Introduction to Operations Management Introduction Operations is the part of the business responsible for producing goods and services Goods physical items that include raw materials parts subassemblies and final products Services activities that provide some combination of time location form or psychological value The ideal situation for business organizations is to achieve an economic match of supply and demand Business organizations have three basic functional areas Finance Marketing Operations Supply Chain the sequence of organizations their facilites functions and activities that are involved in producing and delivering a product or service Supplier s Suppliers Direct Suppliers Producer Distributor Final Customer Organizations take measurements at various points in the transformation process feedback and then compares them with previously establish standards to determine whether corrective action is needed control Goods and services often occur jointly i e oil change Oil good changing of oil service Value Added the difference between the cost of inputs and the value or price and outputs The essence of the operations function is to add value during the transformation process Production of Goods Versus Providing Services Manufacturing and service are often different in terms of what is done quite similar in terms of how it s done Primary factors for both manufacturing and service Forecasting and capacity planning to match supply and demand Process management Managing variations Monitoring and controlling costs and productivity Supply chain management Location planning inventory management and scheduling Process Management Process one or more actions that transform inputs into outputs There are three categories of business processes Upper Management Processes govern the organization Operational Processes the core processes that make up the value stream Examples include purchasing production and or service marketing and sales Supporting Processes support the core processes Examples include accounting human resources and IT Business Process Management BPM activities include process design process execution and process monitoring Two basic aspects of this for operations and supply chain management are managing processes to meet demand and dealing with process variability Managing a Process to Meet Demand Ideally the capacity of the process will be such that its output just matches demand Excess capacity is wasteful and costly Having the right capacity requires having accurate forecasts of demand the ability to translate forecasts into capacity requirements and a process in place capable of meeting expected demand Process Variation There are four basic sources of variation The variety of goods or services being offered the greater the variety of goods and services the greater the variation in production or service report Structural variation in demand these variations which include trends and seasonal variations are generally predictable They are particularly important for capacity planning Random variation this natural variability is present to some extent and all processes as well as in demand for services and products and he cannot generally be influenced by managers Assignable variation these variations are caused by defective inputs incorrect work methods out of adjustment equipment and so on This type of variation can be reduced or limited by analysis and corrective action Variations can be disruptive to operations and supply chain processes interfering with optimal functioning An important aspect of being able to deal with variation is to use metrics described Two widely used metrics are the mean and standard deviation The Scope of Operations Management The scope of operations management ranges across the organization Activities include Forecasting Capacity planning Locating facilities Scheduling Managing inventories Assuring quality Motivating and training employees Managing the Supply Chain to Meet Schedule Cost and Quality Goals A primary function of an operations manager is to guide the system by good decision making Certain decisions affect the design of the system and others affect the operation of the system System Design involves decisions that relate to system capacity the location of facilities and service planning and acquisition of equipment Usually require long term commitments Typically strategic decisions System Operation involves management of personnel inventory planning scheduling project management and quality assurance Typically tactical and operational decisions System design determines many of the parameters of system operation Operations Management and Decision Making And operations managers daily concerns include costs budget quality and schedules time Models Model an abstraction of reality a simplified representation of something Classified in three ways Physical look like their real life counterparts i e model cars Schematic more abstract than their physical counterparts Examples include graphs and charts Mathematical most abstract Examples include numbers formulas and symbols Easiest to manipulate Models are beneficial for several reasons Easier to use and less expensive than the actual situation Require users to organize and quantify information Increase understanding of the problem Enable managers to analyze what if questions Quantitative Approaches Quantitative approaches attempt to obtain mathematically optimal solutions to managerial problems Inventory models forecasting techniques and statistical models are all examples of quantitative approaches Although quantitative approaches are widely used in operations management managers use a combination of quantitative and qualitative approaches and many decisions are based on qualitative approaches Performance Metrics All managers use metrics to manage and control operations Related to profits cost quality productivity flexibility and inventories 2 most important metrics are customer service and cost FTQ First Time Quality percentage of work that is 100 right in each process step with no rework tweaks adjustments etc Analysis of Trade Offs Operations Managers frequently encounter decisions that can be described as trade off decisions Example when stocking inventory the manager must take into account the trade off between increased customer service that the inventory provides with the cost of stocking that inventory A Systems Approach Systems approach big picture view System A set of interrelated