1. part 6 PowerPoint Presentation by Charlie Cook Copyright © 2003 South-Western College Publishing. All rights reserved. All rights reserved. Quality Management and the Operations Process 20 Small Business Management 12e

2. Copyright © by South-Western College Publishing. All rights reserved. 20–2 Looking Ahead After studying this chapter, you should be able to: 1. Explain the key elements of total quality management (TQM) programs. 2. Discuss the nature of the operations process for both products and services. 3. Explain how reengineering and other methods of work improvement can increase productivity and make a firm more competitive. 4. Discuss the importance of purchasing and the nature of key purchasing policies. 5. Describe ways to control inventory and minimize inventory costs.

3. Copyright © by South-Western College Publishing. All rights reserved. 20–3 Quality Goals of Operations Management Quality –The features of a product or service that enable it to satisfy customers’ needs. –A perception of the customer as to the suitability of the product or service of a firm. Total Quality Management (TQM) –An aggressive, all-encompassing management approach to providing high-quality products and services.

4. Copyright © by South-Western College Publishing. All rights reserved. 20–4 Fig. 20.1 Successful Quality Management Supportive Organizational Culture Appropriate Tools and Techniques Focus on Customers Essential Elements of Successful Quality Management

5. Copyright © by South-Western College Publishing. All rights reserved. 20–5 Customer Focus on Quality Management Customer Expectations –Quality is the extent to which a product or service satisfies customer’s needs and expectations.  Product quality  Service quality  Product and service quality combinations –“The customer is the focal point of quality efforts.” Customer Feedback –Customers are the eyes and ears of the business for quality matters.

6. Copyright © by South-Western College Publishing. All rights reserved. 20–6 Organizational Culture and TQM Organizational Culture –The behavior, beliefs, and values that characterize a particular firm. Continuous Quality Improvement –A constant and dedicated effort to improve quality. Benchmarking –The process of studying the products, services, and practices of other firms and using the insights gained to improve quality internally.

7. Copyright © by South-Western College Publishing. All rights reserved. 20–7 Tools and Techniques of TQM Employee Participation –Employee performance is a critical quality variable. –Quality circle  A group of employees who meet regularly to discuss quality-related problems.

8. Copyright © by South-Western College Publishing. All rights reserved. 20–8 Tools and Techniques of TQM The Inspection Process –The examination of a product to determine whether it meets quality standards. –Inspection standard  A specification of a desired quality level and allowable tolerances. –Attribute inspection  The determination of product acceptability based on whether it will or will not work. –Variable inspection  The determination of product acceptability based on a variable such as weight or length.

9. Copyright © by South-Western College Publishing. All rights reserved. 20–9 Statistical Methods of Quality Control Acceptance Sampling –The use of a random, representative portion to determine the acceptability of an entire lot. Statistical Process Control –The use of statistical methods to assess quality during the operations process. Control Chart –A graphic illustration of the limits used in statistical process control.

10. Copyright © by South-Western College Publishing. All rights reserved. 20–10 International Certification for Quality Management ISO 9000 –The standards governing international certification of a firm’s quality management procedures.

11. Copyright © by South-Western College Publishing. All rights reserved. 20–11 The Operations Process The Nature of the Operations Process –Operations management  The planning and control of the operations process  Involves acquiring inputs and overseeing their transformation in products and services

12. Copyright © by South-Western College Publishing. All rights reserved. 20–12 Fig. 20.2 Inputs Operations Outputs DesigningProcessingTreatingStoringAdvising FabricatingRefiningAssemblingShippingInstructing Clothing Baked goods Paint Dry cleaning Appliance repair Automobile painting Products Services Money Labor EquipmentInformationEnergy Raw Materials Examples: The Operations Process

13. Copyright © by South-Western College Publishing. All rights reserved. 20–13 The Operations Process (cont’d) Manufacturing Versus Service Operations –Productivity is more easily measured in manufacturing than service operations –Quality is more difficult to establish in service than manufacturing operations. –Customers are more involved in service than manufacturing operations. –Manufacturing can produce goods for inventory; service operations cannot store or bank services.

14. Copyright © by South-Western College Publishing. All rights reserved. 20–14 Types of Manufacturing Job Shops –Operations characterized by short production runs of small quantities of unique items. Repetitive Manufacturing –Operations in which long production runs are used to produce a large quantity of a standardized product. Batch Manufacturing –An intermediate form involving more variety in volume and products than job shops and less than repetitive manufacturing.

15. Copyright © by South-Western College Publishing. All rights reserved. 20–15 The Operations Process (cont’d) Operations Planning and Scheduling –Attempting to achieve the orderly, sequential flow of products to market.  Production operations  Service operations Plant Maintenance –The role of maintenance  To correct equipment malfunctions and prevent breakdowns –Types of maintenance  Preventive maintenance  Corrective maintenance

16. Copyright © by South-Western College Publishing. All rights reserved. 20–16 Competitive Strength Through Improved Productivity The Importance of Improving Productivity –Productivity is the efficiency with which inputs are transformed into outputs. –Productivity is more difficult to increase in service industries than in manufacturing sectors.

17. Copyright © by South-Western College Publishing. All rights reserved. 20–17 Competitive Strength Through Improved Productivity (cont’d) Reengineering for Improved Productivity –Reengineering  A fundamental restructuring to improve the operations process.  Asking “Why?” is important in the reengineering process.

18. Copyright © by South-Western College Publishing. All rights reserved. 20–18 Competitive Strength Through Improved Productivity (cont’d) Operations Analysis –Laws of motion economy  Arranging work in the most cost-effective and efficient manner possible. Methods of Work Measurement –Motion Study  An analysis of all the motions a worker makes to complete a given job. –Time Study  A determination of the average time, it takes to complete

19. Copyright © by South-Western College Publishing. All rights reserved. 20–19 Purchasing Policies and Practices Purchasing –The process of obtaining materials, equipment, and services from outside. The Importance of Purchasing –The process of acquiring quality raw material inputs affects:  The timely and consistent production of quality products.  Retailer sales of finished products to customers.  The costs of products, their profitability and their selling prices.

20. Copyright © by South-Western College Publishing. All rights reserved. 20–20 Purchasing Policies and Practices Purchasing Practices and Profitability –Making or buying  A firm’s choice between producing and purchasing component parts for its products. –Reasons for making:  Increased utilization of plant capacity  Assurance of supply of critical components  Maintaining secrecy in designs and processes  Saving on transportation costs and supplier profits  Closer coordination and control of overall process  Higher quality components for inputs

21. Copyright © by South-Western College Publishing. All rights reserved. 20–21 Purchasing Policies and Practices Purchasing Practices and Profitability –Outsourcing  Purchasing products or services that are outside the firm’s area of competitive advantage. –Reasons for Buying  Supplier’s part/service is cheaper and/or higher quality  Investment savings on space, personnel, equipment  Greater flexibility in matching supply and demand  Increased focus on production of core product/service  No risk of equipment obsolescence

22. Copyright © by South-Western College Publishing. All rights reserved. 20–22 Purchasing Policies and Practices Purchasing Practices and Profitability –Buying on the Internet  Small firms save on inputs by using the Internet to seek out the lowest cost suppliers.

23. Copyright © by South-Western College Publishing. All rights reserved. 20–23 Purchasing Policies and Practices Diversifying sources of supply –Reasons for having a sole supplier  Outstanding supplier quality  Quantity discounts for volume purchases  Single orders too small to divide among suppliers  Quality of supplier-customer relationship –Reasons for having multiple suppliers  Choice of best quality, price, and service  Supplier competes for business  Insurance against input interruptions

24. Copyright © by South-Western College Publishing. All rights reserved. 20–24 Purchasing Policies and Practices Relationships with suppliers –Selecting suppliers  Price and quality  Location and delivery reliability  Services offered—credit, product support, promotion Building good relationships with suppliers –Purchasing practices  Pay bills promptly  Be courteous to sales representatives  Avoid abrupt cancellations of orders  Maintain a professional relationship

25. Copyright © by South-Western College Publishing. All rights reserved. 20–25 Purchasing Policies and Practices Developing Strategic Alliances –Strategic alliance is an organizational relationship that links two independent business entities in a common endeavor. Involves close coordination of buyers and sellers to:  Reduce product introduction lead time  Improve product quality  Engage in joint problem solving  Make joint adjustments to market conditions  Involve the supplier early in product development

26. Copyright © by South-Western College Publishing. All rights reserved. 20–26 Ensuring Continuous Operations Maximizing Sales Protecting Assets Minimizing Inventory Investment Fig. 20.3 Inventory Management and Operations Objectives of Inventory Management

27. Copyright © by South-Western College Publishing. All rights reserved. 20–27 Inventory Management and Operations Inventory Cost Control –Economic order quantity (EOQ)  The quantity to purchase in order to minimize total inventory costs. Total inventory costs Total ordering costs Total carrying costs =+

28. Copyright © by South-Western College Publishing. All rights reserved. 20–28 EOQ Total Costs Ordering Costs Carrying Costs Order Quantity (Units) Cost ($) Fig. 20.4 Graphic Portrayal of the Economic Order Quantity

29. Copyright © by South-Western College Publishing. All rights reserved. 20–29 Inventory Management and Operations ABC Inventory Analysis –A system of classifying items in inventory by relative value –Category A (close/continuous control)  High-value or critical production component items –Category B (moderate control)  Less costly, secondary importance items –Category C (periodic control)  Low-cost and noncritical items

30. Copyright © by South-Western College Publishing. All rights reserved. 20–30 Inventory Management and Operations Just-In-Time Inventory (JIT) System, also Kanban –A method of reducing inventory level to an absolute minimum.  New items arrive at the same time that the last inventory item is placed in service –JIT promotes:  Closer coordination with suppliers  Consistent quality production  Lower safety stock levels

31. Copyright © by South-Western College Publishing. All rights reserved. 20–31 Inventory Management and Operations Inventory Record-Keeping Systems –Physical inventory system  A method that provides for periodic counting of items in inventory –Cycle counting  A system of counting different segments of the physical inventory at different times during the year. –Perpetual inventory  A method for keeping a running record of inventory.