March 31, 2015

Financial Analysis for Operations Management Decisions - Review Notes

Operations managers has to do engineering economic analysis and financial analysis of their project and expenditure proposals.

Chapter Outline of

Richard B. Chase, F. Robert Jacobs, Nicholas J. Aquilano, Operations Management for Competitive Advantage, 10/e, McGraw-Hill Higher Education, 2004

Concepts and Definitions

Fixed Costs
Variable Costs
Sunk Costs
Opportunity Costs
Avoidable Costs

Expected Value
Economic Life and Obsolescence

Straight-Line Method
Sum-of-the-Years' Digits (SYD) Method
Declining-Balance Method
Double-Declining Balance-Method
Depreciation-By-Use Method

Activity-Based Costing
The Effects of Taxes

Choosing Among Investment Proposals

Determining the Cost of Capital

Interest Rate Effects
Compound Value of a Single Account
Compound Value of An Annuity
Present Value of A Future Single Payment
Present Value of An Annuity
Discounted Cash Flow

Methods of Ranking Investments

Net Present Value
Internal Rate of Return

Ranking Investments with Uneven Live

Relevant Costs for Decision Making

Financial Analysis for Operations Management Decisions - Summary for Revision

Financial analysis tools and concepts are important for OM.

These tools include the types of costs, activity-based costing, risk, and expected value, and depreciation for more periodic operating decisions. When the focus of OM decisions is capital investment, issues of cost-of-capital calculations and methods of ranking investment proposals are important.

Fixed costs are any expenses that remain constant regardless of the level of output of production.

Variable costs, conversely, vary directly with changes in output levels.

Sunk costs are past expenses or investments that have no salvage value and therefore should not be taken into account when considering investment alternatives.

Opportunity costs are the benefits lost that result from choosing one action over another action.

Avoidable costs are expenses not incurred if an investment is made but that must be incurred if the investment is not made. Avoidable costs becomes the cost savings, for the proposed projects and hence enter into financial or economic analysis as positive cash flows against the negative cash flows due to investment in the project.

Expected value is the sum of expected outcomes multiplied by the probability of their occurrence. Expected values result because there is risk inherent in any investment decision.

The life of a machine or other income-producing assets is estimated and for accounting purposes, the asset is depreciated over this period. Depreciation is a method for allocating costs of capital equipment. Methods of depreciation include the straight-line method, the sum-of-the-years' digits method, the declining-balance method, the double-declining -balance method, and the depreciation-by-use method.

Activity based costing is an important accounting concept for OM and it is the practice of allocating overhead to better reflect actual proportions of overhead consumed by the production activity. Causal factors or cost drivers are identified and are used as the basis for overhead allocation as direct labor is not the best basis for allocating all overheads.

When choosing among investment proposals, investments are generally ranked according to the return they yield in excess of their cost of capital. Investment decisions can include the purchase of new equipment or facilities, replacement of existing equipment or facilities, make-or-buy decisions, lease-or-buy decisions, temporary shutdowns or plant abandonment decisions, or the addition or elimination of a product or product line.

Other financial decisions include determine the cost of capital, tax issues, and interest rate effects on OM decisions. Ways to rank investments include the net present value method, payback period, and the internal rate of return.

Costs relevant to aggregate production planning include basic production costs to costs associated with changes in the production rate, inventory holding costs, and backordering costs.

Important Operations Decisions Requiring Financial Analysis

1. Purchase of new equipment or Facilities
2. Replacement of existing equipment or facilities
3. Make or buy decisions (components)
4. Lease or buy decisions (equipment)
5. Temporary shutdowns or total plant closure decisions
6. Addition or elimination of a product or product line

Richard B. Chase, F. Robert Jacobs, Nicholas J. Aquilano, Operations Management for Competitive Advantage, 10/e, McGraw-Hill Higher Education, 2004

Originally posted at

Full material from the book

Updated 27 March 2015, 9 Dec 2011

March 30, 2015

Operations Scheduling - Review Notes

Chapter Outline of

Richard B. Chase, F. Robert Jacobs, Nicholas J. Aquilano, Operations Management for Competitive Advantage, 10/e, McGraw-Hill Higher Education, 2004

Manufacturing Execution Systems
The Nature and Importance of Work Centers
Typical Scheduling and Control Functions
Objectives of Work-Center Scheduling
Job Sequencing
Priority Rules and Techniques
Scheduling n Jobs on One Machine
Comparison of Priority Rules
Scheduling n Jobs on Two Machines
Scheduling a Set Number of Jobs on the Same Number of Machines
Scheduling n Jobs on m Machines
Shop-Floor Control
Gantt Charts
Tools of Shop-Floor Control
Input/Output Control
Data Integrity
Principles of Work Center Scheduling
Personnel Scheduling in Services
Scheduling Consecutive Days Off
Scheduling Daily Work Times
Scheduling Hourly Work Times
Summary for Revision

Manufacturing execution systems do scheduling.

Work Center

Work centers are areas in a business in which productive resources are organized and work is completed. It may be a single machine, a group of machines, or an area where a particular type of work is done. The work centers can be organized in a variety of ways including by function in a job-shop configuration; or by product in a flow, assembly line, or group-technology-cell configuration.

Scheduling and controlling functions of an operation are critical. The functions must be performed beginning with allocating orders, equipment, and personnel to work centers or the specified locations for short-run capacity planning. Next is the determination of the sequence of order performance or establishing job priorities. Initiating the scheduled work or dispatching of orders is followed by shop-floor control.

Loading - Infinite loading or Finite loading

A characteristic that distinguishes one scheduling system from another is how capacity is considered in determining the schedule. The scheduling systems can use infinite loading or finite loading.

Infinite loading occurs when work is assigned to a work center simply based on what is needed over time.

Finite loading actually schedules in detail each resource using the setup and run time required for each order.

Another characteristic, that distinguishes scheduling systems, is whether the schedule is generated forward or backward in time.

Processes can be machine limited or labor limited. Determining the sequence of orders and establishing job priorities are critical as is dispatching orders.

Shop floor control

Shop floor control is necessary to review job status and expediting late and/or critical orders when necessary. The schedule must be revised as necessary to reflect changes in order status.

Various priority rules work to satisfy job arrival patterns, the number and variety of machines in the manufacturing facility, the ratio of workers to machines in the shop, the flow pattern of jobs through the shop, the priority rules for allocating jobs to machines, and schedule evaluation criteria. Priority rules for allocating jobs to machines can use a variety of methods.

The objectives of work-center scheduling are to meet customer due dates, minimize lead-time, minimize set-up time, minimize work in process inventory, and maximize machine or labor utilization.

Role of Simulation

In manufacturing job shops, scheduling relies heavily on simulation to estimate the flow of work through the system to determine bottlenecks and adjust job priorities. Software packages are available to do this. In services, the focus is typically on employee scheduling using mathematical tools that can be used to set work schedules in light of expected customer demand.


Originally posted at 2utb2lsm2k7a/ 436

Updated 30 March 2015, 9 Dec 2011

Operations Management Update 2014

MBA Core Management Knowledge - One Year Revision Schedule

March 2015

Construction Management in Transportation Projects
FTA Guide 2006
Federal Transit Administration


December 2014

Learn from the Manufacturing Leaders of the Week - Industry Week Articles

 SEP 2014 Harvard Business School  WORKING PAPERS
Chief Sustainability Officers: Who Are They and What Do They Do?
by Kathleen Miller and George Serafeim

April 2014

Demystifying Technology Decisions

Europe's Solution Factories - How some manufacturing companies are successful in competing against low labor cost economy - but good quality competition. The strategies that they are using.

They use one or more of four distinct strategies:
They leverage data flows to integrate closely with their supply chain partners;
they optimize customer value across the whole chain, not just their part of it;
they cooperate with suppliers to rapidly improve their manufacturing processes; and
they harness their technical capabilities to offer a high degree of product customization for their customers. In short, they work with partners to manufacture solutions for other partners.

HBR article - April 2014


36 Operational Excellence Stats Every Manufacturing Leader Must See
Posted by Mike Roberts on Mon, Jan 27, 2014

Managing Operational Excellence
Quality Magazine Article

POMS 2014 Martin K. Starr Excellence in  Production andOperations Management Practice Award
Dr. Dean Bartles, Vice‐President, Advanced Programs and Strategic Growth, General  Dynamics  
Mr. Josue Gomes da Silva, CEO, Coteminas, Inc.              

Dr. Dean Bartles

Dr. Dean Bartles has been a manager with General Dynamics for twenty‐nine years and currently serves as Vice President, Advanced Programs and Strategic Growth, and General Manager of the Ordnance and Tactical   Systems Division—the largest strategic business unit in the firm.  He has previously served as Vice
President and Director of Business Development, Director of International Marketing and has been a Program Manager and Administrator.
In his career at General Dynamics, Dr. Bartles has excelled in operations management practice
through the introduction of many manufacturing innovations and improvements.  He first
managed modern co‐production facilities in Egypt and Turkey under US supervision.  He
successfully implemented lean manufacturing at three heavy manufacturing plants, greatly
increasing productivity.  His plants have received numerous awards for environmental and
manufacturing excellence, including a US Secretary of Defense Environmental Excellence Award
for Sustainability and several General Dynamics Manufacturing Excellence Awards.   He serves
as Chairman of the board for the National Center for Defense Manufacturing and Machining
and is an International Director of SME.  In 2014 he will join the Board of the National Center
for Manufacturing Science.

Dr. Bartles received his PhD in Technology Management from Indiana State University, a
Doctorate in Business Administration from Nova Southeastern University, Master’s degrees in
Business from Tampa College and Shippensburg University and a BS in Business Administration
from Shepherd University.

Josue Gomes da Silva

Mr. JosueGomes da Silva isthe Chairman and Chief Executive Officer of Coteminas, a global bed and bath
home fashion products company based in Brazil, with manufacturing facilities in several countries in the
Americas. He joined the company in 1989 as Chief  Financial Officer and became CEO in 1993. As CEO, he developed international operations with rapidly increasing exports and, subsequently, with the
acquisition of Springs, Inc. in the U.S., was able to combine low cost, efficient South American
manufacturing facilities with brands and a distribution platform in the U.S. and Canada.
Coteminas developed a vertically integrated operation including cotton production, ginning,
spinning, weaving, dyeing, printing and finishing of textiles.  With faster operations the firm was
able to move closer to the end user and serve more than 5,000 retail customers.  Beginning in
2009, Coteminas introduced 50 retail outlets, and today has about 250 stores. Under Josue’s
leadership, Coteminas diversified and increased production capacity by incorporating 17 new
plants into the group, acquiring some plants through mergers and acquisitions and others as
greenfield facilities.  A global sourcing platform was created through the establishment of
strategic alliances with suppliers in Pakistan, India, and China.  Today Coteminas operates a
completely integrated, dynamic global supply chain in textiles from cotton all the way to the
final consumer.

Mr. Gomes da Silva is founder and Chairman of the Board of Cantagalo General Grains S.A., a
company with integrated operations including the production, commercialization, and distribution of grains. Josue is a Board member of Embraer. He also is President of the  International  Textile Manufacturers Federation– ITMF, and is Chairman of  the  Brazil Chapter of  the  Brazil‐United States CEOs Forum‐ICESP.

Mr. Gomes da Silva has a graduate degree in civil engineering from the Federal University of
Minas Gerais (1986) and a law degree from Faculdade Milton Campos (Belo Horizonte, MG‐
1987). In 1989, he received a Master’s of Business Administration from Vanderbilt, and was
awarded Vanderbilt’s Founder’s Medal for First Honors in recognition of his academic
achievement. He has received numerous tributes for his operations and entrepreneurial
activities, including the Medalha da Ordem do Merito Industrial – CNI.

Basic Articles on Operations Management

Chapter Summaries of Chase - Aquilano Book

Material Requirements Planning - Review Notes for Chase et al. Book Chapter

Summary for Revision

When demand is dependent on multiple materials, managers use a concept known as materials requirements planning, or MRP, to determine demand for lower level items. MRP is a logical approach to determine the number of parts, components, and material needed to produce each end item. It also provides the time schedule specifying when each of these materials, parts, and components should be ordered or produced.

MRP has grown from planning materials to also planning for other organizational resources needed.

Bill of Materials gives the hierarchical details of finished product, main assemblies, sub assemblies, components and materials of a product.

From an organization's aggregate plan, the master production plan (MPS) is developed. The MPS is the time-phased plan specifying how many and when the firm plans to build each specific end item. Further down the MPS process is the MRP, which calculates and schedules all of the raw materials, parts, and supplies needed for production.

If customers give advance orders, management must specify a time fence, or period of time in which the customer can make changes in their order. Once this time has passed, the order becomes fixed. The MRP uses this fixed plan to create schedules to identify the parts and materials required to produce end items, the exact numbers needed, and the dates when orders for these materials should be released and be received or completed within the production cycle.

Today, computerized inventory systems for MRP control inventory levels, assign operating priorities for items, and plan capacity to load the production system. The goal of MRP is to get the correct materials to the right place at the right time.

The objectives of inventory management under an MRP system are to improve customer service, minimize inventory investment, and maximize production operating efficiency. The MRP interacts with the master production schedule, the bills of material file, and the inventory records file. Product demand data for MRP systems comes from two sources -- from customers who have placed firm orders and from forecasted or anticipated demand.

The bill of materials (BOM) file contains the complete product description listing the materials, parts, and components as well as the sequences in which the product is created. MRP outputs can take a variety of forms and can be classified as primary and secondary output reports. Capacity constraints can be determined using capacity requirements planning. An MRP program with a capacity requirements planning module allows rescheduling to try to level capacity through either backward or forward scheduling. The master schedule will try to level out the load so that requirements for work centers remain within the available capacity.

MRP II has expanded the role of MRP to include planning for staffing, facilities, and tools. Called manufacturing resource planning, it can plan and monitor all the resources of a manufacturing firm including manufacturing, marketing, finance, and engineering within a closed-loop system.

JIT is best suited to repetitive manufacturing. MRP is used in everything from custom job shops to assembly line production. The term flow manufacturing is now being used by many software vendors to describe new software modules that combine MRP and JIT logic.

MRP applications have many uses even in service organizations. But so far only a few service organizations have developed or implemented MRP. Many believe that it is a manufacturing tool.

Chapter Outline of

Richard B. Chase, F. Robert Jacobs, Nicholas J. Aquilano, Operations Management for Competitive Advantage, 10/e, McGraw-Hill Higher Education, 2004

Where MRP Can Be Used
A Simple MRP Example
Master Production Schedule
Time Fences
Material Requirements Planning (MRP) Systems
Purposes of MRP
Material Requirements Planning System Structure
Demand for Products
Bill of Materials File
Inventory Records File
MRP Computer Program
An Example Using MRP
Forecasting Demand
Developing a Master Production Schedule
Bill of Materials (Product Structure) File
Inventory Records (Item Master) File
Running the MRP Program
Improvements in the MRP System
Computing Work Center Load
Closed-Loop MRP
MRP II (Manufacturing Resource Planning)
Flow Manufacturing: Embedding JIT into MRP
Lot Sizing in MRP Systems
Economic Order Quantity
Least Total Cost
Least Unit Cost
Choosing the Best Lot Size


Originally posted in

Updated 30 March 2015, 10 Dec 2011

March 27, 2015

What is Operational Excellence in Manufacturing and Supply Chain?

Product quality, productivity and customer retention are the pillars of operational excellence. They  are critical to profitable manufacturing concerns. Operational excellence has emerged as the key management initiative to sustainable revenue and business growth.

What is operational excellence?

As defined by Michael Treacy and Fred Wiersema in a seminal Harvard Business Review article, “Companies pursuing operational excellence are indefatigable in seeking ways to minimize overhead costs, to eliminate intermediate production steps, to reduce transaction and other ‘friction’ costs and to optimize business processes across functional and organizational boundaries.”

Operational excellence is ultimately about delighting your customers, setting a new standard of performance in your industry and becoming the preferred supplier in your industry.  As a preferred supplier, you grow revenue with existing customers and  attract business away from your competition.

Operations is the delivery mechanism of the manufacturing enterprise, providing what the business sells and how that product gets to market. It is an engine driving the work in purchasing, production, distribution, logistics and inventory management. That engine depends on input from the front line of the business—sales, marketing and is supported by finance.

To connect processes with performance goals, companies need business intelligence (BI) capabilities, including metrics, key performance indicators (KPIs), dashboards and advanced reporting. With the right BI solution, manufacturers can gain crucial visibility into performance and ensure Operations is functioning at peak levels.

You can get a continuous view into key areas, can gain the ability to see problems as they happen,
can see trends developing, which allows you to take proactive action to prevent problems in real time or  before they happen. This means you can solve problems quickly and guarantee they have a minimal effect on your business. It helps to prevent losses and to improve revenues by identification of new, potentially profitable business opportunities.

Reference - IBM White Paper on Operational Excellence

The 12 Principles of Manufacturing Excellence: A Leader's Guide to Achieving and Sustaining Excellence
Larry E. Fast
CRC Press, Oct 11, 2011 - 266 pages
Explaining how to implement and sustain a top-down strategy for manufacturing excellence, The 12 Principles of Manufacturing Excellence: A Leader’s Guide to Achieving and Sustaining Excellence provides a comprehensive, proven approach for delivering world-class performance while also cultivating the right culture through leadership and mentoring.

Tapping into four decades of leadership experience, 35 years of it in the manufacturing industry, Larry Fast explains how to achieve vertical and horizontal alignment across your organization. He details a clear pathway to excellence via the 12 Principles of Manufacturing Excellence and provides a method for tracking progress—plant by plant and function by function. Emphasizing the importance of using Lean and Six Sigma tools to improve your business, the book:

Integrates strategy and leadership development
Paves a path for culture change–Operator-Led Process Control (OLPC)—that prepares hourly employees to take control of their processes and prepares management to enable them to do it
Details an audit process for tracking progress and ensuring sustainability
Includes a CD with color versions of the images in the book as well as a sample Manufacturing Excellence Audit, a sample Communications Plan, and a sample Training Plan that can all be easily customized for the reader’s use
This resource-rich book will allow you to spell out leadership expectations and provide your employees and associates with a clear understanding of their individual roles. Helping you keep everyone in your organization focused during the quest towards sustainable manufacturing excellence, the accompanying CD supplies the tools you and your team will need to pursue it with passion, confidence, and urgency.

Harvard Business Review on Manufacturing Excellence at Toyota
Harvard Business Press, 2008 - 246 pages
Few companies have so consistently inspired management best practices as Toyota. In everything from strategic operational design and quality improvement to integrated product development and management training, the company has achieved success through constant innovation. This collection shows just how Toyota does it and how you can apply these same lessons to fuel success in your company.

Leading Manufacturing Excellence: A Guide to State of Art Manufacturing
Patricia E. Moody

Aggregate Sales and Operations Planning - Review Notes

Aggregate operations planning involves translating annual and quarterly business plans into broad labor and output plans for the intermediate term of 6 to 18 months. Its objective is to minimize the cost of resources required to meet demand over that period. It takes a broad view of the organization and attempts to match the demand for the firm's products with its ability to supply these products at a minimum cost.

Long-range planning is done once a year, focusing on a multi-year horizon while medium-range planning covers 6 to 18 months into the future. Short-range plans cover one day to six months in weekly increments. The master production schedule generates the amounts and dates for the production of end products and is fixed in the short run.

Rough-cut capacity planning verifies that the scheduled production is possible given capacity constraints of facilities, equipment, and labor. Materials requirements planning takes the end product requirements from the MPS and breaks them down into their component parts and subassemblies to create a material plan.The final assembly schedule provides the operations required to put the product in its final form. Production activity control focuses on scheduling and shop floor control activities.

Aggregate production planning varies from company to company. Strategies of production planning include maintaining a stable work force working at a constant rate, using a stable work force with variable work hours, or using a chase strategy where workers are hired or laid off as the demand varies. In addition, managers may choose to subcontract some portion of production.

Costs relevant to aggregate production planning include basic production costs to costs associated with changes in the production rate, inventory holding costs, and backordering costs.

To receive funding, operations managers are generally required to submit annual, and sometimes quarterly budget requests.

Aggregate operations planning links the corporate strategic plan and the capacity plans into broad categories of work-force size, inventory quantity, and production levels. It does not do detailed planning.

In the case of aggregate planning based on decision rules, once decision rules for production planning have been selected, it is important for management to maintain them. Historical data and simulations should be used to select an optimal decision rule.

Yield management allocates the right type of capacity to the right type of customer at the right price and time to maximize revenue or yield and it can make demand more predictable which is important to aggregate planning.

Chapter Outline

Richard B. Chase, F. Robert Jacobs, Nicholas J. Aquilano, Operations Management for Competitive Advantage, 10/e, McGraw-Hill Higher Education, 2004

Overview of Sales and Operations Planning Activities
The Aggregate Operations Plan
Production Planning Environment
Relevant Costs
Aggregate Planning Techniques
A Cut-and-Try Example: The C A & J Company
Aggregate Planning Applied to Services: Tucson Parks and Recreation Department
Level Scheduling
Mathematical Techniques
Yield Management
Operating Yield Management Systems

Case: Bradford Manufacturing - Planning Plant Production


Richard B. Chase, F. Robert Jacobs, Nicholas J. Aquilano, Operations Management for Competitive Advantage, 10/e, McGraw-Hill Higher Education, 2004

Originally posted at knol 439

Updated  27 March 2015, 10 Dec 2011

Inventory Control - Review Notes for Chase et al. Book Chapter

Inventory is the stock of any item or resource used in an organization.

Inventory can exist as raw materials, finished products, components parts, supplies, and work-in process.

Organizations keep inventory for a number of reasons including to maintain independence of operations, to meet variation in product demand, to allow flexibility in production scheduling, to provide a safeguard for variation in raw material delivery time, and to take advantage of economic purchase order size.

Costs associated with inventory include holding or carrying costs, setup or ordering costs, and shortage or stockout costs. Inventory management has the responsibility to optimize these costs along with the benefits that accrue due to inventories.

Independent demand items are unrelated to each other and thus needed quantities for these independent items must be determined separately. For dependent demand items, the demand for one item is a direct result of the need for other items. Component parts demand, for example, is dependent on the demand for the final product. If the schedule of finished product delivery is finalized, one can arrive at the demand for component parts in various time buckets.
Inventory planning and ordering systems can be modeled as fixed-order quantity or fixed-time period. In the fixed-order quantity model, the same amount of inventory is replenished in each order. The assumptions include: demand is known, constant, and uniform throughout a period. Lead time is constant and the price per unit and ordering costs are constant. But the model is applied to situations with varying annual as well as periodic demand

In a fixed-time period system, inventory is counted at fixed time intervals and orders are placed on a periodic basis. This model is desirable in situations when vendors make routine visits to customers and take orders for their complete line of products or when buyers want to combine orders to save on transportation costs.
Organizations must make decisions about the amount of safety stock to maintain for protection against stockouts. The safety stock ensures a firm's desired service level will be met.

The quantity-discount inventory model applies when the cost of an item varies with the order size. This model, as in all inventory models, computes an economic order quantity (EOQ) to minimize order costs and holding costs.

ABC analysis is a planning and control technique. The highest dollar volume items, or "A" items, are given the most attention in planning and the most rigorous cycle counting and attention for inventory control.

Because many firms, including services, may have large inventory investments, inventory reductions will lead to reduced costs. The managers of Toyota Motors developed their production planning methods with a view to reduce inventory and found that it required cutting set up times. Hence reduction in set up times was pursued, they reduced 8 hours of set up time to 8 minutes and further to three minutes. They also found that they needed to reduce defects and hence took up quality improvement activity in production processes. The succeeded in achieving low inventories that gave them savings in costs associated with inventory and also reduced their quality costs and set up costs. Overall they got lower cost of production hence became globally competitive.

Two examples where inventory control is used on in service companies are a department store and an automobile service agency.

Chapter Outline of
Richard B. Chase, F. Robert Jacobs, Nicholas J. Aquilano, Operations Management for Competitive Advantage, 10/e, McGraw-Hill Higher Education, 2004

Definition of Inventory
Purposes of Inventory
Inventory Costs
Independent versus Dependent Demand
Inventory Systems
Single Period Model
Multi-Period Inventory System
Fixed Order Quantity Models
Establishing Safety Stock Levels
Fixed-Order Quantity Model with Safety Stock
Fixed-Time Period Models
Fixed-Time Period Models with Safety Stock
Price-Break Models
Miscellaneous Systems and Issues
Three Simple Inventory Systems
ABC Inventory Planning
Inventory Accuracy and Cycle Counting
Inventory Control in Services

Case: Hewlett-Packard - Supplying the DeskJet Printer in Europe


Richard B. Chase, F. Robert Jacobs, Nicholas J. Aquilano, Operations Management for Competitive Advantage, 10/e, McGraw-Hill Higher Education, 2004

Originally posted at 2utb2lsm2k7a/ 438

Updated  27 March 2015, 10 Dec 2011

The IBM® Cognos® 8 Business Intelligence Solution for Operations Excellence

The IBM® Cognos® 8 Business Intelligence solution can make your entire supply chain, all your operations and your entire enterprise intelligent — by delivering the global visibility that is the key to your success in your business endeavor.

IBM Cognos 8 BI can track a number of key metrics that are the critical factors in the success of your Operations, for example:

Increased throughput.
Reduced manufacturing costs.
Shortened lead times.
Reduced backlog.
Improved quality performance.
Reduced reject rate.
Reduced scrap levels.
Reduced line downtime.

Linking strategic metrics developed by executives down to operational metrics on the plant floor

Most Operations personnel working in a large plant may have little idea of the official corporate strategy, or how they can best contribute to that strategy. Similarly, visibility of operational performance between the corporate and business levels is often very poor.

A scorecarding system, which may be based on the Balanced Scorecard approach or on the SCOR (Supply Chain Operations Reference) model created by the Supply Chain Council, can be very effective in making performance visible, thereby forcing an emphasis on visibility of performance targets and actual performance and encouraging an environment of increased accountability.

Manufacturers that have undertaken the  task of defining their KPIs are well positioned to adopt scorecarding technology. They will be very useful if these have been defined across multiple plants within a business unit. These KPIs should be hierarchically defined, so that business users can “drill down” into areas of poor performance to understand root causes. Web-based scorecards and dashboards
ensure maximum visibility, access and use.

Linking strategic metrics developed by executives down to operational metrics on the plant floor drives business and operational alignment, and the result is operational excellence.

Procurement Excellence

 The purchasing organization and your suppliers’ performance are quantified and tracked with KPIs
that measure quality and cost (including comparisons to alternate sources), delivery and order or requisition placement.

Supplier scorecards enable continuous, timely measurement against consistent standards for all suppliers.
With consolidated procurement information, you are better able to leverage your company’s purchasing power. You can identify suppliers that offer the same materials or services, and rapidly evaluate their offerings against the same standards.

With the ability to monitor all your suppliers, you can leverage your knowledge to improve supplier responsiveness and the efficiency of your supply chain, and you can gather data that will help you make the most profitable decisions when negotiating future procurement contracts. In addition, you can share information, such as supplier performance data, with suppliers via an extranet, so they know when corrective action is required or when standards have not been met.

Also, having aggregate information on demand, including inventory, supply, supplier performance, etc., allows for quicker and better purchasing decisions leading to a more proactive purchasing organization. With better information in hand, you can consolidate and optimize your suppliers and leverage your buying power, which means a potential for better terms and lower supply costs.

Production Excellence

IBM Cognos BI software offers visibility across all plants, lines and shifts, allowing you to monitor performance trends and to identify, isolate and analyze the source and impact of problems, whether product defects or production anomalies. With the ability to make accurate comparisons, for example, between facilities and shifts, you can discover lags and other problems that had previously gone unnoticed. You
can also identify trends in quality, efficiency or throughput, and make proactive decisions based on this insight.

Similarly, the solution makes available allows you to analyze the cost of failures: scrapped production, customer returns and other quality-related problems; downtime; as well as costs for specific
overhead items such as re-engineering and equipment upgrades.

This intelligence can be used to help capitalize on success, to analyze savings created by new efficiencies or to help understand how to repeat an event that improved quality or throughput. It also offers the benefit of being able to share production performance information with staff, including comparisons across
locations, over time, measurement against production standards, etc.

Inventory Management Excellence

The solution opens visibility into the entire inventory: the levels and locations of all assets at any point in time, their worth, their depletion rates, their use; who supplied them, who uses them; what is spoiled, obsolete or surplus; what alternative items are available. With inventory accurately quantified and tracked
across the company and its partners, and with changes measured against common standards, such as minimum or age thresholds, you will know at all times what you have, where it is and how long it will last.

From start to finish, from negotiations with suppliers through customer delivery, IBM Cognos software offers full visibility into processes and events, transparency of information and coherent standards made available across your organization.

Reference - The content is from IBM White Paper on Operational Excellence

Operations Management - Review Notes - List of Chapters

Text Book
Operations Management for Competitive Advantage

Richard B. Chase, University of Southern California
F. Robert Jacobs, Indiana University–Bloomington
Nicholas J. Aquilano, University of Arizona
ISBN: 0072506369
Copyright year: 2004

Review Notes for Quick Revision of the chapters in the Operations Management Text. 


1. Introduction to the Field
2. Operations Strategy and Competitiveness
Technical note 2 Learning Curves
3. Project Management


4. Process Analysis
Technical note 4 Job Design and Work Measurement
5. Product Design and Process Selection—Manufacturing
Technical note 5 Facility Layout
6. Product Design and Process Selection—Services
Technical note 6 Waiting Line Management
7. Total Quality Management: Focus on Six Sigma
Technical note 7 Process Capability and Statistical Quality Control
8. Operations Consulting and Reengineering

(Managerial Briefing Electronic Commerce and E-Ops©)

9. Supply Chain Strategy
10. Strategic Capacity Management
Technical note 10 Facility Location
11. Just-in-Time and Lean Systems

(Managerial Briefing Enterprise Resource Planning Systems)

12. Forecasting
13. Aggregate Sales and Operations Planning
14. Inventory Control
15. Material Requirements Planning
16. Operations Scheduling
Technical note 16 Simulation
17. Synchronous Manufacturing and Theory of Constraints


B. Financial Analysis
C. Operations Technology

Many articles were revised in 2015 using the 12th Edition of the Book

Supply Chain Management - Revision Notes of Chapters of Chopra and Meindl Book

MBA Knowledge Revision Schedule

January  - February  - March  - April  - May   -   June

July       - August     - September  - October - November  - December

Updated 27 March 2015,  27 June 2014

March 26, 2015

Just-in-Time and Lean Systems - Review Notes of Chase et al. Book Chapter

Just-in-time or JIT is an integrated set of activities designed to achieve high-volume production using minimal inventories of raw materials, work in process, and finished goods. Parts arrive at the next workstation "just in time" and are completed and move through the operation quickly. Nothing is produced until it is needed later in the assembly line. The consumer expresses a need for a product, and "pulls" demand through the production system.

In Japan, JIT has been used to isolate the elements of waste in an organization. The Japanese practice a great respect for people and depend on the personnel to identify and eliminate sources of waste, excess, and inefficiency. The basic elements of JIT are a focused factory with networks following the strategy of reducing waste, the use of group technology or teams for problem-solving, quality at the source so no time and energy and materials are wasted on less than perfect quality products, uniform plant loading, Kanban production control systems, and empowerment of workforce.

While North American systems have modified JIT, the techniques can be used in layouts and design flows as well as in job shops. JIT has also merged in theory and practice with TQC, or building quality into the process. JIT works at its best when only good-quality products are pulled through the system and no "just-in-case" extra inventory is needed.

JIT requires a stable schedule over a lengthy time horizon. Along, with customers and employees, who are key components of the JIT system, vendors are also important to the process.

JIT is also applicable to service industries. Successful service applications include organizing problem-solving groups, upgrading housekeeping and quality, clarifying process flows, eliminating unnecessary activities, and developing supplier networks among others.

JIT is a powerful tool for reducing inventory and improving production and service operations. Management support, commitment, and training to continuing JIT progress are essential to success.

Industrial engineering and JIT

I define industrial engineering as human effort engineering and systems efficiency engineering. Functional design of a system is not the core focus of industrial engineers. There are various disciplines of engineering for functional design. Each of the designs created by functional engineers can be evaluated by industrial engineers for efficiency audit and improvement. JIT may have started as an efficiency improvement initiative. But now JIT could have become a functional discipline. Industrial engineers still have the role to audit efficiency of JIT systems and improve their efficiency further with the tools of efficiency currently in their tool box and tools which may come out subsequently.

Chapter Topics

Lean Logic

Lean production is an integrated set of activities designed to achieve production using minimal invetories of raw materials, work-in-progress, and finished goods. Parts arrive at the next workstation "just in time" and are completed and move through the process quickly. Lean is also based on the logic that nothing will be produced until it is needed.

The Toyota Production System

Toyota production system was created as the chief of Toyota told his team, we have to become price competitive to survive American imports. Hence we have to become lower cost and more productivity company.

Elimination of waste, improvement of efficiency, an industrial engineering slogan became the theme of Toyota Managers. Taichi Ohno, a production manager is credited for the development of TPS. Along with the elimination of waste, respect for people is also highlighted in Toyota culture. People are given importance in the system and they are asked to learn new skills and focus on productivity and continuously improve productivity.

The book gives a Toyota President, Fujio Cho's statement. "We must use the minimum amount of equipment, materials, parts, and workers (working time) which are absolutely essential to production." So the emphasis on finding optimal or ideal requirement of resources and controlling the process in such a way that production is achieved with those optimal resources.  But waste occurs in production processes and more resources are consumed by production systems. Seven types of wastes were described in TPS which have to measured and eliminated. 1. Waste from overproduction  2. Waiting time 3. Unnecessary transportation  4. Inventory  5. Unnecessary processing  6. Unnecessary human motionand 7. Defects and reworking.

MIT Team who studied TPS and developed theory of lean systems, recommended value stream mapping as the major visual tool to identify waiting time and inventory. It provided a box structure to various show waste at various work centers and operations in a process.

Lean Implementation Requirements

Design principles that guide the design of lean supply chains (Production facility and supply and distribution networks)

Focused factory networks
Group technology
Quality at the source
JIT Production
Uniform plant loading
Kanban production control systems
Minimized Setup times
Respect for people

Lean layouts and design flows
Preventive maintenance
Six sigma quality
A stable schedule
Working with suppliers as partners on a long term contracts

Lean Services

The concepts of efficiency implemented very successful in production systems are being extended to services systems.

Suggestions given are:

Organize problem solving groups.
Upgrade housekeeping
Upgrade quality
Clarify process flows
Revise equipment and process technologies
Level the facility load
Eliminate unnecessary activities
Reorganize physical configuration
Introduce demand pull scheduling
Develop supplier networks

Chapter Outline of  Richard B. Chase 12/e

Richard B. Chase. F. Robert Jacobs, Nicholas J. Aquilano, Operations and Supply Chain Management 12/e, McGraw-Hill Higher Education, 2010

Lean Six Sigma at Solectron
Lean Logic
The Toyota Production System
Lean Implementation Requirements
Lean Services

Chapter Outline of Richard B. Chase  10/e

Richard B. Chase, F. Robert Jacobs, Nicholas J. Aquilano, Operations Management for Competitive Advantage, 10/e, McGraw-Hill Higher Education, 2004

JIT Logic
The Toyota Production System
Elimination of Waste
Respect for People
North American Modifications of JIT
JIT Implementation Requirements
JIT Layouts and Design Flows
JIT Applications for Line Flows
JIT Applications for Job Shops
TQC (Total Quality Control)
A Stable Schedule
Work with Suppliers
JIT in Services

Case: Toyota, Ford, GM, and Volkswagen - Some Differing Opinions about Working with Suppliers
Case: Quality Parts Company


Richard B. Chase, F. Robert Jacobs, Nicholas J. Aquilano, Operations Management for Competitive Advantage, 10/e, McGraw-Hill Higher Education, 2004

Originally posted in 448

Updated  26 March 2015, 10 Dec 2011

Forecasting - Operations Management Review Notes

Forecasts are vital to every business organization and for every significant management decision. While a forecast is never perfect due to the dynamic nature of the external business environment, it is beneficial for all levels of functional planning, strategic planning, and budgetary planning. Decision-makers use forecasts to make many important decisions regarding the future direction of the organization.

Forecasting techniques and models can be both qualitative and quantitative and their level of sophistication depends on the type of information and the impact of the decision. The forecasting model a firm should adopt depends on several factors, including forecasting time horizon, data availability, accuracy required, size of the forecasting budget, and availability of qualified personnel.

Demand management exists to coordinate and control all sources of demand so the productive system can be used efficiently and the product delivered on time. Demand can be either dependent on the demand for other products or services, or independent because it cannot be derived directly from that of other products.

Forecasting can be classified into four basic types:
Time series analysis,
Causal relationships, and

Qualitative techniques in forecasting can include grass roots forecasting, market research, panel consensus, historical analogy, and the Delphi method.  Qualitative forecasting is based on surveying and finding out intentions of people regarding use and purchase of a product. Similarly it is finding the opinion and forecast of sales persons.

Time series forecasting models try to predict the future based on past data. A simple moving average forecast is used when the demand for a product or service is constant without any seasonal variations. A weighted moving average forecast varies the weights, given a particular factor and is thus able to vary the effects between current and past data.

Exponential smoothing improves on the simple and weighted moving average forecast as it considers the more recent data points to be more important. To correct for any upward or downward trend in data collected over time periods to smoothing constants are used. Alpha is the smoothing constant, while delta reduces the impact of the error that occurs between the actual and the forecast.

Forecast errors are the difference between the forecast value and what actually occurred. All forecasts contain some degree of error, however it is important to distinguish between sources of error and measurement of error. Sources of error are random errors and bias. Various measurements exist to describe the degree of error in a forecast. Bias errors occur when a mistake is made, i.e., not including the correct variable or shifting the seasonal demand. Random errors cannot be detected, they occur normally.

A tracking signal indicates whether the forecast average is keeping pace with any movement changes in demand. The MAD or the mean absolute deviation also is a simple and useful tool in obtaining tracking signals. A more sophisticated forecasting tool to define the functional relationship between two or more correlated variables is linear regression. This can be used to predict one variable given the value for another. It is useful for shorter time periods as it assumes a linear relationship between variables.

Causal relationship forecasting attempts to determine the occurrence of one event based on the occurrence of another event.

Focus forecasting tries several rules that seem logical and easy to understand to project past data into the future.

Today many computer forecasting programs are available to easily forecast variables. When making long-term decisions based on future forecasts, great care should be taken to develop the forecast. Likewise, multiple approaches to forecasting should be used.

Forecasting needs to be done in various areas of management like financial management, marketing management, personnel management etc. and the same techniques discussed in this article are used in those disciplines also.

Forecasting is an important activity in security analysis.

Sales Forecasting

Chapter Outline

Demand Management

Types of Forecasting

Components of Demand

IV. Qualitative Techniques in Forecasting

Grass Roots
Market Research
Panel Consensus
Historical Analogy
Delphi Method
Time Series Analysis
Simple Moving Average
Weighted Moving Average
Exponential Smoothing
Forecast Errors
Sources of Error
Measurement of Error
Linear Regression Analysis
Decomposition of a Time Series

Causal Relationship Forecasting
    Multiple Regression Analysis.

Focus Forecasting
   Methodology of Focus Forecasting
   Web-Based Forecasting: Collaborative Planning, Forecasting,And Replenishment (CPFR)


Richard B. Chase, F. Robert Jacobs, Nicholas J. Aquilano, Operations Management for Competitive Advantage, 10/e, McGraw-Hill Higher Education, 2004

originally posted in

Updated 26 March 2015, 10 Dec 2011

March 25, 2015

Supply-Chain Strategy - Review Notes

The idea of supply-chain management is to apply a total systems approach to managing the entire flow of information, materials, and services from raw-materials suppliers through factories and warehouses to the end customer. The term supply chain comes from a picture of how organizations are linked together as viewed from a particular company.

The focus is on those core activities that a business must operate each day to meet demand. The topic is popular because many companies are achieving competitive advantage by the way they configure and manage their supply chain operations. Dell Computer is a good example of effective supply chain management.

Because inventory at each stage of an operation ties up money, it is important that the operations at each stage are synchronized to minimize the size of buffer inventories. The efficiency of the supply chain can be measured based on the size of the inventory investment in the supply chain. Key measures to evaluate supply chain efficiency are inventory turnover and weeks-of-supply. Other measures include the cost of goods sold and the average aggregate inventory value.

Inventory turnover =  Cost of goods sold/Average aggregate inventory value

Variability within the supply chain magnifies as we move from the customer to the producer in the supply chain. This bullwhip effect indicates a lack of synchronization among supply chain members. Programs like continuous replenishment smooth the flow of materials through the supply chain.

Other supply chain issues occur because of the length of the product life cycle, demand predictability, product variety, and market standards for lead times and service. Products may be either functional staples or primarily innovative and require different management methods.

Functional products are staples that people buy in a wide range of retail outlets.  Typically, they do not change much over time, have low profit margins, stable predictable demand and long life cycles.  Innovative products, on the other hand, give customers new benefits and hence provide additional reasons to buy.  Fashionable clothes is one example of innovative products. Smart phone and tablet computers are examples of innovative products of the recent period.  Innovative products have short life cycles, high profit margins, and volatile demand.

 Lee argued that on the supply side also there are stable supply processes and evolving supply processes. Based on these two classification four supply chain management strategies were identified.

Efficient supply chains
Risk-hedging supply chains
Responsive supply chains
Agile supply chains

Efficient supply chains are designed to minimize cost that requires high utilization, minimizing inventory, and selecting vendors based primarily on cost and quality, and designing products that are produced at minimum cost.

Market-responsive supply chains are designed to minimize lead time to respond to unpredictable demand, thus minimizing stockout costs and obsolete inventory costs.

Risk sharing supply chains are those that share resources so that risks in the supply chain can be shared.
Agile are those supply chains that are flexible while still sharing risks of shortages across the supply chain.  Generally, these supply chains carry excess capacity and higher buffer stocks.  Vendor in responsive supply chains would be selected for speed, flexibility, and quality.


Outsourcing is moving some of a firm's internal activities and decision responsibility to outside providers. Companies have a variety of reasons for outsourcing but primarily the reasons are to reduce costs and create a competitive advantage. Full list adopted from the book Strategic Outsourcing by Maurice F. Greaver II. was provided in the book (Chase et al.)  One popular area to outsource is logistics. In determining the shipping mode for an item a key variable is the value density or value per unit of weight.

Design for Logistics

Given the emphasis on minimizing inventory and handling in efficient supply chains, design of the components and materials can be evaluated from their each of storing, picking and handling. Hence design for logistics is also to be incorporated in design process.

Global Sourcing

With the communist bloc of countries now into free trade system, a truly global supply chain system can be created.

Mass Customization

Three principles of mass customization are given in the book.

1. A product should be designed so it consists of independent modules that can be assembled into different forms of the product easily and inexpensively.

2. Manufacturing and service processes should be designed so that they consist of independent modules that can be moved or rearranged easily to support different distribution network designs.

3. The supply network - the positioning of inventory and the location, number, and structure of service, manufacturing, and distribution facilities - should be designed to provide two capabilities. First, it must be able to supply the basic product to the facilities performing customization in a cost-effective manner. Second, it must have the flexibility and the responsiveness to take individual customers' orders and deliver the finished, customized good quickly.

Chapter outline

Supply-Chain Strategy
Supply Chain Defined

Measuring Supply Chain Performance
Inventory Turnover Defined
Cost of Goods Sold Defined
Average Aggregate Inventory Value Defined
Weeks of Supply Defined

Supply Chain Design Strategy
Bullwhip Effect Defined
Functional Products Defined
Innovative Products Defined

Outsourcing Defined
Logistics Defined

Design For Logistics
Design for Logistics Defined

Value Density (Value per Unit of Weight)
Transportation Mode Defined
Value Density Defined

Global Sourcing

Mass Customization
Mass Customization Defined
Process Postponement Defined


Case: Pepe Jeans


Updated  7.12.2014, 10.12.2011

Summaries of all Chapters of Operation Management

MBA Core Management Knowledge - One Year Revision Schedule

Updated 25 March 2015, 7 Dec 2014

March 21, 2015

3PL and 4PL Logistics Services - Issues, Implementation Decisions, Service Provider Selection and Management

Michael Maloni
Kennesaw State University,
Spring 2006 

Enterprise Resource Planning: Fundamentals of Design and Implementation - K. Ganesh et al. Book Information

Enterprise Resource Planning: Fundamentals of Design and Implementation (Google eBook)

Front Cover
K. Ganesh, Sanjay Mohapatra, S. P. Anbuudayasankar, P. Sivakumar
Springer, 2014 - 170 pages
0 Reviews

This book introduces the fundamental principles of understanding business requirements to apply enterprise resource planning (ERP) in order to meet business needs. The book also helps readers understand the usage of ERP for monitoring and controlling business processes, while providing practical oriented solutions to the design and implementation of ERP. Using the provided framework, a business can decide to provide more value at lower cost which increases its competitive advantage. This should be an ideal reference for executives, researchers and consultants in project management of ERP. ERP can be considered to be an integrated package of business process. The scope of ERP determines the extent of automation of business process. For example if ERP covers Human Resource (HR) and finance business processes only, then business process related HR and finance are automated. Typically business process that are automated in HR and finance employee entry and exist process, allocation of employee ID, payroll, processing , income tax planning and actual deduction etc. There is seamless flow of employee data and information is available at an effectively faster rate to take appropriate decision. As custom demand increases, there is a need to meet the changing scenario with speed and efficiency. While there is a need to increase productivity, there is also a need to reduce cost of operation. The repetitive business processes can be handled effectively by automating them and freeing human resources for meeting other uncertainties. These automations not only should be done for each department, but also should cut across different departments. Thus there is a need for automating business processes at enterprise level. This enterprise level automation started with MRP, then MRP II, ERP and then finally open source ERP have taken centre stage. Out of the standard products available in the market, an organization can chose an ERP product for implementation, depending on the features available and the total cost of ownership (TCO). This comparison helps an organization to choose the product that best suits the needs for the organization. Enterprise Resource Planning: Fundamentals of Design and Implementation highlights these concepts while discusses different good practices to design and implement ERP.

Design and Development of Knowledge Management for Manufacturing: Framework, Solution and Strategy - Ganesh et al. Book Information

Design and Development of Knowledge Management for Manufacturing: Framework, Solution and Strategy (Google eBook)

Front Cover
K. Ganesh, Sanjay Mohapatra, S. Nagarajan
Springer Science & Business Media, Nov 19, 2013 - 213 pages
0 Reviews

This book examines the modules/elements required before implementing knowledge management solutions in typical manufacturing and service industry. The objective is to develop a framework, design and model suitable for all requirements and a strategy to properly implement. Related case studies from organizations are included, with the results provided to use as a solution to problems experienced when implementing knowledge management in the industry.Implementing a knowledge management system can be complex and dynamic, no matter how well planned and developed. Inevitably a degree of organizational inertia is focused on the current state rather than the new. Within an enterprise, personal and group involvement and interests process status and technology landscape can deflect the commitment needed to successfully implement such a system. Cumulative evidence from past research in knowledge management suggests that effective implementation of KM solution in any organization requires a robust designs and models for various critical elements of process, people and technology. Using the techniques provided in this book, readers should be able to design knowledge management strategies, to align objectives of the KM initiatives with their business goals.

March 18, 2015

Learning Curves - Review Notes

Learning curves are important in a variety of business applications, especially manufacturing. The learning curve theory is a relationship between unit production time and the cumulative number of units produced. As individuals or organizations collectively repeat a particular process, they gain skill or efficiency from their experience and production time improvements result.

The learning curve theory is based on three assumptions: (1) the amount of time required to complete a given task or unit of a product will be less each time the task is undertaken, (2) the unit time will decrease at a decreasing rate, and (3) the reduction in time will follow a predictable pattern. This is often referred to as "practice makes perfect."

If production has been in progress for some time, the learning percentage can be obtained from production records. The longer the production history, the more accurate the estimate will be. For new production projects, it is more a function of guesswork and expert opinion to estimate a learning curve percentage.

A firm's learning rate may differ from that of the industry due to differences in operating characteristics or even procedural differences. Often the rates will vary whether the industry rate is based on a single product or an entire product line. The manner in which the data were aggregated will cause rates to vary. Learning curves and organizational knowledge can depreciate if key individuals leave the organization or if technologies become inaccessible or difficult to use. Learning curves provide an excellent means to examine performance.

Learning curve theory was generalized into experience effect and it was made applicable to costs. The cumulative volume and average cost of production have an inverse relationship. As cumulative volume doubles average cost goes down by a certain percentage. For example, 90% learning curve implies, if the cumulative volume doubles, the average cost will come to 90% of the earlier average cost, This means, the firm selling more volume will be able to produce the incremental units at a lower cost, when the law is in operation and can sell at a lower price, thus enlarging the market demand for its products. Customers may shift their demand to that company and wait buying from it at lower price. Thus experience effect becomes a competitive strategy issue.

Application of Learning Curves
Learning Curve Defined
Individual Learning Defined
Organizational Learning Defined

Plotting Learning Curves
Logarithmic Analysis
Learning Curve Tables
Estimating the Learning Percentage
How Long Does Learning Go On?

General Guidelines for Learning
Individual Learning
Organizational Learning

Learning Curves Applied to Heart Transplant Mortality

Full note of the book

Summaries of all Chapters of Operation Management

March 17, 2015

Scope and Definition of Manufacturing - Production Management

Manufacturing creates man-made goods from various materials. The goods, more specifically called finished  goods are created through manufacturing processes. Modern manufacturing employs machines to produce goods. Manufacturing management plans, organizes, acquires resources required for manufacture, allocates those resources to various departments, directs and controls manufacturing activity.The aims of manufacturing management are producing goods according to the specifications of the customer or of the product design department if it is made to stock product developed by the company, in amounts and by the schedule demanded at minimum cost. Manufacturing is carried out in factories or manufacturing plants. A manufacturing plant and the various activities carried out in it can also be described as a manufacturing system. Modern manufacturing systems have machines, methods, men, material, motive power, money and management essential components of the system. In terms of assets used in accounting terminology, we can say manufacturing system has both long term assets (fixed assets) and current assets (short term assets).

Manufacturing management involves plans and  decisions regarding long term assets and short term assets, manufacturing methods and manpower.

We can say the long term decisions are in the areas of design, installation and improvement of specified products, manufacturing processes to produce those products, equipment for production, transportation, inspection etc., industrial buildings, location of the plant, layout of the plant. recruitment of permanent manpower and training to develop them into skilled operators in the processes employed by the organization etc. Manufacturing management has to be effective and efficient. Effectiveness refers to producing what customers want in quantities according to the delivery time requested. Efficiency refers to the cost dimension and wastes that occur in manufacturing systems if special attention is not paid to eliminate them.  Industrial engineering is a specialized discipline providing efficiency improvement service at design, installation and improvement stages of manufacture.  

The short term decisions of manufacturing are related production quantities in year, quarter, month etc., inventories, temporary increases or reductions in manpower, overtime decisions to take care of sudden increases in demand, or some exigencies, short term cost budgets, and other incidental  day to day activities. Production planning and control, inventory planning and control, cost control, quality control, maintenance planning and control etc. are some of the well known short term manufacturing management areas that are well developed as independent subjects in manufacturing management degree curriculums. Similarly, new product development, process planning, facilities planning, manufacturing strategy, industrial engineering etc. are well developed subjects dealing with long term aspects of manufacturing management. Industrial engineering became a degree level curriculum as number of methods were developed in this area providing a scope for specially educated and trained professionals in this discipline. Value engineering, Methods Efficiency Engineering, Motion Study, Work Measurement, Ergonomics, Operations Research, Engineering Economics, Applied Statistics, Six Sigma, SMED, Poka Yoke Design etc. are full subjects in industrial engineering curriculums apart  from the basic engineering knowledge in various engineering branches, knowledge of business processes and managerial processes.

Manufacturing managers at various levels are responsible for both effectiveness and efficiency. But they can employ industrial engineers in their department either on full time basis or on assignment basis from their organization industrial engineering department or on consultancy basis from outside industrial engineering organizations.

Elwood S. Buffa, well known author of Modern Production Management first published in 1961 included the following topics to introduce the scope of production management. 

Long Term Decision Areas

Production processes
Automation and Use of Computers (Presently CAD-CAM or CIM)
Design of Jobs and Work Methods
Design of The Working Environment
Production Design of Products and Process Planning
Plant Location
Layout of Physical Facilities

Short Term Decision Areas

Inventory and Production Control
Control of Quality
Production Standards and Work Measurement
Wages and Labor Costs
Control and Improvement of Production Costs.

It is important to state that managerial skills are classified as business conceptual skills, people related skills and technical skills. So manufacturing managers need to have the knowledge to conceive a business opportunity to their department assets and people, knowledge to manage people related to the supply chain that starts  from suppliers of materials and ends with the customer, and technical skills in various methods involved in the manufacturing establishment to plan them, organized them, acquire resources, allocate resources, and direct and control the activities.


Elwood S. Buffa, Modern Production Management, John Wiley and Sons, New York, 1961.

Related Article
Manufacturing Management - Introduction

Planned Revision of Operations Management/Production Management Book Chapters  - March Month

Introduction to the Field of Operations Management - Review Notes

Planned Revision of Operations Management Chapters Starts on 17 March for the year 2015

The goal of operations management is wealth creation.
It is done by supplying quality goods and services effectively and efficiently

Industrial engineering contributes to operations management by increasing the efficiency of operations. Wealth creation round 1 is done by operations managers. Wealth creation round 2 is done by industrial engineers in operations systems.

Based on the Chapter 1 Introduction to the Field by Chase, Jacobs, Aquilano 12 Edition

The essence of operations management: creating great value to the customer while reducing the cost of delivering the good or service.

In the context of this book, "operations" refers to the processes that are used to transform the resources employed by a firm into products and services desired by the customers. "Supply" refers to how materials and services are moved to and from the transformation processes of the firm.

Great operations and supply management is essential to the success of the firm doing business in goods or services.

This book will provide you knowledge of concepts and tools now being employed by companies around the world to craft effective and efficient operations. Efficiency means doing something at the lowest possible cost.  We can also say the goal of an efficient process is to produce a good or provide a service by using the smallest input of resources.  Effectiveness mean doing the right things to create the  most value for the company.

A business education is incomplete without an understanding of modern approaches to managing operations. Operations management (OM) provides a systematic way of examining organizational processes. OM presents interesting career opportunities and the concepts and tools of OM are widely used in managing other functions of a business.

While marketing uncovers needs of people in general and uncovers needs of people at a particular point and books orders for the goods and services, it is the operations function of a business firm that develops goods and services and produces and delivers them to customers at the place where they desire the delivery.

Other Explanations of Operations Management

MIT's Explanation of Operations Management.

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.

University of Strathclyde, Glasgow

Operations management is a value-adding area of an organisation concerned with innovation, production and distribution of goods and services to customers whilst ensuring that the use of organisational resources remains efficient and effective.

Chase, Jacobs, Aquilano - Earlier Editions

In this chapter in the book, the time frame of management decisions is discussed along with the different types of transformation processes. Services are compared to goods production with emphasis on the primary inputs, resources, the primary transformation functions, and the typical desired outputs in a variety of service and operations examples. Value-added services are also discussed along with their benefit to external customers.

Operations management is identified within the organizational chart and its role in the organization is defined. Chapter one presents a concept map and outlines the textbook chapters. The chapters are grouped by the key themes of strategic planning, project management, decision analysis, quality, supply chain management, and e-commerce.

The historical roots of the development of OM are traced from scientific management through the moving assembly line, the Hawthorne studies, and on to today's current manufacturing topics including supply chain management and e-commerce. This chapter concludes with current issues facing OM executives including effectively consolidating the operations resulting from mergers, developing flexible supply chains to enable mass customization of products and services, managing global suppliers, production, and distribution networks, increased commoditization of suppliers, achieving the service factory, and achieving excellent service from service firms.

What is Operations Management?

Operations managemetn (OM) is defined as the design, operation, and improvement of the systems that create and deliver the firm's primary products and services.

Operations management is a functional field of business with clear line management responsibilities. OM is frequently confused with operations research and management science (OR/MS) and industrial engineering. While all three are fields of management, both IE and OR/MS are staff management disciplines while OM is line management field. Operations management uses the tools of IE as well as OR/MS directly as well as indirectly through the project reports prepared by specialists, OM's role is distinct from these two disciplines.

Companies around the world desire effective and efficient operations. Operations managers design and operate the operations systems effectively and efficiently.

What is the difference between effectiveness and efficiency? 

Effectiveness mean doing right things that customers want to the specifications finalized by the organization. This effectiveness can be a daily issue in an organization producing custom products as the customer can keep on changing his requirement. The operations managers have to listen to the customer and agree on the specification and communicate the same to people in their works. Then they have to control the activity so that what is desired is getting produced. Effectiveness activities take significant time of managers. In production shops, a staff activity production planning and control helps production managers in ensuring the delivery of right product in right quantity at right time. So even in effectiveness activities, operations managers use staff specialists.

Efficiency means doing something at the lowest possible cost. Operations managers have to supply the agreed product at the lowest possible cost. They have the responsibility to make their operations efficient. So operations managers have to learn efficiency techniques and methods. Frederick Taylor emphasized efficiency along with effectiveness in his famous paper "Shop management". Industrial engineering is the discipline that emerged to take care of efficiency dimension of operations as a staff management discipline.

In operations management, three categories of decisions are taken.

Strategic (long-term) decisions
Tactical (intermediate-term) decisions
Operational planning and control (short-term) decisions

Strategic issues include what product (sevice) shall we make? How will we make the product? (technology decision) Where do we locate the facility or facilities? How much capacity do we build? Intermediate decisions can be thought of as annual plans, material purchase policies, staff levels adjustments and working capital support requirements for inventory financing. Operations decisions are daily machine dispatching decisions.

Chapter outline

Operations Management—A Critical Responsibility of Every Manager
Efficiency Defined
Effectiveness Defined
Value Defined

What is Operations Management?
Operations Management (OM) Defined

Transformation Processes
Transformation Process Defined
Differences Between Services and Goods

OM in the Organizational Chart

Operations as Service
Core Services Defined
Value-Added Serviced Defined

Why is Operations Not Perceived as Important?

Historical Development of OM
Mass Customization Defined
Manufacturing Strategy Paradigm
Service Quality and Productivity
Total Quality Management and Quality Certification
Business Process Reengineering

Supply Chain Management
Supply chain management is the name given to total system approach to managing the flow of information, materials, and services from raw material producers and suppliers through various factories and warehouses to the end customer of a consumer item or capital equipment or service.

A supply chain is a network of supply and operations processes. "Operations" refers to the processes that are used to transform the resources employed by a firm into products and services desired by customers. "Supply" refers to how materials and services are moved to and from the transformation processes of the firm.

Electronic Commerce

Current Issues in Operations Management

Case: Fast-Food Feast


McGraw Hill Operations Management Center

Presentation Slides - Field of Operations Management

Full chapter from Chase's Book

Summaries of all Chapters of Operation Management

Updated  2 Feb 2015,  3.12.2014, 10.2.2012

MBA Core Management Knowledge - One Year Revision Schedule

March 15, 2015

Strategic Management: An Integrated Approach by Charles Hill, Gareth Jones - Book Information

MBA Core Management Knowledge - One Year Revision Schedule

Strategic Management: An Integrated Approach
10th  Edition
Charles Hill, Gareth Jones
Cengage Learning, Feb 21, 2012 - 960 pages

This leading strategy text presents the complexities of strategic management through up-to-date scholarship and hands-on applications. Highly respected authors Charles Hill and Gareth Jones integrate cutting-edge research on topics including corporate performance, governance, strategic leadership, technology, and business ethics through both theory and case studies.

Based on real-world practices and current thinking in the field, the tenth edition of STRATEGIC MANAGEMENT features an increased emphasis on the changing global economy and its role in strategic management. The high-quality case study program contains 31 cases covering small, medium, and large companies of varying backgrounds. All cases are available in the main student text or the core case text.

Table of Contents


1. Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage.
2. External Analysis: The Identification of Opportunities and Threats.


3. Internal Analysis: Distinctive Competencies, Competitive Advantage, and Profitability.
4. Building Competitive Advantage Through Functional-Level Strategy.


5. Building Competitive Advantage Through Business-Level Strategy.
6. Business-Level Strategy and the Industry Environment.
7. Strategy and Technology.
8. Strategy in the Global Environment.
9. Corporate-Level Strategy: Horizontal Integration, Vertical Integration, and Strategic Outsourcing.
10. Corporate-Level Strategy: Formulating and Implementing Related and Unrelated Diversification.


11. Corporate Performance, Governance, and Business Ethics.

12. Implementing Strategy in Companies that Compete in a Single Industry.
13. Implementing Strategy in Companies that Compete Across Industries and Countries.


Best Buy: Sustainable Customer Centricity Model. Whole Food Markets in 2010:

How to Grow in an Increasingly Competitive Market. Herman Miller: A Case of Reinvention and Renewal.

Wells Fargo: The Future of a Community Bank. Staples in 2011.

The Apollo Group (The University of Phoenix) in 2011.

The Evolution of the Small Package Express Delivery Industry, 1973-2010.

Airborne Express: The Underdog.

Google in 2011.

HCSS: Employee Ownership and the Entrepreneurial Spirit.

KCI Technologies: Engineering the Future, One Employee at a Time.

W.L. Gore: Developing Teams to Meet 21st Century Challenges.

Home Video Game Industry, 1968-2011.

Tom Tom: New Competition Everywhere.

Alarm Ringing: Nokia in 2010.

AB Electrolux: Challenging Times In the Appliance Industry.

American Airlines Since Deregulation.

How SAP's Business Model and Strategies made it the Global Business Software Leader--Part I.
 Blockbuster, Netflix, and the Entertainment Retail Industry in 2011.


SAP and the Global Business Software Industry in 2011--Part 2.

How Became the Leading Online Retailer in 2011.

eBay and the Online Auction and Retail Sales Industry in 2011.

Is Yahoo's Business Model Working in 2011?

Viacom is Successful in 2011.

GE: Ecomagination--Driving Sustainable Growth for GE.

Cemex's Acquisition Strategy.

3M: The Second Century.

Kodak in 2011.

Boeing Commercial Aerospace in 2011.


Merck, the FDA and the Vioxx Recall.

Nike: Sweatshops and Business Ethics.