Chapter 10 Operations management Productivity and Quality BUSINESS

Chapter 10 , Operations management, Productivity, and Quality BUSINESS ESSENTIALS, 6 TH EDITION EBERT developed 2013 1

LEARNING OBJECTIVES After reading this chapter, you should be able to: 1. Explain the meaning of the term production (or operations) and describe the four kinds of utility it provides. 2. Identify the characteristics that distinguish service operations from goods production and explain the main differences in the service focus. 3. Describe two types of operations processes. 4. Describe the factors Involved In operations planning and operations control. developed 2013 2

L E A R N I N G O B J E C T I V E S (cont’d) After reading this chapter, you should be able to: 1. Explain the connection between productivity and quality. 2. Understand the concept of total quality management and describe nine tools that companies can use to achieve it. 3. Explain how a supply chain strategy differs from traditional strategies for coordinating operations among businesses © 2009 Pearson Education, Inc. developed 2013 3

What in It for Me? • By understanding this chapter’s methods for managing operations and improving quality, you can benefit in two ways: 1. As an employee, you’ll have a clearer picture of who your customers are and what they want and how your job depends on the services they receive from you 2. You’ll better understand how companies around you— even successful firms—have to change production methods whenever they adopt new business goals to remain competitive © 2009 Pearson Education, Inc. developed 2013 4

What Does Operations Mean Today? • Operations (Production) – All the activities involved in making products— goods and services—for customers • Service Operations (Service Production) – Provide intangible and tangible service products. E. g. , entertainment, transportation, education. • Goods Operations (Goods Production) – Produce tangible products • Operations managers create utility for customers through production, inventory and quality control. © 2009 Pearson Education, Inc. developed 2013 5

Creating Value Through Operations • Utility – The ability of a product to satisfy a want or need • Form utility: convert inputs into finished products. • Time utility: product available when needed. • Place utility: place convenient to customer. • Possession utility, By making a product that consumers can take pleasure in owning, production creates ownership. © 2009 Pearson Education, Inc. developed 2013 6

Operations (Production) Management The systematic direction and control of processes that transform resources into finished services and goods that create value for and provide benefits to customers. e. g. , production managers must bring raw materials, equipment, and labor together under a production plan that effectively uses all the resources available in the production facility. developed 2013 7

Differences Between Service and Goods Manufacturing Operations • Goods are produced, services are performed • Service operations differ from manufacturing operations in that service operations: 1. Involve interacting with consumers. 2. Are sometimes intangible and unstorable. 3. Involve a customer’s presence in the process, e. g. having a haircut. 4. Involve certain service quality considerations. E. g. , repair a car and delaiy in finishing. © 2009 Pearson Education, Inc. developed 2013 8

Operations Processes • Operations Process – A set of methods and technologies used to produce a good or a service • Goods Production Processes – Make-to-order processes – Make-to-stock processes • Service Production Processes – Extent of Customer Contact • Low-contact systems: low customer involvement • High-contact systems: high customer involvement © 2009 Pearson Education, Inc. developed 2013 9

Discussion Give me example high contact and low contact system. Processing a check, haircut, education, delivery process, electricity, internet, transportation. developed 2013 10

Business Strategy as the Driver of Operations • Businesses with contrasting/different business strategies choose different operations capabilities—the activities or processes that production must perform especially well, with high proficiency: • Examples: low price, quality, flexability. A. production operations and capabilities are adjusted to support the firms‘ target markets and match firm strategy (e. g. , low cost, quality). © 2009 Pearson Education, Inc. developed 2013 11

TABLE 7. 1 Business Strategies That Win Customers for Four Companies © 2009 Pearson

Operations Planning • Capacity Planning – Capacity: The amount of a product that a company can produce under normal conditions – Planning deals with determining how much can be produced • Location Planning – Location affects production costs and flexibility. E. g. , establish a marble factory inside a populated area. – Planning deals with determining where it will be produced. © 2009 Pearson Education, Inc. developed 2013 13

Operations Planning (cont’d) • Layout /arrangement Planning –The layout of machinery, equipment, and supplies determines whether a company can respond efficiently to demand for more and different products or whether it finds itself unable to match competitors’ speed and convenience © 2009 Pearson Education, Inc. developed 2013 14

Types of Layout /arrangement Planning – Planning deals with determining how the product will be produced. Two types. – Process layouts and product layouts are alternatives. 1. Process layouts: equipment and people are grouped according to functions. E. g. , copy center uses process layout for custom jobs. E. g. , university student registrations. 2. Product layouts: equipment and people are grouped according to product. Automobile, food-processing television assembly plant use product layout. developed 2013 15

FIGURE 7. 1 Operations Planning and Control © 2009 Pearson Education, Inc. developed 2013

Quality Planning • What Is Quality? – The combination of “characteristics of a product or service that bear on its ability to satisfy stated or implied needs” (American Society for Quality) – Quality planning begins when products are designed: goals are set for performance and consistency/sameness. – Quality planning includes deciding what constitutes a high-quality product and determining how to measure these quality characteristics © 2009 Pearson Education, Inc. developed 2013 17

Methods Planning It is about designing operation systems. It includes identifying production steps. With methods planning, managers accomplish a number of things: 1. They identify each production step and methods for performing it. 2. They reduce waste and inefficiency by examining procedures in an approach called methods improvement. They reduce waste and inefficiency by improving process flows. 3. A detailed description, often called a process flowchart, helps managers organize and record information. 4. They attempt to improve customer service. © 2009 Pearson Education, Inc. developed 2013 18

Corporate Value Chain Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Operations Scheduling • Operations Scheduling – Identifying times when specific production activities will occur • Kinds of Planning Schedules – Master schedule: Shows which products will be produced, and when, in upcoming time periods – Detailed schedule: Shows day-to-day activities that will occur in production – Staff schedules: Show who and how many employees will be working, and when – Project schedules: Coordinate completion of large-scale projects developed 2013 © 2009 Pearson Education, Inc. 20

FIGURE 7. 3 Example Partial Master Production Schedule (Tons of Each Product to be

Project Scheduling • Gantt Chart – Breaks down projects into steps to be performed – Specifies the time required to complete each step – A Project Manager uses the Gantt chart to: • List all activities to be performed • Estimate the time required for each step • Record the progress on the chart • Check the progress against the time scale on the report © 2009 Pearson Education, Inc. developed 2013 22

Figure 7. 4 Gantt Chart for renovation of a collage class-room © 2009 Pearson

Discussion Think in establishing e-business to sell homemade furniture or books. Try to use Gantt chart in your plan. developed 2013 24

Operations Control • Operations Control – Requires managers to monitor performance by comparing results with detailed plans and schedules. – Follow-up: Checking to ensure that production decisions are being implemented— is a key and ongoing facet/part of operations. © 2009 Pearson Education, Inc. developed 2013 25

Materials Management • Materials Management – The process by which managers plan, organize, and control the flow of materials from sources of supply through distribution of finished goods • Materials Management Activities After designing the product, successful material flows depends on five activities. 1. 2. 3. 4. 5. Supplier selection: select and negotiate. Purchasing: purchasing department. Transportation: transport resources. Warehousing: storage of in and out materials. Inventory control: receive, store, handle and count. © 2009 Pearson Education, developed 2013 Inc. 26

Lean Production Systems: Just-in-Time Operations • Lean/smooth Production Systems Goals – Smooth production flows avoid inefficiencies – Elimination of unnecessary inventories – Continuous improvement in production processes • Just-in-Time (JIT) Production: type of lean system: Bringing together all needed materials only when they are required, creating fast and efficient responses to customer orders © 2009 Pearson Education, developed 2013 Inc. 27

Benefits of Just-in-Time Production 1. Reduces the number of goods in process (goods not yet finished) 2. Minimizes inventory costs 3. Reduces inventory storage space requirements 4. Replaces stop-and-go production with smooth movement 5. Disruptions are more visible and get resolved more quickly 6. Continuous improvement of the process © 2009 Pearson Education, developed 2013 Inc. 28

Quality Control • Quality Control – Taking action to ensure that operations produces products that meet specific quality standards – Requires establishment of specific standards and measurements – examples of quality control for laptop manufacturers. – Airlines employees treatment to customer. © 2009 Pearson Education, developed 2013 Inc. 29

Quality Improvement and Total Quality Managemen • Quality Improvement – Building quality into products and services rather than trying to control quality by inspection • Total Quality Management (TQM) – All of the activities necessary for getting highquality goods and services into the marketplace. Motivation for all is a key. The responsibility of all. • Quality Ownership – Quality belongs to each person who creates it while performing a job, and it requires a focus on quality by all parts of an organization © 2009 Pearson Education, developed 2013 Inc. 30

Total Quality Management • Always Delivering High Quality – Planning for quality – Organizing for quality – Directing for quality – Controlling for quality © 2009 Pearson Education, developed 2013 Inc. 31

Tools for Total Quality Management 1. Competitive Product Analysis 1. Analyzing competitors’ products to identify improvements: reverse engineering. 2. Value-Added Analysis: evaluate all work activities. Result: Eliminating wasteful and unnecessary activities 3. Quality Improvement Teams: form a collaborative Q team (Adopting quality circles). The team represents all areas of business. © 2009 Pearson Education, developed 2013 Inc. 32

Tools for Total Quality Management • Getting Closer to the Customer – Identifying internal and external customers A. ISO 9000 and ISO 14000: document all procedures to always ensure produce similar product. To become certified, companies must document the procedures followed by workers during every stage of production. This ensures consistency. – Ensuring certification of quality management in processes. A. ISO 14000 certificates improvement in environmental performance of a firm. Requires a firm to develop an environmental management © 2009 Pearson Education, developed 2013 Inc. 33 system.

Tools for Total Quality Management • Business Process Reengineering – This includes analyzing a company’s business processes and, if necessary, starting over from scratch to improve the processes or replace them with technology or different, more efficient methods. – Example of old registration processes at IUG: taking 3 cards- visiting many facultiesfilling the cards manual-refer to advisor- go to regist. Office- register or start again. After reengineered: : © 2009 Pearson Education, developed 2013 Inc. 34

Adding Value Through Supply Chains • Supply Chain (or Value Chain) – The flow of information, materials, and services that starts with raw-materials’ suppliers and continues adding value through other stages in the network of firms until the product reaches the end customer © 2009 Pearson Education, developed 2013 Inc. 35

FIGURE 7. 5 Supply Chain for Baked Goods © 2009 Pearson Education, developed 2013

The Supply Chain Strategy • Supply Chain Management (SCM) – Working with the supply chain as a whole to improve overall flow through a system composed of companies working together • Supply Chain Reengineering – Improving the process for better results: • Lower costs, speedier service, and coordinated flows of information and material • Outsourcing and Global Supply Chains – Paying suppliers and distributors to perform certain business processes or to provide needed materials or services developed 2013 © 2009 Pearson Education, Inc. 37

Review Explain how a supply chain strategy differs from traditional strategies for coordinating operations among businesses. The supply chain strategy is based on the Idea that members of the supply Chain can gain competitive advantage by working together as a coordinated system of units. Sharing information allows companies to reduce Inventories, improve quality, and speed the delivery of products to consumers developed 2013 38