The Objective of Operations Management
How a business firm functions?
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Marketing & operations
• Demand data
• Competitor analysis
• Product and service design
• Lead time data
Finance & operations
• Budgeting
• Economic analysis of investment
proposals
• Provision of funds
The Premise
DEMAND
SUPPLY
Benefits of Process Analysis
https://www.bptrends.com/bpt/wpcontent/uploads/Business_Process_Maturity_in_Polish_Organisations_2016.pdf
Process Analysis
Ex:
Make and sell pizza
Restaurant A - ₹50 (cost)
Restaurant B - ₹75 (cost)
Selling Price - ₹100
Assumptions:
There is continuous Demand
There is continuous availability of all resources
Why this analysis?
A process that does not match the needs of the firm will punish
the firm every minute that the firm operates
Analyzing the process
• Cost of raw materials
• Process cost
• Order taking and delivery cost
• Is the demand taken care, if otherwise how to expand capacity?
Process Efficiency - (Reduced time and Cost)  Increased revenue
The primary requirement is…
To identify purpose of the analysis - To solve a problem? Or to better
understand the impact of a change
Current mechanical machine to electronic slot machine – How much can a
new electronic machine make over a 24 hour period when compared to
the old mechanical one
Step1: Analyze the mechanical slot machine
• ₹1 coin fed @ 15 second interval (Cycle time – 15 seconds)
• Cycle time – The average time between completions of
successive units
• Based on assumption - ₹4/minute - ₹240/hr
• 95% payout - ₹ 228 (240*0.95)  ₹12/hr kept for the casino
• Ex: ₹ 100  Play for about 8.3 hours (₹ 100/ ₹ 12 per hour)
Step2: Analyze the new electronic slot machine
• Assumption - It operates in exactly the same manner
• The difference is “electronic” coins and only 10 seconds to
process
• @ 10 second interval – cycle time – 10 seconds
• Based on assumption - ₹6/minute - ₹360/hr
• 95% payout - ₹ 342 (360*0.95)  ₹18/hr kept for the casino
• Ex: ₹ 100  Play for about 5.6 hours (₹ 180/ ₹ 18 per hour)
Step 3: Comparison
Assumption – 12 hours in operation/day
Utilization: The ratio of the time that a resource is actually activated
relative to the time that it is available for use
• Utilization – 0.5
• Expected revenue from mechanical machine – ₹144/day(₹ 12/hour*24
hours*0.5)
• Expected revenue from electronic machine - ₹ 216/day (₹ 18/hour*24
hours*0.5)
BUT Casino processes are beyond slot machines…..
Process Mapping
WHAT
 A set of symbols to visually depict the
process flow
WHY
 Clarity
 Analysis (Identify inefficiencies)
 Standardization (Optimized Performance)
 Communication
 Training and On-boarding
A Case of Shirt Manufacturing
Process Mapping
What is observed?
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Eliminate
Combine
Simplify
Rearrange
Retain
Ratio Analysis
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Operation time/Total time
Transportation time/Total time
Inspection time/Total time
Delay time/Total time
Storage time/Total time
Analyzing the slot machine
Understanding Processes- Multi Stage
Cycle time of stage 1 – 30 seconds
Cycle time of stage 2 – 45 seconds
Process needs to provide 100 units
How long will it take to produce and other insights?
Scenario 1: If Inventory buffer is placed
Stage 1 – 100 units*30 sec = 3000 sec
Stage 2 – (3000-30)/45 = 66 units – Bottleneck – limits the capacity of the process
Remaining 34 units in Inventory  34*45=1530 sec
Multi stage process
Scenario 2:
Cycle time of stage 1 – 45 seconds
Cycle time of stage 2 – 30 seconds
Stage 1 – bottleneck – because it limits the capacity of the process
Stage 2 starves for 15 sec for every unit arrival
Time of completion – 45*100 + 30 = 4530 seconds
Assumes – No variability
67% utilization in stage 2 – variability will have little impact
If closer cycle times – some inventory might be collected in buffer
Buffering, Blocking, and Starving
Buffer: A storage area between stages where the output of a stage is
placed prior to being used in a downstream stage
Blocking: Occurs when the activities in a stage must stop because there
is no place to deposit the item
Starving: Occurs when the activities in a stage must stop because there
is no work
Bottleneck: Stage that limits the capacity of the process
Theory of Constraints
TOC – Drum Buffer Rope approach
Production and Inventory Management Strategies
• Make-to-order
• Only activated in response to an actual order
• Both work-in-process and finished goods inventory kept to a minimum
• Response time is slow
• Make-to-stock
• Process activated to meet expected or forecast demand
• Customer orders are served from target stocking level
• Hybrid
• Combines the features of both make-to-order and make-to-stock
Make-to-Stock versus Hybrid
Make-to-order versus Assemble-to-order
Types of Processes
Product Process Matrix
Criteria for Process Performance

Utilization - Utilization is the ratio of the time that a
resource is actually being used relative to the time it is
available for use
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Efficiency - Is a ratio of the actual output of a process
relative to some standard output (what it is designed for)
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Consider a machine designed to package cereal boxes at a rate of 30
boxes per minute. If during a shift, the operators actually produce at
a rate of 36 boxes per minute, what is the productivity?
If 1,000 units of energy are put into a process designed to convert
that energy to some alternative form, and the process produces only
800 units of energy in the new form, then the productivity is _____
Productivity
Productivity Measures – Ratio of Output to Input
Partial Measure
𝑂𝑢𝑡𝑝𝑢𝑡 𝑂𝑢𝑡𝑝𝑢𝑡
;
𝐿𝑎𝑏𝑜𝑢𝑟 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
;
𝑂𝑢𝑡𝑝𝑢𝑡 𝑂𝑢𝑡𝑝𝑢𝑡
;
𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝐸𝑛𝑒𝑟𝑔𝑦
Multifactor Measure
𝑂𝑢𝑡𝑝𝑢𝑡
𝐿𝑎𝑏𝑜𝑢𝑟+𝐶𝑎𝑝𝑖𝑡𝑎𝑙+𝐸𝑛𝑒𝑟𝑔𝑦
Total Measure
𝑂𝑢𝑡𝑝𝑢𝑡
𝐼𝑛𝑝𝑢𝑡
;
;
𝑂𝑢𝑡𝑝𝑢𝑡
𝐿𝑎𝑏𝑜𝑢𝑟+𝐶𝑎𝑝𝑖𝑡𝑎𝑙+𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙𝑠
𝐺𝑜𝑜𝑑𝑠 𝑎𝑛𝑑 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑
𝐴𝑙𝑙 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒𝑠 𝑢𝑠𝑒𝑑
Example 1
A U.S. manufacturing company operating a subsidiary in an LDC (lessdeveloped country) shows the following results:
U.S.
LDC
Sales (units)
100,000
20,000
Labor (hours)
20,000
15,000
Raw materials (currency) $20,000
FC 20,000
Capital equipment (hours)60,000
5,000
a) Calculate partial labor and capital productivity figures for the parent and
subsidiary.
b) Compute the multifactor productivity figures for labor and capital
together. Do the results make more sense?
c) Calculate raw material productivity figures (units/$ where $1 = FC 10).
Explain why these figures might be greater in the subsidiary.
Example 2
A retail store had sales of $45,000 in April and $56,000 in May. The
store employs eight full-time workers who work a 40-hour week. In
April the store also had seven part-time workers at 10 hours per week,
and in May the store had nine part-timers at 15 hours per week
(assume four weeks in each month). Using sales dollars as the
measure of output, what is the percentage change in productivity
from April to May?
Inventory Metrics
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Inventory turn - Amount of inventory relative to the cost of goods sold
COGS/ Average value of Inventory
Days of supply – Days in inventory
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Inventory Turn?
Days of Supply?
Critical Measures of Process Performance
Flow Unit
Flow rate – Throughput rate
Flow time – Cycle time
Inventory – # of Flow units
Little’s law: Inventory = Throughput rate * Cycle time
A firm has redesigned its production process so that it now takes 10
hours for a unit to be made. Using the old process, it took 15 hours to
make a unit. If the process makes one unit each hour, on average, and
each unit is worth $1500, what is the reduction in work-in-process
value?
Compute the flow time of the bakery for the following two lines.
Where is the bottleneck in each case and how it can be addressed?
Case B: Assume that packaging starts an hour after bread making,
otherwise it would be idle one hour before getting any work. (Hint:
Vary # shifts of operation as they work in complete shifts– Each shift being 8 hrs)
Ex:2 A Restaurant Operation