Operations Management: Efficiency, Productivity, and Supply Chain Optimization

Posted on Oct 13, 2024 in Economy

Chapter 1: Introduction to Operations Management

Operations management is the management of processes that create goods and/or provide services. Efficiency measures the amount of resources used to produce one unit of output. Effectiveness measures the extent to which an operation is achieving its intended goals.

Production of Goods and Services

  • Goods: Tangible outputs such as automobiles, mined materials, or constructed structures.
  • Services: Acts such as a doctor’s examination, auto repair, lawn care, or a haircut.

The scope of operations management encompasses designing decisions and planning/control decisions.

Supply Chain Management

Supply chain management is the strategic coordination of the flow of goods and services to and from a company.

  • Supply Chain: A sequence of organizations—their facilities and activities—that are involved in producing and delivering a product.
  • Supply Chain Management: Collaboration of supply chain companies and coordination of their activities to meet market demand as efficiently and effectively as possible.
  • Logistics: The part of a supply chain involved with the forward and reverse flow of goods, services, cash, and information.

Activities in supply chain management can be classified as strategic (e.g., network design) or tactical/operational (e.g., production and distribution planning, inventory and transportation management, and fulfillment). Global supply chains are long and must deal with intermediaries, customs clearance, and shipments changing hands several times.

Chapter 2: Order Qualifiers, Order Winners, and Productivity

Order Qualifiers vs. Order Winners

  • Order Qualifiers: Minimum standards of acceptability for a purchase, allowing a product to be considered.
  • Order Winners: Characteristics that create a perception of being better than the competition, influencing a product’s purchase.

Productivity

Productivity = Outputs / Inputs

Multi-Factor Productivity = Output / (Labor + Machine + Energy)

Numerous factors affect productivity. Generally, they are methods, capital, quality, technology, and management.

Chapter 3: Procurement and Purchasing

Procurement and the Purchasing Cycle

  • Procurement: The process of purchasing materials, parts, supplies, and services needed by the company.
  • Purchasing Cycle: A series of steps that begin with a request for purchase and end with paying the supplier.
  1. Requisition Received
  2. Supplier Selected
  3. Decide How to Purchase
  4. Monitor Orders
  5. Receive Order
  6. Pay Suppliers

Insourcing vs. Outsourcing

  • Insourcing: Bringing a major business function in-house.
  • Outsourcing: Paying a supplier to perform a business function.

Centralized vs. Decentralized Purchasing

  • Centralized Purchasing: Purchasing is handled by one special department.
  • Decentralized Purchasing: Individual departments or separate locations handle their own purchasing requirements.

Value Analysis and Spend Analysis

  • Value Analysis: Examination of the function and design of a part/product to reduce its cost.
  • Spend Analysis: Collecting, cleansing, classifying, and analyzing expenditure data to reduce procurement costs, improve efficiency, and monitor compliance with purchasing policies.

Supplier Analysis

  1. Select the factors important in evaluating suppliers.
  2. Assign a weight to each factor, representing its relative importance.
  3. Evaluate each supplier individually with respect to each factor by giving them a rating.
  4. For each supplier, multiply the rating by the weight for each factor. Sum the products across all factors.

Percent Change Formula

Percent Change = (New – Original) / Original

Problems

Problem 1: Labor and Multifactor Productivity

A company purchased new equipment to reduce labor in producing shopping carts. Before, five workers produced 65 carts per hour at $10/hour labor cost and $47/hour machine cost. After, one worker was transferred, machine cost increased by $10/hour, and output increased by seven carts per hour.

Labor Productivity

  • Before: 13 carts per worker per hour (65 carts / 5 workers)
  • After: 18 carts per worker per hour (72 carts / 4 workers)

Multifactor Productivity

  • Before: 0.67 carts per dollar cost (65 carts / $97 total cost)
  • After: 0.74 carts per dollar cost (72 carts / $97 total cost)
Problem 2

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Problem 4: Make vs. Buy Ice Cream

Juliette is considering making ice cream at home to save money. An ice cream maker costs $150, and ingredients cost $4 per 1.5L batch. Store-bought ice cream costs $7 per 1.5L. She consumes 3L per month.

Make at Home

  • Ice cream maker cost: $150
  • Monthly ingredient cost: $8 (2 batches x $4/batch)
  • Annual ingredient cost: $96 ($8/month x 12 months)
  • Total annual cost: $246 ($150 + $96)

Buy at Store

  • Monthly cost: $14 (2 batches x $7/batch)
  • Annual cost: $168 ($14/month x 12 months)

Juliette would save money by buying ice cream at the store.