lecture07- operations management

7/30/2019 Lecture07- Operations Management

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lecture 7Operations

Management


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Operations: The different activities involved

in creating an organizations products and

services.

Operations managers: People who manage

operations.


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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.


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Job shop: Production systems used whenitems are ordered individually.

Small batch production: Production systemsused when customers order in small batches butwhen each order is different.

Continuous flow (assembly-line) production:

Production systems that continuously produce astandardized output that flows out of thesystem.


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Flexible production technology: A set ofmethodologies that allows enterprises to produce a

wider range of end products from a given productionsystem without incurring a cost penalty.

Mass customization: The ability to customize the

final output of a product to individual customerrequirements without suffering a cost penalty.


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Mass customization is possible only

when an organization is small. As it

grows in size, the organization must

move to mass production. Do you

agree? Explain.


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1. Physically place adjacent processes near one another, whichcan 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 absentindividual.

3. Eliminate loop backs (work returns to a previous stage forfurther processing).

4. Balance work loads across different stages to make sure there

are no bottlenecks for excessive work and no stage hasinsufficient work.

5. Separate nonroutine complex work and pass them tospecialists, so that the flow of routine work is not sloweddown by the need to deal with a complex transaction.


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1. A clear business model

2. The philosophy that mistakes, defects, and poormaterials MUST be eliminated

3. Improved quality of supervision4. An environment that fosters reporting problems and

recommending improvements

5. Work standards in terms of quantity AND quality

6. Employee training in new skills to keep pace withchange

7. Sustained commitment from everyone in the company


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Inventory holding costs: The capital cost ofmoney tied up in inventory and the cost of the

warehouse space required to store inventory. Inventory turnover: The speed with which

inventory is replaced.

Just in time (JIT): Inventory that enters aproduction process just in time to be used, after an

order has been placed.


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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 retailersdrop 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


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The optimal inventory level that minimizes inventory

holding and ordering costs

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


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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.


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Supply chain: The chain that provides raw

materials, partly finished products, or finished

products to an organization.

lecture07- operations management

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