DAO2703 OTM

Week 1
Introduction to OTM

© Copyright National University of Singapore. All Rights Reserved.

© Copyright National University of Singapore. All Rights Reserved.
 Course Structure
Introduction to OTM;
Managing the Overview
Transformation Process

Process Types; Advanced Recognizing

Operations Technologies;
Process Analysis the Plant
Aggregate
Production Planning Planning for
the Plant;
Inventory Material Require- Operations PP&C Cycle
Management ments Planning Scheduling

Just-In-Time Theory of Improving the

Systems Constraints Plant
Strategic
Operations Strategic
Considerations
Supply Chain
Management
© Copyright National University of Singapore. All Rights Reserved.
 What is Operations?
The part of a business organization that is responsible for
producing goods and service
Production is the creation of goods and services; however, has been
used primarily to refer to creation of tangible goods
Operations is the term introduced to re-emphasize creation of both
goods and services
Operations Management is a business function (within an
organization) that is responsible for designing, managing, and
improving the activities involved in the creation and delivery of
products and services through the transformation of inputs into
outputs
OM refers to both manufacturing and services
© Copyright National University of Singapore. All Rights Reserved.
 Products or Services?
Products are physical items that include raw materials, parts,
subassemblies, and final products
Automobile
Computer
Fast-moving consumer goods (FMCG)
Furniture
Services are activities that provide some combination of time,
location, form or psychological value
Air travel
Education
Hairdressing
Legal Consul
© Copyright National University of Singapore. All Rights Reserved.
 Goods vs. Services
Products are typically neither purely service- or purely goods-
based

Goods Services
Surgery, Teaching

Songwriting, Software Development

Computer Repair, Restaurant Meal

Home Remodeling, Retail Sales

Automobile Assembly, Steelmaking

© Copyright National University of Singapore. All Rights Reserved.

 Goods vs. Services
Characteristics of Goods Characteristics of Services
Tangible product Intangible product
Can be inventoried Cannot be inventoried
Consistent Product Definition Inconsistent Product Definition
Limited customer interaction High customer interaction
Production (usually) separate from Produced and consumed at the same time
consumption
Easy to automate Hard to automate
Many aspects of quality are easy to evaluate Quality may be hard to evaluate
Goods produced at a fixed facility Services dispersed
Often has some residual value Reselling is unusual
© Copyright National University of Singapore. All Rights Reserved.
 What is Operations & Technology
Management?
Integration of Technology with Operations Management
“Technology is the sum of techniques, skills, methods, and processes
used in the production of goods or services or in the accomplishment of
objectives, such as scientific investigation.”
Wikipedia

© Copyright National University of Singapore. All Rights Reserved.

 Industrial Revolutions

© Copyright National University of Singapore. All Rights Reserved.

 The Transformation Process
Value-Added

Inputs Transformation/ Outputs

•Land Conversion •Goods
•Labor •Services
Process
•Capital
•Information

Measurement
and Feedback
Measurement Measurement
and Feedback Control and Feedback

Feedback = Measurements taken at various points in the transformation process

Control = The comparison of feedback against previously established standards to
determine if corrective action is needed
© Copyright National University of Singapore. All Rights Reserved.
 Examples of the transformation
process
Inputs Processing Output
Airline • Airplanes • Air transportation • Passengers/cargo
• Pilots transported to
• Flight attendants destinations
• Supplies
• Air cargo
• Passengers
Food processor • Raw vegetables • Cleaning • Canned vegetables
• Metal sheets • Making cans
• Water • Cutting
• Energy • Cooking
• Labor • Packing
• Building • Labeling
• Equipment
© Copyright National University of Singapore. All Rights Reserved.
 Examples of the transformation
process
Inputs Processing Output
Hospital • Doctors, nurses • Examination • Treated patients
• Facility • Surgery
• Medical supplies • Monitoring
• Equipment • Medication
• Laboratories • Therapy

© Copyright National University of Singapore. All Rights Reserved.

 What is a Supply Chain?
The network of all entities involved in producing and delivering
a finished product to the final customer. This includes sourcing
raw materials and parts, manufacturing, producing and
assembling the products, storing goods in the warehouses,
order entry and tracking, distribution and delivery to the final
customer

Suppliers’ Direct Final

Producer Distributor
suppliers suppliers customers

© Copyright National University of Singapore. All Rights Reserved.

 What is Supply Chain Management?
Supply Chain Management encompasses the planning and
management of all activities involved in sourcing and procurement,
conversion, and all logistics management activities. Importantly, it
includes coordination and collaboration with channel partners, which
can be suppliers, intermediaries, third-party service providers, and
customers. In essence, supply chain management integrates supply
and demand management within and across companies
In the past, organizations did little to manage the supply chain
beyond their own operations and immediate suppliers which led to
numerous problems
Oscillating inventory levels (bullwhip effect)
Inventory stockouts
Late deliveries
Quality problems
© Copyright National University of Singapore. All Rights Reserved.
 Basic Functions of the Business
Organization
Organization

Marketing Operations Finance/

Accounting
• generates demand or • creates the product or • tracks how well the
at least takes the service organization is doing,
order for a product or pays the bill, collects
service the money
© Copyright National University of Singapore. All Rights Reserved.
 Manufacturing Organization Chart
Manufacturing

Marketing Operations Finance/

Accounting

Production Quality
Production Purchasing
Control Control
© Copyright National University of Singapore. All Rights Reserved.
 Service (Airline) Organization Chart
Airline

Marketing Operations Finance/

Accounting

Flight Ground Facility

Catering
Operations Support Maintenance
© Copyright National University of Singapore. All Rights Reserved.
 Function Overlap
Finance and Operations
Budgeting
Economic analysis of investment
proposals
Provisions of funds
Marketing and Operations
Demand data
Product and service design
Competitor analysis
Lead time data

© Copyright National University of Singapore. All Rights Reserved.

 OM and Supply Chain Management Jobs
Plant manager
Oversees the workforce and physical resources (inventory, equipment,
and IT) required to produce the organization’s product
Hospital administrator
Oversees human resource management, staffing, supplies, and
finances at a health care facility
Supply chain manager
Negotiates contracts with vendors and coordinates the flow of material
inputs to the production process and the shipping of finished goods to
customers
Purchasing manager
Manages the day-to-day aspects of purchasing, such as invoicing and
follow-up
© Copyright National University of Singapore. All Rights Reserved.
 OM and Supply Chain Management Jobs
Logistics manager
Oversees the movement of goods throughout the supply chain
Warehouse/distribution manager
Oversees all aspects of running a warehouse, including replenishment,
customer order fulfillment, and staffing
Business process improvement analyst
Applies the tools of lean production to reduce cycle time and eliminate
waste in a process
Project manager
Plans and coordinates staff activities, such as new-product
development, new-technology deployment, and new-facility location

© Copyright National University of Singapore. All Rights Reserved.

© Copyright National University of Singapore. All Rights Reserved.
 Objectives in Operations Management
Four major Operations Performance dimensions (aka
Operations Capabilities)
Cost: produced at low cost
Labor productivity; inventory turnover
Quality: as perceived; Design vs. Conformance
Features; mean time between failures (MTBF); scrap; rework
Speed/Dependability: meet schedules/due dates; speed
Percentage on-time deliveries; number of days late
Flexibility/Innovativeness: Product mix and volume changes
Setup times; number of parts per process; time to market
Supports business goals/strategies
Can all the four objectives be achieved simultaneously?
© Copyright National University of Singapore. All Rights Reserved.
 Decisions in Operations
Planning Organizing
Capacity Degree of centralizing
Layout Subcontracting/outsourcing
Location Staffing
Make or buy Hiring/laying off
Products and services Use of overtime labor
Projects
Scheduling
Directing
Issuance of work orders
Controlling Job assignments
Inventory
Quality

© Copyright National University of Singapore. All Rights Reserved.

 Environmental Concerns
Sustainability
Use resources in ways that do not harm the ecological systems
that support human existence
Sustainability measures often goes beyond traditional
environmental and economic measures to include measures that
incorporate social criteria in decision making
All areas of business will be affected
Product and service design
Customer education program
Disaster preparation and response
Outsourcing decisions

© Copyright National University of Singapore. All Rights Reserved.

 Ethical Issues in Operations
Ethical issues arise in many aspects of operations
management
Worker safety
Product safety
Quality
The environment
The community
Hiring and firing of workers
Closing facilities
Workers’ rights

© Copyright National University of Singapore. All Rights Reserved.

 Productivity
Output
Productivity =
Input
Example 1: If it takes 250 hours to produce 1,000
units:

© Copyright National University of Singapore. All Rights Reserved.

© Copyright National University of Singapore. All Rights Reserved.
 Productivity
Thought Question:
If inputs increase by 25% and outputs increase by
40%, what is the percentage productivity change?

© Copyright National University of Singapore. All Rights Reserved.

 Productivity
General formula:
If inputs increase by X% and outputs increase by
Y%, then the percentage productivity change is

 1+ Y % 
% change in productivity =   −1
1 + X % 

© Copyright National University of Singapore. All Rights Reserved.

 Productivity
A broader view of productivity, multifactor
productivity aka total factor productivity, includes all
inputs:
Multifactor productivity =
Output
Labor + Material + Energy + Capital + Miscellaneous
It is a measure of production efficiency.
© Copyright National University of Singapore. All Rights Reserved.
 Productivity
Example 2: You were assigned the task of evaluating the
improvement in productivity of small business. Data
(monthly average of last and this year) for one of the
small business you are to evaluate are shown below
Last Year This Year
Production (dozen) 1,500 1,500
Labor (hours) 350 325
Capital investment ($) 15,000 18,000
Energy (BTU) 3,000 2,700
© Copyright National University of Singapore. All Rights Reserved.
 Productivity
Labor: $8 per hour
Capital expense: 0.83% per month of investment
Energy: $0.60 per BTU

Determine the multifactor productivity with dollars as the

common denominator for both years and the percentage
change in productivity

© Copyright National University of Singapore. All Rights Reserved.

 Multifactor productivity (last year)
1,500 dozens
=
( $8 / hr  350 hours ) + ( $15,000  0.0083) + ( $0.60 / BTU  3,000 BTUs )
1,500 dozens
= = 0.317 dozens/$
$4,724.5

© Copyright National University of Singapore. All Rights Reserved.

 Productivity
Example 3: Manufacturing labor costs across countries
CNY-VND exchange rate = VND3,442.54/CNY
Chinese wage = CNY28/hour
Vietnamese wage = VND30,660/hour

Which country’s labor is cheaper?

© Copyright National University of Singapore. All Rights Reserved.

 Productivity
What about productivity?

Suppose that Chinese workers

are 1.75 times more productive
than Vietnamese workers –
Vietnamese workers must work
1.75 times as long to produce
the same amount.

© Copyright National University of Singapore. All Rights Reserved.

 Productivity
Computing “Relative” Wage Rates
W = foreign wage rate
X = exchange rate
H = home productivity (units/time unit)
F = foreign productivity (units/time unit)
R = “relative” foreign wage rate accounting for
productivity differences (in home currency/time unit)
W H
R= 
X F
© Copyright National University of Singapore. All Rights Reserved.
 Productivity
Measurement problems:

Quality may change

External factors

Units of measurements

© Copyright National University of Singapore. All Rights Reserved.

 Productivity Variables
For over a century (since 1869), the U.S. has
been able to increase productivity at an average
rate of almost 2.5% per year. The productivity
increase is the result of the mix of:
Labor (constitutes about 10%)
Capital (constitutes about 38%)
Management (constitutes about 52%)

© Copyright National University of Singapore. All Rights Reserved.

 Productivity Issues in Service Sector
Besides productivity measurement, improvement
is difficult in the service sector:
Labor intensive
Frequently focused on unique individual attributes or
desires
Often an intellectual task performed by professionals
Often difficult to mechanize and automate
Often difficult to evaluate for quality

© Copyright National University of Singapore. All Rights Reserved.

© Copyright National University of Singapore. All Rights Reserved.