OPRATIONS MANAGEMENT

Presented by Kyaw NuTrainer of Operation

Management

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Operations ManagementAll organizations make products. 1. Tangible goods

- computers, bricks and bottles of wine 2. Intangible services

- insurance, education, and transport3. A combination of both goods and services McDonalds, the products is a package that includes goods- the food you

eat and fast services.General Motors is a manufacturer of cars, but include warranties and

after-sales service; British Telecom gives a service, its products include and telephones and

related equipment.

Operations are all the activities that are directly concerned with making the products.

 All the operations that make a specific product form its process

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Operations ManagersOperations Managers are responsible for all aspects of the operationscollecting inputs, and converting them into delivered products that satisfy

customer demand. ‘ Production managers’ , ‘account managers’, ‘head teachers’, ‘superintendents’ or ‘works managers’Functions of OM• Planning • Oraganising

• Staffing Directing• Motivating • Allocating • Monitoring • Controlling• Informing

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STRATEGIC DECISIONS

Three strategic questions:

• Where are we now?• Where do we want to be?• How do we get there?

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Corporate and business strategyThese strategies typically include decisions about:

• The industries to work in;• The level of diversification and integration;• What type of products to make;• Organizational structure, describing the separate businesses and

relations between them;• What businesses to start, acquire, close or sell;• Relations with customers, suppliers, shareholders and other

organizations;• Geographical locations for operations and markets;• Competitive position, showing how the businesses stand in

relation to their competitors;• Targets for long-term profitability, productivity and other

measures of performance;• Innovation, describing how the organization changes over time.

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A distinctive competence (strengths)comes from the organization’s assets:

* Customers – their demands, loyalty, relationships;• Employees – skills, expertise, loyalty;• Finances – capital, debt, cash flow;• Products – quality, reputation, innovations;• Facilities – capacity, age, value;• Technology – currently used, planned, special types;• Suppliers – reliability, service, flexibility;• Marketing – experience, reputation; and• Resources – patents, ownership.

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Competitive strategy• Cost leaders make the same – or comparable – products

more cheaply. They lower unit costs by having efficient operations, by improving the process, simplifying designs, reducing waste, re-engineering core functions, using higher technology, making standard products, getting economics of scale, increasing vertical integration, relocating nearer to customers, focusing on target products, or reducing the length of the supply chain;

• Product differentiation makes products that customers cannot find anywhere else. There are many ways of differentiating products, based on cost, quality, performance, technology used, reliability, availability, amount of customization, delivery speed, innovation, reputation, associated services, and location.

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OPERATIONS STRATEGY

• What type of products do we make?• How wide a range of products do we offer?• What types of process do we use?• What technology do we use?• How do we maintain high quality?• What geographical areas do we work in?• How can we plan capacity and get economies

of scale?

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Different levels of OM decisions• Decision area Typical operations management decisions

Strategic decisions• Business What business are we in?• Product What products do we make?• Process How do we make the products?• Location Where do we make products?• Capacity How big are the facilities?• Quality management How good are the products? 

Tactical decisions• Layout How are the operations arranged?• Organization What is the best structure?• Product planning When should we introduce a new product?• Quality assuranceHow is planned quality achieved?• Logistics How should distribution be organized?• Maintenance How often should equipment be maintained and replaced?• Staffing How many people do we employ and what skills do they need?• Technology What level is most appropriate for planned production?• Make/buy Is it better to make or buy components? 9

Operational decisions

• Scheduling In what order should products be made?

• Staffing Who will do the scheduled operations?

• Inventory How do we organize the stocks?

• Reliability How can we improve equipment reliability?

• Maintenance When do we schedule maintenance periods?

• Quality Control Are products reaching designed quality?

• Job design What is the best way to do operations?

• Work measurement How long will operations take?

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PRODUCTS AND PROCESSESAccording to Michael Hammer, ‘The mission of a

business is to create value for its customers.’

• Product planning is concerned with all decisions about the introduction of new products, changes to existing products and withdrawal of old products:

• Its aim is to make sure that an organization has a steady supply of products that customers want.

• A company that sees itself as running a bottling plant has a process focus; one that makes bottled lemonade has a product focus.

• Expensive restaurants have a process focus – they cook foods; hamburger restaurants have a product focus – they sell hamburgers.

• A telephone company has a product focus – it arranges telephone calls; a communications company has a process focus – it enables the most appropriate communications.

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PRODUCT LIFE CYCLEThe main difficulty with product planning is that customer demands change over time. The demand for any product changes continually.

Five stages in a standard product life cycle:1.Introduction – a new product appears on the market2.Growth – new customers buy the product and

demand rises

3. Maturity –. Demand stabilizes at a constant level.

1.Decline – sales fall as customers buy newproducts.

5. Withdrawal – demand declines to almost no sales12

STEPS IN DEVELOPING NEW PRODUCTS

Has six stages:

1.Generation of ideas;2.Initial screening of ideas;3.Technical evaluation – initial design,

development and testing;4.Commercial evaluation – market and

economic analysis;5.Final product development;6.Launch of product.

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Forecasting Demand • Judgemental forecasting

• Judgemental forecasting are based on subjective views, often the opinions of experts in the field.

 Four widely used methods :

1. Personal insight; 2. Panel consensus; 3. Market surveys; 4. Historical analogy.

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Designing Job for Motivation

Job DesignMost scheduling starts with the simple assumption that each jobtakes a fixed time.The aim of job design is to find the best possible way of doingtheir work.

Two groups of people“managers” and “workers”

Three main elements • Physical environment• Social environment• Work methods

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Physical environment

• Light• Temperature• Noise and vibrations• Air pollution• Safety 

Social environment

- Psychological well-being of the people doing it.• Adequate training for the job;• Adequate supervision and help;• Knowledge of the organization’s policies, rules and regulations;• A clear statement of what is expected from each person;• Credit and rewards for good work

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•Why is this task done?•What is its purpose?•How is it done?•Why is it done this way?•Could the step be missed out?•Could it be done at another time?•Could it be done automatically?•How could the layout of the workplace be improved?•Would different tools help?

• If materials are needed for production delivered directly to the production process just as they are needed. How can we provide stocks at lowest cost? How can we eliminate stocks?

• The answer to this has laid the foundations of JIT. This Just in Time approach leads to a number of changes in viewpoint.

Stock Quality Suppliers

It sees customers and suppliers as partners with acommon objective – a mutually beneficial arrangement

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VERY DIFFERENT.

Number of Suppliers :

Toyota 250 General Motors 4000

• Reliability• Employees• Responsibilities• Simple operations

• Quality management can make sure that an organization’s products are always good enough to satisfy customer demand.

• A product is considered to be of high quality if it does the job for which it was designed. This gives one view of quality, based on a product’s ability to meet customer expectations.

• In its broadest sense, quality is the ability of a product to meet and, preferable, exceed customer expectations.

• Quality management is concerned with all aspects of a product’s quality.

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Quality Management

The Quality of Product

• Innate excellence• Fitness for intended use • Performance• Reliability • Durability• Specific features, perhaps for safety or

convenience• Technology used• Conformance to design specifications

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• Uniformity, with small variability• Perception of high quality by customers• Convenience of use• Attractive appearance and style• Ratio of performance to cost• Customer service before and during sales• On-time deliveries• After-sales service

Other factors cannot be measured, but rely on judgement; these

Include appearance, comfort and courtesy of staff. Thesesubjective factors are much more difficult to assess and

monitor. 22

Quality of Service• Reliability• Availability• Credibility• Security• Competence of staff• Understanding of customer needs• Responsiveness to customers• Courtesy of staff• Comfort of surroundings• Communication between participants; and

associated goods provided with the service 23

• Quality control -- inspections and tests to check that planned quality is actually achieved.

• How often ? Where ? the best sample size? What defines acceptable performance? How many must achieve this standard? Why use a sample and not test every unit?

+ Expense+ Time needed+ Destructive tests

+ Reliability + Feasibility

Random inspections do not guarantee high quality, adopted a more rigorous approach

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Faults are typically caused by:

• Human errors in the operations• Faults in equipment• Defects in raw materials• Faults in operations, such as speed or

temperature changes• Changes in the environment, such as humidity,

dust or temperature• Errors in monitoring equipment, such as faults in

measuring tools

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Costs of Quality

• Improved processes can guarantee products with consistently high quality

• Organizations use high quality to gain a competitive advantage

• Consumers have become accustomed to high-quality products and are now unwilling to accept anything less

• Organizations can reduce costs by improving

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Benefits of Quality+ Enhanced reputation+ Competitive advantage+ Reduction in the amount of marketing needed+ Improvement in sales and market share+ A rise in productivity+ Improvement in long-term profitability+ Reduction in liability for defective products+ Reduction in waste+ Reduction in costs+ Some benefits from higher quality+ Implementing total quality management+ Changing views of quality management

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Criteria Traditional attitude Attitude with TQMImportance Quality is a technical issue Quality is a strategic

issueCost High quality costs money High quality saves

moneyResponsibility Quality control department Everyone in the

organizationTarget Meet specifications Continuous

improvementMeasured by Average quality level Zero defectsEmphasis Detecting defects Preventing defectsAttitude Inspect quality in Build quality inDefined by Organization Customers

Changing Views of Quality Management

Seven Steps in Implementing TQM

1. Get top-management commitment. 2. Find out what customers want 3. Design products with quality in mind. 4. Design the process with quality in mind. 5. Build teams of empowered employees. 6. Keep track of results 7. Extend these ideas to suppliers and distributors.

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Reasons for Failures• lack of management commitment;• lack of planning;• managers not really changing their

habits;• the workforce not really becoming

involved;• the implementation becoming bogged

down or too bureaucratic;• changes being unpopular; and• managers being satisfied with small

improvements.30

Major improvements in quality come from managers improving the system rather than workers improving their own performance.

This is similar to productivity, in which the best improvements do not come from making people work harder, but from improving the design of the process.

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Benefits of higher productivity

• Long-term survival• Reduction in costs• Cutting down on waste of resources• Increasing in profits, wages, real income, and

so on• Targets for improved operations• Monitoring of improving performance• Comparisons between operations• Measurement of management competence. 32

Four ways to improve productivity

• Improve effectiveness – with better decisions• Improve efficiency – by designing a better

process to give more output with the same inputs

• Improve performance in some other way – such as reducing waste through higher quality, fewer accidents, less disruption

• Improve morale – to give more co-operation and incentives

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Productivity = Output / Input = 4 units / 1hour or 1unit / 15minutes

# machine productivity # labour productivity # capital productivity # energy productivity

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Measure of productivity must:

– relate to the organization’s objectives

– focus on significant factors

– be measurable

– be reasonably objective

– be agreed by everyone concerned

– use consistent units35

Comparing the Performance • comparing the current performance of the organization

with its performance in the past• making comparisons with other organizations• comparing the performance of different parts of the

organization• making decisions about investments and proposed changes

to the process• measuring the effects of changes• helping with other internal functions, such as wage

negotiations• highlighting areas where performance should be improved.

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Four Sources for Standards1. Absolute standards - the best

performance that could ever be achieved. This is a target at which to aim, such as the goal of TQM, which is to have zero defects.

2. Target performance – a more realistic standard that is agreed by managers, who want to set a tough, but attainable level of performance. The absolute standard for the number of customer complaints received each week is zero, but a more realistic, agreed target might be one;

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3. Historical standards – performance achieved in the past is maintained with no improvement. This can be viewed as the worst performance that might be accepted.

4. Competitors’ standard - performance achieved by competitors. This is the

lowest level of performance that an organization

must achieve to remain competitive.

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Benchmarking Benchmarking Examples

– Cost per unit– Processing time per unit– Market share– Return on investment– Customer Retention– Revenue per unit– Customer satisfaction– Other measures of performance

Organizations use benchmarking to find ideas and ways ofdoing operations that they can copy or adapt.

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Assembly line advantages

• employ unskilled or low-skilled people• train those people quickly to do the simple jobs• pay low wages• achieve high output• control the flow of work

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Serious Problems• “Motivation” is difficult to define, but generally a

person is said to be “motivated” when working smart in order to achieve a stated goal.

• Do not treat people as part of the machinery, but as the most important part of the organization.

• Treat people fairly and reward them properly for their good work.

• Have people working on identifiable and significant parts of the process.

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• give broad training for multi-skilled jobs;

• widen work responsibilities to include quality, and so on;

* give meaningful feedback on everyone’s performance;

• form employee council and other ways of participating in management

• form work teams with authority to make decisions about operations;

• automate dull and dangerous jobs; and • remove artificial barriers between trades, levels

and so on.

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