Production & Operations Management
Introduction to POM
Operation Strategy & Competitive Advantage
Course Objective
• To understand various aspects of production / operations
management.
• To bring awareness of the basic strategic concepts of
production and operations management
• References
Production & Operations management – S N Chary
Production & Operations management – James B Dilworth
Production & Operations management – Chunawalla Patel
Production & Operations management – Kanishka Bedi
Production & Operations management – R C Manocha
Production & Operations management - Muhlemann
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Course Contents
1. Introduction / Operations Strategy / Competitive Advantage / Time
based competition
2. Product decision & analysis / Product Development
3. Process selection / Process design / Process analysis
4. Facility location
5. Facility layout
6. Capacity Planning / Capacity decision / Waiting lines
7. Aggregate Planning
8. Basics of MRP / ERP
9. Basics of Scheduling
10. Basics of Project Management
11. Basics of work-study / Job design / Work measurement
12. Basics of Quality control / Statistical quality control / Total quality
management
13. Basics of environmental management and ISO 9000 and 14000
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14. Value Engineering & Value Analysis
Success factors for any business
• Innovation
• Product Performance
• Technology Leadership
• Product Mix
• Delivery Service
• Access to key decision makers
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Management
Management – Doing things effectively & efficiently
Objectives Functions
• Planning • Marketing
• Organising • Finance
• Directing (Leading) • Human Resource
• Controlling • Operations
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Production Process
Production – conversion of one form of material into another
Production Process
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Operations as a System
Operation Inputs Outputs
Bank Tellers, Staff, Equipment, Loans, Deposits,
Facilities Safekeeping
Restaurant Cooks, Waiters, Equipment, Meals, Entertainment,
Food, Facilities Satisfied Customers
Hospital Doctors, Nurses, Staff, Health Services, Healthy
Equipment, Facilities Patients
Airline Planes, Facilities, Pilots, Transportation of People
Attendants, Maint Staff, Energy and Goods
University Faculty, Staff, Library, Educated Students,
Equipment Research
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Outputs
Product / Service – customer desires
Pure Goods Pure Services
Tangible Intangible
Output can be stored Output cannot be stored
Output can be resold No resale possible
Output can be transported Cannot be transported
Production precedes usage Simultaneous usage
Low customer contact High customer contact
Output can be demonstrated Output does not exist
Quality is evident Quality is judged
Capital intensive Labour intensive
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Outputs
Pure Goods Pure Services
Crude oil production
Specialist machines manufacturer
Fast food restaurant
Computer systems
Auto maintenance
Haircut
Management consultancy
Psychotherapy clinic
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Characteristics of Outputs
• Volume
• Variety
• Variation in demand
• Degree of customer contact
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Characteristics of Outputs
Volume
Low High
Low Repetition High
Multiskill Skills Specialisation
Low Systemisation High
Labour Intensiveness Capital
High Unit Cost Low
Gourmet restaurant Fast food
Taxi service Mass transport
Generator factory TV factory
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Characteristics of Outputs
Variety
Low High
Standardised Systemisation Flexible
Low Unit Cost High
Standardised Customer needs Vary
Readymade garment Tailor
Jeans shop Department stores
Financial audit Tax advice
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Characteristics of Outputs
Variations in Demand
Low High
High Utilisation of resources Low
Low Unit Cost High
Consulting Audits
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Characteristics of Outputs
Customer Contact
Low High
High Cycle time to manufacture Low
Low Skills High
High Systemisation Low
Low Unit Cost High
Most manufacturing Most services
Fast food Gourmet restaurant
Distance learning Music teacher
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Operations as a System
Society
HR Engg
Mktg
Suppliers Transformation System Customers
Finance Accounts MIS
Competitors
Government
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Cross-Functional Decision Making
• Marketing
Who is the customer? What does the customer need?
– Quality management
Market size?
– Capacity, Type of processes
Distribution channel?
– Inventory, Where to stock
New product development?
– Cross-functional teams
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Cross-Functional Decision Making
• Finance and Accounting
Capital
– Capacity, Automation, Process selection, Inventory
Efficiency
– Process selection, Value-added
Cash Flow
– Inventory
Performance Measurement
– Costing system
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Cross-Functional Decision Making
• Human Resources
Skill level of employees
– Process type selection, Automation
Number of employees
– Capacity, Scheduling decisions
Job design
– Process, Technology choice
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Cross-Functional Decision Making
• Information Systems
Software Development
– Forecasting, Capacity, Quality, Inventory control, Scheduling,
Material Accounting
Hardware Acquisition
– Automation support, Software operation
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Production & Operations Management (POM)
Production & Operations management
Managing resources to convert inputs to outputs, when
delivered satisfies consumer (customer) needs, attaining
organisational goals
Why POM ? ?
• Consumerism
• Transition - product centric to customer centric
• Competitive Advantage (USP)
• Product – Service combination (e.g Consumer durables &
Telecommunication)
• Outsourcing (e.g Back office of American bank in India)
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Historical Summary of OM
• 1910s : Principles of Scientific Management – Taylor, Gilbreth, Ford
• 1930s : Quality Control – Shewart
Hawthorne Studies – Mayo
• 1950s : Operations Research – Many researchers
• 1970s : Use of Computers in business – IBM
• 1980s : JIT – Ohno
Quality Circles – JUSE
TQM – Deming, Juran, Crosby
FMS, CAD/CAM/Automation – US, European engineers
OPT – Goldratt
• 1990s : TQM, ISO, Kaizen, QFD – Many practitioners
BPR – Hammel
Electronic Enterprise – Microsoft, Netscape
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SCM – SAP, Oracle
The Role of Operations Function
• As the implementer of business strategy
• As a support to business strategy
• As the driver of business strategy
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Judging Operation’s Contribution
Redefine Externally
Operations
industry’s supportive
Advantage expectations
Link Be the Best in Internally
Strategy the industry supportive
Adopt Best Be as good as Externally
practices competitors neutral
Stop holding the
Correct worst organisation Internally
problems back neutral
Stage 1 Stage 2 Stage 3 Stage 4
Implementer Supporter Driver
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Hayes-Wheelwright 4-Stage Model
• Stage 1 : Internal neutrality
Inward looking, reactive
No originality, flair, competitive drive
Avoiding bigger mistakes
Necessary evil
• Stage 2 : External neutrality
Begin comparing itself
Not yet creative
Not holding the company back
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Hayes-Wheelwright 4-Stage Model
• Stage 3 : Internally supportive
Broadly up with the Best
Aspire to be the Best
Organise and develop resources to excel and compete
• Stage 4 : Externally supportive
“One step ahead” of competitors
Creative and proactive
Capable of adaptation as markets change
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Attributes of POM
5 P’s
• Product – performance, quality, quantity, cost
• Plant – demand, reliability, safety, environment
• Process – job, batch, flow, group
• Programmes – purchase, cash flow, storage, transportation
• People – salary, training, motivation, communication
5 M’s
• Men – Labour performing operations
• Materials – To be transformed
• Machines – Conversion / Transformation tool
• Methods – Way of transformation 27
• Money – Generated & saved
Objectives of POM
• Customer satisfaction
– Good quality
– Acceptable price
– On time
• Effectiveness
– Innovation
– Cost of production
– Improved quality
• Efficiency
– Optimum utilisation of resources
– Remove unwanted processes (Lean Production)
– Improved processes
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Decisions of POM
• Long term
– Product & process design
– Quality policy
– Technology
• Intermediate
– Forecasting
– Inventory
– Health & safety
• Short term
– Allocation
– Maintenance
– Scheduling
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Operations Strategy
• Unified, comprehensive and integrated plan designed to
ensure that the basic objectives of the enterprise are achieved
. . . . William F Glueck
Components of Strategic Management
1. Define mission and objectives of an organisation
2. Scanning the environment
3. Decide organisational strategy after SWOT analysis
4. Implementing the chosen strategy
Operations Strategy
• An action plan for appropriate use of 5M’s to produce goods /
service as per organisational goals & objectives 30
Goals of any Operations Strategy
• Improved Quality
– Technology improvement
– Reduced problem generators
– Training & development
• Improved Responsiveness
– Minimising response time
– Better communication
– Reduced unwanted activities, improved productivity
• Reduced Cost
– Improvement in production-delivery value chain
– Better product designs
– Reduced wastage
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Operations Priorities
• Cost
• Product quality
• Reliability
• Coping with changes in demand
• Delivery speed
• Delivery reliability
• Range of products
• New product introduction speed
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Operations Priorities …contd
• Cost
– Market very large
– Product commodity-like; customers cannot distinguish products of one
firm from those of another
– Competition is fierce
– Failure rate high
– After all, there can only be one low-cost producer, which usually
establishes the selling price
• Product quality
– Goal in establishing the proper level of product quality is to focus on
the requirement of customers
(e.g. child’s first two wheeled bicycle v/s bicycle of a world-class
cyclist)
– After sales support
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Operations Priorities …contd
• Reliability
– Error-free products
– Product specifications must match the intended use
– Adherence to tolerances essential; process quality is critical
• Coping with changes in demand
– Ability to effectively deal with dynamic market demand over the long
term
– Investment in new technology
– Investment in capacity
– Buffer capacity
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Operations Priorities …contd
• Delivery speed
– Ability to deliver more quickly than competitors
– Better prices possible
– More orders possible
– Function of inventory, rework, distance traveled, multi-skilled
operators, set-up times, downtimes, etc.
• Delivery reliability
– Ability of the firm to supply on or before a promised delivery due date;
credibility issue
– Penalties avoided
– Cancellations avoided
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Operations Priorities …contd
• Range of products
– Customisation
– Different market segments addressed
– Cope with changes in demand
• New product introduction speed
– First entrant advantage
– Organisation Structures (more than one superior)
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Michel Porter’s five forces
Risk of potential
competitors
Bargaining power Rivalry among Bargaining power
Of suppliers Established firms Of Buyers
Threat of
Substitute products
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Role of Operations Manager
Oversee the work of people and machinery to convert inputs
(materials and resources) into finished goods and services
Functions of Operations Manager
1. Planning the production process
– Begins by choosing what goods or services to offer customers
– Convert original product ideas into final specifications
– Design the most efficient facilities to produce those products
2. Implementing the Production Plan
– Determining the facility layout
– Make, Buy or Lease Decisions
– Selection of men, machine, materials & methods
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Role of Operations Manager . . . contd
3. Directing (Leading)
– Work towards organisational goals
– Training & motivation
– Business Innovation
4. Control & Monitor
– Plans are executed as decided
– Unwanted processes
– Quality and time schedules
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Results of effective POM
Effective production and operations management can:
• Generate money
• Lower a firm’s costs of production
• Boost the quality of its goods and services
• Allow it to respond dependably to customer demands
• Enable it to renew itself by providing new products
• Capacity utilisation
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