Achieving World-Class Achieving World-Class Operations ManagementOperations ManagementAchieving World-Class Achieving World-Class

Operations ManagementOperations Management

Chapter 12

Chapter 12 Learning GoalsChapter 12 Learning Goals

1.1. WWhy is production and operations management important in both manufacturing and service firms?

2.2. WWhat types of production processes are used by manufacturers and service firms?

3.3. HHow do organizations decide where to put their production facilities? What choices must be made in designing the facility?

4.4. WWhy are resource planning tasks like inventory management and supplier relations critical to production?

Chapter 12 Learning Goals Chapter 12 Learning Goals (cont’d.)(cont’d.)

5.5. HHow do operations managers schedule and control production?

6.6. HHow can quality management and lean manufacturing techniques help firms improve production and operations management?

7.7. WWhat roles do technology and automation play in manufacturing and service industry operations management?

8.8. WWhat key trends are affecting the way companies manage production and operations?

Learning Goal 1Learning Goal 1

• WWhy is production and operations management important in both manufacturing and service firms?– Manufacturers must produce high-quality, reasonably

priced products or they will lose customers – Service organizations rely on effective operations

management to satisfy consumers– Operations managers work with other functions in

organizations to ensure• Quality• Customer Satisfaction• Financial success

ProductionProduction::

The creation of products & services by turning inputs into outputs

Operations Management:Operations Management:

Management of the operations process

Production planningProduction planning::

The aspect of operations management in which the firm considers the competitive environment and its own strategic goals in an effort to find the best production methods

Titan’s Production PlanningTitan’s Production Planning

Titan motorcycle company production estimates for 1999 were based on:– the introduction of a new product line– estimated industry sales for 1999, based on past

sales trends

0

100

200300

400

500

600

1994 1995 1996 1997 1998 19990

500

1000

1500

1994 1995 1996 1997 1998 1999

Motorcycle Industry Sales Titan’s Production

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Source: Motorcycle Industry Council/The Arizona Republic, Dec. 5, 1999, p. D5.

Elements of Production PlanningElements of Production Planning

1.1. Production process

2. 2. Site selection

3. 3. Facility layout

4. 4. Resource planning

5. 5. Supply chain management

Learning Goal 2Learning Goal 2

• WWhat types of production processes are used by manufacturers and service firms?– Mass productionMass production

• Many identical goods are produced at once, keeping production costs low

• Relies heavily on standardization, mechanization, specialization

– Mass customizationMass customization• Mass production techniques are used up to a point• Special features are added to custom tailor product to individual

customers• More expensive than mass production

– CustomizationCustomization• Firm makes many products, one at a time• Products produced to the very specific needs or wants of individual

customers

Types of Production ProcessTypes of Production Process

1. Mass productionMass production

2. Mass customizationMass customizationExample products: Dell computers, Levi’s jeans,

Acumin vitamins, compact discs (cductive.com), Ritz-Carlton hotel stays, Mattel Barbie dolls, BMW cars, Paris Miki optical frames (Source: Fortune, Sept. 28, 1998, pp. 115-124)

3. CustomizationCustomization

Coffee Bean Production ProcessCoffee Bean Production Process

2 ways to grow coffee beans:

In the sun:In the sun: beans grow faster, but this process requires clearing forests

In the shade:In the shade: beans grow slower, but process preserves existing ecosystems

The trade-off must be considered when deciding what process to use

Source: Consumer Reports, Jan. 2000, p. 30.

Learning Goal 3Learning Goal 3

• HHow do organizations decide where to put their production facilities? What choices must be made in designing the facility?– When choosing a production site, firms must weigh

• Availability of resources needed for production

• Ability to serve customers and take advantage of marketing opportunities

• Availability of local incentives

• Manufacturing environment

– Three main production facility designs• Process layout

• Product layout

• Fixed-position layout

Site Selection ConsiderationsSite Selection Considerations

1.1. Availability of production inputs

2.2. Marketing factors

3.3. Local incentives

4.4. Manufacturing environment

5.5. International location considerations

Good Labor Locations in the USGood Labor Locations in the US

States with above average labor qualitylabor quality and below average labor cost:labor cost:

• Alabama

• Alaska

• Georgia

• Hawaii

• Virginia

• Wyoming

Source: Corporate Location, www.corporatelocation.com

Types of Facility LayoutTypes of Facility Layout

1. Process layoutProcess layout

2. Product layoutProduct layout

3. Fixed-position layoutFixed-position layout

Learning Goal 4Learning Goal 4

• WWhy are resource planning tasks like inventory management and supplier relations critical to production?– Resources needed for production must be available at strategic

moments in the production process– If resources are not readily available, productivity, customer

satisfaction, and quality may suffer– Carefully managed inventory can help cut production costs– Through good relationships with suppliers, firms can get:

• Better prices

• Reliable resources

• Support services than can improve production efficiency

Elements of Resource PlanningElements of Resource Planning

• Purchasing• Insourcing vs. Outsourcing• Inventory management• Computerized resource planning

Materials requirement planning (MRP)Enterprise resource planning (ERP)

“The guy with the most resources doesn’t win. The guy who utilizes his resources best wins.” Chuck Knight, CEO of Emerson Electric (Source: Neff & Citrin, Lessons from the Top, 1999, p. 200.)

Supply ChainSupply Chain::

The entire sequence of securing inputs, producing goods, and delivering them to customers

Supply Chain Management:Supply Chain Management:

The process of smoothing transitions along the supply chain

Supply Chain Management StrategiesSupply Chain Management Strategies

• Forge stronger bonds with suppliers

• Improve supplier communication– electronic data interchange (IDE)

Learning Goal 5Learning Goal 5

• HHow do operations managers schedule and control production?– Routing Routing

• Analyzes steps needed in production • Sets out a work flow• Increases productivity and can eliminate unnecessary cost

– SchedulingScheduling• Specifying and controlling time and resources required for each

step in production process• Ranges from simple to complex• Three methods are used to schedule production:

– Gantt charts– Critical path method– PERT

Production controlProduction control::

The coordination of materials, equipment, and human resources to achieve production & operation efficiency

Aspects of Production ControlAspects of Production Control

1.1. Routing

determining work flow

2. 2. Scheduling

controlling timing

– Gantt charts

– Critical path method & PERT charts

Typical Gantt ChartTypical Gantt Chart

Scheduling

Designing

Ordering

Delivering materials

Machining components

Assembling

Inspecting

Shipping

September October

8

Symbols:Symbols:scheduled start completed work time not avail.

scheduled end review date

Learning Goal 6Learning Goal 6

• HHow can quality management and lean manufacturing techniques help firms improve production and operations management?– Quality and productivity go hand in hand

• Defective products waste materials and time; increase costs

• Poor quality leads to dissatisfied customers

– Quality-control methods can reduce problems and streamline production

– Lean manufacturing eliminates unnecessary steps in production process

• Allows manufacturers to respond to changing market conditions with greater flexibility and ease

Learning Goal 7Learning Goal 7

• WWhat roles do technology and automation play in manufacturing and service industry operations management?– Operational efficiency is improved by using technology to automate

parts of production• Computer-aided design and manufacturing systems

– Help design new products– Control the flow of resources need for production– Operate much of the production process

• Robotics– Useful for tasks that require accuracy, speed, and strength– Require less labor to operate

– Service firms are automating operations• Banks, law firms, and utility companies• Using technology cuts labor costs and controls quality

Improving Production Improving Production

• Total Quality Management• Lean Manufacturing• Just-in-Time• Automation

– Computer-aided design (CAD)– Computer-aided manufacturing (CAM)– Robotics– Flexible manufacturing systems (FMS)– Computer-integrated manufacturing (CIM)

Learning Goal 8Learning Goal 8

• WWhat key trends are affecting the way companies manage production and operations?– Agile manufacturing

• Helps manufacturers stay fast and flexible • Firms must develop production systems composed of tools and

processes that can quickly change to produce new or different products

– Cellular manufacturing• Creates small, self-contained production units • Cell performs all or most of tasks necessary to complete a product or

production sequence

– Manufacturing and non-manufacturing firms are putting emphasis on empowering employees

• Giving them greater say in deciding how to perform their jobs• Larger role in company decision making

Trends in Operations ManagementTrends in Operations Management

Increase in modular production

Agile manufacturing

permits adapting to changing customer demands

Work cell design

creates team environment in production

Changing Operations in InsuranceChanging Operations in Insurance

A new approach to insurance operations involves:

• developing component-based systems– faster development– more flexible

• integration of processes & systems– web-based sales & services, call-center

technology, data management

Source: Best’s Review, Dec., 1999, www.ambest.com