Managing Operations - Ananda Sabil Hussein,Ph.D

Managing Operations
Dr. Ananda Sabil Hussein
Operations
 Operations: The different activities
involved in creating an organization’s
products and services.
 Operations managers: People who
manage operations.
Productivity and Efficiency
 Productivity: The output produced by a given input.
 Productivity = Output/Input
 Productivity of labor: Unit output divided by some
measure of labor input.
 Productivity of capital: Sales divided by the total
capital (money) invested in a business.
Production System
 Production system: How the flow of work is configured.
 Job shop: Production systems used when items are ordered
individually.
 Small batch: Production systems used when customers order in small
batches but when each order is different.
 Assembly-line production: Systems used to mass-produce large
volumes of a standardized product.
 Continuous flow production: Production systems that continuously
produce a standardized output that flows out of the system.
Production Systems –
Costs and Flexibility
Nature of technology/product
Flexible/
standardize
d
Inflexible/
standardize
d
New
production
technologies
Job
shop
Small
batch
Assembly
line
Continuous
flow
Low
cost
High cost
New Production Technologies
 Flexible production technology: A set of
methodologies that allows enterprises to
produce a wider range of end products from a
given production system without incurring a
cost penalty.
 Mass customization: The ability to customize
the final output of a product to individual
customer requirements without suffering a cost
penalty.
Question
Mass customization is
possible when an
organization is small.
As it grows in size, the
organization must
move to mass
production. Do you
agree? Explain.
Mass Customization
 Unto This Last – Selling directly to customers, this
European company manufactures the furniture to the
customer’s measurement, in one week, at a mass
customized price. The company utilizes the latest 3D
modeling software to design and produce innovative and
inexpensive furniture
 Design Your Own – Steve Madden, an American
Shoe designer, has opened a customized shoe website,
where customers can select the type of shoe, color, heel,
etc to their preference and in total offers some 4,221
possible combinations
Source: www.madeforone.com
Principles of Reengineering
1. Physically place adjacent processes near one another, which
can accelerate work flow.
2. Standardize procedures at each step in the work flow, which
makes it easier for replacement workers to fill in for an
absent individual.
3. Eliminate loop backs in which work returns to a previous
stage for further processing.
4. Balance work loads across different stages to make sure there
are no bottlenecks and no stage has insufficient work.
5. Separate nonroutine complex and pass them to specialists so
the flow of routine work is not slowed down by the need to
deal with a complex transaction.
Increasing Asset Utilization
Realtime
pricing
Optimize
capacity
Efficient
scheduling
Asset
utilization
Quick
turnaround
Asset Utilization in European
Airlines
 Since the terrorism scare of August 10, 2006, British low cost
carrier EasyJet has cancelled 500 flights and Ireland’s Ryanair
ahs cancelled more than one-third of its daily departures.
 These cancellations are not due to lack of business but due to
new airport security rules at the British airports.
 An airline can loose as much as $190,000 a day in lost revenue
if an aircraft were to sit on the ground
 The low cost airline business model calls for the planes to be in
the air within 25-30 minutes of its landing
 Result – Significant underutilization of the assets.
Source: Business Week Online, August 16, 2006
Superior Product Reliability
and Costs
Increased
productivity
Improved
product reliability
Lower rework
and scrap costs
Lower
warranty costs
Lower costs and
higher profitability
Improved
reputation
Greater
sales volume
Scale
economies
Deming’s Quality
Improvement Steps
1. A company should have a clear business model to specify
where it is going and how it is going to get there.
2. Management should embrace the philosophy that
mistakes, defects, and poor materials are not accepted
and should be eliminated.
3. Quality of supervision should be improved by allowing
more time for supervisors to work with employees and
giving them appropriate skills for the job.
4. Management should create an environment in which
employees will not fear reporting problems and
recommending improvements.
Deming’s Quality
Improvement Steps
5. Work standards should be defined not only as
numbers or quotas but should also include
some notion of quality to promote the
production of defect-free output.
6. Management is responsible for training
employees in new skills to keep pace with
change in the workplace.
7. Achieving better quality requires the
commitment of everyone in the company.
Managing Inventory
 Inventory holding costs: The capital cost of
money tied up in inventory and the cost of the
warehouse space required to store inventory.
 Just in time: Inventory that enters a
production process just in time to be used.
 Inventory turnover: The speed with which
inventory is replaced.
Just-In-Time
 Cost of restocking excess inventory: 20-25% of the value of the
goods
 Retail industry looses $2.5 billion annually in obsolete inventory
 Henceforth, the need for just-in-time system
 Other options used by retailers – drop shipment, centralized
distribution centers, utilizing effective supply chain
communication electronically (like Wal-Mart), and utilizing
bricks and click model
 Example: While Barnes & Noble carries 100,000 titles in its store,
its online offerings are over 2 million which requires a
centralized distribution center
Source: Forbes, Leaner Shelves, Leaner Profits? November 15, 2006
Economic Order Quantity
 EOQ =
(2 X D X FC)/(VC X K)
 D = Annual demand
 FC = Fixed costs of producing/procuring
inventory
 VC = Variable costs of inventory
 K = Inventory holding costs
Build to Order and Inventory
 Build-to-stock: Stocking a distribution
channel in the anticipation that a customer
will purchase those products.
 Build-to-order: Taking an order first, then
building the product.
Supply Chain Management
and Information Systems
 Supply chain: The chain that provides
raw materials, partly finished products, or
finished products to an organization.
 Electronic data interchange (EDI):
Coordinates the flow of materials into
manufacturing, and out to customers.

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