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Chapter 16
Managing Operations and
Increasing Productivity
© 2015 YOLO Learning Solutions
The Nature of Operations
Management
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Operations management (OM) is the development and
administration of the activities involved in
transforming resources into goods and services.
At the heart of operations management is the
transformation process through which inputs
(resources such as labor, money, materials,
information, and energy) are converted into outputs
(goods, services, and ideas).
Transformation may take place through one or more
processes.
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
The Nature of Operations
Management (continued)
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The terms manufacturing and production are used
interchangeably to represent the activities and
processes used in making tangible products.
The broader term operations describes processes used
in the making of both tangible and intangible products.
Manufacturers and service providers differ in:
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The nature and consumption of their output
The uniformity of inputs
The uniformity of outputs
The amount of labor required to produce an output
The measurement of productivity for each output provided
© 2015 YOLO Learning Solutions
Planning and Designing Operations
Systems
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Once management has developed an idea for a
product that customers will buy, it must then plan how
to produce the product economically.
Operations managers must plan for
◦ The types and quantities of materials needed to produce the
product
◦ The skills and quantity of people needed to make the product
◦ The actual processes through which the inputs must pass in
their transformation to outputs
© 2015 YOLO Learning Solutions
Planning and Designing Operations
Systems (continued)
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Planning the operational processes for the organization
involves two important areas: capacity planning and
facilities planning.
Capacity planning is the maximum load that an
organizational unit can carry or operate at a given
point in time. Capacity-planning decisions need to look
at both the long term and the short term.
Facilities planning involves:
◦ Where to locate operations facilities
◦ What layout is best for producing a particular product
◦ What technology to apply to the transformation process
© 2015 YOLO Learning Solutions
Planning and Designing Operations
Systems (continued)
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The decision where to locate operations facilities is
critical and depends on:
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Proximity to the market
Availability of raw materials
Availability of transportation
Availability of power
Climatic influences
Availability of labor
Community characteristics
Taxes and inducements
© 2015 YOLO Learning Solutions
Planning and Designing Operations
Systems (continued)
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Facility layout is the arrangement of the physical layout
of an organization. There are three basic layouts:
◦ Fixed-position layouts
◦ Process layouts
◦ Product layouts
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Technology is the application of knowledge (tools,
processes, procedures) to solve problems in:
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Computer-assisted design
Computer-assisted manufacturing
Flexible manufacturing
Robotics
© 2015 YOLO Learning Solutions
Managing the Supply Chain
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Supply chain management is an important component
of operations. It occurs when managers connect all
members of the distribution system to satisfy
customers.
Supply chain management involves purchasing,
inventory control and management, outsourcing,
routing, and scheduling.
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
Purchasing
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Purchasing, also known as procurement, is the buying
of all the materials needed by the organization.
The purchasing department’s objective is to obtain
items of the desired quality in the right quantities at
the lowest possible cost.
© 2015 YOLO Learning Solutions
Inventory Control
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Inventory refers to all the materials a firm holds in
storage for future use.
Every raw material, part, and piece of equipment has
to be accounted for, or controlled.
Inventory control is 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.
© 2015 YOLO Learning Solutions
Inventory Control (continued)
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Approaches to inventory control:
◦ The economic order quantity (EOQ) model generally identifies
the optimal number of items to order while minimizing certain
annual costs that vary according to order size.
◦ The just-in-time (JIT) inventory concept minimizes the number
of units in inventory by providing an almost continuous flow of
items from suppliers to the production facility.
◦ Material-requirements planning (MRP) is a planning system
that schedules the precise quantity of materials that is needed
to make the product.
◦ Manufacturing-resource planning (MRPII) is a computerized
system that helps a company control all of its resources, not
just inventory needed for production.
© 2015 YOLO Learning Solutions
Managing Inventory
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There are three different types of inventory to manage:
◦ Finished-goods inventory―Includes those products that are
ready for sale
◦ Work-in-process inventory―Includes those products that are
partially completed or are in transit
◦ Raw materials inventory―Includes those materials that have
been purchased to be used as inputs for making other
products
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Some companies may choose to outsource certain
business functions, which occurs when business
activities are contracted to independent companies.
© 2015 YOLO Learning Solutions
Managing Inventory (continued)
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After all materials have been obtained and their use
determined, operations managers must then determine
the maximum or optimum level of production.
As part of this process, management must consider the
routing, or sequence of operations through which the
product must pass.
Once management knows through which departments
or work stations the product must pass and in what
sequence, it can then schedule the work.
© 2015 YOLO Learning Solutions
Managing Inventory (continued)
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Scheduling means assigning the work to be done to
departments or to specific machines or persons.
The Program Evaluation and Review Technique (PERT)
is a popular scheduling technique in which managers
first break down a project into events and activities,
and then lay down their proper sequence,
relationships, and duration in the form of a network.
The Gantt chart is a bar chart that shows the
relationship of various scheduling activities over time.
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
Managing Quality
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Quality reflects the degree to which a good or service
meets the demands and requirements of the
marketplace.
Quality control refers to the activities undertaken to
ensure that products meet established quality
standards.
Total quality management (TQM) is a management
view that strives to create a customer-centered culture
that defines quality for the organization and lays the
foundation for activities aimed at attaining qualityrelated goals.
© 2015 YOLO Learning Solutions
Establishing Standards
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To control quality, a company must first establish what
standard of quality it desires and then determine
whether its products meet that standard through
inspection.
The International Organization for Standardization
(ISO) is a set of international management standards
that were developed to provide common standards
that would apply globally.
ISO 9000 and 14000 are two common ISO standards
for quality and sustainability.
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
Inspection
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Inspection reveals whether a product meets quality
standards.
Inspection tests may be classified as performance tests
or destructive tests.
Sampling
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An important question relating to inspection is how
many items should be included in the inspection
process.
In some cases, it is desirable to take a sample of the
output and test that.
© 2015 YOLO Learning Solutions
Continuous Improvement
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An important part of quality control is continuous
improvement.
One strategy that many organizations have adopted for
quality improvement is known as Six Sigma.
Six Sigma involves improving existing processes and
developing new processes to meet Six Sigma
standards, which requires organizations to produce no
more than 3.4 defects per million opportunities.
© 2015 YOLO Learning Solutions
Managing Productivity
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Productivity measures the relationship between the
outputs produced and the inputs used to produce
them.
Partial productivity reflects output relative to a single
input or some combination of inputs.
Total productivity reflects all the inputs used to obtain
an output(s).
Productivity is important because it relates to a firm’s
(or nation’s) efficiency in using resources and
competitiveness.
© 2015 YOLO Learning Solutions
Managing Productivity (continued)
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Ways to improve productivity include:
◦ Developing adequate productivity measurements
◦ Considering the “entire” or “whole” system when deciding on
which operations to concentrate
◦ Developing productivity improvement methods and reward
contributions
◦ Establishing reasonable improvement goals
◦ Making productivity improvements a management priority
◦ Publicizing productivity improvements
◦ Using decision-support systems
◦ Linking incentives to productivity increases
◦ Providing adequate training
© 2015 YOLO Learning Solutions