OPERATIONS
MANAGEMENT
CAPACITY UTILIZATION
“Proportion of maximum capacity/output currently being
achieved”
BENEFITS OF FULL
CAPACITY UTILIZATION
•
•
•
•
Job security
Better business image
Economies of scale
Better quality product
Current output
x 100
Maximum output
DRAWBACKS OF FULL
CAPACITY UTILIZATION
• Planning and scheduling costs
• Stress on workforce
• Supply increase – price
decrease – profits
compromised over productivity
• Lose orders from new
customers
How to cope up?
SPARE CAPACITY – LONG
TERM
• Enter new markets
• Rationalization
SPARE CAPACITY – SHORT
TERM
• Price
• Promotion
• Deals
CAPACITY SHORTAGE –
LONG TERM
• Capital investment in
new production facilities
• Outsourcing
CAPACITY SHORTAGE –
SHORT TERM
• Outsourcing
OUTSOURCING
“Using another business or any third party to undertake part of a production process
rather than doing it within the business”
BENEFITS
•
•
•
•
•
Reduction in operating
costs
Increased flexibility
Improved company focus
Access to quality service
or resources
Freed-up internal
resources
DRAWBACKS
•
•
•
•
Loss of jobs within the
business
Quality issues
Customer resistance
Security risk
QUALITY
“Relates to features of a product or service that allow it to satisfy
customer wants”
Quality control
“Process of checking, usually the finished good or service as it is being provided
to customers”
STAGES
BENEFITS
1. Prevention
2. Inspection
3. Correction
and
improvement
• Quality
consciousness in
employees
• Customer
satisfaction
DRAWBACKS
•
•
Monotonousness
Low employee
morale
QUALITY ASSURANCE
“Process of checking whether a product or service meets particular quality
standards through inspection of each stage of production”
BENEFITS OVER QUALITY CONTROL:
DRAWBACKS:
• Job enrichment  Herzberg’s theory
•
•
• Reworking possible
• Improved quality
• Improved communication
• Increased motivation
• Time-saving
Inspection costs
May mentally exhaust workers as
extra attention needed on each
unit
QUALITY ASSURANCE – how does it work?
SUPPLIERS
order raw materials
PURCHASING
DEPARTMENT
PRODUCTION
DEPARTMENT
handling, storing and
distribution of raw
materials
INBOUND
LOGISTICS
OUTBOUND
LOGISTICS
handling, storing and
distribution of finished
goods
input, process, output
RETAILERS
TOTAL QUALITY MANAGEMENT (TQM)
“A system that appreciates that everyone within an organization contributes to
overall quality of the product/service”
FEATURES
BENEFITS
DRAWBACKS
• Quality chains
• Company policy
and accountability
• Zero defects
• Improved focus on
•
•
customer needs
• Potential wastage
reduction
• Encourages team
approach
• Better
communication
•
•
Training costs
Strong commitment
of workforce
Regular audits
required
Product may be
ignored while
enforcing the
process
Quality circles
“Refers to involving staff to improve quality, where employees in small groups
discuss quality issues”
ENCOURAGES
• Team-working
• Worker
participation
• Full use of
employees’
knowledge and
experience
BENCHMARKING
“Process of identifying best processes by which products are created and
delivered”
BENEFITS
•
•
•
Faster and cheaper
Increase internal
competitiveness
Ideas for
improvement if
workforce involved in
business discussion
DRAWBACKS
•
•
Ideas can be copied
Difficult to recover
costs incurred to
improve
benchmarking system
Benchmarking - implementation
Research on areas of improvement in the business
Deciding how improvements can be made to those areas
Identify best practice in other businesses
Keep up to the exchange of info with other businesses
Compare best practice to existing processes
Amend the existing procedures to improve performance
Evaluate how beneficial the changes have been.
Lean production
“The philosophy of “reducing wastage” whilst ensuring quality to
be maintained”
Methods of lean production
JUST IN TIME
SIMULTANEOUS
ENGINEERING
KAIZEN
CELL PRODUCTION
FLEXIBLE
SPECIALISMS
JUST IN TIME
“An inventory management system, that lines up raw material orders from
suppliers according to production schedules”
BENEFITS
• Lower holding costs
• Improved cash flow
• Increase efficiency
DRAWBACKS
• Less/no room for errors
• Training costs
• Machine maintenance
costs may rise as
company may be unable
to afford machine
breakdowns
KAIZEN
Japanese word meaning “improvement”
“A philosophy that states, ‘improvement in workers productivity arise from
continual increases in productivity rather than one-off increases through
technology”
Production
One-off improvement
Time
kaizen
REQUIREMENTS
• Theory Y
• Work experience
is as important as
theoretical
knowledge
BENEFITS
• Feeling of
responsibility and
ownership in
workers
• Team-working
DRAWBACKS
• Training costs
• May be seen as
greater work
rather than an
opportunity for
development
Cell production
“Production is reorganized into separate identifiable units known as ‘cells’ where
workers are required to undertake a complete unit of work”
BENEFITS
• Reduce worker
alienation
• Feeling of
responsibility
• Team-working
• Motivation
• Improved
communication
DRAWBACKS
• Training costs
• Invest in
technology
Simultaneous engineering
“A time based management strategy, implemented by rearranging the sequence of
activities required before a product launch, in a simultaneous order rather than on a
sequential basis”
BENEFITS
• Reduce the need of
modifying products,
post launch
• First mover advantages
Project Management – Critical path analysis
“A modern management technique used to determine the minimum time it will
take for a project to be completed whilst achieving preset targets of quality, time
and cost”
BENEFITS
DRAWBACKS
• Earliest start time – plan
resources accordingly
• Latest finish time – ensure
timely completion of project
• Critical activities – allow steps to
ensure these are not delayed
• Transfer of resources from noncritical activities to critical
activities - difficult?
• Accuracy of duration estimates
• External influences accounted
for?
CRITICAL PATH ANALYSIS – KEY TERMS
CRITICAL PATH
EARLIEST START TIME
LATEST FINISH TIME
CRITICAL ACTIVITIES
NON-CRITICAL
ACTIVITIES
MINIMUM DURATION
TOTAL FLOAT
FREE FLOAT
LOGICAL
DEPENDANCE
DUMMY ACTIVITY