INFO 564

Operations & Supply Chain

Management
What is Operations Management?
Operations Management
• Central function of any business
• Operations give us saleable product or service.
• Well-managed operations increase profitability in a
sustainable way
• Allow business to deliver on customer promise
Operations Add Value
• By processing inputs into customer-desired outputs
 Iron ore is converted to steel – US Steel
 Raw ingredients are converted to food - restaurant
• By providing convenience
 Retailers bring a variety of goods under one roof – Amazon, BestBuy,
ShopRite, Kohl’s, Carvana
 Brokers bring buyer and seller together – AirBnB, Uber
• By improving the value of the brand
Operations Transform
Transformative Process
Equipment
• Capacity
• Flexibility
• Reliability
INPUTS Workers OUTPUTS
Suppliers • Work assignments Customers
Materials Goods
Labor
• Performance
Services
Energy • Reliability
Customers Energy
Information
• Type
• Reliability

Records &
Control
Inputs and Outputs can be Tangible or
Intangible

Inputs Outputs
Tangible Metal, food, wood, oil, Metal, meal, furniture,
cloth, flour, etc. parts, plastics, jeans,
bread, etc.

Intangible Information, knowledge, Health, education,

expertise, imagination, satisfaction, thrill,
creativity happiness, convenience
Operations are everywhere...
Organization Inputs Transformation Process Outputs
Auto assembly Parts, labor, Welding, boring, riveting, painting, Finished automobile
plant information testing
Restaurant Ingredients, labor, Seating, order taking, preparing drinks Satisfied customers, meals,
energy, hungry and food, serving, clean-up, setting leftovers
customers table
University Labor, information, Analyzing, sorting, writing, teaching, Skilled and knowledgeable new
students counseling, evaluating, planning, graduates, new knowledge
gathering data
Ride hailing App, customers, Transportation, seating, billing Satisfied customer, safety
drivers, cars,
information
Social media Website, Algorithms, site maintenance, Relationships, news, other
information, communication, customers information,
customers, ads
 INFO 564
Operations & Supply Chain
Management
What Does an Operations Manager Do?
Produce goods/services that meet
customer expectations of...
• Function, quality, quantity
• At a reasonable price
• Delivery and responsiveness during and after sale
• The customer is at the center of operations
Work with Community

Other
Functions HR

Workers

Treasury, Capital
Markets
Customers
Potental

Marketing Needs Operations Money Finance

Controls
Accounting

Customers
Ensure Effectiveness and Efficiency
• Effectiveness – achieving customer expectations on function,
quality, quantity, price, and service.
• Efficiency – achieving customer expectations with
 Minimum waste of material, labor, energy, time
 Maximum sustainability – conservation of natural resources (water,
oil, wood, etc.), recycling and reuse
Make Key Decisions
• What is the best match between product and process?
o Competitive strategy and priorities

• Decide on the appropriate:

 Location of production facility  Batch size
 Process  Set of worker skills
 Technology and automation  Level and role of inventory
 Layout  Suppliers and vendors
 Role of customer
Analyze Tradeoffs
• Make in-house vs buy (outsource)
• Standardization vs customization
• Long-term vs short-term
• Responsiveness vs efficiency
Constantly Improve Processes
• Study how process currently operates
 Flow charts and diagrams
• Analyse process
 Capacity, bottlenecks
• Improve process
 Eliminate non-value added steps, simplify, streamline
 Automate
 Ease of performance, safety, and quality
• Measure improvement
Deal with Major Challenges
• Role of quality: Ever increasing expectations of customers
• Globalization: Managing global operations – their challenges
and opportunities
• Technology: Automation, AI, impact on labor
• Mass customization: Delivering extreme choice at reasonable
cost
• Sustainability: Triple bottom line
 INFO 564
Operations & Supply Chain
Management
Capacity of a Process
Capacity
Capacity is a • In a given amount of time
measure of how much (hour, shift, day, week, etc.)
output can be
• Usually measured in units
produced by a
process.

• A process may make different kinds of output

Output has to be • The output of a service can be hard to define

clearly defined • What is the output of a hospital, a
restaurant, or a university?
Simple Sequential Process
•Process performs four tasks (A, B, C, and D) on each unit, in that order. Task
times are shown.

•Each task is performed at its station; each station has one worker

•Raw material enters at Station 1, finished product exits after Station 4

Station 1 Station 2 Station 3 Station 4

Task A Task B Task C Task D

3 min/unit 4 min/unit 5 min/unit 2 min/unit

How much can this process make in an 8-hour day
(480 minutes)?
Station 1 Station 2 Station 3 Station 4

Task A Task B Task C Task D

3 min/unit 4 min/unit 5 min/unit 2 min/unit

  Available Time
Capacity = Produce One Unit ¿
Time ¿

•Available Time = 8*60 = 480 minutes

•Time to Produce One Unit?
Time to make one unit
Station 1 Station 2 Station 3 Station 4

Task A Task B Task C Task D

3 min/unit 4 min/unit 5 min/unit 2 min/unit

• If the very first unit to be processed starts Task A at time 0 it will exit Task D after
3+4+5+2 = 14 minutes. This assumes that the stations are all idle at start.
• What about subsequent units?
• The key is to realize that stations can (and will) be processing different units
simultaneously.
• Thus the second unit can enter Station 1 as soon as the first unit leaves Station 1.
Time to make one unit
Station 1 Station 2 Station 3 Station 4

Task A Task B Task C Task D

3 min/unit 4 min/unit 5 min/unit 2 min/unit

Unit Start Finish Unit Start Finish Unit Start Finish Unit Start Finish
#1 0 3 #1 3 7 #1 7 12 #1 12 14
#2 3 6 #2 7 11 #2 12 17 #2 17 19
#3 6 9 #3 11 15 #3 17 22 #3 22 24
#4 9 12 #4 15 19 #4 22 27 #4 27 29

• The first unit leaves Station 4 at time 14. Subsequent units leave Station 4 every 5 minutes.
• Thus cycle time = 5 minutes
• Thus we can claim that it takes the assembly line 5 minutes to produce a unit (ignoring the very
first unit).
Time to make one unit
Station 1 Station 2 Station 3 Station 4

Task A Task B Task C Task D

3 min/unit 4 min/unit 5 min/unit 2 min/unit

Cycle Time Bottleneck

• Why is cycle time 5 minutes?

• It is the time taken by the longest task in the process – Task C. C is the bottleneck task.
• It determines the rate at which product is produced and the capacity of the process.
Capacity in an 8-hour day

Station 1 Station 2 Station 3 Station 4

Task A Task B Task C Task D

3 min/unit 4 min/unit 5 min/unit 2 min/unit

  Available Time 480

Capacity= Produce One Unit ¿= =96 𝑢𝑛𝑖𝑡𝑠
Time ¿ 5
To find capacity of a serial process…
• Find the bottleneck operation
 Operation with largest task time

• This operation’s time will be the cycle time.

 This is the time taken to process one unit.

• Capacity = Time Available /(Cycle Time)

Capacity with Serial and Parallel Processes

Tasks A, B, and C can be done simultaneously.

But A, B, and C have to be done before the unit can proceed to D.
A-4 Times are in minutes.

B-3 D-8 E-5 F-6

C-5 Bottleneck?

Cycle time?

Capacity in 8 hour day?

Capacity with Serial and Parallel Processes

A-4

B-3 D-8 E-5 F-6

C-5

A, B, and C are done in parallel (simultaneously)

Of these 3 tasks, C determines the rate at which
work arrives at task D.
Capacity with Serial and Parallel Processes

C-5 D-8 E-5 F-6

• For capacity calculation purposes

 Replace A, B, and C with the longest operation C (see above)
• Now we have a simple serial process
 Bottleneck: Task D
 Cycle time: 8 minutes
 Capacity: 480/8 = 60 units in 8-hr day
 INFO 564
Operations & Supply Chain
Management
Throughput
 Throughput Time
Station 1 Station 2 Station 3 Station 4

Task A Task B Task C Task D

3 min/unit 4 min/unit 5 min/unit 2 min/unit

Unit Start Finish Start Finish Start Finish Start Finish Throughput Time
#1 0 3 3 7 7 12 12 14 14-0 = 14
#2 3 6 7 11 12 17 17 19 19-3 = 16
#3 6 9 11 15 17 22 22 24 24-6 = 18
#4 9 12 15 19 22 27 27 29 29-9 = 20

• Only the first unit has a throughput time equal to total task time (14 minutes) –
no waiting anywhere.
• Subsequent units wait at Stations 2 and 3.
• This waiting grows longer for each new unit that gets into the process.
Throughput in Real Life
• Throughput time has a cost (opportunity cost, loss of
goodwill, etc.) - it must be managed.
• Throughput time can include unproductive time, i.e.
waiting
 Waiting especially of people must be minimized
• Throughput time can vary due to variations in when
entities arrive into the system and variations in
processing times.
 Managing Throughput
• Manage the rate at which entities enter the process to receive service
 Appointments
 Incentives for off-peak arrivals
 Disincentives for arrivals at peak times
• Manage the capacity of the process
 Service rate greater than the rate at which entities arrive
 Strategies for adding capacity as needed (temporary help, automation, cross
training, etc.)
• Manage variability of processing times
 Variability increases waiting and hence throughput
 Automation
 INFO 564
Operations & Supply Chain
Management
Utilization of a Process
Utilization
• Portion of available capacity that is utilized
• Capacity can be under-utilized for various reasons:
 Not enough demand
 Inefficiencies in the process leading to down-time or
enforced idle time
 Breakdowns in process, shortage of inputs, etc.
• Capacity is expensive and under-utilization is wasteful
Utilization of Individual Stations

Station 1 Station 2 Station 3 Station 4

Task A Task B Task C Task D

3 min/unit 4 min/unit 5 min/unit 2 min/unit

Minutes Capacity Actual

 Station Per Unit (Units/Hr) Output Utilization Actual Output = 12 units
1 3 20 12 60% because each station is
2 4 15 12 80% forced to work at the pace
of the slowest (bottleneck)
3 5 12 12 100%
station
4 2 30 12 40%

Bottleneck
station
Utilization of Process
Station 1 Station 2 Station 3 Station 4

Task A Task B Task C Task D

3 min/unit 4 min/unit 5 min/unit 2 min/unit

Minutes Capacity Actual

 Station Per Unit (Units/Hr) Output Utilization
The utilization of the
1 3 20 12 60%
process is the average
2 4 15 12 80% utilization of the
3 5 12 12 100% individual stations = 70%
4 2 30 12 40%
      Average 70%
Idle Time
Station 1 Station 2 Station 3 Station 4

Task A Task B Task C Task D

3 min/unit 4 min/unit 5 min/unit 2 min/unit

• Once the process has started and settled down, it is producing one unit every 5 minutes.
• This means each station has 5 minutes to perform its task; for some stations this means
enforced idle time:
Station Cycle Time Task Time Idle Time
1 5 3 2 •Idle time is expensive
2 5 4 1 •Should be evenly distributed across all
3 5 5 0 stations to the extent possible.
4 5 2 3
Total 20 14 6
Alternate Definition of Process
Utilization
• 

In other words, this process required 20 minutes ( cycle

time * # of stations = 5*4 =14+6) to do 14 minutes of
productive work.
Capacity Utilization with Parallel Processes
Task Task Time Cycle Time Idle Time
A 4 8 4
B 3 8 5
C 5 8 3
D 8 8 0
E 5 8 3
F 6 8 2
A-4 Total 31 48 17

B-3 D-8 E-5 F-6

C-5
Utilization = 31/48 = 64.6%
 INFO 564
Operations & Supply Chain
Management
Increasing Capacity
Increasing Capacity of a Process
• Capacity = Time Available/Cycle Time
• Increase time available
 Longer shifts, overtime, extra shifts
 Reduce idle time and down-time
• Reduce time at bottleneck station
 Reengineering to reduce task time
 Add more resources (more stations)
 Shift tasks to other stations
• Or a combination
Current Capacity – 96 units in an 8-hour day

Station 1 Station 2 Station 3 Station 4

Task A Task B Task C Task D

3 min/unit 4 min/unit 5 min/unit 2 min/unit

•Bottleneck: Station 3 (task C); 5 minutes/unit

•Cycle time: 5 minutes
Option-1: Duplicating Station 3
Station 3
Assume added worker is identical to the original one.

Task C Station 4
Station 1 Station 2 5 min/unit
Task A Task B Task D
3 min/unit 4 min/unit 2 min/unit
Task C
5 min/unit
• Duplicating doubles the capacity of Station 3
– 2 units every 5 minutes 2.5 min/unit
• Equivalently, task time per unit at Station 3
becomes 2.5 minutes. New capacity of process = 60/4 =
• Station 2 (4 minutes) becomes the new
bottleneck
15 units per hour or
120 units in an 8-hour day
Option 2: Combine Tasks
• Tasks C and D are combined into task C-D which takes 7
minutes.
• Two people each perform this combined task
Station 3
• 2 units exit this station every 7 minutes or 1 unit every 3.5
minutes
Task C-D
Station 1 Station 2 7 min/unit
Task A Task B
3 min/unit 4 min/unit
Task C-D
7 min/unit

The new bottleneck is Station 2 (4 minutes). 3.5 min/unit

New cycle time is 4 minutes.
New capacity is 15 per hour or 120 units per 8 day.
Pros and Cons…
• Duplicating stations
 Cost of hiring the additional workers
 Making the investment needed to modify the station
 Maintains the advantages of specialization

• Combining tasks
 Balances workload between stations
 Might save labor costs
 Assumes one worker has the skills to do the different tasks – may
reduce advantages of specialization
 Resulting task may take more time than individual tasks
Key Takeaways

Measuring
Process Capacity Capacity
• Basic building • Depends on many
• Cycle time,
block of operations things including
bottleneck, batch size, setup
• Inputs, utilization. times, and product
operations, • Bottleneck mix – as we will
outputs operations see soon.
determine capacity
 INFO 564
Operations & Supply Chain
Management
Batch Processing Part A
Batch Production
• Most production takes place in batches
• All production typically involves
 Set-up time – getting the process ready to make a unit. This is
independent of batch size.
 Run-time – time to produce one unit after process has been setup
• Batching allows for economies of scale
 If production is based on customer orders, batching can be achieved
by combining different orders for the product
 Trading off setup time (and cost) against run time (and cost)
Set-up Time Examples
• Getting a process ready to produce a batch of items
 Adjusting tools and settings; loading up a batch of raw material, etc.
 The batch can now be processed
• Writing a program to perform repetitive salary calculations
 Salary can be calculated for all employees
• Type-setting a manuscript
 Then any number of copies of book can be printed
• Dough is mixed and allowed to rise
 Many loaves of bread can be baked as a batch
How is Batch Size Determined
• Demand for product
 Larger the demand, larger the batch size
• Product mix
 Capacity has to be shared among many products
• Setup cost and time
 Larger the setup cost, larger the batch size
• Storage and transportation constraints
• Lead time constraints
• Capacity constraints; technology constraints
 INFO 564
Operations & Supply Chain
Management
Batch Processing Part B
Batch Size and Capacity
A machine has a setup time of 150 (i) Batch size = 1 order = 10,000 pieces.
minutes and run time of 0.0075 minutes Time per batch = Setup time + Run time = 150 +
per piece. Order sizes are typically 0.0075*10000
10,000 pieces. After a batch is = 225 minutes
processed, the process has to be # of batches per day = 450/225 = 2
stopped and the machine has to be Capacity per day = 2*10000 = 20,000 pieces.
setup again before the next batch can
be processed. (ii) Batch size = 3 orders = 30,000 pieces.
Find the capacity in pieces per day (450 Time per batch = Setup time + Run time = 150 +
0.0075*30000
minutes) for this machine under the
= 150 + 225 = 375 minutes
following assumptions:
# of batches per day = 450/3.75 = 1.2
(i) A batch can consist of only one order; it
cannot have other orders in it.
Capacity per day = 1.2*30,000 = 36,000 pieces.
(ii) Three orders are combined to form a
batch By simply increasing the batch size we are able to
increase capacity by 80%!
Batch Size & Capacity
• Setup time is necessary. But it represents time not available
for production.
• For a given setup time, increasing the batch size increases
capacity.
 But large batch sizes mean long lead times. Process less responsive
 In 1970s and 80s, American car manufacturers operated with long
setup times and large batch quantities. Couldn’t respond easily when
customer tastes changed.
 Toyota and Honda grabbed market share with smaller batch sizes
• Minimize setup time through technology and reengineering.
Setup Time vs Run Time Tradeoff
• A particular operation may be performed by two processes.
 Process A requires a set-up time of 40 minutes and has a run-time of
0.015 minutes
 Process B requires a set-up time of 180 minutes and has a run-time
of 0.0023 minutes
• Note that B has a longer set-up time than A, but has shorter
run-times
• For what batch sizes would you use Process A? Process B?
• We use break-even analysis to answer this question
Break-even Analysis
Process A Break-Even Analysis
Time taken to make Q items = 40 + 300

0.015*Q
250
Process B
200
Time taken to make Q items = 180 +

Total Minutes
0.0023*Q 150

At break-even: 100

40+.015Q = 180+.0023Q 50

Q = (180-140)/(.015-.0023) = 11,024
units
0
1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 11000 12000 13000 14000 15000

Batch Qty Q
For batch sizes under 11,024 units
we use process A. For larger A B

batch sizes we use process B.

Recap
• Most production is done in batches
• Large batches offer economies of scale
 Lower material, production, inventory, transportation costs
 Larger investments in capacity
• Small batches offer flexibility of response
 Shift production to meet customer demand
 Smaller investments in capacity