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Chapter 16 Managing Operations and Increasing Productivity © 2015 YOLO Learning Solutions The Nature of Operations Management 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) 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: ◦ ◦ ◦ ◦ ◦ 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 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) 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) The decision where to locate operations facilities is critical and depends on: ◦ ◦ ◦ ◦ ◦ ◦ ◦ ◦ 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) Facility layout is the arrangement of the physical layout of an organization. There are three basic layouts: ◦ Fixed-position layouts ◦ Process layouts ◦ Product layouts Technology is the application of knowledge (tools, processes, procedures) to solve problems in: ◦ ◦ ◦ ◦ Computer-assisted design Computer-assisted manufacturing Flexible manufacturing Robotics © 2015 YOLO Learning Solutions Managing the Supply Chain 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 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 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) 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 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 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) 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) 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 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 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 Inspection reveals whether a product meets quality standards. Inspection tests may be classified as performance tests or destructive tests. Sampling 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 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 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) 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