part Chapter © 2009 The McGraw-Hill Companies, Inc. All rights reserved. 1 McGraw-Hill Operations Control 3 Chapter 12

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 2 McGraw-Hill Learning Objectives 1.Understand the basic requirements for controlling operating costs. 2.Define quality from the perspective of an operations manager. 3.Explain the concept of Total Quality Management (TQM). 4.Define the following terms: continuous improvement, kaizen, six sigma, lean manufacturing, and quality at the source. 5.Explain the purpose of the Malcolm Baldrige Award. 6.Explain the concept for just-in-time (JIT) inventory.

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 3 McGraw-Hill Operations Control Two aspects – Design – Control Effective operations

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 4 McGraw-Hill Controlling Operations Costs One of primary jobs of the operations manager Variable overhead expenses Fixed overhead expenses Monthly budgets for each costs area System indicates when costs are out of control Simple inspection

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 5 McGraw-Hill Quality Management Operations manager and quality Quality can affect in many ways –Loss of business, liability, costs, and productivity Customer response program Quality Assurance Past versus present W. Edwards Deming

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 6 McGraw-Hill Total Quality Management 5 summary actions A philosophy Implementing TQM 3 most popular approaches –Deming, Juran, and Crosby methods Initiative for successful implementation Barriers

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 7 McGraw-Hill Specific Approaches for Improving Quality Continuous improvement Kaizen Quality at the source Six sigma Lean manufacturing Reengineering One-time concerted effort

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 8 McGraw-Hill Other Quality Standards ISO 9000 – Promoting the development of standardization and facilitating the international exchange of goods and services – Five standards – New standards ISO – Goal – To provide international environmental standards that are compatible – Compliance in four areas Zero defects – Program characteristics

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 9 McGraw-Hill The Malcolm Baldrige National Quality Award Promotes excellence Six types of organizations are eligible Seven criteria categories

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 10 McGraw-Hill Types of Quality Control Product quality control – Acceptance sampling procedures Process quality control – Process is halted Acceptance sampling – Random sample Process control chart – Whether, not why

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 11 McGraw-Hill Inventory Control 3 categories – Raw material – In process – Finished goods Inventories add flexibility Costly Management must continually balance costs

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 12 McGraw-Hill Just-in-Time Inventory Control Philosophy Smaller but more frequent orders To eliminate waste Applies to production Potential hazard Not a quick fix New twist from Tom Peters

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 13 McGraw-Hill Tracking Inventory Tedious Frequent mistakes Bar-Code Technology Reduced errors Automatic Physical Inventory Actual inventory

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 14 McGraw-Hill Independent versus Dependent Demand Items Sold or shipped as opposed to being used in making another product ABC Classification System ABC accounts Appropriate control Shortcomings Advantage Additional value

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 15 McGraw-Hill Safety Stocks Optimal size Out-of-stock-cost The Order Quantity Optimal units Ordering costs Carrying costs EOQ Weaknesses