PRESENTED BY:

Syed Mahbubul Haque Chowdhury

Supply Chain Manager, Business Development, Gemcon Group
Consultant, Organic Origin Firms Ltd.; Advanced Insight Ltd .
IBA, University of Dhaka
December 18, 2015

FOUR DIMENSIONS OF PERFORMANCE

Quality

Cost

Efficiency

Variety

Customer heterogeneity

Product quality (how good?)

Process quality (as good as

promised?)

Time

Responsiveness to demand

Important for
- Performance measurement
- Defining a business strategy
2

FOUR DIMENSIONS OF PERFORMANCE: TRADE-OFFS

Cost

Efficiency
Measured by:
- cost per unit
- utilization

Quality

Product quality (how good?)

=> Price

Process quality (as good as

promised?)
=> Defect rate

Variety

Time

Customer heterogeneity

Measured by:
- number of options
- flexibility / set-ups
- make-to-order

Responsiveness to demand
Measured by:
- customer lead time
- flow time

WHAT CAN OPS MANAGEMENT DO TO HELP?

STEP 1: HELP MAKING OPERATIONAL TRADE-OFFS
Responsiveness
High

Very short waiting times,

Comes at the expense of
Frequent operator idle time

Tradeoff

Low

Long waiting times,

yet operators are almost
fully utilized

Low labor
productivity

High labor
productivity

Example: Call center of a large retail bank

- objective: 80% of incoming calls wait less than 20 seconds
- starting point: 30% of incoming calls wait less than 20 seconds
- Problem: staffing levels of call centers / impact on efficiency
OM helps: Provides tools to support strategic trade-offs

Labor Productivity
(e.g. $/call)

WHAT CAN OPS MANAGEMENT DO TO HELP?

STEP 2: OVERCOME INEFFICIENCIES
Responsiveness

High

Current frontier
In the industry
Competitor A

Eliminate
inefficiencies
Competitor C

Low

Competitor B
Low labor
productivity

High labor
productivity

Labor Productivity
(e.g. $/call)

Example:
Benchmarking shows the pattern above
Dont just manage the current system Change it!
Provides tools to identify and eliminate inefficiencies => Define Efficient Frontier
Types of inefficiencies:
-Poor process design
- Inconsistencies in activity network

WHAT CAN OPS MANAGEMENT DO TO HELP?

STEP 3: EVALUATE PROPOSED REDESIGNS/NEW TECHNOLOGIES
Responsiveness

High
Redesign
process

New frontier
Current frontier
In the industry
Low

Low labor
productivity

High labor
productivity

Example:
What will happen if we develop / purchase technology X?
Better technologies are always (?) nice to have, but will they pay?
OM helps: Evaluates system designs before they occur

Labor Productivity
(e.g. $/call)

THE EFFICIENT FRONTIER

Responsiveness

High

Current frontier
In the industry
Competitor A

Eliminate
inefficiencies
Competitor C
Competitor D
Low

Competitor B
Low labor
productivity

High labor
productivity

Labor Productivity
(e.g. $/call)

There exists a tension between productivity and responsiveness

Efficient frontier

UNDERSTANDING OPERATIONS MANAGEMENT

Operations Management is defined as the process of

designing, operating and controlling a productive system
capable of transforming physical resources and human
talent into needed goods and services.
It
encompasses
forecasting,
capacity
planning,
scheduling, managing inventories, assuring quality,
motivating employees, deciding where to locate facilities,
buying materials and equipments and maintaining them,
and more.

OM AT THE CORE OF BUSINESSES

Organization
Finance

Operations

Marketing

Three basic functions

Operations/Production
Goods oriented (manufacturing and assembly)
Service oriented (health care, transportation and retailing)
Value-added (the essence of the operations functions)

Finance-Accounting
Budgets (plan financial requirements)
Provision of funds (the necessary funding of the operations)

Marketing
Selling, Promoting
Assessing customer wants and needs
9

OBJECTIVE AREAS OF OPERATIONS MANAGEMENT

Quality
Speed
Dependability
Flexibility
Cost
Innovation

10

THE TRANSFORMATION PROCESS

Value-Added

Inputs
Land
Labor
Capital
Information

Transformation/
Conversion
Process

Outputs
Goods
Services

Measurement
and Feedback
Measurement
and Feedback

Control

Measurement
and Feedback

Feedback = measurements taken at various points in the transformation process

Control = The comparison of feedback against previously established standards to
determine if corrective action is needed.
11

OM: AN ORGANIZATIONAL PERSPECTIVE

Strategic (long-range)
Needs of customers
(capacity planning)

Tactical (medium-range)
Efficient scheduling of
resources

Operational planning
and control (short-range)
Immediate tasks and
activities
12

OM: AN OPERATIONAL PERSPECTIVE

Some examples of the different types of transformations are:

Physical, as in manufacturing
Locational, as in transportation
Exchange, as in retailing
13

INPUT-TRANSFORMATION-OUTPUT
RELATIONSHIPS FOR TYPICAL SYSTEMS

14

MARKETING OM FINANCE
SHOULD WORK TOGETHER

Operations
Marketing

Finance

15

OPERATIONS ARE EVERYWHERE !

Operations
Goods producing

Examples
Farming, mining, construction

Storage/transportation Warehousing, trucking, mail, taxis, buses, hotels

Exchange

Trade, retailing, wholesaling, renting, leasing, loans

Entertainment

Radio, movies, TV, concerts, recording

Communication

Newspapers, journals, radio, TV, telephones, satellite

16

THE VALUE CHAIN AND ITS SUPPORT FUNCTIONS

(LINKING OM TO CUSTOMERS AND SUPPLIERS)

17

MANUFACTURING VS. SERVICE OPERATIONS

Production of goods
Tangible products
Automobiles, Refrigerators, Aircrafts, Coats, Books, Sodas

Services
Repairs, Improvements, Transportation, Regulation

Regulatory bodies: Government, Judicial system

Entertainment services: Theaters, Sport activities
Exchange services: Wholesale/retail
Appraisal services: Valuation, House appraisal
Security services: Police force, Army
Financial services: Banks
Education: Universities, Colleges, Schools.
18

CHARACTERISTICS OF SERVICE

19

OM: MANUFACTURING VS. SERVICES

Characteristics Differences between Goods & Services
Characteristics

Goods

Services

Output

Tangible

Intangible

Customer Contact

Low

High

Uniformity of Input

High

Low

Labor Content

Low

High

Measurement of Productivity

Easy

Difficult

Opportunity to correct quality

Problems

High

Low

Input variability

Lower

Greater

20

MOST PRODUCTS ARE A BUNDLE

OF GOODS AND SERVICES

21

OM: EXAMPLE OF SERVICE

22

OM: EXAMPLE OF GOODS

23

IMPORTANT QUALITY DIMENSIONS IN

MANUFACTURING

Performance
Features
Reliability
Conformance
Durability
Serviceability
Aesthetics
Perceived Quality

24

IMPORTANT QUALITY DIMENSIONS IN

SERVICES

Time
Timeliness
Completeness
Courtesy
Consistency
Accessibility & Convenience
Accuracy
Responsiveness

25

10 DECISION AREAS OF OM
1.
2.
3.
4.
5.
6.

7.

8.

9.

10.

Product Design: What good or service should we offer?

Quality: How to define quality?
Process: What process will these products require?
Location: Where should we put the facility?
Layout: How should we arrange the facility?
Human Resources :How to provide a reasonable work
environment?
Supply Chain Management: should we make or buy this
component?
Inventory: How much inventory of each item should we have?
Planning (aggregate and short-term): which job do we perform
next?
Maintenance: who is responsible for maintenance?
26

OPERATIONS MANAGEMENT ACTIVITIES

Operations Management Activities

Periodic

Selecting

Designing

Continual

Updating
Operating - Controlling

27

NEW CHALLENGES OF OM

28

RESPONSIBILITIES OF OPERATIONS MANAGEMENT

Planning
Capacity, utilization
Location
Choosing products or
services
Make or buy
Layout
Projects
Scheduling
Market share
Plan for risk reduction,
plan B?
Forecasting

Controlling
Inventory
Quality
Costs
Organization
Degree of standardization
Subcontracting
Process selection
Staffing
Hiring/lay off
Use of overtime
Incentive plans

In a nutshell, the challenge is

Matching the Supply with Demand
SUPPLY SIDE

DEMAND SIDE
29

Supply Does Not Naturally Match Demand

Inventory results from a mismatch between supply and demand

Mismatch can take one of the following two forms
Supply waits for Demand
Inventory = Finished goods and resources

Demand waits for Supply

Inventory is negative or said to be backordered in manufacturing
Inventory = Waiting customers in services

Mismatch happens because

the demand varies
the capacity is rigid and finite.
If the capacity is infinite, products (or services) can be provided at an infinite rate
and instantaneously as the demand happens. Then there is no mismatch.
30

OM: PROCESS TECHNOLOGY

Job shop technology: suitable for a variety of custom

designed products in small volume; e.g., Consulting firms

Batch technology: suitable for a variety of products in

varying volume; e.g., Bakery

Assembly line: suitable for a narrow range of standardized

products in high volume; e.g., RMG Manufacturing

Continuous flow technology: suitable for producing a

continuous flow of products; e.g., Beverage

Project technology: is unique and not repetitious activity

with well defined objective that cuts across many
organizational and functional lines involving cost & time;
e.g., Padma Bridge Project
31

PRODUCT LIFE CYCLE

32

PRODUCT DESIGN & DEVELOPMENT SEQUENCE

Key Activities

Steps

Search for consumer needs

Searching for Alternatives

Key Outputs

Idea Generation

Selection & ranking of best Ideas

Economic Analysis
General Feasibility

Product Selection

Choice of specific product features

Evaluation of alternative designs with regard to

reliability, maintainability, and service life

Preliminary Design

Selection of best design

Development and testing of process, compatibility

& simulation studies

Final Design

Final specification in the form of

assembly drawings, processing
formulas, procedure statements etc.

Market Analysis

Facilities Exist

New facilities required

Major & minor tech choice

Evaluation alternative technologies & methods

Process selection

Choice of specific equipment & process flow.

Downstream production decision

Capacity Planning
Production planning
Scheduling

33

- WHAT ARE THE TOOLS OF OM?

- THEY ARE THE MODELS

Model: A structure which has been built purposefully to exhibit

features and characteristics of another object.

A map is a model of
A toy car is a model of
A movie is a model of
An OM course is a model of

For
Improved understanding and communication
Easy to use, less expensive

Experimentation
Analysis of tradeoffs
Enable what if questions

Standardization and organization for analysis

Increase understanding of the problem

Consistent tool
Standardized format
Specific objectives

Abstraction vs. computability

34

TYPES OF MODELS
Physical models (prototypes)
Schematic models (Graphs, charts, pictures)
Mathematical models, by application area

Statistical models

Linear regression

Linear programming
Queuing techniques
Inventory models

EOQ model
EPQ model

Project management models

Networks
35

Inventory Management

36

Functions of Inventory
To meet anticipated demand
To smooth production requirements
To decouple components of the production
To protect against stockouts
To take advantage of order cycles
To hedge against price increases, or to take advantage
of quantity discounts
To permit operations (work in process)

37

Objectives of Inventory Control

Maximize level of customer service
Minimize costs (carrying costs and ordering costs)

38

Requirements for Effective Inventory Management

A system to keep track of the inventory

periodic, perpetual, two-bin, and universal product code (UPC)
A reliable forecast of demand
Knowledge of lead times and lead time variability
-lead time time between submitting a purchase order and receiving it
-lead time variability reliability of the supplier
Estimates of inventory holding costs, ordering costs, and shortage costs
Holding cost
Ordering cost
Stockout cost
A classification system for inventory items
ABC approach classifies inventory
according to some measure of importance ($ value) where A very
important, C least important
39

Finding the optimal quantity to order EOQ

Lets say we decide to order in batches of Q
Inventory position

Number of
periods will be

Period over which demand for Q has occurred

Time

The average
inventory for
each period is
Q
2

Total Time

Finding the optimal quantity to order

Purchasing cost = D x C

Ordering cost =

x S

Inventory cost =

Q
2

x H

So what is the total cost?

TC = D C

D
Q

In order now to find the optimal quantity we need to

optimize the total cost with respect to the decision
variable (the variable we control)

Which one is
the decision
variable?

What is the main insight from EOQ?

There is a tradeoff between holding costs and ordering costs

Total cost

Cost
Holding costs

Ordering costs
Order Quantity (Q*)

Economic Order Quantity - EOQ

Q*

2SD
H

Example:
Assume a car dealer that faces demand for 5,000 cars per year, and
that it costs $15,000 to have the cars shipped to the dealership.
Holding cost is estimated at $500 per car per year. How many
times should the dealer order, and what should be the order size?

2(15,000)(5,000)
Q
548
500
*

If delivery is not instantaneous, but there is a

lead time L:
When to order? How much to order?

Inventory

Order
Quantity
Q

Lead Time
Place
order

Receive
order

Time

If demand is known exactly, place an order when

inventory equals demand during lead time.
Order
Quantity
Q
Inventory

Q: When shall we order?

A: When inventory = ROP
Q: How much shall we order?
A: Q = EOQ

Reorder
Point
(ROP)
ROP = LxD
Lead Time
D: demand per period
L: Lead time in periods

Place
order

Receive
order

Time

Example (continued)
What if the lead time to receive cars is 10 days?
(when should you place your order?)
Since D is given in years, first convert: 10 days = 10/365yrs

R =

10
D =
365

10
5000 = 137
365

So, when the number of cars on the lot reaches 137,

order 548 more cars.

48