1. McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Introduction to Business Dr. H. Ronald Moser Cumberland University

2. Production and Operations Management Chapter 09 McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

3. Palmisano, CEO and President of IBM, started in the company in 1973.IBM The company’s earnings have quadrupled under Palmisano. SAMUEL J. PALMISANO IBM Switching the company’s focus from production to service, Palmisano led IBM to enter the emerging global market. 9-3 PROFILE

4. The U.S. is still the world’s leading manufacturer. Manufacturing has continued to grow since 1970. In fact, U.S. manufacturing is 2x bigger than in 1970. Manufacturing in the U.S. Almost 25% of all goods produced each year come from the U.S. 9-4 MANUFACTURING AND SERVICES IN PERSPECTIVE

5. Source: Parade Magazine, www.parade.com, accessed June 2011.www.parade.com 9-5 MANUFACTURING AND SERVICES IN PERSPECTIVE What’s Made in the USA? Leading U.S. Manufactured Goods

6. Source: CNBC, www.cnbc.com, accessed June 2011.www.cnbc.com 9-6 MANUFACTURING AND SERVICES IN PERSPECTIVE Exporters Extraordinaire Top Ten States that Manufacture Goods for Export

7. Source: Industry Week, www.industryweek.com, accessed June 2011.www.industryweek.com 9-7 MANUFACTURING AND SERVICES IN PERSPECTIVE Massive Manufacturers The Top Ten U.S. Manufacturers

8. The Green Economy is worth more than $200 billion annually and is expected to reach $1 trillion by 2020. The market for new green products and services is almost endless. The Green Movement, however, is only beginning. The “Green” Movement Improves the Economy (Thinking Green) 9-8 MANUFACTURING AND SERVICES IN PERSPECTIVE Consumers like products that say “all natural,” “locally grown,” “energy efficient,” etc.

9. The U.S. economy is no longer manufacturing based. In recent years, the service sector of the U.S. economy has grown much more rapidly than the manufacturing sector, 85% of jobs are in the service sector. The top-paying service jobs in the U.S. are in :  Legal services. Top Paying Service Jobs 9-9 MANFACTURERS AND SERVICE ORGANIZATIONS BECOME MORE COMPETITIVE  Medical services.  Entertainment.  Accounting.  Finance.  Management consulting.

10. Manufacturers and Service Organizations Become More Competitive U.S. is still the leader in nanotechnology and biotechnology. How can U.S. businesses maintain a competitive edge?  Focusing more on customers. Remaining Competitive in Global Markets 9-10 MANFACTURERS AND SERVICE ORGANIZATIONS BECOME MORE COMPETITIVE  Practicing continuous improvement and maintaining closer relationship with suppliers.  Focusing on quality.  Relying on the Internet to unite companies.  Adopting new production techniques.

11. Ten years ago, Germany’s economy was much like ours today. Stihl invested in highly trained workers.Stihl Learning from Germany (Reaching Beyond Our Borders) Stihl remained competitive in the manufacturing world. German companies poured money into research and stayed away from high tech products. 9-11 MANFACTURERS AND SERVICE ORGANIZATIONS BECOME MORE COMPETITIVE

12. Production -- The creation of goods using land, labor, capital, entrepreneurship and knowledge (the factors of production). The transformation of a raw material into a finished product. FROM PRODUCTION and OPERATIONS MANAGEMENT Production Management -- All the activities managers do to help firms create goods. Got to remember the U.S. has become a service economy -- that is, one that is dominated by the service sector. 9-12

13. Operations Management -- A specialized area in management that converts or transforms resources into goods and services. In a college or university, operations management takes inputs such as information, professors, supplies, buildings, offices, and computer systems and creates services that transform students into educated people. Operations management includes : Inventory management. FROM PRODUCTION and OPERATIONS MANAGEMENT 9-13 Operations Management Quality control. Production scheduling. Follow-up services.

14. All about creating a good experience for those who use the service. Operations Management in the Service Sector In hotels, like Ritz- Carlton, operation management includes fine dining, fresh flowers, and training for every employee. 9-14 FROM PRODUCTION and OPERATIONS MANAGEMENT

15. The PRODUCTION PROCESS 9-15 Common sense and some experience have already taught you much of what you need to know about production processes. You know what it takes to write a term paper or prepare a dinner. You need money to buy the materials; you need a place to work; and you need to be organized to get the task done. The same is true of the production process in industry. It uses basic inputs to produce outputs. Production adds value, or utility, to materials or processes.

16. Form Utility -- The value producers add to materials in the creation of finished goods and services. THE PRODUCTION PROCESS 9-16 Form Utility

17. THE PRODUCTION PROCESS 9-17 Form Utility Form utility can exist at the marketing and retail level as well. We can define utility from a marketing level as the creation of Time, Place and Possession utility. Marketers do not create Form utility. MARKETING AND THE CREATION OF UTILITY FORMPLACE TIMEPOSSESSION SATISFACTION OF HUMAN WANTS PRODUCTS PROVIDE BENEFITS

18. THE PRODUCTION PROCESS 9-18 Form Utility Marketing is the creation of Time, Place, and Possession Utility. Producer Wholesaler RetailerConsumer Creates Form Utility Creates Time Utility Creates Possession Utility Whom Retailers are trying to satisfy Transportation Would Create Place Utility

19. 1. To build and deliver products in response to the demands of the customer at a scheduled delivery time. 2. To provide an acceptable quality level. 3. To provide everything at the lowest possible cost. Grove’s Basic Production Requirement 9-19 THE PRODUCTION PROCESS Grove, the former chairman of computer chip manufacturer Intel, said the task production encompasses three basic requirements:

20. Process Manufacturing -- The part of production that physically or chemically changes materials. Here we might be turning sand into glass or computer chips. Assembly Process -- The part of the production process that puts together components to make a product. Process and Assembly in Production 9-20 THE PRODUCTION PROCESS

21. Production processes are either Continuous or Intermittent. Continuous Process -- Long production runs turn out finished goods over time. A chemical plant, is run on a continuous process. Intermittent Process -- Production runs are short and the producer adjusts machines frequently to make different products. Manufacturers of custom- designed furniture would use and intermittent process. Key Production Processes 9-21 THE PRODUCTION PROCESS

22. The Need to Improve Production Techniques and Cut Costs Developments Making U.S. Companies More Competitive 9-22 THE PRODUCTION PROCESS 1. Computer-aided design and manufacturing. 2. Flexible manufacturing. 3. Lean manufacturing. 4. Mass customization.

23. Computer-Aided Design and Manufacturing Computer-Aided Design (CAD) -- The use of computers in the design of products. Today CAD systems allow designer to work in three dimensions. Computer-Aided Manufacturing (CAM) -- The use of computers in the manufacturing of products. With this process the manufacturing makes a simple design change to meet the needs of a certain market. 9-23 THE PRODUCTION PROCESS

24. Computer-Integrated Manufacturing (CIM) -- The uniting of computer- aided design with computer-aided manufacturing. CIM is expensive but it cuts as much as 80% of the time needed to program machines to make parts. 9-24 THE PRODUCTION PROCESS Computer-Aided Design and Manufacturing

25. Flexible Manufacturing Flexible Manufacturing -- Designing machines to do multiple tasks so they can produce a variety of products. Allen-Bradley uses flexible manufacturing to build motor starters.Allen-Bradley 26 machines and robots build, test and package parts. 9-25 THE PRODUCTION PROCESS

26. Lean Manufacturing Lean Manufacturing -- Using less of everything compared to mass production: less human effort, less manufacturing space, less investment in tools, and less engineering time to develop a new product. Compared to others, lean companies: Take half the human effort. Have half the defects in finished products. Require one-third the engineering effort. Use half the floor space. 9-26 THE PRODUCTION PROCESS Ron’s Place Carry 90% less inventory. Moser’s

27. Mass Customization Mass Customization -- Tailoring products to meet the needs of a large number of individual customers. 9-27 THE PRODUCTION PROCESS More manufacturers are learning to customize. Here we are allowing the customer to design their own products. I want these features on my car. Mass customization exists in the service sector too.

28. Mass Customization of Candy (Spotlight on Small Business) Chocomize lets customers customize their chocolate bars.Chocomize Co-founder, Eric Heinbockel, sought funding help from his family. Chocomize now has three full-time chocolate makers and is expected to be a success. 9-28 THE PRODUCTION PROCESS Mass Customization

29. Operations management planning helps solve problems like:  Facility location.  Facility layout.  Materials requirement planning.  Purchasing.  Inventory control.  Quality control. OPERATIONS MANAGEMENT PLANNING 9-29 Operations management planning helps solve many of the problems in the services and manufacturing sectors. Facility location

30. Facility Location Facility Location -- The process of selecting a geographic location for a company’s operations. Remember- it is location, location, location. Rising numbers of Internet businesses mean brick-and-mortar retailers must find great locations. 9-30 OPERATIONS MANAGEMENT PLANNING

31. Taking Operations Management to the Internet 9-31 OPERATIONS MANAGEMENT PLANNING Sometimes businesses outsource engineering, design and manufacturing to other companies. Often these relationships are managed through the Internet. Many companies are developing Internet-focused strategies.

32. * Facility Location in the Future Information technology-- that is computers, modems, e-mail, voice mail, text messaging, and teleconferencing give firms increased flexibility in terms of location. Telecommuting -- Working from home via computer and modem is a major trend in business. Companies that no longer need to locate near sources of labor will be able to move to areas where land is less expensive and the quality of life may be higher. Future Facility Location 9-32 OPERATIONS MANAGEMENT PLANNING

33. Facility Layout -- The physical arrangement of resources, including people, to most efficiently produce goods and provide services. The facility layout is designed to help customers find things and buy things, including on the Internet. Facility layout depends on the processes performed:  Service: Help customers find products. Setting Up the Facility 9-33 OPERATIONS MANAGEMENT PLANNING Facility Layout - Manufacturing: Improve efficiency.

34. 1. Assembly Line Layout – Workers do only a few tasks at a time. 2. Modular Layout – Teams of workers produce more complex units of the final product. 3. Fixed-Position Layout – Allows workers to congregate around the product. 4. Process Layout – Similar equipment and functions are grouped together. 9-34 OPERATIONS MANAGEMENT PLANNING Facility Layout Facility Layout Options

35. Modular Layout 9-35 OPERATIONS MANAGEMENT PLANNIN G Facility Layout At Stevens Manufacturing workers are organized in teams that combine their efforts to produce complex units of a final product. Stevens is using the Modular Layout to produce this product. Manufacturers are changing their facility layouts and moving toward modular layout operations. Modular layout consists of teams of workers producing more complex units of a final product.

36. Fixed-Position Layout 9-36 OPERATIONS MANAGEMENT PLANNING Facility Layout When working on a major project, such as bridge or airplane, companies use a fixed-position that allows workers to congregate around the product to be completed.

37. Materials Requirement Planning Materials Requirement Planning (MRP) -- A computer-based operations management system that uses sales forecasts to make sure parts and materials are available when needed. Enterprise Resource Planning (ERP) -- A newer version of MRP, combines computerized functions into a single integrated software program using a single database. MRP and ERP 9-37 OPERATIONS MANAGEMENT PLANNING

38. Purchasing Purchasing -- The function that searches for high- quality material resources, finds the best suppliers and negotiates the best price for goods and services. Producers share so much information that they don’t want too many suppliers knowing their business. The Internet has transformed purchasing. A business looking for supplies can contact Internet-based purchasing services and find the best items at the best price. 9-38 OPERATIONS MANAGEMENT PLANNING

39. Just-in-Time Inventory Control Just-in-Time (JIT) Inventory Control -- The production process in which a minimum of inventory is kept; and parts, supplies and other needs are delivered just in time to go on the assembly line. Here the suppliers become more like a department in the production firms rather than a separate business. To work effectively, the process requires excellent coordination with suppliers who are usually connected electronically so they know what will be needed and when. Inventory Control 9-39 OPERATIONS MANAGEMENT PLANNING

40. Quality Control Quality -- Consistently producing what the customer wants while reducing errors before and after delivery. Six Sigma Quality -- A quality measure that allows only 3.4 defects per million opportunities. 9-40 OPERATIONS MANAGEMENT PLANNING Quality Control

41. Statistical Quality Control -- A process used to continually monitor all phases of the production process and assure quality is being built into the product for the beginning. Statistical Process Control -- A process of testing statistical samples of product components at each stage of production to make sure products meet quality standards all along the production process. Measuring quality along the production process reduces the need for quality control at the end. 9-41 OPERATIONS MANAGEMENT PLANNING Quality Control Statistical Quality Control & Statistical Process Control

42. The Baldrige Awards Companies can apply for awards in these areas:  Manufacturing.  Services.  Small Businesses.  Non-Profit/Government.  Education.  Healthcare. 9-42 OPERATIONS MANAGEMENT PLANNING In the United States in 1987, a standard was set for overall company quality with the introduction of the Malcolm Baldrige National Quality Awards, named in honor of the late U.S. secretary of commerce.

43. ISO 9000 and ISO 14000 Standards The International Organization for Standardization (ISO) is a worldwide federation of national standards bodies from more than 140 countries that set global measures for the quality of individual products. What is ISO? 9-43 OPERATIONS MANAGEMENT PLANNING ISO 9000 -- The common name given to quality management and assurance standards. The standards require that a company determines what customer needs are, including regulatory and legal requirements, and make communication arrangements to handle issues such as complaints. ISO 14000 -- A collection of the best practices for managing an organization’s impact on the environment.

44. Program Evaluation and Review Technique (PERT) -- A method for analyzing the tasks involved in completing a given project and estimating the time needed. The purpose of determining the critical path on a PERT network is to identify the sequence of tasks that takes the longest to complete. Pert 9-44 CONTROL PROCEDURES: PERT AND GANTT CHARTS Here we saying that the PERT network analyzes the sequences tasks that must be completed in a given project. The network may consist of a number of different sequenced paths – containing some task that can be completed at the same time as others, and other tasks that must be completed after the completion of preliminary tasks.

45. 1. Analyzing and sequencing tasks that need to be done. 2. Estimating the time needed to complete each task. 3. Drawing a PERT network illustrating the first two steps. 4. Identifying the critical path. Steps involved in PERT 9-45 CONTROL PROCEDURES: PERT AND GANTT CHARTS Critical Path – The sequence of tasks that takes the longest time to complete. We use the word critical because a delay anywhere along the path will cause the project or production run to be late.

46. Critical Path 9-46 CONTROL PROCEDURES: PERT AND GANTT CHARTS The Critical Path is the path of sequenced tasks that takes the longest time to complete. The project manager monitors the completion of the critical path. If there are delays in the critical path, the entire project is likely to be delayed.

47. Gantt Chart – A bar graph that shows what projects are being worked on and how much has been completed. Gantt Charts 9-47 CONTROL PROCEDURES: PERT AND GANTT CHARTS

48. * Gantt Chart for a Doll Factory 9-48 CONTROL PROCEDURES: PERT AND GANTT CHARTS Here a Gantt Chart for a doll manufacturer shows that the dolls’ heads and bodies should be completed before the clothing is sewn. It also shows that at the end of week 3, the dolls’ bodies are ready, but the heads are about half a week behind.

49. * 9-49 PREPARING FOR THE FUTURE The United States remains a major industrial country, but competition has grown stronger each year. Tremendous opportunities exist for careers in operations management as both manufacturing and service companies fight to stay competitive. Students who can see future trends and have the skills to own or work in tomorrow’s highly automated factories and modern service facilities will benefit. United States

50. 3-50 The End!