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What’s ahead

Optimising OperatiOns

77

TechnologyFacilities designand layout

Materialsmanagement

Managementof quality

Optimisingoperations

ISBN 978-1-107-63549-4 Photocopying is restricted under law and this material must not be transferred to another party.

© Gillian Somers, Julie Cain, Megan Jeffery 2011 Cambridge University Press

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Key Knowledge

Students will learn about the following strategies to optimise operations:

– facilities design and layout – materials management – management of quality – extent of the use of technology.

3the operations management function

It has been established that the aim of the opera-

tions manager is to extract maximum productivity

and levels of quality from the production process,

while also achieving organisational ethical and

social responsibility objectives. In other words,

the operations manager is responsible for opti-

mising an organisation’s operations. So how does

an operations manager do this?

In this chapter, we will examine some of the

strategies currently used by organisations in order

to optimise their operations and thereby improve

their competitiveness in a global market.

More specifically, we will look at strategies

that aim to optimise the following aspects of the

operations system:

• facilitiesdesignandlayout(floorplan)

• extentandimpactoftechnologyusedinan

operations system

• materialsandsupplychainmanagement

• managementofquality.

Finally, we will also look at the integration

of social responsibility considerations into the

design and operation of an organisation.



148 unit 3 corporate management

Facilities design and layout (floor plan)The physical layout of plant and equipment

has a significant impact on the efficiency of

an organisation’s operations. There are critical

factors that influence the location and design

decisions, such as:

• theproduct beingmanufacturedor service

being provided

• volumeofoutput required tobeproduced

or services provided

• actual amount of physical space required

and the location

• processtobeundertaken–closedorvirtual

• appropriatetypeoflayout.

The following must also be considered

in order to optimise the production process

efficiency.

Optimising the use of physical spaceAdequate workspace must be provided to all

areas. Insufficient workspace will often result

in bottlenecks and subsequent blockages in

workflows.Theworkspace,however,mustnot

be too large, as it may hinder productivity if

workers have to move around or walk long

distances during completion of tasks.

Activity 7.1

Working in groups of three to four, your task is to evaluate the workspaces in your school. Each group is to visit a different workstation, such as teacher offices, the general office, or even the school canteen, and then write a report on the following to be presented to the class.1 Describe the tasks and workflows that occur in the area designated to you. (What is done here?

What steps are usually followed?)

2 Is the workspace inadequate/adequate? Explain why you believe this to be so.

3 Make at least three suggestions that could improve the productivity in this work area. Justify your answer.

Optimising the use of equipmentExtracting maximum productivity from equip-

ment is a key to operational optimisation.

Equipment must be easily accessible, reliable

and operational to maximise its throughput. It is

vital that each piece is located so that it is easily

accessible to those who require it.

Regular maintenance programA regular maintenance program is essential to

keeping equipment and facilities operational.

Easy accessibility to these for maintenance is Figure 7.1 Equipment needs regular maintenance.



chapter 7 optimising operations 149

crucial in order to minimise downtime. Multi-

skilling of workers is necessary to ensure

maximum utilisation of equipment. While

regular maintenance will be a cost in time,

labour and component parts, it will avert costly

downtime. Any piece of equipment lying idle

results in lost output and thus, lost revenue.

Location of raw materials stocks and finished productsThe location of raw materials stocks and finished

products is another determinant of operational

efficiency and effectiveness. These must be readily

accessible during the production process. Time

wasted in locating and moving required inputs

must be minimised in order to optimise produc-

tivity. Raw materials and component parts should

be within easy reach of where they are required.

Finished products must be placed where they can

be easily accessed and moved out for delivery.

This enables materials handling to be carried out

in an orderly and efficient manner.

Layout of plant and equipmentThe layout of plant and equipment must allow

foranefficientflowofproduction.Thisinvolves

linking the processes and the different stages of

production so that production needs are met.

Types of layoutThe facility layout must be planned with a

view to streamlining the production process.

The best layout to adopt depends on the type

of organisation and the nature of its activities.

Fixed position/project layout occurs

when the product remains in one position

while it is being built or constructed. All of the

labour and resources are brought to it. This

layout type is used for the construction of large

and bulky products, such as building or aircraft

construction. It is used to produce a customised

product as a single entity from start to finish.

Each individual product is completed before the

next is started.

The advantage of a fixed position layout is

its greater flexibility, enabling manufacture of

product to exact specifications. This also allows

for high quality to be built into the production

process. However, a fixed position layout is

expensive as it is time-consuming and has high

input requirements of labour.

Process/functional layout involves pieces

of equipment with like functions being grouped

together. It is used with products that require

a large degree of variety, but that are gener-

ally only produced in small amounts. Batch

production employs this layout, as it allows

for intermittent production of different batches

of products. Each batch or product is taken to

the appropriate machinery as required. Because

each product or batch is different, there is no

established pattern of use of machinery, so

similar machinery is placed together. A hospi-

tal would use a process layout, for example.

Each patient will have different requirements

and needs, therefore they will utilise different

machinery and locations with no set pattern. A

functional layout allows for variations in volume

produced and specification.

Product layout is used when employing

mass production techniques that create large

multiskillingequipping employees with a variety of job skills to increase their flexibility

facility layoutthe physical layout of a work environment, e.g. factory, shop, office, warehouse

fixed position layoutthe product remains in a fixed position with the required resources taken to the product

process layoutproduction layout where pieces of equipment with like function are grouped together

functional layoutpieces of equipment with like function are grouped together; the product being produced is taken to each piece of equipment

batch productionthe manufacture of a limited number of identical products; every item in the batch is completed at each stage before they all pass on to the next stage of production

product layoutequipment is used for a single purpose along a production flow line; the product progresses along the line in a continuous flow; suitable for mass production

mass productionlarge-scale production of similar or identical itemsFigure 7.2 Fixed position layout




amounts of consistent quality products. Mass

production usually involves automation and

generally the products move to the equipment

along a conveyor belt. Standardised inputs are

put through standardised processes to produce

the required output in large amounts.

An assembly line involves inputs moving

along different stages on a conveyor belt. Most

factories employ this production process, as

it is capable of producing larger quantities of

standardised output in a relatively short time.

It therefore suits industries where the demand

for their product is both high and consistent.

It also suits the production of a standardised

product requiring only minimal alterations. Most

large factories fit these criteria. The advantages

offered by mass production using a product

layout generally centre around questions of

cost. It is an efficient and predictable means of

production offering:

• lowunitcosts

• aconstantrateofoutput

• consistentqualitystandards.

The disadvantages of the mass production

method are:

• initial high set-up costs with the purchase

of capital-intensive high-technology produc-

tion lines

• unmotivated employees through repetitive,

low-skilled work

• noallowanceforanycustomisation.

Henry Ford is credited with the introduction

of the ‘moving assembly line’ at his Detroit car

plant in 1913. Its introduction saw the time

taken to produce a Model T Ford car fall from

14 man hours in 1910 to just two man hours in

1913. The price of the car therefore actually fell

from $850 to just $345 in 1916.

Continuous flow production is another

form of product layout. It is a high-volume

process that runs without ceasing. The product

goes through the same sequence of steps

continually. A refinery and printing press are

two examples of this type of production.

Mass customisation is a recent innova-

tion in production methods as organisations

pursue ways of combining the flexibility and

worker satisfaction levels of the project process

methods with low unit cost. It is a production

process that combines the latest technology

with multiskilled employees and uses a produc-

tion line to make a range of different products.

A few components are varied to allow for

customisation, but the rest are kept the same.

An example of this is a computer manufacturer

that can customise a standard computer to suit

individual customers or a car manufacturer that

customises standard models to suit individual

customer requirements.

Cell production is another recent innova-

tion. It isanewformofflowproduction,but

the workers are divided into groups or units,

Figure 7.3 An assembly line is the most common form of product layout used in mass production.

assembly lineused in manufacturing organisations when machines pass a product past workers who perform a small specialised task

customisationmade or altered to meet an individual order

mass customisationlarge-scale production of customised products

cell productionthe production line is split into a number of self-contained cells or units; each cell produces the whole of one unit or a significant subassembly of a unit




known as cells. This idea is aimed at motivating

workers through friendly competition between

the cells. Each cell has a team leader and a group

of workers trained in a number of tasks. The

performance of each cell is measured against

benchmarks. These could be measures such as

output levels, quality or lead times. Each cell is

responsible for its own performance. This form

of flow production often leads to improved

worker commitment and motivation, and subse-

quent productivity gains.

Improved productivity and quality standards

may also be obtained through changing the

operations processes adopted and implemented.

Lean manufacturing is a system developed

in Japan after the Second World War by car manu-

facturer Toyota, which aims to improve efficiency

through the identification and elimination of waste

from the production system. It involves identify-

ing and removing all activities and processes that

occur in an operations system that do not add

value to a product as it is being produced.

The steps undertaken in a lean manufactur-

ing system are:

1 Identify what customers want in a product,

such as quality, customer service and so on.

2 Identify all steps taken in the operations

system that make the product (process

mapping).

3 Makealloftheprocessesflow.

4 Ensure that what is produced is the quantity

theconsumerdemands(nooverproduction).

5 Strive for perfection by continually identify-

ing and removing waste.

closed factorymodel of production where all production is carried out within the four walls of a factory site

virtual factorythe decentralisation of productive activities so that production does not occur at one worksite; also referred to as decentralisation

lean manufacturingefficient management of the production process with the aim of achieving minimum use of resources (streamlined production)

Activity 7.2

Go to the Toyota website (www.toyota.com.au). Click on ‘About Toyota’, ‘Operations’, then ‘Toyota Production System’. Answer the following questions after reading the information about the operations system of Toyota.1 What do the letters TPS stand for?

2 State the goals of TPS.

3 Explain how each of these goals addresses issues important to corporate social responsibility.

4 What is meant by the term ‘standardisation’? Explain the link between standardisation and maintaining consistently high standards of quality.

5 Define Kaizen. Explain the basic principles of Kaizen.

6 Discuss the link between Kaizen and employee empowerment.

7 Outline the key aspects of the Just In Time (JIT) system at Toyota.

8 Explain how JIT improves efficiency and acts to ensure that neither overproduction nor underproduction occurs.

9 What is a Kanban system? How does it act to regulate production?

10 Identify and explain how the Jidoka production line differs from that originally developed by Henry Ford.

11 Toyota suppliers have also been obliged to adopt the principles of TPS. What has been the effect of this?

Manufacturing organisations are increas-

ingly moving away from the closed factory

model of production, where all production is

completed within the four walls of their own

site. Replacing this model is one where many

of their productive operations are outsourced

to other component manufacturers at a lesser

cost. This is known as decentralisation or the

virtual factory. For example, it may be more

efficient for an Australian clothing manufac-

turer to outsource the actual production of the

designs of their designers in Australia to another




factory in another country where labour costs

are lower.

The virtual factory model operates on the

premise that components should each be manu-

factured and assembled in the world region

where it can be done most efficiently. Advan-

tages offered by use of the virtual factory include:

• reducedfixedcostsfromplantandequipment

• loyalty from suppliers through a guarantee

of work

• a concentration of expertise,with one site

performing a small number of tasks in large

numbers

• quickersupplytosomepartsoftheworld

• ability to take advantage of cost savings

offered by low-wage countries.

Disadvantages of using the virtual factory

include:

• language and cultural barriers in dealings

with suppliers

• highset-upcosts

• difficulttochangesuppliersifneeded

• possibilityofpoliticalandeconomicdisrup-

tion in developing countries

• ethicalandsocialresponsibilityissues.

Activity 7.3

Using the internet, research two of the following organisations: Nike, Adidas, Country Road, GMH, Ford, Ripcurl.1 Ascertain the locations where each

organisation actually manufactures its products.

2 Discuss the advantages this offers them.

3 Discuss whether or not you believe these organisations are:

a being socially responsibleb behaving ethically.

Consideration must also be given to provi-

sion of the work environment of employees

when designing layout. It has been demonstrat-

ed that workplace ergonomics directly affects

employee productivity levels. Factors such as

appropriate furniture and equipment, height of

workbenches, provision of appropriate protec-

tive clothing and even sufficient lighting and

temperature are all examples of what should

be considered. The ergonomics professional

specialises in creating workplace designs that

optimise the work environment.

A working environment must also be

designed in accordance with legal require-

ments and obligations. Occupational health

and safety laws must be taken into account.

Employers who fail to provide a safe workplace

are not only liable to lose production through

ergonomicsstudy of the relationship between people and their working environment

work in progressunfinished production of goods or services

continuous productionongoing production of a product – assembly line

Figure 7.4 Batch production

Figure 7.5 Continuous or mass production




table 7.1 Methods of production

production type

Features examples of when it is used

advantages Disadvantages

Project or job process

• Production of one item as single entity from start to finish. Labour and equipment comes to the product

• Requires highly skilled workforce

• Tailor makes a suit to order

• Construction of a building

• Production of single one-off items or very large items

• Goods for specialist projects with high value added

• Flexibility allows production to exact specifications. Allows for high quality standards

• Workers take pride in craftsmanship

• Expensive and time-consuming. Increases costs of production. This is due to high level of labour intensity required

Batch production

• Production of different product types in groups/batches of identical products

• Products in the same batch go through the whole process together

• Bakery makes batches of different types of bread and or cakes

• High volume transactions not performed in real time, e.g. insurance renewal forms

• Some benefits of economies of scale

• Suits producers with moderate output levels

• Enables variations in volume and customisation of each group of product to suit individual requirements

• Creates high levels of work in progress stocks at each stage of the production process

• Expensive

Continuous production line/ line process/ mass production

• Involves automation where standardised inputs are put through standardised processes in order to produce the required amount

• Individual products move from stage to stage of the production process as soon as they are ready

• Assembly line moves inputs along to the different stages

• Assembly lines in factories, e.g. cars

• Suits industries with a high and consistent demand for their products

• Suits production of large amounts of a standardised product in short time

• Efficient and predictable means of production with low unit costs as a consequence of economies of scale

• Low labour costs due to mechanisation

• Easy to predict required input stocks

• Quality tends to remain consistently high and easy to check

• Initial high set-up cost with large amounts of capital equipment required

• Workers likely to be unmotivated by repetitive, low-skilled work and minimal satisfaction

• No allowance for reworking errors or any customisation

• A stoppage on the line or process means the output could be lost entirely

Continuous flow production

• High volume process that runs without stopping at all

• Products go through same sequence continually

• Refineries • Same as mass production

• Same as mass production

continued next page




downtime from accidents, they are also likely

to encounter a greater number of workplace

disputes and costly industrial action, not to

mention possible legal sanctions.

The provision of a safe workplace is viewed

by many as a social obligation that employers

have towards their employees. The physical

layout and general ergonomics of a workplace

will significantly impact upon the level of occu-

pational health and safety in any workplace,

which will, in turn, affect productivity, efficiency

and employee effectiveness.

Facilities design and layout must also

allow for effective communication channels

between different areas of the organisation. Site

support areas such as human resources and IT

departments also need to be within easy access.

Layout should also incorporate aspects that

make the organisation visually appealing to

potential customers, suppliers and investors.

production type

Features examples of when it is used

advantages Disadvantages

Cell production • Form of flow production where employees are divided into work teams and motivated by friendly competition

• Requires modular design of product, each module being produced by a cell, e.g. electrical goods

• Improved worker commitment and motivation

• Productivity gains

• Higher set-up cost

Mass customisation

• Combines latest technology with multiskilled employees

• Uses a production line to make a range of different products

• A few components are varied to allow for customisation

• Computer manufacturer who customises a standard computer to suit customer specifications

• Car manufacturer who customises special vehicles according to customer requirements

• Flexible but lower costs than job process or batch

• Ability to manufacture a range of goods to order with low unit costs

• Reliant on good supply chain management

• Must limit number of variants produced in order to succeed

Figure 7.6 Ergonomics in the workplace




Activity 7.4

Read the article and answer the questions that follow.

Hefty fine after mine maintenance death13 August 2010

A mine maintenance contractor has been

convicted and fined nearly half a million

dollars for a ‘significant failure’ to protect its

employees, following the death of a worker

who was crushed by a steel beam.

Silcar Pty Ltd was convicted and fined

$475 000 in the Melbourne County Court today

on one count under section 21 of the Occu-

pational Health and Safety Act 2004. This

combined two offences of failing to provide

and maintain safe plant and systems of work

and failing to provide information, instruction

and training to employees.

During sentencing, Judge Murphy said the

incident marked a significant failure in the

company’s obligations to employees working

on routine maintenance tasks.

The incident occurred in 2006 at the

Yallourn Mine as maintenance fitter Richard

Gauci, 42, was carrying out maintenance work

on the head pulley of the mine’s conveyor, used

to transport overburden.

Mr Gauci was winching a 700 kg steel beam

into position when the cables on two winches

failed, causing the beam to fall onto him.

WorkSafe’s investigation found:

• The hand winches and lifting rope on the

fixed belt clamp were in poor condition;

• Silcarhadnorecordstoshowthat thebelt

clamps and ropes had been inspected or

maintained; and

• Silcarhadfailedtoputsafesystemsofwork

in place for working with fixed belt clamps.

WorkSafe’s Acting Hazard Management

Director, Rod Gunn, said the incident occurred

because Silcar had failed to consider all the

risks.

‘As a maintenance contractor, carrying out

high-risk work assessments should be an area

of expertise,’ he said.

‘This prosecution is a reminder that employ-

ers need to be vigilant about making sure plant

and equipment is inspected, maintained, and in

a condition suitable for use – and that nothing

slips through the cracks,’ he said.

Source: www.worksafe.vic.gov.au

Questions1 Outline the events that have led up to Silcar being brought to court.

2 What laws have been broken and what penalties have been imposed?

3 What organisation is responsible for prosecution of cases such as this?

4 Suggest three ways this incident might have impacted negatively on the productivity and/or competitiveness of Silcar.

5 Do you believe that the prosecution of this company was justified? Give reasons for your answer.

6 Give two suggestions for potential changes to the operations system of Silcar that could be implemented in order to reduce the chances of prosecution for workplace safety breaches in the future.




Improving operations through technologyThe introduction of new technology as it

becomes available to organisational operations

can offer significant efficiency savings as well

as improvements in the quality of product.

Organisations that fail to keep pace with the

latest technological advancements tend to

rapidly lose competitiveness. Following are

several examples of the technological innova-

tions developed in recent years that have added

significantly to operational productivity. All are

examples of automation.

Computer Numerical ControlComputer Numerical Control (CNC), also

referred to as Computer Aided Manufacturing

(CAM),involvesthecontrolofmachinery,tools

and equipment through a computer. Machines

are fed programmed instructions from a central

computer, allowing for greater precision and

less margin for error.

Computer Aided DesignComputer Aided Design (CAD) is a computer

program that facilitates the creation and modi-

fication of product designs that has become the

standard in most organisations. CAD speeds up

the process of product design and increases

accuracy. It is costly to introduce, but saves time

and money in the long term.

Computer Integrated ManufacturingComputer Integrated Manufacturing (CIM) is

the combination of CAD and CNC. CIM is a

computer program that controls and directs

production from start to finish. Computers can

direct planning cost estimations, inventory plan-

ning, control and quality-control systems.

RoboticsRobots are machines that are usually employed

on a production line and work from a fixed

position. Robotics offers significant cost savings

and increased efficiencies as robots save on

labour costs and are not subject to human error.

Japanese industry has long employed robots

to do tasks such as the precision assembly of

circuit boards, which machines are able to do

for long periods to a very high standard.

In general, robotics offer improved quality

and efficiency and have the added advantage of

freeing employees from repetitive tasks. Robots

are sophisticated and are able to perform

complex tasks.

automationthe techniques and equipment used to achieve automatic, as opposed to human, operation or control of a process, equipment or a system

Computer aided Design (CaD)a computer program that facilitates the creation and modification of product design

roboticsthe use of computer-controlled robots to perform manual tasks, especially on an assembly line, replacing functions previously performed by human labour

Figure 7.7 Robotics offers significant cost savings and efficiency.




Flexible Manufacturing Systems (FMS)This is a complete system involving total

computer control of the operations system using

CNC-based equipment and automated transport

systems that deliver component parts and raw

materials in the correct quantities just as they

are required. FMS creates total computer control

of all aspects of the operations system involv-

ing the integration of CAD, engineering and

manufacturing. Computers detect things such as

machine breakdown and notify operators about

the correct replacement parts required. They

will also reset equipment when it is required

in order to produce different product types

according to different specifications.

Service industriesIn recent years, service industries have had

access to considerable productivity improve-

ments via technological development. Specific

examples of these include the following:

• E-commerce allows business transactions

to occur using the internet. Online shop-

ping, banking and marketing are expand-

ing rapidly. Organisational websites are

important marketing tools. They also act as

virtual shop fronts and sources of product

information.

• Computerisation has reduced operating

costs and made significant time economies.

• Thedevelopmentofmobile phone technol-

ogy through the 3G network has opened up

many possibilities for businesses. Internet

access at broadband speed on these portable

devices is revolutionising communications for

all organisations. This offers many potential

productivity gains, greater workplace flex-

ibility and employee work–life balance as

employees are no longer tied to a workstation.

• Theabilitytocommunicate via the inter-

net has enabled significant cost savings. For

example, many employees can now work

from home, saving office overheads. This

phenomenon is known as the ‘virtual office’.

Figure 7.8 The internet has helped create the ‘virtual office’.

Materials and supply chain managementSupply chain management is the process of

integrating and planning, implementing and

controlling the system of organisations, people,

technology, activities, information and resources

that transforms inputs into finished outputs.

Aspects of supply chain management include

inventory management, the procurement of

supplies, and distribution of finished products

tocustomers(logistics).

Inventory managementInventory is the storage of:

• rawmaterialsandcomponentparts

• unfinishedproduction

• finishedgoodsreadyfordistribution.

The inventory of a business takes up storage

space and is therefore a cost. The aim of inven-

tory management is to ensure that the right

inventorythe holding or storage of raw materials, component parts, work in progress and finished goods




quantities of parts and materials are available for

the operations system to keep running and that

there are sufficient finished products to satisfy

demand. This must, however, be balanced

against the costs of storage.

If inventory fails to hold sufficient quanti-

ties of a required input, the entire operations

process could cease. On the other hand, excess

inventory takes up space and is a cost to the

business. Optimum inventory levels must be

clearly identified and monitored, and reorder-

ing procedures put into place. Acquisition of

materials must be planned to ensure timely and

uninterrupted supply of the necessary inputs

and components. Sources of supply for raw

materials and components must be identified.

Inventory management and planning neces-

sitates decisions about:

• howmuchtoorder(quantitiestoreplenish)

• timingofordering(whentoorder)

• controlofthestocksecuritysystem.

The management and control of inventory

must be carefully planned and coordinated to

optimise operations.

There are two important aspects of this:

• developingareliableandaccurateinventory

system that determines what items to order,

in what quantities. The key to success is to

maintain a level of inventory that allows

production to continue without any delays,

while avoiding the cost of excess stock.

• a systemof inventory control that deter-

mines how and when to store items, and is

capable of tracking the movement of raw

materials, components and partly completed

units while protecting against loss due to

theft or damage.

Most organisations now have computerised

inventory records. This has vastly improved the

accuracy of recording systems and has reduced

opportunities for stock damage, loss and

theft. The use of a barcode scanning system

has largely replaced the physical stocktake.

Computerised stock control systems with

barcoding allow for greater control over order

assembly, stock availability and monitoring of

stock. New mechanical and automated ware-

housing equipment has significantly improved

the efficiency of inventories by making stock

movement easier.

In recent years, the Just In Time (JIT)

system of inventory management from Japan

has been growing in popularity with Australian

businesses. This system involves the reduction/

minimisation of inventory levels in the supply

chain, thereby reducing inventory costs. Inher-

ent to JIT is the availability of products in the

required amounts at the right time at every stage

in the production process, while at the same

time minimising the use of materials, equip-

ment, labour and space.

The JIT system eliminates waste and storage

costs by having all operations completed

just in time for the next stage to commence,

thereby reducing production costs via reduced

lead times, reduced inventory holdings and

subsequent decreased inventory storage space

requirements.

While JIT offers great potential for produc-

tivity improvements and cost savings, it does

have drawbacks. It is vital, for instance, that

Figure 7.9 Careful planning is involved in inventory management.

inventory controlsystem of overseeing the contents of an inventory; usually involves maintaining correct levels of stock as well as averting stock loss and theft

Just in time (Jit)an inventory management system that aims to avoid holding any stocks (either as inputs or finished goods); supplies arrive just as needed for production, and finished products are immediately dispatched or sold to customers




supplier deliveries are reliable and received just

before the material is required in the produc-

tion process. Any factor that affects the delivery

schedule has the potential to completely shut

down the whole production process. Industrial

action at a manufacturer of one component used

by all of Australia’s car manufacturers has, for

instance, resulted in all car production closing

down in Australia at the same time. One part

was unavailable, resulting in GMH, Ford and

Toyota shutting down their production facilities

until the dispute was resolved.

Key elements of the JIT system include the

following:

1 JIT aims to reduce costs through minimising

the amounts of inventory that must be held

at any one time.

2 Small quantities of inputs, such as raw materi-

als and component parts, are delivered more

frequently with a view to meeting immediate

requirements. Large stockpiles are therefore

avoided.

3 Kanban method is employed, which is a

‘pull’ system of production materials control

where orders are placed in response to

needs further up the line. Inventory is only

replaced as it is used.

4 Employee participation is required in identi-

fying wasteful work practices and eliminat-

ing these on a continuous basis.

Procurement of inputsLocating and acquiring a regular and reliable

supply of high-quality inputs is a vital aspect

of efficient operations management. Contracts

need to be established with reliable suppliers of

high-quality inputs.

• Supplierlead-intimemustalsobetakeninto

account. Some suppliers will require prior

warning of requirements. Component manu-

facture, for example, may take some time,

so orders must be made in advance to allow

for this.

• Planning must occur in order to ascertain

the exact amounts of materials that will be

required. This may give the opportunity to

purchase in bulk and therefore obtain an

input at a lower cost per unit.

• Theoperationsmanagermustalsofactorin

an attempt to anticipate the possibility of

future price rises or falls caused by seasonal

variations, world market conditions, changes

in the value of the Australian dollar or poten-

tial industrial action at a supplier’s produc-

tion facility.

• Asystemmustalsobeestablished,suchas

JIT, to keep inventory at the required levels

to avert theft and loss of materials while in

storage.

Transport and distribution (logistics)An efficient system of transporting finished

products to the customer must also be devel-

oped. This may involve contracts with transport

specialists such as couriers. The frequency of

deliveries must be established, as must the

routes taken.

Figure 7.10 An effective and efficient supply chain is vital to business success.




The management of quality

Activity 7.5

Outline how each of the following changes to the supply chain of a large retailer with more than 80 branches across Australia could serve to improve business competitiveness through productivity and quality.1 The introduction of a new IT system that tracks stock movements accurately.

2 The introduction of roll cages (on wheels) to transport stock from each store dock entrance, where stock comes into the store, to the relevant store retail department. Previously, pallets were used that required unpacking at the dock entrance to each store.

3 A new policy of not reordering from suppliers who deliver more than a day late.

4 The closing of more than 30 smaller warehouses, replaced with one major retail distribution centre in each of Melbourne, Sydney, Adelaide, Brisbane and Perth. The new ‘Super Houses’ are to have the latest technology installed.

5 A decision is made only to buy from suppliers who are ethically and socially responsible. Therefore several overseas suppliers who are found to exploit child labour lose contracts.

6 The introduction of a Just In Time system of inventory management

Quality describes the degree of excellence in

a product or service and its ability to satisfy

client/customer needs and wants. Consumers

generally base their purchasing decisions on the

quality and price of a product as they look for

the best possible quality at the lowest price.

Organisations that develop a reputation

for quality products and service operate at a

distinct competitive advantage. Similarly, those

who are able to develop operations systems that

are of a higher quality standard gain significant

advantages in terms of operating costs through

minimising waste and defect rates.

In recent years, Australian organisations

have paid greater attention to quality manage-

ment programs as a means of increasing

organisational competitiveness; consequently,

quality management programs have grown in

popularity.

Quality management in a large-scale organ-

isation may take one or a combination of quality

control, quality assurance and Total Quality

Management(TQM),asdiscussedlater.

Quality management programs aim to:

• minimisewasteanddefectratesinproduc-

tion, thereby maximising operational effi-

ciency and productivity

• obtainconsistentlyhighstandardsofproduct

and service at every stage of production

• achievesetqualitystandardsorbenchmarks.

qualitythe degree of excellence in a good or service and its ability to satisfy the customer

Figure 7.11 Organisations must manage the quality of their products and services.




Activity 7.6

Factors of qualityFactors that determine a product’s quality include:

durability performance satisfaction achieved for customer/client

maintainability responsiveness availability of parts

reliability aesthetics conformance to specifications/standards

speed of service consistency consideration for personal requirements

design ease of use after-sales service

features uniformity dependability

List and explain the characteristics you would look for in each of the following products/services for it to be judged as ‘quality’.1 An education

2 A car

3 A hamburger

4 A business suit

5 A bathroom renovation

6 A taxi ride

7 A household appliance

8 A mobile phone service.

Figure 7.12 Products and services




Figure 7.13 Quality control: recall of suspected hazardous foods

Figure 7.14 Quality control stages

Quality controlQuality control involves the use of a series

of physical checks at different stages of the

production process to ensure that products

and services meet designated standards and

errors are eliminated post-production. Defective

products are usually rejected and may be sold

as ‘seconds’.

Quality control is reactive and aims to

detect defects after they have occurred. Once

detected, operations management will decide

whether production needs to be halted to fix the

cause of the problem or that this was a one-off

case. In some instances, a product recall

becomes necessary to rectify problems on units

already sold.

For example, the Smith’s Snackfood Com-

pany issued a recall on its salt and vinegar chips

as a precautionary measure after some packs

were found to have pieces of rubber in them.

quality controlprocess of checking the quality standards of work done or quality of raw materials or component parts

product recallusually initiated by the manufacturers/suppliers when they become aware of a defect in a product that makes it unsafe; can also be initiated by government departments and authorities

1. Establishment of quality benchmarks/standards to be achieved.

Set out attributes that will be checked and standards to be met.

2. Carry out inspections of product performance.

Use analysis and sampling techniques.

4. Correct processes/procedures in order to prevent defects recurring.

Reappraisal of performance standards may also occur.

3. Compare results of inspections with established standards/benchmarks.

Reject products that fail to meet designated attribute standards.

Quality assuranceA quality assurance system aims to build

quality into work processes, thereby avoid-

ing errors before they occur. It is a proactive

process that may involve the use of an external

organisation called a ‘certification body’, which

audits against published national or interna-

tional standards.

Achievement of certification entitles an

organisation to display certification marks. SAI

Global is the best-known Australian certification

quality assurancea system established to ensure that predetermined quality standards are achieved

proactiveusing initiative to gain an opportunity; acting in anticipation




body that issues certification against published

International Organization for Standardization

(ISO) standards. The right to use recognised

certification marks provides confidence to an

organisation’s stakeholders, adds great potential

for selling into export markets and demonstrates

a huge competitive advantage in globalised

markets over its non-certified competitors.

While different quality standards apply

to different types of organisations, standards

usually cover aspects such as:

• specificprocessestobeadoptedinregardto

customer satisfaction, continuous improve-

ment, the production process

• trainingofstaff

• documentationofprocesses

• controls

• correctiveaction

• auditingofprocesses.

Quality certification is growing at a rapid

rate among Australian organisations as globalisa-

tion increases international competition and the

quality expectations of Australian consumers.

Figure 7.16 Quality certification processesFigure 7.15 Stock should be monitored to avoid product recall

Adjustments inprocesses andprocedures made inline with standardsexpected in order toachieve certification

Right to use standards authority logo in organisationliterature andmarketing granted

Certification grantedby standardsauthority

Organisation employsa consultant to adviseon quality standardsto be met in order toobtain certification

4 3

2

1

Quality certificationprocesses

Activity 7.7

Consider the quality assured marks and then answer the following questions.1 Explain the advantages of displaying these logos

in organisational literature.

2 Discuss and explain how it is possible to obtain the right to use these logos.

3 Name three companies that are entitled to use these logos.

4 Go to the SAI Global website (www.sai-global.com). Summarise the services offered by this organisation. What advantages do they say they can offer a business organisation?

5 Conduct an internet search and find the name of three businesses that act as consultants to organisations trying to obtain ISO certification. Figure 7.17 Quality assured marks




Total Quality Management (TQM)TQM is a holistic approach to quality where all

members of an organisation aim to participate in

ongoing improvement of organisational culture

and production processes. All organisational

members are required to have a commitment to

ongoing, incremental quality improvements in

everything they do. Employees are placed into

a work group known as a quality circle and

are required to work together to achieve quality

improvements on an ongoing basis.

TQM is a totally integrated, management-

led effort aimed at improving performance

at every level of the enterprise and on every

aspect affecting competitiveness and customer

satisfaction.

William Edwards DemingAn American statistician named William Edwards

Deming first developed TQM after the Second

World War. He had been sent to Japan to assist

that country in rebuilding its industry base after

it had been devastated by wartime bombings.

He introduced new quality control concepts

to the Japanese, with his central idea being to

change the production system to prevent defects

rather than simply detecting and throwing out

the defective products after the defects occur.

Deming’s definition of quality was ‘meeting

or exceeding the needs and expectations of the

customer’. Thus, the goal of a business should

be to find out what the customer wants and

then fine-tune the process to ensure that they

get it. The term ‘customer’ refers to both internal

and external customers. This means every work

group has a customer: the person who receives

their output. Deming’s philosophy was that

quality should be the responsibility of everyone

in the organisation.

The Japanese adopted Deming’s ideas and

developed them further over time. They ex-

tended the application of process improvement

from manufacturing to administrative func-

tions and service industries, so that the quality

concept affected the whole organisation.

Japanese industries nowadays have a world-

wide reputation for high standards of quality

and workmanship. Much of this improvement

can be traced to the adoption of quality manage-

ment practices and procedures. They were able

to significantly drive down their costs, while

at the same time improve the quality of their

products.

During the 1980s, the Western world began

to realise just what the Japanese had achieved

in terms of quality improvements. Western

manufacturers began to adopt quality concepts

and added other management techniques in

the area of employee motivation, measurement

and rewards in response. This blend of quality

management techniques and philosophies is

generally referred to as TQM.

Core TQM concepts1 continuous process improvement

• People are required to look at their work

as being one step in a continuous process

rather than as in isolation to the rest of the

organisation.

• A process is a sequence of tasks, which

together produce a product or service. Every

work group therefore has a supplier and

a customer before and after them in the

process.

• Therefore theway to improvequality is to

ascertain who the customer is and what they

need and improve the process to fully meet

this need.

• Todothis,setupteamstoanalyseproblems

with the process and implement solutions.

• Continuousimprovementalwaystakesplace

in small, incremental steps and never stops.

That is, you are always looking for a better

way of doing things.

quality circlea group of workers who meet regularly to discuss quality and production issues; any proposed changes to production methods are then put forward to management




2 customer focus

Everyone has a customer:

• External customer – the person who

purchases the product or service.

• Internal customer – those who use what

another group in the workplace provides.

Every work group must think about provid-

ing value to the people who use their product.

This involves finding out exactly what the user

needs and wants, and ensuring that the process

provides it.

3 defect prevention

TQM tries to prevent defects in products or

services before they arise rather than relying on

inspection to find them after they occur.

4 universal responsibility

With TQM, quality is not just the responsibility

of the inspection department: it is everybody’s

responsibility. Every work group in the busi-

ness should be concerned with seeking ways

to improve the quality of their own product or

service.

Ethical and socially responsible management of operations

organisation builds goodwill and therefore a

positive reputation, is easily able to both attract

and retain good employees, and is often able to

gain cost advantages.

Social responsibility considerations for plan-

ning and running an operations system include

the following:

• waste minimisation schemes, such as

recycling

• reductionofcarbonemissions

• provision of enhanced quality of life for

employees through provision of safe working

environments that respect employee rights

• taking responsibility for theenvironmental,

social and economic impact of the organisa-

tion’s activities.

Environmental management systemsAn environmental management system

(EMS) isaseriesofpoliciesandpractices that

focuses on an organisation’s approach to envi-

ronmental issues. An EMS affects how an organ-

isation views its obligations to the environment

Social responsibility requires an organisation to

do what is right to reduce economic, social and

environmental impacts on the wider commu-

nity and ecosystem. Social responsibility is a

commitment to giving back to the community

and its development, and looking out for the

interests of all stakeholders.

Ethical and social responsibility consider-

ations are important when planning the estab-

lishment and running of an operations system. As

the community becomes increasingly concerned

about social and environmental problems, there

is an increasing expectation that large organisa-

tions consider the economic, environmental and

social impacts of their actions.

In the twenty-first century, a large-scale organ-

isation is expected to act in the interests of the

wider community, as global citizens, and not just

meet the financial expectations of its shareholders.

Therefore, social responsibilities must be taken

into account when planning an operations system.

Organisations are increasingly being evalu-

ated by the community and the markets in terms

of their socially responsible behaviours. Socially

responsible actions are important to organisa-

tional survival today. A socially responsible

environmental management systemseries of policies and practices that focuses on an organisation’s approach to environmental issues




Activity 7.8

Read the case study and answer the questions that follow.

Case study: Social responsibility and operationsAussie jobs head overseas but results are inferior

Nearly one in three businesses in Australia

outsources some part of their work overseas,

yet a massive 77% of Australians believe that

the quality of overseas outsourced work is

inferior to that done at home according to a

survey by Talent2, Australia’s leading human

resources and recruitment firm.

Contracting work to overseas firms has

become an increasingly common practice as

globalisation takes effect, yet 66.4% of the

1713 respondents to the survey say that

sending work overseas hurts the Australian

economy.

Mr Mark Condon of Talent2 says the jobs

most at risk to going overseas are in manufac-

turing, customer service/sales and IT. ‘We live

in a global society today and Australian busi-

nesses have been embracing the competitive

as well as how it manages the effects its activi-

ties have on the environments, both natural and

social. An EMS will affect:

• how well the organisation will meet its

ethical obligations in regard to its effect on

both the natural and social environments

• theefficiencyoftheorganisationaloperations

systems. Environmentally friendly practices

and processes usually involve reduction of

waste and cleaner production processes that

use fewer inputs.

The International Organization for Standard-

ization has standards relating to EMS (ISO

14001).Theseoperatelikeotherqualityassur-

ance standards, with organisations applying for

certification in environmental management. For

ISO accreditation, an organisation must demon-

strate an EMS that:

• involves participation by the whole

organisation

• targetsallstakeholders

• has identified all of the environmental

impacts of the organisation

• demonstrates proactive policies in their

implementation, organisational commitment,

vision, processes and procedures

• is a coordinated EMS applying across the

entire organisation with:

– commitmentfromall

– identification of environmental issues

faced

– specificgoals

– education and training programs,

manuals, documentation and procedures

– methods of assessment, monitor-

ing and auditing, plus dealing with

non-conformance.

The environmental performance of an organ-

isation has become increasingly important in

recent years because growing consumer aware-

ness of and concern for environmental issues

is affecting purchase choices. An organisation

with a sound EMS built into its operations

will therefore have a considerable competitive

advantage over its competitors.

Improved environmental performance

can also result from the efficiency advantages

usually offered by adopting newer, cleaner

and more environmentally friendly practices,

processes and equipment.




advantages such as lower staffing-costs that

international outsourcing can bring.’

‘Forty-five per cent of Australians say they

would reconsider signing up for a service such

as a mobile phone or internet contract if they

found out that the provider had outsourced

their customer service overseas. Businesses

need to weigh up whether or not the financial

benefits of sending work out of Australia is

balanced by the backlash they may face from

customers who want a fully Australian made

product or service.

‘Record low unemployment, however, has

meant that many firms are forced to outsource

work internationally as they simply cannot find

the right people willing or able to do certain

jobs. The trend of outsourcing poses a chal-

lenge for workers all over the Western world:

as workers become more educated they do not

want to do some of the more menial jobs which

are being outsourced overseas, yet the number

of jobs they do want to do is finite.’

Source: www.femail.com.au

Questions1 What percentage of Australian businesses outsource work to overseas firms?

2 Which business sectors outsource most commonly?

3 Explain the reasons why Australian firms choose to outsource to overseas contractors.

4 Explain the potential effects the practice of offshore outsourcing by Australian businesses could have on:

a Australian employeesb the Australian economy.

5 According to the survey cited in the article, how do Australians view the practice of offshore outsourcing? What are the potential negative ramifications of a business outsourcing?

6 Explain the potential backlash faced by Australian employers who outsource offshore.

7 Why has this backlash not occurred as yet?

8 Explain how the issue of offshore outsourcing could become a social responsibility concern for Australian employees in terms of the following:

a rising unemployment in Australiab the issue of ‘sweatshops’ and poor working conditions in overseas countries.

business sectorsdifferent types of organisations and enterprises producing goods and services




The aim of the operations manager is to extract

maximum amounts of productivity at the highest

levels of quality from the production process,

while at the same time, achieving the organisation’s

ethical and social responsibility objectives.

Strategies that may be adopted include the

following.

Facilities design and layout• Optimising the use of physical space. Making

the best use of equipment, including a program

of regular maintenance.

• Appropriate layout of plant and equipment and

thus streamlining the production process.

• Types of layout:

– Fixed position – product remains in one

position

– Process/functional – like processes/

equipment grouped together

– Product – assembly line where product moves

– Mass customisation

– Cell production

– Consideration must also be given to

employee work environment (ergonomics)

and occupational health and safety

– Other system changes may include adoption

of lean manufacturing and virtual factory

model.

Ch

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uM

MA

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Introduction of technology• Offers greater efficiency and quality. Some

examples include CAM, CNC, robotics and

virtual offices.

Materials and supply chain managementIncluding:

• Inventory management systems, e.g. JIT

• Computerisation

• Sourcing and maintaining a regular and reliable

supply of high-quality inputs.

Management of quality programsThere are three types:

• Quality control – reactive checking at end of a

process or of completed product

• Quality assurance – building quality into work

processes to prevent errors before they can

occur

• Total Quality Management.

Social responsibility• Programs are important to gaining and

maintaining competitiveness. Some examples

include waste minimisation, reduction of

emissions, enhanced employee and community

quality of life, business sustainability.

1 Define the meaning of each of the following

terms, then use each in a sentence to

demonstrate your understanding.

a Quality

b Facilities design and layout

c Ergonomics

d Automation

e FMS

f JIT

g Virtual factory

h Total Quality Management.

2 Outline the three approaches to quality

management that may be adopted by an

Australian large-scale organisation. Use

examples to explain and illustrate how each

approach operates.

3 Distinguish between each of the following

terminology pairings.

a Functional layout and fixed-position layout

b JIT and inventory

c Quality management and TQM.Ch

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MA

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4 Explain how the introduction of each of the

following strategies has the potential to improve

operational productivity levels.

a Virtual factory

b CAD

c Redesign of a layout

d JIT.

5 Identify the technology that has enabled each of

the following operations improvements to occur.

Explain how each technological advancement

has enabled these to occur.

a A reduction in machine downtime due to

breakdown

b The increase in speed and accuracy of

product design

c A reduction in labour costs

d Instant communication from one workstation

to another

e The integration of product design,

engineering, manufacturing and inventory

f The ability to keep up-to-date records of

inventory stocks and the movements of these.

6 Explain the term ‘ergonomics’. Discuss the

importance of good ergonomics to optimise the

operations system.

7 Explain and discuss how the principle of

universal responsibility underpins each of the

following programs.

a TQM

b EMS

c JIT

8 ‘Companies that treat the environment with

respect in all aspects of their operations have

reduced waste output, higher quality products

and services, high resource efficiency, reduced

costs of regulatory compliance, experience low

incidence of litigation and enjoy a high degree

of loyalty from both consumers and business

clients.’ (Alistair C Ping, ‘Responsible For

What?’, www.insight-works.com)

a Discuss what this statement means. In your

answer, consider both the positive and

negative effects that the adoption of an EMS

might have on organisational productivity

levels. Use specific examples to illustrate

your answer.

b In your opinion, would the adoption of an

organisational environmental policy be a

sound business decision or merely an ethical

one? Justify your answer.

Ex

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ION

Is 787 Dreamliner novel manufacturing strategy on the rocks?By John Dodge, SmartPlanet, July 10, 2009

Has Boeing’s bold, innovative and controversial

strategy to farm out manufacturing of the major

components in its very late 787 Dreamliner failed?

That partly depends on how much, if any, of the two-

year and counting delay could have been avoided by

making the aircraft largely on its own. So far, delays

have played the starring role in losing Boeing 60 787

orders this year and winning it only 13 new ones.

Read the article and answer the questions that follow.




With Boeing’s acquisition of Vought Aircraft’s

North Charleston, S.C., plant this week, the strate-

gy has certainly has taken another hit. On Tuesday,

Boeing said it would acquire the Dallas-based

aircraft concern’s plant where the two aft fuselage

sections of the Boeing 787 Dreamliner are made.

There has been speculation that the deal pres-

ages a second 787 assembly line. The Seattle area

media has been buzzing about how the area will

lose the second production line for the airplane

which has garnered about 850 orders. The first

line for final assembly is in Everett, Washington.

Vought and Boeing were already linked at the

hip. The head of the Vought 787 program is former

Boeing executive Joy Romero. A year ago, Boeing

bought Vought’s stake in the joint venture that

made the aft fuselage. Vought has struggled finan-

cially and dumped “hundreds of millions” more

than it expected into the 787 program, according

to a story in the Dallas Morning News this week.

While Vought has been the most visible thorn in

the Boeing’s dispersed manufacturing strategy, an

overly stressed area in the wing prompted Boeing

two weeks ago to announce another embarrassing

delay in the 787’s first flight. It did not disguise

the fact that Fuji Heavy Industries and Kawasaki

Heavy Industries make that part of the plane.

Fastener shortages as well as unfinished

components showing up at the final assembly

plant in Everett have also contributed to delays.

And the key issue in an eight week machinists

strike at Boeing last Fall was the outsourcing of

work. Still, Boeing executive did not budge on the

strategy.

Ceding control of the plane’s manufacturing

has also led to a very a very public airing of all the

warts - or at least the ones we know about. That

said, the usually locked-down Boeing has been

more open with the development of this airplane

compared to ones in the past.

The goal of the manufacturing plan is to hold

down costs, but think about it. As I recall, final

assembly is (or was) supposed to take a mere the

three or four days per plane after all the compo-

nents arrived in Everett. It’s only human nature to

wonder about a plane snapped together that fast.

In April, 2007, I extensively interviewed former

787 chief project engineer Tom Cogan when the

Airbus A380 was the poster child for delayed jetlin-

ers. At the time, it looked like the 787 would fly on

time or only with a smaIl delay. I thought he was

humble, but how does what he said sound now. I

quote from my Q&A with him in Design News.

“Certainly there’s a quiet confidence on our part

that we can deliver what we’ve promised. Airbus

is a world-class manufacturer of commercial jets

and they are having their struggles just as we have

had our challenges in the past. It’s the nature of the

business and the products we design. They’ll be in

this with us for many years, but we stay focused

on our products and let them worry about theirs.”

Question 1Define each of the following terms and then briefly

describe the relevance of each to the contents of

the above article.

a Outsourcing

b Globalisation.

4 marks

Question 2Briefly outline how the construction of the Boeing

787 differs from that of previous models.

4 marks

Question 3What is a Dreamlifter? Explain the role that this

converted aeroplane plays in this operations system

of Boeing.

2 marks




Question 4Outline and describe the increased responsibilities

of a Boeing ‘partner’ that have occurred as a result

of this new operations system.

2 marks

Question 5List and describe the potential advantages offered

to Boeing through the introduction of this new

model of operations.

4 marks

Question 6Describe the problems that have arisen with the

new operations model. Can these be overcome by

Boeing in your view? Discuss.

4 marks

Question 7Identify and discuss two social responsibility issues

that arise as a consequence of the implementation

of this model of operations. Consider:

• environmental issues

• ethical treatment of employees.

5 marks



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