dom 102: principles of operations management overview
DESCRIPTION
Mr. Munyao-Mulwa Department of Management Science UoN, School of Business. Dom 102: Principles of Operations Management Overview. In managing any business, gaining competitive advantage is of prime importance. - PowerPoint PPT PresentationTRANSCRIPT
Mr. Munyao-Mulwa Department of Management Science
UoN, School of Business
2
In managing any business, gaining competitive advantage is of prime importance.
CA is achieved by excelling in meeting needs of specific customer segment irrespective of discipline i.e finance, marketing etc
Serving customer well means in a timely fashion, with exceptional quality & at lowest cost possible (efficient)
Organizations need to design & operate processes that are quick, accurate & inexpensive
2
To deliver value to customers, organizations should craft efficient & effective operations
Value = Quality/Price (People, processes & technology integrate to create value)
How can one increase value to customers?
2
The operations function is central to the organization because it produces the goods and services which are its reason for existing, but it is neither the only nor necessarily the mostIt is, however, one of the three core functions of any organization; the marketing (including sales) function – which is
responsible for communicating the organization’s products and services to its markets in order to generate customer requests for service
2
The product/service development function – which is responsible for creating new and modified products and services in order to generate future customer requests for service
The operations function – which is responsible for fulfilling customer requests for service throughout the production and delivery of products and services.
In addition, there are the support functions which enable the core functions to operate effectively. Give examples ..
3
OperationsManagement
Business Education( Students need exposure)
Systematic Approachto Org. Processes( Analytical thinking)
Career Opportunities
Cross-FunctionalApplications
4
Operations management may be defined as the design, operation, and improvement of the production system that creates the firm’s primary products and services.It is the science & art of ensuring that goods & services are created & delivered successfully to customers.
4
Understanding the needs of customers, measuring customer satisfaction & using information to develop new & improved goods & servicesUsing information about customers, goods and services, operations, employees etc to make better decisions.Exploiting technology to design goods, services, manufacturing & service delivery processes that respond to customer requirements & improve productivity
5
Marketplace
Corporate Strategy
Operations Strategy
Operations Management
Marketing StrategyFinance Strategy
People Plants Parts Processes
Planning and Control
Production System
Materials &Customers
Input
Products &Services
Output
9
Service Uniqueness
Intangible
Direct customer involvement
Location of service facility
Can not be stored for future use
11
Operations whether in manufacturing or in a service organization
can be treated as service. The core services customer want;
Quality
Flexibility
Delivery Speed
Price (or production cost)
12
Value-added services
These make external or internal customer’s life easier
Information – ability to furnish critical data on product performance,
process parameters & cost
Problem Solving – especially in quality
Sales Support – By demonstrating the technology, equipment or
production systems the company is trying to sell.
Field Support – Ability to replace defective parts quickly
Industrial Revolution Scientific Management Human Relations Management Science Quality Revolution Globalization Information Age/Internet Revolution
Industrial RevolutionSteam engine 1769 James WattDivision of labor 1776 Adam SmithInterchangeable parts 1790 Eli Whitney
Scientific ManagementPrinciples 1911 Frederick W. TaylorTime and motion studies 1911 Frank & Lillian
GilbrethActivity scheduling chart 1912 Henry GantMoving assembly line 1913 Henry Ford
Human RelationsHawthorne studies 1930 Elton Mayo
Motivation theories 1940s Abraham Maslow
1950s Frederick Hertzberg
1960s Douglas McGregor
Management ScienceLinear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, PERT/CPM, 1950s Operations research
Waiting line theory groups
MRP 1960s Joseph Orlicky, IBM
Quality RevolutionJIT 1970s Taiichi Ohno, ToyotaTQM 1980s W. Edwards Deming,
Joseph Juran, et. al.Strategy and operations Skinner, HayesReengineering 1990s Hammer, ChampyWorld Trade Organization 1990s Numerous countries
and companies
GlobalizationEuropean Union and 1970s IBM and othersother trade agreementsEDI, EFT, CIM 1980s
Information Age/Internet Revolution
Internet, WWW, ERP 1990s ARPANET, TimSupply chain Berners-Lee, SAP,
i2management, Technologies,
ORACLE,E-commerce PeopleSoft,
Amazon,Yahoo, eBay,and others
6
People Plants Parts Processes Planning and Control
Input OutputTransformation
Process
(Value Adding)
Transformation is enabled by The 5 Ps of OM:
7
Physical--manufacturing
Locational--transportation
Exchange--retailing
Storage--warehousing
Physiological--health care
Informational--telecommunications
7
System Primary Inputs
Resources Primary transformation functions
Typical desired Output
Hospital Patients MDs, nurses, medical supplies, equipment
Health care Healthy individuals
Resturant Hungry customers
Food, chef, wait-staff, environment
Well-prepared, well-served food; agreeable environment ( physical & exchange)
Satisfied customers
College or University
High school graduates
Teachers, books, lecture halls
imparting knowledge & skills ( Informational)
Educated individuals
Automobile factory
sheet steel, engine parts
Tools, equipment, workers
Fabrication & assembly of cars (physical)
High-quality cars
Airline Travellers Airplanes, Crew, scheduling /ticketing systems
Move to destination
On-time , safe delivery to destination
14
Although all operations are similar in that they all transform input resources into output products and services, they do differ in a number of ways, four of which are particularly important: Volume of their output; Variety of their output; Variation in the demand for their output; The degree of visibility which customers have
of the production of the product or service.
14
All four dimensions have implications for the cost of creating the products or services. High volume, low variety, low variation and
low customer contact all help to keep down processing costs.
Low volume, high variety, high variation and high customer contact generally carry some kind of cost penalty for the operation.
14
Speeding up the time it takes to get new products into production.
Developing flexible production systems to enable mass customization of products and services.
Managing global production networks.
Developing and integrating new production technologies into existing production systems.
15
Achieving high quality quickly and keeping it up in the face of restructuring.
Managing a diverse workforce.
Conforming to environmental constraints, ethical standards, and government regulations.
15
It can reduce the costs of producing products and services and being efficient;
It can increase revenue by increasing customer satisfaction through good quality and service;
It can reduce the amount of investment (sometimes called capital employed) that is necessary by increasing the effective capacity of the operation and by being innovative in how it uses its physical resources
It can provide the basis for future innovation by building a solid base of operations skills and knowledge within the business.
15
The degree to which a firm can produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the wealth of its shareholders.
15
Cost Quality Delivery Flexibility Delivery Speed / Time based competition Delivery Reliability Coping with Changes in Demand Flexibility and New Product Introduction
Speed
Eliminate all wasteEliminate all waste Invest inInvest in
Updated facilities & equipmentUpdated facilities & equipment Streamlining operationsStreamlining operations Training & developmentTraining & development
Please the customer by doing Please the customer by doing things rightthings right
Understand customer attitudes Understand customer attitudes toward and expectations of quality toward and expectations of quality
Quality reduces costs of output Quality reduces costs of output Quality Increases dependability Quality Increases dependability
Produce wide variety of Produce wide variety of productsproducts
Introduce new productsIntroduce new products Modify existing Modify existing
products quicklyproducts quickly Respond to customer Respond to customer
needsneeds
Time Based Competition (TBC) Speed means the elapsed time between
customers requesting products or services and their receipt of them. Provide the most value to the customer at the
lowest cost in the least amount of time Aimed at minimizing the time it takes to
deliver a product or service to the customer Rapid response enables companies to quickly
redirect their value-delivery systems to the most attractive customers
Fast movesFast moves Fast adaptationsFast adaptations Tight linkagesTight linkages
What Competitive priorities can you infer from the photograph?
Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labour and capital)
The objective is to improve The objective is to improve productivity!productivity!
Become more efficient Downsize Expand Retrench
Productivity =Productivity =OutputOutput
InputInput
Productivity improves when firms:Productivity improves when firms:
© 2011 Pearson Education, Inc. publishing as Prentice Hall
IMPROVING PRODUCTIVITY AT IMPROVING PRODUCTIVITY AT STARBUCKS STARBUCKS
A team of 10 analysts A team of 10 analysts continually look for ways continually look for ways to save time. Some to save time. Some improvements:improvements:
Stop requiring signatures on credit card purchases under $25
Saved 8 seconds per transaction
Change the size of the ice scoop
Saved 14 seconds per drink
New espresso machines Saved 12 seconds per shot
© 2011 Pearson Education, Inc. publishing as Prentice Hall
IMPROVING PRODUCTIVITY AT IMPROVING PRODUCTIVITY AT STARBUCKSSTARBUCKS
A team of 10 analysts A team of 10 analysts continually look for ways continually look for ways to shave time. Some to shave time. Some improvements:improvements:
Stop requiring signatures on credit card purchases under $25
Saved 8 seconds per transaction
Change the size of the ice scoop
Saved 14 seconds per drink
New espresso machines Saved 12 seconds per shot
Operations improvements have helped Starbucks increase yearly revenue per outlet by $200,000 to $940,000 in six years.
Productivity has improved by 27%, or about 4.5% per year.
© 2011 Pearson Education, Inc. publishing as Prentice Hall
Measure of process improvement Represents output relative to
input Only through productivity
increases can our standard of living improve
PRODUCTIVITYPRODUCTIVITY
Productivity =Units produced
Input used
17
Partial measures output/(single input)
Multi-factor measures output/(multiple inputs)
Total measure (All Factor) output/(total inputs)
39
• Labor Productivity– Quantity (or value) of output / labor hrs
– Quantity (or value) of output / shift
• Machine Productivity– Quantity (or value) of output / machine
hrs
• Energy Productivity– Quantity (or value of output) / kwh
• Capital Productivity
– Quantity (or value) of output / value of
input
Some Partial Factor Measurements
Productivity =Units produced
Labor-hours used
= = 4 units/labor-hour1,000
250
Labor ProductivityLabor Productivity
One resource input single-factor productivity
Japan has the greatest labour productivity at 7.6 out of a score of 10
Kenya’s labour productivity is at 2.2 Kenyans are among the most skilled
and educated in the region The greatest challenge is the negative
attitude and perception towards work Demand for pay rise is pegged on
inflation
© 2011 Pearson Education, Inc. publishing as Prentice Hall
MULTI-FACTOR MEASUREMULTI-FACTOR MEASURE
OutputLabor + Material + Energy + Capital +
Miscellaneous
Productivity =
Multiple resource inputs multi-factor productivity
18
Units Produced – 10,000
Unit Price - $10
Labor hours – 500 hours
Labor rate: $9/hr
Cost of raw material: $5,000
Cost of purchased material: $25,000
19
Productivity = Units Produced x Unit Price Labour Hours x Labour Rate = 10,000 Units*$10
500hrs x $9/hr = 22.22
45
All-factors Goods or Services produced measure = All inputs used to produce them
If we produce only one product, the numerator can be either the total units of product or total shilling value of the product
If we produce several products, the numerator is the total Shilling value of all products
TOTAL MEASURETOTAL MEASURE
46
10,000 Units Produced
Sold for $10/unit
500 labor hours
Labor rate: $9/hr
Cost of raw material: $30,000
Overhead: $15,500
47
OutputLabor + Materials +
Overhead (10,000 units) * ($10)
(500)*($9) + ($30,000) + ($15,500)
= 2.0
Productivity =
=
48
Training Methods
Technology Management
What are the factors that affect productivity?
© 2011 Pearson Education, Inc. publishing as Prentice Hall
PRODUCTIVITY VARIABLESPRODUCTIVITY VARIABLES
1.1. LaborLabor - contributes about 10% of the annual increase
2.2. CapitalCapital - contributes about 38% of the annual increase
3.3. ManagementManagement - contributes about 52% of the annual increase
© 2011 Pearson Education, Inc. publishing as Prentice Hall
SERVICE PRODUCTIVITYSERVICE PRODUCTIVITY
1. Typically labor intensive
2. Frequently focused on unique individual attributes or desires
3. Often an intellectual task performed by professionals
4. Often difficult to mechanize
5. Often difficult to evaluate for quality
© 2011 Pearson Education, Inc. publishing as Prentice Hall
MEASUREMENT PROBLEMSMEASUREMENT PROBLEMS
1.1. QualityQuality may change while the quantity of inputs and outputs remains constant
2.2. External elementsExternal elements may cause an increase or decrease in productivity Precise unitsPrecise units of measure may be
lacking
Competition Intensity is high when Firms equal in size Resources, products &
services standardized Slow industry growth
(battle for market shares, the global market remaining constant)
Industry growth exponential (you must have a foothold in the market)
Consequences Price wars Relentless advertising High Frequency of
introduction of new products & services
Free trials Low profit margins Purchasing incentives Switching bonuses Financial packages;
cheap credit
Economies of Scale Fixed & variable costs Unit cost decreases when capacity increases Newcomers: insufficient orders to justify large capacities => higher
costs Initial Capital Investment
May be prohibitive (service to community, hospital, robotized mega plant)
May be low: e-commerce, consulting… Access to Supply & Distribution Channels
May be controlled by (major) Competitors Bargaining Power (Porter) Exclusivity agreements (credit cards & banks) Largely easier when going to e-commerce (no broker, distributor
needed) Learning curves
Lack of experience, skills, expertise can be penalizing (aerospace, shipbuilding [10% cost reduction for each similar ship built]
Volume of output Cost (materials, labor, delivery, scrap…) Utilization (labor & equipment) Quality & product reliability On-time delivery Investments (ROI) Flexibility for product change Flexibility for Volume change
5
Cost
Quality
DeliveryFlexibility
FOCUS FOCUS
FOCUSFOCUS
Plant within a Plant (PWP)
TraditionalApproach
Advanced Approaches
World Class Manufacturing
Trade-offs
©The McGraw-Hill Companies, Inc., 1998
Irwin/McGraw-Hill
6
World-class manufacturers no longer view cost, quality, speed of delivery, and even flexibility as tradeoffs. They are order qualifiers & order winners.
Order qualifiers - a screening criterion that permits a firm’s products to be considered as possible candidates of purchase e.g on time delivery
Order winners – A criterion that differentiates the products or services of one firm from another e.g price, quality & reliability
Birth of the System Product Design & Process Selection Design of the System Start-up of the System The System in steady state Termination of the System
Birth of the System What are the goals of the firm? What product or service will be offered?
Product Design & Process Selection Design of the System Start-up of the System The System in steady state Termination of the System
Birth of the System Product Design & Process Selection
Form & Appearance of Product? Technologically, how should the product be made?
Design of the System Start-up of the System The System in steady state Termination of the System
Birth of the System Product Design & Process Selection Design of the System
Capacity? Location? Lay-out? How to maintain quality? How to determine forecast for demand? What job is each worker to perform? How will the job be performed & measured? How will the workers be rewarded?
Start-up of the System The System in steady state Termination of the System
Birth of the System Product Design & Process Selection Design of the System Start-up of the System
How do you get the system in operation? How long will it take to reach desired level of output?
The System in steady state Termination of the System
Birth of the System Product Design & Process Selection Design of the System Start-up of the System The System in steady state
How do you manage the day to day activities? How do you maintain the system? How can you improve the system? How do you revise the system in light of changes in
corporate strategy? Termination of the System
Birth of the System Product Design & Process Selection Design of the System Start-up of the System The System in steady state Termination of the System
How does the system die? What can be done to salvage resources?
As the era of globalization & liberalization dawned on organizations, leading companies began to adopt surprisingly similar new practices in OM.
New practices were aimed at serving the customers better so as to achieve a competitive hedge in the global front.
Principles of OM by Schonberger; Get to know the customer & the competition Cut: work in process (waiting lines), throughput times, flow
distances & space Cut set up & changeover times Produce & deliver at the customer’s usage rate
Principles of OM by Schonberger; Cut the number of suppliers to a few good ones Cut the number of components in a product or service Make it easy to make or provide goods or services without error
the first time Arrange the workplace to eliminate search time Cross-train for mastery of multiple skills Record & retain output volume, quality & problem data at the
workplace Ensure that line people first crack at problem solving before
experts Maintain & improve present equipment & human work before
thinking about new equipment Look for simple, cheap & movable equipment
Principles of OM by Schonberger; Automate incrementally when process variability can not
otherwise be reduced Seek to have plural rather than singular work stations,
machines, cells & flow lines for each product, service or customer
Become dedicated to continual rapid improvement
Principles of OM by Schonberger; Automate incrementally when process variability can not
otherwise be reduced Seek to have plural rather than singular work stations,
machines, cells & flow lines for each product, service or customer
Become dedicated to continual rapid improvement
Principles of OM by Schonberger; Automate incrementally when process variability can not
otherwise be reduced Seek to have plural rather than singular work stations,
machines, cells & flow lines for each product, service or customer
Become dedicated to continual rapid improvement