Operation and supply management

Laurea specialistica in Business Administration

Operation and supply management

Prof. Andrea Furlan

Operation management

Lezione 1: Recalls

Chapter 1

Operation management concerns itself with inbound logistics, outbound logistics, and operations. So not just what I produce but also deliver to my customer. When we talk about operation management, we always adopt the approach of the process: the process is the keyword. Operation management is about managing processes. A process is something that starts with input materials, transforming these inputs into outputs. Usually, firms are not organized based on their processes but on their functions (vertically). A process can be inter-functional or inter-departmental. It’s important to adopt a process point of view because we must always focus on customers: they don’t care about the functions; they care about the output of the process, so the quality, the level of service, the product. They don’t care about how the firm is organized internally.

A process starts with transformed resources = resources transformed within the firm. But I can also transform information: for example, a car maker transforms products but also information about demand to prepare my production plan. I also transform customers, for example, in dealing with my dealers, interacting with my customers (logistics, trucks). I always transform: materials, information, customers. Example: a restaurant transforms mainly customers; of course, I also transform materials and information. Bank: I mainly transform information (amount of money you use, credit merit...). Insurance company: transform information. Hospital: transform customers. So, different operations transform materials/customers/info in different mixes. Then I have the transforming resources, used to transform resources: facilities and staff. A hammer is a transforming resource; a worker is also a transforming resource.

If we are focusing on the process, we need to measure the performance of the process. How do we measure the process?

Performance objectives

• Speed
• Quality
• Dependability: if I am on time or not
• Flexibility
• Cost

Another important thing to remember is the levels of analysis:

• The first level is the level of the single process. If we have a manufacturing factory, the single level is the assembling line, for example. I can isolate each process and study it. This is the level of the process, the level of the single workshop, the level of the line, the level of the single office.
• Then we can analyze the operations at the level of the operation: it is one plant, one factory. Each plant is a separate unit because it has its customers and suppliers. Each unit has inside it different processes.
• At the supply network level, I analyze the suppliers of the plant and the customers. Example: FIAT.

Chapter 2

5 Performance objectives: Apply to all operations regarding what you want to do to satisfy customers and increase competitiveness.

Quality

Quality = conformance to customers’ expectations (doing things right). The customers can be external but also internal. Quality is the most visible part of what an operation does, and it is the most visible for the customer. It is a major influence on customer satisfaction/dissatisfaction. A satisfied customer will return.

Externally, it enhances the product or service in the market: it is the most visible part to the customer, which increases their satisfaction and will make them return. It avoids customer complaints.

Internally, it prevents errors slowing down throughput speed, causing internal unreliability, and low dependability. It prevents errors causing wasted time and effort, therefore saving costs.

Example of quality:

• Hospital: patients receive the most appropriate treatment; treatment is carried out correctly; patients are consulted and informed; staff are courteous/friendly/helpful.
• Bus company: buses are clean and tidy, quiet, fume-free; the timetable is accurate and user-friendly; staff are courteous/friendly/helpful.
• Supermarket: goods in good condition, store clean and tidy, décor is appropriate and attractive; staff are courteous/friendly/helpful.
• Automobile plant: all parts are made to specification, all assembly is to specification; the product is reliable, the product is attractive and blemish-free.

Speed

Elapsed time between customers requesting products or services and receiving them. But fast response to external customers is helped by speedy decision-making and the movement of materials/info in the operations.

Externally, the faster they can have the product, the more likely they will buy it/more they will pay for it. It enhances the value of the product or service.

Internally, inventory, risks, and costs are affected as forecasting tomorrow's events is less risky than forecasting next year; the faster the throughput time, the later forecasting can be left.

Examples:

• Hospital: min time between requiring treatment and getting it; time for test results.
• Bus: time between setting out and reaching destination.
• Supermarket: min time to go to the market/purchase/come back.
• Auto: time between requests and keeping of the car; time to deliver spares to service centers min.

Dependability

Doing things in time. Customers judge dependability after the good has been delivered: in the short term, it won’t affect the choice of the customer, but in the long term, it will (no matter how cheap a bus service is if it is always late).

Externally, it enhances the product or service in the market: it is the most visible part to the customer, which increases their satisfaction and will make them return. It avoids customer complaints.

Internally, speed so throughput time allows saving time. Costs: ineffective use of time is an extra cost. Stability so quality trust predictability.

Examples:

• Hospital: min proportion of appointment canceled, keep the appointment time, test results returned as promised.
• Bus: keep the timetable at all points of the route, availability of seats for passengers.
• Supermarket: predictability of opening hours, min goods out of stock, keep reasonable queuing time, availability of parking.
• Auto: on-time delivery.

Flexibility

Being able to change operations in some way. 4 types of possible requirements:

• Product/service flexibility: introduce new or modified products.
• Mix flexibility: wide range or mix of products and services.
• Volume flexibility: change the level of output.
• Delivery flexibility: change the timing of the delivery.

Speed of response. Throughput time. Or dependability: having flexibility means that when there is an unexpected event, the timetable can be respected as well.

Examples:

• Hospital: new types of treatment, wide range of treatments, adjust the number of patients, reschedule appointments.
• Bus: new routes, large number of locations served, adjust the frequency of service, reschedule trips.
• Supermarket: ability to obtain out-of-stock items.
• Auto: reschedule manufacturing priorities.

Cost

Objective measured with Productivity = output/input. The productivity of the input batches decreases when the other objectives increase.

• Volume = unitary costs
• Variety = unitary costs
• Variation in demand = unitary costs
• Visibility of customers on production = unitary costs (difficulty in achieving high production levels because customers know what they can get and ask for what is not in the store)

Importance of internal side: We usually identify the performance objectives from a customer's perspective. For example, “speed” of a car: we usually define speed of delivery; “quality” for us is how the car is, if the car is satisfying; “cost” is the price; “dependability” is the time of delivery, etc.

It is pretty simple to understand these objectives from the customer point of view. But these things are the external side; the internal side are the processes. We always have to adopt an internal side of the process. What I care about is the process, not the output (for example, a car). We should measure the performance of the processes; only by improving processes internally can we improve externally what is perceived by the customer. If we fix the problems externally, we may fix it now but not definitively. Quality = good processes means good cars at the end of the day, error-free processes.

Internally we have to adopt “jidoka” (built-in quality): when you have a problem, you have to stop immediately, solve the problem, and restart the process. Solving the problem means getting to the root cause of what causes the problem. You have to ask yourself why the problem has occurred: you have to ask this question 5 times. If you solve the root of the problem, it will not happen again. The first step is making the problem visible by stopping the line. Then you define the 5Ws. Then you define the solution and finally spread it.

Flexibility. Set-up time or changeover time (to switch from one to another). Example: painting one bike in different colors is an extra cost because you stop, clean, and restart (this time is the set-up time). If I have a press, I have to change the press, and this takes time. SMED (Single Minute Exchange of Die): a set-up time should not be longer than one minute; this is a rule, it means you have to reduce your set-up time.

These 5 performances are interdependent. The change in one performance affects the others. Example: if I am faster in producing, the dependability increases (more in time).

Chapter 4

Types of processes:

• Project process: construction site (e.g., boat, plane,...). Complex product where I need many skills.
• Jobbing process: the product is customized products; but less complex (e.g., tailor).
• Batch process: I don’t produce 1 product, but a batch of products.
• Mass process: I don’t produce batches, but 1 product in standard volumes.
• Continuous process: literally continuous.

Service firms:

• Professional service: customized (consultant, surgery,..); complex.
• Service shop: I have a catalogue from which the customer can choose.
• Mass service: television, for example.

The more we go from a project to a continuous process, the higher is our volume and the lower is the variety.

Little’s Law

Cycle time = time that passes from an output coming out from our process and the output that will come out from the process. Used to study the performance of the process. For example, if we have an assembly line that assembles TVs, we start the timing when the next TV comes out. We can take the mean of the cycle time. Work in process (WIP) = components that wait to be assembled. Throughput time = time that I need to process the whole batch of work in process (goods that are waiting to be processed).

Example: take a coffee at the coffee machine, 10 people in the line, 10 people are work in process (transformed resources); they are a batch of people that are waiting to be processed. Suppose that we have a batch of ten and we don’t allow another batch to enter until the first has finished. The cycle time is 1 minute (time one student comes out – next student comes out with the coffee). Time that the last student has to wait to come out with a coffee: TH = 10*1 = 10 min. If we have two coffee machines: the cycle time is 1 min, but the new cycle time becomes 30 sec because there are two students who come out with a coffee every min. So the TH is 5 minutes.

The little’s law has several applications:

1. Used to staff the operations: calculate the number of people/service that are needed to do the job. In the coffee example, we have the machines, so we have to calculate the number of machines that I need. To predict this number, I always start from the demand. For example, I suppose that 30 over 100 use the machine, so 30 people that I have to process in one hour. The other information that I need is the time. So I need to have a cycle time of two minutes (60 min/30 students = 2 min). If it takes one single coffee machine 5 min to make one coffee (work content = time to produce one unit of product = 5 min) and we need to have a cycle time of two minutes, I need a total of 3 machines (5/2 = 2.5 = 3).
2. Used to calculate the throughput efficiency. It is the work content of whatever is being processed as a percentage of its throughput time. TH = 10 min; the last student in those 10 minutes is processed for 1 min (he has to wait 9 minutes). So 1/10 is TH efficiency. This is a measure of the efficiency of our operation because the higher is TH efficiency (the higher is the number there) the lower is the work in process (inventory). If I add capacity, the cycle time diminishes, and so does the TH time; but I have to make some investments. The smartest thing is to reduce the work in process (from 10 students to 2); how can I do this? Scheduling the classroom in a way that I have no more than 2 students waiting. In a manufacturing company, reduced work in process means reduced inventory. I now see the increased efficiency. If I have a high inventory, I have a large TH time. Example: if you enter a plant producing TV and see inventory everywhere. This means inefficiency if we adopt the lean approach. In fact, this means costs and loss of speed (we are slow). If we are fast, we should not have much inventory. We want a short time between the moment where we buy and we sell something. If there is low inventory, it means that we are fast, or we don’t have demand, so it’s better for us to stop producing: it’s better to stop producing than overproduce.

(Ducati Example) Waste walk = walk where you observe the wastes that you see. There are 7 types of waste in a factory:

1. Overproduction
2. Inventory, whenever you have inventory, it means you had overproduced; it is a natural consequence of overproduction
3. Transportation, whenever you see staff transporting resources, it is not working; a work lift, for example, is waste because it does not add value
4. Moving, movement of the operator
5. Defective products (e.g., Aprilia has 40% of defective bicycles)
6. Over-processing, I do something that I have to do because it’s my process, but the activity does not add any value
7. Testing, not an activity that adds value by itself because it is only a testing situation (anyway, they can be a necessary waste)
8. Waiting, time waiting for a machine to do something

Ducati has low inventory, low waiting period thanks to reliable suppliers, supply just in time, and just in sequence: they give me resources when I need them and in the right sequence.

Chapter 7

Layout

It is the physical arrangement of the transforming resources within my operations.

Types of Layout

• Fixed position layout: stationary, movement of staff and equipment only if necessary; e.g., boat, railway, etc.
• Functional layout: where I have my transforming resources organized by function. I put all the resources that perform one function together. Example: jeans producer, all the transforming resources, and operating machines are in the same place. Start by cutting so nesting pieces to waste less clothes (nesting before at computer, then hand, and finally cut); the cutting machine cuts more levels of clothes at the time (batch production – functional layout tends to produce in batches); each pair of jeans takes 15 min (work in product), but since I produce in batches there are lots of jeans to produce, so the throughput time is high; another workshop concerns “painting,” washing, the final step is the ironing. Each part is called a workshop. I always move the batch to the next workshop: it is efficient, I saturate my machine, etc.
• Cell layout: made of all the transforming resources that are needed to produce one product; I put within the cell all that I need to produce one product. Example: Toyota; the lady does all the operations to produce one thing. There are different activities: pressing machine, etc. A cell is something small (2 meters) because the operator does not have to move a lot. Cycle time: when the operator puts the component, and the next piece that she puts inside (40 sec). If we need 20 sec, we add another operator in the cell, or we add a new cell, but we also have to buy all the stuff.
• Product Layout = line layout; single line made of several working stations put in a sequence and every product passed to the line undergoes the same sequence of stations. Example: Fiesta. A Fiesta is produced every 86 seconds: every 86 sec a Fiesta goes out of the process. The work content is probably more (1 hour). Activities: framing of the car, washing, painting, drying, assembling, engine composition in the car (synchronization between engine line and car line), seats, lights, etc. Everything is in line, so the material never stops: I don’t have wastes and inventory.

Relation Process – Layout

Example of layout: ground-floor plan of a department store, showing the sports goods shop-within-a-shop retail cell. Example: an army induction center which uses product layout. Example: a product layout in a paper manufacturing operation.

Lesson 2: Manufacturing Planning and Control (Chapter 10)

What is planning and control?

Planning and control are concerned with the reconciliation between what the market requires and what the operation’s resources can deliver. Planning and control activities provide the systems, procedures, and decisions which bring different aspects of supply and demand together. The purpose is to make a connection between demand and supply that will ensure the operation’s processes run effectively and efficiently.

The difference between planning and control: The division is not totally clear. Planning is a formalization of what is intended to happen at some time in the future.