More human problems foreseen

•Highly standardized system

Batch Production System

•Highly specialized Human resource is required

•Highly specialized multi tasking machines

•Machines are shared

•Production in batches

•Production lots are based on customer demand or order

•No single sequence of operation

•Finished goods are heterogeneous

Custom built / job order production system

• Highly specialized Human resource is required

• Highly specialized multi tasking machines

• Machines are shared

• Raw material is not standardized

• Process is not standardized

• No scope for repetition of production

Comparative study of different production systems

V Large High

Small Low

Medium High

Refinery

Chemical Petroleum Milk

proces

Construction Bridges

SPM

Consumer prod

Businesses Compete Using Marketing

• Identifying consumer wants and needs

• Pricing

• Advertising and promotion

Businesses Compete Using Operations

• Product and service design

Why Some Organizations Fail

• Too much emphasis on short-term financial performance

• Failing to take advantage of strengths and opportunities

• Failing to recognize competitive threats

• Neglecting operations strategy

Why Some Organizations Fail

• Too much emphasis in product and service design and not enough

on improvement

• Neglecting investments in capital and human resources

• Failing to establish good internal communications

• Failing to consider customer wants and needs

Strategy and Tactics

OrganizationalStrategiesFunctional Goals

Finance Strategies

Marketing Strategies

Operations Strategies

Operating procedures

Operating procedures

Operating procedures

Locat o o n

Disneyland Nordstroms

Superior customer service

Service

Burger King Supermarkets

Variety Volume

Flexibi i y

Express Mail, Fedex, One-hour photo, UPS

Rapid delivery On-time delivery

Time

Sony TV Lexus, Cadillac Pepsi, Kodak, Motorola

–Characteristics of an organization’s goods or services that cause it

to be perceived as better than the competition

Key External Factors

Operations Strategy and Competitiveness

• Operations Strategy

• A Framework for Operations Strategy

• Meeting the Competitive Challenge

• Productivity Measurement

3

Operations Strategy – Strategic

Alignment Customer Needs Corporate Strategy

Operations Strategy

Alignmen

t

Core Competencie

s Decisions

Processes, Infrastructure, and Capabilities

• Coping with Changes in Demand

• Other Product-Specific Criteria

8

A Framework for Organizational

Strategy Customer

Needs

New and Current Products

Performance Priorities and Requirements

Quality, Dependability, Service Speed, Flexibility, and Price

Operations & Supplier Capabilities Technology Systems People R&D CIM JIT TQM Distribution

Support Platforms Financial Management Human Resource Management Information Management

Enterprise

Capabilities

Strategic

Vision

OPERATIONS STRATEGY OBJECTIVES

u TRANSLATE MARKET REQ’M’TS TO SPECIFIC OPERATIONS PRIMARY MISSIONS

u ASSURE OPERATIONS IS CAPABLE TO ACCOMPLISH

PRIMARY MISSION

1) SEGMENT MARKET BY PRODUCT GROUPS

2) IDENTIFY PRODUCT REQUIREMENTS

3) DETERMINE ORDER WINNERS AND QUALIFIERS

4) CONVERT ORDER WINNERS INTO SPECIFIC PERFORMANCE REQMTS

Production / operation Strategy

Positioning the production system Product / service plans

Process and technology plans Strategic allocation of resources Facility Plan, Capacity Plan, Location and Layout

Dis -advantage in capturing market

Low prod cost

Elements of operation strategy

Positioning the production system

A Product Focused

B Process Focused

• Product / Service plans

• Out sourcing plans

• Process technology plans

• Strategic allocation of resources

1985 Recommendations - Still Very Accurate Today

•Less emphasis on short-term financial payoffs and invest more in R&D

•Revise corporate strategies to include responses to foreign competition

–greater investment in people and equipment

•Knock down communication barriers within organizations and recognize mutuality of interests with other companies and suppliers

MIT Commission on Industrial Productivity

1985 Recommendations

•Recognize that the labor force is a resource to be nurtured, not just a cost to be avoided

•Get back to basics in managing production/ operations

–Build in quality at the design stage

–Place more emphasis on process innovations rather than focusing

sole attention on product innovations - dramatically improve costs, quality, speed, & flex

U S Competitiveness Drivers

•Product/Service Development - NPD

–Teams speed development and enhance manufacturability

•Waste Reduction (LEAN/JIT Philosophy)

–WIP, space, tool costs, and human effort

•Improved Customer-Supplier Relationships

–Look for Win-Win! Taken from Japanese Keiretsu

•Early Adoption of IT Technology Including

–PC Technology – WWW - ERPS

Units of output per kilowatt-hour Dollar value of output per kilowatt- hour

Examples of Partial Productivity Measures

Factors Affecting Productivity

Other Factors Affecting Productivity

• Design of the workspace

• Incentive plans that reward productivity

Improving Productivity

•Develop productivity measures

•Determine critical (bottleneck) operations

•Develop methods for productivity improvements

•Establish reasonable goals

•Get management support

•Measure and publicize improvements

•Don’t confuse productivity with efficiency

Economic Analysis of Project Development Costs

• Using measurable factors to help determine:

–Operational design and development decisions

–Go/no-go milestones

• Building a Base-Case Financial Model

–A financial model consisting of major cash flows

–Sensitivity Analysis for “what if” questions

Designing for the Customer

House of Quality

Designing for the Customer: Quality Function Deployment

•Interventional teams from marketing, design engineering, and manufacturing

•Voice of the customer

•House of Quality

Designing for the Customer: Value Analysis/Value Engineering

•Achieve equivalent or better performance at a lower cost while maintaining all functional requirements defined by the customer

–Does the item have any design features that are not necessary? –Can two or more parts be combined into one?

–How can we cut down the weight?

–Are there nonstandard parts that can be eliminated?

Design for Manufacturability

• Traditional Approach

–“We design it, you build it” or “Over the wall”

Concurrent Engineering

–“Let’s work together simultaneously”

Design for Manufacturing and Assembly

•Greatest improvements related to DFMA arise from simplification of the product by reducing the number of separate parts:

•During the operation of the product, does the part move relative to all other parts already assembled?

•Must the part be of a different material or be isolated from other parts already assembled?

•Must the part be separate from all other parts to allow the disassembly of the product for adjustment or maintenance?

• Freq of new products introduced

• Time to market introduction

• Number stated and number completed

• Actual versus plan

• Percentage of sales from new products

Time-to-market

Productivity

Quality

• Engineering hours per project

• Cost of materials and tooling per project

• Actual versus plan

Process Design

• Small lot sizes

• Setup time reduction

• Reduce downtime by reducing changeover time

• Use preventive maintenance to reduce breakdowns

• Cross-train workers to help clear bottlenecks

• Use many small units of capacity

• Use off-line buffers

• Reserve capacity for important customers

Benefits of Small Lot Sizes

Reduces inventory

Less storage space

Less rework

Problems are more apparent

Increases product flexibility Easier to balance

operations

• Close vendor relationships

• Reduced transaction processing

• Preventive maintenance

Pull/Push Systems

• Pull system: System for moving work where a workstation pulls

output from the preceding station as needed (e.g Kanban)

• Push system: System for moving work where output is pushed to the

next station as it is completed

Kanban Production Control System

• Kanban: Card or other device that communicates demand for work

or materials from the preceding station

• Kanban is the Japanese word meaning “signal” or “visible record”

• Paperless production control system

from a downstream process

Kanban Formula

N = Total number of containers

D = Planned usage rate of using work center

T = Average waiting time for replenishment of parts plus average

production time for a container of parts

X = Policy variable set by management - possible inefficiency in the

system

C = Capacity of a standard container

N = DT(1+X) C

Traditional Suppl er Network

Product and Service Design

• Major factors in design strategy

Product and service design – or redesign – should be

closely tied to an organization’s strategy

Product or Service Design Activities

• Translate customer wants and needs into product and service requirements

• Refine existing products and services

• Develop new products and services

• Formulate quality goals

• Formulate cost targets

• Construct and test prototypes

• Document specifications

Reasons for Product or Service Design

• Economic

• Social and demographic

• Political, liability, or legal

• Competitive

• Technological

Objectives of Product and Service Design

Designing For Operations

Taking into account the capabilities of the organization in designing goods and services

Legal, Ethical, and Environmental Issues

Regulations & Legal Considerations

• Product Liability - A manufacturer is liable for any injuries or

damages caused by a faulty product

• Uniform Commercial Code - Products carry an implication of

merchantability and fitness

• Fewer parts to deal with in inventory & manufacturing

• Design costs are generally lower

• Reduced training costs and time

• More routine purchasing, handling, and inspection procedures

• Orders fallible from inventory

• Opportunities for long production runs and automation

• Need for fewer parts justifies increased expenditures on perfecting designs and improving quality control procedures

Disadvantages of Standardization

• Designs may be frozen with too many imperfections remaining

• High cost of design changes increases resistance to improvements

• Decreased variety results in less consumer appeal

• Delayed differentiation is a postponement tactic

–Producing but not quite completing a product or service until customer preferences or specifications are known

Modular Design

Modular design is a form of standardization in which component parts

are subdivided into modules that are easily replaced or interchanged

It allows:

–easier diagnosis and remedy of failures

–easier repair and replacement

–simplification of manufacturing and assembly

Reliability

• Reliability: The ability of a product, part, or system to perform its

intended function under a prescribed set of conditions

• Failure: Situation in which a product, part, or system does not

perform as intended

• Normal operating conditions: The set of conditions under which an

item’s reliability is specified

Robust Design: Design that results in products or services that

can function over a broad range of conditions

Taguchi Approach Robust Design

• Design a robust product

–Insensitive to environmental factors either in manufacturing or in use

• Central feature is Parameter Design

• Determines:

–factors that are controllable and those not controllable

–their optimal levels relative to major product advances

Degree of Newness

• Modification of an existing product/service

• Expansion of an existing product/service

• Clone of a competitor’s product/service

Newness to the market

Phases in Product Development Process

Supply chain based

Research based

Reverse Engineering

Reverse engineering is the dismantling and inspecting of a

competitor’s product to discover product improvements

Research & Development (R&D)

• Organized efforts to increase scientific knowledge or product innovation & may involve:

– Basic Research advances knowledge about a subject

without near-term expectations of commercial applications

– Applied Research achieves commercial applications – Development converts results of applied research into

Design for Manufacturing (DFM)

The designers’ consideration of the organization’s manufacturing capabilities when designing a product

The more general term design for operations encompasses services

as well as manufacturing

Concurrent Engineering

Concurrent engineering is the bringing together of engineering design

and manufacturing personnel early in the design phase