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Operations Management:
Balancing Capacity and Demand
The Production and Operations Function
Production
The processes and methods used to transform tangible inputs (raw materials, semi-finished goods, subassemblies) and intangible inputs (ideas, information, knowledge) into goods or services. Resources are used in this process to create an output that is suitable for use or has exchange value.
Operations Management
The activity of managing the resources which are devoted to the creation and delivery of services and products. It is one of the core functions of any business, although it may not be called operations management in some industries. Operations management is concerned with managing processes. All processes have internal customers and suppliers, and all management functions also have processes. Operations management has relevance for all managers.
Why is operations management important in all types of
organization?
Operations management uses the organization's resources to create outputs that fulfill defined market requirements. This is the fundamental activity of any type of enterprise. It is increasingly important because today's business environment requires new thinking from operations managers.
Examples of operations with their dominant transformed
resources:
Manufacturing: Transforming raw materials into finished goods Service: Transforming customer information into a service Retail: Transforming merchandise into sales
What do Operations Managers do?
Enjoys getting things done: Operations management is about doing things. It takes energy and commitment to finishing tasks, and it means hitting deadlines and not letting down customers, whether they are internal or external. Understands customer needs: Operations management is about adding value for customers. This means fully understanding what 'value' means for customers and putting yourself in the customer's place.
Committed to innovation: Operations management is always seeking to do things better. This means creating new ways of doing things, being creative, imaginative, and (sometimes) unconventional. Knows their contribution: Operations management may be the central function in any organization, but it is not the only one. It is important that operations managers know how they can contribute to the effective working of other functions. Capable of analysis: Operations management is about making decisions. Each decision needs to be evaluated (sometimes with very little time). This involves looking at both the quantitative and the qualitative aspects of the decision. Keep cool under pressure: Operations managers often work in pressured situations. They need to be able to remain calm no matter what problems occur.
Operations managers and some responsibilities
Responsible for managing activities that are part of the production of goods and services Managing both the operations process, embracing design, planning, control, performance improvement, and operations strategy Interacting with those managers in other functional areas within the organization whose roles have an impact on operations, such as marketing, finance, accounting, personnel, and engineering
Operations managers' responsibilities
Human resource management Asset management Cost management Decision making is a central role of all operations managers Designing the operations system Managing the operations system Improving the operations system
The 5 main kinds of decision
Processes by which goods and services are produced The quality of goods or services The quantity of goods or services The stock of materials (needed to produce goods or services) The management of human resources
Careers in Operations Management
Deputy Manager in Manufacturing Associate Product Manager Operations Manager Supply Chain Functional Analyst Sourcing Specialist Supplier Risk Manager
Benefits of Forecasting
Future-oriented: Vision of the future Identification of Critical Area: Identify areas of problem, possible risks Reduce Risk: Create solutions Coordination: Participation of the members, admins Effective Management: Find a way of effective solutions Development of Executives: Develop critical-thinking capabilities, skills, power
Measures to Increase the Effectiveness of Forecasting
Forecasting methods should be simple Compare forecasts with the situation of "no change" Long range forecasts should not depend upon a single forecasting method Forecasts should not be made for very long periods Managerial skill should be improved to make reliable forecasts for planning decisions Forecasts should be based on facts and figures and not personal biases of the forecaster
Process of Forecasting
Determine the objective for which forecast is required Select the appropriate forecast method Compare the actual results Review and revise the forecasts
Steps in Forecasting
Developing the basis Estimation of Future Operations Regulation of Forecasts Review of Forecasting Process
Techniques in Forecasting
Quantitative Forecasting (Objective): Numbers Qualitative Forecasting (Subjective): Opinions, suggestions
Methods in Qualitative Forecasting
Executive Committee Consensus Panel Approach Delphi Method Scenario Planning Sales Force Composite Customer Surveys
Methods in Quantitative Forecasting
Time Series Analysis Forecasting Unassigned Variation Moving-Average Forecasting Exponentially smoothed forecasting Causal Models Other Forecasting Methods Straight Line Method Simple Linear Regression
Forecast Accuracy
Forecast bias: Persistent tendency for forecast to be greater or less than the actual values of a time series Forecast error: Difference between the actual value and the value that was predicted for a given period Bias Mean Absolute Deviation (MAD) Mean Absolute Percentage Error (MAPE) Mean Squared Error
Time Series Analysis
Simple time series plot a variable over time then, by removing underlying variations with assignable causes, use extrapolation techniques to predict future behavior.
Moving Average
The moving-average approach to forecasting takes the previous n periods' actual demand figures, calculates the average demand over the n periods, and uses this average as a forecast for the next period's demand.
Exponential Smoothing
The exponential-smoothing approach forecasts demand in the next period by taking into account the actual demand in the current period and the forecast which was previously made for the current period.
Causal Model
Causal models often employ complex techniques to understand the strength of relationships between the network of variables and the impact they have on each other.
Quality Speed Dependability Flexibility
Steps in Capacity Management
It is expressed in terms which are useful for capacity management. It is as accurate as possible. It gives an indication of relative uncertainty.
Seasonality of Demand and Weekly/Daily
Demand Functions
Seasonality of demand refers to the predictable variations in demand that can occur for some products and services over a year or a shorter cycle. These fluctuations in demand can be measured and analyzed to understand the patterns and trends.
Measuring Capacity
Capacity can be measured using input and output measures. Input measures focus on the time available for production, while output measures focus on the actual output or throughput.
The capacity formula is: Capacity = (Time Available) / (Time of Task)
For example, a fitness instructor who works an 8-hour day, takes two 15- minute coffee breaks, and has a 30-minute lunch break, and spends 70 minutes with each customer (10 minutes for consultation and booking, and 60 minutes for the gym session), can process how many clients during a 5- day week?
Efficiency and Utilization Calculations
Efficiency = (Actual Output) / (Effective Capacity) Utilization = (Actual Output) / (Design Capacity) * 100%
These calculations help assess the performance and effectiveness of the operations.
Capacity Depends on Activity Mix
The capacity of a production facility can vary depending on the mix of products or services being produced. For example, an air-conditioner factory that produces three different models (deluxe, standard, and economy) with varying assembly times can have different weekly production capacities based on the demand mix.
Overall Equipment Effectiveness (OEE)
OEE is a measure of the effectiveness of operations equipment, considering three aspects: availability, quality, and throughput rate. It provides a comprehensive view of the equipment's performance.
Coping with Demand Function
There are three main approaches to managing demand fluctuations:
Ignore the fluctuations and keep activity levels constant (level capacity plan). Adjust capacity to reflect the fluctuations in demand (chase demand plan). Attempt to change demand to fit capacity availability (demand management).
Methods of Adjusting Capacity
Overtime and idle time Varying the size of the workforce Using part-time staff Subcontracting
Demand Management Strategies
Change demand through pricing (yield management) Overbooking Price discounting Varying the service type
Queuing or 'Waiting Line' Management
Queuing management involves understanding the arrival rate, queue behavior (balking, reneging), queue discipline, and server availability to balance capacity and demand.
The dilemma in managing a queuing system is determining the optimal number of servers to have available to avoid unacceptably long waiting times or low server utilization.
Balancing Capacity and Demand
The key challenge in managing the capacity of a queuing system is finding the right balance between the number of servers and the expected waiting times for customers. Too few servers can lead to long queues and dissatisfied customers, while too many servers can result in low server utilization.
