Part 3 Managing for Quality and Competitiveness © 2015 McGraw-Hill Education. 8-2 CHAPTER 6 The Nature of Management CHAPTER 7 Organization, Teamwork, and Communication CHAPTER 8 Managing Service and Manufacturing Operations 8-3 Learning Objectives LO 8-1 Define operations management and differentiate between operations and manufacturing. LO 8-2 Explain how operations management differs in manufacturing and service firms. LO 8-3 Describe the elements involved in planning and designing an operations system. LO 8-4 Specify some techniques managers may use to manage the logistics of transforming inputs into finished products. LO 8-5 Assess the importance of quality in operations management. 8-4 Nature of Operations Management Operations Management (OM) • The development and administration of the activities involved in transforming resources into goods and services Historically, OM has been called “production” or “manufacturing” limiting it to the manufacture of physical goods The change from “production” to “operations” recognizes services and ideas and views the function as a whole 8-5 Nature of Operations Management Manufacturing • The activities and processes used in making tangible products; also called production Production • The activities and processes used in making tangible products; also called manufacturing Operations • The activities and processes used in making both tangible and intangible products 8-6 Transformation Process At the heart of OM is the transformation process though which inputs are converted into outputs Inputs • The resources – such as labor, money, materials and energy – that are converted into outputs Outputs • The goods, services and ideas that result from conversion of inputs Operations managers control the process by • Taking measurements (feedback) and comparing them to established standards • Taking corrective action for any deviation 8-7 3D Printing 3D printing has become popular among businesses for the purposes of manufacturing certain items more efficiently and inexpensively It is also used to create tools needed for work or manufacturing processes The designs of the product or tool are put into a computer and printed with liquid metals or plastics… A wide range of industries are taking advantage of this method from aircraft to dental product manufacturers 3D printing decreases the number of pieces in the assembly of an item making it less likely to break For example, the National Aeronautics and Space Administration (NASA) printed a fuel injector for a rocket in two pieces that once require 115 pieces for complete assembly SOURCE: Economist. “From Dental Braces to Astronaut Seats”. www.economist.com. September 7, 2013. http://www.economist.com/news/leaders/21585005-signs-are-3d-printing-transforming-manufacturing-not-ways-you-might. (accessed September 24, 2013). 8-8 OM in Service Businesses Manufacturers and service providers differ in five basic ways 1. Nature and consumption of output – services require more customer contact and happen at the point of consumption 2. Uniformity of inputs – services are more “customized” to each consumer 3. Uniformity of output – each service is performed differently 4. Labor required – services are more labor-intensive 5. Measurement of productivity – intangibility of the service product makes measurement more difficult 8-9 OM in Service Businesses Subway’s inputs are sandwich components such as bread, tomatoes and lettuce. While Subway’s outputs are customized sandwiches 8-10 Planning and Designing Operations Systems Operations planning involves making the following decisions What will we produce? Who are our customers? What processes will we use? Where will we make our product? Planning the product Marketing research helps determine the product and features customers want, gauge demand and set price Once management has a product, they must plan how to produce the product Operations managers plan for the resources needed to complete the transformation process 8-11 Designing the Operations Process Products are manufactured using one of three processes Standardization Modular Design Customization • The making of identical interchangeable components or products • The creation of an item in selfcontained units, or modules, that can be combined or interchanged to create different products • Making products to meet a particular customer’s needs or wants 8-12 Planning Capacity Capacity • The maximum load that an organizational unit can carry or operate o The unit of measurement could be a worker or machine, a department, a branch or an entire plant o Capacity can be stated in terms of inputs or outputs o Planning capacity too low results in unmet demand while planning it too high results in higher costs 8-13 Planning Facility Location Facility Location • A complex and costly decision Important factors to consider Proximity to market Availability of raw materials, transportation, power and labor Climatic influences and community characteristics Taxes and inducements 8-14 Planning Facility Layout Fixed-Position Layout • A layout that brings all resources required to create the product to a central location Project Organizations • Companies using a fixed-position layout because it is typically involved in large, complex projects such as construction or exploration 8-15 Planning Facility Layout Process Layout • A layout that organizes the transformation process into departments that group related processes Intermittent Organizations • Organizations that deal with products of a lesser magnitude than project organizations; their products are not unique but possess a significant number of differences 8-16 Planning Facility Layout Product Layout • A layout requiring production be broken down into relatively simple tasks assigned to workers, who are usually positioned along an assembly line Continuous Manufacturing Organizations • Companies that use continuously running assembly lines, creating products with many similar characteristics 8-17 Planning and Designing Operations Systems Apple stores are designed to make the most efficient use of space The layout of the stores allows customers to test its products before purchasing 8-18 Planning Facility Technology Computer-Assisted Design (CAD) • The design of components, products and processes on computers instead of on paper Computer-Assisted Manufacturing (CAM) • Employs specialized computer systems to actually guide and control the transformation process 8-19 Planning Facility Technology Flexible Manufacturing • The direction of machinery by computers to adapt to different versions of similar operations Computer-Integrated Manufacturing (CIM) • A complete system that designs products, manages machines and materials, and controls the operations function 8-20 Sustainability and Manufacturing Sustainability issues are becoming increasingly important to stakeholders and consumers “Green” operations and manufacturing can improve a company’s reputation, increase customer and employee loyalty, leading to improved profits 8-21 Planning and Designing Operations Systems Patagonia is always looking for a greener way to design, produce and recycle its products Their mission statement: Build the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environmental crisis 8-22 Managing the Supply Chain Supply Chain Management • Connecting and integrating all parties or members of the distribution system in order to satisfy customers; also called logistics Includes Obtaining and managing raw materials and component parts Managing finished products Packaging products Getting products to customers 8-23 Managing the Supply Chain Purchasing • The buying of all the materials needed by the organization; also called procurement » Aim is to obtain items of the desired quality in the right quantities at the lowest possible cost » Companies may be able to make some component parts more economically and efficiently » Can arrange to lease the item from another company 8-24 Managing Inventory Inventory • All raw materials, components, completed or partially completed products, and pieces of equipment a firm uses Finished-goods inventory – products ready for sale Work-in-process inventory – products partly completed Raw materials inventory – all materials purchased to be used as inputs for making other products 8-25 Managing Inventory Inventory Control • The process of determining how many supplies and goods are needed and keeping track of quantities on hand, where each item is, and who is responsible for it Operations management must be closely coordinated with inventory control Inventory managers try to determine the proper inventory level for each item 8-26 Approaches to Inventory Control Economic Order • Identifies the optimum number of items to order to minimize the costs of managing Quantity (EOQ) (ordering, storing and using) them Model Materialthe precise quantity of materials Requirements • Schedules needed to make the product Planning (MRP) Just-In-Time (JIT) Inventory Management • A technique using smaller quantities of materials that arrive “just in time” for use in the transformation process and therefore require less storage space and other inventory management expense 8-27 Managing the Supply Chain Globalization requires supply chain managers improve speed and balance resources to compete o Outsourcing, or contracting work to other companies, is linked with competitive advantage through: Improved product quality Customers obtain products sooner Overall supply-chain efficiencies o However, outsourcing may raise negative public opinion 8-28 Managing the Supply Chain Next, management must consider: Routing • The sequence of operations through which the product must pass; sequence depends on the product specifications Once the routing is known, actual work can be scheduled Scheduling • The assignment of required tasks to departments or even specific machines, workers or teams 8-29 Managing the Supply Chain One popular method developed for scheduling is: o Program Evaluation and Review Technique (PERT) Identifies all the major activities or events required Arranges them in a sequence or path Determines the critical path Estimates the time required for each event o The path requiring the longest time from start to finish is called the critical path as that is the minimum amount of time needed for completion 8-30 Managing the Supply Chain A Hypothetical PERT Diagram for a McDonald’s Big Mac 8-31 Taco Bell Drive-Thru Taco Bell’s efficient drive-thru operations mirror major factory operations such as standardized procedures, elimination bottlenecks, and optimization of staff efficiency The restaurant averages 164 seconds per customer order from the time the customer arrives to departure With an assembly line of food items to construct, six different types of wrappers, and detailed procedures for every step of the process, Taco Bell is now among the top for speed, accuracy, and efficiency Employees at Taco Bell are divided into two categories: Service Champions (drive-thru) and Food Champions (food preparation) Service Champions are trained to follow a specific script as they greet customers and take orders. They enter orders into the point-of-sale system, make drinks when needed, and handle payments When processing orders for more complex menu items, Service Champions may assist Food Champions in food preparation. Beyond that, it comes down to teamwork, to everyone working together to create a seamless process free from mistakes. 8-32 Managing Quality Quality, like cost and efficiency, is a critical element of operations management, for defective products can quickly ruin a firm Quality reflects the degree to which a good or service meets the demands and requirements of customers Determining quality can be difficult because it depends on customers’ perceptions of how well the product meets or exceeds their expectations Quality is especially difficult to measure for a service A company must define important quality characteristics into measurable terms 8-33 Managing Quality Quality is so important, it needs examination in the context of operations management Quality Control • The processes an organization uses to maintain its established quality standards Statistical Process Control • A system in which management collects and analyzes information about the production process to pinpoint quality problems in the production system 8-34 Managing Quality Top Quality Management (TQM) • A philosophy that uniform commitment to quality in all areas of an organization will promote a culture that meets customers’ perceptions of quality TQM requires constant improvements in all areas of the company as well as employee empowerment A primary tool of TQM is benchmarking, the measuring and evaluating of the quality produced by the best-performing companies in the industry Quality control is viewed as an element of the product itself 8-35 Managing Quality Product specifications and quality standards must be set so the company can create a product that will compete in the marketplace A company must first determine what standard of quality it desires and then assess whether its products meet that standard o For manufacturing, that could be specifications such as thickness of metal or amount of a certain material o Service industries establish standards such as how long a customer waits, or how many fries are in an order Once the desired quality characteristics, specifications and standards are stated in measurable terms, inspection follows 8-36 Managing Quality ISO 9000 • A series of quality assurance standards designed by the International Organization for Standardization (ISO) to ensure consistent product quality under many conditions Companies must pass a rigorous certification process but for some industries, certification is necessary to compete ISO 1400 • A comprehensive set of environmental standards that encourages companies to conduct business in a cleaner, safer and less wasteful way; providing a uniform set of global standards 8-37 Managing Quality Inspection Sampling • Reveals whether a product meets quality standards • Inspecting finished items determines quality level • Inspecting work-inprocess items finds defects before the product is completed so corrections can be made • Allows a company to pass an entire batch of products through inspection by testing a sample • There is always the risk of making an incorrect conclusion based on a sample • Sampling is more likely to be used when inspection tests are destructive to the product 8-38 Integrating Operations and Supply Chain Management Managing operations and supply chains can be complex due to the number of participants in the process Managing the various partners is important because stakeholders hold the firm responsible Companies can adopt a Global Supplier Code of Conduct and ensure its communicated Companies must regularly audit its suppliers against company standards and take action against those found to be in violation 8-39 Discussion ? ? In what industry would the fixed-position layout be most efficient? The process layout? The product layout? Use real examples. Define supply chain management and summarize the activities it involves.