unit 1 intro to om

8/8/2019 Unit 1 Intro to Om

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OPER2110 Advanced Operations Management Unit 1 Intro to Operations Management

Andrew Campbell & John Hufnagel Page 1 of 1

Operations Management

Transformation of Inputs to Outputs:

Corporation

Raw Matierials

Energy

Sales & MarketingDesign

ManufactureAssemble

Organize

FinishedProduct or Service

Inputs Outputs

Purchased Parts

a company thrives by successfully managing three principal areas:

1. Marketing: selling product.2. Production/Operations: making product.3. Finance/Accounting: collecting data, managing accounts payable/

receivable, measuring performance.

the purpose of production is to transform raw materials into a saleable product, or totransform the inputs to a company into its outputs.

a companys operations are primarily the resources/processes which are directlyassociated with the transformation or production of the product.

operations management is the control of these resources/processes.


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Examples of Operations Management Activities

From Heizer J. et al OperationsManagement8th Ed.

From Heizer J. et al OperationManagement8th Ed.


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Ten Decision Areas of Operations Management

From Heizer J. et al Operation

Management8th Ed.

From Heizer J. et al OperationsManagement8th Ed.


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within the operations area, operations managers carry out basic managementfunctions:

1. Planning/Organizing/Controlling.

2. Filling staffing requirements.3. Providing leadership.

Operations management can make decisions which can be classed as:1. Strategic.2. Tactical.3. Operational planning and control.

Strategic Decisions

Long range (usually over several years).

Broad in nature:

o ie. How will product be made?o Where will facilities be?o How much capacity do we design for?o When should we increase capacity?

Strategic decisions effect tactical and operational decisions.

Must be closely tied to overall corporate strategic plan.

Tactical Decisions

Effected by strategic decisions.

Medium range.

Concerned primarily with how to schedule labour and material efficiently.

o ie. How many workers required and when?o Work overtime or add a second/third shift?o When should material be delivered (affects A/P).

Operational Planning and Control Decisions

Effected by tactical decisions.

Short range.o What are production tasks for the week?o Who will carry them out?o Which are more important?

Operations Management in the Service Sector OM has traditionally been applied in the manufacturing sector.

OM is easily applicable to service-oriented products.


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Differences between Goods and Services

Goods ServicesProduct and its raw materials are tangible

ie. car.

Finished good and its raw materials are

intangible ie. provision of information.Products are often information/knowledgebased.

Can be held in inventory. Inventory generally not possible.Production and consumption of service aresimultaneous.

Interaction with customer is minimal. More contact with customer required.

Products are often not unique (notcustomer specific). Product is well defined.

Services are often unique (customerspecific). Product is less well defined.

Production processes require physicaltransformation of raw materials.

Production processes require interpretationof raw materials (data etc.).

Can be resold. Reselling is not straightforward.Quality of product can be measured. Quality of product difficult to measure.

Production process can be automated. Difficult to automate.

Integration of Goods and Services

when a good carries out its function effectively it is much less noticeable then whenit malfunctions.

customer loyalty is easily soured when products malfunction and the manufacturersupport is weak.

customer loyalty can be increased in case of malfunction and good manufacturersupport.

there is a strong trend for companies that produce goods to also offer services whichsupport their manufactured product.

the purchase of many goods also includes a service portion:


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Productivity

recall that OM focuses on production and conversion of inputs to outputs.

measuring how efficiently inputs are converted to outputs will help operationsmanagers gauge how well the operations side of the company is functioning.

ExampleCalculate productivity if the forming of 10,000 automotive trunk lids requires 170 tons ofgalvalume steel:

productivity improvements indicate more efficient production.

improvements come about by:o reducing inputs while maintaining outputs at a constant level.o increasing output while maintaining inputs at a constant level.

increasing productivity is the only way to increase profit without raising prices.

the U.S. typically increases productivity by about 2.5% per year.

OM is strongly focused toward increasing productivity.

From Heizer J. et al Operations

Management8th Ed.

UsedInputs

ProducedUnitstyProductivi =

per tonunits58.83tons170

10,000tyProductivi ==


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Single-Factor Productivity

ratio of output to one input.o above example is an example of single-factor productivity

Multi-factor Productivity

ratio of output to all inputs (also called total factor productivity).

o to add all inputs together, convert to common units (usually dollars).

Example: Problem 1.6 Heizer

Solution


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Example: Heizer Problem 1.11

Calculate the multi-factor productivity for the following company which modifies cars:

Item Base Year Amount Unit Cost

Output 375 cars modified

Labor 10,000 hours $20.Suspension and Engine Kits 500 $1,000.

Energy 100,000 kWh $3.

Disadvantages of Productivity Measurement

multi-factor productivity can mask changes to individual productivity factors.

improvements in quality are hidden (comparing a car of today to a car of the 1970s).

external factor may cause change in productivity (dramatic price increase/decrease).o gives the impression that change may be due to change in OM policy.

difficult to apply in service sector (hard to quantify end product).

does not measure more intangible outputs such as improved customer satisfaction,safety etc.

Productivity Variables

productivity improvement depends heavily on:1. Labour.2. Capital.3. Management.

Labour

improvements in labour productivity have typically accounted for 10% of annualproductivity increases.

historical improvements in labour productivity due primarily to:1. Improvements in education level.2. Improved diet.3. Improved social support network.

future improvements may come from:o better education.


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o familiarity with technology.o stronger commitment, teamwork.

improvements in labour are possible but will become more difficult and moreexpensive (diminishing returns).

Capital historically, annual improvements in productivity are 38% due to capital investment.

capital allows better tools to be purchased.

inflation/taxes increase cost of capital.

Management

annual improvements in productivity are 52% due to management.

management makes sure that labour and capital are used with effectiveness toimprove productivity.

applying knowledge and technology is required by management.

it is the responsibility of operations managers to choose new capital investments and

to improve productivity of existing capital equipment.

Linking Operations Management to Customers and Suppliers

long-standing business model has been to hold customers and suppliers at arms lengthfrom operations functions.

suppliers (in particular) and customers were/are treated as outside entities.o buffering between company and suppliers required because of slow lead

times, compared to production time.o suppliers/customers in production area an unwelcome, disturbing presence.o different skills required for managing suppliers/customers then operations.o less concern for customer satisfaction.o benefit not seen to supplier loyalty.

open approach is becoming more common.

Customers

giving customers direct contract with operations employees has two-way benefits:o customers speak to someone who is knowledgeable which increases customer

satisfaction.o operations employees (company) benefit from dealing directly with problems

which: decreases likelihood of problem occurring again.

o having direct contact with product failure issues.o customers often have ideas for new products or improvements.

Suppliers

giving suppliers direct contact/access to manufacturing also has two-way benefits.o suppliers deliver directly to shop floor, so inventory is reduced or eliminated.


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o suppliers may carry out production operations inside plant which eliminatesneed for internal expertise.

o suppliers are in frequent contact so are aware of possible issues.o etc.

Value Chain all steps in the production of a product which add value.

value added can come from a production operation or a less tangible function such assales and marketing.

goal of determining value chain is to minimize non-value added processes/time.

Supply Chain

in the production of a product, the supply chain is the collection of companies whosupply raw materials, transport, manufacture, distribute and retail the finishedproduct.

example: a company manufactures steel garden chairs with plastic seats and backs.The product is sold in North America. The supply chain could be:

o garden furniture retailers.o transport company.o Canadian distributor.o U.S. distributor.o transport company.o chair sub-frame manufacturer.o

powder coater.o injection moulding company.o tubing supplier.o hardware supplier.o various transportation companies.

From Collier D. et alOperations ManagementGoods, Services and Value

Chains 2ndEd.

unit 1 intro to om

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