8/19/2011

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*Chapter Nine

Production

and

Operations

Management

McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

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*Profile

• Current CEO and President of

IBM, he started in the company

in 1973.

• The company invested $16

billion in acquiring 60 other

companies.

• Switching the company’s focus

from production to service,

Palmisano has led IBM to enter

the emerging global market.

SAMUEL J. PALMISANOIBM

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*Manufacturing

and Services in

Perspective

• From 2001 to 2009, manufacturing output in the

U.S. rose 4% each year.

• The U.S. is still the world’s leading

manufacturer.

MANUFACTURING in the U.S.

LG1

• Almost 25% of all

goods produced each

year come from the

U.S.

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Source: Parade Magazine, http://www.parade.com, accessed September 2010.

LG1

Manufacturing

and Services in

PerspectiveWHAT’S MADE in the USA?

Leading U.S. Manufactured Goods

Products Value Number of Employees

Chemicals – Pharmaceuticals,

cosmetics, soaps, paints,

fertilizers

$250 Billion 830,000 Americans

Transportation Equipment –

Cars, planes, trains, ships$195 Billion Over 1.4 Million Americans

Processed Foods,

Beverages and Tobacco –

Cookies, coffee, cigarettes,

prepared meals

$175 Billion 1.7 Million Americans

Computers and Electronics –

Computers and communication

equipment

$146 Billion 1.2 Million Americans

9-4

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Source: Bloomberg BusinessWeek, http://www.businessweek.com, accessed September 2010.

Exporters ExtraordinaireTop Ten States that Manufacture Goods for Export

State Thousands of Workers

California 206.1

Texas 108.9

Ohio 95.6

Michigan 79.8

New York 77.2

Illinois 76.6

Pennsylvania 71.8

Washington 71.3

North Carolina 60.1

Indiana 59.6

Manufacturing

and Services in

Perspective

LG1

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Source: Industry Week, http://www.industryweek.com.

MASSIVE MANUFACTURERSThe Top Ten U.S. Manufacturers

Rank Company

1 Exxon-Mobil

2 Chevron

3 ConocoPhillips

4 General Electric

5 General Motors

6 Ford Motor

7 Valero Energy

8 Hewlett-Packard

9 IBM

10 Procter & Gamble

Manufacturing

and Services in

Perspective

LG1

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• The Green Economy is worth more than $200

billion annually and is expected to reach $1 trillion

by 2020.

• Consumers like products that say “all natural,”

“locally grown,” “energy efficient,” etc.

• The market for new green products and services

is almost endless.

• The Green Movement, however, is only

beginning.

The “GREEN” MOVEMENT

IMPROVES the ECONOMY(Thinking Green)

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• The U.S. economy is no longer manufacturing

based.

• 85% of jobs are in the service sector.

• The top-paying service jobs in the U.S. are in:

- Legal services

- Medical services

- Entertainment

- Accounting

- Finance

- Management consulting

TOP PAYING SERVICE JOBS

LG1

Manufacturing

and Services in

Perspective

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* Manufacturers

and Service

Organizations

Become More

Competitive

• U.S. is still the leader in nanotechnology and

biotechnology.

• How can U.S. businesses maintain a competitive

edge?

- Focusing on customers

- Practicing continuous improvement

- Focusing on quality

- Relying on the Internet to unite companies

- Adopting new production techniques.

REMAINING COMPETITIVE in

GLOBAL MARKETSLG1

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*From Production

to Operations

Management

• Production -- The creation of goods using land,

labor, capital, entrepreneurship and knowledge (the

factors of production).

PRODUCTION and

PRODUCTION MANAGEMENTLG2

• Production

Management -- All the

activities managers do to

help firms create goods.

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*From Production

to Operations

Management

• Operations Management -- A specialized area in

management that converts or transforms resources

into goods and services.

• Operations management includes:

• Inventory management

• Quality control

• Production scheduling

• Follow-up services

OPERATIONS MANAGEMENT

LG2

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*Progress

Assessment

• What have U.S. manufacturers done to regain a

competitive edge?

• What must U.S. companies do to continue to

strengthen the country’s manufacturing base?

• What led companies to focus on operations

management rather than production?

PROGRESS ASSESSMENT

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*Production

ProcessesThe PRODUCTION PROCESS

LG3

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*Production

Processes

• Form Utility -- The value producers add to materials

in the creation of finished goods and services.

FORM UTILITY

LG3

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1. To build and deliver products in response to the

demands of the customer.

2. To provide an acceptable quality level.

3. To provide everything at the lowest possible

cost.

GROVE’S BASIC PRODUCTION

REQUIREMENTSLG3

Production

Processes

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• Process Manufacturing -- The part of production

that physically or chemically changes materials.

• Assembly Process -- The part of the production

process that puts together components.

PROCESS and ASSEMBLY in

PRODUCTIONLG3

Production

Processes

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• Production processes are either continuous or

intermittent.

• Continuous Process -- Long production runs turn

out finished goods over time.

• Intermittent Process -- Production runs are short

and the producer adjusts machines frequently to

make different products.

KEY PRODUCTION PROCESSES

LG3

Production

Processes

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*MADE in a MINUTE

Production of Some of America’s Favorite Products

Product Number of Items

Made in a Minute

Krispy Kreme Doughnuts 5,208

Chips Ahoy! Cookies 4,000

Twinkies 972

Jello Boxes 764

LifeSavers 100 rolls

Production

Processes

LG3

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*The Need to

Improve Production

Techniques and

Cut Costs

DEVELOPMENTS MAKING U.S.

COMPANIES MORE COMPETITIVELG3

1. Computer-aided design and manufacturing

2. Flexible manufacturing

3. Lean manufacturing

4. Mass customization

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*Computer-Aided

Design and

Manufacturing

COMPUTER-AIDED DESIGN and

MANUFACTURINGLG3

• Computer-Aided Design

(CAD) -- The use of

computers in the design of

products.

• Computer-Aided

Manufacturing (CAM) --The use of computers in the

manufacturing of products.

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*Flexible

Manufacturing FLEXIBLE MANUFACTURING

LG3

• Flexible Manufacturing -- Designing machines to

do multiple tasks so they can produce a variety of

products.

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*Lean

Manufacturing LEAN MANUFACTURING

LG3

• Lean Manufacturing -- Using less of everything

than in mass production.

• Compared to others, lean companies:

• Take half the human effort.

• Have half the defects in finished products.

• Require one-third the engineering effort.

• Use half the floor space.

• Carry 90% less inventory.

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*Mass

CustomizationMASS CUSTOMIZATION

LG3

• Mass Customization --Tailoring products to meet the

needs of a large number of

individual customers.

• More manufacturers are

learning to customize.

• Mass customization exists

in the service sector too.

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*Progress

Assessment

• What’s form utility?

• Define and differentiate the following: process

manufacturing, assembly process, continuous

process and intermittent process.

• What do you call the integration of CAD and

CAM?

• What’s mass customization?

PROGRESS ASSESSMENT

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*Operations

Management

Planning

• Operations management planning helps solve

problems like:

- Facility location

- Facility layout

- Materials requirement planning

- Purchasing

- Inventory control

- Quality control

OPERATIONS MANAGEMENT

LG4

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*Facility

Location

• Facility Location --The process of

selecting a geographic

location for a

company’s operations.

FACILITY LOCATION

LG4

• Rising numbers of Internet businesses means

brick-and-mortar retailers must find great

locations.

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• Potential of low-cost labor is very attractive to

companies hoping to remain competitive.

• However, shuttering operations and moving can

often cause severe economic problems in

dependent areas.

• What would you do if you were the CEO of

ChildrenWear Industries faced with this problem?

STAY or LEAVE(Making Ethical Decisions)

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*Taking

Operations

Management to

the Internet

• Sometimes businesses outsource engineering,

design and manufacturing to other companies.

• Often these relationships are managed through

the Internet.

• Many companies are developing Internet-focused

strategies.

OPERATIONS MANAGEMENT

on the INTERNETLG4

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*Facility Location

in the Future

• Information technology gives firms increased

flexibility in terms of location.

• Telecommuting -- Working from home via

computer and modem.

FUTURE FACILITY LOCATION

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• Dain Hancock of Lockheed Martin had the

formidable task of uniting 80 companies into a

single production unit.

PARTNERING BEYOND

COUNTRY BORDERS(Reaching Beyond Our Borders)

• Using the Internet

and tech tools, like

electronic white

boards, kept the

companies in touch

in real time.

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*Facility Layout

• Facility Layout -- The physical arrangement of

resources, including people, to most efficiently

produce goods and provide services.

• Facility layout depends on the processes

performed:

- Service: Help customers find products

- Manufacturing: Improve efficiency

SETTING UP the FACILITY

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*Facility Layout

1. Assembly Line Layout – Workers do only a few

tasks at a time.

2. Modular Layout – Teams of workers produce more

complex units of the final product.

3. Fixed-Position Layout – Allows workers to

congregate around the product.

4. Process Layout – Similar equipment and functions

are grouped together.

FACILITY LAYOUT OPTIONS

LG4

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LG4

Facility LayoutASSEMBLY LINE LAYOUT

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LG4

Facility LayoutMODULAR LAYOUT

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LG4

Facility LayoutPROCESS LAYOUT

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LG4

Facility LayoutFIXED-POSITION LAYOUT

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*Materials

Requirement

Planning

• Materials Requirement Planning (MRP) -- A

computer-based operations management system that

uses sales forecasts to make sure parts and

materials are available when needed.

• Enterprise Resource Planning (ERP) -- A newer

version of MRP, combines computerized functions

into a single integrated software program using a

single database.

MRP and ERP

LG4

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*Purchasing

• Purchasing -- The function that searches for high-

quality material resources, finds the best suppliers

and negotiates the best price for goods and services.

PURCHASING

LG4

• The Internet has

transformed

purchasing.

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*Just-in-Time

Inventory Control

• Just-in-Time (JIT) Inventory Control -- The

production process in which a minimum of inventory

is kept and parts, supplies and other needs are

delivered just in time to go on the assembly line.

• To work effectively, the process requires excellent

coordination with suppliers.

INVENTORY CONTROL

LG4

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*Quality Control

• Quality -- Consistently producing what the customer

wants while reducing errors before and after delivery.

• Six Sigma Quality -- A quality measure that allows

only 3.4 defects per million opportunities.

QUALITY CONTROL

LG4

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*Quality Control

• Statistical Quality Control -- A process used to

continually monitor all phases of the production

process.

• Statistical Process Control -- A process of

testing statistical samples of product components at

each stage of production.

• Measuring quality along the production process

reduces the need for quality-control at the end.

STATISTICAL QUALITY CONTROL &

STATISTICAL PROCESS CONTROL LG4

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*The Baldrige

Awards

• Companies can apply for awards in these areas:

- Manufacturing

- Services

- Small Businesses

- Education

- Healthcare

The BALDRIGE AWARDS

LG4

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Source: National Institute of Standards and Technology, http://www.quality.nist.gov, accessed September 2010.

• Honeywell Federal Manufacturing and

Technologies

Kansas City, Missouri (Manufacturing)

• AtlantiCare

Egg Harbor Township, New Jersey (Healthcare)

• Heartland HealthSt. Joseph, Missouri (Healthcare)

• Midway USA

Columbia, Missouri (Small Business)

THE WINNERS ARE…2009 Baldrige Award Recipients

The Baldrige

Awards

LG4

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*ISO 9000 and

ISO 14000

Standards

• The International Organization for Standardization

(ISO) is a worldwide federation of national

standards bodies.

• ISO 9000 -- The common name given to quality

management and assurance standards.

• ISO 14000 -- A collection of the best practices for

managing an organization’s impact on the

environment.

WHAT is the ISO?

LG4

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*Progress

Assessment

• What are the major criteria for facility location?

• What’s the difference between MRP and ERP?

• What’s just-in-time inventory control?

• What are Six Sigma quality, the Baldrige Award,

ISO 9000 and ISO 14000?

PROGRESS ASSESSMENT

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*Control

Procedures:

PERT and

GANTT Charts

• Program Evaluation and Review Technique

(PERT) -- A method for analyzing the tasks involved

in completing a given project and estimating the time

needed.

PERT

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*Control

Procedures:

PERT and

GANTT Charts

1. Analyzing and sequencing tasks

2. Estimating the time needed to complete each

task

3. Drawing a PERT network illustrating the first two

steps

4. Identifying the critical path

• Critical Path -- The sequence of tasks that

takes the longest time to complete.

STEPS INVOLVED in PERT

LG5

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LG5

Control

Procedures:

PERT and

GANTT Charts

PERT CHART for a MUSIC VIDEO

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*Control

Procedures:

PERT and

GANTT Charts

• Gantt Chart – A bar graph that shows what projects

are being worked on and how much has been

completed.

GANTT CHARTS

LG5

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LG5

Control

Procedures:

PERT and

GANTT Charts

GANTT CHART for a

DOLL FACTORY

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*Progress

Assessment

• Draw a PERT chart for making breakfast of three-

minute eggs, buttered toast and coffee. Define

the critical path.

• How could you use a Gantt chart to keep track of

production.

PROGRESS ASSESSMENT

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