10-09-2022 Introduction to Operations Management 10 Department of Mechanical Engineering, BITS Pilani Introduction to operations management ✓ Operations are purposeful actions (or activities) methodically done as part of a plan of work by a process that is designed to achieve practical ends and concrete objectives. ✓ OM designs, operates, and improves productive systems for getting work done • • Activities in operations management include organizing work, selecting processes, arranging layouts, locating facilities, designing jobs, measuring performance, controlling quality, scheduling work, managing inventory, and planning production. Operations managers deal with people, technology, and deadlines. These managers need good technical, conceptual, and behavioural knowledge. Operation as a transformation process 11 Department of Mechanical Engineering, BITS Pilani 1 10-09-2022 What is Operation Management? Automobiles Shopping malls Entertainm ent Hospitals Transport Operation management Office Restaurants Factory Universities Store 12 Department of Mechanical Engineering, BITS Pilani Why to Study Manufacturing management or OM? To know, how goods and services are produced? To understand what operations managers do. Regardless of your job in an organization, you can perform better if you understand what operations managers do. A large percentage of the revenue of most firms is spent in the OM function Manufacturing Planning and control Transformation of raw material to finished product Or production Best product Best output Future goals Operation sequence Anticipation Prediction Maximum profit Preventive step to avoid variance from targets, To ensure compliance with planned level Minimum loses 13 Minimum wastages Department of Mechanical Engineering, BITS Pilani 2 10-09-2022 Introduction https://www.youtube.com/watch?v=hfQGHh5NIXI&t=81s&ab_channel=ScaleERP 14 Department of Mechanical Engineering, BITS Pilani Operations as a technical core Finance pays workers and suppliers, performs cost analyses, approves capital investments, and communicates requirements of shareholders and financial markets Outside the organization operations interacts with suppliers to order materials or services, communicate production and delivery requirements, certify quality, negotiate contracts, and finalize design specifications. Marketing provides operations with sales forecasts, customer orders, customer feedback, and information on promotions and product development Human resources recruit, train, evaluate, and compensate workers and to assist with legal issues, job design, and union activities 15 Department of Mechanical Engineering, BITS Pilani 3 10-09-2022 16 Department of Mechanical Engineering, BITS Pilani Operations: Manufacturing Vs Service Operations 5 Manufacturing Operations Service Operations ▪ Manufacturing operations transform materials into desired goods and products. ▪ Operations can be described using different verbs and object phrases such as ✓ Turning metal (on a lathe), ✓ Cutting paper, ✓ Drilling wood, ✓ Sand blasting glass, ✓ Forming plastics, ✓ Shaping clay, ✓ Heat-treating materials, ✓ Soldering contacts, ✓ Weaving fabric, ✓ Blending fuels, ✓ Filling cans, ✓ Extruding wires etc. ▪ Service operations in the office environment are quite familiar, that is, filing documents, typing input for the word processor, and answering the phone. • There are similar lists of verbs and objects that apply to jobs done in ✓ Banks, ✓ Hospitals, and schools: ✓ Granting loans, ✓ Taking X-rays, and ✓ Teaching classes are a few examples. ▪ Movies are one of the biggest export products of the United States. ▪ Operations management applies directly to entertainment, film-making, and sports. 17 Department of Mechanical Engineering, BITS Pilani 4 10-09-2022 Difference between Services and Manufacturing Manufacturing Services ▪ Organizations that primarily produce a ▪ Organizations that primarily produce an tangible product by physical transformation intangible product, such as ideas, assistance, or information, and typically have high ▪ In manufacturing organizations most customer contact. customers have no direct contact with the operation. Customer contact occurs through ▪ In service organizations the customers are distributors and retailers. For example, a typically present during the creation of the customer buying a car at a car dealership service. Hospitals, colleges, theatres, and never comes into contact with the automobile barber shops are examples of service factory organizations in which the customer is present during the creation of the service. 6 18 Department of Mechanical Engineering, BITS Pilani Introduction: Sample organization structure Operations managers are in demand in business, industry, and government. Chief operating officers (COOs) run major corporations as shown in Figure. Vice-presidents of Operations and Supply Chain Management oversee scores of departments, facilities, and employees. Typical jobs for new college graduates include business process analyst, inventory analyst, project coordinator, unit supervisor, supply chain analyst, materials manager, quality assurance specialist, production scheduler, and logistics planner Ideas, techniques, concepts you learn in this course can be used to organize, ensure quality and manage process. You can apply some aspect of OM and Supply chain management to your future career. 19 Department of Mechanical Engineering, BITS Pilani 5 10-09-2022 Historical events in operations management Production feats ▪ ▪ ▪ ▪ ▪ ▪ ▪ Industrial Revolution (1700) Scientific Management (1900) Human Relations (1930) Management Science (1947- 70s) Quality Revolution (1970-90s) Globalization (1990s-2000s) Information Age/Internet Revolution (Today) 2000 years old 2200 years old Roman aqueducts 20 Department of Mechanical Engineering, BITS Pilani Historical events in operations management Industrial Revolution 1784 Mechanical loom 1870 assembly line 1969 PLC Industry 1.0 Industry 2.0 Industry 3.0 Industry 4.0 Mechanical production Mass production Automated production Cyber physical system Water/steam power Electric power Automation/ Electronics/ computers AI/Big data/robotics Now 21 Department of Mechanical Engineering, BITS Pilani 6 10-09-2022 Historical events in operations management Scientific Management Principles of scientific management Frederick W. Taylor Time and motion studies (1911) Frank & Lillian Gilbreth Activity scheduling chart (1912) Moving assembly line (1913) Henry Gant Henry Ford Human Relations Hawthorne studies Motivation theories 1930 1940s 1950s 1960s Elton Mayo Abraham Maslow Frederick Hertzberg Douglas McGregor 22 Department of Mechanical Engineering, BITS Pilani Historical events in operations management Management Science Linear programming Digital computer Simulation, PERT/CPM, Waiting line theory MRP 1947 1951 1950s 1960s George Dantzig Remington Rand Operations research groups Joseph Orlicky, IBM Quality Revolution JIT TQM 1970s 1980s Strategy and operations Reengineering Six Sigma 1990s 1990s Taiichi Ohno, Toyota W. Edwards Deming, Joseph Juran, et. al. Skinner, Hayes Hammer, Champy GE, Motorola 23 Department of Mechanical Engineering, BITS Pilani 7 10-09-2022 Historical events in operations management 24 Department of Mechanical Engineering, BITS Pilani Historical events in operations management Era Sustainability/ Green Revolution Concepts Global warming Carbon footprint Green products Corporate social Responsibility UN Global compact Dates Today 25 Originator scientists, statesmen and governments, World economic forum United Nations Department of Mechanical Engineering, BITS Pilani 8 10-09-2022 Globalization • Two thirds of today’s businesses operate globally through global markets, global operations, global financing, and global supply chains. • Globalization can take the form of selling in foreign markets, producing in foreign lands, purchasing from foreign suppliers, or partnering with foreign firms. • Companies “go global” to take advantage of favorable costs, to gain access to international markets, to be more responsive to changes in demand, to build reliable sources of supply. 26 Department of Mechanical Engineering, BITS Pilani 27 Department of Mechanical Engineering, BITS Pilani Globalization https://technologystudent.com/prddes_2/global1.html 9 10-09-2022 Globalization Example 28 Department of Mechanical Engineering, BITS Pilani Globalization • • Cheaper products Increased availability and variety of products. Cultural diversity, as people move around the world following employment. Flow of technical skills from one region of the world to another, filling skill gaps. Increased trade and corresponding economic success. The flow of ideas and education. Products more widely available, to poorer regions of the world. The flow of ideas and education. • • • • • • 29 Department of Mechanical Engineering, BITS Pilani 10 10-09-2022 Globalization * A U.S. worker receives roughly the equivalent sum of money for working one hour as a Sri Lankan worker earns in a 40hour week ($24.40) Daily wages in India as per central Govt. norms varies from 500 -650 INR per day India Hourly compensation = 1.17 USD * China's wage rate is $32.40 a week World has moved its manufacturing to Asia, in particular to the large and populous country of China. THE CHINA FACTOR China accounts for 20% of the world’s population and is the world’s largest manufacturer Employing more production workers than US, UK, DE, JP, IT, CN, and FR combined Hourly Compensation Costs for Production Workers (in U.S. Dollars) As much as China is known as the world’s manufacturer, India is renowned for its export of services In 2009, India exported $47 billion in IT services, a number that is expected to reach $200 billion by 2020. Indian companies, such as WIPRO, Infosys, and Tata Consultancy Services, are world leaders in software development and business processes 30 Department of Mechanical Engineering, BITS Pilani Globalization The scale of manufacturing in China is mind-boggling. For example, Foxconn (the trade name of Taiwan’s Hon Hai Precision Industry Company) has two enormous industrial complexes in mainland China. The Guangdong Province site employs and houses approximately 270,000 workers, with its own dormitories, restaurants, hospital, police force, chicken farm, and soccer stadium. There are 40 separate production facilities “on campus,” each dedicated to one of its major customers such as Apple, Dell, Motorola, Sony, Nintendo, and HP. Foxconn is the world’s largest electronics manufacturer and China’s largest exporter. It also represents a shorter supply chain because it makes components as well as assembles final products. Currently, Foxconn is making a bid to enter the retail market in China and is expanding production into Mexico to better serve the U.S. market. 31 Department of Mechanical Engineering, BITS Pilani 11 10-09-2022 PRODUCTIVITY AND COMPETITIVENESS Competitiveness: The degree to which a nation can produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the real incomes of its citizens. Productivity = ✓ ✓ ✓ ✓ ✓ Output Input Become more efficient Downsize Expand Retrench Achieve breakthroughs BITS Pilani, Pilani Campus PRODUCTIVITY AND COMPETITIVENESS Osborne Industries is compiling the monthly productivity report for its Board of Directors. From the following data, calculate (a) labor productivity, (b) machine productivity, and (c) the multifactor productivity of dollars spent on labor, machine, materials, and energy. The average labor rate is $15 an hour, and the average machine usage rate is $10 an hour. BITS Pilani, Pilani Campus 12 10-09-2022 Strategy and operations • Strategy is How the mission of a company is accomplished (Unites organization, consistency in decisions, keeps the organization move in right direction) • The strategic planning process involves a hierarchy of decisions • Senior management, with input and participation from different levels of the organization, develops a corporate strategic plan in concurrence with the firm’s mission and vision, customer requirements (voice of the customer), and business conditions (voice of the business). • The strategic plan focuses on the gap between the firm’s vision and its current position • It identifies and prioritizes what needs to be done to close the gap, and it provides direction for formulating strategies in the functional areas 34 Department of Mechanical Engineering, BITS Pilani Strategy and Operations Strategy formulation consists of five basic steps ◼ Defining a primary task ⚫ ◼ Assessing core competencies ⚫ ◼ ⚫ What qualifies an item to be considered for purchase? What wins the order? Positioning the firm ⚫ ◼ What does the firm do better than anyone else? Determining order winners and order qualifiers ⚫ ◼ What is the firm in the business of doing? How will the firm compete? Deploying the strategy 35 Department of Mechanical Engineering, BITS Pilani 13 10-09-2022 Strategy and Operations PRIMARY TASK • • • The primary task represents the purpose of a firm—what the firm is in the business of doing. It also determines the competitive arena. As such, the primary task should not be defined too narrowly. (For example, Norfolk Southern Railways is in the business of transportation, not railroads. Paramount is in the business of communication, not making movies. Amazon’s business is providing the fastest, easiest, and most enjoyable shopping experience, while Disney’s is making people happy! The primary task is usually expressed in a firm’s mission statement) CORE COMPETENCIES • • • Core competency is what a firm does better than anyone else, its distinctive competence. A firm’s core competence can be exceptional service, higher quality, faster delivery, or lower cost. One company may strive to be first to the market with innovative designs, whereas another may look for success arriving later but with better quality. Breakthrough product Core competencies are not static 36 Department of Mechanical Engineering, BITS Pilani Strategy and Operations ORDER WINNERS AND ORDER QUALIFIERS • • • A firm is in trouble if the things it does best are not important to the customer. That’s why it’s essential to look toward customers to determine what influences their purchase decision. Order qualifiers are the characteristics of a product or service that qualify it to be considered for purchase by a customer. An order winner is the characteristic of a product or service that wins orders in the marketplace—the final factor in the purchasing decision. For example, when purchasing a DVD or Blu-ray player, customers may determine a price range (order qualifier) and then choose the product with the most features (order winner) within that price range. & Vice versa Order Winners and Order Qualifiers 37 Department of Mechanical Engineering, BITS Pilani 14 10-09-2022 Strategy and Operations POSITIONING THE FIRM Strategic positioning involves making choices—choosing one or two important things on which to concentrate and doing them extremely well. A firm’s positioning strategy defines how it will compete in the marketplace— what unique value it will deliver to the customer. • Competing on Cost ✓ Companies that compete on cost relentlessly pursue the elimination of all waste. ✓ They improve yield by stabilizing the production process, tightening productivity standards, and investing in automation. • Competing on Speed ✓ More than ever before, speed has become a source of competitive advantage. ✓ The Internet has conditioned customers to expect immediate response and rapid product shipment. ✓ Service organizations such as McDonald’s, LensCrafters, and Federal Express have always competed on speed. ✓ Now manufacturers are discovering the advantages of time-based competition, with build-to-order production and efficient supply chains. 38 POSITIONING THE FIRM Contd.. Department of Mechanical Engineering, BITS Pilani Strategy and Operations • Competing the quality ✓ To compete on quality, companies must view it as an opportunity to please the customer ✓ One good source is the American Customer Satisfaction Index compiled each year by the American Society for Quality and the National Quality Research Center • Competing on Flexibility ✓ Marketing always wants more variety to offer its customers. ✓ Manufacturing resists this trend because variety upsets the stability (and efficiency) of a production system and increases costs. ✓ The ability of manufacturing to respond to variation has opened up a new level of competition. ✓ Flexibility has become a competitive weapon. • Competing on Innovation ✓ Apple, Google, and 3M : Apple thinks differently to create incredibly beautiful game-changing designs. ✓ Google’s open culture has produced such innovations as google street view, google fiber, Google driverless vehicle etc. ✓ 3M a global innovation company, never stops inventing. Eg. Micro-needle Department of Mechanical Engineering, BITS Pilani 39 patches 15 10-09-2022 Strategy and Operations STRATEGY DEPLOYMENT • • • • Implementing strategy can be more difficult than formulating strategy. Strategy deployment converts firm’s positioning strategy, resultant order winners and qualifiers into specific performance requirement. Policy deployment tries to focus everyone in an organization, on common goals and priorities by translating corporate strategy in a measurable objective. As a result everyone in the organization should understand the strategic plan 40 Department of Mechanical Engineering, BITS Pilani Strategy and Operations STRATEGY DEPLOYMENT Example: Consider Schlitz Brewing Company, whose strategy called for reduced costs and increased efficiency. Operations achieved its goals by dramatically shortening its brewing cycle—and, in the process, lost 6 of every 10 customers when the clarity and taste of the beer suffered. The efficiency move that was to make the company the most profitable in its industry instead caused its stock value to plummet from $69 per share to $5 per share. Schiltz has since been sold to Pabst Brewing Company who combed through company documents and interviewed retired Schlitz brewmasters and tasteStrategy deployment converts a firm’s positioning strategy and testers to derive and reintroduce the original 1960’s resultant order winners and order qualifiers into specific “with gusto” formula. performance requirements. 10 41 Department of Mechanical Engineering, BITS Pilani 16 10-09-2022 Balanced Scorecard It examines a firm’s performance in four critical areas: 1. Finances—How should we look to our shareholders? 2. Customers—How should we look to our customers? 3. Processes—At which business processes must we excel? 4. Learning and Growing—How will we sustain our ability to change and improve? • It’s called a balanced scorecard because more than financial measures are used to assess performance. • Operational excellence is important in all four areas. • How efficiently a firm’s assets are managed, products produced, and services provided affects the financial health of the firm. • Identifying and understanding targeted customers helps determine the processes and capabilities the organization must concentrate on to deliver value to the customer. 42 Department of Mechanical Engineering, BITS Pilani The Balanced Scorecard Worksheet The worksheet selects areas of the strategy map to incorporate in annual objectives for the company. KPI: A set of measures that help managers evaluate performance in critical areas. The goals for the year are given, and the KPI results are recorded. The score converts the different performance measures into percentage completed. For example, if the goal is to achieve 12 inventory turns a year and the company manages only 6, then the goal is 50% achieved. The mean performance column averages the score for each dimension. 43 Department of Mechanical Engineering, BITS Pilani 17 10-09-2022 Balanced Scorecard A Radar Chart of the Balanced Scorecard Visualization of a scorecard performance: Goals 0% to 40% achieved appear in the red “danger” zone, 40% to 80% achieved are in the yellow “cautionary” zone, and 80% to 100% achieved are in the green “moving ahead” zone. In this example, the company is in the danger zone for human capital and distribution, but is doing well with growth, quality, timeliness, and service. 44 Department of Mechanical Engineering, BITS Pilani Balanced Scorecard Dashboard scorecard • • • • • • Red zone is set at 25% or less goal achievement Yellow from 25% to 75% Green in excess of 75% The company excels in growth, quality, and timeliness, and is not in danger on any measure. Note that different limits can be set for each gauge, and measures other than percentages can be used. Dashboards are popular ways for managers to quickly interpret the massive amounts of data collected each day and in some cases can be updated in real time. A Dashboard for the Balanced Scorecard 45 Department of Mechanical Engineering, BITS Pilani 18 10-09-2022 An Integrated Operations Strategy ✓ The operations function helps strategy evolve by creating new and better ways of delivering a firm’s competitive priorities to the customer. ✓ Once a firm’s competitive priorities have been established, its operating system must be configured and managed to provide for those priorities. ✓ This involves a whole series of interrelated decisions on products and services, processes and technology, capacity and facilities, human resources, quality, sourcing, and operating systems. ✓ As shown in Figure, all these decisions should “fit” like pieces in a puzzle. ✓ A tight strategic fit means competitors must replicate the entire system to obtain its advantages. 46 Department of Mechanical Engineering, BITS Pilani THANK YOU 19