Operations and Production Management GPO300

Transcription

1 Operations and Production Management GPO300 8th January

2 first semester GPO300 Operations and Production Management CLASSROOM CODE OF CONDUCT GROUND RULES: Start and end time No cell phones Respect all ideas Know your rights and obligations to others Listen to others Do not interrupt others Do not criticize, condemn or complain Side Discussions Complete your assignments Focus on what is right and not who is right If You don t understand something it is better to be ignorant for 5 minutes and ask now then to shy away and be ignorant for the rest of your life. 2

3 3 How to run Operations Week 9 Week -- The nature of planning and control 1 What is planning and control? 2 How do supply and demand affect planning and control? 3 What are the activities of planning and control? Capacity planning and control 4 What is capacity planning and control? 5 How are demand and capacity measured? Inventory planning and control 9 What is inventory? 10 Why is inventory necessary? 11 What are the disadvantages of holding inventory? 12 How much inventory should an operation hold? 13 When should an operation replenish its inventory? 14 How can inventory be controlled? Project planning and control 18 What is a project? 19 What makes project management successful? Quality planning and control 20 What is quality and why is it so important? 21 How can quality problems be diagnosed? 6 What are the alternative ways of coping with demand fluctuation? 7 How can operations plan and control their capacity level? 8 How can queuing theory be used to plan capacity? ERP 15 What is ERP? 16 How did ERP develop? 17 How should ERP systems be implemented? Capacity Inventory Project Quality MRP & ERP

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5 Responding to Demand McDonald s 1. Make a batch of sandwiches 2. Sandwiches wait for customer orders 3. Customer orders can filled immediately => Sandwich waits for customer Subway 1. Customer orders 2. Customer waits for making of sandwich 3. Customer orders can filled with delay => Customer waits for sandwich Which approach is better for SUPPLY? Make-to-Stock advantages include: + Scale economies in production + Rapid fulfillment (short flow time for customer order) Make-to-Order advantages include: + Fresh preparation (flow time for the sandwich) + Allows for more customization (you can t hold all versions of a sandwich in stock) + Produce exactly in the quantity demanded 5

6 Activities for planing and control Subway Case study: We identified important considerations for RUNNING OPERATIONS Capacity : The maximum an operation can handle. We have: Capacity for each Workstation (activities and tasks) Activities worker or Process capacity for the entire process Activities worker 1 Activities worker 2 Activities worker 3 Inventory : Any flow unit in the process at a given moment in time, in the Subway case we chose to study the Customer as our flow unit Demand : is key to how an operation must perform in terms of Cost Time Variety & Quality (Key indicators) DEMAND is VARIABLE ; Demand (customer arrival to our Subway) varies over Time 6

7 Activities for planing and control Time : Short term requires ADJUSTMENTS and long term requires PLANING of QUANTITY & QUALITY of the VARIOUS PRODUCTS Forecasting FUTURE DEMAND allows for CAPACITY PLANING CAPACITY PLANING: Questions to ask What kind of capacity is required? How much is needed to match Demand? LOADING When is it needed? SCHEDULING & SEQUENCING 7

8 What kind of capacity is required? Understanding capacity: Design Effective and OEE 8

9 What may come to play when we calculate Effective Capacity? A. Facilities 1. Design 2. Location 3. Layout 4. Environment B. Product/Service 1. Design 2. Product service mix C. Process 1. Quantity capabilities 2. Quality capabilities D. Human factors 1. Job content 2. Job methods 3. Training & experience 4. Motivation 5. Compensation 6. Learning rates 7. Absenteeism and labor turnover E. Policy F. Operational 1. Scheduling 2. Materials inventory management 3. Quality assurance 4. Maintenance policies 5. Equipment breakdowns G. Supply chain H. External factors 1. Products standards 2. Safety regulations 3. Unions 4. Pollution 9

10 REMINDER: Measures of Systems effectiveness Transformation Process efficiency = Output / Capacity Activities worker 1 Utilization = Efficiency = Actual output per time period Design capacity per time period Actual output per time period Effective capacity per time period STRATEGIC CAPACITY PLANING Optimal use of Capacity over longer period of time 10

11 Capacity : Overall Equipment Effectiveness Total planned up-time Breakdown Changeovers* Available time Idling and minor stop-pages Re-duced speed Net operating time Defects Start-up OEE Downtime losses Availability rate 55 % Speed losses Quality losses X Performance rate X Quality rate = OEE 82 % 67 % 30 % Source: McKinsey 11

12 Sick Time not booked Cancelations Vacation Patients that don t have to see MD Activities that don t have to be done by MD Operations and Production Management Capacity : O People E Total paid time Time in practice Time booked For appointments Time with patients True value add time Source: Marcus, Terwiesch, Werner 12

13 Taxi and landing Not booked 365*24h At gate or in maintenance Operations and Production Management Capacity : OEE Aircraft Total time In a year Block time Seat is In the air Value add (about 30%) 13

14 Capacity in Information Technology CPU Capacity measurement CPU Capacity is defined by CPU type and clock rate, or a benchmark rating like SPECrateInt2000 CPU utilization is defined as busy time divided by elapsed time for each CPU CPU load average measures the average number of jobs running and ready to run Memory Capacity measurement Physical Memory Capacity Utilization and Limits Kernel memory / Shared Memory segment / Executable code, stack and heap / File system cache usage /Unused free memory Virtual Memory Capacity - Swap Space Memory Throughput Page in and page out rates Network Capacity measurement Network Interface Throughput Byte and packet rates input and output TCP Protocol Specific Throughput TCP connection count and connection rates / TCP byte rates input and output NFS/SMB Protocol Specific Throughput Byte rates read and write / NFS/SMB service response times HTTP Protocol Specific Throughput HTTP operation rates / Get and put payload byte rates and size distribution Disk Capacity measurement 14

15 Capacity in Information Technology Challenges for IT Capacity planing - Constantly changing infrastructure - Limited attention span from staff - Horizontally scaled commodity systems - Per node software licensing costs too much - Too many tools, too many agents per node - Too much data, not enough analysis - Non-linear and non-intuitive scalability - Lack of tools and metrics for virtualized resources 15

16 How much is needed to match Demand? Product Annual Demand Labor Standard Time per Unit Time needed A Hr 2,000 B Hr 2,400 C Hr 1,400 5,800 Service planing is generally harder: Capacity and location are closely tied Need to be near customers Storing is not possible Volatility of demand is greater 16

17 Subway case Time 46 Time Station 1 Station 2 Station Takt Activities worker 1 Activities worker 2 Activities worker 3 37 sec/cust 47 sec/cust 37 sec/cust Labor content: 120 seconds / unit Aggregate Demand: 80 units per hour Operator Operator Cycle Time = Operating Time Desired output rate Optimal Cycle time: 3,600sec / 80 units=45 sec/unit Called Takt time Target manpower= 120 sec/unit 45 sec/unit = 2.67 => round up 17

18 What Do You Do When Demand Doubles? Ideal Case Scenario Time 22.5 Takt Operator Labor content: 120 seconds / unit Aggregate Demand: 160 units per hour 3,600 sec/hour Takt: 3,600sec / 160 units=22.5 sec/unit Target manpower= 120 sec/unit 22.5 sec/unit = 5.33 => round up 18

19 Actual Demand Volume Time Takt time 2 minutes Leveled Demand Volume Step 1 Step 2 Step 3 Step 4 Step 5 Step Takt time 1 minute Takt time Takt Step 1 Step 2 Step 3 Step 4 Step 5 Step Resource planning Man power Volume flexibility Ability to adjust to changing demands Often implemented with temporary workers Keeps average labor utilization high 19

20 When is it needed? Response times Capacity and Inventory CONTROL is needed Basics of Scheduling and Sequencing Waiting or Queuing lines analysis 20

21 Alternatives in Capacity Planing Back to the SUBWAY case Some FINANCIALS 21

22 Alternatives in Capacity Planing MAKE or BUY Decision is strategic Factors to consider: - Available capacity - Expertise - Quality considerations - Nature of Demand (specialists or generalists) - Costs - Risks 100% 90% 80% 70% 60% 50% 40% 30% Purchased parts and assemblies Parts and material costs STRATEGIC CAPACITY PLANING Other Overhead Warranty Quality Assembly and other Labor costs Logistics costs 20% Automotive Industry 10% 0% Final Assembler s cost Including Tier 1 Costs Including Tier 2 Costs Rolled-up Costs over ~ 5 Tiers Material costs 22

23 Evaluating Capacity alternatives Quantitative Aspect Cost Volume Analysis - Focus on relationship between cost revenue and volume of output - Estimates the income under different operating conditions - Requires the identification of all costs related to the production of a given product: Fixed and variable costs 23

24 Revenue Sales Q Volume Values for example only FORMULAS: 24

25 The owner of honey pies, Salima wants to add a new line of pies. It will require leasing a new equipment for a monthly payment of 6,000 Dhs. Variable cost is averaged 2Dhs per pie and each pie is sold at 7 Dhs. 1- How many pies must be sold to break even? 2- What would the profit or loss be if 1000 pies were produced each month? 3- How many cakes should be sold to realize a profit of 4000 Dhs / month? 25

26 For another line of her new products, Salima can choose to buy one two or three machines. Fixed costs and potential volumes are as follow: Nbr Machines Total Annual Fixed costs Standard Processing time per unit (hr) KDhs 0 to KDhs 301 to KDhs 601 to 900 Variable cost is 10 Dhs per unit and revenue per cake is 40 Dhs 1- Determine the break even point for each range? 2- If projected annual demand is between 580 and 660 units, how many machines should Salima purchase? 26

27 Evaluating Capacity alternatives Quantitative Aspect Financial Analysis - Cash Flow: the difference between the cash received from sales and other sources and the cash outflow for labor, materials, overhead and taxes - ROIC 27

28 - Commonly Used methods are: Financial Analysis Payback: How long it will take for a particular investment to pay itself. Present Value (PV): is the monetary value today of a future payment discounted at some annual compound interest rate. Internal Rate of Revenue (IRR): is the discount rate at which the NPV of an investment is equal to Zero - Decision Theory Definitions from HBS - Waiting lines Analysis (Response time) particularly useful for services 28

29 Evaluating Capacity alternatives Other Analysis - Computer Simulations - Linear Programming: Quantitative tool for optimal solution using constraints of the system - Decision tree analysis 29

30 first semester GPO300 Operations and Production Management Capacity Planing & Control 1 What is capacity planning and control? It is the way operations organize the level of value-added activity which they can achieve under normal operating conditions over a period of time. It is usual to distinguish between long-, medium- and short-term capacity decisions. Medium- and short-term capacity management where the capacity level of the organization is adjusted within the fixed physical limits which are set by long-term capacity decisions is sometimes called aggregate planning and control Almost all operations have some kind of fluctuation in demand (or seasonality) caused by some combination of climatic, festive, behavioral, political, financial or social factors. 2 How are demand and capacity measured? Either by the availability of its input resources or by the output which is produced. Which of these measures is used partly depends on how stable is the mix of outputs. If it is difficult to aggregate the different types of output from an operation, input measures are usually preferred. The usage of capacity is measured by the factors utilization and efficiency. A more recent measure is that of overall operations effectiveness (OEE). 3 What are the alternative ways of coping with demand fluctuation? Output can be kept level, in effect ignoring demand fluctuations. This will result in under- utilization of capacity where outputs cannot be stored, or the build-up of inventories where output can be stored. Output can chase demand by fluctuating the output level through some combination of over- time, varying the size of the workforce, using part-time staff and subcontracting. Demand can be changed, either by influencing the market through such measures as advertising and promotion, or by developing alternative products with a counter-seasonal demand pattern. Most operations use a mix of all these three pure strategies. 4 How can operations plan and control their capacity level? Representing demand and output in the form of cumulative representations allows the feasibility of alternative capacity plans to be assessed. In many operations, especially service operations, analyzing queues and bottlenecks can be used to explore capacity strategies. 30

31 first semester GPO300 Operations and Production Management Introduction Module 1 : OPERATIONS THE BIG PICTURE Module 2: DESIGN Designing the operation s products, services and processes. Module 3: RUNNING THE OPERATIONS Planning and controlling the operation. Outcomes week 10: Next: Inventory planing and control Module 4: GETTING BETTER Improving the performance of the operation. Conclusions Operations management and Business Models 31