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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

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Presentation on theme: "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"— Presentation transcript:

1 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
Chapter 13: Organizational Control These slides were developed using Microsoft Office 2003 but can be shown on newer versions of MS Office. To print the notes section for class lectures, select “file/print,” and under “print what,” select “notes pages.” If you prefer black-and-white printing, select either “pure black and white” or “color” under “color/grayscale.” If you select grayscale, the slide will be difficult to read.

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

3 Learning Objectives Describe methods for enhancing productivity and efficiency Explain the principle roles of effective supply chain management in the operations of organizations

4 Operations Management
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 is a specialized field of management focused on the conversion of resources into products and services. In the past, the focus was largely on manufacturing, and the term production and operations management (POM) was used. With the lines between a manufacturing firm versus what is strictly a service firm now blurred, the term operations management (OM) is a more generic one describing the activities related to producing both products and services.

5 Objectives of Operations Management
Managing product/service quality Planning quantity and capacity Timing product and services Achieving the best possible cost Operations management consists of four major objectives: Managing product or service quality Planning to make and deliver the right quantity and figuring capacity to do so Timing products and services so that they get to the customer at the right time Achieving the best possible cost while achieving the other three objectives Subsequent slides will discuss each objective in more detail.

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 is a measure of how well a product or service performs its intended purpose, including how reliable it is or conversely how often it breaks down and how easy it is to service or repair when it does break down. Quality is used to measure both tangible goods, such as computers or cell phones, as well as the service attached to computers and cell phones.

7 Economic Impact of Higher Quality
Improved Quality Higher Margins Higher Revenues Lower Unit Costs Lower Warrantee Costs Lower Repair, Rework, Scrap Costs Higher Efficiency Higher Customer Satisfaction Positive Word of Mouth Repeat Business Exhibit 14.1 showcases the economic impact of higher quality, which ultimately results in repeat business. Adapted from Exhibit 13.1

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 TQM, a buzzword of the 1980s and 1990s, has now become a common management philosophy. Most organizations – profit and nonprofit – utilize TQM in their normal operations and may not even call it TQM anymore. The three main points about TQM are that it focuses on continual improvement, emphasizes quality control at all production stages, and depends on a high commitment from all employees.

9 Total Quality Management (TQM)
Important TQM concepts: Statistical Process Control (SPC) Continuous Process Improvement There are several concepts that are important to the TQM philosophy, and they’re interrelated. The following slides focuses on each. Six Sigma Employee Empowerment

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, also known as business process reengineering and kaizen in Japan, refers to both incremental and breakthrough improvements in the way an organization does business. It has four key elements: Objective: This step focuses on determining what a process is to achieve. For example, a loan application process should result in determining whether or not a loan should be given to an individual. Design: This step examines the critical sequences and seeks to maximize the objective while minimizing the number, complexity, and time required in the process. Capabilities: This step determines the required capabilities for executing the design. Infrastructure: This step focuses on the information and other infrastructure needed for supporting the design and capabilities to meet the objective. Metrics: Finally, this step determines the key metrics that help monitor and determine how well the redesign is doing in meeting the objectives.

11 Quality Control Charts
Exhibit 13.2 shows different quality control charts and how a manager might interpret them. Adapted from Exhibit 13.2

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 is a disciplined, data-driven approach for eliminating defects and enhancing quality with an orientation toward the impact such improvements will have on the customer. Statistically, Six Sigma is represented by a % reliability. With the six sigma approach, quality ways: DMAIC process (define, measure, analyze, improve, control) is focused on existing processes that fall below the specification and how to improve them. DMADV process (define, measure, analyze, design, verify) is focused on the development of new processes

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 Employee empowerment was discussed in chapter 9 and is revisited here as an important TQM concept.

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 Planning quantity and capacity is the second objective of operations management. A simple formula explains how to achieve effective capacity (the percent of design capacity actually achieved): effective capacity is equal to the expected design divided by the design capacity. 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 =

15 Planning Quantity and Capacity
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 concepts important to planning quantity and capacity are: Materials requirement planning (MRP): a system of getting the right materials to the right place at the right time. MRP is a sophisticated computer system that utilizes information from a company’s master production schedule and inventory database. The system produces schedules that identify the required raw materials, parts, and assemblies the firm needs during each specified time period. Economic order quantity (EOQ): a system used to determine the most economical quantity of products to order so that total inventory costs are minimized. The next slide illustrates EOQ. ABC analysis provides information about which inventory items require the most attention.

16 Economic Order Quantity
This exhibit illustrates how economic order quantity (EOQ) works. EOQ is the quantity that should be ordered, based on ordering costs and carrying (or holding) costs. Adapted from Exhibit 13.3

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 A third objective of operations management is the timing of the flow of inventory and delivery of products and services meet customers’ requirements. Not getting products and services to customers when they want them (often termed stock outs) can be as or more costly. In addition, carrying excess inventory can be costly. There has to be a balance between having too much product and not enough product. Three concepts/tools important to timing are: Just-in-time systems Gantt charts Pert charts Each is discussed in the next few slides.

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 The objective of the JIT system is to produce the product or service only as needed with only the necessary materials, equipment, and employee time that will add value to the product or service. The key benefits of the JIT system are: Reducing inventory levels to only the parts or supplies that are needed at the time and thus lowering the holding or carrying cost of inventory Improving productivity and quality by reducing labor and equipment time Increasing customer satisfaction by decreasing the time required to make and deliver the product or service

19 Timing Products and Services: Gantt Charts
May June July Aug Sep Oct Nov Contact clients Obtain contract specs Submit bid Receive feedback Revise bid Submit revised bid Final approval or rejection Complete bid review Gantt Charts are nonmathematical graphical representations of projects. They are useful for determining what specific activities should be included to complete a project on time. They are especially important because they help managers monitor the progress of projects and are most often used for projects that have a manageable number of activities. The slide shows an example of a Gantt chart, which was also shown in the chapter on planning.

20 Timing Products and Services: PERT/CPM Charts
Prepare permits Obtain permits Start Develop plans Select contractor Construction Open store The program evaluation and review technique (PERT) and the critical path method (CPM) are useful tools for scheduling, monitoring, and controlling the timing of large, complex projects such as the expansion of a freeway system or the construction of a store. The slide shows a very simplified version of a PERT chart using the building of a retail store as an example. The “critical path” - longest time path for the project – is represented in red. In this project, the critical path is the construction of the store, which is the most critical activity that must happen. Tenant approval Move into store

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 = The fourth objective of operations management is achieving the best cost. This involves productivity, which is defined in the slide. Basically, productivity equals output divided by input. To ensure that students understand what inputs and outputs are, have them give examples of: Inputs (resources such as capital, labor, raw materials used in production, etc.); example for a restaurant includes ingredients for making entrees and the skill/labor involved in cooking entrees. Outputs (the finished goods or services); example for a restaurant is the finished entrée.

22 Service Productivity Differences by Country
Pieces of Mail Delivered per Person Employed Number of Calls Made per Person Employed France 37.5 17.4 Germany 21.1 19.1 Netherlands 51.5 22.3 Canada 92.4 122.6 United States 100.0 Exhibit 14.4 shows how service productivity differs by specific countries in the postal and telecommunications industries. While people in the U.S. may complain about lack of efficiency, the U.S. has among the most productive workers in these industries of the developed world. Adapted from Exhibit 13.4

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 Part of achieving the best cost is setting up work standards, as defined in the slide. There are two popular work measurement techniques: Time and motion studies, in which managers review each activity in detail so that unnecessary steps are eliminated; and Work sampling, in which managers take a sample of workers and calculate percentage of time spent on each activity during a working day or shift.

24 Achieving the Best Cost: Production Processes
Four different production processes: Continuous flow production Assembly-line processes Small batch processes Job shops The nature of production processes also determines the economies of scale and cost. The four types of production processes are: Continuous flow production is characterized by inputs that are transformed into outputs in an uninterrupted stream. Examples: chemical plants, refineries, integrated steel mills. Assembly line processes are characterized by a series of workstations at which individual steps in the assembly of a product are carried out by workers or machines as the product is moved along. Examples: cars, computers, and cameras. Small batch processes are used to produce exactly that—small batches of products or services. Example: university classes. Job shops are characterized by production processes that focus on the creation of small groups of products (as small as one) with features that are typically different from one job to the next. Example: High-end tailors.

25 Production Types and Trade Offs
Continuous Flow Low Assembly Line Small Batch Flexibility Exhibit 14.5 illustrates the tradeoff between flexibility (or customization) offered by each of the four basic production types and its ability to capture economies of scale. Job Shop High High Economies of Scale Low Adapted from Exhibit 13.5

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) As in many other areas of management, technology is used to help firms achieve the best cost. A few of the technological concepts and tools are: Computer-aided design (CAD) and computer-aided engineering (CAE): computerized processes for designing new products, making modifications to existing products, and testing prototypes or models of products that can operate separately from a flexible manufacturing system or can be an important part of its design and ongoing operations. Rapid prototyping: a technique known as stereolithography to build three-dimensional models out of plastic Computer-aided manufacturing (CAM): the use of computers to direct manufacturing processes. Designing for manufacturing (DFM): the process of designing products to both maximize their functionality for customers and to maximize their ease of production and minimize their associated costs.

27 Instrument-Panel Improvements Achieved Via DFM
Previous Instrument Panel DFM Instrument Panel Part Count 74 pieces 9 pieces Fabrication Time 305 Hours 20 Hours Assembly Time 149 Hours 8 Hours Installation Time 153 Hours Total Time 697 Hours 181 Hours Weight 3.00 Kilograms 2.74 Kilograms Cost 74% Reduction Exhibit 14.6 shows how DFM (designing for manufacturing) can reduce costs without impacting quality. The chart summarizes the results of improvements made by McDonnell Douglas in its aircraft component assemblies. Overall, there was a 74% cost reduction achieved with the DFM instrument panel. Adapted from Exhibit 13.6

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 Suppliers Manufacturer Distributor Retailer Managing the supply chain is a critical component of operations management. The supply chain may consist of various organizations that help move a product from raw materials/components into a finished good or service and into the hands of the final customer. A basic supply chain is illustrated in the slide. Customer

29 Dell’s Supply Chain Activity or Component Organization(s) Location
Phone Order Dell 25 centers around the world, including the United States, the Philippines, and India Assembly Limerick, Ireland; Xiamen, China; Eldorado do Sul, Brazil; Nashville Tennessee; Austin, Texas; Penang, Malaysia Notebook design (ODM) Original Design Manufacturer United States Taiwan Microprocessor Intel Philippines, Costa Rica, Malaysia, China Memory Samsung Nanya Infineon Elpida Korea Germany Japan Graphics Card MSI Foxconn China Cooling Fan CCI Auras This slide and the next three show the complexity of the supply chain and all the coordination involved in making a Dell laptop computer. The chart provides a list of the key activities, locations, and organizations involved from the time you might call in an order and receive the computer at your home. Adapted from Exhibit 13.7

30 Dell’s Supply Chain (cont.)
Activity or Component Organization(s) Location Motherboard Samsung Quanta Compal Wistron Korea Taiwanese (China factory) Taiwan Keyboard Alps Sunrex Darfon Japanese (China factory) LCD Display LG Philips Toshiba Chi Mei Optoelectronics Hannstar Display AU Optronics Japan Wireless Card Agere Arrow Askey Gemtek USI United States (China factory) United States (Malaysia factory) China Adapted from Exhibit 13.7

31 Dell’s Supply Chain (cont.)
Activity or Component Organization(s) Location Modem Asustek Liteon Foxconn Taiwanese (China factory) China Battery Motorola SDI Simplo United States (Malaysia factory) Korea Taiwan Hard Drive Segate Hitachi Fujitsu Toshiba United States (Singapore factory) Japanese (Thailand factory) Japanese (Philippines factory) CD/DVD Drive Samsung NEC Teac Korean (Indonesia or Philippine factory) Japanese (China or Malaysia factory) Japanese (Indonesia, China or Malaysia factory) Adapted from Exhibit 13.7

32 Dell’s Supply Chain (cont.)
Activity or Component Organization(s) Location Power Adapter Delta Liteon Samsung Mobility Thailand Taiwan Korea United States (China factory) Power Cord Volex United Kingdom (China, Malaysia, or India factory) Memory Stick M-System Smart Modular Israel United States (Malaysia factory) Adapted from Exhibit 13.7

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 Technology is useful in helping managers to manage the supply chain. A couple of examples of technology are: Electronic data interchange (EDI) is the integration and, in many cases, real-time exchange of supply chain information that allows supply chain managers to manage complicated relationships and processes. A number of Web-based systems

34 Supplier Relationships
Exhibit 13.8 summarizes the differences between an adversarial relationship and a partnership with a supplier. Adapted from Exhibit 13.8

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 Regulations may require certain types of businesses to manage the reverse supply chain to help in recycling efforts. The reverse supply chain relates to the activities needed to retrieve a used product from a customer and either reuse it or dispose of it. Activities involved in reverse supply chain management are listed in the slide.


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