INTRODUCTORY DOMAIN SESSION
ON OPERATIONS
PREPARATION COMMITTEE,
IIM INDORE
Operations Management
Summer Selection Process
Resume Shortlisting
● Some companies desire work experience
Online Assessment*
● Elimination Round
● Test is based on decision making skills in a simulated
business situation
● Tests may also be based on General Aptitude, LRDI, etc.
GD/*
● Can be domain specific
● Examples: How to leverage digital technology in logistics?, How to
cater to fluctuations in product demand?, etc
PI● Generally 2 rounds
● Mini-cases & (or) Guesstimates can be given
● Questions on Basics of Opeíations Domain Qs related to Prior Work
experience, Relevant Internships
● Be thorough with NPAD Qs
* Not every company pre-process have Online Assessment, GD
Operations Management
Introduction
Operations:
Set of all activities that manage and help in transformation of inputs (land, labor, capital, equipment, etc) into
outputs (goods and services) that provide added value to customers.
Source: ResearchGate
Relevance to profitability:
Marketing sets the optimal price, operations ensures that costs are low.
Cost-Volume-Profit relationship
Profit = (Price – Variable Cost) *Volume – Fixed Cost
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Operations Management
Types of Production Systems
4 P’s of Operations
● Product: designing the right product
● Process:applying the right processes to its production,
● Place: locating in a place that optimises the supply chain and distribution network
● Price: delivering it at a price the customer can afford
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Operations Management
Types of Production Systems
Criteria Job Production Batch Production Mass Production
Set-up time Long set-up time as every Can be reasonably fast Very long setup time as
new job requires a different as slight modifications it takes time to
setup in the existing process synchronize the whole
are required process
Cost per unit High Medium Low
Machinery Flexible Mix of general purpose Large number of
machines machines designed for
a specific purpose
Labour Highly skilled Semi-skilled Unskilled
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Operations Management
Supply Chain vs Value Chain
Supply Chain Value Chain
(conceptualized in Operations (conceptualized in Business Management
Management) by Michael Porter)
The chain of activities involved in adding value to the
The integration of all the activities through which
product at every single step till it reaches the final
a product is transferred from one level to another
consumer.
(upstream-manufacturer to downstream-end
Value Chain Mapping: helps create
user).
Sustainable Competitive Advantage
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Operations Management
Analyzing Processes
Takt Time Matching Customer Demand
vs vs
Actual Performance
Cycle Time
vs
Process Time
vs Value adding Processes
Lead Time
vs Non-value adding processes
Manufacturing Lead Time and waiting times
Customer Manufacturing Process Time Manufacturing Customer
Places order Starts Ends receives order
Manufacturing Lead Time
Lead Time
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Operations Management
Analyzing Processes
Takt time is the time in which you need to produce 1 unit of product in order to meet customer demand.
Eg: Demand = 3000 Units / Month.
Produce = 3000 units/month = 100 Units / day = 100 units/800 minutes = 1 unit/ 8 minute
Takt time = 8 minutes/unit
5 min 7 min 4 min
Raw Finished
Material A B C Goods
A B C Actual time taken to produce 1 unit of
Unit final product is 7 minutes
number In Out In Out In Out
Cycle time is the average time taken
1 0 5 5 12 12 16 7 by the process to produce 1 unit of
2 5 10 12 19 19 23 7 final product
3 10 15 19 26 26 30 7
4 15 20 26 33 33 37 7 Cycle time = 7 minutes/unit
5 20 25 33 40 40 44
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Operations Management
Analyzing Processes
5 min 7 min 4 min
Raw Finished
A B C Goods
Material
Process Time: Total active time spent
A B C to make one unit (Value Adding Time)
Unit Processing time = 5+7+4= 16 min
number In Out In Out In Out
1 0 5 5 12 12 16 Idle Time: Time for which machine or
2 5 10 12 19 19 23 service provider is waiting for someone
3 10 15 19 26 26 30 Idle time for C = 3 min
4 15 20 26 33 33 37
5 20 25 33 40 40 44 Waiting Time or Queue Time: Time
spent in waiting for a machine or service
Lead time is the time between when a customer places an Waiting time for 2nd unit at B= 2 min
order and when it's delivered Waiting time for 3rd unit at B = 4 min
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Operations Management
Toyota Production System (TPS)
Objective of OSCM: To produce required output with least possible resources (Quality and
productivity)
• Toyota production system is a philosophy of developed by Japanese carmaker Toyota to
achieve this objective.
• TPS is based on two philosophies central to the Japanese culture
• Respect for people
• Lean Manufacturing (Elimination of wastes)
Respect for people: Human resources are central to any operations and hence managing
them better plays a very important role in the functioning of system.
• Permanent Job to all employees: Job security, Loyalty to the company
• Regular bonus to employees
• Better supplier relations: Building trust with vendors and making them feel a part of
Toyota family.
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Operations Management
Bottleneck
Bottleneck: It is the activity or stage in the process that limits output the most and limits the
capacity of the entire process
5 min 7 min 4 min Common techniques to
eliminate bottleneck
Raw Finished
Material A B C Goods
Reducing cycle time by
• Automation
• Deploying more
Bottleneck = Process B manpower/equipment
• Line Balancing
Who will be the bottleneck if the Cycle time of process B is reduced to 4 min? (Redistribution of work)
• Removing wastes
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Operations Management
What is inventory?
Inventory can be defined as anything that is purchased or acquired for transformation or resale into
saleable goods.
Types of Inventory
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Operations Management
Why keep Inventory?
Holding inventories help the companies insulate its operations
from variations in the supply chain
Raw Material Finished goods
Suppliers Operations Customers
• To meet variation in product demand (Finished goods inventory)
• To provide a safeguard for variation in raw material supply (Raw material inventory)
• To take advantage of economic purchase order size (Raw material inventory)
• To maintain independence of processes within operations (WIP inventory)
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Operations Management
Financial Implications of Inventory
Inventory Savings Inventory Costs
• Shortage costs: Unavailabilityof ● Holding (or carrying) costs: Expenses
raw-material/ final product will lead to lost related to holding the inventory in the
business opportunity system.
● Inventory Storage Cost: Includes cost of
• Raw material cost: Discounts obtained while building /leasing warehouses , equipment
ordering in bulk for material handling, human resource etc.
• Ordering Costs: Includes cost of procurement ● Opportunity Cost of Capital: You should
and logistics cost. More the inventory less the visualize inventory as stacks of money
ordering costs and vice versa sitting on forklifts, on shelves, and in trucks
and planes while in transit.
Inventory management involves managing the economic balance i.e. maximizing the savings and
minimizing the costs.
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Operations Management
Economic Order Quantity (EOQ)
● The EOQ is a company's optimal order
quantity that minimizes its total costs
related to ordering, receiving, and
holding inventory.
● The EOQ formula is best applied in
situations where demand, ordering,
and holding costs remain constant
over time.
● One of the important limitations of the
economic order quantity is that it
assumes the demand for the
company’s products is constant over
time
Economic order quantity (EOQ) is the ideal order quantity a company should purchase to minimize
inventory costs such as holding costs, shortage costs, and order costs.
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Operations Management
Inventory Control Systems
• Continuous Review System (q system) - Event
triggered
• How often: System keeps continuous
track of inventory monitoring current
levels of each item
• When: When inventory is depleted to
Re-Order Point (certain inventory level),
order is replenishment by a quantity of
‘EOQ’
• How much: Fixed order Quantity model (EOQ)
• Periodic Review System (p system) – Time
triggered
• How often: Inventory is tracked after certain
period
• When: Fixed time Period model
• How much: Order quantity is based on the
predetermined level of inventory to be
maintained as per demand trend
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Operations Management
Lean Manufacturing
Lean Manufacturing philosophy primarily focuses on Eliminating Waste from the system
Some Common Tools
Types of Wastes
used to reduce wastes
• 5S
• Kaizen
• Poka-yoke
• JIT Manufacturing
• Kanban
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Operations Management
TPS: Bird’s Eye View
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Operations
Just In Time
• Supplying goods as close as possible to when they
are actually needed
• Manufacturing companies- Parts & RM arrive just
before they are added to final product
• Companies that resell- Goods arrive just before
customer purchases
• Less inventory- Free Cash for other uses
• Requires constant & precise monitoring of demand-
Kanban is used
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Operations
Just In Time
• Kanban- scheduling system
• Signal between various points of production
which can alert when next part or product is needed, Success of JIT depends upon-
Pull System • Steady production
• Helps to achieve goals of JIT- Streamlining, • High-quality workmanship
Efficiency, Improving Quality • No machine breakdowns
• Demand Overestimation- Inventory Holding • Reliable suppliers
Cost,
• Demand Underestimation- Lost Sales,
• Electronic Inventory Systems
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Operations
Just In Time
Advantages Disadvantages
• Short- Production runs- • Potential disruptions in the supply chain
manufacturers can quickly • Breakdown at supplier could conceivably stall
move from one product to the entire production process
another
• e.g. Toyota's JIT inventory system nearly caused
• Reduces costs by minimizing the company to come to a screeching halt in
warehouse needs February 1997, after a fire at Japanese- owned
• Less money spent on raw materials automotive parts supplier
because bought just enough resources • A sudden unexpected order/ spiked
to make the ordered products and no demand may not be satisfied
more
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Operations
Six Sigma (6σ)
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Operations Management
Six Sigma (6σ)
• Obsession for quality
• Quality is a compulsion, no
more a choice
• Strategic weapon to
differentiate from competition
• In global economy quality is
just an entry ticket
• Motorola launched 6σ in 1987
• GE in 1996 (Jack Welch)
• India- Tata Steel, Asian Paints,
L&T Switch Gear etc.
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Operations Management
Six Sigma (6σ)
• Set of techniques and tools for
process improvement Focus of six sigma
• A Metric to measure variance
defects, outside-in perspective Reduce Variation
• Six Sigma describes quantitatively
how a process is performing Reduce Defects
• Defect - anything outside of
customer
requirement / product specifications
Delighting Customers
• Defective- An item that contains at
least one defect can have more Reduce costs
than one defect
• To achieve Six Sigma, a process Reduce cycle time (CT)
must not produce more than 3.4
defects per million opportunities
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Operations Management
Six Sigma (6σ)
SIGMA DPMO % OF SUCCESSFUL
(σ) OPERATIONS
1 691,462 30.9%
2 308,538 69.1%
3 66,807 93.3%
4 6,210 99.4%
5 233 99.98% UCL/LCL - Upper/Lower Control Limits
vs
6 3.4 99.99966% USL/LSL - Upper/Lower Specification Limits
D efine M easure A nalyze I mprove C ontrol
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Operations Management
Lean & Six Sigma
Efficiency measure how
Effectiveness is the
well something is
Six Sigma? capability of producing a
performing relative to
Lean? desired result or output
existing standards
Lean Six Sigma
“Efficiency is doing things right, while effectiveness is doing the right things”
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Operations Management
Thankyou!
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