1. Operations Management
Chapter 17
Operations Management

2. Learning Objectives After reading this chapter, you should be able to:
Define operations management and its three stages: inputs, transformation and disposition.
Describe material requirements planning (MRP) and understand its use in operations management.
Be familiar with the conversation process tools of operations management, including Gantt charts, PERT networks, and statistical process tools.
Explain the role of quality management in the operations management process.
Understand and apply the principles of kaizen, just-in-time manufacturing, and kanban.

3. What is Operations Management?
Operations management is the process an organization uses to:
Obtain the materials or ideas for the product it provides.
Transform the materials or ideas into the product.
Provide the final product to a user.
Operations management is closely linked to:
Strategic Management (Chapter 7)
Planning (Chapter 5)
Information Systems Management (Chapter 18)

4. The Operations Management Process
Inputs
Conversion
Outputs
Raw materials
Labor
Energy
Knowledge
Facility
Capacity
Process
Control
Goods
Services
Information

5. The Operations Management Process (cont)
Three stages:
Acquiring inputs (the materials or ideas)
Controlling the conversion processes (transforming the materials or ideas into the organization’s products)
Delivering the output (providing the organization’s product to the user)

6. Planning in Operations Management
Planning is the foundation of operations management
Planning – the management function that assesses the management environment to set future objectives and map out activities necessary to achieve those objectives.

7. Strategic Planning
Strategic management decisions involved in operations management:
Make-buy analysis: whether to produce an item or to purchase it.
Capacity: firm’s ability to produce the product during a given period.
Facilities: design and location of an operations facility.
Process: how a product or a service will be produced.
Facilities layout design: physical arrangement that allows for efficient production

8. Acquiring Inputs Inputs are the supplies needed to create a product.
Materials requirements planning: analyzing a design to determine the materials and parts required in the production process.
Inventory: the stock of raw materials, inputs, and component parts that the firm keeps on hand.
Reordering systems: the process used to help keep inventory levels more or less consistent.
Fixed point reordering system
Fixed interval reordering system

9. The Conversion Process
Conversion process: the stage in which the product’s inputs are converted to the final product.
An effective conversion process:
Works to lower the cost of creating the product; or to
Create a better product for the same cost.
Key decision areas:
Designing the process
Monitoring the process

10. Designing the Process
Process design begins with analyzing the general operation and identifying:
Every major step.
The order that the steps must take.
The flow of the steps from start to finish (including their relationship to each other).
The amount of time each individual step requires.

11. Example of Process Analysis Information
1 week
Following F 6
G. Test equipment
Following B, E 5
F. Install equipment
Following C 4
E. Install floors 3
D. Install electrical fixtures
2 weeks
None 2
C. Paint interior 1
B. Order equipment
4 weeks
A. Get permit
Time
Relation to Other Steps
Order
Step

12. Process Design Tools
Gantt Charts: provide a visual sequence of the process steps.
Load Charts: type of Gantt chart based on departments or specific resources that are used in the process.
Program Evaluation and Review Technique (PERT) Network: tool for analyzing the conversion process.

13. Example of a Gantt Chart
WEEKS
Test equipment
Install baking equipment
Install floors
Install electrical fixtures
Paint interior
Order baking equipment
Get permit
Start

14. Example of a Load Chart WEEKS ------------ Carpenter
Electrician
Painter
Order department
Office Staff
Start

15. Example of a PERT Network
Get permit 1 4 1
Start
Order baking equipment
Install baking equipment
Test equipment 1 1 1 1 1 1
Paint interior
Install electrical fixtures
Install floors

16. Facilities Layout
Facilities layout - the grouping and organization of equipment and employees
Product layout - where each function is performed in a fixed sequence
Process layout - where each work station is relatively self-contained
Fixed position layout - where remote work stations assemble components, and they are then brought to a final assembly area

17. Flexible Manufacturing
Flexible manufacturing – techniques that help reduce the setup costs associated with the production system
computer aided design, engineering, and manufacturing tools make the work process more flexible

18. Process Monitoring Tools
Statistical Process Control
Acceptance Sampling
Total Factor Productivity
Partial Productivity 3

19. Statistical Process Control Tools
Check Sheets
Pareto Analysis
Process Flow Analysis
Cause-and-Effect Diagrams
Process Capability Measures
Control Charts

20. Disposition of the Product
The end result of the operations process is the product – a good or a service. Operations management includes customer fulfillment process.
Order review / release (ORR) activity: used to evaluate and track the order through the process:
Creating order documentation
Material checking
Capacity evaluation
Load leveling
The order must be checked to verify it is complete.

21. Managing Quality
Top management must make improvement in productivity a strategic objective of the firm.
Top management must also be sure that managers from different areas of the firm work together to increase efficiency.
A more efficient production process lowers production costs, increases profitability, may lead to lower prices, and attract new customers.
W. Edwards Deming considered the father of quality management

22. Managing Quality (cont)
The Quality Management Approach
Total Quality Management (TQM)
Kaizen (Continuous Improvement) and Efficiency
Just-in-Time Systems
Process Engineering

23. Total Quality Management (TQM)
Continuous improvement of the production sequence should be one of the main objectives of operations management.
Total Quality Management (TQM) – based on the belief that all of an organization’s activities need to be focused on improving its product.
Four interrelated steps to quality:
Plan Do
Check
Act

24. Total Quality Management (TQM) (continued)
Management and TQM
Correct variances in operations management by using TQM principles to find and correct their source.
Employees and TQM
Operations managers must be sure their employees understand what TQM means and that each worker is responsible for improving quality.
Managers must also be willing to act on any suggestions or problems that employees identify.
Quality circles.

25. Total Quality Management (TQM) (continued)
Customers and TQM
Operations management can focus on improving the quality gap – the difference between what customers want and what they actually get from the company.
Suppliers and TQM
Suppliers are seen as partners with the firm.
TQM and the Production Process
Operations management uses TQM techniques to focus on, and improve the production process.

26. Kaizen (Continuous Improvement) and Efficiency
The Japanese process of continuous improvement in the organization’s production system from numerous small, incremental improvements in production processes.
One of the main principles of kaizen is reducing waste in materials, inventory, production steps, and activities that do not add value.
Three steps:
Maintenance
Kaizen
Innovation

27. Just-in-Time (JIT) Systems
Just-in-time (JIT) – the concept behind creating the firm’s product in the least amount of time.
Close coordination between manufacturers, suppliers, and customers.
The firm’s inventory of inputs are kept at the lowest level possible.
Inputs arrive at the organization when, not before, they are needed.

28. Kanban A form of JIT system originated in Japan
Uses cards to generate inventory
From the Japanese word for “card” or “sign”
Small batches of components to assembly line as needed

29. Process Reengineering
Method of changing the entire production process rather than making incremental changes.
The firm (including its operations management) is viewed as a complete process.
Involves fundamentally rethinking and radically redesigning the entire process including:
Cutting out steps that are not needed.
Reducing paperwork.