Chapter 11 1 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Chapter Achieving World-Class Operations Management Prepared by Norm Althouse University of Calgary Prepared by Norm Althouse University of Calgary 11

Chapter 11 2 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Principles of Operations changes in consumer expectations, technology, and competition finding the most efficient and effective methods of producing the goods or services rethinking where, when and how the organization will produce products and services

Chapter 11 3 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Production and Operations Management 1 The creation of products and services by turning inputs into outputs, which are products and services The creation of products and services by turning inputs into outputs, which are products and services Production Management of the production process Operations Management

Chapter 11 4 Copyright © 2008 by Nelson, a division of Thomson Canada Limited The Production Process 1 Raw materials Natural resources Human resources Capital InputsOutputs Conversion process Products Services

Chapter 11 5 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Production and Operations Management 1 Main Types of Decisions 1. Production Planning 2. Production Control 3. Improving production and operations

Chapter 11 6 Copyright © 2008 by Nelson, a division of Thomson Canada Limited 1 Production Planning Site selection Facility layout Resource planning Type of Production Process Decisions in Production Planning Long-Term Medium-Term Short-Term 1 Year 2 Years 3-5 Years

Chapter 11 7 Copyright © 2008 by Nelson, a division of Thomson Canada Limited 2 Types of Production Mass Customization Goods are mass-produced up to a point, then custom tailored to the needs of individual customers. Customization The production of goods or services one at a time according to the needs of individual customers. Mass Production The ability to manufacture many identical goods at once.

Chapter 11 8 Copyright © 2008 by Nelson, a division of Thomson Canada Limited 2 Classification and Timing of Production Assembly Process The basic inputs are combined or transformed into the output. Process Manufacturing Process Manufacturing The basic input is broken down into one or more outputs. Continuous Process A production process that uses long production runs without equipment shutdowns. Intermittent Process A production process that uses short production runs to make batches of different products.

Chapter 11 Manufacturing to order, or for inventory 9 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Manufacture to order A product is not made until a customer has placed an order for it. E.g. Dell Computers, Burger King Manufacture for inventory A product is made in advance of a customer ordering it. E.g. Hewlett Packard, McDonalds

Chapter 11 What colour bicycle would you like to order? 10 Copyright © 2008 by Nelson, a division of Thomson Canada Limited 1.Black 2.White 3.Red 4.Yellow

Chapter Copyright © 2008 by Nelson, a division of Thomson Canada Limited 3 Factors in Facility Location Decisions Marketing factors Manufacturing environment Local incentives Availability of production inputs International location considerations Make-or-buy decisions Process layout

Chapter 11 Production location problem 12 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Where should the factory be built in Outlandia? …near to the source of supply? … or near to the consumers? Location of main supply inputs Location of main consumption market

Chapter 11 Production location problem  Physical weight loss SupplySmelters; sawmills  Physical weight gain Consumer Soft-drink bottling; manufacture of cement blocks  Bulk loss Supply Compressing cotton into high- density bales  Bulk gain ConsumerManufacturing containers; sheet- metal work  Perishability loss Supply Fish processing  Perishability gain Consumer Newspaper (and job) printing; baking bread  Fragility loss Supply Packing goods for shipment  Fragility gainConsumer Coking of coal  Hazard loss Supply Deodorizing captured skunks  Hazard gainConsumer Manufacturing explosives; distilling moonshine whiskey 13 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Process characteristic …implies locating close toExamples Source: The Dynamics of Industrial Location: The Factory, the Firm and the Production System by Roger Hayter, Department of Geography, Simon Fraser University, Burnaby, 2004 (

Chapter Copyright © 2008 by Nelson, a division of Thomson Canada Limited Production location problem Where should the factory be built in Outlandia? A centre of gravity model might be the answer when there are multiple consumption areas. Location of main supply inputs Consumer market B Consumer market A Consumer market C

Chapter Copyright © 2008 by Nelson, a division of Thomson Canada Limited 3 Types of Facility Layouts Product Layout Workstations or departments are arranged in a line with products moving along the line Fixed-Position Layout The product stays in one place and workers and machinery move to it as needed Process Layout Work flows according to the production process Cellular Manufacturing Technique uses small, self-contained production units each performing all or most of the tasks necessary

Chapter Copyright © 2008 by Nelson, a division of Thomson Canada Limited 4 Make-or-Buy Decisions FactorsFactors Size of components Standard or nonstandard items Quantity of items needed Special design features Quality and reliability Should we be backward integrated, or not?

Chapter Copyright © 2008 by Nelson, a division of Thomson Canada Limited 4 Inventory Management The determination of how much inventory a firm will keep on hand, and the ordering, receiving, storing, and tracking of inventory Inventory The supply of goods that a firm holds for use in production or for sale to customers Perpetual Inventory A continuously updated list of inventory levels, orders, sales, and receipts

Chapter Copyright © 2008 by Nelson, a division of Thomson Canada Limited 4 Supply Chain Management Supply Chain The entire sequence of securing inputs, producing goods, and delivering goods to customers Goal: Satisfying customers with quality products and services

Chapter Copyright © 2008 by Nelson, a division of Thomson Canada Limited 5 Routing Value-stream mapping Gantt charts Critical path method PERT Scheduling Production Control See Exhibits 11.6 and 11.7

Chapter 11 Gantt Chart 20 Copyright © 2008 by Nelson, a division of Thomson Canada Limited

Chapter 11 Critical Path Method 21 Copyright © 2008 by Nelson, a division of Thomson Canada Limited

Chapter Copyright © 2008 by Nelson, a division of Thomson Canada Limited 6 Automation Lean manufacturing Quality management techniques Improving Production and Operations

Chapter 11 The Experience Curve 23 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Cost per Unit made Total Accumulated Production Slope of.2 to.3, meaning a 20% to 30% reduction in unit manufacturing costs for each doubling of production As Boeing originally discovered with the 707, manufacturing cost continues to decline as you accumulate more production experience.

Chapter Copyright © 2008 by Nelson, a division of Thomson Canada Limited 6 Total Quality Management The use of quality principles in all aspects of a company’s production and operations. Quality control The process of creating standards for quality, producing goods that meet them, and then measuring finished products against them. Continuous improvement A commitment to constantly seek better ways of doing things to maintain and increase quality. Six Sigma A quality control process relying on defining what needs to be done to ensure quality, measuring and analyzing results, and ongoing improvement. Putting Quality First

Chapter Copyright © 2008 by Nelson, a division of Thomson Canada Limited 6 ISO A set of technical standards to promote clean production processes to protect the environment. ISO 9000 A set of five technical standards of quality management to provide a uniform way of determining whether manufacturing plants and service organizations conform to sound quality procedures. International Quality Standards

Chapter Copyright © 2008 by Nelson, a division of Thomson Canada Limited 6 Just-in-time (JIT) A system in which materials arrive exactly when they are needed for production, rather than being stored on site. Lean manufacturing Streamlining production by eliminating steps in the production process that do not add benefits that customers are willing to pay for. Lean Manufacturing

Chapter Copyright © 2008 by Nelson, a division of Thomson Canada Limited 7 Computer-Integrated Manufacturing Flexible Manufacturing Systems Robotics Computer-Aided Design and Manufacturing Systems Technology POS, ATMs, etc.

Chapter Copyright © 2008 by Nelson, a division of Thomson Canada Limited 8 Modular production Designs for production efficiency Asset management Trends in Operations Management