Operations Strategy and Strategic

Decisions in Operations
Management

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

11

Operations Strategy
Corporate Strategy
Environmental scanning
Core competencies
Core processes
Global strategies

Market Analysis
Market segmentation
Needs assessment
Competitive Priorities
and Capabilities

New Service/Product
Development

No

Yes

Performance
Gap?

Operations Strategy

Decisions

Competitive Capabilities
Current
Needed
Planned

Figure 1.5
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12

Corporate Strategy

Environmental scanning (Competition, PESTLE)

Developing core competencies

1. Workforce
2. Facilities
3. Market and financial know-how
4. Systems and technologies

Developing core processes

1.

Supplier relationship management

2.

New product development

3.

Order fulfillment

4.

Customer relationship management

Global strategies

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

13

Market Analysis
Market segmentation
Needs assessment
Service

or product needs (prices, quality,

degree of customization)

Delivery

system needs (availability,

delivery dependability, delivery speed)

Volume

needs (high or low volume,

degree of variability in volume)

Other

needs (after sales support)

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

14

Competitive Priorities
DEFINITIONS
COST

Definition

1. Low-cost
operations

Delivering a service or a
product at the lowest
possible cost

QUALITY
2. Top quality

Delivering an outstanding
service or product

3. Consistent
quality

Producing services or
products that meet design
specifications on a
consistent basis

TIME
4. Delivery speed

Quickly filling a
customers order

5. On-time
delivery

Meeting delivery-time
promises

6. Development
speed

Quickly introducing a new

science or a product

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15

Competitive Priorities
DEFINITIONS
FLEXIBILITY

Definition

7. Customization

Satisfying the unique

needs of each customer
by changing service or
products designs

8. Variety

Handling a wide
assortment of services or
products efficiently

9. Volume
flexibility

Accelerating or
decelerating the rate of
production of service or
products quickly to
handle large fluctuations
in demand

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

16

Order Winners and Qualifiers

Order Winning Criteria Order Qualifying Criteria
Features which
Unless
collectively provide
products/services
an important edge
meet the criteria, they
over the competition
will lose orders to
competitors, who
If products/services
already have them.
meet these criteria,
they will gain orders
from
competitors,who are
not as good
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Operations Strategy Decisions

DESIGN
Information
Facility

System

location (supply chain network)

Technology
Work

Systems

Facility

layout

Capacity

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

18

Operations Strategy-Definition
The total pattern of decisions which shape
the long-term capabilities of any kind of
operation and their contribution to the
overall strategy.

19

Design of
Work Systems

1 10

Design of Work Systems-Approaches

Specialization
Behavioral
Methods Analysis
Motion Study
Working Conditions

1 11

Specialization : Advantages

For Management:

For Labor:
1. Simplifies training 1. Low education and
2. High productivity
3. Low wage costs

skill requirements

2. Minimum
responsibilities
3. Little mental effort
needed

1 12

Specialization: Disadvantages
For Management:

For Labor:

1. Difficult to motivate
quality

1. Monotonous work

2. Limited opportunities
for advancement
2. Worker dissatisfaction,
possibly resulting in
3. Little control over work
absenteeism, high
4. Little opportunity for
turnover, disruptive
self-fulfillment
tactics, poor attention
to quality
1 13

Behavioral Approaches to Job Design

Job Enlargement
Giving

a worker a larger portion of the total task

by horizontal loading

Job Rotation
Workers

periodically exchange jobs

Job Enrichment
Increasing

responsibility for planning and

coordination tasks, by vertical loading

1 14

Methods Analysis
Methods analysis
Analyzing

how a job gets done

Begins

with overall analysis

Moves

to specific details

1 15

Methods Analysis
The need for methods analysis can come
from a number of different sources:
Changes in tools and equipment
Changes in product design
or new products
Changes in materials or procedures
Other factors (e.g. accidents, quality
problems)

1 16

Methods Analysis Procedure

1. Identify the operation to be studied
2. Get employee input
3. Study and document current method
4. Analyze the job
5. Propose new methods
6. Install new methods
7. Follow-up to ensure improvements
have been achieved

1 17

Analyzing the Job

Flow process chart
Chart

used to examine the overall sequence

of an operation by focusing on movements
of the operator or flow of materials

1 18

ge
Stor
a

De l
ay

n
ect
io

nt
vem
e

Ins
p

Details of Method

Mo

ANALYST
Job Requisition of petty cash D. Kolb

Op
era
tion

FLOW PROCESS CHART

Requisition made by department head

Put in pick-up basket
To accounting department
Account and signature verified
Amount approved by treasurer
Amount counted by cashier
Amount recorded by bookkeeper
Petty cash sealed in envelope
Petty cash carried to department
Petty cash checked against requisition
Receipt signed
Petty cash stored in safety box
1 19

Motion Study
Motion study is the systematic
study of the human motions used
to perform an operation.

1 20

Motion Study Techniques

Motion study principles - guidelines for
designing motion-efficient work
procedures
Analysis of therbligs - basic elemental
motions into which a job can be broken
down
Micromotion study - use of motion
pictures and slow motion to study
motions that otherwise would be too rapid
to analyze
Charts
1 21

Developing Work Methods

1. Eliminate unnecessary motions
2. Combine activities
3. Reduce fatigue
4. Improve the arrangement of the workplace
5. Improve the design of tools and equipment

1 22

Working Conditions
T e m p e ra tu re &
H u m id it y

I llu m in a t io n

V e n t ila t io n

C o lo r

1 23

Working Conditions (contd)

Noise & Vibration

Work Breaks

Safety

Causes of Accidents

1 24

Design of Layouts

1 25

Manufacturing Process Structure

(based on Product-Process Matrix)
Job shop (ex. customized manufacture of
spectacles/opthalmics)
Batch (ex. manufacture of various types of
earth moving machinery)
Assembly Line (ex. manufacture of a single
model automobile )
Continuous Flow (ex. petroleum refinery)

1 26

Choice of Process Design Facets

More customer involvement

More resource flexibility
Less capital intensity
Less vertical integration

Process
Focus

Inter.
Focus

Product
Focus

Less customer involvement

Less resource flexibility
More capital intensity
More vertical integration

Low

Volume

High

1 27

Process Layout
Human and capital resources used by
processes must be arranged physically
within their facilities which gives the process
structure a physical form.
The choice of process layouts largely
depends on the process structure.
Good process layouts can improve
coordination across departmental lines and
functional area boundaries.

1 28

Process Layout Types

Product layout-ideal for high volume/low variety/low
level of customer contact (ex. continuous flow and
assembly line).
Process layout-ideal for low volume/high variety/high
level of customer contact (ex. batch and job shop).
Hybrid layout-combines elements of Product and
Process layouts.
Fixed position layout-this is required when the
product is massive and cannot be movedeg.shipbuilding.

1 29

Product Layout
A Product layout arranges work stations in sequence. The line
is only as fast as its slowest workstation.
Line balancing is done to achieve the desired output rate with
the smallest number of workstations.

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Product Layout-Typical method for

assigning work elements to workstations
1.Draw the Precedence Diagram based on Precedence Relationships
of the work elements.
2.Create one work station at a time. Start with the assignment of the
first work element to the first work station.
3.Calculate the Idle Time for the work station by subtracting the
cumulative time of the assigned work elements from the cycle time.
4.Identify potential immediate successor candidates for assigning the
remaining work elements such that the duration of the work elements
is less than or equal to the Idle Time of the work station.
5.Assign the work element from the potential candidates based on the
following priority rules:

The work element having most followers.

The longest work element (maximum time).

6.Continue with steps 3 through 5 till no further work element can be

assigned to the work station.
7.Continue with the assignment of the remaining work elements to the
subsequent work stations all work elements have been assigned to

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

1 31

Product Layout-Line Balancing example

Work
element

Time (sec.)

40

30

50

40

25

15

20

18

1 32

Product Layout-Line Balancing example

For the given example, a production line is to be designed

considering demand of 2,400 nos. of the product per week. The
plant will operate 40 hours per week.
a. What should be the lines cycle time?
b. What is the smallest number of workstations?
c. What would be the lines efficiency?

1 33

Calculating Cycle Time, TM, Efficiency

SOLUTION
a. First convert the desired output rate (2,400 units per week)
to an hourly rate by dividing the weekly output rate by 40
hours per week to get units per hour. Then the cycle time is
c = 1/r = 1/60 (hr/unit) = 1 minute/unit = 60 seconds/unit
b. Now calculate the theoretical minimum for the number of
stations by dividing the total time, t, by the cycle time,
c = 60 seconds. Assuming perfect balance, we have
t
244 seconds
TM = c =
60 seconds

= 4.067 or 5 stations

1 34

Calculating Cycle Time, TM, Efficiency

c. Now calculate the efficiency of a five-station solution,
assuming for now that one can be found:
t
Efficiency = nc(100) =

244
= 81.3%
5(60)

1 35

Process layout-Design
Gather information-required space, available
space, closeness factors.
Develop a Block Plan.
Apply the weighted distance method.

1 36

Gather Information

Space Requirements
Department
1. Administration
2. Social services
3. Institutions
4. Accounting
5. Education
6. Internal audit

Current Block Plan

Area Needed (ft2)

3,500
2,600
2,400
1,600
1,500
3,400

Total

4
100'

15,000

150'

1 37

Closeness Matrix
Trips between Departments
Department
1. Administration
2. Social services
3. Institutions
4. Accounting

10

5. Education
6. Internal audit

Departments 1 and 6 have the most interaction.

Departments 3 and 5 have the next highest.
Departments 2 and 3 have next priority.

1 38

Proposed Block Plan

First put departments 1 and 6 close together
Next put departments 3 and 5 close together
Then put departments 2 and 3 close together

3
100'

150'
1 39

Applying the
Weighted- Distance Method
Weighted-distance method: A mathematical
model used to evaluate flexible-flow layouts
based on proximity factors.
Euclidean distance is the straight-line distance,
or shortest possible path, between two points.
Rectilinear distance: The distance between two
points with a series of 90 degree turns, as along
city blocks.

1 40

Distance Measures

Euclidian Distance

dAB =

(xA xB)2 + (yA yB)2

Rectilinear Distance
dAB = |xA xB| + |yA yB|

1 41

Example
What is the distance between (20,10) and (80,60)?
Euclidian Distance

dAB =

(20 80)2 + (10 60)2

= 78.1

Rectilinear Distance
dAB = |20 80| + |10 60| = 110

1 42

Calculating the WD Score

Load Distance Analysis

Current Plan
Proposed Plan
Current Plan
Proposed Plan
Dept Closeness Distance
Distance
Dept Closeness Distance
Distance
Pair
Factor, w
d
wd Score
d
wd Score
PairFactor, w d
wd Score d wd Score
1,2
3
1
3
2
6
1,2 3 1 3 2 6
1,3
6
1
6
3
18
1,3 6 1 6 3 18
1,4
5
3
15
1
5
1,4 5 3 15 1 5
1,5
6
2
12
2
12
1,5 6 2 12 2 12
1,6
10
2
20
1
10
1,6 10 2 20 1 10
2,3
8
2
16
1
8
2,3 8 2 16 1 8
2,4
1
2
2
1
1
2,4 1 2 2 1 1
2,5
1
1
1
2
2
2,5 1 1 1 2 2
3,4
3
2
6
2
6
3,4 3 2 6 2 6
3,5
9
3
27
1
9
3,5 9 3 27 1 9
4,5
2
1
2
1
2
4,5 2 1 2 1 2
5,6
1
2
2
3
3
5,6 1 2 2 3 3
ld = 112
ld = 82
2007 Pearson Education
ld = 112
ld = 82
1 43

Hybrid layouts
Two techniques for creating hybrid layouts

One-worker, multiple-machines (OWMM).

Group technology (GT) cells-grouping products or

parts with similar characteristics.

1 44

One Worker,
Multiple Machines
Machine
2
Machine
1

Machine
3

Materials in

Finished
goods out
Machine
5

Machine
4
1 45

Before Group Technology

Jumbled flows in a job shop without GT cells
Lathing

Milling

Drilling

M
Grinding

Receiving and
shipping

Assembly
A

1 46

Applied Group Technology

Line flows in a job shop with three GT cells

Assembly
area
A

Cell 2

Cell 1
Receiving

Cell 3
L

Shipping

1 47

Capacity Management

1 48

Capacity Management
Capacity denotes the extent of availability of
resources including labour and machines for use
by various processes. It also denotes the
maximum output of products and services one can
achieve by using these resources.
Capacity can therefore be defined by the following
two methods:

Input Measures (high product variety)

Output Measures (little product variety)

1 49

Decisions in Capacity Management

Long-Term Capacity Planning

Short-Term Capacity Planning

1 50

Long-Term Capacity Planning

Capacity Timing and Sizing strategies.
A systematic approach to decisions.

1 51

Capacity Timing and Sizing

Strategies
Capacity Cushion=100-Average Utilization
Rate
Large Cushions-uncertainty of future demand (peaks,
growth, product mix), supply related reasons (absenteeism,
policies with respect to subcontracting/overtime)
Small Cushions-ROI in case of high capital intensity

1 52

Capacity Timing and Strategies

Expansionist strategy (large, infrequent
jumps in capacity).
Wait-and-see strategy (smaller,more
frequent jumps in capacity).

1 53

Expansionist strategy
When economies of scale effects are
strong, a firm can reduce its cost and
compete on price.
A form of preemptive marketing-using
capacity as a competitive weapon.

1 54

Wait-and-see strategy
Reduces risks of overly optimistic demand
forecasts,technological change that would
make the facility obsolete and
unpredictable competitive reactions.

1 55

A systematic approach to decisions

Estimate capacity requirements.
(processing and set-up time)
Identify gaps (vis--vis available capacity).
Develop Alternatives.
Evaluate the Alternatives qualitatively and
quantitatively. Cash flow analysis used for
quantitative evaluation.

1 56

Quantitative Decision MakingDecision Trees

A Decision Tree is a schematic model of alternatives available and
their possible consequences to the decision maker.
It consists of a number of nodes with emanating branches (to be read
from left to right).
Square nodes represent the decision points and branches leaving
them, the alternatives.
Circular nodes represent events and branches leaving them, the
chance events. Each chance event is associated with a probability (the
sum of the probabilities of the chance events for a particular circular
node is 1.0).
Payoff (present value of net profits) is calculated for each chance
event at the outset.
Payoff for each circular node is the sum of the product of the
probability and payoff of the chance events corresponding to the
circular node.
The alternative with maximum payoff is chosen for each decision
node.
1 57

Execution of an Operations
Management-Use of Project
Management

1 58

Agenda
What is a Project?
Project Management Processes and
Knowledge Areas.
Using Project Management to implement
the Operations Strategy.
Project Time Management (in detail).

Activity Sequencing and Duration Estimating.

Schedule Development

Case Study

1 59

What is a Project?
Project is an interrelated set of activities
with a definite start and ending point,
which results in a unique outcome for a
specific allocation of resources.

1 60

Project Management Processes

Initiating-authorizing the project.
Planning-defining and refining project
deliverables and objectives.
Executing-coordinating people and other
resources to carry out the project plan.
Controlling-ensuring that the project
deliverables and objectives are met by
monitoring and measuring progress
regularly to identify variances from the
plan and take corrective actions when
necessary.
Closing-formalizing acceptance of the
project and bring it to an orderly end.

1 61

Project Management Knowledge

Areas
Scope-to ensure that the project includes all the work required to
complete the project successfully (i.e. Work Breakdown Structure).
Time-to ensure timely completion of the project.
Cost-to ensure that the project is completed within the approved
budget.
Quality-to ensure that the project will satisfy the needs for which it
was undertaken.
Human Resource-to make effective use of the people involved with
the project.
Communications-to ensure timely and appropriate
generation,collection,dissemination,storage and ultimate disposition
of project information.
Risk-identifying, analyzing and responding to project risk.
Procurement-to acquire the goods and services required for the
project.
Integration-to ensure that the various elements of the project are
properly coordinated.

1 62

Using Project Management to

implement the Operations
Strategy

Project Management provides the

methodology for planning and
undertaking the necessary activities to
implement a strategic initiative.
Projects and the application of Project
Management facilitate the
implementation of operations strategy.

1 63

PROJECT TIME MANAGEMENT

1 64

Activity Duration Estimating

Durations are often difficult to estimate and hence
Expert Judgment based on historical information
should be used whenever possible.
Quantitatively based durations
The

quantities to be performed for each specific

work category (eg. number of drawings, meters
of cable, tons of steel,etc.) defined by the
engineering/design effort, when multiplied by
the productivity unit rate (eg. hours per
drawing, meters of cable per hour,etc.) can be
used to estimate activity durations.

1 65

Activity Sequencing
Precedence Diagram
Diagram

that uses nodes to represent the

activities and connects them with arrows that
show the following dependencies:

Finish-to-start(initiation of work of the successor depends upon the

completion of the work of the predecessor). This is most commonly
used.

Finish-to-finish(completion of work of the successor depends upon

the completion of the work of the predecessor).

Start-to-start(initiation of work of the successor depends upon the

initiation of the work of the predecessor).

Start-to-finish(completion of work of the successor depends upon

the initiation of the work of the predecessor).

This

method is also called the Activity On Node

(AON)
1 66

Schedule Development
Mathematical analysis
Critical

Path Method (CPM) is the most widely

used technique. It calculates early and late start
and finish date for each activity based on
specified, sequential network logic and duration
estimate. The focus is on calculating the float
or slack to determine which activities have
the least scheduling flexibility.

1 67

Critical Path Method (CPM)-A Computing

Algorithm

Network activities
ES-the

earliest time an activity can start,

assuming all preceding activities start as early
as possible.

EF-the

earliest time the activity can finish.

LS-the

latest time the activity can start and not

delay the project.

LF-the

latest time the activity can finish and not

delay the project.

1 68

Critical Path Method (CPM)Rules for the Computing

Algorithm
Forward Pass
For

each path, start at the left side of the diagram

and work to the right side.

For

each beginning activity ES=0.

For

each activity EF=ES+activity time

For

the following activity ES=EF of the preceding

activity.

If

an activity has multiple immediate preceding

activities, its ES is equal to the largest EF of its
immediate preceding activities.

1 69

Critical Path Method (CPM)Rules for the Computing

Algorithm
Backward Pass
For

each path, start at the right side of the

diagram and work to the left side.

Use

the largest EF as the LF for all the ending

activities.

For

each activity LS=LF-activity time

For

the preceding activity LF=LS of the following

activity.

If

an activity has multiple immediate following

activities, its LF is equal to the smallest LS of the
following activities.
1 70

Critical Path Method (CPM)Computing Slack Times

Slack Time=LS-ES or LF-EF
Critical Path using the computing
algorithm is denoted by activities with zero
Slack Time.

1 71