PRODUCTION AND LOGISTIC MANAGEMENT
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,INTRODUCTION
1. Operations Management: an example
Example: cheeseburger stand
• Processing steps:
- Cut tomatoes
- Grill meat
- Unpack sandwich
- …
- Pack in box
→ Number of operations/activities that you have to do to make a burger
• Total production time: 15 minutes
• Clients want to wait for only 5 minutes
• Meat must be ordered in advance, it takes 4 weeks before it is being delivered
• Meat can only be kept for 2 weeks
Process map:
What are some of the operations management decisions that have to be taken? (problems and solutions)
1) Replenishment lead time is very long
• How often to place an order for meat: once every two weeks, every week, every day?
- Delivery costs vs. stocking costs
▪ The more expensive it is to keep something in stock, the more you want to order more
often (small quantities but ordering more often)
▪ The more expensive it is to order something, the more you want to order less (bigger
quantities but ordering less often)
- Uncertainty
• How much meat to order?
- Based on historical sales data and an analysis of customer behavior and consumption
patterns (forecasting)
- By the time the delivery arrives, the consumption pattern may have changed
• Renegotiate or find other supplier with shorter replenishment lead time
- This will be more expensive.
- How much more are you willing to pay for a shorter lead time
2) Customer lead time << production lead time
• Keep an intermediate buffer of semi-finished product
- How much burgers to keep in the buffer?
- Risk of losing customers that have to wait too long vs. risk of having to throw away cold or
leftover burgers
• Increase customer patience
- Video games, free drink, pre-order by phone
- Mix of phone orders and regular orders
• Reduce production lead time to 5’
- New technology (automatic oven, assembly machine, …)
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, - Requires investment analysis
3) Imagine customers arrive every three minutes
• Create an assembly line of five workstations, with a work content of 3’ each
• Without variability, one customer arrives exactly every three minutes, and one burger will be
ready exactly every three minutes.
• With variability (ex. five customers arriving together every 15’), there are queueing effects such
that intermediate buffers are needed.
4) Between lunchtime and dinner time, customers only arrive every 10 minutes
• Reorganize workstations, adjust buffers
5) My neighbor is also setting up a burger stand (what is your competitor doing?)
• Start a price war, offer loyalty bonuses (10 + 1 free)
• Expand your product offering
- Hotdogs, chicken burgers, pita, ice cream, …
• Expand your service offering
- Take-away, home delivery
- Seating and a large screen TV
- Good-looking, friendly smiling staff
2. What is Operations Management?
2.1 Definitions
“Operations Management is the planning, scheduling, and control of the activities that transform inputs
into finished goods and services”
• Basic definition
• They mainly stick to operational activities
“Operations Management deals with the design and management of products, processes, services and
supply chains. It considers the acquisition, development, and utilization of resources that firms need to
deliver the goods and services their clients want.”
• More wide definition
• Not only operating an existing system, they include design as well
• Ex. Where are we going to locate our new operation center?
“Operations Management is an area of management concerned with overseeing, designing, and controlling
the process of production and redesigning business operations in the production of goods or services. It
involves the responsibility of ensuring that business operations are efficient in terms of using as few
resources as needed, and effective in terms of meeting customer requirements. It is concerned with
managing the transformation process that converts inputs (in the forms of raw materials, labor, and
energy) into outputs (in the form of goods and/or services).”
• Thinking about what the customers want is also part of OM being efficient and being effective
• Try to do things as efficient as possible but also try to be effective (producing what the customer
wants + high quality
2.2 Managing transformation process (OM)
Operations management (OM) = management that is used to transfer inputs (raw materials and materials)
into outputs (finished goods or services)
• Operations are transformational processes!
• Output: goods and services
• Input: 2 types:
- Inputs that need to be transformed
- Inputs that are used to transform other inputs (ex. employees)
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, Feedback = measurements taken at various points in the information process
Control = the comparison of feedback against previously established standards to determine of corrective
action is needed
For every organization you should be able to determine what the process is that they do and that is what
you want to study in operations management
There are 3 types of typical transformation processes (not only raw materials can be transformed):
1) Typical material processors
• Transformation of raw materials and other materials
• Food production, mining and extraction, automotive, assembly, machine construction, retail
operations, transport, postal service etc.
2) Typical information processors
• Transformation of data into useful information
• Accountants, bank offices, market research organizations, telecom company, news service etc.
3) Typical people processors
• Transformation of people
• For example, when they go to the hairdresser, hotels, hospitals, theme parks, dentists, schools,
theatres etc.
Some operations described in terms of their inputs, purpose and outputs (additional examples):
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