Operations Management Rev for SU 3 & 4

SU 3

Chapter 8 <Location Decisions>

Outline:

1. The Strategic Importance of Location

Location Strategy: 

The objective is to maximize the benefit of the location.

• An important decision to be made by a firm
• Global nature of business
• Significant impact on costs
• Location decisions made infrequently

2. Factors That Affect Location Decisions

Location and Costs.

Location decisions to support low-cost strategy require careful consideration. Once location is committed, many costs are fixed. 

Concentrate on determining an optimal facility location.

Location and Innovations

Location criteria will move away from cost-focus if innovation is critical.

(4) Key Attributes affecting innovation and competitiveness.

>>1 >> High quality and specialized resources

>>2 >> An environment that promotes investment and local competition

>>3 >> A sophisticated local market

>>4 >> Presence of related and supporting business

Factors That Affect Location Decisions

< Labor Productivity >

- do not consider wages alone

- lower productivity may increase cost

<Exchange Rates and Currency Risks>

- can have significant impact on cost

- rates change over time

<Costs>

- tangible: easily measured costs such as utilities, labor, material, taxes

- Intangible: less easy to quantify and include education, public transportation, community, quality of life

<Political Risk, Values and Culture>

- National, state, local government attitudes towards issues may be in constant change

- worker views differ between locations

- globally cultures can have different attitudes

<Proximity to markets>

- important factor to services

- IT systems or high transportation costs can affect manufacturers

<Proximity to supplies>

- close to supplier if dealing with perishable goods, bulky products or faced with high transportation costs.

<Proximity of competitors>

- known as clustering

- usually driven by resources

- found in both manufacturing and service industries

Location Decisions (Country Decision)

6 Key Success Factors

<1> Political risks, government rules, attitudes, incentives

<2> Cultural and economic issues

<3> Location of markets

<4> Human resource talent, attitudes, productivity, costs

<5> Availability of supplies, communications, energy

<6> Exchange rates and currency risks

Location Decisions ( Region/Community Decision)

8 Key Success Factors

<1> Corporate wishes

<2> Attractiveness of region

<3> Labor availability and costs

<4> Costs and availability of utilities

<5> Environmental regulations

<6> Government incentives and fiscal policies

<7> Proximity of raw materials and customers

<8> Land/construction costs

Location Decision (Site Decision)

5 Key Success Factors

<1> Site size and cost

<2> Air, rail, highway and waterway systems

<3> Zoning restrictions

<4> Proximity of services/supplies needed

<5> Environmental impact issues

3. Methods of Evaluating Location Alternatives

Factor Rating Method : wide variety of factors can be considered in the analysis

Locational Breakeven Analysis: uses cost-volume analysis to compare locations

Centre of Gravity Method: uses mathematical technique to minimise distribution costs

4. Service Location Strategy

8 Factors in Service Location Strategy

1. Purchasing power of customer-drawing area
2. Service and image compatibility with demographics of the customer-drawing area
3. Competition in the area
4. Quality of the competition
5. Uniqueness of the firms' and competitors's location
6. Physical qualities of facilities and neighboring business
7. Operating policies of the firm
8. Quality of management.

Chapter 9 <Layout Decisions/Strategies>

Layout Strategy: The objective is to develop an effective and efficient layout to meet a firm's competitive requirements

• Good utilization of space, equipment and employees
• Improved flow of information, materials, or people
• Good employees morale and safe working environment
• Good customer interaction
• Flexibility of the layout

- Different types of layouts such as 

   - Office Layout

Grouping of employees, their equipment, and space to provide for a conducive work environment.

Flow of information is main distinction

Typically changing due to technological advancements

   - Retail Layout

Objective: to maximize profit of the store space.

Sales and profitability depend on customer exposure to products.

5 Helpful Ideas for Supermarket Layout:

(1) Locate high-draw items around the boundary of the store

(2) Locate high-impulse and high-margin items at prominent locations

(3) Distribute power items to both sides of an aisle and disperse them to increase the view of other items

(4) End-aisle locations have high exposure rate

(5) Inform customers of the store's mission with careful positioning of lead-off department

Retail Slotting: Slotting fees are paid to retailers to display their products

Factors impacting decisions on arrangements:

- limited shelf space

- increasing number of new products

- information on sales volume of the products

- closer control of inventory

Servicescape elements:

(1) Ambient conditions : background characteristics such as lighting, sound, smell, and temperature

(2) Spatial layout and functionality: which involve planning the customer circulation, aisle characteristics, and product grouping

(3) Signs, Symbols and Artifacts: characteristics of building design

   - Warehousing and Storage Layout

Objective: to optimize trade-offs between handling costs and cost of the warehouse space.

Maximize the use of the entire volume of the ware house and maintain low material handling cost

- Material Handling Costs, Costs associated with the transaction, minimise damage and spoilage

//Warehousing

Warehouse density is impacted by the number of different items stored.

Automated Storage and Retrieval Systems (ASRSs) can improve productivity in an warehouse

Dock location is a key design element

//Storage Layout

Cross-Docking:

materials are moved directly from receiving to shipping, bypassing storage. 

requires tight scheduling and accurate shipments, advanced technologies can be used.

Random Stocking:

uses automatic identification systems

items are randomly stored

Customizing:

value-added activities performed at the warehouse.

enable low cost and rapid response strategies

   - Fixed-Position Layout

Project remains in one place. Workers and equipment go to site

Complicating Factors
- Limited space at site
- Different materials required at different stages of the project
- Volume of materials needed is dynamic

Alternative Strategy
- complete as much of the project as possible off-site
- significant efficiency improvements but is only possible when multiple similar units needs to be created.

   - Process-Oriented Layout

Similar machines and equipment are placed together. A job-shop is flexible and capable of handling a wide variety of products or services. Scheduling is difficult and cost can be high.

Arrange work centers so as to minimize the costs of material handling.

Basic cost elements are:

- Number of loads, or people moving between departments

- Distance travelled between departments.

   - Work cell, 

Reorganizing people and machines into groups.

Focusing on single product or product groups

Group technology identifying products with similar characteristics to be group into cells.

Volume must justify work cell arrangement and cells can reconfigured as design or volume changes.

Focused Work Centre

- identify a large family or similar product that have large stable demand

- moves production from a general purpose, process-oriented facility to a large work cell

Focused Factory

- a focused work cell in a separate facility

- may be focused by product lien, layout, quality, new product introduction, flexibility, or other requirement.

Advantages of Work Cells:

1. reduced raw material, work-in-progress and finished goods inventory
2. reduced floor space requirement
3. reduced labor cost
4. employees are motivated to participate
5. reduced idle equipment and machinery
6. reduced investments in equipment and machinery.

   - Repetitive and Product-Oriented layouts

//Repetitive Layout

Organised around products or families of similar high-volume, low-variety products

1. sufficient volume for high equipment utilization
2. stable demand for product to justify investment in specialized equipment
3. standardized product to justify investment in specialized equipment
4. sufficient and of uniform quality of raw materials and components supplies.

//Product-Oriented Layouts

Fabrication Line

Build components on a series of machines. Line balancing by making mechanical or engineering changes

Assembly Line

Puts fabricated parts together at a series of workstations. Balance by moving tasks

Advantages (5) and Disadvantages (3)

adv 1: low variable cost per unit

adv 2: low material handling cost

adv 3: reduced work-in-progress inventories

adv 4: training and supervision can be done easily

adv 5: rapid throughout

dis 1: high volume is required

dis 2: work stoppage at any point ties up the whole operation

dis 3: lack of flexibility in product or production rates

Good Layouts considerations

• equipment to handle material
• capacity and space requirements
• environment and aesthetics
• flows of information
• cost of moving materials

Chapter 10 <Job Design and Work Measurement>

*outline*

*Human Resource Strategy*

Objective: To manage labor and design jobs so that employees are efficiently and effectively utilized

1. managed within the constraints of other operations management decision areas
2. good quality of work life in an environmental of mutual commitment and trust

*Constraints on Human Resource Strategy*

1. Product Strategy
2. Process Strategy
3. Layout Strategy
4. Location Strategy
5. Individual Differences
6. Schedules

*Labor Planning*

Employment Stability Policies

1. Follow demand exactly

Direct labor cost tied to production, incurs other cost

Labor is treated as a variable cost

2. Hold employment constant

Reduce costs in hiring, termination, and unemployment

Under-utilization during low demand or insufficient employees during peak periods

Labor is treated as a fixed cost

Types of Work Schedules

1. Standard Work Schedule

2. Flexi-Time

3. Flexible Work Week

4. Part-Time

Job Classification and Work Rules

Rules that spell out who can do what and when they do it, also under what conditions they can do it.

Restricts flexibility on assigning jobs and impacts efficiency of production.

*Job Design*

- describe job design process and its components

*Method Analysis*

- examine method analysis and its related techniques

*Labor Standards and Time Studies*

- analyse time studies and calculate worker's performance and allowance factors

Labor Standards

- refers to the amount of time required to perform a task by an average employee.

- effective labor planning is dependent on knowing the labor requirement

- are set in 4 ways

1. Historical Experience
2. Work Sampling
3. Predetermined Time Standards
4. Time Studies

Time Studies

- Time Studies involves timing a worker's performance and using it to set a standard.
- A trained and experienced person can perform the study

Steps to perform

1. determine the task to be studied
2. divide the task into elements
3. determine the number of times to measure the task
4. time and record times of element performed and performance rating
5. compute average observed time for the element
6. determine performance rating and normal time for the element
7. add the normal times for all elements to determine the total normal time for the task
8. calculate the standard time

CALCULATIONS

<5> Compute average observed time for the element

(sum of times recorded to perform task)/ number of observations

<6> Determine performance rating and normal time for the element

Normal time  = Averaged observed time x Performance rating factor

<8> Calculate the standard time

Standard time = Total normal time / (1 - Allowance factor)

SU 4

Chapter 11 <Managing the Supply Chain>

Outline:

>> Supply Chain Management

- examine supply chain management and its relations to operations strategy

Supply Chain Management

- is the management of the activities that obtain materials and services, convert them into products, and deliver them through a distribution system to customers.

*Competition is intense between supply chains, not between companies*

Objective: Is to establish a chain of members that focuses on maximizing value to the customer. The supply chain must support the Operations Management Strategy

Important activities include determining and managing.

1. Transportation service providers

2. Suppliers

3. Distributors

4. Accounts Payable (AP) and Accounts Receivable (AR), transfer of cash and credits

5. Warehouse and inventory

6. Fulfillment of orders

7. Information on customers, forecasting and production.

>> Supply Chain Risks

- describe risks in outsourcing

>> Supply Chain Economics

>> Managing the Supply Chain and Supply Chain Strategies

- describe management of supply chain

Managing the Supply Chain

Flow of material from the supplier to production, to distribution, to the customer takes place amongst separate and independent organisations. Managing this flow to achieve efficiency

Supplier > Production > Distribution > Customer

1. Mutual agreement on goals
• mutual understanding of the mission, strategy and goals among participating organisations
  
2. Trust
• critical to and effective and efficient supply chain
  
3. Compatible organisational cultures
• alignment of organisational cultures strengthens relationship

- appraise various supply chain strategies

Supply Chain Strategies

1. Many Suppliers : 
• a supplier respond to a request for quotation and the order is given to the lowest bidder
  
2. Long-Term Relationships with Few Suppliers : 
• forming a long-term relationship with a few dedicated ones
  
3. Vertical Integration : 
• refer to buying a supplier/distributor, or to develop the ability to produce goods or services previously purchased
  
4. Joint-Ventures:
•  a formal collaboration, a safer option to vertical integration
  
5. Keiretsu Networks: 
• a supplier becoming part of a company coalition
  
6. Virtual Companies: 
• suppliers are used where needed
  

>> Issues and Opportunities in the Integrated Supply Chain

Issues

Opportunities

- appraise methodologies used to assess outsourcing opportunities

>> Vendor Selection and Logistics Management 

- discuss vendor selection and logistic management

Vendor Selection

Logistic Management

Approach to integrate material acquisition, movement, and storage activities to achieve operations efficiency.

- examine rationale for outsourcing and describe the functions/activities/processes that are commonly outsourced

logistics management is frequently outsourced to logistics specialists
outsourcing company gains competitive advantage through cost reductions and improved customer service.

5 Major means of Distribution

(1) Trucking

majority of manufactured goods are moved by trucks; flexible

(2) Railroads

capable of carrying large loads like food and lumber in the US; less flexible

(3) Airfreight

fastest way of shipping but costly

(4) Waterways

millions of containers are shipped at very low cost

(5) Pipelines

used mostly to transport crude oil, natural gas, etc.

>> Measuring Supply Chain Performance

Chapter 12 <Managing Inventory>

Outline:

Inventory Management

- examine inventory management 

Objective: to achieve a balance between inventory investment and a high level of customer service.

Functions and types of inventory

- describe functions and types of inventory

4 Functions of inventory

(1) To separate the production process from suppliers

extra inventory can help decouple production process from suppliers

(2) To separate the firm from fluctuations in demand

extra inventory can provide a continuous selection for customers

(3) To take advantage of bulk discounts

larger quantities can reduce cost of goods or delivery

(4) To hedge against upward price changes

4 Types of Inventory

<1> Maintenance/Repair/Operating (MRO)

to keep machinery and processes in working condition

<2> Finished Goods

completed product waiting to be shipped

<3> Raw material

unprocessed inventory

<4> Work-in-Process

incomplete components from the production, due to cycle time of a product

Managing Inventory

and discuss ABC analysis

- and importance of record accuracy

- examine cycle counting

Inventory Models

- describe independent and dependent inventory demand

INDEPENDENT DEMAND

The demand for an item is independent of the demand for any other items in inventory, usually refers to finished goods

DEPENDENT DEMAND

The demand for an item is dependent on the demand for some other items in the inventory, usually refers to raw materials and work-in-process inventory

- examine holding, ordering and setup cost.

HOLDING COST : cost of holding or carrying inventory

ORDERING COST: cost of placing and order and receiving goods

SETUP COST: cost to prepare a machine or process for manufacturing an order

Inventory models for independent demand

- analyse independent demand quantity model - Economic Order Quantity (EOQ)

Probabilistic model and safety stock

- analyse reorder point