Production and Operations Management Essentials

Posted on Feb 10, 2025 in Business Administration and Innovation Management

Production and Operations Management (OM)

Production is the creation of goods and services. Operations Management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs.

Essential Functions of Organizations

To produce goods and services, organizations typically perform three essential functions:

  1. Marketing: Creates demand.
  2. Production/Operations: Creates the product.
  3. Finance/Accounting: Tracks organizational performance, pays bills, and collects money.

The Supply Chain

The supply chain is a global network of organizations and activities that supply a firm with goods and services.

Basic OM Functions

  • Planning
  • Organizing
  • Staffing
  • Leading
  • Controlling

Ten Strategic OM Decisions

  1. Design of goods and services
  2. Managing quality
  3. Process and capacity design
  4. Location strategy
  5. Layout strategy
  6. Human Resources (HR) and job design
  7. Supply chain management
  8. Inventory management
  9. Scheduling
  10. Maintenance

Key Figures in OM History

  • Eli Whitney: Introduced standardized parts.
  • Frederick W. Taylor: “Father of Scientific Management,” initiated motion and time studies.
  • Frank and Lillian Gilbreth: Further developed work measurement methods.
  • Henry Ford: Pioneered the assembly line and offered competitive worker pay.
  • W. Edwards Deming: Advanced total quality control methods in Japan.

Productivity

Productivity is the ratio of outputs (units produced) to inputs used. It is a measure of process improvement.

Measurement Problems

  • Quality changes may not be reflected in input/output quantities.
  • External elements can affect productivity.
  • Precise units of measure may be lacking.

Productivity Variables

  • Labor
  • Capital
  • Management

Key Variables for Improved Labor Productivity

  • Basic education
  • Diet of the workforce
  • Social overhead (infrastructure)

Social Responsibility Challenges

  • Developing “green” products.
  • Training and retaining employees in a safe workplace.
  • Honoring stakeholder commitments.

Reasons to Globalize

  • Improve the supply chain.
  • Reduce costs.
  • Understand markets.
  • Improve operations.
  • Improve products.
  • Attract and retain global talent.

Mission and Strategy

A mission statement defines an organization’s purpose and direction.

Factors Affecting Mission

  • Environment
  • Philosophy and values
  • Profitability and growth
  • Public image
  • Benefit to society
  • Customers

Competitive Advantage Strategies

  • Differentiation
  • Cost leadership
  • Response

Competitive Intelligence

Competitive intelligence is the process of gathering information about the environment to improve an organization’s ability to succeed.

Competitive Intelligence Tools

  • Porter’s Five Forces Model
  • Three Generic Strategies
  • Value Chain Analysis

Value chain analysis identifies a series of processes that add value to a product or service.

Strategy Development Process

  1. Analyze the environment.
  2. Determine the corporate mission.
  3. Form a strategy.

International Business Strategies

  • International Strategy: Import/export or license existing products.
  • Global Strategy: Standardize products, leveraging economies of scale and cross-cultural learning.
  • Multi-domestic Strategy: Adapt existing models globally (e.g., franchises, joint ventures).
  • Transnational Strategy: Move materials, people, and ideas across national boundaries.

Management of Projects

  • Planning
  • Scheduling
  • Controlling

Project Organization

  • Temporary structure
  • Utilizes specialists from the entire organization
  • Headed by a project manager

Critical Path Method (CPM) and Program Evaluation and Review Technique (PERT)

The critical path is the longest path through the project network, representing the shortest possible project completion time. It has no slack time.

  • CPM: Assumes fixed time estimates for each activity.
  • PERT: Uses a probability distribution for activity times to account for variability. Activity times are assumed to be statistically independent.

PERT Time Estimates

  • a = Optimistic time
  • b = Pessimistic time
  • m = Most likely time

Expected Time Formula: t = (a + 4m + b) / 6

Variance Time Formula: [(b – a) / 6]2

Project Variance: Sum of the variances of all critical activities.

Number of Standard Deviations: (Due Date – Expected Date) / √Project Variance

Crash Cost Per Period: (Crash Cost – Normal Cost) / (Normal Time – Crash Time)

Forecasting

Forecasting is the art and science of predicting future events.

Forecasting Time Horizons

  • Short-range: Up to 1 year (generally less than 3 months).
  • Medium-range: 3 months to 3 years.
  • Long-range: 3+ years.

Types of Forecasts

  • Technological
  • Economic
  • Demand

Forecasting Methods

  • Qualitative Methods:
    • Jury of executive opinion
    • Delphi method
    • Sales force composite
    • Market survey
  • Quantitative Methods:
    • Naive approach
    • Moving averages
    • Exponential smoothing
    • Linear regression

Time-Series Forecasting

Time-series forecasting uses evenly spaced numerical data, observing the response variable at regular time periods.