Production & Operations Management P.O.M. Overview & Principles

1. Production & Operations ManagementP.O.M.Overview & Principles Ken Homa

2. POM Overview Decisions & Actions • Acquire & deploy capacity • Select, control & improve processes • Allocate & schedule resources Cost, Quality, Flexibility, Service

3. Capacity • Acquire & deploy capacity • What? Facilities, equipment, people • How much? Aggregate, ‘dedicated’ • When? Peak vs. average • Where? Centralized / decentralized • Owned by? Vertical / virtual integration

4. Capacity = Performance Envelope From an organizational perspective … Capacity decisions arebig (usually expensive) and defining for a company, I.e. establish the ‘performanceenvelope’ Given the high cost, and ‘normal’ organizational inertia, capacity decisions are often very difficulttoundo, i.e. really are quite ‘fixed’.

5. Capacity Timing From a strategic / financial perspective … Add toomuch capacity toosoon and short-run profitabilitysuffers. Add toolittle capacity toolate and market shareconstrained … and profit opportunities may be lost forever.

6. Capacity Additions (More) from a strategic / financial perspective … Capacity is typically added in ‘chunks’ ; e.g. factories or factory ‘lines’. The first and last chunks are the mostcritical. Companies have natural tendency to start too conservatively, to underestimate time to ‘rampup’, and to eventuallyoverexpand. (Experiential observation)

7. Capacity Location From a strategic / tactical perspective … The location of capacity is often equally (or more) important than sheer quantity. Some locations are inherently more beneficial than others, e.g. closetomarkets or economical ‘factorinputs’.

8. Capacity Optimization (More) from a strategic / tactical perspective … Locations (plants, distribution centers, etc) are linked together into networks. Network efficiency (globaloptimization) is the paramount goal; site efficiency (localoptimization) is supportive (secondary) and may be sacrificed ‘for the greater good’.

9. Capacity Networks (More) from a strategic / tactical perspective … Ownership is usually a legal detail and financial impracticality, not necessarily a strategic imperative. Alliednetworks (formal & virtual) of best providers are increasinglyprevalent.

10. Logical & Physical Assets (More) from a strategic / tactical perspective … Information (logicalassets) moves faster and is usually cheaper (after infrastructure is in place) than physical assets (people, plants, trucks, inventory, etc.). Bestoperators support physical assets with logical assets … and substitutelogicalforphysical whenever possible.

11. Processes • Acquire & deploy capacity • Select, control & improve processes • Linkages: product / process design • Orientation: job shop, batch, flow • Organization: functional, cellular • Metrics: goals & specifications • Improvement: incremental & reengineered

12. ‘Right’ Processes The ‘right’operations approach (process, organization,etc.) is very situation-specific, depending on market requirements, competitive dynamics, and company competencies.

13. Product & Process Design Productdesignandoperations’ processefficiencyareinextricablylinked.Operations efficiency is ultimately limited by product ‘designformanufacturing’.

14. Process Metrics Organizations are made up of well-intended people (generally) who do what they understand, whatismeasured, and what they get paid for...So, performance measurements (metrics) must be clear, aligned, quantified, and relevant (to both the company & the individual)

15. Quantified Metrics More specifically: All performance criteria (metrics) can be quantified … even (or especially) quality. Trick: transformsubjective variables intoobjective measurements

16. Correlation: Strong positive X Positive X X Negative X X X Strong negative * Engineering Characteristics Competitive evaluation Energy needed to close door Energy needed to open door X = Us Accoust. Trans. Window Door seal resistance Check force on level ground A = Comp. A Water resistance Importance to Cust. B = Comp. B Customer Requirements (5 is best) 1 2 3 4 5 AB X Easy to close 7 X AB Stays open on a hill 5 Easy to open XAB 3 A X B Doesn’t leak in rain 3 No road noise X A B 2 Relationships: Importance weighting 10 6 6 9 2 3 Strong = 9 Medium = 3 Reduce energy level to 7.5 ft/lb Target values Reduce energy to 7.5 ft/lb. Reduce force to 9 lb. Maintain current level Maintain current level Maintain current level Small = 1 5 BA BA B B BXA X B X Technical evaluation (5 is best) 4 A X A 3 A X 2 X 1 QFD ....

17. Process Improvement Process improvement can be incremental (continuousimprovement) and/or quantum-change (reengineering). Continuousimprovementis(usually, bordering on always) necessarybutnot(typically or perpetually) sufficient!(Experiential observation)

18. Process Success Factors Bottomline re: process Integrate product & process design Match approach to situationMeasure, measure, measure Improve (or perish)

19. Resources • Acquire & deploy capacity • Select, control & improve processes • Allocate & schedule resources • Decision rules & methods • Variability & predictability • Facilitators: inventory & queues

20. Decision Rules & Methods Decisionrules (e.g. EOQs) and methods (e.g. MRP, JIT) are the foundation tools of operations … that translate strategic intent intoaction and performance.

21. Decision Rules The best decision rules and methods are analytically-derived … based on practical statistics and mathematics.Most concepts are straightforward (bordering on simple), but their application is complicated by combinations, permutations and level of detail.

22. Variability Variability (I.e. peaks & valleys) further complicates the operations landscape.Variability that is predictable can be mitigated with ‘buffers’ such as inventory and queues (I.e. waiting lines)Unpredictablevariability is the ‘mother of’ operations challenges.

23. Products & Services What is the fundamental difference between a product (manufacturing) business and a service business?

24. Products & Services What is the fundamental difference between a product (manufacturing) business and a service business? Servicebusinessesdon’thaveinventory to buffer mismatches of supply and demand … though queues (lines) provide some cushion … peakcapacity is more relevant than average capacity … and effective resource scheduling is absolutely critical

25. POM Overview • Capacity: Acquire & deploy • Processes: Select, control & improve • Resources: Allocate & schedule For efficiency & productivity and to create a competitive advantage ...

26. Competitive advantage: CQFS External (customer) Perspective Cost … converted into price Quality … augmented product “on specs” Flexibility… broad line, fast change Service … available when & where needed Quantifiable Winning & Qualifying Ops Criteria