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CHAPTERCHAPTER
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Managing Operations, Quality, and Productivity
Managing Operations, Quality, and Productivity
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Learning ObjectivesLearning Objectives
After studying this chapter, you should be able to:– Describe and explain the nature of operations management.– Identify and discuss the components involved in designing
effective operations systems.– Discuss organizational technologies and their role in
operations management.– Identify and discuss the components involved in
implementing operations systems and supply chain management.
– Explain the meaning and importance of managing quality and total quality management.
– Explain the meaning and importance of managing productivity, productivity trends, and ways to improve productivity.
After studying this chapter, you should be able to:– Describe and explain the nature of operations management.– Identify and discuss the components involved in designing
effective operations systems.– Discuss organizational technologies and their role in
operations management.– Identify and discuss the components involved in
implementing operations systems and supply chain management.
– Explain the meaning and importance of managing quality and total quality management.
– Explain the meaning and importance of managing productivity, productivity trends, and ways to improve productivity.
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Chapter OutlineChapter Outline• The Nature of Operations
Management– The Importance of Operations– Manufacturing and Production– Service Operations– The Role of Operations in
Organizational Strategy
• Designing Operations Systems– Determining Product-Service Mix– Capacity Decisions– Facilities Decisions
• Organizational Technologies– Manufacturing Technology– Service Technology
• The Nature of Operations Management
– The Importance of Operations– Manufacturing and Production– Service Operations– The Role of Operations in
Organizational Strategy
• Designing Operations Systems– Determining Product-Service Mix– Capacity Decisions– Facilities Decisions
• Organizational Technologies– Manufacturing Technology– Service Technology
• Implementing Operations Systems Through Supply Chain Management
– Operations Management as Control
– Purchasing Management– Inventory Management
• Managing Total Quality– The Meaning of Quality– The Importance of Quality– Total Quality Management– TQM Tools and Techniques
• Managing Productivity– The Meaning of Productivity– The Importance of Productivity– Productivity Trends– Improving Productivity
• Implementing Operations Systems Through Supply Chain Management
– Operations Management as Control
– Purchasing Management– Inventory Management
• Managing Total Quality– The Meaning of Quality– The Importance of Quality– Total Quality Management– TQM Tools and Techniques
• Managing Productivity– The Meaning of Productivity– The Importance of Productivity– Productivity Trends– Improving Productivity
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The Nature of Operations The Nature of Operations ManagementManagement
• Operations Management– The set of managerial activities used by an organization to
transform resource inputs into products, services, or both.
• The Importance of Operations– Efficient and effective management of operations is
necessary for competitiveness and overall organization performance.
– Operations management creates value and utility through the production of products and services.
• Operations Management– The set of managerial activities used by an organization to
transform resource inputs into products, services, or both.
• The Importance of Operations– Efficient and effective management of operations is
necessary for competitiveness and overall organization performance.
– Operations management creates value and utility through the production of products and services.
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The Nature of Operations The Nature of Operations Management (cont’d)Management (cont’d)
• Manufacturing and Production– Manufacturing
• A form of business that combines and transforms resource inputs into tangible outcomes that are then sold to others.
• Manufacturing and Production– Manufacturing
• A form of business that combines and transforms resource inputs into tangible outcomes that are then sold to others.
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The Nature of Operations The Nature of Operations Management (cont’d)Management (cont’d)
• Service Operations– Service organization
• An organization that transforms resources into an intangible output and creates time and place utility for its customers.
• Service Operations– Service organization
• An organization that transforms resources into an intangible output and creates time and place utility for its customers.
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The Nature of Operations The Nature of Operations Management (cont’d)Management (cont’d)
• The Role of Operations in Organizational Strategy– Operations management has a direct impact on
competitiveness, quality, productivity, and effectiveness.– Operations management and organizational strategy have
reciprocal effects on each other.– Strategic goals cannot be met if there are deficiencies and
insufficiencies in operations resources.
• The Role of Operations in Organizational Strategy– Operations management has a direct impact on
competitiveness, quality, productivity, and effectiveness.– Operations management and organizational strategy have
reciprocal effects on each other.– Strategic goals cannot be met if there are deficiencies and
insufficiencies in operations resources.
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Designing Operations SystemsDesigning Operations Systems
• Determining Product-Service Mix– Involves deciding how many and what kinds of products to
offer in the marketplace.
• Capacity Decisions– Involve choosing the amount of products, services, or both
that can be produced by an organization.– High-risk decisions due to uncertainty about future product
demand and the significant costs of additional, possibly excess, capacity.
• Determining Product-Service Mix– Involves deciding how many and what kinds of products to
offer in the marketplace.
• Capacity Decisions– Involve choosing the amount of products, services, or both
that can be produced by an organization.– High-risk decisions due to uncertainty about future product
demand and the significant costs of additional, possibly excess, capacity.
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Designing Operations Systems Designing Operations Systems (cont’d)(cont’d)
• Facilities Decisions– Facilities—the physical locations where products or services
are created, stored, and distributed.• Location—the physical positioning or geographic site of facilities.
– Layout—the physical configuration of facilities, the arrangement of equipment within facilities, or both.
• Product layout—facilities arranged around the product; used when large quantities of a single product are needed.
• Process layout—facilities arranged around the process; used in facilities that create or process a variety of products.
• Fixed position layout—facilities arranged around a single work area; used for the manufacture of large and complex products.
• Cellular layout—a configuration of facilities used when families of products can follow similar paths.
• Facilities Decisions– Facilities—the physical locations where products or services
are created, stored, and distributed.• Location—the physical positioning or geographic site of facilities.
– Layout—the physical configuration of facilities, the arrangement of equipment within facilities, or both.
• Product layout—facilities arranged around the product; used when large quantities of a single product are needed.
• Process layout—facilities arranged around the process; used in facilities that create or process a variety of products.
• Fixed position layout—facilities arranged around a single work area; used for the manufacture of large and complex products.
• Cellular layout—a configuration of facilities used when families of products can follow similar paths.
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Designing Operations Systems Designing Operations Systems (cont’d)(cont’d)
• Approaches to Facilities Layout• Approaches to Facilities Layout
All incomingjobs andmaterials
Product Layout
Finishedproduct
Incomingjob 1
Finishedproduct 1
Finishedproduct 2
Incomingjob 2
Process Layout
Workstation Product
Figure 21.1a
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Designing Operations Systems Designing Operations Systems (cont’d)(cont’d)
• Approaches to Facilities Layout (cont’d)• Approaches to Facilities Layout (cont’d)
Fixed-Position Layout
Workstation Product
Figure 21.1b
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Organizational TechnologiesOrganizational Technologies
• Manufacturing Technology– Technology—the set of processes and systems used by
organizations to convert resources into products or services.– Automation—the process of designing work so that it can be
completely or almost completely performed by machines.• Computer-assisted manufacturing (CAM)—technology that relies on
computers to design or manufacture products.
• Computer-aided design (CAD)—the use of computers to design and complete products and to simulate performance so that prototypes need not be constructed.
• Flexible manufacturing systems—the use of robotic systems and computers to coordinate and integrate automated production and material handling facilities.
• Manufacturing Technology– Technology—the set of processes and systems used by
organizations to convert resources into products or services.– Automation—the process of designing work so that it can be
completely or almost completely performed by machines.• Computer-assisted manufacturing (CAM)—technology that relies on
computers to design or manufacture products.
• Computer-aided design (CAD)—the use of computers to design and complete products and to simulate performance so that prototypes need not be constructed.
• Flexible manufacturing systems—the use of robotic systems and computers to coordinate and integrate automated production and material handling facilities.
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Organizational Technologies Organizational Technologies (cont’d)(cont’d)
• A Simple Automatic Control Mechanism• A Simple Automatic Control Mechanism
Detects hightemperature(information)
Turns offfurnace(control)
Detects lowtemperature
(information)
Turns onfurnace
(control)
Feedback
Feedback
Thermostattests air(sensor)
Figure 21.2
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Organizational Technologies Organizational Technologies (cont’d)(cont’d)
• Manufacturing Technology (cont’d)– Robotics—the science and technology of the construction,
maintenance, and use of robots.• Robot—any artificial device that can
perform functions ordinarily thought to be appropriate for human beings.
• Service Technology– Services are rapidly moving
toward automated systems and procedures (e.g., automated teller machines).
• Manufacturing Technology (cont’d)– Robotics—the science and technology of the construction,
maintenance, and use of robots.• Robot—any artificial device that can
perform functions ordinarily thought to be appropriate for human beings.
• Service Technology– Services are rapidly moving
toward automated systems and procedures (e.g., automated teller machines).
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Implementing Operations Systems Implementing Operations Systems Through Supply Chain ManagementThrough Supply Chain Management
• Supply Chain Management– The process of managing operations control, resource and
inventory acquisition and purchasing, and thus improving overall efficiency and effectiveness.
• Operations Management as Control– Operations management can be used as a control by
coordinating it with other organizational functions to insure that the system focuses on the elements that are most crucial to goal attainment.
• Supply Chain Management– The process of managing operations control, resource and
inventory acquisition and purchasing, and thus improving overall efficiency and effectiveness.
• Operations Management as Control– Operations management can be used as a control by
coordinating it with other organizational functions to insure that the system focuses on the elements that are most crucial to goal attainment.
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Implementing Operations Systems Implementing Operations Systems Through Supply Chain Management Through Supply Chain Management
(cont’d)(cont’d)
• Purchasing Management– Controlling the buying of the materials and resources is at the
heart of effective supply chain management.
• Inventory Management– Inventory control (Materials Control)
• Managing the organization’s raw materials, work-in-process, finished goods, and products in-transit.
– Just-in-time (JIT) method• An inventory system than has necessary materials arriving as soon as
they are needed (just in time) so that the production process is not interrupted.
• Purchasing Management– Controlling the buying of the materials and resources is at the
heart of effective supply chain management.
• Inventory Management– Inventory control (Materials Control)
• Managing the organization’s raw materials, work-in-process, finished goods, and products in-transit.
– Just-in-time (JIT) method• An inventory system than has necessary materials arriving as soon as
they are needed (just in time) so that the production process is not interrupted.
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Implementing Operations Systems Implementing Operations Systems Through Supply Chain Management Through Supply Chain Management
(cont’d)(cont’d)• Inventory Management (cont’d)
– Inventory Types, Purposes, and Sources
• Inventory Management (cont’d)– Inventory Types, Purposes, and Sources
Type Purpose Source of Control
Raw materials Provide the materials needed to make the product
Purchasing models and systems
Work-in-process Enables overall production to be divided into stages of manageable size
Shop-floor control systems
Finished goods Provide ready supply of products on customer demand and enable long, efficient production runs
High-level production scheduling systems in conjunction with marketing
In-transit (pipeline)
Distributes products to customers
Transportation and distribution control systems
Table 21.1
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Managing Total QualityManaging Total Quality
• Quality– The totality of features and characteristics of a product or
service that bear on its ability to satisfy stated or implied needs.
– Quality is both a relative and absolute concept.– Quality is relevant to both products and services.
• Quality– The totality of features and characteristics of a product or
service that bear on its ability to satisfy stated or implied needs.
– Quality is both a relative and absolute concept.– Quality is relevant to both products and services.
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Managing Total Quality (cont’d)Managing Total Quality (cont’d)
• The Importance of Quality– Malcolm Baldrige Award
• Named after a former secretary of commerce, this prestigious award is given to firms that achieve major quality improvements.
– Competition• Quality has become one of the most important competitive points in
business today.
– Productivity• Quality enhancement programs decrease the number of defects,
reduce resources dedicated to rework, and reduces the need for inspectors as employees become responsible for quality.
– Costs• Improved quality reduces costs from customer returns, warranty, and
lawsuits for faulty products, and lost sales to future customers.
• The Importance of Quality– Malcolm Baldrige Award
• Named after a former secretary of commerce, this prestigious award is given to firms that achieve major quality improvements.
– Competition• Quality has become one of the most important competitive points in
business today.
– Productivity• Quality enhancement programs decrease the number of defects,
reduce resources dedicated to rework, and reduces the need for inspectors as employees become responsible for quality.
– Costs• Improved quality reduces costs from customer returns, warranty, and
lawsuits for faulty products, and lost sales to future customers.
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Managing Total Quality (cont’d)Managing Total Quality (cont’d)
• Eight Dimensions of Quality• Eight Dimensions of Quality
1. Performance. A product’s primary operating characteristic. Examples are automobile acceleration and a television’s picture clarity.
2. Features. Supplements to a product’s basic functioning characteristics, such as power windows on a car.
3. Reliability. A probability of not malfunctioning during a specified period.
4. Conformance. The degree to which a product’s design and operating characteristics meet established standards.
5. Durability. A measure of product life.
6. Serviceability. The speed and ease of repair.
7. Aesthetics. How a product looks, feels, tastes, and smells.
8. Perceived quality. As seen by a customer.
Source: Adapted and reprinted by permission of Harvard Business Review, from “Competing on the Eight Dimensions of Quality,” by David A. Garvin, November/December 1987. Copyright © 1987 by the President and Fellows of Harvard College, all rights reserved.
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Managing Total Quality (cont’d)Managing Total Quality (cont’d)
• Total Quality Management (TQM)– A strategic commitment by top management to change its
whole approach to business and to make quality a guiding factor in everything the organization does.
• Total Quality Management (TQM)– A strategic commitment by top management to change its
whole approach to business and to make quality a guiding factor in everything the organization does.
Strategic commitment
Quality improvements
Employeeinvolvement
Materials MethodsTechnology
Figure 21.3
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Managing Total Quality (cont’d)Managing Total Quality (cont’d)
• TQM Tools and Techniques– Benchmarking—the process of learning how and what other
firms do in an exceptionally high-quality manner.– Outsourcing—subcontracting operations/services to those
who can do them cheaper and/or better.– Speed—the time needed by the organization to get something
accomplished.– ISO 9000—a set of quality standards created by the
International Organization for Standardization by which firms can be certified.
– Statistical Quality Control (SQC)—a set of statistical techniques that can be used to monitor quality; includes acceptance sampling and in-process sampling.
• TQM Tools and Techniques– Benchmarking—the process of learning how and what other
firms do in an exceptionally high-quality manner.– Outsourcing—subcontracting operations/services to those
who can do them cheaper and/or better.– Speed—the time needed by the organization to get something
accomplished.– ISO 9000—a set of quality standards created by the
International Organization for Standardization by which firms can be certified.
– Statistical Quality Control (SQC)—a set of statistical techniques that can be used to monitor quality; includes acceptance sampling and in-process sampling.
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Managing ProductivityManaging Productivity
• Productivity– An economic measure of efficiency that summarizes the
value of outputs relative to the value of the resources used to produce them.
• Levels of Productivity– The unit of analysis used to calculate or define productivity.
• Aggregate productivity—the total level of productivity for a country.
• Industry productivity—the total productivity of all the firms in an industry.
• Company productivity—the level of productivity of a single company.
• Unit productivity—the productivity level of a unit or department.
• Individual productivity—the productivity attained by a single person.
• Productivity– An economic measure of efficiency that summarizes the
value of outputs relative to the value of the resources used to produce them.
• Levels of Productivity– The unit of analysis used to calculate or define productivity.
• Aggregate productivity—the total level of productivity for a country.
• Industry productivity—the total productivity of all the firms in an industry.
• Company productivity—the level of productivity of a single company.
• Unit productivity—the productivity level of a unit or department.
• Individual productivity—the productivity attained by a single person.
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Managing Productivity (cont’d)Managing Productivity (cont’d)
• Total factor productivity– An overall indicator of how
well an organization uses all of its resources (i.e., labor, capital, materials, and energy) to create all of its products and services.
• Total factor productivity– An overall indicator of how
well an organization uses all of its resources (i.e., labor, capital, materials, and energy) to create all of its products and services.
• Labor productivity– A partial productivity ratio
that uses only one category of resource (labor) to gage the organization’s productivity in utilizing that resource.
• Labor productivity– A partial productivity ratio
that uses only one category of resource (labor) to gage the organization’s productivity in utilizing that resource.
Productivity = Outputs Inputs
Forms of Productivity
LaborProductivity
Outputs Direct Labor
=
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Managing Productivity (cont’d)Managing Productivity (cont’d)
• The Importance of Productivity– Productivity is a primary determinant of an organization’s
level of profitability and its ability to survive.– Productivity partially determines people’s standard of living
within a particular country.
• Productivity Trends– The United States has the highest level of productivity in the
world, although the gap is closing as other countries become more productive.
– Manufacturing productivity growth continues to exceed that of the service sector.
• The Importance of Productivity– Productivity is a primary determinant of an organization’s
level of profitability and its ability to survive.– Productivity partially determines people’s standard of living
within a particular country.
• Productivity Trends– The United States has the highest level of productivity in the
world, although the gap is closing as other countries become more productive.
– Manufacturing productivity growth continues to exceed that of the service sector.
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Managing Productivity (cont’d)Managing Productivity (cont’d)
Manufacturing and Service Productivity Growth Trends (1970–2000)
Manufacturing and Service Productivity Growth Trends (1970–2000)
150
160
1970 1975 1980Year1985 1990 1995 2000
(estimate)
140
130
120
110
70
0
100
90
80
Total
Service
Manufacturing
* Nonfarm
Index: 1982 = 100
Pro
du
ctiv
ity
Gro
wth
Figure 21.4
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Managing Productivity (cont’d)Managing Productivity (cont’d)
• Improving Productivity– Improving Operations
• Spending more resources on research and development helps identify new products, new uses for existing products, and new methods for making products.
• Reworking transformation processes and facilities can boost productivity.
– Increasing Employee Involvement• Increased employee participation can increase quality and
productivity.
• Cross-training of employees allows the firm to function with fewer workers.
• Rewards are essential to the success in improving productivity.
• Improving Productivity– Improving Operations
• Spending more resources on research and development helps identify new products, new uses for existing products, and new methods for making products.
• Reworking transformation processes and facilities can boost productivity.
– Increasing Employee Involvement• Increased employee participation can increase quality and
productivity.
• Cross-training of employees allows the firm to function with fewer workers.
• Rewards are essential to the success in improving productivity.