So What? Operations Management EMBA Summer 2002

TARGET You are, aspire to be, or need to communicate with an executive that does not have direct responsibility for the details of operations. If a product is involved, - You are in a supply chain If no product is involved, - You have a flow of work among several people to provide the service

So What? Introduction  Value = Quality/Price  Operations Management is concerned with the system of creating goods and services to fill customer’s requirements.  Operations focuses on decisions concerning quality, process, inventory, and capacity  Operations Management is most effective when it coordinates activities with entities inside and outside the firm that impact operations

So What? TOC (Theory of Constraints) 1. Provides a framework to analyze and understand capacity enhancing, manpower, and cost reduction proposals. - Process Flow - Bottlenecks - Look for effect on - Throughput (Sale) - Inventory - Operating Expense 2. Drum-Buffer-Rope provides a powerful scheduling technique for your operations people.

So What? OPERATIONS STRATEGY o Must be consistent with Corporate Strategy, and formulated in conjunction with Marketing Strategy, Finance Strategy,… o Must provide the competencies needed for the stage of the product life cycle o Must match process characteristics to output levels and product varieties

So What? Bean Game 1. Coupled random activities significantly reduce the actual output of the process below the process “capacity”. 2. To improve you must - reduce variation - add buffers to decouple

So What? FORECASTING  Provide some understanding of forecasting methods, difficulty, and the meaning of error measures.  The appropriate forecasting technique depends on the pattern of demand.  Statistics and judgment should be combined.  Sales with seasonality can mislead you.  Exponential smoothing and moving averages can cause amplification of errors due to reporting orders rather than demand.

So What? INVENTORY – Introduction BUT  Inventory should be carried – BUT, only in the smallest amount required to achieve a defined purpose.

So What? Project Scheduling  PERT/CPM provides a useful scheduling and control mechanism for many projects  It provides a valuable means of subcontractor communication.  The exception reporting (critical paths, Cost over runs) is a major strength and a major weakness.  There are problems with assumptions about independent activities and hard precedents.  Cost allocation problems plague PERT cost.

So What? MRP  Materials Requirement Planning provides software to provide for the correct quantity of components and materials at the time they are needed.  MRP II provides the software support for coordinated management of all manufacturing resources.

So What? LEAN PRODUCTION/JIT  JIT IS NOT AN INVENTORY SYSTEM!!!  Lean Production systems attempt to minimize EXCESS inventories.  Many benefits can be achieved (see JIT slide 9).  Moving to JIT requires a radical redesign of the work process and the duties of workers.  Moving to JIT (probably) requires difficult changes in management style toward a coach-facilitator.  JIT is not automation.  JIT cannot handle volume variations well.

So What Enterprise Resource Planning - ERP systems yield benefits by providing all elements of the business the current, accurate, and integrated information they need. - A company must change its business practices to conform to the ERP system. - Implementation of ERP is difficult and expensive. - Training of company personnel is necessary and will be ongoing.

So What? SUPPLY CHAINS - Bullwhip  Bullwhip Effect – demand variations amplified as we move up the supply chain  There are common sense and information technology solutions to the Bullwhip  Reduce Lead-times  Coordination of the elements of the supply chain is an important determinant of success.

So What? SUPPLY CHAIN – Barilla  Each party must receive value.  You must convince other parties of the value to them.  You must convince other parties you can deliver the value you promise.  Prove value in house or with pilot program if possible,  Share benefits.

So What? Supply Chain Management  SCM provides an opportunity for adding value by resource pooling and postponing customization  How to share risks and gains is a significant question  Supply Chain Coordinator is an emerging role.

So What? Statistical Process Control (SPC)  Important to distinguish random noise from real effects.  A control chart is a useful picture to analyze repeating events. - In real time (in vs. out of control) - Upon reflection  SPC does NOT improve quality, it maintains the design level.  Analysis of causes can improve quality.

So What? QUALITY IMPROVEMENT  ISO – The eight key principles can serve as a basis for quality improvement.  The seven quality control tools are “simple” and they work.  The costs of poor quality (external and internal) far exceed the costs of achieving good quality.