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Operations Management:Managing Quality, Efficiency, and Responsiveness to Customers Technology

Operations Management:Managing Quality, Efficiency, and Responsiveness to Customers Technology

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Operations ManagementOperations Management

Refers to the management of the production system that transforms inputs into finished goods and services.Production system: the way a firm acquires inputs then

converts and disposes outputs.Operations managers: responsible for the

transformation process from inputs to outputs. Operations management seeks to increase the quality,

efficiency, and responsiveness of the firm.Seeks to provide a competitive advantage.

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The Purpose of Operations ManagementThe Purpose of Operations Management

The Production SystemThe Production System

InputsInputs ConversionConversion OutputsOutputs

•raw materialsraw materials

•laborlabor

•component partscomponent parts

• skillsskills

• machinesmachines

• computerscomputers

•goodsgoods

•servicesservices

Figure 18.1

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Operations Management ConceptsOperations Management Concepts Quality: goods and services that are reliable and perform

correctly.Quality allows customers to receive the performance that

they expect. Efficiency: the amount of input to produce a given output.

Less input required lowers cost and waste. Responsiveness to customers: actions taken to respond to

customer needs.Firm can react quickly and correctly to customer needs as

they arise.

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Improving Responsiveness to CustomersImproving Responsiveness to Customers Without customers, organizations cease to exist.

Non-profit and for-profit firms all have customers.Managers need to identify who the customer is and their

needs. What do customers want? Usually customers prefer:

A lower price to a higher price.High quality over low quality.Fast service over slow service.

Also good after sale support.Many features over few features.Products tailored to their specific needs.

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Price/Attribute RelationshipPrice/Attribute Relationship

AttributesA1 A2

Price

P1

P2 P2/A2

At price P1, a firm offer a product with A1 attributes and cover costs. To offer A2 attributes, firm must charge P2 or lose money.

Figure 18.2

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Price v. AttributesPrice v. Attributes

Firms offering high quality, fast service and other customer desires, often must raise price.

Customers must tradeoff price for attributes.

Operations management tries to push the price/attribute curve to the right with better production.

Provides more attributes at the same cost.

By enhancing the price/attribute relationship, the firm can increase its competitive position.

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Price/Attribute RelationshipPrice/Attribute RelationshipFigure 18.3

Price

Attributes

P1

P2

A1 A2

P1/A2

P2/A1

Federal-Mogul1987

Federal-Mogul1993

Federal-Mogul was able to offer products with more attributes at a lower price

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Customer Responsive Production SystemsCustomer Responsive Production Systems

An output’s attributes is determined by the production system.Firms must strike a balance between cost and

attributes Improving Quality: can apply to firms producing

goods and services.A firm that provides higher quality than others at

the same price is more responsive to customers.Higher quality can also lead to better efficiency.

Lowers waste levels and operating costs.

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Impact of Increased Quality on Organizational Performance

Impact of Increased Quality on Organizational Performance

IncreasedIncreasedQualityQuality

IncreasedIncreasedQualityQuality

IncreasedIncreasedReliabilityReliability

IncreasedIncreasedReliabilityReliability

HigherHigherPricesPrices

HigherHigherPricesPrices

IncreasedIncreasedProductivityProductivity

IncreasedIncreasedProductivityProductivity

LowerLowerCostsCosts

LowerLowerCostsCosts

HigherHigherProfitsProfits

HigherHigherProfitsProfits

Figure 18.4

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Total Quality ManagementTotal Quality Management

Seeks improvement in the quality of a firm’s goods or services.Stress that all activities be directed to this goal.TQM is really a company-wide management philosophy

developed by Dr. Edwards Demming. Japanese firms were the first to use TQM.

TQM results have been outstanding in many firms.Xerox has reduced defects and problems dramatically.

TQM can fail when managers do not really support it.

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Successful TQM ImplementationSuccessful TQM Implementation Successful firms have followed these steps:

1) Build organizational commitment to quality. All employees must embrace TQM concepts.

2) Focus on the customer as definition of quality.

3) Find ways to measure quality.Easy in manufacturing areas but harder in service jobs.

4) Set goals and create incentives to be reached.

5) Solicit input from employees.Quality circles: groups of employees meeting to discuss

how to increase quality.

Managers must respect employee opinion.

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Successful TQM ImplementationSuccessful TQM Implementation6) Identify defects and trace to source.

Managers must find out why the defect happened.

7) Introduce Just-in-Time (JIT) inventory systems.Inventory is the stock of raw materials. JIT has parts

arriving in the plant just when needed and not stored in advance.

KANBAN: Japanese name for JIT that seeks to avoid stockpiles of costly inventory.

8) Work with suppliers. You need good parts to make great products.

9) Design products for easy manufacture.

10) Remove barriers between departments.

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Managers and TQMManagers and TQM

Managers are critical to a successful TQM system:Functional managers carry the responsibility for most of

the 10 steps to success.For TQM to work, functional managers must totally

embrace TQM. Top management must also show their strong support.

They need to arrange training for all managers (including themselves).

Reward functional managers that move TQM forward.

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The fewer the inputs required to produce a given output, the higher the production efficiency.

A common measure is called Total factor productivity.

It is a simple formula but each input is measured in different units (labor in hours, steel in tons)

Therefore, most firms measure partial productivity.Focus on one input at a time.

Improving EfficiencyImproving Efficiency

Total factor productivity = Total factor productivity =Outputs

All Inputs

Labor productivity =Labor productivity = Labor productivity =Labor productivity = OutputsOutputsDirect LaborDirect Labor

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Improving EfficiencyImproving Efficiency Labor productivity allows labor comparisons between

organizations.Improved efficiency leads to lower costs and better

performance. TQM and Efficiency: TQM can lead to much higher labor

productivity.When quality rises, less time is wasted on scrap.

Flexible manufacturing and efficiency: reduces the set-up costs for production systems.

Facilities layout: seeks to design the machine-worker interface to increase production efficiency.

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Facilities LayoutsFacilities Layouts

FinalProduct

FinalProduct

Final Product

Productlayout

Processlayout

Fixed-positionlayout

Figure 18.5

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Facilities LayoutsFacilities Layouts Product layout: work stations arranged in sequence.

Mass production systems are a common example. Workers are stationary and a belt moves work to them.

Process Layout: work stations are self contained and not in a fixed sequence.Well suited to making a wide variety of products tailored

to customers. Provides flexibility to change products quickly

Fixed-position layout: product stays in a fixed spot, components produced at remote stations and brought to final assembly.Good for jet aircraft assembly.

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Efficient ManufacturingEfficient Manufacturing Most firms face major expense when setting up to

produce a product.These costs must be paid before production begins.

The more often products to be built change, the higher setup costs become.

Flexible Manufacturing reduces setup costs. Just-in-Time (JIT) inventory, while developed for

TQM, also adds to efficient production.Many costs are reduced including warehousing, holding

costs and inventory tracking. Firm does not have a supply of parts, but can be

vulnerable to strikes or supply problems.

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Efficient ManufacturingEfficient Manufacturing Self-managed teams boost efficiency by allowing for a

flatter organization structure.The team takes the role of the supervisor.Teams working together often become very skilled at

enhancing productivity. Kaizen: Japanese term for a management philosophy the

stresses the need for continuous improvement.Better operations can come from many, small, continuous

improvements.Focus on what adds value to the product and try to

eliminate steps that do not add value (such as inspection for defects).

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ReengineeringReengineering Process Reengineering: the fundamental rethinking and

radical redesign of the business process.Can boost efficiency by directing efforts to activities

that add value to the good or service produced.While Kaizen focuses on continuous enhancements,

process reengineering considers wholesale change. Top managers must support operations enhancement

tools for them to be accepted by workers.Usually, a successful operations change means a

complete change in the organizational culture.Without a supporting culture, change will not succeed.