OPERATIONS MANAGEMENT
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operation_management1.zipDSCI 303 Session 01 - Sep 03.pptx
DSCI-303
Operations Management
Session 01
1
Why should anyone study Operations Management?
Transformation of inputs into output/s is at the core of every business
Important for even non-OM executives across functional areas
Every business activity is a process, and OM provides a framework to understand, analyze, and improve business processes
What kind of job / business are you targeting at the end of your studies?
Let’s take some examples..
OM can help in every instance!
What knowledge, skills, and tools can help you succeed in that?
Breadth of knowledge
Ability to systematically analyze a business problem and present the findings
Ability to work with a diverse set of people
Ability to see the big picture (i.e. how the business makes money!)
http:// www.youtube.com/watch?v=DS9TqkGR2t0
Why are we here ?????????
2
How a firm creates value and makes money:
How effective Ops Mgmt. is a key to maximizing revenue and minimizing costs
Process analysis:
Process mapping, process design, management, control, and improvements
How to manage products and services:
Similarities and differences
What will we learn???
3
The course is explicitly designed to cover each of these!
Interactive lectures will introduce the main topics
Real-life examples will help us relate to these concepts
There will be pre-announced quizzes along the way
Class participation will:
Improve everyone’s learning
Improve your course grade
Homework assignments will:
Test your ability to apply the course concepts on your own
How will we achieve this ???
4
Group project will get you to:
Hone your ability to work in teams, and prepare a professional report
Present your collective findings to a managerial audience
Finally, a comprehensive final exam will give you an opportunity to showcase all your knowledge and skills acquired or augmented during the course!
How will we achieve this ???
5
In-class Quizzes:
Pre-announced on Blackboard, administered in-class
No make-up quizzes offered
Individual effort only
Each quiz carries 20 points
6 Quizzes in total, only best 5 scores will be retained
Collectively, the quizzes drive 10% of the final grade
Let’s take a closer look!
6
Homework Assignments:
Pre-scheduled, available on Blackboard from the beginning!
Submission only through Blackboard
Individual effort only
Each assignment carries 150 points
No late submissions, no make-up assignments
3 assignments in total, only best 2 scores will be retained
Collectively, the homework assignments drive 30% of the final grade
Let’s take a closer look!
7
Term (team) Project:
Will require teams of 4 students each
An announcement with instructions will be sent on Sep 15
Each team will analyze the assigned company’s business throughout the term
Each team will need to submit two interim reports, and one final report
No late submissions, no make-up project
The term project carries 200 points, and drives 20% of the final grade
Let’s take a closer look!
8
Term (team) Project Presentation
(with optional video recording & debrief):
Tied to the term project
Will be scheduled for Dec 8, 9, 10, 11
Carries 100 points, and drives 10% of the final grade
More details will be provided later on..
Let’s take a closer look!
9
Final Exam (optional, provided you act in time):
Comprehensive!
Open textbook / notes (non-electronic)
Bring your own calculator/pen/pencils (BYOCPP)
See the 1st page of course syllabus for the schedule
Will be 2-hr long
No alternate arrangements allowed except for students with a pre-certified disability
Carries 200 points, and drives 20% of the final grade (unless declared otherwise by submitting your choice before the deadline)
Let’s take a closer look!
10
Class Attendance and Participation:
Attendance:
2 points x 25 out of 27 sessions = 50 points = 5% of the final grade
Participation:
0-5 points per session, 50 points max = 5% of the final grade
Let’s take a closer look!
11
Let’s repeat..
12
Do show up in every class, better yet – do come prepared!
Do read the HWs before each class, write up your answers right after the class!
Do remain courteous to your faculty & fellow students at all times.
Do read the instructions in the syllabus and the assignments before starting.
Do leverage (in a timely manner..) all opportunities to get feedback.
Do choose your teammates wisely!
Do check your submissions before AS WELL AS after submitting!
Do follow “work hard, play hard” strategy!
Do have FUN!
How to get an A: Some do’s
13
Don’t apologize for arriving late or leaving early! Just get on with it..
Don’t let your phone ring and don’t look at your phone / tablet / laptop..
Don’t pack up your things before I actually end the class!
Don’t ever ask if you “missed anything important” during an absence!
Don’t ask about ANYTHING without checking the syllabus first!
Don’t plagiarize, else be prepared for the consequences..
Don’t get mad if you receive critical feedback.
Don’t EVER ask for a better grade just because you have always had an A!
Don’t complain about the workload saying “you know, this isn't the only class I'm taking”..
How to get an A: Some don’ts
14
Now, let’s get to know one another!
15
Amit (that’s me..):
Origin
Continents
Three lives
Education
Industries
Current interests and hobbies
16
Now, it’s your turn: Cover the following quickly:
Name, where you are from (State / Country)
One interesting fact about you that almost no one knows..
The grade that you want to score in this course..
17
Questions?
18
18
Sr. Assessment Item Points Weight
1
Knowledge of Key Operations Concepts
In-class Quizzes (best 5 out of 6)
20 points x 5 = 100 points 10%
2
Application of Knowledge
Homework Assignments (best 2 out of 3)
150 points X 2 = 300 points 30%
Term Project (1)
200 points X 1 = 200 points 20%
Final Exam* (1)
200 points X 1 = 200 points 20%
3
Presentation of Work
Term Project Presentation (1)
100 points X 1 = 100 points 10%
4
Class Attendance and Participation
Class Attendance (25 out of 27 )
2 points X 25 = 50 points 5%
Class Participation (27 sessions)
0-5 points X 27 = 50 points 5%
Total: 1000 points 100%
* = Optional, provided you respond to a Blackboard assignment by the stated deadline. If so, your course
grade will be based on the rest of the assessmen ts. If no response is received by the deadline, the final
exam is mandatory. In this case, the final exam will count towards the course grade regardless of
whether you actually show up for the final or not.
DSCI 303 Session 02 - Sep 08.pptx
DSCI-303
Operations Management
Session 02
1
What is Operations and Supply Chain Management?
Operations and supply management (OSM): The design, operation, and improvement of the systems that create and deliver the firm’s primary products and services
Concerned with the management of the entire system that produces a good or delivers a service
2
Operations: One Firm
Customers
Input resources
Output products and services
Transformed resources
Materials
Information
Customers
Transforming resources
Facilities
Staff
Design
Planning and control
Operation’s performance
Operations strategy
Improvement
Operations management
Operations strategy
3
“Dominant” Transformed Resource
Material? Information? Customer?
4
Manufacturing Operations
Mining companies
Warehouses
Postal services
Container shipping line
Trucking companies
Grocery Store
Automobile Plant
Banks
Airline
Financial Analysis
Theme Park
News Service
Theatre
Telecom
Spa
Market Research
Dentist
Online Trading
Gym
Hotel
Credit card company
Skydiving
Products vs. Services
Intangibility
Inseparability
Heterogeneity
Perishability
5
5
Products – Services Continuum
6
6
Products with services or Services with products?
Benefits?
Examples?
Future?
Servitization
7
Design: the processes for designing products and services through active collaboration between suppliers, customers, and the firm
Planning: the processes needed to operate an existing supply chain / firm operations strategically
Sourcing: the selection of suppliers that will deliver the goods and services needed to create and deliver the firm’s product
Making: Where the major product is produced or the service is provided
Delivering: carriers are picked to move products to warehouses and customers
Returning: the processes for receiving worn-out, defective, and excess products back from customers
Work Involved..
8
Operations: Entire Supply Chain
9
The consultancy services market – % of worldwide revenues of 40 largest consultancy firms
Marketing/sales
2
Operations and process management
31
Corporate strategy
17
IT strategy
17
Benefits/Actuarial
16
Organizational design
11
Financial
6
Operations management is fashionable!
10
10
Flow between operations
The level of the supply network
The level of the operation
Flow between processes
The level of the process
Flow between resources
Operations at Three Different Levels
11
11
Financial services
An account management centre at a large retail bank
Financial analyst advising a client at an investment bank
Furniture manufacturing
Mass production of kitchen units
Craft production of reproduction ‘antique’ furniture
Hotels
Value-for-money hotel
Lobby of an international luxury hotel
Differences within Sectors vs. between Sectors
12
12
Variation in demand
High
Low
Visibility
High
Low
Variety
High
Low
High
Volume
Low
High
What affects Operations?
The 4 Vs
13
13
High
Implications
Low repetition
Each staff member performs more of each task
Less systemization
High unit costs
Implications
High repeatability
Specialization
Capital intensive
Low unit costs
Volume
Low
High
What affects Operations?
The implications of high and low Volume in operations and processes
14
14
High
Implications
Flexible
Complex
Match customer needs
High unit costs
Implications
Well defined
Routine
Standardized
Regular
Low unit costs
Variety
High
Low
The implications of high and low Variety in operations and processes
What affects Operations?
15
15
High
Implications
Changing capacity
Anticipation
Flexibility
In touch with demand
High unit costs
Implications
Stable
Routine
Predictable
High utilization
Low unit costs
Variation in demand
High
Low
The implications of high and low Variation in operations and processes
What affects Operations?
16
16
High
Implications
Short waiting tolerance
Satisfaction governed by customer perception
Customer contact skills needed
Received variety is high
High unit costs
Implications
Time lag between production and consumption
Standardization
Low contact skills
High staff utilization
Centralization
Low unit costs
Visibility
High
Low
The implications of high and low Visibility in operations and processes
What affects Operations?
17
17
Questions?
18
DSCI 303 Session 03 - Sep 10.pptx
DSCI-303
Operations Management
Session 03
1
Operations can make or break a firm..
2
Operations: Stakeholders
Shareholders
Directors / top management
Staff
Staff representative bodies
Regulatory bodies
Government
Suppliers
Lobby / interest groups
Customers
‘Society’
3
Triple Bottom Line
Operations Performance Objectives
4
Competitive Dimensions
Operations Performance Objectives
Competitiveness
Quality
Being RIGHT
Speed
Being FAST
Dependability
Being ON TIME
Cost
Being PRODUCTIVE
Being ABLE TO CHANGE
Flexibility
5
All objectives may not be as important!
Polar diagrams are used to indicate the relative importance of each performance objective to an operation or process.
They can also be used to indicate the difference between different products and services produced by an operation or process.
Cost
Quality
Flexibility
Dependability
Speed
6
6
Polar diagrams for
a Taxi service vs. a Bus service
(Shows the relative importance of each competitive dimension)
7
This chart was created in MS-Excel using “Radar Chart”
7
Questions?
8
DSCI 303 Session 04 - Sep 15.pptx
DSCI-303
Operations Management
Session 04
1
Operations Strategy vs. Operations Management
2
What is strategy?
Setting broad objectives that direct an enterprise towards its overall goal.
Planning the path (in general rather than specific terms) that will achieve these goals.
Stressing long-term rather than short-term objectives.
Dealing with the total picture rather than stressing individual activities.
Being detached from, and above, the confusion and distractions of day-to-day activities.
3
What is the role of the operations function?
Operations as implementer of strategy
Operations implements strategy
Strategy
Operations
Operations drives strategy
Operations as driver of strategy
Strategy
Operations
Operations supports strategy
Operations as supporter of strategy
Strategy
Operations
4
4
Top-down perspective
What the business wants operations to do
Operations resources perspective
What operations resources can do
What day-to-day experience suggests operations should do
Bottom-up perspective
Market requirement perspective
What the market position requires operations to do
Operations strategy
The four perspectives on operations strategy
5
5
1
What you HAVE
in terms of operations capabilities
What you NEED
to ‘compete’ in the market
Operations resources
Market requirements
What you WANT
from your operations to help you ‘compete’
What you DO
to maintain your capabilities and satisfy markets
Strategic reconciliation
Reconciling market requirements and operations resources
6
6
Operations strategy at Flextronics
Operations strategic decisions
Industrial parks, with
low cost but close locations
and co-located suppliers
Market requirements
Low costs
Responsiveness
Flexibility
Flextronics
7
Operations strategy at Southwest
Operations strategic decisions
Stripped down service
One technology
Cheap airport locations
Fast turnround
Market requirements
Low prices
Reliability
Basic service
8
Competitive Dimensions
Operations Performance Objectives
Competitiveness
Quality
Being RIGHT
Speed
Being FAST
Dependability
Being ON TIME
Cost
Being PRODUCTIVE
Being ABLE TO CHANGE
Flexibility
9
Order-winning, qualifying, and less important competitive factors
Neutral
+ve
–ve
Performance
Competitive benefit
Qualifying factors
Order qualifiers: the basic criteria that permit the firms products to be considered as candidates for purchase by customers
10
10
Order-winning, qualifying, and less important competitive factors
Neutral
+ve
–ve
Performance
Competitive benefit
Order-winning factors
Order winners: the criteria that differentiates the products and services of one firm from another
11
11
Neutral
+ve
–ve
Performance
Competitive benefit
Less important factors
Order-winning, qualifying, and less important competitive factors
Less important factors: the criteria that customers hardly care about
12
12
Introduction
Growth
Maturity
Decline
Sales volume
Volume
Customers
Competitors
Variety of product/ service design
Slow growth in sales
Innovators
Few/none
Customization or frequent design changes
Rapid growth in sales volume
Early adopters
Increasing numbers
Increasingly standardized
Sales slow and level off
Bulk of market
Stable number
Emerging dominant types
Market needs largely met
Laggards
Declining numbers
Possible move to commodity standardization
The effects of the product / service life cycle
Time
13
13
6
Introduction
Growth
Maturity
Decline
Sales volume
The effects of the product / service life cycle (Continued)
Time
Likely order winners
Likely qualifiers
Dominant performance objectives
Product/ service characteristics
Quality
range
Flexibility
quality
Availability quality
Price range
Speed
dependability
quality
Low price
dependable supply
Quality
range
Cost
dependability
Low price
Dependable supply
Cost
14
14
6
Next time..
Quiz 1
Questions?
16
DSCI 303 Session 05 - Sep 17.pptx
DSCI-303
Operations Management
Session 05
1
Quiz 1
Product & Service Design
Operations strategy
Design
Improvement
Planning and control
Process design
Supply network design
Layout
and flow
Process technology
People, jobs and organization
Product/service design
Operations management
3
3
Products, services and the processes which produce them all have to be designed.
Decisions taken during the design of a product or service will have an impact on the decisions taken during the design of the process which produces those products or services and vice versa.
Nature and purpose of the design activity
4
4
The design of products/services (WHAT) and…
…the design of processes (HOW)
Products and services should be designed in such a way that they can be created effectively.
Product/service design has an impact on the process design and vice versa.
Processes should be designed so they can create all products and services which the operation is likely to introduce.
5
5
What is designed in a product or service?
A concept
the understanding of the nature, use and value of the service or product;
A package
the group of ‘component’ products and services that provide those benefits defined in the concept;
A process
the way in which the component products and services will be created and delivered.
6
6
The stages of product / service design
Concept generation
Concept screening
Preliminary design
Evaluation and improvement
Prototyping and final design
7
7
Concept generation
Ideas from customers formally through Marketing activities
Listening to customers – on a day-to-day basis
Ideas from competitor activity – For example, reverse engineering
Ideas from staff – Especially those who meet customers every day
Ideas from research and development
Ideas from other stakeholders
8
8
Broad categories of evaluation criteria for assessing concepts
Feasibility – How difficult is it?
The criteria for screening concepts
What investment both managerial and financial, will be needed?
What return
in terms of benefits to the operation will it give?
What risks
do we run if things go wrong?
Acceptability – How worthwhile is it?
Vulnerability – What could go wrong?
Overall evaluation of the concept
Concept screening
9
9
Uncertainty regarding the final design
Certainty regarding the final design
TIME
Reduction in number of possibilities along the way
CONCEPT
FINAL DESIGN SPECIFICATON
Choice and evaluation ‘Screens’
Large number of design options
One design
10
10
Example – Square watermelons
What market-related questions would you ask before producing square watermelons commercially?
What finance-related questions would you ask before producing square watermelons commercially?
What operations-related questions would you ask before producing square watermelons commercially?
11
11
Designing Service Products
Service products are very different
Direct customer involvement introduces significant variability in the process
Questions to address:
How will this variability be addressed?
What are the implications for operational cost and the customer service experience?
12
Questions?
13
Operation management2.zip
DSCI 303 Session 06 - Sep 22.pptx
DSCI-303
Operations Management
Session 06
1
Designing processes
There are different ‘process types’.
Process types are defined by the volume and variety of ‘items’ they process.
Process types go by different names depending on whether they produce products or services.
2
2
High
Volume
Low
High
Variety
Project
Low
Manufacturing process types
Process tasks
Process flow
Diverse/ complex
Repeated/ divided
Intermittent
Continuous
Jobbing
Batch / Cell
Mass
Contin-uous
3
3
One-off, complex, large scale, high work content ‘products’
Specially made, every one customized
Defined start and finish: time, quality and cost objectives
Many different skills have to be coordinated.
Project processes
4
4
Very small quantities: ‘one-offs’, or only a few required
Specially made. High variety, low repetition. ‘Strangers’ every one customized
Skill requirements are usually very broad
Skilled jobber, or team, complete whole product.
Jobbing processes
5
5
Higher volumes and lower variety than for jobbing
Standard products, repeating demand. But can make specials
Specialized, narrower skills
Set-ups (changeovers) at each stage of production.
Batch Processes
6
6
Higher volumes than batch
Standard, repeat products (‘runners’)
No set-ups, or almost instantaneous ones.
Low and/or narrow skills
Mass (line) processes
7
7
Extremely high volumes and low variety: often single product
Standard, repeat products (‘runners’)
Highly capital-intensive and automated
Few changeovers required
Difficult and expensive to start and stop the process.
Continuous processes
8
8
Volume
Low
High
Variety
Low
High
Service process types
Process tasks
Process flow
Diverse/ complex
Repeated/ divided
Intermittent
Continuous
Professional service
Service shop
Mass service
9
9
Professional service
High levels of customer (client) contact.
Clients spend a considerable time in the service process.
High levels of customization with service processes being highly adaptable.
Contact staff are given high levels of discretion in servicing customers.
People-based rather than equipment-based.
10
10
Medium levels of volumes of customers
Medium, or mixed, levels of customer contact
Medium, or mixed, levels of customization
Medium, or mixed, levels of staff discretion.
Service shops
11
11
High levels of volumes of customers
Low to medium levels of customer contact
Low, or mixed, levels of customization
Low, or mixed, levels of staff discretion.
Mass service
12
12
All the options:
13
13
Variety
Volume
Deviating from the ‘natural’ diagonal..
None
None
The ‘natural’ line of fit of process to volume/variety characteristics
Project
Jobbing
Batch
Mass
Continuous
Manufacturing operations process types
Professional
service
Service
shop
Mass
service
Service operations process types
More process flexibility than is needed so high cost
Less process flexibility than is needed so high cost
14
14
9
Questions?
15
DSCI 303 Session 07 - Sep 24.pptx
DSCI-303
Operations Management
Session 07
1
Throughput (TH) = Work In Process (WIP) x Cycle Time (CT)
Little’s law (a really quite useful law)
Cycle time = 2 mins
Throughput time = ?
WIP = 10
Throughput time = 10 × 2 mins
Throughput time = 20 mins
2
2
Throughput time and capacity utilization
0
20%
40%
60%
80%
100%
Capacity utilization
Low
X
X
X
High utilization but long throughput times
Low utilization but short throughput times
Reduce process variability
High
10 mins
30 mins
Arrival frequency (demand)
Processing time
Utilization = 33.33 % Q = 0
Average length of queue
X
Utilization = 50 % Q = 0
20 mins
X
10 mins
Utilization = 100 % Q = 0
X
Utilization = 100 % Q = infinity
9 mins
X
5–15 mins
5–15 mins
Arrival frequency (demand)
Processing time
Utilization = <100% % Q = >0
Process throughput time
(or inventory)
3
3
Term Project
What?
How?
When?
Where?
4
4
Homework 1 can be submitted on Blackboard
from Sep 26
& is due by 6 pm on Oct 3
Questions?
6
DSCI 303 Session 08 - Sep 29.pptx
DSCI-303
Operations Management
Session 08
1
The relative positioning of transforming resources
Layout design involves..
The allocation of tasks to transforming resources
The flow of transformed resources
2
2
Layout types: Fixed-position layout
3
3
Layout types: Functional layout
4
4
Layout types: Cell layout
5
5
Layout types: Product layout
6
6
Regular flow more important
Regular flow more feasible
Layout types – impact of volume and variety
Low
Volume
High
High
Variety
Low
Fixed-position layout
Functional layout
Cell layout
Product layout
Flow becomes continuous
Flow is intermittent
7
7
Service functional types
Mass services
Service shops
Manufacturing functional types
Continuous processes
Mass processes
Batch processes
Basic layout types
Fixed-position layout
Functional layout
Cell layout
Product layout
Process and layout types..
Jobbing processes
Professional services
Project processes
8
8
Cost implications of layout types
Volume
Costs
Use product
Use
cell
Use functional
Use fixed-position
Fixed-position
Functional
Cell
Product
9
9
9
1 every 15 minutes
15
15
15
15
1 every 15 minutes
30
30
30
30
Product Layout: ‘Long and thin’ versus ‘short and fat’ layouts
1 every 15 minutes
60
60
60
60
Short -fat process
Long-thin process
A 60 minute task with a required cycle time of 15 minutes
10
10
Product Layout: ‘Long and thin’ versus ‘short and fat’ layouts
11
Advantages of long-thin processes
Controlled flow
Simple materials handling
Lower capital requirement (no duplication)
Greater efficiency
Higher space utilization
Advantages of short-fat processes
Higher mix flexibility
Higher volume flexibility
Greater robustness
Less monotonous
Higher ownership
Long and short describes the number of stages
Fat and thin describes the amount of work at each stage
11
Next time..
Quiz 2
12
Homework 1 is due by 6 pm on Oct 3
Questions?
14
DSCI 303 Session 09 - Oct 01.pptx
DSCI-303
Operations Management
Session 09
1
Quiz 2
Supply Chain Design: Key Questions
What is a SUPPLY CHAIN?
Why should an organization take a total supply network perspective?
What is involved in configuring a supply network?
What type of supply network is appropriate?
Where should an operation be located?
3
3
Customers..
Suppliers..
What is a Supply Chain?
The Firm
Supply…CHAIN..
2nd tier..
1st tier..
1st tier..
2nd tier..
Upstream..
Downstream..
4
4
An example..
5
Plastic homeware manufacturer
First tier suppliers
Packaging supplier
Plastic stockist
First tier customers
Wholesaler
Second tier suppliers
Ink supplier
Cardboard company
Chemical company
Second tier customers
Retailer
Retailer
Direct supply
Information
5
Why take a total supply network perspective?
Looking at the whole supply chain allows a firm:
To identify significant linkages / risks involved
To focus on long-term issues
To understand the sources of competitive advantages and disadvantages
To decide on the extent of vertical integration
6
6
What is involved in configuring a Supply Chain?
Decide on the extent of vertical integration
Decide on the type of supply chain
Decide on where to locate the business
7
7
Vertical integration
Extent – Narrow process span
Extent – Wide process span
Direction – Upstream vertical integration
Direction – Downstream vertical integration
Wholesaler
Raw material suppliers
Component maker
Assembly operation
Retailer
Balance — should excess capacity be used to supply other companies?
8
8
Types of supply chain..
Demand Uncertainty
Supply Uncertainty
9
9
Offshoring & outsourcing: related YET different..
10
Outsourcing
Domestic supplier delivers products and/or services
Offshore outsourcing
Overseas supplier delivers products and/or services
Domestic operations
Focal operation performs activities themselves
Offshore operations
Focal operation’s overseas operation delivers products and/or services
Location of operations
Don’t own the assets
Own the assets
Domestic
International
10
Deciding where to locate..
The
operation
Supply-side factors
which vary to influence costs as location varies.
For example:
labor costs
land costs
energy costs
transportation costs
community factors
Demand-side factors
which vary to influence customer service/revenue
as location varies.
For example:
labor skills
suitability of site
Image
convenience for customers
11
11
Supply chain planning and control
First tier supplier
Second tier supplier
First tier customer
Second tier customer
End customer
Demand side
Supply side
Purchasing and supply management
Physical distribution management
Logistics
Materials management
Supply chain management
Information flow
Physical flow
12
12
Homework 1 is due by 6 pm on Oct 3
Questions?
14
DSCI 303 Session 10 - Oct 06.pptx
DSCI-303
Operations Management
Session 10
1
Supply chain management ..
Products and services
New products and services
Delivery information
Payment request/Credit.
‘Downstream’ flow of products and services for customer
Fulfilment
‘Upstream’ flow of customer
Requirements
Long-term plans and requirements
Market research information
Individual orders
Payment
Demands for new products and services
Flow between processes
Consumer
Flow between processes
Flow between processes
Operation 1
Operation 2
Operation 3
2
2
P&G finds that retail demand for diapers is very steady
The orders placed by a firm (i.e., demand for upstream firms) should also be steady
Low demand variation should imply low safety stock
Is that what actually happens????
NO! Demand shows GREATER volatility for upstream firms!
3
The bullwhip effect:
P&G
DC
Distributor
Walmart
Target
Retailers
Supplier
Manufacturer
Factory
4
What actually happens?
Weekly demand
Weekly demand
Weekly demand
Weekly demand
Weekly demand
Bullwhip Effect: Demand and inventory variation is amplified as you go upstream in the supply chain
P&G
DC
Distributor
Walmart
Target
Retailers
Supplier
Manufacturer
Factory
Orders
0
Time
Sales from Retailer
Consumers
Orders
0
Time
Retailer’s orders to Wholesaler
Time
Wholesaler’s orders to Distributor
Orders
0
Distributor’s orders to Manufacturer
Orders
0
Time
Retailer
Wholesaler
Distributor
Manufacturer
The bullwhip effect:
Demand variation increases in magnitude as we go upstream
The more upstream we go, the more swings we encounter
5
5
The bullwhip effect:
6
6
MARKET
6
5
4
3
2
1
3rd LEVEL SUPPLIER
2nd LEVEL SUPPLIER
1st LEVEL SUPPLIER
ORIGINAL EQUIPMENT MFG.
DEMAND
PERIOD
Prodn.
Stock
Prodn.
Stock
Prodn.
Stock
Prodn.
Stock
100
100
100
100
100
100
100
100
100
100
100
100
100
3
2
1
ALL OPERATIONS HOLD ONE PERIOD’S STOCK
20
100
60
60
100
80
80
100
90
100
95
90
100
95
180
60
120
120
80
100
100
90
95
95
95
95
95
60
120
90
90
100
95
95
95
95
100
90
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
The bullwhip effect:
OEM
7
7
The bullwhip effect..
6
5
4
3
2
1
3rd LEVEL SUPPLIER
2nd LEVEL SUPPLIER
1st LEVEL SUPPLIER
ORIGINAL EQUIPMENT MFG.
DEMAND
PERIOD
Prodn.
Stock
Prodn.
Stock
Prodn.
Stock
Prodn.
Stock
100
100
100
100
100
100
100
100
100
100
100
100
100
Name:
DSCI 303: Quiz 3
Grading: 20 points (total)
1 point for completely filling both columns for each supply chain entity x 4 = 4 points
4 points for getting all numbers correct for each supply chain entity x 4 = 16 points
On Oct 15!
8
8
9
The bullwhip effect - Causes
Causes of bullwhip effect
Demand forecast update
Order batching
Price fluctuation
Order rationing and gaming
10
The bullwhip effect - Remedy
Improved communication across the supply chain
Better forecast
Consistent pricing
Accurate, real-time sharing of demand data (ERP systems can help)
Reduce delays (order processing delays as well as shipping delays)
Term Project: 1st Interim Report is due
by 6 pm on Oct 10
Questions?
12
0
25
50
75
100
125
150
175
200
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0
25
50
75
100
125
150
175
200
135791113151719
0
25
50
75
100
125
150
175
200
135791113151719
0
25
50
75
100
125
150
175
200
135791113151719
0
25
50
75
100
125
150
175
200
135791113151719
Operation management 3.zip
DSCI 303 Session 11 - Oct 08.pptx
DSCI-303
Operations Management
Session 11
1
Web-integrated enterprise resource planning (collaborative commerce, c-commerce)
Enterprise resource planning (ERP)
Manufacturing resource planning (MRPII)
Increasing integration of information systems
Increasing impact on the whole supply network
The development of ERP
Material requirements planning (MRP)
2
2
Material requirements planning
Master production schedule
Customer orders
Forecast demand
Bill of materials
Inventory records
Purchase orders
Materials plans
Works orders
Material Requirement Planning (MRP) schematic
3
3
The concept of MRP II
Design
Marketing
Operations
Finance
Central database
4
4
Integrated database
ERP integrates several systems
Purchasing and supply applications
Operations applications
Financial applications
Strategic reporting applications
Sales and marketing applications
Delivery and logistics applications
Service applications
HRM applications
Senior management and stakeholders
Employees
Suppliers
Customers
Front-office staff
Back-office staff
Employees
5
5
‘Partnership’ supply management
The character of internal operations activity
Do nothing
Do everything important
Do everything
Transactional – many suppliers
Close –
few suppliers
Type of inter-firm contact
Virtual spot trading
Long-term virtual operation
Vertically integrated operation
Traditional supply management
Supply chain relationships – by relationship
6
6
Business to Business (B2B)
Most common, all but the last link in the supply chain
E-commerce examples:
EDI networks
Business information exchanges.
Business to Consumer (B2C)
Retail operations
Catalogue operations, etc.
E-commerce examples:
Internet retailers
Amazon.com, etc.
Consumer to Business (C2B)
Consumers ‘offer’, business responds
E-commerce examples:
Some airline ticket operators
Priceline.com, etc.
Supply chain relationships – by entities
Trading ‘swap’ and auction transactions
E-commerce examples:
Specialist ‘collector’ sites
Ebay.com, etc.
Consumer to Consumer (C2C)
Business
Consumer
To…
Business
Consumer
From…
7
7
Logistics-System Design Matrix
Modes of transport
8
Term Project: 1st Interim Report is due
by 6 pm on Oct 10
Next time (Wed)..
Quiz 3
10
Questions?
11
DSCI 303 Session 12 - Oct 15.pptx
DSCI-303
Operations Management
Session 12
1
The bullwhip effect..
6
5
4
3
2
1
3rd LEVEL SUPPLIER
2nd LEVEL SUPPLIER
1st LEVEL SUPPLIER
ORIGINAL EQUIPMENT MFG.
DEMAND
PERIOD
Prodn.
Stock
Prodn.
Stock
Prodn.
Stock
Prodn.
Stock
100
100
100
100
100
100
100
100
100
100
100
100
100
Name:
DSCI 303: Quiz 3
Grading: 20 points (total)
1 point for completely filling both columns for each supply chain entity x 4 = 4 points
4 points for getting all numbers correct for each supply chain entity x 4 = 16 points
Today is Oct 15!
2
Quiz 3
Operation or process
Input
Output
Compare / replan
Intervention
Plans
A simple model of planning and control
Monitor
4
4
Planning is deciding
Control is
what activities should take place in the operation
when they should take place
what resources should be allocated to them
understanding what is actually happening in the operation
deciding whether there is a significant deviation from what should be happening
(if there is a deviation) changing resources in order to affect the operation’s activities.
Planning and control (Continued)
5
5
Planning: P:D ratio
6
The P:D ratio of an operation indicates how long the customer has to wait for the service or product as compared with the total time to carry out all the activities to make the service or product available to the customer
Cust-omer
Obtain resources
Create
Deliver
Design
P = D
Design, resource, create and deliver to order
Cust-omer
Create
Deliver
Obtain resources
Design
D
P
Design, create and deliver to order
Examples: advertising agency, construction project
Examples: website development, custom furniture production
Lower volume
Higher variety
Higher volume
Lower variety
4
Planning: P:D ratio
7
The P:D ratio of an operation indicates how long the customer has to wait for the service or product as compared with the total time to carry out all the activities to make the service or product available to the customer
Cust-omer
Cust-omer
Lower volume
Higher variety
Higher volume
Lower variety
Create
Deliver
Obtain resources
Choose
D
P
Create and deliver to order
Examples: hair blow-dry bar, house builder with standard designs
Deliver
Obtain resources
Choose
D
Create
Create
P
Examples: internet retail fulfilment, assemble to order computers (e.g. Dell)
Partially create and deliver to order
4
Planning: P:D ratio
8
The P:D ratio of an operation indicates how long the customer has to wait for the service or product as compared with the total time to carry out all the activities to make the service or product available to the customer
Cust-omer
Cust-omer
Lower volume
Higher variety
Higher volume
Lower variety
Deliver
Obtain resources
Choose
D
Create
P
Create to stock
Examples: domestic appliance production
Deliver
Obtain resources
Choose
D
Create
P
Collect/choose from stock
Examples: collect retailer (e.g. IKEA), vending machines
4
Process: any part of an organization that takes inputs and transforms them into outputs
Cycle time: the average successive time between completions of successive units
Utilization: the ratio of the time that a resource is actually activated relative to the time that it is available for use
Process Analysis
9
4
Single-stage Process
Stage 1
Stage 1
Stage 2
Stage 3
Multi-stage Process
Types of processes:
10
4
Multi-stage process with buffer..
11
Process flowcharting: the use of a diagram to present the major elements of a process
The basic elements can include tasks or operations, flows of materials or customers, decision points, and storage areas or queues
Process Flowcharting:
12
4
Gambling at a slot machine..
Gambling at a slot machine begins with someone inserting a silver dollar in the slot machine. The coin moves to the payout bucket (used for payout whenever someone wins a jackpot) if the payout bucket is not full. If it is full, the coin moves to the winnings bucket. The player is obviously not aware of this coin movement. After inserting the coin, the gambler pulls the arm on the slot machine to play. If the player wins a prize, the slot machine activates the payout from the payout bucket, and then pays out the winnings. Then (regardless of the outcome – win or lose), the player decides whether to play again or not. If the player wants to play again, the process starts all over again. If not, the player quits.
13
(Imperfect) Process chart for a slot machine
14
Questions?
15
DSCI 303 Session 13 - Oct 20.pptx
DSCI-303
Operations Management
Session 13
1
Process flowcharting: the use of a diagram to present the major elements of a process
The basic elements can include tasks or operations, flows of materials or customers, decision points, and storage areas or queues
Process Flowcharting:
2
4
Process Flowcharting Example 1: Waking up
Process Description:
For Andy, the process of waking up starts when his alarm rings. When the alarm rings, Andy has to decide whether he is ready to get up or not. If he is ready to get up, he gets out of the bed, and the process of waking up comes to an end. If he is not ready to get up, he hits the snooze button on the alarm, and goes back to sleep for 5 minutes. This process continues until Andy wakes up.
3
4
Process Flowcharting Example 1: Waking up
Any issues?
4
4
Process Flowcharting Example 2: Bank teller
Process Description:
For a bank teller, it all starts when a customer arrives at the counter. After the customer makes a cash withdrawal request, the teller has to check the customer’s ID, available account balance, and whether such withdrawal is allowed under the bank’s policy. Only if the customer shows a valid ID, the teller will check the balance, and only if the account has the necessary balance, the teller will check whether the withdrawal request complies with the bank’s policy. If the request complies with the bank’s policy, the teller records the transaction, and then gives cash to the client. If any of the process checks (ID, balance, compliance with the bank’s policies) fail, then the withdrawal request is rejected.
5
4
Process Flowcharting Example 2: Bank teller
Any issues?
6
4
Process Flowcharting Example 3: Your Call!
Let’s make one example up!
7
4
Multi-stage process with buffer..
8
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
Buffering, Blocking, and Starving..
9
The drum, buffer, rope, concept
Stage or process B
Stage or process A
Stage or process D
Stage or process E
Buffer of inventory
Stage or process C
Bottleneck drum sets the beat
Communication rope controls prior activities
10
10
Questions?
11
DSCI 303 Session 14 - Oct 22.pptx
DSCI-303
Operations Management
Session 14
1
What does planning involve?
2
Capacity .. means the scale of an operation.
What is capacity?
This alone does not reflect the operation’s processing capability.
Hence, we must incorporate a time dimension appropriate to the use of assets.
For example, 24,000 liters per day;
10,000 calls per day;
57 patients per session;
Etc.
3
3
Climatic
Festive
Behavioural
Political
Financial
Social
Demand varies..
Construction materials
Beverages (beer, cola)
Foods (ice-cream)
Clothing (swimwear, shoes)
Gardening items (seeds)
Fireworks
Travel services
Holidays
Tax processing
Doctors (influenza epidemic)
Sports services
Education services.
4
4
Demand fluctuations in four operations
5
5
Good forecasts are essential ..
But, so is an understanding of demand uncertainty because it allows you to judge the risks to the service level.
When demand uncertainty is high, the risks to service level of under provision of capacity are high.
Demand
Time
Only 5% chance of demand being lower than this
Demand
Time
Distribution of demand
Only 5% chance of demand being higher than this
6
6
Loading time
Equipment ‘idling’
Speed losses
Slow running equipment
Net operating time
Not worked (unplanned)
Breakdown failure
Set-up and change-overs
Total operating time
Availability losses
Operating equipment effectiveness (OEE)
Availability rate = a
= Total operating time
Loading time
Performance rate = p
= Net operating time
Total operating time
Quality rate = q
= Valuable operating time
Net operating time
Quality losses
Valuable operating time
Quality losses
7
7
How capacity is used..
Design capacity
168 hours per week
Effective capacity
109 hours per week
Planned loss of 59 hours
Actual output – 51 hours per week
Avoidable loss – 58 hours per week
Efficiency
Actual output
Effective capacity
=
Utilization
Actual output
Design capacity
=
8
8
Economies and Diseconomies of Scale
Economies of scale: as a plant gets larger, the average cost per unit drops
Lower operating and capital costs
Per unit cost of equipment drops
More specialization of labor
At some point, the plant becomes too large
Diseconomies of scale becomes a problem
9
Ways of reconciling capacity and demand
Level capacity
Demand
Capacity
Chase demand
Demand management
Capacity
Capacity
Demand
Demand
10
Absorb demand
Adjust output to match demand
Change demand
10
Considerations in Changing Capacity
Maintaining system balance
Want similar capacities at each operation
Deal with bottlenecks
Frequency of capacity additions
Cost of upgrading too frequently
Cost of upgrading too infrequently
External sources of capacity
Outsourcing
Sharing capacity
11
Pull and push philosophies..
12
12
Planning Service Capacity
Time: goods can not be stored for later use and capacity must be available to provide a service when it is needed
Location: service goods must be at the customer demand point and capacity must be located near the customer
Volatility of demand: much greater than in manufacturing
13
26
Yield Management
Yield management: the process of allocating the right type of capacity to the right type of customer at the right price and time to maximize revenue or yield
Can be a powerful approach to making demand more predictable
Has existed as long as there has been limited capacity for serving customers
Its widespread scientific application began with American Airlines’ computerized reservation system (SABRE)
14
Yield management most effective when…
Demand can be segmented by customer
Fixed costs are high and variable costs are low
Inventory is perishable
Product can be sold in advance
Demand is highly variable
15
Homework 2 can be submitted on Blackboard
from Oct 24
& is due by 6 pm on Oct 31
Questions?
17
DSCI 303 Session 15 and 16 - Oct 27 and Oct 29.pptx
DSCI-303
Operations Management
1
Sessions 15 & 16
1
What and why of inventory..
Input process
Inventory
Output process
Rate of supply from input process
Rate of demand from output process
Inventory
2
2
Inventory helps..
Maintain independence of operations
Meet variation in product demand
Allow flexibility in production scheduling
Provide a safeguard for variation in raw material delivery time
Take advantage of economic purchase-order size
3
4
Inventory considerations..
Inventory = stacks of money sitting on forklifts, on shelves, and in trucks and planes while in transit
For many businesses, inventory is the largest asset on the balance sheet at any given time
Inventory is often not very liquid
It may be a good idea to try to get the inventory down as far as possible
4
Inventory affects ROA (Return on Assets)
5
Return on Assets
Profit
Total assets
Revenues Costs
Working capital + Fixed assets
=
=
Ability to supply from stock
Obsolescence, damage, loss
Cost of funding inventory
Storage costs
Ordering costs
Amount you owe suppliers
Amount customers owe you
e.g. Automotive parts distributor
e.g. Local retail store
Single-stage inventory system
Suppliers
Suppliers
Stock
Sales operation
Central depot
Distribution
Local distribution point
Sales operation
Two-stage inventory system
Single-stage, two-stage, multi-stage inventory systems
6
e.g. Television manufacturer
Suppliers
Input stock
Stage 1
WIP
Stage 2
WIP
Stage 3
Finished goods stock
Multi-stage inventory system