Chapter 1

Operations Management: Differentiating Features of Production System:

The management of systems or processes DEGREE OF STANDARDIZATION

that create goods and/or provide services
3 Major Functions of Business Organization:
Organization
- Production systems produce output that
ranges from highly standardized to
highly customized.
Standardized output means that there is a high
degree of uniformity in goods or services.

Customized output means that the product or

Production/ Marketing
Finance service is designed for a specific case or
Operations
individual.

Project is a set of activities directed toward a

Operations Interfaces:
Maintenance Legal
Public Relations Purchasing
Personnel Distribution
MIS Industrial Engineering
Accounting
Value-Added:
The difference between the cost of inputs
and the value or price of outputs.
Designing and Operating Production System:
 System Design involves decision that
relate to system capacity, geographic
location of facilities, arrangement of
departments and placement of
equipment within physical structures,
product and service planning, and
acquisition of equipment.
 The system design essentially
determines many of the parameters of
system operation.
unique goal and usually large scale.
Job shop focus on small quantities or customized
product. This also maintain the ability to perform
certain types of operations but generally is not
responsible for specific product.
Batch processing is used when companies need
to produce moderate volumes of similar
product. Food processor like bakeries, and
canneries are typically produce in batches.
Repetitive production renders one or few highly
standardized product or services. It generally
confines output to one or a relatively small
number of similar products or services. They
function in a manner that accomplishes
production as efficient as possible.
Continuous processing is employed when a
highly uniform product or services. It is a system
that produces highly uniform products or
continuous services which is often performed by
machines.
Manufacturing or Service?

System Operation involves management of  Manufacturing implies production of a

personnel, inventory planning and control, tangible output.
scheduling, project management, and quality  Service generally implies and act.
assurance.
 Organizing Directing
Key Differences:
Degree of centralization Incentive plans
Customer contact
Process selection Issuance of work orders
Uniformity of input
Job assignments
Labor content of jobs
Uniformity of output Staffing
Measurement of productivity Hiring/laying off
Production and delivery Use of Overtime
Quality assurance
Amount of inventory General Approaches to Decision making:
Evaluation of Work  Models
Ability to patent design  Quantitative approaches
 Analysis of trade-offs
Scope of Operations Management:  Systems approach
Forecasting  Establishing priorities
Capacity planning  Ethics
Scheduling
Managing inventories Key Decisions of Operations Managers:
Assuring quality  What
Motivating employees What resources/what amounts
Deciding where to locate facilities  When
Needed/scheduled/ordered
Operation Managers and Decision making:  Where
 The operations function Work to be done
Consists of all activities directly related to  How
producing goods or providing services Designed
 The chief role of an operation manager  Who
is that of planner and decision maker, To do the work
with this the manager exerts a
considerable influence over the degree A model is an abstraction of reality.
to which the goals and objectives of the
 Physical
organization are realized.
 Schematic
Responsibilities of Operations Management:  Mathematical

Planning Controlling/Improving
Models Are Beneficial:
Capacity Inventory
 Easy to use, less expensive
Location Quality
 Require users to organize
Product and Services Costs
 Increase understanding of the problem
Make or Buy Productivity
 Enable “what if” questions
Layout
 Consistent tool for evaluation and
Projects
standardized format
Scheduling
 Requires users to be specific about
objectives
  Power of Mathematics
 Standardized format for analyzing a
Chapter 2
problem
Competitiveness
Limitations of Models: How effectively an organization meets the wants
 Quantitative information may be and needs of customers relative to others that
emphasized over qualitative offer similar goods or services.
 Models may be incorrectly applied and
results misinterpreted Businesses Compete Using Marketing:
 Nonqualified users may not  Identifying consumer wants and needs
comprehend the rules on how to use the  Pricing
model  Advertising and promotion
 Use of models does not guarantee good
decisions Businesses Compete Using Operations:
 Product and service design
Quantitative Approaches:  Cost, Location, Quality, Quick response
• Linear programming  Flexibility
• Queuing Techniques  Inventory management
• Inventory models  Supply chain management
• Project models  Service and service quality
• Statistical models  Managers and workers

Analysis of Trade-Offs: Why Some Organizations Fail:

OM encounters decisions that can be describe as
trade-off decisions, example in decision on the
amount of inventory to stock
 Increased cost of holding
inventory
Vs.
 Level of customer service
Systems Approach:
 System is a set of interrelated parts that
must work together.
 The system approach emphasizes the
interrelationship among subsystem.
Suboptimization
“The whole is greater than the sum of the parts”
 Too much emphasis on short-term
financial performance
 Failing to take advantage of strengths
and opportunities
 Neglecting operations strategy
 Failing to recognize competitive threats
 Too much emphasis in product and
service design and not enough on
improvement
 Neglecting investments in capital and
human resources
 Failing to establish good internal
communications
 Failing to consider customer wants and
needs
Mission
The reason for existence for an organization
Mission Statement
States the purpose of an organization
 Goals  SWOT
Provide detail and scope of mission  Order qualifiers
Strategies  Order winners
Plans for achieving organizational goals
Tactics Order qualifiers
The methods and actions taken to Characteristics that customers perceive
accomplish strategies as minimum standards of acceptability to be
considered as a potential purchase
Examples of Strategies:
 Low cost Order winners
 Scale-based strategies Characteristics of an organization’s goods
 Specialization or services that cause it to be perceived as better
 Flexible operations than the competition
 High quality
 Service Key External Factors
 Economic conditions
Distinctive Competencies  Political conditions
The special attributes or abilities that give an  Legal environment
organization a competitive edge.  Technology
 Competition
Strategy Factors  Markets
 Price
 Quality Key Internal Factors
 Time  Human Resources
 Flexibility  Facilities and equipment
 Service  Financial resources
 Location  Customers
 Products and services
Operations strategy  Technology
The approach, consistent with organization  Suppliers
strategy, that is used to guide the operations
function. Quality-based strategies
Focuses on maintaining or improving the
Global Strategy quality of an organization’s products or services.
 Strategic decisions must be made with Quality at the source
respect to globalization
 What works in one country may not work Time-based strategies
in another Focuses on reduction of time needed to
 Strategies must be changed to account accomplish tasks
for these differences
Productivity
Strategy Formulation A measure of the effective use of resources,
 Distinctive competencies usually expressed as the ratio of output to input
 Environmental scanning
Productivity ratios are used for 8 Dimensions of Service Quality
 Planning workforce requirements Convenience Courtesy
 Scheduling equipment Reliability Tangibles
 Financial Analysis Responsiveness Consistency
Time
Process yield is the ratio of output of good Assurance
product to input
Defective product is not included in the output Determinants of Quality
The degree to which a product or a service
Factors Affecting Productivity: successfully satisfies its intended purpose has
Capital Technology four primary determinants
Quality Management 1. Design
2. How well the product or service conforms the
Outsourcing design
 Higher productivity in another company 3. Ease of use
is a key reason organizations outsource 4. Service after delivery
work
 Improving productivity may reduce the Responsibility for Quality:
need for outsourcing Top Management
Has the ultimate responsibility for quality
Improving Productivity Design
 Develop productivity measures where quality products and services begin
 Determine critical (bottleneck) Procurement
operations Responsible for obtaining goods & services
 Develop methods for productivity Production/Operation
improvements Has responsibility to ensure that process yield
 Establish reasonable goals products and services that conform to design
 Get management support specification
 Measure and publicize improvements Quality Assurance
 Don’t confuse productivity with Is responsible for gathering and analyzing
efficiency data on problems
Packaging and Shipping
Chapter 3 Must ensure that the goods are not damaged
Quality and goods in transit are complete
Refers to the ability of product or service to Marketing and Sales
consistently meet or exceeds customer Has the responsibility to determine customer
expectations needs
Customer Service
8 Dimensions of Product Quality The first department to learn of problems
Performance Durability
Aesthetics Perceive Quality Consequences of Poor Quality
Special Features Service Ability Loss of business Costs
Conformance Liability
Reliability Productivity
Costs of Quality: TQM Approach:
Appraisal Costs Find out what customers want
Costs of activities designed to ensure quality or Design a product that will meet or exceed
undercover defects what customers want
Prevention Costs Design processes that facilitate doing the job
Costs of preventing defects from occurring right the first time
Failure Costs Keep track of results
Costs caused by defective parts or products or Extend these concepts throughout the supply
by faulty services
Internal Failures- failure during production Elements of TQM:
External Failures- failure after deliver to Continuous improvement
customer Competitive benchmarking
Employee empowerment
The Foundation of Modern Quality Mgt. Team approach
Walter Shewhart Decision based on facts rather than opinions
W. Edwards Deming Knowledge of tools
Joseph M. Juran Supplier quality
Champion
Quality Certification Quality at the source
ISO 9000 Suppliers
8 Quality Mgt. Principles
Customer Focus Involvement of people Six Sigma
Leadership A process approach A business process for improving quality,
A system approach to management reducing costs and increasing customer
Continual improvement satisfaction
Use of factual approach to decision making DMAIC- define, measure, analyze, improve and
Mutually beneficial supplier relationships Control
Lean Six Sigma
ISO 14000: Is a balanced approach to process
Management Systems improvement that integrates principles from
Systems development and integration of lean operation and statistical tools for variation
environmental responsibilities into business reduction from six sigma to achieve speed and
planning quality
Operations The Plan-Do-Study-Act Cycle
Consumption of natural resources Also referred to as either the Shewhart cycle or
Environmental Systems the Deming wheel
Measuring, assessing and managing Process improvement
emissions, effluents and other waste streams Is a systematic approach to improving a
process
TOTAL QUALITY MANAGEMENT (TQM) Quality Tools:
A philosophy that involves everyone in an Flowchart
organization in a continual effort to improve A visual representation of process
quality and achieve customer satisfaction
Check Sheets
A tool for recording and organizing data to
identify a problem
Histogram
A chart of empirical frequency distribution
Pareto Chart
Technique for classifying problem areas
according to degree of importance, and focusing
on the most important
Scatter Diagram
A graph that shows the degree and direction
of relationship between two variables
Control Chart
A statistical chart of time-ordered values of a
sample statistic
Cause and Effect Diagram
Used to search for the cause of a problem;
fishbone diagram
Run Charts
Tool for tracking results over a period of time

Methods of Generating Ideas:

Brainstorming
Technique for generating a free flow of ideas in
a group of people
Quality Circles
Groups of workers who meet to discuss ways
of improving products or processes
Benchmarking
Process of measuring performance against
the best in the same or another industry