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BOH4M. CHAPTER 17. Operations management Managing productive systems that transform resources into finished products, goods, and services for customers. Typical operations management decisions include: Resource acquisition Inventories Facilities Workflows and technologies Product quality.
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BOH4M CHAPTER 17
Operations management • Managing productive systems that transform resources into finished products, goods, and services for customers. • Typical operations management decisions include: • Resource acquisition • Inventories • Facilities • Workflows and technologies • Product quality Management 2e - Chapter 17
Productivity • Quantitative measure of the efficiency with which inputs are transformed into outputs. • Productivity = Output / Input. • Competitive advantage • A core competency that clearly sets an organization apart from competitors and gives it an advantage over them in the marketplace. Management 2e - Chapter 17
Companies may achieve competitive advantage in many ways, including: • Product innovations • Customer service • Speed to market • Manufacturing flexibility • Product/service quality Management 2e - Chapter 17
Technology • The combination of knowledge, skills, equipment, computers, and work methods used to transform resource inputs into organization outputs. • Manufacturing technology. • Service technologies. Management 2e - Chapter 17
Core manufacturing technologies: • Small-batch production. • A variety of custom products are tailor-made to order. • Mass production. • A large number of uniform products are made in an assembly-line system. • Continuous-process production. • A few products are made by continuously feeding raw materials through a highly automated production system with largely computerized controls. Management 2e - Chapter 17
Manufacturing technology trends • Robotics • Flexible manufacturing systems • Mass customization • Cellular layouts • Computer-integrated manufacturing • Lean production • Design for disassembly • Remanufacturing Management 2e - Chapter 17
Core service technologies: • Intensive technology • Focuses the efforts of many people with special expertise on the needs of patients or clients. • Mediating technology • Links together parties seeking a mutually beneficial exchange of values. • Long-linked technology • Functions like mass production, where a client is passed from point to point for various aspects of service delivery. Management 2e - Chapter 17
Value chain • Sequence of step-by-step activities resulting in finished goods or services with customer value. • Supply chain management • Supply chain management is the strategic management of all operations relating to an organization’s resource suppliers. Management 2e - Chapter 17
Figure 17.1Elements in an organization’s value chain. Management 2e - Chapter 17
Inventory control • Goal is to ensure that inventory is just the right size to meet performance needs, thus minimizing the cost. • Methods of inventory control: • Economic order quantity • Just-in-time scheduling Management 2e - Chapter 17
Inventory control • Economic order quantity • Inventory replenished with fixed quantity order when inventory falls to predetermined level. • Just-in-time scheduling • Materials arrive at workstation or facility ‘just-in-time’ for use. • Virtually eliminates carrying costs of inventories. Management 2e - Chapter 17
Figure 17.2 Inventory control by economic order quantity (EOQ). Management 2e - Chapter 17
Break-even analysis Determination of the point at which sales revenues are sufficient to cover costs. • Break-Even Point = Fixed Costs / (Price – Variable Costs) • Used in evaluating: • New products • New program initiatives Management 2e - Chapter 17
Figure 17.3Graphical approach to break-even analysis. Management 2e - Chapter 17
Customer relationship management • Establishes and maintains high standards of customer service in order to strategically build lasting relationships with and add value to customers. • External customers purchase the organization’s goods or utilize its services. • Internal customers are the persons and groups within an organization who depend on the results of others' work to do their own jobs. Management 2e - Chapter 17
Customer Relationship Management (CRM) • Uses latest technologies for intensive customer communication and collection of data regarding customer needs and desires. • Establishes and maintains high standards of customer service. Management 2e - Chapter 17
Figure 17.4 The importance of external and internal customers. Management 2e - Chapter 17
Total quality management (TQM) • Quality principles are an integral part of organization’s strategic objectives. • Applying them to all aspects of operations. • Committing to continuous improvement. • Striving to meet customers’ needs by doing things right the first time. Management 2e - Chapter 17
ISO (International Standards Organization) certification • Adopted by many countries as quality benchmark. • Companies undergo rigorous audit to determine if ISO requirements are met. • Focus is on customer service and product quality. Management 2e - Chapter 17
Quality and Continuous Improvement • W. Edwards Deming emphasized: • Constant innovation. • Use of Statistical methods. • Training in the fundamentals of quality assurance. • Continuous improvement • Quality circles Management 2e - Chapter 17
Continuous improvement • Constant search for new ways to improve current performance. • Reduce cycle time between order receipt and delivery. • Quality circle • Small group of workers who meet to improve quality • Assumes responsibility for quality • Taps into members’ creativity Management 2e - Chapter 17
Statistical quality control • Uses rigorous statistical analysis for checking processes, materials, products, and services to ensure that they meet high standards. • Takes random work samples • Measures quality in samples • Determines acceptability • Unacceptable quality results in corrective action • “Six Sigma” common example of SQC Management 2e - Chapter 17
Figure 17.5 Sample control chart showing upper and lower control limits. Management 2e - Chapter 17
Process reengineering • Systematic and complete analysis of work processes. • Design of new and better work processes. • Work process • “A related group of tasks that create a result of value for the customer.” (Michael Hammer) • Workflow • Movement of work from one point to another in the manufacturing or service delivery process. Management 2e - Chapter 17
Process value analysis • Core processes are identified and evaluated for their performance contributions. • Each step in workflow is examined • Step is eliminated if not found to be important, useful, and contributing to the value added Management 2e - Chapter 17
Steps in reengineering core processes: • Identify core processes. • Map core processes in respect to workflows. • Evaluate all tasks for core processes. • Search for ways to eliminate unnecessary tasks or work. • Search for ways to eliminate delays, errors, and misunderstandings. • Search for efficiencies in how work is shared and transferred among people and departments. Management 2e - Chapter 17
Figure 17.6 How reengineering can streamline work processes. Management 2e - Chapter 17
