1. Chapter 12Copyright © 2010 by Nelson Education Ltd. Operations Management and Control Systems 12 PowerPoint Presentation by Ian Anderson, Algonquin College

2. Chapter 12Copyright © 2010 by Nelson Education Ltd. Looking Ahead After studying this chapter, you should be able to: 1. Discuss the nature of the operations process for both products and services. 2.Describe the need for management control systems. 3.Explain the key elements of total quality management (TQM) programs. 4.Explain how reengineering and other methods of work improvement can increase productivity and make a firm more competitive. 5.Discuss the importance of purchasing and the nature of key purchasing policies. 6.Describe ways to control inventory and minimize inventory costs. 12-2

3. Chapter 12Copyright © 2010 by Nelson Education Ltd. The Operations Process The Nature of the Operations Process –Operations management The planning and control of the operations process –The activities that produce a firm’s goods and services Involves acquiring inputs and overseeing their transformation in products and services 12-3

4. Chapter 12Copyright © 2010 by Nelson Education Ltd. The Operations Process Inputs Operations Outputs DesigningProcessingTreatingStoringAdvising FabricatingRefiningAssemblingShippingInstructing Clothing Baked goods Paint Dry cleaning Appliance repair Automobile painting Products Services Money Labour EquipmentInformationEnergy Raw Materials Examples: Exhibit 12-1

5. Chapter 12Copyright © 2010 by Nelson Education Ltd. Manufacturing versus Service Manufacturing Versus Service Operations –Productivity is more easily measured in manufacturing than service operations –Quality is more difficult to establish in service than manufacturing operations. –Customers are more involved in service than manufacturing operations. –Manufacturing can produce goods for inventory; service operations cannot store or bank services. 12-5

6. Chapter 12Copyright © 2010 by Nelson Education Ltd. Types of Manufacturing Job Shops –Operations characterized by short production runs of small quantities of unique items. Repetitive Manufacturing –Operations in which long production runs are used to produce a large quantity of a standardized product. Batch Manufacturing –An intermediate form involving more variety in volume and products than job shops and less than repetitive manufacturing. 12-6

7. Chapter 12Copyright © 2010 by Nelson Education Ltd. Planning and Scheduling and Maintenance Operations Planning and Scheduling –Attempting to achieve the orderly, sequential flow of products to market. Production operations Service operations Plant Maintenance –The role of maintenance To correct equipment malfunctions and prevent breakdowns –Types of maintenance Preventive maintenance Corrective maintenance 12-7

8. Chapter 12Copyright © 2010 by Nelson Education Ltd. The Control Cycle Control Cycle –A period of time over which an activity is planned, measured, corrected, and re-planned Variance –The difference between planned forecast activity and actual activity Critical questions –What, how and how often to measure? –What is unacceptable variance and how to correct? 12-8

9. Chapter 12Copyright © 2010 by Nelson Education Ltd. The Control Cycle Illustrated Exhibit 12-2 12-9

10. Chapter 12Copyright © 2010 by Nelson Education Ltd. Successful Quality Management Supportive Organizational Culture Appropriate Tools and Techniques Focus on Customers Essential Elements of Successful Quality Management

11. Chapter 12Copyright © 2010 by Nelson Education Ltd. Total Quality Management and Quality Goals of Operations Management Total Quality Management (TQM) –An aggressive, all-encompassing management approach to providing high-quality products and services. Quality –The features of a product or service that enable it to satisfy customers’ needs. –A perception of the customer as to the suitability of the product or service of a firm. 12-11

12. Chapter 12Copyright © 2010 by Nelson Education Ltd. Customer Focus on Quality Management Customer Expectations –Quality is the extent to which a product or service satisfies customer’s needs and expectations. Product quality Service quality Product and service quality combinations –“ The customer is the focal point of quality efforts.” Customer Feedback –Customers are the eyes and ears of the business for quality matters. 12-12

13. Chapter 12Copyright © 2010 by Nelson Education Ltd. Benchmarking and TQM Benchmarking –The process of studying the products, services, and practices of other firms and using the insights gained to improve quality internally. –Identify best practices, understand them, and use the insights gained to improve one’s operations Continuous Quality Improvement –A constant and dedicated effort to improve quality. 12-13

14. Chapter 12Copyright © 2010 by Nelson Education Ltd. Tools and Techniques of TQM Employee Participation –Employee performance is a critical quality variable. –Quality circle A group of employees who meet regularly to discuss quality-related problems. 12-14

15. Chapter 12Copyright © 2010 by Nelson Education Ltd. Tools and Techniques of TQM The Inspection Process –The examination of a product to determine whether it meets quality standards. –Inspection standard A specification of a desired quality level and allowable tolerances. –Attribute inspection The determination of product acceptability based on whether it will or will not work. –Variable inspection The determination of product acceptability based on a variable such as weight or length. 12-15

16. Chapter 12Copyright © 2010 by Nelson Education Ltd. Statistical Methods of Quality Control Acceptance Sampling –The use of a random, representative portion to determine the acceptability of an entire lot. Statistical Process Control –The use of statistical methods to assess quality during the operations process. Control Chart –A graphic illustration of the limits used in statistical process control. 12-16

17. Chapter 12Copyright © 2010 by Nelson Education Ltd. International Certification for Quality Management ISO 9000 –The standards governing international certification of a firm’s quality management procedures. –QM variables include customer focus, leadership and continual improvement ISO 14000 –A set of generic management standards for responsible environmental management. 12-17

18. Chapter 12Copyright © 2010 by Nelson Education Ltd. Quality Management in Service Businesses Six factors positively influence customers’ perception of service quality 1.Being on target 2.Care and Concern 3.Spontaneity 4.Problem Solving 5.Follow up 6.Recovery 12-18

19. Chapter 12Copyright © 2010 by Nelson Education Ltd. Competitive Strength Through Improved Productivity The Importance of Improving Productivity –Productivity is the efficiency with which inputs are transformed into outputs. –Productivity is more difficult to increase in service industries than in manufacturing sectors. …continued 12-19

20. Chapter 12Copyright © 2010 by Nelson Education Ltd. Competitive Strength Through Improved Productivity Reengineering for Improved Productivity –Reengineering A fundamental restructuring to improve the operations process. Asking “Why?” is important in the reengineering process. …continued 12-20

21. Chapter 12Copyright © 2010 by Nelson Education Ltd. Avoid Failure in Process Improvement Be customer focused Phase in improvements Involve the employees Divide the project up Communicate 12-21

22. Chapter 12Copyright © 2010 by Nelson Education Ltd. Lean Manufacturing Three-pronged approach to: 1.Eliminate waste 2.Ensure quality 3.Involve employees in designing and managing their work Key principles: –Define value from the customer’s perspective –Identify and map the value stream –Reduce or eliminate waste or improve flow 12-22

23. Chapter 12Copyright © 2010 by Nelson Education Ltd. Reducing or Eliminating Waste Stop overproduction for building inventory Prevent unnecessary use/storage of raw materials Streamline transportation Optimize motion and actions of personnel Reduce waiting and idle time in process Reduce or eliminate defects Reduce steps/features not valued by customers 12-23

24. Chapter 12Copyright © 2010 by Nelson Education Ltd. Benefits of “Being Lean” Culture of continuous improvement Decreasing manufacturing cycle times Reducing waste Empowering employees Increasing profits and cash flow Increasing production capacity Increasing customer satisfaction Reducing costs 12-24

25. Chapter 12Copyright © 2010 by Nelson Education Ltd. Operations Analysis –Laws of motion economy Arranging work in the most cost-effective and efficient manner possible. Methods of Work Measurement –Motion Study An analysis of all the motions a worker makes to complete a given job. –Time Study A determination of the average time, it takes to complete Work Improvement 12-25

26. Chapter 12Copyright © 2010 by Nelson Education Ltd. Purchasing Policies and Practices Purchasing –The process of obtaining materials, equipment, and services from outside. The Importance of Purchasing –The process of acquiring quality raw material inputs affects: The timely and consistent production of quality products. Retailer sales of finished products to customers. The costs of products, their profitability and their selling prices. 12-26

27. Chapter 12Copyright © 2010 by Nelson Education Ltd. Make or Buy Decisions Purchasing Practices and Profitability –Making or buying A firm’s choice between producing and purchasing component parts for its products. –Reasons for making: Increased utilization of plant capacity Assurance of supply of critical components Maintaining secrecy in designs and processes Saving on transportation costs and supplier profits Closer coordination and control of overall process Higher quality components for inputs 12-27

28. Chapter 12Copyright © 2010 by Nelson Education Ltd. Outsourcing and Reasons for Buying Purchasing Practices and Profitability –Outsourcing Purchasing products or services that are outside the firm’s area of competitive advantage. –Reasons for Buying Supplier’s part/service is cheaper and/or higher quality Investment savings on space, personnel, equipment Greater flexibility in matching supply and demand Increased focus on production of core product/service No risk of equipment obsolescence 12-28

29. Chapter 12Copyright © 2010 by Nelson Education Ltd. Sources of Supply Diversifying sources of supply –Reasons for having a sole supplier Outstanding supplier quality Quantity discounts for volume purchases Single orders too small to divide among suppliers Quality of supplier-customer relationship –Reasons for having multiple suppliers Choice of best quality, price, and service Supplier competes for business Insurance against input interruptions 12-29

30. Chapter 12Copyright © 2010 by Nelson Education Ltd. Relationships with Suppliers Relationships with suppliers –Selecting suppliers Price and quality Location and delivery reliability Services offered—credit, product support, promotion Building good relationships with suppliers –Purchasing practices Pay bills promptly Be courteous to sales representatives Avoid abrupt cancellations of orders Maintain a professional relationship EDI 12-30

31. Chapter 12Copyright © 2010 by Nelson Education Ltd. Strategic Alliances Developing Strategic Alliances –Strategic alliance is an organizational relationship that links two independent business entities in a common endeavour. Involves close coordination of buyers and sellers to: Reduce product introduction lead time Improve product quality Engage in joint problem solving Make joint adjustments to market conditions Involve the supplier early in product development 12-31

32. Chapter 12Copyright © 2010 by Nelson Education Ltd. Inventory Management and Operations Inventory Cost Control –Economic order quantity (EOQ) The quantity to purchase in order to minimize total inventory costs. Total inventory costs Total ordering costs Total carrying costs =+ 12-32

33. Chapter 12Copyright © 2010 by Nelson Education Ltd. Graphic Portrayal of the Economic Order Quantity EOQ Total Costs Ordering Costs Carrying Costs Order Quantity (Units) Cost ($) Exhibit 12-3

34. Chapter 12Copyright © 2010 by Nelson Education Ltd. Inventory Management and Operations ABC Inventory Analysis –A system of classifying items in inventory by relative value –Category A (close/continuous control) High-value or critical production component items –Category B (moderate control) Less costly, secondary importance items –Category C (periodic control) Low-cost and noncritical items …continued 12-34

35. Chapter 12Copyright © 2010 by Nelson Education Ltd. Inventory Management and Operations Just-In-Time Inventory (JIT) System, also Kanban –A method of reducing inventory level to an absolute minimum. New items arrive at the same time that the last inventory item is placed in service –JIT promotes: Closer coordination with suppliers Consistent quality production Lower safety stock levels …continued 12-35

36. Chapter 12Copyright © 2010 by Nelson Education Ltd. Inventory Management and Operations Inventory Record-Keeping Systems –Physical inventory system A method that provides for periodic counting of items in inventory –Cycle counting A system of counting different segments of the physical inventory at different times during the year. –Perpetual inventory A method for keeping a running record of inventory. 12-36