1.Introduction to OM & Break even analysis.ppt
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Transcript of 1.Introduction to OM & Break even analysis.ppt
Purpose of a Business Organization
To meet a specific need of the Society through production making use of Human & Other resources
- to make profits year after year & create wealth to grow &
serve society better & better.
PRODUCTION
• PROCESS OF CONVERTING (RAW) MATERIALS TO SALEABLE FINISHED GOODS NEEDED BY SOCIETY (Manufacturing)
• CREATING & DISCHARGING OF A SERVICE WHICH HAS UTILITY TO SOCETY (Services)
OPERATIONS MANAGEMENT
Planning, Organizing, Executing and Controlling of all systems and activities connected with either Manufacturing or Services
ART (SCIENCE?) OF MANAGING ……
OPERATIONS MANAGEMENTIs an
PRODUCTS
PROCESSES
MATERIAL
MACHINES
PEOPLE
TIME
SITUATION
Hard skills
Soft skills
A CB
BUSINESS MANAGEMENT
A MARKETING
B OPERATIONS
C FINANCE
B
Why study of Operations Management ?
Scope
Essentiality
SCOPE OF PRODUCTION & OPERATIONS MANAGEMENT
SCOPE OF OPERATIONS MANAGEMENT
PRODUCT & SERVICE DESIGN SELECTION OF PROCESSES & TECHNOLOGY PLANT LOCATION & FACILITIES PLANNING PRODUCTION PLANNING PRODUCTIVITY & WORK FORCE MANAGEMENT PROJECT MANAGEMENT MATERIAL MANAGEMENT QUALITY MANAGEMENT MAINTENANCE MANAGEMENT
DIFFERENCES BETWEEN MANUFACTURING & SERVICES
Manufacturing (Car) Services (Education)
Tangible Intangible; consumed in the process of their creation
Can be produced for ‘off the-shelf availability
Availability achieved by keeping the system open for services
Minimal contact with ultimate consumer High contact with clients or customers
Complex and interrelated Technology Simple Technology
Markets served by production system are regional, national and international
Markets served by services system are usually local
Large units that can take advantage of economies of scale
Relatively small units to serve local markets
Location of system is in relation to regional, national and international markets
Location, dependent on location of local customers, clients and users
Mahadevan (2007), “Operations Management: Theory & Practice”, © Pearson Education
Service – Product (Manufacturing) Continuum
Pure Product Pure Service
Ayurvedic Healing Treatment
Legal/Tax Consulting
Cyber Café – Telephone Booths
Emergency Maintenance Services
Facilities Maintenance
High quality restaurant meal
Fast food in a eat out joint
Customised durable goods
Fast moving commodities
Toys
Adopted from Hill, T. (2005), Operations Management (Palgrave Macmillan), 2nd Edition, pp 14.
OPERATIONS SYSTEM MODEL
External InputLegal/PoliticalSocialEconomyTechnology
INPUTCONVERSION
SYSTEM
OUTPUT
Market InputCompetitionProduct InformationCustomer Needs
Primary InputMaterials PersonnelLand,building,EquipmentFinance
Manufacturing
Transportation
Insurance,
Financing Health care Education
Direct OutputsProductsServices
Indirect OutputsTaxesEmployment generationTechnological Developments Impact on Environment Impact on Society
CONTROL SYSTEM
Feed backInformation
EXAMPLE
PRIMARYINPUT
RESOURCES
TRANSFORMATIONFUNCTION (S)
TYPICAL DESIRED OUTPUT
Automobile factory
Sheet steel,
engine parts
Tools, equipment,
workers
Fabrication and Assembly of cars
(physical)
High-quality cars
College or university
High school graduates
Teachers,
books, classroom
Imparting
Knowledge
and skills
Educated individuals
Department
store
Shoppers Displays, stock of
goods, sales clerks
Attract shoppers, promote products
Satisfied customers
CONVERSION PROCESS
EXAMPLE
PRIMARYINPUT
RESOURCES
TRANSFORMATIONFUNCTION (S)
TYPICAL DESIRED OUTPUT
Hospital Patients doctors, Nurses, Medical Supplies, Equipment
Health Care (physiological )
Healthy Individuals
Restaurant
HungryCustomers
Food, Cook, waiters, Environment
Service
Satisfied Customers
CONVERSION PROCESS
EVOLUTION OF POM IN 18th CENTURY
YEAR EVOLUTION
1764 Invention of Steam Engine by James Watt
1790 Interchangeability by Eli Whitney
Current issues in Operations Management
• Automated & computerized operations• “Services” orientation• Shrinking of factories• Thrust on “Total Quality”• Shift from Personnel Management to HR Development• Flexi time • Thrust on “Housekeeping”
(Recent trends)
IN HIGH-TECH MANUFACTURING FACILITY OF THE FUTURE, THE ONLY DIFFERENCE BETWEEN THE MANUFACTURING FLOOR & THE OFFICE IS THAT THE OFFIC WILL HAVE CARPETS
Mission, Vision
Operations Strategy
Business conditions SWOT analysisBusiness Strategy
DEVELOPING OPERATIONS STRATEGY
To retain Defence market at 70% & Civilian
market 30%
To give emphasis on In-house Development of
products
To get into Telecom & other electronics fields
To develop & supply world class products like
Simputer, Voting M/c etc
Home grown talents –No lateral Induction (Resources) Limiting operations to core competency (Outsourcing) Indigenize to the max. extent (Process) To keep Inventory very low (Resources) To have only Engineers & Diploma holders (Resources) To have a mix of indigenous design & collaborated projects (Product) To put IT to maximum use (Technology) To give stress on employee training & knowledge up gradation (Resources) To constantly Bench mark with best in class (Process) Re- organize for better empowerment (Facility) Establishing overseas procurement offices (Facility) Change over to Group Technology from Process lay out (Facility)
Is a long range plan of all operations, covering resources, processes, facilities, technology, product, outsourcing . to achieve the Business strategies of the company.
To serve the country through supply of electronic equipment to Indian Defence Services & other users
To reach a Turn Over of Rs.1000 crores by 2014-15
Finance strategy Marketing strategy
Organization structure (Typical)
Business head(CEO)
Head-R & D Head-Operations Head-Marketing Head-Finance
HeadProd. control
HeadInd. Engg.
HeadMaterial mgt.
HeadProduction
HeadQuality mgt.
HeadTesting
HeadAssembly
HeadMaintenance
HeadHardware mfg.
HeadOut sourcing
Head-HR
Mahadevan (2007), “Operations Management: Theory & Practice”, © Pearson Education
Operations Management: Introduction Highlights
Operations Management is a systematic approach to address all issues pertaining to the transformation process that converts some inputs into useful outputs
Globally, India is emerging as an important manufacturing base. Several recent studies point to emerging opportunities for Indian manufacturing to grow and attain a global presence.
From an operations management perspective, the notion of a ‘pure product’ and ‘pure service’ is just the two ends of the spectrum. In reality, a vast majority of operations share a continuum of products and services.
Mahadevan (2007), “Operations Management: Theory & Practice”, © Pearson Education
Manufacturing Systems & Break even Analysis
Manufacturing Systems
• Job manufacturing
• Batch manufacturing
• Mass manufacturing
• Continuous flow manufacturing
PRODUCT VARIETY
PR
OD
UC
T V
OL
UM
E
JOB
BATCH
MASSPRODUCTION
CONTINUOUS FLOW
CharacteristicsJob Batch Mass Continuous
Variety Very high Moderate Low Very low
Volume Very low Moderate High Very high
Product made to order made to stock
Skills Very high Moderate Low Very low
Fixed cost Very low Moderate High Very high
Unit cost Very high Moderate Low Very low
Mahadevan (2007), “Operations Management: Theory & Practice”, © Pearson Education
Break even analysis for decision makingGenerally Break even analysis is done between expenditure & income to find out at volume of output, the total costs will be equal to the income leading to ‘no profit, no loss’ situation. Break even analysis can also be done between two processes, two systems, two locations, two alternatives etc.
Three manufacturing systems A (Jobbing), B (Batch) & C (Mass manufacturing) have the following cost elements.
System Fixed cost Rs./ year Variable cost Rs./unit
A (Jobbing) 25,000 50
B (Batch) 50,000 25
C (Mass manufacturing) 80,000 15
1. Which is the most economical system for a volume of 2,000 units per year2. At what volume would each process be preferred?3. If the selling price is fixed at Rs.100 per unit what is the break even volume for each system4. Find the break even volume between A & B, B & C & A & C
500 1000 1500 2000 2500 3000
25000
50000
75000
100000
125000
A
B
C
80000
Jan-Feb 2003 NS
500 1000 1500 2000 2500 3000
25000
50000
75000
100000
125000
A
B
C
80000
Jan-Feb 2003 NS
500 1000 1500 2000 2500 3000
25000
50000
75000
100000
125000
A
80000
Jan-Feb 2003 NS
R
666
500 1000 1500 2000 2500 3000
25000
50000
75000
100000
125000
B
80000
R
500 1000 1500 2000 2500 3000
25000
50000
75000
100000
125000
C
80000
Jan-Feb 2003 NS
R
500 1000 1500 2000 2500 3000
25000
50000
75000
100000
125000
A
B
C
80000
Jan-Feb 2003 NS
15701000 3000
500 1000 1500 2000 2500 3000
2500
5000
7500
10000
12500
8000
900
BEP
1200 1800
900
June-July 2011
Break-even Analysis - Limitations 1. It assumes that fixed costs (FC) are constant.
Although this is true in the short run, an increase in the scale of production is likely to cause fixed costs to rise.
2. It assumes average variable costs are constant per unit of output, at least in the range of likely quantities of sales.
3. It assumes that the quantity of goods produced is equal to the quantity of goods sold (i.e., there is no change in the quantity of goods held in inventory at the beginning of the period and the quantity of goods held in inventory at the end of the period).
.