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Transcript of © 2006 Prentice Hall, Inc.2 – 1 Operations Management Chapter 2 – Fundamentals of Operations...
© 2006 Prentice Hall, Inc. 2 – 1
Operations ManagementOperations Management
Chapter 2 – Fundamentals of OperationsChapter 2 – Fundamentals of Operations
© 2006 Prentice Hall, Inc.
Heizer/Render Heizer/Render Operations Management, 8e Operations Management, 8e
© 2006 Prentice Hall, Inc. 2 – 2
Learning ObjectivesLearning Objectives
Specific approaches used by OM Specific approaches used by OM to achieve strategiesto achieve strategies
DifferentiationDifferentiation Low costLow cost ResponseResponse
When you complete this chapter, you When you complete this chapter, you should be able to:should be able to:
Describe or Explain:Describe or Explain:
© 2006 Prentice Hall, Inc. 2 – 3
Global StrategiesGlobal Strategies
Boeing – sales and production are Boeing – sales and production are worldwideworldwide
Benetton – moves inventory to stores Benetton – moves inventory to stores around the world faster than its around the world faster than its competition by building flexibility into competition by building flexibility into design, production, and distributiondesign, production, and distribution
Sony – purchases components from Sony – purchases components from suppliers in Thailand, Malaysia, and suppliers in Thailand, Malaysia, and around the worldaround the world
© 2006 Prentice Hall, Inc. 2 – 4
Reasons to GlobalizeReasons to Globalize
Reasons to GlobalizeReasons to Globalize
Reduce costs (labor, taxes, tariffs, etc.)Reduce costs (labor, taxes, tariffs, etc.) Improve supply chainImprove supply chain Provide better goods and servicesProvide better goods and services Understand marketsUnderstand markets Learn to improve operationsLearn to improve operations Attract and retain global talentAttract and retain global talent
Tangible Tangible ReasonsReasons
Intangible Intangible ReasonsReasons
Figure 2.1Figure 2.1
© 2006 Prentice Hall, Inc. 2 – 5
Risks: You May Wish To Risks: You May Wish To ConsiderConsider
National literacy rateNational literacy rate
Rate of innovationRate of innovation
Rate of technology Rate of technology changechange
Number of skilled Number of skilled workersworkers
Political stabilityPolitical stability
Product liability lawsProduct liability laws
Export restrictionsExport restrictions
Variations in languageVariations in language
Work ethicWork ethic
Tax ratesTax rates
InflationInflation
Availability of raw Availability of raw materialsmaterials
Interest ratesInterest rates
PopulationPopulation
Number of miles of Number of miles of highwayhighway
Phone systemPhone system
© 2006 Prentice Hall, Inc. 2 – 6
Developing Missions and Developing Missions and StrategiesStrategies
MissionMission statements tell an statements tell an organization where it is goingorganization where it is going
The The Strategy Strategy tells the tells the organization how to get thereorganization how to get there
© 2006 Prentice Hall, Inc. 2 – 7
MissionMission
Mission – Mission – Who are we? Who are we? What is our business? What is our business? Where are you going?Where are you going?
Organization’s purpose Organization’s purpose for beingfor being
Focus is on Focus is on value-added value-added or business focusor business focus not on not on a product or services.a product or services.
© 2006 Prentice Hall, Inc. 2 – 8
Mission StatementsMission StatementsFedEx exists to FedEx exists to provide total reliable, provide total reliable,
competitively superior, global air-ground competitively superior, global air-ground transportation of high priority goods and transportation of high priority goods and
documentsdocuments that require rapid, time-certain that require rapid, time-certain delivery. delivery.
Merck exists to provide society with superior Merck exists to provide society with superior products and services - innovations and products and services - innovations and
solutions that improve the quality of lifesolutions that improve the quality of life and and satisfy customer needs - to provide satisfy customer needs - to provide
employees with meaningful work and employees with meaningful work and advancement opportunities and investors advancement opportunities and investors
with a superior rate of returnwith a superior rate of return
Figure 2.2Figure 2.2
© 2006 Prentice Hall, Inc. 2 – 9
Hard Rock CaféHard Rock Café
Our Mission: To spread the spirit of Rock ‘n’ Our Mission: To spread the spirit of Rock ‘n’ Roll by Roll by delivering an exceptional delivering an exceptional
entertainment and dining experienceentertainment and dining experience..
Arnold Palmer Hospital is a healing Arnold Palmer Hospital is a healing environment environment providing family-centered care providing family-centered care
with compassion, comfortwith compassion, comfort and respect… and respect… when it matters the most.when it matters the most.
Figure 2.2Figure 2.2
© 2006 Prentice Hall, Inc. 2 – 10
Mission StatementsMission Statements
Create mission statements for any of the Create mission statements for any of the following:following:
- For a store providing breakfasts for clients. For a store providing breakfasts for clients.
- For a laundromatFor a laundromat
- For an auto repair shopFor an auto repair shop
Figure 2.2Figure 2.2
© 2006 Prentice Hall, Inc. 2 – 11
Mission StatementsMission Statements
Create mission statements for any of the Create mission statements for any of the following:following:- delivering healthy and time-saving morning delivering healthy and time-saving morning food servicefood service. .
- providing providing access to high end laundry access to high end laundry equipments and servicesequipments and services at lowest price. at lowest price.
- providing trustworthy staff, services and providing trustworthy staff, services and solutions for solutions for retaining and restoring life span retaining and restoring life span and reliability of vehiclesand reliability of vehicles. .
Figure 2.2Figure 2.2
© 2006 Prentice Hall, Inc. 2 – 12
Service Production Flows Service Production Flows Development/Factory ConceptDevelopment/Factory Concept
Create factory concept for your mission statement:Create factory concept for your mission statement:
Basic concept will consist of a list of activities and Basic concept will consist of a list of activities and where they will be done.where they will be done.
Figure 2.2Figure 2.2
Get Get materialsmaterials TransportTransport ProcessProcess InspectInspect Assemble Assemble
© 2006 Prentice Hall, Inc. 2 – 13
Service Production Flow (1)Service Production Flow (1)[Single Staff][Single Staff]
Business Activity flow for Breakfast Factory [ I ]Business Activity flow for Breakfast Factory [ I ]
Get Get EggsEggs
EggsEggsIn potIn pot Boil Eggs in potBoil Eggs in pot
RemoveRemoveEggsEggs
AssembleAssembleon trayon tray
Prepare Prepare breadbread
Put in Put in toastertoaster
Make Make CoffeeCoffee
RemoveRemovetoasttoast
AssembleAssembleon trayon tray
ToastToastwaitingwaiting
Prepare Prepare coffeecoffee
CoffeeCoffeewaitingwaiting
PourPourCoffeeCoffee
AssembleAssembleon trayon tray
ToasterToaster
StartStart EndEnd
Sub-process 2Sub-process 2
Sub-process 3Sub-process 3
Sub-process 1Sub-process 1
Key Attributes of Process (I)Key Attributes of Process (I)-3 different flow units, I.e. eggs, coffee, toast3 different flow units, I.e. eggs, coffee, toast- 3 independent sub-processes, I.e. parallel sub-processes3 independent sub-processes, I.e. parallel sub-processes- standardized activity duration for each unitstandardized activity duration for each unit
Eggs waitingEggs waiting
ToastToastwaitingwaiting
© 2006 Prentice Hall, Inc. 2 – 14
Productivity & Other Measures of Production Flow (1)Productivity & Other Measures of Production Flow (1)[Single worker][Single worker]
Business Activity flow for Breakfast Factory [ I ]Business Activity flow for Breakfast Factory [ I ]
Get Get EggsEggs
EggsEggsIn potIn pot Boil Eggs in potBoil Eggs in pot
RemoveRemoveEggsEggs
AssembleAssembleon trayon tray
Prepare Prepare breadbread
Put in Put in toastertoaster
Make Make CoffeeCoffee
RemoveRemovetoasttoast
AssembleAssembleon trayon tray
ToastToastwaitingwaiting
Prepare Prepare coffeecoffee
CoffeeCoffeewaitingwaiting
PourPourCoffeeCoffee
AssembleAssembleon trayon tray
ToasterToaster
StartStart EndEnd
Sub-process 2Sub-process 2
Sub-process 3Sub-process 3
Sub-process 1Sub-process 1
Which measures could be used to evaluate this process? Which measures could be used to evaluate this process? - Time from beginning to end of process [minutes] (input measure)- Time from beginning to end of process [minutes] (input measure)- Quality of items [hotness of coffee, hardness of eggs] (output measure)Quality of items [hotness of coffee, hardness of eggs] (output measure)- Max. number of eggs that can be boiled per batch or hour (productivity measure)Max. number of eggs that can be boiled per batch or hour (productivity measure)- Max number of toasts that can be made per hour or batch (productivity measure)Max number of toasts that can be made per hour or batch (productivity measure)- Max. volume of coffee that can be made per batch or hour (productivity measure)Max. volume of coffee that can be made per batch or hour (productivity measure)- Worker resources needed to make full plate [hours per plate] (productivity measure)Worker resources needed to make full plate [hours per plate] (productivity measure)
Eggs waitingEggs waiting
ToastToastwaitingwaiting
© 2006 Prentice Hall, Inc. 2 – 15
Redesigned of Production Flow (1)Redesigned of Production Flow (1)[Two workers][Two workers]
Business Activity flow for Breakfast Factory [ I ]Business Activity flow for Breakfast Factory [ I ]
Get Get EggsEggs
EggsEggsIn potIn pot Boil Eggs in potBoil Eggs in pot
RemoveRemoveEggsEggs
AssembleAssembleon trayon tray
Prepare Prepare breadbread
Put in Put in toastertoaster
Make Make CoffeeCoffee
RemoveRemovetoasttoast
AssembleAssembleon trayon tray
Prepare Prepare coffeecoffee
PourPourCoffeeCoffee
AssembleAssembleon trayon tray
ToasterToaster
StartStart Old Old EndEnd
Sub-process 2Sub-process 2
Sub-process 3Sub-process 3
Sub-process 1Sub-process 1
Improvement of new process: Improvement of new process: - Time from beginning to end of process [minutes] (input measure) - Time from beginning to end of process [minutes] (input measure) CYCLE TIME HORTENEDCYCLE TIME HORTENED- Quality of items [hotness of coffee, hardness of eggs] (output measure) Quality of items [hotness of coffee, hardness of eggs] (output measure) WARMERWARMER- Max. number of eggs that can be boiled per batch or hour (productivity measure)Max. number of eggs that can be boiled per batch or hour (productivity measure)- Max number of toasts that can be made per hour or batch (productivity measure)Max number of toasts that can be made per hour or batch (productivity measure)- Max. volume of coffee that can be made per batch or hour (productivity measure)Max. volume of coffee that can be made per batch or hour (productivity measure)- Worker resources needed to make plate [hours per plate] (productivity measure) Worker resources needed to make plate [hours per plate] (productivity measure) HIGHERHIGHER
ProcessProcesspostponementpostponement
ProcessProcesspostponementpostponement
Worker 1Worker 1
New New EndEnd
Worker 2Worker 2
Worker 2Worker 2
© 2006 Prentice Hall, Inc. 2 – 16
Service Production Flow (2)Service Production Flow (2)
Load Load washerwasher Wash clothesWash clothes
RemoveRemoveclothesclothes TransferTransfer
Load Load dryerdryer
AssembleAssembleon trayon tray
StartStart EndEnd
Business Activity flow for Laundromat [ II ]Business Activity flow for Laundromat [ II ]
Add Add soapsoap
Dry clothesDry clothes RemoveRemoveSub-process 2Sub-process 2
Sub-process 1Sub-process 1
Key Attributes of Process (II)Key Attributes of Process (II)- single flow unit for all sub-processes, I.e. clothessingle flow unit for all sub-processes, I.e. clothes- 2 interdependent sub-processes, I.e. serial sub-processes2 interdependent sub-processes, I.e. serial sub-processes- standardized activity duration for each unitstandardized activity duration for each unit
© 2006 Prentice Hall, Inc. 2 – 17
Analysis of Production Flow (2)Analysis of Production Flow (2)
Load Load washerwasher Wash clothesWash clothes
RemoveRemoveclothesclothes TransferTransfer
Load Load dryerdryer
AssembleAssembleon trayon tray
StartStart EndEnd
Business Activity flow for Laundromat [ II ]Business Activity flow for Laundromat [ II ]
Add Add soapsoap
Dry clothesDry clothes RemoveRemoveSub-process 2Sub-process 2
Sub-process 1Sub-process 1
30 minutes30 minutes
60 minutes60 minutes
Max. capacity 250 IbsMax. capacity 250 Ibs
Max. capacity 150 IbsMax. capacity 150 Ibs
Q.Q. If you have 300 Ibs of clothes to wash, how long will you need and why?If you have 300 Ibs of clothes to wash, how long will you need and why?Q. How would you redesign the process to shorten your wait time?Q. How would you redesign the process to shorten your wait time?
© 2006 Prentice Hall, Inc. 2 – 18
Bottleneck Types Bottleneck Types Production Flow (2)Production Flow (2)
Load Load washerwasher Wash clothesWash clothes
RemoveRemoveclothesclothes TransferTransfer
Load Load dryerdryer
AssembleAssembleon trayon tray
StartStart EndEnd
Business Activity flow for Laundromat [ II ]Business Activity flow for Laundromat [ II ]
Add Add soapsoap
Dry clothesDry clothes RemoveRemoveSub-process 2Sub-process 2
Sub-process 1Sub-process 1
30 minutes30 minutes
60 minutes60 minutes
Max. capacity 250 IbsMax. capacity 250 Ibs
Max. capacity 300 IbsMax. capacity 300 Ibs
Types of bottlenecks:Types of bottlenecks:- Volume capacityVolume capacity- Critical activityCritical activity- Longest activity or processing timeLongest activity or processing time
© 2006 Prentice Hall, Inc. 2 – 19
Service Production Flow (3)Service Production Flow (3)
Business Activity flow for Auto Repair Factory [ III ]Business Activity flow for Auto Repair Factory [ III ]
Get Get carcar
DocumDocument ent issuesissues PayPay
DiagnoseDiagnose Repair carRepair car TestTestWaitingWaitingfor partsfor parts
Request Request partsparts
StartStart EndEnd
Sub-process 2Sub-process 2
Sub-process 1Sub-process 1Pre-Pre-
DiagnoseDiagnose Pick-upPick-up
Key Attributes of Process (III)Key Attributes of Process (III)- same flow units through all sub-processes, I.e. clothessame flow units through all sub-processes, I.e. clothes- 2 interdependent sub-processes, I.e. serial sub-processes2 interdependent sub-processes, I.e. serial sub-processes- irregular/unique activities and different durations for each unit possibleirregular/unique activities and different durations for each unit possible
© 2006 Prentice Hall, Inc. 2 – 20
Key LessonsKey Lessons
1.1. There are different types of processesThere are different types of processes
2.2. Process can be redesigned by exploiting Process can be redesigned by exploiting trade-offstrade-offs
- More staff to raise number of units producedMore staff to raise number of units produced
- Larger machine capacity to reduce waiting time Larger machine capacity to reduce waiting time and improve produced unitsand improve produced units
- Eliminate waiting, errors and reworkEliminate waiting, errors and rework
- Reduce inventory on-handReduce inventory on-hand
- Combine activities Combine activities
- Run activities in parallelRun activities in parallel
Figure 2.2Figure 2.2
© 2006 Prentice Hall, Inc. 2 – 21
Process Design TypesProcess Design Types
LowLow ModerateModerate HighHighVolumeVolume
HighHigh
ModerateModerate
LowLow
Var
iety
of
Pro
du
cts
Var
iety
of
Pro
du
cts
Process-focusedJOB SHOPS
(Print shop, emergency room, machine shop,
fine dining Repetitive (modular) focus
ASSEMBLY LINE(Cars, appliances,
TVs, fast-food restaurants) Product focused
CONTINUOUS(steel, beer, paper, bread, institutional
kitchen)
Mass CustomizationCustomization at high
Volume(Dell Computer’s PC)
© 2006 Prentice Hall, Inc. 2 – 22
Strategic ProcessStrategic Process
Marketing Operations Finance/ Accounting
Functional Area Missions
Organization’s Mission
© 2006 Prentice Hall, Inc. 2 – 23
OM’s Contribution to StrategyOM’s Contribution to Strategy
Product
Quality
Process
Location
Layout
Human resource
Supply-chain
Inventory
Scheduling
Maintenance
FLEXIBILITYSony’s constant innovation of new products………………………………....Design HP’s ability to follow the printer market………………………………Volume
Southwest Airlines No-frills service……..…..LOW COST
DELIVERY Pizza Hut’s five-minute guarantee at lunchtime…………………..…..……..Speed Federal Express’s “absolutely, positively on time”………………………..….Dependability
QUALITY Motorola’s automotive products ignition systems…………………………......Conformance Motorola’s pagers………………………..….Performance
IBM’s after-sale service on mainframe computers……....AFTER-SALE SERVICE
Fidelity Security’s broad line of mutual funds………….BROAD PRODUCT LINE
Figure 2.4Figure 2.4
OperationsOperations SpecificSpecific CompetitiveCompetitiveDecisionsDecisions ExamplesExamples Strategy UsedStrategy Used AdvantageAdvantage
Response(Faster)
Cost leadership(Cheaper)
Differentiation(Better)
© 2006 Prentice Hall, Inc. 2 – 24
Strategy Development ProcessStrategy Development Process
Determine Corporate MissionState the reason for the firm’s existence and identify the
value it wishes to create.
Form a StrategyBuild a competitive advantage, such as low price, design, or
volume flexibility, quality, quick delivery, dependability, after-sale service, broad product lines.
Environmental AnalysisIdentify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and competitors.
Figure 2.6Figure 2.6