![Page 1: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/1.jpg)
Operations ManagementOperations Management Introduction Introduction
A. A. ElimamA. A. Elimam
![Page 2: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/2.jpg)
Operations ManagementOperations Management
ACTIVITIES THAT RELATE TO THE CREATION OF GOODS AND SERVICES
THROUGH THE TRANSFORMATION OF
INPUTS INTO OUTPUTS
![Page 3: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/3.jpg)
Transformation ProcessTransformation Process
InputPeopleMaterialsEquipmentMoneyManagement
InputPeopleMaterialsEquipmentMoneyManagement
TransformationTransformation
Output
GoodsServices
Output
GoodsServices
FeedbackFeedback
FeedbackFeedback
![Page 4: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/4.jpg)
Manufacturing and ServicesManufacturing and Services
Physical product Output inventoried Low customer
contact Long response
time
Intangible product Cannot inventoried High customer
contact Short response
time
![Page 5: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/5.jpg)
Manufacturing and ServicesManufacturing and Services
World markets Large facilities Capital intensive Quality easily
measured
Local markets Small facilities Labor intensive Quality not easily
measured
![Page 6: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/6.jpg)
MAJOR CHALLENGES TO MAJOR CHALLENGES TO OPERATIONS MANAGERSOPERATIONS MANAGERS
Increase the VALUE of output relative
to the COST of input.
Increase PRODUCTIVITY
PRODUCTIVITY = OUTPUT
INPUT
![Page 7: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/7.jpg)
PRODUCTIVITYPRODUCTIVITY
Productivity is the quotient obtained by dividing output by one of the factors of production. One can speak of productivity of capital, labor, raw materials, etc.
![Page 8: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/8.jpg)
WAYS TO IMPROVE WAYS TO IMPROVE PRODUCTIVITYPRODUCTIVITY
INCREASE OUTPUT MINIMIZE DEFECTS IMPROVE QUALITY
REDUCE INPUTS ELIMINATE WASTE FEWER HOURS LOWER ENERGY IMPROVE QUALITY
![Page 9: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/9.jpg)
Example : ProductivityExample : Productivity
Example: Output = $1000
Inputs: human = $300 material = $200
capital = $300 energy = $100 other exp.= $50
Human Productivity = 1000 / 300 = $ / $ 3.33
Total Productivity = 1000 / 950 = $ / $ 1.053
![Page 10: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/10.jpg)
Example : ProductivityExample : Productivity
Output = 600 insurance policies
Inputs: human = 3 employees
working 8 hours / day for 5 days
Labor Productivity = 600 / (3)(5)(8)
= 5 policies / hour
![Page 11: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/11.jpg)
Decision MakingDecision Making
Positioning DecisionsProduct Planning--Positioning Strategies and Quality
Management Design Decisions
Process Design, Work Force Management, Capacity, Location, Layout
Operating DecisionsMaterials Management, Production Planning and
Scheduling, Inventory, Supply Chain, Project Scheduling, Quality Control
![Page 12: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/12.jpg)
Decision Making HorizonsDecision Making Horizons
Strategic Planning: 5 - 10 yr.Less certainty - Less detail - Goal-oriented
Operational Planning: 3 mos - 3 yr.More Certainty - More Means-oriented - Better Defined
Scheduling: weekly - monthlyMore attention to detail
Sequencing/Dispatching: hourly - dailyExact order and time of implementation
Control: hourly - dailyFeedback on implementation
![Page 13: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/13.jpg)
Steps in Product PlanningSteps in Product Planning
Step 1:Idea Generation
Step 2:Screening
Step 3:Development &testing
Step 4:Final product design
Rejected Ideas
![Page 14: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/14.jpg)
Screening Approaches:Screening Approaches:Preference MatrixPreference Matrix
Weighted Score for each Product
based on performance measures
Selection: total score exceeds
threshold
Deficient approach - Why ?
![Page 15: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/15.jpg)
Screening Approaches:Screening Approaches:Break-Even Analysis (BEA)Break-Even Analysis (BEA)
When do revenues exceed costs? Total Annual Revenue = Total Annual Cost Total Annual Revenue = Ann. Fixed Cost +
Ann. Variable Cost PQ = F + c. Q
• P = Price in $ / unit• c = Variable cost in $/unit• F = Annual Fixed Cost, $/yr.• Q = Number of units produced
![Page 16: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/16.jpg)
Screening Approaches:Screening Approaches:Break-Even Analysis (BEA)Break-Even Analysis (BEA)
Production determines: F & c Marketing determines: P & Demand Use BEA to determine if the product
BREAKS EVEN at the Expected Demand Yes --> Continue No --> Drop Product
![Page 17: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/17.jpg)
Graphical Approach to BEAGraphical Approach to BEAGiven: p= $ 20/unit c=$10/unit F= $100,000
![Page 18: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/18.jpg)
Break-evenQuantity
Graphical Approach to BEAGraphical Approach to BEA
400
300
200
100
5 10 15 20
Loss Fixed Cost
Total AnnualRevenues
Total AnnualCost
Profit
(20, 300)
(20, 400)
Dol
lars
(In
Tho
usan
ds)
Dol
lars
(In
Tho
usan
ds)
Units, Q (In Thousands)Units, Q (In Thousands)
Given: p= $ 20/unit c=$10/unit F= $100,000
![Page 19: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/19.jpg)
Graphic Approach to Break-Even AnalysisGraphic Approach to Break-Even AnalysisGiven: F= $ 100,000 p= $30/patient c= $20/patient
![Page 20: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/20.jpg)
Graphic Approach to Break-Even AnalysisGraphic Approach to Break-Even Analysis
Patients (Q)
500 1000 1500 2000
Fixed costs
Break-even quantity
Total annual costs(2000, 300)
Loss
0
400
300
200
100
Total annual revenues
Profits
(2000, 400)D
olla
rs (
in t
hou
san
ds)
Given: F= $ 100,000 p= $30/patient c= $20/patient
![Page 21: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/21.jpg)
Example 1: Furniture PlantExample 1: Furniture Plant
Fixed cost = $600,000. Variable cost = $50 per unit. Marketing Research indicates firm can
sell 15,000 sets at $110 per set. Is it feasible to build the plant?Solution: Find the break-even point Q = F/(P - c) = 600,000/(110 - 50) = 10,000 patio furniture sets.
Therefore, firm should build plant.
![Page 22: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/22.jpg)
Example 2: Luxor Inc.Example 2: Luxor Inc.
Began producing cheese in 1993. 1993 output reached 20,000 lb. at total
cost of $40,000 1994 output increased to 30,000 lb. at
total cost of $50,000
![Page 23: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/23.jpg)
Example 2:(continued) LuxorExample 2:(continued) Luxor What is the variable cost (c) & the fixed cost
(F)? Costs stayed the same during 1993/94.Solution:
TC = F + c . Q
40,000 = F + 20,000.c for 1993 [1]
50,000 = F + 30,000.c for 1994 [2]
Subtracting [1] from [2],
10,000 = 0 + 10,000c, and c = $1 per lb.
Substituting for c in [2],
F = 40,000 - 20,000 (1) = $20,000 per year
![Page 24: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/24.jpg)
Example 2: (continued)LuxorExample 2: (continued)Luxor
If the selling price =$ 2.80 in 1993 & $ 3.20 in 1994, find the productivity in 1993 & 1994.Solution:Solution:
Productivity = Output/Inputs or Productivity =Tot. A. Revenues/Tot. A. Costsor Productivity = (P . Q) / TCTherefore 1993 Productivity = 2.80 x 20,000/40,000=1.40 1994 Productivity = 3.20 x 30,000/50,000=1.92 so...Productivity improved in 1994 over 1993.
![Page 25: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/25.jpg)
Example 2: (continued)Luxor
If the total cost in 1995 is expected to increase to $60,000, how many lb. should Luxor produce & sell to maintain the same productivity level of 1994? (selling price remains $3.20/lb)
Solution: Find the 1995 Q to keep productivity = 1.92
1.92 = 3.20 x Q / 60,000 Q = 36,000 lb.
![Page 26: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/26.jpg)
BEA: Make or Buy DecisionsBEA: Make or Buy Decisions
Total Annual Cost of Making = Total Annual Cost of Buying
Fm + Cm . Q = Fb + Cb . Q
m = making b = buying Decision to make or buy Number of units needed per year
exceed BREAK EVEN VOLUME (Q)?
![Page 27: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/27.jpg)
Make-Buy Decisions: ExampleMake-Buy Decisions: Example
In a PC assembly plant, to make hard drives Fixed costs = $200,000 Var. cost = $50/unit.
Hard drives cost $130 to buy. Should hard drives be made or bought?Solution:
Fm + CmQ = Fb + CbQ 200,000 + 50Q = 130Q; Q = 2500 unitsQ <= 2500 units -- buyQ > 2500 units -- make.
![Page 28: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/28.jpg)
BEA: Selection Among Two BEA: Selection Among Two AlternativesAlternatives
Select one of 2 cars, Tonda & Hoyota Total Annual Cost of Tonda =
Total Annual Cost of Hoyota
FT + CT Q = FH + CH Q
Q = Break even miles Solve for Q : If # of miles driven < Q select the car with the lowest F > Q select the car with the lowest C
![Page 29: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/29.jpg)
BEA: Selection Among Two BEA: Selection Among Two AlternativesAlternatives
Considering two Cars to lease.Annual Costs Hoyota TondaLease Cost, $ 5,000 8,000Variable Cost, $/mile 0.3 0.15
Which car would you lease and why?
Solution: FH + CHQ = FT + CTQ5,000 + 0.3Q = 8,000 + 0.15Q
Q = 20,000 miles Lease Hoyota if you drive < 20,000 miles.Otherwise Tonda
![Page 30: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/30.jpg)
BEA: Selection Among Two BEA: Selection Among Two AlternativesAlternatives
What if the running cost of the Hoyota went down to $0.25 per mile?
Solution:
Find the BEP using new running cost:5000 + 0.25Q = 8000 + 0.15Q
Q = 30,000
Select Hoyota if you drive<30,000miles otherwise Select Tonda.
![Page 31: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/31.jpg)
LP-Based Product SelectionLP-Based Product Selection Select product(s) that maximize profit while staying
within budget General Form: General Form: Maximize p1x1 + p2x2 + p3x3 + . . . + pnxn Subject to c1x1 + c2x2 + c3x3 + . . . + cnxn < B
xi = 1 if product I is selected, = 0 otherwisepi = Profit of product i, in $ci = Cost of product i, in $B = Budget limitation, in $ Solve and select products whose xi = 1
![Page 32: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/32.jpg)
(a) Process focused
Product 1
Product 2
Product 3
Product 3Product 2
Product 1
A
D
B
E
C
F
Product 1
Product 2
Product 3
Product 1
Product 2
Product 3
(b) Product focused
A B D
D E C
E F A
![Page 33: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/33.jpg)
Process-Focused StrategyProcess-Focused Strategy
Resources set around similar processes One center/resource type-no duplication Products compete for resources Products move in jumbled (Job Shop) flow Highly skilled manual operations Used for low volume customized products Intensive, frequent customer interaction Example: Aircraft, Building, Interior Design
![Page 34: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/34.jpg)
Product-Focused StrategyProduct-Focused Strategy
Resources organized around product Duplicate operations for different products Products do not compete for resources Products move in line flow (Flow Shop) Highly automated/expensive facilities Product-specialized and efficient Used in high volume standard products Little or no customer interaction Example: Paper Clips, Tires, Floppy Disks
![Page 35: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/35.jpg)
Five StagesFive Stages
Product Planning
Introduction
Growth
Maturity
Decline
![Page 36: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/36.jpg)
Life-Cycle of a Product or ServiceLife-Cycle of a Product or Service
Life-cycle changes
An
nu
al d
olla
rs
0
Productplanning
Introduction Growth Maturity Decline
Annual profits
Annual sales
![Page 37: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/37.jpg)
Life Cycle AuditLife Cycle Audit Identify stage of product, based
on changes in sales/profits Decide when to drop, revitalize
or introduce new products Cycles vary from product to
product
![Page 38: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/38.jpg)
Life Cycle Audit : Example 1Life Cycle Audit : Example 1
This Avg. Change over lastYear Year 4 Years
Annual Sales, $ million 31 4 % 22 %Annual profits, $ million 7 2.4 % 19 %Profit margin, $/unit 2 1.8 % 15 %Price, $/unit 7 1.5 % 12 %
Stage :
![Page 39: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/39.jpg)
Life Cycle Audit : Example 1Life Cycle Audit : Example 1
This Avg. Change over lastYear Year 4 Years
Annual Sales, $ million 31 4 % 22 %Annual profits, $ million 7 2.4 % 19 %Profit margin, $/unit 2 1.8 % 15 %Price, $/unit 7 1.5 % 12 %
Stage : Maturity
![Page 40: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/40.jpg)
Life Cycle Audit : Example 2Life Cycle Audit : Example 2
This Avg. Change over last Year Year 4 Years Annual Sales, $ million 21 23 % 2 % Annual profits, $ million 7 18 % 3 % Profit margin, $/unit 2 1.8 % 5 % Price, $/unit 7 1.5 % 2 %
Stage :
![Page 41: Operations Management Introduction A. A. Elimam](https://reader035.vdocuments.mx/reader035/viewer/2022081603/56813518550346895d9c6e7f/html5/thumbnails/41.jpg)
Life Cycle Audit : Example 2Life Cycle Audit : Example 2
This Avg. Change over last Year Year 4 Years Annual Sales, $ million 21 23 % 2 % Annual profits, $ million 7 18 % 3 % Profit margin, $/unit 2 1.8 % 5 % Price, $/unit 7 1.5 % 2 %
Stage : Growth