Part 5 Control Challenges in the 21st Century

Chapter
11
Productivity
and Quality
in Operations

PowerPoint Presentation by Charlie Cook

The University of West Alabama
 What is Operations Management?
• Operations Management
 The design, planning, and control of the factors that
enable us to provide the product or service outputs of
the organization.
• Operational managers must make decisions to
ensure that the firm’s product or service output
happens:
 In the amount demanded.
 At the right time.
 With the chosen quality level.
 In a manner compatible with organizational goals.

© 2007 Thomson/South-Western. All rights reserved. 16–2

 Manufacturing Versus Service Operating Systems

Manufacturing Service

Output is a physical Output often lacks physical

product qualities

Can stockpile inventories Cannot stockpile inventories

of finished products of finished products

Production and
Production and consumption
consumption is not
usually is simultaneous
simultaneous

Quality is relatively to Quality is more difficult to

access access

© 2007 Thomson/South-Western. All rights reserved. 16–3

 Figure 16.1 Classification Scheme for Different Operating Systems

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 Types of Manufacturing Systems
• Repetitive, Assembly Line, or Mass- Production
Systems
 Produces a high volume of discrete items.
• Continuous-Flow Production System
 Produces high volume of a continuous product or
nondiscrete items.
• Job-Shop Production System
 Produces small quantities of a wide variety of
specialized items.
• Project Production System
 Produces large scale, unique items.

© 2007 Thomson/South-Western. All rights reserved. 16–5

 Operations Management Decision Areas
• To operate any business organization, a number
of decisions must be made.
• Based upon the time frame involved, these
decisions can be categorized as:
 Long-term system design decisions.
 Short-term operating and control decisions.

© 2007 Thomson/South-Western. All rights reserved. 16–6

 Long-Term System Design Decisions
• Choice of a product or service
• Product or service design
• System capacity
• Process selection
• Facility location

© 2007 Thomson/South-Western. All rights reserved. 16–7

 Choice of Product or Service
• This decision is linked directly to corporate
strategy for it answers the question, “What
business are we in?”
 The choice of product of service will ultimately decide
what inputs will be necessary and what type of
transformation will be performed.
 To make a viable product/service selection decision,
considerable interaction with marketing will be
needed to accurately assess the wants and needs of
the marketplace as well as the strength of the
competition.

© 2007 Thomson/South-Western. All rights reserved. 16–8

 Product and Service Design
• The development of a product or service
involves a sequence of steps.
 Development of a concept.

 Development of a preliminary design or prototype.

 Development of “make versus buy” choices.

 Selection of production methods, equipment, and
suppliers.

© 2007 Thomson/South-Western. All rights reserved. 16–9

 System Capacity
• Determines the level of product or service output
that the system will be able to provide.
• It is here that the firm will make its major
investment decisions:
 The number of facilities to be built.
 The size of each facility.
 Their individual capabilities.

 Amount and type of equipment to be purchased.

© 2007 Thomson/South-Western. All rights reserved. 16–10

 Process Selection
• Recall the volume/variety continuum that
categorized manufacturing and service
organizations.
• An organization’s self-assessment of the
volume, variety, and type of product or service
output likely to generated will help to indicate the
type of process to be selected.

© 2007 Thomson/South-Western. All rights reserved. 16–11

 Facility Location
• Once the physical structure has been built, its
high cost usually dictates that the location
decision will remain in effect for a considerable
amount of time.
• Survey data show that manufacturing location
decisions are dominated by five factors:
 Favorable labor climate
 Proximity to markets
 Quality of life
 Proximity to suppliers and resources

© 2007 Thomson/South-Western. All rights reserved. 16–12

 Facility Layout
• The arrangement of the work areas and
equipment so that inputs progress through the
transformation process in as orderly a fashion as
possible.
• This will result in a smooth flow of material or
customers through the system.

© 2007 Thomson/South-Western. All rights reserved. 16–13

 Facility Layout Issues
• Process Layout
 A configuration flexible enough to accommodate a
wide diversity of products or customers.
• Product Layout
 A configuration set for a specific purpose, with all
product or service demands essentially identical.

© 2007 Thomson/South-Western. All rights reserved. 16–14

 Facility Layout Issues (cont’d)
• Hybrid Layout
 A configuration containing some degree of flexibility,
lying between the extremes of process and product
layouts.
• Fixed-position Layout
 A configuration used for large or bulky items that
remain stationary in the manufacturing process.

© 2007 Thomson/South-Western. All rights reserved. 16–15

 Short-Term Operating and Control
Decisions
• Aggregate planning
• Master production schedule
• Inventory management
• Materials requirement planning
• Just-in-time inventory management
• Supply chain management

© 2007 Thomson/South-Western. All rights reserved. 16–16

 Short-Term Operating and Control
Decisions (cont’d)
• Aggregate Planning
 A series of decisions designed to set the overall level
of operations for a planning horizon that generally
spans the upcoming year.
 Demand forecasts are used to make rough
production, labor-scheduling and inventory decisions.
• The goal is to ensure that:
 Customer demand can be satisfied.
 The firm’s resources won’t be overtaxed.
 Relative costs are held to a minimum.

© 2007 Thomson/South-Western. All rights reserved. 16–17

 Short-Term Operating and Control
Decisions (cont’d)
• Master Production Schedule
 A detailed statement of projected production
quantities for each item in each time period.
 The master production schedule is simply a more
detailed breakdown of the aggregate plan.
 The sum of the parts (the master production
schedule) must equal the whole (the aggregate plan).

© 2007 Thomson/South-Western. All rights reserved. 16–18

 Short-Term Operating and Control
Decisions (cont’d)
• Inventory Management
 One of the most studied of the short-term decisions
deals with the control of inventories.
• Items in inventory may exist in any of four forms:
 Raw materials
 Work-in process
 Finished goods
 Supplies

© 2007 Thomson/South-Western. All rights reserved. 16–19

 Short-Term Operating and Control
Decisions (cont’d)
• Materials Requirements Planning (MRP)
 Uses the production schedule for the finished
products to derive demand and production schedules
for component items that make up the final product.

© 2007 Thomson/South-Western. All rights reserved. 16–20

 Short-Term Operating and Control
Decisions (cont’d)
• Just-in-Time (JIT) Inventory Management
 A philosophy that advocates eliminating waste,
solving problems, and striving for continual
improvement in operations.
 JIT attempts to reduce inventory because inventory can be
costly and can hide problems.
 By scheduling smaller but more frequent shipments from
internal and external suppliers, JIT works toward a zero-
inventory system.
 The ultimate goal is the almost total elimination of inventory.

© 2007 Thomson/South-Western. All rights reserved. 16–21

 Short-Term Operating and Control
Decisions (cont’d)
• Supply-Chain Management (SCM)
 A supply chain is defined as a sequence of suppliers,
warehouses, operations and retail outlets.
 SCM seeks to synchronize a firm’s functions with
those of its suppliers to match the flow of materials,
services and information with customer demand.

© 2007 Thomson/South-Western. All rights reserved. 16–22

 Fundamentals of Productivity
• Productivity
 A measure of the efficiency with which a firm
transforms inputs into outputs, calculated as output
divided by input.
 In the broadest sense, productivity is defined as
follows:
Productivity = system outputs
system inputs

© 2007 Thomson/South-Western. All rights reserved. 16–23

 Table 16.3 Examples of Inputs and Outputs for Productivity Measurement

Output Input

Number of refrigerators Direct labor hours, raw materials,

manufactured machinery, supervisory hours, capital

Number of patients treated Doctor hours, nurse hours, lab technician

hours, hospital beds, medical equipment,
medicine and drugs, surgical supplies

Number of income tax Staff accounting hours, desktop

returns prepared computers, printers, calculators,
typewriters, supplies

© 2007 Thomson/South-Western. All rights reserved. 16–24

 Improving Productivity
• Productivity improvement through:
 Technology
 Diverse workforce
 Design

© 2007 Thomson/South-Western. All rights reserved. 16–25

 Perspectives on Quality
• Consumer Perspective
 Quality can be defined as the degree to which the
product or service meets the expectations of the
customer.
• Producer Perspective
 Quality can be defined as the degree to which the
product or service conforms to design specifications.

© 2007 Thomson/South-Western. All rights reserved. 16–26

 Fundamentals of Quality
• Quality Control (QC)
 Focuses on the actual measurement of output to see
if specifications have been met.
• Quality Assurance (QA)
 Focuses on any activity that influences the
maintenance of quality at the desired level.
• Total Quality Management (TQM)
 A systematic approach for enhancing products,
services, processes, and operational quality control.

© 2007 Thomson/South-Western. All rights reserved. 16–27

 Factors for Assessing Quality
• Product Factors
 Aesthetics, features, performance, reliability,
serviceability, durability, conformance, and perceived
quality.
• Service Factors
 Responsiveness, reliability, assurance, empathy, and
tangibles.

© 2007 Thomson/South-Western. All rights reserved. 16–28

 Cost of Quality
• Prevention Costs
• Appraisal Costs
• Internal-Failure Costs
• External-Failure Costs

© 2007 Thomson/South-Western. All rights reserved. 16–29

 Emphasis on Quality
• The emphasis on quality is crucial for two
reasons:
 Customers are becoming increasingly conscious of
quality in their choice of products and services.
 Increased quality leads to increased productivity and
its associated benefits.

© 2007 Thomson/South-Western. All rights reserved. 16–30

 Total Quality Management as a Tool for
Global Competitiveness
• Customer-driven Standards
• Management and Labor Commitment
• Organization and Coordination of Effects
• Employee Participation

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 Customer-Driven Standards
• External Customer
 User of an item who is not a part of the organization
that supplies the item.
• Internal Customer
 User of an item who is a member of, or employee of,
the organization that supplies the item.

© 2007 Thomson/South-Western. All rights reserved. 16–32

 Management and Labor Commitment
• If TQM is to pervade all levels of an organization
successfully, management must develop an
organizational culture in which all workers are
committed to the philosophy.
• If all parts of the organization are to coordinate
toward a common goal, then this goal must be:
 Embraced by top leaders
 Communicated by leaders throughout the
organization
 Have commitment to goal demonstrated through
actions, policies and decisions.

© 2007 Thomson/South-Western. All rights reserved. 16–33

 Organization and Coordination of Effects
• Benchmarking
 The process of comparing one’s own products,
services, or processes against those of industry
leaders for the purpose of improvement.
• Kaizen
 Japanese term referring to the total quality
management principle of continuous improvement.

© 2007 Thomson/South-Western. All rights reserved. 16–34

 Employee Participation
• Quality Circle
 A work team that meets regularly to identify, analyze,
and solve problems related to its work area.
• Special-Purpose Team
 A temporary team formed to solve a special or
nonrecurring problem.

© 2007 Thomson/South-Western. All rights reserved. 16–35

 Prominent Quality Management
Philosophers
• W. Edwards Deming
 Perhaps the most prominent quality philosopher, he
devised a 14-point plan to summarize his philosophy
on quality improvement.
• Joseph Juran
 Observed that over 80 percent of quality defects are
caused by factors controllable by management.
 Developed a trilogy of planning, control, and
implementation.

© 2007 Thomson/South-Western. All rights reserved. 16–36