Operations Management - Company Should Be Market-Driven - Coursework Example

Operations Management Introduction Before it was called production management and has been expanded to cover management of non manufacturing or service activities such as banking, hotel management, transportation, and education. Now,it has taken a new name – production and operations management or simply operations management. Production and operations is the process by which goods and services are created. We find productive processes in all kinds of organized activities such as factories, offices, supermarkets, and hospitals. Production and operations management deals with decision making related to productive processes to ensure that the resulting goods or services are produced according to specifications, in the amounts and by the time required, and at minimum cost. Inputs of materials, labor, and resources are used to obtain goods or services using one or more conversion/transformation processes, thereby adding value. (Shim and Siegel, 1999, p. 2) Operations management begins with high-level business plans and strategies which are based on careful and sound projection of demand for the product or service. Operating plans are derived from the long-term or short-term strategy and are translated into master schedules, which, in turn, form production and purchasing plans. Production planning and material control interact continuously with manufacturing in the execution of the plan. Finished goods are distributed geographically as required by the markets served by the business. Definition of terms: Continuous improvement (CI) – endless pursuit of improvement of machinery, materials, labor utilization, and production methods through application of suggestions and ideas of team members. Fishbone diagrams often called cause-and-effect diagrams; way of determining likely root causes of a problem. Operations – set of all activities associated with the production of goods and services. Production and operations management – management of all activities directly related to the production of goods and services. Production system – collection of inputs, conversion, transformation processes, outputs, control mechanisms, and managers involved in production and operations. Productivity – ratio of outputs to inputs. Quality – measure of conformance of a product or service to certain specifications or standards. Supply chain management – management of the integration of the functions, information, and materials that flow across multiple firms in a supply chain (i.e., buying materials, transforming materials, and shipping to customers). (Shim & Siegel, 1999, p. 1) For a bit of history, we have to go back to the early 1900s when rapid industrialization and the demands of munitions production in World War I saw the emergence of management scientists and industrial engineers such as Elton Mayo and Frederick Winslow Taylor, who studied people and productivity in factories. Henry Ford made production-line manufacture famous with his Model T automobile and, especially important for project managers. Henry Gantt (1861-191), who worked for Taylor, developed his now-famous charts which are still popular and used universally today. In the 1950s to 1960s, the emergence of mainframe digital computers made the processing and updating of critical path networks faster and easier. The American defence industry and Du Pont were among the organizations quick to exploit this powerful planning and scheduling tool in the 1950s. The manufacturing construction industries soon came to recognize the benefits of these new methods. (Lock, 2007, p. 3) In the 1970s, there was a rapid growth in information technology. Industrial project management continued as before, now added with project management software. However, the spread of IT brought another, different kind of project manager on the scene: these were the IT project managers who possessed technical and mental skills needed to lead teams developing IT projects. (Lock, 2007, p. 3) There is also the archetype of the analysis, design, develop, implement, evaluate also known as ADDIE which has been called into question with the various innovations and expansion of information technology. The proliferation of cutting-edge e-technologies have caused the process of instructional development to become so complex that ADDIE is now out of place with the times. (Fabac, 2006, p. 540) The conduct of Operations Management Operations Management is divided into five broad sections: 1. Decision Making Tools and Methods 2. Demand Forecasting 3. Planning Systems – include capacity planning, locational planning, aggregate production planning and master scheduling 4. Designing Systems – include product/service design and process selection, facilities layout, design of work systems 5. Operating and Controlling the System – includes Inventory management, materials requirement planning, and just-in-time, project management and control, operational scheduling, queuing, quality assurance General Description Production and operations systems have inputs, which include the material, parts, paperwork forms, customers, and patients, as the case may be. These inputs are processed in some way by a series of operations whose sequence and number are specified for each input. The number of operations required may vary from one to any number and may take on any desired characteristics: that, they may be mechanical, chemical, assembly, inspection and control, dispatching, receiving, shipping, personal contact (e.g., an interview), and paperwork operations. The outputs of a production system include completed parts, products, chemical, service to customers or patients, and completed paperwork. There is normally a provision for storage after the receipt of the input and between each operation in the system. Inputs are transported between all operations in the system, and any means of transportation may be used, including self-transportation in the case of clients and customers. An information system and decision maker interconnect the physical activities providing a basis for management decisions. These functions provide the equivalent of a “nervous system.” Such production systems may occur in series or in parallel. (Shim & Siegel, 1999, p. 3) Continuous and Intermittent Systems Continuous flow production systems are those systems in which the facilities are standardized with respect to routings and flow because the inputs are standardized. Therefore, a standard set of processes and sequences of processes can be adopted. Continuous systems are represented in practice by production and assembly lines, large-scale office operations processing forms by some standard procedure, and continuous flow chemical operations. On the other hand, intermittent production systems refer to systems with facilities that must be flexible enough to handle a wide variety of products and sizes or the basic nature of the activity imposes change of important characteristics of the input. In such instances, no single sequence pattern of operations is appropriate, so the relative location of the process centers or departments must be a compromise that is satisfactory for all inputs. Transportation facilities between operations must also be flexible to accommodate a wide variety of input characteristics as well as a wide variety of routes through the system. Intermittent systems are called such because the flow is intermittent. (Shim & Siegel, 1999, p. 4) Production Systems The problems that occur in production systems require major types of decisions: those that relate to the design of the systems and those that relate to the operation and control of the systems (long-run and short-run decisions): 1. Long-run decisions related to system design Selection and design of inputs (products) Selection of equipment and processes Production design of items processed ) Production cost interacts strongly with the design of the item being processed.) Job design System location Facility layout 2. Short-run decisions related to operation and control Inventory and production control Maintenance and reliability of the system Quality control Labor control Cost control and improvement The relative importance of these problems of production management varies considerably, depending on the nature of individual production systems. Each system has these problems to some degree. Part of the art of production management involves sensing the relative importance of the various problems in a given situation. Manufacturing Operations and Service Operations Distinction between manufacturing and service operations is based on the following features: The nature and consumption of output Nature of work Degree of consumer contact Uniformity of output Quality assurance Measurement of performance Operations Strategy Operations strategy is concerned with setting broad policies and plans for using the production resources of the firm to best support the firm’s long-term competitive strategy. Typical operations strategy issues include: Capacity requirements: amount, timing and type Facilities: size, location, and specialization Technology: equipment, automation, and linkages Vertical integration: extent of use of outside suppliers and distributors Work force: skill level, wage policies, employment security Quality: defect prevention, monitoring and intervention Production planning/materials control: sourcing policies, centralization, decision rules Organization: structure, control/reward systems, role of staff groups Some decisions are very important because these decisions can effect on the organization and its consequences can be felt over many years. Other decisions are less important, with effects felt over days, or even hours. Strategic decisions are most important; they are long term, use many resources and are many by senior managers. Tactical decisions are less important; they are medium term, use fewer resources and are made by middle managers. Operational decisions are least important; they are short term, use few resources and are made by junior managers. (Waters, 1999, p. 11) COST Within every industry, there is usually a segment of the market that buys strictly on the basis of low cost. To compete in this niche successfully, a firm must be the low-cost producer. But even doing this does not always guarantee profitability and success. Products sold strictly on the basis of cost are typically commodity-like in nature. In other words, customers cannot distinguish the products of one firm from those of another. As a result, customers use cost as the primary determinant for making a purchase. But this segment of the market is frequently very large and many companies are lured by the potential for significant profits, which they associate with the large unit volumes of product. QUALITY Quality can be divided into two categories: product quality and process quality. The level of quality in a product’s design will vary depending on the targeted market segment. Obviously, the quality of a child’s first two-wheeled bicycle is significantly different from that of the bicycle of a world-class cyclist. SPEED OF DELIVERY Another market niche considers speed of delivery to be an important determinant in its purchasing decision. Delivery time is the elapsed time between receiving a customer’s order and filling it. FLEXIBILITY Flexibility refers to the ability of a company to offer a wide variety of products to its customers. Flexibility is also a measure of how fast a company can convert its processes from making an old line of products to producing a new product line. Product variety is often perceived by the customer to be a dimension of speed of delivery.s Other areas of concern for operations management are: Business Process Reengineering (BPR) – is a management practice that seeks to make revolutionary changes in business processes. PRODUCTIVITY Productivity is the ratio of outputs to inputs. Productivity can be expressed on a partial factor basis or a total factor basis. Total factor productivity is the ration of outputs to all inputs. This is shown in the formula below. Outputs Productivity = Labor + Capital + Materials + Energy Outputs relative to one, two, or three of these inputs – labor, capital, materials, or energy – are partial measure of productivity. Productivity measures are relative measures. To be meaningful, productivity should be compared with something else such as similar operations within its industry or over time within the same operation. In a manufacturing plant, productions and operations are linked to project management and is the process by which goods and services are created. Operations management deals with decision making related to productive processes to ensure that the resulting goods or services are produced according to specifications. (Shim & Siegel, 1999, p. 8) SUPPLY CHAIN MANAGEMENT To remain competitive, companies are continually faced with challenges to reduce product development time, improve product quality, speed delivery time to customers, and reduce production costs and lead times. Increasingly, these challenges cannot be effectively met by isolated changes to specific organizational units, but instead they depend critically on the relationships and interdependencies among different firms (or subunits). With the movement toward a global market economy, companies are increasingly inclined toward specific, high-value-adding manufacturing niches. This, in turn, increasingly transforms these challenges into problems of establishing and maintaining efficient material flows along product supply chains. The ongoing competitiveness of a company is tied to the dynamics of the supply chain(s) in which it participates, and recognition of this fact is leading to many changes in the way organizations interact with their supply chain partners. Currently, research is concerned broadly with: (1) The development of techniques and tools that enable modeling and analysis of emerging supply chain management strategies and practices, and (2) The application of these tools to understand critical tradeoffs and alternatives in practical decision making contexts. (Shim & Siegel, 1999, p. 9) TOTAL QUALITY MANAGEMENT AND QUALITY COSTS In order to be globally competitive in today’s world-class manufacturing environment, firms are placing an increased emphasis on quality and productivity. Total quality management is an effort in this direction. Simply put TQM is a system for creating competitive advantage by focusing the organization on what is important to the customer. Total quality management can be broken down as follows: Total – the whole organization is involved and understands that customer satisfaction is everyone’s job. Quality – the extent to which products and services satisfy the requirements of internal and external customers. Management – the leadership, infrastructure, and resources that support employees as they meet the needs of those customers. QUALITY A quality product or service is one that conforms to customer satisfaction. Generally, there are two types of product quality – quality of design and quality of conformance. Quality of design measures the functionality of a product or service. It is the decision of a designer to include or exclude certain product features. The customer measures quality through appearance, operation, and reliability. Quality of performance measures how closely products and services match the intent of the design. This characteristic traditionally has been the focus of a quality management program. There are two key beliefs about TQM. These are: that quality is what the customer says it is and that it must be thoroughly integrated into the very fabric of the organization, including its basic strategies, culture, and management systems. It is essentially an endless quest for perfect quality. It is a zero-defects approach. It views the optimal level of quality costs as the level where zero defects are produced. This approach to quality is opposed to the traditional belief, called acceptable quality level (AQL), which allows a predetermined level of defective units to be produced and sold. DESIGNING AN OPERATIONS STRATEGY Designing an operations strategy involve a mixture of analysis, reasoning, experience and intuition, but there are some common themes, and a reasonable approach includes the following steps: 1. Analyse the business strategy – and other strategies – from an operations viewpoint. 2. Understand the market in which the operations strategy must work. This shows the kind of product that customers want, as well as the volume, range, and flexibility. 3. Find the factors that will lead to success in this market, and the importance of each one. 4. Describe the general features of the process that can best deliver these products. 5. Design the best organizational structure, controls and functions to support the process. 6. Define measures to compare actual performance with planned, optimal and competitors’ performance. This answers questions such as ‘What do the competitors do better than us?’ and ‘Where are the weak spots in our performance?’ 7. Continuously monitor and improve actual performance. (Waters, 1999, p. 20) Products and Processes ‘The mission of a business is to create value for its customers,’ thus says Michael Hammer (cited in Waters, 1999, p. 26). An organization has to make products that customers want. Product planning includes: Decisions about the introduction of new products, changes to existing products and withdrawal of old products; To make sure that an organization has a steady supply of products that customers want. Design of a product and the processing of the product are inseparable. The features will depend on its processes – the cars that Toyota make are different and unique in their own processing plants that those with parts outsourced from other companies. In many services, the links between the product and its process are particularly close, and it is very difficult to draw a line between the product offered by others. A company that sees itself as running a bottling plant has a process focus; one that makes bottled lemonade has a product focus. Expensive restaurants have a process focus – they cook foods; hamburger restaurants have a product focus – they sell hamburgers. A telephone company has a product focus – it arranges telephone calls; a communications company has a process focus – it enables the most appropriate communications. ( Waters, 1999, p. 26-27) Model in Operations Management: The Case of Toyota Toyota’s teams of engineers and project managers handle operations management like it is an ordinary part of business. As the terms connote, engineers and technicians work as a team. Toyota has been on the forefront of car making because of an effective project and operations management coupled with an efficient and competitive workforce. Hybrid Prius is one of its success stories, i.e. before the controversies. In the 1950s Toyota was only a small company, averaging 18,000 vehicles per year. As years passed on, management perfected the so-called Toyota Production System – this is the Japanese way, a means of achieving mass production efficiencies with small volumes. Toyota expanded to become export-oriented and began to open manufacturing plants in many countries including the United States, operating in the same strategy. (Lynch, 2008, p. 772) Until now, the kaizen method of production, which is known as continual improvement is being implemented in Toyota’s projects of hybrid or no-hybrid vehicles. Experienced managers take it step by step. As an illustration, the diagram in the proceeding page can illustrate how a project management should be handled. Source: Operations Management, by Shim and Siegel, 1999, p. 2. Inputs of materials, labor, and resources are used to obtain goods or services using one or more conversion/transformation processes, thereby adding value. This diagram demonstrates how a project is normally done, and how this should be implemented by a qualified and united team to make it a successful project management. The period between the beginning and end of a project is usually referred to as the project life cycle. It is convenient and necessary here to introduce three key players in the project life cycle: The customer who is also known as the client who wants to buy the project and put the end product to use in its own business or sell (or lease) it on to a third party. The contractor is the organization principally responsible to the customer for carrying out the project work. The project manager is a person employed by the contractor (or occasionally by the customer) to plan and manage all the project activities so that the project is finished on time within budget and within its specification. (Lock, 2007, pp. 6-7) “The primary aim of the project manager is for the result to satisfy the project sponsor or purchaser and all the other principal stakeholders, within the promised timescale and without using more money and other resources than those that were originally set aside or budgeted” (Lock, 2007, p. 1). When we plan a project, we can save a lot of efforts by making some basic decisions before going to begin to enter task or resource data. We have to establish calendars or milestones. The project relies on some calendars that are established for each project and for some project resources. We start by opening the project calendar and use this to establish working and nonworking days and to set the number of work hours per day. Working days or work hours per day must be set for the team members and make a resource calendar for them. Knowledge, teamworking and management have to go hand in hand (Koch, 2004). Conclusion Operations management has been enhanced with the emergence of high technology tools. With constant changes and the demands of effectiveness and efficiency, managers should have adequate planning, control, and communications expertise. Looking at the various projects and activities of organizations, we find operations management to be interesting and something worthy to carry along as we pursue future endeavours and careers. Not only is the topic fruitful and important to management students but to any member of an organization or to anyone involved in a profession that involves diversity and a lot of projects and activities. We manage or follow our managers who are leaders. Understanding the concept and methods of operations management enables us to be a part of the success of any project. The key to the success of the project is the manager’s understanding of the knowledge and skills in a particular project, coupled with teamwork and close coordination with the staff. References Fabac, J. (2006). Project management for systematic training. Advances in Developing Human Resources 2006; 8; 540. DOI: 10.1177/1523422306293010. Koch, C. (2004). The Tyranny of Projects: Teamworking, Knowledge Production and Management in Consulting Engineering. Economic and Industrial Democracy 2004; 25; 277. Lock, D. (2007). Project Management (Ninth Edition). England: Gower Publishing Limited, 2007. Lynch, R. (2008). Global Automotive Vehicle - Strategy in a Mature Market and Toyota: What is its Strategy for World Leadership. In Strategic Management, 5th edition (Financial Times/ Prentice Hall), pp. 767-775. Shim, J. and Siegel, J. (1999). Operations Management: A Streamlined Course for Students and Business People. New York: Barron’s Educational Series, Inc. van Meel, R. M. (1993). Project-based module development (Report No. ISBN-90-358-1241-7). Heerlen, The Netherlands: Centre for Educational Technology and Innovation. (ERIC Document Reproduction Service No. ED734212) Waters, D., 1999. Operations management. London: Kogan Page Limited. pp. 11-20. Read More