Chapter 20 - Managing Operations

Managing
Operations
Part 5 Managing Growth in the

Small Business
PowerPoint Presentation by Charlie Cook

The University of West Alabama
Copyright © 2006 Thomson Business & Professional Publishing.
All rights reserved.
Quality Goals of Operations Management
• Quality as a Competitive Tool
–Quality is a must in international competition
• 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
Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 20–2
Essential Elements of
Successful Quality Management
Exhibit 20.1
Customer Focus of 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.
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
–The ultimate goal is zero defects—a goal popularized
by many quality improvement programs
• Benchmarking
–The process of studying the products, services, and
practices of other firms and using the insights gained
to improve quality internally
Tools and Techniques of TQM
• Employee Participation
–Employee performance is a critical quality variable
–The implementation of work teams and empowerment
of employees to build workplace involvement
–Quality circle
• A group of employees
who meet regularly to
discuss quality-related
problems
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
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
International Certification for
Quality Management
• ISO 9000
–The standards governing international certification of a
firm’s quality management procedures
• Documentation of the firm’s operations
in compliance with its quality
management procedures
–A requirement before
becoming a supplier
to larger U.S. and
overseas firms
Quality Management in Service Businesses
• Opportunities for Small Service Companies
–Providing an excellent combination of tangible
products and intangible services
–Providing personalized, high contact services
–Providing service quality without regard to the
profitability of the customer
–Developing good measures to control service quality
The Operations Process
• The Nature of the Operations Process
–Operations management
• The planning and control of the process of converting inputs
to outputs
–Conversion process
• Involves acquiring inputs and overseeing their transformation
in outputs as products and/or services
The Operations Process
Exhibit 20.2
The Operations Process (cont’d.)
• Managing Operations in a Service Business
–Products are tangible, services are intangible.
• Manufacturing can produce goods for inventory; service
operations cannot store or bank services.
–Productivity and quality are more easily measured in
manufacturing than service operations.
–Quality is more difficult to establish and control in
service than in manufacturing operations.
–Customers are more involved in service than
manufacturing operations.
–Individual characteristics of customers influence the
quality of service.
Types of Manufacturing Operations
• 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
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
Competitive Strength Through
Improved Productivity
• The Importance of Improving Productivity

–Productivity is the efficiency with which inputs are
transformed into outputs.
• Innovation is the key to increased productivity.
–Productivity is more difficult to increase in service
industries than in manufacturing sectors.
• Improving quality reduces waste and raises productivity.
Improved Productivity (cont’d.)
• Reengineering for Improved Productivity

–Reengineering
• Fundamental restructuring to improve the operations process
• Involves asking why a function is done the way it is done
• Requires rethinking and radically redesigning basic processes
that create value for the customer
• Upgrading Information Systems
–Management information systems
• Paper-based processes for tracking orders, work in progress,
and inventory have been replaced by computerized data
management systems
Improved Productivity (cont’d.)
• Operations Analysis
–Analyses of work flow, equipment, tooling, layout,
working conditions, and individual jobs
• Laws of motion economy: guidelines for arranging work in the
most cost-effective and efficient manner possible
• Methods of Work Measurement
–Motion Study
• Analysis of all the motions a worker makes to complete a job
–Time Study
• Determination of the average time it takes to complete a task
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.
Purchasing Policies and Practices (cont’d.)
• Purchasing Practices and Profitability
–Make-or-buy decision
• 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
• Purchasing Practices and Profitability (cont’d.)
–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
• Purchasing Practices and Profitability (cont’d.)
–Outsourcing
• Purchasing products or services that are outside the firm’s
area of competitive advantage
–Buying on the Internet
• Benefits: increased buying power, more access to resources
and information
• Small firms save on inputs by using the Internet to seek out
the lowest cost suppliers
• 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
• 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
• Bargain fairly; avoid abrupt cancellations of orders
• Maintain a professional relationship
• Make product improvement and cost reduction suggestions
• Developing Strategic Alliances
–Strategic alliance is an organizational relationship that
links two independent business entities in a common
endeavor. It 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 Operations
Objectives of Inventory Management
Exhibit 20.3
(cont’d.)
• Inventory Cost Control

–Economic order quantity (EOQ)
• The quantity to purchase in order to minimize total inventory
costs
Total Total Total

inventory = carrying + ordering
costs costs costs
Graphic Portrayal of the Economic Order Quantity
Exhibit 20.4
(cont’d.)
• 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
(cont’d.)
• 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
(cont’d.)
• 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
• Does not require a physical count except to ensure the
accuracy of the system

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Managing

Part 5 Managing Growth in the

PowerPoint Presentation by Charlie Cook

• The Importance of Improving Productivity

• Reengineering for Improved Productivity

Objectives of Inventory Management

• Inventory Cost Control

Total Total Total

• ABC Inventory Analysis

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

• Inventory Record-Keeping Systems

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