1. Copyright  2017 John Wiley & Sons, Inc.
Production and Operations Management
Production and Operations Management – Chapter 10
Copyright  John Wiley & Sons, Inc.
Chapter 10

2. Learning Objectives Explain the strategic importance of production.1
Explain the strategic importance of production.
Identify and describe the production processes.
Explain the role of technology in the production process.
Identify the factors involved in a location decision. 5
Explain the job of production managers.
Discuss controlling the production process.
Determine the importance of quality. 2 6 3
The learning objectives for chapter 10 include:
Explain the strategic importance of production.
Identify and describe the production processes.
Explain the role of technology in the production process.
Identify the factors involved in a location decision.
Explain the job of production managers.
Discuss controlling the production process.
Determine the importance of quality.
This chapter describes the process of producing goods and services. 7 4
Copyright  2017 John Wiley & Sons, Inc.

3. Production & Operations Management
Production: Use of resources, such as workers and machinery, to convert materials into finished goods and services.
Production and Operations Management: Oversee the production process by managing people and machinery in converting materials and resources into finished goods and services.
By producing and marketing the goods and services people want (utility), businesses satisfy their commitment to society as a whole.
Production uses resources, including workers and machinery, to convert materials into finished goods and services.
Production converts raw materials and other inputs into finished products (outputs).
People often use the terms production and manufacturing interchangeably, and production spans both manufacturing and nonmanufacturing industries.
Companies that engage in fishing or mining engage in production in much the same way as companies that provide package deliveries or lodging.
Figure 10.1 shows the production process of converting inputs to outputs, which includes:
Inputs – resources and raw materials
Conversion process – add value
Outputs – goods and services
Lecture Enhancer: Discuss the conversion process that occurs, and the resources needed, in a resort hotel.
Class Activity: Describe the production process of converting eggs, potatoes and bread into a breakfast meal of scrambled eggs, hash browns, and toast.
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4. Typical Production Systems
Figure 10.2 indicates typical production systems for a variety of goods and services.
Sometimes the production process results in a tangible good like a car or an intangible service such as cable television, which also converts inputs into outputs.
Figure 10.2 includes: a computer factory, a trucking firm, a retail store, a automobile body shop, and county sheriff’s department, and lists the inputs and output for each.
Every organization has its own inputs, transformation process, and outputs. The raw materials and assembly process differ greatly based on the output that the business produces.
Lecture Enhancer: Examine a textbook of yours, which is considered an output. List its primary inputs and what you presume the transformation process was like. Class Activity: Lead a class discussion on the inputs, transformation process, and outputs of a college or university.
Copyright  2017 John Wiley & Sons, Inc.

5. Strategic Importance of Production
Production is a vital business activity and function necessary for generating money to pay employees, lenders, and stockholders.
Effective production and operations management can:
Lower a firm’s production costs
Boost the quality of its goods and services
Allow it to respond dependably to customer demands
Enable it to renew itself by providing new products
Along with marketing and finance, the production process is a vital business activity to any company or nonprofit.
Effective and efficient production processes increase quality, meet customer demands, provide new products, and lower a firm’s production costs.
The next slide examines the differences between mass, flexible, and customer-driven production.
Lecture Enhancer: Describe the production process for the American Red Cross during a crisis.
Class Activity: What happens when Apple releases a new iPhone and is unable to meet customer demand? Discuss the strategic importance of production when it comes to responding dependably to customer demands.
Copyright  John Wiley & Sons, Inc.

6. Mass, Flexible, and Customer-Driven Production
Mass Production - a system for manufacturing products in large quantities by combining employees with specialized skills, mechanization, and standardization.
Flexible Production - more cost-effective for producing smaller batches using information technology, communication, and cooperation
Customer-Driven Production - evaluating customer demands in order to make the connection between products manufactured and products bought
Mass production makes outputs available in large quantities. Much of the foundation of economic growth in the U.S. has been driven from mass production. The assembly line is a key byproduct of mass production.
A very good example of flexible production is the auto industry. Changing from mass production to flexible production enabled companies to produce different kinds of cars at the same plant. Flexible production is more cost-effective for producing smaller runs. It can take many forms, but it generally involves using information technology to share the details of customer orders, programmable equipment to fulfill the orders, and skilled people to carry out tasks to fill a particular order.
Customer-driven production is used to drive short-term forecasting and design production schedules. In some cases, products are not produced until orders are received. Point of sale retail sales data and information from sales drive production.
Lecture Enhancer: What companies do you think provide examples of mass production?
Lecture Enhancer: What are the advantages and disadvantages of customer-driven production?
Class Activity: Ask students if they have ever performed highly specialized job duties on a recurring basis, and discuss their reactions to that experience.
Lecture Enhancer: Do you think Chipotle and Starbucks are examples of customer-driven production? Can you provide other examples?
Copyright  2017 John Wiley & Sons, Inc.

7. Mass, Flexible, and Customer-Driven Production
Honda recently built its five-millionth vehicle, an Acura RDX, at its flexible manufacturing
facility in East Liberty, Ohio.
Copyright  2017 John Wiley & Sons, Inc.

8. Production Processes Analytic Production System
Reduces a raw material to its component parts in order to extract one or more marketable products.
Synthetic production system
Is the reverse of an analytic system. It combines a number of raw materials or parts or transforms raw materials to produce finished products.
An intermittent production process
Generates products in short production runs, shutting down machines frequently or changing their configurations to produce different products.
The production process to make an iPad and a gallon of gasoline are very different. Production processes use either an analytic or synthetic system and time requirements of either continuous or intermittent processes. An analytic production system reduces raw materials to its component parts (in petroleum refining, crude oil is broken down and gasoline is made). A synthetic production system is the reverse; it combines a number of raw materials (canned soup). A continuous production process generates finished products over a lengthy period of time (steel industry blast furnaces never completely shut down except for malfunctions).
An intermittent production process generates products in short production runs, shutting down machines frequently or changing their configurations to produce different products.
Lecture Enhancer: Is production at a sugar refinery an analytic or synthetic production system? What about meat processing?
Lecture Enhancer: Discuss how burger giant McDonald’s has moved from continuous production of food toward a more intermittent production model.
Class Activity: Ask students how the very high costs of a shutdown in a continuous production process might lead to poor or unethical decision making by management.
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9. Technology and the Production Process
Green Manufacturing – manufacturing focused on reducing waste, energy use, and pollution.
Robot - a reprogrammable machine capable of performing tasks requiring the repeated manipulation of materials and tools.
Computer-Aided Design - allows engineers to design components and entire products on computer screens more efficiently than traditional drafting systems.
Green manufacturing is a process that results in a reduction of waste, energy use, and pollution. Companies from Walmart to your local coffee café are finding ways to operate more sustainably.
FedEx and other transportation companies are using biofuel to power a fleet of delivery trucks or eliminating unnecessary packaging.
Chobani Greek yogurt is made using fresh ingredients from local dairy farmers, thus reducing fuel consumption for refrigeration and transport.
Technology has dramatically changed production. Technology boosts efficiency and enhances flexibility. Robots were most common in automotive and electronics manufacturing but they’re now being used in a variety of processes. Police use robots to dispose of bombs. Companies can now design, produce, and adapt products more quickly to meet customers’ changing needs.
Computer-Aided Design and Manufacturing allows engineers to design and test before building prototypes.
Class Activity: Ask students if a company’s “green” manufacturing has positively affected their purchasing that company’s goods or services.
Lecture Enhancer: Discuss the move of many retail grocers to purchase produce from local growers. What other ways have grocers reduced waste, energy use, and pollution?
Student Activity: Have students discuss how CAD has changed the fashion industry as designers have gone away from sketching designs by hand.
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10. Technology and the Production Process
Robots are used in manufacturing as well as in many other fields. In auto manufacturing, robots can perform a variety of tasks that have freed workers from boring and sometimes dangerous jobs.
Copyright  John Wiley & Sons, Inc.

11. Technology and the Production Process (continued)
Computer Aided-Manufacturing - computer tools to analyze CAD output and enable a manufacturer to analyze the steps that a machine must take to produce a product or part.
Flexible Manufacturing Systems - a production facility that can be modified to manufacture different products.
Computer-Integrated Manufacturing - production system in which computers assist , in an integrated function, in the design of products, control machines, handle materials, and control the production function.
Computer-Aided Design and Manufacturing allows engineers to design and test before building prototypes.
Flexible Manufacturing has been enhanced by powerful new software and can be a valuable feature to a production process.
Computer-Integrated Manufacturing is a production system in which computers assist , in an integrated function, in the design of products, control machines, handle materials, and control the production function.
Lecture Enhancer: FMS is used by Toyota Motors and Honda to manufacture automobiles. What do you see as the benefits of using FMS in this industry?
Lecture Enhancer: Industrial robots are an example of computer aided manufacturing, or CAM.
Copyright  2017 John Wiley & Sons, Inc.

12. The Location Decision Copyright  2017 John Wiley & Sons, Inc.
Location is a crucial production decision. The decision of where to locate a production facility impacts transportation, physical factors, and human resources.
The ability to hire enough qualified employees and managers in a specific area drives location decisions.
Each business has different variables to balance and consider.
A firm often must prepare an environmental impact study that analyzes how a proposed plant would affect quality of life in the proposed community.
Lecture Enhancer: Where would you locate a global textile manufacturer? Discuss the factors you would consider as part of your location decision.
Class Activity: Ask students what factors were likely significant causes for the automotive industry to have been located in Detroit during that industry's first few decades.
Class Activity: Lead a discussion on the factors that exist in Silicon Valley and San Francisco that might explain why those areas are so attractive to so many technology companies.
Copyright  2017 John Wiley & Sons, Inc.

13. The Location Decision
Volvo recently chose Charleston, South Carolina, for its first U.S. factory, where it plans to produce the S60 model. This picture shows a ground breaking ceremony which typically occurs prior to construction.
Copyright  2017 John Wiley & Sons, Inc.

14. The Job of Production Managers
Plan the overall production process
Determine the most appropriate layout
Implement the production plan
Control the manufacturing process for quality
Production and operations managers oversee the work of people and machinery to convert inputs (materials and resources) into finished goods and services. There are four major tasks of production managers. The job of production managers is outlined in Figure 10.3, as follows:
Planning the production process
Selecting the most appropriate layout
Implementing the production plan
Controlling the production process
Planning the production process– what goods and services will we offer?
Determining the facility layout– managers must decide the best layout for the facility. A good layout can reduce material handling, decrease costs, and improve product flow.
Implementing the production plan involves making a decision to make, buy, or lease; selecting the best suppliers; and controlling inventory.
Controlling the production process – to maintain the highest possible quality. Part of the control process involves continuous evaluation of results. If problems occur, managers return to the first step and make adjustments.
Lecture Enhancer: What is most important—to plan, determine layout, implement the plan, or control the manufacturing process? Why?
Lecture Enhancer: Discuss the types of educational backgrounds that make the most sense for someone seeking a career as a production manager.
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15. Planning the Production Process
Choose what goods or services to offer in order to satisfy customers.
Other decisions include: machinery purchases, pricing decisions, and selection of retail outlets
Convert original product ideas into final specifications
Design the most efficient facilities to produce those products.
There first of the major tasks of production managers is planning the production process, which involves choosing what goods or services to offer to customers. In addition, machinery purchases, pricing decisions, and selection of retail outlets are also major decisions. It is important for a production manager to understand how a project fits into the company’s structure, as this will impact the success of a project.
Lecture Enhancer: List technology-based products or services that are being produced to satisfy customers.
Class Activity: Ask students what personality traits and skills they think would be needed to be an effective production manager.
Class Activity: Ask students to come up with product ideas that they believe are produced as efficiently and inexpensively as possible.
Copyright  John Wiley & Sons, Inc.

16. Determining the Facility Layout
Figure 10.4 indicates basic facility layouts, including:
Process Layout - grouping machinery and equipment by function
Product Layout - sets up production equipment along a product-flow line.
Fixed-Position Layout - places the product in one spot, and workers, materials, and equipment are brought to it.
Customer-Oriented Layout - Customer-oriented layout arranges facilities to enhance the interactions between customers and a service.
Lecture Enhancer: What type of layout would you find at Chipotle? McDonald’s?
Class Activity: Ask students if they have ever visited a production or manufacturing plant of any kind, and if they can recall the layout.
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17. Process Layout
Process layout groups machinery and equipment by function
Facilitates production of a variety of nonstandard items in relatively small batches
Work-in-process moves around the plant to reach different workstations.
A process layout groups machinery and equipment by function, and according to their functions (activities being performed).
The work in process moves around the plant to reach different workstations. Production is usually in smaller batches and items are usually nonstandard.
Lecture Enhancer: The layout of a pickle processing plant might include washing the vegetables (cucumbers), cutting, curing, seasoning, and packaging.
Class Activity: Point out to students that wine is made from grapes, have them discuss what the process of winemaking might look like, and what a winery’s layout might be.
Copyright  John Wiley & Sons, Inc.

18. Product Layout
Product layout sets up production equipment along a product-flow line, and the work in process moves along this line past workstations.
Efficiently produces large numbers of similar items
The product layout is also called the assembly line.
Production equipment is set up along a product-flow line, and the work in process moves along this line past workstations.
This layout produces large volumes of similar items, but it may prove inflexible and able to accommodate only a few product variations.
Lecture Enhancer: In a product layout for a garment maker, there might be equipment to sew cloth, sew buttons, inspect seams, and wrap and box finished garment.
Lecture Enhancer: In a product layout, each of the work stations utilize specific techniques and the equipment is tailored to the individual job of each worker, which leads to a higher productivity rate.
Class Activity: Have students determine which layout potentially takes up more space – a product or process layout. Why?
Copyright  2017 John Wiley & Sons, Inc.

19. Fixed-Position Layout
Places the product in one spot, and workers, materials, and equipment are brought to it.
A fixed position layout places the product in one location, and workers, materials, and equipment are brought to the location.
Fixed-position layouts are most common when building large, bulky, heavy or fragile products like homes, bridges, or highways.
Fixed-position layouts are found in the following industries: construction, ship building, aircraft, aerospace, and oil drilling.
Lecture Enhancer: Provide local examples of businesses or industries that use fixed-position layouts.
Class Activity: Ask students to discuss the benefits of a fixed-position layout as compared to a process or product layout.
Copyright  2017 John Wiley & Sons, Inc.

20. Customer Oriented Layout
Customer-oriented layout arranges facilities to enhance the interactions between customers and a service.
Service organizations must also decide upon appropriate layouts for their production processes. Banks, libraries, dental offices, hair salons, and universities use a form of process layouts but high-interaction processes in the service industry are commonly called customer-oriented layouts.
If you consider patients to be inputs, then a hospital implements a form of the process layout.
Class Activity: Layout also applies to the service industry, where facilities are arranged to enhance the interactions between its customers and services – a customer-oriented layout.
Lecture Enhancer: Describe what the layout of a dog grooming business might look like.
Class Activity: Ask students to discuss the type Apple stores utilize.
Copyright  2017 John Wiley & Sons, Inc.

21. Implementing the Production Plan
Make, Buy, or Lease Decision
Choosing whether to manufacture a needed product or component in-house, purchase, or lease.
Decision factors: cost, supplier availability, duration of supply needs, and confidentiality.
Selection of Suppliers
Choosing the best vendors by comparing quality, pricing, delivery reliability, and services.
Inventory Control
Balancing stock-on-hand against carrying costs.
When implementing the production plan, managers must think about whether to make, buy, or lease the product or components. Managers must think about cost and availability.
The selection of suppliers is important to think about in terms of quality, prices, and delivery.
Inventory control is an important part of a production process. There can be 100s or more than 1,000s of parts and supplies required to produce one product. These materials can be costly to order, warehouse, and manage. Inventory must be effectively managed.
There are two important types of inventory: Perpetual inventory: Systems continuously monitor the amounts and locations of stocks. Vendor-managed inventory: Inventory control functions handed over to suppliers.
Lecture Enhancer: When the Boeing 777 was built, there were 3 million parts provided by 500 suppliers worldwide.
Class Activity: An RFP, or request for proposal, specifies the requirements of what a company proposes to purchase from suppliers. Ask students what the requirements might be in an RFP, in addition to just price.
Lecture Enhancer: Identify some challenges in identifying alternative suppliers for organic produce markets.
Class Activity: Lead a class discussion to identify other costs associated with carrying excessive inventory, in addition to warehousing costs, taxes, insurance, and maintenance.
Copyright  2017 John Wiley & Sons, Inc.

22. Implementing the Production Plan (continued)
Just-in-Time Systems
Providing the right part, at the right place, at the right time.
Materials Requirement Planning
Computer-based production planning system to track parts and materials needed for production
Implementing the production plan also includes:
Just-in-Time Systems - Providing the right part, at the right place, at the right time.
Materials Requirement Planning - Computer-based production planning system to track parts and materials needed for production
Just-in-time systems allow managers to reduce the amount of inventory on hand. These systems can save money for an operation but they require effective communication and management to work well.
Materials requirement planning aids in managing the purchase and planning of materials required for production. These systems can be key in keeping the cost of inventory down.
Lecture Enhancer: What are the benefits and drawbacks of a just-in-time inventory system?
Lecture Enhancer: Ask students to develop solutions to the issue that occurred during a past tsunami, when automobile and electronic manufacturers were unable to obtain much needed parts.
Copyright  2017 John Wiley & Sons, Inc.

23. Implementing the Production Plan (continued)
JIT inventory systems are used in a wide range of industries, including the healthcare field. Seattle Children’s Hospital uses a JIT system to manage distribution of its supplies and other materials.
Copyright  2017 John Wiley & Sons, Inc.

24. Controlling the Production Process
Production control creates a well-defined set of procedures for coordinating people, materials, and machinery for production efficiency. A five-step process:
Production control creates a well-defined set of procedures for coordinated people, materials, and machinery to provide maximum production efficiency.
The number of workers, raw materials, parts, and machines the plant needs to meet a production schedule are determined based upon output requirements (units).
Production planning determines the amount of resources an organization needs to produce a certain output.
Routing determines the sequence of work throughout the facility and specifies who will perform each aspect of the work at what location.
Scheduling - managers develop timetables that specify how long each operation in the production process takes for workers.
This scheduling includes using PERT and GANT diagrams.
Dispatching is the phase of production control process where the manager dictates who will do what and the time allotted.
Follow-up is the point where managers spot problems in the production process and determine needed changes.
Lecture Enhancer: What control steps can you see that McDonald’s takes to provide uniform quality and control costs?
Class Activity: In a service business such as a firm performing tax and accounting services, discuss how production control might work using the five-step process.
Class Activity: Name a company unable to meet delivery based upon customer demand. What caused the missed delivery, and what were the circumstances?
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25. Gantt Chart and PERT Diagram
Production managers use a variety of analytical methods and tools to schedule work.
One of the oldest methods, the Gantt Chart, tracks projected and actual work progress over time. Gantt Charts are more effective for scheduling relatively simple projects.
Gantt charts show at a glance the status of a particular project.
A more complex project might require a PERT chart -- Program Evaluation and Review Technique. These diagrams seek to minimize delays by coordinating all aspects of the production process. They outline a critical path to identify to managers the sequence of operations with the longest time for completion.
The gold line is called the critical path, or the sequence of operations that requires the longest time for completion. A PERT chart shows how long it will take to complete a project.
Lecture Enhancer: PERT charts, which show information in a networked model, are better than GANTT charts at estimating how long a task will take to complete.
Lecture Enhancer: The focus of a Gantt chart, which shows information in a bar chart format, is the completion of each task, however the link that two tasks may have to each other is not emphasized.
Class Activity: Have students discuss the benefits of the use of charts for project managers.
Copyright  2017 John Wiley & Sons, Inc.

26. The Importance of Quality
Quality - goods and services free of deficiencies
Fixing, replacing, redesigning deficient products is costly.
The costs of poor quality can equal 20 percent of revenues.
Benchmarking - A process used by companies to ensure high quality products are produced
Involves determining how well other companies perform business functions and tasks
Quality relates to the production of goods and services, and is defined as being free of deficiencies.
Quality matters because fixing, replacing, or redesigning deficient products is costly.
A process that companies use to ensure high quality products is called benchmarking. It involves determining how well companies perform business functions and tasks.
Lecture Enhancer: Consider recent product recalls (think: dairy and meat), and the impact upon an industry and the company’s reputation, in addition to costs.
Lecture Enhancer: It is crucial to monitor quality throughout a production process so that issues can be resolved during the process, rather than afterwards.
Class Activity: Have students discuss products or services which have superior quality.
Class Activity: Have students suggest apparel retailers commonly used for benchmarking purposes by their competitors.
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27. Quality Control A good or service free of deficiencies
Poor quality can account for loss in revenue
Benchmarking is the process of analyzing other firms’ best practices
Quality control is measuring goods and services against established quality standards.
Six Sigma concept
A company tries to make error-free products % of the time, a tiny 3.4 errors per million opportunities.
Quality control involves measuring output against established quality standards. Such checks are crucial to spotting defects and to avoid delivering defective products to customers.
Quality standards should be set high. Quality can be managed through visual inspection, electronic sensors, robots, and X-rays. In addition, surveys can provide quality-control information in services.
Quality is the goal of a good production process. The lack of quality can cost a company revenue. All companies must measure and control quality.
Companies like General Electric, Heinz, 3M, Sears, and the U.S. Military are among the organizations that use the Six Sigma concept to reduce the number of defective products.
Lecture Enhancer: Can you think of any examples of companies that incurred additional costs because of product quality issues?
Lecture Enhancer: Ask students to discuss the last time they participated in an online (or offline) customer survey related to quality.
Class Activity: Ask students if they remember the Apple “Antennagate” quality issue.
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28. Quality Control
Six Sigma projects follow a methodology aimed at improving an existing business process composed of five phases: define, measure, analyze, improve, and
control.
Copyright  2017 John Wiley & Sons, Inc.

29. ISO Standards
International Organization for Standardization (ISO)- mission is to promote the development of standardized products to facilitate trade and cooperation across national borders.
Representatives from more than 146 nations.
ISO 9000 series of standards sets requirements for quality processes.
Nearly half a million ISO 9000 certificates have been awarded to companies around the world.
ISO series also sets standards for operations that minimize harm to the environment.
International Organization for Standardization, or ISO for short, is a set of global quality standards.
ISO is a network of national standards bodies from 162 countries. Its mission is to develop and promote international standards for business, government, and society to facilitate global trade and cooperation. ISO standards span everything from the format of banking and telephone cards to freight containers to paper sizes to metric screw threads.
Many note that ISO 9000 increases the competitiveness of a firm. The link takes you to the ISO organization website.
Lecture Enhancer: What types of benefits would a global manufacturer obtain from using ISO-certified suppliers?
Lecture Enhancer: ISO International Standards range from topics as diverse as agricultural machinery, logistics, transportation, manufacturing, labelling, packaging and storage.
Class Activity: Out of more than ISO International Standards, over 1000 are specifically dedicated to food. In a global environment, discuss the implications.
Copyright  2017 John Wiley & Sons, Inc.