chapter 12copyright © 2010 by nelson education ltd. operations management and control systems 12...

Chapter 12 Copyright © 2010 by Nelson Education Ltd.

Operations Operations Management and Management and Control SystemsControl Systems

Operations Operations Management and Management and Control SystemsControl Systems

1212

PowerPoint Presentation by PowerPoint Presentation by

Ian Anderson, Algonquin CollegeIan Anderson, Algonquin College


Looking AheadLooking AheadLooking AheadLooking Ahead

After studying this chapter, you should be able to:

1. Discuss the nature of the operations process for both products and services.

2. Describe the need for management control systems.

3. Explain the key elements of total quality management (TQM) programs.

4. Explain how reengineering and other methods of work improvement can increase productivity and make a firm more competitive.

5. Discuss the importance of purchasing and the nature of key purchasing policies.

6. Describe ways to control inventory and minimize inventory costs.

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The Operations ProcessThe Operations ProcessThe Operations ProcessThe Operations Process

• The Nature of the Operations Process–Operations management

• The planning and control of the operations process– The activities that produce a firm’s goods and services

• Involves acquiring inputs and overseeing their transformation in

products and services

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The Operations ProcessThe Operations ProcessThe Operations ProcessThe Operations Process

Inputs

Operations

Outputs

• Designing • Processing • Treating • Storing • Advising• Fabricating • Refining • Assembling • Shipping • Instructing

ClothingBaked goodsPaint

Dry cleaningAppliance repairAutomobile painting

Products Services

Money Labour Equipment Information EnergyRaw

Materials

Examples: Examples:

Exhibit 12-1


Manufacturing versus ServiceManufacturing versus ServiceManufacturing versus ServiceManufacturing versus Service

• Manufacturing Versus Service Operations–Productivity is more easily measured in

manufacturing than service operations–Quality is more difficult to establish in service

than manufacturing operations.–Customers are more involved in service than

manufacturing operations.–Manufacturing can produce goods for inventory;

service operations cannot store or bank services.

12-5


Types of ManufacturingTypes of ManufacturingTypes of ManufacturingTypes of Manufacturing

• Job Shops–Operations characterized by short production runs of

small quantities of unique items.

• Repetitive Manufacturing–Operations in which long production runs are used to

produce a large quantity of a standardized product.

• Batch Manufacturing–An intermediate form involving more variety in volume

and products than job shops and less than repetitive manufacturing.

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Planning and Scheduling Planning and Scheduling and Maintenanceand Maintenance

Planning and Scheduling Planning and Scheduling and Maintenanceand Maintenance

• Operations Planning and Scheduling–Attempting to achieve the orderly, sequential flow of

products to market.• Production operations• Service operations

• Plant Maintenance–The role of maintenance

• To correct equipment malfunctions and prevent breakdowns

–Types of maintenance• Preventive maintenance• Corrective maintenance

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The Control CycleThe Control CycleThe Control CycleThe Control Cycle

• Control Cycle– A period of time over which an activity is planned,

measured, corrected, and re-planned

• Variance– The difference between planned forecast activity

and actual activity

• Critical questions– What, how and how often to measure?

– What is unacceptable variance and how to correct?12-8


The Control Cycle IllustratedThe Control Cycle IllustratedThe Control Cycle IllustratedThe Control Cycle Illustrated

Exhibit 12-2

12-9


Successful Quality Management

SupportiveOrganizational

Culture

AppropriateTools and

Techniques

Focus onCustomers

Essential Elements ofEssential Elements ofSuccessful Quality ManagementSuccessful Quality Management

Essential Elements ofEssential Elements ofSuccessful Quality ManagementSuccessful Quality Management


Total Quality Management and Quality Total Quality Management and Quality Goals of Operations ManagementGoals of Operations Management

Total Quality Management and Quality Total Quality Management and Quality Goals of Operations ManagementGoals of Operations Management

• Total Quality Management (TQM)–An aggressive, all-encompassing management approach

to providing high-quality products and services.

• Quality–The features of a product or service that enable it to

satisfy customers’ needs.

–A perception of the customer as to the suitability of the product or service of a firm.

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Customer Focus on Quality ManagementCustomer Focus on Quality ManagementCustomer Focus on Quality ManagementCustomer Focus on Quality Management

• Customer Expectations–Quality is the extent to which a product or service

satisfies customer’s needs and expectations.• Product quality• Service quality• Product and service quality combinations

– “The customer is the focal point of quality efforts.”

• Customer Feedback–Customers are the eyes and ears of the business for

quality matters.

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Benchmarking and TQMBenchmarking and TQMBenchmarking and TQMBenchmarking and TQM

• Benchmarking–The process of studying the products, services, and

practices of other firms and using the insights gained to improve quality internally.

–Identify best practices, understand them, and use the insights gained to improve one’s operations

• Continuous Quality Improvement–A constant and dedicated effort to improve quality.

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Tools and Techniques of TQMTools and Techniques of TQMTools and Techniques of TQMTools and Techniques of TQM

• Employee Participation–Employee performance is a critical quality

variable.–Quality circle

• A group of employees who meet regularly to discuss quality-related problems.

12-14


Tools and Techniques of TQMTools and Techniques of TQMTools and Techniques of TQMTools and Techniques of TQM

• The Inspection Process–The examination of a product to determine whether it meets

quality standards.– Inspection standard

• A specification of a desired quality level and allowable tolerances.

–Attribute inspection• The determination of product acceptability based on whether it

will or will not work.

–Variable inspection• The determination of product acceptability based on a variable

such as weight or length.

12-15


Statistical Methods of Quality ControlStatistical Methods of Quality ControlStatistical Methods of Quality ControlStatistical Methods of Quality Control

• Acceptance Sampling–The use of a random, representative portion to determine the

acceptability of an entire lot.

• Statistical Process Control–The use of statistical methods

to assess quality during the operations process.

• Control Chart–A graphic illustration

of the limits used in statistical process control.

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International Certification forInternational Certification forQuality ManagementQuality Management

International Certification forInternational Certification forQuality ManagementQuality Management

• ISO 9000–The standards governing international certification of a

firm’s quality management procedures.

–QM variables include customer focus, leadership and continual improvement

• ISO 14000–A set of generic management standards for responsible

environmental management.

12-17


Quality Management in Quality Management in Service BusinessesService Businesses

Quality Management in Quality Management in Service BusinessesService Businesses

• Six factors positively influence customers’ perception of service quality

1. Being on target2. Care and Concern3. Spontaneity4. Problem Solving5. Follow up6. Recovery

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Competitive Strength ThroughCompetitive Strength ThroughImproved ProductivityImproved Productivity


• The Importance of Improving Productivity–Productivity is the efficiency with which inputs

are transformed into outputs.–Productivity is more difficult to increase in

service industries than in manufacturing sectors.

Inputs

OutputstyProductivi

nInformatio Materials Raw Money Energy Labour

servicesand/or ProductstyProductivi

…continued

12-19




• Reengineering for Improved Productivity–Reengineering

• A fundamental restructuring to improve the operations process.

• Asking “Why?” is important in the reengineering process.

…continued

12-20


Avoid Failure in Avoid Failure in Process ImprovementProcess Improvement

Avoid Failure in Avoid Failure in Process ImprovementProcess Improvement

• Be customer focused

• Phase in improvements

• Involve the employees

• Divide the project up

• Communicate

12-21


Lean ManufacturingLean ManufacturingLean ManufacturingLean Manufacturing

• Three-pronged approach to:1. Eliminate waste

2. Ensure quality

3. Involve employees in designing and managing their work

• Key principles:– Define value from the customer’s perspective

– Identify and map the value stream

– Reduce or eliminate waste or improve flow

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Reducing or Eliminating WasteReducing or Eliminating WasteReducing or Eliminating WasteReducing or Eliminating Waste

• Stop overproduction for building inventory• Prevent unnecessary use/storage of raw materials• Streamline transportation• Optimize motion and actions of personnel• Reduce waiting and idle time in process• Reduce or eliminate defects• Reduce steps/features not valued by customers

12-23


Benefits of “Being Lean”Benefits of “Being Lean”Benefits of “Being Lean”Benefits of “Being Lean”

• Culture of continuous improvement• Decreasing manufacturing cycle times• Reducing waste• Empowering employees• Increasing profits and cash flow• Increasing production capacity• Increasing customer satisfaction• Reducing costs

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• Operations Analysis–Laws of motion economy

• Arranging work in the most cost-effective and efficient manner possible.

• Methods of Work Measurement–Motion Study

• An analysis of all the motions a worker makes to complete a given job.

–Time Study• A determination of the average time, it takes to complete

Work ImprovementWork ImprovementWork ImprovementWork Improvement

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Purchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and Practices

• Purchasing–The process of obtaining materials, equipment, and

services from outside.

• The Importance of Purchasing–The process of acquiring quality raw material inputs

affects:• The timely and consistent production of quality products.• Retailer sales of finished products to customers.• The costs of products, their profitability and their selling

prices.

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Make or Buy DecisionsMake or Buy DecisionsMake or Buy DecisionsMake or Buy Decisions

• Purchasing Practices and Profitability–Making or buying

• A firm’s choice between producing and purchasing component parts for its products.

–Reasons for making:• Increased utilization of plant capacity• Assurance of supply of critical components• Maintaining secrecy in designs and processes• Saving on transportation costs and supplier profits• Closer coordination and control of overall process• Higher quality components for inputs

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Outsourcing and Outsourcing and Reasons for BuyingReasons for BuyingOutsourcing and Outsourcing and

Reasons for BuyingReasons for Buying

• Purchasing Practices and Profitability–Outsourcing

• Purchasing products or services that are outside the firm’s area of competitive advantage.

–Reasons for Buying• Supplier’s part/service is cheaper and/or higher quality

• Investment savings on space, personnel, equipment

• Greater flexibility in matching supply and demand

• Increased focus on production of core product/service

• No risk of equipment obsolescence

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Sources of SupplySources of SupplySources of SupplySources of Supply

• Diversifying sources of supply–Reasons for having a sole supplier

• Outstanding supplier quality

• Quantity discounts for volume purchases

• Single orders too small to divide among suppliers

• Quality of supplier-customer relationship

–Reasons for having multiple suppliers• Choice of best quality, price, and service

• Supplier competes for business

• Insurance against input interruptions

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Relationships with SuppliersRelationships with SuppliersRelationships with SuppliersRelationships with Suppliers

• Relationships with suppliers–Selecting suppliers

• Price and quality• Location and delivery reliability• Services offered—credit, product support, promotion

• Building good relationships with suppliers–Purchasing practices

• Pay bills promptly• Be courteous to sales representatives• Avoid abrupt cancellations of orders• Maintain a professional relationship• EDI

12-30


Strategic AlliancesStrategic AlliancesStrategic AlliancesStrategic Alliances

• Developing Strategic Alliances–Strategic alliance is an organizational relationship that

links two independent business entities in a common endeavour. Involves close coordination of buyers and sellers to:• Reduce product introduction lead time

• Improve product quality

• Engage in joint problem solving

• Make joint adjustments to market conditions

• Involve the supplier early in product development

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Inventory Management Inventory Management and Operationsand Operations

Inventory Management Inventory Management and Operationsand Operations

• Inventory Cost Control–Economic order quantity (EOQ)

• The quantity to purchase in order to minimize total inventory costs.

Totalinventory

costs

Totalordering

costs

Totalcarrying

costs= +

12-32


Graphic Portrayal of the Graphic Portrayal of the Economic Order QuantityEconomic Order QuantityGraphic Portrayal of the Graphic Portrayal of the Economic Order QuantityEconomic Order Quantity

EOQ Total Costs

Ordering Costs

Carrying Costs

Order Quantity (Units)

Cost ($)

Exhibit 12-3


Inventory Management and OperationsInventory Management and OperationsInventory Management and OperationsInventory Management and Operations

• ABC Inventory Analysis–A system of classifying items in inventory by

relative value–Category A (close/continuous control)

• High-value or critical production component items

–Category B (moderate control)• Less costly, secondary importance items

–Category C (periodic control)• Low-cost and noncritical items

…continued

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Inventory Management and OperationsInventory Management and OperationsInventory Management and OperationsInventory Management and Operations

• Just-In-Time Inventory (JIT) System, also Kanban–A method of reducing inventory level to an absolute

minimum.• New items arrive at the same time that the last inventory

item is placed in service

–JIT promotes:• Closer coordination with suppliers

• Consistent quality production

• Lower safety stock levels

…continued

12-35


Inventory Management and Operations Inventory Management and Operations Inventory Management and Operations Inventory Management and Operations

• Inventory Record-Keeping Systems–Physical inventory system

• A method that provides for periodic counting of items in inventory

–Cycle counting• A system of counting different segments of the

physical inventory at different times during the year.–Perpetual inventory

• A method for keeping a running record of inventory.

12-36

chapter 12copyright © 2010 by nelson education ltd. operations management and control systems 12...

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