Ferrell Hirt Ferrell

BUSINESS
A CHANGING WORLD
EIGHTH EDITION

FHF

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
 part

Managing for Quality

3
and Competitiveness
CHAPTER 6 The Nature of Management

CHAPTER 7 Organization, Teamwork, and Communication

CHAPTER 8 Managing Service and Manufacturing Operations

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 Operations Management

▪ Development and administration of the

activities involved in transforming resources
into goods and services
• Emphasis on viewing the operations function as a whole
• The “core” of most organizations
Manufacturing/Production
• Activities and processes used in making tangible products
Operations
• The activities and processes used in making both tangible and
intangible products

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Transformation Processes of Operations
Management

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Transformation Processes of Operations
Management

❖ Inputs
▪ The resources (labor, materials, energy, etc.) that are
converted into outputs
❖ Outputs
▪ The goods, services and ideas that result from the
conversion of inputs

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 OM in Service Businesses

▪ Salons, colleges, airlines

▪ 70% of all employment in the United
States; fastest growth market for jobs
▪ Represent over 72% of GDP in U.S.
▪ Services are actions/performances directed at consumers
Different than manufacturing that produces tangible
products

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 Service Businesses

▪ Steve Wynn is one of the premier figures in the

casino and hotel industry
▪ Has had many business ups and downs
▪ Concerned about providing his customers with an
unforgettable experience

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 Services Are...

▪ Generally intangible
▪ Perishable
▪ Demand can be variable
▪ Cannot be saved, stored, resold, or packaged

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 Manufacturing and Service
Compared

Manufacturing Service
Tangible Intangible
Uniform inputs Customized inputs
Uniform outputs Customized outputs
Less labor intensive More labor intensive
Easy to measure productivity More difficult to measure
productivity (due to variations in
demand, service, requirements and
intangibility)

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 Planning the Product

What do consumers want?

❖Develop the product

▪ Can be a long and expensive process
❖Turn product ideas into workable design
▪ The job of engineers and research and development departments

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 Designing Operations Process

Standardization
▪ The making of identical interchangeable components
or products. Faster, reduces production costs
Modular Design
▪ Creation of an item in self-contained units that can be
combined or interchanged to create different products

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 Designing Operations Process

Customization
▪ Making products to meet a particular customer’s
needs or wants
Mass Customization
▪ Making products to meet needs or wants of a large
number of individual customers.

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 Capacity

Maximum load that an organizational unit

can carry or operate

Hershey’s production capacity

80 million Hershey’s kisses per day

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 Planning Facilities

▪ Facility location
• High costs involved
• Permanent
▪ Pay attention to
• Proximity to market
• Availability of raw materials, transportation, power, labor
▪ Climatic influences
• Community characteristics
• Taxes and inducements

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 Facilities Layout

▪ Fixed-Position Layout
▪ Project Organization
▪ Process Layout (Intermittent Organization)
▪ Product Layout (Continuous Manufacturing
Organization)

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 Facilities Layout

Fixed-Position Layout (Project Organization)

▪All resources needed for a product are brought
to a central location
Process Layout (Intermittent Organization)
▪Layout is organized into departments that group related processes
Product Layout (Continuous Manufacturing Organization)
▪Production is broken down into relatively simple tasks assigned to
workers positioned along a line

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 Technology
Basic underlying technology dictates each
industry’s transformation process

Computer Assisted Manufacturing

▪Manufacturing that employs specialized computer systems to guide and control
the transformation process
Flexible Manufacturing
▪The direction of machinery by computers to adapt to different versions of
similar operations
Computer-Integrated Manufacturing (CIM)
▪A complete system that designs products, manages machines and materials and
controls the operations function

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 Sustainability and Manufacturing

▪ Pressure has increased for manufacturing and

production systems to reduce waste and improve
sustainability
▪ Consumers prefer to purchase goods that were
manufactured in an environmentally-friendly facility

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 Green Manufacturing

• Has become a leader in green manufacturing

and sustainable practices
• Reuses parts of used products
• Designs products to be recyclable and reusable
• Over 90% of parts and materials from machines are
recyclable/reusable
• Less than 2% of materials are thrown away
Saves Xerox money and improves its reputation

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 Supply Chain Management

[ Connecting and integrating all parties

or members of the distribution
system in order to satisfy customers ]
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 Purchasing

Buying of all materials needed by the

organization
▪Desired quality
▪Correct quantities
▪Lowest cost
Otherwise known as Procurement

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 Inventory

All raw materials, components, completed

or partially completed products, and pieces
of equipment that a firm uses

Inventory Control
• Process of determining how many supplies and goods
are needed and keeping track of quantities on hand,
where each item is and who is responsible for it

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 Supply Chain Management

Economic Order Quantity Model

▪A model that identifies the optimum number of items to
order to minimize the costs for managing them (ordering,
storing and using)
Just-in-Time Inventory Management
▪Eliminates waste by using smaller quantities arriving “just in time” for
use in the transformation process.
Materials Requirements Planning
▪Planning system that schedules the precise quantity of materials needed
to make the product.

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Numi Organic Tea strives to achieve a
sustainable, eco-friendly supply chain
✔ Performs an annual Eco-Audit
✔ Tracks environmental impact of its manufacturing and
supply chain
✔ Offset all of its emissions in 2009
Honored by the Waste Reduction Awards Program 4 years
in a row

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 Outsourcing

▪ Increasingly a part of supply chain

management in operations
▪ Outsource aspects of operations to companies
that provide products more efficiently, at lower
cost, greater customer satisfaction.

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 Routing & Scheduling

Routing
▪Sequence of operations through which the product must
pass
Scheduling
▪The assignment of required tasks to departments or specific
machines, workers, or teams.

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 Program Evaluation and
Review Technique (PERT)

Identifies major activities required to

[ complete a project, determines the

critical path and estimates time needed
to finish
]
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Hypothetical PERT for a Hamburger

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 Quality

Degree to which a good or service meets

the demands and requirements of customers

▪A critical element of operations management

▪Determining quality can be difficult

Subjective based on consumers’ expectations and

perspectives

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 Malcolm Baldridge
National Quality Award
Criteria:
✔Leadership
✔Information and analysis
✔Strategic planning
✔Human resource development
✔Process management
✔Business results
✔Customer focus & satisfaction

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 Managing Quality

Quality Control
▪Processes an organization uses to maintain its established
quality standards.
Total Quality Management (TQM)
▪Philosophy that uniform commitment to quality will promote a culture
that meets customers’ perceptions of quality
Statistical Process Control
▪System to collect and analyze information about production processed
to pinpoint quality problems in the system

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 International Organization
for Standardization

(ISO) system of quality management

standards designed to ensure the customer’s
quality standards are met

❖ISO 9000: Quality assurance standards for product quality

under many conditions
❖ISO 14000: Uniform environmental standards for use by
global corporations to help businesses be cleaner, safer and
less wasteful

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 ISO System Categories

▪ Incorporates standards from 162 countries

▪ World’s largest developer and publisher of
international standards
▪ Plan, Do, Check, Act (PDCA) Cycle
• Operating principle for ISO
• Plan: Establish objectives
• Do: Implement plans
• Check: Measure results
• Act: Correct and improve plans

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 Inspection and Sampling

Inspection
▪Reveals whether a product meets quality standards.
Sampling
▪How many items should be inspected.
▪Depends on potential costs of product flaws in terms of
human lives and safety.

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