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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Operations
Management,
Managing Quality,
Efficiency,and
Responsiveness to
Customers
Technology
18
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Operations Management
? Refers to the management of the production system that
transforms inputs into finished goods and services,
?Production system,the way a firm acquires inputs then
converts and disposes outputs,
?Operations managers,responsible for the
transformation process from inputs to outputs,
? Operations management seeks to increase the quality,
efficiency,and responsiveness of the firm,
?Seeks to provide a competitive advantage,
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
The Purpose of Operations Management
The Production System
Inputs Conversion Outputs
?raw materials
?labor
?component parts
? skills
? machines
? computers
?goods
?services
Figure 18.1
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Operations Management Concepts
? Quality,goods and services that are reliable and perform
correctly,
?Quality allows customers to receive the performance
that they expect,
? Efficiency,the amount of input to produce a given
output,
?Less input required lowers cost and waste,
? Responsiveness to customers,actions taken to respond
to customer needs,
?Firm can react quickly and correctly to customer needs
as they arise,
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Improving Responsiveness to Customers
? Without customers,organizations cease to exist,
?Non-profit and for-profit firms all have customers,
?Managers need to identify who the customer is and their
needs,
? What do customers want? Usually customers prefer,
?A lower price to a higher price,
?High quality over low quality,
?Fast service over slow service,
? Also good after sale support,
?Many features over few features,
?Products tailored to their specific needs,
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Price/Attribute Relationship
Attributes A1 A2
Price
P1
P2 P2/A2
At price P1,a firm
offer a product with
A1 attributes and
cover costs,To offer
A2 attributes,firm
must charge P2 or
lose money,
Figure 18.2
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Price v,Attributes
? Firms offering high quality,fast service and other
customer desires,often must raise price,
? Customers must tradeoff price for attributes,
? Operations management tries to push the price/attribute
curve to the right with better production,
?Provides more attributes at the same cost,
? By enhancing the price/attribute relationship,the firm can
increase its competitive position,
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Price/Attribute Relationship
Figure 18.3
Price
Attributes
P1
P2
A1 A2
P1/A2
P2/A1
Federal-Mogul
1987
Federal-Mogul
1993
Federal-Mogul was able
to offer products with
more attributes at a
lower price
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Customer Responsive Production Systems
? An output’s attributes is determined by the
production system,
?Firms must strike a balance between cost and
attributes
? Improving Quality,can apply to firms producing
goods and services,
?A firm that provides higher quality than others at
the same price is more responsive to customers,
?Higher quality can also lead to better efficiency,
? Lowers waste levels and operating costs,
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Impact of Increased Quality on Organizational Performance
Increased
Quality
Increased
Reliability
Higher
Prices
Increased
Productivity
Lower
Costs
Higher
Profits
Figure 18.4
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Total Quality Management
? Seeks improvement in the quality of a firm’s goods or
services,
?Stress that all activities be directed to this goal,
?TQM is really a company-wide management
philosophy developed by Dr,Edwards Demming,
? Japanese firms were the first to use TQM,
? TQM results have been outstanding in many firms,
?Xerox has reduced defects and problems dramatically,
? TQM can fail when managers do not really support it,
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Successful TQM Implementation
? Successful firms have followed these steps,
1) Build organizational commitment to quality,
? All employees must embrace TQM concepts,
2) Focus on the customer as definition of quality,
3) Find ways to measure quality,
Easy in manufacturing areas but harder in service jobs,
4) Set goals and create incentives to be reached,
5) Solicit input from employees,
Quality circles,groups of employees meeting to discuss
how to increase quality,
Managers must respect employee opinion,
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Successful TQM Implementation
6) Identify defects and trace to source,
Managers must find out why the defect happened,
7) Introduce Just-in-Time (JIT) inventory systems,
Inventory is the stock of raw materials,JIT has parts
arriving in the plant just when needed and not stored in
advance,
KANBAN,Japanese name for JIT that seeks to avoid
stockpiles of costly inventory,
8) Work with suppliers,You need good parts to make
great products,
9) Design products for easy manufacture,
10) Remove barriers between departments,
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Managers and TQM
? Managers are critical to a successful TQM system,
?Functional managers carry the responsibility for most of
the 10 steps to success,
?For TQM to work,functional managers must totally
embrace TQM,
? Top management must also show their strong support,
?They need to arrange training for all managers
(including themselves),
?Reward functional managers that move TQM forward,
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
? The fewer the inputs required to produce a given output,
the higher the production efficiency,
A common measure is called Total factor productivity,
It is a simple formula but each input is measured in
different units (labor in hours,steel in tons)
Therefore,most firms measure partial productivity,
Focus on one input at a time,
Improving Efficiency
Total factor productivity = Outputs All Inputs
Labor productivity = Outputs Direct Labor
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Improving Efficiency
? Labor productivity allows labor comparisons between
organizations,
?Improved efficiency leads to lower costs and better
performance,
? TQM and Efficiency,TQM can lead to much higher
labor productivity,
?When quality rises,less time is wasted on scrap,
? Flexible manufacturing and efficiency,reduces the set-
up costs for production systems,
Facilities layout,seeks to design the machine-worker
interface to increase production efficiency,
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Facilities Layouts
Final
Product
Final
Product
Final Product
Product
layout
Process
layout
Fixed-
position
layout
Figure 18.5
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Facilities Layouts
? Product layout,work stations arranged in sequence,
?Mass production systems are a common example,
? Workers are stationary and a belt moves work to them,
? Process Layout,work stations are self contained and not
in a fixed sequence,
?Well suited to making a wide variety of products tailored
to customers,
? Provides flexibility to change products quickly
? Fixed-position layout,product stays in a fixed spot,
components produced at remote stations and brought to
final assembly,
?Good for jet aircraft assembly,
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Efficient Manufacturing
? Most firms face major expense when setting up to
produce a product,
?These costs must be paid before production begins,
? The more often products to be built change,the higher
setup costs become,
?Flexible Manufacturing reduces setup costs,
? Just-in-Time (JIT) inventory,while developed for
TQM,also adds to efficient production,
?Many costs are reduced including warehousing,holding
costs and inventory tracking,
? Firm does not have a supply of parts,but can be
vulnerable to strikes or supply problems,
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Efficient Manufacturing
? Self-managed teams boost efficiency by allowing for a
flatter organization structure,
?The team takes the role of the supervisor,
?Teams working together often become very skilled at
enhancing productivity,
? Kaizen,Japanese term for a management philosophy the
stresses the need for continuous improvement,
?Better operations can come from many,small,
continuous improvements,
?Focus on what adds value to the product and try to
eliminate steps that do not add value (such as inspection
for defects),
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Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
Reengineering
? Process Reengineering,the fundamental rethinking and
radical redesign of the business process,
?Can boost efficiency by directing efforts to activities
that add value to the good or service produced,
?While Kaizen focuses on continuous enhancements,
process reengineering considers wholesale change,
? Top managers must support operations enhancement
tools for them to be accepted by workers,
?Usually,a successful operations change means a
complete change in the organizational culture,
?Without a supporting culture,change will not succeed,