Production and

Operations Management

Chapter 09

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

1. Describe the current state of U.S. manufacturing and what manufacturers have done to become more competitive.

2. Describe the evolution from production to operations management.

3. Identify various production processes and describe techniques that improve productivity, including computer-aided design and manufacturing, flexible manufacturing, lean manufacturing and mass customization.

LEARNING GOALSChapter Nine

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4. Describe operations management planning issues including facility location, facility layout, materials requirement planning, purchasing, just-in-time inventory control and quality control.

5. Explain the use of PERT and Gantt charts to control manufacturing processes.

LEARNING GOALSChapter Nine

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Profile

• Palmisano, CEO and President of IBM, started in the company in 1973.

• The company’s earnings have quadrupled under Palmisano.

SAMUEL J. PALMISANOIBM

• Switching the company’s focus from production to service, Palmisano led IBM to enter the emerging global market.

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This company’s robots manufacture, test, and package motor starters - all untouched by human hands. The machines can fill special orders, even for a single item, without slowing down the process.

Name that company!

NAME that COMPANYChapter Nine

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Manufacturing and Services in Perspective

• The U.S. is still the world’s leading manufacturer.

• Manufacturing has continued to grow since 1970. In fact, U.S. manufacturing is 2x bigger than in 1970.

MANUFACTURING in the U.S.

• Almost 25% of all goods produced each year come from the U.S.

LG1

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Source: Parade Magazine, www.parade.com, accessed June 2011.

WHAT is MADE in the USA?Leading U.S. Manufactured GoodsLG1

Manufacturing and Services in Perspective

Products Value Number of Employees

Chemicals – Pharmaceuticals, cosmetics, soaps, paints, fertilizers

$250 Billion 830,000 Americans

Transportation Equipment – Cars, planes, trains, ships

$195 BillionOver 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 communication equipment

$146 Billion 1.2 Million Americans

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Source: CNBC, www.cnbc.com, accessed June 2011.

Exporters ExtraordinaireTop Ten States that Manufacture Goods for ExportLG1

Manufacturing and Services in Perspective

Rank State Amount Exported

1 California $142.61 billion

2 Texas $130.66 billion

3 New York $72.58 billion

4 Michigan $67.94 billion

5 Washington $61.99 billion

6 Illinois $57.92 billion

7 Ohio $42.59 billion

8 Florida $41.58 billion

9 New Jersey $36.77 billion

10 Pennsylvania $34.57 billion

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Source: Industry Week, www.industryweek.com, accessed June 2011.

MASSIVE MANUFACTURERSThe Top Ten U.S. ManufacturersLG1

Manufacturing and Services in Perspective

Rank Company Industry

1 Exxon Mobil Petroleum and Coal

2 Chevron Petroleum and Coal

3 General Electric Electrical Equipment and Appliances

4 ConocoPhillips Petroleum and Coal

5 Ford Motor Company Automobiles

6 Hewlett-Packard Computers

7 IBM Computers

8 Procter & Gamble Chemicals

9 Archer-Daniels-Midland Food

10 Boeing Aerospace

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• The market for new green products and services is almost endless.

• Given the rate of population growth, it’s important to plan ahead for a world with limited resources.

• Companies like DuPont, Michelin, Chevron and Nokia are working on sustainability projects.

• Procter & Gamble and Kaiser Permanente issue their own mandatory sustainability scorecards to their supply chains.

KEY WORD:SUSTAINABILITY

(Thinking Green)

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• The U.S. economy is no longer manufacturing based.

• 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 JOBSLG1

Manufacturing and Services in Perspective

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Manufacturers and Service Organizations Become More Competitive

• U.S. is still the leader in nanotechnology and biotechnology.

• How can U.S. businesses maintain a competitive edge?

- Focusing on customers

- Maintaining close relationships with suppliers

- Practicing continuous improvement

- Focusing on quality

- Saving on costs through site selection

- Relying on the Internet to unite companies

- Adopting new production techniques

REMAINING COMPETITIVE in GLOBAL MARKETSLG1

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• Ten years ago, Germany’s economy was much like ours today.

• Stihl invested in highly trained workers.

LEARNING from GERMANY(Reaching Beyond Our Borders)

• Stihl remained competitive in the manufacturing world.

• German companies poured money into research and stayed away from high tech products.

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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 and PRODUCTION MANAGEMENT

• Production Management -- All the activities managers do to help firms create goods.

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• Operations Management -- A specialized area in management that converts or transforms resources into goods and services.

• Operations management includes:- Inventory management- Quality control- Production scheduling- Follow-up services

OPERATIONS MANAGEMENTLG2

From Production to Operations Management

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• All about creating a good experience for those who use the service.

OPERATIONS MANAGEMENTin the SERVICE SECTORLG2

Operations Management in the Service Sector

• In hotels, like Ritz-Carlton, operation management includes fine dining, fresh flowers, and training for every employee.

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Source: Entrepreneur, February 2011.

THERE is an APP for THATTop Productivity Apps for iPadLG2

App What it Does Price

Dropbox Syncs and backs up files Free

ServiceMaxHelps field employees with data

managementFree

KeynoteUse to create and show slide

presentations$9.99

Penultimate Note taking made easier $3.99

ZigZag Board An easy-to-carry whiteboard $4.99

Operations Management in the Service Sector

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Progress Assessment

• What have U.S. manufacturers done to regain a competitive edge?

• What must U.S. companies do to continue to strengthen the country’s manufacturing base?

• What led companies to focus on operations management rather than production?

PROGRESS ASSESSMENT

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Production Processes The PRODUCTION PROCESS

LG3

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

FORM UTILITY LG3

Production Processes

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1. To build and deliver products in response to the demands of the customer at the scheduled delivery time.

2. To provide an acceptable quality level.

3. To provide everything at the lowest possible cost.

GROVE’S BASIC PRODUCTION REQUIREMENTSLG3

Production Processes

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• Process Manufacturing -- The part of production that physically or chemically changes materials.

• Assembly Process -- The part of the production process that puts together components.

PROCESS and ASSEMBLY in PRODUCTIONLG3

Production Processes

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• Production processes are either continuous or intermittent.

• Continuous Process -- Long production runs turn out finished goods over time.

• Intermittent Process -- Production runs are short and the producer adjusts machines frequently to make different products.

KEY PRODUCTION PROCESSESLG3

Production Processes

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MINUTE MADEProduction of Some of America’s Favorite ProductsLG3

Production Processes

Product Number of Items Made in a Minute

Krispy Kreme Doughnuts 5,208

Chips Ahoy! Cookies 4,000

Twinkies 972

Jello Boxes 764

LifeSavers 100 rolls

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The Need to Improve Production Techniques and Cut Costs

DEVELOPMENTS MAKING U.S. COMPANIES MORE COMPETITIVE

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 and MANUFACTURING

• Computer-Aided Design (CAD) -- The use of computers in the design of products.

• Computer-Aided Manufacturing (CAM) -- The use of computers in the manufacturing of products.

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Computer-Aided Design and Manufacturing

COMPUTER-INTEGRATED MANUFACTURING

• Computer-Integrated Manufacturing (CIM) -- The uniting of computer-aided design with computer-aided manufacturing.

• CIM is expensive but it cuts as much as 80% of the time needed to program machines to make parts.

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Flexible Manufacturing FLEXIBLE MANUFACTURING

• Flexible Manufacturing -- Designing machines to do multiple tasks so they can produce a variety of products.

• Allen-Bradley uses flexible manufacturing to build motor starters.

• 26 machines and robots build, test and package parts.

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Lean Manufacturing LEAN MANUFACTURING

• Lean Manufacturing -- Using less of everything than 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 Customization MASS CUSTOMIZATION

• Mass Customization -- Tailoring products to meet the needs of a large number of individual customers.

LG3

• More manufacturers are learning to customize.

• Mass customization exists in the service sector too.

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MASS CUSTOMIZATION of CANDY

(Spotlight on Small Business)

• Chocomize lets customers customize their chocolate bars.

• Co-founder, Eric Heinbockel, sought funding help from his family.

• Chocomize now has three full-time chocolate makers and is expected to be a success.

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Progress Assessment

• What is form utility?

• Define and differentiate the following: process manufacturing, assembly process, continuous process and intermittent process.

• What is the integration of CAD and CAM called?

• What is mass customization?

PROGRESS ASSESSMENT

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Operations Management Planning

• Operations management planning helps solve problems like:

- Facility location

- Facility layout

- Materials requirement planning

- Purchasing

- Inventory control

- Quality control

OPERATIONS MANAGEMENTLG4

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Facility Location

• Facility Location -- The process of selecting a geographic location for a company’s operations.

FACILITY LOCATION

• Rising numbers of Internet businesses means brick-and-mortar retailers must find great locations.

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

• However, shuttering operations and moving can often cause severe economic problems in dependent areas.

• What would you do if you were the CEO of ChildrenWear Industries faced with this problem?

STAY or LEAVE(Making Ethical Decisions)

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Taking Operations Management to the Internet

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

• Often these relationships are managed through the Internet.

• Many companies are developing Internet-focused strategies.

OPERATIONS MANAGEMENT on the INTERNETLG4

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Facility Location in the Future

• Information technology gives firms increased flexibility in terms of location.

• Telecommuting -- Working from home via computer.

FUTURE FACILITY LOCATIONLG4

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Facility Layout

• Facility Layout -- The physical arrangement of resources, including people, to most efficiently produce goods and provide services.

• Facility layout depends on the processes performed:

- Service: Help customers find products

- Manufacturing: Improve efficiency

SETTING UP the FACILITYLG4

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1. Assembly Line Layout – Workers do only a few tasks at a time.

2. Modular Layout – Teams of workers produce more complex units of the final product.

3. Fixed-Position Layout – Allows workers to congregate around the product.

4. Process Layout – Similar equipment and functions are grouped together.

FACILITY LAYOUT OPTIONSLG4

Facility Layout

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ASSEMBLY LINE LAYOUTLG4

Facility Layout

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MODULAR LAYOUTLG4

Facility Layout

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PROCESS LAYOUTLG4

Facility Layout

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FIXED-POSITION LAYOUTLG4

Facility Layout

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Materials Requirement Planning

• Materials Requirement Planning (MRP) -- A computer-based operations management system that uses sales forecasts to make sure parts and materials are available when needed.

• Enterprise Resource Planning (ERP) -- A newer version of MRP, combines computerized functions into a single integrated software program using a single database.

MRP and ERPLG4

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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.

• The Internet has transformed purchasing.

PURCHASINGLG4

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Just-in-Time Inventory Control

• Just-in-Time (JIT) Inventory Control -- The production process in which a minimum of inventory is kept and parts, supplies and other needs are delivered just in time to go on the assembly line.

• To work effectively, the process requires excellent coordination with suppliers.

INVENTORY CONTROLLG4

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Quality Control

• Quality -- Consistently producing what the customer wants while reducing errors before and after delivery.

• Six Sigma Quality -- A quality measure that allows only 3.4 defects per million opportunities.

QUALITY CONTROLLG4

Photo Courtesy of: Argonne National Laboratory

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• Statistical Quality Control -- A process used to continually monitor all phases of the production process.

• Statistical Process Control -- A process of testing statistical samples of product components at each stage of production.

• Measuring quality along the production process reduces the need for quality control at the end.

STATISTICAL QUALITY CONTROL & STATISTICAL PROCESS CONTROLLG4

Quality Control

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The Baldrige Awards

• Companies can apply for awards in these areas:

- Manufacturing

- Services

- Small Businesses

- Non-Profit/Government

- Education

- Healthcare

The BALDRIGE AWARDSLG4

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Source: National Institute of Standards and Technology, www.quality.nist.gov, accessed June 2011.

THE WINNERS ARE…2010 Baldrige Award Recipients LG4

The Baldrige Awards

Company Category Where from?

MEDRAD Manufacturing Warrendale, PA

Nestlé Purina PetCare Manufacturing St. Louis, MO

Freese and Nichols Small Business Ft. Worth, TX

K & N Management Small Business Austin, TX

Studer Group Small Business Gulf Breeze, FL

Advocate Good Samaritan Hospital

Healthcare Downers Grove, IL

Montgomery County Public Schools

Education Rockville, MD

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ISO 9000 and ISO 14000 Standards

• The International Organization for Standardization (ISO) is a worldwide federation of national standards bodies.

• ISO 9000 -- The common name given to quality management and assurance standards.

• ISO 14000 -- A collection of the best practices for managing an organization’s impact on the environment.

WHAT is ISO?LG4

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Progress Assessment

• What are the major criteria for facility location?

• What is the difference between MRP and ERP?

• What is 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 time needed.

PERTLG5

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1. Analyzing and sequencing tasks

2. Estimating the time needed to complete each task

3. Drawing a PERT network illustrating the first two steps

4. Identifying the critical path

• Critical Path -- The sequence of tasks that takes the longest time to complete.

STEPS INVOLVED in PERTLG5

Control Procedures: PERT and Gantt Charts

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PERT CHART for a MUSIC VIDEOLG5

Control Procedures: PERT and Gantt Charts

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• Gantt Chart – A bar graph that shows what projects are being worked on and how much has been completed.

GANTT CHARTSLG5

Control Procedures: PERT and Gantt Charts

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GANTT CHART for a DOLL FACTORYLG5

Control Procedures: PERT and Gantt Charts

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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 of production?

PROGRESS ASSESSMENT

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