Post on 03-Apr-2018
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Operations
Management5230Session 3
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Before everything else,
getting ready is the secretof success.
Henry Ford
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News You Can Use Schedule
Class Date: At Start of Class Before Break After Break End of Class
Feb 5 Jane Girard Patricia Vondrak Marta Aranda Brad Gronke
Feb 12 Tushar Agarwal Nilesh Patel Christine Weber Wil Benjamin
Feb 19 Mary Fetting Alana Bogart Lori Davis Larry Schwartz
Feb 26 Martha Hunt Hilda Newborn Karina Formento Sharon Shlimoun
Mar 5 Thomas Mozny Michael Duggan Rachel Vincent Patience Gallegos
Mar 12 Christine Walker Zi Zhuan Wu Johnny Vincent Janelle Zervan
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News You Can Use
Jane Girard
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Previously
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Strategies forOperational Competitive Advantage
1. Differentiation
2. Cost leadership
3. Responsive
Name them
Everything that impacts customers
perception of value
Provide the maximum value as perceivedby customer
Flexibility // Reliability //Timeliness
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Finance
CompanyStrategy
HR / JDLocationLayout
CA
Process
Capacity
DesignG // S
QualityMaint -
Reliability
Marketing
SCM
Inventory
Scheduling
SO
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Process Strategies Are?
1. Process Focus
2. Repetitive Focus
3. Product Focus
4. Mass Customization
StrategySelection
Based on
Volume
&Variety
Which relate to
What you do & Strategy Selected
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Tools for Process Design
Flow Diagrams
Time-Function/Process Mapping
Work Flow Diagrams
Process Charts Work Flow Analysis
Value Stream Mapping -- VSM
Service Blue Printing w/ Poke-Yokes
Pp 266 269
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Value-Stream Mapping
Figure 7.8
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Process Chart
Figure 7.9
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Aggregate Planning
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Operations Management & PlanningSuccess Over a Time Horizon
Optimize capacity--Modify or
Medi-
range
3
3
0mon
Short-
Range
1wkto3m
on
Long-
Range
12+//
244
8mon
Add facilitiesAdd long lead time equipment /
components
Optimally Use capacity
Key Planning
Driver
ModelingStatisticalmulti-variant &other
Market
Integrated
DemandForecastingVolume &Resource
Agency Add FTEs Add ShiftsEquip --Spare Rent Subcontract
*Limited options existTimeFrame
Schedule servicesSchedule personnel
Registry
Allocate Facilities~ EquipmentWork Center LoadingWork sequencingOrdering Supplies
Time
PlanningObjectives
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The Planning Process
Figure 13.1
Long-range plans(over one year)Research and DevelopmentNew product plansCapital investmentsFacility location/expansion
Intermediate-range plans
(3 to 18 months)Sales planningProduction planning and budgetingSetting employment, inventory,
subcontracting levelsAnalyzing operating plans
Short-range plans
(up to 3 months)Job assignmentsOrderingJob schedulingDispatchingOvertimePart-time help
Topexecutives
Operationsmanagers
Operations managers,supervisors, foremen
Responsibility Planning tasks and horizon
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Aggregate
Planning
Figure 13.2
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Aggregate Planning
Objective is to minimize cost over theplanning period by adjusting
Production rates
Labor levels
Inventory levels
Overtime work
Subcontracting rates
Other controllable variables
Determine the quantity and timing ofproduction for the immediate future
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Aggregate Planning Strategies
Cap
acity
1. Use inventories to absorb changes in demand
2. Accommodate changes by varying workforcesize
3. Use part-timers, overtime, or idle time to absorbchanges
4. Use subcontractors and maintain a stableworkforce
5. Change prices or other factors to influencedemand
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Aggregate Planning Options
Table 13.1
Option Advantages Disadvantages Some Comments
Changinginventorylevels
Changes inhumanresources aregradual or
none; no abruptproductionchanges.
Inventoryholding costmay increase.Shortages may
result in lostsales.
Applies mainly toproduction, notservice,operations.
Varyingworkforce
size byhiring orlayoffs
Avoids the costsof other
alternatives.
Hiring, layoff,and training
costs may besignificant.
Used where sizeof labor pool is
large.
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Aggregate Planning Options
Table 13.1
Option Advantages Disadvantages Some Comments
Varyingproductionratesthrough
overtime oridle time
Matchesseasonalfluctuationswithout hiring/
training costs.
Overtimepremiums; tiredworkers; maynot meet
demand.
Allows flexibilitywithin theaggregate plan.
Sub-contracting
Permitsflexibility andsmoothing of
the firmsoutput.
Loss of qualitycontrol;reduced profits;
loss of futurebusiness.
Applies mainly inproductionsettings.
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Aggregate Planning Options
Table 13.1
Option Advantages Disadvantages Some Comments
Using part-timeworkers
Is less costlyand moreflexible thanfull-time
workers.
High turnover/training costs;quality suffers;scheduling
difficult.
Good forunskilled jobs inareas with largetemporary labor
pools.
Influencingdemand
Tries to useexcesscapacity.Discounts draw
new customers.
Uncertainty indemand. Hardto matchdemand to
supply exactly.
Createsmarketingideas.Overbooking
used in somebusinesses.
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Aggregate Planning Options
Table 13.1
Option Advantages Disadvantages Some Comments
Backorderingduringhigh-
demandperiods
May avoidovertime.Keeps capacityconstant.
Customer mustbe willing towait, butgoodwill is lost.
Many companiesback order.
Counter-seasonalproduct
and servicemixing
Fully utilizesresources;allows stable
workforce.
May requireskills orequipment
outside thefirms areas of
expertise.
Risky findingproducts orservices with
oppositedemandpatterns.
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Methods for Aggregate Planning
A mixed strategy may be the best wayto achieve minimum costs
There are many possible mixedstrategies
Finding the optimal plan is not alwayspossible
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Mixing Options to Develop a Plan
Chase strategy Match output rates to demand forecast for each period
Vary workforce levels or vary production rate
Favored by many service organizations
Level strategy Daily production is uniform
Use inventory or idle time as buffer
Stable production leads to better quality and productivity
Some combination of capacity options, amixed strategy, might be the best solution
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Law Firm Example
Table 13.9
Labor-Hours Required Capacity Constraints
(2) (3) (4) (5) (6)(1) Forecasts Maximum Number of
Category of Best Likely Worst Demand in QualifiedLegal Business (hours) (hours) (hours) People Personnel
Trial work 1,800 1,500 1,200 3.6 4
Legal research 4,500 4,000 3,500 9.0 32
Corporate law 8,000 7,000 6,500 16.0 15
Real estate law 1,700 1,500 1,300 3.4 6
Criminal law 3,500 3,000 2,500 7.0 12
Total hours 19,500 17,000 15,000Lawyers needed 39 34 30
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Yield Management
Allocating resources to customers atprices that will maximize yield or revenue
1. Service or product can be sold in
advance of consumption2. Demand fluctuates
3. Capacity is relatively fixed
4. Demand can be segmented5. Variable costs are low and fixed costs
are high
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DemandCurve
Yield Management Example
Figure 13.5
Passed-upcontribution
Money lefton the table
Potential customers exist who arewilling to pay more than the $15variable cost of the room
Some customers who paid$150 were actually willing topay more for the roomTotal
$ contribution= (Price) x (50
rooms)= ($150 - $15)x (50)
= $6,750
Price
Room sales
100
50
$150Price charged
for room
$15Variable cost
of room
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Total $ contribution =(1st price) x 30 rooms + (2nd price) x 30 rooms =
($100 - $15) x 30 + ($200 - $15) x 30 =$2,550 + $5,550 = $8,100
DemandCurve
Yield Management Example
Figure 13.6
Price
Room sales
100
60
30
$100Price 1
for room
$200Price 2
for room
$15Variable cost
of room
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Yield Management Matrix
D
urationofuse
Unpredicta
ble
Predic
table
Price
Tend to be fixed Tend to be variable
Quadrant 1: Quadrant 2:
Movies Hotels
Stadiums/arenas AirlinesConvention centers Rental carsHotel meeting space Cruise lines
Quadrant 3: Quadrant 4:
Restaurants Continuing careGolf courses hospitals
Internet serviceproviders
Figure 13.7
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Making Yield Management Work
1. Multiple pricing structures must befeasible and appear logical to thecustomer
2. Forecasts of the use and duration ofuse
3. Changes in demand
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H
HH
C
ost
Optimize
How to Go in the Three Required Directionsat Once?
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FoldRiteTeam 3 Team Bud
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News You Can Use
Patricia Vondrak
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News You Can Use
Marta Aranda
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Location Strategies
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2011 PearsonEducation, Inc.publishing as Prentice
Location Strategy
One of the most important decisions afirm makes
Increasingly global in nature
Significant impact on fixed andvariable costs
Decisions made relatively infrequently The objective is to maximize the
benefit of location to the firm
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2011 PearsonEducation, Inc.publishing as Prentice
Location Decisions
Country Decision Key Success Factors1. Political risks, government rules,
attitudes, incentives
2. Cultural and economic issues
3. Location of markets
4. Labor talent, attitudes, productivity,costs
5. Availability of supplies,communications, energy
6. Exchange rates and currency risks
Figure 8.1
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2011 PearsonEducation, Inc.publishing as Prentice
Location Decisions
Region/CommunityDecision
Key Success Factors1. Corporate desires
2. Attractiveness of region
3. Labor availability and costs
4. Costs and availability of utilities
5. Environmental regulations
6. Government incentives and fiscal policies
7. Proximity to raw materials and customers
8. Land/construction costs
MNWI
MI
IL INOH
Figure 8.1
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2011 PearsonEducation, Inc.publishing as Prentice
Location Decisions
Site Decision Key Success Factors1. Site size and cost
2. Air, rail, highway, and waterwaysystems
3. Zoning restrictions
4. Proximity of services/ suppliesneeded
5. Environmental impact issues
Figure 8.1
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2011 PearsonEducation, Inc.publishing as Prentice
Global Competitiveness Indexof Countries
Country 2009 Rank 2005 Rank
Switzerland 1 4USA 2 1Japan 8 10Canada 9 13
UK 13 9Israel 27 23China 29 48Italy 48 38India 49 22Mexico 60 59
Russia 63 53
Table 8.1
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2011 PearsonEducation, Inc.publishing as Prentice
2011 Pearson Education
Ranking CorruptionRank Country 2011 CPI Score (out of 10)
1 New Zealand 9.52 Demark, Finland 9.45 Singapore 9.26 Norway 9.08 Australia, Switzerland 8.8
10 Canada 8.712 Hong Kong 8.414 Germany, Japan 8.016 UK 7.824 USA 7.1
32 Taiwan 6.143 South Korea 5.460 Malaysia 4.375 China 3.6112 Vietnam 2.9
143 Russia 2.4
LeastCorrupt
MostCorrupt
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2011 PearsonEducation, Inc.publishing as Prentice
Clustering of Companies
Industry Locations Reason for clustering
Theme parks(Disney World,UniversalStudios)
Orlando, Florida A hot spot forentertainment, warmweather, tourists, andinexpensive labor
Electronicsfirms
Northern Mexico NAFTA, duty freeexport to US
Computer
hardwaremanufacturers
Singapore, Taiwan High technological
penetration rate andper capita GDP,skilled/educatedworkforce with largepool of engineers
Table 8.3
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2011 PearsonEducation, Inc.publishing as Prentice
Locational Break-Even AnalysisExample
$180,000
$160,000 $150,000
$130,000
$110,000
$80,000
$60,000
$30,000
$10,000
Annualcost
| | | | | | |
0 500 1,000 1,500 2,000 2,500 3,000
Volume
Akronlowestcost
Bowling Greenlowest cost
Chicagolowestcost
Figure 8.2
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2011 PearsonEducation, Inc.publishing as Prentice
Center-of-Gravity Method
Finds location of distributioncenter that minimizes distributioncosts
Considers
Location of markets
Volume of goods shipped to thosemarkets
Shipping cost (or distance)
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Center-of-Gravity MethodNorth-South
East-West
120
90
60
30
| | | | | |
30 60 90 120 150Arbitraryorigin
Chicago (30, 120)New York (130, 130)
Pittsburgh (90, 110)
Atlanta (60, 40)
Center of gravity (66.7, 93.3)+
Figure 8.3
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2011 Pearson
Education, Inc.publishing as Prentice
Transportation Model
Finds amount to be shipped fromseveral points of supply to severalpoints of demand
Solution will minimize totalproduction and shipping costs
A special class of linearprogramming problems
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2011 Pearson
Education, Inc.publishing as Prentice
Worldwide Distribution of
Volkswagens and Parts
Figure 8.4
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2011 Pearson
Education, Inc.publishing as Prentice
Service Location Strategy
1. Purchasing power of customer-drawing area2. Service and image compatibility with
demographics of the customer-drawing area
3. Competition in the area
4. Quality of the competition
5. Uniqueness of the firms and competitorslocations
6. Physical qualities of facilities and
neighboring businesses
7. Operating policies of the firm
8. Quality of management
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2011 Pearson
Education, Inc.publishing as Prentice
Geographic InformationSystems (GIS)
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Capacity Simulation
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Modify capacity Use capacity
Planning Over a Time Horizon
Intermediate-rangeplanning
Subcontract Add personnelAdd equipment Build or use inventoryAdd shifts
Short-rangeplanning
Schedule jobsSchedule personnel
Allocate machinery
*
Long-rangeplanning
Add facilitiesAdd long lead time equipment /components *
* Limited options exist
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6
Scheduling Objectives
1. Meet due dates / commitments
2. Minimize lead time
3. Minimize setup time or cost
4. Minimize work-in-process inventory
5. Maximize machine utilization
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1. What is your teams ops posture
2. What actions your team took to manage / control the factory
3. Why your team took the actions above
4. Show analysis to justify conclusions
5. Identify key operational management themes (correlate to
material in text and present)
6. Identify & explain key lessons learned from the simulations
7. What course objective does this assignment relate to & why
Littlefield Capacity Management Simulation Presentation
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As of noon todayDay = 143
(Tuesday 5J an)
Total = 268 Days
(125 to go!)
75 more days(hours) ofInteraction
Followed by 50hour run
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Maintenance & Reliability
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Strategic Importance of
Maintenance and ReliabilityFailure has far reaching effects on a
firms
Dissatisfied customers Reputation
Operation
Profitability
Idle employees
Profits becominglosses
Reduced value ofinvestment in
plant andequipment
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Maintenance and Reliability
The objective of maintenance and reliability isto maintain the capability of the system whilecontrolling costs
Maintenance is all activities involved inkeeping a systems equipment inworking order
Reliability is the probability that amachine will function properly for aspecified time
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Maintenance Strategy
Employee Involvement
Information sharingSkill trainingReward systemEmployee empowerment
Maintenance and ReliabilityProcedures
Clean and lubricateMonitor and adjustMake minor repairKeep computerized records
Results
Reduced inventoryImproved qualityImproved capacityReputation for qualityContinuous improvementReduced variability
Figure 17.1
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Reliability
Improving individual components
Rs = R1 x R2 x R3x x Rn
where R1 = reliability of component 1
R2 = reliability of component 2and so on
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Overall System Reliability
Relia
bilityofthesystem(
percent)
Average reliability of each component (percent)
| | | | | | | | |
100 99 98 97 96
100
80
60
40
20
0
Figure 17.2
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Providing Redundancy
Provide backup components to increase reliability
+ xProbability offirstcomponent
working
Probability ofneedingsecond
component
Probabilityof second
componentworking
(.8) + (.8) x (1 - .8)
= .8 + .16 = .96
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Maintenance
Two types of maintenance Preventive maintenance routine inspection and servicing to keep
facilities in good repair
Breakdown maintenance emergency or priority repairs on failedequipment
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Maintenance Costs
Figure 17.4 (a)
Traditional View
Totalcosts
Breakdownmaintenance costs
Costs
Maintenance commitment
Preventivemaintenance costs
Optimal point (lowestcost maintenance policy)
Typically this approachfailed to consider the truetotal cost of breakdowns
Inventory
Employee morale
Scheduleunreliability
M i t C t
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Maintenance Costs
Figure 17.4 (b)
Full Cost View
Costs
Maintenance commitment
Optimal point (lowestcost maintenance policy)
Totalcosts
Full BreakdownCost
Preventivemaintenance costs
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News You Can Use
Brad Gronke
The Goal E ec ti e E al ation Pape
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The Goal Executive Evaluation Paper
AssignmentPrepare an executive brief of what transpired in The Goal as the basis fordemonstrating your work and general understanding of materials considered duringthe segment. The assignment will be evaluated on your presentation related to thefollowing elements, each of which should be focused on with equal emphasis:
Identify examples of Ten OM Decisions in The Goal. (describe and elaborate onthe examples and the impact on the companys performance)
Evaluation of essential operational decisions / strategies / principles exercisedin the The Goal
Key lessons learned from The Goal
Paper Format:is to be submitted by the start of session four. Do not include a cover sheet or
presentation folder. Use a header at the top of the paper to include student nameand date. Paper should have reasonable margin and font.
is limited to maximum 3 pages.(papers that exceed 3 pages will not be graded)
The Goal Executive Evaluation Paper
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The Goal Executive Evaluation PaperGuidelines & Considerations
Start with a Thesis {Avoid "In this paper I will"}; Make your point(s) leveraging theconcepts with evidence to support your assertions and Provide a conclusion.Writing should clearly use and reflect Ops Mgt - language, terms, concepts,theories, etc.
Include organizational elements to enhance flow / concise presentation - usebullets, section breaks paragraphs, section breaks, headings, attachments and
other organizational elements in a manner that leads the reader through the work aclear linkage is made between each section.
All papers are to be written in accordance with the LFGSM writing guidelinescriteria, and to conform to an expected level of excellence for graduate level work.Spelling, grammar and structural errors will subtract from the overall grade level.
Rubric: Total Value 15 points
Identification of 10 DOMs in The Goal: 5 pointsConnection to course materials, critical thinking, connection to operationsdecisions: 4 pointsKey Learnings: 4 points
Paper structure (organization, thesis, grammar, punctuation) : 2 points
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Next Week (week 4)
News You Can Use X4
Review Session 3
Supply Chain Management Discussion
Outsourcing as a Supply Chain Strategy
Littlefield Simulation Presentation Preparation
The Goal paper is Due!