1. Copyright © 2003 by South-Western. All Rights Reserved. CHAPTER TWELVE CREATING AND PRODUCING WORLD-CLASS GOODS AND SERVICES Text by Profs. Gene Boone & David Kurtz Multimedia Presentation by Prof. Milton Pressley The University of New Orleans milton.pressley@uno.edu

2. Copyright © 2003 by South-Western. All Rights Reserved. Outline the importance of production and operations management Outline the importance of production and operations management Explain the roles of computers and related technologies in production Explain the roles of computers and related technologies in production Identify the factors involved in a plant location decision Identify the factors involved in a plant location decision Identifying briefly explain the major tasks of production and operations managers Identifying briefly explain the major tasks of production and operations managers LEARNING GOALS

3. Copyright © 2003 by South-Western. All Rights Reserved. Compare the alternative layouts for production facilities Compare the alternative layouts for production facilities List the steps in the purchasing process List the steps in the purchasing process Compare the advantages and disadvantages of maintaining large inventories Compare the advantages and disadvantages of maintaining large inventories Identify the steps in the production- control process Identify the steps in the production- control process Explain the benefits of quality control Explain the benefits of quality control LEARNING GOALS

4. Copyright © 2003 by South-Western. All Rights Reserved. © PhotoDisc CHAPTER OVERVIEW Businesses can create or enhance four basic kinds of utility: time, place, ownership, and form Businesses can create or enhance four basic kinds of utility: time, place, ownership, and form Marketing creates time, place, and ownership utility Marketing creates time, place, and ownership utility Production creates form utility Production creates form utility

5. Copyright © 2003 by South-Western. All Rights Reserved. © PhotoDisc CHAPTER OVERVIEW Production: application of resources such as people and machinery to convert materials into finished goods or services Production: application of resources such as people and machinery to convert materials into finished goods or services Production and operations management: managing people and machinery in converting materials and resources into finished goods and services Production and operations management: managing people and machinery in converting materials and resources into finished goods and services

6. Copyright © 2003 by South-Western. All Rights Reserved. Figure 12.1 The Production Process: Converting Inputs to Outputs

7. Copyright © 2003 by South-Western. All Rights Reserved. Figure 12.2 Typical Production Systems

8. Copyright © 2003 by South-Western. All Rights Reserved. © PhotoDisc CHAPTER OVERVIEW Describes the process of producing goods and services Describes the process of producing goods and services Looks at the importance of production and operations management Looks at the importance of production and operations management Discusses new technologies that are transforming the production process Discusses new technologies that are transforming the production process Discusses the tasks of the production and operations manager, the importance of quality, and methods businesses use to insure high-quality Discusses the tasks of the production and operations manager, the importance of quality, and methods businesses use to insure high-quality

9. Copyright © 2003 by South-Western. All Rights Reserved. STRATEGIC IMPORTANCE OF THE PRODUCTION FUNCTION Without production, none of the other functions would operate Without production, none of the other functions would operate Production function adds value to a company’s inputs by converting them into marketable outputs Production function adds value to a company’s inputs by converting them into marketable outputs

10. Copyright © 2003 by South-Western. All Rights Reserved. Mass Production Mass production: system for manufacturing products in large amounts through effective combinations of employees with specialized skills, mechanization, and standardization Mass production: system for manufacturing products in large amounts through effective combinations of employees with specialized skills, mechanization, and standardization Assembly line: manufacturing technique that carries the product on a conveyor system past several workstations, where workers perform specialized tasks Assembly line: manufacturing technique that carries the product on a conveyor system past several workstations, where workers perform specialized tasks © PhotoDisc

11. Copyright © 2003 by South-Western. All Rights Reserved. Flexible Production Flexible production: cost- effective system of producing small batches of similar items Flexible production: cost- effective system of producing small batches of similar items Generally involves: Generally involves: Using information technology to share the details of customer orders Using information technology to share the details of customer orders Programmable equipment to fill the orders Programmable equipment to fill the orders Skilled people to carry out whenever tasks are needed to fill a particular order Skilled people to carry out whenever tasks are needed to fill a particular order © PhotoDisc

12. Copyright © 2003 by South-Western. All Rights Reserved. Customer-Driven Production Customer-driven production: system that evaluates customer demands in order to link what a manufacture makes with what the customers want to buy Customer-driven production: system that evaluates customer demands in order to link what a manufacture makes with what the customers want to buy One method establishes computer links between factories and retailers’ systems, using data about sales as the basis for creating short-term forecasts in designing production schedules One method establishes computer links between factories and retailers’ systems, using data about sales as the basis for creating short-term forecasts in designing production schedules © PhotoDisc

13. Copyright © 2003 by South-Western. All Rights Reserved. Team Concept Team concept: combines employees from various departments and functions to work together in designing and building products Team concept: combines employees from various departments and functions to work together in designing and building products © PhotoDisc

14. Copyright © 2003 by South-Western. All Rights Reserved. PRODUCTION PROCESSES Methods of production differ according to firms’ means of operating and time requirements Methods of production differ according to firms’ means of operating and time requirements Means of operating may involve either an analytic or a synthetic system Means of operating may involve either an analytic or a synthetic system Time requirements call for either a continuous or an intermittent process Time requirements call for either a continuous or an intermittent process © PhotoDisc

15. Copyright © 2003 by South-Western. All Rights Reserved. Figure 12.3 Example of a Synthetic Production System Figure 12.3 Example of a Synthetic Production System

16. Copyright © 2003 by South-Western. All Rights Reserved. Robot: reprogrammable machine capable of performing numerous tasks that require manipulations of materials and tools More efficient and consistent than humans for many activities RobotsRobots TECHNOLOGY AND THE PRODUCTION PROCESS

17. Copyright © 2003 by South-Western. All Rights Reserved. Computer-aided design (CAD): system for interactions between a designer and a computer to design a product, facility, or part that meets predetermined specifications Enables engineers to design faster and with fewer mistakes than they can achieve working with traditional drafting systems Robots CAD and CAM TECHNOLOGY AND THE PRODUCTION PROCESS

18. Copyright © 2003 by South-Western. All Rights Reserved. Computer-aided manufacturing (CAM): electronic tools to analyze CAD output and determine necessary steps to implement the design, followed, by electronic transmission of instructions to guide to the activities of production equipment Picks up where the CAD system leaves off Robots CAD and CAM TECHNOLOGY AND THE PRODUCTION PROCESS

19. Copyright © 2003 by South-Western. All Rights Reserved. Flexible manufacturing system (FMS): production facility that workers can quickly modify to manufacture different products Typical system consists of computer-controlled machining centers, robots, and remote-controlled carts Robots CAD and CAM FMSFMS TECHNOLOGY AND THE PRODUCTION PROCESS

20. Copyright © 2003 by South-Western. All Rights Reserved. Computer-integrated manufacturing (CIM): protection system that integrates computer tools and human workers to design products, handle materials, and control production An integration of robots, CAD/CAM, FMS, computers, and other technologies Key to CIM is a centralized computer system that integrates and controls separate processes and functions Robots CAD and CAM FMS CIMCIM TECHNOLOGY AND THE PRODUCTION PROCESS

21. Copyright © 2003 by South-Western. All Rights Reserved. Figure 12.4 Example of Computer-Integrated Manufacturing Figure 12.4 Example of Computer-Integrated Manufacturing

22. Copyright © 2003 by South-Western. All Rights Reserved. THE LOCATION DECISION The best locations provide advantages in three categories: The best locations provide advantages in three categories: Transportation Transportation Physical Physical Human factors Human factors © PhotoDisc

23. Copyright © 2003 by South-Western. All Rights Reserved.

24. THE LOCATION DECISION Environmental impact study: analyzes how a proposed plant would affect the quality of life in the surrounding area Environmental impact study: analyzes how a proposed plant would affect the quality of life in the surrounding area © PhotoDisc

25. Copyright © 2003 by South-Western. All Rights Reserved. TASKS OF PRODUCTION MANAGERS Figure 12.5 Tasks of Production Managers

26. Copyright © 2003 by South-Western. All Rights Reserved. Marketing research studies: Marketing research studies: Solicit consumer reactions to proposed products Solicit consumer reactions to proposed products Test prototypes of new items Test prototypes of new items Estimate their potential sales and profitability levels Estimate their potential sales and profitability levels Planning the Production Process © PhotoDisc

27. Copyright © 2003 by South-Western. All Rights Reserved. Production concerns itself primarily with: Production concerns itself primarily with: Converting original product concepts into final specifications Converting original product concepts into final specifications Designing the most efficient facilities to produce the new product Designing the most efficient facilities to produce the new product Planning the Production Process © PhotoDisc

28. Copyright © 2003 by South-Western. All Rights Reserved. Determining the Facility Layout Determining the best layout for the facility requires managers to consider all phases of production and the necessary inputs at each step Determining the best layout for the facility requires managers to consider all phases of production and the necessary inputs at each step

29. Copyright © 2003 by South-Western. All Rights Reserved. Figure 12.6a Basic Facility Layouts: Process Layout

30. Copyright © 2003 by South-Western. All Rights Reserved. Figure 12.6b Basic Facility Layouts: Product Layout

31. Copyright © 2003 by South-Western. All Rights Reserved. Figure 12.6c Basic Facility Layouts: Fixed-Position Layout

32. Copyright © 2003 by South-Western. All Rights Reserved. Figure 12.6d Basic Facility Layouts: Customer-Oriented Layout

33. Copyright © 2003 by South-Western. All Rights Reserved. Implementing the Production Plan Making, Buy, or Lease Selection of Suppliers Inventory Control Decisions involving these three activities are involved in the implementation of the production plan Decisions involving these three activities are involved in the implementation of the production plan This begins after the production process is planned and the best layout is determined This begins after the production process is planned and the best layout is determined

34. Copyright © 2003 by South-Western. All Rights Reserved. Implementing the Production Plan Making, Buy, or Lease Make, buy, or lease decision: choosing whether to manufacture a needed product or component in house, purchase it from an outside supplier, or lease it Make, buy, or lease decision: choosing whether to manufacture a needed product or component in house, purchase it from an outside supplier, or lease it Factors affecting the decision include costs, availability, the need for confidentiality, and short- or long-term need Factors affecting the decision include costs, availability, the need for confidentiality, and short- or long-term need

35. Copyright © 2003 by South-Western. All Rights Reserved. Implementing the Production Plan Making, Buy, or Lease Selection of Suppliers Managers compare quality, prices, dependability of delivery, and services offered by competing suppliers Managers compare quality, prices, dependability of delivery, and services offered by competing suppliers Final decision often rests on factors such as the firm’s experience with the supplier, speed of delivery, warranties, and other services Final decision often rests on factors such as the firm’s experience with the supplier, speed of delivery, warranties, and other services

36. Copyright © 2003 by South-Western. All Rights Reserved. Figure 12.7 Free Trade Zone: Internet Tools for Selecting Suppliers Figure 12.7 Free Trade Zone: Internet Tools for Selecting Suppliers

37. Copyright © 2003 by South-Western. All Rights Reserved. Implementing the Production Plan Making, Buy, or Lease Selection of Suppliers Inventory Control Requires balancing the need to keep stocks on hand to meet demand against the expenses of carrying the inventory Requires balancing the need to keep stocks on hand to meet demand against the expenses of carrying the inventory Perpetual inventory: system that continuously monitors the amounts and location of inventory Perpetual inventory: system that continuously monitors the amounts and location of inventory

38. Copyright © 2003 by South-Western. All Rights Reserved. Figure 12.8 Automatic Reordering of Electronic Components Figure 12.8 Automatic Reordering of Electronic Components

39. Copyright © 2003 by South-Western. All Rights Reserved. Implementing the Production Plan Making, Buy, or Lease Selection of Suppliers Inventory Control Vendor-managed inventory: system that hands over a firm’s inventory control functions to suppliers Vendor-managed inventory: system that hands over a firm’s inventory control functions to suppliers

40. Copyright © 2003 by South-Western. All Rights Reserved. Just-in-Time Systems Just-in-Time (JIT) system: management philosophy aimed at improving profits and return on investment by minimizing costs and eliminating waste through minimizing inventory on hand Just-in-Time (JIT) system: management philosophy aimed at improving profits and return on investment by minimizing costs and eliminating waste through minimizing inventory on hand © PhotoDisc

41. Copyright © 2003 by South-Western. All Rights Reserved. ReengineeringReengineering Reengineering: process of mapping out delivery-chain processes in detail to identify potential ways of reducing cycle times or process errors by applying technology to each step in a process Reengineering: process of mapping out delivery-chain processes in detail to identify potential ways of reducing cycle times or process errors by applying technology to each step in a process © PhotoDisc

42. Copyright © 2003 by South-Western. All Rights Reserved. of Materials Requirement Planning Materials requirement planning (MRP): computer-based production planning system that lets a firm ensure that it has all the parts and materials that it needs to produce goods and services at the right time and place and in the right amounts Materials requirement planning (MRP): computer-based production planning system that lets a firm ensure that it has all the parts and materials that it needs to produce goods and services at the right time and place and in the right amounts © PhotoDisc

43. Copyright © 2003 by South-Western. All Rights Reserved. Controlling the Production Process Production control: creates a well-defined set of procedures for coordinating people, materials, and machinery to provide maximum production efficiency Production control: creates a well-defined set of procedures for coordinating people, materials, and machinery to provide maximum production efficiency © PhotoDisc

44. Copyright © 2003 by South-Western. All Rights Reserved. Figure 12.9 Steps in Production Control

45. Copyright © 2003 by South-Western. All Rights Reserved. Controlling the Production Process Production planning: determines the amount of resources (including raw materials and other components) a firm needs to produce a certain output Production planning: determines the amount of resources (including raw materials and other components) a firm needs to produce a certain output Routing: determines the sequence of work throughout the facility and specifies who will perform each aspect of production at what location Routing: determines the sequence of work throughout the facility and specifies who will perform each aspect of production at what location

46. Copyright © 2003 by South-Western. All Rights Reserved. Controlling the Production Process Scheduling: developing timetables that specify how long each operation in the production process takes and when workers should perform it Scheduling: developing timetables that specify how long each operation in the production process takes and when workers should perform it Gantt chart: tracks projected and actual work progress over time Gantt chart: tracks projected and actual work progress over time

47. Copyright © 2003 by South-Western. All Rights Reserved. Figure 12.10 Sample Gantt Chart

48. Copyright © 2003 by South-Western. All Rights Reserved. Controlling the Production Process PERT (Program Evaluation and Review Technique): chart which seeks to minimize delays by coordinating all aspects of the production process PERT (Program Evaluation and Review Technique): chart which seeks to minimize delays by coordinating all aspects of the production process Critical Path: sequence of operations that requires the longest time for completion Critical Path: sequence of operations that requires the longest time for completion

49. Copyright © 2003 by South-Western. All Rights Reserved. Figure 12.11 Pert Diagram for Building a House

50. Copyright © 2003 by South-Western. All Rights Reserved. Controlling the Production Process Dispatching: phase of production control in which the manager instructs each department on what work to do and time allowed for its completion Dispatching: phase of production control in which the manager instructs each department on what work to do and time allowed for its completion Follow-Up: phase of production control in which employees and their supervisors spot problems in the production process and determine needed adjustments Follow-Up: phase of production control in which employees and their supervisors spot problems in the production process and determine needed adjustments

51. Copyright © 2003 by South-Western. All Rights Reserved. Manufacturing Resource Planning Manufacturing resource planning (MRP II): production- control system that integrates planning data from individual departments to produce a master business plan Manufacturing resource planning (MRP II): production- control system that integrates planning data from individual departments to produce a master business plan © PhotoDisc

52. Copyright © 2003 by South-Western. All Rights Reserved. IMPORTANCE OF QUALITY Quality is vital in all areas of business, including the product development and production functions Quality is vital in all areas of business, including the product development and production functions Cost of quality is ultimately reduced by investing money up front in quality design and development Cost of quality is ultimately reduced by investing money up front in quality design and development Typical costs of poor quality include downtime, repair costs, rework, and employee turnover Typical costs of poor quality include downtime, repair costs, rework, and employee turnover © PhotoDisc

53. Copyright © 2003 by South-Western. All Rights Reserved. Figure 12.12 The Importance of Quality Control to Customers Figure 12.12 The Importance of Quality Control to Customers

54. Copyright © 2003 by South-Western. All Rights Reserved. Quality Control Quality control: involves measuring goods and services against established quality standards Quality control: involves measuring goods and services against established quality standards Such checks needed to spot defective products and to avoid delivering inferior shipments to customers Such checks needed to spot defective products and to avoid delivering inferior shipments to customers Standards should be set high enough meet customer expectations Standards should be set high enough meet customer expectations © PhotoDisc

55. Copyright © 2003 by South-Western. All Rights Reserved. ISO Standards International Organization for Standardization (ISO): organization’s mission is to promote the development of standardized products to facilitate trade and cooperation across national borders International Organization for Standardization (ISO): organization’s mission is to promote the development of standardized products to facilitate trade and cooperation across national borders Established in Europe in 1947, ISO includes representatives from about 130 nations Established in Europe in 1947, ISO includes representatives from about 130 nations

56. Copyright © 2003 by South-Western. All Rights Reserved. WHAT’S AHEAD Next four chapters explore the many activities involved in customer-driven marketing, including: Next four chapters explore the many activities involved in customer-driven marketing, including: Product development Product development Pricing Pricing Distribution of products to customers Distribution of products to customers promotion promotion © PhotoDisc