Operations Management
The management of processes used to design, supply, produce, and deliver valuable goods and services to customers
Supply Chain Management
is the management of the processes and relationships in a supply chain
Goods vs Services
-Intangibility of services
-Services can not be inventoried
Levels of planning
Strategic: High level, Long-Term
Tactical: Intermediate-term
Operational: Frequently revisited, Short-Term
Strategic Planning
Long-Term decisions defining the objectives and capabilities of an organization.
-Take a long time to implement
-Put limits on the capabilities governing operational processes
Tactical Planning
Intermediate-term decisions defining how capacity is used to meet demand.
-More frequent than strategic planning, usually spanning months
-Identify customer demands for aggregate product families
-Establish the inventory and Capacity Plans
Operational Planning
Short-term priorities and schedules for resource allocation
-address demands, materials, and capacities at the individual product level
-usually addresses weeks or days
Supply Chain
the global network of organizations and activities involved in designing, transforming, consuming and disposing of goods and services.
Customer Management
interfaces with customers and
order processing and fulfillment
Supply Management
processes to identify,
acquire and administer inputs
Logistics Management
movement of materials and information within, into and out of the firm
use or consume output
provide inputs
have an interest in organizational well being and performance
Determine how anticipated demand will be met with
available resources
Select suppliers that will deliver the goods and services needed to create the firm’s product
How the major product is produced or the service provided
Logistic processes to coordinator and schedule the
movement of goods and information
Receiving defective products and providing customer
is a system of activities that transforms inputs into valuable outputs
Physical Transformation
Locational Transformation
Exchange Transformation
Storage Transformation
Physiological Transformation
Health Care
Informational Transformation
Telecommunications, Consultants, Education
Supply Chain Processes
Planning, Sourcing, Making, Delivery, Returning
Corporate Strategic Planning
overall mission and target businesses
-Long time horizon
-Overall values, direction and goals
-Acquisitions and divestitures
-Performance metrics
-Risk management
Business Unit Strategic Planning
semi-independent organization for different products or markets
-Identification of customer or market segments
-Appropriate product offering and competitive
-Constrained by corporate strategy
-More detailed, shorter time horizon
Functional Strategic Planning
determines how functions support business unit strategies
-Most detailed
-Most constrained
-Determines specific focus
Order Winners
why customers choose your firm
Order Losers
why customers avoid your firm
Order Qualifiers
minimum standards to be met
Product Related
outcome of customer experience
• Quality
• Timeliness
• Cost
Process Related
supply chain operations’ abilities
• Innovation
• Flexibility
• Sustainability
• Risk Management
Process Defined by Activties
-An operation transforms an input, physically or
-Transportation moves an input without
transforming its other characteristics.
-Inspection checks results of another activity.
-Delays occur when flow of an input is
unintentionally stopped.
-Storage is an activity where items are inventoried
under formal control.
Process Defined by Inputs, Outputs, and Flows
• Inputs: material, energy, information, capital, people
(service), facilities, equipment, and labor
• Outputs: physical goods, services, and information
-Both intended and unintended products of the process are considered outputs. Unintended outputs: often by-products like pollution or waste
• Flows: Information flows contain data. Material flows include physical products, including people
Process Defined by Structure
Is the organization of inputs, activities, and outputs
-Process Capabilities
-Sequencing, positioning, and linking of process activities
Typical process structures:
-Job Shop
-Batch Shop
-Assembly Line
-Continuous Flow
Process Capacity
• A process’ limit on amount of output given an amount of input and resources (e.g. output per machine hour or labor hour)
• Can also refer to size or storage limits.
Maximum Capacity
-Highest output rate an activity or process can achieve
under ideal conditions
Effective Capacity
-Sustainable capacity taking into account potential
disruptions, fatigue, machine breakdowns
-Typically around 70-80 percent of maximum capacity
Percentage of process capacity actually used
Yield Rate
Percentage of good units begun that were successfully
Theory of constraints
-Every process has a constraint
-Every Process Contains Variance that Consumes Capacity
-Every Process must be Managed as a System
-Performance Measures are Crucial to the Process’s Success
-Every Process must be Continuously Improved
Every process has a constraint
Bottleneck: limits the ability of the process to generate output – constraining activity
• Constraint or “scarce resource”
• Defines the maximum capacity of a system
Every Process Contains Variance that Consumes Capacity
-Variance occurs in a process’s inputs, activities and outputs.
-Increased complexity and uncertainty makes it difficult to
create plans to efficiently and effectively use resources.
Every Process must be Managed as a System
-Changing one element of a process may impact
other elements, sometimes in unexpected ways.
– Process elements are interdependent
-Process structures
-Management policies
Performance Measures are Crucial to the Process’s Success
Metrics should address aspects of performance that are
important to both customers and the organization.
-They should be verifiable and quantifiable
-They should align internally and with customer value
-They should support standards and wards
-They provide the basis for: communication and monitoring
Every Process must be Continuously Improved
-focused, incremental improvement efforts
– Team focus: utilize the knowledge and experience of the people associated with the process
– Short term and focused
– Action-oriented
– Repetitive
Increase Utilization
-Increase up-time
-Reduce changeovers and set-up times
-Improve scheduling
Improve Efficiency
-Improve layout
-Break bottlenecks
-Reduce or buffer variation
-Increase labor productivity
Increase Yield
-Voice of the customer
-Increase process capability and control
-Improve incoming materials quality
-limits output
-increase lead time
-adversely affects cost, quality, and flexibility
Visible to the Customer
Affects how the customer views the process and the firm
Core Capability
-A process that incorporates a critical strategic skill set that is difficult for the competition to copy
-Must be guarded, managed, and improved continuously because it is the major source of our firm’s value
Feeder Process
-A process that feeds a number of alternative processes coming out of it
-A problem in this process (ex: delay) can affect many downstream outcomes
Greatest Variance
-Variances are amplified by sequential steps in processes
-To reduce variance, managers should identify those steps that are sources of greatest variance
Most Resources consumed
We focus on these processes because they offer the “biggest bang for the buck.”
Product life cycle
introduction into the market and may require SC
process innovation
increasing demand, flexible SC, more data from customers, increasing standardization
demand and product stabilization, increasing importance of cost, process innovation to increase SC efficiency
changing technology or customer needs, declining demand, potential phase in of a replacement product
Types of innovators
Fast Innovators
High-Quality Innovators
Efficient Innovators
Fast Innovators
-Get to market quickly
-React quickly to competitor’s actions
-More continuous stream of product introductions
High-Quality Innovators
– Fewer issues launching products, and fewer failures
– Effectively satisfy customers for higher brand loyalty
Efficient Innovators
– Fund more new design and development projects
– Sell at lower prices, or have lower break even quantities
Idea and Opportunity Development
-Need organizational culture that motivates and affects innovation success
-Solicit ideas from external networks
-Open Innovation
Innovation Portfolio Planning
– The process of selecting & prioritizing innovation projects
– Analyzes estimated market share, revenues, profits,
investment and development time requirements.
– Ensure innovation projects are consistent with the firm’s
strategy and development capacity
Innovation Project Management
-It’s the planning and execution of each product/process innovation project.
-Discipline: clarify and reduce uncertainty
-Flexibility: for situations where uncertainties persist
New Product/Process Launch and Learning
-Management of a progression of projects
-Capture lessons learned post launch
-Learning applied to next project
-Continuous chain of projects adds to capabilities
– Increased sources of, & access to, ideas &
opportunities, leading to higher quality
– Leveraging the expertise of others increases the
number of successful launches, and reduces lead time
– Financial and legal risks are shared
– Less control over intellectual property (IP)
– Partner dependency may lead to less control over goals
and timing
Early supplier involvement (ESI)
– Suppliers participate directly in product design activities
– Allows the firm to focus on integration of systems and
the overall functionality of a product
Concept Development
-Identify core product concept
-conduct market, technical, and finacial assesments
-identify the target values of the product attributes, volume, and price
-determine the primary product architecture, including product variants and components sharing plan
-propose and investigate production process concepts
Product and Process Planning
-Decide which components will be designed versus off-the-shelf
-Identify who will design, produce, and assemble the components
-Specify the types of processes to be used to produce the product and the structure of the supply chain
-Identify who will develop and supply needed process technologies
-Develop early prototypes and system-level simulations
Detailed Design and Development
-Determine the values of the key design parameters
-Perform detailed design of the components including material and process selection, assembly precedence, and tooling requirements
-Build full-scale prototypes and detailed simulations
Product and Market Testing
-conduct full-scale product performances tests and simulations
-conduct customer tests
-design and test critical tools and production procedures
-refine details of product design
-Evaluate pilot production units
-establish market channels and an order fulfilment systems
-train sales force and field service personnel
Market Introdcution
-ramp-up production volume
-fill distribution channels
-launch promotion and advertising campaigns
-evaluate field experience with product
Voice of customer (VoC)
gather input on customer’s needs and wants
Quality Function Deployment (QFD)
convert customer’s needs and wants into specifications
Failure Modes and Effects Analysis (FMEA)
identification and correction of potential problems
Value Engineering/Value Analysis
improvement of benefits and costs through examination of functionality
Design for Manufacture
Improvement of product producibility
-Producibility: A measure of the speed, ease, cost efficiency, and reliability with which a product can be produced.
Design for Assembly
minimizing number of components and easing assembly processes
Design for Product Serviceability
easing disassembly and component reuse
Design for Six Sigma
improving process consistency
Components Standardizartion
reuse parts for existing designs.
– Less Development Cost
– Lower Part Cost
Modular Product Design
using combinations of standardized parts
– A few basic common platforms
– Modules are swapped and added for product customization
Design for Logistics
minimizing packaging, handling and shipping costs
Design for Environment
minimize detrimental environmental impacts, across product life cycle
Physical goods can be differentiated from services in the operations management process by:
Longer lead times and they can be inventoried.
Jones Manufacturing sells a part to Lear Corporation. Lear puts this part into a radio, which Lear then sells to Ford. From Ford’s point of view, Jones Manufacturing is a(n) __________ supplier.
Tier 2
Your company faces a shortage of skilled workers its West Lafayette location. This is an example of a
What kinds of questions does an operations manager who is responsible for operational level planning address?
How many units of inventory for product X should I order?
What kinds of questions does an operations manager who is responsible for tactical level planning address?
What new customers should the company pursue?
Customer service management connects what functional groups?
Marketing, logistics management, and sales and distribution.
An example of strategic planning is:
Deciding where to locate a new manufacturing plant.
Scantron Inc. claims that its competitors have to recall 10 percent of their products to fix defects, while it only has to recall 5 percent. Scantron is emphasizing which dimension of quality?

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