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Operations Management

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Prof. Dr. K. Adisesha
Prof. Dr. K. Adisesha

This document provides an overview of an operations management course. It outlines the 5 units that will be covered: (1) introduction to operations management; (2) product design and process selection; (3) production planning and control; (4) materials management; and (5) total quality management. The goal is to focus on analytical methods and provide practical insights into operations management. Key concepts that will be discussed include production systems, quality management, and responsiveness to customers.

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By Prof. K. Adisesha K. Adisesha 1
OPERATIONS MANAGEMENT  AIM : To focuses on key analytical methods and provide practical insight for operations management.  UNIT I : Operations Management – Meaning – Importance – historical contributions – System view of OM - Operation strategy and competitiveness - Functions of OM – types of production systems  UNIT II : Product design and process selection – Evaluation and Selection of appropriate Production and Operations technology. Product Design and process selection. Types of layout – analysis and selection of layout – Product and / or Process layout, Cellular, Lean and Agile manufacturing systems – Computer Integrated Manufacturing Systems - Assembly line balancing.  UNIT III : Production planning and control – meaning – functions – aggregate planning – master production schedule (MPS) – Material requirement planning (MRP) – BOM – Capacity requirement planning (CRP) – Techniques – problems in MRP and CRP – an introduction to MRP II and ERP – Business Process Re-engineering - Total Productive Maintenance (TPM)  UNIT IV : Materials management – functions – material planning and budgeting – Value Analysis - purchase functions and procedure - inventory control – types of inventory – safety stock – order point – service level – inventory control systems – perpetual – periodic – JIT – KANBAN.  UNIT V : Total Quality Management Concept - Statistical Quality Control for Acceptance Sampling and Process Control – Concepts of O.C.C. Curve – Use of the O.C. Curve – Concept of Type I and Type II error – Quality movement – Quality circles –– ISO Quality Certifications and types – Quality assurance – Six Sigma concept. K. Adisesha 2
Operations Management Definition: The business function responsible for planning, coordinating, and controlling the resources needed to produce products and services for a company K. Adisesha 3
Operations Management  Systematic direction, control, and evaluation of the entire range of processes that transform inputs into finished goods or services.  Environmental factors-culture, political, and market influences  Inputs-HR, capital, materials, land, energy, information, customer  Transformations-convert inputs into outputs K. Adisesha 4
Operations Management (cont)  Outputs-goods or services, and waste  Customer Contact-customers actively participate in transformation processes, self-service  Performance Feedback-repair records, customer comments K. Adisesha 5
Operations Management  Refers to the management of the production system that transforms inputs into finished goods and services.  Production system: the way a firm acquires inputs then converts and disposes outputs.  Operations managers: responsible for the transformation process from inputs to outputs.  Operations management seeks to increase the quality, efficiency, and responsiveness of the firm.  Seeks to provide a competitive advantage. K. Adisesha 6
Historical Development of OM  Industrial revolution Late 1700s  Scientific management Early 1900s  Hawthorne Effect 1930s  Human relations movement 1930s-  Management science 1940s-  Computer age 1960s-  Environmental Issues 1970s-  JIT & TQM* 1980s- *JIT= Just in Time, TQM= Total Quality Management K. Adisesha 7
Historical Development con’t  Reengineering 1990-  Global competition 1980-  Flexibility 1990-  Time-Based Competition 1990-  Supply chain Management 1990-  Electronic Commerce 2000-  Outsourcing & flattening of world 2000- For long-run success, companies must place much importance on their operations K. Adisesha 8
Today’s OM Environment  Customers demand better quality, greater speed, and lower costs  Companies implementing lean system concepts – a total systems approach to efficient operations  Recognized need to better manage information using ERP and CRM systems  Increased cross-functional decision making K. Adisesha 9
OM in Practice  OM has the most diverse organizational function  Manages the transformation process  OM has many faces and names such as;  V. P. operations, Director of supply chains, Manufacturing manager  Plant manger, Quality specialists, etc.  All business functions need information from OM in order to perform their tasks K. Adisesha 10
Business Information Flow K. Adisesha 11
Operations Management is:  A management function  An organization’s core function  In every organization whether Service or Manufacturing, profit or Not for profit K. Adisesha 12
Typical Organization Chart K. Adisesha 13
What is Role of OM?  OM Transforms inputs to outputs  Inputs are resources such as  People, Material, and Money  Outputs are goods and services K. Adisesha 14
OM’s Transformation Process K. Adisesha 15
OM’s Transformation Role  To add value  Increase product value at each stage  Value added is the net increase between output product value and input material value  Provide an efficient transformation  Efficiency – means performing activities well for least possible cost K. Adisesha 16
Goods & Services  Services  Intangible product  Product cannot be inventoried  High customer contact  Short response time  Labor intensive  Manufacturing  Tangible product  Product can be inventoried  Low customer contact  Longer response time  Capital intensive K. Adisesha 17
On the other hand…  Both use technology  Both have quality, productivity, & response issues  Both must forecast demand  Both will have capacity, layout, and location issues  Both have customers, suppliers, scheduling and staffing issues  Manufacturing often provides services  Services often provides tangible goods K. Adisesha 18
Hybrid organizations  Some organizations are a blend of service/manufacturing/quasi-manufacturing Quasi-Manufacturing (QM) organizations  QM characteristics include  Low customer contact & Capital Intensive K. Adisesha 19
Operations Management Concepts  Quality: goods and services that are reliable and perform correctly.  Quality allows customers to receive the performance that they expect.  Efficiency: the amount of input to produce a given output.  Less input required lowers cost and waste.  Responsiveness to customers: actions taken to respond to customer needs.  Firm can react quickly and correctly to customer needs as they arise. K. Adisesha 20
Typical Characteristics of Services and Goods Producers Adapted from Table 21.1 Primarily Service Producers Primarily Goods Producers Continuum of Characteristics Intangible, nondurable Output can’t be inventoried High customer contact Short response time Labor intensive Tangible, durable Output can be inventoried Low customer contact Long response time Capital intensive Mixed 21.3 K. Adisesha 21
Positioning Strategies-approach selected for transformational processes  Process Focus-layout of plant and equipment around each production unit  custom made  Low Volume  Norwegian Ship Building  Product Focus-arranging plant and equipment around one or a few output types  many of one product  high-volume, highly automated  low flexibility  Factory Lines  Intermediate Strategy-plant and equipment layout reflects some of both strategies  batches of products  Kinkos, Ball Homes  Agile Strategy-mass customization K. Adisesha 22
Flexibility  Product Flexibility-speed with which products are created, ability to customize, ability to modify products for special needs  Volume Flexibility-ability to respond to sudden changes in demand, change from small to full scale  Process Flexibility-ability to manufacture a variety of goods in a short time, adjust to product mix over time, ability to accommodate changes in raw materials K. Adisesha 23
Core Positioning Strategies Adapted from Figure 21.2 Process focus Space shuttle Legal practice Product focus Auto assembly plant Mail processingIntermediate Garment industry Branch banks Product volume Custom products, low volume Standard products, high volume Mixture of custom and standard products, moderate volume Continuous process (stable) Resourceflows Mass production Large batch Sporadic (unstable) K. Adisesha 24
Improving Responsiveness to Customers  Without customers, organizations cease to exist.  Non-profit and for-profit firms all have customers.  Managers need to identify who the customer is and their needs.  What do customers want? Usually customers prefer:  A lower price to a higher price.  High quality over low quality.  Fast service over slow service.  Also good after sale support.  Many features over few features.  Products tailored to their specific needs. K. Adisesha 25
Quality-how well a product does what the customer expects  Internal View-within the organization  External View-value customers expect  Value-the relationship between quality and price K. Adisesha 26
Competitiveness Value Map Relative Quality SuperiorInferior Higher Lower Poor value Adapted from Figure 21.3 RelativePrice Economy value Outstanding value Premium value Average value Source: Adapted from Gale, B.T., and Buzzell, R.D. “Market perceived quality: Key strategic concept.” Planning Review, March-April, 1989, 10. 21.7 K. Adisesha 27
Price v. Attributes  Firms offering high quality, fast service and other customer desires, often must raise price.  Customers must tradeoff price for attributes.  Operations management tries to push the price/attribute curve to the right with better production.  Provides more attributes at the same cost.  By enhancing the price/attribute relationship, the firm can increase its competitive position. K. Adisesha 28
Customer Responsive Production Systems  An output’s attributes is determined by the production system.  Firms must strike a balance between cost and attributes  Improving Quality: can apply to firms producing goods and services.  A firm that provides higher quality than others at the same price is more responsive to customers.  Higher quality can also lead to better efficiency.  Lowers waste levels and operating costs. K. Adisesha 29
Total Quality Management  The continuous process of ensuring every aspect of production builds in product quality  Traditional Quality-product inspection during or at the end of the transformation process K. Adisesha 30
Total Versus Traditional Quality Adapted from Table 21.3 n Quality is a strategic issue n Plan for quality n Quality is everybody’s responsibility n Strive for zero defects n Quality means conformance to requirements that meet or exceed customers’ expectations n Scrap and reworking are only a small part of the costs of nonconformance Traditional Quality ControlTotal Quality Management n Quality is a tactical issue n Screen for quality n Quality is the responsibility of the quality control department n Some mistakes are inevitable n Quality means inspection n Scrap and reworking are the major costs of poor quality K. Adisesha 31
Improving Efficiency  Labor productivity allows labor comparisons between organizations.  Improved efficiency leads to lower costs and better performance.  TQM and Efficiency: TQM can lead to much higher labor productivity.  When quality rises, less time is wasted on scrap.  Flexible manufacturing and efficiency: reduces the set-up costs for production systems. Facilities layout: seeks to design the machine-worker interface to increase production efficiency. K. Adisesha 32
Efficient Manufacturing  Most firms face major expense when setting up to produce a product.  These costs must be paid before production begins.  The more often products to be built change, the higher setup costs become.  Flexible Manufacturing reduces setup costs.  Just-in-Time (JIT) inventory, while developed for TQM, also adds to efficient production.  Many costs are reduced including warehousing, holding costs and inventory tracking.  Firm does not have a supply of parts, but can be vulnerable to strikes or supply problems. K. Adisesha 33
Efficient Manufacturing  Self-managed teams boost efficiency by allowing for a flatter organization structure.  The team takes the role of the supervisor.  Teams working together often become very skilled at enhancing productivity.  Kaizen: Japanese term for a management philosophy the stresses the need for continuous improvement.  Better operations can come from many, small, continuous improvements.  Focus on what adds value to the product and try to eliminate steps that do not add value (such as inspection for defects). K. Adisesha 34
Reengineering  Process Reengineering: the fundamental rethinking and radical redesign of the business process.  Can boost efficiency by directing efforts to activities that add value to the good or service produced.  While Kaizen focuses on continuous enhancements, process reengineering considers wholesale change.  Top managers must support operations enhancement tools for them to be accepted by workers.  Usually, a successful operations change means a complete change in the organizational culture.  Without a supporting culture, change will not succeed. K. Adisesha 35
Nine Categories of Operations Management Decisions  Product plans  Competitive Priorities  Positioning Strategies  Location  Technological Choices  Quality management and control  Inventory management and control  Materials Management  Master production scheduling 21.4 K. Adisesha 36
Inventory Costs  What contributes to inventory costs?  TOTAL COST = ORDERING + CARRYING  Carrying Costs  Warehouse  Insurance  Obsolescence  taxes  breakage  Ordering Costs  Placing the order  Transportation  Shortage K. Adisesha 37
Inventory Terms  Lead Time  Elapsed time between placing and receiving an order  EOQ-economic order cost  optimum order quantity yielding the lowest total inventory cost  Just-in-time  finished goods to sell  sub assemblies to be assembled  purchases of raw materials to be transformed K. Adisesha 38
Quantity (Q) High Low Averageannualcost($) Total cost Carrying cost Order cost Small LargeQ1 Adapted from Figure 21.5 Cost Trade-Offs in Determining Inventory Levels 21.13 K. Adisesha 39
Growth of the Service Sector  Service sector growing to 50-80% of non-farm jobs  Global competitiveness  Demands for higher quality  Huge technology changes  Time based competition  Work force diversity K. Adisesha 40
OM Decisions  All organizations make decisions and follow a similar path  First decisions very broad – Strategic decisions  Strategic Decisions – set the direction for the entire company; they are broad in scope and long-term in nature K. Adisesha 41
OM Decisions  Following decisions focus on specifics - Tactical decision  Tactical decisions: focus on specific day-to-day issues like resource needs, schedules, & quantities to produce  are frequent  Strategic decisions less frequent  Tactical and Strategic decisions must align K. Adisesha 42
OM Decisions K. Adisesha 43
OM Across the Organization  Most businesses are supported by the functions of operations, marketing, and finance  The major functional areas must interact to achieve the organization goals K. Adisesha 44
OM Across the Organization – con’t  Marketing is not fully able to meet customer needs if they do not understand what operations can produce  Finance cannot judge the need for capital investments if they do not understand operations concepts and needs  Information systems enables the information flow throughout the organization  Human resources must understand job requirements and worker skills  Accounting needs to consider inventory management, capacity information, and labor standards K. Adisesha 45
Review of Learning Objectives  Define and explain OM  Explain the role of OM in business  Describe the decisions that operations managers make  Describe the differences between service and manufacturing operations  Identify major historical developments in OM K. Adisesha 46
Review of Learning Objectives – con’t  Identify current trends in OM  Describe the flow of information between OM and other business functions K. Adisesha 47
The End K. Adisesha 48 References : 1. Production and Operations Management – Everest E Adam & Ebert – PHI – publication , forth edition. 2. Operations Management (Theory and Problems ) – Joseph G Monks – McGraw Hill Intl. 3. Production and Operations Management – S N Chary – TMH Publications 4. Production and Operations Management – Pannerselvam, PHI 5. Lee J. Krajewski and Larry P. Ritzman, “Operations Management: Process and value Chains”, 7th Edition, PHI, 2007 6. Hunawalla and Patil – production and Operations Management, Himalaya Thank you

More Related Content

Operations Management

  • 2. OPERATIONS MANAGEMENT  AIM : To focuses on key analytical methods and provide practical insight for operations management.  UNIT I : Operations Management – Meaning – Importance – historical contributions – System view of OM - Operation strategy and competitiveness - Functions of OM – types of production systems  UNIT II : Product design and process selection – Evaluation and Selection of appropriate Production and Operations technology. Product Design and process selection. Types of layout – analysis and selection of layout – Product and / or Process layout, Cellular, Lean and Agile manufacturing systems – Computer Integrated Manufacturing Systems - Assembly line balancing.  UNIT III : Production planning and control – meaning – functions – aggregate planning – master production schedule (MPS) – Material requirement planning (MRP) – BOM – Capacity requirement planning (CRP) – Techniques – problems in MRP and CRP – an introduction to MRP II and ERP – Business Process Re-engineering - Total Productive Maintenance (TPM)  UNIT IV : Materials management – functions – material planning and budgeting – Value Analysis - purchase functions and procedure - inventory control – types of inventory – safety stock – order point – service level – inventory control systems – perpetual – periodic – JIT – KANBAN.  UNIT V : Total Quality Management Concept - Statistical Quality Control for Acceptance Sampling and Process Control – Concepts of O.C.C. Curve – Use of the O.C. Curve – Concept of Type I and Type II error – Quality movement – Quality circles –– ISO Quality Certifications and types – Quality assurance – Six Sigma concept. K. Adisesha 2
  • 3. Operations Management Definition: The business function responsible for planning, coordinating, and controlling the resources needed to produce products and services for a company K. Adisesha 3
  • 4. Operations Management  Systematic direction, control, and evaluation of the entire range of processes that transform inputs into finished goods or services.  Environmental factors-culture, political, and market influences  Inputs-HR, capital, materials, land, energy, information, customer  Transformations-convert inputs into outputs K. Adisesha 4
  • 5. Operations Management (cont)  Outputs-goods or services, and waste  Customer Contact-customers actively participate in transformation processes, self-service  Performance Feedback-repair records, customer comments K. Adisesha 5
  • 6. Operations Management  Refers to the management of the production system that transforms inputs into finished goods and services.  Production system: the way a firm acquires inputs then converts and disposes outputs.  Operations managers: responsible for the transformation process from inputs to outputs.  Operations management seeks to increase the quality, efficiency, and responsiveness of the firm.  Seeks to provide a competitive advantage. K. Adisesha 6
  • 7. Historical Development of OM  Industrial revolution Late 1700s  Scientific management Early 1900s  Hawthorne Effect 1930s  Human relations movement 1930s-  Management science 1940s-  Computer age 1960s-  Environmental Issues 1970s-  JIT & TQM* 1980s- *JIT= Just in Time, TQM= Total Quality Management K. Adisesha 7
  • 8. Historical Development con’t  Reengineering 1990-  Global competition 1980-  Flexibility 1990-  Time-Based Competition 1990-  Supply chain Management 1990-  Electronic Commerce 2000-  Outsourcing & flattening of world 2000- For long-run success, companies must place much importance on their operations K. Adisesha 8
  • 9. Today’s OM Environment  Customers demand better quality, greater speed, and lower costs  Companies implementing lean system concepts – a total systems approach to efficient operations  Recognized need to better manage information using ERP and CRM systems  Increased cross-functional decision making K. Adisesha 9
  • 10. OM in Practice  OM has the most diverse organizational function  Manages the transformation process  OM has many faces and names such as;  V. P. operations, Director of supply chains, Manufacturing manager  Plant manger, Quality specialists, etc.  All business functions need information from OM in order to perform their tasks K. Adisesha 10
  • 12. Operations Management is:  A management function  An organization’s core function  In every organization whether Service or Manufacturing, profit or Not for profit K. Adisesha 12
  • 14. What is Role of OM?  OM Transforms inputs to outputs  Inputs are resources such as  People, Material, and Money  Outputs are goods and services K. Adisesha 14
  • 16. OM’s Transformation Role  To add value  Increase product value at each stage  Value added is the net increase between output product value and input material value  Provide an efficient transformation  Efficiency – means performing activities well for least possible cost K. Adisesha 16
  • 17. Goods & Services  Services  Intangible product  Product cannot be inventoried  High customer contact  Short response time  Labor intensive  Manufacturing  Tangible product  Product can be inventoried  Low customer contact  Longer response time  Capital intensive K. Adisesha 17
  • 18. On the other hand…  Both use technology  Both have quality, productivity, & response issues  Both must forecast demand  Both will have capacity, layout, and location issues  Both have customers, suppliers, scheduling and staffing issues  Manufacturing often provides services  Services often provides tangible goods K. Adisesha 18
  • 19. Hybrid organizations  Some organizations are a blend of service/manufacturing/quasi-manufacturing Quasi-Manufacturing (QM) organizations  QM characteristics include  Low customer contact & Capital Intensive K. Adisesha 19
  • 20. Operations Management Concepts  Quality: goods and services that are reliable and perform correctly.  Quality allows customers to receive the performance that they expect.  Efficiency: the amount of input to produce a given output.  Less input required lowers cost and waste.  Responsiveness to customers: actions taken to respond to customer needs.  Firm can react quickly and correctly to customer needs as they arise. K. Adisesha 20
  • 21. Typical Characteristics of Services and Goods Producers Adapted from Table 21.1 Primarily Service Producers Primarily Goods Producers Continuum of Characteristics Intangible, nondurable Output can’t be inventoried High customer contact Short response time Labor intensive Tangible, durable Output can be inventoried Low customer contact Long response time Capital intensive Mixed 21.3 K. Adisesha 21
  • 22. Positioning Strategies-approach selected for transformational processes  Process Focus-layout of plant and equipment around each production unit  custom made  Low Volume  Norwegian Ship Building  Product Focus-arranging plant and equipment around one or a few output types  many of one product  high-volume, highly automated  low flexibility  Factory Lines  Intermediate Strategy-plant and equipment layout reflects some of both strategies  batches of products  Kinkos, Ball Homes  Agile Strategy-mass customization K. Adisesha 22
  • 23. Flexibility  Product Flexibility-speed with which products are created, ability to customize, ability to modify products for special needs  Volume Flexibility-ability to respond to sudden changes in demand, change from small to full scale  Process Flexibility-ability to manufacture a variety of goods in a short time, adjust to product mix over time, ability to accommodate changes in raw materials K. Adisesha 23
  • 24. Core Positioning Strategies Adapted from Figure 21.2 Process focus Space shuttle Legal practice Product focus Auto assembly plant Mail processingIntermediate Garment industry Branch banks Product volume Custom products, low volume Standard products, high volume Mixture of custom and standard products, moderate volume Continuous process (stable) Resourceflows Mass production Large batch Sporadic (unstable) K. Adisesha 24
  • 25. Improving Responsiveness to Customers  Without customers, organizations cease to exist.  Non-profit and for-profit firms all have customers.  Managers need to identify who the customer is and their needs.  What do customers want? Usually customers prefer:  A lower price to a higher price.  High quality over low quality.  Fast service over slow service.  Also good after sale support.  Many features over few features.  Products tailored to their specific needs. K. Adisesha 25
  • 26. Quality-how well a product does what the customer expects  Internal View-within the organization  External View-value customers expect  Value-the relationship between quality and price K. Adisesha 26
  • 27. Competitiveness Value Map Relative Quality SuperiorInferior Higher Lower Poor value Adapted from Figure 21.3 RelativePrice Economy value Outstanding value Premium value Average value Source: Adapted from Gale, B.T., and Buzzell, R.D. “Market perceived quality: Key strategic concept.” Planning Review, March-April, 1989, 10. 21.7 K. Adisesha 27
  • 28. Price v. Attributes  Firms offering high quality, fast service and other customer desires, often must raise price.  Customers must tradeoff price for attributes.  Operations management tries to push the price/attribute curve to the right with better production.  Provides more attributes at the same cost.  By enhancing the price/attribute relationship, the firm can increase its competitive position. K. Adisesha 28
  • 29. Customer Responsive Production Systems  An output’s attributes is determined by the production system.  Firms must strike a balance between cost and attributes  Improving Quality: can apply to firms producing goods and services.  A firm that provides higher quality than others at the same price is more responsive to customers.  Higher quality can also lead to better efficiency.  Lowers waste levels and operating costs. K. Adisesha 29
  • 30. Total Quality Management  The continuous process of ensuring every aspect of production builds in product quality  Traditional Quality-product inspection during or at the end of the transformation process K. Adisesha 30
  • 31. Total Versus Traditional Quality Adapted from Table 21.3 n Quality is a strategic issue n Plan for quality n Quality is everybody’s responsibility n Strive for zero defects n Quality means conformance to requirements that meet or exceed customers’ expectations n Scrap and reworking are only a small part of the costs of nonconformance Traditional Quality ControlTotal Quality Management n Quality is a tactical issue n Screen for quality n Quality is the responsibility of the quality control department n Some mistakes are inevitable n Quality means inspection n Scrap and reworking are the major costs of poor quality K. Adisesha 31
  • 32. Improving Efficiency  Labor productivity allows labor comparisons between organizations.  Improved efficiency leads to lower costs and better performance.  TQM and Efficiency: TQM can lead to much higher labor productivity.  When quality rises, less time is wasted on scrap.  Flexible manufacturing and efficiency: reduces the set-up costs for production systems. Facilities layout: seeks to design the machine-worker interface to increase production efficiency. K. Adisesha 32
  • 33. Efficient Manufacturing  Most firms face major expense when setting up to produce a product.  These costs must be paid before production begins.  The more often products to be built change, the higher setup costs become.  Flexible Manufacturing reduces setup costs.  Just-in-Time (JIT) inventory, while developed for TQM, also adds to efficient production.  Many costs are reduced including warehousing, holding costs and inventory tracking.  Firm does not have a supply of parts, but can be vulnerable to strikes or supply problems. K. Adisesha 33
  • 34. Efficient Manufacturing  Self-managed teams boost efficiency by allowing for a flatter organization structure.  The team takes the role of the supervisor.  Teams working together often become very skilled at enhancing productivity.  Kaizen: Japanese term for a management philosophy the stresses the need for continuous improvement.  Better operations can come from many, small, continuous improvements.  Focus on what adds value to the product and try to eliminate steps that do not add value (such as inspection for defects). K. Adisesha 34
  • 35. Reengineering  Process Reengineering: the fundamental rethinking and radical redesign of the business process.  Can boost efficiency by directing efforts to activities that add value to the good or service produced.  While Kaizen focuses on continuous enhancements, process reengineering considers wholesale change.  Top managers must support operations enhancement tools for them to be accepted by workers.  Usually, a successful operations change means a complete change in the organizational culture.  Without a supporting culture, change will not succeed. K. Adisesha 35
  • 36. Nine Categories of Operations Management Decisions  Product plans  Competitive Priorities  Positioning Strategies  Location  Technological Choices  Quality management and control  Inventory management and control  Materials Management  Master production scheduling 21.4 K. Adisesha 36
  • 37. Inventory Costs  What contributes to inventory costs?  TOTAL COST = ORDERING + CARRYING  Carrying Costs  Warehouse  Insurance  Obsolescence  taxes  breakage  Ordering Costs  Placing the order  Transportation  Shortage K. Adisesha 37
  • 38. Inventory Terms  Lead Time  Elapsed time between placing and receiving an order  EOQ-economic order cost  optimum order quantity yielding the lowest total inventory cost  Just-in-time  finished goods to sell  sub assemblies to be assembled  purchases of raw materials to be transformed K. Adisesha 38
  • 39. Quantity (Q) High Low Averageannualcost($) Total cost Carrying cost Order cost Small LargeQ1 Adapted from Figure 21.5 Cost Trade-Offs in Determining Inventory Levels 21.13 K. Adisesha 39
  • 40. Growth of the Service Sector  Service sector growing to 50-80% of non-farm jobs  Global competitiveness  Demands for higher quality  Huge technology changes  Time based competition  Work force diversity K. Adisesha 40
  • 41. OM Decisions  All organizations make decisions and follow a similar path  First decisions very broad – Strategic decisions  Strategic Decisions – set the direction for the entire company; they are broad in scope and long-term in nature K. Adisesha 41
  • 42. OM Decisions  Following decisions focus on specifics - Tactical decision  Tactical decisions: focus on specific day-to-day issues like resource needs, schedules, & quantities to produce  are frequent  Strategic decisions less frequent  Tactical and Strategic decisions must align K. Adisesha 42
  • 44. OM Across the Organization  Most businesses are supported by the functions of operations, marketing, and finance  The major functional areas must interact to achieve the organization goals K. Adisesha 44
  • 45. OM Across the Organization – con’t  Marketing is not fully able to meet customer needs if they do not understand what operations can produce  Finance cannot judge the need for capital investments if they do not understand operations concepts and needs  Information systems enables the information flow throughout the organization  Human resources must understand job requirements and worker skills  Accounting needs to consider inventory management, capacity information, and labor standards K. Adisesha 45
  • 46. Review of Learning Objectives  Define and explain OM  Explain the role of OM in business  Describe the decisions that operations managers make  Describe the differences between service and manufacturing operations  Identify major historical developments in OM K. Adisesha 46
  • 47. Review of Learning Objectives – con’t  Identify current trends in OM  Describe the flow of information between OM and other business functions K. Adisesha 47
  • 48. The End K. Adisesha 48 References : 1. Production and Operations Management – Everest E Adam & Ebert – PHI – publication , forth edition. 2. Operations Management (Theory and Problems ) – Joseph G Monks – McGraw Hill Intl. 3. Production and Operations Management – S N Chary – TMH Publications 4. Production and Operations Management – Pannerselvam, PHI 5. Lee J. Krajewski and Larry P. Ritzman, “Operations Management: Process and value Chains”, 7th Edition, PHI, 2007 6. Hunawalla and Patil – production and Operations Management, Himalaya Thank you