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Operations Management Exam NOTES

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University of Guelph
ECON 2560
Nancy Bower

Chapter 16: Just in time and lean operations • Focus of processes in this chapter 1. Drive all waste out of the production process • JIT (Just in time) 1. About matching supply and demand 2. Goal is to create a smooth flow between supply and demand so customers have what they want exactly when they want it 3. Emphasizes forced problem solving, through a focus on throughput and reduced inventory • Just-in-case Inventory • Inventories exist just in case something goes wrong, creates padding when there is a variation from the production process • Just-in-time inventory • The minimum inventory necessary to keep a perfect system running • Inventory tactics o Use a pull system to move inventory o Reduce lot sizes  Eliminate waste by reducing investment in inventory  Lowering order sizes increases the number of orders but drops inventory size  Production order quantity form • Q*p = √2DS/H(1-d/p) o D = annual demand o S = Set up o H = holding cost o d = daily demand o p = daily production  set up cost • S = (Q^2(H)(1-d/p)/2D  Set up time • Set up time = S / Hourly labor rate o Develop just-in-time delivery services with suppliers o Delivery directly to point of use o Perform to schedule o Reduce set up time o Use group technology • • Toyota Production System 1. Emphasizes • Employee learning • Empowerment • Continuous improvement • Respect for people • Standard work practices • Lean production 1. emphasizes • elimination of waste • smooth, efficient flow of materials and information through the value chain • obtaining faster customer response, higher quality, and lower cost • supplying the customer with their exact wants when they need it without waste • JIT/LEAN operations 1. Managers must address three issues that are pervasive and fundamental to operations • Eliminate waste • Anything that does not add value from a customer viewpoint • E.g storage, inspection, delay, waiting in ques, and defective products • Remove variability • Deviation from producing the perfect product on time everytime • Sources of variability o Incomplete/inaccurate drawings or specifications o Poor production processes creating incorrect quantities, late or non-conforming units o Unknown customer demands • Improve throughput • Time it takes to move a product from receipt to delivery • A pull system increases throughput o Materials are produced only when requested and moved to where it is needed just as it is needed o Pulls materials to where they are needed just as they are needed o Waste and inventory are removed by pulling small lots of materials just as they are needed • Push system o Produces goods in advance of customer demand using a forecast of sales, dumps orders on the downstream station regardless of need • A measure of units in time • Ohno’s seven wastes 1. Ques 2. Over processing 3. Over production 4. Inventory 5. Motion – movement of people or equipment 6. Product defects 7. transportation • the five s’s 1. sort/segregate • when in doubt throw it out 2. simplify/straighten • arrange material/equipment so it is easy to find and use 3. shine/sweep • a clean work area 4. standardize • remove variations, create consistency, ensure that all steps are correct 5. sustain/self-discipline • review work and recognize progress • Kanban Cards • Authorization for next container of material to be produced • A sequence of Kanbans pulls materials through the process • The number of kanban cards in JIT systems sets the amount of authorized inventory • To determine the quantity of containers moving back and forth management sets the size for each container by • Q*p = √ 2DS / H(1-d/p) • To determine the number of containers we • Need to know the lead time needed to produce a container of parts • Amount of safety stock needed • Number of kanban cards is computed as – o o Demand during lead time + safety stock / size of container Chapter 7- process strategy and sustainability • Objective o Build a production process that meets customer requirements and product specifications within cost and other managerial constraints • Process o Related tasks with specific inputs and outputs o Use of organizations resources to provide something of value o Products/services do not exist without a process and a process does not exist with the absence of products and services o Process design  Defines what tasks need to be done and how they are to be coordinated among functions, people and organization o Process strategy  Organizations approach to transforming resources into goods and services o Process management  Design and the selection of inputs, operations, work flows, and methods that transform inputs into ouputs o Four process strategies  Process focus • Production facility organized around processes to facilitate low- volume, high-variety production  Repetitive focus • Product-orientated production process that uses modules (fast food, automobiles, household appliances)  Product focus • A facility organized around products; a product oriented high volume, low-variety process  Mass customization • Rapid, low-cost production that caters to constantly changing unique customer desires • Capacity o The maximum output rate that can be achieved by a facility o The throughput, or number of units a facility can hold, receive, store, or produce in a period of time o Refers to the upper limit that an operating unit can handle o Importance of long-term capacity decision  Have a real impact on the ability of an organization to meet future demands for products and services  Affect operating costs and ease of management  Major determinant of capital cost  Involve long-term decisions  Competitiveness • How to measure capacity o Use a measure that doesn’t require updating o If multiple outputs are produced  Capacity is stated as in terms of each product, or choose a major product or use availability of a major input o Types of capacity  Design capacity – the maximum output that can be attined under certain conditions  Effective capacity – the maximum possible output given operating hours, product mix. Scheduling difficulties and expected delays and machine maintenance o Efficiency  Ratio of actual output to effective capacity  Actual output / effective capacity  Expected output = effective capacity*efficiency o Utilization  Ratio of actual output to design capacity  Actual output / design capacity o Four special considerations for good capacity decisions  Forecast demand actually – an accurate forecast is paramount to the capacity decision  Understand the technological and capacity increments  Find the optimal operating size  Build for change – technology and capacity increments often dictate an optimal size for a facility o Managing demand  When demand exceeds capacity • In the short run o Reduce demand by  Raising prices  Scheduling long lead time  Discourage marginally profitable business  When capacity exceeds demand • Regardless of the run o Stimulate demand by  Price reductions or aggressive marketing  Product changes  Layoffs and plant closures  Adjusting to seasonal demand • Seasonal demand is a capacity challenge o Produce products with complementary demand patterns • Bottleneck analysis o Each work area can have its own unique capacity o Capacity analysis determines the throughput analysis of workstations in a system o A bottleneck is a limiting factor or constraint o A bottleneck has the lowest effective capacity in a system • Theory of constraints o A body of knowledge that deals with anything that limits any organization from completing its goals  Recognizing and managing limitations takes 5 steps • Identify the constraint • Develop a plan for overcoming the constraints • Focus resources on accomplishing step 2 • Reduce the effects of constraints by offloading work or expanding cap • Once overcome go back to step 1 and find new constraints • Bottleneck management o Release work orders to the system at the pace set by the bottlenecks capacity o The bottle neck should always be kept busy with work,  Lost time at the bottle neck = lost time on the project as a whole o Increasing capacity of a non-bottleneck system does nothing to increase capacity at all o Increasing capacity of the bottle therefore increases capacity of the whole system • Identifying the capacity bottleneck o In a system where more than one basic operation is required, the operation that requires the most time is considered the bottle neck.  In the process of creating a drawer, phase 2 the nailing phase limits the productivity to 75 drawers an hour, therefore our bottleneck is at phase 2 nailing  Too increase the capacity of the job we must then increase the capacity of phase 2 • Break even analysis o Finding the point in units at which costs = revenues  assumptions • Costs and revenues are linear functions, they increase in direct proportion to one another • Time value of money is often ignored • Expected Monetary Value o Requires  specifying alternatives  various states of nature • for capacity planning o SON = future demand or market favorability o Assigning probability values allows us to maximize the expected value of alternatives • Fundamentals of decision making o Terms  Alternative • A course of action or strategy that may be chosen by the decision maker  State of nature • An occurance or situation that is out of the control of the decision maker o Symbols  □ - decision node from which one of several events may be selected  ○ - a state of nature node in which one state of nature will occur o Decision making environments  Certainty • State of nature is known  Uncertainty • Complete uncertainty as to which state of nature will occur  Risk • Several states of nature may occur • Each has a probability of occurring • Expected monetary value EMV st ST nd o EMV (alternative i)= (payoff of 1 SON)* (probability of 1 SON)+(payoff of 2 SON)*(Probability of 2 son)+(payoff of last state of nature)*(probability of last state of nature) o When all states of nature are equally likely to occur it is the monetary value divided by the number of states  E.G three equally likely states of nature (high, medium and low) at high profits are 50 000, at medium profits are 25 000 and at low profits are -10 000 Chapter 8 • Factors affecting location decisions o Dominant factors in manufacturing  L • labor productivity  E • exchange rates  T • tangible and intangible goods  Peter • proximity to markets  Pick • proximity to materials and resources  Pepper • proximity to competition o dominant factors in services  proximity to customers  transportation costs  proximity to market  location of competitors • Country location decisions o Political risks, government rules, attitudes, incentives o Proximity to energy, supplies, transportation o Labor talent, attitudes, productivity, costs o Economic and social issues o Exchange rates and currency risks o Location of markets • Regional or community location decisions o Corporate desires o Attractiveness of region o Labor availability and costs o Costs and Availability of utilities o Environmental regulations o Government incentives and fiscal policies o Proximity to raw materials and custoners o Land/construction costs • Site location decisions o Key site-specific success factors  Site, size and cost  Air, rail, highway and waterway systems  Zoning restrictions  Proximity of services/supply needs  Environmental impact issues • Labour productivity and labour content o When deciding a location management must also consider productivity o Management must also consider productivity o Lower productivity may increase total cost o Labour cost per unit is sometimes called the labour content of the product • Factor rating method o Used to evaluate multiple alternative locations based on a number of factors  Popular due to the wide variety of factors o Six steps in the factor rating method  Develop a list of relevant factors called key success factors  Assign a weight to each factor
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