Essentials of World Class Operations

Session 1

Introduction to
Operations Management

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Teaching Learning Plan (TLP)

The subject Essentials of World Class Operations provides the
learner a culture of problem solving, continuous improvement,
effectiveness and excellence in operations.
The learning process primarily focuses on continual improvement in
quality, cost, time, flexibility and customer needs.

Learning Objective
1 To understand the world’s most superior principles and
practices of Operations Management
2 To appreciate the vital role that Operations Management
plays in making businesses successful irrespective of the
nature of the business.
3 Discover and understand the nature and best practices of
operation management

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 Topics Index

S. No Reference No Particulars

1 Topic 1 Introduction to Operations Management

2 Topic 2 Quality Management - Evolution

3 Topic 3 Quality Management – Cost of Quality

4 Topic 4 Delivery On-Time-In-Full & Lead Time

5 Topic 5 Production Planning, Scheduling & Control

6 Topic 6 Production & Productivity Management

7 Topic 7 5-S, Lean and TPM

8 Topic 8 Problem Solving, Differential Diagnosis & 6 Sigma

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Reference Books

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 Session Objective

1. Key Deliverables of Operations – Quality ,Delivery, Lead Time,

Productivity of resources, Cost of inputs.

2. Customer-centricity in operations management (where the

receiver of the material or information is the customer).

3. Understand SIPOC (Supplier-Input-Process-Output-Customer)

terms, and its applicability

4. Definitions by Dr W.E. Deming of Management as ‘Control of

Variation’ and of Quality as ‘Pride of Workmanship’.

5. Definition of Quality by Juran as Fitness for Use.

6. Conceptual understanding of Acceptance Sampling and Sampling

Plans for batch type of operations.

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What is a Transformation Process?

A transformation process is defined as

a use of resources to transform inputs
into some desired outputs

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 What are the typical inputs for a process?

Input Process Output

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What Is Operations Management?

The operations function involves the conversion of inputs into outputs
The Key deliverables of operations?

 Raw Goods and/or

Materials Transformation Services

 Labour
Resources

 Machine
 Working
Capital

Input Process Output

Cost Productivity Quality & Delivery

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 OM is a process oriented discipline
• A process is interrelated activities performed in some sequence
to transforms inputs into valuable outputs.

Inputs Transformation Outputs

Service

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Management Basics

What is

- Business Functions
- A Process
- System

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 Efficiency versus Effectiveness

• Efficiency – doing something at the lowest

possible cost

• Effectiveness – doing the right thing to create the

most value to the company

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Major functions of Business

Organizations

 Marketing – generates demand

 Production/operations – creates the
product
 Finance/accounting – tracks how
well the organization is doing, pays
bills, collects the money

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 Options for Increasing Contribution

Finance/
Marketing Accounting OM
Option Option Option

Increase Reduce Reduce

Sales Finance Production
Current Revenue 50% Costs 50% Costs 20%
Sales 100,000 150,000 100,000 100,000
Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000
Gross Margin 20,000 30,000 20,000 36,000
Finance Costs – 6,000 – 6,000 – 3,000 – 6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500
Contribution 10,500 18,000 12,750 22,500

All figures in Rs
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What Oper Managers do?

Ten Decision Areas
 Service and product design
 Quality management
 Process and capacity design
 Location
 Layout design
 Human resources, job design
 Supply-chain management
 Inventory management
 Scheduling
 Maintenance

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 SIPOC
Diagram

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SIPOC Defined

SIPOC is an acronym standing for

1. S = Supplier(s)
2. I = Input(s) & key requirements
3. P = Process
4. O = Output(s) & key requirements
5. C = Customer(s)

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 SIPOC Defined

- A SIPOC Diagram is a visual representation of a

high-level process map; including suppliers &
inputs into the process and outputs & customers
of the process
- Visually communicates the scope of a project
- Key point on forming a team to develop a SIPOC
Diagram: Involve a cross-section of those who
work with the process to create the diagram.
- No single person will have all the process
knowledge you need.

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How can SIPOC be used?

• SIPOC Diagrams help a team agree on project

boundaries and scope
• A SIPOC helps teams verify that
• inputs match outputs of upstream processes
• outputs match inputs of downstream processes

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 Example of SIPOC

Suppliers Inputs Process Outputs Customers

All Everything All Inter- Every thing All users of

suppliers of that goes into connected that comes your output
your inputs the process activities that out of the
produce the process
output

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Example of SIPOC
Step 1: Begin with the high-level process map

Suppliers Inputs Process Outputs Customers

Step 1

Step 2

Step 3

Step 4

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 Example of SIPOC
Step 2: List all of the outputs from the process

Suppliers Inputs Process Outputs Customers

Step 1
Examples
- Services
Step 2 - Products
- Reports
- Metrics
Step 3 - Raw data

Step 4

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Example of SIPOC
Step 3: Identify the customers receiving the outputs

Suppliers Inputs Process Outputs Customers

Step 1
Examples Examples
- Services - Internal
Step 2 - Products - External
- Reports - Vendors
- Metrics - End users
- Raw data - Management
Step 3
- Downstream
- Process
Step 4

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 Example of SIPOC
Step 4: List all of the inputs into the process

Suppliers Inputs Process Outputs Customers

Step 1
Examples Examples Examples
- Data - Services - Internal
- Parts Step 2 - Products - External
-Application - Reports - Vendors
- Raw materials - Metrics - End users
- Raw data - Management
Step 3
- Downstream
- Process
Step 4

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Example of SIPOC
Step 5: Identify the suppliers of the process inputs

Suppliers Inputs Process Outputs Customers

Step 1
Examples Examples Examples Examples
Internal - Data - Services - Internal
External - Parts Step 2 - Products - External
Vendors -Application - Reports - Vendors
Producers - Raw materials - Metrics - End users
Management - Raw data - Management
Step 3
Upstream - Downstream
Process - Process
Step 4

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 An Example: Release of PO

Suppliers Inputs Process Outputs Customers

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An Example: Release of PO

Suppliers Inputs Process Outputs Customers

Verify
Indent

Call for
Quotation

Negotiate

Release PO

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 An Example: Release of PO

Suppliers Inputs Process Outputs Customers

Verify Purchase Supplier/

User Dept Indent
Indent Order Vendor
Accounts Budget
allocations Call for Intimation
Stores Accounts
Quotation Note to A/c
Dept
Planning Inventory
status report Negotiate Intimation Storekeeper
Note to store
Production
Plan Release PO Intimation Quality
Note to QC Control Dept

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Sample SIPOC

Grocery Family
Shop members/
Guest

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History: how did we get here…

• Deming and Juran outlined the principles of Quality

Management.
• Tai-ichi Ohno applies them in Toyota Motors Corp.
• Japan has its National Quality Award (1951).
• U.S. and European firms begin to implement Quality
Management programs (1980’s).
• U.S. establishes the Malcolm Baldridge National
Quality Award (1987).
• Today, quality is an imperative for any business.

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The Quality Guru – Edward Deming

Quality is
“uniformity and
dependability”
Focus on SPC
and statistical
tools
“14 Points” for
management
PDCA method 1900-1993

1986

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 Remove Barriers that rob People of
Pride of Workmanship

Eliminate everything that rob the pride of workmanship.

For example, the evaluation system. Negative evaluation that focuses in
negative details will destroy the desire of employees or staff to improve
performance.
All worker want to do their job in a good way and they don’t want also to
be sentenced inaccurate or subjected to unfair criticism.
Set an arbitrary goal the employee can not possibly achieve and you
rob them of pride of workmanship. Tell the employee to do a task,
reprimand them if they do it wrong but don’t give them the tools to
measure and know if they did it right or wrong and frustration will kill
pride of workmanship. Killing pride of workmanship is way too easy.

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The Quality Guru – Joseph Juran

Quality is “fitness for
use”
Pareto Principle
Cost of Quality
General management
approach as well as
statistics
1904 - 2008

1951

Like Deming, Juran wanted employees to know who uses their

products, whether in the next department or in another organization.

Quality goals based on meeting the needs of customers and

suppliers alike at minimum combined cost are then established.

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 Three Aspects of Quality

1. Customer needs
2. Standards & specifications
3. Conformance to standards

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STAGES OF QUALITY
In any organisation Quality is at three levels.

• Organisational Quality.
– Organizational strategy and the various operational
systems i.e whether the organization is doing the right thing

• Process Quality.
– the quality of inputs and outputs and inter functional
activities that ensure goods and services produced meet
customer requirements

• Individual Quality.
– the performance of every person in the
organization

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 Process quality can be divided into
three major stages

• QUALITY OF DESIGN
– This is the stage where the customer needs and
requirements are translated into products and services that
would satisfy the customer.
• QUALTIY OF CONFORMANCE
– This takes the design requirements as the basis to measure
and control and ensures that inputs and outputs are in
compliance with customer requirements.
• QUALITY OF PERFORMANCE
– Each firm or organization needs to determine the leaves of
performance of the product / service in the market place,
market research, warranty classes, repair calls etc.

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Fitness for Use

Results in Customer Satisfaction Addresses Customer Dissatisfaction

Juran proposed a simple definition of quality: “fitness for use.”

This definition of quality suggests that it should be viewed from both external
and internal perspectives; that is, quality is related to
(1) product performance that results in customer satisfaction;
(2) freedom from product deficiencies, which avoids customer dissatisfaction

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 Fitness For Use
Q = Fitness for Use
Customer Delight

Right Product/Service Features Free from Deficiencies

Results in Customer Absence of Customer

Satisfaction Dissatisfaction
First to understand
customer need

Cycle Time Warranty Waste

Price Market Share

Increases Revenue Reduces Cost

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The Acceptance-Sampling

Acceptance sampling is concerned with

inspection and decision making regarding
products.
Three aspects of sampling are important:
1. Involves random sampling of an entire “lot”
2. Accept and Reject Lots (does not achieve
quality improvement) “Lot sentencing”
3. Audit tool

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 The Acceptance-Sampling

Three approaches to lot sentencing:

1. Accept with no inspection
2. 100% inspection
3. Acceptance sampling

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The Acceptance-Sampling

Why Acceptance Sampling and Not 100% Inspection?

• Testing is destructive
• Cost of 100% inspection is high
• 100% inspection is not feasible (require too much
time)
• If vendor has excellent quality history

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 The Acceptance-Sampling

Types of Sampling Plans

There are variables sampling plans and attribute
sampling plans
1. Single sampling plan
2. Double-sampling plan
3. Multiple-sampling plan
4. Sequential-sampling

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The Acceptance-Sampling

Lot Formation
Considerations before inspection:
– Lots should be homogeneous
– Larger lots more preferable than smaller lots
– Lots should be conformable to the materials-
handling systems used in both the vendor
and consumer facilities.

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 The Acceptance-Sampling

Random Sampling

• The units selected for inspection should be

chosen at random.

• Random samples are not used, bias can be

introduced.

• If any judgment methods are used to select the

sample, the statistical basis of the acceptance-
sampling procedure is lost.

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The Acceptance-Sampling

Definition of a Single-Sampling Plan

• A single sampling plan is defined by sample size, n,
and the acceptance number c. Say there are N total
items in a lot. Choose n of the items at random. If at
least c of the items are unacceptable, reject the lot.
• N = lot size
• n = sample size
• c = acceptance number
The acceptance or rejection of the lot is based on the
results from a single sample - thus a single-sampling plan.

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 Single-Sampling Plan

Lot of N Items

Random
Sample of
n items
N - n Items

d Defectives
Inspect n Items
Found in sample
d>c d<c
n, c

Reject Lot Accept Lot

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Advantages and Disadvantages of

Sampling

Advantages
• Less expensive
• Reduced damage
• Reduces the amount of inspection error
Disadvantages
• Risk of accepting “bad” lots, rejecting “good”
lots.
• Less information generated
• Requires planning and documentation

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 Effect of Acceptance Number c on OC Curve

pa  p 

n  100, c  5 As the acceptance number c

decreases, the OC curve
n  100, c  4
shifts to the left, however, the
n  100, c  3 slope of the curve does not
n  100, c  2 change appreciably.
n  100, c  1 Plans with smaller value of c
n  100, c  0 provide discrimination at
lower levels of lot fraction
defective than do plans with
larger values of c.
p

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