Production & Operations Management

1. Production & Operations Management Chapter 9

2. Goals • USA Manufacturing • Production  Operations Management • Production Processes • Production techniques that have improved productivity in USA • Operations management planning issues • Control Procedures

3. USA Manufacturing • In recent history manufacturing has declined while the service industry has grown • 70% of US GDP comes from service sector • 85% of jobs comes from service sector • 25% of all goods produced in world come from US manufacturing sector (largest % in world) • This means that we must study how to produce goods and services • Manufacturing industries doing well: green technology, nanotechnologies, biotechnologies • Tesla Motors (Electric carmaker) • Solyndra (solar company) • Codexis (biofuels firm) • 3M (nano research done by 3M for adhesives, LCD displays and more)

4. Production Operations Management • Production • The creation of finished goods and services using the factors of production: land, labor, capital, entrepreneurship and knowledge. • Production Management • Term used to describe all the activities managers do to help their firms create goods • Operations management • Term used to describe all the activities managers do to help their firms create goods and services • Converting resources into goods and services

5. Operations Management • Product creation, development, production, distribution, managing purchases, inventory control, quality control, storage, logistics and evaluations • A great deal of focus is on effectiveness & efficiency of processes • Substantial measurement and analysis of internal processes in order to become more effective and efficient http://www.managementhelp.org/ops_mgnt/ops_mgnt.htm

6. What Is Operations Management Like At: • Appliance Manufacturer (Product) • Operations Management take raw materials, human resources, parts, supplies, paints, tools and more to make appliance • Example: • Dacor kitchen wear • http://www.dacor.com/About-Us/The-Dacor-Family.aspx • List of companies manufacturing appliances in USA • http://www.ssrsi.org/Made%20In%20%20USA/apliances.htm • Sears (Retail, Finance & Repair - Product & Service) • Operations Management covers everything: purchases, sales, finances, repairs

7. What Is Operations Management Like At: • Colleges (Service) • Operations Management take information, teachers, buildings, computers, students and creates a service that transforms students into educated people • Hospitals (Service) • Hospitals Operations Management take information, buildings, high-tech machines, computers, supplies, highly skilled labor and creates a service that transforms sick people into healthy people

8. Form Utility • The value added by the creation of finished goods and services, such as: • The value added by taking silicon and making computer chips • Putting services together to create a vacation package • The value added by taking wood, paint, labor, packaging, and other costs and making a boomerang

9. Goal of production(Andrew S. Grove – Intel) • Build and deliver products that customers demand at a scheduled delivery time • Acceptable quality • Lowest possible price

10. Production Processes • Process Manufacturing • That part of the production process that physically or chemically changes materials • Examples: • Poor the steel into the mold to make parts for excavator • Cook steak, vegetables and rice • Assembly Process • The part of the production process that puts together components • Examples: • Assemble parts to make excavator • Assemble steak, vegetables and rice to make dinner

11. Production Processes • Continuous Process • A production process in which long production runs turn out finished goods over time • Examples: • Tortilla factory or lumber factory • Intermittent Process • A production process in which the production run is short and the machines are changed frequently to make different products • Examples: • Auto factories can switch between models • Bakers can make cakes and pies and tarts

12. Production techniques that have improved productivity in USA • CAD (Computer-aided Design) • The use of computers in the design of products • CAM (Computer-aided Manufacturing) • The use of computers in the manufacturing of products • CIM (Computer-integrated Manufacturing) • One machine that does both CAD and CAM • Expensive but cuts manufacturing costs dramatically • Examples: • http://www.youtube.com/watch?v=nvZBtJ-ncEM&feature=related

13. Production techniques that have improved productivity in USA • Mass Production (Perfective in US by companies like Ford) • Make a lot of one thing • Like Henry Ford did • Flexible Manufacturing • Designing machines to do multiple tasks so that they can produce a variety of products • http://www.youtube.com/watch?v=cb-I4FhF36Q&feature=related • Lean Manufacturing (Originated in Japan) • Manufacturing that uses fewer inputs (resources) to make the same number of outputs than before. Increase productivity. • Reduce labor hours, waste, defects, floor space, inventory • http://www.youtube.com/watch?v=AUPji7L9aSs&feature=related

14. Production techniques that have improved productivity in USA • Mass Customization • Tailoring products to meet the needs of individual customers on a mass scale • Examples: • Dell – design your own computer • Vans shoes – design your own shoe • Colleges – design your own degree • Season Tickets to Mariner Games

15. Reverse Innovation or Frugal Innovation(Originated in emerging markets) • Reverse Innovation or Frugal Innovation • What are needs of poor  create product • “Turbo Charged Lean Manufacturing” • Examples: • Tata Motors (Indian Company) makes $2200 car • Kenya leads the world in mobile phone money transfer • GE R & D labs in Bangalore, India makes hand-held ECG (electrocardiogram) for $800 (instead of $2000) • TCS (India) create inexpensive water filter from rice husks (waste product) • Narayana Hrudayalaya Hospital (India) Heart Surgery for $2000 (same success rate as US) • BYD (China) makes lithium batteries for $12 (instead of $40)

16. Reverse Innovation or Frugal Innovation • Key ideas: • Dramatically reduce costs by: • Redesign products & processes • Applying division of labor (expert does what they are expert at) and economies of scale in new areas like surgery • Listening to what the poor need • Product must be tough and easy to use • Use minimal raw materials • Not harsh on environment

17. Reverse Innovation or Frugal Innovation • Rethinking Production processes: • Contract out more work and stick to core competency • Use existing technology in new ways • Computers are rare in India and TVs are common, so TCS designed a box that connects mobile phone (can get internet) to TV • Narayana Hrudayalaya Hospital • 1000 beds instead of more common 200 (economies of scale) • Surgeons can specialize in one operation and become that best at the one operations

18. Operations Management Planning Issues (Manufacturing And Service): • Facility location • Facility layout • Materials requirement planning • Purchasing • JIT (just-in-time inventory) control • Quality control

19. Operations Management Planning • Facility Location • The process of selecting a geographic location for a company’s operations • Considerations: • Less expensive property, labor, logistic costs • Location, Location, Location • Attractive communities to live in – life style to attract employees • Are suppliers close? • Are there enough customers or employees? • Tax breaks • Can we just do things on the internet? Retail or engineer?

20. Operations Management Planning • Facility Layout • The physical arrangement of resources (including people) in the production process • Products: • http://www.youtube.com/watch?v=AUPji7L9aSs&feature=related • Services: • Aravind Eye Hospital (India): 4 operating beds next to each other and 2 doctors

21. Operations Management Planning • MRP (Material Requirement Planning) • A computer-based production management system that uses sales forecasts to make sure that needed parts and materials are available at the right time and place (for a single firm) • ERP (Enterprise Resource Planning) • A computer application that enables multiple divisions or firms to manage all of their operations (finance, requirements planning, human resources and order fulfillment) on the basis of a single, integrated set of corporate data • ERP Programs help to bring operations management to the Internet

22. Operations Management Planning • Purchasing • The function in a firm that searches for quality material resources, finds the best suppliers, and negotiates the best price for the goods and services • Pays all bills that allow discounts during the discount period • 2/10/net 30 • $1000 owed • Discount if pay within 10 days = $1000*.02 = $20 • $20 discount for paying 20 days early • Annual rate earned = (1+.02)^(365/20)-1 = 43.53%

23. Operations Management Planning • JIT (Just-in-time Inventory Control) • The production process in which a minimum of inventory is kept on the premises and parts, supplies, and other needs are delivered just in time to go on the assembly line • Reduces storage costs, facility space, obsolesces • Requires close ties with suppliers

24. Operations Management Planning • Quality • Consistently producing what the customer wants while reducing errors before and after delivery to the customer • The before in the most important • Statistical Quality Control (SQC) • Statistics used to continually monitor quality • Six Sigma Quality (Six Standard Deviation Quality) • A quality measure that allows only 3.4 defects per million opportunities

25. Control Procedures • Pert Charts (Critical Path) • A method for analyzing that tasks involved in completing a given project • The Critical Path is the path that takes the longest and this is most critical to avoid delays on this path • Gantt Charts • Bar graph showing production managers what projects are being worked on and what stage they are in any given time

26. How Manufacturers Have Become More Effective • Focus more on customers • Maintain close relationships • Continuous improvement • Focus on quality • Save costs through site selection • Rely on the Internet to unite partners • New production techniques • Looking overseas to get new ideas for production and innovation in providing goods and services