Production Systems Chapter 9 9-1

Chapter 9 Objectives After studying this chapter, you will be able to: Explain the systems perspective and identify seven principles of systems thinking that can improve your skills as a manager. Describe the value chain and value web concepts and discuss the controversy over offshoring. Define supply chain management and explain its strategic importance. 9-2

Chapter 9 Objectives Cont. Identify the major planning decisions in production and operations management. Explain the unique challenges of service delivery. Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality. 9-3

The Systems View of Business Elements Processes Converts Inputs To Desired Outputs A system is an interconnected and coordinated set of elements and processes that converts inputs into desired outputs. 9-4

From Point to Line to Circle: The Systems View

Managing Systems for Peak Performance Help everyone see the big picture. Understand how individual systems really work and how they interact. Understand problems before you try to fix them. Understand the potential impact of solutions before you implement them. 9-6

Managing Systems for Peak Performance (cont.) Don’t just move problems around; solve them. Understand how feedback works in the system. Use mistakes as opportunities to learn and improve. 9-7

The Conversion Process The Value Chain Inputs Transformation Outputs Tangible Goods Intangible Services Value Chain: All the elements and processes that add value as raw materials are transformed into the final products made available to the ultimate customer.

Business Transformation Systems 9-9

Core Competencies and Outsourcing Core Competencies: Functions in which a company has a distinct advantage over its competitors. Outsourcing: Contracting out certain business functions or operations to other companies.

Value Webs The combination of extensive globalization in many industries and the development of electronic networking has made it easy for companies to connect with partners around the world. Instead of linear value chain, some businesses now think in terms of value webs, multidimensional networks of suppliers and outsourcing partners.

Offshoring Support of Offshoring Offshoring: Transferring a part or all of a business function to a facility (a different part of the company or another company entirely) in another country. Support of Offshoring Responsibility to shareholder interests U.S. competitiveness Support for local customers around the world 9-12

Supply Chain Management Supply Chain: A set of connected systems that coordinates the flow of goods and materials from suppliers all the way through to final customers. Supply Chain Management (SCM): The business procedures, policies, and computer systems that integrate the various elements of the supply chain into a cohesive system. Manage Risks Manage Relationships Manage Trade-offs Promoting sustainability 9-13

Supply Chain vs. Value Chain Part of the overall Value Chain Focuses on “upstream” process Everyone is part of the Value Chain Focuses on the “downstream” process 9-14

Supply Chain Systems and Techniques Inventory: Goods and materials kept in stock for production or sale. Inventory Control: Determining the right quantities of supplies and products to have on hand and tracking where those items are. Procurement: The acquisition of the raw materials, parts, components, supplies, and finished products required to produce goods and services. Materials Requirement Planning (MRP) Manufacturing Resource Planning (MRP II) Enterprise Resource Planning (ERP) 9-15

Material Requirements Planning (MRP) MRP helps a manufacturer get the correct materials where they are needed, when they are needed, without unnecessary stockpiling. Managers use MRP software to calculate when certain materials will be required, when they should be ordered, and when they should be delivered so that storage costs will be minimal.

Manufacturing Resource Planning (MRP II) MRP II expands the MRP with links to the company’s financial systems and other processes. For instance, in addition to managing inventory levels successfully, an MRP II system can help ensure that material costs adhere to target budgets.

Enterprise Resource Planning (ERP) ERP extends the scope of research planning even further to encompass the entire organization. ERP systems are typically made up of software modules that address the needs of the various functional areas, from manufacturing to sales to human resources.

Facilities Location and Design Forecasting and Capacity Planning Production Transformation Outputs Inputs Operations Managers Facilities Location and Design Forecasting and Capacity Planning 9-19

Facilities Location and Design Energy Transportation Land Living Standards Construction Raw Materials Local Taxes Labor 9-20

Forecasting and Capacity Planning Level of Resources Customer Demand 9-21

Production Scheduling Gantt Chart PERT 9-22

GANTT Chart ID Task Name Start Date End Date Duration August September 2012 1 Make legs 8/1/12 8/28/12 20d 2 Cut tops 8/22/12 8/28/12 5d 3 Drill 8/29/12 9/4/12 5d 4 Sand 9/5/12 9/11/12 5d 5 Assemble 9/12/12 9/25/12 10d 6 Paint 9/19/12 9/25/12 5d 23

Simplified PERT Diagram for Store Opening Critical Path: In a PERT network diagram, the sequence of operations that requires the longest time to complete.

Lean Systems Productivity: Lean Systems: Just-in-Time (JIT): The efficiency with which an organization can convert inputs to outputs. Lean Systems: Systems (in manufacturing and other functional areas) that maximize productivity by reducing waste and delays. Just-in-Time (JIT): Inventory management in which goods and materials are delivered throughout the production process right before they are needed. 9-25

Manufacturing Goods Mass Production Customized Production Mass Customization 9-26

Mass Production Mass production—manufacturing goods in large quantities—means little or no customization. Because of the high volume of similar goods produced, this process reduces production costs per unit and makes products available to more people.

Customized Production The other extreme is customized production, sometimes called batch-of-one production in manufacturing, in which the producer creates a unique good or service for each customer.

Mass Customization Mass customization—using mass production techniques to produce customized goods. The basic idea behind mass customization is that consumers have individual needs and are best served by products that can be easily customized for them.

Unique Challenges of Service Delivery Perishability Location Constraints Scalability Challenges and Opportunities Performance Variability and Perceptions of Quality Customer Involvement Service provider Interaction 9-30

Product and Process Quality The degree to which a product or process meets reasonable or agreed-upon expectations. Quality Control: Measuring quality against established standards after the good or service has been produced and weeding out any defective products. Quality Assurance: A more comprehensive approach of companywide policies, practices, and procedures to ensure that every product meets quality standards. 9-31

Product and Process Quality Statistical Process Control (SPC): The use of random sampling and tools such as control charts to monitor the production process. Kaizen Companies can empower each employee to continuously improve the quality of goods production or service delivery. The Japanese word for continuous improvement is kaizen. 9-32

Total Quality Management (TQM) Management commitment to supporting TQM at every level in the organization Clear focus on customers and their needs Employee involvement throughout the organization Commitment to continuous improvement Willingness to treat suppliers as partners Meaningful performance measurements 9-33

The DMAIC Process in Six Sigma Quality Management A rigorous quality management program that strives to eliminate deviations between the actual and desired performance of a business system. I A 9-34

Global Quality Standards ISO 9000 (Quality and customer Satisfaction) ISO 14000 (Environmental İssues) 9-35

Exhibit 9-6 Gantt Charts for Project Management A Gantt chart is a handy tool in project and production management because it shows the order in which tasks must be completed and which tasks are dependent on other tasks. For the new product launch shown here, for example, the analysis task is dependent on all three tasks before it, which means those tasks must be completed before analysis can begin. With periodic updates, it’s also easy to show a team exactly where the project stands at any particular moment.

Exhibit 9-5 Conceptual Diagram of the Toyota Production System The Toyota Production System, one of the most influential production strategies in modern business history, has been studied, duplicated, and adapted by companies in a variety of industries around the world. Toyota refined the system over decades, but it has always been based on the two fundamental principles of just-in-time inventory management, so that expensive inventory doesn’t pile up when it isn’t being used, and jidoka, or “automation with a human touch,” whereby the highly automated process can be stopped by any worker any time a problem appears, to avoid making more defective parts or cars. However, for all its abilities to reduce manufacturing defects, the system has not been able to prevent all failures—particularly now that cars are vast software systems as well as mechanical systems.

Applying What You’ve Learned Explain the systems perspective and identify seven principles of systems thinking that can improve your skills as a manager Describe the value chain and value web concepts and discuss the controversy over offshoring Define supply chain management and explain its strategic importance

Applying What You’ve Learned Identify the major planning decisions in production and operations management Explain the unique challenges of service delivery Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality