Chapter 1: Introduction to Operations Management

Introduction

Management of operations in an organization is not just related to itself since both customers and suppliers are located throughout this process. While suppliers in the supply chain are the sources for the operations in the organization, customers are the consumers of the output of these operations. A huge amount of two-sided information flow is taken place in the organization from the customers and suppliers.

Definitions of Operations Management

Operations is responsible for the production of goods and services. According to the Business Dictionary website, operations are defined as “Jobs or tasks consisting of one or more elements or subtasks, performed typically in one location”. Another definition from the website of My Accounting Course is “Operations are the business activities that a firm engages in to convert materials into finished products or services, sell them to customers, and earn a profit”.

Goods are tangible items (pencil, apple, chair) that satisfy the needs and requirements of human and provide utility.

Service is a kind of economic activity that is intangible and a set of activities providing some combination of time, location, form or psychological value.

Operations management is the business function that plans, organizes, coordinates and controls the resources needed to produce a company’s goods and services.

1. Right Quality : The quality of a product is established based upon the customers’ needs and requirements.
2. Right Quantity: The manufacturing company should have the production amount in the right quantity.
3. Right Time: One of the most important factors is the timeliness of delivery to judge the effectiveness of the production department.
4. Right Manufacturing Cost: Manufacturing costs are determined before the product is actually manufactured.

Efficiency means doing something at the lowest possible cost. Effectiveness means doing the right things to create the most value for the company. It is often possible that maximizing both effectiveness and efficiency simultaneously creates conflict between the two goals. The transformation process can take the following forms:

• Physical: in manufacturing operations such as automobile manufacturing.
• Chemical: in manufacturing operations such as paper manufacturing.
• Locational: in transportation or warehouse operations such as delivery of a refrigerator to home.
• Exchange: in retail operations such as buying a shirt from a retail shop.
• Psychological: in entertainment operations such as going to a holiday.
• Informational: in communication operations such as calling a friend from a cellular phone.

The purpose of transforming all the inputs into goods and services is to have a higher value than the original inputs. Otherwise, it doesn’t have any meaning. Operations department should focus on the transformation efficiency and effectiveness. Although, managing systems produce goods, services or a combination of them, there are some differences between the production of goods and the production of services. Some of the important differences between these are as follows:

1. Service operations’ inputs variability is greater than the manufacturing operations. Each customers’ needs and requirements can be different from each other in service operations such as repairment of the autos or treatment of the patients.
2. While most of the services need higher labor content, some manufacturing operations do not need that much labor content.
3. Manufacturing systems usually rely more heavily on raw material inputs than do service systems.
4. Manufacturing can be separated from the consumer both in space (stated above) and in time more easily than can the production of services.

The four primary functions of an organization are marketing, finance, operations and human resources. The degree of importance of these functions can vary from one organization to another. Many of the decisions given in the operations function depend on information flow coming from other functions such as marketing, finance and so on. Moreover, all of the functions cannot be well managed unless information comes from operations function. Marketing cannot do its job (meeting needs and requirements of the customer) properly if marketing manager do not understand what operations can produce, what due dates it can and cannot meet, and what types of customization operations can deliver. People working in finance department need to have some idea and knowledge about operations concepts and needs of the operations in order to understand the need for capital investment, make or buy decisions, plant expansions, or relocation and etc. Information system is a function that enables information to flow throughout the organization and allows operations management to operate effectively. In order to hire the right people to the right jobs, human resource managers must have information about the job requirements. One of the most important jobs of accounting function is to determine the cost data. Most organizations have additional supporting functions such as engineering, research and development, public relations function.

History of Operations Management

Production/Operations systems have existed since the existence of human beings. The singular production has started for the needs of human beings and then mass production has come to our era by many evolutions. Modern operations management started by the Industrial Revolution. Before this, production of every piece was unique, hand fitted, and made entirely by one person, known as craft production. Industrial Revolution began in the 1770s in England and spread to the rest of Europe and to the United States during the 19th century. Eli Whitney introduced the interchangeable parts in 1790s and manufacturing of many goods, such as firearms, clocks, watches, etc. could be done in huge lots by standard parts instead of manufacturing in a customized one-at-a-time. In the early 1900s, Henry Ford applied some of the principles of scientific management to improve the efficiency of operations. He made the production of the Model T in 1913 and reduced the time required to assemble a car from about 730 hours to one and a half hours by the first moving assembly line. In this production line, each automobile chassis moved along a line mechanically and workers made a small amount work before it moved to the next workstation. In the nineteenth and early twentieth century mathematical models and analysis were rarely used to solve the problems of operation and production. Some of the important studies made were Max Weber’s mathematical model in the nineteenth century to evaluate location decisions, F. W. Harris’s mathematical model for inventory order size in 1915, A.K. Erlang’s queuing models and stochastic systems in the 1930s and W. Shewart and his friend’s statistical procedures for sampling and quality control in 1930. During the 1960s and 1970s management science techniques were widely used and computers and automation provided many developments in the application of operations management models. During the 1970s, Japanese companies came into play in the World economy, especially in the production of steel, automobiles, housewares and electronics. By the developments in hardware and software systems many computerized tools and methods have been started to use in operations such as computer aided design (CAD), computer aided manufacturing (CAM), computer integrated manufacturing, etc.

Current Issues in Operations Management

Coordination of the relationship between the company and the suppliers: Many companies prefer to buy parts and services from outsourcers instead of producing them internally. This decision increases the level of outsourcing and related activities such as wrapping, packaging, moving and loading. Moreover, a lot amount of time and cost spent for these activities.

Globalization of supplier, production and distribution networks: After the effects of globalization in the companies and production systems, length of the most of the supply chains increased. Many companies increase the level of outsourcing by buying goods or services instead of producing them.

Increased co-production of goods and services: Easy and almost costless usage of internet in the communication has given many opportunities for both companies and customers.

Managing customer contact: Today companies try to become more customer focused and interact well with them. For this purpose, they provide some services such as help lines, call centers, checkout counters.

Being aware of the power of operations in a company as a competitive weapon: When successful organizations are examined it is seen that functional units of this organization work synchronized and coordinated. All the functional units do their jobs in integrity.

Necessity of shortening the product development phase: Everything is changing rapidly such as life styles, way of doing jobs, needs, requirements of customers in today’s world. The companies feel a lot of pressure on them to follow this change.

Increasing importance of e-business: By the emergence of the Internet, e-business increasingly takes place among companies and customers.

Scope of Operations Management

Location of Facilities: Decision taken about the location of the facility is a strategic decision which involves longterm commitment about the geographically static factors that affect a manufacturing company.

Plant Layout and Material Handling: Plant layout is the physical arrangements of facilities, including personnel, equipment and materials. Material handling is the movement, protection and control of materials, parts, semi- finished products, finished products throughout manufacturing, packing, stocking, distribution and disposal.

Product Design

It is the connection of materials, technology and art by transforming ideas into real products and concepts for the satisfaction of customers. Design specifications of a product directly affect the operations.

Process and Job Design

Process design is an important decision for an overall process route in converting the raw materials into finished goods. Design of work systems can also be included in process design depending on the structure of the operations. The selection of production process usually affects the quantity and skill level of personnel required.

Production Planning and Control

Production planning and control is the process of planning the future production, preparing the exact route of each product, determining the starting and finishing dates for each product, to give production orders to shops and to track the progress of products according to orders.

Quality Control

Quality control tries to prevent defects at the source and uses an effective feedback system and corrective action procedure. The purpose of quality control is to keep the product and product manufacturing consistent and in line with customer requirements. Well- defined controls and standardization in the process are essentials of quality control.

Materials Management

Materials management deals with the acquisition, control and use of materials needed and flow of goods and services connected with the production process having some predetermined objectives in view.

Maintenance Management

The purpose of maintenance management is to control the allocation of resources, time and costs to ensure the efficiency and adequacy of the maintenance operations, avoiding waste of resources or even periods of downtime due to faulty equipment.

Classification of Production Process Structures

Processes can be classified according to physical configuration, material and product flow, product variation and volume expectation.

Flow Processes: When the products that are produced in the production system follow the same type of processing in the same sequence, then this process which is called flow process, is the most efficient one. Inflow processes the whole production process is separated into tasks or operations that must be performed.

Continuous Flow Processes: Continuous flow processes are used when a process runs all day for each day of the year on a continuous basis. In other words, it is for 24 hours and 365 days of a year. It is designed for the production of high volumes of a narrow range of products.

Repetitive or Discrete Flow Processes: The work stations are tightly connected to each other and one general type of product is produced depending on the sequence of activities. The product is a discrete product and it is processed and transferred between workstations one by one in a synchronized manner. Since all the operations are the same for all the products, it is called repetitive.

Batch or Disconnected Flow Processes: Batch flow processes are tried to take the advantage of common flow of materials and the flexibility of producing a variety of products in different volumes. Since there are some unbalanced work stations, different stages of production cannot be synchronized. Batch flow processes do not take all the advantages of other types of flow processes due to the structure of them.

Job-Shop Processes: job-shop processes are used for the production of several different products that follow different types of processing and different sequences for different products. Job- shop processes that are sometimes called make to order production, usually produce products only to customer order in small batches. These products are made-to-order products and the production flexibility is too high.

Cellular Processes: Cellular processes give the manufacturer an opportunity of the efficiency of flow processes along with the flexibility of job-shop processes. It is a hybrid production process that is considered as a mixture of mini flow processes called as work cells and a job-shop operation. The most important disadvantage of this process is the difficult implementation of this process that requires a considerable amount of work, expertise and experience.

Project Processes: The product to be produced technically does not flow in a project since materials, labor and equipment are brought to the project place and the project itself is usually stationary. Weight, size, bulk or some other factors make it extremely difficult or impossible to move the product. One-of-a-kind and customized products are produced in this type of process.

Contemporary Operations Themes

Many different types of contemporary themes are appearing in operations today by changing the environment.

Total Quality Management: Total quality management is the continual process of detecting and reducing or eliminating errors in manufacturing, streamlining supply chain management, improving the customer experience and satisfaction, and ensuring that employees are up to speed with training. The purpose of total quality management is to hold everybody involved in the production process accountable for the overall quality of the final product or service. The main purpose of TQM is to achieve and sustain long-term success for the satisfaction of a customer.

Business Process Reengineering: Business Process Reengineering (BPR) seeks to make radical changes and redesign almost all core business processes of the company rather than evolutionary changes as it is done in TQM to achieve dramatic improvements in productivity and quality.

Lean Production: Japanese manufacturers changed the way of having production from mass production to lean production by using just-in- time concept. This concept extended the idea of identifying value provided to the customer along with lean thinking applied to every part of the business and the supply chain. Lean production gives  the company to be flexible and to have high quality in production.

Supply Chain Management: The main idea of supply chain management (SCM) is to apply system approach for the management of flow of information, materials and services from raw material suppliers through factories and warehouses to the final customer in the most streamlined and cost-effective way possible. SCM involves the integrated planning and completion of processes required to optimize the flow of materials, information and financial capital in the fields such as demand planning, sourcing, production, inventory management, storage and transportation and return of excess or defective products.

Agile Manufacturing: Agile manufacturing is an approach for developing competitive advantage in today’s fast changing market. The company becomes speedy and agile to focus on rapid response to the customer as a competitive advantage. There are five key elements of agile manufacturing.

1. Modular Product Design
2. Fully Connected Information Technology
3. Corporate Partners
4. Knowledge Culture
5. Full Company Involvement

Mass Customization: Mass customization of market means that the same large number of customers can be reached as in mass markets of the industrial economy, and simultaneously they can be treated individually as in customized markets of pre-industrial markets. There are four primary types of mass customization

1. Collaborative customization
2. Adaptive customization
3. Transparent customization
4. Cosmetic customization

Flexible Manufacturing System: A flexible manufacturing system (FMS) is an integrated, computer-controlled complex of automated material handling devices and numerically controlled (NC) machine tools that can simultaneously process medium-sized volumes of a variety of part types.

Six Sigma: Six sigma which is popularized by Motorola, is a systematic method for improving the process and used for reducing defects, lowering cost, saving time and improving customer satisfaction. It is a comprehensive system for achieving and sustaining success in business. Sigma shows the number of standards deviations of the process. Six sigma means 3.4 defective parts per million. This method usually uses DMAIC which is known as six sigma improvement method.

1. Define: It defines the project’s goal and scope and identifies the selected process for information by keeping in mind the customer’s quality perception.
2. Measure: It measures the current quality variables of the process and collects data.
3. Analyze: It analyses the root causes of the quality problems of the process.
4. Improve: The process is changed or redesigned or modified for improving and eliminating the root causes of the quality problem.
5. Control: The process is being controlled to make sure performance levels are maintained.

Computer Integrated Manufacturing: Heart of computerintegrated manufacturing (CIM) is the integration of decision making and data. It is the integration of all manufacturing processes and business functions through a common database. The factory is centered on computer integration with less labor force and product and process design, forecasting, capacity planning, inventory control and many other activities that are performed under the control of computers.

E-Manufacturing: Real- time and integrated business logic transactions are made easily and fast by the Internet and advanced network computing technologies. Therefore, the adoptions of e-business in enterprises are accelerating across all the business sectors in the world. For a manufacturer a plant-wide real-time information system is fundamental to its e-business execution, where an emanufacturing system on the plant floor plays a critical role.