McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 99 Production and Operations Management 9-1

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. From 2001 to 2009, manufacturing output in the U.S. rose 4% each year. The U.S. is still the world’s leading manufacturer. Manufacturing in the U.S. Almost 25% of all goods produced each year come from the U.S. 9-2

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Source: CNBC, accessed June Exporters Extraordinaire Top Ten States that Manufacture Goods for Export 9-3

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. * Source: Parade Magazine, April 19, What’s Made in the USA? Leading U.S. Manufactured Goods ProductsValueNumber of Employees Chemicals – Pharmaceuticals, cosmetics, soaps, paints, fertilizers $250 Billion830,000 Americans Transportation Equipment – Cars, planes, trains, ships $195 BillionOver 1.4 Million Americans Processed Foods, Beverages and Tobacco – Cookies, coffee, cigarettes, prepared meals $175 Billion1.7 Million Americans Computers and Electronics – Computers and communication equipment $146 Billion1.2 Million Americans 9-4

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Source: Industry Week, accessed June MASSIVE MANUFACTURERS The Top Ten U.S. Manufacturers 9-5

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. The U.S. economy is no longer manufacturing based. 85% of jobs are in the service sector. The top-paying service jobs in the U.S. are in:  Legal services  Medical services  Entertainment  Accounting  Finance  Management consulting TOP-PAYING SERVICE JOBS 9-6

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. U.S. is still the leader in nanotechnology and biotechnology. How can U.S. businesses maintain a competitive edge?  Focusing on customers  Maintaining close relationships with suppliers  Practicing continuous improvement  Focusing on quality  Saving on costs through site selection  Relying on the Internet to unite companies  Adopting new production techniques REMAINING COMPETITIVE in GLOBAL MARKETS 9-7

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 9-8 From Production to Operations Management ProductionProduction Production ManagementProduction Management Operations Management (OM)Operations Management (OM)

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Production -- The creation of goods using land, labor, capital, entrepreneurship and knowledge (the factors of production). PRODUCTION and PRODUCTION MANAGEMENT Production Management -- All the activities managers do to help firms create goods. 9-9

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Production Management Historically been associated with manufacturing But, because of the growth of the Service Sector…

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Operations Management -- A specialized area in management that converts or transforms resources into goods and services. Operations management includes:  Inventory management  Quality control  Production scheduling  Follow-up services OPERATIONS MANAGEMENT 9-11

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. The PRODUCTION PROCESS 9-12

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved The Production & Operations Process Inputs Conversion Process Output Manufacturing Service UB’s Dry Cleaners

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Utility The want-satisfying power of a good or service

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. The value producers add to materials in the creation of finished goods and services Form Utility

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Production Processes

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Process Manufacturing The part of production that physically or chemically changes materials. PROCESS and ASSEMBLY in PRODUCTION 9-17

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Process and Assembly in Production Assembly Process The part of the production process that puts together components.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Key Production Processes Production processes are either continuous or intermittent. Continuous Process -- Long production runs turn out finished goods over time. Intermittent Process -- Production runs are short and the producer adjusts machines frequently to make different products.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 1. To build and deliver products in response to the demands of the customer at the scheduled delivery time. 2. To provide an acceptable quality level. 3. To provide everything at the lowest possible cost. BASIC PRODUCTION REQUIREMENTS 9-20

MINUTE MADE Production of Some of America’s Favorite Products 9-21

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. DEVELOPMENTS MAKING U.S. COMPANIES MORE COMPETITIVE 1. Computer-aided design and manufacturing 2. Flexible manufacturing 3. Lean manufacturing 4. Mass customization 9-22

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. COMPUTER-AIDED DESIGN and MANUFACTURING Computer-Aided Design (CAD) -- The use of computers in the design of products. Computer-Aided Manufacturing (CAM) -- The use of computers in the manufacturing of products. 9-23

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. COMPUTER-INTEGRATED MANUFACTURING Computer-Integrated Manufacturing (CIM) -- The uniting of computer- aided design with computer-aided manufacturing. CIM is expensive but it cuts as much as 80% of the time needed to program machines to make parts. 9-24

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Lean Manufacturing Flexible Manufacturing -- Designing machines to do multiple tasks so they can produce a variety of products.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. FLEXIBLE MANUFACTURING Designing machines to do multiple tasks so they can produce a variety of products. Allen-Bradley uses flexible manufacturing to build motor starters.Allen-Bradley 26 machines and robots build, test and package parts. 9-26

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Lean Manufacturing Lean Manufacturing -- Using less of everything than in mass production. Compared to others, lean companies: Take half the human effort. Have half the defects in finished products. Require one-third the engineering effort. Use half the floor space. Carry 90% less inventory.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. MASS CUSTOMIZATION Tailoring products to meet the needs of a large number of individual customers. More manufacturers are learning to customize. Mass customization exists in the service sector too. 9-28

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Operations Management Operations management planning helps solve problems like:  Facility location  Facility layout  Materials requirement planning  Purchasing  Inventory control  Quality control

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Operations Management on the Internet Sometimes businesses outsource engineering, design and manufacturing to other companies. Often these relationships are managed through the Internet. Many companies are developing Internet- focused strategies.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Facility Location Facility Location -- The process of selecting a geographic location for a company’s operations. Rising numbers of Internet businesses means brick-and-mortar retailers must find great locations.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Future Facility Location Information technology gives firms increased flexibility in terms of location. Telecommuting -- Working from home via computer and modem.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Setting Up the Facility Facility Layout -- The physical arrangement of resources, including people, to most efficiently produce goods and provide services. Facility Layout depends on the processes performed:  Service: Help customers find products  Manufacturing: Improve efficiency

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Facility Layout Options 1. Assembly Line Layout – Workers do only a few tasks at a time. 2. Modular Layout – Teams of workers produce more complex units of the final product. 3. Process Layout – Similar equipment and functions are grouped together. 4. Fixed-Position Layout – Allows workers to congregate around the product.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Assembly Line Layout 1. Assembly Line Layout – Workers do only a few tasks at a time.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Modular Layout 2.Modular Layout – Teams of workers produce more complex units of the final product.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Process Layout 3.Process Layout – Similar equipment and functions are grouped together.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Fixed Position Layout 4.Fixed-Position Layout – Allows workers to congregate around the product.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved MRP Materials Requirement Planning (MRP) – A computer-based operations management system that uses sales forecasts to make sure parts and materials are available when needed.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Purchasing -- The function that searches for high- quality material resources, finds the best suppliers and negotiates the best price for goods and services. PURCHASING 9-40

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Inventory Control Just-in-Time (JIT) Inventory Control -- The production process in which a minimum of inventory is kept and parts, supplies and other needs are delivered just in time to go on the assembly line. To work effectively, the process requires excellent coordination with suppliers.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Quality What is it?

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Quality Consistently producing what the customer wants while reducing errors before and after delivery to the customer

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Dimensions of Quality PerformancePerformance FeaturesFeatures ReliabilityReliability ConformanceConformance DurabilityDurability ServiceabilityServiceability AestheticsAesthetics Perceived QualityPerceived Quality Source: Harvard Business Review, “Competing on the Eight Dimensions of Quality”, 12/87.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Quality Control Standards Six Sigma (  ) Quality (measurement) 3.4 defects per million events (getting it right % of the time) Statistical Quality Control (SQC) Continually monitor all phases of production process for quality

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Six Sigma Quality -- A quality measure that allows only 3.4 defects per million opportunities. (getting it right % of the time) QUALITY CONTROL Photo Courtesy of: Argonne National Laboratory 9-46

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Statistical Quality Control -- A process used to continually monitor all phases of the production process. Statistical Process Control -- A process of testing statistical samples of product components at each stage of production. Measuring quality along the production process reduces the need for quality control at the end. STATISTICAL QUALITY CONTROL & STATISTICAL PROCESS CONTROL 9-47

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Quality Control Awards

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Quality Control Awards Malcolm Baldrige Award

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. The Baldrige Awards Source: NIST News Release, November 22, 2005 Companies can apply for awards in these areas:  Manufacturing  Services  Small Businesses  Education  Healthcare  Not-for-Profits

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Baldrige Award Recipients Source: NIST News Release, November 22, 2005 Nestlé Purina PetCare Co., St. Louis, MO manufacturing MEDRAD, Warrendale, PAmanufacturing Freese and Nichols Inc., Fort Worth, TX small business K&N Management, Austin, TX small business Studer Group, Gulf Breeze, FL small business Advocate Good Samaritan Hospital, Downers Grove, IL health care Montgomery County Public Schools, Rockville, MD education

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Quality Control Awards Deming Award

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Quality Control Awards Deming Award Japan’s national quality award for industry. It was established in 1951 by the Japanese Union of Scientists and Engineers (JUSE) and it was named after W. Edwards Deming. He brought statistical quality control methodology to Japan after W.W.II. The Deming Prize is the world’s oldest and most prestigious of such awards.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Quality Control Standards

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved What is the ISO The International Organization for Standardization (ISO) is a worldwide federation of national standards bodies.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved ISO Quality Standards ISO 9000: The common name given to voluntary standards for quality management set by International Organization for Standardization (ISO) ISO 14000: A collection of the best practices for managing an organization’s impact on the environment.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Control Procedures

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved PERT Program Evaluation and Review Technique (PERT) A method for analyzing the tasks involved in completing a given project and estimating the time needed.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved PERT Steps 1. 1.Analyzing and sequencing tasks that need to be done 2. 2.Estimating the time needed to complete each task 3. 3.Drawing a PERT network illustrating the information from steps 1 and Identifying the critical path - Sequence of tasks that takes the longest time to complete

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. PERT CHART for a MUSIC VIDEO 9-60

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved PERT DIAGRAM

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Gantt Chart Named for its developer, Henry Gantt A bar graph that clearly shows what projects are being worked on and how much has been completed at any given time

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Gantt Chart for a Doll Factory