Operations Management

1. Operations Management Managing the daily production of goods and services. Operations Management

2. Why ProductivityMatters DifferentKinds ofProductivity Productivity Productivity = Outputs Inputs 1

3. Higher Productivity Lower Costs Lower Prices Higher Standard of Living Higher Profits Higher Market Share Why Productivity Matters 1.1

4. Why Productivity Matters • Increased wages and new jobs • More donations to charities • More affordable and better products 1.1

5. Outputs Single Kind of Input Outputs Labor + Capital + Materials + Energy Kinds of Productivity Partial productivity = Multifactor productivity = 1.2

6. Quality-RelatedProduct Characteristics Quality-RelatedServiceCharacteristics ISO 9000 & 14000 BaldrigeNational Quality Award Total Quality Management Quality 2

7. Meanings for Quality …A product or service free of deficiencies Quality …The characteristics of a product or service that satisfy customer needs 2

8. Car Quality 2

9. Serviceability Reliability Product Durability Quality-Related Product Characteristics 2.1

10. Serviceability Reva uses computer diagnostic system that can sync to the owner’s cell phone, indicating the type of service the vehicle needs.

11. Characteristics of Service Quality 2.1

12. ISO 14000 A series of international standards for managing, monitoring, and minimizing an organization’s harmful effects on the environment. ISO 9000 A series of international standards for achieving consistency in quality management and quality assurance in companies throughout the world. Web Link http://www.ansi.org http://www.iso.ch http://www.asq.org ISO 9000 and 14000 2.2

13. Baldrige National Quality Award • Given to U.S. companies to recognize achievement in quality and business performance • Raises awareness about the importance of quality and performance excellence as a competitive edge 2.3

14. Criteria for the Baldrige National Quality Award • Leadership • Strategic Planning • Customer and Market Focus • Measurement, Analysis, & Knowledge Management • Human Resource Focus • Process Management • Business Results 2.3

15. Web Link http://www.quality.nist.gov Baldrige Application Process

16. Principles of TQM Continuous improvement Teamwork Total Quality Management Customer focus and satisfaction 2.4

17. 3.4 6 Sigma 230 5 Sigma 6,210 4 Sigma Sigma Quality Level 66,800 3 Sigma 308,538 2 Sigma 690,000 1 Sigma 50 150 250 350 450 550 650 750 Defects Per Million Parts (000) Total Quality Management 2.4 Adapted from Exhibit 18.7

18. Services… Goods… Service Operations • are performed • are intangible • are unstorable • 57.2% of GDP • are made • are tangible • are storable • 32.7% of GDP 3

19. The Service-Profit Chain 3.1 Exhibit 18.8

20. Policies and Procedures Tools Effective Training Rewards and Recognition Communication Management Support Goal Alignment Teamwork Do they facilitate serving customers? Do service employees have tools needed? Is job-specific training available? Are good performers rewarded/recognized? Both vertical and horizontal communication? Does management aid or hinder employees? Are goals of senior management and frontline service employees aligned? Is there teamwork among individuals and departments? Components of Internal Service Quality 3.1 Adapted From Figure 18.9

21. Service Recovery and Empowerment • Service recovery is restoring customer satisfaction to strongly dissatisfied customers • Fixing the mistakes that were made • Performing “heroic” service that delights customers • Empowering workers can help solve customerdissatisfaction • The goal is zero customer defections 3.2

22. Protect Your Front-Line Staff:The Customer Isn’t Always Right • Fire customers who use foul language, make threatsagainst employees or other customers, lie, demandunethical or illegal service, bully, or are belligerent • Otherwise, you are saying you care more aboutmoney than the safety of people in the business DOING THE RIGHT THING Doing the Right Thing 3.2

23. 1. Finding service workers capable of solving problems 2. Training service workers 3. Higher wages 4. Less emphasis on service reliability 5. Eagerness to provide “giveaways” 6. Unintentional unfair customer treatment Costs of Empowering Service Employees 3.2 Adapted from Exhibit 18.10

24. 1. Quicker response to customer complaints 2. Employees feel better 3. Enthusiastic employee interaction with customers 4. Employees offer ideas for improvement and prevention 5. Great word-of-mouth advertising and customer retention 6. Satisfied employees more likely to stay with company Benefits of Empowering Service Employees 3.2 Adapted from Exhibit 18.10

25. Amount of Processing inManufacturing Operations • Make-to-order operations • manufacturing doesn’t begin until an order is placed • Assemble-to-order operations • used to create semi-customized products • Make-to-stock operations • manufacture standardized products 4.1

26. More Processing Make-to-Order Assemble-to-Order Make-to-Stock Less Processing Amount of Processing inManufacturing Operations 4.1 Adapted from Exhibit 18.11

27. LEAST FLEXIBLE Continuous-FlowLine-FlowBatchJob Shops Project Manufacturing MOST FLEXIBLE Flexibility of Manufacturing Operations 4.2 Adapted from Exhibit 18.12

28. Flexibility of Manufacturing Operations 4.2

29. Costs ofMaintainingInventory Types ofInventory Systems forManagingInventory MeasuringInventory Levels Inventory 5

30. Raw materials Purchasing Vendors Fabrication Component parts Purchasing Initial Assembly Work-in-process Final Assembly Finished goods Types of Inventory 5.1 Adapted from Exhibit 18.13

31. Finished GoodsInventories FieldWarehouses DistributionCenters Wholesalers Retailers Customers Types of Inventory 5.1 Adapted from Exhibit 18.13

32. Measuring Inventory • Average Aggregate Inventory • the average overall inventory for a certain time period • Weeks of Supply • the number of weeks to run out of inventory • Inventory Turnover • the number of times a year that a company sells its average inventory 5.2

33. 30 25 Average Inventory Turn Rate 20 75th Percentile Inventory Turn Rate 15 10 5 0 Average High Tech Chemicals Aerospace Automotive Construction Pharmaceuticals Printing and Publishing Consumer Product Durables Industrial Equipment & Machinery Consumer Packaged Goods/Nondurables Inventory Turn Rates 5.2 Adapted from Exhibit 18.14

34. Costs of Maintaining an Inventory OrderingCost all costs associated with ordering inventory, correcting mistakes,determining when/how much to order Setup Cost costs of downtime and lost efficiencywhen a machine is changed to producedifferent kinds of inventory HoldingCost cost of keeping inventory until it isused or sold StockoutCosts costs when a company runs out of a product 5.3

35. Stockout Costs

36. Trade-off Between Setup Costs and Manufacturing Flexibility 5.3

37. EOQ EconomicOrder Quantity JIT Just-in-TimeInventory MRP MaterialsRequirement Planning Managing Inventory 5.3

38. Kanban Kanban, which is Japanese for “sign,” is a simple ticket-based JIT system that indicates when to reorder inventory. Managing Inventory 5.3