Ch9_Improving Productivity and Quality

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Introduction to Business3e

9

Part III: Management

Improving Productivity

and Quality


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Copyright 2004 South-Western. All rights reserved. 92

Learning Goals

Identify the key resources used for production.

Identify the factors that affect the plant sitedecision.

Describe how various factors affect the designand layout decision.

Describe the key tasks that are involved in

production control. Describe the key factors that affect production

efficiency.


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Improving Productivity and

Quality


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Resources Used for Production

Production A series of tasks in which resources are

used to produce a product or service.

Production (or operations) management Focuses on developing efficient and high-

quality production process by determiningthe proper amount and mix of productionresources to use:

Human resources , materials and otherassets (buildings, machinery, equipment)


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Achieving Low-Cost Production

Managers try to combine resources inways that are efficient and reduce costs.

Work stations are areas in which one or

more employees are assigned a specific task Assembly line

A sequence of work stations individuallydesigned to cover specific phases of the

production processEfficiency improves when specific

employees are responsible for specific tasksthat utilize their expertise.


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business onlineee--bus

iness

business


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Resources Used in Production

Exhibit 9.1


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Selecting a Site

Location of a factory or office Impacts production costs and the firms

ability to compete effectively.

Site location decision factors Cost of workplace space

Cost and supply of labor

Tax incentives Source of demand

Access to transportation


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Evaluating Possible Sites

Using weighted criteria to compare thedesirability of various sites:

Identify evaluation criteria and create a site

evaluation matrix. Assign weights based on importance of each

criterion.

Rate each site on the individual criteria.

Determine the total rating for each site.

Select the most appropriate site based onthe site evaluation matrix.


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Example of Site Evaluation Matrix

Exhibit 9.2

Possible

Sites Rating

Weighted Rating

(80% of Weight) Rating

Weighted

Rating

(80% of Weight)Total Rating

Austin, TX 3 2.4 1 .2 2.6

Chicago, IL 4 3.2 2 .4 3.6

Los Angeles, CA 5 4.0 1 .2 4.2

Omaha, NE 1 .8 1 .2 1.0

Land Cost Supply of Labor


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Design and Layout

Design Dictates the eventual size and structure of

the plant or office

Layout The arrangement of machinery and

equipment within the plant or office


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Selecting Design and Layout

Design and layout decisions affectoperating expenses

Determine cost of rent, machinery and

equipment Influence the amount of money that must be

borrowed and interest expense.

Desired production capacity Allows the flexibility to increase productioncapacity over time in the most efficientmanner possible.


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Factors Affecting Design and Layout

Site characteristics Cost of land

Production process

Assembly line often uses a product layout.

Product layout positions tasks in sequence.

Fixed-position layout requires employees to

go to the product. Flexible manufacturing is be easily adjusted

to accommodate future revisions.

Requires employees to have flexible skills


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Factors Affecting Design and Layout

(contd) Product line

A narrow product line focuses on the

production of one or a few products. Firms with a broad product line offer a wide

range of products.

The layout must change in response to

changes in customer preferences anddemand for products.


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Production Control

Purchasing materials Inventory control

Routing

Scheduling

Quality control


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Purchasing Materials

Selecting suppliers Buyers consider price, speed of delivery,

quality, servicing and credit availability.

Some firms use the Internet for e-procurement.

Obtaining volume discounts

Delegating production to suppliers Outsourcing the production of parts

Deintegration: delegating production tasksto suppliers


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Small Business Survey

Exhibit 9.10u

Why Do Firms Outsource Rather ThanProduce Some Products Themselves?


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Effects of Disintegration

Exhibit 9.3


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Inventory Control

The process of managing inventory at alevel that minimizes costs by:

Using inventory control systems to reduce

carrying and ordering costs. Just-in-Time (JIT) inventory

Materials requirements planning (MRP)

Controlling work-in-process and finished

goods inventories.Use expected demand to determine how

much product should be held in inventory


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Illustration of IBMs Effortsto Minimize Inventory

Exhibit 9.4


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Routing and Scheduling

Routing The sequence (or route) of tasks necessary

to complete the production of a product

Should be evaluated periodically to improvespeed or reduce costs

Scheduling

The act of setting time periods for each task

in the production process

Production schedule: a plan for the timingand volume of production tasks.


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Scheduling Special Projects

Gantt chart Illustrates the expected timing for each task

in the production process.

Program evaluation and review technique(PERT)

Schedules tasks to minimize delays.

Critical path: the time required to completeall tasks in precedence order; allowsmanagers to estimate slack time on otherpaths and reduce inefficiencies.


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Example of a Gantt Chart

Exhibit 9.5


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Determining the Critical Path Basedon a Sequence of of Production Tasks

Exhibit 9.6


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Quality Control

Quality The degree to which a product or service

satisfies a customers requirements or

expectations. Quality control

A process of determining whether productquality meets the desired quality level.

Total quality management (TQM)

The act of monitoring and improving thequality of products and services.


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Total Quality Management

Key guidelines for improving quality Provide managers and other employees with

the education and training they need to excel

in their jobs. Encourage employees to take responsibility

for quality and to provide leadership.

Encourage all employees to search for ways

to improve the production process.


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Assessing Quality

Control by technology Computers can determine whether each

component of a product meets specific

quality standards Control by employees

Assign an employee to assess quality ateach stage of the assembly line

Use quality control circles to assess qualityand make suggestions for improvement


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Assessing Quality (contd)

Control by sampling Randomly selecting some of the products

produced and testing them to see if they

satisfy quality standards. Control by monitoring complaints

Some quality deficiencies may not beapparent until after the product is sold.

Correcting deficiencies

Determining what caused the quality defects.


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Improving Production Efficiency

Production Efficiency Having the ability to produce products at a

low cost while maintaining quality.

Benchmarking A method of evaluating performance by

comparison to some specified level

Many firms use benchmarking to improveefficiency.

Firms use stretch targets to improveefficiency.


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(contd)Adopting new technology

Automated tasks are completed by machines

without the use of employees:Using computers to track inventory and

sales volume on a daily basis.

Programming computers to automatically

reorder some products once inventory isreduced to a pre-specified level.


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Guidelines for Effective Automation

Plan to decide what type of automation ismost appropriate.

Use automation where the benefits are

greatest. Train to make sure automation isimplemented effectively.

Evaluate costs and benefits over time.

Exhibit 9.8


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Measuring Production Efficiency

Economies of scale The effect of cost per product unit declines

as production volume increases

Fixed costs do not decrease as the numberof units produced increases.

Variable costs vary directly with thenumber of products produced.

Break-even pointReflects the total quantity of units sold at

which total revenue equals total costs(fixed and variable) and profitability begins.


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Relationship between ProductionVolume and Costs

Quantity

of Books

Produced

Fixed

Costs

Variable

Cost

($2 per

unit)

Total

Cost

Average

Cost

Per Unit

1,000 $40,000 $2,000 $42,000 $42.00

3,000 40,000 6,000 46,000 15.33

5,000 40,000 10,000 50,000 10.00

10,000 40,000 20,000 60,000 6.00

15,000 40,000 30,000 70,000 4.67

20,000 40,000 40,000 80,000 4.00

25,000 40,000 50,000 90,000 3.60

Exhibit 9.9a


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Relationship

betweenProduction

Volume and Costs

Exhibit 9.9b


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Relationship between Volumeand Profitability

Quantity

of Books

Produced Price

Total

Revenue

Total

Cost Profits

1,000 $10.00 $10,000 $42,000 -$32,000

3,000 10.00 30,000 46,000 -$16,000

5,000 10.00 50,000 50,000 $0

10,000 10.00 100,000 60,000 $40,000

15,000 10.00 150,000 70,000 $80,000

20,000 10.00 200,000 80,000 $120,000

25,000 10.00 250,000 90,000 $160,000


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Relationship between Volumeand Profitability

Exhibit 9.10a


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(contd) Restructuring

Revision of the production process in an

attempt to improve efficiency. Reengineering

Redesign of a firms organizational structure

and operations to improve efficiency.


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(contd) Downsizing

A reduction in the number of employees

without affecting the volume or quality ofproducts produced

Firms must be careful not to downsize too

much (corporate anorexia).


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Integrating Production Tasks

If any integrated production task breaksdown, the entire production schedule isaffected

Consequently, firms must monitor its supplychain and its processes from the beginningof the production process until the productreaches the customer

Service firms must also manage thesupply chain effectively.


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Chapter Summary

Key production resources Human resources, materials, and other

resources (buildings, equipment, andmachinery)

Plant site decision depends on:

Costs of workplace space and labor

Tax incentives

Source of demand

Access to transportation

Supply of labor


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Chapter Summary (contd)

Design and layout of a plant Dependent on site characteristics

Production process used

Product line offered Desired production capacity


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Chapter Summary (contd)

Production control involves purchasingmaterials, inventory control, routing,

scheduling, and quality control

Key methods for improving productionefficiency are technology, economies of

scale, and restructuring


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Summary of Management

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Ch9_Improving Productivity and Quality