Operation Management (OM) Introduction Ing.J.Skorkovský, CSc, Department of Corporate Economy FACULTY OF ECONOMICS AND ADMINISTRATION Masaryk University Brno Czech Republic Coordinates •Lecturer : Ing.Jaromír Skorkovský, CSc. –Department of Corporate Economy (5th floor) –miki@econ.muni.cz –+420 731113517 •Study material : will be updated regularly (is.muni.cz) •Attendance : seminar and lectures are obligatory – see subject specification (is.muni.cz) – first important condition to be admitted to exam) •Excuses : if serious reason emerges- only written from is accepted •Seminar work : will assigned after some theory will be presented. Accepted seminar work is the second condition to be admitted to exam) •Tuition plan : at the end of this slide show • • What is going on ? Use of Operations Management (OM) in external environment (main target) General knowledge of OM methods acquired at university and long-standing experience Knowledge of methods and experience from research and literature - teachers Knowledge of methods and experience from outside world – consultants, managers, … Extent of knowledge Extent of knowledge OM all around us OM is the management of all processes used to design, supply, produce, and deliver valuable goods and services to customers TQM = Total Quality Management MRP, JIT, APS, Lean Manufacturing, Little´s law ERP: Marketing, Selling, Invoicing, Payment,…. ERP: Logistics, Transportation , Some OM methods •Theory of Constraints •Balanced Scorecard •Project Management methods (Critical Chain, SCRUM,…) •Material Requirement Planning and Just-in-Time •Advanced Planning and Scheduling •Six Sigma – quality management •Boston, SWOT and Magic Quadrant Matrices •Little ´s Law (relations between WIP, Throughput and Cycle time) •Linear programming (cutting, blending,..) •Yield Management •Kepner-Tregoe (support of decision making) • • Some tools •ERP-Enterprise Resource Planning (MS Dynamics NAV) –Basic installation, handling and setup –Inventory – Items – Transports –Purchase –dealing with Suppliers –Selling – dealing with Customers –Payment – Bank operations –Accounting basics –CRM- Customer Relationship Management –Manufacturing – Planning and Shop Floor Control – – • • • Some basic processes controlled by ERP –I. •Logistics (Warehouse management) –Replenishment (EOQ, ROP, Safety Stock, MRP) –Inventory costing (FIFO, Specific, Average, Standard, COGS) –Stock taking –MRP –Put-away, picking, bins, zones, cross docking –Shipment –Receiving Used abbreviations : EOQ – Economic Order Quantity; ROP – Reorder Point; MRP –Material Requirement Planning; COGS – Cost of Good Sold Some basic processes controlled by ERP –II. •Finance management (accounting) –Reporting (BS, Income statement,..) –Controlling (Cost management,…) –Banking operations – – – Used abbreviations : BS– Balanced Sheet Some basic processes controlled by ERP –III. •Manufacturing –Product design (BOM, Routing) –Machines (Capacity management) –Planning –Product registration –Concepts (Lean , MRP-II, JIT,DBR,….) –QM – – Used abbreviations : MRP-II – Manufactuirn Resource Planning = MRP+Resource Planning ; JIT – Just In Time; DBR-Drum-Buffer; QM-Quality Management Some basic processes controlled by ERP –IV. •CRM –Contact management –Opportunities –Market segmentation –Getting new leads – – Used abbreviations : CRM – Customer Relationship Management Some basic processes controlled by ERP –V. •Selling –Credit limits –Price lists and discounts –Drop shipment –Substitutions –Blank orders –Quotations –Invoicing –Due date performance –ATP|CTP – – Used abbreviations : ATP|CTP– Available to Promise | Capable to Promise Controlling processes in Supply Chain Management (SCM) Supply Production Orders (Demands) Operation Strategies and Innovations , R&D Forecasts, Blank Orders Long term planning Marketing Logistic operations Routing control, TQM Packaging , Transportation MRP, Replenishment MRP_II ; JIT, Capacities Cash flow Strategic Operational Tactical Operational Used abbreviations : R&D –Research and Development; TQM-Total Quality Management; JIT- Just –In-Time; MRP_II-Manufacturing and Resource Planning Used abbreviations (slide number 3 ): : ERP - Enterprise Resource Planning ; APS – Advanced Planning and Scheduling Deming cycle (based on periodicity) Plan: Define the problem to be addressed, collect relevant data, and ascertain the problem's root cause (e.g. by use of TOC=Theory of Constraints) Do: Develop and implement a solution; decide upon a measurement to gauge its effectiveness. Check: Confirm the results through before-and-after data comparison. Act: Document the results, inform others about process changes, and make recommendations for the problem to be addressed in the next PDCA cycle. Used abbreviations : TOC – Theory of Constraints Simple example of Deming cycle Plan: Excessively high value of the stock, which is one of the reasons of low liquidity of our company (converting assets to cash)= problem's root cause detected by use of TOC=Theory of Constraints and Current Reality Tree (will be presented) Do: Implement algorithm controlling stock replenishment based on MRP principle and ROP and Safety Stock level setup. Metrix for effectiveness will be inventory dollar days (IDD) - which is one of TOC metrics (will be mentioned during the course) Check: ERP inventory costing routines before and after implementation of stage Do application Act: Document the results, inform others about process changes, and recommend how to continue in inventory management routines (e.g. use of EAN readers or calculation of inventory service level in order to speed up inventory procedures such as put-away and pick or optimize inventory level differently) in the next PDCA cycle. Used abbreviations : MRP – Material Requirement Planning – will be presented; ROP – Reorder Point –see next slide); ERP- see slide number 12 IDD definition : https://elischragenheim.com/2016/05/23/throughput-dollar-days-tdd-and-inventory-dollar-days-idd-the -value-and-limitations/ Explanation of some terms used in PDCA Deming Cycle simple example (home study) I. •Service level :represents the expected probability of not hitting a stock-out. This percentage is required to compute the safety stock. • •Intuitively, the service level represents a trade-off (compromise) between the cost of inventory and the cost of stock-outs (which incur missed sales, lost opportunities and client frustration among others). Resource: https://www.lokad.com/service-level-definition-and-formula M - stock-out cost (often 3 time the gross margin) H - carrying cost per unit for the duration of the lead time 1litr milk pack -> 1.50€ selling price, 10% margin -> =0,15 €. Lead time = 4 days. The annual carrying cost is 1.50 € (the value is high because milk is a highly perishable product). Stock-out cost ->3 time the gross margin, that is to say->M= 0.45€. H=(4/365)x 1.5≈0.0055 H≈0.0055 . So p=98,5% 16 D Q D time D= Demand = Reorder Quantity=EOQ Safety Stock 80 50 10 T T ROP= Reorder Point =50 (in our model) ROP > 1 > 2 > > 1 2 - No replenishment suggestion (current quantity >= ROP -Replenishment is suggested (current quantity < ROP and quantity may be EOQ Explanation of some terms used in PDCA Deming Cycle simple example (home study) II. Used abbreviations : EOQ – Economic Order Quantity – will be explained dúrin this course Project management Theory of constraints Production Critical chain Drum –Buffer-Rope MRP-MRP-II,JIT,APS Linear programming Cutting, blending Total quality management Pareto, ishikawa Product postitioning Little´s law Boston Matrix Gartner QM Workflow CONWIP Logistics EOQ Decision Making Kepner-Tregoe Hurwitz Business Intelligence Yield management Prospect Theory Another point of view ABC Pareto, Ishikawa Six Sigma Product Life Cycle LEAN Function block Logistic more in detail will be presented later in this show SCRUM Used abbreviations : QM– Quadrant Matrix; CONWIP – Constant Work in Progress; EOQ – Economic Order Quantity ; MRP - Material Requirement Planning This will be modified in following South African project show (example of Balanced Score Card use ) Another point of view Demand Financial needs Money Product Operations See next slide Function block Logistic-simplified Orders (dependent demand) Forecasts (independent demand) Inventory Management Inventory Costing Transportation Warehouse Management Will be part of our course regarding ERP system MS Dynamics NAV Procedures-simplified Resource (modified) : dowtsx Input Transformation Output Processing (not organised set of processes, will be presented also as a introduction to project management PWP presentation later) • Input check • Put-away • •Cross-docking • Transfer • to • Production • • Consumption registration •Production Output registration • •Inventory value •calculation • • Output check •(Quality control) • •Delivery • •Load-despatch • •Production Planning • •Sales Order • • •Component replenishment • •Purchase Order • • •Invoicing • •Payment • Finished • goods to • Inventory • • Picking from • Inventory • • •Reporting • •Statistics Resource : Skorkovský Your main task (to organize processes based on business logic) • Input check Put-away Cross-docking • Transfer • to • Production • • Consumption registration •Production Output registration Inventory value calculation • Output check • •Shipment • •Load-despatch • •Production Planning • •Sales Order (demand) • • •Component replenishment • •Purchase Order • • •Invoicing • •Payment from •Customer Finished goods to Inventory • •Picking from • Inventory • • •Reporting • •Statistics • •Inventory value •calculation • • •Inventory value •calculation • • •Payment to •Vendor Transformation Input Output Control Logistics Resource : Skorkovský Your main task (possible problems, bottlenecks, undesirable effects..) • Input check • Put-away • •Cross-docking • Transfer • to • Production • • Consumption registration •Production Output registration • •Inventory value •calculation • • Output check • •Shipment • •Load-despatch • •Production Planning • •Sales Order • • •Component replenishment • •Purchase Order • • •Invoicing • •Payment from •Customer • Finished • goods to • Inventory • • Picking from • Inventory • • •Reporting • •Statistics • •Inventory value •calculation • • •Inventory value •calculation • • •Payment to •Vendor Application of TOC ->thinking tools->Current Reality Tree – first stage Resource : Skorkovský Your main task (Search - HOW ??? Measure impacts –HOW ??? and Destroy – HOW ???) Root Problem (e.g.low profit or lack of component ) Cause-Effect relations Cause-Effect relation Cause-Effect relation Cause-Effect relation Cause-Effect relation https://www.toc.tv/TV/video.php?id=701&open=excerpt#.V6xCP00kpFo •APS result ->18.8.->23.8. a 27.8.->10.9 Other problems (examples which could be solved are mentioned in PWP Project activities (Činnosti spojené s projektem) Tuition –plan-theory •OM-intro – done (this slide show) •Real project-South African client (wholesale) •Theory of constraints •Critical chain and project management •Quality management I. (Pareto+ Ishikawa) •Quality management II. (Six Sigma, Kaizen, Poka Yoke) •Business metrics (use of matrices – Boston, Gartner MQ) •Balanced Score Card •DBR , CONWIP •Decision making (Kepner-Tregoe methodology,..) •P&Q analysis (mix of products) •Business Intelligence – intro and concept •Little´s law •Yield management – intro to concept •Linear programming – concept and use •Business Intelligence • • • Tuition –plan-ERP used in OM •ERP basics (principles) and ERP handling and installation •Purchase – basic parameters and impacts of parameter setting (Stock, General Ledger) •Sale - basic parameters and impacts of parameter setting (Stock, General Ledger, Discounts) •Inventory – basics •Transfers of items •Banking operations (posting and payments) •Customer Relationship Management •Basic tools used for analysis of created transactions • • Thanks for your attention