Operation Management

1. Introduction
2. Operation management as a
competitive tool for business
3. Productivity System
4. Inventory System
5. Just In Time (JIT)
6. Supply Chain Management

What Is PRODUCTIVITY?
PRODUCTIVITY
Produce = Product = Productivity

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12

What is PRODUCTIVITY?
A measure of
the efficiency of
a person, machine, factory, and system
in converting inputs into useful outputs.
High productivity = High capital gains

Productivity (p) =

Importance of PRODUCTIVITY in
Business
Providing more goods and services to
consumers translates to higher profits.

The consultancy services market

% of world revenues of 40 largest firms
Financial
6
Organizational
design
11

Marketing/sales
2

Operations and process

management
31

Benefits/Actuarial
16

IT strategy
17

Corporate strategy
17

The Future of Operations

Outsourcing everything
Smart factories
Talking inventory
Industrial army of robots
Whats in the box
Mass customization
Personalized recommendations
Sign here, please

New Challenges in OM
From
Local or national focus
Batch shipments
Low bid purchasing
Lengthy product
development
Standard products
Job specialization

To
Global focus
Just-in-time
Supply chain
partnering
Rapid product
development,
alliances
Mass customization
Empowered
employees, teams

OM as Competitive Tools for

Business
Competing on Cost
Competing on Quality
Competing on Flexibility
Competing on Speed

Competing on Cost

Elimination of all waste

Tighten productivity standards

Competing on Quality
Quality in defense:
Minimize defect rate
Conform to design specifications

Opportunity to please the

customer
Understand attitudes towards and
expectations of quality

Competing on Flexibility
Ability to produce variety of
products
Introduce new products
Modify existing products
Respond quickly to customer
needs
Marketing wants variety for
customers

Competing on Speed
Fast moves
Fast adaptations
Tight linkage with suppliers

Production System
A production system is defined as
a user of resources to transform
inputs into some desired output

Transformations
Physical--manufacturing
Locational--transportation
Exchange--retailing
Storage--warehousing
Physiological--health care
Informational--telecommunications

OM in the Organization Chart

Finance

Plant
Plant
Manager
Manager

Operations
Operations Marketing
Operations
Operations
Manager
Manager

Director
Director

Manufacturing,
Manufacturing, Production
Productioncontrol,
control,
Quality
Qualityassurance,
assurance, Engineering,
Engineering,
Purchasing,
Purchasing, Maintenance,
Maintenance,etc
etc

What is Inventory?
Inventory is stock of items held to
meet future demand.
It is a list for goods and materials,
or those goods and materials
themselves, held available in
stock by a business

Inventory Management Flow

Tasks in Inventory
Management
1. Track Inventory To look after the
amount of inventory.
2. How much to order? To specify
units of inventory to be used by
organizations.
3. When to order?
4. Specify the duration of getting the
inventory.

Reasons to keep Inventories

1. Time lags require to maintain
certain amounts of inventory.
2. Consumption during variation
in lead time
3. To meet uncertainties in
demand.
4. Economies of Scale

Just-in-time: A definition
Uses a systems approach to develop and
operate a manufacturing system
Organizes the production process so that
parts are available when they are needed
A method for optimizing processes that
involves continual reduction of waste

"Only what is needed, when it is

needed, and in the amount
needed."

Pull scheduling
A system of controlling materials
whereby the use signals to the maker
or provider that more material is
needed.

Push scheduling

buyer

A system of controlling materials

whereby makers and providers make or
send material in response to a pre-set
schedule, regardless of whether the
next process needs them at the time.
supplier

Pull: Just-in-time

Push: traditional way

What is a Supply Chain?

A supply chain is the system of
organizations, people, activities,
information and resources involved in
moving a product or service from supplier
to customer. Supply chain activities
transform raw materials and components
into a finished product that is delivered to
the end customer.

Supply Chain

Suppli
er

Manufact
urer

Distribut
or

Retail
er

Custome
rs

Supply Chain Management

Supply Chain Management is
the design and management of processes
across organizational boundaries
with the goal of matching supply and
demand
in the most cost effective way.
Suppl
y

Dema
nd

Why so Difficult
to Match Supply and Demand?

Uncertainty in demand and/or supply

Changing customer requirements
Decreasing product life cycles
Fragmentation of supply chain ownership

Why so Difficult
to Match Supply and Demand?
Conflicting objectives in the supply chain
Conflicting objectives even within a single firm
Marketing/Sales wants: more FGI inventory, fast
delivery, many package types, special
wishes/promotions
Production wants: bigger batch size, depots at factory,
latest ship date, decrease changeovers, stable
production plan
Distribution wants: full truckload, low depot costs, low
distribution costs, small # of SKUs, stable distribution
plan

Supply Chain Performance

Measures
Cost
Total

Supply Chain Cost is the sum of all

supply chain costs for all products
processed through a supply chain during
a given period
Inventory Turnover is the ratio of the cost
of goods sold to the value of average
inventory.
Weeks of inventory is the ratio of
average inventory to the average weekly
sales

Supply Chain Performance

Measures
Customer Service
Average

Response Time is the sum of

delays of ordering, processing, and
transportation between the time an order
is placed at a customer zone and the time
the order arrives at the customer zone