PowerPoint slides by Susan A. Peterson, Scottsdale Community College PowerPoint slides by Susan A. Peterson, Scottsdale Community College Chapter 13: Operations Management Chapter 13: Operations Management m a n a g e m e n t 2e H i t t / B l a c k / P o r t e r

© 2008 Prentice-Hall Business Publishing 2 Learning Objectives After studying this chapter, you should be able to: Define operations management and explain its importance within service and manufacturing firms Describe key techniques and tools for enhancing product and service quality Explain common means of ensuring appropriate product quantity Discuss tools for managing the appropriate timing of inventory and finished product After studying this chapter, you should be able to: Define operations management and explain its importance within service and manufacturing firms Describe key techniques and tools for enhancing product and service quality Explain common means of ensuring appropriate product quantity Discuss tools for managing the appropriate timing of inventory and finished product

© 2008 Prentice-Hall Business Publishing 3 Learning Objectives Describe methods for enhancing productivity and efficiency Explain the principle roles of effective supply chain management in the operations of organizations Describe methods for enhancing productivity and efficiency Explain the principle roles of effective supply chain management in the operations of organizations

© 2008 Prentice-Hall Business Publishing 4 Operations management: focuses on the conversion of resources into products and services Old term: products and operations management (POM) Modern term: operations management (OM) Operations management: focuses on the conversion of resources into products and services Old term: products and operations management (POM) Modern term: operations management (OM) Operations Management

© 2008 Prentice-Hall Business Publishing 5 Objectives of Operations Management Managing product/service quality Planning quantity and capacity Timing product and services Achieving the best possible cost

© 2008 Prentice-Hall Business Publishing 6 Managing Quality Quality: a measure of how well a product or service performs its intended purpose, including: How reliable it is How easy it is to service or repair when it does break down Quality: a measure of how well a product or service performs its intended purpose, including: How reliable it is How easy it is to service or repair when it does break down

© 2008 Prentice-Hall Business Publishing 7 Economic Impact of Higher Quality Improved Quality Higher Margins Higher Margins Higher Revenues Lower Unit Costs Lower Warrantee Costs Lower Warrantee Costs Lower Repair, Rework, Scrap Costs Higher Efficiency Higher Customer Satisfaction Positive Word of Mouth Positive Word of Mouth Repeat Business Repeat Business Adapted from Exhibit 13.1

© 2008 Prentice-Hall Business Publishing 8 Total Quality Management (TQM) TQM: a management philosophy that: Focuses on continual improvement Emphasizes quality inspection at all stages of the production or service output Encompasses a commitment from employees at all levels

© 2008 Prentice-Hall Business Publishing 9 Total Quality Management (TQM) Important TQM concepts: Statistical Process Control (SPC) Continuous Process Improvement Six Sigma Employee Empowerment

© 2008 Prentice-Hall Business Publishing 10 TQM Concepts: Continuous Process Improvement Continuous process improvement: refers to both incremental and breakthrough improvements in the way an organization does business Four key elements: -Objective -Design -Capabilities -Metrics Continuous process improvement: refers to both incremental and breakthrough improvements in the way an organization does business Four key elements: -Objective -Design -Capabilities -Metrics

© 2008 Prentice-Hall Business Publishing 11 Quality Control Charts Adapted from Exhibit 13.2

© 2008 Prentice-Hall Business Publishing 12 TQM Concepts: Six Sigma Six Sigma: a disciplined, data-driven approach for eliminating defects and enhancing quality with an orientation toward the impact such improvements will have on the customer Quality is improved two ways: -DMAIC process (define, measure, analyze, improve, control) -DMADV process (define, measure, analyze, design, verify) Six Sigma: a disciplined, data-driven approach for eliminating defects and enhancing quality with an orientation toward the impact such improvements will have on the customer Quality is improved two ways: -DMAIC process (define, measure, analyze, improve, control) -DMADV process (define, measure, analyze, design, verify)

© 2008 Prentice-Hall Business Publishing 13 TQM Concepts: Employee Empowerment By empowering employees, organizations will: Engage the expertise of employees Allow them to feel responsible for quality Allow managers to understand and communicate the TQM vision By empowering employees, organizations will: Engage the expertise of employees Allow them to feel responsible for quality Allow managers to understand and communicate the TQM vision

© 2008 Prentice-Hall Business Publishing 14 Planning Quantity and Capacity Capacity planning: determining how much a firm should be able to produce of a product or service Design capacity is the maximum capacity that can be attained under ideal conditions, organizations usually run at their effective capacities instead Effective capacity is the percent of design capacity actually expected Capacity planning: determining how much a firm should be able to produce of a product or service Design capacity is the maximum capacity that can be attained under ideal conditions, organizations usually run at their effective capacities instead Effective capacity is the percent of design capacity actually expected Effective Capacity Expected Design Design Capacity =

© 2008 Prentice-Hall Business Publishing 15 Other important concepts: Materials requirement planning (MRP): getting right materials to right place at right time Economic order quantity (EOQ): ordering economical quantity of product while minimizing costs ABC analysis: which inventory items require most attention Other important concepts: Materials requirement planning (MRP): getting right materials to right place at right time Economic order quantity (EOQ): ordering economical quantity of product while minimizing costs ABC analysis: which inventory items require most attention Planning Quantity and Capacity

© 2008 Prentice-Hall Business Publishing 16 Economic Order Quantity Adapted from Exhibit 13.3

© 2008 Prentice-Hall Business Publishing 17 Timing Products and Services Delivery of products and services must be timed well to avoid both out-of- stocks and excess inventory Three important concepts: -Just-in-time (JIT) systems -Gantt charts -PERT and CPM charts Delivery of products and services must be timed well to avoid both out-of- stocks and excess inventory Three important concepts: -Just-in-time (JIT) systems -Gantt charts -PERT and CPM charts

© 2008 Prentice-Hall Business Publishing 18 Timing Products and Services: Just-in-Time (JIT) System Objective: produce product or service only as needed with only the necessary materials, equipment, and employee time that will add value Benefits: -Reduces inventory levels (and lowers carrying cost of inventory) -Improves productivity -Increases customer satisfaction Objective: produce product or service only as needed with only the necessary materials, equipment, and employee time that will add value Benefits: -Reduces inventory levels (and lowers carrying cost of inventory) -Improves productivity -Increases customer satisfaction

© 2008 Prentice-Hall Business Publishing 19 Timing Products and Services: Gantt Charts MayJuneJulyAugSepOctNov Contact clients Obtain contract specs Submit bid Receive feedback Revise bid Submit revised bid Final approval or rejection Complete bid review

© 2008 Prentice-Hall Business Publishing 20 Timing Products and Services: PERT/CPM Charts Start Develop plans Select contractor Construction Open store Prepare permits Obtain permits Tenant approval Move into store

© 2008 Prentice-Hall Business Publishing 21 Achieving the Best Cost Productivity measures how well an organization is using its resources (inputs) to produce goods and services (outputs) Productivity Output Input =

© 2008 Prentice-Hall Business Publishing 22 Service Productivity Differences by Country Pieces of Mail Delivered per Person Employed Number of Calls Made per Person Employed France Germany Netherlands Canada United States100.0 Adapted from Exhibit 13.4

© 2008 Prentice-Hall Business Publishing 23 Achieving the Best Cost: Work Standard Work standard: amount of time it should take for a trained employee to complete a specific activity or process Two work measurement techniques: -Time and motion studies -Review each activity in detail so that unnecessary steps are eliminated -Work sampling -Take a sample of workers and calculate percentage of time spent on each activity during a working day or shift Work standard: amount of time it should take for a trained employee to complete a specific activity or process Two work measurement techniques: -Time and motion studies -Review each activity in detail so that unnecessary steps are eliminated -Work sampling -Take a sample of workers and calculate percentage of time spent on each activity during a working day or shift

© 2008 Prentice-Hall Business Publishing 24 Achieving the Best Cost: Production Processes Four different production processes: Continuous flow production Assembly-line processes Small batch processes Job shops Four different production processes: Continuous flow production Assembly-line processes Small batch processes Job shops

© 2008 Prentice-Hall Business Publishing 25 Production Types and Trade Offs Adapted from Exhibit 13.5 Low Economies of Scale High LowHigh Flexibility ContinuousFlowContinuousFlow AssemblyLineAssemblyLine SmallBatchSmallBatch JobShopJobShop

© 2008 Prentice-Hall Business Publishing 26 Achieving the Best Cost: Technology Computer-aided design (CAD) and computer-aided engineering (CAE) Rapid prototyping Computer-aided manufacturing (CAM) Designing for manufacturing (DFM) Computer-aided design (CAD) and computer-aided engineering (CAE) Rapid prototyping Computer-aided manufacturing (CAM) Designing for manufacturing (DFM)

© 2008 Prentice-Hall Business Publishing 27 Instrument-Panel Improvements Achieved Via DFM Adapted from Exhibit 13.6 Previous Instrument PanelDFM Instrument Panel Part Count74 pieces9 pieces Fabrication Time305 Hours20 Hours Assembly Time149 Hours8 Hours Installation Time153 Hours Total Time697 Hours181 Hours Weight3.00 Kilograms2.74 Kilograms Cost74% Reduction

© 2008 Prentice-Hall Business Publishing 28 Managing the Supply Chain Supply chain is: Coordinated system of resources, information, activities, people, and organizations Involved in moving a product or service from raw materials to components Into a finished product or service Delivered to the end customer Supply chain is: Coordinated system of resources, information, activities, people, and organizations Involved in moving a product or service from raw materials to components Into a finished product or service Delivered to the end customer Manufacturer Distributor Retailer Customer Suppliers

© 2008 Prentice-Hall Business Publishing 29 Dell’s Supply Chain Adapted from Exhibit 13.7 Activity or ComponentOrganization(s)Location Phone OrderDell25 centers around the world, including the United States, the Philippines, and India AssemblyDellLimerick, Ireland; Xiamen, China; Eldorado do Sul, Brazil; Nashville Tennessee; Austin, Texas; Penang, Malaysia Notebook designDell (ODM) Original Design Manufacturer United States Taiwan MicroprocessorIntelPhilippines, Costa Rica, Malaysia, China MemorySamsung Nanya Infineon Elpida Korea Taiwan Germany Japan Graphics CardMSI Foxconn Taiwan China Cooling FanCCI Auras Taiwan

© 2008 Prentice-Hall Business Publishing 30 Dell’s Supply Chain (cont.) Adapted from Exhibit 13.7 Activity or ComponentOrganization(s)Location MotherboardSamsung Quanta Compal Wistron Korea Taiwanese (China factory) Taiwan KeyboardAlps Sunrex Darfon Japanese (China factory) Taiwanese (China factory) LCD DisplaySamsung LG Philips Toshiba Chi Mei Optoelectronics Hannstar Display AU Optronics Korea Japan Taiwan Wireless CardAgere Arrow Askey Gemtek USI United States (China factory) United States (Malaysia factory) Taiwan China

© 2008 Prentice-Hall Business Publishing 31 Dell’s Supply Chain (cont.) Adapted from Exhibit 13.7 Activity or ComponentOrganization(s)Location ModemAsustek Liteon Foxconn Taiwanese (China factory) China BatteryMotorola SDI Simplo United States (Malaysia factory) Korea Taiwan Hard DriveSegate Hitachi Fujitsu Toshiba United States (Singapore factory) Japanese (Thailand factory) Japanese (Philippines factory) CD/DVD DriveSamsung NEC Teac Korean (Indonesia or Philippine factory) Japanese (China or Malaysia factory) Japanese (Indonesia, China or Malaysia factory)

© 2008 Prentice-Hall Business Publishing 32 Dell’s Supply Chain (cont.) Adapted from Exhibit 13.7 Activity or ComponentOrganization(s)Location Power AdapterDelta Liteon Samsung Mobility Thailand Taiwan Korea United States (China factory) Power CordVolexUnited Kingdom (China, Malaysia, or India factory) Memory StickM-System Smart Modular Israel United States (Malaysia factory)

© 2008 Prentice-Hall Business Publishing 33 Managing the Supply Chain: Using Technology Electronic data interchange (EDI): the integration and real-time exchange of supply chain information that allows supply chain managers to manage complicated relationships and processes Web-based systems Electronic data interchange (EDI): the integration and real-time exchange of supply chain information that allows supply chain managers to manage complicated relationships and processes Web-based systems

© 2008 Prentice-Hall Business Publishing 34 Supplier Relationships Adapted from Exhibit 13.8

© 2008 Prentice-Hall Business Publishing 35 Managing the Supply Chain: Reverse Supply Chain Reverse supply chain: activities needed to retrieve a used product from a customer and either reuse it or dispose of it Activities include:  Acquiring the used products  Managing reverse logistics to get the products to the company  Inspecting the product  Determining the disposition (destruction or reuse)  Distributing and selling refurbished products Reverse supply chain: activities needed to retrieve a used product from a customer and either reuse it or dispose of it Activities include:  Acquiring the used products  Managing reverse logistics to get the products to the company  Inspecting the product  Determining the disposition (destruction or reuse)  Distributing and selling refurbished products