1. PowerPoint Presentation by Charlie Cook The University of West Alabama Chapter 14 5e Part V: Controlling Copyright © 2011 Cengage Learning. All rights reserved. Operations, Quality, and Productivity

2. Copyright © 2011 Cengage Learning. All rights reserved.14–2 Learning Outcomes 1. 1.Describe time-based competition and why it is important. 2. 2.Explain the differences among operations systems with respect to tangibility of products, levels of customer involvement, operations flexibility, and management of resources and technology. 3. 3.Discuss what is meant by “quality is a virtue of design.” 4. 4.Explain product, process, cellular, and fixed-position facility layouts in terms of their level of customer involvement and flexibility. 5. 5.Describe the similarities and differences among the planning sheet, Gantt chart, and PERT network. 6. 6.Explain the relationship among inventory control, just-in-time (JIT) inventory, and materials requirement planning (MRP). After studying this chapter, you should be able to:

3. Copyright © 2011 Cengage Learning. All rights reserved.14–3 Learning Outcomes (cont’d) 7. 7.Explain how statistical process control (SPC) charts and the exception principle are used in quality control. 8. 8.Describe how to measure productivity and list three ways to increase it. 9. 9.Define the key terms listed at the end of the chapter. After studying this chapter, you should be able to:

4. Copyright © 2011 Cengage Learning. All rights reserved.14–4 IDEAS ON MANAGEMENT IDEAS ON MANAGEMENT at Frito Lay 1. 1.How would Frito-Lay’s operations systems be classified? 2. 2.How would Frito-Lay’s operations systems be described in terms of design? 3. 3.How does Frito-Lay manage its operations systems and supply chain? 4. 4.How does Frito-Lay control quality? 5. 5.What are Frito-Lay’s three top-selling products in the United States, and are its performance and productivity improving?

5. Copyright © 2011 Cengage Learning. All rights reserved.14–5 Time-Based Competition and Operations Time-Based CompetitionTime-Based Competition  The use of strategies to increase the speed with which an organization goes from creativity to delivery.  Throughput Time: the time an organization takes to turn a creative idea into an innovation, sell it, and deliver it. OperationsOperations  The function concerned with transforming resource inputs into product outputs. ProductsProducts  A good, a service, or a combination of the two.

6. Copyright © 2011 Cengage Learning. All rights reserved.14–6 Exhibit 14–1 ●How Operations Systems Are Classified, Designed, and Managed

7. Copyright © 2011 Cengage Learning. All rights reserved.14–7 Classifying Operations Systems Tangibility of ProductsTangibility of Products  Tangible: goods (computers)  Intangible: services (dry cleaning)  Mixed: goods and services (airlines)

8. Copyright © 2011 Cengage Learning. All rights reserved.14–8 Classifying Operations Systems (cont’d) Level of Customer InvolvementLevel of Customer Involvement  Make-to-stock (MTS)  Producing products with a common design and price in anticipation of demand; low customer involvement.  Assemble-to-order (ATO)  Producing a standard product with some customized features; moderate customer involvement.  Make-to-order (MTO)  Producing products after receipt of an order from a specific customer; high customer involvement.

9. Copyright © 2011 Cengage Learning. All rights reserved.14–9

10. Copyright © 2011 Cengage Learning. All rights reserved.14–10 Flexibility Operations FlexibilityOperations Flexibility  The amount of variety in the products an operation produces, which determines whether the products are produced continuously, repetitively, in batches, or individually in different volumes (amounts) and varieties (types).  Continuous process operations (CPO)  Produce outputs that are not in discrete units.  Repetitive process operations (RPO)  Produce outputs in an assembly-line-type structure.  Batch process operations (BPO)  Produce different outputs with the same resources.

11. Copyright © 2011 Cengage Learning. All rights reserved.14–11 Flexibility (cont’d) Operations Flexibility (cont’d)Operations Flexibility (cont’d)  Individual process operations (IPO)  Produce output to customer specifications.  Project process operations (PPO)  Produce low-volume/high-variety outputs that take a relatively long time to complete.

12. Copyright © 2011 Cengage Learning. All rights reserved.14–12

13. Copyright © 2011 Cengage Learning. All rights reserved.14–13 Managing Manufacturing Technology AutomationAutomation  Using machines to perform work Computer-Assisted ManufacturingComputer-Assisted Manufacturing  Computer-aided design (CAD)  Computer-aided manufacturing (CAM)  Computer-integrated manufacturing (CIM)

14. Copyright © 2011 Cengage Learning. All rights reserved.14–14 Exhibit 14–2 ●Classifying Operating Systems

15. Copyright © 2011 Cengage Learning. All rights reserved.14–15 Designing Operations Systems Product MixProduct Mix  The number of product lines, the number of products in each line, and the mixture of goods and services within each line. Product DesignProduct Design  New or improved product development. Quality As a Virtue of DesignQuality As a Virtue of Design  Products designed with cross-functional team input have fewer operations (manufacturing) problems.

16. Copyright © 2011 Cengage Learning. All rights reserved.14–16 Exhibit 14–3 ●Throughput Stages

17. Copyright © 2011 Cengage Learning. All rights reserved.14–17 Facility Layout FacilitiesFacilities  The physical resources used in the operations process (e.g., machines, furniture, etc.). Facility LayoutFacility Layout  The spatial arrangement of physical resources relative to each other by:  Product layout  Process layout  Cellular layout  Fixed-position layout

18. Copyright © 2011 Cengage Learning. All rights reserved.14–18 Exhibit 14–4 ●Facility Layout

19. Copyright © 2011 Cengage Learning. All rights reserved.14–19 Exhibit 14–4 ●Facility Layout (cont’d)

20. Copyright © 2011 Cengage Learning. All rights reserved.14–20

21. Copyright © 2011 Cengage Learning. All rights reserved.14–21 Facility Location LocationLocation  The physical geographic site of facilities Location FactorsLocation Factors  Cost  Proximity to Inputs, Customers, and/or Competitors  Transportation  Access to Human Resources  Number of Facilities

22. Copyright © 2011 Cengage Learning. All rights reserved.14–22 Join the Discussion Ethics & Social Responsibility Factory ConditionsFactory Conditions 1. Is it ethical and socially responsible for Gap to revoke contracts, causing poor workers to lose their jobs? 2. Is it ethical and socially responsible to Gap’s stockholders to pay higher labor costs than necessary, thus reducing profits and their dividends?

23. Copyright © 2011 Cengage Learning. All rights reserved.14–23 Capacity Planning CapacityCapacity  The amount of products an organization can produce within a given time period (daily, weekly, monthly, annually).

24. Copyright © 2011 Cengage Learning. All rights reserved.14–24 Join the Discussion Ethics & Social Responsibility Oil ReservesOil Reserves 1. Do you think Shell made an honest mistake, or did it intentionally overstate its reserves? 2. What implications does this overstatement have for Shell’s capacity planning?

25. Copyright © 2011 Cengage Learning. All rights reserved.14–25 Managing Operations Systems and the Supply Chain Planning Schedules and Project ManagementPlanning Schedules and Project Management  Scheduling  Routing  Priority Scheduling  First come-first served  Earliest due date  Shortest operating time  Combination

26. Copyright © 2011 Cengage Learning. All rights reserved.14–26 Managing Operations Systems Planning SheetPlanning Sheet  State an objective and list the sequence of activities required to meet the objective, when each activity will begin and end, and who will complete each activity. Gantt ChartGantt Chart  Uses bars to illustrate a schedule and progress toward the objective over a period of time.  Is useful as both a planning and a control tool. Performance Evaluation and Review TechniquePerformance Evaluation and Review Technique  PERT–a network schedule that illustrates the dependence of activities.

27. Copyright © 2011 Cengage Learning. All rights reserved.14–27 Exhibit 14–5 ●Planning Sheet

28. Copyright © 2011 Cengage Learning. All rights reserved.14–28 Exhibit 14–6 ●Gantt Chart (Orders by Week) * Indicates today’s date—the first day of the third week of May. Ends of bars indicate scheduled starting and ending dates of project. The shaded part of the bar indicates the part of the project completed to date, while the blank space to the end of the bar indicates work still to be completed. The GE project is done. The IBM project is right on schedule and should be completed this week. The GM project is behind schedule and should be completed during the fourth week in May. The AT&T project is ahead of schedule and should be completed during the first week of June.

29. Copyright © 2011 Cengage Learning. All rights reserved.14–29 Developing a PERT Network 1.List all the activities/events that must be completed to reach the specific objective. 2.Determine the time it will take to complete each activity/event. 3.Arrange the tasks on the diagram in the sequence in which they must be completed. 4.Determine the critical path.

30. Copyright © 2011 Cengage Learning. All rights reserved.14–30 Exhibit 14–7 ●PERT Network

31. Copyright © 2011 Cengage Learning. All rights reserved.14–31

32. Copyright © 2011 Cengage Learning. All rights reserved.14–32 Exhibit 14–8 ●Inventory Control within the Systems Process Just-in-Time Inventory: An inventory control method in which necessary parts and raw materials are delivered shortly before they are needed.

33. Copyright © 2011 Cengage Learning. All rights reserved.14–33 Materials Requirements Planning Materials Requirements Planning (MRP)Materials Requirements Planning (MRP)  A system that integrates operations and inventory control with complex ordering and scheduling. Enterprise Resource Planning (ERP)Enterprise Resource Planning (ERP)  Collects, processes, and provides information about a firm’s entire enterprise.

34. Copyright © 2011 Cengage Learning. All rights reserved.14–34 Materials Requirements Planning (cont’d) Economic Order Quantity (EOQ)Economic Order Quantity (EOQ)  The optimal quantity of a product to order, determined on the basis of a mathematical model. EOQ example:EOQ example:

35. Copyright © 2011 Cengage Learning. All rights reserved.14–35 Supply Chain Management Supply Chain ManagementSupply Chain Management  The process of coordinating all activities involved in producing a product and delivering it to the customer.  To provide high-quality products at lowest cost:  Forecast demand for a product  Plan and manage supply and demand  Acquire materials (inputs)  Schedule and produce the product  Warehouse  Control inventory  Distribute the product  Deliver the product  Customer service

36. Inventory Control Technology Radio-Frequency Identification (RFID) TagsRadio-Frequency Identification (RFID) Tags  An object that can be stuck on or incorporated into a product, animal, or person for the purpose of identification using radiowaves. Benefits of RFIDBenefits of RFID  Improved efficiency of inventory tracking and management:  Reduction of labor costs  Simplification of business processes  Reduction of inventory inaccuracies Copyright © 2011 Cengage Learning. All rights reserved.~–36

37. Copyright © 2011 Cengage Learning. All rights reserved.14–37 Supply Chain Performance Supply Chain Performance (Responsiveness and Efficiency) Information Operations Inventory Transportation

38. Copyright © 2011 Cengage Learning. All rights reserved.14–38 Quality Control Quality ControlQuality Control  The process of ensuring that all four types of inventory meet standards. Quality AssuranceQuality Assurance  Means “building in” quality; not attempting to “inspect it in.” International Standards Organization (ISO)International Standards Organization (ISO)  Certifies organizations that meet set quality standards (ISO9000). Six SigmaSix Sigma  Higher levels of quality at lower costs.

39. Copyright © 2011 Cengage Learning. All rights reserved.14–39 Total Quality Management (TQM) TQM principlesTQM principles 1. Focus on delivering customer value 2. Continually improve systems and processes 3. Focus on managing processes rather than people 4. Use teams to continually improve TQM vs. Quality ControlTQM vs. Quality Control  TQM is broader in organizational scope.  Quality is determined by customers’ acceptance, not by internally-set standards.  Focus is on continuous improvement

40. Copyright © 2011 Cengage Learning. All rights reserved.14–40 Exhibit 14–9 ●Five Rules of Customer Human Relations

41. Copyright © 2011 Cengage Learning. All rights reserved.14–41 Join the Discussion Ethics & Social Responsibility Social Accountability InternationalSocial Accountability International 1. Should global multinationals eliminate sweatshops by having SA8000-certified facilities? 2. Should global multinationals require all their suppliers to get SA8000 certification? 3. How might working toward SA8000 certification affect cost, revenues, and profits?

42. Copyright © 2011 Cengage Learning. All rights reserved.14–42 Statistical Quality Control Statistical Quality Control (SPC)Statistical Quality Control (SPC)  A process control method that uses statistical tests of probability in determining if product quality is within the acceptable range.

43. Copyright © 2011 Cengage Learning. All rights reserved.14–43 Statistical Quality Control Steps 1.Set a range that includes the highest and lowest levels of acceptable quality, with the desired standard in the middle. 2.Determine the sampling technique and the frequency of measuring performance. 3.Measure performance and plot it on an SPC chart. 4.Use the exception principle and do nothing if performance is within range, but take action if it is out of control limits.

44. Copyright © 2011 Cengage Learning. All rights reserved.14–44 Exhibit 14–10 ●Statistical Process Control Chart for 16-Ounce Bags of Lay’s Potato Chips Trend

45. Copyright © 2011 Cengage Learning. All rights reserved.14–45 Contributions By Quality Gurus Walter ShewhartWalter Shewhart  Introduced concurrent controls in manufacturing W. Edwards DemingW. Edwards Deming  Linked improved quality to improved productivity  Deming Prize Joseph M. JuranJoseph M. Juran  Developed the Pareto principle (80/20 rule) Armand V. FeigenbaumArmand V. Feigenbaum  Advocated TQM to cut costs and improve quality Philip B. CrosbyPhilip B. Crosby  “Quality is free” versus the costs of poor quality Genichi TaguchiGenichi Taguchi  Advocated designing quality into each product Steven KerrSteven Kerr  “You get what you reward ”

46. Copyright © 2011 Cengage Learning. All rights reserved.14–46 Productivity ProductivityProductivity  A performance measure relating outputs to inputs.  Units produced, labor hours per unit, number of workers, cost of labor, cost of material, machine hours, etc. Measuring ProductivityMeasuring Productivity 1. Select a base period of time. 2. Determine outputs for time period. 3. Determine cost of inputs. 4. Divide the number of outputs by the inputs to determine the productivity rate.

47. Copyright © 2011 Cengage Learning. All rights reserved.14–47 Productivity (cont’d) Production versus ProductivityProduction versus Productivity  It is possible to increase production but decrease productivity.  It is important to calculate productivity rather than just production output. If you measure only output production and it increases you can be fooled into thinking you are doing a better job when in reality you are doing a worse job.

48. Copyright © 2011 Cengage Learning. All rights reserved.14–48 Productivity (cont’d) Calculating Productivity Percentage ChangeCalculating Productivity Percentage Change  Determine productivity rate for the base period.  Determine productivity rate for the current period.  Subtract the base rate from the current rate.  If the difference is positive, productivity has increased; if negative, productivity has decreased.  Divide the difference by the current rate to calculate the percentage of change.

49. Copyright © 2011 Cengage Learning. All rights reserved.14–49

50. Copyright © 2011 Cengage Learning. All rights reserved.14–50 Productivity (cont’d) Ways to Increase Productivity:Ways to Increase Productivity:  Increase the value of the outputs but maintain the value of the inputs  (↑ O ↔ I)  Maintain the value of the outputs but decrease the value of the inputs  (↔ O ↓ I)  Increase the value of the outputs but decrease the value of the inputs  (↑ O ↓ I)

51. Copyright © 2011 Cengage Learning. All rights reserved.14–51 Exhibit 14–11 ●Functional Area Ratios

52. Copyright © 2011 Cengage Learning. All rights reserved.14–52 Exhibit 14–11 ●Functional Area Ratios (cont’d)

53. Copyright © 2011 Cengage Learning. All rights reserved.14–53

54. Copyright © 2011 Cengage Learning. All rights reserved.14–54 Exhibit 14–12 The Balanced Scorecard

55. Copyright © 2011 Cengage Learning. All rights reserved.14–55 Exhibit 14–13 ●Futura Industries’ Balanced Scorecard

56. Copyright © 2011 Cengage Learning. All rights reserved.14–56 KEY TERMS balanced scorecard (BSC)balanced scorecard (BSC) capacitycapacity critical pathcritical path customer involvementcustomer involvement facility layoutfacility layout Gantt chartGantt chart International Standards Organization (ISO)International Standards Organization (ISO) inventoryinventory inventory controlinventory control just-in-time (JIT) inventoryjust-in-time (JIT) inventory materials requirement planning (MRP)materials requirement planning (MRP) operationsoperations operations flexibilityoperations flexibility PERTPERT planning sheetplanning sheet priority schedulingpriority scheduling productproduct productivityproductivity quality controlquality control routingrouting statistical process control (SPC)statistical process control (SPC) supply chain managementsupply chain management technologytechnology time-based competitiontime-based competition