2Ü Objectives Definitions of production, productivity, and quality 4/8/2017Ü ObjectivesDefinitions of production, productivity, and qualityAn understanding of the importance of operations and production strategies, systems, and processesInsights into the role of operations management concepts in the workplaceAn understanding of how operations control procedures can be used to control productionInsights into operations control tools and how they evolve into a continual improvement approach to production management and control.
3PRODUCTION Defining Production Productivity productivity = outputs 4/8/2017PRODUCTIONDefining ProductionProductivityproductivity =outputsinputsTraditional strategies for increasing productivity:1. Improving effectiveness of organizational workforce through training2. Improving production process through automation3. Improving product design to make products easier to assemble4. Improving production facility by purchasing more modern equipment5. Improving quality of workers hired to fill open positions.
4PRODUCTION Quality and Productivity Automation 4/8/2017PRODUCTIONQuality and ProductivityFocus on Continual ImprovementFocus on Quality and Integrated OperationsQuality AssuranceStatistical Quality Control"No Rejects" PhilosophyQuality CirclesAutomationStrategies, Systems, and Processes.
5Deming’s flow diagram for improving product quality 4/8/2017PRODUCTIONDeming’s flow diagram for improving product qualityFigure 20.1.
6The quality circle problem-solving process 4/8/2017PRODUCTIONThe quality circle problem-solving processFigure 20.2.
7OPERATIONS MANAGEMENT 4/8/2017OPERATIONS MANAGEMENTDefining Operations ManagementOperations Management ConsiderationsKey notions:Involves managersTakes place within context of objectives and policiesCriteria are standards for effectiveness and efficiencyOperations strategies.
8OPERATIONS MANAGEMENT 4/8/2017OPERATIONS MANAGEMENTMajor activities performed to manage productionFigure 20.3.
9OPERATIONS MANAGEMENT 4/8/2017OPERATIONS MANAGEMENTOperations Management Considerations (con’t)Capacity StrategyCapacity flexibilitySteps in Capacity Decisions:1. Measure capacity of currently available facilities2. Estimate future capacity needs on basis of demand forecasts3. Compare future capacity needs and available capacity4. Identify ways to accommodate long-range capacity changes5. Select best alternative based on quantitative and qualitative evaluation.
10OPERATIONS MANAGEMENT 4/8/2017OPERATIONS MANAGEMENTOperations Management Considerations (con’t)Location StrategyFactors in a Good LocationNearness to market and distribution centersNearness to vendors and resourcesRequirements of federal, state, and local governmentsThe character of direct competitionThe degree of interaction with the rest of the corporationThe quality and quantity of labor poolsThe environmental attractiveness of the areaTaxes and financing requirementsExisting and potential transportationThe quality of utilities and services.
11OPERATIONS MANAGEMENT 4/8/2017OPERATIONS MANAGEMENTOperations Management Considerations (con’t)Product StrategyProcess StrategyTypes of ProcessesContinuous processRepetitive processJob-shop processLayout StrategyBasic types for manufacturing facilities:1. Product2. Process (functional)3. Fixed-position.
12OPERATIONS MANAGEMENT 4/8/2017OPERATIONS MANAGEMENTThe three basic layout patternsFigure 20.4.
13OPERATIONS MANAGEMENT 4/8/2017OPERATIONS MANAGEMENTOperations Management Considerations (con’t)Human Resources StrategyHuman resource imperatives:1. Optimize individual, group, and organizational effectiveness2. Enhance quality of organizational lifeOperational Tools in Human Resources StrategyManpower planningJob designWork methods analysisMotion-study techniquesWork measurement methodsOperational tools to establish labor standards.
14Just-in-Time Inventory Control 4/8/2017OPERATIONS CONTROLJust-in-Time Inventory ControlBest Conditions for JITAdvantages of JITCharacteristics of JIT1. Closeness of suppliers2. High quality of materials purchased from suppliers3. Well-organized receiving and handling of materials4. Strong management commitmentMaintenance ControlPure-preventive maintenance policyPure-breakdown policy.
15OPERATIONS CONTROL Cost Control Stages in Cost Control 4/8/2017OPERATIONS CONTROLCost ControlStages in Cost Control1. Establishing standard or planned cost amounts2. Measuring actual costs incurred3. Comparing planned costs to incurred costs4. Making changes to reduce actual costs to planned costsFollowing above stages:Establish planned costs for labor, materials, and overheadMeasure or calculate costs incurred for these activitiesCompare actual operations costs to planned operations costsTake steps to reduce actual operations costs to planned levels.
16OPERATIONS CONTROL Budgetary Control Potential Pitfalls of Budgets 4/8/2017OPERATIONS CONTROLBudgetary ControlPotential Pitfalls of Budgets1. Placing too much emphasis on insignificant expenses2. Increasing expenses without adequate information• Zero-base budgeting3. Ignoring fact that budgets must be changed periodically• Variable budgetHuman Relations Considerations in Using BudgetsReducing Human Relations Problems.
17OPERATIONS CONTROL Ratio Analysis 4/8/2017OPERATIONS CONTROLRatio Analysis1. Liquidity ratios2. Leverage ratios3. Activity ratios4. Profitability ratiosUsing Ratios to Control OrganizationsEvaluate all ratios simultaneouslyCompare computed values with industry averagesIncorporate trend analysis.
18Four Categories of Ratios 4/8/2017OPERATIONS CONTROLTable 20.1Four Categories of RatiosType Example Calculation InterpretationProfitability Return on investment (ROI) Profit after taxes Productivity of assetsTotal assetsLiquidity Current ratio Current assets Short-term solvencyCurrent liabilitiesActivity Inventory turnover Sales Efficiency of inventoryInventory managementLeverage Debt ratio Total debt How a company finances itself.
19OPERATIONS CONTROL Materials Control Procurement of Materials 4/8/2017OPERATIONS CONTROLMaterials ControlProcurement of MaterialsReceiving, Shipping, and TraffickingReceiving activities include:•Unloading •Identifying •Inspecting •Reporting •Storing inbound shipmentsShipping and distribution activities include:•Preparing documents •Packaging •Labeling •Loading •Directing out shipmentsShipping and receiving are organized as one unitTraffic manager’s main responsibilities are:•Selection of the transportation mode•Coordination of the arrival and departure of shipments•Auditing freight bills.
20Materials Control (con’t) 4/8/2017OPERATIONS CONTROLMaterials Control (con’t)Inventory and Shop-Floor ControlInventory control subsystems:•Work-in-process •Finished-goods inventoryInventory control specifies:•What •When •How much to buyShop-floor control activities include:•Input/output control •Routing•Scheduling •Dispatching•Sequencing •Expediting.
21SELECTED OPERATIONS CONTROL TOOLS 4/8/2017SELECTED OPERATIONS CONTROL TOOLSUsing Control Tools to Control OrganizationsInspectionTo Inspect or Not to InspectManagement by ExceptionEstablishing RulesExamples of rules based on exception principle:A department manger must immediately inform the plant manager if actual:1. Weekly labor costs exceed estimated weekly labor costs by more than 15%2. Dollars spent on a special project exceed funds approved by more than 10%.
22SELECTED OPERATIONS CONTROL TOOLS 4/8/2017SELECTED OPERATIONS CONTROL TOOLSManagement by ObjectivesBreak-Even AnalysisBasic Ingredients of Break-Even AnalysisBreak-even analysis typically involves:•Reflection •Discussion •Reasoning •Decision makingRelative to major aspects of production:1. Fixed costs 3. Total costs 5. Profits 7. Breakeven2. Variable costs 4. Total revenue 6. Loss pointTypes of Break-Even AnalysisAlgebraic Break-even Analysis BE =FC(P – VC)Graphic Break-even AnalysisAdvantages of Using the Algebraic and Graphic Break-even MethodsControl and Break-even Analysis.
23SELECTED OPERATIONS CONTROL TOOLS 4/8/2017SELECTED OPERATIONS CONTROL TOOLSTable 20.2Fixed costs and Variable Costs for a Book PublisherFixed Costs (Yearly Basis) Variable Costs per Book Sold1. Real estate taxes on property $1, Printing $2.002. Interest on loan to purchase equipment 5, Artwork 1.003. Building maintenance 2, Sales commission .504. Insurance Author royalties 1.505. Salaried labor 80, Binding 1.00Total fixed costs $88,800 Total variable costs per book $6.00.
24SELECTED OPERATIONS CONTROL TOOLS 4/8/2017SELECTED OPERATIONS CONTROL TOOLSBreak-even analysis for a book publisherFigure 20.5.
25SELECTED OPERATIONS CONTROL TOOLS 4/8/2017SELECTED OPERATIONS CONTROL TOOLSOther Broad Operations Control ToolsDecision Tree AnalysisProcess ControlValue AnalysisComputer-Aided Design (CAD)Computer GraphicsComputer-aided engineering (CAE)Computer-Aided Manufacturing (CAM).