1. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

2. 17 Chapter Operations Management McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

3. Learning Objectives After reading this chapter, you should be able to: Define operations management and its three stages: inputs, transformation and disposition. Describe how operations management ensures supplies of inputs and an efficient production system. Use tools of operations management, including Gantt charts, PERT networks, and statistical process tools. Explain the role of quality management in the operations management process. Understand and apply the principles of quality management, kaizen, just-in-time manufacturing, and kanban to the production process. © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

4. What is Operations Management? Operations management is the process an organization uses to:  Obtain the materials or ideas for the product it provides.  Transform the materials or ideas into the product.  Provide the final product to a user. Operations management is closely linked to:  Strategic Management (Chapter 7)  Planning (Chapter 5)  Information Systems Management (Chapter 18) © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

5. Skills for Operations Management Organization Skills Analytical Problem Solving Skills Communication Skills © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

6. The Operations Management Process InputsConversionOutputs Raw materials Labor Energy Knowledge Facility Capacity Process Control Goods Services Information © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

7. Planning in Operations Management Planning is the foundation of operations management. Planning – the management function that assesses the management environment to set future objectives and map out activities necessary to achieve those objectives. © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

8. Strategic Planning Strategic management decisions involved in operations management:  Make-buy analysis: whether to produce an item or to purchase it.  Capacity: firm’s ability to produce the product during a given period.  Facilities: design and location of an operations facility.  Process: how a product or a service will be produced.  Facilities layout design: physical arrangement that allows for efficient production. © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

9. Acquiring Inputs Inputs are the supplies needed to create a product. Materials requirements planning: analyzing a design to determine the materials and parts required in the production process. Inventory: the stock of raw materials, inputs, and component parts that the firm keeps on hand.  Reordering systems: the process used to help keep inventory levels more or less consistent. Fixed point reordering system Fixed interval reordering system © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

10. The Conversion Process Conversion process: the stage in which the product’s inputs are converted to the final product. An effective conversion process:  Works to lower the cost of creating the product; or to  Create a better product for the same cost. Key decision areas:  Designing the process  Monitoring the process © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

11. Designing the Process Process design begins with analyzing the general operation and identifying:  Every major step that needs to be done.  The order that the steps must take.  The flow of the steps from start to finish (including their relationship to each other).  The amount of time each individual step requires. © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

12. Example of Process Analysis Information 1 weekFollowing F6G. Test equipment 1 weekFollowing B, E5F. Install equipment 1 weekFollowing C4E. Install floors 1 weekFollowing C3D. Install electrical fixtures 2 weeksNone2C. Paint interior 1 weekNone1B. Order equipment 4 weeksNone1A. Get permit TimeRelation to Other StepsOrderStep © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

13. Process Design Tools Gantt Charts: provide a visual sequence of the process steps. Load Charts: type of Gantt chart based on departments or specific resources that are used in the process. Program Evaluation and Review Technique (PERT) Network: tool for analyzing the conversion process. © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

14. Example of a Gantt Chart ----------- Test equipment ----------- Install baking equipment ------------ Install floors ------------ Install electrical fixtures ----------------------------- Paint interior ------------------- Order baking equipment ---------------------------------------------------- Get permit Start 1 2 3 4 5 WEEKS © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

15. Example of a Load Chart ------------ Carpenter ---------------------------------- Electrician ----------------------------- Painter ------------------- Order department ------------------- Office Staff Start 1 2 3 4 5 WEEKS © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

16. Example of a PERT Network Start Order baking equipmentInstall baking equipmentTest equipment Paint interiorInstall electrical fixtures Install floors Get permit 4 1 1 1 1 1 11 1 © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

17. Facilities Layout Facilities layout - the grouping and organization of equipment and employees  Product layout - where each function is performed in a fixed sequence  Process layout - where each work station is relatively self- contained  Fixed position layout - where remote work stations assemble components, and they are then brought to a final assembly area © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

18. Flexible Manufacturing Flexible manufacturing – techniques that help reduce the setup costs associated with the production system  computer aided design, engineering, and manufacturing tools make the work process more flexible © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

19. Process Monitoring Tools Statistical Process Control Acceptance Sampling Total Factor Productivity Partial Productivity © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

20. Statistical Process Control Tools Check Sheets Pareto Analysis Process Flow Analysis Cause-and- Effect Diagrams Process Capability Measures Control Charts © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

21. Disposition of the Product The end result of the operations process is the product – a good or a service. Operations management includes customer fulfillment process. Order review / release (ORR) activity: used to evaluate and track the order through the process:  Creating order documentation  Material checking  Capacity evaluation  Load leveling The order must be checked to verify it is complete. © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

22. Managing Quality Top management must make improvement in productivity a strategic objective of the firm. Top management must also be sure that managers from different areas of the firm work together to increase efficiency. A more efficient production process lowers production costs, increases profitability, may lead to lower prices, and attract new customers. W. Edwards Deming is considered the father of quality management. © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

23. Managing Quality (continued) The Quality Management Approach  Total Quality Management (TQM) Kaizen (Continuous Improvement) and Efficiency Just-in-Time Systems Process Engineering © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

24. Total Quality Management (TQM) Continuous improvement of the production sequence should be one of the main objectives of operations management. Total Quality Management (TQM) – based on the belief that all of an organization’s activities need to be focused on improving its product. Four interrelated steps to quality:  Plan  Do  Check  Act © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

25. Total Quality Management (TQM) (continued) Management and TQM  Correct variances in operations management by using TQM principles to find and correct their source. Employees and TQM  Operations managers must be sure their employees understand what TQM means and that each worker is responsible for improving quality.  Managers must also be willing to act on any suggestions or problems that employees identify.  Quality circles. © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

26. Total Quality Management (TQM) (continued) Customers and TQM  Operations management can focus on improving the quality gap – the difference between what customers want and what they actually get from the company. Suppliers and TQM  Suppliers are seen as partners with the firm. TQM and the Production Process  Operations management uses TQM techniques to focus on, and improve the production process. © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

27. Kaizen (Continuous Improvement) and Efficiency The Japanese process of continuous improvement in the organization’s production system from numerous small, incremental improvements in production processes. One of the main principles of kaizen is reducing waste in materials, inventory, production steps, and activities that do not add value. Three steps:  Maintenance  Kaizen  Innovation © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

28. Just-in-Time (JIT) Systems Just-in-time (JIT) – the concept behind creating the firm’s product in the least amount of time. Close coordination between manufacturers, suppliers, and customers. The firm’s inventory of inputs are kept at the lowest level possible. Inputs arrive at the organization when, not before, they are needed. © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

29. Kanban A form of JIT system originated in Japan Uses cards to generate inventory From the Japanese word for “card” or “sign” small batches of components to assembly line as needed © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

30. Process Reengineering Method of changing the entire production process rather than making incremental changes. The firm (including its operations management) is viewed as a complete process. Involves fundamentally rethinking and radically redesigning the entire process including:  Cutting out steps that are not needed.  Reducing paperwork. © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

31. Applications: Management is Everyone’s Business — For the Manager Quality-centered management of operations is the key to remaining competitive and can lead to the survival of the organization. Effective managers understand and utilize the concepts and techniques of operations management. © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

32. Applications: Management is Everyone’s Business — For Managing Teams Team members need the technical skills involved in measurement and evaluation. Team members also need interpersonal skills so that the team structure facilitates rather than gets in the way of improving production processes. © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill

33. Applications: Management is Everyone’s Business — For Individuals Workers must understand the objectives of the organization and how they are adding value to the process. Individuals make the difference in performance. Errors, waste, and poor productivity are simply not acceptable in today’s competitive market. © 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill