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*Chapter Nine

Productionand

OperationsManagementof Goods and

Services

Copyri ght 2010 by the McGraw-Hil l Companies, Inc. All ri ghts reserved.McGraw-Hill/Irwin

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*Profile

Current CEO and President ofIBM, he started in the companyin 1973.

The company invested $16billion in acquiring 60 othercompanies.

Switching the companys focusfrom production to service,Palmisano has led IBM to enterthe emerging global market.

SAMUEL J. PALMISANOIBM

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*Manufacturing

and Services in

Perspective

From 2001 to 2009, manufacturing output in theU.S. rose 4% each year.

The U.S. is still the worlds leadingmanufacturer.

MANUFACTURING in the U.S.

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Almost 25% of all

goods produced eachyear come from theU.S.

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Source: Parade Magazine, www.parade.com/intel, April 19, 2009.

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Manufacturing

and Services in

PerspectiveWHATS MADE in the USA?

Leading U.S. Manufactured Goods

Products Value Number of Employees

ChemicalsPharmaceuticals,cosmetics, soaps, paints,fertilizers

$250 Billion 830,000 Americans

Transportation Equipment

Cars, planes, trains, ships$195 Billion Over 1.4 Million Americans

Processed Foods,Beverages and Tobacco

Cookies, coffee, cigarettes,

prepared meals

$175 Billion 1.7 Million Americans

Computers and Electronics

Computers and communicationequipment

$146 Billion 1.2 Million Americans

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Source: BusinessWeek, www.businessweek.com, November 12, 2007.

Exporters ExtraordinaireTop Ten States that Manufacture Goods for Export

State Thousands of Workers

California 206.1

Texas 108.9

Ohio 95.6Michigan 79.8

New York 77.2

Illinois 76.6

Pennsylvania 71.8

Washington 71.3

North Carolina 60.1

Indiana 59.6

Manufacturing

and Services in

Perspective

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Source: Industry Week, www.industryweek.com.

MASSIVE MANUFACTURERSThe Top Ten U.S. Manufacturers

Rank Company

1 Exxon-Mobil

2 Chevron

3 ConocoPhillips4 General Electric

5 General Motors

6 Ford Motor

7 Valero Energy

8 Hewlett-Packard

9 IBM

10 Procter & Gamble

Manufacturing

and Services in

Perspective

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The Green Economy is worth more than $200billion annually and is expected to reach $1 trillionby 2020.

Consumers like products that say all natural,

locally grown, energy efficient, etc.

The market for new green products and services

is almost endless.

The Green Movement, however, is onlybeginning.

The GREEN MOVEMENT

IMPROVES the ECONOMY

(Thinking Green)

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The U.S. economy is no longer manufacturingbased.

85% of jobs are in the service sector. The top-paying service jobs in the U.S. are in:

- Legal services

- Medical services

- Entertainment

- Accounting

- Finance

- Management consulting

TOP PAYING SERVICE JOBS

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Manufacturing

and Services in

Perspective

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* Manufacturersand Service

Organizations

Become More

Competitive

U.S. is still the leader in nanotechnology andbiotechnology.

How can U.S. businesses maintain a competitiveedge?

- Focusing on customers

- Practicing continuous improvement

- Focusing on quality

- Relying on the Internet to unite companies

- Adopting new production techniques.

REMAINING COMPETITIVE inGLOBAL MARKETS

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*From Production

to Operations

Management

Production -- The creation of goods using land,labor, capital, entrepreneurship and knowledge (the

factors of production).

PRODUCTION andPRODUCTION MANAGEMENT

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ProductionManagement --All theactivities managers do to

help firms create goods.

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*From Production

to Operations

Management

Operations Management --A specialized area inmanagement that converts or transforms resources

into goods and services.

Operations management includes:

Inventory management

Quality control

Production scheduling

Follow-up services

OPERATIONS MANAGEMENT

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*Progress

Assessment

What have U.S. manufacturers done to regain acompetitive edge?

What must U.S. companies do to continue tostrengthen the countrys manufacturing base?

What led companies to focus on operationsmanagement rather than production?

PROGRESS ASSESSMENT

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*Production

ProcessesThe PRODUCTION PROCESS

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*Production

Processes

Form Utility -- The value producers add to materialsin the creation of finished goods and services.

FORM UTILITY

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1. To build and deliver products in response to thedemands of the customer.

2. To provide an acceptable quality level.

3. To provide everything at the lowest possiblecost.

GROVES BASIC PRODUCTION

REQUIREMENTSLG3

Production

Processes

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Process Manufacturing -- The part of productionthat physically or chemically changes materials.

Assembly Process -- The part of the productionprocess that puts together components.

PROCESS and ASSEMBLY inPRODUCTION

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Production

Processes

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Production processes are either continuous orintermittent.

Continuous Process -- Long production runs turnout finished goods over time.

Intermittent Process -- Production runs are shortand the producer adjusts machines frequently to

make different products.

KEY PRODUCTION PROCESSES

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Production

Processes

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MADE in a MINUTEProduction of Some of Americas Favorite Products

ProductNumber of ItemsMade in a Minute

Krispy Kreme Doughnuts 5,208

Chips Ahoy! Cookies 4,000

Twinkies 972

Jello Boxes 764

LifeSavers 100 rolls

Production

Processes

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*The Need to

Improve Production

Techniques and

Cut Costs

DEVELOPMENTS MAKING U.S.COMPANIES MORE COMPETITIVE

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1. Computer-aided design and manufacturing

2. Flexible manufacturing

3. Lean manufacturing

4. Mass customization

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*Computer-Aided

Design and

Manufacturing

COMPUTER-AIDED DESIGN andMANUFACTURING

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Computer-Aided Design(CAD) -- The use of

computers in the design ofproducts.

Computer-Aided

Manufacturing (CAM) --The use of computers in themanufacturing of products.

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*Flexible

ManufacturingFLEXIBLE MANUFACTURING

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Flexible Manufacturing -- Designing machines todo multiple tasks so they can produce a variety of

products.

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*Lean

ManufacturingLEAN MANUFACTURING

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Lean Manufacturing -- Using less of everythingthan in mass production.

Compared to others, lean companies: Take half the human effort.

Have half the defects in finished products.

Require one-third the engineering effort.

Use half the floor space.

Carry 90% less inventory.

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*Mass

CustomizationMASS CUSTOMIZATION

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Mass Customization --Tailoring products to meet the

needs of a large number of

individual customers.

More manufacturers arelearning to customize.

Mass customization existsin the service sector too.

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*Progress

Assessment

Whats form utility?

Define and differentiate the following: process

manufacturing, assembly process, continuousprocess and intermittent process.

What do you call the integration of CAD andCAM?

Whats mass customization?

PROGRESS ASSESSMENT

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*Operations

Management

Planning

Operations management planning helps solveproblems like:

- Facility location

- Facility layout

- Materials requirement planning

- Purchasing- Inventory control

- Quality control

OPERATIONS MANAGEMENT

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*Facility

Location

Facility Location --The process of

selecting a geographiclocation for a

companys operations.

FACILITY LOCATION

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Rising numbers of Internet businesses meansbrick-and-mortar retailers must find greatlocations.

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*

Potential of low-cost labor is very attractive tocompanies hoping to remain competitive.

However, shuttering operations and moving canoften cause severe economic problems independent areas.

What would you do if you were the CEO ofChildrenWear Industries faced with this problem?

STAY or LEAVE(Making Ethical Decisions)

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*TakingOperations

Management to

the Internet

Sometimes businesses outsource engineering,design and manufacturing to other companies.

Often these relationships are managed throughthe Internet.

Many companies are developing Internet-focusedstrategies.

OPERATIONS MANAGEMENTon the INTERNET

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*Facility Location

in the Future

Information technology gives firms increasedflexibility in terms of location.

Telecommuting -- Working from home viacomputer and modem.

FUTURE FACILITY LOCATION

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Dain Hancock of Lockheed Martin had theformidable task of uniting 80 companies into asingle production unit.

PARTNERING BEYONDCOUNTRY BORDERS

(Reaching Beyond Our Borders)

Using the Internetand tech tools, likeelectronic white

boards, kept thecompanies in touchin real time.

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*Facility Layout

Facility Layout -- The physical arrangement ofresources, including people, to most efficiently

produce goods and provide services.

Facility layout depends on the processesperformed:

- Service: Help customers find products- Manufacturing: Improve efficiency

SETTING UP the FACILITY

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*Facility Layout

1. Assembly Line LayoutWorkers do only a fewtasks at a time.

2. Modular LayoutTeams of workers produce morecomplex units of the final product.

3. Fixed-Position LayoutAllows workers to

congregate around the product.

4. Process LayoutSimilar equipment and functionsare grouped together.

FACILITY LAYOUT OPTIONS

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Facility LayoutASSEMBLY LINE LAYOUT

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*

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Facility LayoutMODULAR LAYOUT

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Facility LayoutPROCESS LAYOUT

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Facility LayoutFIXED-POSITION LAYOUT

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*Materials

Requirement

Planning

Materials Requirement Planning (MRP) --Acomputer-based operations management system that

uses sales forecasts to make sure parts and

materials are available when needed.

Enterprise Resource Planning (ERP) --A newerversion of MRP, combines computerized functions

into a single integrated software program using asingle database.

MRP and ERP

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*Purchasing

Purchasing -- The function that searches for high-quality material resources, finds the best suppliers

and negotiates the best price for goods and services.

PURCHASING

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The Internet hastransformedpurchasing.

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*Just-in-Time

Inventory Control

Just-in-Time (JIT) Inventory Control -- Theproduction process in which a minimum of inventory

is kept and parts, supplies and other needs aredelivered just in time to go on the assembly line.

To work effectively, the process requires excellent

coordination with suppliers.

INVENTORY CONTROL

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*Quality Control

Quality -- Consistently producing what the customerwants while reducing errors before and after delivery.

Six Sigma Quality --A quality measure that allowsonly 3.4 defects per million opportunities.

QUALITY CONTROL

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*Quality Control

Statistical Quality Control --A process used tocontinually monitor all phases of the production

process.

Statistical Process Control --A process oftesting statistical samples of product components at

each stage of production.

Measuring quality along the production processreduces the need for quality-control at the end.

STATISTICAL QUALITY CONTROL &STATISTICAL PROCESS CONTROL LG4

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*The Baldrige

Awards

Companies can apply for awards in these areas:

- Manufacturing

- Services- Small Businesses

- Education

- Healthcare

The BALDRIGE AWARDS

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Source: National Institute of Standards and Technology, www.quality.nist.gov.

Cargill Corn Milling North AmericaWayzata, Minnesota (Manufacturing)

Poudre Valley Health SystemFort Collins, Colorado (Healthcare)

Iredell-Statesville SchoolsStatesville, North Carolina (Education)

THE WINNERS ARE2008 Baldrige Award Recipients

The Baldrige

Awards

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*ISO 9000 and

ISO 14000

Standards

The International Organization for Standardization(ISO) is a worldwide federation of nationalstandards bodies.

ISO 9000 -- The common name given to qualitymanagement and assurance standards.

ISO 14000 --A collection of the best practices formanaging an organizations impact on the

environment.

WHAT is the ISO?

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Progress

Assessment

What are the major criteria for facility location?

Whats the difference between MRP and ERP?

Whats just-in-time inventory control?

What are Six Sigma quality, the Baldrige Award,ISO 9000 and ISO 14000?

PROGRESS ASSESSMENT

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Control

Procedures:

PERT and

GANTT Charts

Program Evaluation and Review Technique(PERT) --A method for analyzing the tasks involved

in completing a given project and estimating the timeneeded.

PERT

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Control

Procedures:

PERT and

GANTT Charts

1. Analyzing and sequencing tasks

2. Estimating the time needed to complete each

task3. Drawing a PERT network illustrating the first two

steps

4. Identifying the critical path

Critical Path -- The sequence of tasks thattakes the longest time to complete.

STEPS INVOLVED in PERT

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Control

Procedures:

PERT and

GANTT Charts

PERT CHART for a MUSIC VIDEO

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Control

Procedures:

PERT and

GANTT Charts

Gantt ChartA bar graph that shows what projectsare being worked on and how much has been

completed.

GANTT CHARTS

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*LG5

Control

Procedures:

PERT and

GANTT Charts

GANTT CHART for aDOLL FACTORY

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Progress

Assessment

Draw a PERT chart for making breakfast of three-minute eggs, buttered toast and coffee. Define

the critical path.

How could you use a Gantt chart to keep track ofproduction.

PROGRESS ASSESSMENT