Chapter 18-Operations Management

Operations Management
Operations Management
Managing the daily production of

goods and services.
Chapter 18
Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 1
Productivity
Productivity =
Outputs
Inputs
Why Different
Productivity Kinds of
Matters Productivity
1
Chapter 18
Why Productivity Matters
Higher
Lower Lower
Productiv
Costs Prices
ity
Higher
Higher
Standard Higher
Market
of Profits
Share
Living
1.
1
Chapter 18
Why Productivity Matters
§ Increased wages and new jobs
§ More donations to charities
§ More affordable and better products

§
§
1.
1
Chapter 18
Kinds of Productivity
 Partial productivity = Outputs

Single Kind of Input
Multifactor productivity =
Outputs
Labor + Capital + Materials + Energy
1.
2
Chapter 18
Quality
Quality-Related Quality-Related
Product Service
Characteristics Characteristics
ISO
9000 & 14000
Baldrige Total
National Quality
Quality Award Management
2
Chapter 18
Meanings for Quality
…A product or service
free of deficiencies
Quality
…The characteristics of a product or
service that satisfy customer needs
2
Chapter 18
Car Quality
2
Chapter 18
Quality-Related Product Characteristics
Se
ty
rv
bili
ice
lia
ab
Re
ilit
y
Product
Durability
2.
1
Chapter 18
Serviceability
 Reva
uses
computer
diagnostic
system that
can sync to
the owner’s
cell phone,
indicating
the type of
service the
vehicle
needs.
§ Chapter 18
Characteristics of Service Quality
2.
1
Chapter 18
ISO 9000 and 14000
ISO 9000
A series of international standards for

achieving consistency in quality
management and quality assurance in
companies throughout the world.
http://www.ansi.org
Web Link http://www.iso.ch
ISO 14000 http://www.asq.org
A series of international standards for

managing, monitoring, and minimizing an
organization’s harmful effects on the
environment.
2.
2
Chapter 18
Baldrige National Quality Award
§ Given to U.S. companies to recognize achievement

in quality and business performance
§ Raises awareness about the importance of quality

and performance excellence as a competitive
edge
2.
3
Chapter 18
Criteria for the
Baldrige National Quality Award
1. Leadership
2. Strategic Planning
3. Customer and Market Focus
4. Measurement, Analysis, & Knowledge Management
5. Human Resource Focus
6. Process Management
7. Business Results
2.
3
Chapter 18
Baldrige Application Process
Web Link http://www.quality.nist.gov
Chapter 18
Total Quality Management
Principles
Principles of
of TQM
TQM
Customer
Customer focus
focus and
and satisfaction
satisfaction
Continuous
Continuous improvement
improvement
Teamwork
Teamwork
2.
4
Chapter 18
Total Quality Management
6 Sigma 3.4
Sigma Quality Level
5 Sigma 230
4 Sigma 6,210
3 Sigma 66,800
2 Sigma 308,538
1 Sigma 690,000
690,000
50 150 250 350 450 550 650 750
Defects Per Million Parts (000)
2.
4
Adapted from Exhibit 18.7
Chapter 18
Service Operations
Services… Goods…
§ are performed §are made

§ are intangible §are tangible
§ are unstorable §are storable
§ 57.2% of GDP §32.7% of GDP
§
3
Chapter 18
The Service-Profit Chain
3.
1
Chapter 18 Exhibit 18.8
Components of Internal Service Quality
Policies and
Do they facilitate serving customers?
Procedures
Tools
Effective Training Do service employees have tools needed?
Rewards and Is job-specific training available?
Recognition
Communication Are good performers rewarded/recognized?
Management
Support
Goal Alignment Both vertical and horizontal communication?
Teamwork
Does management aid or hinder employees?
Are goals of senior management and frontline

service employees aligned?
Is there teamwork among individuals
3. and departments?
1
Chapter 18 Adapted From Figure 18.9
Service Recovery and Empowerment
§ Service recovery is restoring customer

satisfaction to strongly dissatisfied
customers
§ Fixing the mistakes that were made
§ Performing “heroic” service that delights
customers
§
§ Empowering workers can help solve customer
dissatisfaction
§ The goal is zero customer defections
3.
2
Chapter 18
Doing the Right Thing
DOING THE RIGHT

Protect
Protect Your
Your Front-Line
Front-Line Staff:
Staff:
The
The Customer
Customer Isn’t
Isn’t Always
Always Right
Right
THING
§§Fire
Firecustomers
customerswhowho use
usefoul
foullanguage,
language,make
makethreats
threats
against
againstemployees
employeesor or other
othercustomers,
customers,lie,
lie,demand
demand
unethical
unethicalor
orillegal
illegalservice,
service,bully,
bully,or
orare
arebelligerent
belligerent
§§Otherwise,
Otherwise,you
youare
aresaying
saying you
you care
caremore
moreabout
about
money
moneythan
thanthe
thesafety
safetyof
of people
peopleininthe
thebusiness
business
§§
3.
2
Chapter 18
Costs of Empowering
Service Employees
1.
1. Finding
Finding service
service workers
workers capable
capable of
of solving
solving problems
problems
2.
2. Training
Training service
service workers
workers
3.
3. Higher
Higher wages
wages
4.
4. Less
Less emphasis
emphasis on
on service
service reliability
reliability
5.
5. Eagerness
Eagerness to
to provide
provide “giveaways”
“giveaways”
6.
6. Unintentional
Unintentional unfair
unfair customer
customer treatment
treatment
3.
2
Chapter 18 Adapted from Exhibit 18.10
Benefits of Empowering
Service Employees
1.
1. Quicker
Quicker response
response to
to customer
customer complaints
complaints
2.
2. Employees
Employees feel
feel better
better
3.
3. Enthusiastic
Enthusiastic employee
employee interaction
interaction with
with customers
customers
4.
4. Employees
Employees offer
offer ideas
ideas for
for improvement
improvement and
and prevention
prevention
5.
5. Great
Great word-of-mouth
word-of-mouth advertising
advertising and
and customer
customer retention
retention
6.
6. Satisfied
Satisfied employees
employees more
more likely
likely to
to stay
stay with
with company
company
3.
2
Amount of Processing in
Manufacturing Operations
§ Make-to-order operations
§ manufacturing doesn’t begin until an order is
placed
§ Assemble-to-order operations
§ used to create semi-customized products
§ Make-to-stock operations
§ manufacture standardized products
4.
1
Chapter 18
Amount of Processing in
Manufacturing Operations
More Processing
Make-to-Order
Assemble-to-Order
Make-to-Stock
Less Processing
4.
1
Flexibility of Manufacturing Operations
LEAST FLEXIBLE
Continuous-Flow
Line-Flow
Batch
Job Shops
Project
Manufacturing
MOST FLEXIBLE
4.
2
Flexibility of Manufacturing
Operations
Continuous-flow production Produces products
continuously, like oil drilling
Line-flow production Uses predetermined, linear

steps, like beverage bottling
Batch production Produces specific quantities

of different items, like a
bakery or commissary
Job shops Handle small, specialty
batches
Project manufacturing Is for large, expensive,
specialized products like
aircraft carriers
4.
2
Chapter 18
Inventory
Types of Measuring
Inventory Inventory Levels
Costs
Costs of
of Systems
Systems for
for
Maintaining
Maintaining Managing
Managing
Inventory
Inventory Inventory
Inventory
5
Chapter 18
Types of Inventory
sing Raw
Purcha Raw materials
materials
Vendo
Vendo
rs Fabrication
rs
Purch
asing Component
Component parts
parts
Initial Assembly
Work-in-process
Work-in-process
Final Assembly
Finished
Finished goods
goods
5.
1
Types of Inventory
Finished
Finished Goods
Goods
Inventories
Inventories
Field Distributi
Warehou on
ses Centers
Wholesal
ers
Retailers
5. Customer
1 s
Measuring Inventory
1. Average Aggregate Inventory

§ the average overall inventory for a certain
time period
2. Weeks of Supply
§ the number of weeks to run out of inventory
3. Inventory Turnover
§ the number of times a year that a company
sells its average inventory
5.
2
Chapter 18
Inventory Turn Rates
30
Average Inventory Turn Rate
25
75th Percentile Inventory Turn

20
Rate
15
10
e
s
ce
ch
n
ag
al
iv
ng
tio
al
s
pa
ry
es
Te
ic
ot
le
er
tic
hi
uc
ne
m
os
bl
ab
om
Av
h
is
eu
he
tr
ig
ra
hi
er
ur
bl
ns
ut
ac
H
du
ac
C
A
tD
Pu
A
m
M
on
C
uc
ar
d
t&
N
an
od
Ph
/
ds
en
g
Pr
tin
oo
m
er
ip
in
G
qu
Pr
ed
su
lE
ag
on
ria
ck
5.
C
st
Pa
du
er
In
2
m
su
on
Adapted from Exhibit 18.14

C
Chapter 18
Costs of Maintaining an Inventory
all
all costs
costs associated
associated with
with ordering
ordering
Ordering
Ordering inventory,
inventory, correcting
correcting mistakes,
mistakes,
Cost
Cost determining
determining when/how
when/how much
much to
to order
order
costs
costs of
of downtime
downtime and and lost
lost efficiency
efficiency
Setup
Setup when
when aa machine
machine isis changed
changed to to produce
produce
Cost
Cost different
different kinds
kinds of
of inventory
inventory
Holding
Holding cost
cost of
of keeping
keeping inventory
inventory until
until itit is
is
Cost
Cost used
used or
or sold
sold
Stockout
Stockout costs
costs when
when aa company
company runs
runs out
out of
of
5. Costs
Costs aa product
product
3
Chapter 18
Stockout Costs
Chapter 18
Trade-off Between Setup Costs
and Manufacturing Flexibility
5.
3
Chapter 18
Managing Inventory
Economic
Economic
EOQ
EOQ Order
Order Quantity
Quantity
Just-in-Time
Just-in-Time
JIT
JIT Inventory
Inventory
Materials
Materials
MRP
MRP Requirement
Requirement Planning
Planning
5.
3
Chapter 18
Managing Inventory
Kanban
Kanban, which is Japanese for “sign,” is

a simple ticket-based JIT system that
indicates when to reorder inventory.
5.
3
Chapter 18

Chapter 18-Operations Management

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Chapter 18-Operations Management

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Operations Management

Managing the daily production of

§ Increased wages and new jobs

§ More donations to charities

§ More affordable and better products

 Partial productivity = Outputs

A series of international standards for

A series of international standards for

§ Given to U.S. companies to recognize achievement

§ Raises awareness about the importance of quality

Web Link http://www.quality.nist.gov

§ are performed §are made

Are goals of senior management and frontline

§ Service recovery is restoring customer

DOING THE RIGHT

Line-flow production Uses predetermined, linear

Batch production Produces specific quantities

1. Average Aggregate Inventory

75th Percentile Inventory Turn

Adapted from Exhibit 18.14

Kanban, which is Japanese for “sign,” is

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