Operations Management
design, execution, and control of operations that convert resources into desired goods and services, aligned with company's
... [Show More] business strategy
business function responsible for managing process to create goods and services
Major Activities in Operations Management
product development, managing purchases, inventory control, production operations, quality control, storage, and logistics
Brainpower
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Operations Management Focus
efficiency and effectiveness of processes including measurement and analysis of those processes
Goal of Operations Management
convert materials and labor into goods and services as efficiently as possible
control costs to maximize profit of company
Manufacturing Strategies
must suit company's strengths to establish and maintain effective supply chain
- make to stock (mts)
- make to order (mto)
- assemble to order (ato)
- engineer to order (eto)
Make-to-Stock (MTS)
production environment where products can be, and usually are, finished before receipt of customer order
orders filled from existing stock, and production orders are used to replenish stock
MTS characteristics
- manufacture products for stock based on demand forecasts. more accurate forecast is, less likely excess inventory will be created, and less likely a stockout will occur (forecast demand accuracy is critical)
- most daily necessities such as foods, sundries, and textiles are MTS-type products
- issue is potential to have excess inventory; struggle to make correct product at correct time in correct quantities
- features economies of scale, large volumes, long production runs, low variety, and multiple distribution channels
Make-to-Order (MTO)
production environment where g/s can be made after receipt of customer's order
final product usually combination of standard items and items custom-designed to meet special needs of customer
MTO characteristics
- only manufactures end product once customer places order, creating additional wait time for consumer to receive product but allowing for more flexible customization
- relieves problems of excessive inventory that is common with the traditional MTS strategy
- not appropriate for all types of products; appropriate for highly configured products like computer servers, aircraft, ocean vessels, bridges, automobiles, or products that are very expensive to keep in inventory
- relies on relatively small quantities, but more complexity
Assemble-to-Order (ATO)
production environment where g/s can be assembled after receipt of customer's order
key components (bulk, semi-finished, intermediate, subassembly, fabricated, purchased, packing, etc.) used in assembly or finishing process are planned and usually stocked in anticipation of customer order
receipt of an order initiates assembly of customized product
useful where large number of end products (based on selection of options and accessories) can be assembled from common components
ATO characteristics
- hybrid between MTS (products fully produced in advance) and MTO (products manufactured once order has been received). attempts to combine benefits of both strategies: getting products into customers' hands quickly while allowing for product to be customizable
- requires that basic parts of product are already manufactured but not yet assembled. once order received, parts are assembled quickly and sent to customer
- base components made, stocked to a forecast, but products not assembled until customer order received
Engineer-to-Order (ETO)
products whose customer specifications require unique engineering design, significant customization, or new purchased materials
each customer order results in unique set of part numbers, bill of material, and routings
ETO characteristics
- essence is building unique product every time. there may be components that are common from one product to another, but not in same quantity as in repetitive manufacturing
- more dramatic evolution of MTO supply chain
- cost of poor quality can be very high. warranty costs and cost of rework to replace an item in a complex assembly can have a serious negative effect on profit margins. quality must be part of entire process, and not just part of purchasing and manufacturing (typical focus of repetitive manufacturer)
- used when products are unique and extensively customized for specific needs of individual customers
Total Cycle Time / Lead Time
- mts: product already produced and available in warehouse when customer order is received, so customer will only experience delivery lead time
- ato: product design complete and components/materials have already been procured when customer order received, so customer will experience manufacturing (assembly) ad customer delivery lead times
- mto: product design only element complete when customer order received, so customer will experience procurement, manufacturing, and customer delivery lead times
- eto: no supply chain elements have been completed when customer order is received, customer experience full cumulative supply chain lead time
4 Basic Manufacturing Processes
- job shop
- batch
- line flow
- continuous flow
Job Shop
used to produce items to each customer's specifications. production operations designed to handle wide range of product designs and small lots of a variety of products, which require a unique setup and sequence of process steps to create a custom product for each customer
Job Shop Characteristics
highly flexible, large variety of products, very long lead times, low volumes, low labor requirements, low fixed costs, high variable costs
ex: metal fabrication shops, print shops, custom cabinet making
MTO or ETO
Batch
produce items with similar designs and that may cover wide range of order volumes. typically items ordered are repeat nature, and production may be for specific customer order or for stock replenishment
Batch Characteristics
less flexible (that job shop), more narrow variety of products, long lead times, slightly higher volumes, moderate labor requirements, and moderate fixed and variable costs
some components of final product may be produced in advance
ex: manufacturing component parts of production line, manufacturing clothing or furniture
MTO or ATO
Line Flow
machines and operators handle standard, uninterrupted, material flow. operators perform same operations for each production run. flow shop often referred to as mass production shop or continuous manufacturing layout
plant layout (arrangement of machines, benches, assembly lines) designed to facilitate product "flow"
each product (though variable in material specification) uses same flow of pattern through shop
production set at a given rate, and products are generally manufactured in bulk
Line Flow Characteristics
somewhat inflexible, limited variety of products, short lead times, high volumes
products standardized allow better organization of resources than with job shop or batch processing
sequence of operations in line flow is generally fixed, and production orders are not linked to customer orders as is typical in job shop and batch processing
ex: automobiles, computers, appliances, house goods
ATO or MTO
Continuous Flow
productive equipment is organized and sequenced according to steps involved to produce product
denotes that material flow is continuous during production process
routing of jobs is fixed and setups are seldom changed
Continuous flow Characteristics
inflexible, very limited variety of products, very short lead times, very high volumes, high fixed costs, and low variable costs
involves standardized production with rigid line flows and tightly linked process segments
often operated 24/7 to maximize and to avoid expensive stops and starts
ex: gasoline, laundry detergent, chemicals
MTS
Total Cost of Manufacturing (TCM)
all costs associated with production, procurement, inventory, warehousing, and transportation
all costs impacted by manufacturing strategy
TCM results from functional integration of manufacturing, procurement, and logistics
important for companies to design a supply chain strategy (and adopt a manufacturing strategy) that achieves the lowest TCM across entire process
TCM Key Points
- complete cost of producing and delivering products to customers
- incorporates both fixed and variable costs
- generally expressed as cost per unit of each product
Relationship of TCM Elements to Volume and Manufacturing Strategy
- per unit procurement and production costs go down as volume goes up (step function applies as more capital/fixed cost will be required to produce more as volume grows beyond existing output capabilities)
- per unit inventory and warehousing costs go up as volume goes up. company will produce and manage more inventory and therefore will likely need more warehouse storage space, insurance, and potentially pay more inventory taxes, among other things
- per unit transportation costs go down as volume goes up, but level off at high volumes (economies of scale in transportation until container/conveyance is filled up)
LEAN
philosophy of production that emphasizes minimization of amount of all resources (including time) used in various activities of enterpris
involves identifying and eliminating non-value-adding activities in design, production, scm, and dealing with customers
producers employ teams of multiskilled workers at all levels of org and use highly flexible, increasingly automated machines to produce volumes of products in potentially enormous variety
contains set of principles and practices to reduce cost through processes [Show Less]