Operation Management (OM) Introduction
Ing.J.Skorkovský, CSc,
Department of Corporate Economy
FACULTY OF ECONOMICS AND ADMINISTRATION
Masaryk University Brno
Czech Republic

Coordinates
•Lecturer : Ing.Jaromír Skorkovský, CSc.
–Department of Corporate Economy (5th floor)
–miki@econ.muni.cz
–+420 731113517
•Study material : will be updated regularly (is.muni.cz)
•Seminar work : will assigned after some theory will be presented. Accepted seminar work is the
second condition to be  admitted to exam)
•
•
•

What is going on ?
Use of Operations Management (OM) in external environment
(main target)
General knowledge of OM methods  acquired  at university and  long-standing experience
Knowledge of methods and experience from research and literature - teachers
Knowledge of methods and experience from outside world – consultants, managers, …


Extent of knowledge
Extent of knowledge

OM all around us (vertical solutions)
OM is the management of all processes used to design, supply, produce, and deliver valuable goods
and services to customers
TQM = Total Quality Management
MRP, JIT, APS, Lean Manufacturing, Little´s law
ERP: Marketing, Selling, Invoicing, Payment,….
ERP: Logistics, Transportation ,

Some OM methods
•Theory of Constraints
•Balanced Scorecard (how to implement – use of this tools)
•Project Management methods (Critical Chain, SCRUM,…)
•Material Requirement Planning and Just-in-Time
•Advanced Planning and Scheduling
•Six Sigma – quality management (Ishikawa and Pareto synergy)
•Boston, SWOT and Magic Quadrant Matrices
•Little ´s Law (relations between WIP, Throughput and Cycle time)
•Linear programming (cutting, blending,..)
•Business Intelligence principles
•Yield Management
•Kepner-Tregoe (support of decision making and MaxiMax,MaxiMax and Hurwitz)
•
•

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•6
•
Podíl na trhu, stabilita, růst
Nulové defekty, včasné dodávky,…
Logistika, štíhlá výroba, řízení kvality (six sigma)..
Výuka, týmová práce,..
Analýza
TOC
Ishikawa
Kepner-Tregoe
Linear Programmimng

•7
http://havlicekjara.sweb.cz/stranka_1/nadpis_cestina.gif
Konec třetí 4 hodinové lekce = Modelové podniky (SZZ) !!!!!

OM main tool (bude krátce ukázáno v živé ukázce ERP NAV 2016)
•ERP-Enterprise Resource Planning (MS Dynamics NAV)
–Basic installation, handling and setup
–Inventory – Items – Transports
–Purchase –dealing with Suppliers
–Selling – dealing with Customers
–Payment – Bank operations
–Accounting basics
–CRM- Customer Relationship Management
–Manufacturing – Planning and Shop Floor Control
–
–
•
•
•

Controlling processes in Supply Chain Management (SCM)
      Supply
    Production
         Orders (Demands)

  Operation Strategies and
         Innovations , R&D
    Forecasts, Blank Orders
   Long term planning
 Marketing
     Logistic operations
     Routing control, TQM
Packaging , Transportation
     MRP, Replenishment
     MRP_II ; JIT, Capacities
  Cash flow
Strategic
Operational
Tactical
Operational
Used abbreviations : R&D –Research and Development; TQM-Total Quality Management; JIT- Just
–In-Time; MRP_II-Manufacturing  and Resource Planning
Used abbreviations  (slide number 3 ): : ERP - Enterprise Resource Planning ; APS – Advanced
Planning and Scheduling

Deming cycle (based on periodicity)
Plan: Define the problem to be addressed, collect relevant data, and ascertain the problem's root
cause (e.g. by use of TOC=Theory of Constraints)
Do: Develop and implement a solution; decide upon a measurement to gauge its effectiveness.
Check: Confirm the results through before-and-after data comparison.
Act: Document the results, inform others about process changes, and make recommendations for the
problem to be addressed in the next PDCA cycle.
Used abbreviations    : TOC – Theory of Constraints

Explanation of some terms used in PDCA Deming Cycle simple example (home study) I.
•Service level :represents the expected probability of not hitting a stock-out. This percentage is
required to compute the safety stock.
•
•Intuitively, the service level represents a trade-off (compromise) between the cost of inventory
and the cost of stock-outs (which incur missed sales, lost opportunities and client frustration
among others).
Resource: https://www.lokad.com/service-level-definition-and-formula
M - stock-out cost (often 3 time the gross margin)
H -  carrying cost per unit for the duration of the lead time
1litr milk pack -> 1.50€ selling price, 10% margin -> =0,15 €. Lead time = 4 days.
The annual carrying cost is 1.50 € (the value is high because milk is a highly perishable product).
Stock-out cost ->3 time the gross margin, that is to say->M= 0.45€.
H=(4/365)x 1.5≈0.0055 H≈0.0055 . So p=98,5%


12
D
Q
D
time
D= Demand = Reorder Quantity=EOQ
Safety Stock
80
50
10
T
T
ROP= Reorder Point =50 (in our model)
ROP
>
1
>
2
> >
1
2
- No replenishment suggestion (current quantity >= ROP
-Replenishment is suggested (current quantity < ROP and quantity may be EOQ
Explanation of some terms used in PDCA Deming Cycle simple example (home study) II.
Used abbreviations    : EOQ – Economic Order Quantity – will be explained dúrin this course

Project management
Theory of constraints
Production
Critical chain
Drum –Buffer-Rope
MRP-MRP-II,JIT,APS
Linear programming
Cutting, blending
Total quality
management
Pareto, ishikawa
Product  postitioning
Little´s law
Boston Matrix
Gartner QM
Workflow
CONWIP
Logistics
EOQ
Decision
Making
Kepner-Tregoe
Hurwitz
Business Intelligence
Yield management
Prospect Theory
Another point of view
ABC
Pareto, Ishikawa
Six Sigma
Product Life  Cycle
LEAN
Function block Logistic more in detail
will be presented later in this show
SCRUM
Used abbreviations    : QM– Quadrant Matrix; CONWIP – Constant Work in Progress; EOQ – Economic
Order Quantity ; MRP  - Material  Requirement Planning
This will be modified  in following South African project show (example of  Balanced Score Card use
)

Operations
See next slide


Procedures-simplified
Resource (modified) : dowtsx
Input
Transformation
Output

Processing (not organised set of processes, will be presented also as a introduction to project
management PWP presentation later)
• Input check
• Put-away
•
•Cross-docking
•    Transfer
•    to
•   Production
•
• Consumption    registration
•Production    Output    registration
•
•Inventory value
•calculation
•
• Output check
•(Quality  control)
•
•Delivery
•
•Load-despatch
•
•Production    Planning
•
•Sales Order
•
•
•Component replenishment
•
•Purchase Order
•
•
•Invoicing
•
•Payment
•   Finished
•   goods   to
•   Inventory
•
•   Picking from
•   Inventory
•
•
•Reporting
•
•Statistics
Resource : Skorkovský

Your main task (to organize  processes based on business logic)
• Input check

Put-away
Cross-docking
•    Transfer
•    to
•   Production
•
• Consumption    registration
•Production    Output    registration
Inventory value
calculation
• Output check
•
•Shipment
•
•Load-despatch
•
•Production    Planning
•
•Sales Order
(demand)
•
•
•Component replenishment
•
•Purchase Order
•
•
•Invoicing
•
•Payment from
•Customer
   Finished
   goods   to
   Inventory
•
•Picking from
•   Inventory
•
•
•Reporting
•
•Statistics
•
•Inventory value
•calculation
•
•
•Inventory value
•calculation
•
•
•Payment to
•Vendor
Transformation
Input
Output
Control
   Logistics
Resource : Skorkovský

Your main task (possible problems, bottlenecks, undesirable effects..)
• Input check
• Put-away
•
•Cross-docking
•    Transfer
•    to
•   Production
•
• Consumption    registration
•Production    Output    registration
•
•Inventory value
•calculation
•
• Output check
•
•Shipment
•
•Load-despatch
•
•Production    Planning
•
•Sales Order
•
•
•Component replenishment
•
•Purchase Order
•
•
•Invoicing
•
•Payment from
•Customer
•   Finished
•   goods   to
•   Inventory
•
•   Picking from
•   Inventory
•
•
•Reporting
•
•Statistics
•
•Inventory value
•calculation
•
•
•Inventory value
•calculation
•
•
•Payment to
•Vendor
Application of TOC ->thinking tools->Current Reality Tree – first stage
Resource : Skorkovský

Your main task
(Search  - HOW  ???  Measure impacts –HOW ??? and  Destroy – HOW  ???)
Root Problem
         (e.g.low profit or lack of component )
Cause-Effect relations
Cause-Effect relation
Cause-Effect relation
Cause-Effect relation
Cause-Effect relation

https://www.toc.tv/TV/video.php?id=701&open=excerpt#.V6xCP00kpFo







Other problems (examples which could be solved are mentioned
in PWP Project activities (Činnosti spojené s projektem)


Tuition –plan-theory
•OM-intro – done (this slide show)
•Real project-South African client (wholesale)
•Theory of constraints
•Critical chain and project management
•Quality management I. (Pareto+ Ishikawa)
•Quality management II. (Six Sigma, Kaizen, Poka Yoke)
•Business metrics (use of matrices – Boston, Gartner MQ)
•Balanced Score Card
•DBR , CONWIP
•Decision making (Kepner-Tregoe methodology,..)
•P&Q analysis (mix of products)
•Business Intelligence – intro and concept
•Little´s law
•Yield management – intro to concept
•Linear programming – concept and use
•Business Intelligence
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