Chapter 11: Operations Management in Manufacturing and Service Industries
Chapter 11 Section 1
Operations Management- management of the process that transforms resources (materials, labor, money, information) into products
Operations Manager-upper level manager who directs the transformation process that transforms inputs to outputs, transforming resources into goods and services as efficiently as possible
· Production Planner-process planning, layout planning, facility planning
· Production Control- scheduling/monitoring, solicit/respond to feedback and make adjustments, purchasing of raw materials/inventory controls
· Quality Control- ensure specifications are followed/quality standards maintained
Production Planning Process- production methods, site selection, facility layout, components and materials management- driven by the values and goals of the business (marketing managers)- quality vs quantity, quality vs price, competition, reputation
Production Methods-driven by customer needs including volume sales/mass production vs customer specifications, or customizing each unit to customer needs. Three basic types of production methods:
· Make to Order-process in which products are made to customer specifications (low-volume/high variety)
· Mass Production- production method in which high volumes of products are made at low cost and held in inventory in anticipation of future demand, standardized goods production
· Mass Customization-production method in which fairly high volumes of customized products are made at fairly low prices, mass production to a point with options for customization based on customer input
Site Selection- factors to consider: minimized shipping costs in and out of production area, labor market needs met, living environment factors, area costs low (taxes, utilities, labor, land, construction), favorable business environment-government financial incentives
Capacity Planning-maximum number of products that a facility can produce over a given period under normal working conditions- too low and you won’t satisfy customer needs, too high and you over produce and inflate costs/waste resources
Chapter 11 Section 2
Layout- arrangement in the facility of equipment, machinery, and people to make a production process as efficient as possible
Process Layout- Layout that groups together workers or departments that perform similar tasks- goods move from one station to another (work by function)
Product Layout- layout in which products are produced by people, equipment, or departments arranged in an assembly line- a series of work stations where already made parts are assembled (work by function)
(Issues of repetition/boredom, production backup/stoppage, inventory build up, wasted transportation [Roger’s Cannery story] )
Cellular Layout- layout in which teams of workers perform all the tasks involved in building a component, group of related components or finished product (team approach production, cell production, self contained production, U-shaped production)
Fixed Position Layout- layout in which workers are moved to the product, which stays in one place (large item production where it is easier to move workers that product)
Chapter 11 Section 3
Materials Management- all decisions pertaining to the purchase of inputs, the inventory of components and finished products, and the scheduling of production processes- three components:
· Purchasing (procurement)-process of acquiring materials and services to be used in production
· Inventory Controls- management of inventory to ensure that a company has enough inventory to keep operations flowing smoothly but not so much that money is being wasted in holding it
· Production scheduling-scheduling of jobs to meet all resource handling and production needs
Supplier Selection Criteria- price, quality, reliability, reputation, compatibility
E-purchasing- electronic data interchange: computerized exchange of business transaction documents
Inventory Control Methods:
· Just-in-Time Production- system for reducing inventories and costs (waste, insurance, storage) by requiring suppliers to deliver materials just in time to go into production process
· Materials Requirements Planning (MRP)- technique of using a computerized program to calculate the quantity of materials needed for production and to reschedule inventory ordering
· Manufacturing Resource Planning (MRPIII)-system for coordinating a firm’s materials requirement planning activities with the activities of its other functional areas
Master Production Schedule (MPS)- timetable that specifies which and how many products will be produced and when- work and material flow based on the sequence of operations
Chapter 11 Section 4
Gannt Chart- graphical tool for determining the status of projects (Henry Gannt)
· Lists timeframes and activities to be completed
· Records completed work and work to be completed
· Works well with simple activities that are not interrelated
Program Evaluation and Review Technique PERT Charts- tool for diagramming the activities required to produce a product, specifying the time required to perform each activity in the process, and organizing activities in the most efficient sequence
· Identification of a critical path and the sequence that will entail the greatest amount of time
· I t also shows how the activities in the sequence and interrelated
· It analyzes where the process can be improved by reviewing this critical path looking for ways to improve performance in the areas where there is value in improving that process (most time consuming usually)
· Gaining performance by improving along one or more of the critical path operations
Chapter 11 Section 5
Technology of Goods Production- using technology helps business create high quality goods and produce and deliver those goods and services in an effective and cost-effective manner- design phase technology, production phase technology, and material handling technology. Software Systems:
· Computer Aided Design (CAD)- system using computer technology to create models representing the design of a product
· Computer Aided Manufacturing (CAM)- system using computer technology to control production processes and equipment-determines production steps and instructs equipment to do the work, CAD/CAM interaction to link design and production components
· Computer Integrated Manufacturing (CIM)- system in which capabilities of a CAD/CAM system are integrated with other computer-based functions (order entry, inventory control, warehousing, shipping and industrial robot systems- computer controlled machine used to perform repetitive tasks that are also hard or dangerous for human workers
· Flexible Manufacturing Systems (FMS)- system in which computer controlled equipment is programmed to handle materials used in manufacturing-flexibility to change /reprogram equipment set ups for new products or when a variety of products are manufactured- very valuable for companies that produce customized products
Chapter 11 Section 6
50 year decline in production related business with only 12 % of the US workforce employed in production related jobs transition to service related work 77% Gross Domestic Product is service related industry
Primary function of both production and service related industries is to satisfy customer needs. Differences include:
· Production products tangible/Service products intangible
· Manufactured goods usually standardized/service goods offer more customization options
· Customer contact limited/none in production/customer contact vital to service industry
Operations Planning in the Service Industry-
· What services/goods to offer
· How to provide services
· Business location/facility set up
· Demand forecast for services
Operations Processes (goods and services operations or both)
· Make to Order vs Make to Stock or mass customization (combo of both)
· Continuous Quality Improvement in operational efficiency (Dick’s Hamburgers)
· Site selection-size, layout, designed with the customer in mind, accommodating customer needs at the lowest possible cost, square foot usage/square foot profits calculations
· Site selection-location-determining traffic count, demographics/traffic patterns, customer accessibility, proximity to other businesses, high volume of available customers
· Building service capacity to satisfy customer needs on an as-demanded basis- how many customers served, when will they want/need services, how long will each customer take, external factors- holidays, weather, events, sales forecasting (Leavenworth Coffee Shop)
Service Manager Challenges:
· Satisfying customer needs in a timely manner
· Customizing services/personal attention
· Maintaining sufficient staffing/fluctuation in customer demands/balance of employees (split shifts issues with CZ). Have you ever left a business because you weren’t served in a timely manner? Did you ever go back? (restaurant issue)
· Inventory Control-levels of inventory too low to satisfy customer needs/levels too high increasing costs of storage, insurance, loss of product, point of sale registers/sales inventory systems
· Capacity- no finite number of customers served only estimates of customer flow
Chapter 11 Section 7
Quality-ability of a product to satisfy customer needs
Total Quality Management- all the steps taken by a company to ensure that its products satisfy customer needs
Customer Satisfaction-generating profit by satisfying customer needs, customers define quality, encourage customer feedback, quality in every factor-design, product planning/control, sales and service, use feedback to improve
Employee Involvement- everyone in the company commits to customer satisfaction, motivate employees on the importance of quality, ensure proper employee training-Quality Circle-employees who perform similar jobs and work in teams to identify quality, efficiency and other work-related problems; to propose solutions; and to work with management in implementing their recommendations
Continuous Improvement-company’s commitment to making constant improvements in the design, production and delivery of its products- improvements in efficiency, cost reduction, improved customer service and satisfaction, Group effort to look for ways to do things better
Statistical Process Control (SPC)- technique for monitoring production quality by testing sample outputs to ensure they meet specifications- sampling distribution pulling product from production line and measuring it to a predetermined quality value, if quality is unmet, production line is stopped and corrective actions made
Benchmarking-practice of comparing a company’s own performance with that of a company that excels in the same activity (Malcolm Baldridge)
International Quality Standards:
· ISO 9000- set of international quality standards established by the International Organization for Standardization (quality management)
· ISO 14000- set of international standards for environmental management established by the International Organization for Standardization
· ISO focuses on the way companies do the work not their output (correlation between business functions and quality of products
· 610,000 organizations in 160 countries are ISO 9000 and ISO 14000 certified international symbol of quality
Outsourcing- practice of using outside vendors to manufacture all or part of a company’s product-outsourcing for expertise, outsourcing to concentrate on strength areas, outsourcing to lower costs, outsourcing for partnership in name recognition, service sector outsource non-core functions
Cases and Problems
Career Opportunities: Wanted: Problem Solvers and Creative Thinkers
If you had a time machine plus a craving for a great hamburger, you could return to the early 1950s and swing by Dick and Mac McDonald’s burger stand in San Bernardino, California. Take a break from eating and watch the people in the kitchen. You’ll see an early application of operations management in the burger industry. Dick and Mac, in an effort to sell more burgers in less time, redesigned their kitchen to use assembly-line procedures. As the number of happy customers grew, word spread about their speedy system, and their business thrived. Curiously, it wasn’t Dick and Mac who made McDonald’s what it is today, but rather a traveling milkshake-mixer salesman named Ray Kroc. He visited the hamburger stand to learn how they could sell twenty thousand shakes a year. When he saw their operations and the lines of people walking away with bags filled with burgers, fries, and shakes, he knew he had a winner. In cooperation with the McDonald brothers, he started selling franchises around the country, and the rest is history.
So, what does this story have to do with a career in operations management? If you’re a problem solver like Dick and Mac (who discovered a way to make burgers faster and cheaper) or a creative thinker like Ray Kroc (who recognized the value in an assembly-line burger production system), then a career in operations management might be for you. The field is broad and offers a variety of opportunities. To get a flavor of the choices available, go to http://www.wetfeet.com/Careers-and-Industries/Careers/Operations.aspx to link to the WetFeet Web site and review the dozen or so operations management positions listed. Provide a brief description of each position. Indicate how interesting you find each position by rating it using a five-point scale (with 1 being uninteresting and 5 being very interesting). Based on your assessment, pick the position you find most interesting and the one you find least interesting. Explain why you made your selections
Global View: What’s the State of Homeland Job Security?
Over the past several decades, more and more U.S. manufacturers began outsourcing production to such low-wage countries as Mexico and China. The number of U.S. manufacturing jobs dwindled, and the United States became more of a service economy. People who were directly affected were understandably unhappy about this turn of events, but most people in this country didn’t feel threatened. At least, not until service jobs also started going to countries that, like India, have large populations of well-educated, English-speaking professionals. Today, more technology-oriented jobs, including those in programming and Internet communications, are being outsourced to countries with lower wage rates. And tech workers aren’t alone: the jobs of accountants, analysts, bankers, medical technicians, paralegals, insurance adjusters, and even customer-service representatives have become candidates for overseas outsourcing.
Many U.S. workers are concerned about job security (though the likelihood of a particular individual’s losing a job to an overseas worker is still fairly low). The issues are more complex than merely deciding where U.S. employers should be mailing paychecks, and politicians, economists, business executives, and the general public differ about the causes and consequences of foreign outsourcing. Some people think it’s a threat to American quality of life, while others actually think that it’s a good thing.
Spend some time researching trends in outsourcing. Formulate some opinions, and then answer the following questions:
1. About what percentage of U.S. jobs have left the country in the last five years? What percentage will probably leave in the next five years?
2. What kinds of jobs are being outsourced, and where are they going? What kinds of jobs can’t be outsourced?
3. How does global outsourcing help U.S. businesses? How does it hinder them?
4. How has the trend in outsourcing manufacturing and service operations to foreign countries helped average Americans? How has it harmed them?
5. Does overseas outsourcing help or hurt the U.S. economy? In what ways?