Operations Management:

An overview

Meeting 1
Anjar Priyono, PhD.
Operations Management

© 2014
© 2014
Pearson
Pearson
Education,
Education,
Inc.Inc. 1-1
 Operations Management
at Hard Rock Cafe

▶ First opened in 1971

▶ Now – 150 restaurants in over 53 countries

▶ Rock music memorabilia

▶ Creates value in the form of good food and
entertainment
▶ 3,500+ custom meals per day in Orlando
▶ How does an item get on the menu?
▶ Role of the Operations Manager
© 2014
© 2014
Pearson
Pearson
Education,
Education,
Inc.Inc. 1-2
 What Is Operations
Management?
Production is the creation of
goods and services
Operations management (OM) is
the set of activities that create
value in the form of goods and
services by transforming inputs
into outputs

© 2014 Pearson Education, Inc. 1-3

▶ In the past, roughly 1960s the name of this
course is production management most
companies are manufacturing firms.

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 Organizing to Produce
Goods and Services
▶ Essential functions:
1. Marketing – generates demand
2. Production/operations – creates the
product
3. Finance/accounting – tracks how
well the organization is doing, pays
bills, collects the money

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 Organizational Charts
Figure 1.1

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 Organizational Charts
Figure 1.1

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© 2014 Pearson Education, Inc. 1-8
© 2014 Pearson Education, Inc. 1-9
 The Supply Chain
▶ A global network of organizations and
activities that supply a firm with goods and
services
▶ Members of the supply chain collaborate to
achieve high levels of customer satisfaction,
efficiency and competitive advantage.
Figure 1.2

Farmer Syrup Bottler Distributor Retailer

producer

© 2014 Pearson Education, Inc. 1 - 10

 Why Study OM?
1. OM is one of three major functions of any
organization, we want to study how people
organize themselves for productive
enterprise
2. We want (and need) to know how goods
and services are produced
3. We want to understand what operations
managers do
4. OM is such a costly part of an
organization
© 2014 Pearson Education, Inc. 1 - 11
 What Operations
Managers Do
Basic Management Functions

▶ Planning
▶ Organizing
▶ Staffing
▶ Leading
▶ Controlling

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 Certifications
▶ APICS, the Association for Operations
Management
▶ American Society for Quality (ASQ)
▶ Institute for Supply Management (ISM)
▶ Project Management Institute (PMI)
▶ Council of Supply Chain Management
Professionals
▶ Charter Institute of Purchasing and Supply
(CIPS)

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Indonesian Production & Operations Management Society

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 Project Management Indonesia

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 Significant Events in OM

Figure 1.4
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 Operations for
Goods and Services
▶ Manufacturers produce tangible product,
services often intangible
▶ Operations activities often very similar
▶ Distinction not always clear
▶ Few pure services

© 2014 Pearson Education, Inc. 1 - 17

 Differences Between Goods and
Services
TABLE 1.3
CHARACTERISTICS OF SERVICES
Intangible: Ride in an airline seat
Produced and consumed simultaneously: Beauty
salon produces a haircut that is consumed as it is
produced
Unique: Your investments and medical care are
unique
High customer interaction: Often what the customer
is paying for (consulting, education)
Inconsistent product definition: Auto Insurance
changes with age and type of car
Often knowledge based: Legal, education, and
medical services are hard to automate
Services dispersed: Service may occur at retail store,
local office, house call, or via internet.
Quality may be hard to evaluate: Consulting,
education, and medical services
Reselling is unusual: Musical concert or medical care
© 2014 Pearson Education, Inc.
CHARACTERISTICS OF GOODS
Tangible: The seat itself
Product can usually be kept in inventory (beauty care
products)
Similar products produced (iPods)
Limited customer involvement in production
Product standardized (iPhone)
Standard tangible product tends to make automation
feasible
Product typically produced at a fixed facility
Many aspects of quality for tangible products are easy
to evaluate (strength of a bolt)
Product often has some residual value
1 - 18
 Challenge of technology

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 5 concerns of management
▶ Business productivity and cost reduction.
▶ IT and Business Alignment.
▶ Business Agility and Speed to Market
▶ Business Process Reengineering (BPR).
▶ IT Reliability and Efficiency

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 Cloud computing
▶ Cloud computing is a style of computing in which
IT services are delivered on-demand and
accessible via the internet. Common examples
are Dropbox, Google Drive.
▶ Cloud services enable companies to quickly
adjust storage capacity to their computing
requirements.

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 Cloud benefits: efficiency, agility, & innovation

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 Big data
▶ Increasing volume of data can be valuable if they
are processed and available and where they are
needed. The problem is that the amount, variety,
structure, and speed of data being generated or
collected by enterprises differ significantly.
▶ Unstructured data are data that do not have a
predictable format
▶ Data analytics refers to the use of software and
statistics to find meaningful insight in the data, or
better understand the data Job: data scientist

© 2014 Pearson Education, Inc. 1 - 23

 Productivity Challenge
Productivity is the ratio of outputs (goods and
services) divided by the inputs (resources
such as labor and capital)

The objective is to improve productivity!

Important Note!
Production is a measure of output only
and not a measure of efficiency

© 2014 Pearson Education, Inc. 1 - 24

 Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Stop requiring signatures Saved 8 seconds
on credit card purchases per transaction
under $25
Change the size of the ice Saved 14 seconds
scoop per drink
New espresso machines Saved 12 seconds
© 2014 Pearson Education, Inc.
per shot 1 - 25
 Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Operations improvements have
helped StarbucksSaved
Stop requiring signatures increase yearly
8 seconds
revenue per outlet
on credit card purchases bytransaction
per $250,000 to
under $25 $1,000,000 in seven years.
Change the size Productivity
of the ice has improved
Saved 14by 27%, or
seconds
scoop about 4.5% per year.
per drink
New espresso machines Saved 12 seconds
© 2014 Pearson Education, Inc.
per shot 1 - 26
 Measurement Problems
1. Quality may change while the
quantity of inputs and outputs remains
constant
2. External elements may cause an
increase or decrease in productivity
3. Precise units of measure may be
lacking

© 2014 Pearson Education, Inc. 1 - 27

 Productivity Variables
1. Labor - contributes
about 10% of the
annual increase
2. Capital - contributes
about 38% of the
annual increase
3. Management -
contributes about 52%
of the annual increase
© 2014 Pearson Education, Inc. 1 - 28
 Key Variables for Improved
Labor Productivity
1. Basic education appropriate for the
labor force
2. Diet of the labor force
3. Social overhead that makes labor
available
▶ Challenge is in maintaining and enhancing
skills in the midst of rapidly changing
technology and knowledge

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 Have a good evening!

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 Labor Skills
About half of the 17-year-olds in the U.S. cannot
correctly answer questions of this type

Figure 1.7
© 2014 Pearson Education, Inc. 1 - 31
 Productivity and the
Service Sector
1. Typically labor intensive
2. Frequently focused on unique individual
attributes or desires
3. Often an intellectual task performed by
professionals
4. Often difficult to mechanize and automate
5. Often difficult to evaluate for quality

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 Strategies for Competitive Advantage

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 Porter’s competitive forces model

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 A firm’s value chain

The arrows represent

the flow of goods, services,
© 2014 Pearson Education, Inc. and data. 1 - 35
▶ 1. Inbound logistics, or acquiring and
receiving of raw materials and other inputs
▶ 2. Operations, including manufacturing
and testing
▶ 3. Outbound logistics, which includes
packaging,storage,delivery,and distribution
▶ 4. Marketing and sales to customers
▶ 5. Services, including customer service

© 2014 Pearson Education, Inc. 1 - 36

 Primary activities
▶ 1. The firm’s infrastructure, accounting,
finance, and management.
▶ 2. Human resources (HR) management.
For an IT-related HR trend
▶ 3. Technology development,and research
and development (R&D).
▶ 4. Procurement,or purchasing.

© 2014 Pearson Education, Inc. 1 - 37

 Operations and Technology
Strategy in a Global
Environment

Meeting 2
Anjar Priyono, PhD.
Operations Management

© 2014
© 2014
Pearson
Pearson
Education,
Education,
Inc.Inc. 2-1
 Boeing’s Global
Supply-Chain Strategy

Some of the International Suppliers of Boeing 787 Components

HEADQUARTERS
SUPPLIER COUNTRY COMPONENT
Latecoere France Passenger doors
Labinel France Wiring
Dassault France Design and PLM software
Messier-Bugatti France Electric brakes
Thales France Electrical power conversion
system and integrated
standby flight display
Messier-Dowty France Landing gear structure
Diehl Germany Interior lighting

© 2014
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Pearson
Pearson
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 Reasons to Globalize

1. Improve the supply chain

2. Reduce costs (labor, taxes, tariffs, etc.)
3. Improve operations
4. Understand markets
5. Improve products
6. Attract and retain global talent

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 Improve the Supply Chain
▶ Locating facilities closer to unique
resources
▶ Auto design to California
▶ Athletic shoe production to China
▶ Perfume manufacturing in France

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 Reduce Costs
▶ Foreign locations with lower wage rates
can lower direct and indirect costs
▶ Trade agreements can lower tariffs
▶ Maquiladoras
▶ World Trade Organization (WTO)
▶ North American Free Trade Agreement
(NAFTA)
▶ APEC, SEATO, MERCOSUR, CAFTA
▶ European Union (EU)

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 Improve Operations
▶ Understand differences between
how business is handled in other
countries
▶ Japanese – inventory management
▶ Scandinavians – ergonomics
▶ International operations can
improve response time and
customer service

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© 2014 Pearson Education, Inc. 2-7
 Understand Markets
▶ Interacting with foreign customers,
suppliers, competition can lead to
new opportunities
▶ Cell phone
design moved
from Europe
to Japan
▶ Extend the
product life
cycle

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 Improve Products
▶ Remain open to free flow of ideas
▶ Toyota and BMW manage joint
research and development
▶ Reduced risk, state-of-the-art design,
lower costs
▶ Samsung and Bosch jointly produce
batteries

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 Attract and Retain Global
Talent
▶ Offer better employment
opportunities
▶ Better growth opportunities and
insulation against unemployment
▶ Relocate unneeded personnel to
more prosperous locations

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 Cultural and Ethical Issues
▶ Cultures can be quite different
▶ Attitudes can be quite different
towards
► Punctuality ► Thievery
► Lunch breaks ► Bribery
► Environment ► Child labor
► Intellectual
property

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 Match Product & Parent
► Braun Household
Appliances 1. Volkswagen
► Firestone Tires 2. Bridgestone
► Godiva Chocolate 3. Campbell Soup
► Haagen-Dazs Ice 4. Tata Motors Limited
Cream 5. Proctor and Gamble
► Jaguar Autos 6. Nestlé
► MGM Movies 7. Pillsbury
► Lamborghini Autos 8. Sony
► Alpo Petfoods

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 Match Product & Parent
► Braun Household
Appliances 1. Volkswagen
► Firestone Tires 2. Bridgestone
► Godiva Chocolate 3. Campbell Soup
► Haagen-Dazs Ice 4. Tata Motors Limited
Cream 5. Proctor and Gamble
► Jaguar Autos 6. Nestlé
► MGM Movies 7. Pillsbury
► Lamborghini Autos 8. Sony
► Alpo Petfoods

© 2014 Pearson Education, Inc. 2 - 13

 Match Product & Country
► Braun Household
Appliances
► Firestone Tires 1. Great Britain
► Godiva Chocolate 2. Germany
► Haagen-Dazs Ice 3. Japan
Cream
4. United States
► Jaguar Autos 5. Switzerland
► MGM Movies 6. India
► Lamborghini Autos
► Alpo Petfoods

© 2014 Pearson Education, Inc. 2 - 14

 Match Product & Country
► Braun Household
Appliances
► Firestone Tires 1. Great Britain
► Godiva Chocolate 2. Germany
► Haagen-Dazs Ice 3. Japan
Cream
4. United States
► Jaguar Autos 5. Switzerland
► MGM Movies 6. India
► Lamborghini Autos
► Alpo Petfoods

© 2014 Pearson Education, Inc. 2 - 15

 Developing Missions and
Strategies

Mission statements tell an

organization where it is going

The Strategy tells the organization

how to get there

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 Mission
► Mission - where is the organization
going?
► Organization’s purpose for being
► Answers ‘What do we contribute to
society?’
► Provides boundaries and focus

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 Strategic Process
Organization’s
Mission

Functional Area
Missions

Finance/
Marketing Operations Accounting

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 Strategy
► Action plan to achieve
mission
► Functional areas have
strategies
► Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses

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 Strategies for Competitive
Advantage

1. Differentiation – better, or at least

different
2. Cost leadership – cheaper
3. Response – more responsive
4. Quality

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 Overlapping concepts
▶ Between differentiation (better, or at least
different) and Response (more
responsive) there is some kind of
similarities.
▶ Innovation, can be categorized as
differentiation or response

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 Competing on Differentiation
Uniqueness can go beyond both the
physical characteristics and service
attributes to encompass everything that
impacts customer’s perception of value

► Safeskin gloves – leading edge products

► Walt Disney Magic Kingdom –
experience differentiation
► Hard Rock Cafe – dining experience

© 2014 Pearson Education, Inc. 2 - 22

 Competing on Cost
Provide the maximum value as
perceived by customer. Does not
imply low quality.
► Southwest Airlines – secondary airports,
no frills service, efficient utilization of
equipment
► Walmart – small overhead, shrinkage,
and distribution costs
► Franz Colruyt – no bags, no bright lights,
no music, and doors on freezers
© 2014 Pearson Education, Inc. 2 - 23
 Competing on Response
▶ Flexibility is matching market changes in
design innovation and volumes
▶ A way of life at Hewlett-Packard
▶ Reliability is meeting schedules
▶ German machine industry
▶ Timeliness is quickness
in design, production,
and delivery
▶ Johnson Electric,
Pizza Hut, Motorola

© 2014 Pearson Education, Inc. 2 - 24

 Trade off theory
1. Differentiation, Cost leadership, Response,
Quality
2. Trade off theory: all the four competitive
advantages are conflicting one another.
3. For example: making good products must be at
the expense of low cost.
4. Another example: manufacturing unique
products (customized, not standardized) must
be at the expense of low cost differentiation
vs low cost.

© 2014 Pearson Education, Inc. 2 - 25

 Trade off theory
1. When you are adopting a certain competitive
advantage, you must sacrifice others.
2. Low cost is in conflict with quality, differentiation,
response.
3. Other examples: quality is in conflict with
response.
4. quality is also in conflict differentiation.

© 2014 Pearson Education, Inc. 2 - 26

 How to describe the trade off
theory response
Quality

Low cost
quality

Trade off theory: yang dapat diterapkan adalah mass production memproduksi
dalam skala massal dan produknya standardized (sama).

Hal ini karena biaya rendah hanya dapat dicapai dengan memproduksi barang yg
©sama dalam
2014 Pearson volume
Education, Inc. besar terjadi trade off antara differentiation vs low cost.
2 - 27
 Sandcone model/cumulative
model • Firms can accumulated
compative advantage, and
adopt them simultaneously.
• Qualitas tidak hanya
sekedar produk akhir, tetapi
juga proses produksi.
• The competitive
advantages do not
necessarily in conflict
• Rather they can be
Requriement to adopt sandconme model: combined.
•You must adopt quality program at your company first, it is the foundation of
developing other compitive advantage. Quality here means not only
product’s quality, but also process quality.
•Low cost must be given the lowest priority to be developed as a competitive
advantage. Why? Because when firms have adopted quality program, the
cost will reduced automatically due to lower product defects, lower
inventory cost, lower product rejects, lower scraps etc.
© 2014 Pearson Education, Inc. 2 - 28
 Sandcone model/cumulative model: yang dapat diterapkan adalah mass
customization memproduksi dalam skala massal dan masing-masing produk
memiliki keunikan (terdiferensiasi).

© 2014 Pearson Education, Inc. 2 - 29

 Product Life Cycle
Introduction Growth Maturity Decline

Best period to Practical to change Poor time to Cost control

increase market price or quality change image, critical
share image price, or quality
Company Strategy/Issues

R&D engineering is Strengthen niche Competitive costs

critical become critical
Defend market
position Drive-through
Internet search engines restaurants
DVDs
Xbox 360
iPods
Boeing 787

Sales
3D printers

3-D game Analog

Electric vehicles TVs
players

Figure 2.5
© 2014 Pearson Education, Inc. 2 - 30
 Product Life Cycle
Introduction Growth Maturity Decline

Product design and Forecasting critical Standardization Little product

development Product and Fewer product differentiation
critical process reliability changes, more Cost
Frequent product Competitive minor changes minimization
and process
OM Strategy/Issues

product Optimum capacity Overcapacity in

design changes improvements and the industry
Increasing stability
Short production options of process Prune line to
runs Increase capacity eliminate items
Long production
High production Shift toward runs not returning
costs product focus good margin
Product
Limited models Enhance improvement and Reduce
Attention to quality distribution cost cutting capacity

Figure 2.5
© 2014 Pearson Education, Inc. 2 - 31
1st generation of Kijang 2nd
3nd
generation of Kijang
(1970s) generation of Kijang
(1990s)—Super Kijang (2000s)—Kijang Capsule

4nd
generation of Kijang Current generation of Kijang—it is
(late 2000s)—Kijang Innova now become Innova---Innova
© 2014 Pearson Education, Inc. 2 - 32
 Strategies for products/services at
declining stage
▶ Eliminating the products/services
▶ Make different product/introduce new products.
▶ There are some firms maintaining existing products
although it is in declining stage.

▶ Innovating existing products to more innovative

products suitable for products in maturity stage.
▶ Maturity stage: innovate existing products.

© 2014 Pearson Education, Inc. 2 - 33

 Theory of Comparative
Advantage
▶ If an external provider can perform
activities more productively than the
purchasing firm, then the external
provider should do the work
▶ Purchasing firm focuses on core
competencies
▶ Drives outsourcing

© 2014 Pearson Education, Inc. 2 - 34

 Global Operations Strategy
Options High
Figure 2.9

International strategy
Cost Reduction

(eg, Harley-Davidson
U.S. Steel)
• Import/export or
license existing
product
Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)
© 2014 Pearson Education, Inc. 2 - 35
 Global Operations Strategy
Options High
Figure 2.9
Cost Reduction

International
strategy
(eg, Harley-Davidson
U.S. Steel)
• Import/export or
license existing
product

Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)
© 2014 Pearson Education, Inc. 2 - 36
 Global Operations Strategy
Options High
Figure 2.9

Global strategy
(eg, Caterpillar
Texas Instruments
Cost Reduction

Otis Elevator)
International
• Standardize product
strategy
(eg, Harley-Davidson
• Economies of scale
U.S. Steel)
• Import/export or
• Cross-cultural
license existing
product
learning
Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)
© 2014 Pearson Education, Inc. 2 - 37
 Global Operations Strategy
Options High Global strategy
(eg, Caterpillar Figure 2.9
Texas Instruments
Otis Elevator)

• Standardize product
• Economies of scale
• Cross-cultural learning
Cost Reduction

International
strategy
(eg, Harley-Davidson
U.S. Steel)
• Import/export or
license existing
product

Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)
© 2014 Pearson Education, Inc. 2 - 38
 Global Operations Strategy
Options High Global strategy
(eg, Caterpillar Figure 2.9
Multidomestic
Texas Instruments
Otis Elevator)
strategy
(eg, Heinz,
• Standardize product
• Economies of scale
McDonald’s
The
• Cross-cultural Body Shop
learning
Cost Reduction

Hard Rock Cafe)

• Use existing domestic
International
strategy
model globally
(eg, Harley-Davidson
• Franchise, joint
U.S. Steel)

ventures, subsidiaries
• Import/export or
license existing
product

Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)
© 2014 Pearson Education, Inc. 2 - 39
 Global Operations Strategy
Options High Global strategy
(eg, Caterpillar Figure 2.9
Texas Instruments
Otis Elevator)

• Standardize product
• Economies of scale
• Cross-cultural learning
Cost Reduction

International Multidomestic
strategy strategy
(eg, Harley-Davidson (eg, Heinz, McDonald’s
U.S. Steel) The Body Shop
Hard Rock Cafe)
• Import/export or • Use existing domestic
license existing model globally
product • Franchise, joint
ventures,
subsidiaries
Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)
© 2014 Pearson Education, Inc. 2 - 40
 Global Operations Strategy
Options High Global strategy
Figure 2.9
Transnational
(eg, Caterpillar
Texas Instruments
Otis Elevator) strategy
• (eg,
StandardizeCoca-Cola,
product Nestlé)
• Economies of scale
• Cross-cultural learning
• Move material,
Cost Reduction

people, ideas across

national
International
strategy
boundaries
Multidomestic
strategy
• Economies
(eg, Harley-Davidson
U.S. Steel)
of scale
(eg, Heinz, McDonald’s
The Body Shop
• Cross-cultural
• Import/export or
Hard Rock Cafe)
• Use existing domestic
product learning
license existing model globally
• Franchise, joint
ventures,
subsidiaries
Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)
© 2014 Pearson Education, Inc. 2 - 41
 Global Operations Strategy
Options High Global strategy
(eg, Caterpillar
Texas Instruments (eg, Coca-Cola, Nestlé)
Otis Elevator)
• Standardize product
• Economies of scale
• Cross-cultural learning
Cost Reduction
Transnational
strategy Figure 2.9
• Move material,
people, ideas across
national boundaries
• Economies of scale
• Cross-cultural

learning

International Multidomestic
strategy strategy
(eg, Harley-Davidson (eg, Heinz, McDonald’s
U.S. Steel) The Body Shop
Hard Rock Cafe)
• Import/export or • Use existing domestic
license existing model globally
product • Franchise, joint
ventures,
subsidiaries
Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)
© 2014 Pearson Education, Inc. 2 - 42
 Managing Quality
6
Anjar Priyono, PhD.
Operations Management
Department of Management
Universitas Islam Indonesia

PowerPoint slides by Jeff Heyl

Copyright © 2017 Pearson Education, Ltd. 6-1

 Quality and Strategy
► Managing quality supports
differentiation, low cost, and
response strategies.
► Kualitas membantu perusahaan untuk
memperkuat strategi bersaing yang lainnya.
► Quality helps firms increase sales
and reduce costs
► Building a quality organization is a
demanding task
Copyright © 2017 Pearson Education, Ltd. 6-2
 Sandcone model/cumulative
model • Firms can accumulated
compative advantage, and
adopt them simultaneously.
• Qualitas tidak hanya
sekedar produk akhir, tetapi
juga proses produksi.
• The competitive
advantages do not
necessarily in conflict
• Rather they can be
Requriement to adopt sandconme model: combined.
• You must adopt quality program at your company first, it is the foundation
of developing other compitive advantage. Quality here means not only
product’s quality, but also process quality.
• Low cost must be given the lowest priority to be developed as a
competitive advantage. Why? Because when firms have adopted quality
program, the cost will reduced automatically due to lower product
defects, lower inventory cost, lower product rejects, lower scraps etc.
Copyright © 2017 Pearson Education, Ltd. 6-3
 Implications of Quality
1. Company reputation
► Perception of new products
► Employment practices
► Supplier relations
2. Product liability
► Reduce risk
3. Global implications
► Improved ability to compete

Copyright © 2017 Pearson Education, Ltd. 6-4

 Two Ways Quality
Improves Profitability
Figure 6.1

Sales Gains via

• Improved response (quicker response,
more accurate response, more
personalized response etc.)
• Flexible pricing
Improved • Improved reputation Increased
Quality Profits
Reduced Costs via
• Increased productivity
• Lower re-work and scrap costs
• Lower warranty costs

Copyright © 2017 Pearson Education, Ltd. 6-5

 Defining Quality

An operations manager’s objective

is to build a total quality
management system that identifies
and satisfies customer needs

Copyright © 2017 Pearson Education, Ltd. 6-6

 Different Views
► User based: better performance,
more features, fitness for use.
► Manufacturing based:
conformance to standards, making it
right the first time (i.e. does not fail
in the first attempt of
manufacturing).
► Product based: specific and
measurable attributes of the product
Copyright © 2017 Pearson Education, Ltd. 6-7
 Defining Quality

The totality of features and

characteristics of a product or service
that bears on its ability to satisfy
stated or implied needs of who? Of
customers or market.
American Society for Quality

Copyright © 2017 Pearson Education, Ltd. 6-8

 Malcolm Baldrige Award
Criteria
Applicants are evaluated on:
CATEGORIES POINTS
Leadership (kepemimpinan dari manajemen 120
puncak).
Strategic Planning 85
Customer Focus 85
Measurement, Analysis, and Knowledge 90
Management
Workforce Focus 85
Operations Focus 85
Results 450
Malcolm Baldrige award: penghargaan dalam bidang kualitas, diberikan
kepada organisasi,
Copyright © 2017 bukan
Pearson Education, Ltd. individu atau produk. 6-9
 manajemen kualitas, penetkannya
juga sama; yaitu pada peran
manajemen puncak.
Topik-topik besar lain selain
manajemen kualitas: TQM, JIT,
BPR (business process
reengineering), MRP (material
requirement planning), CRM
(Customer relationship
management
Copyright © 2017 Pearson Education, Ltd. 6 - 10
 ISO 9000 International Quality
Standards
► Management principles
1) Top management leadership
2) Customer satisfaction
3) Continual improvement
4) Involvement of people
5) Process analysis
6) Use of data-driven decision making
7) A systems approach to management
8) Mutually beneficial supplier relationships

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 Costs of Quality
► Prevention costs - reducing the potential for defects—biaya
untuk mencegah dari potensi-potensi yang menurunkan
kualitas produk.
► Contoh: biaya pelatihan karyawan, biaya pembelian alat untuk
pengendalian kualitas.
► Pelatihan keahlian karyawan lebih baik jumlah product defect menjadi
turun biaya produksi menurun+kualitas produk akan meningkat.
► Appraisal costs - evaluating products, parts, and services
► Contoh: biaya tender untuk memilih pemasok yang sesuai,
biaya survey bahan baku, biaya uji coba produk—misal
Dalam crash test mobil
► Internal failure costs - producing defective parts or service
before delivery
► SPC (statistical process control): upper control level &
lower control level
► External failure costs - defects discovered after delivery:
warranty cost, product recall cost, reputation, prestige, goodwill.
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 Costs of Quality

Total Total
Cost Cost
External Failure

Internal Failure

Prevention

Appraisal
Quality Improvement

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 Leaders in Quality
TABLE 6.1 Leaders in the Field of Quality Management
LEADER PHILOSOPHY/CONTRIBUTION
W. Edwards Deming Deming insisted management accept responsibility for
(Deming’s 14 points). building good systems. The employee cannot produce products
that on average exceed the quality of what the process is
capable of producing. His 14 points for implementing quality
improvement are presented in this chapter.
Joseph M. Juran A pioneer in teaching the Japanese how to improve quality,
Juran believed strongly in top-management commitment,
support, and involvement in the quality effort. He was also a
believer in teams that continually seek to raise quality standards.
Juran varies from Deming somewhat in focusing on the
customer and defining quality as fitness for use, not necessarily
the written specifications.

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 Leaders in Quality
TABLE 6.1 Leaders in the Field of Quality Management
LEADER PHILOSOPHY/CONTRIBUTION
Armand Feigenbaum His 1961 book Total Quality Control laid out 40 steps to quality
improvement processes. He viewed quality not as a set of tools
but as a total field that integrated the processes of a company.
His work in how people learn from each other’s successes led to
the field of cross-functional teamwork.
Philip B. Crosby Quality Is Free was Crosby’s attention-getting book published in
1979. Crosby believed that in the traditional trade-off between
the cost of improving quality and the cost of poor quality, the cost
of poor quality is understated. The cost of poor quality should
include all of the things that are involved in not doing the job right
the first time. Crosby coined the term zero defects and stated,
“There is absolutely no reason for having errors or defects in any
product or service.”

Copyright © 2017 Pearson Education, Ltd. 6 - 15

 Total Quality Management
(TQM)
► Encompasses entire organization
from supplier to customer
► Stresses a commitment by
management to have a continuing
companywide drive toward
excellence in all aspects of products
and services that are important to the
customer
► TQM penekanannya tidak hanya pada
produk akhir, tapi juga pada proses produksi.
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 Seven Concepts of TQM
1) Continuous improvement
2) Six Sigma
3) Employee empowerment
4) Benchmarking
5) Just-in-time (JIT)
6) Taguchi concepts
7) Knowledge of TQM tools

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 1. Continuous Improvement

► Never-ending process of continuous

improvement
► Covers people, equipment, suppliers,
materials, procedures
► Every operation can be improved

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 Shewhart's PDCA Model
(Muhasabah model)
Figure 6.3

4. Act 1. Plan
Implement Identify the
the plan, pattern and
document make a plan

3. Check 2. Do
Is the plan Test the
working? plan

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 1. Continuous Improvement

► Kaizen describes the ongoing process

of unending improvement.
► TQM and zero defects also used to
describe continuous improvement

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 2. Six Sigma
► Two meanings
► Statistical definition of a process that is
99.9997% capable, 3.4 defects per
million opportunities (DPMO)
► A program designed to reduce defects,
lower costs, save time, and improve
customer satisfaction
► A comprehensive system for achieving
and sustaining business success

Copyright © 2017 Pearson Education, Ltd. 6 - 21

 2. Six Sigma
Lower limits Upper limits
► Two meanings
2,700 defects/million
► Statistical definition of a process that is
99.9997% capable, 3.4 defects per
3.4 defects/million
million opportunities (DPMO)
► A program designed to reduce defects,
lower costs, save time, and improve
customer satisfaction Mean
±3σ
► A comprehensive system for achieving
and sustaining business±6σsuccess
Figure 6.4

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 2. Six Sigma
1. Defines the project’s purpose, scope, and outputs,
then identifies the required process information
keeping in mind the customer’s definition of quality
2. Measures the process and collects data
3. Analyzes the data ensuring
repeatability and reproducibility DMAIC Approach
4. Improves by modifying or
redesigning existing
processes and procedures
5. Controls the new process
to make sure performance
levels are maintained

Copyright © 2017 Pearson Education, Ltd. 6 - 23

 3. Employee Empowerment
► Getting employees involved in product and
process improvements
► 85% of quality problems are due
to materials and process
► Techniques
1) Build communication networks
that include employees
2) Develop open, supportive supervisors
3) Move responsibility to employees
4) Build a high-morale organization
5) Create formal team structures
Copyright © 2017 Pearson Education, Ltd. 6 - 24
 4. Benchmarking
Selecting best practices to use as a
standard for performance
1. Determine what to benchmark
2. Form a benchmark team
3. Identify benchmarking partners
4. Collect and analyze benchmarking
information
5. Take action to match or exceed the
benchmark

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 5. Just-in-Time (JIT)

Relationship to quality:
► Attempt to minimize inventory; inventory
becomes zero if possible.
► 'Pull' system of production scheduling
including supply management
► JIT cuts the cost of quality
► JIT improves quality
► Better quality means less inventory and better,
easier-to-employ JIT system
Copyright © 2017 Pearson Education, Ltd. 6 - 26
 6. Taguchi Concepts
► Engineering and experimental design
methods to improve product and
process design
► Identify key component and process
variables affecting product variation
► Taguchi Concepts
► Quality robustness
► Target-oriented quality
► Quality loss function

Copyright © 2017 Pearson Education, Ltd. 6 - 27

 Quality Robustness
► Ability to produce products uniformly
in adverse manufacturing and
environmental conditions
► Remove the effects of adverse
conditions
► Small variations in materials and
process do not destroy product quality

Copyright © 2017 Pearson Education, Ltd. 6 - 28

 Quality Loss Function
► Shows that costs increase as the
product moves away from what the
customer wants
r g e t - or i e
Costs include customer Ta
►
t e d q u a lity
n
dissatisfaction, warranty
and service, internal
scrap and repair, and costs to
society
► Traditional conformance
specifications are too simplistic
Copyright © 2017 Pearson Education, Ltd. 6 - 29
 Quality Loss Function
High loss
Unacceptable
Loss (to
producing Poor Target-oriented quality
organization, yields more product in
customer, Fair the "best" category
and society) Good
Best
Low loss
Target-oriented quality
brings product toward
the target value

Frequency
Conformance-oriented
quality keeps products
within 3 standard
deviations
Lower Targe Upper
t
Specification Figure 6.5
Copyright © 2017 Pearson Education, Ltd. 6 - 30
 7. TQM Tools
► Tools for Generating Ideas
► Check Sheet
► Scatter Diagram
► Cause-and-Effect Diagram
► Tools to Organize the Data
► Pareto Chart
► Flowchart (Process Diagram)

Copyright © 2017 Pearson Education, Ltd. 6 - 31

 TQM Tools
► Tools for Identifying Problems
► Histogram
► Statistical Process Control Chart

Copyright © 2017 Pearson Education, Ltd. 6 - 32

 Seven Tools of TQM
(a)Check Sheet: An organized method of recording
data the data is showing problem occurring at
hour 1-8
Hour

Defect 1 2 3 4 5 6 7 8

A
/// / / / / /// /
B
// / / / // ///
C
/ // // ////

Figure 6.6

Copyright © 2017 Pearson Education, Ltd. 6 - 33

 Seven Tools of TQM
(b)Scatter Diagram: A graph of the
value of one variable vs. another
variable
Productivity

Absenteeism
Figure 6.6

Copyright © 2017 Pearson Education, Ltd. 6 - 34

 Seven Tools of TQM
(c) Cause-and-Effect Diagram: A tool that
identifies process elements (causes) that may
effect an outcome—fish bone diagram,
Ishikawa diagram.
Cause
Materials Methods
Effect

Number of
defect product
increases
- Lack of motivation
- Fatigue
- Lack of skills
- Lazy

Manpower Machinery
Figure 6.6

Copyright © 2017 Pearson Education, Ltd. 6 - 35

 Seven Tools of TQM
(d)Pareto Chart: A graph to identify and
plot problems or defects in descending
order of frequency The roots of problems are
typically dominated with 3
hat are the main causes of causes; these 3 major causes
duct defects: can account for 60% of the
People total.
Frequency

Percent
Quality of raw materials
Process variation

A B C D E
Figure 6.6

Copyright © 2017 Pearson Education, Ltd. 6 - 36

 Seven Tools of TQM
(e)Flowchart (Process Diagram): A chart
that describes the steps in a process

Figure 6.6

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 Seven Tools of TQM
(f) Histogram: A distribution showing the
frequency of occurrences of a variable
Distribution
Frequency

Repair time (minutes)

Figure 6.6

Copyright © 2017 Pearson Education, Ltd. 6 - 38

 Seven Tools of TQM
(g)Statistical Process Control Chart: A chart
with time on the horizontal axis to plot
values of a statistic

Upper control limit 610 ml

Target 600 ml
value
Lower control limit 590 ml

Time
Figure 6.6

Copyright © 2017 Pearson Education, Ltd. 6 - 39

 Cause-and-Effect Diagrams
Material Method
(ball) (shooting process)
Grain/Feel Aiming point
(grip)
Size of ball
Air pressure Bend knees
Hand position
Balance
Lopsidedness
Follow-through
Missed
Training Rim size
free-throws

Conditioning Motivation Rim height

Consistency Rim alignment Backboard

stability
Concentration

Machine
Manpower (hoop &
(shooter) Figure 6.7
backboard)

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 Pareto Charts
Data for October

70 – – 100
– 93
60 – – 88
54
Frequency (number)

50 –

Cumulative percent
– 72
40 –
30 – Number of
occurrences
20 –
10 – 12
0 –
4 3 2
Room svcCheck-in Pool hours Minibar Misc.
72% 16% 5% 4% 3%
Causes and percent of the total

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 Flow Charts
MRI Flowchart
1. Physician schedules MRI 7. If unsatisfactory, repeat
2. Patient taken to MRI 8. Patient taken back to room
3. Patient signs in 9. MRI read by radiologist
4. Patient is prepped 10. MRI report transferred to
5. Technician carries out physician
MRI 11. Patient and physician
6. Technician inspects film discuss

8
80%
1 2 3 4 5 6 7 11
9 10
20%

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 Statistical Process Control
(SPC)
► Uses statistics and control charts to tell
when to take corrective action
► Drives process improvement
► Four key steps
► Measure the process
► When a change is indicated, find the
assignable cause
► Eliminate or incorporate the cause
► Restart the revised process
Copyright © 2017 Pearson Education, Ltd. 6 - 43
 Control Charts
Plot the percent of free throws missed
40%
Upper
control limit
20%
Coach’s
target
0% value
Lower
| | | | | | | | |
control
1 2 3 4 5 6 7 8 9
limit
Game number

Figure 6.8

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