Operations Management Final
Projects
Unique, one-time operations designed to accomplish a specific set of objectives in a limited time frame Examples: The Olympic Games Producing a movie Software development Product development ERP implementation
Supply Chain:
the sequence of organizations - their facilities, functions, and activities - that are involved in producing and delivering a product or service Sometimes referred to as value chains
Determining Path Probabilities
z = (specified time - path mean) / path standard deviation
Lean operation
A flexible system of operation that uses considerably less resources than a traditional system Tend to achieve Greater productivity Lower costs Shorter cycle times Higher quality The ultimate goal: Achieve a system that matches supply to customer demand supply is synchronized to meet customer demand in a smooth uninterrupted flow
Work Brekdown Structure
A hierarchical listing of what must be done during a project Establishes a logical framework for identifying the required activities for the project Identify the major elements of the project Identify the major supporting activities for each of the major elements Break down each major supporting activity into a list of the activities that will be needed to accomplish it
Supplier audit
A means of keeping current on suppliers' production (or service) capabilities, quality and delivery problems and resolutions, and performance on other criteria
Project Champion
A person who promotes and supports a project Usually resides within the organization Facilitate the work of the project by 'talking up' the project to other managers, and who might be asked to share resources with the project team as well as employees who might be asked to work on parts of the project The project champion can be critical to the success of a project
Project Completition Time
A project is not complete until all project activities are complete It is risky to only consider the critical path when assessing the probability of completing a project within a specified time. To determine the probability of completing the project within a particular time frame Calculate the probability that each path in the project will be completed within the specified time Multiply these probabilitiesThe result is the probability that the project will be completed within the specified time
Radio frequency identification (RFID)
A technology that uses radio waves to identify objects, such as goods in supply chains Similar to barcodes but - Are able to convey much more information Do not require line-of-sight for reading Do not need to be read one at a time Has the ability to: - Increase supply chain visibility Improve inventory management Improve quality control Enhance relationships with suppliers and customers
Time-Cost Trade-Offs
Activity time estimates are made for some given level of resources It may be possible to reduce the duration of a project by injecting additional resources Motivations: To avoid late penalties Monetary incentives Free resources for use on other projects
Activity-based costing
Allocation of overhead to specific jobs based on their percentage of activities Leadership/project management Managers are expected to be leaders and facilitators, not order givers Lean systems encourage two-way communication between workers and managers
Independence
Assumption that path duration times are independent of each other Requires that Activity times are independent Each activity is on only one path The assumption of independence is usually considered to be met if only a few activities in a large project are on multiple paths
Autonomation (jidoka)
Automatic detection of defects during production Two mechanisms are employed One for detecting defects when they occur Another for stopping production to correct the cause of the defects
Challenges
Barriers to integration of organizations Getting top management on board Dealing with trade-offs Small businesses Variability and uncertainty Response time
Behavioral Issues
Behavioral problems can be created or exacerbated by Decentralized decision making Stress of achieving project milestones on time and within budget Surprises The team must be able to function as a unit Interpersonal and coping skills are very important Conflict resolution and negotiation can be an important part of a project manager's job
In the lean philosophy, the ideal lot size is one
Benefits of small lot size Reduced in-process inventory Lower carrying costs Less storage space is necessary Inspection and rework costs are less when problems with quality do occur Permits greater flexibility in scheduling Less inventory to 'work off' before implementing product improvements Increased visibility of problems Increased ease of balancing operations
Budget Control
Budget control is an important aspect of project management Costs can exceed budget Overly optimistic time estimates Unforeseen events Unless corrective action is taken, serious cost overruns can occur
Poka-yoke (Fail Safing)
Building safeguards into a process to reduce or eliminate the potential for errors during a process Examples Electric breakers Seatbelt fastener warnings ATMs that signal if a card is left in a machine Designing parts that can only be assembled in the correct position
Inventory location
Centralized inventories Decentralized inventories
Management Responsibility: Strategic
Certain strategic responsibilities have a major impact on the success of both supply chain management and the business itself: Supply chain strategy alignment Network configuration Information technology Products and services Capacity planning Strategic partnerships Distribution strategy Uncertainty and risk reduction
Supplier Management
Choosing suppliers Supplier audits Supplier certification Supplier relationship management Supplier partnerships CPFR (collaborative planning, forecasting, and replenishment) Strategic partnering
Advantages of E-Business
Companies can: Have a global presence Improve competitiveness and quality of service Analyze customer interests Collect detailed information about clients' preferences Shorten supply chain response times Reduce or eliminate the role of 'traditional' retailers and/or intermediaries Realize substantial cost savings Also allows the: Creation of virtual companies Leveling of the playing field for small companies
Crashing Procedure
Crash the project one period at a time Crash the least expensive activity that is on the critical path When there are multiple critical paths, find the sum of crashing the least expensive activity on each critical path If two or more critical paths share common activities, compare the least expensive cost of crashing a common activity shared by critical paths with the sum for the separate critical paths
Time-Cost Trade-Offs: Crashing
Crashing Shortening activity durations Typically, involves the use of additional funds to support additional personnel or more efficient equipment, and the relaxing of some work specifications The project duration may be shortened by increasing direct expenses, thereby realizing savings in indirect project costs
E-Business Order Fulfillment Problems
Customer expectations Order quickly -> Quick delivery Demand variability creates order fulfillment problems Sometimes Internet demand exceeds an organization's ability to fulfill orders Inventory Outsourcing order fulfillment Loss of control Build large warehouses Internal holding costs
The goal of procurement
Develop and implement purchasing plans for products and services that support operations strategies
Network Diagram
Diagram of project activities that shows sequential relationships by use of arrows and nodes
Operations Strategy
Effective supply chains are necessary for organizational success Requires integration of all aspects of the chain Supplier relationships are a critical component of supply chain strategy Lean operations and six sigma are being employed to improve supply chain success
Vendor analysis
Evaluating the sources of supply in terms of price, quality, reputation, and service
Early Start, Early Finish
Finding ES and EF involves a forward pass through the network diagram Early start (ES) The earliest time an activity can start Assumes all preceding activities start as early as possible For nodes with one entering arrow ES = EF of the entering arrow For activities leaving nodes with multiple entering arrows ES = the largest of the largest entering EF Early finish (EF) The earliest time an activity can finish EF = ES + t
Late Start, Late Finish
Finding LS and LF involves a backward pass through the network diagram Late Start (LS) The latest time the activity can start and not delay the project The latest starting time for each activity is equal to its latest finishing time minus its expected duration: LS = LF - t Late Finish (LF) The latest time the activity can finish and not delay the project For nodes with one leaving arrow, LF for nodes entering that node equals the LS of the leaving arrow For nodes with multiple leaving arrows, LF for arrows entering node equals the smallest of the leaving arrows
Supply chain functions and activities
Forecasting Purchasing Inventory management Information management Quality assurance Scheduling Production and delivery Customer service
Elements of return management
Gatekeeping Screening returned goods to prevent incorrect acceptance of goods Avoidance Finding ways to minimize the number of items that are returned
Mitigating the Bullwhip Effect
Good supply chain management can overcome the bullwhip effect Strategic buffering e.g., holding inventory at a distribution center rather than at retail outlets Replenishment based on need Vendor-managed inventory Vendors monitor goods and replenish retail inventories when supplies are low
Product variety-inventory trade-off
Greater product variety usually means smaller lot sizes and higher setup costs, as well as higher transportation and inventory management costs
Duties of purchasing
Identifying sources of supply Negotiating contracts Maintaining a database of suppliers Obtaining goods and services Managing supplies
Process Design: Inventory Storage Lean systems are designed to minimize inventory storage
Inventories are buffers that tend to cover up recurring problems that are never resolved partly because they are not obvious partly because the presence of inventory makes them seem less serious
Supplier certification
Involves a detailed examination of a supplier's policies and capabilities The process verifies the supplier meets or exceeds the requirements of a buyer
Creating an Effective Supply Chain
It begins with strategic sourcing Analyzing the procurement process to lower costs by reducing waste and non-value-added activities, increase profits, reduce risks, and improve supplier performance There must be Trust Effective communication Information velocity Supply chain visibility Event management capability Performance metrics
PERT advantages
It forces the manager to organize and quantify available information and to identify where additional information is needed It provides the a graphic display of the project and its major activities It identifies Activities that should be closely watched Activities that have slack time
Knowledge of Path stat (PERT)
Knowledge of expected path times and their standard deviations enables managers to compute probabilistic estimates about project completion such as: The probability that the project will be completed by a certain time The probability that the project will take longer than its expected completion time
Using Slack Times
Knowledge of slack times provides managers with information for planning allocation of scarce resources Control efforts will be directed toward those activities that might be most susceptible to delaying the project Activity slack times are based on the assumption that all of the activities on the same path will be started as early as possible and not exceed their expected time If two activities are on the same path and have the same slack, this will be the total slack available to both
Complexities
Language and cultural differences Currency fluctuations Political instability Increasing transportation costs and lead times Increased need for trust amongst supply chain partners
Lot-size-inventory trade-off
Large lot sizes yield benefits in terms of quantity discounts and lower annual setup costs, but it increases the amount of safety stock (and inventory carrying costs) carried by suppliers
MPC: Level Loading
Lean systems place a strong emphasis on achieving stable, level daily mix schedules MPS - developed to provide level capacity loading Mixed model scheduling Three issues need to be resolved What is the appropriate product sequence to use? How many times should the sequence be repeated daily? How many units of each model should be produced in each cycle?
Aspects of management responsibility:
Legal Being knowledgeable about laws and regulations of the countries where supply chains exist Obeying laws and operating to conform to regulations Economic Supplying products and services to meet demand as efficiently as possible Ethical Conducing business in ways that are consistent with the moral standards of society
Seven elements of manufacturing planning and control (MPC) are particularly important for lean system:
Level loading Pull systems Visual systems Limited work-in-process (WIP) Close vendor relationships Reduced transaction processing Preventive maintenance and housekeeping
Avoiding Problems
Many problems can be avoided or mitigated by: Effective team selection Leadership Motivation Maintaining an environment of Integrity Trust Professionalism Being supportive of team efforts
Trends affecting supply chain design and management:
Measuring supply chain ROI "Greening" the supply chain Re-evaluating outsourcing Integrating IT Managing risks Adopting lean principles
Activity on Node
Network convention in which nodes designate activities Activities Project steps that consume resources and/or time Events The starting and finishing of activities
Activity on Arrow
Network diagram convention in which arrows designate activities
Process Design: Manufacturing Cells
One characteristic of lean production systems is multiple manufacturing cells Benefits include Reduced changeover times High equipment utilization Ease of cross-training workers
A balanced system
One that achieves a smooth, rapid flow of materials and/or work through the system Lean: Supporting Goals The degree to which lean's ultimate goal is achieved depends upon how well its supporting goals are achieved: Eliminate disruptions Make the system flexible Eliminate waste, especially excess inventory
Traffic management
Overseeing the shipment of incoming and outgoing goods Handles schedules and decisions on shipping method and times, taking into account: Costs of shipping alternatives Government regulations Needs of the organization Shipping delays or disruptions
PERT and CPM
PERT (program evaluation and review technique) and CPM (critical path method) are two techniques used to manage large-scale projects By using PERT or CPM Managers can obtain: A graphical display of project activities An estimate of how long the project will take An indication of which activities are most critical to timely project completion An indication of how long any activity can be delayed without delaying the project
SCM Managers
People at various levels of the organization who are responsible for managing supply and demand both within and across business organizations. Involved with planning and coordinating activities Sourcing and procurement of materials and services Transformation activities Logistics
Delayed differentiation Production of standard components and subassemblies which are held until late in the process to add differentiating features Cost-customer service trade-off
Producing and shipping in large lots reduces costs, but increases lead time Disintermediation Reducing one or more steps in a supply chain by cutting out one or more intermediaries
Lean: Building Blocks
Product design Process design Personnel/organizational elements Manufacturing planning and control
Global supply chains
Product design often uses inputs from around the world Some manufacturing and service activities are outsourced to countries where labor and/or materials costs are lower Products are sold globally
The Nature of Projects
Projects go through a series of stages- a life cycle Projects bring together people with a diversity of knowledge and skills, most of whom remain associated with the project for less than its full life Organizational structure affects how projects are managed
Operations Strategy
Projects present both strategic opportunities and risks It is critical to devote sufficient resources and attention to projects Projects are often employed in situations that are characterized by significant uncertainties that demand Careful planning Wise selection of project manager and team Monitoring of the project Project software can facilitate successful project completion Be careful to not focus on critical path activities to the exclusion of other activities that may become critical It is not uncommon for projects to fail When that happens, it can be beneficial to examine the probable reasons for failure
Guidelines for increasing flexibility
Reduce downtime due to changeovers by reducing changeover time Use preventive maintenance on key equipment to reduce breakdowns and downtime Cross-train workers so they can help when bottlenecks occur or other workers are absent Use many small units of capacity
Logistics
Refers to the movement of materials, services, cash, and information in a supply chain Movements within a facility Incoming shipments Outgoing shipments
Waste
Represents unproductive resources Seven sources of waste in lean systems: Inventory Overproduction Waiting time Unnecessary transporting Processing waste Inefficient work methods Product defects
Risk Management
Risks are an inherent part of project management Risks relate to occurrence of events that have undesirable consequences such as Delays Increased costs Inability to meet technical specifications Good risk management involves Identifying as many risks as possible Analyzing and assessing those risks Working to minimize the probability of their occurrence Establishing contingency plans and budgets for dealing with any that do occur
Slack and the Critical Path
Slack can be computed one of two ways: Slack = LS - ES Slack = LF - EF Critical path The critical path is indicated by the activities with zero slack
Seven aspects of process design that are important for lean systems:
Small lot sizes Setup time reduction Manufacturing cells Quality improvement Production flexibility A balanced system Little inventory storage Fail-safe methods
Process Design: Setup Time Reduction
Small lot sizes and changing product mixes require frequent setups Unless these are quick and relatively inexpensive, they can be prohibitive Setup time reduction requires deliberate improvement efforts Single-minute exchange of die (SMED) A system for reducing changeover time Group technology may be used to reduce setup time by capitalizing on similarities in recurring operations
Four elements of product design important for lean systems:
Standard parts Modular design Highly capable systems with quality built in Concurrent engineering
Lead time-transportation costs trade-off
Suppliers like to ship in full loads, but waiting for sufficient orders and/or production to achieve a full load may increase lead time
Inventory-transportation cost trade-off
Suppliers prefer to ship full truckloads instead of partial loads to spread shipping costs over as many units as possible. This leads to greater holding costs for customers Cross-docking A technique whereby goods arriving at a warehouse from a supplier are unloaded from the suppliers truck and loaded onto outbound truck, thereby avoiding warehouse storage
Management Responsibility: Tactical and Operational
Tactical Forecasting Sourcing Operations Planning Managing inventory Transportation planning Collaborating Operational Scheduling Receiving Transforming Order fulfilling Managing inventory Shipping Information sharing Controlling
Project Management Software
Technology has benefited project management CAD To produce updated prototypes on construction and product-development projects Communication software Helps to keep project members in close contact Facilitates remote viewing of projects Project management software Specialized software used to help manage projects Assign resources Compare project plan versions Evaluate changes Track performance
Probabilistic Time estimates (PERT)
The beta distribution is generally used to describe the inherent variability in time estimates The probabilistic approach involves three time estimates: Optimistic time, (to) The length of time required under optimal conditions Pessimistic time, (tp) The length of time required under the worst conditions Most likely time, (tm) The most probable length of time required
Takt time
The cycle time needed to match customer demand for final product. Sometimes referred to as the heartbeat of a lean system Takt time is often set for a work shift Procedure: Determine the net time available per shift If there is more than one shift per day, multiply the net time by the number of shifts Compute the takt time by dividing the net available time by demand
Key SCM Issues
The goal of SCM is to match supply to demand as effectively and efficiently as possible Key issues: Determining appropriate levels of outsourcing Managing procurement Managing suppliers Managing customer relationships Being able to quickly identify problems and respond to them Managing risk
The Purchasing Cycle
The main steps: Purchasing receives the requisition Purchasing selects a supplier Purchasing places the order with a vendor Monitoring orders Receiving orders
Third-party logistics (3-PL)
The outsourcing of logistics management Includes Warehousing and distribution Potential benefits include taking advantage of: The specialists' knowledge Their well-developed information system Their ability to obtain more favorable shipping rates
Order fulfillment
The process involved in responding to customer orders Often a function of the degree of customization required Common approaches Engineer-to-Order (ETO) Make-to-Order (MTO) Assemble-to-Order (ATO) Make-to-Stock (MTS)
Reverse Logistics
The process of transporting returned items Products are returned to companies or third party handlers for a variety of reasons and in a variety of conditions
Project Manager
The project manager is ultimately responsible for the success or failure of the project The project manager must effectively manage: The work The human resources Communications Quality Time Costs
Sources of Error
The project network may be incomplete Precedence relationships may not be correctly expressed Time estimates may be inaccurate There may be a tendency to focus on critical path activities to the exclusion of other important project activities Major risk events may not be on the critical path
Procurement
The purchasing department is responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service.
Facilities
The sequence of the supply chain begins with basic suppliers and extends all the way to the final customer Warehouses Factories Processing centers Distribution centers Retail outlets Offices
Inventory velocity
The speed at which goods move through a supply chain
Supply Chain Management (SCM)
The strategic coordination of business functions within a business organization and throughout its supply chain for the purpose of integrating supply and demand management
E-business
The use of electronic technology to facilitate business transactions Applications include Internet buying and selling E-mail Order and shipment tracking Electronic data interchange Product and service promotion Provide information about products and services
Probablistic (PERT)
Time estimates that allow for variation
Deterministic
Time estimates that are fairly certain (CPM) fixed
Critical Chain Project Management
To better manage projects, managers need to be aware of certain aspects of the project: Time estimates are often pessimistic and with attention can be made more realistic When activities are finished ahead of schedule, that fact may go unreported, so managers may be unaware of resources that could potentially be used to shorten the critical path The critical chain is analogous to the critical path of a network A key feature of the critical chain approach is the use of various buffers Feeding Project Capacity
Crashing decisions
To make decisions concerning crashing requires information about: Regular time and crash time estimates for each activity Regular cost and crash cost estimates for each activity A list of activities that are on the critical path Critical path activities are potential candidates for crashing Crashing non-critical path activities would not have an impact on overall project duration
Strategic Partnering
Two or more business organizations that have complementary products or services join so that each may realize a strategic benefit Example: When a supplier agrees to hold inventory for a customer in return for a long-term commitment The customer's inventory holding cost is reduced and the supplier is relieved of the costs that would be needed to continually find new customers
Supplier Relationship Management
Type of relationship is often governed by the duration of the trading relationship Short-term Oftentimes involves competitive bidding Minimal interaction Medium-term Often involves an ongoing relationship Long-term Often involves greater cooperation that evolves into a partnership
The Bullwhip Effect
Variations in demand cause inventory fluctuations to fluctuate and get out of control Inventory fluctuation can be magnified by Periodic ordering Reactions to shortages Forecast inaccuracies Order batching Sales incentives and promotions Liberal product return policies Results in Higher costs Lower customer satisfaction
Workers as assets
Well-trained and motivated workers are the heart of the lean system They are given greater authority to make decisions, but more is expected of them
Simulation
When activity times cannot be assumed to be independent, simulation is often used Repeated sampling is used Many paths are made through the project network In each pass, a random value for each activity time is selected based on the activity time's probability distribution After each pass, the project's duration is determined After a large number of passes, there are enough data points to prepare a frequency distribution of the project duration Probabilistic estimates of completion times are made based on this frequency distribution
Cross-trained workers
Workers are trained to perform several parts of a process and operate a variety of machines Facilitates flexibility Helps in line balancing
Five personnel/organizational elements that are important for lean systems:
Workers as assets Cross-trained workers Continuous improvement Cost accounting Leadership/project management
Continuous improvement
Workers in lean systems have greater responsibility for quality, and they are expected to be involved in problem solving and continuous improvement Lean workers receive training in Statistical process control Quality improvement Problem solving
