DSC2006: Operations Management (M)

Today’s Outline

Module Administration

Introduction to OM

Module Overview

Dr. Mei Qi (齐 梅 博士) Office: BIZ 1: 08-70 Phone: 6516-1335 E-mail: bizqm@nus.edu.sg Chat Room on IVLE

5 minutes Break

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Module Administration Module has a number of dimensions which are expected to

accentuate learning Lectures (2 hours with a 5 minutes break) and Tutorials (1 hour without

break): once a week

Be Punctual!

To ensure quality of the learning experience of others, no late entrance is permitted!

Cell phone should be turned off or silent

Laptops are generally not allowed

Exams: midterm and final

Closed book, one double sided A4 “help” sheet is allowed

Non-programmable calculators are permitted (see IVLE for more info.)

No make up exams, so please make sure there is no time conflicts!

IVLE

Pre-class Polls, Announcements, Lecture Notes, Chat Room, Feedbacks

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It’s a Beautiful World Companies offering variety Products and Services

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The Cold Hard Facts -- Competition Businesses Compete through M

Product / Service Design (w12)

Capacity, Process, Location (w2, 4, 5, 6)

Quality / Service (w6)

Inventory and materials (w7, 8, 9, 10, 11)

Quick response, Flexibility (w11, 12)

Supply Chain Management (w12)

Marketing, Sales, Finance, Accounting (w1-13)

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M Tools

Operations

Finance Marketing

Business Organizations

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Sales and Operations Planning (SOP)

Dr. Mei Qi @ NUS

NUS: Asia’s Global Business School

Academic Departments

Accounting

Business Policy

Decision Sciences (M)

Finance

Management & Organization (including HRM unit)

Marketing

Combinations (double degrees) http://bschool.nus.edu/AcademicProgrammes/tabid/738/default.aspx

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What’s M? What’s perations?

The part of a business organization that is responsible for producing goods and/or services

Part Operations function within a company/organization

What’s M?

The management of the processes (or operations function) that create goods and/or provide services

Chief Operating Officer (C)

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Inputs Production Process Outputs

Manufacturing Canned Food

Canned vegetables

Raw Vegetables Metal Sheets Water Energy Labor Building Equipment

Cleaning Making cans Cutting Cooking Packing Labeling

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Inputs Operations Process Outputs

Healthy patients

Doctors, nurses Hospital Medical Supplies Equipment Laboratories

Examination Surgery Monitoring Medication Therapy

Hospital Service Process

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M is Process Management

The Process View of the Organization

Inputs

Production Process Operations Process

Transformation Process

Outputs

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M is Process Management

Outputs Inputs Transformation

Process

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Goods vs. Service Goods are physical items

that include raw materials, parts, subassemblies, and final products. Automobile

Computer

Oven

Shampoo

…

Services are activities that provide some combination of time, location, form or psychological value. Air travel

Education

Haircut

Legal counsel

…

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Characteristics of Goods and Services Output - Tangible vs. intangible

Can be inventoried vs. can't be inventoried

Measurement of productivity is easy vs. hard

Labour content of production is low vs. high

Consistent product definition Uniformity of input and output are high vs. low

Quality Evaluation is easy vs. hard

Opportunity to correct quality problems is high vs. low

Customer contact Customer interaction is low vs. high

Production usually separate from vs. together with consumption

Patentable is common vs. uncommon

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Role of M – add value

INPUTS Transformation

Processes OUTPUTS

Control Feedbacks / Performance

Goods or Services Goods or Services

Creating Goods or Providing Services

The operations process is the hardest thing for competitors to copy!

$$$$$$$ $$$ $$ < +

Value-added: the difference between the cost of inputs and the value or price of outputs

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Stock Prices and Profits Is maximizing stock price the same thing as maximizing

profit?

Simply put: yes.

A company's stock price will factor in many different variables including the type of industry the firm operates in, but profits (or earnings) are a very strong proxy of a company's stock price. In the short run, a company's stock price can make small to large price adjustments, depending on news releases and earnings reports. In the long run, a firm's stock price will depend largely on the firm's overall earnings. So, earnings will be one of the strongest drivers for a company's stock.

http://www.investopedia.com

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Stock Prices and Products

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Profits and Productivity Profits depend on different types of productivity

A performance measurement of the effective use of resources, usually expressed as the ratio of output to input

111

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$asset

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Contract prices Productivity

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Computing Productivity

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Capital

Output ;

Labor

Ouput ;

Input Single

Output Measures Partial

Machine+Labor

Ouput ;

Inputs Multiple

Output Measuresr Multifacto

Total Measure Goods or services produced

All inputs used to produce them

Input

Output=tyProductivi

Energy+Capital+Labor

Output Measuresr Multifacto

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Example: Computing Productivity

1970s: 144 kg inputs (iron ore, coal, limestone)

Raw materials productivity: 100/144 = 69.44%

2000s: 115 kg inputs (20% reduction in inputs)

Raw materials productivity: 100/115 = 86.96%

Iron Ore, Limestone,

Coal etc. Steel

Transformation Processes

100 kg

Steel

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2008: 1.3 b. tons steel were produced …… Bonus: reduced 1.12 b. tons of CO2

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Productivity and M

Factors affect productivity

Capital, technology, quality, methods and management (transformation process)

Inputs Outputs

Control

Performance / Feedback

Transformation Processes

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M adds value: Improving Productivity 1. Develop productivity measures for all operations

2. Determine critical (bottleneck) operations

3. Develop methods for productivity improvements

4. Establish reasonable goals

5. Make it clear that management supports and encourages productivity improvement

6. Measure and publicize improvements

80 100 120

Step 1 Step 2 Step 3

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barrels/per labor hour

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M: Why is resource utilization less than 100%?

100% (what you pay for)

Scheduled Downtime (good) (maintenance / breaks / training / improvement)

Unscheduled Downtime (breakdowns / absences)

Blocking / Starving (temporary slowdowns elsewhere)

Poor quality (rework, scrap, downstream scrap)

Bottlenecks (bottleneck capacity < resource capacity)

Demand-Supply Mismatch (demand < bottleneck capacity)

Utilization Actual production of output

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Poor quality (defects) Poor quality can lead to

poor customer satisfaction (reduced incentives, i.e. revenue)

rework or scrap, which causes lower utilization directly but also indirectly as sources of blocking and starving

Usually poor quality results from poorly designed or non-standardized processes or training

Process improvements that improve quality also increase utilization and thus productivity (w6) Training

Process standardization

Process redesign

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Utilization

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M Tools

Bottlenecks Starving occurs when the

activities in a stage must stop because there is no work (Stage 2 and Stage 3)

Blocking occurs when the activities in a stage must stop because there is no place to deposit the item just completed (step 1)

80 100 120

Step 1 Step 2 Step 3

140 100 120

Step 1 Step 2 Step 3

Blocking and starving limit the maximum utilization of the affected resources

Utilization

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Improving productivity through… … an understanding of bottlenecks (w2)

Prioritize process improvements and redesign

Increase capacity at bottlenecks

Reduce structural idle time at bottlenecks by redesigning processes

Prioritize technological improvements at bottlenecks

Reduce setup times at bottlenecks

Reduce blocking and starving of the bottleneck by

creating buffers before and after bottlenecks (space, inventory, manpower, flexibility)

Reducing variability that causes blocking or starving of the bottleneck

Place inspection just prior to bottleneck operations (you do not want faulty product to be processed on a bottleneck)

Prevent scrap downstream from the bottleneck

Utilization

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M Tools

Blocking and Starving What causes blocking or starvation:

Bottlenecks

“seasonality”: no containers available in the morning, plenty in the afternoon (predictable variability)

unpredictable variability: machine breakdowns, traffic jams, absenteeism

What to do to improve productivity?

Buffer or suffer (not free though: time + inventory) (w7,8,9)

Synchronize (not easy: Line balancing and scheduling) (w4,5)

Process improvements to remove causes of variability (w6)

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Utilization

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M Tools

Extraction Bottling

Requires a 30 minutes’ down-time following every 4 hours’ of production

Filtering

Buffer or Suffer

1. How many barrels can be produced per hour of the whole process?

80*4/4.5 = 71.11 b/h

2. How can we use buffer (inventory) to improve the current rate?

1. Where should the buffer be?

2. How big should the buffer be?

80 barrels/h 100 barrels/h 120 barrels/h

40 b

Barrels per labor hour ->

How many barrels can be processed after buffering?

80 b/h

Flow interruptions

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Utilization

Dr. Mei Qi @ NUS

Matching Supply with Demand Demand uncertainty and/or poor M will lead to higher cost

If demand exceeds planned supply extra expenses need to be incurred (e.g. overtime) and cost will go up.

If demand is lower than the planned supply the utilization will drop and the cost will increase because the resources are still being paid for

M: use demand forecasts, resource capacity and resource utilization information to do resource planning. So, productivity can be improved through:

Better demand management (forecasting, demand smoothing and RM) (w7-12)

Better operations planning (models may be needed to estimate/analyze process capacity and utilization) (w2)

Utilization

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M Tools

M adds value: Example For the airline companies

20 minutes of ground time (turn around time) savings between flights can create 1 or 2 extra flights per day

4 to 5 minutes of boarding time savings can generate $1 million per year (UA)

Some boarding strategies

First class -> business class

coach/economy class

Back to front (NWA)

window to aisle (UA)

first come first board (SWA)

reverse pyramid (USA saves > 2 minutes)

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Module Overview The scope of Operations

management ranges across the organization which may includes many interrelated activities

M tools come in different forms and can be applied in different ways

Inputs Outputs

Control

Performance / Feedback

Transformation Processes

100% (what you pay for)

Utilization

M Tools

Week Lecture Topic

1 Introduction to OM and Module Overview (Ch 1 & 2)

2 Process Selection and Capacity Planning (Ch 5 & 6)

3 No Lecture (Dr. Qi attends a 3-day conference)!

4 Facility Layout and Line Balancing (Ch 6 & notes)

5 Queuing and Scheduling (notes & Ch 16)

6 Process Control and Quality Management (Ch9 & 10)

Term break

7 Inventory Management I: ABC Analysis and EOQ (Ch 12) (midterm Exam this Saturday, Oct. 1, 2011 MPSH 12:15 to 13:15)

8 Inventory Management II: Quantity Discount and EPQ (Ch 12)

9 Inventory Management III: Newsboy Model and Revenue Management (Ch 12 & notes)

10 Aggregate Planning (Ch 13)

11 MRP and JIT (Ch 14 & notes)

12 Product, Supply Chain, and Lean (Ch 4, 11 & 15)

13 Module Review and Summary

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T D Readings: Chapters 1 & 2 (exclude pages 40-48)

Exercises (solution guides will be provided on IVLE):

End of Chapter 1:

Discussion and Review Questions 1, 2, 15

Critical Thinking Exercise 1

End of Chapter 2:

Discussion and Review Questions 9, 10, 11

Problems 2, 4

Experiential Exercises: Select two stores that you shop at regularly. What competitive advantages do those two stores have over their competitors that cause you to shop there rather than at the competitor’s?

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