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Chapter 09
Production
and
Operations
Management
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Nine
LEARNING GOALS
1. Describe the current state of U.S. manufacturing
and what manufacturers have done to become
more competitive.
2. Describe the evolution from production to
operations management.
3. Identify various production processes and describe
techniques that improve productivity, including
computer-aided design and manufacturing, flexible
manufacturing, lean manufacturing and mass
customization.
9-2
Chapter Nine
LEARNING GOALS
4. Describe operations management planning issues
including facility location, facility layout, materials
requirement planning, purchasing, just-in-time
inventory control and quality control.
5. Explain the use of PERT and Gantt charts to
control manufacturing processes.
9-3
Profile
SAMUEL J. PALMISANO
IBM
• Palmisano, CEO and President of IBM, started in
the company in 1973.
• The company’s earnings have quadrupled under
Palmisano.
• Switching the company’s
focus from production to
service, Palmisano led
IBM to enter the emerging
global market.
9-4
Chapter Nine
NAME that COMPANY
This company’s robots manufacture, test, and
package motor starters - all untouched by
human hands. The machines can fill special
orders, even for a single item, without slowing
down the process.
Name that company!
9-5
Manufacturing
and Services in
Perspective
MANUFACTURING in the U.S.
LG1
• The U.S. is still the world’s leading
manufacturer.
• Manufacturing has continued to grow since
1970. In fact, U.S. manufacturing is 2x bigger
than in 1970.
• Almost 25% of all
goods produced each
year come from the
U.S.
9-6
Manufacturing
and Services in
Perspective
WHAT is MADE in the USA?
LG1
Leading U.S. Manufactured Goods
Products
Value
Number of Employees
Chemicals – Pharmaceuticals,
cosmetics, soaps, paints, fertilizers
$250 Billion
830,000 Americans
Transportation Equipment –
Cars, planes, trains, ships
$195 Billion
Over 1.4 Million
Americans
Processed Foods, Beverages
and Tobacco – Cookies, coffee,
cigarettes, prepared meals
$175 Billion
1.7 Million Americans
Computers and Electronics –
Computers and communication
equipment
$146 Billion
1.2 Million Americans
Source: Parade Magazine, www.parade.com, accessed June 2011.
9-7
Manufacturing
and Services in
Perspective
Exporters Extraordinaire
LG1
Top Ten States that Manufacture Goods for Export
Rank
State
Amount Exported
1
California
$142.61 billion
2
Texas
$130.66 billion
3
New York
$72.58 billion
4
Michigan
$67.94 billion
5
Washington
$61.99 billion
6
Illinois
$57.92 billion
7
Ohio
$42.59 billion
8
Florida
$41.58 billion
9
New Jersey
$36.77 billion
10
Pennsylvania
$34.57 billion
Source: CNBC, www.cnbc.com, accessed June 2011.
9-8
Manufacturing
and Services in
Perspective
MASSIVE MANUFACTURERS
LG1
The Top Ten U.S. Manufacturers
Rank
Company
Industry
1
Exxon Mobil
Petroleum and Coal
2
Chevron
Petroleum and Coal
3
General Electric
Electrical Equipment and Appliances
4
ConocoPhillips
Petroleum and Coal
5
Ford Motor Company
Automobiles
6
Hewlett-Packard
Computers
7
IBM
Computers
8
Procter & Gamble
Chemicals
9
Archer-Daniels-Midland
Food
10
Boeing
Aerospace
Source: Industry Week, www.industryweek.com, accessed June 2011.
9-9
KEY WORD:
SUSTAINABILITY
(Thinking Green)
• The market for new green products and services
is almost endless.
• Given the rate of population growth, it’s
important to plan ahead for a world with limited
resources.
• Companies like DuPont, Michelin, Chevron and
Nokia are working on sustainability projects.
• Procter & Gamble and Kaiser Permanente issue
their own mandatory sustainability scorecards to
their supply chains.
9-10
Manufacturing
and Services in
Perspective
TOP-PAYING SERVICE JOBS
LG1
• The U.S. economy is no longer manufacturing
based.
• 85% of jobs are in the service sector.
• The top-paying service jobs in the U.S. are in:
-
Legal services
Medical services
Entertainment
Accounting
Finance
Management consulting
9-11
Manufacturers
and Service
Organizations
Become More
Competitive
LG1
REMAINING COMPETITIVE in
GLOBAL MARKETS
• U.S. is still the leader in nanotechnology and
biotechnology.
• How can U.S. businesses maintain a competitive
edge?
-
Focusing on customers
-
Maintaining close relationships with suppliers
-
Practicing continuous improvement
-
Focusing on quality
-
Saving on costs through site selection
-
Relying on the Internet to unite companies
-
Adopting new production techniques
9-12
LEARNING from GERMANY
(Reaching Beyond Our Borders)
• Ten years ago, Germany’s economy was much
like ours today.
• Stihl invested in highly trained workers.
• Stihl remained competitive
in the manufacturing
world.
• German companies
poured money into
research and stayed away
from high tech products.
9-13
From Production
to Operations
Management
LG2
PRODUCTION and
PRODUCTION MANAGEMENT
• Production -- The creation of goods using land,
labor, capital, entrepreneurship and knowledge (the
factors of production).
• Production
Management -- All the
activities managers do to
help firms create goods.
9-14
From Production
to Operations
Management
OPERATIONS MANAGEMENT
LG2
• Operations Management -- A specialized area in
management that converts or transforms resources
into goods and services.
• Operations management includes:
-
Inventory management
Quality control
Production scheduling
Follow-up services
9-15
Operations
Management in
the Service Sector
LG2
OPERATIONS MANAGEMENT
in the SERVICE SECTOR
• All about creating a good experience for those
who use the service.
• In hotels, like RitzCarlton, operation
management
includes fine dining,
fresh flowers, and
training for every
employee.
9-16
Operations
Management in
the Service Sector
THERE is an APP for THAT
Top Productivity Apps for iPad
LG2
App
What it Does
Price
Dropbox
Syncs and backs up files
Free
ServiceMax
Helps field employees with data
management
Free
Keynote
Use to create and show slide
presentations
$9.99
Penultimate
Note taking made easier
$3.99
ZigZag Board
An easy-to-carry whiteboard
$4.99
Source: Entrepreneur, February 2011.
9-17
Progress
Assessment
PROGRESS ASSESSMENT
• What have U.S. manufacturers done to regain a
competitive edge?
• What must U.S. companies do to continue to
strengthen the country’s manufacturing base?
• What led companies to focus on operations
management rather than production?
9-18
Production
Processes
The PRODUCTION PROCESS
LG3
9-19
Production
Processes
FORM UTILITY
LG3
• Form Utility -- The
value producers add
to materials in the
creation of finished
goods and services.
9-20
Production
Processes
LG3
GROVE’S BASIC PRODUCTION
REQUIREMENTS
1. To build and deliver products in response to the
demands of the customer at the scheduled
delivery time.
2. To provide an acceptable quality level.
3. To provide everything at the lowest possible
cost.
9-21
Production
Processes
LG3
PROCESS and ASSEMBLY in
PRODUCTION
• Process
Manufacturing -- The
part of production that
physically or chemically
changes materials.
• Assembly Process -The part of the
production process that
puts together
components.
9-22
Production
Processes
KEY PRODUCTION PROCESSES
LG3
• Production processes are either continuous or
intermittent.
• Continuous Process -- Long production runs turn
out finished goods over time.
• Intermittent Process -- Production runs are short
and the producer adjusts machines frequently to
make different products.
9-23
Production
Processes
LG3
MINUTE MADE
Production of Some of America’s Favorite Products
Product
Number of Items
Made in a Minute
Krispy Kreme Doughnuts
5,208
Chips Ahoy! Cookies
4,000
Twinkies
972
Jello Boxes
764
LifeSavers
100 rolls
9-24
The Need to
Improve Production
Techniques and
Cut Costs
LG3
DEVELOPMENTS MAKING U.S.
COMPANIES MORE COMPETITIVE
1. Computer-aided design
and manufacturing
2. Flexible manufacturing
3. Lean manufacturing
4. Mass customization
9-25
Computer-Aided
Design and
Manufacturing
LG3
COMPUTER-AIDED DESIGN and
MANUFACTURING
• Computer-Aided Design
(CAD) -- The use of
computers in the design of
products.
• Computer-Aided
Manufacturing (CAM) -The use of computers in the
manufacturing of products.
9-26
Computer-Aided
Design and
Manufacturing
LG3
COMPUTER-INTEGRATED
MANUFACTURING
• Computer-Integrated
Manufacturing (CIM) -The uniting of computeraided design with computeraided manufacturing.
• CIM is expensive but it cuts
as much as 80% of the time
needed to program
machines to make parts.
9-27
Flexible
Manufacturing
FLEXIBLE MANUFACTURING
LG3
• Flexible Manufacturing -- Designing machines to
do multiple tasks so they can produce a variety of
products.
• Allen-Bradley uses flexible manufacturing to build
motor starters.
• 26 machines and robots build, test and package
parts.
9-28
Lean
Manufacturing
LEAN MANUFACTURING
LG3
• Lean Manufacturing -- Using less of everything
than in mass production.
• Compared to others, lean companies:
-
Take half the human effort.
Have half the defects in finished products.
Require one-third the engineering effort.
Use half the floor space.
Carry 90% less inventory.
9-29
Mass
Customization
MASS CUSTOMIZATION
LG3
• Mass Customization -- Tailoring products to meet
the needs of a large number of individual customers.
• More manufacturers are
learning to customize.
• Mass customization
exists in the service
sector too.
9-30
MASS CUSTOMIZATION
of CANDY
(Spotlight on Small Business)
• Chocomize lets customers customize their
chocolate bars.
• Co-founder, Eric Heinbockel, sought funding help
from his family.
• Chocomize now has three full-time chocolate
makers and is expected to be a success.
9-31
Progress
Assessment
PROGRESS ASSESSMENT
• What is form utility?
• Define and differentiate the following: process
manufacturing, assembly process, continuous
process and intermittent process.
• What is the integration of CAD and CAM called?
• What is mass customization?
9-32
Operations
Management
Planning
OPERATIONS MANAGEMENT
LG4
• Operations management planning helps solve
problems like:
- Facility location
- Facility layout
- Materials requirement planning
- Purchasing
- Inventory control
- Quality control
9-33
Facility
Location
FACILITY LOCATION
LG4
• Facility Location -The process of
selecting a geographic
location for a
company’s operations.
• Rising numbers of Internet businesses means
brick-and-mortar retailers must find great
locations.
9-34
STAY or LEAVE
(Making Ethical Decisions)
• Potential of low-cost labor is very attractive to
companies hoping to remain competitive.
• However, shuttering operations and moving can
often cause severe economic problems in
dependent areas.
• What would you do if you were the CEO of
ChildrenWear Industries faced with this problem?
9-35
Taking
Operations
Management to
the Internet
LG4
OPERATIONS MANAGEMENT
on the INTERNET
• Sometimes businesses outsource engineering,
design and manufacturing to other companies.
• Often these relationships are managed through
the Internet.
• Many companies are developing Internet-focused
strategies.
9-36
Facility Location
in the Future
FUTURE FACILITY LOCATION
LG4
• Information technology gives firms increased
flexibility in terms of location.
• Telecommuting -- Working from home via
computer.
9-37
Facility Layout
SETTING UP the FACILITY
LG4
• Facility Layout -- The physical arrangement of
resources, including people, to most efficiently
produce goods and provide services.
• Facility layout depends on the processes
performed:
- Service: Help customers find products
- Manufacturing: Improve efficiency
9-38
Facility Layout
FACILITY LAYOUT OPTIONS
LG4
1. Assembly Line Layout – Workers do only a few
tasks at a time.
2. Modular Layout – Teams of workers produce more
complex units of the final product.
3. Fixed-Position Layout – Allows workers to
congregate around the product.
4. Process Layout – Similar equipment and functions
are grouped together.
9-39
Facility Layout
ASSEMBLY LINE LAYOUT
LG4
9-40
Facility Layout
MODULAR LAYOUT
LG4
9-41
Facility Layout
PROCESS LAYOUT
LG4
9-42
Facility Layout
FIXED-POSITION LAYOUT
LG4
9-43
Materials
Requirement
Planning
MRP and ERP
LG4
• Materials Requirement Planning (MRP) -- A
computer-based operations management system that
uses sales forecasts to make sure parts and
materials are available when needed.
• Enterprise Resource Planning (ERP) -- A newer
version of MRP, combines computerized functions
into a single integrated software program using a
single database.
9-44
Purchasing
PURCHASING
LG4
• Purchasing -- The function
that searches for high-quality
material resources, finds the
best suppliers and negotiates
the best price for goods and
services.
• The Internet has
transformed purchasing.
9-45
Just-in-Time
Inventory Control
INVENTORY CONTROL
LG4
• Just-in-Time (JIT) Inventory Control -- The
production process in which a minimum of inventory
is kept and parts, supplies and other needs are
delivered just in time to go on the assembly line.
• To work effectively, the process requires excellent
coordination with suppliers.
9-46
Quality Control
QUALITY CONTROL
LG4
• Quality -- Consistently
producing what the customer
wants while reducing errors
before and after delivery.
• Six Sigma Quality -- A
quality measure that allows
only 3.4 defects per million
opportunities.
Photo Courtesy of: Argonne National Laboratory
9-47
Quality Control
LG4
STATISTICAL QUALITY CONTROL &
STATISTICAL PROCESS CONTROL
• Statistical Quality Control -- A process used to
continually monitor all phases of the production
process.
• Statistical Process Control -- A process of
testing statistical samples of product components at
each stage of production.
• Measuring quality along the production process
reduces the need for quality control at the end.
9-48
The Baldrige
Awards
The BALDRIGE AWARDS
LG4
• Companies can apply for awards in these areas:
- Manufacturing
- Services
- Small Businesses
- Non-Profit/Government
- Education
- Healthcare
9-49
The Baldrige
Awards
THE WINNERS ARE…
2010 Baldrige Award Recipients
LG4
Company
Category
Where from?
MEDRAD
Manufacturing
Warrendale, PA
Nestlé Purina PetCare
Manufacturing
St. Louis, MO
Freese and Nichols
Small Business
Ft. Worth, TX
K & N Management
Small Business
Austin, TX
Studer Group
Small Business
Gulf Breeze, FL
Advocate Good
Samaritan Hospital
Healthcare
Downers Grove, IL
Montgomery County
Public Schools
Education
Rockville, MD
Source: National Institute of Standards and Technology, www.quality.nist.gov, accessed June 2011.
9-50
ISO 9000 and
ISO 14000
Standards
WHAT is ISO?
LG4
• The International Organization for Standardization
(ISO) is a worldwide federation of national
standards bodies.
• ISO 9000 -- The common name given to quality
management and assurance standards.
• ISO 14000 -- A collection of the best practices for
managing an organization’s impact on the
environment.
9-51
Progress
Assessment
PROGRESS ASSESSMENT
• What are the major criteria for facility location?
• What is the difference between MRP and ERP?
• What is just-in-time inventory control?
• What are Six Sigma quality, the Baldrige Award,
ISO 9000 and ISO 14000?
9-52
Control
Procedures:
PERT and Gantt
Charts
PERT
LG5
• Program Evaluation and Review Technique
(PERT) -- A method for analyzing the tasks involved
in completing a given project and estimating the time
needed.
9-53
Control
Procedures:
PERT and Gantt
Charts
STEPS INVOLVED in PERT
LG5
1. Analyzing and sequencing tasks
2. Estimating the time needed to complete each
task
3. Drawing a PERT network illustrating the first two
steps
4. Identifying the critical path
•
Critical Path -- The sequence of tasks that
takes the longest time to complete.
9-54
Control
Procedures:
PERT and Gantt
Charts
PERT CHART for a MUSIC VIDEO
LG5
9-55
Control
Procedures:
PERT and Gantt
Charts
GANTT CHARTS
LG5
• Gantt Chart – A bar graph that shows what projects
are being worked on and how much has been
completed.
9-56
Control
Procedures:
PERT and Gantt
Charts
LG5
GANTT CHART for a
DOLL FACTORY
9-57
Progress
Assessment
PROGRESS ASSESSMENT
• Draw a PERT chart for making breakfast of threeminute eggs, buttered toast and coffee. Define
the critical path.
• How could you use a Gantt chart to keep track of
production?
9-58