1. Introduction to Business 3e 9 Part III: Management Copyright © 2004 South-Western. All rights reserved. Improving Productivity and Quality

2. Copyright © 2004 South-Western. All rights reserved.9–2 Learning Goals Identify the key resources used for production. Identify the factors that affect the plant site decision. Describe how various factors affect the design and layout decision. Describe the key tasks that are involved in production control. Describe the key factors that affect production efficiency.

3. Copyright © 2004 South-Western. All rights reserved.9–3 Improving Productivity and Quality

4. Copyright © 2004 South-Western. All rights reserved.9–4 Resources Used for Production Production –A series of tasks in which resources are used to produce a product or service. Production (or operations) management –Focuses on developing efficient and high- quality production process by determining the proper amount and mix of production resources to use:  Human resources, materials and other assets (buildings, machinery, equipment)

5. Copyright © 2004 South-Western. All rights reserved.9–5 Achieving Low-Cost Production Managers try to combine resources in ways that are efficient and reduce costs. –Work stations are areas in which one or more employees are assigned a specific task –Assembly line  A sequence of work stations individually designed to cover specific phases of the production process  Efficiency improves when specific employees are responsible for specific tasks that utilize their expertise.

6. Copyright © 2004 South-Western. All rights reserved.9–6 business online

7. Copyright © 2004 South-Western. All rights reserved.9–7 Resources Used in Production Exhibit 9.1

8. Copyright © 2004 South-Western. All rights reserved.9–8 Selecting a Site Location of a factory or office –Impacts production costs and the firm’s ability to compete effectively. Site location decision factors –Cost of workplace space –Cost and supply of labor –Tax incentives –Source of demand –Access to transportation

9. Copyright © 2004 South-Western. All rights reserved.9–9 Evaluating Possible Sites Using weighted criteria to compare the desirability of various sites: –Identify evaluation criteria and create a site evaluation matrix. –Assign weights based on importance of each criterion. –Rate each site on the individual criteria. –Determine the total rating for each site. –Select the most appropriate site based on the site evaluation matrix.

10. Copyright © 2004 South-Western. All rights reserved.9–10 Example of Site Evaluation Matrix Exhibit 9.2

11. Copyright © 2004 South-Western. All rights reserved.9–11 Design and Layout Design –Dictates the eventual size and structure of the plant or office Layout –The arrangement of machinery and equipment within the plant or office

12. Copyright © 2004 South-Western. All rights reserved.9–12 Selecting Design and Layout Design and layout decisions affect operating expenses –Determine cost of rent, machinery and equipment –Influence the amount of money that must be borrowed and interest expense. Desired production capacity –Allows the flexibility to increase production capacity over time in the most efficient manner possible.

13. Copyright © 2004 South-Western. All rights reserved.9–13 Factors Affecting Design and Layout Site characteristics –Cost of land Production process –Assembly line often uses a product layout. –Product layout positions tasks in sequence. –Fixed-position layout requires employees to go to the product. –Flexible manufacturing is be easily adjusted to accommodate future revisions.  Requires employees to have flexible skills

14. Copyright © 2004 South-Western. All rights reserved.9–14 Factors Affecting Design and Layout (cont’d) Product line –A narrow product line focuses on the production of one or a few products. –Firms with a broad product line offer a wide range of products. –The layout must change in response to changes in customer preferences and demand for products.

15. Copyright © 2004 South-Western. All rights reserved.9–15 Production Control Purchasing materials Inventory control Routing Scheduling Quality control

16. Copyright © 2004 South-Western. All rights reserved.9–16 Purchasing Materials Selecting suppliers –Buyers consider price, speed of delivery, quality, servicing and credit availability. –Some firms use the Internet for e- procurement. Obtaining volume discounts Delegating production to suppliers –Outsourcing the production of parts  Deintegration: delegating production tasks to suppliers

17. Copyright © 2004 South-Western. All rights reserved.9–17 Small Business Survey Exhibit 9.10u Why Do Firms Outsource Rather Than Produce Some Products Themselves?

18. Copyright © 2004 South-Western. All rights reserved.9–18 Effects of Disintegration Exhibit 9.3

19. Copyright © 2004 South-Western. All rights reserved.9–19 Inventory Control The process of managing inventory at a level that minimizes costs by: –Using inventory control systems to reduce carrying and ordering costs.  Just-in-Time (JIT) inventory  Materials requirements planning (MRP) –Controlling work-in-process and finished goods inventories.  Use expected demand to determine how much product should be held in inventory

20. Copyright © 2004 South-Western. All rights reserved.9–20 Illustration of IBM’s Efforts to Minimize Inventory Exhibit 9.4

21. Copyright © 2004 South-Western. All rights reserved.9–21 Routing and Scheduling Routing –The sequence (or route) of tasks necessary to complete the production of a product  Should be evaluated periodically to improve speed or reduce costs Scheduling –The act of setting time periods for each task in the production process  Production schedule: a plan for the timing and volume of production tasks.

22. Copyright © 2004 South-Western. All rights reserved.9–22 Scheduling Special Projects Gantt chart –Illustrates the expected timing for each task in the production process. Program evaluation and review technique (PERT) –Schedules tasks to minimize delays.  Critical path: the time required to complete all tasks in precedence order; allows managers to estimate slack time on other paths and reduce inefficiencies.

23. Copyright © 2004 South-Western. All rights reserved.9–23 Example of a Gantt Chart Exhibit 9.5

24. Copyright © 2004 South-Western. All rights reserved.9–24 Determining the Critical Path Based on a Sequence of of Production Tasks Exhibit 9.6

25. Copyright © 2004 South-Western. All rights reserved.9–25 Quality Control Quality –The degree to which a product or service satisfies a customer’s requirements or expectations. Quality control –A process of determining whether product quality meets the desired quality level. Total quality management (TQM) –The act of monitoring and improving the quality of products and services.

26. Copyright © 2004 South-Western. All rights reserved.9–26 Interaction between Management and Marketing Functions When Implementing Total Quality Management Exhibit 9.7

27. Copyright © 2004 South-Western. All rights reserved.9–27 Total Quality Management Key guidelines for improving quality –Provide managers and other employees with the education and training they need to excel in their jobs. –Encourage employees to take responsibility for quality and to provide leadership. –Encourage all employees to search for ways to improve the production process.

28. Copyright © 2004 South-Western. All rights reserved.9–28 Assessing Quality Control by technology –Computers can determine whether each component of a product meets specific quality standards Control by employees –Assign an employee to assess quality at each stage of the assembly line –Use quality control circles to assess quality and make suggestions for improvement

29. Copyright © 2004 South-Western. All rights reserved.9–29 Assessing Quality (cont’d) Control by sampling –Randomly selecting some of the products produced and testing them to see if they satisfy quality standards. Control by monitoring complaints –Some quality deficiencies may not be apparent until after the product is sold. Correcting deficiencies –Determining what caused the quality defects.

30. Copyright © 2004 South-Western. All rights reserved.9–30 Improving Production Efficiency Production Efficiency –Having the ability to produce products at a low cost while maintaining quality. Benchmarking –A method of evaluating performance by comparison to some specified level  Many firms use benchmarking to improve efficiency.  Firms use stretch targets to improve efficiency.

31. Copyright © 2004 South-Western. All rights reserved.9–31 Improving Production Efficiency (cont’d) Adopting new technology –Automated tasks are completed by machines without the use of employees:  Using computers to track inventory and sales volume on a daily basis.  Programming computers to automatically reorder some products once inventory is reduced to a pre-specified level.

32. Copyright © 2004 South-Western. All rights reserved.9–32 Guidelines for Effective Automation Plan to decide what type of automation is most appropriate. Use automation where the benefits are greatest. Train to make sure automation is implemented effectively. Evaluate costs and benefits over time. Exhibit 9.8

33. Copyright © 2004 South-Western. All rights reserved.9–33 Measuring Production Efficiency Economies of scale –The effect of cost per product unit declines as production volume increases  Fixed costs do not decrease as the number of units produced increases.  Variable costs vary directly with the number of products produced. –Break-even point  Reflects the total quantity of units sold at which total revenue equals total costs (fixed and variable) and profitability begins.

34. Copyright © 2004 South-Western. All rights reserved.9–34 Relationship between Production Volume and Costs Exhibit 9.9a

35. Copyright © 2004 South-Western. All rights reserved.9–35 Relationship between Production Volume and Costs Exhibit 9.9b

36. Copyright © 2004 South-Western. All rights reserved.9–36 Relationship between Volume and Profitability

37. Copyright © 2004 South-Western. All rights reserved.9–37 Relationship between Volume and Profitability Exhibit 9.10a

38. Copyright © 2004 South-Western. All rights reserved.9–38 Improving Production Efficiency (cont’d) Restructuring –Revision of the production process in an attempt to improve efficiency. Reengineering –Redesign of a firm’s organizational structure and operations to improve efficiency.

39. Copyright © 2004 South-Western. All rights reserved.9–39 Improving Production Efficiency (cont’d) Downsizing –A reduction in the number of employees without affecting the volume or quality of products produced –Firms must be careful not to downsize too much (corporate anorexia).

40. Copyright © 2004 South-Western. All rights reserved.9–40 Integrating Production Tasks If any integrated production task breaks down, the entire production schedule is affected –Consequently, firms must monitor its supply chain and its processes from the beginning of the production process until the product reaches the customer Service firms must also manage the supply chain effectively.

41. Copyright © 2004 South-Western. All rights reserved.9–41 Chapter Summary Key production resources –Human resources, materials, and other resources (buildings, equipment, and machinery) Plant site decision depends on: –Costs of workplace space and labor –Tax incentives –Source of demand –Access to transportation –Supply of labor

42. Copyright © 2004 South-Western. All rights reserved.9–42 Chapter Summary (cont’d) Design and layout of a plant –Dependent on site characteristics –Production process used –Product line offered –Desired production capacity

43. Copyright © 2004 South-Western. All rights reserved.9–43 Chapter Summary (cont’d) Production control involves purchasing materials, inventory control, routing, scheduling, and quality control Key methods for improving production efficiency are technology, economies of scale, and restructuring

44. Copyright © 2004 South-Western. All rights reserved.9–44 Summary of Management Exhibit 9.2u