Chapter 12 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. PowerPoint...

Chapter 12 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.

PowerPoint Presentation by PowerPoint Presentation by

Thomas MThomas MccKaig, Ryerson UniversityKaig, Ryerson University

Operations Operations Management and Management and Management Management Control SystemsControl Systems

1212

12-2Chapter 12 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.

Looking AheadLooking Ahead

After studying this chapter, you should be able to:

1. Discuss the nature of the operations process for both products and services.

2. Describe the need for management control systems.

3. Explain the key elements of total quality management (TQM) programs.

4. Explain how reengineering and other methods of work improvement can increase productivity and make a firm more competitive.

5. Discuss the importance of purchasing and the nature of key purchasing policies.

6. Describe ways to control inventory and minimize inventory costs.


The Operations ProcessThe Operations Process

• The Nature of the Operations ProcessOperations management

• The planning and control of the operations process

• Involves acquiring inputs and overseeing their transformation in products and services


The Operations ProcessThe Operations Process

Inputs

Operations

Outputs

• Designing • Processing • Treating • Storing • Advising• Fabricating • Refining • Assembling • Shipping • Instructing

ClothingBaked goodsPaint

Dry cleaningAppliance repairAutomobile painting

Products Services

Money Labour Equipment Information EnergyRaw

Materials

Examples: Examples:

Figure 12-1


Manufacturing versus ServiceManufacturing versus Service

• Manufacturing Versus Service OperationsProductivity is more easily measured in

manufacturing than service operationsQuality 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.


Types of ManufacturingTypes of Manufacturing

• Job ShopsOperations characterized by short production runs of

small quantities of unique items.

• Repetitive ManufacturingOperations in which long production runs are used to

produce a large quantity of a standardized product.

• Batch ManufacturingAn intermediate form involving more variety in volume

and products than job shops and less than repetitive manufacturing.


Planning and Scheduling and Maintenance

Planning and Scheduling and Maintenance

• Operations Planning and SchedulingAttempting to achieve the orderly, sequential flow of

products to market.• Production operations• Service operations

• Plant MaintenanceThe role of maintenance

• To correct equipment malfunctions and prevent breakdownsTypes of maintenance

• Preventive maintenance• Corrective maintenance


The Control CycleThe Control Cycle

• Control Cycle A period of time over which an activity is

planned, measured, corrected, and re-planned

• Variance The difference between planned forecast

activity and actual activity


The Control Cycle IllustratedThe Control Cycle Illustrated

Figure 12-2


Successful Quality Management

SupportiveOrganizational

Culture

AppropriateTools and

Techniques

Focus onCustomers

Essential Elements ofSuccessful Quality Management

Essential Elements ofSuccessful Quality Management


Total Quality Management and Quality Goals of Operations Management

Total Quality Management and Quality Goals of Operations Management

• Total Quality Management (TQM)An aggressive, all-encompassing management approach

to providing high-quality products and services.

• QualityThe 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.


Customer Focus on Quality ManagementCustomer Focus on Quality Management

• Customer ExpectationsQuality 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 FeedbackCustomers are the eyes and ears of the business for

quality matters.


Benchmarking and TQMBenchmarking and TQM

• BenchmarkingThe process of studying the products, services, and

practices of other firms and using the insights gained to improve quality internally.

• Continuous Quality ImprovementA constant and dedicated effort to improve quality.


Tools and Techniques of TQMTools and Techniques of TQM

• Employee ParticipationEmployee performance is a critical quality

variable.Quality circle

• A group of employees who meet regularly to discuss quality-related problems.


Tools and Techniques of TQMTools and Techniques of TQM

• The Inspection ProcessThe 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.


Statistical Methods of Quality ControlStatistical Methods of Quality Control

• Acceptance SamplingThe use of a random, representative portion to determine the

acceptability of an entire lot.

• Statistical Process ControlThe use of statistical methods

to assess quality during the operations process.

• Control ChartA graphic illustration

of the limits used in statistical process control.


International Certification forQuality Management

International Certification forQuality Management

• ISO 9000The standards governing international certification of a

firm’s quality management procedures.


Quality Management in Service BusinessesQuality Management in Service Businesses

• Six factors positively influence customers’ perception of service quality

1. Being on target2. Care and Concern3. Spontaneity4. Problem Solving5. Follow up6. Recovery


Competitive Strength ThroughImproved Productivity


• The Importance of Improving ProductivityProductivity is the efficiency with which inputs

are transformed into outputs.Productivity is more difficult to increase in

service industries than in manufacturing sectors.

Inputs

OutputstyProductivi

nInformatio Materials Raw Money Energy Labour

servicesand/or ProductstyProductivi

…continued




• Reengineering for Improved ProductivityReengineering

• A fundamental restructuring to improve the operations process.

• Asking “Why?” is important in the reengineering process.

…continued


• Operations AnalysisLaws of motion economy

• Arranging work in the most cost-effective and efficient manner possible.

• Methods of Work MeasurementMotion 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




Purchasing Policies and PracticesPurchasing Policies and Practices

• PurchasingThe process of obtaining materials, equipment, and

services from outside.

• The Importance of PurchasingThe 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.


Make or Buy DecisionsMake or Buy Decisions

• Purchasing Practices and ProfitabilityMaking 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


Outsourcing and Reasons for BuyingOutsourcing and Reasons for Buying

• Purchasing Practices and ProfitabilityOutsourcing

• 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


Sources of SupplySources of Supply

• Diversifying sources of supplyReasons 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


Relationships with SuppliersRelationships with Suppliers

• Relationships with suppliersSelecting suppliers

• Price and quality• Location and delivery reliability• Services offered—credit, product support, promotion

• Building good relationships with suppliersPurchasing practices

• Pay bills promptly• Be courteous to sales representatives• Avoid abrupt cancellations of orders• Maintain a professional relationship


Strategic AlliancesStrategic Alliances

• Developing Strategic AlliancesStrategic alliance is an organizational relationship that

links two independent business entities in a common endeavour. 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


Inventory Management and OperationsInventory Management and Operations

• Inventory Cost ControlEconomic order quantity (EOQ)

• The quantity to purchase in order to minimize total inventory costs.

Totalinventory

costs

Totalordering

costs

Totalcarrying

costs= +


Objectives of Inventory ManagementObjectives of Inventory Management

EnsuringContinuousOperations

MaximizingSales

ProtectingAssets

MinimizingInventory

Investment

Figure 12-3


Graphic Portrayal of the Economic Order Quantity

Graphic Portrayal of the Economic Order Quantity

EOQ Total Costs

Ordering Costs

Carrying Costs

Order Quantity (Units)

Cost ($)

Figure 12-4



• ABC Inventory AnalysisA system of classifying items in inventory by

relative valueCategory A (close/continuous control)

• High-value or critical production component itemsCategory B (moderate control)

• Less costly, secondary importance items Category C (periodic control)

• Low-cost and noncritical items…continued4



• Just-In-Time Inventory (JIT) System, also KanbanA 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

…continued


Inventory Management and Operations Inventory Management and Operations

• Inventory Record-Keeping SystemsPhysical 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.

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