1. Chapter 10 Production & Quality Control

2. Learning Goals CHAPTER 10
Achieving World-Class Operations Management
1 Why is production and operations management important in both manufacturing and service firms?
2 What types of production processes do manufacturers and service firms use?
3 How do organizations decide where to put their production facilities? What choices must be made in designing the facility?
4 Why are resource-planning tasks like inventory management and supplier relations critical to production?
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3. Learning Goals (continued)
Chapter 10
Achieving World-Class Operations Management
5 How do operations managers schedule and control production?
6 How can quality management and lean-manufacturing techniques help firms improve production and operations management?
7 What roles do technology and automation play in manufacturing and service industry operations management?
8 What key trends are affecting the way companies manage production and operations?
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4. Production and Operations Management
Chapter 10
Achieving World-Class Operations Management 1
Why is production and operations management important in both manufacturing and service firms?
Finding the most efficient and effective methods of producing the goods or services it sells to customers is an ongoing focus of nearly every type of business organization.
Service organizations also face challenges. Customers are demanding better service, shorter wait times, and individualized attention.
This chapter explains how manufacturers and service firms manage and control the creation of products and services. 1

5. Production and Operations Management
Chapter 10
Achieving World-Class Operations Management
production
The creation of products and services by turning inputs into outputs, which are products and services.
operations management
Management of the production process.
Production, an essential function in every firm, turns inputs, such as natural resources, raw materials, human resources, and capital, into outputs, which are products and services. The goal of customer satisfaction is an important part of effective production and operations. No longer can the manufacturing function be inwardly focused. Customer contact is necessary. 1

6. Production and Operations Management Decisions
Chapter 10
Achieving World-Class Operations Management
Production and Operations Management Decisions
Production planning
Production control
Improving production and operations
Production and operations management involves three main types of decisions that are made at three different stages:
Production planning: The first decisions come at the planning stage, at which time managers decide where, when and how production will occur.
Production control. The decision-making process focuses on scheduling, controlling quality and costs, and the actual day-to-day operations of running a factory or service facility.
Improving production and operations: The final stage focuses on developing more efficient methods of producing the firm’s goods.
These three types of decisions are ongoing and often occur simultaneously. 1

7. Production Planning 1 Long-Term Medium-Term 1 Year 2 Years 3-5 Years
Chapter 10
Achieving World-Class Operations Management
Long-Term
Medium-Term
1 Year
2 Years
3-5 Years
Short-Term
During production planning, the firm considers the competitive environment and its own strategic goals in an effort to find the best production methods.
Production planning involves three phases: long-term planning (time of 3-5 years), medium-term planning (time of 2 years), and short-term planning (time of 1-year). 1

8. Production and Operations Management Decisions
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Achieving World-Class Operations Management
Production and Operations Management Decisions
Site selection
Facility layout
Resource planning
Type of Production Process
Four important decisions must be made in production planning. They involve the type of production process that will be used, site selection, facility layout, and resource planning. 1

9. The Production Process: How Do We Make It?
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Achieving World-Class Operations Management
The Production Process: How Do We Make It? 2
What types of production processes do manufacturers and service firms use?
The first decision involves which type of production process fits with company goals and customer demand. 2

10. Production Process Classifications
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Achieving World-Class Operations Management
Production Process Classifications
How inputs are converted into outputs
Timing of the process
In addition to production type, operations managers classify production processes in two ways: 1) by how inputs are converted into outputs and 2) by the timing of the process. 2

11. How Do We Make It? 2 mass production mass customization customization
Chapter 10
Achieving World-Class Operations Management
mass production
The ability to manufacture many identical goods at once.
mass customization
Goods are mass-produced up to a point, then custom tailored to the needs of individual customers.
customization
The production of goods or services one at a time according to the needs of individual customers.
There are three types of production: mass production, mass customization, and customization.
Mass production was a product of the Industrial Revolution, with Henry Ford’s Model-T automobile a good example. Each car was identical, right down to the color of black. The emphasis of mass production is on keeping manufacturing costs low by producing highly uniform products using repetitive and standardized processes.
Mass customization involves producing goods using mass-production techniques, but custom tailoring the products to the needs or desires of individual customers.
Customization is the opposite of mass production. Unlike mass customization, each product or service is unique. 2

12. Converting Inputs to Outputs
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Achieving World-Class Operations Management
process manufacturing
The basic input is broken down into one or more outputs.
assembly process
The basic inputs are combined or transformed into the output.
Production involves converting inputs (natural resources, raw materials, human resources, capital) into outputs (products or services).
The two basic processes for converting inputs into outputs are process manufacturing and its opposite, the assembly process. 2

13. Production Timing 2 continuous process intermittent process
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Achieving World-Class Operations Management
continuous process
A production process that uses long production runs without equipment shutdowns.
intermittent process
A production process that uses short production runs to make batches of different products.
A second consideration in choosing a production process is timing.
A continuous process is best for high-volume, low-variety products with standardized parts. The intermittent process is best for low-volume, high-variety products such as those produced by mass customization or customization.
Most service firms rely on intermittent processes. 2

14. Where Do We Make It?
Chapter 10
Achieving World-Class Operations Management 3
How do organizations decide where to put their production facilities? What choices must be made in designing the facility? 3

15. Where Do We Make It? 3 Availability of production inputs
Chapter 10
Achieving World-Class Operations Management
Marketing factors
Manufacturing environment
Local incentives
Availability of production inputs
International location considerations
The facility’s location affects operating and shipping costs (and ultimately product costs), and mistakes made at this stage can be costly because moving a facility is expensive.
The factors to consider include:
Availability of production inputs: Assess the availability of raw materials, parts, and equipment, as well and availability and cost of labor.
Marketing factors: Evaluate how their facility location will affect their availability to serve their customers. Locating near customers can provide market advantages. Consider the location of competitors. With more than one facility, consider how far to spread their locations in order to maximize market coverage.
Manufacturing environment: When a large number of manufacturers are already located in an area, that area is likely to offer greater availability of resources, better accessibility to suppliers and transportation, and other factors that increase efficiency.
Local incentives: Incentives offered by countries, states, or cities, such as tax breaks and exemptions.
International location considerations: Labor costs are lower in countries like Singapore, China, and Mexico. Foreign countries may have fewer regulations. 3

16. Designing the Facility
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Achieving World-Class Operations Management
Product Layout
Workstations or departments are arranged in a line with products moving along the line
Fixed-Position Layout
The product stays in one place and workers and machinery move to it as needed
Process Layout
Work flows according to the production process
Cellular Manufacturing
Technique uses small, self-contained production units each performing all or most of the tasks necessary
After the site location has been determined, the next production planning step is the facility’s layout. The goal is to determine an effective and efficient design for the particular process. There are three main types of facility layouts.
Cellular manufacturing combines some aspects of both product and fixed-position layout. 3

17. Resource Planning
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Achieving World-Class Operations Management 4
Why are resource-planning tasks like inventory management and supplier relations critical to production?
Firms must ensure that resources needed for production will be available at the strategic moments in the process.
Purchasing is the process of buying production inputs from various sources. Consider the number of parts used to build one Boeing airplane. 4

18. Resource Planning
Chapter 10
Achieving World-Class Operations Management
bill of material A list of the items and the number of each required to make a given product.
purchasing
The process of buying production inputs from various sources; also called procurement.
Resource planning begins by specifying which raw materials, parts, and components will be required, and when, to produce finished goods. To determine the amount of each item needed, the expected quantity of finished goods must be forecast.
A bill of materials is drawn up that lists the items and the number of each required to make the product. Purchasing is the process of buying these items from various sources. 4

19. Make-or-Buy Factors 4 Quantity of items needed
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Achieving World-Class Operations Management
Size of components
Standard or nonstandard items
Quantity of items needed
Special design features
Quality and reliability
The firm must decide whether to make its own production materials or buy them from outside sources. This is the Make-or-Buy decision. The factors to be considered are listed above.
Make-or-buy decisions: The quantity of items needed is one consideration—if a small number of parts is needed, outsourcing may be the most cost effective. However, if a product has special design features that need to be kept secret, a firm may decide to produce all parts internally. 4

20. Inventory Management
Chapter 10
Achieving World-Class Operations Management
inventory The supply of goods that a firm holds for use in production or for sale to customers.
inventory management
The determination of how much inventory a firm will keep on hand, and the ordering, receiving, storing, and tracking of inventory.
perpetual inventory
A continuously updated list of inventory levels, orders, sales, and receipts.
Deciding how much inventory to keep on hand is one of the biggest challenges for operations managers. With large inventories, the firm can meet most production and customer demands. However, large inventories can tie up the firm’s money, are expensive to store, and can become obsolete. 4

21. Computerized Resource Planning
Chapter 10
Achieving World-Class Operations Management
materials requirement planning (MRP)
A computerized system of controlling the flow of resources and inventory.
A master schedule is used to ensure that the materials, labor, and equipment needed for production are at the right places in the right amounts at the right times.
Many manufacturing companies have adopted computerized systems to control the flow of resources and inventory. Materials requirement planning (MRP) is one such system that uses a master schedule to ensure that the materials, labor, and equipment needed for production are at the right places in the right amounts at the right time. 4

22. Computerized Resource Planning
Chapter 10
Achieving World-Class Operations Management
enterprise resource planning (ERP)
A computerized resource-planning system that incorporates information about the firm’s suppliers and customers with its internally generated data.
Enterprise resource planning goes a step further and incorporates external information about suppliers and customers into the flow of data. 4

23. Supply Chain Management
Chapter 10
Achieving World-Class Operations Management
supply chain
The entire sequence of securing inputs, producing goods, and delivering goods to customers.
supply chain management
The process of smoothing transitions along the supply chain so that the firm can satisfy its customers with quality products and services; focuses on developing tighter bonds with suppliers.
In the past, relationships between purchasers and suppliers was often competitive, antagonistic, and short-term. Today, many firms are moving toward a new concept in supplier relationships, called a supply chain. A critical element of effective supply chain management is to develop tighter bonds with suppliers.
If any links in this process are weak, customers may end up dissatisfied. Effective supply chains reduce costs. 4

24. CONCEPT check
Chapter 10
Achieving World-Class Operations Management
What are the three types of decisions that must be made in production planning?
What factors does a firm consider when making a site selection decision?
How is technology being used in resource planning? 4

25. Production and Operations Control
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Achieving World-Class Operations Management 5
How do operations managers schedule and control production? 5

26. Production and Operations Control
Chapter 10
Achieving World-Class Operations Management
Routing
Value-stream mapping
Scheduling
Gantt charts
Critical path method
PERT
The coordination of materials, equipment, and human resources to achieve production and operating efficiencies is called production control. Two of its key aspects are routing and scheduling.
Routing is the first step in production control, setting the work flow of machines and operations through which a product progresses from start to finish. One useful tool is value-stream mapping, where production managers map the flow from suppliers through the factory and to customers.
Scheduling involves specifying and controlling the time required for each step in the production process. Three common scheduling tools used for complex situations are Gantt charts, the critical path method, and PERT.
PERT stands for program evaluation and review technique, and helps managers identify critical tasks and assess how delays in certain activities will affect operations or production. It differs from CRM in one aspect: CPM assumes that amount of time needed to finish a task is known with certainty. In contrast, PERT assigns three time estimates for each activity: time for completion, the most probable time, and a pessimistic time.
Descriptions of each scheduling method follow. 5

27. The PERT Method 5 Assigns three time estimates for completion:
Chapter 10
Achieving World-Class Operations Management
Assigns three time estimates for completion:
An optimistic time
The most probable time
A pessimistic time 5

28. CONCEPT check
Chapter 10
Achieving World-Class Operations Management
What is production control, and what are its key aspects?
How can value-stream mapping improve routing efficiency?
Identify and describe three commonly used scheduling tools. 5

29. Improving Production and Operations
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Achieving World-Class Operations Management 6
How can quality management and lean-manufacturing techniques help firms improve production and operations management? 6

30. Improving Production and Operations
Chapter 10
Achieving World-Class Operations Management
Technology and automation
Lean manufacturing
Quality management techniques
Methods used to help keep production costs down include quality management techniques, lean manufacturing, and automation. 6

31. Total Quality Management Continuous improvement
Putting Quality First
Chapter 10
Achieving World-Class Operations Management
Total Quality Management
The use of quality principles in all aspects of a company’s production and operations.
Quality control
The process of creating standards for quality, producing goods that meet them, and then measuring finished products against them.
Continuous improvement
A commitment to constantly seek better ways of doing things to maintain and increase quality.
Six Sigma
A QC process that relies on defining what needs to be done to ensure quality, measuring and analyzing results, and ongoing improvement.
Quality and productivity must go hand in hand. Quality goods and services meet customer expectations by providing reliable performance. Defective products waste materials and time, increasing costs, and worst case, cause customer dissatisfaction and lost sales. From a consumer’s point of view, quality is the degree to which a good conforms to a set of predetermined standards.
Edwards Deming’s concept of TQM emphasizes quality principles in all aspects of a company’s production and operations. TQM focuses on continuous improvement.
Another quality method is Six Sigma—a process that focuses on measuring the number of defects and eliminating them until processes are refined to produce no more than 3.4 defects per million. 6

32. Malcolm Baldrige National Quality Award
Chapter 10
Achieving World-Class Operations Management
Given to U.S. companies whose goods and services offer world-class quality
Established by the U.S. Congress in 1987 and named for a former secretary of commerce
Promotes awareness of quality
Allows the business community to assess effective quality control programs
The Malcolm Baldrige National Quality Award was named for a former secretary of commerce to recognize U.S. companies that offer world-class quality goods and services. To qualify for this award, companies must offer quality goods and services, show continuous improvement in internal operations, and have leaders who participate in the quality process. 6

33. International Quality Standards
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Achieving World-Class Operations Management
ISO 14000
A set of technical standards to promote clean production processes to protect the environment.
ISO 9000
A set of five technical standards of quality management to provide a uniform way of determining whether manufacturing plants and service organizations conform to sound quality procedures.
The International Organization for Standardization, located in Belgium, is an industry organization that has developed standards of quality that are used by businesses around the world. ISO 9000 and ISO are two standards.
To register for ISO 9000, a company must go through an audit of its manufacturing and customer service processes, covering everything from how it designs, produces, and installs its products, to how it inspects, packages, and markets them.
To meet ISO standards, a company must commit to continually improving environmental management and reducing pollution resulting from its production processes. 6

34. Lean Manufacturing 6 lean manufacturing just-in-time (JIT)
Chapter 10
Achieving World-Class Operations Management
lean manufacturing
Streamlining production by eliminating steps in the production process that do not add benefits that customers are willing to pay for.
just-in-time (JIT)
A system in which materials arrive exactly when they are needed for production, rather than being stored on site.
Lean manufacturing techniques help a company respond to rapidly changing customer demands, while keeping inventory and production costs down.
A Japanese tool used in conjunction with lean manufacturing is called 5S. The five Ss are Sort, Set in Order, Shine, Standardize, and Sustain.
JIT goes hand in hand with lean manufacturing. Materials arrive exactly when they are needed. It requires computerized systems, such as MRP, MRPII, and ERP. 6

35. Technology and Automation
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Achieving World-Class Operations Management 7
What roles do technology and automation play in manufacturing and service industry operations management? 7

36. Technology and Automation
Chapter 10
Achieving World-Class Operations Management
Technology and Automation
Computer-aided design and manufacturing systems
Robotics
Flexible manufacturing systems
Computer-integrated manufacturing systems
Technology is helping many firms improve efficiency and competitiveness. Computer systems are enabling factory automation in ways never before possible.
CAD systems are used to design and test new products, and modify existing ones. CAM systems use computers to develop and control the production process. CAD/CAM systems combine the advantages of both by integrating design, testing, and manufacturing control into one linked computer system.
Robotics is the technology involved in designing, constructing, and operating computer-controlled machines that can perform tasks independently.
Flexible manufacturing systems are systems that combine automated workstations with computer-controlled transportation devices that move materials between workstations and in and out of the system.
Computer-integrated manufacturing combines computerized manufacturing processes (like robots and flexible manufacturing systems) with other computerized systems that control design, inventory, production, and purchasing.
© KIMIMASA MAYAMA / Bloomberg News / Landov 7

37. CONCEPT check
Chapter 10
Achieving World-Class Operations Management
Describe total quality management and the role that Six Sigma, ISO 9000, and ISO14000 play.
How can lean manufacturing and just-in-time inventory management help a firm improve its production and operations?
How are both manufacturing and nonmanufacturing firms using technology and automation to improve operations? 7

38. Trends in Production and Operations Management
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Achieving World-Class Operations Management
Trends in Production and Operations Management 8
What key trends are affecting the way companies manage production and operations? 8

39. Business Process Management
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Achieving World-Class Operations Management
Business Process Management
business process management (BPM)
A unified system that has the power to integrate and optimize a company’s sprawling functions by automating much of what it does. 8

40. CONCEPT check
Chapter 10
Achieving World-Class Operations Management
Describe the impact of the anticipated worker shortage on U.S. business.
How are today’s educational trends affecting the future of manufacturing?
What is business process management (BPM) and how do businesses use it to improve operations management? 8