operation control management

7/26/2019 Operation Control Management

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Chapter

20

Operations

Control

McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.


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Learning Objectives

After studying this chapter, you will be able to:

1. Understand the basic requirements for controlling

operating costs.

2. Define quality from the perspective of an operationsmanager.

3. List the eight common dimensions of design

quality.

4. Explain the concept of quality assurance.

5. Explain the concept of total quality management

(TQM).


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Learning Objectives (contd)


6. Define the following terms: continuous improvement,

kaizen, six sigma, lean manufacturing, and quality at

the source.

7. Describe the ISO 9000, ISO 14000, and the zero-

defects approaches to quality.

8. Identify and define the two major types of quality

control.

9. Recount the major reasons for carrying inventories.


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Learning Objectives (contd)


10. Explain the concept of just-in-time (JIT) inventory.

11. Describe the ABC classification system for

managing inventories.

12. Summarize the economic order quantity (EOQ)

concept.

13. Describe the basic purposes of material

requirements planning (MRP).


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Effective Operating Systems

Two aspects: design and control

Efficient operation includes:

Monitoring the system processes

Assurance of quality

Management of inventories

Management of inventories

Good operations control can be a substitute for

resources.

Effective inventory control can reduce investmentcosts in inventories.


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Operating Costs

Figure 20.1

Source: N. Gaither,Production and Operations Management (Fort Worth: Dryden Press, 1980).


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Controlling Operations Cost

Variable overhead expenses

Expenses that change in proportion to the

level of production or service.

Fixed overhead Expenses that do not change appreciably

with fluctuations in the level of

production or service.


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Dimensions of Design Quality

Figure 20.2

Source: Richard B. Chase, F. Robert Jacobs, and Nicholas J. Aquilano, Operations Management for

Competitive Advantage, 11th ed. (Burr Ridge, IL: McGraw-Hill/ Irwin, 2006), p. 322.


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Quality Management

For the operations manager, quality isdetermined in relation to the specifications orstandards set in the design stagesthe degreeor grade of excellence specified.

The quality of an organizations goods andservices can affect the organization in manyways.

Loss of business

Liability

Costs

Productivity

Productivity and quality are often closelyrelated.


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Customer Response Programs

Develop a new attitude toward customers.

Reduce management layers so that managersare in contact with customers.

Link quality and information systems tocustomer needs and problems.

Train employees in customer responsiveness.

Integrate customer responsiveness throughout

the entire distribution channel. Use customer responsiveness as a marketing

tool.


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Demings 14 Quality Elements

Figure 20.3

Source: From W. Edwards Deming, Out of the Crisis, 1986. Copyright 1986

by The MIT Press. Reprinted with permission.


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Total Quality Management

Essential steps:

Find out what customers want.

Design a product or service that will meet (or

exceed) what customers want. Design a production process that facilitates doing

the job right the first time.

Keep track of results, and use those results to

guide improvement in the system. Extend these concepts to suppliers and to

distribution.


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TQM vs. Traditional

Approaches

Figure 20.4

Source: From William J. Stevenson,Production and Operations Management 4thedition. Copyright 1993

The McGraw-Hill Companies, Inc. Reprinted with permission.


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Implementing TQM

Demonstrate top-down commitment and involvement-push.

Set tough improvement goals, not just stretch goals.

Provide appropriate training, resources, and human

resource backup.

Determine critical measurement factors; benchmark and

track progress.

Spread success stories, especially those about favorable

benchmarking; always share financial progress reports.

Identify the costs of quality and routes to improvement;prove the case that quality costs decline with quality

progress.


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Implementing TQM (contd)

Rely on teamwork, involvement, and all-level

leadership.

Respect the gurus, but tailor every initiative for a

good local fit.

Allow time to see progress, analyze the systems

operation, reward contributions, and make needed

adjustments.

Finally, recognize that the key internal task is a

culture change and the key external task is a new set

of relationships with customers and suppliers.


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Barriers to Adopting TQM

A lack of consistency of purpose onthe part of management.

An emphasis on short-term profits.

An inability to modify personnel

review systems.

Mobility of management (jobhopping).

Lack of commitment to training andfailure to instill leadership that ischange oriented.

Excessive costs.


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Quality Improvement

Approaches

Continuous improvement

Refers to an ongoing effort to makeimprovements in every part of theorganization relative to all of its products

and services.

Kaizen

Good change; continuous and relentlessimprovement; views employees as most

valuable asset. Quality at the source

Philosophy of making each employeeresponsible for the quality of his or her own

work.


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Quality Improvement Approaches

(contd)

Lean manufacturing

Focuses on identifying and eliminating

waste and non-value-added activities.

Six sigma Both a precise set of statistical tools and a

rallying cry for continuous improvement,

driven by what does the customer want

in the way of quality?


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Quality Improvement Approaches

(contd)

lean six sigma

A combination of lean methods and six

sigma; draws on the philosophies,

principles, and tools of both approaches.

Goal is growth and not just cost-cutting.

Reengineering

Searching for and implementing radical

change in business processes to achievebreakthroughs in costs, speed, productivity,

and service.


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Lean Six Sigma Incorporates the

Key Methods, Tools, and

Techniques of Its Predecessors

Figure 20.5


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Other Quality Standards

ISO 9000

A set of quality standards for international

business.

ISO 14000

Addition to the ISO 9000 to control the impact of anorganizations activities and outputs on the environment.

This certification requires compliance in four

organizational areas:

Implementation of an environmental management system.

Assurance that procedures are in place to maintain

compliance with laws and regulations.

Commitment to continual improvement.

Commitment to waste minimization and prevention of

pollution.


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Other Quality Standards (contd)

Zero defects program Increasing quality by increasing everyones

impact on quality.

Characteristics of successful zero-defects

programs:

Extensive communication regarding the importance

of quality.

Organization-wide recognition for high-quality

work.

Quality problem identification by employees.

Employee participation in goal setting.


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Malcolm Balridge National

Quality Award

Recognition of U.S. companiesachievements in quality.

Purpose of the award is to encourage effortsto improve quality and to recognize thequality achievements of U.S. companies.

A maximum of two awards may be givenannually in each of five categories: Manufacturing.

Service.

Small business (500 or less employees).

Education.

Health care.

Bush signed legislation that expands theBaldrige Award to include nonprofit andgovernment organizations.


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Types of Quality Control

Product quality control

Relates to inputs or outputs of the system.

Used to evaluate quality of a batch of existing

products or services.

Process control Relates to equipment and processes used during the

production process.

Used to monitor quality while the product or service

is being produced.

Acceptance sampling

Statistical method of predicting quality through

inspection of a batch or large group of products.


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Acceptance Sampling

Used for one of the following reasons: The potential losses or costs of passing defective

items are not great relative to the cost of inspection;

for example, it would not be appropriate to inspect

every match produced by a match factory.

Inspection of some items requires destruction of the

product being tested, as is the case when testing

flash bulbs.

Sampling usually produces results more rapidly

than does a census.


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Process Control Chart

Time-based graphic display that showswhether a machine or a process is producing

items that meet preestablished specifications.

Mean charts (also called X-charts ) monitor the

mean or average value of some characteristic

(dimension, weight, etc.) of the items produced by a

machine or process.

Range charts (also called R-charts ) monitor the

range of variability of some characteristic

(dimension, weight, etc.) of the items produced by a

machine or process.


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Process Control Chart

Figure 20.6


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Inventory Control

Inventories are generally classified into one of threecategories, depending on their location within the

operating system: (1) raw material, (2) in process, or (3)

finished goods.

Inventories add flexibility and allow the organization to:

Purchase, produce, and ship in economic lot sizes rather

than in small jobs.

Produce on a smooth, continuous basis even if the demand

for the finished product or raw material fluctuates.

Prevent major problems when forecasts of demand are in

error or when unforeseen slowdowns or stoppages in supplyor production occur.


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Just-in-Time Inventory Control

Figure 20.7

Source: N. Gaither,Production and Operations Management (Fort Worth: Dryden Press, 1992).


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Tracking Inventory

Bar-code technology

A computer program recognizes the

information contained in the bar code and

automatically adds or subtracts the item

from inventory.

Physical Inventory

Counting the number of units of inventory a

company holds in stock.


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Independent versus Dependent

Demand Items

Independent demand items

Finished goods ready to be shipped out or

sold.

Dependent demand items

Subassembly or component parts used to

make a finished product; their demand is

based on the number of finished productsbeing produced.


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ABC Classification System

Method of managing inventories based

on their total value.

ABC method can be computerized and

categories can be monitored or changedwith greater skill and accuracy.

Computerizing the operation and control

of the classification system brings

power to the ordering cycles and stock

control.


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ABC Inventory Classification

Figure 20.8

Source: From Richard B. Chase, et al., Operation Management for Competitive Advantage with CD-ROM and

PowerWeb. Copyright 2004 The McGraw-Hill Companies, Inc. Reprinted with permission.


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Safety Stocks

Inventory maintained to

accommodate unexpected changes in

demand and supply and allow for

variations in delivery time.

The cost of a stock-out of the item is

often difficult to estimate.


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The Order Quantity

The optimal number of units to order,referred to as the economic order quantity

(EOQ), is determined by the point at which

ordering costs equal carrying costs, or

where total cost (ordering costs pluscarrying costs) is at a minimum.

Ordering costs

Includes the cost of preparing the order, shipping

costs, and setup costs etc.

Carrying costs Includes storage costs, insurance, taxes,

obsolescence, and the opportunity costs of the

money invested in the inventory.


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Potential Advantages of Material

Requirements Planning (MRP)

Source: From James B. Dilworth,Production and Operations Management4th ed., McGraw-Hill,

1989. Reprinted with permission of the author.

Figure 20.9


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Overall View of the Inputs

Source: From Richard B. Chase, et al., Operation Management for Competitive Advantage with CD-ROM and

PowerWeb. Copyright 2004 The McGraw-Hill Companies, Inc. Reprinted with permission.

Figure 20.10

Diff b JIT d


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Differences between JIT and

MRP

Source: From Nicholas J. Aquilano and Richard B. Chase, Fundamentals of Operations Management.

Copyright 1991 The McGraw-Hill Companies, Inc. Reprinted with permission.

Figure 20 11

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