1. PowerPoint Presentation by Charlie Cook The University of West Alabama Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Part 5 Managing Growth in the Small Business Managing Operations

2. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 20–2 Looking Ahead After studying this chapter, you should be able to: 1. Explain the key elements of total quality management (TQM) programs. 2. Discuss the nature of the operations process for both products and services. 3. Explain how reengineering and other methods of work improvement can increase productivity and make a firm more competitive. 4. Discuss the importance of purchasing and the nature of key purchasing policies. 5. Describe ways to control inventory and minimize inventory costs.

3. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 20–3 Total Quality Management (TQM) Quality of products or services is a primary goal of the operations process. Quality management efforts are focused on meeting customer needs. Effective quality management requires an organizational culture that places a high value on quality. Quality management tools and techniques include employee involvement, quality circles, inspections, and statistical analysis.

4. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 20–4 Total Quality Management (TQM) (cont’d.) Small firms can obtain international certification of quality performance by meeting ISO 9000 standards. Service businesses can benefit from use of quality management programs.

5. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 20–5 The Operations Process Operations processes vary from one industry to another, but they all change inputs into outputs. Service and manufacturing operations typically differ in the extent of their contact with customers and the level of difficulty of establishing quality standards. The three types of manufacturing operations are job shops, repetitive manufacturing, and batch manufacturing. Operations management involves planning and scheduling activities that transform inputs into products or services.

6. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 20–6 The Operations Process (cont’d.) Proper plant maintenance is necessary for efficient operation and achievement of quality performance. Preventive maintenance is needed to minimize breakdowns in machinery; corrective maintenance is used to restore equipment to good condition.

7. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 20–7 Reengineering and Work Improvement The competitive strength of a business depends on its level of productivity. Reengineering involves restructuring firms by redesigning their basic work processes. Many small firms have improved productivity by using computers, new software, and Internet links with suppliers and customers. Laws of motion economy can be applied to make work easier and more efficient.

8. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 20–8 PurchasingPurchasing Purchasing is important because it affects quality and profitability. A key decision for manufacturers is whether to make or buy components. In outsourcing, a firm contracts with outside suppliers for accounting, repair, or other services and products. Small firms are doing more purchasing on the Internet, and many are finding bargains online. Decisions concerning diversifying sources of supply must take into account both the advantages and the disadvantages of having multiple suppliers.

9. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 20–9 Purchasing (cont’d.) Careful selection of suppliers will identify those offering the best price, quality, and services. Paying bills promptly and dealing professionally with suppliers will help build good relationships, which in turn can bring benefits, such as training provided by a supplier. Strategic alliances enable small firms to work closely with their suppliers.

10. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 20–10 Key Terms operations process quality total quality management (TQM) organizational culture continuous quality improvement benchmarking quality circle inspection inspection standard attribute inspection variable inspection acceptance sampling statistical process control control chart ISO 9000 operations management job shops repetitive manufacturing batch manufacturing preventive maintenance corrective maintenance productivity reengineering laws of motion economy purchasing make-or-buy decision outsourcing strategic alliance economic order quantity (EOQ) ABC method just-in-time inventory system physical inventory system cycle counting perpetual inventory system