Operations Operations Management: Management: Managing Vital Managing Vital

Operations Operations and Processes and Processes

Chapter Fourteen

Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

14-2

Learning ObjectivesLearning Objectives

LO1 Explain the role of operations management in achieving superior quality, efficiency, and responsiveness to customers.

LO2 Describe what customers want, and explain why it is so important for managers to be responsive to their needs.

14-3

Learning Objectives (cont.)Learning Objectives (cont.)

LO3 Explain why achieving superior quality in an organization’s operations and processes is so important.

LO4 Explain why achieving superior efficiency is so important.

Operations ManagementOperations Management

• Operations Management – The management of

any aspect of the production system that transforms inputs into finished goods and services

14-4

14-5

Operations ManagementOperations Management

• Production System– The system that an organization uses to acquire

inputs, convert inputs into outputs, and dispose of the outputs

14-6

Operations ManagementOperations Management

• Operations Manager – Manager who is responsible for managing an

organization’s production system and for determining where operating improvements might be made

14-7

Question?Question?

What is action taken to meet the demands and needs of customers?

A. QualityB. EfficiencyC. Responsiveness to customersD. Effectiveness

14-8

Operations ManagementOperations Management

• Quality – goods and services that are reliable, dependable,

or psychologically satisfying• Efficiency

– amount of inputs required to produce a given output

Operations ManagementOperations Management

• Responsiveness to customers – action taken to meet

the demands and needs of customers

14-9

The Purpose of Operations The Purpose of Operations ManagementManagement

Figure 14.114-10

14-11

Improving Responsiveness to CustomersImproving Responsiveness to Customers

• Without customers, organizations would cease to exist.– Non-profit and for-profit firms all have customers.– Managers need to identify who the customer is

and their needs.

14-12

What do customers want?What do customers want?

• Usually customers prefer:– A lower price to a higher price– High-quality products to low-quality products– Quick service to slow service– Many features over few features.– Products that are customized or tailored to their

specific needs

14-13

Designing Production Systems to BeDesigning Production Systems to BeResponsive to CustomersResponsive to Customers

• The attributes of an organization’s outputs—their quality, cost, and features—are determined by the organization’s production system

• Since the ability of an organization to satisfy the demands of its customers derives from its production system, managers need to devote considerable attention to constantly improving production systems

14-14

Customer Relationship ManagementCustomer Relationship Management

• Customer relationship management (CRM)– technique that uses IT to develop an ongoing

relationship with customers to maximize the value an organization can deliver to them over time

14-15

Improving QualityImproving Quality

The concept of quality applies the products of both manufacturing and service firms– A firm that provides higher quality than others at

the same price is more responsive to customers.– Higher quality can also lead to better efficiency

through lower waste levels and operating costs.

Impact of Increased Quality on Impact of Increased Quality on Organizational PerformanceOrganizational Performance

Figure 14.2 14-16

Improving EfficiencyImproving Efficiency

• The fewer the inputs required to produce a given output, the higher the efficiency of a production system

14-17

14-18

Improving EfficiencyImproving Efficiency

• A common measure of the organization’s efficiency of turning all of the inputs into outputs is called total factor productivity:

14-19

Improving EfficiencyImproving Efficiency

• A comparison measure of a single input (such as labor) to total output is called partial productivity:

Facilities Layout, Flexible Facilities Layout, Flexible Manufacturing, and EfficiencyManufacturing, and Efficiency

• Facilities Layout– The operations

management technique whose goal is to design the machine-worker interface to increase production system efficiency.

14-20

14-21

Facilities Layout, Flexible Manufacturing, Facilities Layout, Flexible Manufacturing, and Efficiencyand Efficiency

• Flexible Manufacturing– Operations management techniques that attempt

to reduce the setup costs associated with a production system.

Figure 14.3

Three Facilities LayoutsThree Facilities Layouts

14-22

14-23

Discussion QuestionDiscussion Question

Which facilities layout is best?A. Product layout B. Process LayoutC. Fixed-Position Layout

14-24

Facilities LayoutFacilities Layout

• Product layout– Machines are organized so that each operation is

performed at work stations arranged in a fixed sequence.

– Example: mass production systems where workers are stationary and a belt moves work to them.

14-25

Facilities LayoutFacilities Layout

• Process Layout– Self contained work stations not organized in a

fixed sequence.– Provides flexibility in making a wide variety of

products tailored to customers.

14-26

Facilities LayoutFacilities Layout

• Fixed-Position Layout– The product stays in a fixed spot and components

produced at remote stations are brought the product for to final assembly.

– Large jet aircraft assembly uses this type of layout.

Changing a Facilities LayoutChanging a Facilities Layout

Figure 14.4 14-27

14-28

Flexible ManufacturingFlexible Manufacturing

• Most firms face major expenses when setting up to produce a product.– These costs must be paid before production

begins.– The more often products to be built change, the

higher setup costs become.

14-29

Flexible ManufacturingFlexible Manufacturing

• Flexible manufacturing reduces setup costs by reducing the time required to reset the production line for a different product.– Using easily replaced manufacturing equipment– Redesigning the production system itself to be

more productive.

Just-in-Time Inventory and EfficiencyJust-in-Time Inventory and Efficiency

• Inventory– the stock of raw

materials, inputs, and component parts that an organization has on hand at a particular time

14-30

14-31

Just-in-Time Inventory and EfficiencyJust-in-Time Inventory and Efficiency

• Just-in-Time (JIT) Inventory– System in which parts arrive at an organization

when they are needed, not before

14-32

Just-in-Time Inventory and EfficiencyJust-in-Time Inventory and Efficiency

• A drawback to JIT is that a firm does not maintain a large buffer stock of parts which makes the firm vulnerable to strikes or supply problems that can quickly deplete on-hand inventories.

14-33

Self-Managed Work TeamsSelf-Managed Work Teams

• Self-managed teams boost efficiency by allowing for a flatter organization structure.– The team takes on the role of the supervisor.– Teams working together often become very skilled

at enhancing productivity.

14-34

QuestionQuestion

What is the rethinking and redesign of the business process to achieve dramatic improvement in critical measures of performance?

A. Corporate efficiencyB. Process redesignC. Process re-qualificationD. Process reengineering

14-35

Process Reengineering and EfficiencyProcess Reengineering and Efficiency

• Process Reengineering– The fundamental rethinking and radical redesign

of the business process to achieve dramatic improvement in critical measures of performance such as cost, quality, service, and speed

14-36

Process Reengineering and EfficiencyProcess Reengineering and Efficiency

Process Reengineering:• Boosts efficiency by directing efforts to activities that

add value to the good or service produced• Top managers must support efficiency improvements

for them to be accepted by workers

14-37

Video Case: CVSVideo Case: CVS

How can a company like CVS grow in size yet maintain its organizational agility?

How does CVS respond to its customers?