Analyzing Operations in Business: Issues, Tools, and Techniques

236 Pages·1998·2.05 MB·English

by  Michael R. Summers

Analyzing Operations
in Business
Contents
Figures ix
1. Introduction to Operations Management 1
I. Long-Run Decisions 17
2. Location of Facilities 19
3. Layout of Facilities 34
4. Process Planning and Job Design 49
5. Time Studies 62
II. Medium-Run Decisions 77
6. Forecasting 79
7. Aggregate Planning 97
III. Short-Run Decisions 111
8. Inventory Models for Independent Demand 113
9. Inventory Models for Dependent Demand 135
10. Production Scheduling and Control 153
11. Just-in-Time Systems 168
12. Project Planning with PERT 175
13. Quality Control 191
viii Contents
14. Putting It All Together: Developing World-Class Operations 209
Appendix A: Areas under the Normal Curve 217
Appendix B: Cumulative Poisson Probabilities 219
Appendix C: Control Chart Factors 223
Bibliography 225
Index 231
Figures
1.1 A Generalized Operations System 4
2.1 Transportation Method for Location Analysis 31
3.1 Types of Layouts 36
3.2 Job Shop Layout 42
3.3 Assembly Line Balancing 45
4.1 Operations Process Chart for Framing a Picture 52
4.2 Flow Process Chart for Changing a Tire 53
4.3 Activity Chart for a Laundry Operation 55
4.4 LH–RH Chart for Assembling Caramel Apples 56
5.1 80% and 90% Learning Curves 65
5.2 Predetermined Times from MTM Association 71
6.1 Common Time Series Components 82
8.1 Types of Inventory Models 117
8.2 ABC Classification of Items 120
8.3 Inventory Patterns in EOQ and EPQ Models 123
8.4 Inventory Costs in the EOQ Model 124
9.1 Bill of Materials and Lead Times for Chair 140
9.2 Exploding the Chair 142
9.3 Lot-Sizing Techniques 149
10.1 Hungarian Method for the Assignment Problem 166
x Figures
11.1 Two-Card Kanban System 173
12.1 AOA and AON Diagramming 178
12.2 Diagramming Examples 180
12.3 Boundary Time Table 183
12.4 Worker Deployment Chart 186
12.5 Boundary Time Table for Variable Activity Durations 189
13.1 Operating Characteristic Curves 200
13.2 Average Outgoing Quality 203
13.3 Control Charts for Yardsticks 206
CHAPTER 1
Introduction to Operations
Management
OVERVIEWOFOPERATIONSMANAGEMENT
The ‘‘operations’’ of an organization are all of the activities directly related to
accomplishing the main purpose of the organization, whether it be producing
some product or providing some service. In either case the operations system
will provide the conversion of certain inputs, such as materials and labor, into
certainoutputs,eitherproductsorservices.Thus,theoperationsfunctioncanbe
distinguished from the other main functional areas of an organization, such as
marketing, finance, personnel, and accounting, which are no less vital for the
firm’s success but which are less directly related to the organization’s day-to-
day pursuit of its main business. Of course, all main functional areas of an
organization are intricately entwined; all interact with and provide support for
the others, and the boundaries are not always clear between them.
‘‘Operations management,’’ then, refers to performing the traditional mana-
gerial functions (planning, organizing, directing, and controlling) on the organ-
ization’s operations. Operations managers include those with traditional line
authority (the chain of command from the Vice President of Operations down
throughsupervisorsandforemen,forexample)andthoseinstaffpositions(pro-
duction planning, inventory control, and quality control, for example). Staff
personnel are responsible mainly for preparing recommendations regarding the
planning, organizing, and control of operations, while line personnel have the
actual authority to direct the operations.
GoalsofOperationsManagement
What is the goal of all this managerial activity in the operations area? Ob-
viously, the goals of operations management must be supportiveofthegoalsof
2 AnalyzingOperationsinBusiness
the overall organization, but what specifically are the goals relevant to the op-
erations function? Perhaps the most obvious goal is productivity. Productivity
simply refers to the ratio of a firm’s outputs to its inputs. Typical inputs to an
operations system would include capital, raw materials, labor, and money. In-
creasingly, information is also being thought of as a resource. Outputs would
include the organization’s products and services. Of course, organizations pro-
duce many less obvious and sometimes undesirable outputs, such as pollution
and traffic congestion. Generally, though, the operations manager is striving to
maximize the system’s outputs relative to its inputs. In other words, the goal is
to produce the most products and services for the least cost, to the extent that
this goal doesn’t interfere with the other goals of the organization.
This goal of productivity has become more important lately because of the
increased worldwide competition. A company with a high cost of production
will have difficulty competing unless it has some other distinctive competitive
advantage.Tocompeteinpricewithlower-costproducers,acompanywillneed
to reduce its profit margins until it too can improve itsproductivity.Becauseof
differentials in labor cost, raw material cost, and shipping cost, as well astrade
restrictions and tariffs imposed by various countries, a company today is com-
pelled to do all it can to improve its productivity in order to compete with
efficient companies in Japan, Germany, Korea, Taiwan, and so forth.
Thus, the quest for increased productivity has become a hot topic in today’s
businessworld.Whileinthepasttheareasofmarketingandfinancemighthave
appeared more glamorous to business students, today it is increasinglyobvious
that operations management is ‘‘where the action is.’’ It is here that a manager
can make a real difference in the success or failure of the organization.
Acompanythatstrivesforproductivitytotheexclusionofallotherconcerns,
though, will surely fail. Another important basis of competition is quality.This
also has become a hot topic because of competition from firms that have dras-
tically increased thequalityoftheirproductswhilesimultaneouslykeepingpro-
duction costs down. Japaneseautomobilecompaniesareagoodexampleofthis
emphasis on quality as a means of competing. It is remarkable that, by taking
seriously the well-known theories of quality control, Japanese firms have made
their products synonymous with high quality where a generation ago theywere
just as universally associated with shoddiness.
All of this is not to say, though, that all firms should produce only products
of the highest quality. Not everyone can afford a $100,000 Rolls-Royce or a
$500camera.Certainly,thereisamarketforless-expensive,lower-qualityprod-
ucts. Today even disposable cameras are available for little more than the cost
of the film. The point is that the customer has the right to expect a consistent
level of quality, regardless of the product’s position in the overall quality con-
tinuum. This brings us to another goal of the operations manager—dependabi-
lity. Whether regarding delivery times of a product, the willingness of the
company to make good on its own mistakes, or the accuracy of information
given to a customer in a service-oriented organization, the customer demands
IntroductiontoOperationsManagement 3
thattheorganizationmaintainconsistencyanddependability.Itistheoperations
manager’sjobtomaintainasmoothlyrunning,predictableyetflexibleoperation
as much as possible.
The challenge of the operations manager, then, is to use both technical and
behavioral skills to manage the organization’s operations, to achieve the goals
of productivity, quality, and dependability. It is this challenge that makes the
job of the operations manager one of variety, excitement, and importance. For
this reason more and more of today’s business students are eager to ‘‘get their
hands dirty’’ and get into the action.
THESYSTEMSAPPROACHTOOPERATIONSMANAGEMENT:
LOOKINGATTHEWHOLEPICTURE
Systems theory seeks to treat human organizations as systems of interrelated
components, similar in many ways to more physical systems such as the solar
system or the human body. The idea is to take a broad view of the system and
its relationships with other systems in the environment. That is, a system is
considered ‘‘open’’ when there are interactions between the system and its en-
vironment. A system is studied, then, by observing the flows into, out of, and
within the system.
The operations system can be seen as a system which converts inputs from
outside the system, such as raw materials, money,people,andinformation,into
outputs, such as goods and services. The operations system, though, is but a
subsystemoftheoverallorganization,alongwithothersubsystemssuchasmar-
keting, finance, personnel, and accounting.
The structure of a system and its subsystems depends upon the actual func-
tions of the components and the resulting flows between components. There is
nonecessaryconnectiontotheorganizationchartofthecompany.Forexample,
a company may have a department called ‘‘Shipping and Receiving.’’ In the
systems view, however, the ‘‘shipping’’ function is separate from the ‘‘receiv-
ing’’ function. The value of the systems approach, then, is that it can give a
much clearer picture of what actually goes on in a system, as opposed to the
very limited andoftenmisleadingpicturegivenbyanorganizationchart.Italso
enablesustoappreciatetheeffectsthatadecisionmadeinonepartofthesystem
may have on other parts.
AGeneralizedOperationsSystem
Figure1.1showsaverygeneralviewofanoperationssystem.Forsimplicity,
the example used is a manufacturing system. The diagramincludessomeofthe
major components of the operations system, as well as other major systems
within the overall organization. Probably the easiest flow to trace in a manu-
facturing system is the flow of materials. This flow is included in the diagram,
as are some of the flows between other major systems in the organization and
Figure 1.1
A GeneralizedOperationsSystem
IntroductiontoOperationsManagement 5
the operations system. Informational flows between components of the opera-
tions system itself are far too numerouseventoapproximateinsuchadiagram,
so they will be discussed later.
Thematerialflowbeginswithrawmaterialsbeingsentfromoutsidesuppliers
into the company and then into the operations system to a component we have
called ‘‘Receiving.’’ From there the materials mightgotoastoragearea,called
‘‘Raw Material Storage,’’ and from there into the actual manufacturingsystem.
Themanufacturingsystemhasbeengreatlysimplified,withthematerialsshown
progressingthroughafewworkstations.Obviously,inrealcompaniesthisflow
can be quite complex. After the manufacturing process we show the materials
going to a ‘‘Finished Goods Storage,’’ then to a ‘‘Shipping’’ component, and
finally outside the company to the customers.
This is all fine as a gross generalization, but the interesting part of the op-
erations system is the other supporting components and the informationalflows
within the operations system. These again are highly generalized, but theygive
the flavor of typical operations subsystems.
We have identified a component called ‘‘Line Management,’’whichconsists
of the chain of command down from such positions as Vice President of Op-
erations to Plant Manager to Supervisor to Foreman to workers on the produc-
tion line. This can be thought of as the decision-making component of the
operationssystem,whileothercomponentsperformadvisory,orstaff,functions.
There are obvious flows of information between the top line managers and the
workers at the work stations.
Next we consider whattypesofstaffgroupsmighttypicallybepresentinthe
operations system to help plan and keep things under control. One might be
called ‘‘Production Planning and Control.’’ This component would be respon-
sible for helping to plan the scheduleand to collectinformationontheprogress
of the operations. This group would then send information to thelinemanagers
to make the actual assignments or to take corrective action when something
goes wrong.
‘‘Inventory Control’’ would be another essential component of the system,
charged with keeping track of inventory and planning the optimal amounts to
order and to produce. They again would report to the line managers, and they
would also interact with the two storage components shown on the diagram,
‘‘RawMaterialStorage’’and‘‘FinishedGoodsStorage,’’aswellaswithwork-
in-process inventories between the work stations on the line.
The‘‘QualityControl’’componentwouldinteractwithcomponentsalongthe
material flow line at several points, to measure quality and then report to the
line managers. These interactions would generally take place with the raw ma-
terials coming in, checking for quality before putting them into use, and with
the finished goods, checking them before shipping them out. There might very
well be other critical points along the production line where quality would be
checked.