Chapter 18 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 1 Operations Management Managing the daily production

Chapter 18Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 1

Operations Management

Operations Management

Managing the daily production of goods and services.


Productivity

Productivity = Outputs Inputs

Productivity = Outputs Inputs

Why Productivity

Matters

Why Productivity

Matters

DifferentKinds of

Productivity

DifferentKinds of

Productivity

11


Why Productivity Matters

HigherProductivity

HigherProductivity

LowerCosts

LowerCosts

LowerPrices

LowerPrices

HigherMarketShare

HigherMarketShare

HigherProfits

HigherProfits

HigherStandard

of Living

HigherStandard

of Living

1.11.1


Why Productivity Matters

1.11.1

Increased wages and new jobs

More donations to charities

More affordable and better products


Kinds of Productivity

Partial productivity = OutputsSingle Kind of Input

Multifactor productivity =Outputs

Labor + Capital + Materials + Energy

1.21.2


Quality

BaldrigeNational

Quality Award

BaldrigeNational

Quality Award

TotalQuality

Management

TotalQuality

Management

ISO 9000 & 14000

ISO 9000 & 14000

Quality-RelatedProduct

Characteristics

Quality-RelatedProduct

Characteristics

Quality-RelatedService

Characteristics

Quality-RelatedService

Characteristics

22


Meanings for Quality

…A product or service free of deficiencies

…A product or service free of deficiencies

…The characteristics of a product orservice that satisfy customer needs

…The characteristics of a product orservice that satisfy customer needs

22

QualityQuality


Car Quality

22


Quality-Related Product Characteristics

2.12.1

Rel

iab

ility

Serviceability

Durability

Product


Serviceability

Reva uses computer diagnostic system that can sync to the owner’s cell phone, indicating the type of service the vehicle needs.


Characteristics of Service Quality

2.12.1


ISO 9000 and 14000

2.22.2

ISO 9000

A series of international standards for achieving consistency in quality management and quality assurance in companies throughout the world.

ISO 14000

A series of international standards for managing, monitoring, and minimizing an organization’s harmful effects on the environment.

http://www.ansi.orghttp://www.iso.chhttp://www.asq.org

Web Link

http://www.ansi.org/

http://www.iso.ch/

http://www.asq.org/


Baldrige National Quality Award

Given to U.S. companies to recognize achievement in quality and business performance

Raises awareness about the importance of quality and performance excellence as a competitive edge

2.32.3


Criteria for the Baldrige National Quality Award

1. Leadership

2. Strategic Planning

3. Customer and Market Focus

4. Measurement, Analysis, & Knowledge Management

5. Human Resource Focus

6. Process Management

7. Business Results

2.32.3


Baldrige Application Process

http://www.quality.nist.govWeb Link

http://www.quality.nist.gov/


Total Quality Management

Principles of TQMPrinciples of TQM

Continuous improvement Continuous improvement

TeamworkTeamwork

2.42.4

Customer focus and satisfactionCustomer focus and satisfaction


Total Quality Management

50 150 250 350 450 550 650 750

Defects Per Million Parts (000)

Sig

ma

Qu

alit

y L

evel

6 Sigma

5 Sigma

4 Sigma

3 Sigma

2 Sigma

1 Sigma 690,000690,000

3.4

230

6,210

66,800

308,538

Adapted from Exhibit 18.7

2.42.4


Service Operations

Services…

are performed are intangible are unstorable 57.2% of GDP

Goods…

are made are tangible are storable 32.7% of GDP

33


The Service-Profit Chain

Exhibit 18.8

3.13.1


Components of Internal Service Quality

Adapted From Figure 18.9

Both vertical and horizontal communication?

Do service employees have tools needed?

Are good performers rewarded/recognized?

Does management aid or hinder employees?

Is there teamwork among individuals and departments?

Do they facilitate serving customers?

Is job-specific training available?

Are goals of senior management and frontline service employees aligned?

Policies and Procedures

Tools

Effective Training

Rewards and Recognition

Communication

Management Support

Goal Alignment

Teamwork

3.13.1


Service Recovery and Empowerment

Service recovery is restoring customer satisfaction to strongly dissatisfied customers Fixing the mistakes that were made Performing “heroic” service that delights

customers

Empowering workers can help solve customerdissatisfaction The goal is zero customer defections

3.23.2


Doing the Right Thing

Protect Your Front-Line Staff:The Customer Isn’t Always Right

Fire customers who use foul language, make threatsagainst employees or other customers, lie, demandunethical or illegal service, bully, or are belligerent

Otherwise, you are saying you care more aboutmoney than the safety of people in the business

Protect Your Front-Line Staff:The Customer Isn’t Always Right

Fire customers who use foul language, make threatsagainst employees or other customers, lie, demandunethical or illegal service, bully, or are belligerent

Otherwise, you are saying you care more aboutmoney than the safety of people in the business

3.23.2


Costs of Empowering Service Employees

1. Finding service workers capable of solving problems1. Finding service workers capable of solving problems

2. Training service workers2. Training service workers

3. Higher wages3. Higher wages

4. Less emphasis on service reliability4. Less emphasis on service reliability

5. Eagerness to provide “giveaways”5. Eagerness to provide “giveaways”

6. Unintentional unfair customer treatment6. Unintentional unfair customer treatment


3.23.2


Benefits of Empowering Service Employees

3.23.2Adapted from Exhibit 18.10

1. Quicker response to customer complaints1. Quicker response to customer complaints

2. Employees feel better2. Employees feel better

3. Enthusiastic employee interaction with customers3. Enthusiastic employee interaction with customers

4. Employees offer ideas for improvement and prevention4. Employees offer ideas for improvement and prevention

5. Great word-of-mouth advertising and customer retention5. Great word-of-mouth advertising and customer retention

6. Satisfied employees more likely to stay with company6. Satisfied employees more likely to stay with company


Amount of Processing inManufacturing Operations

Make-to-order operations manufacturing doesn’t begin until an order is

placed

Assemble-to-order operations used to create semi-customized products

Make-to-stock operations manufacture standardized products

4.14.1


Amount of Processing inManufacturing Operations

More Processing

Make-to-Order

Assemble-to-Order

Make-to-Stock

Less Processing

More Processing

Make-to-Order

Assemble-to-Order

Make-to-Stock

Less Processing


4.14.1


Flexibility of Manufacturing Operations

LEAST FLEXIBLE

Continuous-Flow

Line-Flow

Batch

Job Shops

Project Manufacturing

MOST FLEXIBLE

LEAST FLEXIBLE

Continuous-Flow

Line-Flow

Batch

Job Shops

Project Manufacturing

MOST FLEXIBLE


4.24.2


Flexibility of Manufacturing Operations

Continuous-flow production Produces products continuously, like oil drilling

Line-flow production Uses predetermined, linear steps, like beverage bottling

Batch production Produces specific quantities of different items, like a bakery or commissary

Job shops Handle small, specialty batches

Project manufacturing Is for large, expensive, specialized products like aircraft carriers

4.24.2


Inventory

Costs ofMaintainingInventory

Costs ofMaintainingInventory

Systems forManagingInventory

Systems forManagingInventory

Types ofInventory

MeasuringInventory Levels

55


Types of Inventory


5.15.1

Raw materialsRaw materials

Component partsComponent parts

Work-in-process Work-in-process

Finished goodsFinished goods

Fabrication

Initial Assembly

Final Assembly

VendorsVendors

Purchasing

Purchasing


Types of Inventory

Finished GoodsInventories

Finished GoodsInventories

FieldWarehouses

FieldWarehouses

DistributionCenters

DistributionCenters

WholesalersWholesalers

RetailersRetailers

CustomersCustomers5.15.1



Measuring Inventory

1. Average Aggregate Inventory the average overall inventory for a certain time

period

2. Weeks of Supply the number of weeks to run out of inventory

3. Inventory Turnover the number of times a year that a company sells

its average inventory

5.25.2


Inventory Turn Rates

Aerosp

ace

Autom

otive

Chemic

als

Constru

ctio

n

Consum

er P

acka

ged G

oods/Nondura

bles

Consum

er P

roduct

Dura

bles

High T

ech

Indust

rial E

quipm

ent &

Mac

hiner

y

Pharm

aceu

tical

s

Printin

g and P

ublishin

g

Avera

ge

0

5

10

15

20

25

30

Average Inventory Turn Rate

75th Percentile Inventory Turn

Rate


5.25.2


Costs of Maintaining an Inventory

OrderingCost

OrderingCost

SetupCost

SetupCost

HoldingCost

HoldingCost

StockoutCosts

StockoutCosts

all costs associated with orderinginventory, correcting mistakes,determining when/how much to order

all costs associated with orderinginventory, correcting mistakes,determining when/how much to order

costs of downtime and lost efficiencywhen a machine is changed to producedifferent kinds of inventory

costs of downtime and lost efficiencywhen a machine is changed to producedifferent kinds of inventory

cost of keeping inventory until it isused or sold

cost of keeping inventory until it isused or sold

costs when a company runs out of a product

costs when a company runs out of a product

5.35.3


Stockout Costs


Trade-off Between Setup Costs and Manufacturing Flexibility

5.35.3


Managing Inventory

EconomicOrder Quantity

EconomicOrder Quantity

Just-in-TimeInventory

Just-in-TimeInventory

MaterialsRequirement Planning

MaterialsRequirement Planning

EOQEOQ

JITJIT

MRP MRP

5.35.3


Managing Inventory

5.35.3

Kanban

Kanban, which is Japanese for “sign,” is a simple ticket-based JIT system that indicates when to reorder inventory.

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Chapter 18 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 1 Operations Management Managing the daily production