1. Production and Operations Management10
Chapter
Production and Operations Management

2. Learning Objectives
LO 10.1 Explain the strategic importance of the production function.
LO 10.2 Identify and describe the four main categories of production processes.
LO 10.3 Explain the role of technology in the production process.
LO 10.4 Identify the factors involved in a plant location decision.
LO 10.5 Explain the major tasks of production and operations managers, and outline the three activities involved in carrying out the production plan.
LO 10.6 Identify the steps in the production control process.
LO 10.7 Discuss the importance of quality control.

3. Operations Management
Production and
Operations Management
Production: The use of resources, such as workers and machinery, to convert materials into finished goods and services
Production and operations management: The process of overseeing the production process by managing the people and machinery that convert materials and resources into finished goods and services
Producing and marketing desired goods and services is the key role of businesses. Production converts raw materials and other inputs into finished products (outputs). People often use the terms production and manufacturing interchangeably, but they are different. Production is used in both manufacturing and nonmanufacturing industries. The production process can result in a tangible good or an intangible service.

4. Typical Production Systems
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.
Class Activity: Lead a class discussion on the inputs, transformation process, and outputs of a college or university.

5. The Strategic Importance of Production
Production is a vital function necessary for generating money to pay employees, lenders, and stockholders.
Effective production and operations management can:
lower a firm’s costs of production.
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.
The production process (producing goods or services) is at the center of any firm. Effective production processes increase quality, meet customer demands, provide new products, and lower the cost of production.
Lecture Enhancer: Describe the production process for the Canadian Red Cross during a crisis.

6. Customer-Driven Production
Mass, Flexible, and
Customer-Driven Production
Mass production: A system for manufacturing products in large quantities by using effective combinations of employees with specialized skills, mechanization, and standardization
Flexible production is more cost-effective for producing smaller runs
Uses information technology, programmable equipment, and skilled people
Customer-driven production assesses customer demands in order to make the connection between products manufactured and products bought
Mass production makes outputs available in large quantities. 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. 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. Retail scanner data and information from sales drive production.
Lecture Enhancer: What companies use mass production?
Lecture Enhancer: What are the upsides and downsides of increasing the specialization of labour?

7. 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
the reverse of an analytic system; combines a number of raw materials or parts or transforms raw materials to produce finished products.
Continuous production process
generates finished products over a long period of time.
Intermittent production process
generates products in short production runs, shutting down machines frequently or changing their configurations to produce different products.
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. A synthetic production system is the reverse; it combines a number of raw materials. A continuous production process generates finished products over a lengthy period of time. An intermittent production process generates products in short production runs.
Class Activity: Ask students how the high costs of a shutdown in a continuous production process might lead to managers making poor or unethical decisions.

8. Technology and the Production Process
A robot is a reprogrammable machine capable of performing a variety of tasks that require the repeated manipulation of materials and tools.
Computer-aided design (CAD): Process used by engineers to design parts and entire products on the computer
Engineers who use CAD can work faster and with fewer mistakes than those who use traditional drafting systems.
Technology has dramatically changed production. Many manufacturing plants are now known as “lights out” facilities (completely automated plants without workers).Technology boosts efficiency and enhances flexibility. Robots were most common in automotive and electronics manufacturing, but are now being used in a variety of processes, including in police work to dispose of bombs. Computer-aided design allows engineers to design and test before building prototypes.
Lecture Enhancer: Name some industries that use robots in the assembly line process.

9. Technology and the Production Process
Computer-aided manufacturing (CAM): A computer tool that a manufacturer uses to analyze CAD output and the steps that a machine must take to produce a needed product or part
Flexible manufacturing system (FMS): A production facility that workers can quickly change to manufacture different products
Computer-integrated manufacturing (CIM): An integrated production system that uses computers to help workers design products, control machines, handle materials, and control the production function
Computer-aided manufacturing allows manufacturers to analyze the steps that a machine must take to produce a needed product or part.. Flexible manufacturing process steps are linked by electronic controls that direct activities at each stage of manufacturing., and has been enhanced by powerful new software and can be a valuable feature to a production process. Computer-integrated manufacturing uses a centralized computer system that can control the production process. The advantages of CIM include increased productivity,
decreased design costs, increased equipment utilization, and improved quality.
Lecture Enhancer: FMS is used by Toyota Motors and Honda to manufacture automobiles. What are the benefits of using FMS in this industry?

10. Test Your Knowledge
_________ is a production system in which computers help with the product design, control machines, handle materials, and oversee the production function in an integrated manner.
a. Computer-aided design (CAD)
b. Flexible manufacturing system (FMS)
c. Computer-aided manufacturing (CAM)
d. Computer-integrated manufacturing (CIM)

11. Test Your Knowledge
_________ is a production system in which computers help with the product design, control machines, handle materials, and oversee the production function in an integrated manner.
a. Computer-aided design (CAD)
b. Flexible manufacturing system (FMS)
c. Computer-aided manufacturing (CAM)
Computer-integrated manufacturing (CIM)
Answer: D

12. The Location Decision
The decision of where to locate a production facility impacts transportation, human resources, and physical factors. Location is a very important production decision. 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.
A recent trend in location strategy is bringing production facilities closer to the final markets where the goods will be sold. One reason is the reduced time and cost for shipping. Another
reason is a closer cultural relationship between the parent company and the supplier.
Lecture Enhancer: In your province, what labour skills might attract certain businesses?
Class Activity: Ask students what factors likely led to the decision to locate the automotive industry in Ontario.

13. The Job of Production Managers
Supervise 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. Part of the control process involves continuous evaluation of results. If problems occur, managers return to the first step and make adjustments. Planning the production process involves deciding what goods and services to offer. Determining the facility layout means selecting the best layout for the firm’s facilities. 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.
Lecture Enhancer: Which task is most important—planning, selecting, carrying out, or controlling? Why?
Class Activity: Ask students what personality traits and skills are needed to be an effective production manager.

14. Planning the Production Process
Choose what goods or services to offer customers.
Convert original product ideas into final specifications.
Design the most efficient facilities to produce those products.
In a traditional manufacturing organization, each production manager has a specific area of authority and responsibility.
Organization are moving towards team-oriented structures, where team members are assigned to specific projects, with all members reporting to the production manager.
The planning process is the first step in designing the production process. Managers must think about the products and services that will be produced and convert these ideas into final specifications. Products must satisfy customers and be produced as efficiently and inexpensively as possible. Market research is used to gather consumer reactions to proposed products. It is also used to estimate potential sales and profitability.

15. Selecting the Facility Layout
Process layout groups machinery and equipment according to their functions.
Facilitates production of a variety of nonstandard items in relatively small batches.
In the process layout, the work in process moves around the plant to reach different workstations. Its purpose is to process goods and services that have a variety of functions.
Lecture Enhancer: Think of a local business and its layout. If the business adds new products or services, how might its layout change?

16. Selecting the Facility 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.

17. Selecting the Facility Layout
A fixed-position layout places the product in one spot, and workers, materials, and equipment come to it.
Fixed-position layouts suit very large, bulky, heavy, or fragile products, and are most common in industries like construction, shipbuilding, aircraft and aerospace, and oil drilling.
Lecture Enhancer: Provide local examples of businesses that use fixed-position layouts.

18. Selecting the Facility Layout
Customer-oriented layout arranges facilities to enhance the interactions between customers and its services.
Service organizations must decide appropriate layouts for their production processes. Banks, libraries and universities use a form of process layout, but high-interaction processes in the service industry are commonly called customer-oriented layouts.
Class Activity: Ask students what type of a layout is used in Apple stores.

19. Test Your Knowledge Biotech firms would probably want to locate
a. near shipping facilities.
b. in remote, low-cost counties where land is inexpensive.
c. close to raw materials.
d. near a reliable source of highly trained researchers.

20. Test Your Knowledge Biotech firms would probably want to locate
a. near shipping facilities.
b. in remote, low-cost counties where land is inexpensive.
c. close to raw materials.
d. near a reliable source of highly trained researchers.
Answer: D

21. Carrying Out the Production Plan
Make, buy, or lease decision: Choosing whether to manufacture part in-house, buy it from an outside supplier, or lease it
Factors in the decision include cost, availability of reliable outside suppliers, duration of the firm’s supply needs, and the need for confidentiality.
Selection of suppliers
Based on comparison of quality, prices, dependability of delivery, and services offered by competing companies.
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. When selecting suppliers, it is important to think about quality, prices, and delivery. Production managers should keep a relationship going with other supply sources. Having an alternative supplier means that the firm can get the materials it needs even during strikes or when quality-assurance problems or other situations affect the inputs.
Class Activity: Discuss the benefits and risks of long-term, multiple-year supplier contracts.

22. Inventory Control
Inventory control: A function that balances the costs of carrying inventory with the need to have stock on hand to meet demand
Perpetual inventory
Vendor-managed inventory
Just-in-time (JIT) system: A broad management philosophy that reaches beyond the narrow activity of inventory control to influence the entire system of production and operations management
Materials requirement planning (MRP): A computer-based production planning system that ensures a firm has all the parts and materials it needs to produce its output at the right time and place and in the right amounts.
Inventory control is an important part of a production process. Materials can be costly to order, warehouse, and manage. Several costs are involved in storing inventory: warehousing costs, taxes, insurance, and maintenance.
Computerized perpetual inventory systems continuously monitor the amounts and locations of stocks. With vendor-managed inventory, inventory control functions are handed over to suppliers.
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. JIT systems are used in a wide range of industries, including the medical supplies field.
Materials requirement planning aids in managing the purchase and planning of materials required for production. Production managers use MRP programs to create schedules that list the exact quantities of the specific parts and materials needed to produce an item, as well as the dates to order from suppliers.
Class Activity: Storing too much inventory can lead to costs related to warehousing, taxes, insurance, and maintenance. Lead a class discussion to identify other costs associated with storing too much inventory.

23. Controlling the Production Process
Production control: Creating well-defined procedures for coordinating people, materials, and machinery to provide the greatest production efficiency
Production planning determines the amount of resources an organization needs to produce a certain output. Routing determines the sequence of work. Routing choices depend on two factors: the nature of the good or service and the facility layout.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: How does an unexpected increase in product demand affect human resources?

24. Sample Gantt Chart
Production managers use a variety of tools to schedule work. Gantt Charts track projected and actual work. Gantt charts are more effective for scheduling relatively simple projects.

25. Sample PERT Diagram
PERT (Program Evaluation and Review Technique) 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.

26. Importance of Quality
Quality: The state of being free of deficiencies or imperfections
Poor quality can account for a 20 percent loss in revenue.
Benchmarking: The process of looking at how well other companies perform business functions or tasks and using their performance as a standard for measuring another company’s performance
Quality control: Measuring output against against quality standards
Many companies evaluate quality using the Six Sigma concept.
A company tries to make error-free products % of the time, allowing only 3.4 errors per million opportunities.
Quality is the goal of a good production process. The lack of quality can cost a company revenue. Many companies use benchmarking to measure and control quality. Quality control standards should be set high enough to meet customer expectations. Six Sigma is a concept used by many large organizations to reduce the defects in output, processes, and transactions.
Lecture Enhancer: How might the a traditional bakery’s standards for cake quality differ from the standards of a bakery that specializes in wedding cakes?
Class Activity: Ask students what types of companies a hospital might benchmark to improve the process of checking in patients.

27. ISO Standards
International Organization for Standardization (ISO): An international organization whose mission is to develop and promote international standards for business, government, and society
Aim is to improve and encourage global trade and cooperation.
Started in 1947; representatives from 163 nations.
ISO is a series of standards that sets requirements for quality processes.
ISO series sets standards for operations that minimize harm to the environment.
ISO is a set of global quality standards. The Standards Council of Canada (SCC) is the Canadian member body, and the American National Standards Institute is the U.S. member. Canadian firms typically deal with both bodies.
The ISO 9000 standards help organizations to ensure that their products and services are of high quality and provide a basis for continual improvement. The ISO standards
for environmental management help organizations to ensure that their operations cause as little harm as possible to the environment and continually improve their environmental performance. Many organizations report significant benefits from using ISO ’s management system standards, such as increased efficiency, better teamwork, improved customer satisfaction, and reduced consumption of resources.
The link takes you to the ISO organization website.
Lecture Enhancer: What benefits does a global manufacturer gain when it uses ISO-certified suppliers?

28. Test Your Knowledge Research shows that ISO 9000 certification
a. enhances a company’s competitiveness and leads to improved business performance.
b. minimizes harm to the environment.
c. creates barriers to entry in industries.
d. encourages trade disputes between international competitors.

29. Test Your Knowledge Research shows that ISO 9000 certification
a. enhances a company’s competitiveness and leads to improved business performance.
b. minimizes harm to the environment.
c. creates barriers to entry in industries.
d. encourages trade disputes between international competitors.
Answer: A