Operations Management[1]

Operations Management

Sandeep Prabhu

MITSOB, Pune

Job of Operations Manager Getting the job done………. Provide the leadership that is needed to produce

the product or services demanded by customer 1980: Concept of factory focus brought higher

performance levels Timeliness, Quality concept, Competitive arenas

demands more from Operations Manager Operations managers can also be called as

Fleet Manager Administration manager Store Manager (Super market)

Major subject areas of Operations

Strategy: To support organisations mission

Output planning: Select and design services/ product

Capacity planning: Facility/ Equipment/ labour

Facility location: Production/ storage

Transformation system: Facility layout: Material flow/ Equipment layout

Aggregate planning: Yearly/ monthly needs of lobour/ material/ facilities

Inventory management: of row material/ Work In Process/ Finished goods

Project management: Specifications of performance, schedule and cost

Material requirement planning: Supply chain management: Speed/ Efficiency/ Quality

Quality control: Quality standards Reliability and maintenance:

Operations system Operations system (function) of an organisation is the part that produces the

organisation’s products (physical goods or service) Physical goods: Refrigerators/ Soaps Services: Insurance, health care facilities, Service providers, financial institutes

Inputs•Capital•Material•Equipment•Facilities•Suppliers•Labour•Knowledge•Time

Conversion process•Alternation•Transformation•Storage•Inspection

Outputs•Goods•Services

Comparison:Actual vs Desired

AdjustmentsNeeded?

Monitoroutput

Feedback

ENVIRNOMENT: Customers Competition SuppliersGovt Regulations Technology Economy

Operations system for Departmental store

Inputs•Land•Labour•Building Equipment•merchandise•Store Manager

Conversion process

Outputs•Serviced customer with desired merchandise

DEPARTMENT STORERandom fluctuations•Late deliveries•Recession•Labour turnover

Feedback•Inventory levels•Labour efficiency•Sales volume

•What if Labour does not turn up for work?•What if deliveries are not happening fast?•What if location is not correct?•What if goods are not available for sales?•What if sales volume is not satisfactory?

Operations system for Farm

Inputs•Land•Farmer Labour•Tractors, plows etc.•Stores•Market skills

Conversion process

Outputs•Grains•Milk•Meat

FARM

Random fluctuations•Weather•Price changes•Government control•Equipment breakdawn

Feedback•Observation of crop and soil conditions•Prices received

•What if correct price not received?•What if Weather is not good?•What if land is not good for cultivation?

Operations system

Exact form of conversion varies from Industry to Industry

This transformation of resources into goods and services is production function

Goal is to create “ Value addition” Random fluctuations: arise from external

sources (fire, floods or lightening) or from internal problems (imperfections in material and equipments, human errors)

Technology of conversion

The conversion of Inputs to Outputs varies with technology used.

Manufacturing operations Vs Service Operations Tangible/ intangible nature of output Consumption of Output Nature of work (jobs) Degree of customer contract Customer participation in conversion Measurement of performanceManufacturing :•Tangible outputs, outputs that customer consume over time•Jobs that use less labour and more equipments•Little customer contact•No customer participation in conversion process•And sophisticated measures for measuring production activities and resource consumption

Service :•Intangible outputs, outputs that customer consume immediately•Jobs that use more labour and less equipments•Direct customer contact•Frequent customer participation in conversion process•Elementory measures for measuring conversion activities and resource consumption•Some services are equipment based: Computer programming service, Railways, Telephone and some are people based: tax accounting, Saloon, Coach

Service operations:

Output: is a generated service Throughput: is an item going through the

processPediatric Clinic: Output: Medical service to the childThroughput: Child

Fast-food restaurant:Output: Hamburgers (Both goods & services)Throughput: Food Items and not customer

Automobile assembly, steel making

Home remodeling, retail sales

Automobile Repair, fast food

Computer repair, restaurant meal

Song writing, software development

Goods Service

Surgery, teaching

Goods-serviceGoods-service

Services: Domestic in nature, can not be importedProducts: Can be domestic or Imported or partly

Historical Evolution

Changing names: • Manufacturing Management• Production Management• Operations Management


Manufacturing Management: Traditional view of Manufacturing Management began in eighteenth century when Adam Smith recognised economic benefits of specialization of labour

He recommended breaking jobs in to subtasks and reassigning workers to specialised tasks in which they will become highly skilled and efficient.

In the early twentieth century Frederick W Taylor implemented Smiths theories and started scientific management.

From then untill 1930 the traditional view prevailed


Production Management: From 1930 till 1950’s production management become more widely accepted term.

As Frederick Taylor’s work became more widely known. Managers developed techniques that focussed on economic

efficiency in manafacturing. Workers were put under microscope and studied in great details

to eliminate wasteful efforts and achieve greater efficiency. Workers multiple needs were discovered, Psychologists,

sociologists and other social scientists began to study people and human behaviour in the work environment.

In addition economists, mathamaticians and computer scientists contributed newer, more sophisticated analytical approaches.

Historical Evolution Operations Management: With 1970’s two distinct

changes emerged in views The name ‘Operations management’ was a shift indicating the

service and manufacturing sectors. First: As service sector became more prominent the change from

‘production’ to ‘operation’ emphasized the broadening of our field to service organisations.

Second: The second change was beginning of of an emphasis on synthesis rather than just analysis in management practices.

Industry awakened to its ignorance of operations function as a vital weapon in the organisations overall competitive strategy.

Previously preoccupied with an intensive analytical orientation and an emphasis on marketing and finance, managers had failed to integrate operations.

Today ‘operations’ plays as a strategic element Organisations goals are more focussed to meet customers’ needs.

Historical Evolution1776 Specilisation of labour in manafacturing Adam Smith

1799 Interchangeable parts, cost accounting Eli Whitney and others

1832 Division of labour by skill; assignment of jobs by skill; basics of time study Charles Babbage

1900 Scientific mngt; time study and work study developed; dividing, planning and doing of work Frederick W Taylor

1900 Motion study of jobs Frank B Gilbreth

1901 Scheduling techniques for employees, machines, jobs in manafacturing Henry L Gantt

1915 Economic lot sizes for inventory control F W Harris

1927 Human relations: the Hawthorne studies Elton Mayo

1931 Statistical inference applied to product quality; quality control charts Walter A Shewhart

1935 Stastistical sampling applied to quality control; inspection sampling plans H F Dodge and H G Romig

1940 Operations research applications in World War II P M S Blacker and others

1946 Degital computer John Mauchly and J P Eckert

1947 Linear programming George B Dantzig, William Orchard Hays and others

1950 Mathematical programming, nonlinear and stochastic processes A Charnes, W W Cooper, H Raiffa and others

1951 Commercial digital computer; large-scale computations available Sperry Univac

1960 Organisational behaviour, continued study and stochastic processes L Cummings, L Porter and others

1970 Integrating operations into overall startegy and policy

Computer applications to manafacturing, scheduling and control, material requirements planning (MRP)

W Skinner

1980 Quality and productivity applications from Japan; robotics, computer-aided designs and manafacturing (CAD/CAM)

W E Deming and J JuranJ Orlicky and O Wright


Year Contribution Contributor

1776 Specilisation of labour in manufacturing Adam Smith

1799 Interchangeable parts, cost accounting Eli Whitney and others

1832 Division of labour by skill; assignment of jobs by skill; basics of time study

Charles Babbage

1900 Scientific mngt; time study and work study developed; dividing, planning and doing of work

Frederick W Taylor

1900 Motion study of jobs Frank B Gilbreth

….continued


1901 Scheduling techniques for employees, machines, jobs in manufacturing

Henry L Gantt

1915 Economic lot sizes for inventory control F W Harris

1927 Human relations: the Hawthorne studies Elton Mayo

1931 Statistical inference applied to product quality; quality control charts

Walter A Shewhart

1935 Statistical sampling applied to quality control; inspection sampling plans

H F Dodge and H G Romig

….continued

From earlier slide….


1940 Operations research applications in World War II

P M S Blacker and others

1946 Digital computer John Mauchly and J P Eckert

1947 Linear programming George B Dantzig, William Orchard Hays and others

1950 Mathematical programming, nonlinear and stochastic processes

A Charnes, W W Cooper, H Raiffa and others

1951 Commercial digital computer; large-scale computations available

Sperry Univac



1960 Organisational behaviour, continued study and stochastic processes

L Cummings, L Porter and others

1970 Integrating operations into overall startegy and policy

Computer applications to manafacturing, scheduling and control, material requirements planning (MRP)

W Skinner

1980 Quality and productivity applications from Japan; robotics, computer-aided designs and manafacturing (CAD/CAM)

W E Deming and J JuranJ Orlicky and O Wright


Case study: Olympics

Work spreads across thousands of people Work spreads across no of states Work spreads across no of days/ months/

years Issues of security, Traffic Deadlines

Case study: Wal Mart Vs Kmart

1987: K mart was dominating the discount store s

1991: Walmart sales overtook Kmart even with fewer no of stores (Kmart:2330, Walmart: 1721)

1997: Walmart becomes dominant discount store (3 times higher sales)

1997 to 1995: Market share changeKmart: Down from 34.5% to 22.7%Walmart: Up from 21.1% to 41.6%

Case study: Wal Mart Vs Kmart

Strategies:Kmart: Building on marketing and merchandising strengths.

Walmart: Invested in operations to lower costs Computer system: Company wise computer systems to link

cash register to headquarters facilitating inventory control Sophisticated distribution system: Integration of computer

system and the distribution system means customers would rarely encounter out of stock items

Use of scanners: Eliminating need of price checks

Case studies

Bank using new technologies like ATM’s or Internet or phone banking

Dark factories of future: Appliance store: May create value by

Storing merchandise Transporting (Delivery) Guaranteeing

Systems view of Operations

System is a collection of objects related by regular interaction and interdependence

Purchasi

ng

Acc

ount

ing

Personnel

Distribution

Engi

neer

ingFinance

Production/

Operations

Marketing

The business firm: A system s view

Operations management:

Management of the conversion process, which converts land, Labour, capital and management inputs into desired outputs of goods and services

The operations managers job is to manage the process of converting inputs into desired outputs.

Various approaches used by Operations Manager

Operations management elements from various school of management

School Some Important Assumptions Primary Focus General Contribution to Management

Classical

•Scientific Management •People motivated by economics alone •Managerial rationality•Organisation a closed system (certainty)

•Economic efficiency•Physical aspects of work environment•Scientific analysis of work tasks•Application of techniques to work tasks•Management processes

•Demonstration of benefits from specialisation of labour, division of labour, job analysis, separation pf planning and doing

•Process orientation •Management activities separable

•Management processes •Identification of principles and functions of management

Behavioral

•Human relations

Behavioral science

•People complex; possess multiple needs•Human beings social creatures

•Behavior of individual in work environment•Interpersonal and social aspects of work environment

•Awareness of individuals

•Identification of behavioral variables that relate to oragnisational behavior

•Social systems •Organisation an open system •Interactive relationships of organisation with its environment

•Development of theories relating organisational behaviour to human characteristics and organisational variables

Modeling

•Decision making •Decision-making processes are the primary managerial behaviors

•Information acquisition, utilisation and choice processes

•Development of guides for improving decisions making

•Systems theory •Organisation-an open system•Organisation-a complex of interrelated subcomponents

•Identification of organisation boundaries, interrelationships among subsystems and relationships between organisation and larger environment

•Development of approaches for predicting and explaining system behavior

•Mathematical modeling •Main elements of organisations can be abstracted, interrelated and expressed mathematically

•Quantification of decision problems and systems•Optimisation of small set of situations

•Development of explicit rules for management decisions•Development of methods for analysing organisation systems or subsystems

Framework for Managing operations: Management Themes in Operations

Planning Organising

Controlling

BehaviorModels

Defines objectivesCreates policies, programmes and procedures for achieving these ObjectivesAlso involves product planning, facilities designing and using conversion process

Establishes structure of roles and flow of InformationDetermine the activities required to goals and assign authority and responsibility

Measuring actual outputs to planned outputs. Controlling cost, quality and schedules

Problems of Operations Manager% Activity % Activity

90.6 Production planning, scheduling/ inventory control systems

44.4 Developing new processes for new products

76.9 Supervisor training 43.1 Vendor relations, procurement procedures

66.3 Capacity expansion 42.5 Focusing factories

63.1 Worker safety programmes 41.3 Narrowing product line, standardising

58.8 Defining a manufacturing strategy 39.4 Making existing systems work better

57.5 Motivating direct labour employees 35 Giving workers a broader range of tasks to perform

55 Value analysis-product redesign 33.1 CAD (Computer-aided design)

54.4 Improved maintenance practices 31.9 Giving workers more responsibility for planning and organising work

53.1 Changing the manufacturing organisation 29.4 CAM (Computer-aided manufacture)

53.1 Changing labour/ management relationships 26.9 Plant relocation

50 Developing integrated information systems 25 Group technology

48.1 Lead-time reduction 21.3 Office automation

47.5 Quality circles 20 Zero defects programmes

46.9 Developing new processes for old products 20.6 Reducing size of manufacturing units

46.3 Automating jobs

Strategic role of Operations

Easy to get pre occupied with detailed economic and engineering aspects of the conversion process and lose sight of its fundamental purpose. Economy and efficiency of conversion operations ar secondary goals, not promary goals. Primary goals are related to market opportunity

A strategic perspective

Industry

Market and competition

Organisational strategy

Profit or returnsSource of fundsProducts or service quality

Operations policy

Conversion characteristics: design•Product design flexibility•Delivery capability•Location of facilities•Processing technology•Control systems

Managing conversion operations

QualityEfficiencySchedule

Results

Information feedback

Priorities are established among following four characteristics:•Quality (Product performance)•Cost efficiency (low product price)•Dependability ( reliability, timely delivery of orders to customers)•Flexibility (responding rapidly with new products or changes in output volume)

TIME

Operations objectives

The overall objective of the operations subsystem is to provide conversion capabilities for meeeting the organisation’s goals and strategy. The subgoals of the operations subsystems, then specify the following,

Product/ service characteristics Process characteristics Product/ service quality Efficiency

Effective employees relations and cost control of labour Cost control of material Cost control in facility utilisation

Customer service (schedule) Producing quantities to meet expected demand Meeting the required delivery date for goods or services

Adaptability for future survival

Operations Strategies For Competitive Advantage

Strategic Planning

Strategic planning is the process of thinking through the current mission of the organisation and the current environmental conditions facing it, then setting forth a guide for tomorrow’s decisions and results.

Strategic planning is built on a fundamental concepts that current decisions are based on future conditions and results, that the strategic planning is a process, that it embodies a philosophy, and that it provides a linkage or structure within the organisation.

Strategic Planning for Production and Operations

Planning for operations:Establishing a programme of action for converting resources into goods or services

Planning the conversion system:Establishing a programme of action for acquiring the necessory physical facilities to be used in the conversion process.

Operational planning of facilities (design) Operational planning for the use of these facilities

Strategic planning approaches for Production/ Operations

1. A strategic planning forced choice modelEnvironmental Assessment Organisation’s position

Broad Economic Assumption

Key governmental/ Regulatory threats

Major technological forces

Significant marketing opportunities/ threats

Explicit competitive strategies for each major competitor

Statement of mission

Interrelation set of financial and non financial objectives

Statement of strength and weaknesses

Forecast of operations:Profit and cash flows

Major future programmes

STRATEGIC OPTION•Strategic options (at least two)•Requirements for implementing each strategy•Contingency plan

Strategic planning approaches for Production/ Operations

2. A strategic planning operations modelManufacturing strategy tries to link the policy decisions associated with operations to the marketplace, the environment and the company’s overall goals

Environment and Industry

Corporate strategy

Corporateresources

EfficiencyDependabilityQualityFlexibility

Facility mission

ProcessAutomationProduct/ service specialityInterconnectedness

CapacityLoadingLead/ lag

FacilitiesSizeLocation

Vertical integrationSupplier controlCustomer controlInterdependancies

InfrastructurePlanning and controlWork forceQuality control

Professor Chris A Voss

Market-based criteria for success

Any area which the company chooses to compete is a set of specific market-based criteria for successEFFICIENCY

EFFECTIVENESS

QUALITY

FLEXIBLITY

Low price Low costHigh productivity Labour

MaterialEnergy

Delivery ReliableRapid

Available from stockDesign competenceTechnical capability

HighConsistent

Fast introduction of new products and servicesWide product/ service range

How does a organisation fails?

Focusing on manufacturing performance criteria that do not match the market criteria for success

Trying to meet incompatible criteria for success within a single market

Trying to produce goods in a single factory for markets with very different criteria for success

Fundamental relationship between operations and markets: Either the operations strategy must be changed and adopted to maximise the market criteria for success, or the chosen markets should be changed to match more closely operations capability in terms of market criteria for success.

Competitive challenges to operations capablity

Productivity and quality Technology and mechanization International operations management

Productivity and quality

Efficiency Productivity Performance

OutputsProductivity (total factor) = ---------------------------------------------- Labour+Capital+Materials+Energy

Output 224 Customers servedLabour productivity= --------------------- = ------------------------------------------------- Labour inputs 3 employees X 8 hours/ employee

Quality: -The degree to which the design specifications for a product or service are appropriate to its function and use, - and the degree to which a product or service conforms to its design specification

QUALITY : PRODUCTIVITY ….. Because waste is eliminated.

Production Planning and Control

What is PPC?

Production is defined as the “manufacturing of goods and services”

Planning is defined as “the series of related and coordinated activities-materials control, process planning, scheduling etc.- designed to systematise in advance the manufacturing efforts”

Control is to review the work progress, make corrections wherever required thereby ensure that programmed production takes place.

What is PPC?

Production planning and control is the process of planning production in advance, setting rate of each item, fixing starting and finishing dates for each item, authorising shop activity by release of production orders, follow up the progress of products and expediting wherever required.

What is PPC?

Production planning is the determination, acquisition and arrangement of all facilities necessary for production of items. In other words production planning is essentially a pre-production activity, associated with the design of the production system. The production system is considered to incorporate an organisational element in addition to physical facilities and production planning is concerned with organising the production of an item prior to the commencement of production….

Production control is the corollary to short term production planning or scheduling and is quite simply concerned with the implementation of production schedules. Production control goes on during production and consists essentially of following steps,Initiating production

• Dispatching of items (i.e. establishing priorities between items competing for time on the same facility)

• Progressing• Reporting back to production planningPlanning is thus forward thinking while control is a mechanism for execution

Customer (BPCL, IOC, Reliance etc)

Sales department

Production planning & control departmentMaterial planProcess planScheduling

Production department

Industrial Dept

Quality Assurance Department

Assembly

Packaging and Dispatch

Purchase Order

System

Drawings

Jigs & fixtures

Stores DeptDesign Dept

Material Plan

Purchase dept

Requisitions

Spares and componentsOu

tso

urc

ed

pa

rts

Mother Depot

State level Depot/ C&F Agent

Finished goods

Fin

ish

ed

go

od

s

KIRLOSKAR BROTHERS LTDMnuf of Industrial pumps, Valves


Challenges faced by PPC department at Kirloskar Brothers

1. Change in specifications by customers2. Sudden urgency desired by customer3. Insufficient information provided by sales department4. Technical challenges faced by Design department5. Delay in designing by design department6. Delay in designing jigs and fixtures by industrial dept7. Limitations of present machinery8. Labour related difficulties at production department9. Availability of machinery10. Unavailability of outsourced goods with purchase dept.11. Rejection of batch by quality assurance department12. Failure in depot logistics, transport strike, road blockage, heavy rains, depot damages13. System failures14. Delayed deliveries, hence delay of customer’s projects15. Penalty clause by customer16. Blacklisting by major customer for regular delays17. Order cancellation threat by customer18. Inefficient execution of plan by production department19. Frequent rush orders20. Lack of cooperation between different departments


Challenges faced by PPC department at Kirloskar Brothers

a. Sales personnel try to insist on last minute changes in production plan. They bring rush orders

b. Production people insist on plenty of prior notice, longer production runs and sufficient inventory

c. Purchase department expects adequate notice of requirement of bought out components and materials

d. Finance department expects that stocks and WIP do not exceed budgeted values

e. R & D department insists on incorporating design changes or modifications without bothering about the disruption that changes may cause in production schedules.

Objectives of PPC

To plan systematically production related activities to meet targets of production with the available resources of the firm.

To provide for manufacturing requirements such as men, machines, material etc of right quality, in the right quantities and at the right time.

To schedule production facilities in the optimum manner. To coordinate the activities of different departments relating to

production to achieve regular, steady and balance flow of production.

To ensure conformance to delivery commitments and to inform sales department regarding difficulties (if any)

To inform management beforehand of the difficulties which may crop up later in achieving production targets.

Production planning versus Production controlPLANNING (planning the work) CONTROL (working the plan)

Planning involvesCollection and maintenance of data regarding time standardsmaterials and their specificationsmachines and their quantitiestools and their process capabilitiesDrawingsoperational layouts etc

Control involves dissemination of datapreparation of reports regarding outputs, machine and labour efficiency, percentage defectives etc.

Planning is seeing that requirements-tools, machines, men, instructions, authorizations and the like-will be available at the right time and in the right quantities and are of proper quality

Control is seeing that the requirements are actually made available at the right place and in the right quantities

Planning involves preparation of load charts and fitting various work orders into uncommitted time available on the company’s facilities (men or machines)

Control involves actual seeing that the jobs are started and completed as per schedule prepared by the scheduling cell of PPC

Planning involves preparation of all necessary forms and paper work

Control involves actual issue of forms and paper work

Planning involves designing suitable feed back as to what may happen

Control involves keeping track of what is happening and collecting information as to what has happened

Planning involves forward thinking as to the remedial action to be taken if the job fails behind the schedule

Control involves suggesting remedial action when the job is falling behind the schedule

Planning therefore is a centralised activity (in the office) and includes such functions as material control, tools controls, process planning and scheduling

Control is thus a diffused activity (in the shops) and includes functions such as dispatching, progressing and expediting

Functions of Production Planning and Control Material control Process planning or routing:

selection of path or route which raw material should follow to get transformed from raw materials into finished product

Determine manufacturing operations and sequence Decide required setup time and process time for each of the operations

Scheduling Prepare machine load charts to know workload of each machine Fix calendar dates of operations tube performed on a job Coordinate with sales to confirm delivery dates of new items

Dispatching Assign work to definite machines, work centers and men Issue required materials from stores to first operation and from operation to operation Issue jigs and fixtures and deliver them at the correct point of use. Release necessary work orders, time tickets, move orders etc. to authorise timely start of the operations Guide and control operations and material movement as embodied in the route sheets and schedule

charts. Record start and finish time of each job on each machine or by each man Coordinate with routing and scheduling for revisions in process or schedule wherever required.

Follow up Follow up of material Follow up of work in progress Follow up of assembly and erectionMajor activities in follow up Identify delays and interruptions which have crept into the production stream Devise cures from time ti time to keep rate of production in line with the schedule Communicate possible failures in delivery commitments to sales department

Information required for PPCInformation concerning

Details Source Department originating indicated information

1. Production Program

1. Quantity to be manufactured

2. Delivery date

Sales order or order acceptance Sales

2. Production Material

1. Kind and quality of materials

2. Quantity of material required

3. Stock on hand and reservations

4. Time required for procurement

Drawing/ bill of material

Stock cards

Lead time card

Drawing office

Stores

Purchase

3. Tooling 1. Standard and special tooling Tool card PPC

4. Quality standards

1. Dimensional sprcifications

2. Tolerances required

Experience

Drawings

Customer’s reaction

Drawing office

Sales Department

5. Operation Methods

1. Operations and their sequence

2. Machine tool for meeting the quality requirements

3. Jigs and fixtures needed

4. Speeds and feeds

Process sheets

Capacity charts

Experience

PPC

PPC

6. Path of Materials

1. List of operations and their sequence

2. Alternatives possible

Operational layouts

Plant layout

PPC

7. Operation Time

1. 1. Setup time and standard time for each operation

Work measurement data Industrial engineering

8. Scheduling 1. Starting and finishing dates Machine load & schedule charts PPC

9. Progress of wrk

1. Work completed as on date Daily Production Reports/ Time tickets/ Perforated Slips

Production

Organisation of PPC department

Status of PPC depends upon, Repetitiveness of work Sequence of operations Machine capacity- product variety less Functional layout of plant and machinery

Degree of decentralisation Centralised planning: Functions are controlled

centrally Decentralised planning: Planning carried out by line

staff

Internal structure of PPC

Functions of PPC Order Preparation Materials controls Tools control Process planning Scheduling Dispatching Progressing Expediting

Following may be added Cost Estimation Work measurement Sub-contracting Capacity planning

Relationship of PPC with other departments

Sales Department: Design Department Inspection & quality control department Purchase Department Stores Department Tool Room Maintenance Department Personnel Department Manufacturing Shops

Sales Department Quotation giving Order passing to PPC Tentative delivery period while order acceptance Information on status and progress Advanced information on change in delivery schedule Consultation with PPC before taking rush orders Buyers feedback should be passed on New schedules, amendments, cancellation and design

changes must be reported to PPC

Design Department

Design dept should know process capabilities Design changes must be intimated Tolerances may be reviewed and relaxed if required

Inspection & quality control department

Feedback on quality of goods produced, rejections and quantities.

Sample inspection reports Inspections and predefined important places should be

carried out with out fail. Delays because of inspections to be avoided

Speed of inspection and clearance for next job Errors to be communicated immediately Fox appropriate stages for inspection to be decided Defects at customers plant to be reported immeduately

Purchase Department

Advance information to Purchase on raw material and tools

Information to PPC on progress of purchase orders and delays.

Market situation of raw material should be informed to PPC

Immediate action on revised schedule from PPC Periodically information on lead time on items Immediate action on changes in designs and

specifications

Stores Department

Replenishment of raw material Maintaining stock records Inventory methods

Tool Room Making and maintenances of Tools and gauges in right

quantities Making jogs and fixtures

Maintenance Department

Prioritising maintenance by importance Information of inspection, replacement, servicing and

overhauling schedule

Personnel Department Statistics on absenteeism of different operators Information of holidays, dismissals, retrenchments, hiring Information on power situation

Manufacturing Shops

Preparing detailed work assignment Suggestions relating to overtime, job priority, job

splitting, shifting etc. Control on leaves, and alternatives Notifying information on damages to jigs and

fixures Economy and efficiency at manufacturing

through different methods Reporting of daily production reports

Production planning (Forecasting)

Need for Forecasting Main inputs like men, machine and material are

expensive Resources to be put to best use Maximising profit To meet customer’s orders at least costs

Changes in inventory of raw materials, Work-In –Progress, Finished goods must be made

Production planning (Forecasting)

Company ‘A’

Company ‘B’

Rs. Crore Rs. Crore

Raw material 10 5

Work In Process 6 4

Finished Goods 15 8

Investment in Inventory 31 17

Philips India Ltd. (Small Appliances Division)

Product Portfolio:Kitchen Appliances1. Mixer grinders (7

models)2. Juicer Mixer Gr (2

models)3. Hand Blenders (4

models)4. Juice Extractor (1

model)5. Citrus press (2 models)6. Food processor (1

model)7. Hand Mixer (1 model)8. Rice cooker (3 models)9. Coffee Maker (2

models)10. Kettle (4

models)11. Electric Ovens (4

models)12. Pop up Toasters (7

models)13. Snack Toasters (6

models)

Household Products1. Vacuum cleaners (3

models)2. Irons (16

models)

Personal Care1. Philishave (14 models)2. Ladyshave (1 model)3. Satinelle (3 models)4. Hair styler (1 model)5. Hair dryers (4 models)6. Infrared Lights (2

models)

Philips Irons

Production planning (Forecasting)Activities depends upon projection of future sales1. Smoothen imbalance between production and sales2. Schedule production activity with least cost and best utilization of plant

and machinery3. Plan for material schedule4. Access shop capacity5. Plan requirement of vendors for materials, tools bought out parts, sipplies6. Plan recruitment and training

Classification of forecast:1. Short term forecast: Less than 1 year2. Long term forecast: Over 1 year

Short term forecast: Made for Materials control, Loading, and scheduling and budgeting

Long term forecast: Made for product diversification, sales and advertising, budgeting, financial planning and investment planning

Forecasting methods

Synthetic forecasts Analytical estimates Economic indicators

Synthetic forecasts• Based on opinion surveys• Mostly used by manufacturers• Estimates from company salesmen are taken• Estimates are consolidated into total estimates

• It is simpler• Useful in launching new products• Quick• Active cooperation from sale force

May be biased due to:1. Salesmen temperaments (optimistic or pessimistic)2. Natural instinct to go to extremes3. Time limitation4. Understate low demand to get low targets5. Lack of knowledge of company’s strategy and economic conditions

Other factors should be included like1. Product improvement plans2. Changes in credit policy3. Changes in income levels4. Changes in advertising expenses, promotional activities5. Performance of competitors

Analytical estimates• Rely on actual demand data of last few years• Arranged in Time series• Determining trend and extrapolating the trend• Past as a guide for the future• Different statistical methods are used

Time series has four components:Secular trend: Overall growth or decline of business over the timeCyclical fluctuations: Oscillations-pattern around the tread cycle (greater than a year)Seasonal fluctuations: Oscillations around the trend with periodicity less than or equal to a

year. Fluctuations caused due to changes in season are attributed to a seasonal fluctuations.

Random fluctuations: unexplained chance variations when all above components are removed from original time series.

To make forecast from time series:1. Collect data of past sales (time series)2. Establish secular trends underlying3. Isolate seasonal and random fluctuations4. Extrapolate forecast from secular and seasonal fluctuations

Use of Economic indicators

Forecasting is done with the help of one of the indicators

Personal income: Agricultural income: Registrations: (Auto registrations, licenses) Contracts signed: Total Capacity of production: Population index

Statistical approach

Measurement of secular trend Curve fitting Moving Average Method Exponential smoothing Regression Analysis

Main concern is matching the resources to demand Capacity planning decisions are generally strategic in

nature. What is the expected growth of the industry and company’s

market share? How accurate is company’s market prediction? Capacity planning should be taken optimistically or

pessimistically? Capacity be created at FEW locations WITH large CAPACITY,

or at MANY locations with SMALL capacities. How many shifts? How many days plant to run in a week? What percentage to be through outsourcing, sub-contracting? Policy on temporary capacity shortfalls?

Production planning (Capacity Planning)

Measurement of capacity

When a single or homogeneous product in no of units per unit of time. Ex Automobiles, CTV, Steel, textile, power plant.

When multiple products are manufactured capacity can be measured in labour hours or machine hours.

Solving capacity problems

Working extra day a week (seven days working)

Overtime Strengthening the weakest link Sub contracting

Effective capacity is influenced by Demand forecast:

Effects of Life cycle of product, no of products. Longer the life easier is the forecasting.

Phase of product in its life cycle More the no of different products, lesser the demand fluctuation.

Labor efficiency: Person to person difference at machine

Plant efficiency: Multiplicity of shifts:

Single shift: Higher investments Multiple shifts: Higher labour costs, wage premium. Multiple shifts: Steel. Chemicals, oil refineries and other with large investment in

building, equipments Single or double shifts: Low capital investment firms.

Subcontracting Management policies

Sub contracting wherever possible Critical operations important for reputation Policy on no of shifts Specific machines for 3rd shifts only Buy new machine as soon as existing capacity reaches specific level. Not to use inefficient machines Extra inventory of spares for important machines

Quality Management

What is quality

Quality is the performance of the product as per the commitment made by the producer to the consumer

Commitment may be explicit- Written contract or implicit- expectations of average consumer of the product

The performance of the product: relates to ultimate functions and services which the final product must give to the final customer

WATCH: Shoe accurate time PEN: Write legible PAPER: Retain pen or pencil marks

Quality may be measured in terms of ‘PERFORMANCE TEST’ A product is called a quality product only when it satisfies various criteria for

its functioning for the consumer In addition to physical criteria there is also a service and time dimension to

the quality The same quality of performance should be available over the reasonable

period of time.

What is quality

Quality is either a written or non-written commitment to a known or unknown consumer in the market.

Since market is defined by company under strategic marketing, quality is is a strategic marketing decision taken by the company itself.

Hence it is not a domain of a single department

Statistical Methods

Process Finished goodsRaw materialAre raw material OK? Are finished goods okey to be sent to customers?

Are right processes operating on the raw materials?

•Acceptance sampling: The task of exercising control over raw material and outgoing finished goods is usually called as ‘Acceptance sampling”•Process control: The control over the processes operating on the raw material or the semi-finished goods is called Process Control•Mass production: Statistical methods are extensively used in mass-production and mass-purchase and mass-shipment.Statistical Process control

Statistical process control

If the processes (chemical reactions, mechanical working by men or machines) are operated with a tolerable range, the product produced will be of the desired quality.

Process control is monitoring of the various physical variables operating on the materials and the correction of the variables when they deviate from the previously established norms.

Variations: In process control is concerned with those causes which can be rectified.

Monitoring the process: We can control the process by Actually measuring the variables operating on the raw materials Measuring the characteristic of the output products

Specification Limits for the outputs: Quality of the particular product is described in the form of range (ex. Diameter of shaft: 3 plus/minus 0.002 cm)

Statistical process control

Control Limits: During exercising process control we should not exceed specification limits. Therefore the limits for our process control should be narrower than the specification limits. A danger signal should indicate if limits are crossed.

Cost Aspects: Should be understood while designing the control limits. Small variation in some no priority areas should be understood through cost point of view.

Statistical process control Central Tendency and Dispersion: Target Diameter: 150 mm

140 mm

151 mm

159 mm

139 mm

139.5 mm

140 mm

Machine 1 Machine 2

•Accurate machine•Central tendency does not show deviation•Has lot of dispersion

•Precise•Not accurate•Central tendency shows deviation•Dispersion is low

Quality planning To set quality objectives and targets and take into account customers

wants and the marketability of the products To carry out pre process capability or quality deliverability studies (to

find out whether the company is capable of producing and marketing the products of certain quality

To establish the relative importance of the quality characteristics and specification and communicate it to the production line people as well as to the vendors supplying the raw materials. Specifications and drawing per se can never communicate what that particular specification stands for and why.

To establish statistical control techniques, charts and sampling plans. To establish training programmes for various personnel in the company

so that quality consciousness gains a firm ground in the organisation.

Managing Quality

Managing Quality

Quality implementation Performing laboratory tests and analysis on the raw materials, finished

products, and the semi-finished products for acceptance/ rejection or for process control

Maintaining quality control equipment (Process, Laboratory and Inspection)

Advising and providing assistance for the clarification and solution of quality management problems in manufacture

Managing Quality

Quality monitoring and control Appraising the quality plan vis-à-vis the problems of production and the

problems of vendor quality, so that appropriate action is taken to correct the initial planning errors.

Appraising quality planning vis-à-vis the actual quality which has reached the customer and what the latter’s reaction is regarding the product quality, how such reactions can be set right by modifications to the original quality plan

In addition to performing quality audits, monitoring the costs of quality and providing such information to the quality-planners so that they take appropriate action for the future.

Costs of Quality

Cost of Appraisal: Cost of inspection, testing and such checking operations as are necessary to maintain the product quality.

Cost of Prevention: Cost of activities which are necessary to to prevent the production of bad quality output. Cost of activities such as Quality planning, bad quality of raw material entering into plant or improper methods and processes being followed

Cost of Failure: Cost of rejection, rework, spoilage. Cost of attending to customer complaints and providing product service

Analysis of cost of quality Category to category comparison: Time to time comparison:

Source: Economic Times 300507

Supply Chain Management

Supply chain, and weak link

Supplier’s Supplier

Supplier Company Customer Customer’s

Customer

Supplier’s Supplier’s Supplier

Customer’sCustomer’s Customer

Purchasing Purchasing is a window to the outside world Being sensitive to external supply market situation and

feeding back this information to other functions of organisation

Get Right quantity of material of Right quality at Right time at Right place from Right source and at Right cost

Increase profit by Increase sales or reduce purchase costs

Objectives of Purchase department

1. Ensure availability2. Procure material at low costs (not necessarily low price)3. Ensure supply of quality material4. Select proper source5. Information on substitute material6. Value analysis/ Value engineering7. Develop new vendors, maintain relations with vendors. Vendor

relations, vendor monitoring or vendor evaluation and development.8. Develop procedures and systems for purchase department9. Instututionalise purchasing and not let it personalise10. Coordinate with other departments to achieve continuity of information11. Price forecasting12. Make or Buy

Bayesian Analysis

Works on probability of incident happening

Value Analysis/ Value Engineering

Information stage Functional Analysis Brain Storming Evaluation Phase Implementation

Inventory Models and Safety Stocks

How much inventory to keep When Normal Consumption pattern Inventories between stages Decoupling function

Relevant costs

Cost of capital Space cost Material Handling costs Obsolescence, Spoilage or Deterioration Costs Insurance Costs Costs of General Administration Inventory procurement Costs

Space cost

Inventory Models

Optimal Order Quantity Economic Manufacturing Batch Size Inventory Models with purchasing

discounts Protection methods against usage rate

variations and supply lead time variations Fixed order period models

ABC and other classification of Materials

ABC Analysis: (Conventionally Annual consumption value)

Material price Criticality Non-availability Size Weight A B C

% OF ITEMS

100

0

Cumulative % annual turnover

VED Analysis: Nuisance value. V: VitalE: EssentialD: Desirable

Combination of ABC and VED

AV AE AD

BV BE BD

CV CE CD

Vital Essential Desirable

A

B

C

Material Requirement Planning Process

Firm orders

Manufacturing and

procurement lead

time

Inventory status Informatio

n on product design

structure

Forecasts

Capacity adequate?

Master schedule for production

Materials requirement plan

Final master production schedule and MRP

Evolution to ENTERPRISE RESOURCE PLANNING (ERP)

Benefits of EFP: It provides information that is

i. Up to dateii. Uniformiii. Comprehensive, across the entire organizationiv. Integrated, linking all the functional departments and

divisionsv. Embeds best practicesvi. Instantaneous information available with speed and qualityvii. Integrates the work flow in entire enterpriseviii. Every decision-maker, is put on chainix. Helps organization look inwards

Other aspects of Material Management Codification Standardization Material Handling

Hand Trucks Pulley blocks Chutes Roller conveyors Fork lift trucks Pallets Overhead electric cranes Belt conveyors Pneumatics of vacuum lift

Stores Management Receiving and inspection Issues and dispatch Stock-records Stores accounting Stock-taking and checking Stores preservations Stores arrangement

Supply chain management United we stand, divided we fall Globalization, global outsourcing Fast technological developments Large variety of competing products and services

Supply chain management

Building a supply chain: Alignment of organizations in the chain and Improving co-ordination between them.

Leader company in supply chain What keeps them together?

Mindset Coordination Sharing of Information Sharing of Risks and Rewards Joint problem solving

Pyramid of supply chain Management

Serviceto

the customer

CompetitivenessAnd Efficiency

Alignmentbetween partner

organisations

Coordination between partner

organisation

Bringing partnerorganisations to be

Together and to work together

Process orientation

Aligning their strategies and policies

Sharing of information, Sharing of risks and rewards

Orienting their organisation cultures and values

Provide leadership ensuring continuedcooperation, continued alignment

and build a culture of trust

Joint-problem solving

Within each partner organisation:Orienting the functional areas towards the supply chain objectives

of customer services, systems thinking,competitiveness and efficiency

The functional areas having immediate effect are, Production, materials including Purchasing,Inventory Control, Stores, Logistics, marketing, Human resources, Systems and Finance

Customer –Supplier relationshipTraditional org Partnership org

Purchase criteria Lowest price Competancy

Duration Short term as needed Long term

Number of suppliers Several One or few

Volume of Business for the supplier

Limited Large

Type of Agreement Contractual Working relationship

Type of Interaction Formal Formal and informal

Quality Variable, through inspection Right quality

Cost/ Price Price appears low initially Effectively low

Delivery Large consignment, infrequent causing large inventory

Small lot,

Operations Management[1]

Documents

Transcript of Operations Management[1]