Overview & Principles Production & Operations Management P.O.M. Overview & Principles Ken Homa

POM Overview Acquire & deploy capacity Select, control & improve processes Allocate & schedule resources Decisions & Actions Cost, Quality, Flexibility, Service

Capacity Acquire & deploy capacity …What? Facilities, equipment, people …How much? Aggregate, ‘dedicated’ …When? Peak vs. average …Where? Centralized / decentralized …Owned by? Vertical / virtual integration

Capacity = Performance Envelope From an organizational perspective … Capacity decisions are big (usually expensive) and defining for a company, I.e. establish the ‘ performance envelope’ Given the high cost, and ‘normal’ organizational inertia, capacity decisions are often very difficult to undo, i.e. really are quite ‘fixed’.

Capacity Timing From a strategic / financial perspective … Add too much capacity too soon and short- run profitability suffers. Add too little capacity too late and market share constrained … and profit opportunities may be lost forever.

Capacity Additions (More) from a strategic / financial perspective … Capacity is typically added in ‘ chunks’ ; e.g. factories or factory ‘lines’. The first and last chunks are the most critical. Companies have natural tendency to start too conservatively, to underestimate time to ‘ ramp up’, and to eventually overexpand. (Experiential observation)

Capacity Location From a strategic / tactical perspective … The location of capacity is often equally (or more) important than sheer quantity. Some locations are inherently more beneficial than others, e.g. close to markets or economical ‘ factor inputs’.

Capacity Optimization (More) from a strategic / tactical perspective … Locations (plants, distribution centers, etc) are linked together into networks. Network efficiency ( global optimization ) is the paramount goal; site efficiency ( local optimization ) is supportive ( secondary ) and may be sacrificed ‘for the greater good’.

Capacity Networks (More) from a strategic / tactical perspective … Ownership is usually a legal detail and financial impracticality, not necessarily a strategic imperative. Allied networks (formal & virtual) of best providers are increasingly prevalent.

Logical & Physical Assets (More) from a strategic / tactical perspective … Information (logical assets) moves faster and is usually cheaper (after infrastructure is in place) than physical assets (people, plants, trucks, inventory, etc.). Best operators support physical assets with logical assets … and substitute logical for physical whenever possible.

Processes Acquire & deploy capacity Select, control & improve processes …Linkages: product / process design …Orientation: job shop, batch, flow …Organization: functional, cellular …Metrics: goals & specifications …Improvement: incremental & reengineered

‘Right’ Processes The ‘ right’ operations approach (process, organization,etc.) is very situation - specific, depending on market requirements, competitive dynamics, and company competencies.

Product & Process Design Product design and operations’ process efficiency are inextricably linked. Operations efficiency is ultimately limited by product ‘ design for manufacturing’.

Process Metrics Organizations are made up of well- intended people (generally) who do what they understand, what is measured, and what they get paid for... So, performance measurements ( metrics ) must be clear, aligned, quantified, and relevant (to both the company & the individual)

Quantified Metrics More specifically: All performance criteria (metrics) can be quantified … even (or especially) quality. Trick: transform subjective variables into objective measurements

QFD....

Process Improvement Process improvement can be incremental ( continuous improvement ) and/or quantum-change ( reengineering ). Continuous improvement is (usually, bordering on always) necessary but not (typically or perpetually) sufficient! (Experiential observation)

Process Success Factors Bottomline re: process Integrate product & process design Match approach to situation Measure, measure, measure Improve (or perish)

Resources Acquire & deploy capacity Select, control & improve processes Allocate & schedule resources …Decision rules & methods …Variability & predictability …Facilitators: inventory & queues

Decision Rules & Methods Decision rules (e.g. EOQs) and methods (e.g. MRP, JIT) are the foundation tools of operations … that translate strategic intent into action and performance.

Decision Rules The best decision rules and methods are analytically - derived … based on practical statistics and mathematics. Most concepts are straightforward (bordering on simple), but their application is complicated by combinations, permutations and level of detail.

Variability Variability (I.e. peaks & valleys) further complicates the operations landscape. Variability that is predictable can be mitigated with ‘ buffers’ such as inventory and queues (I.e. waiting lines) Unpredictable variability is the ‘mother of’ operations challenges.

Products & Services What is the fundamental difference between a product (manufacturing) business and a service business?

Products & Services What is the fundamental difference between a product (manufacturing) business and a service business? Service businesses don’t have inventory to buffer mismatches of supply and demand … though queues (lines) provide some cushion … peak capacity is more relevant than average capacity … and effective resource scheduling is absolutely critical

POM Overview Capacity: Acquire & deploy Processes: Select, control & improve Resources: Allocate & schedule For efficiency & productivity and to create a competitive advantage...

Competitive advantage: CQFS Cost … converted into price Quality … augmented product “on specs” Flexibility … broad line, fast change Service … available when & where needed Quantifiable Winning & Qualifying Ops Criteria External (customer) Perspective