Production & Operations Management P.O.M.

Overview & PrinciplesOverview & Principles

Ken Homa

POM Overview

• Acquire & deploy capacity

• Select, control & improve processes

• Allocate & schedule resources

Decisions & Actions

Cost, Quality, Flexibility, Service

Capacity

• Acquire & deploy capacity…What? Facilities, equipment, people…How much? Aggregate, ‘dedicated’…When? Peak vs. average

…Where? Centralized / decentralized …Owned by? Vertical / virtual integration

Capacity = Performance Envelope

From an organizational perspective …

Capacity decisions are big (usually expensive) and defining for a company, I.e. establish the ‘performance envelope’

Given the high cost, and ‘normal’ organizational inertia, capacity decisions are often very difficult to undo, i.e. really are quite ‘fixed’.

Capacity Timing

From a strategic / financial perspective …

Add too much capacity too soon and short-run profitability suffers.

Add too little capacity too late and market share constrained … and profit opportunities may be lost forever.

Capacity Additions (More) from a strategic / financial perspective …

Capacity is typically added in ‘chunks’ ; e.g. factories or factory ‘lines’. The first and last chunks are the most critical.

Companies have natural tendency to start too conservatively, to underestimate time to ‘ramp up’, and to eventually overexpand. (Experiential observation)

Capacity Location From a strategic / tactical perspective …

The location of capacity is often equally (or more) important than sheer quantity.

Some locations are inherently more beneficial than others, e.g. close to markets or economical ‘factor inputs’.

Capacity Optimization (More) from a strategic / tactical perspective …

Locations (plants, distribution centers, etc) are linked together into networks.

Network efficiency (global optimization) is the paramount goal; site efficiency (local optimization) is supportive (secondary) and may be sacrificed ‘for the greater good’.

Capacity Networks (More) from a strategic / tactical perspective …

Ownership is usually a legal detail and financial impracticality, not necessarily a strategic imperative. Allied networks (formal & virtual) of best providers are increasingly prevalent.

Logical & Physical Assets

(More) from a strategic / tactical perspective …

Information (logical assets) moves faster and is usually cheaper (after infrastructure is in place) than physical assets (people, plants, trucks, inventory, etc.).

Best operators support physical assets with logical assets … and substitute logical for physical whenever possible.

Processes

• Acquire & deploy capacity

• Select, control & improve processes

…Linkages: product / process design…Orientation: job shop, batch, flow …Organization: functional, cellular…Metrics: goals & specifications…Improvement: incremental & reengineered

‘Right’ Processes

The ‘right’ operations approach (process, organization,etc.) is very situation-specific, depending on market requirements, competitive dynamics, and company competencies.

Product & Process Design

Product design and operations’ process efficiency are inextricably linked.

Operations efficiency is ultimately limited by product ‘design for manufacturing’.

Process Metrics

Organizations are made up of well-intended people (generally) who do what they understand, what is measured, and what they get paid for...

So, performance measurements (metrics) must be clear, aligned, quantified, and relevant (to both the company & the individual)

Quantified Metrics

More specifically:

All performance criteria (metrics) can be quantified … even (or especially) quality.

Trick: transform subjective variables into objective measurements

QFDQFD

Customer Requirements

Importance to Cust.

Easy to close

Stays open on a hill

Easy to open

Doesn’t leak in rain

No road noise

Importance weighting

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Competitive evaluation

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Relationships:

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Process Improvement

Process improvement can be incremental (continuous improvement) and/or quantum-change (reengineering).

Continuous improvement is (usually, bordering on always) necessary but not (typically or perpetually) sufficient! (Experiential observation)

Process Success Factors

Bottomline re: process

Integrate product & process design

Match approach to situation

Measure, measure, measure

Improve (or perish)

Resources

• Acquire & deploy capacity

• Select, control & improve processes

• Allocate & schedule resources…Decision rules & methods…Variability & predictability…Facilitators: inventory & queues

Decision Rules & Methods

Decision rules (e.g. EOQs) and methods (e.g. MRP, JIT) are the foundation tools of operations … that translate strategic intent into action and performance.

Decision Rules

The best decision rules and methods are analytically-derived … based on practical statistics and mathematics.

Most concepts are straightforward (bordering on simple), but their application is complicated by combinations, permutations and level of detail.

Variability

Variability (I.e. peaks & valleys) further complicates the operations landscape.

Variability that is predictable can be mitigated with ‘buffers’ such as inventory and queues (I.e. waiting lines)

Unpredictable variability is the ‘mother of’ operations challenges.

Products & Services

What is the fundamental difference between a product (manufacturing) business and a service business?

Products & Services

What is the fundamental difference between a product (manufacturing) business and a service business?

Service businesses don’t have inventory to buffer mismatches of supply and demand … though queues (lines) provide some cushion … peak capacity is more relevant than average capacity … and effective resource scheduling is absolutely critical

POM Overview

• Capacity: Acquire & deploy

• Processes: Select, control & improve

• Resources: Allocate & schedule

For efficiency & productivity andFor efficiency & productivity andto create a competitive advantage ...to create a competitive advantage ...

Competitive advantage: CQFS Competitive advantage: CQFS

Cost … converted into price

Quality … augmented product “on specs”

Flexibility … broad line, fast change

Service … available when & where needed

Quantifiable Winning & Qualifying Ops CriteriaQuantifiable Winning & Qualifying Ops Criteria

External (customer) Perspective