Operations Management

OPERATIONS MANAGEMENT
Name: Georgekutty George

1. Emerging Role of the Production & Operations Manager in India Today

Ans: The production manager forms a very important and defining part of the organization structure of an
engineering company. The responsibilities of a production manager can be summarized as follows.
1) Forecasting the requirements of the production in order to achieve the production target.
2) Making most efficient utilization of the available sources for production.

3) Minimizing ‘throughput time’ and ‘work in process inventory’. This can be achieved by systematic
production planning and also by very efficient execution of the plans.

4) One of the most important responsibility of a production manager deals with reducing material handling
cost, which generally is achieved by the use of efficient material handling system and also by using plant
layouts which must be developed in a proper or correct way.
5) Reducing the quality cost with the help of analysis of non-conformances on periodic basis and also by
following suitable actions (both corrective and preventive).
6) Building team spirit among the workmen and also motivating by means of personal involvement. This task
of motivation can also be achieved by designing and implementing suitable financial incentive schemes.
7) To device accurate methodology involving method study of manufacturing, along with the other
engineering economic principles.
8) Improving the productivity level of the workers on continuous basis by workmen’s training and by bringing
into use the standards of the performance derived from work measurement studies etc.
Operations Managers need to perform various managerial functions like, planning, directing, coordinating
operations, decision taking, policy framing, controlling inventory, supply chain management, job scheduling,
job-wise manpower allocation, etc.
However, this is only an indicative list. Some organizations even assign the duties of chief executive officer to
operations managers. In many organizations, we find the position of Chief Operating Officer at the operations
level.
The functions of an operations manager even though vary with the nature of the products or services, it can
typically have following commonalities—
1. Production Planning and Control:
This involves deciding the course of action for actual production after the receipt of orders. Usually, Sales or
Marketing Department receives or books orders from the customers and send their requisitions for
manufacturing to Production Planning and Control Department and progress the job to ensure the execution
of orders of meeting the customers’ satisfaction. Effective production planning and control, therefore, ensure
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meeting the prime objectives of production, i.e., to manufacture and to deliver, meeting customers’
requirements.
2. Production:
After production planning and control, the next important function of a production manager is to ensure
manufacturing or the production of finished goods in conformity with the plans.
3. Inspection:
After production process is over, inspection or quality checking is necessary. This type of inspection is known
as final inspection. However, for the increased emphasis on quality control, many organizations now also carry
out in-process inspection. This minimizes the problem of rejection. In addition, inward inspection is also
carried out for controlling the quality of raw materials and components.
4. Engineering:
Manufacturing or production activities are also needed to be supported by design and development, which
not only include designing tools, jigs and fixtures (this is done by independent Tool Room Department in large
organizations) but also involves R&D activities for innovative product design and changes.
5. Industrial Engineering:
A production manager is also required to carry out periodic work study, following method study or work
measurement technique for systematic investigation of activities in order to ensure effective use of human
and material resources. (While method study helps in finding the best way of doing a work, work
measurement helps in assessing the time required for doing a job).
6. Maintenance:
Production manager is also responsible for time-to-time maintenance of plant and machineries to minimize
machine downtime and consequent loss of production. While traditional concept is breakdown maintenance,
i.e., to attend plant and machineries only, when they become dysfunctional, modern concept is Total
Productive Maintenance, which also calls for preventive maintenance action to minimize machine downtime.
7. Interdepartmental Coordination:
A production manager is also required to maintain contacts with other departments, like, Sales Department
with regard to production plan, Personnel Department for manpower availability and training and Materials
Department for procurement of raw materials and other components.

2. Describe different types of technology and their role in manufacturing & service operations.
Ans: The scope of Technology and operation management has evolved over a period of time and has moved
from development of products into design, management and improvement of operating system and
processes.
Usage of technology in operation management has ensured that organizations are able to reduce the cost,
improve the delivery process, standardize and improve quality and focus on customization, thereby creating
value for customers.

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 Integration of Technology with Production System
Technology drives efficiency in organization and increases’ productivity of the organization. However,
bringing technology in the production system is highly complex process, and it needs to following steps:

 Technology Acquisition: technology acquired should align with overall objectives of the organization
and should be approved after elaborating cost-benefit analysis.
 Technology Integration: technology affects all aspects of production i.e. capital, labor and customer.
Therefore, a solid technology integration plan is required.
 Technology Verification: once technology integrated, it is important to check whether technology is
delivering operational effectiveness and is been used to its fullest.

 Technology in Manufacturing and Design

Technology is getting extensively used in customization of design products and services. The usage of
computers and supporting electronic systems is integral part of modern industrial and services
industry. Current techniques can be broadly classified into following categories:
 Computer-Aided Design (CAD): CAD facilitates linking of two more complex components of design at
very high level of accuracy thus delivering higher productivity.
 Computer-Aided Manufacturing System (CAM): Precision is very essential in operating any machines
and therefore, Computerized Numerically Controlled machines are used, thus ensuring highest level of
accuracy.
 Standard for the Exchange of Product Data: As the name suggests product design is transmitted
among CAM and CAM in three dimensions. Standard for The Exchange of Product Data process sharing
of product across all phases of product life cycle and serves as neutral file exchange.

 Software Systems in Manufacturing

There are various software systems available to integrated operations and manufacturing functions
with other business functions of organization. Some of the common software systems are Enterprise
Resource Planning (ERP), Supply-Chain Management (SCM), New-Product Development (NPD) and
Customer Relationship Management (CRM).
Enterprises Resources Planning (ERP) links all business functions like manufacturing, marketing, human
resource and finance through a common software platform. The main benefits of the ERP solution are
that it not only reduces database errors but also delivers value to customer through faster delivery and
order fulfillment.

 Automation in Production and Operations

Automation reduces manual intervention in the manufacturing process. It increases productivity and
reduces margin of error thereby facilitating economies of scale. There is this-advantages of automation
also, such as unemployment, high breakdown cost and initial capital investment. Therefore,
automation may not be suitable in all situations and in the end alignment with an overall organization
objective is important.

 Challenges
Technology can be facilitating factor in bringing about change in operations and production
management. But it may not be feasible to use technology in all aspects with challenge coming through
high initial cost of investment, high cost of maintenance and mismanagement.
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3. Mention the importance of

a) Supply chain management and CPFR &
b) inventory management
Ans: Supply chain management is an integral part of most businesses and is essential to company success
and customer satisfaction.

Boost Customer Service

 Customers expect the correct product assortment and quantity to be delivered.
 Customers expect products to be available at the right location. (i.e., customer satisfaction diminishes
if an auto repair shop does not have the necessary parts in stock and can’t fix your car for an extra day
or two).
 Right Delivery Time – Customers expect products to be delivered on time (i.e., customer satisfaction
diminishes if pizza delivery is two hours late or Christmas presents are delivered on December 26).
 Right After Sale Support – Customers expect products to be serviced quickly. (i.e., customer satisfaction
diminishes when a home furnace stops operating in the winter and repairs can’t be made for days)

Reduce Operating Costs

 Decreases Purchasing Cost – Retailers depend on supply chains to quickly deliver expensive products
to avoid holding costly inventories in stores any longer than necessary. For example, electronics stores
require fast delivery of 60” flat-panel plasma HDTV’s to avoid high inventory costs.
 Decreases Production Cost – Manufacturers depend on supply chains to reliably deliver materials to
assembly plants to avoid material shortages that would shut down production. For example, an
unexpected parts shipment delay that causes an auto assembly plant shutdown can cost $20,000 per
minute and millions of dollars per day in lost wages.
 Decreases Total Supply Chain Cost – Manufacturers and retailers depend on supply chain managers to
design networks that meet customer service goals at the least total cost. Efficient supply chains enable
a firm to be more competitive in the marketplace. For example, Dell’s revolutionary computer supply
chain approach involved making each computer based on a specific customer order, then shipping the
computer directly to the customer. As a result, Dell was able to avoid having large computer
inventories sitting in warehouses and retail stores which saved millions of dollars. Also, Dell avoided
carrying computer inventories that could become technologically obsolete as computer technology
changed rapidly.

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Improve Financial Position
 Increases Profit Leverage – Firms value supply chain managers because they help control and reduce
supply chain costs. This can result in dramatic increases in firm profits. For instance, U.S. consumers eat
2.7 billion packages of cereal annually, so decreasing U.S. cereal supply chain costs just one cent per
cereal box would result in $13 million dollars saved industry-wide as 13 billion boxes of cereal flowed
through the improved supply chain over a five year period.
 Decreases Fixed Assets – Firms value supply chain managers because they decrease the use of large
fixed assets such as plants, warehouses and transportation vehicles in the supply chain. If supply chain
experts can redesign the network to properly serve U.S. customers from six warehouses rather than
ten, the firm will avoid building four very expensive buildings.
 Increases Cash Flow – Firms value supply chain managers because they speed up product flows to
customers. For example, if a firm can make and deliver a product to a customer in 10 days rather than
70 days, it can invoice the customer 60 days sooner.
(CPFR) Collaborative planning, forecasting, and, replenishment extends vendor managed inventory
principles and is the latest stage in the evolution of supply chain collaboration. Older supply chain initiatives
have gaps in their practices. As in many operations, financial plans take precedence over forecasting, resulting
in high inventory levels, lower order fill rates, and increased expedited activities. CPFR is a set of business
processes that help eliminate supply and demand uncertainty through improved communication and
collaboration between supply chain trading partners.
It also facilitates the reengineering of replenishment between trading partners. An important promise of CPFR
is that accuracy of the forecast (demand, order, sales) can improve by having the customer, dealers and
suppliers participate in the forecast. In general terms, buyers and sellers work together to satisfy the demands
of an end customer, who is at the center of the model. Figure 1. (below) illustrates this model, which is
applicable to many industries. If a discrepancy occurs, the trading partners can get together and decide on the
replenishment quantity to rectify the problem. This type of collaboration offers great potential for drastically
improving supply chain performance

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Fig 1. Components of CPFR Model

CGN Solution
Below are the steps taken to set a stable CPFR platform

 Develop front end agreement with trading partners

 Create joint business plan
 Create sales forecast
 Identify exceptions for sales forecast
 Resolve/collaborate on exception and critical items
 Create order forecast
 Identify exceptions for order forecast
 Resolve/collaborate on exception items
 Order generation
CPFR is not considered a technical standard. The CPFR process does not fundamentally depend upon
technology. CGN’s extended solution combines process with use of technology. It advocates using common
tools and processes to improve supply chain planning through accurate and timely information flow. Powering
up the CPFR process with technology can make the process more scalable. The following are examples that
have been developed to facilitate the process:

 Sharing of historical data and forecasts

 Automating the collaboration process and joint business plan
 Enabling revisions
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 Evaluating exception situations
Collaboration is the crux of CGN’s supply chain management. Ongoing and long-term collaboration and
partnership between manufacturers and dealers delivers value to customers and profitability to all
collaborating partners.
Some of the critical success factors that could influence adoption of this process are:

 Top management involvement

 Trust between collaborating partners
 Continuous measurement of performance
 Innovative IT strategy
 Up-to-date cost accounting methods
 Emphasis on customer satisfaction
 Flexible organizational structure
 Proper staff training

Inventory is one of the most crucial aspects of any business model. A close tab on the movement of inventory
can make or break your business and that’s why entrepreneurs always emphasize on effective inventory
management. While a few business owners do understand the significance and cruciality of tracking inventory
on a regular basis, some fail to realize its importance making their business fall through the unseen cracks.

Importance of Inventory Management

Cash Flow
Inventory control and planning allows small businesses to manage their cash flow opportunities. SMEs aren’t
always able to purchase large amounts of inventory, due to limited capital. By having better control of their
inventory, they can know exactly how much inventory they will need and when they need it. This can free up
other capital to re-invest in other areas of the business.
Business intelligence
An inventory control and planning solution allows small businesses to gain insights into the fast-selling
products. This allows them to adjust their product line and to make quick and smart business decisions.
Maximize profits
By being able to make better business decisions the inevitable outcome for a small business will be an increase
in profits. This is because the stock in their inventory will only be stock that’s actually selling. Other stock that
doesn’t grab customer’s attention can be deemed obsolete and can be abandoned. This makes the general
business practice more efficient.
Limits employee mishandling
Inventory planning and control limits the ability of employees to steal from the inventory. Often employees
use items from a business’ inventory for personal use. Without inventory control, the business owner would
be none-the-wiser. This practice ultimately reduces the profitability of the business. By limiting the ability of
the employee to steal, the employer is reducing potential ‘hidden’ costs.

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Reduce labor costs
Improved inventory planning and control techniques allow small businesses to reduce labor costs associated
with inventory. These include the time spent counting stock and the transportation of stock. Employing an
intelligent inventory planning and control solution can significantly reduce all these labor-intensive activities.

4. A retail store records customer demand during each sales period. Use the following demand
data to develop
a. 3 period moving average forecast for period 13
b. 4 period moving average forecasts for period 13
c. Weighted moving average for the period 4 through 12 with weights ( 0.5, 0.3, 0.2)
respectively and forecast for the period 13
d. Single exponential smoothing forecast for the period 2 through 13 with α= 0.45.
(Assume F1= 86)
e. Forecast for the next 3 periods using linear regression.
f. Also compute the MAD, MAPE, MSE and tracking signal for all the method and
interpret the result. 15 marks

Peri 1 2 3 4 5 6 7 8 9 10 11 12
od
Dem 86 93 88 89 92 94 91 93 96 97 93 95
and

Ans:

a. 3 period moving average forecast for period 13.

b. 4 period moving average forecasts for period 13.
c. Weighted moving average for the period 4 through 12 with weights (0.5, 0.3, 0.2) respectively and forecast for the
period 13
d. Single exponential smoothing forecast for the period 2 through 13 with α= 0.45. (Assume F1= 86)
e. Forecast for the next 3 periods using linear regression.

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Retail store records

Moving Average Forecast Moving Average Forecast

Period Demand
3 period moving 4 period moving
a
& 1 86
b 2 93
3 88
4 89 89.00
5 92 90.00 89
6 94 89.67 90.5
7 91 91.67 90.75
8 93 92.33 91.5
9 96 92.67 92.5
10 97 93.33 93.5
11 93 95.33 94.25
12 95 95.33 94.75
13 95.00 95.25

Ans:

Retail store - MAF 3&6 Period

98

96 Demand

94

92
Moving Average
Forecast
90 3 period moving

88
Moving Average
86
Forecast
4 period moving

84
0 2 4 6 8 10 12 14

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Retail store records

c. Weighted Moving
Period Demand Weightage Average Forecast
3 period moving
1 86
2 93
3 88
4 89
5 92
6 94
7 91
8 93
9 96
10 97 0.2
11 93 0.3
12 95 0.5
13 94.8

Alpha = 0.45
Retail store records F1 = 86 Chart Title
d.
Exponential smoothing 98
Period Actual
forecast
1 86 86.00 96
2 93 86.00
3 88 89.15 94
4 89 88.63
5 92 88.80 92
6 94 90.24
7 91 91.93 90
8 93 91.51
9 96 92.18 88
10 97 93.90
11 93 95.29 86
12 95 94.26
13 94.59 84
0 2 4 6 8 10 12 14

Actual Exponential smoothing forecast

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e. Retail store records

Period(t) Actauls(y) t^2 ty Forecast P 13
1 86 1 86 88.46153846
2 93 4 186 89.15034965
3 88 9 264 89.83916084
4 89 16 356 90.52797203
5 92 25 460 91.21678322
6 94 36 564 91.90559441
7 91 49 637 92.59440559
8 93 64 744 93.28321678
9 96 81 864 93.97202797
10 97 100 970 94.66083916
11 93 121 1023 95.34965035
12 95 144 1140 96.03846154
13 96.72727273
14 97.41608392
15 98.1048951

Scatter Plot - Linear Regression

98

96

94

92

90

88

86

84
0 2 4 6 8 10 12 14

n ty   t  y
b
n t   t 
2
2

a
 y  b t or y  bt
n
where
n  Number of periods
y  Value of the time series
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∑t 78
(∑t)2 6084
∑t2 650
∑y 1107
∑ty 7294

b 0.6888112

a 87.772727

y = a+bt

Retail store records Moving Average Forecast 3 period Moving Average Forecast 4 period
Moving
Moving Average Average Error (A-f)
Error (A-f)
Period Actual Forecast Forecast 3 Period |Error| (a-f)^2 ((|a-f|)/a)*100 |Error| (a-f)^2 ((|a-f|)/a)*100
4 Period MAF
3 period moving 4 period MAF
Moving Average Forecast moving
1 86
2 93
f. 3 88
4 89 89.00 0.00 0.00 0.00 0%
5 92 90.00 89 2.00 3.00 2.00 4.00 2% 3.00 9.00 3%
6 94 89.67 90.5 4.33 3.50 4.33 18.78 5% 3.50 12.25 4%
7 91 91.67 90.75 -0.67 0.25 0.67 0.44 1% 0.25 0.06 0%
8 93 92.33 91.5 0.67 1.50 0.67 0.44 1% 1.50 2.25 2%
9 96 92.67 92.5 3.33 3.50 3.33 11.11 3% 3.50 12.25 4%
10 97 93.33 93.5 3.67 3.50 3.67 13.44 4% 3.50 12.25 4%
11 93 95.33 94.25 -2.33 -1.25 2.33 5.44 3% 1.25 1.56 1%
12 95 95.33 94.75 -0.33 0.25 0.33 0.11 0% 0.25 0.06 0%
10.67 14.25 17.33 53.78 18% 16.75 49.69 18%
n =9 n-1 = 8 n =9 n =8 n-1 = 7 n=8
MAD MSE MAPE MAD MSE MAPE
1.92592593 6.722222222 2.04% 2.09375 7.098214 2.22%
Tracking signal 5.53846154 Tracking signal 6.80597

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Weighted Moving Average Forecast

Retail store records
Weighted
Moving
Average
Period Actual Weightage Error (a-f) |Error| (a-f)^2 ((|a-f|)/a)*100
Forecast
3 period
moving
1 86
2 93
3 88
4 89 89.1 -0.1 0.1 0.01 0%
5 92 89.5 2.5 2.5 6.25 3%
6 94 90.3 3.7 3.7 13.69 4%
7 91 92.4 -1.4 1.4 1.96 2%
8 93 92.1 0.9 0.9 0.81 1%
9 96 0.2 92.6 3.4 3.4 11.56 4%
10 97 0.3 94.1 2.9 2.9 8.41 3%
11 93 0.5 95.9 -2.9 2.9 8.41 3%
12 95 94.8 0.2 0.2 0.04 0%
9.2 18 51.14 19%
n =9 n-1 = 8 n=9
MAD MSE MAPE
2 6.3925 2.13%

Tracking signal 4.6

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Alpha = 0.45
Exponential smoothing Retail store records F1 = 86
Exponential
Period Actual smoothing Error (a-f) |Error| (a-f)^2 ((|a-f|)/a)*100
forecast
1 86 86.00
2 93 86.00 7.00 7.00 49.00 8%
3 88 89.15 -1.15 1.15 1.32 1%
4 89 88.63 0.37 0.37 0.14 0%
5 92 88.80 3.20 3.20 10.25 3%
6 94 90.24 3.76 3.76 14.15 4%
7 91 91.93 -0.93 0.93 0.87 1%
8 93 91.51 1.49 1.49 2.21 2%
9 96 92.18 3.82 3.82 14.58 4%
10 97 93.90 3.10 3.10 9.61 3%
11 93 95.29 -2.29 2.29 5.27 2%
12 95 94.26 0.74 0.74 0.54 1%
13 94.59
19.10 27.85 107.94 30%
n = 11 n-1 = 10 n=11
MAD MSE MAPE
2.53190483 10.79390188 2.71%

Tracking signal 7.543051588

Linear regression Retail store records

Period(t) Actauls(y) t^2 ty Forecast Error (a-f) |Error| (a-f)^2 ((|a-f|)/a)*100
1 86 1 86 88.46 -2.46 2.46 6.06 3%
2 93 4 186 89.15 3.85 3.85 14.82 4%
3 88 9 264 89.84 -1.84 1.84 3.38 2%
4 89 16 356 90.53 -1.53 1.53 2.33 2%
5 92 25 460 91.22 0.78 0.78 0.61 1%
6 94 36 564 91.91 2.09 2.09 4.39 2%
7 91 49 637 92.59 -1.59 1.59 2.54 2%
8 93 64 744 93.28 -0.28 0.28 0.08 0%
9 96 81 864 93.97 2.03 2.03 4.11 2%
10 97 100 970 94.66 2.34 2.34 5.47 2%
11 93 121 1023 95.35 -2.35 2.35 5.52 3%
12 95 144 1140 96.04 -1.04 1.04 1.08 1%
0.00 22.19 50.40 24%

∑t 78 n = 12 n-1 = 11 n=12
(∑t)2 6084 MAD MSE MAPE
∑t2 650 1.8490676 4.5820089 2.01%
∑y 1107
∑ty 7294 Tracking signal 0.00

b 0.69

a 87.77

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