Production and Operations Management Chapter 09 McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.

1. Describe the current state of U.S. manufacturing and what manufacturers have done to become more competitive. 2. Describe the evolution from production to operations management. 3. Identify various production processes and describe techniques that improve productivity, including computer-aided design and manufacturing, flexible manufacturing, lean manufacturing and mass customization. LEARNING GOALS Chapter Nine 9-2

4. Describe operations management planning issues including facility location, facility layout, materials requirement planning, purchasing, just-in-time inventory control and quality control. 5. Explain the use of PERT and Gantt charts to control manufacturing processes. LEARNING GOALS Chapter Nine 9-3

Profile Palmisano, CEO and President of IBM, started in the company in 1973.IBM The company’s earnings have quadrupled under Palmisano. SAMUEL J. PALMISANO IBM Switching the company’s focus from production to service, Palmisano led IBM to enter the emerging global market. 9-4

This company’s robots manufacture, test, and package motor starters - all untouched by human hands. The machines can fill special orders, even for a single item, without slowing down the process. Name that company! NAME that COMPANY Chapter Nine 9-5

Manufacturing and Services in Perspective The U.S. is still the world’s leading manufacturer. Manufacturing has continued to grow since In fact, U.S. manufacturing is 2x bigger than in MANUFACTURING in the U.S. Almost 25% of all goods produced each year come from the U.S. LG1 9-6

WHAT’S MADE in the USA? Leading U.S. Manufactured Goods in $Billions LG1 Manufacturing and Services in Perspective 9-7

Exporters Extraordinaire Top Ten States that Manufacture Goods for Export LG1 Manufacturing and Services in Perspective 9-8

MASSIVE MANUFACTURERS The Top Ten U.S. Manufacturers – Revenue in Billions LG1 Manufacturing and Services in Perspective 9-9 CNN Money - Fortune Global 500CNN Money - Fortune Global 500 March

The market for new green products and services is almost endless. Given the rate of population growth, it’s important to plan ahead for a world with limited resources. Companies like DuPont, Michelin, Chevron and Nokia are working on sustainability projects.DuPontMichelinChevron Nokia Procter & Gamble and Kaiser Permanente issue their own mandatory sustainability scorecards to their supply chains.Procter & GambleKaiser Permanente KEY WORD: SUSTAINABILITY (Thinking Green) 9-10

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 LG1 Manufacturing and Services in Perspective 9-11

Manufacturers and Service Organizations Become More Competitive 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 LG1 9-12

Ten years ago, Germany’s economy was much like ours today. Stihl invested in highly trained workers.Stihl LEARNING from GERMANY (Reaching Beyond Our Borders) Stihl remained competitive in the manufacturing world. German companies poured money into research and stayed away from high tech products. 9-13

From Production to Operations Management 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. LG2 9-14

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 LG2 From Production to Operations Management 9-15

All about creating a good experience for those who use the service. OPERATIONS MANAGEMENT in the SERVICE SECTOR LG2 Operations Management in the Service Sector In hotels, like Ritz- Carlton, operation management includes fine dining, fresh flowers, and training for every employee. 9-16

THERE IS an APP for THAT Top Productivity Apps for iPad LG2 Operations Management in the Service Sector 9-17

Progress Assessment What have U.S. manufacturers done to regain a competitive edge? What must U.S. companies do to continue to strengthen the country’s manufacturing base? What led companies to focus on operations management rather than production? PROGRESS ASSESSMENT 9-18

Production Processes The PRODUCTION PROCESS LG3 9-19

Form Utility -- The value producers add to materials in the creation of finished goods and services. FORM UTILITY LG3 Production Processes 9-20

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. GROVE’S BASIC PRODUCTION REQUIREMENTS LG3 Production Processes 9-21

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. KEY PRODUCTION PROCESSES LG3 Production Processes 9-22

Process Manufacturing – The part of production that physically or chemically changes materials. Assembly Process – The part of the production process that puts together components. PROCESS and ASSEMBLY in PRODUCTION LG3 Production Processes 9-23

MINUTE MADE Production of Some of America’s Favorite Products LG3 Production Processes 9-24

The Need to Improve Production Techniques and Cut Costs DEVELOPMENTS MAKING U.S. COMPANIES MORE COMPETITIVE 1. Computer-aided design and manufacturing 2. Flexible manufacturing 3. Lean manufacturing 4. Mass customization LG3 9-25

Computer-Aided Design and Manufacturing 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. LG3 9-26

Computer-Aided Design and Manufacturing COMPUTER-INTEGRATED MANUFACTURING Computer-Integrated Manufacturing (CIM) - Robotics -- 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. LG3 9-27

Flexible Manufacturing FLEXIBLE MANUFACTURING 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. LG3 9-28

Lean Manufacturing LEAN MANUFACTURING ‘Toyota’ Lean Manufacturing -- Using less of everything than in mass production. Compared to others, lean companies:  Takes half the human effort.  Has half the defects in finished products.  Requires one-third the engineering effort.  Uses half the floor space.  Carries 90% less inventory. LG3 9-29

Mass Customization MASS CUSTOMIZATION Mass Customization -- Tailoring products to meet the needs of a large number of individual customers. LG3 More manufacturers are learning to customize. Mass customization exists in the service sector too. 9-30

MASS CUSTOMIZATION of CANDY (Spotlight on Small Business) Chocomize lets customers customize their chocolate bars.Chocomize Co-founder, Eric Heinbockel, sought funding help from his family. Chocomize now has three full-time chocolate makers and is expected to be a success. 9-31

Progress Assessment What’s form utility? Define and differentiate the following: process manufacturing, assembly process, continuous process and intermittent process. What do you call the integration of CAD and CAM? What’s mass customization? PROGRESS ASSESSMENT 9-32

Operations Management Planning Operations management planning helps solve problems like:  Facility location  Facility layout  Materials requirement planning  Purchasing  Inventory control  Quality control OPERATIONS MANAGEMENT LG4 9-33

Facility Location Facility Location -- The process of selecting a geographic location for a company’s operations. FACILITY LOCATION Rising numbers of Internet businesses means brick-and-mortar retailers must find great locations. LG4 9-34

Potential of low-cost labor is very attractive to companies hoping to remain competitive. However, shuttering operations and moving can often cause severe economic problems in dependent areas. What would you do if you were the CEO of ChildrenWear Industries faced with this problem? STAY or LEAVE (Making Ethical Decisions) 9-35

Taking Operations Management to 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. OPERATIONS MANAGEMENT on the INTERNET LG4 9-36

Facility Location in the Future Information technology gives firms increased flexibility in terms of location. Telecommuting -- Working from home via computer. FUTURE FACILITY LOCATION LG4 9-37

Facility Layout 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 SETTING UP the FACILITY LG4 9-38

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. Fixed-Position Layout – Allows workers to congregate around the product. 4. Process Layout – Similar equipment and functions are grouped together. FACILITY LAYOUT OPTIONS LG4 Facility Layout 9-39

ASSEMBLY LINE LAYOUT LG4 Facility Layout 9-40

MODULAR LAYOUT LG4 Facility Layout 9-41

PROCESS LAYOUT LG4 Facility Layout 9-42

FIXED-POSITION LAYOUT LG4 Facility Layout 9-43

Materials Requirement Planning Materials Requirement Planning (MRP) -- A computer-based operations management system that uses sales forecasts to make sure parts and materials are available when needed. Enterprise Resource Planning (ERP) -- A newer version of MRP, combines computerized functions into a single integrated software program using a single database. MRP and ERP LG4 9-44

Purchasing Purchasing -- The function that searches for high-quality material resources, finds the best suppliers and negotiates the best price for goods and services. The Internet has transformed purchasing. PURCHASING LG4 9-45

Just-in-Time 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. INVENTORY CONTROL LG4 9-46

Quality Control Quality -- Consistently producing what the customer wants while reducing errors before and after delivery. Six Sigma Quality -- A quality measure that allows only 3.4 defects per million opportunities. QUALITY CONTROL LG4 Photo Courtesy of: Argonne National Laboratory 9-47

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 LG4 Quality Control 9-48

The Baldrige Awards Companies can apply for awards in these areas:  Manufacturing  Services  Small Businesses  Non-Profit/Government  Education  Healthcare The PRESIDENTIAL BALDRIGE PERFORMANCE EXCELLANCE PROGRAM AWARDS (NIST) LG4 9-49

Source: National Institute of Standards and Technology, February 24, THE WINNERS ARE… 2013 Baldrige Award Recipients LG4 The Baldrige Awards 9-50

ISO 9000 and ISO Standards The International Organization for Standardization (ISO) is a worldwide federation of national standards bodies. ISO The common name given to quality management and assurance standards. ISO A collection of the best practices for managing an organization’s impact on the environment. WHAT is ISO? LG4 9-51

Progress Assessment What are the major criteria for facility location? What’s the difference between MRP and ERP? What’s just-in-time inventory control? What are Six Sigma quality, the Baldrige Award, ISO 9000 and ISO 14000? PROGRESS ASSESSMENT 9-52

1. Analyzing and sequencing tasks 2. Estimating the time needed to complete each task 3. Drawing a PERT network illustrating the first two steps 4. Identifying the critical path Critical Path -- The sequence of tasks that takes the longest time to complete. PERT - STEPS INVOLVED LG5 Control Procedures: PERT and Gantt Charts 9-53 Program Evaluation and Review Technique (PERT) -- A method for analyzing the tasks involved in completing a given project and estimating the time needed.

PERT CHART for a MUSIC VIDEO LG5 Control Procedures: PERT and Gantt Charts 9-54

Gantt Chart – A bar graph showing what projects are being worked on, how much has been completed & timing. GANTT CHARTS LG5 Control Procedures: PERT and Gantt Charts 9-55 Gantt Chart for a Doll Video:

Progress Assessment Draw a PERT chart for making breakfast of three- minute eggs, buttered toast and coffee. Define the critical path. How could you use a Gantt chart to keep track of production? PROGRESS ASSESSMENT 9-56