1.understand how operations enhance a small company’s competitiveness. 2.discuss the nature of the...

1. Understand how operations enhance a small company’s competitiveness.

2. Discuss the nature of the operations process for both products and services.

3. Identify ways to control inventory and minimize inventory costs.

4. Recognize the contributions of operations management to product and service quality.

5. Explain the importance of purchasing and the nature of key purchasing policies.

6. Describe lean production and synchronous management, and discuss their importance to operations management in small firms.

21–2© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Competing with Operations

• Operations The processes used to create and deliver a good or

service (value) to customers.

• Operations Management The planning and control of a conversion process that

includes turning inputs into outputs (products and/or services) that customers desire.


Competing with Operations (cont’d)

• Important Questions about Operations Factors: How much flexibility is required to satisfy customers

over time?

What is customer demand today? for the future? Can facilities and equipment keep up with demand?

What options are available for satisfying customers?

What skills or capabilities set the firm apart from its competitors such that the firm can best take advantage of these distinctive features in the market?

Does the competitive environment require certain capabilities that the enterprise lacks?


The Operations Process

• Managing Operations in a Service Business Products are tangible, services are intangible.

Manufacturing can produce goods for inventory; service operations cannot store or bank services.

Productivity and quality is more easily measured in manufacturing than service operations.

Quality is more difficult and control to establish in service than manufacturing operations.

Customers are more involved in service than manufacturing operations and can influence the quality of service.

Technology can enable customers to provide more of their own services.



The Operations Processes (Input → Processes → Output)21.1

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Types of Manufacturing Operations

21–7

Repetitive(or

Continuous) Manufacturi

ng

Flexible Manufacturi

ng

Job Shop

Project Manufacturi

ng

Types of Manufacturing

Operations

The Operations Process (cont’d)

• Capacity Considerations Capacity limits firm’s ability to meet demand Capacity determines startup (fixed) costs Ability to adjust capacity differs among firms

• Planning and Scheduling Involves attempting to achieve the orderly, sequential

flow of products or services to market. Is critical in service industry operations Incorporates demand management strategies to

stimulate customer demand when it is normally low.


Inventory Management and Operations• Objectives of Inventory Management



Service Level and Balance Sheet Considerations21.2

Balancing inventory to support customer demand and balance sheet concerns is critical for a healthy business.

Inventory Management Costs

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 21–11

Storage space and warehousing

systems

Transaction costs for managing

inventory

Theft, weathering,

spoilage, and obsolescence

Insurance and security

Cost of idle capital

invested in inventory

Disposal costs for unsalable

inventory

Inventory Management and Operations (cont’d)

• Inventory Cost Control Economic order quantity (EOQ)

The quantity to purchase in order to minimize total inventory costs.


Totalinventory

costs

Totalordering

costs

Totalcarrying

costs= +

Economic Order Quantity (Graphic)



• ABC Inventory Classification 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



• Just-In-Time Inventory (JIT) System A demand (pull) method of reducing inventory level to

an absolute minimum. New inventory 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


Inventory Record-Keeping Systems• Physical Inventory System

Provides for periodic counting of items in inventory.

• Cycle Counting Counts different segments of the physical inventory at different

times during the year.

• Perpetual Inventory Keeps a running record of inventory that does not require a

physical count except to ensure the accuracy of the system.

• Two-bin Inventory System A method of inventory control based on use of two containers for

each item in inventory: one to meet current demand and the other to meet future demand.


Operations Management and Quality

• Quality as a Competitive Tool Quality is a must in international competition

• 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.

• Total Quality Management (TQM) An all-encompassing management approach to

providing superior, high-quality products and services.



Tools and Techniques of TQM

• Employee Participation Employee performance is a critical quality variable. The implementation of work teams and empowerment

of employees to build workplace involvement. Quality circle

A group of employees who meet regularly to discuss quality-related problems.

21–18

Essential Features of Successful Quality Management


CustomerDriven

OrganizationalCommitment

Culture of Continuous Improvement

The Customer Focus of 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.



“The Basic Seven” Quality Tools

21–21

Cause-and-Effect Diagram

Control Chart

Pareto Chart

Flow Chart

ScatterDiagram

Histogram

Check Sheet

Solving Quality

Problems

Quality Assurance Using Inspection versus Poka-Yoke

• The Inspection Process The examination of a product to determine

whether it meets quality standards.

Occurs after the fact—the defective good has already been produced.

• Poka-Yoke A proactive approach to quality management that

seeks to mistake-proof a firm’s operations, thus avoiding problems and waste before they can occur.



Statistical Methods of Quality Control

• Acceptance Sampling The use of a random, representative portion to

determine the acceptability of an entire lot.

• Attributes Product or service parameters

that can be counted as being present or absent.

• Variables Measured parameters that fall on

a continuum, such as weight or length.

21–23

Statistical Methods of Quality Control (cont’d)

• 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.


International Certification for Quality Management

• ISO 9000 The standards governing international certification of

a firm’s quality management procedures. Documents compliance of the firm’s operations with

its quality management procedures.

Serves as an indicator of supplier reliability to its customers.

Is a requirement before becoming a supplier to larger U.S. and overseas firms.



Quality Management in Service Businesses• Opportunities for Small Service Companies

Providing an excellent combination of tangible products and intangible services.

Providing personalized, high contact services.

Providing service quality without regard to the profitability of the customer.

Developing good measures to control service quality.

21–26

Purchasing 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.


Purchasing Policies and Practices (cont’d)• Make-or-Buy Decisions

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


Purchasing Policies and Practices (cont’d)• Make or Buy Decisions (cont’d)

Reasons for Buying: Outside supplier is cheaper and/or higher quality

Investment savings on space, personnel, equipment

Less diversified managerial experience and skills required

Greater flexibility in matching supply and demand

Increased focus on production of core products/services

Risk of obsolescence transferred to outsiders



Purchasing Policies and Practices (cont’d)• Outsourcing

Contracting with a third party to take on and manage one or more of a firm’s functions that are outside the firm’s area of competitive advantage.

• Cooperative Purchasing Organization (COOP) Small businesses combine demand for products or

services to negotiate as a group with suppliers. Benefits: increased buying power, more access to resources

and information

Small firms save on inputs by using the Internet to seek out the lowest cost suppliers.

21–30

Purchasing Policies and Practices (cont’d)• 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


Purchasing Policies and Practices (cont’d)• Measuring Supplier Performance

Supply Chain Operations Reference (SCOR) model A list of critical factors that provides a helpful starting place

when assessing a supplier’s performance.

SCOR Model Supplier Attributes Reliability

Responsiveness

Flexibility

Cost

Asset efficiency


Purchasing Policies and Practices (cont’d)• Building Good Relationships with Suppliers

Pay bills promptly.

Give sales reps a timely and courteous hearing.

Minimize abrupt cancellation of orders merely to gain a temporary advantage.

Avoid attempts to browbeat a supplier into special concessions or unusual discounts.

Cooperate with the supplier by making suggestions for product improvements and cost reductions.

Provide explanations when rejecting bids, and make fair adjustments in the case of disputes.


Purchasing Policies and Practices (cont’d)• Forming Strategic Alliances with Suppliers

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


Purchasing Policies and Practices (cont’d)• Forecasting Supply Needs

Associative forecasting Considers a variety of variables to determine expected sales.

• Using Information Systems Increases operational efficiencies by reducing

inventory management, ordering, payment collection, and personnel costs.


Lean Production

• Lean Production Emphasizes efficiency by eliminating waste in a firm’s

operations—using minimum resources to satisfy the greatest customer wants and needs. Defects are costly because they must be repaired or scrapped.

Overproduction must be stored and may never be sold.

Transportation is minimized by locating close to suppliers and customers.

Waiting can be wasteful because resources are idle.

Inventory above the minimum is unproductive and costly.

Motion by product, people, or machinery can be wasteful.

Processing itself is wasteful if it is not productive.


Synchronous Management

• Synchronous Management An approach that recognizes the interdependence of

assets and activities and manages them to optimize the entire firm’s performance.

• Bottleneck Any point in the operations process where limited

capacity reduces the production capability of an entire chain of activities.

• Constraint The most restrictive of bottlenecks, determining the

capacity of the entire system.



Avoiding Bottlenecks and Constraints21.3

Add Capacity • Expand resources.

• Subdivide the work.

• Outsource production to a firm with more capacity.

Increase Efficiency • Arrange schedules so that the resources take no breaks (for example, have employees take breaks during setup, teardown, or maintenance activities).

• Schedule maintenance on nights, weekends, and holidays rather than during productive time.

• Increase productivity through employee training, upgraded tools, or automation.

Filter Production • Inspect quality prior to a constraint.

• Allow only work that achieves firm goals and contributes to performance (that is, a finished goods inventory would be unnecessary).

Key TermsABC method

acceptance sampling

associative forecasting

attributes

bottleneck

constraint

continuous manufacturing

cooperative purchasing organization

cycle counting

demand management strategies

economic order quantity flexible manufacturing systems

inspection

ISO 9000

job shops

just-in-time inventory system

make-or-buy decisions

operations

operations management

outsourcing

perpetual inventory system

physical inventory system

poka-yoke

project manufacturing

quality

repetitive manufacturing

statistical inventory control

Supply Chain Operations Reference (SCOR) model

synchronous management

total quality management (TQM)

two-bin inventory system

variables


1.understand how operations enhance a small company’s competitiveness. 2.discuss the nature of the...

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inventory service operations

manufacturing operations

operations process

operations factors

service quality

quality of service

service value

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