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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Operations Operations Management and Management and Control SystemsControl Systems
Operations Operations Management and Management and Control SystemsControl Systems
1212
PowerPoint Presentation by PowerPoint Presentation by
Ian Anderson, Algonquin CollegeIan Anderson, Algonquin College
Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Looking AheadLooking AheadLooking AheadLooking Ahead
After studying this chapter, you should be able to:
1. Discuss the nature of the operations process for both products and services.
2. Describe the need for management control systems.
3. Explain the key elements of total quality management (TQM) programs.
4. Explain how reengineering and other methods of work improvement can increase productivity and make a firm more competitive.
5. Discuss the importance of purchasing and the nature of key purchasing policies.
6. Describe ways to control inventory and minimize inventory costs.
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
The Operations ProcessThe Operations ProcessThe Operations ProcessThe Operations Process
• The Nature of the Operations Process–Operations management
• The planning and control of the operations process– The activities that produce a firm’s goods and services
• Involves acquiring inputs and overseeing their transformation in
products and services
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
The Operations ProcessThe Operations ProcessThe Operations ProcessThe Operations Process
Inputs
Operations
Outputs
• Designing • Processing • Treating • Storing • Advising• Fabricating • Refining • Assembling • Shipping • Instructing
ClothingBaked goodsPaint
Dry cleaningAppliance repairAutomobile painting
Products Services
Money Labour Equipment Information EnergyRaw
Materials
Examples: Examples:
Exhibit 12-1
Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Manufacturing versus ServiceManufacturing versus ServiceManufacturing versus ServiceManufacturing versus Service
• Manufacturing Versus Service Operations–Productivity is more easily measured in
manufacturing than service operations–Quality is more difficult to establish in service
than manufacturing operations.–Customers are more involved in service than
manufacturing operations.–Manufacturing can produce goods for inventory;
service operations cannot store or bank services.
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Types of ManufacturingTypes of ManufacturingTypes of ManufacturingTypes of Manufacturing
• Job Shops–Operations characterized by short production runs of
small quantities of unique items.
• Repetitive Manufacturing–Operations in which long production runs are used to
produce a large quantity of a standardized product.
• Batch Manufacturing–An intermediate form involving more variety in volume
and products than job shops and less than repetitive manufacturing.
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Planning and Scheduling Planning and Scheduling and Maintenanceand Maintenance
Planning and Scheduling Planning and Scheduling and Maintenanceand Maintenance
• Operations Planning and Scheduling–Attempting to achieve the orderly, sequential flow of
products to market.• Production operations• Service operations
• Plant Maintenance–The role of maintenance
• To correct equipment malfunctions and prevent breakdowns
–Types of maintenance• Preventive maintenance• Corrective maintenance
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
The Control CycleThe Control CycleThe Control CycleThe Control Cycle
• Control Cycle– A period of time over which an activity is planned,
measured, corrected, and re-planned
• Variance– The difference between planned forecast activity
and actual activity
• Critical questions– What, how and how often to measure?
– What is unacceptable variance and how to correct?12-8
Chapter 12 Copyright © 2010 by Nelson Education Ltd.
The Control Cycle IllustratedThe Control Cycle IllustratedThe Control Cycle IllustratedThe Control Cycle Illustrated
Exhibit 12-2
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Successful Quality Management
SupportiveOrganizational
Culture
AppropriateTools and
Techniques
Focus onCustomers
Essential Elements ofEssential Elements ofSuccessful Quality ManagementSuccessful Quality Management
Essential Elements ofEssential Elements ofSuccessful Quality ManagementSuccessful Quality Management
Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Total Quality Management and Quality Total Quality Management and Quality Goals of Operations ManagementGoals of Operations Management
Total Quality Management and Quality Total Quality Management and Quality Goals of Operations ManagementGoals of Operations Management
• Total Quality Management (TQM)–An aggressive, all-encompassing management approach
to providing high-quality products and services.
• Quality–The features of a product or service that enable it to
satisfy customers’ needs.
–A perception of the customer as to the suitability of the product or service of a firm.
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Customer Focus on Quality ManagementCustomer Focus on Quality ManagementCustomer Focus on Quality ManagementCustomer Focus on Quality Management
• Customer Expectations–Quality is the extent to which a product or service
satisfies customer’s needs and expectations.• Product quality• Service quality• Product and service quality combinations
– “The customer is the focal point of quality efforts.”
• Customer Feedback–Customers are the eyes and ears of the business for
quality matters.
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Benchmarking and TQMBenchmarking and TQMBenchmarking and TQMBenchmarking and TQM
• Benchmarking–The process of studying the products, services, and
practices of other firms and using the insights gained to improve quality internally.
–Identify best practices, understand them, and use the insights gained to improve one’s operations
• Continuous Quality Improvement–A constant and dedicated effort to improve quality.
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Tools and Techniques of TQMTools and Techniques of TQMTools and Techniques of TQMTools and Techniques of TQM
• Employee Participation–Employee performance is a critical quality
variable.–Quality circle
• A group of employees who meet regularly to discuss quality-related problems.
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Tools and Techniques of TQMTools and Techniques of TQMTools and Techniques of TQMTools and Techniques of TQM
• The Inspection Process–The examination of a product to determine whether it meets
quality standards.– Inspection standard
• A specification of a desired quality level and allowable tolerances.
–Attribute inspection• The determination of product acceptability based on whether it
will or will not work.
–Variable inspection• The determination of product acceptability based on a variable
such as weight or length.
12-15
Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Statistical Methods of Quality ControlStatistical Methods of Quality ControlStatistical Methods of Quality ControlStatistical Methods of Quality Control
• Acceptance Sampling–The use of a random, representative portion to determine the
acceptability of an entire lot.
• Statistical Process Control–The use of statistical methods
to assess quality during the operations process.
• Control Chart–A graphic illustration
of the limits used in statistical process control.
12-16
Chapter 12 Copyright © 2010 by Nelson Education Ltd.
International Certification forInternational Certification forQuality ManagementQuality Management
International Certification forInternational Certification forQuality ManagementQuality Management
• ISO 9000–The standards governing international certification of a
firm’s quality management procedures.
–QM variables include customer focus, leadership and continual improvement
• ISO 14000–A set of generic management standards for responsible
environmental management.
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Quality Management in Quality Management in Service BusinessesService Businesses
Quality Management in Quality Management in Service BusinessesService Businesses
• Six factors positively influence customers’ perception of service quality
1. Being on target2. Care and Concern3. Spontaneity4. Problem Solving5. Follow up6. Recovery
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Competitive Strength ThroughCompetitive Strength ThroughImproved ProductivityImproved Productivity
Competitive Strength ThroughCompetitive Strength ThroughImproved ProductivityImproved Productivity
• The Importance of Improving Productivity–Productivity is the efficiency with which inputs
are transformed into outputs.–Productivity is more difficult to increase in
service industries than in manufacturing sectors.
Inputs
OutputstyProductivi
nInformatio Materials Raw Money Energy Labour
servicesand/or ProductstyProductivi
…continued
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Competitive Strength ThroughCompetitive Strength ThroughImproved ProductivityImproved Productivity
Competitive Strength ThroughCompetitive Strength ThroughImproved ProductivityImproved Productivity
• Reengineering for Improved Productivity–Reengineering
• A fundamental restructuring to improve the operations process.
• Asking “Why?” is important in the reengineering process.
…continued
12-20
Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Avoid Failure in Avoid Failure in Process ImprovementProcess Improvement
Avoid Failure in Avoid Failure in Process ImprovementProcess Improvement
• Be customer focused
• Phase in improvements
• Involve the employees
• Divide the project up
• Communicate
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Lean ManufacturingLean ManufacturingLean ManufacturingLean Manufacturing
• Three-pronged approach to:1. Eliminate waste
2. Ensure quality
3. Involve employees in designing and managing their work
• Key principles:– Define value from the customer’s perspective
– Identify and map the value stream
– Reduce or eliminate waste or improve flow
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Reducing or Eliminating WasteReducing or Eliminating WasteReducing or Eliminating WasteReducing or Eliminating Waste
• Stop overproduction for building inventory• Prevent unnecessary use/storage of raw materials• Streamline transportation• Optimize motion and actions of personnel• Reduce waiting and idle time in process• Reduce or eliminate defects• Reduce steps/features not valued by customers
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Benefits of “Being Lean”Benefits of “Being Lean”Benefits of “Being Lean”Benefits of “Being Lean”
• Culture of continuous improvement• Decreasing manufacturing cycle times• Reducing waste• Empowering employees• Increasing profits and cash flow• Increasing production capacity• Increasing customer satisfaction• Reducing costs
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
• Operations Analysis–Laws of motion economy
• Arranging work in the most cost-effective and efficient manner possible.
• Methods of Work Measurement–Motion Study
• An analysis of all the motions a worker makes to complete a given job.
–Time Study• A determination of the average time, it takes to complete
Work ImprovementWork ImprovementWork ImprovementWork Improvement
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Purchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and Practices
• Purchasing–The process of obtaining materials, equipment, and
services from outside.
• The Importance of Purchasing–The process of acquiring quality raw material inputs
affects:• The timely and consistent production of quality products.• Retailer sales of finished products to customers.• The costs of products, their profitability and their selling
prices.
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Make or Buy DecisionsMake or Buy DecisionsMake or Buy DecisionsMake or Buy Decisions
• Purchasing Practices and Profitability–Making or buying
• A firm’s choice between producing and purchasing component parts for its products.
–Reasons for making:• Increased utilization of plant capacity• Assurance of supply of critical components• Maintaining secrecy in designs and processes• Saving on transportation costs and supplier profits• Closer coordination and control of overall process• Higher quality components for inputs
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Outsourcing and Outsourcing and Reasons for BuyingReasons for BuyingOutsourcing and Outsourcing and
Reasons for BuyingReasons for Buying
• Purchasing Practices and Profitability–Outsourcing
• Purchasing products or services that are outside the firm’s area of competitive advantage.
–Reasons for Buying• Supplier’s part/service is cheaper and/or higher quality
• Investment savings on space, personnel, equipment
• Greater flexibility in matching supply and demand
• Increased focus on production of core product/service
• No risk of equipment obsolescence
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Sources of SupplySources of SupplySources of SupplySources of Supply
• Diversifying sources of supply–Reasons for having a sole supplier
• Outstanding supplier quality
• Quantity discounts for volume purchases
• Single orders too small to divide among suppliers
• Quality of supplier-customer relationship
–Reasons for having multiple suppliers• Choice of best quality, price, and service
• Supplier competes for business
• Insurance against input interruptions
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Relationships with SuppliersRelationships with SuppliersRelationships with SuppliersRelationships with Suppliers
• Relationships with suppliers–Selecting suppliers
• Price and quality• Location and delivery reliability• Services offered—credit, product support, promotion
• Building good relationships with suppliers–Purchasing practices
• Pay bills promptly• Be courteous to sales representatives• Avoid abrupt cancellations of orders• Maintain a professional relationship• EDI
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Strategic AlliancesStrategic AlliancesStrategic AlliancesStrategic Alliances
• Developing Strategic Alliances–Strategic alliance is an organizational relationship that
links two independent business entities in a common endeavour. Involves close coordination of buyers and sellers to:• Reduce product introduction lead time
• Improve product quality
• Engage in joint problem solving
• Make joint adjustments to market conditions
• Involve the supplier early in product development
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Inventory Management Inventory Management and Operationsand Operations
Inventory Management Inventory Management and Operationsand Operations
• Inventory Cost Control–Economic order quantity (EOQ)
• The quantity to purchase in order to minimize total inventory costs.
Totalinventory
costs
Totalordering
costs
Totalcarrying
costs= +
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Graphic Portrayal of the Graphic Portrayal of the Economic Order QuantityEconomic Order QuantityGraphic Portrayal of the Graphic Portrayal of the Economic Order QuantityEconomic Order Quantity
EOQ Total Costs
Ordering Costs
Carrying Costs
Order Quantity (Units)
Cost ($)
Exhibit 12-3
Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Inventory Management and OperationsInventory Management and OperationsInventory Management and OperationsInventory Management and Operations
• ABC Inventory Analysis–A system of classifying items in inventory by
relative value–Category A (close/continuous control)
• High-value or critical production component items
–Category B (moderate control)• Less costly, secondary importance items
–Category C (periodic control)• Low-cost and noncritical items
…continued
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Inventory Management and OperationsInventory Management and OperationsInventory Management and OperationsInventory Management and Operations
• Just-In-Time Inventory (JIT) System, also Kanban–A method of reducing inventory level to an absolute
minimum.• New items arrive at the same time that the last inventory
item is placed in service
–JIT promotes:• Closer coordination with suppliers
• Consistent quality production
• Lower safety stock levels
…continued
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Chapter 12 Copyright © 2010 by Nelson Education Ltd.
Inventory Management and Operations Inventory Management and Operations Inventory Management and Operations Inventory Management and Operations
• Inventory Record-Keeping Systems–Physical inventory system
• A method that provides for periodic counting of items in inventory
–Cycle counting• A system of counting different segments of the
physical inventory at different times during the year.–Perpetual inventory
• A method for keeping a running record of inventory.
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