MGOC20 – Operations Management: A Mathematical Approach

Lecture 01
Chapter 1 – Introduction to Operations Management

1. Introduction

Organizing to Produce Goods and Services - Essential functions:

1. Marketing – generates demand

2. Production/operations – creates the product or services

3. Finance/accounting – tracks how well organization doing, pays bills, collects money

What is Operations Management?

 Design, operation, and improvement of productive systems

Operations Management deals with all aspects of “running the business” such as:

1. Process design

 What is the best process/method for producing our products/services?

2. Managing quality

 How to ensure high quality products / services are produced?

3. Location & Layout strategy

 Where should we put a new manufacturing plant? New distribution center?

 How should we arrange the facility?

4. Human resources and job design

 How do we motivate our employees to have higher performance?

 How to design an appropriate reward/compensation package for our employees?

5. Supply-chain management

 Should we make or buy this component?

 Who should be our suppliers and how can we integrate them into our strategy?

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6. Inventory management

 How much inventory of each item should we have?

 When do we reorder?

9. Scheduling

 How to schedule our staff to minimize staffing cost and maximize customer service?
 Given a set of jobs to do, what is the sequence (order) that the jobs be done?

Operations is the technical core or “hub” of the organization, interacting with other functional
areas and suppliers to produce goods and services.

Video – Operations Management at Hard Rock Cafe

2. Strategy & Operations
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Strategy is how the mission of a company is accomplished. It unites an organization, provides
consistency in decisions and keeps organization moving in right direction.

1. Defining a primary task of the company

 What is the firm in the business of doing?
Example:
Canadian Pacific Railway (www.cpr.ca) is in business of transportation, not railroads.

Corus Entertainment (www.corusent.com) is in business of business communications,

not making television shows.

2. Assessing core competencies

 Core competency is what a firm does better than anyone else.

Sony: Best in the world at electromechanical miniaturization design

3. Positioning the firm

 How will the firm compete? Cost, Speed, Quality, Flexibility

Positioning the firm: Cost

 Waste elimination
 relentlessly pursuing the removal of all waste

 Examination of cost structure

 looking at the entire cost structure for reduction potential

 Lean production
 providing low costs through disciplined operations
Positioning the firm: Speed
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  Service organizations
 always competed on speed (McDonald’s, LensCrafters, and Federal Express)

 Manufacturers
 time-based competition: build-to-order production and efficient supply chains

 Fashion industry
 two-week design-to-rack lead time of Spanish retailer, Zara

Positioning the firm: Quality

 Minimizing defect rates or conforming to design specifications

 Ritz-Carlton - one customer at a time

 Service system designed to “move heaven and earth” to satisfy customer

 Employees empowered to satisfy a guest’s wish

 Teams set objectives and devise quality action plans

 Each hotel has a quality leader

Positioning the firm: Flexibility

 Ability to adjust to changes in product mix, production volume, or design

 Mass customization: the mass production of customized parts

 National Bicycle Industrial Company

 offers 11,231,862 variations
 delivers within two weeks at costs only 10% above standard models

Video – Strategy at Regal Marine

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3. Overview of Production & Manufacturing

What is Manufacturing?

Application of physical and chemical processes to alter geometry, properties, and/or appearance
of a starting material to make parts or products

 Manufacturing also includes assembly

 Almost always carried out as a sequence of operations

Process industries
 Chemicals, petroleum, basic metals, foods and beverages, power generation

Discrete product
 Cars, aircraft, appliances, machinery, and their component parts

Fixed-position layout

 If product is large and heavy (aircraft) product remains in fixed position workers and
equipment are brought to product

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Process layout

 Equipment arranged according to function/type, eg. mill dept, lathe dept.

 Different parts, each requiring a different operations sequence, are routed through the
depts. in the order needed for processing, usually in batches.

 Highly flexible – can accommodate many alternative operation sequences for different
part configuration.

Disadvantages

 Machinery/methods to produce part not designed for high efficiency.

 Lots of material handling to move parts between depts., high WIP.

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Product Variety P

 Product variety P refers to different product types or models produced in the plant

 Soft product variety - small differences between products, e.g., between car models made
on the same production line, with many common parts among models

 Hard product variety - products differ substantially, e.g., between a small car and a large
truck, with few common parts (if any)

Production Quantity Q

 The quantity of products Q made by a factory has an important influence on the way its
people, facilities, and procedures are organized

 Annual production quantities can be classified into three ranges:

Production range Annual Quantity Q

Low production 1 to 100 units
Medium production 100 to 10,000 units
High production 10,000 to millions of

 Different production facilities are required for each of the 3 ranges & product variety

Relationship between product variety and production quantity in discrete manufacturing

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Low Production Quantities

 This type of production facility is commonly call a Job Shop

 A job shop makes low quantities of specialized and customized products

 Products are typically complex, e.g., space capsules, prototype aircraft, special
machinery

 Equipment in a job shop is general purpose, Labor force is highly skilled, designed for
maximum flexibility

 Can be Fixed Position Layout if product is large or Process Layout if product is smaller

Medium Production Quantities

Batch production

A batch of product is produced, and then facility is changed over to produce another product

 Changeover takes time – setup time between batches

 Usually uses a process layout

 Used when you have hard product variety

Cellular manufacturing & Group Technology

A mixture of products is made without significant change-over time between products

 Use when you have soft product variety

 Determined by principles of Group Technology.

 Group Technology is a manufacturing philosophy in which similar parts are identified

and grouped together to take advantage of their similarities in design and production

 In each part family, processing steps are similar

 Machines are grouped into cells, each cell specializing in the production of a part family
Called cellular manufacturing

 Often machines are layout in a U-shaped for shorter paths and improved communication

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 Example

 Ten parts are different in size, shape, and material,

but quite similar in terms of manufacturing

 All parts are machined from cylindrical stock by

turning; some parts require drilling and/or milling

Cellular Layout Based on Group Technology

High Production Quantities

 Often referred to as mass production or

Flow Production

 Manufacturing system dedicated to

the production of that product

 Involves the use of production

lines.

https://www.youtube.com/watch?v=cPe4LN6yRIc

Product Process Matrix

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  The product-process matrix is a tool for analyzing the relationship between the product
life cycle and the technological life cycle.

 The x-axis is the process life cycle and y-axis is product life cycle.

 Think about the launch of new product.

 Only sale a few units in beginning, then sell more and more of it over time.

 Use Job Shop to make product in beginning but will need to move towards processes
that are more suited to produce larger quantities of the product over time.

Limitations & Capabilities of a Manufacturing Plant

 Companies don’t produce everything in one factory.

Manufacturing capability refers to the technical and physical limitations of a plant

3 dimensions of manufacturing capability

1. Technological processing capability - the available set of manufacturing

processes. Eg. Casting / CNC / injection mold

2. Physical size/weight of product plant can produce

3. Production capacity (plant capacity) - quantity that can be made in a given time
4. Production & Manufacturing Metrics

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 Production & Manufacturing metrics help company track performance, compare
alternative production methods (eg. different line layouts)

Two types of metrics:

(1) Production performance measures

Production rate, cycle time, capacity, manufacturing lead time, utilization, productivity

(2) Manufacturing costs

Labor, material, overhead, cost to produce a unit of product

Production Rates, Cycle Time, Manufacture lead time

Production Rate (Rp) - parts processed or assembled per hour.

Cycle Time (Tc) - time between one work unit completing and next unit completing in minutes

Rp = 60/Tc

Manufacturing lead time is the total time required to process a given part or product through the
plant. Components of MTL: processing operations, assembly operations, material handling, lost
time due to delays, time spent in storage, inspections, etc.

Example 1
A production line is being planned for a product whose annual demand = 90,000 units. The line
will run 50 weeks/year, 5 shifts/week, and 8 hours/shift. What will the production rate of the
line have to be to meet annual demand? What is time allowed to make each unit (cycle time)?

Production rate = units/hour

From Rp = 60/Tc → 45 = 60/Tc → Tc = 1.33 min

Production Capacity
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Production capacity - maximum rate of output that a production line or Dept. is able to produce.

 Measured as # of units produced/week.

Plant capacity – production capacity of entire plant.

 Plant has n number of machines, each can produce Rp units /hr

 Operates H hours /shift, S shifts /week

Production Capacity (units/week) = PC = nSHRp

What can you do to increase production capacity?

Short term:
 run more shifts/w
 run more hrs/shift
Long term:
 Increase number of machines n – buy more equipment
 Increase production rate Rp – process improvements

Utilization

Utilization = amount of output of a production facility relative to its capacity.

Q = actual output quantity (pc/week) PC = production capacity (pc/week)

Example 5
A machine operates 5 days a week, 2 shifts each day and each shift is 8 hours at full capacity.
It’s production rate is 20units per hour. During a certain week, the machine produced 1000 parts
and was idle the remaining time.
(a) What is the production capacity of the machine?

PC = nSHRp = (1)(5*2)(8)(20) = 1600 units/week

(b) What is the utilization of the week under consideration?

U = 1000/1600 – 0.625 or 62.5%

Another way to define utilization:

Amount of time machine used/week = 1000pc / 20pc/hr = 50hrs

Amount machine hrs available for week = 5days*2shift*8hours = 80 hrs

(amount of time machine used/week) / (machine hrs avail for week) = 50hrs/80hr = 0.625
Productivity

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  Productivity measures output for a firm/division/dept/line divided by inputs used

 Productivity tells you how competitive a firm is. More productive firm more competitive

Single Factor Productivity examples: , ,

Multifactor Productivity examples: ,

Total Factor Productivity: [Goods and services produced ] / [All inputs used to produce them ]

Example 6
Cunningham Industries is compiling the monthly productivity report for its board of directors.
From the following data, calculate (a) labour productivity, (b) machine productivity, and
(c) multifactor productivity of dollars spent on labour, machine, materials, and energy. The
average labour rate is $15 an hour, and the average machine usage rate is $10 an hour.

Units produced 100,000 Labour hours 10,000 Machine hours 5,000

Cost of materials $35,000 Cost of energy $15,000

5. Certifications & OM Societies

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 Association for Operations Management (APIC) – apics.org
o CPIM - Certified in Production and Inventory Management

 Institute for Supply Management (ISM) - instituteforsupplymanagement.org

o CPSM - Certified Professional in Supply Management

 Project Management Institute (PMI) – pmi.org

o PmP – Project Management Professional

 Council of Supply Chain Management Professionals - cscmp.org

 Logistics Institute (Canada) - loginstitute.ca

o P.Log – Professional Logistician

 Production & Operations Management Society (POMS) – poms.org

o This is a society mainly for academics

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