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1.How to make stuff/provide a service.
2.How to make it well, on time, at low cost & meet consumer demand.
3. Management (design, operation, and improvement) of the transformation processes that create value for society
What is Operations. Mang.?:
1. Business Strategy- selecting markets to compete, level of investment, allocation of resources, functional area strategy (marketing, finance, production and operations)
(long-term impact) = Product/Process Selection, Location, Capacity. Questions: How much capacity do we need? (Manufacturing), How should our staff be trained? (Services), Which projects should we invest in? (Prod. Development)
(mid-term impact)= Number of Workers, Inventory Levels, Ordering frequency. Questions: Should we have finished goods inventory or should we make-to-order? (Manufacturing), What types of queues should we employ in Hartsfield? (Services), Do we need to exchange preliminary information with mfg? (Prod. Development)
Operational decisions (short-term impact)
Scheduling Jobs, Priorities.
Questions: Which product gets priority in front of machine A? (Manufacturing), Should the service system be FCFS or something else (Services), What is the critical path of the project? (Prod. Development)
low cost (point-to-point), small airports, reduce turnover time;
low cost (large scale, JIT inventory, no frills “warehouse”)
mass customization (machine-machine communication, own merge centers, standardization globally);
affordable but sustainable (flat/stackable parts, no plastic bags, design own products)
Developing a strategy
Next Step to Analyze process level: 1. Define the complexity and volume of your product/service 2. Define whether you offer few specific products/services or highly customized products/services 3. Determine product design, process design, supply chain design, supplier relations, capacity management plan & technology choice
Measuring if strategy is working
Productivity is a common measure for how well a company is utilizing its resources. Productivity = Outputs/Inputs. Shows how well company performs for a given level of inputs. Partial measures may give more specific details about performance
New Product Development:
Set of activities beginning with a perception of a market opportunity and ending in the production, sale, and delivery of the product • Issues: Market, Technical, Resource
Product Development Strategy
ask: Define a well-defined product development process and propose a product development organization that will allow your company to compete effectively over the next decade.
Is there a standard development process that will work for every company?, What milestones will be used to divide the overall product dev. process into phases?, What role do experts from diff. functional areas play in the dev. process?, Should the dev. org. be divided into groups corresponding to projects or to dev. functions?
observing, brainstorming, voting, teams built prototypes, testing, suggestions
Product Development Process:
1. Market pull products (Market opportunity to technology, e.g. sporting goods, furniture; Uses generic process) 2. Technology push products (Technology to market opportunity, e.g. teflon, gore-tex; Concept development takes technology as given) 3. Platform products (Built around existing platform, e.g. consumer electronics, printers; Concept development assumes proven technology platform)
Product Development Process:
5. Quick build products (Rapid modeling and prototyping, e.g. software, cell phones; Many design-build-test cycles) 6. Complex systems (System includes many subsystems and components, e.g. airplanes, jet engines; System and subsystems developed by many teams working in parallel)
Quality Function Deployment (QFD)
A method to translate customer requirements into engineering specifications; Aims to get design, engineering and production people involved early on in the process to avoid late design changes that drive up cost
How to implement Green Design
Using toxic material screens, Choosing materials that can be upcycled, Choosing materials that are cost-effective to recycle, Integrating these considerations into the design process, Exploiting economies of scale & reducing inputs, Rethink the buyer-supplier relationship;
Process = series of independent tasks that transforms an input into output material of higher value for the organization; Ex: Honda transforms steel, rubber, and plastic into cars
(With limited WIP, production variability reduces the effective throughput rate (capacity) of the system. Variability occurs due to machine and human variations, errors, raw material quality problems.) Solution: not to increase inventory because it is costly. It is to reduce variability.
Obj: manage the bar and restaurant in order to max: utilization, throughput rate, profit (most important)
Capacity and Util.:
Variability is to blame!;Where is var. coming from? 1. Demand var. – typically responsibility of marketing, 2. Process var.- typically respon. of operations; How to inc. profit? Increasing demand, increasing capacity, reducing variability (in demand, in process)
Framework = Customer Population, Arrival, queue, service, exit
1. average utlization (%time of time server is busy); 2. Average queuing time ; 3. Average queue length (#of customers in line) ;4. Average system time (queuing + service); 5. Average # of customers if the system (queuing + being served)
Variablity - Use Queuing Models
/M/1 Queue assume that single queue, single serve; time between arrivals is random and distributed acc. to exp (λ) (the exponential distribution with rate λ) ⇔ Poisson arrivals at rate λ; time between services is random and distributed acc. to exp(μ) (the exponential distribution with rate μ
customer” Designing service operations is using strategies, employees and systems to satisfy a customer
Customer Service Dilemmas
Priority boarding for frequent fliers and Access to empty seats for frequent fliers
Summary of strategic issues in serv. oper.
1.Different from manufacturing because every client is an expert, services are idiosyncratic, mix of tangible and intangible, etc.;
2.Similar to manufacturing operations in that management needs to consider trade-offs.; 3.Variability on both the customer side and the service side need to be proactively managed
Forecasting is a tool used for predicting future demand based on past information
Demand for products and services is usually uncertain ; Forecasting can be used for: Strategic planning (long range planning), Finance and accounting (budgets and cost controls), Marketing (future sales, new products), Production and operations
A forecast is only as good as the information included in the forecast (past data) ; History is not a perfect predictor of the future (i.e.: there is no such thing as a perfect forecast) ; REMEMBER: Forecasting is based on the assumption that the past predicts the future! When forecasting, think carefully whether or not the past is strongly related to what you expect to see in the future
What should we consider when looking at past demand data?
Trends, Seasonality, Cyclical elements, Autocorrelation, Random variation
Inventory Management: What is inventory?
Inventory is the raw materials, component parts, work-in-process, or finished products that are held at a location in the supply chain.
Why do we care?:
At the macro level: Inventory is one of the biggest corporate assets ($), Investment in inventory is currently over $1.25 Trillion (U.S. Department of Commerce), This figure accounts for almost 25% of GNP Enormous potential for efficiency increase by controlling inventories.
At the firm level:
Sales growth: right inventory at the right place at the right time, Cost reduction: less money tied up in inventory, inventory management, obsolescence Higher profit.
Managing Inv. in the Face of Uncertainty: The Newsvendor Problem: The Newsvendor Framework:
One chance to decide on the stocking quantity for the product you’re selling, Demand for the product is uncertain, Known marginal profit for each unit sold and known marginal loss for the ones that are bought and not sold, Goal: Maximize expected profit
Exs where the Newsvendor framework is appropriate
Perishable goods (Meals in a cafeteria, Dairy foods); Short selling season (Christmas trees, toys, Flowers on Valentine’s day, Fashion clothes, seasonal clothes, Newspapers)
Use buying committee to develop forecast(Variance predicts fashion risk); Determine appropriate initial production quantities given minimum order quantities(Assess overage and underage costs, Produce lowest “risk” units early);
Make operational changes to improve performance(“Early write” program to improve forecasts, Increasing reactive capacity directly, Increasing total capacity, Reducing production /raw material lead times, Standardizing components and keeping inventories of cheap components)
Quality Management: What is quality management?:
Two aspects: features (more features that meet customer needs means higher quality), freedom from trouble (fewer defects means higher quality
The Current Process:
Flow chart - Customer A --> operator --> Receiving party. Squiggly line from customer B to operator because customer B is waiting in line. How can we reduce waiting time?
Fishbone diagram analysis
Makes Customer Wait (circle), Receiving party absent (branch): about, out of office, not at desk Working system of operators (branch): too many phone calls, lunchtime, absent Customer (branch): not giving receiving party’s coordinates, lengthy talk, complaining, leaving a message Operator (branch): Takes too much time to explain, does not know organization well, does not understand customer
Graph of reasons why customers have to wait
Production Process Design and Long Term Capacity Planning are the overall planning process. Those two things bring down to aggregate planning which breaks down to master production schedule, material requirements, individual order scheduling. Based on the demand of individual orders you need to be able to forecast from an aggregate planning stage.
The Main idea behind aggregate planning:
Aggregate Planning translates business plans into rough floor schedules and production plans.
What does aggregate planning do?
Given an aggregate demand forecast, determine production levels inventory levels, and workforces levels, in order to minimize total relevant costs over the planning horizon. Given the number of variables, there is not a single optimal solution.
MRP: Material Requirements Planning:
Question: how do firms actually organize things to turn materials into finished products?
Master Production Schedule (MPS):
Time-phased plan specifying how many and when the firm plans to build each end item; Aggregate Plan (Product Groups) --> MPS (specific End Items)
Dependent vs Independent Demand
Independent Demand: Demand for an item is independent of the demand for other items. These demands are typically determined by outside customers and are end-item demands; Dependent Demand: Demand for a component (raw material, part, sub-assembly) is dependent on the demand for the end-item into which the component goes, demand often occurs in batches
Bill of Marterials (BOM)
Shows all the assemblies, subassemblies, components, and raw materials required to produce an item, Shows way a finished product or parent item is put together from individual components, Parent item shown at highest level or level zero, Parts that go into parent item are called level 1 components and so on, Production planners explode BOM for level zero item to determine the number, due dates, and order dates of subcomponents
How many D’s we need in order to produce 50 A’s? Example of BOM;
t takes 3 Ds to 1 B. You need 2 B’s to make 1 A. So you need 6 D’s to make 1 A. You also need 1 D to make 1 C. So you need 1 D to make 1 A. So you need 7 D’s to make an A
7 x 50= 350 D’s.
Materials Requirements Planning (MRP)
Computer-based information system that schedules and orders dependent-demand inventory components; Uses the master production schedule, bills of materials, and inventory records as inputs; outputs recommendations: When to release new orders, When to reschedule open orders.
Manufacturing Resource Planning (MRP II)
Goal: Plan and monitor all resources of a manufacturing firm (closed loop): manufacturing, marketing, finance, engineering; Simulate the manufacturing system
Enterprise Resource Planning Systems is a computer system that integrates application programs in accounting, sales, manufacturing, and other functions in the firm, This integration is accomplished through a database shared by all the application programs
Reasons to Implement ERP
Desire to standardize and improve processes, To improve the level of systems integration, To improve information quality
Cost ($250M+ for a Fortune 100 company), Transition pain (Implementation resources, Training, Resistance to change)
Summary and Conclusions…
Master Production Schedule (MPS) converts aggregate plan to a detailed schedule, Primary inputs to MRP are MPS, BOM’s (for part relationships) and Inventory Records (for lead times and inventory position), MRP is a push system but can be used in conjunction with pull systems, MRP grew and evolved to include closed-loop, Manufacturing Resource Planning (MRP II), and eventually ERP
Supplier --> Manufacturer --> Distributor --> Retailer --> Customer
Tier 1 suppliers (coke, JNJ, Kellogg, P&G), State Distributors GA, FL, AL, TX), Super Market Chains (Kroger, Publix), Local Stores (V. Highlands, Peachtree, Ocean Drive, Ft. Laud)
Supply Chain Management:
The design and management of process across organizational boundaries with the goal of matching supply and demand in the most cost effective way. Mission impossible: Matching Supply and Demand.
Why so Difficult to Match Supply and Demand?
Uncertainty in demand and/or supply, Changing customer requirements, Decreasing product life cycles, Fragmentation of supply chain ownership, Conflicting objectives in the supply chain,Conflicting objectives even within a single firm (Marketing/Sales wants: more FGI inventory, fast delivery, many package types, special wishes/promotions,
Supply Chain Performance Measures:
: Cost (Total Supply Chain Cost is the sum of all supply chain costs for all products processed through a supply chain during a given period
is the ratio of the cost of goods sold to the value of average inventory;
Weeks of inventory
is the ratio of average inventory to the average weekly sales); Customer Service (Average Response Time is the sum of delays of ordering, processing, and transportation between the time an order is placed at a customer zone and the time the order arrives at the customer zone)
What do these measures mean?
Inventory Turnover: how often the company replenishes inventory. High value of inventory turnover means that the inventory was not sitting around a long time; Weeks of Supply: how many weeks worth of inventory does the company have on hand. High value of weeks of supply means that the firm has a lot of inventory sitting around.
Wal-Mart: Efficient Supply Chain:
Procurement,Distribution, Product Assortment, Pricing
Efficient S. Chain: Procurement
In 90s, Wal-Mart began to bypass wholesalers, Expanded private label business (used unbranded suppliers), Build partnerships with many suppliers, Retail Link: suppliers could access POS and inventory, What are the benefits?, Example: Wal-Mart and P&G partnership (JIT II)
Efficient S. Chain: Distribution:
At the end of 2003: 84 Wal-Mart DCs DC’s functioned as the hubs in a hub-and-spoke network, Distribution costs accounted for 2-3% of Wal-Mart’s revenues compared to 4-5% for other retailers, Wal-Mart mastered large scale “Cross Docking”, Automation of distribution: RFID technology, Inventory turns were a key measure of the overall performance of the supply chain,
Efficient S. Chain: Product Assortment:
Stocked mix of nationally branded and private label products (What are the pros and cons of nationally branded and private label products?) Product assortment managed by store ⇒ more variety (What are the pros and cons of offering more variety?, Pro: More variety than competitors ⇒ customer satisfaction, Con: More variety than competitors ⇒ higher costs)
Timbuk2: Outsourcing, Offshoring and Mass Customization: Mass Customization:
Customizing Production at a large scale Achieve “job-shop” customization with “flow-shop” productivity
Utilzation at the SFO facility
Focus: Two factories, each focused on one type of demand. One efficient factory produces only standard products; One flexible factory produces only custom products
Other Considerations for the Outsourcing Decision?
How about the cost of mismatch? Lead time increases, so will need to make to stock based on forecasts, Does T2 have forecasting capability? How to deal with that?, What will be the consequence for utilization at the SFO facility?, Not “Made in the USA” anymore!
China is attractive for Timbuk2, It would be good to keep some standard production in San Francisco to smooth demand…For products sourced from China: keep variety low (at least in the beginning) to increase forecast accuracy (and reduce the costs of mismatch)
:Closing the Loop:
Reuse (as is), Refurbish (minor cleaning/parts replacement), Remanufacture (using a mix of used and new parts to make products), Recycle (processing used materials & remaking them into the same material)
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