Operations management

Operations management is an area of management concerned

with designing and controlling the process of production and
redesigning business operations in the production of goods or
services.[1] It involves the responsibility of ensuring that business
operations are efficient in terms of using as few resources as needed
and effective in meeting customer requirements.

It is concerned with managing an entire production or service

system which is the process that converts inputs (in the forms of
raw materials, labor, consumers, and energy) into outputs (in the Ford Motor car assembly line: the
form of goods and/or services for consumers).[2] Operations classical example of a manufacturing
produce products, manage quality and create services. Operation production system.
management covers sectors like banking systems, hospitals,
companies, working with suppliers, customers, and using
technology. Operations is one of the major functions in an
organization along with supply chains, marketing, finance and
human resources. The operations function requires management of
both the strategic and day-to-day production of goods and
services.[3]

In managing manufacturing or service operations several types of

decisions are made including operations strategy, product design,
process design, quality management, capacity, facilities planning,
production planning and inventory control. Each of these requires Post office queue. Operations
an ability to analyze the current situation and find better solutions to management studies both
improve the effectiveness and efficiency of manufacturing or manufacturing and services.
service operations.[4] A modern, integrated vision of the many
aspects of operations management may be found in recent
textbooks on the subject.[5][6]

Contents
History
Industrial Revolution
Second Industrial Revolution and post-industrial society
Operations management
Topics
Production systems
Metrics: efficiency and effectiveness
Configuration and management
Service operations
Mathematical modeling
Safety, risk and maintenance
Organizations
Journals
See also
References
Further reading

History
The history of production and operation systems begins around 5000 B.C. when Sumerian priests
developed the ancient system of recording inventories, loans, taxes, and business transactions. The next
major historical application of operation systems occurred in 4000 B.C. It was during this time that the
Egyptians started using planning, organization, and control in large projects such as the construction of the
pyramids. By 1100 B.C., labor was being specialized in China; by about 370 B.C., Xenophon described
the advantages of dividing the various operations necessary for the production of shoes among different
individuals in ancient Greece:[7][8]

"...In large cities, on the other hand, inasmuch as many people have demands to make upon
each branch of industry, one trade alone, and very often even less than a whole trade, is
enough to support a man: one man, for instance, makes shoes for men, and another for
women; and there are places even where one man earns a living by only stitching shoes,
another by cutting them out, another by sewing the uppers together, while there is another who
performs none of these operations but only assembles the parts. It follows, therefore, as a
matter of course, that he who devotes himself to a very highly specialized line of work is
bound to do it in the best possible manner."

In the Middle Ages, kings and queens ruled over large areas of land.
Loyal noblemen maintained large sections of the monarch's territory.
This hierarchical organization in which people were divided into
classes based on social position and wealth became known as the
feudal system. In the feudal system, vassals and serfs produced for
themselves and people of higher classes by using the ruler's land and
resources. Although a large part of labor was employed in agriculture,
artisans contributed to economic output and formed guilds. The guild
system, operating mainly between 1100 and 1500, consisted of two
types: merchant guilds, who bought and sold goods, and craft guilds,
which made goods. Although guilds were regulated as to the quality of
work performed, the resulting system was rather rigid, shoemakers, for
example, were prohibited from tanning hides.[9]

Services were also performed in the Middle Ages by servants. They

Shoemakers, 1568
provided service to the nobility in the form of cooking, cleaning and
providing entertainment. Court jesters were considered service
providers. The medieval army could also be considered a service since
they defended the nobility.

The industrial revolution was facilitated by two elements: interchangeability of parts and division of labor.
Division of labor has been a feature from the beginning of civilization, the extent to which the division is
carried out varied considerably depending on period and location. Compared to the Middle Ages, the
Renaissance and the Age of Discovery were characterized by a greater specialization in labor, which was a
characteristic of the growing cities and trade networks of Europe. An important leap in manufacturing
efficiency came in the late eighteenth century as Eli Whitney popularized the concept of interchangeability
of parts when he manufactured 10,000 muskets. Up to this point in the history of manufacturing, each
product (e.g. each musket) was considered a special order, meaning that parts of a given musket were fitted
only for that particular musket and could not be used in other muskets. Interchangeability of parts allowed
the mass production of parts independent of the final products in which they would be used. An entire new
market to fill the need for the sale and manufacturing of muskets began at this time.

In 1883, Frederick Winslow Taylor introduced the stopwatch method for accurately measuring the time to
perform each single task of a complicated job. He developed the scientific study of productivity and
identifying how to coordinate different tasks to eliminate wasting of time and increase the quality of work.
The next generation of scientific study occurred with the development of work sampling and predetermined
motion time systems (PMTS). Work sampling is used to measure the random variable associated with the
time of each task. PMTS allows the use of standard predetermined tables of the smallest body movements
(e.g. turning the left wrist by 90°), and integrating them to predict the time needed to perform a simple task.
PMTS has gained substantial importance due to the fact that it can predict work measurements without
observing the actual work. The foundation of PMTS was laid out by the research and development of
Frank B. and Lillian M. Gilbreth around 1912. The Gilbreths took advantage of taking motion pictures at
known time intervals while operators were performing the given task.

Service Industries: At the turn of the twentieth century, the services industries were already developed, but
largely fragmented. In 1900 the U.S. service industry consisted of banks, professional services, schools,
general stores, railroads and telegraph. Services were largely local in nature (except for railroads and
telegraph) and owned by entrepreneurs and families. The U.S. in 1900 had 31% employment in services,
31% in manufacturing and 38% in agriculture.[10]

The idea of the production line has been used multiple times in history prior to Henry Ford: the Venetian
Arsenal (1104); Smith's pin manufacturing, in the Wealth of Nations (1776) or Brunel's Portsmouth Block
Mills (1802). Ransom Olds was the first to manufacture cars using the assembly line system, but Henry
Ford developed the first auto assembly system where a car chassis was moved through the assembly line by
a conveyor belt while workers added components to it until the car was completed. During World War II,
the growth of computing power led to further development of efficient manufacturing methods and the use
of advanced mathematical and statistical tools. This was supported by the development of academic
programs in industrial and systems engineering disciplines, as well as fields of operations research and
management science (as multi-disciplinary fields of problem solving). While systems engineering
concentrated on the broad characteristics of the relationships between inputs and outputs of generic
systems, operations researchers concentrated on solving specific and focused problems. The synergy of
operations research and systems engineering allowed for the realization of solving large scale and complex
problems in the modern era. Recently, the development of faster and smaller computers, intelligent systems,
and the World Wide Web has opened new opportunities for operations, manufacturing, production, and
service systems.

Industrial Revolution

Before the First industrial revolution work was mainly done through two systems: domestic system and
craft guilds. In the domestic system merchants took materials to homes where artisans performed the
necessary work, craft guilds on the other hand were associations of artisans which passed work from one
shop to another, for example: leather was tanned by a tanner, passed to curriers, and finally arrived at
shoemakers and saddlers.
The beginning of the industrial revolution is usually associated with
18th century English textile industry, with the invention of flying
shuttle by John Kay in 1733, the spinning jenny by James
Hargreaves in 1765, the water frame by Richard Arkwright in 1769
and the steam engine by James Watt in 1765.
In 1851 at the Crystal
Palace Exhibition the term American system of manufacturing was
used to describe the new approach that was evolving in the United
States of America which was based on two central features:
interchangeable parts and extensive use of mechanization to
produce them. Marshall's flax mill in Holbeck. The
textile industry is the prototypical
example of the English industrial
Second Industrial Revolution and post-
revolution.
industrial society

Henry Ford was 39 years old when he founded the Ford Motor Company in 1903, with $28,000 capital
from twelve investors. The model T car was introduced in 1908, however it was not until Ford
implemented the assembly line concept, that his vision of making a popular car affordable by every middle-
class American citizen would be realized. The first factory in which Henry Ford used the concept of the
assembly line was Highland Park (1913), he characterized the system as follows:

"The thing is to keep everything in motion and take the work to the man and not the man to
the work. That is the real principle of our production, and conveyors are only one of many
means to an end"[11]

This became one of the central ideas that led to mass production, one of the main elements of the Second
Industrial Revolution, along with emergence of the electrical industry and petroleum industry.

The post-industrial economy was noted in 1973 by Daniel Bell.[12] He stated that the future economy
would provide more GDP and employment from services than from manufacturing and have a great effect
on society. Since all sectors are highly interconnected, this did not reflect less importance for
manufacturing, agriculture, and mining but just a shift in the type of economic activity.

Operations management

Although productivity benefited considerably from technological inventions and division of labor, the
problem of systematic measurement of performances and the calculation of these by the use of formulas
remained somewhat unexplored until Frederick Taylor, whose early work focused on developing what he
called a "differential piece-rate system"[13] and a series of experiments, measurements and formulas dealing
with cutting metals[14] and manual labor.[15] The differential piece-rate system consisted in offering two
different pay rates for doing a job: a higher rate for workers with high productivity (efficiency) and who
produced high quality goods (effectiveness) and a lower rate for those who fail to achieve the standard.
One of the problems Taylor believed could be solved with this system, was the problem of soldiering: faster
workers reducing their production rate to that of the slowest worker.
In 1911 Taylor published his "The
Principles of Scientific Management",[16] in which he characterized scientific management (also known as
Taylorism) as:

1. The development of a true science;

2. The scientific selection of the worker;
 3. The scientific education and development of the worker;
4. Intimate friendly cooperation between the management and the workers.

Taylor is also credited for developing stopwatch time study, this combined with Frank and Lillian Gilbreth
motion study gave way to time and motion study which is centered on the concepts of standard method and
standard time. Frank Gilbreth is also responsible for introducing the flow process chart in 1921.[17] Other
contemporaries of Taylor worth remembering are Morris Cooke (rural electrification in the 1920s and
implementer of Taylor's principles of scientific management in the Philadelphia's Department of Public
Works), Carl Barth (speed-and-feed-calculating slide rules ) and Henry Gantt (Gantt chart). Also in 1910
Hugo Diemer published the first industrial engineering book: Factory Organization and Administration.

In 1913 Ford Whitman Harris published his "How many parts to make at once" in which he presented the
idea of the economic order quantity model. He described the problem as follows:

"Interest on capital tied up in wages, material and overhead sets a maximum limit to the
quantity of parts which can be profitably manufactured at one time; "setup costs" on the job fix
the minimum. Experience has shown one manager a way to determine the economical size of
lots"[18]

This paper inspired a large body of mathematical literature focusing on the problem of production planning
and inventory control.

In 1924 Walter Shewhart introduced the control chart through a technical memorandum while working at
Bell Labs, central to his method was the distinction between common cause and special cause of variation.
In 1931 Shewhart published his Economic Control of Quality of Manufactured Product,[19] the first
systematic treatment[20] of the subject of Statistical Process Control (SPC). He defined control:

"For our present purpose a phenomenon will be said to be controlled when, through the use of
past experience, we can predict, at least within limits, how the phenomenon may be expected
to vary in the future. Here it is understood that prediction within limits means that we can state,
at least approximately, the probability that the observed phenomenon will fall within the given
limits."[19]

In the 1940s methods-time measurement (MTM) was developed by H.B. Maynard, J.L. Schwab and G.J.
Stegemerten. MTM was the first of a series of predetermined motion time systems, predetermined in the
sense that estimates of time are not determined in loco but are derived from an industry standard. This was
explained by its originators in a book they published in 1948 called "Method-Time Measurement".

The methods-time measurement may be defined as follows:

Methods-time measurement is a procedure which analyzes any manual operation or method

into the basic motions required to perform it and assigns to each motion a predetermined time
standard which is determined by the nature of the motion and the conditions under which it is
made.

Thus it may be seen that methods-time measurement is basically a tool of method analysis that
gives answers in terms of time without the necessity of making stop-watch time studies.[21]
Up to this point in history, optimization techniques were known for a very long time, from the simple
methods employed by F.W.Harris to the more elaborate techniques of the calculus of variations developed
by Euler in 1733 or the multipliers employed by Lagrange in 1811, and computers were slowly being
developed, first as analog computers by Sir William Thomson (1872) and James Thomson (1876) moving
to the electromechanical computers of Konrad Zuse (1939 and 1941). During World War II however, the
development of mathematical optimization went through a major boost with the development of the
Colossus computer, the first electronic digital computer that was all programmable, and the possibility to
computationally solve large linear programming problems, first by Kantorovich[22] in 1939 working for the
Soviet government and latter on in 1947 with the simplex method of Dantzig. These methods are known
today as belonging to the field of operations research.

From this point on a curious development took place: while in the United States the possibility of applying
the computer to business operations led to the development of management software architecture such as
MRP and successive modifications, and ever more sophisticated optimization techniques and
manufacturing simulation software, in post-war Japan a series of events at Toyota Motor led to the
development of the Toyota Production System (TPS) and Lean Manufacturing.

In 1943, in Japan, Taiichi Ohno arrived at Toyota Motor company. Toyota evolved a unique manufacturing
system centered on two complementary notions: just in time (produce only what is needed) and
autonomation (automation with a human touch). Regarding JIT, Ohno was inspired by American
supermarkets:[23] workstations functioned like a supermarket shelf where the customer can get products
they need, at the time they need and in the amount needed, the workstation (shelf) is then restocked.
Autonomation was developed by Toyoda Sakichi in Toyoda Spinning and Weaving: an automatically
activated loom that was also foolproof, that is automatically detected problems. In 1983 J.N Edwards
published his "MRP and Kanban-American style" in which he described JIT goals in terms of seven
zeros:[24] zero defects, zero (excess) lot size, zero setups, zero breakdowns, zero handling, zero lead time
and zero surging. This period also marks the spread of Total Quality Management (TQM) in Japan, ideas
initially developed by American authors such as Deming, Juran and Armand V. Feigenbaum.[25] TQM is a
strategy for implementing and managing quality improvement on an organizational basis, this includes:
participation, work culture, customer focus, supplier quality improvement and integration of the quality
system with business goals.[20] Schnonberger[26] identified seven fundamentals principles essential to the
Japanese approach:

1. Process control: SPC and worker responsibility over quality

2. Easy able -to-see quality: boards, gauges, meters, etc. and poka-yoke
3. Insistence on compliance: "quality first"
4. Line stop: stop the line to correct quality problems
5. Correcting one's own errors: worker fixed a defective part if he produced it
6. The 100% check: automated inspection techniques and foolproof machines
7. Continual improvement: ideally zero defects

Meanwhile, in the sixties, a different approach was developed by George W. Plossl and Oliver W.
Wight,[27] this approach was continued by Joseph Orlicky as a response to the TOYOTA Manufacturing
Program which led to Material Requirements Planning (MRP) at IBM, latter gaining momentum in 1972
when the American Production and Inventory Control Society launched the "MRP Crusade". One of the
key insights of this management system was the distinction between dependent demand and independent
demand. Independent demand is demand which originates outside of the production system, therefore not
directly controllable, and dependent demand is demand for components of final products, therefore subject
to being directly controllable by management through the bill of materials, via product design. Orlicky
wrote "Materials Requirement Planning" in 1975,[28] the first hard cover book on the subject.[27] MRP II
was developed by Gene Thomas at IBM, and expanded the original MRP software to include additional
production functions. Enterprise resource planning (ERP) is the modern software architecture, which
addresses, besides production operations, distribution, accounting, human resources and procurement.

Dramatic changes were occurring in the service industries, as well. Beginning in 1955 McDonald's
provided one of the first innovations in service operations. McDonald's is founded on the idea of the
production-line approach to service.[29] This requires a standard and limited menu, an assembly-line type of
production process in the back-room, high customer service in the front-room with cleanliness, courtesy
and fast service. While modeled after manufacturing in the production of the food in the back-room, the
service in the front-room was defined and oriented to the customer. It was the McDonald's operations
system of both production and service that made the difference. McDonald's also pioneered the idea of
franchising this operation system to rapidly spread the business around the country and later the world.[30]

FedEx in 1971 provided the first overnight delivery of packages in the U.S. This was based on the
innovative idea of flying all packages into the single airport in Memphis Tenn by midnight each day,
resorting the packages for delivery to destinations and then flying them back out the next morning for
delivery to numerous locations. This concept of a fast package delivery system created a whole new
industry, and eventually allowed fast delivery of online orders by Amazon and other retailers.[31]

Walmart provided the first example of very low cost retailing through design of their stores and efficient
management of their entire supply chain. Starting with a single store in Roger's Arkansas in 1962, Walmart
has now become the world's largest company. This was accomplished by adhering to their system of
delivering the goods and the service to the customers at the lowest possible cost. The operations system
included careful selection of merchandise, low cost sourcing, ownership of transportation, cross-docking,
efficient location of stores and friendly home-town service to the customer.[32]

In 1987 the International Organization for Standardization (ISO), recognizing the growing importance of
quality, issued the ISO 9000, a family of standards related to quality management systems. There standards
apply to both manufacturing and service organizations. There has been some controversy regarding the
proper procedures to follow and the amount of paperwork involved, but much of that has improved in
current ISO 9000 revisions.

With the coming of the Internet, in 1994 Amazon devised a service system of on-line retailing and
distribution. With this innovative system customers were able to search for products they might like to buy,
enter the order for the product, pay online, and track delivery of the product to their location, all in two
days. This required not only very large computer operations, but dispersed warehouses, and an efficient
transportation system. Service to customers including a high merchandise assortment, return services of
purchases, and fast delivery is at the forefront of this business.[33] It is the customer being in the system
during the production and delivery of the service that distinguishes all services from manufacturing.

Recent trends in the field revolve around concepts such as:

Business Process Re-engineering (launched by Michael Hammer in 1993[34]): a business

management strategy focusing on the analysis and design of workflows and business
processes within an organization. BPR seeks to help companies radically restructure their
organizations by focusing on the ground-up design of their business processes.
Lean systems is a systemic method for the elimination of waste ("Muda") within a
manufacturing or service process. Lean also takes into account waste created through
overburden ("Muri") and waste created through unevenness in work loads ("Mura"). The
term lean manufacturing was coined in the book The Machine that Changed the World.[35]
Subsequently, lean services has been widely applied.
Six Sigma (an approach to quality developed at Motorola between 1985 and 1987): Six
Sigma refers to control limits placed at six standard deviations from the mean of a normal
 distribution, this became very famous after Jack Welch of General Electric launched a
company-wide initiative in 1995 to adopt this set of methods to all manufacturing, service
and administrative processes. More recently, Six Sigma has included DMAIC (for improving
processes) and DFSS (for designing new products and new processes)
Reconfigurable Manufacturing Systems: a production system designed at the outset for rapid
change in its structure, as well as its hardware and software components, in order to quickly
adjust its production capacity and functionality within a part family in response to sudden
market changes or intrinsic system change.
Project Production Management: the application of the analytical tools and techniques
developed for operations management, as described in Factory Physics to the activities
within major capital projects such as encountered in oil & gas and civil infrastructure
delivery.

Topics

Production systems

A production system comprises both the technological

elements (machines and tools) and organizational
behavior (division of labor and information flow). An
individual production system is usually analyzed in the
literature referring to a single business, therefore it's
usually improper to include in a given production
system the operations necessary to process goods that
are obtained by purchasing or the operations carried by
the customer on the sold products, the reason being
simply that since businesses need to design their own In a job shop machines are grouped by
production systems this then becomes the focus of technological similarities regarding transformation
analysis, modeling and decision making (also called processes, therefore a single shop can work very
"configuring" a production system). different products (in this picture four colors). Also
notice that in this drawing each shop contains a
A first possible distinction in production systems single machine.
(technological classification) is between continuous
process production and discrete part production
(manufacturing).

Process production means that the product undergoes physical-chemical transformations

and lacks assembly operations, therefore the original raw materials can't easily be obtained
from the final product, examples include: paper, cement, nylon and petroleum products.
Part production (ex:cars and ovens) comprises both fabrication systems and assembly
systems. In the first category we find job shops, manufacturing cells, flexible manufacturing
systems and transfer lines, in the assembly category we have fixed position systems,
assembly lines and assembly shops (both manual and/or automated operations).[36][37]

Another possible classification[38] is one based on Lead Time (manufacturing lead time vs delivery lead
time): engineer to order (ETO), purchase to order (PTO), make to order (MTO), assemble to order (ATO)
and make to stock (MTS). According to this classification different kinds of systems will have different
customer order decoupling points (CODP), meaning that work in progress (WIP) cycle stock levels are
practically nonexistent regarding operations located after the CODP (except for WIP due to queues). (See
Order fulfillment)
The concept of production systems can be expanded to
the service sector world keeping in mind that services
have some fundamental differences in respect to
material goods: intangibility, client always present
during transformation processes, no stocks for
"finished goods". Services can be classified according
to a service process matrix:[39] degree of labor
intensity (volume) vs degree of customization
(variety). With a high degree of labor intensity there
are Mass Services (e.g., commercial banking bill
payments and state schools) and Professional Services
(e.g., personal physicians and lawyers), while with a
low degree of labor intensity there are Service Flexible Manufacturing System: in the middle there
Factories (e.g., airlines and hotels) and Service Shops are two rails for the shuttle to move pallets
(e.g., hospitals and auto mechanics). between machining centers (there are also FMS
which use AGVs), in front of each machining
The systems described above are ideal types: real center there is a buffer and in left we have a shelf
systems may present themselves as hybrids of those for storing pallets. Usually in the back there is a
categories. Consider, for example, that the production similar system for managing the set of tools
of jeans involves initially carding, spinning, dyeing required for different machining operations.
and weaving, then cutting the fabric in different shapes
and assembling the parts in pants or jackets by
combining the fabric with thread, zippers and buttons,
finally finishing and distressing the pants/jackets
before being shipped to stores.[40] The beginning can
be seen as process production, the middle as part
production and the end again as process production:
it's unlikely that a single company will keep all the
stages of production under a single roof, therefore the
problem of vertical integration and outsourcing arises.
Most products require, from a supply chain
perspective, both process production and part Delivery lead time is the blue bar, manufacturing
production. time is the whole bar, the green bar is the
difference between the two.

Metrics: efficiency and effectiveness

Operations strategy concerns policies and plans of use of the firm productive resources with the aim of
supporting long term competitive strategy. Metrics in operations management can be broadly classified into
efficiency metrics and effectiveness metrics. Effectiveness metrics involve:

1. Price (actually fixed by marketing, but lower bounded by production cost): purchase price,
use costs, maintenance costs, upgrade costs, disposal costs
2. Quality: specification and compliance
3. Time: productive lead time, information lead time, punctuality
4. Flexibility: mix (capacity to change the proportions between quantities produced in the
system), volume (capacity to increase system output), gamma (capacity to expand the
product family in the system)
5. Stock availability
6. Ecological Soundness: biological and environmental impacts of the system under study.
A more recent approach, introduced by Terry Hill,[41] involves distinguishing competitive variables in
order winner and order qualifiers when defining operations strategy. Order winners are variables which
permit differentiating the company from competitors, while order qualifiers are prerequisites for engaging in
a transaction. This view can be seen as a unifying approach between operations management and
marketing (see segmentation and positioning).

Productivity is a standard efficiency metric for evaluation of production systems, broadly speaking a ratio
between outputs and inputs, and can assume many specific forms,[42] for example: machine productivity,
workforce productivity, raw material productivity, warehouse productivity (=inventory turnover). It is also
useful to break up productivity in use U (productive percentage of total time) and yield η (ratio between
produced volume and productive time) to better evaluate production systems performances. Cycle times can
be modeled through manufacturing engineering if the individual operations are heavily automated, if the
manual component is the prevalent one, methods used include: time and motion study, predetermined
motion time systems and work sampling.

ABC analysis is a method for

analyzing inventory based on Pareto
distribution, it posits that since revenue
from items on inventory will be power
law distributed then it makes sense to
manage items differently based on
their position on a revenue-inventory
level matrix, 3 classes are constructed
(A, B and C) from cumulative item
revenues, so in a matrix each item will
have a letter (A, B or C) assigned for
revenue and inventory. This method
posits that items away from the
diagonal should be managed
differently: items in the upper part are
subject to risk of obsolescence, items An ABC cumulated curve. Typically one curve is constructed for
in the lower part are subject to risk of revenue (consumption) and another for inventory (stock).
stockout.

Throughput is a variable which quantifies the number of parts produced in the unit of time. Although
estimating throughput for a single process maybe fairly simple, doing so for an entire production system
involves an additional difficulty due to the presence of queues which can come from: machine breakdowns,
processing time variability, scraps, setups, maintenance time, lack of orders, lack of materials, strikes, bad
coordination between resources, mix variability, plus all these inefficiencies tend to compound depending
on the nature of the production system. One important example of how system throughput is tied to system
design are bottlenecks: in job shops bottlenecks are typically dynamic and dependent on scheduling while
on transfer lines it makes sense to speak of "the bottleneck" since it can be univocally associated with a
specific station on the line. This leads to the problem of how to define capacity measures, that is an
estimation of the maximum output of a given production system, and capacity utilization.

Overall equipment effectiveness (OEE) is defined as the product between system availability, cycle time
efficiency and quality rate. OEE is typically used as key performance indicator (KPI) in conjunction with
the lean manufacturing approach.

Configuration and management

Designing the configuration of production systems involves both technological and organizational
variables. Choices in production technology involve: dimensioning capacity, fractioning capacity, capacity
location, outsourcing processes, process technology, automation of operations, trade-off between volume
and variety (see Hayes-Wheelwright matrix). Choices in the organizational area involve: defining worker
skills and responsibilities, team coordination, worker incentives and information flow.

In production planning, there is a basic distinction between the push approach and the pull approach, with
the later including the singular approach of just in time. Pull means that the production system authorizes
production based on inventory level; push means that production occurs based on demand (forecasted or
present, that is purchase orders). An individual production system can be both push and pull; for example
activities before the CODP may work under a pull system, while activities after the CODP may work under
a push system.

The traditional pull approach to inventory control, a

number of techniques have been developed based
on the work of Ford W. Harris[18] (1913), which
came to be known as the economic order quantity
(EOQ) model. This model marks the beginning of
inventory theory, which includes the Wagner-
Within procedure, the newsvendor model, base
stock model and the fixed time period model. These
models usually involve the calculation of cycle
stocks and buffer stocks, the latter usually modeled
as a function of demand variability. The economic
Classic EOQ model: trade-off between ordering cost
production quantity[43] (EPQ) differs from the
(blue) and holding cost (red). Total cost (green) admits
EOQ model only in that it assumes a constant fill
a global optimum.
rate for the part being produced, instead of the
instantaneous refilling of the EOQ model.

Joseph Orlickly and others at IBM developed a push approach to inventory control and production
planning, now known as material requirements planning (MRP), which takes as input both the master
production schedule (MPS) and the bill of materials (BOM) and gives as output a schedule for the materials
(components) needed in the production process. MRP therefore is a planning tool to manage purchase
orders and production orders (also called jobs).

The MPS can be seen as a kind of aggregate planning for production coming in two fundamentally
opposing varieties: plans which try to chase demand and level plans which try to keep uniform capacity
utilization. Many models have been proposed to solve MPS problems:

Analytical models (e.g. Magee Boodman model)

Exact optimization algorithmic models (e.g. LP and ILP)
Heuristic models (e.g. Aucamp model).

MRP can be briefly described as a 3s procedure: sum (different orders), split (in lots), shift (in time
according to item lead time). To avoid an "explosion" of data processing in MRP (number of BOMs
required in input) planning bills (such as family bills or super bills) can be useful since they allow a
rationalization of input data into common codes.
MRP had some notorious problems such as infinite
capacity and fixed lead times, which influenced successive modifications of the original software
architecture in the form of MRP II, enterprise resource planning (ERP) and advanced planning and
scheduling (APS).
In this context problems of scheduling (sequencing
of production), loading (tools to use), part type
selection (parts to work on) and applications of
operations research have a significant role to play.

Lean manufacturing is an approach to production

which arose in Toyota between the end of World
War II and the seventies. It comes mainly from the
ideas of Taiichi Ohno and Toyoda Sakichi which
are centered on the complementary notions of just
in time and autonomation (jidoka), all aimed at
reducing waste (usually applied in PDCA style).
Some additional elements are also fundamental:[44]
production smoothing (Heijunka), capacity buffers,
setup reduction, cross-training and plant layout.

Heijunka: production smoothing

presupposes a level strategy for the MPS
and a final assembly schedule developed
from the MPS by smoothing aggregate
production requirements in smaller time
buckets and sequencing final assembly to
achieve repetitive manufacturing. If these
A typical MRPII construct: general planning (top)
conditions are met, expected throughput
concerned with forecasts, capacity planning and
can be equaled to the inverse of takt time.
inventory levels, programming (middle) concerned with
Besides volume, heijunka also means
attaining mixed-model production, which calculation of workloads, rough-cut capacity planning,
however may only be feasible through set- MPS, capacity requirements planning, traditional MRP
up reduction. A standard tool for achieving planning, control (bottom) concerned with scheduling.
this is the Heijunka box.
Capacity buffers: ideally a JIT system
would work with zero breakdowns, this however is very hard to achieve in practice,
nonetheless Toyota favors acquiring extra capacity over extra WIP to deal with starvation.
Set-up reduction: typically necessary to achieve mixed-model production, a key distinction
can be made between internal and external setup. Internal setups (e.g. removing a die)
refers to tasks when the machine is not working, while external setups can be completed
while the machine is running (ex:transporting dies).
Cross training: important as an element of Autonomation, Toyota cross trained their
employees through rotation, this served as an element of production flexibility, holistic
thinking and reducing boredom.
Layout: U-shaped lines or cells are common in the lean approach since they allow for
minimum walking, greater worker efficiency and flexible capacity.

A series of tools have been developed mainly with the objective of replicating Toyota success: a very
common implementation involves small cards known as kanbans; these also come in some varieties: reorder
kanbans, alarm kanbans, triangular kanbans, etc. In the classic kanban procedure with one card:

Parts are kept in containers with their respective kanbans

The downstream station moves the kanban to the upstream station and starts producing the
part at the downstream station
The upstream operator takes the most urgent kanban from his list (compare to queue
discipline from queue theory) and produces it and attach its respective kanban
The two-card kanban procedure differs a bit:

The downstream operator takes the

production kanban from his list
If required parts are available he removes
the move kanban and places them in
another box, otherwise he chooses
another production card
He produces the part and attach its
respective production kanban
Periodically a mover picks up the move When introducing kanbans in real production systems,
kanbans in upstream stations and search attaining unitary lot from the start maybe unfeasible,
for the respective parts, when found he therefore the kanban will represent a given lot size
exchanges production kanbans for move defined by management.
kanbans and move the parts to
downstream stations

Since the number of kanbans in the production system is set by managers as a constant number, the kanban
procedure works as WIP controlling device, which for a given arrival rate, per Little's law, works as a lead
time controlling device.

In Toyota the TPS represented more of a

philosophy of production than a set of specific lean
tools, the latter would include:

SMED: a method for reducing changeover

times
Value stream mapping: a graphical
method for analyzing the current state and
designing a future state
lot-size reduction
elimination of time batching
Rank Order Clustering: an algorithm which
groups machines and product families Value stream mapping, a representation of materials
together, used for designing manufacturing and information flows inside a company, mainly used
cells in the lean manufacturing approach. The calculation of
single-point scheduling, the opposite of the time-line (bottom) usually involves using Little's
the traditional push approach law to derive lead time from stock levels and takt
multi-process handling: when one time.
operator is responsible for operating
several machines or processes
poka-yoke: any mechanism in lean manufacturing that helps an equipment operator avoid
(yokeru) mistakes (poka)
5S: describes how to organize a work space for efficiency and effectiveness by identifying
and storing the items used, maintaining the area and items, and sustaining the new order
backflush accounting: a product costing approach in which costing is delayed until goods
are finished

Seen more broadly, JIT can include methods such as: product standardization and modularity, group
technology, total productive maintenance, job enlargement, job enrichment, flat organization and vendor
rating (JIT production is very sensitive to replenishment conditions).
In heavily automated production systems production planning and information gathering may be executed
via the control system, attention should be paid however to avoid problems such as deadlocks, as these can
lead to productivity losses.

Project Production Management (PPM) applies the concepts of operations management to the execution of
delivery of capital projects by viewing the sequence of activities in a project as a production system.[45][46]
Operations managements principles of variability reduction and management are applied by buffering
through a combination of capacity, time and inventory.

Service operations

Service industries are a major part of economic activity and employment in all industrialized countries
comprising 80 percent of employment and GDP in the U.S. Operations management of these services, as
distinct from manufacturing, has been developing since the 1970s through publication of unique practices
and academic research.[47] Please note that this section does not particularly include "Professional Services
Firms" and the professional services practiced from this expertise (specialized training and education
within).

According to Fitzsimmons, Fitzsimmons and Bordoloi (2014) differences between manufactured goods and
services are as follows:[48]

Simultaneous production and consumption. High contact services (e.g. health care) must be
produced in the presence of the customer, since they are consumed as produced. As a
result, services cannot be produced in one location and transported to another, like goods.
Service operations are therefore highly dispersed geographically close to the customers.
Furthermore, simultaneous production and consumption allows the possibility of self-service
involving the customer at the point of consumption (e.g. gas stations). Only low-contact
services produced in the "backroom" (e.g., check clearing) can be provided away from the
customer.
Perishable. Since services are perishable, they cannot be stored for later use. In
manufacturing companies, inventory can be used to buffer supply and demand. Since
buffering is not possible in services, highly variable demand must be met by operations or
demand modified to meet supply.
Ownership. In manufacturing, ownership is transferred to the customer. Ownership is not
transferred for service. As a result, services cannot be owned or resold.
Tangibility. A service is intangible making it difficult for a customer to evaluate the service in
advance. In the case of a manufactured good, customers can see it and evaluate it.
Assurance of quality service is often done by licensing, government regulation, and
branding to assure customers they will receive a quality service.

These four comparisons indicate how management of service operations are quite different from
manufacturing regarding such issues as capacity requirements (highly variable), quality assurance (hard to
quantify), location of facilities (dispersed), and interaction with the customer during delivery of the service
(product and process design).

While there are differences there are also many similarities. For example, quality management approaches
used in manufacturing such as the Baldrige Award, and Six Sigma have been widely applied to services.
Likewise, lean service principles and practices have also been applied in service operations. The important
difference being the customer is in the system while the service is being provided and needs to be
considered when applying these practices.[49]
One important difference is service recovery. When an error occurs in service delivery, the recovery must
be delivered on the spot by the service provider. If a waiter in a restaurant spills soup on the customer's lap,
then the recovery could include a free meal and a promise of free dry cleaning. Another difference is in
planning capacity. Since the product cannot be stored, the service facility must be managed to peak demand
which requires more flexibility than manufacturing. Location of facilities must be near the customers and
scale economics can be lacking. Scheduling must consider the customer can be waiting in line. Queuing
theory has been devised to assist in design of service facilities waiting lines. Revenue management is
important for service operations, since empty seats on an airplane are lost revenue when the plane departs
and cannot be stored for future use.[50]

Mathematical modeling

There are also fields of

mathematical theory which
have found applications in
the field of operations
management such as
operations research: mainly
mathematical optimization
problems and queue theory.
Queue theory is employed
in modelling queue and
Queue networks are systems in
processing times in
which single queues are connected
production systems while Illustration of the Simplex method, a
by a routing network. In this image
mathematical optimization classical approach to solving LP
servers are represented by circles,
draws heavily from optimization problems and also
queues by a series of rectangles and
multivariate calculus and integer programming (ex: branch and
the routing network by arrows. In the
linear algebra. Queue cut). This technique is mainly used
study of queue networks one
theory is based on Markov in push approach[3] but also in
typically tries to obtain the
chains and stochastic production system configuration.[36]
equilibrium distribution of the [51]
network. processes. The interior and surface of the green
Computations of safety polytope geometrically represent the
stocks are usually based on feasible region, while the red line
modeling demand as a normal distribution and MRP and some indicates the optimally chosen
inventory problems can be formulated using optimal control.[52] sequence of pivot operations used to
reach the optimal solution.
When analytical models are not enough, managers may resort to
using simulation. Simulation has been traditionally done through
the discrete event simulation paradigm, where the simulation model possesses a state which can only
change when a discrete event happens, which consists of a clock and list of events. The more recent
transaction-level modeling paradigm consists of a set of resources and a set of transactions: transactions
move through a network of resources (nodes) according to a code, called a process.

Since real production processes are always affected by disturbances in both inputs and outputs, many
companies implement some form of quality management or quality control. The Seven Basic Tools of
Quality designation provides a summary of commonly used tools:

check sheets
Pareto charts
Ishikawa diagrams (Cause-and-effect diagram)
control charts
 histogram
scatter diagram
stratification

These are used in approaches like total quality

management and Six Sigma. Keeping quality under
control is relevant to both increasing customer
satisfaction and reducing processing waste.

Operations management textbooks usually cover

demand forecasting, even though it is not strictly
speaking an operations problem, because demand is
related to some production systems variables. For
example, a classic approach in dimensioning safety
stocks requires calculating the standard deviation of
forecast errors. Demand forecasting is also a critical
A control chart: process output variable is modeled part of push systems, since order releases have to be
by a probability density function and for each planned ahead of actual clients’ orders. Also, any
statistic of the sample an upper control line and serious discussion of capacity planning involves
lower control line are fixed. When the statistic adjusting company outputs with market demands.
moves out of bounds, an alarm is given and
possible causes are investigated. In this drawing
the statistic of choice is the mean and red points Safety, risk and maintenance
represent alarm points.
Other important management problems involve
maintenance policies[53] (see also reliability
engineering and maintenance philosophy), safety management systems (see also safety engineering and
Risk management), facility management and supply chain integration.

Organizations
The following organizations support and promote operations management:

Association for Operations Management (APICS) which supports the Production and
Inventory Management Journal
European Operations Management Association (EurOMA) which supports the International
Journal of Operations & Production Management
Production and Operations Management Society (POMS) which supports the journal:
Production and Operations Management
Institute for Operations Research and the Management Sciences (INFORMS)
The Manufacturing and Service Operations Management Society (MSOM) of INFORMS
which supports the journal: Manufacturing & Service Operations Management
Institute of Operations Management (UK)
Association of Technology, Management, and Applied Engineering (ATMAE)

Journals
The following high-ranked[54] academic journals are concerned with operations management issues:

Management Science
 Manufacturing & Service Operations Management
Operations Research
International Journal of Operations & Production Management
Production and Operations Management
Transportation Research - Part E
Journal of Operations Management
European Journal of Operational Research
Annals of Operations Research

See also
APICS
Benchmarking
Business process management
Business process mapping
Cause-and-effect analysis
Change management
Failure mode and effects analysis
Industrial technology
Inventory management software
National Institute of Industrial Engineering
Performance metrics
Project management
Project Production Management
Requirements engineering
Root cause analysis
Silver–Meal heuristic
Work breakdown structure

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Further reading
Daniel Wren, The Evolution of Askin, R. G., C.R. Standridge, Modeling &
Management Thought, 3rd edition, New Analysis Of Manufacturing Systems, John
York Wiley 1987. Wiley and Sons, New York 1993.
W. Hopp, M. Spearman, Factory Physics, J. A. Buzacott, J. G. Shanthikumar,
3rd ed. Waveland Press, 2011 online (http Stochastic models of manufacturing
s://books.google.com/books?id=TfcWAAA systems, Prentice Hall, 1993.
AQBAJ&printsec=frontcover&hl=it&source D. C. Montgomery, Statistical Quality
=gbs_ge_summary_r&cad=0#v=onepage Control: A Modern Introduction, 7th edition,
&q&f=false) (Part 1 contains both 2012.
description and critical evaluation of the
R. G. Poluha: The Quintessence of Supply
historical development of the field).
Chain Management: What You Really
R. B. Chase, F. R. Jacobs, N. J.Aquilano, Need to Know to Manage Your Processes
Operations Management for Competitive in Procurement, Manufacturing,
Advantage, 11th edition, McGraw-Hill, Warehousing and Logistics (Quintessence
2007. Series). First Edition. Springer Heidelberg
New York Dordrecht London 2016.
ISBN 978-3662485132.

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