Achieving World-Class Operations Management Chapter 12 1 1

Chapter 12 Learning Goals Why is production and operations management important in both manufacturing and service firms? What types of production processes are used by manufacturers and service firms? How do organizations decide where to put their production facilities? What choices must be made in designing the facility? Why are resource planning tasks like inventory management and supplier relations critical to production?

Chapter 12 Learning Goals (cont’d.) How do operations managers schedule and control production? How can quality management and lean manufacturing techniques help firms improve production and operations management? What roles do technology and automation play in manufacturing and service industry operations management? What key trends are affecting the way companies manage production and operations?

Learning Goal 1 Why is production and operations management important in both manufacturing and service firms? Manufacturers must produce high-quality, reasonably priced products or they will lose customers Service organizations rely on effective operations management to satisfy consumers Operations managers work with other functions in organizations to ensure Quality Customer Satisfaction Financial success

Production: The creation of products & services by turning inputs into outputs Operations Management: Management of the operations process

Production planning: The aspect of operations management in which the firm considers the competitive environment and its own strategic goals in an effort to find the best production methods

Titan’s Production Planning Titan motorcycle company production estimates for 1999 were based on: the introduction of a new product line estimated industry sales for 1999, based on past sales trends Motorcycle Industry Sales Titan’s Production Thousands of Motorcycles Number of Motorcycles Source: Motorcycle Industry Council/The Arizona Republic, Dec. 5, 1999, p. D5. 2 2

Elements of Production Planning 1. Production process 2. Site selection 3. Facility layout 4. Resource planning 5. Supply chain management 2 2

Learning Goal 2 What types of production processes are used by manufacturers and service firms? Mass production Many identical goods are produced at once, keeping production costs low Relies heavily on standardization, mechanization, specialization Mass customization Mass production techniques are used up to a point Special features are added to custom tailor product to individual customers More expensive than mass production Customization Firm makes many products, one at a time Products produced to the very specific needs or wants of individual customers

Types of Production Process 1. Mass production 2. Mass customization Example products: Dell computers, Levi’s jeans, Acumin vitamins, compact discs (cductive.com), Ritz-Carlton hotel stays, Mattel Barbie dolls, BMW cars, Paris Miki optical frames (Source: Fortune, Sept. 28, 1998, pp. 115-124) 3. Customization

Coffee Bean Production Process 2 ways to grow coffee beans: In the sun: beans grow faster, but this process requires clearing forests In the shade: beans grow slower, but process preserves existing ecosystems The trade-off must be considered when deciding what process to use Source: Consumer Reports, Jan. 2000, p. 30.

Learning Goal 3 How do organizations decide where to put their production facilities? What choices must be made in designing the facility? When choosing a production site, firms must weigh Availability of resources needed for production Ability to serve customers and take advantage of marketing opportunities Availability of local incentives Manufacturing environment Three main production facility designs Process layout Product layout Fixed-position layout

Site Selection Considerations 1. Availability of production inputs 2. Marketing factors 3. Local incentives 4. Manufacturing environment 5. International location considerations 2 2

Good Labor Locations in the US States with above average labor quality and below average labor cost: Alabama Alaska Georgia Hawaii Virginia Wyoming Source: Corporate Location, www.corporatelocation.com 2 2

Types of Facility Layout 1. Process layout 2. Product layout 3. Fixed-position layout

Learning Goal 4 Why are resource planning tasks like inventory management and supplier relations critical to production? Resources needed for production must be available at strategic moments in the production process If resources are not readily available, productivity, customer satisfaction, and quality may suffer Carefully managed inventory can help cut production costs Through good relationships with suppliers, firms can get: Better prices Reliable resources Support services than can improve production efficiency

Elements of Resource Planning Purchasing Insourcing vs. Outsourcing Inventory management Computerized resource planning Materials requirement planning (MRP) Enterprise resource planning (ERP) “The guy with the most resources doesn’t win. The guy who utilizes his resources best wins.” Chuck Knight, CEO of Emerson Electric (Source: Neff & Citrin, Lessons from the Top, 1999, p. 200.)

Supply Chain: The entire sequence of securing inputs, producing goods, and delivering them to customers Supply Chain Management: The process of smoothing transitions along the supply chain

Supply Chain Management Strategies Forge stronger bonds with suppliers Improve supplier communication electronic data interchange (IDE)

Learning Goal 5 How do operations managers schedule and control production? Routing Analyzes steps needed in production Sets out a work flow Increases productivity and can eliminate unnecessary cost Scheduling Specifying and controlling time and resources required for each step in production process Ranges from simple to complex Three methods are used to schedule production: Gantt charts Critical path method PERT

Production control: The coordination of materials, equipment, and human resources to achieve production & operation efficiency

Aspects of Production Control 1. Routing determining work flow 2. Scheduling controlling timing Gantt charts Critical path method & PERT charts 2 2

Typical Gantt Chart September October 8 Scheduling Designing Ordering Delivering materials Machining components Assembling Inspecting Shipping Symbols: scheduled start completed work time not avail. scheduled end review date 2 2

Learning Goal 6 How can quality management and lean manufacturing techniques help firms improve production and operations management? Quality and productivity go hand in hand Defective products waste materials and time; increase costs Poor quality leads to dissatisfied customers Quality-control methods can reduce problems and streamline production Lean manufacturing eliminates unnecessary steps in production process Allows manufacturers to respond to changing market conditions with greater flexibility and ease

Learning Goal 7 What roles do technology and automation play in manufacturing and service industry operations management? Operational efficiency is improved by using technology to automate parts of production Computer-aided design and manufacturing systems Help design new products Control the flow of resources need for production Operate much of the production process Robotics Useful for tasks that require accuracy, speed, and strength Require less labor to operate Service firms are automating operations Banks, law firms, and utility companies Using technology cuts labor costs and controls quality

Improving Production Total Quality Management Lean Manufacturing Just-in-Time Automation Computer-aided design (CAD) Computer-aided manufacturing (CAM) Robotics Flexible manufacturing systems (FMS) Computer-integrated manufacturing (CIM) 2 2

Learning Goal 8 What key trends are affecting the way companies manage production and operations? Agile manufacturing Helps manufacturers stay fast and flexible Firms must develop production systems composed of tools and processes that can quickly change to produce new or different products Cellular manufacturing Creates small, self-contained production units Cell performs all or most of tasks necessary to complete a product or production sequence Manufacturing and non-manufacturing firms are putting emphasis on empowering employees Giving them greater say in deciding how to perform their jobs Larger role in company decision making

Trends in Operations Management Increase in modular production Agile manufacturing permits adapting to changing customer demands Work cell design creates team environment in production 2 2

Changing Operations in Insurance A new approach to insurance operations involves: developing component-based systems faster development more flexible integration of processes & systems web-based sales & services, call-center technology, data management Source: Best’s Review, Dec., 1999, www.ambest.com 2 2