Operations

Management

1
 Chapter 1
What is Operations Management?
The business function responsible for planning,
coordinating, and controlling the resources (4
M’s) needed to produce a company’s products
and services
•It is a management function / Organization’s core
function

•Every organization has OM function

– Service, Manufacturing, NGO’s

 10 OM STRATEGIC
• DECISIONS
1. Design of Goods & Services
• 2. Managing Quality
• 3. Process strategies
• 4. Location strategy
• 5. Layout strategy
• 6. Human Resources
• 7. Supply Chain Management
• 8. Inventory Management
• 9. Scheduling
• 10. Maintenance
3
 Operations as a Transformation
Process
INPUT
•Material
TRANSFORMATIO OUTPUT
•Machines
N PROCESS •Goods
•Labor
•Services
•Management
•Capital

Feedback & Requirements

4
Operations Function
Typical Organization
Chart

6
 How is Operations
• Accounting • “As Relevant
an auditor you must understand the
fundamentals of operations management.”
• Information • “IT is a tool, and there’s no better place to
Technology apply it than in operations.”
• Management • scheduling, lean production, theory of
constraints, and tons of quality tools.”
• Economics • “It’s all about processes. I live by
flowcharts and Pareto analysis.”
• Marketing • “How can you do a good job marketing a
product if you’re unsure of its quality or
delivery status?”
• Finance • “Most of our capital budgeting requests
are
from operations, and most of our cost
savings, too.”
 OM’s Transformation
• To add value Role
– Value added is the net increase between output product value
and input material value
– a series of activities along a value chain extending from supplier to
customer
– activities that do not add value are superfluous and should be
eliminated

• Provide an efficient transformation

– Efficiency – perform activities well at lowest possible cost
 Differences between Manufacturers
and Service Organizations
• Services: •
Manufacturers:
• Intangible product • Tangible product
• Product cannot be • Product can be
inventoried inventoried
• High customer • Low customer contact
contact • Longer response time
• Short response time • Capital intensive
• Labor intensive
 Similarities-Service/Manufacturers

• All use technology

• Both have quality, productivity, & response issues
• All must forecast demand
• Each will have capacity, layout, and location issues
• All have customers, suppliers, scheduling and staffing
issues
 Service - Manufacturing

• Manufacturing often provides services

• Services often provides tangible goods
• Some organizations are a blend of
service/manufacturing/quasi-
manufacturing (QM) organizations
• QM characteristics include
– Low customer contact & Capital Intensive
 Trends in
OM
• Service sector growing to 50-80% as compared
to manufacturing
• Global competitiveness
• Demands for higher quality
• Huge technology changes
• Time based competition
• Work force diversity
• Evolution of Technology
• PEST changes
 OM Decisions
• All organizations are based on decisions
• Decisions follow a similar path
– Strategic decisions
• Strategic Decisions – set the direction for the
entire company; they are broad in scope and long-
term in nature
– Tactical decision
• Specific day-to-day issues
(Resource needs, schedules, & quantities to produce)
• Tactical decisions are very frequent
• Strategic decisions less frequent
• Tactical decisions must align with strategic decisions
 Historical Development of
• Industrial revolutionOM Late 1700s
• Scientific management Early 1900s
• Human relations movement 1930s - 1960s
• Computer age 1970s
• JIT, TQM 1980s
• Reengineering 1990s
• Supply Chain Management 1990s
• E-Commerce 2000s
• Industrial Revolution 4.0 2015
The Industrial Revolution was the transition to new
manufacturing processes in the period from about 1760 to
sometime between 1820 and 1840. This transition included going
from hand production methods to machines, new chemical
manufacturing and iron production processes, improved
efficiency of water power, the increasing use of steam power, and
the development of machine tools.

Scientific management, also called Taylorism, was a theory

of management that analyzed and synthesized workflows. Its
main objective was improving economic efficiency, especially
labor productivity. It was one of the earliest attempts to apply
science to the engineering of processes and to management.
Human relations movement refers to the researchers
of organizational development who study the behaviour of
people in groups, in particular workplace groups and other
related concepts in fields such as industrial and organizational
psychology. It originated in the 1930s' Hawthorne studies,
which examined the effects of social
relations, motivationand employee satisfaction on
factory productivity. The movement viewed workers in terms
of their psychology and fit with companies, rather than as
interchangeable parts, and it resulted in the creation of the
discipline of human resource management.
Operations research, or operational research in British usage, is
a discipline that deals with the application of advanced analytical
methods to help make better decisions.[1] It is often considered to
be a sub-field of mathematics.[2] The terms management
science and decision science are sometimes used as synonyms.[3]

The Information Age (also known as the Computer Age, Digital

Age, or New Media Age) is a period in human history
characterized by the shift from traditional industry that
the industrial revolution brought through industrialization, to an
economy based on information computerization. The onset of the
Information Age is associated with the Digital Revolution, just as
the Industrial Revolution marked the onset of the Industrial Age.
 Today’s OM
Environment
• Customers demand better quality, greater
speed, and lower costs
• Companies implementing lean systems
concepts – a total systems approach to
efficient operations
• Recognized need to better manage
information using ERP and CRM systems
• Increased cross-functional decision making
Business Information Flow / OM Across the
Organization
 OM Across the Organization -
• continued
Marketing is not fully capable of meeting customer
needs if they do not understand what operations
can produce
• Finance cannot judge the need for capital
investments if they do not understand operations
concepts and needs
• Information systems enables the information flow
throughout the organization
• Human resources must understand job requirements
and worker skills
• Accounting needs to consider inventory
management, capacity information, and labor
standards
 Globalization
• Why “go global”?
– improve the supply chain
– access to international markets
– response to changes in demand
– reliable sources of supply
– latest trends and technologies
– improve products
– reduce cost
– results from the Internet and falling trade
barriers
• Boeing – sales and production are worldwide
• Benetton – moves inventory to stores around
the world faster than its competition by building
flexibility into design, production, and
distribution
• Sony – purchases components from suppliers in
Thailand, Malaysia, and around the world
 Reasons to
Globalize
Reasons to Globalize

Tangible 1. Reduce costs (labor, taxes, tariffs, etc.)

Reasons 2. Improve supply chain
3. Provide better goods and services
4. Understand markets
Intangible 5. Learn to improve operations
Reasons
6. Attract and retain global talent
 Chapter 2

Operations Strategy
and
Competitiveness

24
 The Role of Operations
•
Strategy
Provide a plan that makes best use of resources
which;
– Specifies the policies and plans for using
organizational resources
– Supports Business Strategy as shown on next slide

• How the mission of a company is accomplished

• Provides direction for achieving a mission
• Unites the organization
• Provides consistency in decisions
• Keeps organization moving in the right direction

25
 Strategy
1.
Formulation
Defining a primary task
– What is the firm in the business of doing?
2. Assessing core competencies
– What does the firm do better than anyone
else?
3. Determining order winners and order qualifiers
– What qualifies an item to be considered for
purchase?
– What wins the order?
4. Positioning the firm
– How will the firm compete?
5. Deploying the strategy
 Strategic
Planning
Mission and
Vision

Corporate
Strategy

Marketing Operations Financial

Strategy Strategy Strategy
Business/Functional
Strategy

28
Three Inputs to a Business
Strategy

29
 Examples from
Strategies
• Mission: Google’s mission is to organize the world’s
information and make it universally accessible and
useful.
• Environmental Scanning: political trends, social
trends, economic trends, market place trends,
global trends
• Core Competencies: strength of workers, modern
facilities, market understanding, best technologies,
financial know-how, logistics

30
 Importance of Operations
Strategy
• Companies often do not understand the
differences between operational efficiency
and strategy
– Operational efficiency is performing tasks
well, even better than competitors
– Strategy is a plan for competing in the
marketplace
• Operations strategy is to ensure all tasks
performed are the right tasks

35
 Tools to Assist in Strategic
Decision
• Porter’s Five Forces – New entrant, substitute
Product, Supplier/Customer Demand,
Immediate Rival
• SWOT Analysis – Internal & External Analysis
• BCG Matrix
• PEST Analysis - Political, Economy, Social,
Technology
• VALUE CHAIN – add value to every function

36
Porter’s Five
Forces

37
 SWOT
ANALYSIS

38
 PEST
ANALYSIS

3
9
 BCG
MATRIX

40
VALUE CHAIN

41
Designing the Operations Function

42
 Competitive Priorities- The Edge

• Four Important Operations Questions:

Will you compete on –
Cost?
Quality?
Time?
Flexibility?
• All of the above? Some?
Tradeoffs?
43
 Competing on Cost?
• Offering product at a low price relative to competition
– Typically high volume products
– Often limit product range & offer little
customization
– May invest in automation to reduce unit costs
– Can use lower skill labor
– Low cost does not mean low quality

44
 Competing on Quality?
• Quality is often subjective
• Quality is defined differently depending on who is defining
it
• Two major quality dimensions include
– High performance design:
•Superior features, high durability, & excellent customer service

– Product & service consistency:

•Meets design specifications
•Close tolerances
•Error free delivery
• Quality needs to address
– Product design quality – product/service meets requirements
– Process quality – error free products

45
 Competing on Time?
• Time/speed one of most important competition
priorities
• First that can deliver often wins the race
• Time related issues involve
– Rapid delivery:
• Focused on shorter time between order placement and delivery
– On-time delivery:
• Deliver product exactly when needed every time

46
 Competing on Flexibility?
• Company environment changes rapidly
• Company must accommodate change by being flexible
– Product flexibility:
• Easily switch production from one item to another
• Easily customize product/service to meet specific requirements of
a customer

– Volume flexibility:
• Ability to ramp production up and down to match market demands

47
 The Need for Trade-
• Decisions must emphasis priorities that support business
strategy offs
• Decisions often required trade offs
• Decisions must focus on order qualifiers and order winners

– Which priorities are “Order Qualifiers”?

e.g. Must have excellent quality since everyone
expects it
– Which priorities are “Order Winners”?
(having the extra edge over the competitors)
e.g. Dell competes on all four priorities Air Asia competes on
cost
McDonald’s competes on consistency FedEx competes on
speed
Custom tailors compete on flexibility
48
 Strategic Role of
Technology
• Technology should support competitive
priorities
• Three Applications: product technology,
process technology, and information
technology
– Products - Teflon, CD’s, fiber optic cable
– Processes – flexible automation, CAD
– Information Technology – POS, EDI,
ERP
49
 Technology for Competitive
• Advantage
Technology has positive & negative potentials
– Positive
• Improve processes
• Maintain up-to-date standards
• Obtain competitive advantage
– Negative
• Costly
• Risks such as overstating benefits
• Technology should
– Support competitive priorities
– Can require change to strategic plans
– Can require change to operations strategy
50
 Measuring Productivity
• Productivity is a measure of how efficiently inputs are
converted to outputs
Productivity = output/input

• Total Productivity Measure

Total Productivity = $sales/inputs $

• Partial Productivity Measure

Partial Productivity = cars/employee

• Multifactor Productivity Measure

Multi-factor Productivity = sales/total $costs

51
 Chapter 3

Product Design
& Process
Selection

52
 Product Design
• Product design – the process of defining all of the
companies product characteristics
– Product design must support product manufacturability
(the ease with which a product can be made)
– Product design defines a product’s characteristics of;
• appearance, materials,
• dimensions, tolerances, and performance standards
– Product quality
– Product cost
– Customer satisfaction
53
 Design of Services vs Goods
• Service design is unique in that the service and entire
service concept are being designed
– must define both the service and concept
- Physical elements, aesthetic & psychological benefits
e.g. promptness, friendliness, ambiance
– Product and service design must match the needs and
preferences of the targeted customer group

54
 The Product Design Process
• Step 1 - Idea Development
- Someone thinks of a need and a product/service design to
satisfy it (e.g. customers, marketing, engineering,
competitors, benchmarking, reverse engineering)
• Step 2 - Product Screening
- Every business needs a formal/structured evaluation process
e.g. fit with facility and labor skills, size of market, contribution
margin, break-even analysis, return on sales
• Step 3 – Preliminary Design and Testing
- Technical specifications are developed, prototypes built,
testing
starts
• Step 4 – Final Design
- Final
& labor
design
skills
based
defined,
on test
suppliers
results,identified
facility, equipment, material,
55
 Factors Impacting Product
Design
• Need to Design for Manufacturing – DFM
• Series of guidelines to follow in order to produce
a
product easily and profitably
– Simplification - Minimize parts
– Standardization (Design parts for multiply
applications)
– Use modular design
– Simplify operations

56
 Manufacturability & Value Engineering
(Activities that help improve product design, production,
maintainability & use)
•Reduced complexity of the product
•Reduction of environment impact
•Additional standardization of
components
•Improvement of functional aspects of
the product
•Improved job design and job safety
•Improved maintainability(serviceability)
of the product
•Robust design
57
 Factor In Product Life
Cycle
• Product life cycle –
series of changing
product demand
• Consider product
life cycle stages
– Introduction
– Growth
– Maturity
– Decline
• Facility & process
investment depends on
life cycle

58
 Concurrent Engineering
• Old “over-the –wall” sequential design process should not be
used
– Each function did its work and passed it to the next function
• Replace with a Concurrent Engineering process
– All functions form a design team working together to develop
specifications, involve customers early, solve potential
problems, reduce costs, & shorten time to market

59
60
 Process Selection

• Product design considerations must

include the process

• Two broad process classifications include

– Intermittent operations – produce a variety of
products in lower volumes
– Repetitive operations – produce one or a few
standardized products in high volume

61
 Process Selection
• Process selection is based on five
considerations
– Type of process; range from intermittent
to continuous
– Degree of vertical integration
– Flexibility of resources
– Mix between capital & human resources
– Degree of customer contact

62
 Chapter 4

Supply Chain Management

& Technology
 Supply Chains &
Supply Chain Management (SCM)
• A supply chain is the network of all the activities involved in
delivering a finished product/service to the customer
– Sourcing of: raw materials, assembly, warehousing, order
entry, distribution, delivery

• Supply Chain Management is the vital business function that

coordinates all of the network links
– Coordinates movement of goods through supply chain
from suppliers to manufacturers to distributors
– Promotes information sharing along chain like forecasts,
sales data, & promotions

64
 Components of a Supply Chain
• External Suppliers– source of raw material
– Tier one supplier supplies directly to the processor
– Tier two supplier supplies directly to tier one
– Tier three supplier supplies directly to tier two

• Internal Functions include – processing functions

– Processing, purchasing, planning, quality, shipping

• External Distributors transport finished products to

appropriate locations
– Logistics managers are responsible for traffic
management and distribution management

65
 Components of a Supply Chain

• External Distributors transport finished

products to appropriate locations
– Logistics managers are responsible for managing
the movement of products between locations.
Includes;
• traffic management – arranging the method of
shipment for both incoming and outgoing products or
material
• distribution management – movement of material
from
manufacturer to the customer

66
A Basic Supply Chain

67
 The Bullwhip Effect
• Bullwhip effect - the inaccurate or distorted demand
information created in the supply chain
• Causes are generated by:
– demand forecasting updating, order batching,
price fluctuations, rationing and gaming
• Counteracting the Effect:
– Change the way suppliers forecast product
demand by making this information available at all
levels of the supply chain
– Share real demand information (POS terminals)
– Eliminate order batching
– Stabilize pricing
68
The Bullwhip Effect

69
 SCM
Factors
• SCM must consider the following trends,
improved capabilities, & realities:
– Consumer Expectations and Competition – power has
shifted to the consumer
– Globalization – capitalize on emerging markets
– Government Regulations and E-Commerce – issues of
Internet government regulations
– Environment Implications of E-Commerce – recycling,
sustainable eco-efficiency, and waste minimization

70
 Global SCM
• Managing extensive Factors
global supply chains introduces
many complications
– Geographically dispersed members - increase replenishment
transit times and inventory investment
– Forecasting accuracy complicated by longer lead times and
different operating practices
– Exchange rates fluctuate, inflation can be high
– Infrastructure issues like transportation, communication,
lack of skilled labor, & scarce local material supplies
– Product proliferation created by the need to customize
products for each market

71
 Sourcing Issues
• Which products to produce in-house and which are
provided by other supply chain members
• Vertical integration – a measure of how much of
the supply chain is owned by the manufacturer
– Backward integration – owning or controlling of
sources of raw material and component parts
– Forward integration – owning or control the
channels of distribution
• Vertical integration related to levels of insourcing or
outsourcing products or services

72
 Supply Chain Distribution
• Warehouses involved in supply chain distributions
– Plant / Regional / Local warehouses
• Warehouses - General /long-term storage
• Distribution – used for short-term storage,
consolidation, and product mixing
• Transportation consolidation – warehouses
consolidate less-than-truckload (LTL) quantities into
truckload (TL) quantities
• Product mixing – warehouse value added customer
service of grouping a variety of products into a direct
shipment to the customer

73
 Supply Chain Distribution
• Services are offered can improve customer service
by moving goods closer to the customer and thus
reducing replenishment time
• Crossdocking or movement of material without
storage and order-picking material while still
performing the receiving and shipping functions.
• Radio Frequency Identification Technology (RFID) –
automated data collection technology which relies
on radio waves to transfer data between reader and
RFID tag

74
 Integrated
•
SCM
Implementing integrated SCM requires:
– Analyzing the whole supply chain
– Starting by integrating internal functions first
– Integrating external suppliers through
partnerships
• Manufacturer’s Goals  Supplier’s Goals
– Reduce costs  Increase sales volume
– Reduce duplication of effort  Increase customer loyalty
– Improve quality  Reduce cost
– Reduce lead time  Improve demand data
– Implement cost reduction  Improve profitability
program
– Involve suppliers early
– Reduce time to market
75
 Current Trends in
SCM
• Increased use of electronic marketplace
such as
– E-distributors – independently owned net
marketplaces having catalogs representing
thousands of suppliers and designed for spot
purchases
– E-purchasing – companies that connect on-line
MRO suppliers to business who pay fees to join
the market, usually for long-term contractual
purchasing

76
 Current Trends in
• SCMmarketplace such as
Increased use of electronic
– Value chain management – automation of a firm’s
purchasing or selling processes
– Exchanges – marketplace that focuses on spot
requirements of large firms in a single industry
– Industry consortia – industry-owned markets that
enable buyers to purchase direct inputs from a limited
set of invited suppliers
• Decreased supply chain velocity due to greater
distances with greater uncertainty and generally
less efficient.

77
 SCM Across the
• Organization
SCM changes the way companies do business.
• Accounting shares SCM benefits due to inventory
level decreases
• Marketing benefits by improved customer service
levels
• Information systems are critical for information
sharing through POS data, EDI, RFID, the Internet,
intranet, and extranets
• Purchasing is responsible for sourcing materials
• Operations use timely demand information to
more effectively plan production schedules
78
 Product
• Computer-aidedTechnology
design (CAD)
– Creates and communicates designs electronically
• Group technology (GT)
– Classifies designs into families for easy retrieval and
modification
• Computer-aided engineering (CAE)
– Tests functionality of CAD designs electronically
• Collaborative product commerce (CPC)
– Facilitates electronic communication and exchange of
information among designers and suppliers
 Product
• Product data management
Technology(PDM)
– Keeps track of design specs and revisions for the
life of the product
• Product life cycle management (PLM)
– Integrates decisions of those involved in product
development, manufacturing, sales, customer
service, recycling, and disposal
• Product configuration
– Defines products “configured” by customers who
have selected among various options, usually from
a Web site
 Manufacturing
• Technology
Computer numerically control (CNC)
– Machines controlled by software to perform a range of
operations with the help of automated tool changers; collects
processing information and quality data
• Flexible manufacturing system (FMS)
– A collection of CNC machines connected by an automated
material handling system to produce a wide variety of parts
• Robots
– Programmable manipulators that can perform repetitive tasks;
more consistent than workers but less flexible
• Conveyors
– Fixed-path material handling; move items along a belt or
chain; “reads” package labels and diverts them to correct
destination
 Manufacturing
• Automatic guided Technology
vehicle (AGV)
– Driverless trucks that move material along a specified path;
directed by wire or tape embedded in floor or by radio
frequencies
• Automated storage and retrieval system (ASRS)
– An automated warehouse; items placed in a storage system and
retrieved by fast-moving stacker cranes; controlled by computer
• Process Control
– Continuous monitoring of automated equipment; makes real-
time decisions on ongoing operation, maintenance, and quality
• Computer-integrated manufacturing (CIM)
– Automated manufacturing systems integrated through computer
technology; also called e-manufacturing
 Information
• Technology
Business to Business (B2B) - E-transactions between businesses
usually via the Internet
• Business to Consumer (B2C) - E-transactions between
businesses and their customers usually via the Internet
• Internet - A global information system of computer networks that
facilitates communication and data transfer
• Intranet - Communication networks internal to an organization; can
also be password (i.e., firewall) protected sites on the Internet
• Bar Codes - Series of vertical lines printed on packages that identify item
and other information
• Radio Frequency Identification tags (RFID) - Integrated
circuit embedded in a tag; can send and receive information; a “twenty-first
century bar code” with read/write capabilities
• Electronic data interchange (EDI) - Computer-to-computer
exchange of business documents over a proprietary network; very expensive
and inflexible
 Information
• Technology
Decision support systems (DSS)
– Information system to help managers make
decisions; includes quantitative modeling
components and interactive components for what-if
analysis
• Expert systems (ES)
– A computer system that uses the knowledge of
experts to diagnose or solve a problem
• Artificial intelligence (AI)
– Field of study replicating elements of human thought
and natural processes in software; includes expert
systems, genetic algorithms, neural networks, and
fuzzy logic
 Chapter 5

Total Quality
Management

85
 Defining Quality – 5
Measuring Quality helps Ways
build successful strategies of
differentiation, low cost & response.
1.Conformance to specifications
– Does product/service meet targets and
tolerances
defined by designers?
2.Fitness for use
– Evaluates performance for intended use
3.Value for price paid
– Evaluation of usefulness vs. price paid
4.Support services
– Quality of support after sale
5.Psychological
– e.g. Ambiance, prestige, friendly staff
86
 Quality Improves
Profitability
• Sales Gain

• Reduced Costs

87
Manufacturing Quality vs. Service Quality

• Manufacturing quality focuses on tangible

product features
– Conformance, performance, reliability, features

• Service organizations produce intangible

products that must be experienced
– Quality often defined by perceptional factors like
courtesy, friendliness, promptness, waiting time,
consistency

88
 Cost of Quality

• Quality affects all aspects of the

organization
• Quality has dramatic cost implications of;
– Quality control costs
• Prevention costs
• Appraisal costs
– Quality failure costs
• Internal failure costs
• External failure costs

89
 TQM
Philosophy
 TQM Focuses on identifying quality problem
root causes
 Encompasses the entire organization
 Involves the technical as well as people
 Relies on seven basic concepts of
 Customer focus

 Continuous improvement

 Employee empowerment

 Use of quality tools

 Product design

 Process management

 Managing supplier quality

90
 TQM Philosophy -
• Focus on Customer
concepts
– Identify and meet customer needs
– Stay tuned to changing needs, e.g. fashion styles
• Continuous Improvement
– Continuous learning and problem solving,
e.g. Kaizen, 6 sigma
• Benchmarking
• Employee Empowerment
– Empower all employees; external and internal customers

91
 TQM Philosophy–
Concepts
• Team Approach
– Teams formed around processes – 8 to 10 people
– Meet weekly to analyze and solve problems
• Understanding Quality Tools
– Ongoing training on analysis, assessment, and
correction,
& implementation tools
– Studying practices at “best in class” companies
• Plan-Do-Study-Act (PDSA)

92
Deming PDSA wheel

93
 Seven Tools of Quality
Control
• Cause-and-Effect
Diagrams
• Flowcharts
• Checklists
• Control Charts
• Scatter Diagrams
• Pareto Analysis
• Histograms
94
 Cause-and-Effect
Diagrams
• Called Fishbone Diagram
• Focused on solving identified
quality problem

Flowcharts
• Used to document the detailed steps in a process
• Often the first step in Process Re-Engineering
• Helps focus on location of
problem in a process

95
 Checklist
• Simple data check-off sheet designed to identify type of
quality problems at each work station; per shift, per machine,
per operator

Control Charts
• Important tool used in Statistical Process Control
• The UCL and LCL are calculated limits used to show when
process is in or out of control (Upper/Lower Control Limits)

96
 Scatter
• A graph that shows how two variables are related to one another
•
Diagrams
Data can be used in a regression analysis to establish equation for
the relationship

Pareto Analysis
•Technique that displays the degree of importance for each element
•Named after the 19th century Italian economist
•Often called the 80-20 Rule
•Principle is that quality problems are the result of only a
few problems e.g. 80% of the

problems caused by 20% of 97

causes
 Product Design - Quality Function
Deployment
• Critical to ensure product design meets customer
expectations

• Useful tool for translating customer specifications into

technical requirements is Quality Function
Deployment (QFD)
• QFD encompasses
– Customer requirements
– Competitive evaluation
– Product characteristics
– Relationship matrix
– Trade-off matrix
– Setting Targets

98
 TQM and QMS
• Total Quality Management (TQM)
• customer-oriented, leadership, strategic
planning, employee responsibility,
continuous improvement, cooperation,
statistical methods, and training and
education
• Quality Management System (QMS)
• system to achieve customer satisfaction
that complements other company systems
 Quality Circles
• Voluntar Organization
8-10
members
y group Supervisor/moderator
Same area

of
workers Presentation
Training
Group processes

and Implementation
Monitoring
Data collection
Problem analysis

supervisors
from same
Problem
area who Solution
Problem results
Identification
List alternatives

address Problem
Consensus
Brainstorming

quality Analysis Cause

and effect

problems
Data collection
and analysis
 Focus of Quality Management—
• TQM and QMSs Customers
– serve to achieve customer satisfaction
• Satisfied customers are less likely to switch to a
competitor
• It costs 5-6 times more to attract new customers as
to keep an existing one
• 94-96% of dissatisfied customers don’t complain
• Small increases in customer retention mean large
increases in profits
 TQM Within OM
• TQM is broad sweeping organizational change
• TQM impacts
– Marketing – providing key inputs of customer
information
– Finance – evaluating and monitoring financial impact
– Accounting – provides exact costing
– Engineering – translate customer requirements into
specific engineering terms
– Purchasing – acquiring materials to support product
development
– Human Resources – hire employees with skills necessary
– Information systems – increased need for accessible
information
102
 Chapter 6

Just-in-Time and Lean

Systems

103
 Just-in-Time
• JIT philosophy means getting the right quantity of
goods at the right place and the right time
• JIT exceeds the concept of inventory reduction
• JIT is an all-encompassing philosophy found on
eliminating waste
• Waste is anything that does not add value
• A broad JIT view is one that encompasses the entire
organization
• Toyota Motor Co. developed JIT

104
The Philosophy of JIT - continued
• Often termed “Lean Systems”
• All waste must be eliminated- non value items
• Broad view that entire organization must focus on
the same goal - serving customers
• JIT is built on simplicity- the simpler the better
• Focuses on improving every operation- Continuous
improvement - Kaizen
• Visibility – all problems must be visible to be
identified and solved
• Flexibility to produce different models/features

105
 Three Elements of JIT - continued

• JIT manufacturing focuses on production system

to achieve value-added manufacturing
• TQM is an integrated effort designed to improve
quality performance at every level
• Respect for people rests on the philosophy that
human resources are an essential part of JIT
philosophy

106
 Elements of JIT Manufacturing

• JIT Manufacturing is a philosophy of value-added

manufacturing
• Achieved by
– Inventory reduction - exposes problems
– Kanbans & pull production systems
– Small lots & quick setups
– Uniform plant loading
– Flexible resources
– Efficient facility layouts

107
 Role of Inventory
• Inventory = LeadReduction
Time (less is better)
• Inventory hides problems

108
 Small Lot Sizes & Quick Setups
• Small lots mean less average inventory and shorten
manufacturing lead time
• Small lots with shorter setup times increase flexibility to
respond to demand changes
• Strive for single digit setups- < 10 minutes
• Setup reduction process is well-documented
– External tasks- do as much preparation while present job is
still running
– Internal tasks- simplify, eliminate, shorten steps involved with
location, clamping, & adjustments

• Ultimate goal is single unit lot sizes

109
 Flexible
Resources
• Moveable, general purpose equipment:
– Portable equipment with plug in power/air
– E.g.: printer-fax-copiers, etc.
– Capable of being setup to do many different things
with minimal setup time
• Multifunctional workers:
– Workers assume considerable responsibility
– Cross-trained to perform several different duties
– Trained to also be problem solvers

110
 Effective Facility
Layouts
• Workstations in close physical proximity to reduce
transport & movement
• Streamlined flow of material
• Often use:
– Cellular Manufacturing (instead of process focus)
– U-shaped lines: (allows material handler to
quickly drop off materials & pick up finished work)

111
 Traditional Process Focused
• Layout
Jumbled flows, long cycles, difficult to schedule

112
 JIT Cellular Manufacturing
• Product focused cells, flexible equipment, high
visibility, easy to schedule, short cycles

113
 JIT and TQM-
Partners
• Build quality into all processes
• Focus on continuous improvement - Kaizen
• Quality at the source- sequential inspection
• Jidoka (authority to stop line)
• Poka-yoke (fail-safe all processes)
• Preventive maintenance- scheduled
• Work environment- everything in its place, a
place for everything

114
 Supplier Relationships and JIT

• Use single-source suppliers when possible

• Build long-term relationships
• Work together to certify processes
• Co-locate facilities to reduce transport if
possible
• Stabilize delivery schedules
• Share cost & other information
• Early involvement during new product designs
115
 Benefits of JIT

• Reduction in inventories
• Improved quality
• Shorter lead times
• Lower production costs
• Increased productivity
• Increased machine utilization
• Greater flexibility

116
 Implementing JIT
• Starts with a company shared vision of where it is
and where it wants to go
• Implement the sequence of following steps
– Make quality improvements
– Reorganize workplace
– Reduce setup times
– Reduce lot sizes & lead times
– Implement layout changes (Cellular manufacturing &
close proximity)
– Switch to pull production
– Develop relationship with suppliers

117
 JIT in Services

• Most of the JIT concepts apply equally to Service

companies
– Improved quality such as timeliness, service
consistency, and courtesy
– Uniform facility loading to provide better service
responsiveness
– Use of multifunction workers
– Reduction in cycle time
– Minimizing setup times and parallel processing
– Workplace organization

118
 JIT across the
organization
• JIT eliminates organizational barriers and
improves communications
– Accounting changes or relies on activity-based costing
– Marketing by interfacing with the customers
– Finance approves and evaluates financial investments
– Information systems create the network of information
necessary for JIT to function

119
 Chapter 7

Capacity Planning &

Facility Location

120
 Capacity planning

• Capacity is the maximum output rate of a facility

• Capacity planning is the process of establishing
the output rate that can be achieved at a facility:
– Capacity is usually purchased in “chunks”
– Strategic issues: how much and when to spend
capital for additional facility & equipment
– Tactical issues: workforce & inventory levels,
& day-to-day use of equipment

121
 Measuring Capacity Examples
• There is no one best way to measure capacity
• Output measures like kgs per day are easier to
understand
• With multiple products, inputs measures work better
InputMeasuresof
TypeofBusiness
OutputMeasures
Capacity ofCapacity
Carmanufacturer Laborhours Carspershift

Hospital Availablebeds Patientspermonth

Pizzaparlor Laborhours Pizzasperday

Retailstore Floorspacein Revenueperfoot

squarefeet
122
 Measuring Available Capacity
• Design capacity:
– Maximum output rate under ideal conditions
– A bakery can make 30 custom cakes per day when
pushed at holiday time
• Effective capacity:
– Maximum output rate under normal (realistic) conditions
– On the average this bakery can make 20 custom cakes
per
day
• Measures how much of the available capacity is actually
being used:

123
 How Much Capacity Is Best?
• The Best Operating Level is the output that results in the
lowest average unit cost
• Economies of Scale:
– Where the cost per unit of output drops as volume of
output increases
– Spread the fixed costs of buildings & equipment over
multiple units, allow bulk purchasing & handling of
material
• Diseconomies of Scale:
– Where the cost per unit rises as volume increases
– Often caused by congestion (overwhelming the
process with too much work-in-process) and
scheduling complexity
124
Best Operating Level and Size
Alternative 1: Purchase one large facility, requiring one
large initial investment

125
 Making Capacity Planning Decisions

• The three-step procedure for making

capacity planning decisions is as follows:
– Step 1: Identify Capacity Requirements
– Step 2: Develop Capacity Alternatives
– Step 3: Evaluate Capacity Alternatives

126
Identifying Capacity Requirements

• Long-term capacity requirements based on

future demand
– Identifying future demand based on forecasting
– Forecasting, at this level, relies on qualitative
forecast models
• Executive opinion
• Delphi method
– Forecast and capacity decision must included
strategic implications
• Capacity cushions
– Plan to underutilize capacity to provide flexibility

127
 Evaluating Capacity
• Alternatives
Capacity alternatives include
– Could do nothing,
– expand large now (may included capacity cushion), or
– expand small now with option to add later

Many tools exist to assist in evaluating alternatives

• Most popular tool is Decision Trees
• Decision Trees analysis tool is:
– a modeling tool for evaluating sequential decisions which,
– identifies the alternatives at each point in time (decision
points), estimate probable consequences of each decision
(chance events) & the ultimate outcomes (e.g.: profit or
loss)
128
 Location Analysis
Factors Affecting Location Decisions
• Proximity to suppliers:
– Reduce transportation costs of perishable or bulky raw
materials, close to JIT partners
• Proximity to labor:
– Local wage rates, attitude toward unions, availability
of
special skills (e.g.: silicon valley)
• Proximity to Markets:
- locating near customers & basic amenities (market, post
office, bank, drug stores)

129
 More Location
Factors
• Community considerations:
– Local community’s attitude toward the facility
(e.g.:
prisons, utility plants, nuke facility etc.)
• Exchange Rates and Currency Risk:
– Unfavorable exchange rate, export / import impact
• Political Risk, Values & Culture:
– Govt. regulation, zoning, pollution, intellectual
property
• Proximity to Competitors:
– (Clustering) major resources found in same area.

130
 Making Location Decisions
• Analysis should follow 3 step process:
– Step 1: Identify dominant location factors
– Step 2: Develop location alternatives
– Step 3: Evaluate locations alternatives
• Procedures for evaluation location alternatives
include
– Factor rating method
– Load-distance model
– Center of gravity approach
– Break-even analysis
• Tax Credit / Incentives
• Relaxed Government Regulations
• Job Training
• Infrastructure improvement
131
• Finance