1. Operations Management
Chapter 5
Operations Management

2. Objectives
After reading the chapter and reviewing the materials presented the students will be able to:
Explain role of operations management (OM)
Describe how operational decisions impact supply chain
Explain product and process design
Describe categories of facility layouts

3. What is Operations Management (OM)?
Operations management (OM) is the business function responsible for producing a company’s goods and services in an efficient and cost-effective way.
OM is responsible for planning, organizing, and managing all the resources needed to produce a company’s goods and services.
This includes people, equipment, technology, materials, and information.
It is a core function of every company.
OM serves a transformational role in the organization by converting a company’s inputs into finished goods and services.

4. OM Decisions
For operations to be able to design and produce the products customers want, customer preferences have to be translated into tangible product characteristics.
It is then up to operations to decide on the process needed to produce the desired product.
This includes equipment, skill levels and job requirements of workers, and capacity of facilities.

5. Manufacturing Versus Service Operations
Manufacturing organizations produce physical, tangible, goods that can be stored in inventory before they are needed.
By contrast service organizations produce intangible products that cannot be produced ahead of time.
Most manufacturers provide service as part of their business.

6. Evolution of the Operations Function
The name has changed from production management in the 1950s, to production and operations management in the 1980s, to operations management reflecting a broader operational focus.
Today’s global competition and focus on SCM have placed an even greater focus on operations.

7. Impact on the Organization
Operations must work with marketing to understand and design the exact product customers want and to create the production process that efficiently produces these products.
Operations must also work with sourcing to understand material availability, such as sources of supply, quality standards, and availability of materials.

8. Impact on SCM
Each company depends on other members of its supply chain to be able to deliver the right products to its customers in a timely and cost effective manner.
Companies depend on their suppliers for the delivery of raw materials and components in time to meet production needs.
If deliveries of these materials are late, or are of poor quality, production will be delayed.

9. What is Product Design?
Product design is the process of specifying the exact features and characteristics of a company’s product.
Ideas for which features to include are usually driven by marketing, which understands what customers want.
Marketing works with operations to create a product that meets consumer preferences.
Product and process design affect product quality, product cost, and customer satisfaction.

10. Design of Services
As with a tangible product, the service concept is based on satisfying customer needs.
The service concept has three elements which must be designed.
The first is the physical element of the service. This may be a haircut at the barber shop.
The second is the psychological benefit of the service which are elements such as promptness and friendliness.
Finally there are the sensual elements of the service, such as ambiance, image, and feel good elements of the service.

11. The Product Design Process
The product design process follows a predictable set of steps:
1. Idea development: Product ideas can come from marketing, R&D, engineering, or suppliers.
2. Product screening: Product screening considers the viability of the product. 80% of products do not make it past this stage.
3. Preliminary design and testing: Prototypes are built and tested, and changes are made.
4. Final design: Product testing results in the specification of the final product design.

12. Break-Even Analysis
Break-even analysis is used to compute the product quantity that needs to be sold for a company to cover their costs.
At the break-even point, total cost equals revenue.
Total cost is the sum of the fixed and variable costs.
Fixed costs include overhead, taxes, and insurance.
Variable costs include materials, and labor.

13. Factors Impacting Product Design Decisions
1. Design for manufacture (DFM): DFM guidelines focus on two issues: design simplification and design standardization. Design simplification means reducing the number of parts. Design standardization refers to the use of common and interchangeable parts.
2. Product life cycle: There are typically 4 stages: introduction, growth, maturity, and decline.
3. Concurrent engineering: requires that all functions to work together simultaneously to design and evaluate the product.
4. Remanufacturing: Uses components of old products in the production of new ones.

14. Process Design
Process design involves developing a production process that can create the exact product that has been designed.
Based on common characteristics processes can be grouped in two broad categories: intermittent and repetitive processes.
The most common difference is along two dimensions: product volume and degree of product standardization.

15. Intermittent Processes
Intermittent processes are used to produce a large variety of products with different processing requirements in lower volumes.
Resources are grouped by function and the product is routed to each resource as needed.
Workers need to perform a variety of tasks and equipment is more general purpose.

16. Repetitive Processes
Repetitive processes tend to produce products in the later stages of the life cycle and the larger volumes are justified by a well established market.
Often these facilities rely on automation and technology, rather than on skill labor, to improve efficiency and increase output.

17. Process Types
1. Project processes: are used to make one of a kind products exactly to customer specifications.
2. Batch processes: are used to produce small quantities of products in groups or batches based on customer orders or product specifications.
3. Line processes: are designed to produce a large volume of a standardized product for mass consumption.
4. Continuous processes: operate continually to produce a very high volume of a fully standardized product.

18. Facility Layout
Facility layout is the physical arrangement of all resources within a facility.
Poor facility layouts are one of the most significant contributors to inefficiency and increased production cost.

19. Types of Facility Layouts
1. Fixed position layout: A fixed position layout is used when a product cannot be moved during production, usually due to size. The greatest challenge here is that all the resources have to come together at the product’s location in the right sequence at the right time.
2. Process layout: Process layouts are best suited when producing many different types of products in low volume, as seen in an intermittent process.
3. Product layout: A product layout arranges resources in sequence to enable efficient production of a product. Product layouts are highly efficient and minimize cost of producing high volume products.
4. Cellular layouts: Cellular layouts attempt to combine the efficiency and repetition of product layouts with the flexibility of process layouts. The work cells are arranged using product layout principles.

20. Line Balancing in Product Layouts
Step 1: Identify task times and precedence relationships. The first step is to identify the task that must be performed in order to produce the product, their duration and the sequence in which they need to be performed. This is called precedence relationship.
Step 2: Determine the cycle time. The maximum amount of time each station on the assembly line has to complete its assigned task is called the cycle time or takt time.
Step 3: Determine the theoretical minimum number of work stations. Remember when determining the number of workstations, round up to the next whole number.
Step 4: Assign tasks to workstations. We have to follow the precedence relationships to ensure the right sequence.
Step 5: Compute efficiency. Effficiency can be improved by better utilization of the line.

21. Process Automation
Mechanization provides greater accuracy and enables handling of dangerous and difficult tasks.
Automation enables repetition to occur without worker fatigue.
Automation of services provides consistency and requires fewer employees, lowering labor costs.
Disadvantage of automation is the initial cost of automation can be very high.

22. Summary
Operations management (OM) is the business function responsible for producing a company’s goods and services in an efficient and cost-effective way.
Manufacturing organizations produce physical, tangible, goods that can be stored in inventory before they are needed.
By contrast service organizations produce intangible products that cannot be produced ahead of time.
Product design is the process of specifying the exact features and characteristics of a company’s product.
The service concept has three elements which must be designed. The first is the physical element of the service. This may be a haircut at the barber shop. The second is the psychological benefit of the service which are elements such as promptness and friendliness. Finally there are the sensual elements of the service, such as ambiance, image, and feel good elements of the service.
The product design process follows a predictable set of steps: 1. Idea development: Product ideas can come from marketing, R&D, engineering, or suppliers. 2. Product screening: Product screening considers the viability of the product. 80% of products do not make it past this stage. 3. Preliminary design and testing: Prototypes are built and tested, and changes are made. 4. Final design: Product testing results in the specification of the final product design.
Break-even analysis is used to compute the product quantity that needs to be sold for a company to cover their costs.
Design for manufacture (DFM): DFM guidelines focus on two issues: design simplification and design standardization.
Product life cycle: There are typically 4 stages: introduction, growth, maturity, and decline.
Concurrent engineering: requires that all functions to work together simultaneously to design and evaluate the product.
Remanufacturing: Uses components of old products in the production of new ones.
Process design involves developing a production process that can create the exact product that has been designed.
Repetitive processes tend to produce products in the later stages of the life cycle and the larger volumes are justified by a well established market.

23. Home Work 1. What is operations management (OM)?
2. What is break-even analysis?
3. What two issues does DFM focus on?
4. What is the advantage of cellular layouts?