Operations management

Operations management provides a systematic way of looking at organizational process. OM

uses analytical thinking to deal with real-world problem. E.g. waiting line system concept is

used to calculate how many lines to have at the bank’s teller window. Operations Management

presents interesting career opportunities e.g. supply chain management, purchasing and quality

assurance. The concepts and tools of Operations management are widely used in managing

other functions of a business. For example concept of quality control and productivity

improvement can also be applied to other departments of an organization.

Various activities that form scope of operation/production management are

Product selection

Product design

Facility location

Method study

Facility layout

Capacity planning

Production planning

Production control

Inventory control

Quality control

Maintenance and replacement

Cost of reduction and control

Research and develpoment

1. CONCEPT OF QUALITY

1.1 Quality

one way to define quality is the degree to which performance of a product or service meets

or exceeds customer expectations. The difference between these two that is performance

and expectations is of great interest. If these two measures are equal, the difference is zero,

and expectations have been met. If the difference is negative, expectations have not been

met, whereas if the difference is positive, performance has exceeded customer

expectations. Customer expectations can be broken down into a number of categories, or

dimensions, that customer use to judge the quality of a product or service. Understanding

these helps the organizations in their efforts to meet or exceed customer expectations.

Product Quality product quality is often judged on these dimensions of quality. Product

(example – Laser printer)

Product features (e.g. multiple paper trays, coloured printing, scanning facility)

Performance (e.g. pages/minute)

Reliability/Durability (consistency of performance / expected life of components)

Ease of use

Serviceability (handling of complaints and repairs, availability of authorized repair

centers, easy to repair)

Aesthetic (appearance, feel, smell, taste e.g. control button layout, case style etc)

Availability

Reputation (Brand name recognition, rating in consumer report)

1.2 Cost of Quality

Quality costs are defined as those costs associated with the non achievement of product or

service quality as defined by requirements established by the organization and its contracts

with customers and society. In simple terms, quality cost is the cost of poor product or

services.

It can also be defined as all of the costs attributed to the production of quality that is not 100%

perfect. The costs of quality are generally classified into four types:

1. Appraisal costs – these are costs related to routine quality control, inspection of quality

of manufactured components, products and purchased raw materials, cost of

inspectors, testing, test equipments, laboratories, field testing and quality audits.

The elements of costs involved are:

Cost of inwards, in process and final inspection

Cost of destructive test losses if any

Cost of preparation of reports and audits

Cost of maintenance and calibration of test instruments and facilities

Cost of administrative machinery and organization for inspection, testing and

appraisal.

2. Prevention costs – the sum of all the costs to prevent defects, such as the costs to

identify the causes of the defects, to implement corrective action to eliminate the cause,

to train personnel to redesign and to produce new equipments or make modifications.

These costs are incurred to ensure that bad quality does not occur in manufactured

goods. These costs are –

Cost of quality data acquisition and analysis for prevention

Cost of pilot production and scientific product development

Cost of engineering quality at design stage

Cost of quality planning organization

Cost of process control and design of process control systems

Cost of training for quality

Research and testing costs aimed at quality assurance and quality enhancement

Administrative cost of systems and staff

3. Failure costs: these costs are associated with the manufacturing and usage of products

which fail on quality requirements. The first kind of failure costs is that, which is

associated with the manufacture of products which fail on quality

requirements/specifications. These are recognized as internal failure cost. Internal

failure is discovered during the production process. Internal failures occur for a variety

of reasons including defective material from vendors, incorrect machine settings, faulty

equipments, incorrect methods, incorrect processing, carelessness and faulty or

improper material handling procedures. The cost of internal failure comprises

manufacturing losses arising due to

Loss of labour, materials, machine hours etc lost in scrapped items.

Cost of rework/reassembly at subsequent stages

Cost of reprocessing and loss of workers’ morale

Cost of failing to meet contracted schedule

The second type of failure costs are those associated with the usage of products which

fail on quality requirements. These are known as external failure costs. These are

discovered after delivery to the customers. These comprise imputed costs of shipping

defective products to customers such as:

Cost of attending to consumer complaints and repairs (service costs)

Cost of replacements

Cost of product repair

Cost of loss of consumer goodwill

Downgrading

Cost of legal liability arising out of guarantee

4. Hidden costs: it includes

Potential lost sales

Extra manufacturing costs due to defects

Cost of redesign due to quality reasons

Different dimensions of quality