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Chapter 1
Introduction to the Field

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OBJECTIVES
    

 

Operations Management Why Study Operations Management? Transformation Processes Defined Operations as a Service The Importance of Operations Management Historical Development of OM Current Issues in OM

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What is Operations Management? Defined
Operations management (OM) is defined as the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services

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. Inc. All .4 Why Study Operations Management? Systematic Approach to Org. Processes Business Education Operations Management Career Opportunities Cross-Functional Applications McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.

5 What is a Transformation Process? Defined A transformation process is defined as a user of resources to transform inputs into some desired outputs McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.. Inc. All .

All McGraw-Hill/Irwin .6 Transformations       Physical--manufacturing Locational--transportation Exchange--retailing Storage--warehousing Physiological--health care Informational--telecommunications © 2006 The McGraw-Hill Companies. Inc..

. All McGraw-Hill/Irwin .” (True or false?) © 2006 The McGraw-Hill Companies. it won’t hurt you.7 What is a Service and What is a Good?  “If you drop it on your foot. Inc.” (Good or service?)  “Services never include goods and goods never include services.

8 OM in the Organization Chart Finance Operations Operations Operations Operations Manager Manager Marketing Plant Plant Manager Manager Director Director Manufacturing.. Production control. Inc. Engineering. All . Maintenance. Engineering. etc Purchasing. Maintenance. Production control. Quality assurance. etc McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. Quality assurance. Purchasing. Manufacturing.

9 Core Services Defined Core services are basic things that customers want from products they purchase McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.. Inc. All .

. Inc. All .10 Core Services Performance Objectives Quality Flexibility Operations Managemen t Speed Price (or cost Reduction) McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.

Inc.. All .11 Value-Added Services Defined Value-added services differentiate the organization from competitors and build relationships that bind customers to the firm in a positive way McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.

All .. Inc.12 Value-Added Service Categories Problem Solving Information Operations Management Sales Support Field Support McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.

13 The Importance of Operations Management  Synergies must exist with other functional areas of the organization  Operations account for 60-80% of the direct expenses that burden a firms profit.. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. Inc. All .

All .14 Chapter 5 Process Analysis McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.. Inc.

All . Inc.15 OBJECTIVES  Process Analysis Process Flowcharting Types of Processes Process Performance Metrics    McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies..

Inc. All McGraw-Hill/Irwin .16 Process Analysis Terms    Process: Is any part of an organization that takes inputs and transforms them into outputs Cycle Time: Is the average successive time between completions of successive units Utilization: Is the ratio of the time that a resource is actually activated relative to the time that it is available for use © 2006 The McGraw-Hill Companies..

. Inc. and storage areas or queues It is an ideal methodology by which to begin analyzing a process © 2006 The McGraw-Hill Companies. decision points. flows of materials or customers. All McGraw-Hill/Irwin .17 Process Flowcharting Defined    Process flowcharting is the use of a diagram to present the major elements of a process The basic elements can include tasks or operations.

Inc. installing a customer. etc. engine in a car.18 Flowchart Symbols Purpose and Examples Tasks or operations Examples: Giving an Examples: Giving an admission ticket to a admission ticket to a customer. given to a customer. etc. Examples: How much Examples: How much change should be change should be given to a customer. be used. Decision Points McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.. etc. etc. All . installing a engine in a car. which wrench should which wrench should be used.

tool. Examples: Sheds. mechanic getting a mechanic getting a tool. etc. All .19 Flowchart Symbols Purpose and Examples Storage areas or queues Examples: Sheds. etc. etc. lines of people waiting lines of people waiting for a service.. Inc. Examples: Customers Examples: Customers moving to a seat. for a service. etc. Flows of materials or customers McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. moving to a seat.

20 Example: Flowchart of Student Going to School Go to school today? Yes Drive to school Walk to class No Goof off McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. Inc.. All .

All .21 Types of Processes Single-stage Process Stage 1 Multi-stage Process Stage 1 Stage 2 Stage 3 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.. Inc.

.Types of Processes (Continued) 22 A buffer refers to a storage area between stages where the output of a stage is placed prior to being used in a downstream stage Multi-stage Process with Buffer Buffer Stage 1 Stage 2 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. Inc. All .

Inc..Other Process Terminology  23 Blocking – Occurs when the activities in a stage must stop because there is no place to deposit the item just completed – If there is no room for an employee to place a unit of work down. the employee will remain idle until the next unit of work comes McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. All . the employee will hold on to it not able to continue working on the next unit  Starving – Occurs when the activities in a stage must stop because there is no work – If an employee is waiting at a work station and no work is coming to the employee to process.

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Other Process Terminology (Continued)

Bottleneck

– Occurs when the limited capacity of a process causes work to pile up or become unevenly distributed in the flow of a process – If an employee works too slow in a multistage process, work will begin to pile up in front of that employee. In this is case the employee represents the limited capacity causing the bottleneck.

Pacing
– Refers to the fixed timing of the movement of items through the process

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Other Types of Processes

Make-to-order
– Only activated in response to an actual order – Both work-in-process and finished goods inventory kept to a minimum

Make-to-stock
– Process activated to meet expected or forecast demand – Customer orders are served from target stocking level

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Process Performance Metrics

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Operation time = Setup time + Run time Throughput time = Average time for a unit to move through the system Velocity = Throughput time

Value-added time

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Inc. Cycle time   Efficiency = Actual output Standard Output © 2006 The McGraw-Hill Companies. All McGraw-Hill/Irwin .Process Performance Metrics (Continued)  27 Cycle time = Average time between completion of units Throughput rate = 1 ..

All . Inc..Process Performance Metrics (Continued) Productivity = Output Input Utilization = Time Activated Time Available 28   McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.800 minutes (60 minutes/hour x 80 hours) in 80 hours. to be: Cycle time = 4. What is the cycle time to meet this demand What is the cycle time to meet this demand requirement? requirement? Answer: There are 4.. So the minutes/hour x 80 hours) in 80 hours.800/600 units = 8 minutes. to meet the demand requirements of a product. Inc. So the average time between completions would have average time between completions would have to be: Cycle time = 4.800/600 units = 8 minutes.Cycle Time Example 29 Suppose you had to produce 600 units in 80 hours Suppose you had to produce 600 units in 80 hours to meet the demand requirements of a product.800 minutes (60 Answer: There are 4. All .

30 Process Throughput Time Reduction  Perform activities in parallel Change the sequence of activities Reduce interruptions   McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. All .. Inc.

All . Inc..31 End of Chapter 5 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.

Inc.32 Chapter 8 Quality Management McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.. All .

33 OBJECTIVES Total Quality Management Defined  Quality Specifications and Costs  Six Sigma Quality and Tools  External Benchmarking  ISO 9000  Service Quality Measurement  McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. All .. Inc.

Total Quality Management (TQM)  34 Total quality management is defined as managing the entire organization so that it excels on all dimensions of products and services that are important to the customer McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. All . Inc..

 Conformance quality: Degree to which the product or service design specifications are met McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. Serviceability. Aesthetics. Inc. Features. Reliability/Durability. and Perceived Quality..35 Quality Specifications  Design quality: Inherent value of the product in the marketplace – Dimensions include: Performance. All .

Inc. All .Costs of Quality Appraisal Costs 36 External Failure Costs Costs of Quality Prevention Costs Internal Failure Costs McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies..

“six sigma” refers to the variation that exists within plus or minus three standard deviations of the process outputs McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.. All .37 Six Sigma Quality    A philosophy and set ofmethods companies use to eliminate defects in their products and processes Seeks to reduce variation in the processes that lead to product defects The name. Inc.

000.of units  forerror per   unit    McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.000 of  Number   opportunit  ies xNo. All ..Six Sigma Quality (Continued)  38 Six Sigma allows managers to readily describe process performance using a common metric: Defects Per Million Opportunities (DPMO) DPMO = Number defects of x1. Inc.

for every one million letters million letters delivered this delivered this city’s postal city’s postal managers can managers can expect to have expect to have 1.Six Sigma Quality (Continued) Example of Defects Per Million Example of Defects Per Million Opportunities (DPMO) calculation.000 letters incorrectly sent incorrectly sent to the wrong to the wrong address. Inc.. What is the DPMO in this situation? DPMO in this situation? So. Suppose we observe 200 letters Suppose we observe 200 letters delivered incorrectly to the wrong delivered incorrectly to the wrong addresses in a small city during a addresses in a small city during a single day when a total of 200. What is the letters were delivered.000 single day when a total of 200. All .000. 39 DPMO = 200 [ 1] x1. for every one So.000 Cost of Quality: What might that DPMO mean in terms Cost of Quality: What might that DPMO mean in terms of over-time employment to correct the errors? of over-time employment to correct the errors? McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.000 letters were delivered. Opportunities (DPMO) calculation. 000 = x200.000 1. address.000 letters 1.

and     Control (DMAIC) Developed by General Electric as a means of focusing effort on quality using a methodological approach Overall focus of the methodology is to understand and achieve what the customer wants A 6-sigma program seeks to reduce the variation in the processes that lead to these defects DMAIC consists of five steps….40 Six Sigma Quality: DMAIC Cycle  Define. Improve. Measure. All . Inc. Analyze.. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.

Analyze (A) 4.. Improve (I) 5. Control (C) Customers and their priorities Process and its performance Causes of defects Remove causes of defects Maintain quality 41 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. Define (D) 2.Six Sigma Quality: DMAIC Cycle (Continued) 1. Inc. All . Measure (M) 3.

All . Inc.  What should we do?  McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. Consumer reports has just published an article that shows that we frequently have less than 15 ounces of cereal in a box..42 Example to illustrate the process… We are the maker of this cereal.

Inc.  McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies..43 Step 1 . All .Define What is the critical-to-quality characteristic?  The CTQ (critical-to-quality) characteristic in this case is the weight of the cereal in the box.

Inc.Measure How would we measure to evaluate the extent of the problem?  What are acceptable limits on this measure?  McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. All .44 2 ..

8 ounces  Lower Tolerance Limit = 16 – .  Upper Tolerance Limit = 16 + .2 ounces  McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. Inc.05(16) = 16. All .05(16) = 15.45 2 – Measure (continued) Let’s assume that the government says that we must be within ± 5 percent of the weight advertised on the box..

46 2.529 ounces. Measure (continued) We go out and buy 1.  What percentage of boxes are outside the tolerance limits?  McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. All ..000 boxes of cereal and find that they weight an average of 15. Inc.875 ounces with a standard deviation of .

529 = -1.875 Std. = (15.875)/..2 – 15.276) = . = . Dev.529 Upper Tolerance = 16.47 Lower Tolerance = 15. 10 percent of the boxes have less than 15.e.2 Process Mean = 15.100978 Approximately. less than 15. All .276 NORMSDIST(Z) = NORMSDIST(-1.2 oz)? Z = (x – Mean)/Std. Inc.8 What percentage of boxes are defective (i. Dev.2 Ounces of cereal in them! McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.

How can we improve the capability of our cereal box filling process? – Decrease Variation – Center Process – Increase Specifications McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. Inc..Analyze .48 Step 3 . All .

Inc..49 Step 4 – Improve – How good is good enough? Motorola’s “Six Sigma” – 6σ minimum from process center to nearest spec 12σ 6σ 3 2 1 0 1 2 3 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. All .

Inc. implies 3.5σ shift in either direction from center (process will move). All .. 12σ 3 2 1 0 1 2 3 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.50 Motorola’s “Six Sigma”   Implies 2 ppB “bad” with no process shift With 1.4 ppm “bad”.

Inc.51 Step 5 – Control  Statistical Process Control (SPC) – Use data from the actual process – Estimate distributions – Look at capability ..is good quality possible – Statistically monitor the process over time McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. All .

Inc.. All McGraw-Hill/Irwin .52 Analytical Tools for Six Sigma and Continuous Improvement: Flow Chart Material Received from Supplier Inspect Material for Defects No. Continue… Defects found? Yes Can be used to Can be used to find quality find quality problems problems Return to Supplier for Credit © 2006 The McGraw-Hill Companies.

44 1 2 3 4 Time (Hours) 5 6 7 8 9 10 11 12 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies..58 0.54 0.56 0. All .53 Analytical Tools for Six Sigma and Continuous Improvement: Run Chart Can be used to identify Can be used to identify when equipment or when equipment or processes are not processes are not behaving according to behaving according to specifications specifications Diameter 0.46 0.48 0. Inc.52 0.5 0.

Purch. Training McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.54 Analytical Tools for Six Sigma and Continuous Improvement: Pareto Analysis Can be used Can be used to find when to find when 80% of the 80% of the problems problems may be may be attributed to attributed to 20% of the 20% of the causes causes 80% Frequency Design Assy. Instruct.. All . Inc.

. Inc. All .Analytical Tools for Six Sigma and Continuous Improvement: Checksheet Can be used to keep track of Can be used to keep track of defects or used to make sure defects or used to make sure people collect data in a people collect data in a correct manner correct manner 55 Monday Billing Errors Wrong Account Wrong Amount A/R Errors Wrong Account Wrong Amount McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.

Inc.. All .Analytical Tools for Six Sigma and Continuous Improvement: Histogram Number of Lots Can be used to identify the frequency of quality Can be used to identify the frequency of quality defect occurrence and display quality defect occurrence and display quality performance performance 56 0 1 Data Ranges 2 3 4 Defects in lot McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.

57 Analytical Tools for Six Sigma and Continuous Improvement: Cause & Effect Diagram Possible causes: Possible causes: The results The results or effect or effect Machine Environment Method Man Effect Material Can be used to systematically track backwards to Can be used to systematically track backwards to find a possible cause of a quality problem (or find a possible cause of a quality problem (or effect) effect) McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. All .. Inc.

. All .Analytical Tools for Six Sigma and Continuous Improvement: Control Charts Can be used to monitor ongoing production process Can be used to monitor ongoing production process quality and quality conformance to stated standards of quality and quality conformance to stated standards of quality quality 1020 1010 1000 990 980 970 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 58 UCL LCL McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. Inc.

and evaluate risk of possible failures at each stage in the process  Design of Experiments (DOE) a statistical test to determine causeand-effect relationships between process variables and output  McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. estimate. Inc. prioritize.59 Other Six Sigma Tools Failure Mode and Effect Analysis (DMEA) is a structured approach to identify.. All .

Inc. Executive leaders must champion the process of improvement Corporation-wide training in Six Sigma concepts and tools Setting stretch objectives for improvement Continuous reinforcement and rewards Six Sigma Roles and Responsibilities McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. All . 4.60 1. 2. 3..

The Shingo System: Fail-Safe Design  61 Shingo’s argument: – – – SQC methods do not prevent defects Defects arise when people make errors Defects can be prevented by providing workers with feedback on errors  Poka-Yoke includes: – Checklists – Special tooling that prevents workers from making errors McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. Inc.. All .

Inc.62 ISO 9000  Series of standards agreed upon by the International Organization for Standardization (ISO) Adopted in 1987 More than 100 countries A prerequisite for global competition? ISO 9000 directs you to "document what you do and then do as you documented" © 2006 The McGraw-Hill Companies.. All     McGraw-Hill/Irwin .

All . Second party: A customer audits its supplier 3. First party: A firm audits itself against ISO 9000 standards 2.63 Three Forms of ISO Certification 1. Inc.. Third party: A "qualified" national or international standards or certifying agency serves as auditor McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies.

Analyze data McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. Contact the managers of that company and make a personal visit to interview managers and workers 4. Identify a firm that is the world leader in performing the process 3. Identify those processes needing improvement 2. Inc.External Benchmarking Steps 1. All 64 ..

Empathy. appearance of physical facilities.g.. Assurance. and Tangibles (e. equipment. etc. Responsiveness.. Inc.Service Quality Measurement:Servqual  65 A perceived service quality questionnaire survey methodology Examines “Dimensions of Service Quality” including: Reliability.)  McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. All .

Security/Privacy. Access. and Customization/Personalization © 2006 The McGraw-Hill Companies..Service Quality Measurement: Servqual (Continued)  66  New version of this methodology is called “e-Service Quality” dealing service on the Internet Dimensions of Service Quality on the eService methodology include: Reliability. Responsiveness. Efficiency. All McGraw-Hill/Irwin . Site Aesthetics. Flexibility. Ease of Navigation. Assurance/Trust. Price Knowledge. Inc.

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