PowerPoint Presentation by Charlie Cook The University of West Alabama © 2010 South-Western, Cengage Learning, Inc. All rights reserved.

21–2 The Nature of Operations Management Operations ManagementOperations Management  The set of managerial activities used by an organization to transform resource inputs into products, services, or both. Importance of Excellence in OperationsImportance of Excellence in Operations  Is necessary for competitiveness and overall organization performance.  Creates value and utility through the production of products and services.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21–3 Types of Operations ManufacturingManufacturing  A form of business that combines and transforms resource inputs into tangible outcomes that are then sold to others. Service organizationService organization  An organization that transforms resources into an intangible output and creates time and place utility for its customers.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21–4 Operations and Organizational Strategy Role of Operations in Organizational StrategyRole of Operations in Organizational Strategy  Operations management has a direct impact on competitiveness, quality, productivity, and effectiveness.  Operations management and organizational strategy have reciprocal effects on each other.  Strategic goals cannot be met if there are deficiencies and insufficiencies in operations resources.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21–5 Designing Operations Systems Determining Product-Service MixDetermining Product-Service Mix  Involves deciding how many and what kinds of products to offer in the marketplace. Capacity DecisionsCapacity Decisions  Involve choosing amount of products, services, or both that can be produced by an organization.  Can be high-risk decisions due to uncertainty about future product demand and incurred costs of additional, possibly excess, capacity.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21–6 Designing Operations Systems (cont’d) Facilities DecisionsFacilities Decisions  Facilities are the physical locations where products or services are created, stored, and distributed.  Location is the physical positioning or geographic site of facilities.  Layout is the physical configuration of facilities, the arrangement of equipment within facilities, or both.  Types of layouts  Product layout  Process layout  Fixed-position layout  Cellular layout

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21– Approaches to Facilities Layout

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21–8 Organizational Technologies Manufacturing TechnologyManufacturing Technology  Technology  The set of processes and systems used by organizations to convert resources into products or services.  Automation  The process of designing work so that it can be completely or almost completely performed by machines.  Computer-assisted manufacturing (CAM)  Computer-aided design (CAD)  Computer-integrated manufacturing (CIM)  Flexible manufacturing systems (FMS)

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21– A Simple Automatic Control Mechanism

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21–10 Organizational Technologies (cont’d) Manufacturing Technology (cont’d)Manufacturing Technology (cont’d)  Robot  Any artificial device that can perform functions ordinarily thought to be appropriate for human beings.  Robotics  The science and technology of the construction, maintenance, and use of robots. Service TechnologyService Technology  Services are rapidly moving toward automated systems and procedures (e.g., automated teller machines and room reservations).

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21–11 Operations Systems in Supply Chain Management Supply Chain ManagementSupply Chain Management  The process of managing operations control, resource and inventory acquisition and purchasing, and thus improving overall efficiency and effectiveness. Operations Management as ControlOperations Management as Control  Coordinating operations management with other functions helps insure the system focuses on critical elements crucial to goal attainment.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21–12 Operations Systems in Supply Chain Management (cont’d) Purchasing Management (Procurement)Purchasing Management (Procurement)  Controlling the buying of the materials and resources is at the heart of effective supply chain management. Inventory ManagementInventory Management  Inventory control (Materials control)  Managing the organization’s raw materials, work-in-process, finished goods, and products in-transit.  Just-in-time (JIT) method  An inventory system than has necessary materials arriving as soon as they are needed (just in time) so that the production process is not interrupted.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21– Inventory Types, Purposes, and Sources of Control Inventory TypePurposeSource of Control Raw materialsProvide the materials needed to make the product Purchasing models and systems Work in processEnable overall production to be divided into stages of manageable size Shop floor control systems Finished goodsProvide ready supply of products on customer demand and enable long, efficient production runs High-level production scheduling systems in conjunction with marketing In transit (pipeline)Distribute products to customers Transportation and distribution control systems

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21–14 Managing Total Quality The Meaning of QualityThe Meaning of Quality  The totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs.  Quality is both a relative and absolute concept.  Quality is relevant to both products and services. The Importance of QualityThe Importance of Quality  Malcolm Baldrige Award  Named after a former secretary of commerce, this award is given by the Commerce Department to firms that achieve major quality improvements.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21– Eight Dimensions of Quality.. DimensionMeasure PerformanceA product’s primary operating characteristic; examples are automobile acceleration and a television’s picture clarity. FeaturesSupplements to a product’s basic functioning characteristics, such as power windows on a car. ReliabilityA probability of not malfunctioning during a specified period. ConformanceThe degree to which a product’s design and operating characteristics meet established standards. DurabilityA measure of product life. ServiceabilityThe speed and ease of repair. AestheticsHow a product looks, feels, tastes, and smells. Perceived qualityAs seen by a customer.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21–16 Managing Total Quality (cont’d) The Importance of Quality (cont’d)The Importance of Quality (cont’d)  Competition  Quality has become one of the most important competitive points in business today.  Productivity  Quality enhancement programs decrease defects, reduce rework, and eliminate the need for inspectors as employees assume responsibility for quality.  Costs  Improved quality reduces costs from customer returns, warranty, and lawsuits for faulty products, and lost sales to future customers.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21– Total Quality Management

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21–18 Managing Total Quality (cont’d) Value-added analysis Outsourcing ISO900:2000 Six Sigma Statistical quality control (SQC) Reducing cycle time Benchmarking TQM Tools and Techniques

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21–19 Managing Productivity ProductivityProductivity  An economic measure of efficiency that summarizes the value of outputs relative to the value of resources used to produce them. Aggregate productivity Industry productivity Unit productivity Individual productivity Company productivity Levels of Productivity

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21–20 Managing Productivity (cont’d) Total factor productivityTotal factor productivity  An overall indicator of how well an organization uses all of its resources (i.e., labor, capital, materials, and energy) to create all of its products and services. Labor productivityLabor productivity  A partial productivity ratio that uses only one category of resource (labor) to gage the organization’s productivity in utilizing that resource. Productivity = Outputs Inputs Forms of Productivity Labor Productivity Outputs Direct Labor =

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21–21 Managing Productivity (cont’d) The Importance of ProductivityThe Importance of Productivity  It is a primary determinant of an organization’s level of profitability and its ability to survive.  It partially determines people’s standard of living within a particular country. Productivity TrendsProductivity Trends  The U.S. has one of the highest level of productivity, although the gap is narrowing as other countries become more productive.  Manufacturing productivity growth continues to exceed that of the service sector.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21– Manufacturing and Service Productivity Growth Trends

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.21–23 Managing Productivity (cont’d) Improving ProductivityImproving Productivity  Improving Operations  Spending more resources on research and development helps identify new products, new uses for existing products, and new methods for making products.  Reworking transformation processes and facilities can boost productivity.  Increasing Employee Involvement  Increased employee participation can increase both quality and productivity.  Cross-training of employees allows firms to function with fewer workers.  Rewards are essential to success in improving productivity.