1-1 IE 3265 Production & Operations Management R. R. Lindeke, Ph.D. Spring 2006 Lecture Set 1.

Slides:



Advertisements
Similar presentations
Lean Manufacturing.
Advertisements

ISEN 315 Spring 2011 Dr. Gary Gaukler. Operations Finance Marketing Functional Areas of the Firm.
PART 04.
Asst. Prof. Dr. Mahmut Ali GÖKÇE, Izmir University of Economics Spring, ISE360 Production Planning and Control Asst.Prof.Dr.
Global Manufacturing and Materials Management
CAPACITY LOAD OUTPUT.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Strategy, Balanced Scorecard, and Strategic Profitability Analysis.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Strategy, Balanced Scorecard, and Strategic Profitability Analysis.
Supply Chain Management Managing the between all of the parties directly and indirectly involved in the procurement of a product or raw material.
FUNCTIONAL LEVEL STRATEGIES - CHPT 4 BUSINESS 189 Spring 2007 DR. MARK FRUIN.
Strategy, Balanced Scorecard, and Strategic Profitability Analysis
IE 3265 Production & Operations Management Slide Series 2.
Chapter 6: Activity Based Management and the New Manufacturing Environment Identify the true costs of resources consumed in performing the organization’s.
CHAPTER 1- INTRODUCTION TO SUPPLY CHAIN MANAGEMENT
© The McGraw-Hill Companies, Inc., Chapter 1 Overview: Introduction to the Field.
For Products and Services
IE 3265 Production & Operations Management Slide Series 2.
CHAPTER 1 INTRODUCTION TO SUPPLY CHAIN MANAGEMENT
Operations and Supply Chain Strategies
JUST IN TIME. Just in Time Getting the right quantity of goods at the right place at the right time.
Activity-based Cost Management
IS 466 ADVANCED TOPICS IN INFORMATION SYSTEMS LECTURER : NOUF ALMUJALLY 17 – 10 – 2011 College Of Computer Science and Information, Information Systems.
Operations Planning Horizons
Chapter 2, Operations Strategy
Marketing Management BUS-309
Alissa Brink Gabriela Iasevoli Jason Oesterle Joey Tamburo
Electronic Commerce Semester 2 Term 2 Lecture 29.
Engineering Economics: Capitol has a cost related to the time it takes to return it to its owner! Interest – the rate that sets this cost Time value of.
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J Operations Management Just-in-Time and Lean Systems Chapter 16.
ISQA 407 Introduction to Global Supply & Logistics Management Winter 2012 Portland State University.
Introduction to Operations Management Chapter 1 pp. 2-15; June 25, 2012.
International Business Fourth Edition.
1 CHAPTER 18 MODERN DEVELOPMENTS IN MANAGING OPERATIONS.
Inventory/Purchasing Questions
Slides 6 Distribution Strategies
ISAT 211 Mod 2-1  1997 M. Zarrugh ISAT 211 Module 2: Competitiveness and Operations Strategy  The learning objectives of this module are –To explain.
ISE360 Production Planning
PowerPoint presentation to accompany Heizer/Render - Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc.,
Competitiveness, strategy, productivity. What can be competitive? Country? Company? Brand? Product line? Product? Competence? …
1-1 ISE 216/ IE 222 PRODUCTION SYSTEMS ANALYSIS INTRODUCTION.
Supply Chain Management Managing the flows of information between all of the parties directly and indirectly involved in the procurement of a product or.
1 MARK10 SUPPLY CHAIN MANAGEMENT Agenda Housekeeping & Field Trip details What in the World is going on? Lecture Chapter 1 Form Teams Homework.
Companies must provide customers with world-class quality, delivery and service. Customers won’t accept anything less. The globalization of markets means.
Chapter 14 Global Production, Outsourcing and Logistics 1.
Inventory Management FIN 340 Prof. David S. Allen Northern Arizona University.
Competitiveness, Strategy, and Productivity Chapter 2.
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. 2 Competitiveness, Strategy, and Productivity.
Department of Marketing & Decision Sciences Part 5 – Distribution Wholesaling and Physical Distribution.
OPERATIONS STRATEGY. Contents 1- what is strategy ? 2- strategy levels 3- What is operations strategy? 4- Competitive priorities. 5- Trade-Offs.
WHAT IS SUPPLY CHAIN MANAGEMENT?
© 2011 Pearson Education, Inc. publishing as Prentice Hall Figure 11.1.
EM 420 Production and Operations Management Eng. Rodger L. NKUMBWA Dept. of Electrical Engineering Copperbelt University
CHAPTER TWO PRODUCTIVITY, COMPETITIVENESS, AND STRATEGY Productivity, Competitiveness, and Strategy.
Module 9: JIT & Lean Systems Operations Management as a Competitive Weapon.
Capacity Planning Pertemuan 04
CHAPTER 15 LEAN SYSTEM. THE CONCEPTS Operation systems that are designed to create efficient processes by taking a total system perspective Known as zero.
Chapter 2 Operations and Supply Chain Strategies
Main Function of SCM (Part I)
INTRODUCTION TO SUPPLY CHAIN MANAGEMENT. What is a Supply Chain? A supply chain consists of the flow of products and services from: Raw materials manufacturers.
Operations and Supply Chain Strategies
CHAPTER 9 Lean Manufacturing.
Chapter 12 Lean Production. Chapter 12 Lean Production.
Materials & Logistics Management
CHAPTER 1 INTRODUCTION TO SUPPLY CHAIN MANAGEMENT
McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved
STRATEGY and COMPETITION Universiti Teknikal Malaysia Melaka (UTeM)
Chapter 1. Strategy and Competition
Operations Management Introduction to operations Management 1.
Supply Chain Management: From Vision to Implementation
1. 2 Operational Efficiency and Business process Performance Operational Efficiency and Business process Performance Just in Time Systems (J I T) Reductions.
Presentation transcript:

1-1 IE 3265 Production & Operations Management R. R. Lindeke, Ph.D. Spring 2006 Lecture Set 1

1-2 Pre-Quiz – Terms Simplex JIT CMS Kanban EUAC NPW MRP ATCF/BTCF MARR SMED Poka-Yoka Exponential Smoothing Winter’s Method APR Bullwhip Effect Functional Silo

1-3 Pre-Quiz Terms, cont IRR ROI EOQ Push Control Pull Control 6-sigma Johnson’s Rule Bottleneck Queing Markov Chain Transportation Model Duality Complementary Slackness Breakeven Analysis

1-4 Career Goals? Manufacturing? Services Industry? Management of Operations And Then Where?

1-5 Topic Areas in Operations Management Forecasting Aggregate Planning Inventory Control: Deterministic Environments Inventory Control: Stochastic Environments Supply Chain Management Production Control Systems: MRP and JIT Operations Scheduling Project Scheduling Facilities Planning Quality and Assurance Maintenance and Reliability

1-6 Operations Finance Marketing Functional Areas of the Firm

1-7 Strategic Time Horizons 1. Long Term Decisions Locating and Sizing New Facilities Finding New Markets for Products Mission Statement: meeting quality objectives 2. Intermediate Term Decisions Forecasting Product Demand Determining Manpower Needs Setting Channels of Distribution Equipment Purchases and Maintenance

1-8 Strategic Time Horizons – Short Term 3. Short Term Decisions Purchasing Shift Scheduling Inventory Control

1-9 The Elements of Strategy Time Horizon Short Term Intermediate Long Term Evaluation Cost Quality Profitability Customer satisfaction Focus Process Technology Market Issues Volume Quality Tasks Consistency Professionalism Proliferation Changes in the task Explicit goals

1-10 History of POM Major Thrust of the Industrial Revolution Factories tended to be small. Boss had total control. Little regard for workers safety or workers rights. Production Manager Position Frederick Taylor champions the idea of “scientific management”. As complexity grows specializations take hold Inventory Control Manager Purchasing Manager Scheduling Supervisor Quality Control Manager etc.

1-11 Global Competition Global competition is heating up to an unprecedented degree. It appears that several factors favor the success of some industries in some countries, For example: Germany: printing presses, luxury cars, chemicals Switzerland: pharmaceuticals, chocolate Sweden: heavy trucks, mining equipment United States: personal computers, software, entertainment Japan: automobiles, consumer electronics

1-12 Porter’s Thesis Management guru Michael Porter, has developed a theory to explain the determinants of national competitive advantage, including: Factor Conditions (Land, Labor,Capital, etc.) Demand Conditions (local marketplace may be more sophisticated/demanding than world marketplace) Related and Supporting Industries Firm Strategy, structure, rivalry (e.g.: Germans are strong technically, Italian family structure, Japanese management methods)

1-13 Time-Based Competition Time-based competitors focus on the entire value-delivery system. They attempt to transform an entire organization into one focused control of the total time required to deliver a product or service. Their goal is not to devise the best way to perform a task, but to either eliminate the task altogether or perform it in parallel with other tasks so that over-all system response time is reduced.

1-14 Time-Based Competition Focus on the bigger picture, continued “Becoming a time-based competitor requires making revolutionary changes in the ways that processes are organized” (Blackburn 1991). Being not only the first to market but the first to volume production as well gives a firm a decided advantage. See Table on p. 22 of text looking into DRAM products.

1-15 How Do Firms Differentiate Themselves from Competitors? Low Cost Leaders: WalMart and Costco in Retailing Korean automakers (Hyundai, Kia, etc.) e-machines in personal computers High Quality (and price) Leaders. Ex: Mercedes Benz automobiles Rolex Watches Some firms do both: (Chevrolet and Cadillac at GM)

1-16 Business Process Re- engineering* The process of taking a cold hard look at the way that things are done Classic Example: IBM Credit Corporation. The process had been broken down to a series of multiple steps, each having substantial delays Approval required from 6 days to 2 weeks. * Hammer and Champy, 1993

1-17 Business Process Re-engineering The process was re-engineered so that a single specialist would handle a request from beginning to end. The result was that turnaround time was slashed to an average of 4 hours!

1-18 Along What Other Dimensions Do Firms Compete? Delivery Speed, Delivery Reliability Federal Express, United Parcel Service Flexibility Toyota: provides many models to various market groups Service Nordstrom bases its reputation on providing a high quality of service to customers

1-19 Just-In-Time or LEAN Manufacturing LEAN Mfg. is a production control system that grew out of Toyota’s kanban system. It is a philosophy of production control that attempts to reduce inventories to an absolute minimum and eliminate waste in any of its forms. It has become pretty much a standard way of thinking in many industries (especially automotive.)

1-20 I Hate to say it BUT! We still are driven by profitability The ideas of Competitiveness and LEAN Mfg. need to be balanced against Quality results in Production We find (in a Capitalist economy) that these competing(?) demands often can increase profitability if we let the factory move toward them not first to volume production – the first to rational volume production is key!

1-21 An example from Engineering Economy – Machine Replacement analysis – After Tax Basis Current Equipment “The Defender” (purchased a few years ago before Company started rational Quality Management system and JIT system) Design Capacity: 310 molds/hr (620 parts/hr) Part Tolerance:  0.030” across parting line Average Quality: 2.9% defectives Average Maintenance: $12000/yr

1-22 Machine Replacement analysis – After Tax Basis When purchased, average “Lot Size” was 7500 molds and pattern change took 45 minutes Currently, production lot size has fallen to 375 molds (and without significant investment) pattern change is still 45 minutes Indicates 375/310 = 1.25 hr/pattern ‘run’ or 375 molds every 2 hours (with pattern change time) Real Production rate is: 188 molds/hr (375 parts/hr)! (the horrors of JIT!)

1-23 Machine Replacement analysis – After Tax Basis Quality/Maintenance “Downtime” consume 1 hour/shift The plant operates two 10 hour shifts (20 planned hours) but with downtime actual productive time is 18 productive hours/day on this machine Good Castings/day = 375*.971*18 = 6555 (1,645,300/251day-year) Scrap Castings/day = 375*.029*18 = 195 (48945/251day-year)

1-24 Quality Costs Are Like Icebergs! Sometimes Only 10% Are Visible The Rest Sink The Ship! Visible Costs : Scrap Rework Warranty Claims Hidden Costs : Eng/Mgt Time Downtime Increased Inventory Decreased Capacity Customer Dissatisfaction Lose of Market Share

1-25 Quality Cost Issues: Eng/Mgt time: = Inspect time: = hr/wk Warranty Claims = “Goodwill Costs”= 8000 Total These Costs $ Machine Replacement analysis – After Tax Basis

1-26 Machine Replacement analysis – After Tax Basis “Product Issues” Prod Costs (labor/mat’l/etc.) = 7.00 Avg. Sale Price= 8.00 NOTE: in most JIT (LEAN) systems cost must drop 5 to 10% annually to customer!!!! Annual Income Defender (Rev – Costs) Costs: Pr. Cost (All Castings) + Qual. Costs + Maint. Costs 7*( ) = $11,980,865 Revenue: Price * # Good Parts = 8* = $13,162,400 Income: 13,162,400 - $ 11,980,865 = $1,181,535

1-27 Machine Replacement analysis – After Tax Basis Challenger Equipment Design Capacity: 235 molds/hr (470 parts/hr) Part Tolerance: ” across parting line Average Quality: 0.5% defectives Average Maintenance: $8500/yr This machine has ‘built-in’ quick change pattern technology so change is about 5 minutes (0.083 hours) 750 parts takes (1.6 hrs hr) = 1.68 hrs on this unit This machine has an effect production rate of: 445 parts/hour

1-28 Machine Replacement analysis – After Tax Basis Company does Preventative Maintenance so this machine works 20 hr/day # Good Castings: 445*20*.995 = 8855*251= 2,222,730/yr # Scrap Castings: 445*20*.005 = 44*251 = 11170/yr Quality Costs: Eng/Mgt time:NONE! Insp. Time (spot Check) 5hr/wk*51= $6375 Warranty Costs $625 Goodwill CostsNONE! Total Q. Costs:=$7000

1-29 Machine Replacement analysis – After Tax Basis Product Issues: Production Costs: $7.10 Avg Selling Price:$8.15 (higher due to improved tolerances but will have to achieve continuing 5 – 10% reduction annually) Annual Income Challenger (Rev – Costs) Costs: Pr. Cost (All Castings) + Qual. Costs + Maint. Costs 7.1*( ) = $15,875,690 Revenue: Price * #Good Parts = 8.15* = $18,115,250 Income = $18,115,250 - $15,875,690 = $2,239,560

1-30 Machine Replacement analysis – Depreciation Issues Defender (7yr MACRS asset now 3 yrs old) Initial Cost:$1.5 Million Present Mkt. Value:$650,000 Pr. Book Value (1.25M – ( )*1.25M) :$546,250 Salvage Value (5 yrs): $220,000 Challenger (7yr MACRS asset) Initial Cost:$1 Million Salvage Value (5 yrs):$425,000

1-31 Machine Replacement analysis – After Tax Basis – Depreciation Schedule YR% Red.Chal. Depr Def. Depr Bk Value after 5 years: (Chal) (def.)

1-32 Machine Replacement analysis – After Tax Basis: 38% C. Tax rate, 12% MARR Potential Cap. Gain not taken by keeping Defender Saving in Income Tax Burden for not getting Cap. Gain of Selling Defender at > Bk Value Long Term Cap. Gain -- Taken

1-33 Machine Replacement analysis – After Tax Basis: 38% C. Tax rate, 12% MARR Long Term Cap. Gain Taken {since salvage value ($425K) exceeds Bk. Value ($223K)}

1-34 Defender “Followup” You’re the Engineer – think about what to do? Q 1 (homework): How much can this company spend to add ‘Quick-Change’ technology to existing machine? Q2 (homework): Just by ‘Fixing’ Quality Issues, could the defender be kept? Show why or why not.