Ch9 - Improving Productivity and Quality

Part III: Management
Improving Productivity and Quality
Introduction to Business 3e
Learning Goals

Identify the key resources used for production. Identify the factors that affect the plant site decision. Describe how various factors affect the design and layout decision. Describe the key tasks that are involved in production control.
Describe the key factors that affect production efficiency.

92
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Improving Productivity and Quality
93
Resources Used for Production
Production
A series of tasks in which resources are used to produce a product or service.
Production (or operations) management

Focuses on developing efficient and highquality production process by determining the proper amount and mix of production resources to use:
Human
resources, materials and other assets (buildings, machinery, equipment)

94
Achieving Low-Cost Production
Managers try to combine resources in ways that are efficient and reduce costs.
Work stations are areas in which one or more employees are assigned a specific task Assembly line
A
sequence of work stations individually designed to cover specific phases of the production process Efficiency improves when specific employees are responsible for specific tasks that utilize their expertise.
Copyright 2004 South-Western. All rights reserved. 95
business online
e-business e-business
96
Resources Used in Production
Exhibit 9.1
97
Selecting a Site
Location of a factory or office

Impacts production costs and the firms ability to compete effectively.
Site location decision factors

Cost of workplace space Cost and supply of labor Tax incentives Source of demand Access to transportation
98
Evaluating Possible Sites
Using weighted criteria to compare the desirability of various sites:

Identify evaluation criteria and create a site evaluation matrix. Assign weights based on importance of each criterion. Rate each site on the individual criteria. Determine the total rating for each site. Select the most appropriate site based on the site evaluation matrix.
99
Example of Site Evaluation Matrix

Land Cost Possible Sites Austin, TX Chicago, IL Los Angeles, CA Omaha, NE Weighted Rating (80% of Weight) 2.4 3.2 4.0 .8 Supply of Labor Weighted Rating Total Rating (80% of Weight) 1 2 1 1 .2 .4 .2 .2 2.6 3.6 4.2 1.0
Rating 3 4 5 1
Rating
Exhibit 9.2
910
Design and Layout
Design
Dictates the eventual size and structure of the plant or office
Layout
The arrangement of machinery and equipment within the plant or office
911
Selecting Design and Layout
Design and layout decisions affect operating expenses

Determine cost of rent, machinery and equipment Influence the amount of money that must be borrowed and interest expense.
Desired production capacity

Allows the flexibility to increase production capacity over time in the most efficient manner possible.
912
Factors Affecting Design and Layout
Site characteristics
Cost of land
Production process
Assembly line often uses a product layout. Product layout positions tasks in sequence. Fixed-position layout requires employees to go to the product. Flexible manufacturing is be easily adjusted to accommodate future revisions.
Requires
employees to have flexible skills

913
Factors Affecting Design and Layout (contd)
Product line
A narrow product line focuses on the production of one or a few products. Firms with a broad product line offer a wide range of products. The layout must change in response to changes in customer preferences and demand for products.
914
Production Control
Purchasing materials Inventory control Routing Scheduling Quality control
915
Purchasing Materials
Selecting suppliers
Buyers consider price, speed of delivery, quality, servicing and credit availability. Some firms use the Internet for eprocurement.
Obtaining volume discounts Delegating production to suppliers
Outsourcing the production of parts

Deintegration:
to suppliers
delegating production tasks

916
Small Business Survey

Why Do Firms Outsource Rather Than Produce Some Products Themselves?
Exhibit 9.10u
917
Effects of Disintegration
Exhibit 9.3
918
Inventory Control
The process of managing inventory at a level that minimizes costs by:

Using inventory control systems to reduce carrying and ordering costs.
Just-in-Time
(JIT) inventory Materials requirements planning (MRP)
Controlling work-in-process and finished goods inventories.

Use
expected demand to determine how much product should be held in inventory

919
Illustration of IBMs Efforts to Minimize Inventory
Exhibit 9.4
920
Routing and Scheduling
Routing
The sequence (or route) of tasks necessary to complete the production of a product
Should
be evaluated periodically to improve speed or reduce costs
Scheduling
The act of setting time periods for each task in the production process
Production
schedule: a plan for the timing and volume of production tasks.

921
Scheduling Special Projects
Gantt chart
Illustrates the expected timing for each task in the production process.
Program evaluation and review technique (PERT)

Schedules tasks to minimize delays.
Critical
path: the time required to complete all tasks in precedence order; allows managers to estimate slack time on other paths and reduce inefficiencies.
922
Example of a Gantt Chart
Exhibit 9.5
923
Determining the Critical Path Based on a Sequence of of Production Tasks
Exhibit 9.6
924
Quality Control
Quality
The degree to which a product or service satisfies a customers requirements or expectations.
Quality control
A process of determining whether product quality meets the desired quality level.
Total quality management (TQM)

The act of monitoring and improving the quality of products and services.
925
Interaction between Management and Marketing Functions When Implementing Total Quality Management
Exhibit 9.7
926
Total Quality Management
Key guidelines for improving quality

Provide managers and other employees with the education and training they need to excel in their jobs. Encourage employees to take responsibility for quality and to provide leadership. Encourage all employees to search for ways to improve the production process.
927
Assessing Quality
Control by technology
Computers can determine whether each component of a product meets specific quality standards
Control by employees
Assign an employee to assess quality at each stage of the assembly line Use quality control circles to assess quality and make suggestions for improvement
928
Assessing Quality (contd)
Control by sampling
Randomly selecting some of the products produced and testing them to see if they satisfy quality standards.
Control by monitoring complaints

Some quality deficiencies may not be apparent until after the product is sold.
Correcting deficiencies
Determining what caused the quality defects.
929
Improving Production Efficiency
Production Efficiency
Having the ability to produce products at a low cost while maintaining quality.
Benchmarking
A method of evaluating performance by comparison to some specified level
Many
firms use benchmarking to improve efficiency. Firms use stretch targets to improve efficiency.
Copyright 2004 South-Western. All rights reserved. 930
Improving Production Efficiency (contd)
Adopting new technology

Automated tasks are completed by machines without the use of employees:
Using
computers to track inventory and sales volume on a daily basis. Programming computers to automatically reorder some products once inventory is reduced to a pre-specified level.
931
Guidelines for Effective Automation

Plan to decide what type of automation is most appropriate. Use automation where the benefits are greatest. Train to make sure automation is implemented effectively. Evaluate costs and benefits over time.
Exhibit 9.8
932
Measuring Production Efficiency
Economies of scale
The effect of cost per product unit declines as production volume increases
Fixed
costs do not decrease as the number of units produced increases. Variable costs vary directly with the number of products produced.
Break-even point
Reflects
the total quantity of units sold at which total revenue equals total costs (fixed and variable) and profitability begins.
933
Relationship between Production Volume and Costs

Quantity of Books Produced 1,000 3,000 5,000 10,000 15,000 20,000 25,000 Fixed Costs $40,000 40,000 40,000 40,000 40,000 40,000 40,000 Variable Cost ($2 per unit) $2,000 6,000 10,000 20,000 30,000 40,000 50,000 Total Cost $42,000 46,000 50,000 60,000 70,000 80,000 90,000 Average Cost Per Unit $42.00 15.33 10.00 6.00 4.67 4.00 3.60
Exhibit 9.9a 934
Relationship between Production Volume and Costs
Exhibit 9.9b
935
Relationship between Volume and Profitability

Quantity of Books Produced 1,000 3,000 5,000 10,000 15,000 20,000 25,000 Price $10.00 10.00 10.00 10.00 10.00 10.00 10.00 Total Revenue $10,000 30,000 50,000 100,000 150,000 200,000 250,000 Total Cost $42,000 46,000 50,000 60,000 70,000 80,000 90,000 Profits -$32,000 -$16,000 $0 $40,000 $80,000 $120,000 $160,000
936
Relationship between Volume and Profitability
Exhibit 9.10a
937
Restructuring
Revision of the production process in an attempt to improve efficiency.
Reengineering
Redesign of a firms organizational structure and operations to improve efficiency.
938
Downsizing
A reduction in the number of employees without affecting the volume or quality of products produced Firms must be careful not to downsize too much (corporate anorexia).
939
Integrating Production Tasks
If any integrated production task breaks down, the entire production schedule is affected
Consequently, firms must monitor its supply chain and its processes from the beginning of the production process until the product reaches the customer
Service firms must also manage the supply chain effectively.

940
Chapter Summary
Key production resources

Human resources, materials, and other resources (buildings, equipment, and machinery)
Plant site decision depends on:

Costs of workplace space and labor Tax incentives Source of demand Access to transportation Supply of labor
941
Chapter Summary (contd)
Design and layout of a plant

Dependent on site characteristics Production process used Product line offered Desired production capacity
942
Chapter Summary (contd)
Production control involves purchasing materials, inventory control, routing, scheduling, and quality control Key methods for improving production efficiency are technology, economies of scale, and restructuring
943
Summary of Management
Exhibit 9.2u
944

Ch9 - Improving Productivity and Quality

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Part III: Management

Improving Productivity and Quality

Describe the key factors that affect production efficiency.

Copyright 2004 South-Western. All rights reserved.

Improving Productivity and Quality

Copyright 2004 South-Western. All rights reserved.

Resources Used for Production

Production (or operations) management

resources, materials and other assets (buildings, machinery, equipment)

Copyright 2004 South-Western. All rights reserved.

Achieving Low-Cost Production

Copyright 2004 South-Western. All rights reserved.

Resources Used in Production

Copyright 2004 South-Western. All rights reserved.

Location of a factory or office

Site location decision factors

Copyright 2004 South-Western. All rights reserved.

Evaluating Possible Sites

Using weighted criteria to compare the desirability of various sites:

Copyright 2004 South-Western. All rights reserved.

Example of Site Evaluation Matrix

Copyright 2004 South-Western. All rights reserved.

Design and Layout

Copyright 2004 South-Western. All rights reserved.

Selecting Design and Layout

Design and layout decisions affect operating expenses

Desired production capacity

Copyright 2004 South-Western. All rights reserved.

Factors Affecting Design and Layout

employees to have flexible skills

Copyright 2004 South-Western. All rights reserved.

Factors Affecting Design and Layout (contd)

Copyright 2004 South-Western. All rights reserved.

Copyright 2004 South-Western. All rights reserved.

Obtaining volume discounts Delegating production to suppliers

Outsourcing the production of parts

delegating production tasks

Copyright 2004 South-Western. All rights reserved.

Small Business Survey

Copyright 2004 South-Western. All rights reserved.

Copyright 2004 South-Western. All rights reserved.

The process of managing inventory at a level that minimizes costs by:

(JIT) inventory Materials requirements planning (MRP)

Controlling work-in-process and finished goods inventories.

expected demand to determine how much product should be held in inventory

Copyright 2004 South-Western. All rights reserved.

Illustration of IBMs Efforts to Minimize Inventory

Copyright 2004 South-Western. All rights reserved.

Routing and Scheduling

be evaluated periodically to improve speed or reduce costs

schedule: a plan for the timing and volume of production tasks.

Copyright 2004 South-Western. All rights reserved.

Scheduling Special Projects

Program evaluation and review technique (PERT)

Copyright 2004 South-Western. All rights reserved.

Example of a Gantt Chart

Copyright 2004 South-Western. All rights reserved.

Determining the Critical Path Based on a Sequence of of Production Tasks

Copyright 2004 South-Western. All rights reserved.

Total quality management (TQM)

Copyright 2004 South-Western. All rights reserved.

Copyright 2004 South-Western. All rights reserved.