Operations management
Operations management is an area of management concerned with designing and controlling the process of production, redesigning business operations in the production of goods or services.
It involves the responsibility of ensuring that business operations are efficient in terms of using as few resources as needed and effective in terms of meeting customer requirements.
It is concerned with managing the process that converts inputs (in the forms of raw materials, labor, and energy) into outputs (in the form of goods and/or services). Operations management is concerned with managing the operations function in an organization.
In managing manufacturing or service operations several types of decisions are made including operations strategy, product design, process design, quality management, capacity, facilities planning, production planning and inventory control.
Each of these requires an ability to analyze the current situation and find better solutions to improve the effectiveness and efficiency of manufacturing or service operations
Operations management is an area of management concerned with designing and controlling the process of production, redesigning business operations in the production of goods or services.
It involves the responsibility of ensuring that business operations are efficient in terms of using as few resources as needed and effective in terms of meeting customer requirements.
It is concerned with managing the process that converts inputs (in the forms of raw materials, labor, and energy) into outputs (in the form of goods and/or services). Operations management is concerned with managing the operations function in an organization.
In managing manufacturing or service operations several types of decisions are made including operations strategy, product design, process design, quality management, capacity, facilities planning, production planning and inventory control.
Each of these requires an ability to analyze the current situation and find better solutions to improve the effectiveness and efficiency of manufacturing or service operations
Material management
Definition
It is concerned with planning, organizing and controlling the flow of materials from their initial purchase through internal operations to the service point through distribution.
OR
Material management is a scientific technique, concerned with Planning, Organizing &Control of flow of materials, from their initial purchase to destination.
It is a business function for planning, purchasing, moving, storing material in an optimum way which help organisation to minimise the various costs like inventory, purchasing, material handling and distribution costs.
Materials management encompasses procurement, transportation, and inventory management of the actual products from manufacturer to storefront.
Definition
It is concerned with planning, organizing and controlling the flow of materials from their initial purchase through internal operations to the service point through distribution.
OR
Material management is a scientific technique, concerned with Planning, Organizing &Control of flow of materials, from their initial purchase to destination.
It is a business function for planning, purchasing, moving, storing material in an optimum way which help organisation to minimise the various costs like inventory, purchasing, material handling and distribution costs.
Materials management encompasses procurement, transportation, and inventory management of the actual products from manufacturer to storefront.
AIM OF MATERIAL MANAGEMENT
To get
1. The Right quality
2. Right quantity of supplies
3. At the Right time
4. At the Right place
5. For the Right cost
PURPOSE OF MATERIAL MANAGEMENT
1) To gain economy in purchasing
2) To satisfy the demand during period of replenishment
3) To carry reserve stock to avoid stock out
4) To stabilize fluctuations in consumption
5) To provide reasonable level of client services
Procurement involves the process of selecting vendors, establishing payment terms, strategic vetting, Selection, the negotiation of contracts and actual purchasing of goods.
Procurement is concerned with acquiring (procuring) all of the goods, services and work that is vital to an organization. Procurement is, essentially, the overarching or umbrella term within which purchasing can be found.
To get
1. The Right quality
2. Right quantity of supplies
3. At the Right time
4. At the Right place
5. For the Right cost
PURPOSE OF MATERIAL MANAGEMENT
1) To gain economy in purchasing
2) To satisfy the demand during period of replenishment
3) To carry reserve stock to avoid stock out
4) To stabilize fluctuations in consumption
5) To provide reasonable level of client services
Procurement involves the process of selecting vendors, establishing payment terms, strategic vetting, Selection, the negotiation of contracts and actual purchasing of goods.
Procurement is concerned with acquiring (procuring) all of the goods, services and work that is vital to an organization. Procurement is, essentially, the overarching or umbrella term within which purchasing can be found.
key objectives of Material Management are :
1) To buy at the lowest price , consistent with desired quality and service.
2) To maintain a high inventory turnover , by reducing excess storage , carrying costs and inventory losses occurring due to deteriorations , obsolescence and pilferage.
3) To maintain continuity of supply , preventing interruption of the flow of materials and services to users.
4) To maintain the specified material quality level and a consistency of quality which permits efficient and effective operation
5) To develop reliable alternate sources of supply to promote a competitive atmosphere in performance and pricing
6) To minimize the overall cost of acquisition by improving the efficiency of operations and procedures
Materials planning and control:
Materials required for any operation are based on the sales forecasts and production plans.
This involves estimating the individual requirements of parts, preparing materials budget, forecasting the levels of inventories, scheduling the orders and monitoring the performance in relation to production and sales.
Inventory control: One of the powerful ways of controlling the materials is through Inventory control.
It covers aspects such as setting inventory levels, doing various analyses such as ABC , XYZ etc. ,fixing economic order quantities (EOQ), setting safety stock levels, lead time analysis and reporting.
Inventory control
It means stocking adequate number and kind of stores, so that the materials are available whenever required and wherever required. Scientific inventory control results in optimal balance
Functions of inventory control
- To provide maximum supply service, consistent with maximum efficiency & optimum investment.
Inventory control can be defined as the “coordination and supervision of the supply, storage, distribution, and recording of materials to maintain quantities adequate for current customer needs without excessive supply or loss.
What is 'Inventory Management
Inventory management is the practice overseeing and controlling of the ordering, storage and use of components that a company uses in the production of the items it sells.
Two common inventory-management strategies are the just-in-time (JIT) method, where companies plan to receive items as they are needed rather than maintaining high inventory levels, and materials requirement planning (MRP), which schedules material deliveries based on sales forecasts.
Inventory optimization is a method of balancing capital investment constraints or objectives and service-level goals over a large assortment of stock-keeping units (SKUs) while taking demand and supply volatility into account.
Balancing the JIT Method
Just-in-time (JIT) is an inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs.
Companies can save significant amounts of money and reduce waste by using a JIT inventory management system.
JIT means that manufacturers and retailers keep only what they need to produce and sell products in inventory, which reduces storage and insurance costs, as well as the cost of liquidating or discarding unused, unwanted inventory. To balance this style of inventory management, manufacturers and retailers must work together to monitor the availability of resources on the manufacturer’s end and consumer demand on the retailer’s.
Balancing the MRP Method
Material requirements planning (MRP) is a production planning, scheduling, and inventory control system used to manage manufacturing processes. Most MRP systems are software-based, but it is possible to conduct MRP by hand as well.
An MRP system is intended to simultaneously meet three objectives:
1) Ensure materials are available for production and products are available for delivery to customers.
2) Maintain the lowest possible material and product levels in store
3) Plan manufacturing activities, delivery schedules and purchasing activities.
The MRP inventory management method is sales-forecast defendant. This means that manufacturers must have accurate sales records to enable accurate planning of inventory needs and to communicate those needs with materials suppliers in a timely manner.
MRP is a resource planning system that focuses on the future, and is time phased, while JIT does not provide for forward-thinking.
The JIT system is a dynamically linked system, that is better applied for short lead times, while MRP is not linked, and is better suited for long lead times.
Whereas the JIT system enhances the value of processes, MRP will give you more control.
Inventory management is the practice overseeing and controlling of the ordering, storage and use of components that a company uses in the production of the items it sells.
Two common inventory-management strategies are the just-in-time (JIT) method, where companies plan to receive items as they are needed rather than maintaining high inventory levels, and materials requirement planning (MRP), which schedules material deliveries based on sales forecasts.
Inventory optimization is a method of balancing capital investment constraints or objectives and service-level goals over a large assortment of stock-keeping units (SKUs) while taking demand and supply volatility into account.
Balancing the JIT Method
Just-in-time (JIT) is an inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs.
Companies can save significant amounts of money and reduce waste by using a JIT inventory management system.
JIT means that manufacturers and retailers keep only what they need to produce and sell products in inventory, which reduces storage and insurance costs, as well as the cost of liquidating or discarding unused, unwanted inventory. To balance this style of inventory management, manufacturers and retailers must work together to monitor the availability of resources on the manufacturer’s end and consumer demand on the retailer’s.
Balancing the MRP Method
Material requirements planning (MRP) is a production planning, scheduling, and inventory control system used to manage manufacturing processes. Most MRP systems are software-based, but it is possible to conduct MRP by hand as well.
An MRP system is intended to simultaneously meet three objectives:
1) Ensure materials are available for production and products are available for delivery to customers.
2) Maintain the lowest possible material and product levels in store
3) Plan manufacturing activities, delivery schedules and purchasing activities.
The MRP inventory management method is sales-forecast defendant. This means that manufacturers must have accurate sales records to enable accurate planning of inventory needs and to communicate those needs with materials suppliers in a timely manner.
MRP is a resource planning system that focuses on the future, and is time phased, while JIT does not provide for forward-thinking.
The JIT system is a dynamically linked system, that is better applied for short lead times, while MRP is not linked, and is better suited for long lead times.
Whereas the JIT system enhances the value of processes, MRP will give you more control.
Good Receipt Note (GRN)
GOODS RECEIPT NOTE (GRN) is prepared by the Stores /Warehouse Department for accounting the receipt of goods purchased from suppliers.
When GRN is prepared in a software, Inventory is updated with quantity and value. It will also update the financial records by debiting Purchases A/c & Crediting the Supplier's (Vendor's) A/c.
Goods Receipt Note is a document used to record the inward entry of the any goods received at the premises of the organization.
The document normally consists of the details of Quantity Received, Quantity Rejected and Quantity Accepted, Supplier Name & P.O. No.
The practice of preparing GRNs is important as it promotes proper inventory control and restricts the unwanted, unauthorized entry of goods in the organization.
The GRN preparation is a part of effective Inventory Control Management.
First time through (FTT)
Definition: First Time Through is the percentage of units that complete a process and meet quality guidelines the first tie without being scrapped, rerun, retested, diverted for off-line repair, or returned.
It is a measure of the quality of the manufacturing process.
Factual: One hundred percent (100%) FTT capability = Zero defects made or passed on.
First time through yield or FTT as it may sometimes be referred to is a measure of production efficiency, ability/skill, and quality. It measures how many goods are produced correctly without flaws or re-work as percentage of total units produced in a production process or value stream.
Supply chain management
Supply chain management has been defined as the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally.
Supply chain management (SCM), the management of the flow of goods and services, involves the movement and storage of raw materials, of work-in-process inventory, and of finished goods from point of origin to point of consumption. Interconnected or interlinked networks, channels and node businesses combine in the provision of products and services required by end customers in a supply chain
Logistics
Logistics is the management of the flow of things between the point of origin and the point of consumption in order to meet requirements of customers or corporations. The resources managed in logistics can include physical items such as food, materials, animals, equipment, and liquids; as well as abstract items, such as time and information.
The logistics of physical items usually involves the integration of information flow, material handling, production, packaging, inventory, transportation, warehousing, and often security.
Logistics management is the part of supply chain management that plans, implements, and controls the efficient, effective forward, and reverses flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customer's requirements.
Logistics management involves identifying prospective distributors and suppliers, and determining their effectiveness and accessibility.
Vendor-managed inventory (VMI)
Vendor-managed inventory (VMI) is a family of business models in which the buyer of a product provides certain information to a supplier (vendor) of that product and the supplier takes full responsibility for maintaining an agreed inventory of the material, usually at the buyer's consumption location (usually a store).
A third-party logistics provider can also be involved to make sure that the buyer has the required level of inventory by adjusting the demand and supply gaps. VMI makes it less likely that a business will unintentionally become out of stock of a good and reduces inventory in the supply chain.
The manufacturer receives electronic data (usually via EDI or the internet) that tells him the distributor’s sales and stock levels. The manufacturer can view every item that the distributor carriers as well as true point of sale data.
The manufacturer is responsible for creating and maintaining the inventory plan. Under VMI, the manufacturer generates the order*, not the distributor.
Engineering Change Notice (ECN)
An engineering change notice (ECN), or change notice, is a document which records or authorizes a change to a specific design. The reasons for the change should also be recorded.
Following sound engineering principles, control and documentation are necessary to ensure that changes are built upon a known foundation and approved by relevant authorities.
A document approved by the design activity that describes and authorizes the implementation of an engineering change to the product and its approved configuration documentation".
An ECN must contain at least this information:
1) Identification of what needs to be changed. This should include the part number and name of the component and reference to the drawings that show the component in detail or assembly.
2) Reason(s) for the change.
3) Description of the change. This includes a drawing of the component before and after the change. Generally, these drawings are only of the detail affected by the change.
4) List of documents and departments affected by the change. The most important part of making a change is to see that all pertinent groups are notified and all documents updated.
5) Approval of the change. As with the detail and assembly drawings, the changes must be approved by management.
6) Instruction about when to introduce the change
An engineering change notice (ECN), or change notice, is a document which records or authorizes a change to a specific design. The reasons for the change should also be recorded.
Following sound engineering principles, control and documentation are necessary to ensure that changes are built upon a known foundation and approved by relevant authorities.
A document approved by the design activity that describes and authorizes the implementation of an engineering change to the product and its approved configuration documentation".
An ECN must contain at least this information:
1) Identification of what needs to be changed. This should include the part number and name of the component and reference to the drawings that show the component in detail or assembly.
2) Reason(s) for the change.
3) Description of the change. This includes a drawing of the component before and after the change. Generally, these drawings are only of the detail affected by the change.
4) List of documents and departments affected by the change. The most important part of making a change is to see that all pertinent groups are notified and all documents updated.
5) Approval of the change. As with the detail and assembly drawings, the changes must be approved by management.
6) Instruction about when to introduce the change
Cycle time
Cycle time is the time from when the Operation begins to the point-of-time at which the operation ends.
Cycle time is the maximum time allowed at each workstation to complete its set of tasks on a unit.
Example.
A customer requests their product on November 6. The company receives the order instantly, and delivers the product on November 10. He actually starts working on the product only from the 8.
Therefore, the Lead Time here is 4 days, while the Cycle Time is 2 days.
Lead Time can never be less than Cycle Time. For optimal operations, at best, Lead Time = Cycle Time.
Lead time = (No of work stations) x (Cycle time)
What is TAKT Time?
It is the maximum acceptable time to meet the demands of the customer. In other words, TAKT Time is the speed with which the product needs to be created in order to satisfy the needs of the customer.
Takt time is the maximum amount of time in which a product needs to be produced in order to satisfy customer demand.
Service Example:
The company has a 9 hour work-day for its employees, of which 1 hour is the allocated break and other idel times.
Available production time = 8 hours & 480 minutes
Assume that the customer sends in 24 accounting forms to be read.
TAKT Time = 480/24 = 20 minutes/form.
This means that the staff would have to work at a speed of 20 minutes per form in order to meet the customer’s needs or demands.
Throughput Time
Throughput time is a measure of the time required for a material, part or sub-assembly to pass through a manufacturing process following the release of an order to the manufacturing floor.
Throughput time or manufacturing cycle time consists of
- Process time
- Inspection time
- Move time
- Queue time.
Inspection time is the time during which the quality of the product is confirmed.
Move time is the time during which materials or works-in-process are moved from one workstation to another.
Queue time is the period of time during which the product awaits transfer to a workstation, undergoes further inspection and subsequent manufacturing processes.
Milk run
A milk run, in logistics, is a round trip that facilitates either distribution or collection.
The terms are defined by the customer or by the service providers. Here, the exact number of suppliers, each of which defines the available volume and weight, and the time window for collection from the respective suppliers and the time window for delivery to the customer.
With consistent planning, capacity increases to an average of 90% can be achieved.
On the round trips are either goods collected from several suppliers and transported to one customer, or goods collected from one supplier and transported to several customers. In contrast to the group age traffic, there is no handling, except to transport the goods.
Something more specialist, the Milk-run is described as a concept that is a sequential collection of goods from multiple sources and the direct service to the customers without intermediate handling features of the goods.
A milk run ensures that that minimum distance is travelled and the maximum demand is carried into the truck so as to meet both the demand requirement and effective transportation with least cost.
This is applied where the load is scattered in many different places and in smaller units.
Segregation of duties (SOD)
Segregation of duties (SoD) is an internal control designed to prevent error and fraud by ensuring that at least two individuals are responsible for the separate parts of any task.
SoD involves breaking down tasks that might reasonably be completed by a single individual into multiple tasks so that no one person is solely in control.
ABC ANALYSIS
(ABC = Always Better Control)
This is based on cost criteria.
It helps to exercise selective control when confronted with large number of items it rationalizes the number of orders, number of items & reduce the inventory.
About 10 % of materials consume 70 % of resources
About 20 % of materials consume 20 % of resources
About 70 % of materials consume 10 % of resources
Objective of material management
Primary
1) Right price
2) High turnover
3) Low procurement & storage cost
4) Continuity of supply
5) Consistency in quality
6) Good supplier relations
7) Development of personnel
8) Good information system
Secondary
1) Forecasting
2) Inter-departmental harmony
3) Product improvement
4) Standardization
5) Make or buy decision
6) New materials & products
7) Favorable reciprocal relationships
Four basic needs of Material management
1) To have adequate materials on hand when needed
2) To pay the lowest possible prices, consistent with quality and value requirement for purchases materials
3) To minimize the inventory investment
4) To operate efficiently