1. Operations Management
Operations Management (OM): a specialized field of management associated with the conversion or transformation of resources into products and services
Old term: production and operations management (POM)
Strategically important

2. Objectives of Operations Management
4 main objectives of operations managers
Managing product/service quality
Planning quantity and capacity
Timing product and services
Achieving the best possible cost

3. Managing Quality
Quality: a measure of how well a product or service performs its intended purpose, including:
How reliable it is
How easy it is to service or repair when it does break down
“Fitness for Use”

4. Why is Quality Important?
Higher quality can lead to:
Higher efficiency
Higher effectiveness
Revenues and margins
Lower costs
Improves customer satisfaction
Improved customer retention

5. Total Quality Management (TQM)
TQM: a management philosophy that:
Focuses on continual improvement
Emphasizes quality inspection at all stages of the production or service output
Encompasses a commitment from employees at all levels
Simultaneous achievement of lower costs, higher quality, and enhanced customer service

6. Total Quality Management (TQM)
Important TQM concepts:
Statistical Process Control (SPC)
Continuous Process Improvement
Six Sigma
Employee Empowerment

7. TQM Concepts: Statistical Process Control
Statistical Process Control: a quantitative tool to aid in making decisions concerning how well a process is performing
Used to track and highlight results and to identify unacceptable deviations
Typically involves the use of control charts
Establishes upper and lower levels of acceptable quality
Products outside limits are investigated

8. Quality Control Charts
Adapted from Exhibit 13.2

9. TQM Concepts: Continuous Process Improvement
Continuous process improvement: refers to both incremental and breakthrough improvements in the way an organization does business
Also known as
Business process reengineering (BPR) and
Kaizan in Japan
Five key elements:
Objective, Design, Capabilities, Infrastructure, Metrics

10. TQM Concepts: Six Sigma
Six Sigma: a disciplined, data-driven approach for eliminating defects and enhancing quality with an orientation toward the impact such improvements will have on the customer
Six Sigma = no more than 3.4 defects per million opportunities
Quality is improved two ways:
DMAIC process (define, measure, analyze, improve, control) focused on improving existing processes
DMADV process (define, measure, analyze, design, verify) focused on the development of new processes

11. TQM Concepts: Employee Empowerment
Empowerment: the sharing of power with others, where those with high amounts of power increase the power of those with less, especially with regard to decision making
By empowering employees, organizations can:
Engage the expertise of employees
Allow them to feel responsible for quality
Allow managers to understand and communicate the TQM vision

12. Quantity and Capacity Planning
Capacity planning: determining how much a firm should produce of a particular product or service
Design capacity: the maximum capacity that can be attained under ideal conditions
Effective capacity: the percent of design capacity a facility is actually expected to maintain
Effective
Capacity
Expected Capacity
Design Capacity =

13. Quantity and Capacity Planning: Inventory Management
Materials requirement planning (MRP): a sophisticated computer system that can be used to “get right materials to right place at right time”
Economic order quantity (EOQ): used to order economical quantity of product so that total inventory costs are minimized
ABC analysis: categorizes which inventory items require most control and attention

14. Timing Products and Services
Delivery of products and services must be timed well to avoid both “stocks-outs” and excess inventory
Three important concepts:
Just-in-time (JIT) systems
Gantt charts
PERT and CPM charts

15. Timing Products and Services: Just-in-Time (JIT) System
Objective: produce product or service only as needed with only the necessary materials, equipment, and employee time that will add value
Benefits:
Reduces inventory levels (and lowers carrying cost of inventory)
Improves productivity
Increases customer satisfaction

16. Timing Products and Services: Gantt Charts
May
June
July
Aug
Sep
Oct
Nov
Contact clients
Obtain contract specs
Submit bid
Receive feedback
Revise bid
Submit revised bid
Final approval or rejection
Complete bid review

17. Timing Products and Services: PERT/CPM Charts
Prepare
permits
Obtain
permits
Start
Develop
plans
Select
contractor
Construction
Open
store
Tenant
approval
Move into
store

18. Achieving the Best Cost
Productivity measures how well an organization is using its resources (inputs) to produce goods and services (outputs)
Productivity
Output
Input =

19. Achieving the Best Cost: Work Standard
Work standard: amount of time it should take for a trained employee to complete a specific activity or process
Two work measurement techniques:
Time and motion studies
Review each activity in detail so that unnecessary steps are eliminated
Work sampling
Take a sample of workers and calculate percentage of time spent on each activity during a working day or shift

20. Achieving the Best Cost: Production Processes
Continuous
Flow
Low
Assembly
Line
Small
Batch
Flexibility
Job
Shop
High
High
Economies of Scale
Low

21. Achieving the Best Cost: Production Processes
Economies of Scale
Learning Effects
The Learning/Experience Curve
Flexible Manufacturing Systems
Automation of a production line by controlling and guiding all machinery by computer
Attempt to capture both economies of scale and learning effects

22. Achieving the Best Cost: Technology
Computer-aided design (CAD) and Computer-aided engineering (CAE)
Computerized systems used to design new products, modify existing ones, and test prototypes
Computer-aided manufacturing (CAM)
the use of computers to direct manufacturing processes
Designing for manufacturing (DFM)
designing products for ease of manufacturing to maximize their functionality for customers

23. Managing the Supply Chain
Suppliers
Supply chain is:
Coordinated system of resources, information, activities, people, and organizations
Involved in moving a product or service from raw materials to components
Into a finished product or service
Delivered to the end customer
Manufacturer
Distributor
Retailer
Customer

24. Managing the Supply Chain: Using Technology
Electronic data interchange (EDI): the integration and real-time exchange of supply chain information that allows supply chain managers to manage complicated relationships and processes
Web-based systems