NOTES FOR OPERATION MANAGEMENT

SESSION 1
• What is Operations Management?
• Where does it fit in?
• Services vs. Goods
• Supply Chain processes
• Exercise

OPERATIONS:
Why important?
- Because operation is the way we create and deliver our STRATEGIC
VALUE PROPOSITION

What we need to implement?

- The flexibility and efficiency of operations

How can we achieve it?

- By designing processes that BEST ADDRESS our strategy

What is Operation Management?

¡ Concerned with the management of the entire system that produces a
GOOD or a SERVICE

Operation management is an area of management concerned with designing

and controlling the process of production and redesigning business
operations in the production of goods or services
Work involved in each process: (Supply Chain)
¡ Maximize customer value and gain a competitive advantage in the
marketplace

¡ Planning: The processes needed to operate an existing supply

chain strategically
¡ Sourcing: The selection of suppliers that will deliver the goods and
services needed to create the firm’s product
¡ Making: The processes needed to produce goods or provide
services
¡ Delivering: Movement of products to warehouses and customers
¡ Returning: The processes for receiving worn-out, defective, and
excess products back from customers

PLANNING
¡ What is the process flow?
¡ Where will the factories be located?
¡ How will the workstations be laid out? (process analysis/layout)
¡ How many units should be made? (Demand planning and
capacity)
¡ What is the demand estimate?

SOURCING
¡ Who will supply the raw materials? (inventory management)
> At what price?
> At what frequency?
> What is the delivery mode?
 > What is the Quality standard?
> Other Terms & Conditions.

PRODUCING (process analysis/layout)

What is the process flow ?
¡ How are the workers scheduled?
¡ What is the shift?
¡ How will materials move from one workstation to another?
¡ Are all the systems balanced?
¡ How can the process be made faster?

DELIEVERING
¡ At what frequency is the output delivered (throughput rate /
process analysis)?
¡ How is the output delivered to the warehouse/retailer/customer?
¡ What information must be maintained?
¡ How many units can be transported at a time?

RETURN (cost of quality)

¡ How can the customer return products?
¡ What information must be captured with the return?
¡ What does the company do with the returns?

OPERATIONS
Manages: people, equipment technology, materials and information
To Produce: Goods and/or services

SERVICES vs. GOODS?

1. What is a service?
Services are intangible and without physical attributes

2. What are goods?

Goods are tangible and can be weighed or measured based on their physical
aspects.

SESSIONS 2 AND 3 - PROCESS ANALYSIS

• What is a Process?
• Why do we need Process Analysis?
• Process Flow Diagram
• Types of Processes
• Definitions
• Little’s Law
• More Examples

PROCESS ANALYSIS

Why important?
- Because processes are our delivery mechanism

What?
- The restrictions of each process

How can we achieve it?

- By understanding how the use of resources can improve our deliver of
Key Success Factors.

What is a process?
 A process is a set of actions that converts INPUT into
OUTPUT.
Inputs that are converted – RAW MATERIALS
Inputs that DO the converting – LABOR, MACHINERY

Why do we need Process Analysis?

Process Analysis can help us to:

Ø Diagnose problems
Ø Solve problems
Ø Expand capacity, services, product line, etc
Ø Reduce cost
Ø Improve customer service
Ø Improve process performance

Process Flow Diagram

 A process flow is a set of TASKS connected by a
FLOW of goods and information that transforms
INPUT to OUTPUT
INPUT
Types of input Measured in:
• Labor * Hours
• Material * Units
• Energy * Joules
• Capital * Cost (€ or $)

OUTPUT
Types of Output Measured in:
• Service * Customers served
• Goods * Units
• Energy * Joules
• Capital * Cost of goods sold

TASK
 A Task is a set of activities that CHANGE the input
into a form closer to the output.

A task may use Capital, Labor, Energy, Material

o Task A: is in Series with B

o Task (A and B) : are in

Parallel to (Task C and D)
Types of PROCESSES:
 Make-to-order
 Make-to-stock
 Hybrid

Make-to-order
 Process is activated in response to an order.
 “Customized”


Make-to-Stock
 Process is activated to meet expected demand
 Instead of setting a production level and then
attempting to sell goods, a company using MTS would
estimate how many orders its products could
generate, and then supply enough stock to meet
those orders.
 Accurate forecast is necessary
Hybrid
 Combines the features of both make-to-order and
make-to-stock
 E.g. mac Donald’s
 Make-to-order vs Make-to-stock

Make-to-Stock process

WHAT ID HAPPENING HERE?

Starving - occurs when the activities in a stage must stop because there is no
work. E.g. the “Assemble burger” stops for 30 seconds while waiting for the
“Heat Patties”
AND HERE?

Blocking occurs when the activities in a stage must stop because there is no
place to deposit the item. E.G. “Heat Patties” takes only 30 sec and “Assemble
Burger” 1 min meaning that “Heat Patties” will have to wait 30 sec while
“Assembler Burger” finishes the previous burger.

Buffer is a storage between stages where the output of a stage is placed prior
to being used in the next stage.
.
Bottleneck is the stage that determines the capacity of the entire process.
 Bottleneck is the stage with
the lowest capacity.
 Slowest process in the system. (which can affect the
whole process)

https://www.youtube.com/watch?v=REB1lzAFbb8

Throughput Rate is the output rate that the process is expected to produce
over a period of time.
Capacity is the output rate that the process “can” produce over a period of
time.
 It is the maximum throughput rate.

Throughput Time – Throughput Time or Flow Time is the amount of time

that a unit spends in a process. (TIME OF THE WHOLE PROCESS)
 time spent by a unit
 It depends on process boundary. Flow diagram
ABOVE does NOT include time for tasks such as:
 take patties out of freezer, open bag and finally serve
customer.

Inventory is the number of units within the process at any point in time.

Equilibrium State - A process is said to be in an Equilibrium State when the

average number of units remains the same over time

Little’s Law
Little’s law states that for a system in EQUILIBRIUM,
 WHERE I=R*T
I = average inventory
R = average throughput rate
T = average throughput rime

It determines the average number of items in queuing systems. ->

simple approach to access EFFICIENY.
 Number of products in queue – one single
product waits in the queue
 Job Time – time it takes to do the work in one
single product
 TOTAL TIME

THE WINE PROBLEM ????

Caroline is a wine buff.
Her wine rack holds 240 bottles. She seldom fills the rack to the top but
sometimes after a good party the rack is empty. On average, it seems to be
about 2/3rds full.
Many wines improve with age. Caroline starts to wonder how long, on average,
she has been keeping her wines. She estimates that she buys, on average, about
eight bottles per month. But she certainly doesn't know when she drank which
bottle and so there seems to be no way she can find out, even approximately, the
average age of the bottles she has been drinking.
Can you help?

Average Inventory = 2/3 * 240 = 160 bottles

Throughput Rate = 8 bottles/month
Throughput Time =I/R
= 160/8
= 20 months

EXAMPLE 2 :
 The average total throughput time of one order is 4
days
 Every week, 20 production orders are produced
 The company works 24/7

How much W-I-P has the company (in number of orders) ?

I = (20/7) * 4 THERFORE I = 11.4

The Sub Problem

Slice Bun/Add Add Toppings/ Bag the Order

Take the Order
Meat Condiments
1 min/order 2 min/order
3 min/order 4 min/order

Daffy Dave’s Sub Shop makes custom sandwiches.

For a typical 8-hr work day,

a. What is the current maximum output per day?
b. If we add another person, where would we add her and what is
the benefit?
 c. Is there a benefit if we can shift 1 minute from Bun and Meat to
Order Taking? Assume we do not make change in part b above.
d. Is there a benefit if we shift 1 minute of work from Condiments
to Bagging? Assume we do not make the changes in parts b and c
above.
https://www.chegg.com/homework-help/questions-and-answers/b-daffy-dave-s-
sub-shop-makes-custom-submarine-sandwiches-order-analysing-processes-
shop-g-q28403208

a. Maximum Output is determined by Bottleneck - “Add Toppings”.

Daily Output = 8 hrs * 60 min/4 = 120 subs/day.
b. Add person to slowest station, “Add Toppings”.
New Bottleneck -> “Slice Bun”
New Output rate = 8 * 60/3 = 160 subs/day
c. No benefit because output is determined by toppings station.
d. Yes, in which case, each of the three stations take 3 mins/order.
Output = 8 * 60/3 = 160 subs/day

STOPPED AT SLIDE Nº 35
 SESSION 4

Capacity Management
Why is it important?
Because if you fall short you lose the ability to make a profit and if you have
too much you carry out unnecessary costs

What they want to achieve?

The ability to produce products/services that meet demand in line with our
VALUE proposition

How?
By understanding the costs of each process in line with its costs and
capabilities

CAPACITY
Capacity refers to the ability to hold, receive, store, or accommodate.
 May also refer to the amount of output that a system is
capable of achieving over a specific period of time
> Must be stated relative to a period of time
> E.G. 500 chocolates/hour or 6000
chocolates/day