operations and production managementpiimt.us/piimt/module/demande/fichier/attachement_117.pdf ·...

Operations and Production Management

GPO300 2nd October 2012

Thursday, October 4, 12

first semester 2012 13GPO300 Operations and Production Management

CLASSROOM CODE OF CONDUCT

GROUND RULES:

Start and end time

No cell phones or electronic devices

Respect all ideas

Know your rights and obligations to others

Listen to others

Do not interrupt others

Do not criticize, condemn or complain

Side Discussions

Complete your assignments

Focus on ‘what’ is right and not ‘who’ is right

If You don’t understand something it is better to be ignorant for 5 minutes and ask now then to shy away and be ignorant for the rest of your life.


1 Ops the Big PictureOperations management

1 ➤ What is operations management?

2 ➤ Why is operations management important in all types of organization?

3 ➤ What is the input–transformation–output process?

4 ➤ What is the process hierarchy?

5 ➤ How do operations processes have different characteristics?

6 ➤ What are the activities of operations management?

Operations performance

7 ➤ Why is operations performance important in any organization?

8 ➤ How does the operations function incorporate all stakeholders’ objectives?

9 ➤ What are the performance objectives of operations and what are the internal and external benefits which derive from excelling in each of them?

10 ➤ How do operations performance objectives trade off against each other?

Operations strategy

11 ➤ What is strategy and what is operations strategy?

12 ➤ What is the difference between a ‘top-down’ and a ‘bottom-up’ view of operations strategy?

13 ➤ What is the difference between a ‘market requirements’ and an ‘operations resources’ view of operations strategy?

14 ➤ How can an operations strategy be put together? insights into operational decision making

Week 1 Week 2


2 Design

Process design

1 ➤ What is process design?

2 ➤ What objectives should process design have?

3 ➤ How do volume and variety affect process design?

4 ➤ How are processes designed in detail and decision Making made?

Products and services design5 ➤ Why is good product and service design important?

6 ➤ What are the stages in product and service design?

7 ➤ Why should product and service design and process design be considered interactively?

Supply Chain design

8 ➤ Why should an organization take a total supply Chain perspective?

9 ➤ What is involved in configuring a supply Chain?

10 ➤ Where should an operation be located?

11 ➤ How much capacity should an operation plan have?

Layout and flow

12 ➤ What is layout?

13 ➤ What are the basic layout types used in operations?

14 ➤ What type of layout should an operation choose?

15 ➤ What is layout design trying to achieve?

Process technology

17 ➤ What is process technology?

18 ➤ How are process technologies evaluated?

19 ➤ How are process technologies implemented?

Organizations, People, and jobs

20 ➤ Why are people issues so important in operations management?

21 ➤ How do operations managers contribute to human resource strategy?

Week 3 Week 6


3 How to run OperationsThe nature of planning and control

1 ➤ What is planning and control?

2 ➤ How do supply and demand affect planning and control?

3 ➤ What are the activities of planning and control?

Capacity planning and control

4 ➤ What is capacity planning and control?

5 ➤ How are demand and capacity measured?

6 ➤ What are the alternative ways of coping with demand fluctuation?

7 ➤ How can operations plan and control their capacity level?

8 ➤ How can queuing theory be used to plan capacity?

Inventory planning and control

9 ➤ What is inventory?

10 ➤ Why is inventory necessary?

11 ➤ What are the disadvantages of holding inventory?

12 ➤ How much inventory should an operation hold?

13 ➤ When should an operation replenish its inventory?

14 ➤ How can inventory be controlled?

Supply chain planning and control

15 ➤ What is supply chain management?

16 ➤ What are the activities of supply chain management?

17 ➤ What are the types of relationship between operations in supply chains?

18 ➤ How do supply chains behave in practice?

19 ➤ How can supply chains be improved?

ERP

20 ➤ What is ERP?

21 ➤ How did ERP develop?

22 ➤ How should ERP systems be implemented?

Project planning and control

23 ➤ What is a project?

24 ➤ What makes project management successful?

Quality planning and control

25 ➤ What is quality and why is it so important?

26 ➤ How can quality problems be diagnosed?

Week 7 Week 12

Capacity

Inventory

Project

Quality

MRP & ERP

Supply chain


4 Getting Better

Operations improvement

1 ➤ Why is improvement so important in operations management?

2 ➤ What are the key elements of operations improvement?

3 ➤ What are the broad approaches to managing improvement?

Risk management

4 ➤ What is risk management?

5 ➤ How can failures be prevented?

6 ➤ How can operations mitigate the effects of failure?

7 ➤ How can operations recover from the effects of failure?

Organizing improvement

8 ➤ How should the improvement effort be linked to strategy?

9 ➤ How can organizational culture affect improvement?

10 ➤ What are the key implementation issues?

Operations and corporate social responsibility (CSR)

11 ➤ What is corporate social responsibility?

12 ➤ How does the wider view of corporate social responsibility influence operations management?

13 ➤ How can operations managers analyze CSR issues?

Week 13 Week 16



Some nice restaurant



Emergencies


EFFECTIVENESS EFFICIENCY



Chapter 1 Operations management 11

Table 1.2 Changes in the business environment are shaping a new operations agenda

Prompting operations responses . . .

For example,

• Globalization of operations networking

• Information-based technologies

• Internet-based integration of operationsactivities

• Supply chain management

• Customer relationship management

• Flexible working patterns

• Mass customization

• Fast time-to-market methods

• Lean process design

• Environmentally sensitive design

• Supplier ‘partnership’ and development

• Failure analysis

• Business recovery planning

The business environment is changing . . .

For example,

• Increased cost-based competition

• Higher quality expectations

• Demands for better service

• More choice and variety

• Rapidly developing technologies

• Frequent new product/serviceintroduction

• Increased ethical sensitivity

• Environmental impacts are moretransparent

• More legal regulation

• Greater security awareness

!

Figure 1.3 All operations are input–transformation–output processes

The input–transformation–output process

All operations produce products and services by changing inputs into outputs using an‘input-transformation-output’ process. Figure 1.3 shows this general transformation processmodel. Put simply, operations are processes that take in a set of input resources which areused to transform something, or are transformed themselves, into outputs of products andservices. And although all operations conform to this general input–transformation–outputmodel, they differ in the nature of their specific inputs and outputs. For example, if you stand far enough away from a hospital or a car plant, they might look very similar, but movecloser and clear differences do start to emerge. One is a manufacturing operation producing‘products’, and the other is a service operation producing ‘services’ that change the physio-logical or psychological condition of patients. What is inside each operation will also be

Transformation processmodelInput resourcesOutputs of goods andservices

M01_SLAC0460_06_SE_C01.QXD 10/20/09 9:07 Page 11

A CHANGING ENVIRONMENT




Table 1.2 Changes in the business environment are shaping a new operations agenda

Prompting operations responses . . .

For example,

• Globalization of operations networking

• Information-based technologies

• Internet-based integration of operationsactivities

• Supply chain management

• Customer relationship management

• Flexible working patterns

• Mass customization

• Fast time-to-market methods

• Lean process design

• Environmentally sensitive design

• Supplier ‘partnership’ and development

• Failure analysis

• Business recovery planning

The business environment is changing . . .

For example,

• Increased cost-based competition

• Higher quality expectations

• Demands for better service

• More choice and variety

• Rapidly developing technologies

• Frequent new product/serviceintroduction

• Increased ethical sensitivity

• Environmental impacts are moretransparent

• More legal regulation

• Greater security awareness

!

Figure 1.3 All operations are input–transformation–output processes

The input–transformation–output process

All operations produce products and services by changing inputs into outputs using an‘input-transformation-output’ process. Figure 1.3 shows this general transformation processmodel. Put simply, operations are processes that take in a set of input resources which areused to transform something, or are transformed themselves, into outputs of products andservices. And although all operations conform to this general input–transformation–outputmodel, they differ in the nature of their specific inputs and outputs. For example, if you stand far enough away from a hospital or a car plant, they might look very similar, but movecloser and clear differences do start to emerge. One is a manufacturing operation producing‘products’, and the other is a service operation producing ‘services’ that change the physio-logical or psychological condition of patients. What is inside each operation will also be

Transformation processmodelInput resourcesOutputs of goods andservices


PROCESSES


TangibleIntangible

All operations are service providers



ProcessesInternal <-> external supplier Internal <-> external customer

This idea is called the hierarchy of operations and is illustrated for a business that makestelevision programmes and videos in Figure 1.5. It will have inputs of production, technicaland administrative staff, cameras, lighting, sound and recording equipment, and so on. Ittransforms these into finished programmes, music, videos, etc. At a more macro level, thebusiness itself is part of a whole supply network, acquiring services from creative agencies,casting agencies and studios, liaising with promotion agencies, and serving its broadcast-ing company customers. At a more micro level within this overall operation there are manyindividual processes: workshops manufacturing the sets; marketing processes that liaise with potential customers; maintenance and repair processes that care for, modify and designtechnical equipment; production units that shoot the programmes and videos; and so on.Each of these individual processes can be represented as a network of yet smaller processes,or even individual units of resource. So, for example, the set manufacturing process couldconsist of four smaller processes: one that designs the sets, one that constructs them, one thatacquires the props, and one that finishes (paints) the set.

Part One Introduction16

Table 1.4 Some operations described in terms of their processes

Operation

Airline

Department store

Police

Frozen food manufacturer

Some of theoperation’s inputs

AircraftPilots and air crewGround crewPassengers and freight

Goods for saleSales staffInformation systemsCustomers

Police officersComputer systemsInformation systemsPublic (law-abidingand criminals)

Fresh foodOperatorsProcessing technologyCold storage facilities

Some of theoperation’s processes

Check passengers inBoard passengersFly passengers andfreight around the worldCare for passengers

Source and store goodsDisplay goodsGive sales adviceSell goods

Crime preventionCrime detectionInformation gatheringDetaining suspects

Source raw materialsPrepare foodFreeze foodPack and freeze food

Some of theoperation’s outputs

Transported passengersand freight

Customers and goods‘assembled’ together

Lawful society, publicwith a feeling of security

Frozen food

The idea of the internal network of processes is seen by some as being over-simplistic. In reality the relationship between groups and individuals is significantly more complexthan that between commercial entities. One cannot treat internal customers and suppliersexactly as we do external customers and suppliers. External customers and suppliers usually operate in a free market. If an organization believes that in the long run it can get a better deal by purchasing goods and services from another supplier, it will do so. Butinternal customers and suppliers are not in a ‘free market’. They cannot usually look out-side either to purchase input resources or to sell their output goods and services (althoughsome organizations are moving this way). Rather than take the ‘economic’ perspective ofexternal commercial relationships, models from organizational behaviour, it is argued, aremore appropriate.

Critical commentary

Hierarchy of operations


Operations can be analyzed at three levels



! the product/service development function – which is responsible for creating new andmodified products and services in order to generate future customer requests for service;

! the operations function – which is responsible for fulfilling customer requests for servicethrough the production and delivery of products and services.

In addition, there are the support functions which enable the core functions to operateeffectively. These include, for example:

! the accounting and finance function – which provides the information to help economicdecision-making and manages the financial resources of the organization;

! the human resources function – which recruits and develops the organization’s staff aswell as looking after their welfare.

Remember that different organizations will call their various functions by different namesand will have a different set of support functions. Almost all organizations, however, willhave the three core functions, because all organizations have a fundamental need to sell their services, satisfy their customers and create the means to satisfy customers in the future. Table 1.1 shows the activities of the three core functions for a sample of organizations.

In practice, there is not always a clear division between the three core functions or betweencore and support functions. This leads to some confusion over where the boundaries of theoperations function should be drawn. In this book we use a relatively broad definition ofoperations. We treat much of the product/service development, technical and informationsystems activities and some of the human resource, marketing, and accounting and financeactivities as coming within the sphere of operations management. We view the operations func-tion as comprising all the activities necessary for the day-to-day fulfilment of customer requests.This includes sourcing products and services from suppliers and transporting products andservices to customers.

Working effectively with the other parts of the organization is one of the most importantresponsibilities of operations management. It is a fundamental of modern management thatfunctional boundaries should not hinder efficient internal processes. Figure 1.1 illustrates someof the relationships between operations and some other functions in terms of the flow ofinformation between them. Although it is not comprehensive, it gives an idea of the natureof each relationship. However, note that the support functions have a different relationshipwith operations than operations has with the other core functions. Operations management’sresponsibility to support functions is primarily to make sure that they understand operations’needs and help them to satisfy these needs. The relationship with the other two core functionsis more equal – less of ‘this is what we want’ and more ‘this is what we can do currently – howdo we reconcile this with broader business needs?’

Support functions

Broad definition ofoperations


Table 1.1 The activities of core functions in some organizations

Core functional activities

Marketing and sales

Product/service development

Operations

Internet service provider(ISP)

Promote services to usersand get registrationsSell advertising space

Devise new services and commission newinformation content

Maintain hardware,software and contentImplement new links andservices

Fast food chain

Advertise on TV Devise promotionalmaterials

Design hamburgers,pizzas, etc.Design décor forrestaurants

Make burgers,pizzas etc.Serve customersClear awayMaintain equipment

International aid charity

Develop funding contractsMail out appeals fordonations

Develop new appealscampaignsDesign new assistanceprogrammes

Give service to thebeneficiaries of the charity

Furniture manufacturer

Advertise in magazinesDetermine pricing policySell to stores

Design new furnitureCoordinate withfashionable colours

Make componentsAssemble furniture


+ Enablers- Accounting & Finance- Human Resources- Information technology

3 Core functions


Operations and Production ManagementProcess Hierarchy

Process A Process B Process C Process D Process E

Senior Management Owned

Middle Management Owned

Process Member and

Process Owner Responsibilities

The many detailed activities, tasks and decisions involved in satisfying a process output.

A core process is directly related to generating revenue, providing services to the customer or creating a strategic advantage for the company.

Enabling Processes Core Processes Enabling processes do not directly impact the customer. They must exist to enable and support the execution of the core processes.

PM#S ummaryPM#S ummary PM#S ummaryPM#S ummary


Operations management can ‘make or break’ any business

Increasing sales volume by 30 per cent certainly improves the company’s sales revenue,but operating expenses also increase. Nevertheless, earnings before investment and tax (EBIT)rise to a1,000,000. But reducing operating expenses by 20 per cent is even more effective,increasing EBIT to a1,200,000. Furthermore, it requires no investment to achieve this. The third option involves improving customer service by responding more rapidly to cus-tomer orders. The extra price this will command improves EBIT to a1,000,000 but requiresan investment of a70,000. Note how options 2 and 3 involve operations management inchanging the way the company operates. Note also how, potentially, reducing operating costsand improving customer service can equal and even exceed the benefits that come fromimproving sales volume.

So if operations performance has such a significant effect on the whole organization, it follows that any organization needs some way of assessing the performance of its operationsfunction and its operations management. We shall look at three perspectives on operationsperformance, from macro to micro. First, we examine how each of the organization’s stake-holders may view operations performance. Next, we consider what top management may


Table 2.1 Some operations management characteristics of two companies

Company A has operations managers who . . .

Employ skilled, enthusiastic people, and encourage them to contribute ideas for cutting out waste and working more effectively.

Carefully monitor their customers’ perception of the quality of service they are receiving and learn from any examples of poor service and always apologize and rectify any failure to give excellent service.

Have invested in simple but appropriate systems of their own that allow the business to plan and control its activities effectively.

Hold regular meetings where staff share their experiences and think about how they can build their knowledge of customer needs and new technologies, and how their services will have to change in the future to add value for their customers and help the business to remain competitive.

Last year’s financial details for Company A:Sales revenue = A10,000,000Wage costs = A2,000,000Supervisor costs = A300,000General overheads = A1,000,000Bought-in hardware = A5,000,000Margin = A1,700,000Capital expenditure = A600,000

Company B has operations managers who . . .

Employ only people who have worked in similar companiesbefore and supervise them closely to make sure that they‘earn their salaries’.

Have rigid ‘completion of service’ sheets that customerssign to say that they have received the service, but theynever follow up to check on customers’ views of theservice that they have received.

Have bought an expensive integrative system withextensive functionality, because ‘you might as well invest instate-of-the-art technology’.

At the regular senior managers’ meeting always have anagenda item entitled ‘Future business’.

Last year’s financial details for Company B:Sales revenue = A9,300,000Wages costs = A1,700,000Supervisor costs = A800,000General overheads = A1,300,000Bought-in hardware = A6,500,000Margin = A700,000Capital expenditure = A1,500,000

Table 2.2 The effects of three options for improving earning at Kandy Kitchens

Original Option 1 – Option 2 – Option 3 –(sales volume == sales campaign operations efficiency ‘speedy service’

50,000 units) Increase sales volumes Reduce operating Increase priceby 30% to 65,000 units expenses by 20% by 10%

(B, 000) (B, 000) (B, 000) (B, 000)

Sales revenue 5,000 6,500 5,000 5,500Operating expenses 4,500 5,550 3,800 4,500EBIT* 500 1,000 1,200 1,000Investment required 100 70

*EBIT = Earnings before interest and tax = Net sales – Operating expenses. It is sometimes called ‘Operating profit’.

M02_SLAC0460_06_SE_C02.QXD 10/21/09 11:49 Page 36first semester 2012 13GPO300 Operations and Production Management


Operations and Production Management

OPERATIONS CHARACTERISTICS

on one (physical) site, whereas the ‘bricks and mortar’ shop needs many shops close to centres of demand. Therefore, the low-visibility web-based operation will have lower coststhan the shop.

Mixed high- and low-visibility processes

Some operations have both high- and low-visibility processes within the same operation. In an airport, for example: some activities are totally ‘visible’ to its customers such as information desks answering people’s queries. These staff operate in what is termed a front-office environment. Other parts of the airport have little, if any, customer ‘visibility’,such as the baggage handlers. These rarely-seen staff perform the vital but low-contact tasks,in the back-office part of the operation.

The implications of the four Vs of operations processes

All four dimensions have implications for the cost of creating the products or services. Put simply, high volume, low variety, low variation and low customer contact all help to keep processing costs down. Conversely, low volume, high variety, high variation and highcustomer contact generally carry some kind of cost penalty for the operation. This is why the volume dimension is drawn with its ‘low’ end at the left, unlike the other dimensions, tokeep all the ‘low cost’ implications on the right. To some extent the position of an operationin the four dimensions is determined by the demand of the market it is serving. However,most operations have some discretion in moving themselves on the dimensions. Figure 1.7summarizes the implications of such positioning.


Figure 1.7 A typology of operations

Front office

Back office

‘Four Vs’ analysis ofprocesses



Operations management

1 ➤ What is operations management?

2 ➤ Why is operations management important in all types of organization?

3 ➤ What is the input–transformation–output process?

4 ➤ What is the process hierarchy?

‣ Operations management is the activity of managing the resources which are devoted to the production and delivery of products and services. It is one of the core functions of any business, although it may not be called operations management in some industries.

‣ Operations management is concerned with managing processes. And all processes have internal customers and suppliers. But all management functions also have processes. Therefore, operations management has relevance for all managers.

‣ Operations management uses the organization’s resources to create outputs that fulfil defined market requirements. This is the fundamental activity of any type of enterprise.

‣ Operations management is increasingly important because today’s business environment requires new thinking from operations managers.

‣ All operations can be modelled as input–transformation–output processes. They all have inputs of transforming resources, which are usually divided into ‘facilities’ and ‘staff’, and transformed resources, which are some mixture of materials, information and customers.

‣ Few operations produce only products or only services. Most produce some mixture of tangible goods or products and less tangible services.

‣ All operations are part of a larger supply network which, through the individual contributions of each operation, satisfies end-customer requirements.

‣ All operations are made up of processes that form a network of internal customer–supplier relationships within the operation.

‣ End-to-end business processes that satisfy customer needs often cut across functionally based processes.



5 ➤ How do operations processes have different characteristics?

6 ➤ What are the activities of operations management?

■ Operations differ in terms of the volume of their outputs, the variety of outputs, the variation in demand for their outputs, and the degree of ‘visibility’ they have.

■ High volume, low variety, low variation and low customer ‘visibility’ are usually associated with low cost.

■ Responsibilities include understanding relevant performance objectives, setting an operations strategy, the design of the operation (products, services and processes), planning and controlling the operation, and the improvement of the operation over time.

■ Operations managers also have a set of broad societal responsibilities. These are generally called ‘corporate social responsibility’ or CSR objectives.



Outcome of DAY 1: Understanding Operations Management

Back to the Syllabus: Next

Module 1 : OPERATIONS THE BIG PICTURE

Understanding the operation’s strategic performance objectives.

Developing an operations strategy for the organization.

Module 2: DESIGN

Designing the operation’s products, services and processes.

Module 3: RUNNING THE OPERATIONS

Planning and controlling the operation.

Module 4: GETTING BETTER

Improving the performance of the operation.

Conclusions Operations management and Business Models



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