OPERATION MANAGEMENT Why is management operation so important? Because it embraces all the main departments in an organization. The operation management department interfaces continually with accounting, engineering, finance, human resources and management information systems. This department allows the company to be more efficient. The enterprise resource planning ERP The operation management is a department but there are different processes through which this kind of department can work within the organization. The most famous system is ERP (Enterprise Resource Planning). ERP is a process used by companies to manage and integrate the important parts of their businesses. Many ERP software applications are important to companies because they help them implement resource planning by integrating all of the processes needed to run their companies with a single system. So, ERP refers to software and systems used to plan and manage all the core supply chain, manufacturing, services, financial and other processes of an organization. Enterprise Resource Planning software can be used to automate and simplify individual activities across a business or organization, such as accounting and procurement, project management, customer relationship management, risk management, compliance and supply chain operations. As the imagine shows this system, which is able to make a continuum interface between the external side of the company. The internal space and the 1 external space. More specifically this kind of planning is able to split the external side of the company into external “in” space at the bottom of the process and the external “out” space. 1. External “in” space is involved in the procurement ability then in defining the orders with the suppliers but it is also involved in the definition of contracts with the legal department to define the details of the supply contracts. When a part of the company works with the procurement the legal department into the definition of transaction cost in the company and decides to go outside the company to make the procurement more efficient 2. External “out” space takes in consideration the most important stakeholder for a company which continues to be important when we look at the functional level of the organization because the customer and the customer group’s needs are the starting point through which a company decides how to procure raw materials, timing of the procurement to assess, to address the customer group’s needs and how the operation system interfaces with the customer support by online systems. 3. Internal space the space between external “in” space and external “out” space. As we can see this space is more with the main subfaces through which items can be assembled to define the final product or the final service of a company. The organization as a value chain At the center of the transformation process there is the technical core. 1. Top management It consists of board of directors, chief executive or managing director. The top management is the ultimate source of authority and it manages goals and policies for an enterprise. It devotes more time on planning and coordinating functions. 2. Middle management is responsible of the definition of the business level of strategies 3. Technical core is the basis the management of inputs to produce products and services (output). Basically, drive value to customers the system of organizational activity where the “product” of the organization is produced. Operation management pertains to the day-by-day management of the technical core. Managing the physical production of goods and services. 4. Administrative support staff support the top and middle management to finalize and achieve all the goals of the firm. 5. Technical support staff which is the support of the technical core So, both administrative and technical support staff are considered as two entities of the organization that can favor the accomplishment of company’s goals and objectives. 2 The value chain The best way to represent and figure out the value chain is by considering what technical core does within the organization and looking at how and what the technical core interfaces with the input and output. Operations management and competitive strategy Achieving superior customer responsiveness. Achieving superior innovation with speed and flexibility. Achieving superior quality. Achieving superior efficiency. Supply chain management Efficient and reliable systems for producing raw materials and distributing finished products. managing the sequence of suppliers and purchasers. Use of the internet technologies. 3 Integrated Supply chain: the case of DELL DELL is an American multinational computer technology company based in Round Rock, Texas, United States, IT develops, sells, repairs, and supports computers and related products and services. It counts 145,000 people worldwide. The Kraljic matrix The Kraljic matrix is one of the most effective ways to deliver accurate supplier segmentation. Its purpose is to help purchasers maximize supply security and reduce costs. Non-critical items (low profit impact, low supply risk) purchasing approaches for these items include using standardized products, monitoring and/or optimizing order 4 volume, and optimizing inventory level. These purchases have little impact on business activity. They are in abundant supply, such as office supplies, for example. Appropriate strategies: streamlining products, automating processes and monitoring volumes. Leverage items (high profit impact, low supply risk) purchasing approaches to consider here include using your full purchasing power, substituting products or suppliers, and placing high-volume orders. These purchases have a significant impact on the company's business, but they are also in abundant supply. With leverage items, there is plenty of room for man oeuvre and significant savings opportunities. Appropriate strategies: fully exploiting your purchasing power by putting suppliers in competition with each other, negotiating or substituting products, for example. Bottleneck items (low profit impact, high supply risk) useful approaches here include overordering when the item is available (lack of reliable availability is one of the most common reasons that supply is unreliable) and looking for ways to control vendors. These purchases have a low business risk but are in limited supply (only a handful of suppliers). Appropriate strategies: guaranteeing volumes, managing supplier relationships, securing stocks and supplies, putting backups in place etc. Strategic items (high profit impact, high supply risk) Business activity depends on these items. These items deserve the most attention from purchasing managers. These are often rare or unique resources, or in other words, high-stake purchases for the company. Options include developing long-term supply relationships, analyzing and managing risks regularly, planning for contingencies, and considering making the item in-house rather than buying it, if appropriate. Appropriate strategies: developing supplier partnerships (particularly through the use of SRM software [1]), market analysis and consideration of vertical integration etc. How to create the matrix The matrix involves four steps: 1. Purchase classification 2. Market analysis 3. Strategic positioning 4. Action planning Step 1: Purchase classification Classifying all the commodities, components, products, and services that you buy according to the supply risk and potential profit impact of each. Supply risk relates to: The likelihood for an unexpected event in the supply chains to disrupt operations (e.g., tire suppliers for an automotive); The supplier suffers from a range of risks depending on its geographic location, business model and supply chain length. Profitability describes the impact of a supply item upon the bottom line. Step 2: Market analysis In this step, you should investigate how much power your suppliers have, and how much buying power you have as their customer. It can be helpful to use the Porter’s five forces. Step 3: Strategic positioning While is this step you have to classify the products or materials you identified as “strategic” in step 1 according to the supplier and buyer power analysis you did in step 2. To do this, simply enter each item in the purchasing portfolio matrix. 5 Step 4: Action planning Finally, develop action plans for each of the products and materials you need on a regular basis according to where those items are placed in the matrix. Designing operations management systems Design for Manufacture and Assembly (DFMA®) often requires restructuring operations, creating teams of designers, manufacturers, and assemblers to work together. They collaborate on four objectives of product design. DFMA encourages greater collaboration on four objectives of product design: Productivity Cost Quality Reliability Facilities layout Process layout similar functions are grouped together Product layout assembly line, tasks are arranged according to progress Cellular layout sequenced tasks are grouped into cells. The goal of cellular manufacturing is to move as quickly as possible, make a wide variety of similar product, while making as little waste as possible Fixed-position layout product remains at one location and resources are brought to it Basic production layouts 6 Technology automation Radio-frequency identification (RFID) electronic taggling to track items Flexible manufacturing systems production lines that can be adapted to produce different products Lean manufacturing using highly trained employees, technology and innovative methods to cut waste and improve quality Inventory management Inventory is expensive to carry. Inventory management refers to the process of ordering, storing and using a company's inventory. This includes the management of raw materials, components and finished products, as well as warehousing and processing such items. For companies with complex supply chains and manufacturing processes, balancing the risks of inventory gluts and shortages is especially difficult. The dollars not tied up in inventory can be used in other areas. High levels of inventory hide business problems. Just-in-Time Inventory The just-in-time (JIT) inventory system is a management strategy that aligns raw-material orders from suppliers directly with production schedules. Companies employ this inventory strategy to increase efficiency and decrease waste by receiving goods only as they need them for the production process, which reduces inventory costs. This method requires producers to forecast demand accurately. So, it is designed to reduce the level of inventory and associated costs. Stockless systems, zero inventory systems, Kanban systems. Suppliers deliver inventory at the exact moment needed. Reduces raw materials inventory to zero. Matching finished-goods inventory to sales demand. Reduced inventory frees capital for other uses. 7 Lean manufacturing Lean manufacturing is an operational strategy oriented toward achieving the shortest possible cycle time by eliminating waste. It is derived from the Toyota Production System and its key thrust is to increase the value-added work by eliminating waste and reducing incidental work. The technique often decreases the time between a customer order and shipment, and it is designed to radically improve profitability, customer satisfaction, throughput time, and employee moral. The characteristics of lean processes are: Single piece production Repetitive order characteristics Just-in-time material/pull scheduling Short cycle times Quick changeover Continuous flow work cells Collocated machines, equipment, tools and people Compressed space Multi-skilled employees Flexible workforce Empowered employees High first-pass yields with major reductions in defects The Toyota method: Kaizen 改善 Kaizen literally means “changing something for the better”. The objective of change usually includes the standardized work, equipment, and other procedures for carrying out daily production. The purpose is to eliminate waste in seven categories: 1. Overproduction 2. Waiting imposed by an inefficient work sequence 3. Handling inessential to a smooth workflow 4. Processing that does not add value 5. Inventory in excess of immediate needs 6. Motion that does not contribute to work 7. Correction necessitated by defects Kaizen requires that a process be first standardized and documented so that ideas for improvement can be evaluated objectively. The Toyota method: Jidoka The three kanji characters comprising the Japanese word jidoka are “ji” or self; “do” or movement, motion; “ka” or -ize; thus, a general meaning of jidoka is autonomation. At Toyota, however, the second character has been modified by adding the element for person (which doesn’t affect its pronunciation). “Do” now takes on the meaning of work (motion plus person). Jidoka at Toyota thus means investing machines with humanlike intelligence. In TPS, jidoka has both mechanical and human applications. Equipment contains fail-safe features like lights or buzzers that indicate defects; and people stop production when they detect any abnormalities. Overall, by adding the “human element” to the generic meaning of jidoka, Toyota emphasizes the difference between working and moving. This distinction is crucial because merely automated operations can produce both good and defective 8 products “efficiently”. In practice, jidoka at Toyota thereby prevents defective items from being passed on to the next station, reduces waste, and most important, enables operations to build quality into the production process itself. The Toyota method: Heijunka This is Toyota’s terminology describing the idea of distributing volume and different specifications evenly over the span of production such as a day, a week, and a month. Under this practice, the plant’s output should correspond to the diverse mix of model variations that the dealers sell every hour. The Toyota method: Andon Andon, a Japanese word for lantern. This board hangs over the aisle between production lines and alerts supervisors to any problem. In assembly, the board normally indicates the line name in green at the top. When a team member pulls a cord on the line, the board lights up a number corresponding to the troubled station in yellow, which then changes to red when the line actually comes to a halt. The board also shows whether the line stop is temporary or not, and whether the line is starved (body short), blocked (body full), or stopped by internal problems. This device quickly informs a supervisor of only what he or she needs to know to take immediate actions and thereby allows a small number of supervisors to control a large area; it also prompts supervisors to develop countermeasures for recurring problems in the longer term. The Toyota method: Kaban Kanban means “signboard” in Japanese. The one used for a part supplied by an outside supplier indicates the name of the supplier, the receiving area at Toyota, the use-point inside the Toyota plant, the part number, the part name, and the quantity for one container. A bas coder is used to issue an invoice based on actual part usage. Measuring productivity What is productivity and how do managers measure it? In simple terms, productivity is the organization’s output of goods and services divided by its outputs. Improving productivity Employee productivity is having workers produce more output at a lower cost over the same time period Managerial productivity means simply that managers do a better job on running the organization. Calculations Managers calculate productivity in the following way: 9 Cost side 𝑇𝑜𝑡𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 Output side Where reducing total cost 𝑇𝑜𝑡𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑅𝑒𝑎𝑙𝑖𝑧𝑒𝑑 𝑜𝑢𝑡𝑝𝑢𝑡 𝑃𝑜𝑡𝑒𝑛𝑡𝑖𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡 = 𝑃𝑜𝑡𝑒𝑛𝑡𝑖𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑅𝑒𝑎𝑙𝑖𝑧𝑒𝑑 𝑜𝑢𝑡𝑝𝑢𝑡 ∗ 𝑃𝑜𝑡𝑒𝑛𝑡𝑖𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡 is a measure of efficiency That is: 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝑜𝑓 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝐿𝑎𝑡𝑒𝑛𝑡 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 ∗ 𝑅𝑒𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑖𝑜 10
