1. Producing Quality Goods and Services
Chapter 8
Producing Quality Goods and Services

2. Learning Objectives Explain the nature of production.
Outline how the conversion process transforms raw materials, labor, and other resources into finished products and services.
Describe how research and development lead to new products and services.
Discuss the components involved in planning the production process.
Explain how purchasing, inventory control, scheduling, and quality control affect production.
Summarize how productivity and technology are related.

3. Operations Management
…all activities managers engage in to produce goods and services.

4. Spotlight Production Salaries
Source: Monster website, accessed September 21, 2008.

5. Where U.S. Jobs Have Gone
Source: Bronfenbrenner & Luce, “Offshoring: The Evolving Profile of Corporate Global Restructuring,” Multinational Monitor, Dec. 2004, .

6. How Successful U.S. Firms Compete in the Global Marketplace
Motivate employees to cooperate and improve productivity
Select suppliers offering higher-quality raw materials at good prices
Replace outdated equipment
Use computerized manufacturing
Improve control procedures
Build new facilities in foreign countries

7. Output per Hour in Manufacturing
Source: U.S. Department of Labor, Bureau of Labor Statistics, September 2008,
“Output per Hour in Manufacturing: 15 Countries or Areas,1950–2007,” ftp://ftp.bls.gov/pub/special.requests/ForeignLabor/prodsuppt01.txt.

8. Mass Production
…a manufacturing process that lowers the cost required to produce a large number of identical or similar products over a long period of time.

9. Analytical Process
…a process in operations management in which raw materials are broken into different component parts.

10. Synthetic Process
…a process in operations management in which raw materials or components are combined to create a finished product.

11. Today’s Operations Managers Must
Be able to motivate/lead
Understand technology
Appreciate control processes
Understand customer

12. …the ability of a good or service to satisfy a human need.
Utility
…the ability of a good or service to satisfy a human need.

13. Types of Utility
Form
Place
Time
Possession

14. Form Utility
…created by converting raw materials, people, finances, and information into finished goods or services.

15. Figure 8.1: The Conversion Process
The conversion process enables business firms to convert ideas and resources such as materials,
finances, and information into
useful goods and services.
The ability to produce products,
services, and ideas is a crucial step in the economic development of any nation.

16. Conversion Process
Focus ─ resource(s) that make up the major input
Magnitude of change ─ degree to which physical resources are physically changed
Number of production processes ─ varies by product/industry

17. Service Economy
…an economy in which more effort is devoted to the production of services than to the production of goods.

18. Figure 8.2: Service Industries
Source: U.S. Bureau of Labor Statistics website, accessed September 20, 2008.

19. Production of Services vs. Goods
Services consumed immediately; goods can be stored
Services provided when/where customer desires
Services usually labor-intensive
Services intangible

20. Major Activities in Operations Management
New Product Development
Planning for Production
Operations Control

21. Research and Development (R&D)
…a set of activities intended to identify new ideas that have potential to result in new goods and services.

22. Types of R&D Activities
Basic Research Aimed at uncovering new knowledge
Applied Research Geared toward discovering new knowledge with some potential use
Development and Implementation Undertaken specifically to put new or existing knowledge to use in producing goods and services

23. Product Modification
Product extension or refinement gives new life to a product whose sales make up for the declining sales of a product…introduced earlier.

24. Figure 8.3: Planning for Production

25. Design Planning
…the development of a plan for converting a product idea into an actual product or service.

26. Requires balancing customer preferences and production requirements
Product Line
…a group of similar products that differ only in relatively minor characteristics.
Requires balancing customer preferences and production requirements

27. Product Design
…the process of creating a set of specifications from which a product can be produced.

28. Capacity
…the amount of products or services that an organization can produce in a given time.

29. Use of Technology Automation
Labor-intensive technology Process in which people do most of the work
Capital-intensive technology Process in which machines and equipment do most of the work

30. Produce a New Product in Existing Factory If
Existing has enough capacity
Cost of refurbishing is less than cost of building new

31. Production Facility Location Variables
Locations of major customers and suppliers
Availability and cost of skilled and unskilled labor
Quality of life for employees and management
Cost of land and construction
Local and state taxes, environmental regulations, zoning laws
Financial support from local and state governments
Special requirements such as great amounts of energy or water

32. Plant Layout
…arrangement of machinery, equipment, personnel within a production facility.

33. Figure 8.4: Facilities Planning

34. Operational Planning Step 1: Selecting a Planning Horizon
Step 2: Estimating Market Demand
Step 3: Comparing Market Demand with Capacity
Step 4: Adjusting Products/Services to Meet Demand

35. When Demand Exceeds Capacity
Operate facility overtime
Add 2nd, 3rd shift
Outsource a portion
Expand current facility or build another

36. When Capacity Exceeds Demand
Reduce number of employees
Shorten workweek
Close part of facility
Shift to production of other goods or services
Sell unused facilities

37. Figure 8.5: Four Aspects of Operations

38. Purchasing
…all activities involved in obtaining required materials, supplies, components, and parts from other firms.

39. Objective of Purchasing
Ensure
Required materials
Available when needed
In proper amounts
At minimum cost

40. Factors in Choosing Supplier
Price
Quality
Reliability
Credit Terms
Shipping Costs

41. Inventory
Types:
Raw Materials
Work-in-Process
Finished Goods
Associated Costs:
Holding/Storage
Stock-Out

42. Inventory Control
…the process of managing inventories in such a way as to minimize inventory costs, including …holding costs and potential stock-out costs.

43. Materials Requirements Planning (MRP)
…a computerized system that integrates production planning and inventory control.

44. Extensions of MRP
Manufacturing Resource Planning Less-sophisticated software; involves just production and inventory personnel
Enterprise Resource Planning More-sophisticated software; can monitor not only inventory and production processes but also quality, sales, etc.

45. Just-in-Time Inventory System (JIT)
…a system designed to ensure that materials or supplies arrive at a facility just when they are needed so storage and holding costs are minimized.

46. Debate: Should JIT Be Used to Reduce Inventory Costs?
YES
JIT ensures that materials or supplies arrive when they are needed.
JIT reduces inventory storage costs because suppliers must deliver goods when they are needed.
Former storage space can be diverted to more productive activities like manufacturing. NO
Firm can encounter stock-out costs if supplier doesn’t deliver.
Supplier storing goods passes on storage cost in the form of higher prices.
If suppliers don’t deliver on time, manufacturer may have to shut down assembly line.

47. Scheduling
…the process of ensuring that materials and other resources are at the right place at the right time.

48. Scheduling Concerns
Place/time
Routing of materials
Timing
Follow-up

49. Quality Control
…the process of ensuring that goods and services are produced in accordance with design specifications.

50. Malcolm Baldrige National Quality Award
Given by U.S. President
Results in
Better employee relations
Higher productivity
Greater customer satisfaction
Increased market share
Improved profitability

51. …the examination of the quality of work in process.
Inspection
…the examination of the quality of work in process.

52. Improving Quality Through Employee Participation
Total Quality Management (TQM) program
Six Sigma: Disciplined approach that relies on statistical data and improved methods to eliminate defects in products and services

53. Six Sigma Belts
White ─ intensive, short-term training for small-scale or localized quality projects
Green ─ extensive training for more-complex or department-wide projects
Black ─ long-term training plus hands-on experience; for leading projects involving multiple areas

54. Production and Quality Management Websites
There are several web-based sources of information and journals devoted to quality management and production issues.
National Association of Manufacturers:
Quality Digest:
Industry Week:

55. …the average level of output per worker per hour.
Productivity
…the average level of output per worker per hour.

56. Average % Changes in Productivity 1999–2008
Source: U.S. Bureau of Labor Statistics.

57. Productivity Trends
U.S 5th largest increase
U.S. rate of productivity growth lagging
Determines standard of living
Increased cooperation between management and labor
Changing reward system
More money invested in facilities, equipment, and training

58. …the total or near-total use of machines to do work.
Automation
…the total or near-total use of machines to do work.

59. Robotics and Computerization
Robotics Use of programmable machines to perform a variety of tasks by manipulating materials and tools
Computer manufacturing systems
Computer-aided design
Computer-aided manufacturing
Computer-integrated manufacturing

60. Flexible Manufacturing Systems
Continuous process = a firm produces the same product over a long period of time
Intermittent process = a firm’s machines and equipment are changed to produce different products
Customer-driven production
Technological displacement

61. Chapter Quiz
A(n) __________ process breaks raw materials into different component parts.
mechanical
analytic
synthetic
technological
productive

62. Chapter Quiz
In the manufacturing process, the resource that comprises the major or most important input is referred to as the
number of technologies.
magnitude of change.
focus of the conversion process.
resource utilization process.
resource manufacturing process.

63. Chapter Quiz
Today, approximately __________ percent of American workers are employed by service industries. 92 83 76 40 28

64. Chapter Quiz
A __________ layout is used when different operations are required for creating small batches of different products or working on different parts of a product.
labor intensive
capital intensive
process
product
fixed

65. Chapter Quiz The average level of output per worker per hour
is the definition of productivity.
is the focus of the production process.
applies only to a synthetic manufacturing process.
applies only to an analytic manufacturing process.
can be improved if the magnitude of the change is eliminated.