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*Chapter Nine

Production and

Operations Management of Goods and

Services

Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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*Profile

• Current CEO and President of IBM, he started in the company in 1973.

• The company invested $16 billion in acquiring 60 other companies.

• Switching the company’s focus from production to service, Palmisano has led IBM to enter the emerging global market.

SAMUEL J. PALMISANOIBM

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*Manufacturing and Services in Perspective

• From 2001 to 2009, manufacturing output in the U.S. rose 4% each year.

• The U.S. is still the world’s leading manufacturer.

MANUFACTURING in the U.S.

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• Almost 25% of all goods produced each year come from the U.S.

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Source: Parade Magazine, www.parade.com/intel, April 19, 2009.

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Manufacturing and Services in Perspective

WHAT’S MADE in the USA?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

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Source: BusinessWeek, www.businessweek.com, November 12, 2007.

Exporters ExtraordinaireTop Ten States that Manufacture Goods for Export

State Thousands of Workers

California 206.1

Texas 108.9

Ohio 95.6

Michigan 79.8

New York 77.2

Illinois 76.6

Pennsylvania 71.8

Washington 71.3

North Carolina 60.1

Indiana 59.6

Manufacturing and Services in Perspective

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Source: Industry Week, www.industryweek.com.

MASSIVE MANUFACTURERSThe Top Ten U.S. Manufacturers

Rank Company

1 Exxon-Mobil

2 Chevron

3 ConocoPhillips

4 General Electric

5 General Motors

6 Ford Motor

7 Valero Energy

8 Hewlett-Packard

9 IBM

10 Procter & Gamble

Manufacturing and Services in Perspective

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• The Green Economy is worth more than $200 billion annually and is expected to reach $1 trillion by 2020.

• Consumers like products that say “all natural,” “locally grown,” “energy efficient,” etc.

• The market for new green products and services is almost endless.

• The Green Movement, however, is only beginning.

The “GREEN” MOVEMENT IMPROVES the ECONOMY

(Thinking Green)

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• 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

TOP PAYING SERVICE JOBS

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Manufacturing and Services in Perspective

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* Manufacturers and Service Organizations Become More Competitive

• U.S. is still the leader in nanotechnology and biotechnology.

• How can U.S. businesses maintain a competitive edge?

- Focusing on customers

- Practicing continuous improvement

- Focusing on quality

- Relying on the Internet to unite companies

- Adopting new production techniques.

REMAINING COMPETITIVE in GLOBAL MARKETS

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*From Production to Operations Management

• Production -- The creation of goods using land, labor, capital, entrepreneurship and knowledge (the factors of production).

PRODUCTION and PRODUCTION MANAGEMENT

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• Production Management -- All the activities managers do to help firms create goods.

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*From Production to Operations Management

• 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

OPERATIONS MANAGEMENT

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*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?

PROGRESS ASSESSMENT

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*Production ProcessesThe PRODUCTION PROCESS

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*Production Processes

• Form Utility -- The value producers add to materials in the creation of finished goods and services.

FORM UTILITY

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1. To build and deliver products in response to the demands of the customer.

2. To provide an acceptable quality level.

3. To provide everything at the lowest possible cost.

GROVE’S BASIC PRODUCTION REQUIREMENTS

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Production Processes

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• Process Manufacturing -- The part of production that physically or chemically changes materials.

• Assembly Process -- The part of the production process that puts together components.

PROCESS and ASSEMBLY in PRODUCTION

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Production Processes

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• 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.

KEY PRODUCTION PROCESSES

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Production Processes

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*MADE in a MINUTE

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

Production Processes

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*The Need to Improve Production Techniques and Cut Costs

DEVELOPMENTS MAKING U.S. COMPANIES MORE COMPETITIVE

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1. Computer-aided design and manufacturing

2. Flexible manufacturing

3. Lean manufacturing

4. Mass customization

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*Computer-Aided Design and Manufacturing

COMPUTER-AIDED DESIGN and MANUFACTURING

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• 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.

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*Flexible Manufacturing FLEXIBLE MANUFACTURING

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• Flexible Manufacturing -- Designing machines to do multiple tasks so they can produce a variety of products.

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*Lean Manufacturing LEAN MANUFACTURING

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• 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.

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*Mass CustomizationMASS CUSTOMIZATION

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• 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.

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*Progress Assessment

• What’s form utility?

• Define and differentiate the following: process manufacturing, assembly process, continuous process and intermittent process.

• What do you call the integration of CAD and CAM?

• What’s mass customization?

PROGRESS ASSESSMENT

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*Operations Management Planning

• Operations management planning helps solve problems like:

- Facility location

- Facility layout

- Materials requirement planning

- Purchasing

- Inventory control

- Quality control

OPERATIONS MANAGEMENT

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*Facility Location

• Facility Location -- The process of selecting a geographic location for a company’s operations.

FACILITY LOCATION

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• Rising numbers of Internet businesses means brick-and-mortar retailers must find great locations.

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• 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?

STAY or LEAVE(Making Ethical Decisions)

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*Taking Operations Management to 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.

OPERATIONS MANAGEMENT on the INTERNET

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*Facility Location in the Future

• Information technology gives firms increased flexibility in terms of location.

• Telecommuting -- Working from home via computer and modem.

FUTURE FACILITY LOCATION

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• Dain Hancock of Lockheed Martin had the formidable task of uniting 80 companies into a single production unit.

PARTNERING BEYOND COUNTRY BORDERS

(Reaching Beyond Our Borders)

• Using the Internet and tech tools, like electronic white boards, kept the companies in touch in real time.

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*Facility Layout

• 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

SETTING UP the FACILITY

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*Facility Layout

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.

FACILITY LAYOUT OPTIONS

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Facility LayoutASSEMBLY LINE LAYOUT

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Facility LayoutMODULAR LAYOUT

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Facility LayoutPROCESS LAYOUT

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Facility LayoutFIXED-POSITION LAYOUT

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*Materials Requirement Planning

• 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.

MRP and ERP

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*Purchasing

• Purchasing -- The function that searches for high-quality material resources, finds the best suppliers and negotiates the best price for goods and services.

PURCHASING

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• The Internet has transformed purchasing.

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*Just-in-Time Inventory Control

• 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.

INVENTORY CONTROL

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*Quality Control

• 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.

QUALITY CONTROL

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*Quality 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.

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*The Baldrige Awards

• Companies can apply for awards in these areas:

- Manufacturing

- Services

- Small Businesses

- Education

- Healthcare

The BALDRIGE AWARDS

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Source: National Institute of Standards and Technology, www.quality.nist.gov.

• Cargill Corn Milling North AmericaWayzata, Minnesota (Manufacturing)

• Poudre Valley Health SystemFort Collins, Colorado (Healthcare)

• Iredell-Statesville SchoolsStatesville, North Carolina (Education)

THE WINNERS ARE…2008 Baldrige Award Recipients

The Baldrige Awards

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*ISO 9000 and ISO 14000 Standards

• 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.

WHAT is the ISO?LG4

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*Progress Assessment

• What are the major criteria for facility location?

• What’s the difference between MRP and ERP?

• What’s just-in-time inventory control?

• What are Six Sigma quality, the Baldrige Award, ISO 9000 and ISO 14000?

PROGRESS ASSESSMENT

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*Control Procedures: PERT and GANTT Charts

• Program Evaluation and Review Technique (PERT) -- A method for analyzing the tasks involved in completing a given project and estimating the time needed.

PERT

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*Control Procedures: PERT and GANTT Charts

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.

STEPS INVOLVED in PERT

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Control Procedures: PERT and GANTT Charts

PERT CHART for a MUSIC VIDEO

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*Control Procedures: PERT and GANTT Charts

• Gantt Chart – A bar graph that shows what projects are being worked on and how much has been completed.

GANTT CHARTS

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Control Procedures: PERT and GANTT Charts

GANTT CHART for a DOLL FACTORY

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*Progress Assessment

• Draw a PERT chart for making breakfast of three-minute eggs, buttered toast and coffee. Define the critical path.

• How could you use a Gantt chart to keep track of production.

PROGRESS ASSESSMENT

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