AEM1200_0204ToPost - AEM1200, Introduction to Business...

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Unformatted text preview: AEM1200, Introduction to Business Management. AEM1200, Wednesday 2/4 Definition Operations Management (I) Economies of scale as potential Activities Facility location and outsourcing Facility layout and production scheduling Philosophies Definition of Total Quality Management Operations Management Operations The management of the conversion or The transformation of resources (including human resources) into goods and services. services. A Compressed History Compressed (from “Factory Physics”, Hopp & Spearman, 2002) Vertical integration How do we make sure that every piece of clothing are exactly the same? -Coming up w/ systems that with pieces are interchangeable (this was tackled in the US after 1812 war because production of US weapons had to be organized -Using a specialized system economies of scales increase further; don’t need as many people who know what they’re doing in terms of actual product. As long as machines are right and properly designed you can have anyone doing the job -Until 100 years ago, machines were general - the next step in the development of operations management as we know it is less obvious. If you are working in an environment of economies of scale where you wanna minimize cost of production the speed becomes crucial. The faster you produce the more efficient you’re using you”re available sources. Integrated production processes Specialized supply chains Economies of scale - produce for a lesser cost “Interchangeable” labor Interchangeable” Emphasis on “generalist” management Economies of scale High speed of production High investment Economies of scale Interchangeable parts Specialized machines Economies of Scale Economies Reduction in cost per unit resulting from increased production, realized Reduction through operational efficiencies. Economies of scale can be accomplished because as production increases, the cost of producing each additional unit falls. each Short term economies of scale are the result of spreading fixed costs Short across all throughput; across Intermediate term economies of scale are the result of having longer Intermediate production runs; production Long term economies or scale are the result of physics, which dictate Long that unit cost as a function of capacity is equal to a function aC^(b-1), where b lies between 0.6 and 1. where As volume increases of a sphere the surface doesn’t increase by as much As (metaphor) (metaphor) Cost Structures of Craft Production and Mass Production (from “The Second Industrial Mass Divide”, Piore & Sabel, 1986) Piore Operations Management Functions Operations Facility Location Where we put our layouts How we organize our layouts How do we make sure are products are properly How produced and satisfy consumer needs produced Facility Layout and Production Scheduling Quality Control Inventory Management Facility Location Facility Resources Labor Raw Material Infrastructure Retail sites Retail Customer interaction “Just in time” Customers “Clusters” (certain areas where b/c of # factors there is a Clusters” critical mass of expertise and available resources that makes particular place a uniquely beneficial location makes Silicon Valley (IT) (California) - given moment a critical mass Silicon was obtained and now it is unthinkable to not have location in Silicon Valley Silicon Boston, New Jersey (chemicals, pharmaceuticals) Manhattan (financial services) Outsourcing Outsourcing + Time to focus on Time company’s primary function function + Increased level of Increased expertise expertise + Cost effectiveness + Decreased overhead + Risk reduction + Flexibility + Technology - Less personal approach - Less control by owner in Less planning, implementing & carrying out company’s future future - Potential for competing Potential for the outsourcing firm’s time time Types of Operations Types Craft production High customization and variability in the product Eg. Glass blowing, fine musical instruments High standardization and uniformity in the product; High makes them available to the public quicker makes Eg. Car manufacturers Undifferentiated products Chemicals, agriculture, light bulbs, cereal Mass production, assembly line Mass production, process plant Which has the lowest cost per unit? Which A.) B.) C.) Craft product Mass Production Process Plant Which has the highest flexibility? Craft Production MRP, ERP and beyond MRP, Materials Requirement Planning A computer-based production management system computer-based that uses sales forecasts to make sure that needed parts and materials are available at the right time and place; place; A software solution that addresses enterprise needs software taking the process view of the organization to meet the organizational goals tightly integrating all functions of an enterprise. of Enterprise Resource Planning Virtual Organizations Virtual A temporary networked organization made up of temporary replaceable firms that join and leave as needed; replaceable Reduces fixed costs Obtains needed expertise quickly Promotes flexibility We act as an extension of your own business to manage all We aspects of your global supply chain. We take care of all vital aspects of the supply chain so that our customers - leading retailers and brands - can focus on their customers.” retailers Example: Li and Fung Dimensions of Quality Dimensions Performance Features Reliability Conformance Durability Serviceability Aesthetics Perceived Quality Total Quality Management Total An integrated, principle-based, organization-wide An strategy for improving product and service quality; strategy Customer focus and satisfaction Continuous improvement and reduction of variation Teamwork Six-Sigma Paradigm Six sigma quality is a quality measure that allows only 3.4 Six defects per million of opportunities. defects 6 Sigma 3.4 230 6,210 66,800 308,538 690,000 50 150 250 350 450 550 650 750 Sigma Quality Level 5 Sigma 4 Sigma 3 Sigma 2 Sigma 1 Sigma Defects Per Million Parts (000) Take-Aways Take-Aways Operations management refers to the set of Operations activities by which an enterprise transforms resources into the products and services it offers; resources Operations management comprises: Location Layout Quality management Scheduling (including MRP and ERP technologies) Inventory management The tools of continuous improvement and JIT are The an effective way to improve operations consistently and sustainably; consistently ...
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