*

Chapter Nine

*
Production
and
Operations
Management
of Goods and
Services

McGraw-Hill/Irwin Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
 *
SAMUEL J. PALMISANO Profile
IBM
*
• Current CEO and President of
IBM, he started in the company
in 1973.
• The company invested $16
billion in acquiring 60 other
companies.
• Switching the company’s focus
from production to service,
Palmisano has led IBM to enter
the emerging global market.
9-2
 *Manufacturing
MANUFACTURING in the U.S. and Services in
Perspective
LG1
*
• From 2001 to 2009, manufacturing output in the
U.S. rose 4% each year.

• The U.S. is still the world’s leading

manufacturer.
• Almost 25% of all
goods produced each
year come from the
U.S.

9-3
 *Manufacturing
WHAT’S MADE in the USA? and Services in
Perspective
Leading U.S. Manufactured Goods
LG1
*
Products Value Number of Employees
Chemicals – Pharmaceuticals,
cosmetics, soaps, paints, $250 Billion 830,000 Americans
fertilizers
Transportation Equipment –
$195 Billion Over 1.4 Million Americans
Cars, planes, trains, ships
Processed Foods, Beverages
and Tobacco – Cookies,
$175 Billion 1.7 Million Americans
coffee, cigarettes, prepared
meals
Computers and Electronics –
Computers and communication $146 Billion 1.2 Million Americans
equipment

Source: Parade Magazine, www.parade.com/intel, April 19, 2009.

9-4
 *Manufacturing
Exporters Extraordinaire and Services in
Perspective
Top Ten States that Manufacture Goods for Export
LG1
*
State Thousands of Workers
California 206.1
Texas 108.9
Ohio 95.6
Michigan 79.8
New York 77.2
Illinois 76.6
Pennsylvania 71.8
Washington 71.3
North Carolina 60.1
Indiana 59.6

Source: BusinessWeek, www.businessweek.com, November 12, 2007.

9-5
 *Manufacturing
MASSIVE MANUFACTURERS and Services in
Perspective
The Top Ten U.S. Manufacturers
LG1
*
Rank Company
1 Exxon-Mobil
2 Chevron
3 ConocoPhillips
4 General Electric
5 General Motors
6 Ford Motor
7 Valero Energy
8 Hewlett-Packard
9 IBM
10 Procter & Gamble

Source: Industry Week, www.industryweek.com.

9-6
 The “GREEN” MOVEMENT
*
IMPROVES the ECONOMY
(Thinking Green) *
• The Green Economy is worth more than $200
billion annually and is expected to reach $1
trillion by 2020.
• Consumers like products that say “all natural,”
“locally grown,” “energy efficient,” etc.
• The market for new green products and services
is almost endless.
• The Green Movement, however, is only
beginning.
9-7
 *Manufacturing
TOP PAYING SERVICE JOBS and Services in
Perspective
LG1
*
• The U.S. economy is no longer manufacturing
based.
• 85% of jobs are in the service sector.
• The top-paying service jobs in the U.S. are in:
- Legal services
- Medical services
- Entertainment
- Accounting
- Finance
- Management consulting
9-8
 * Manufacturers

REMAINING COMPETITIVE in and Service

Organizations
Become More
GLOBAL MARKETS Competitive
LG1
*
• U.S. is still the leader in nanotechnology and
biotechnology.
• How can U.S. businesses maintain a competitive
edge?
- Focusing on customers
- Practicing continuous improvement
- Focusing on quality
- Relying on the Internet to unite companies
- Adopting new production techniques.

9-9
 *
PRODUCTION and From Production
to Operations
Management
PRODUCTION MANAGEMENT LG2
*
• Production -- The creation of goods using land,
labor, capital, entrepreneurship and knowledge (the
factors of production).

• Production
Management -- All the
activities managers do to
help firms create goods.

9-10
 *From Production
OPERATIONS MANAGEMENT to Operations
Management
LG2
*
• Operations Management -- A specialized area in
management that converts or transforms resources
into goods and services.
• Operations management includes:
• Inventory management
• Quality control
• Production scheduling
• Follow-up services

9-11
 *Progress
PROGRESS ASSESSMENT Assessment

*
• What have U.S. manufacturers done to regain a
competitive edge?

• What must U.S. companies do to continue to

strengthen the country’s manufacturing base?

• What led companies to focus on operations

management rather than production?

9-12
 *Production
The PRODUCTION PROCESS Processes

LG3
*

9-13
 *Production
FORM UTILITY Processes

LG3
*
• Form Utility -- The value producers add to materials
in the creation of finished goods and services.

9-14
 *Production
GROVE’S BASIC PRODUCTION Processes
REQUIREMENTS
LG3
*
1. To build and deliver products in response to the
demands of the customer.
2. To provide an acceptable quality level.
3. To provide everything at the lowest possible
cost.

9-15
 *Production
PROCESS and ASSEMBLY in Processes
PRODUCTION LG3
*
• Process Manufacturing -- The part of production
that physically or chemically changes materials.
• Assembly Process -- The part of the production
process that puts together components.

9-16
 *Production
KEY PRODUCTION PROCESSES Processes

LG3
*
• Production processes are either continuous or
intermittent.
• Continuous Process -- Long production runs turn
out finished goods over time.
• Intermittent Process -- Production runs are short
and the producer adjusts machines frequently to
make different products.

9-17
 *Production
MADE in a MINUTE Processes
Production of Some of America’s Favorite Products
LG3
*

Number of Items
Product
Made in a Minute
Krispy Kreme Doughnuts 5,208
Chips Ahoy! Cookies 4,000
Twinkies 972
Jello Boxes 764
LifeSavers 100 rolls

9-18
 *The Need to
DEVELOPMENTS MAKING U.S. Improve Production
Techniques and

COMPANIES MORE COMPETITIVE

Cut Costs

LG3
*
1. Computer-aided design and manufacturing

2. Flexible manufacturing

3. Lean manufacturing

4. Mass customization

9-19
 *
COMPUTER-AIDED DESIGN and Computer-Aided
Design and
Manufacturing
MANUFACTURING LG3
*
• Computer-Aided Design
(CAD) -- The use of
computers in the design of
products.

• Computer-Aided
Manufacturing (CAM) --
The use of computers in the
manufacturing of products.

9-20
 *Flexible
FLEXIBLE MANUFACTURING Manufacturing

LG3
*
• Flexible Manufacturing -- Designing machines to
do multiple tasks so they can produce a variety of
products.

9-21
 *Lean
LEAN MANUFACTURING Manufacturing

LG3
*
• Lean Manufacturing -- Using less of everything
than in mass production.

• Compared to others, lean companies:

• Take half the human effort.
• Have half the defects in finished products.
• Require one-third the engineering effort.
• Use half the floor space.
• Carry 90% less inventory.

9-22
 *Mass
MASS CUSTOMIZATION Customization

LG3
*
• Mass Customization --
Tailoring products to meet the
needs of a large number of
individual customers.

• More manufacturers are

learning to customize.

• Mass customization exists

in the service sector too.

9-23
 *Progress
PROGRESS ASSESSMENT Assessment

*
• What’s form utility?
• Define and differentiate the following: process
manufacturing, assembly process, continuous
process and intermittent process.
• What do you call the integration of CAD and
CAM?
• What’s mass customization?

9-24
 *Operations
OPERATIONS MANAGEMENT Management
Planning
LG4
*
• Operations management planning helps solve
problems like:
- Facility location
- Facility layout
- Materials requirement planning
- Purchasing
- Inventory control
- Quality control

9-25
 *Facility
FACILITY LOCATION Location

LG4
*
• Facility Location --
The process of
selecting a geographic
location for a
company’s operations.

• Rising numbers of Internet businesses means

brick-and-mortar retailers must find great
locations.
9-26
 *
STAY or LEAVE
(Making Ethical Decisions)
*
• Potential of low-cost labor is very attractive to
companies hoping to remain competitive.

• However, shuttering operations and moving can

often cause severe economic problems in
dependent areas.

• What would you do if you were the CEO of

ChildrenWear Industries faced with this problem?

9-27
 * Taking
OPERATIONS MANAGEMENT Operations
Management to
on the INTERNET the Internet
LG4
*
• Sometimes businesses outsource engineering,
design and manufacturing to other companies.

• Often these relationships are managed through

the Internet.

• Many companies are developing Internet-focused

strategies.

9-28
 *
FUTURE FACILITY LOCATION Facility Location
in the Future

LG4
*
• Information technology gives firms increased
flexibility in terms of location.

• Telecommuting -- Working from home via

computer and modem.

9-29
 PARTNERING BEYOND
*
COUNTRY BORDERS
(Reaching Beyond Our Borders) *
• Dain Hancock of Lockheed Martin had the
formidable task of uniting 80 companies into a
single production unit.
• Using the Internet
and tech tools, like
electronic white
boards, kept the
companies in touch
in real time.

9-30
 *
SETTING UP the FACILITY Facility Layout

LG4
*
• Facility Layout -- The physical arrangement of
resources, including people, to most efficiently
produce goods and provide services.

• Facility layout depends on the processes

performed:
- Service: Help customers find products
- Manufacturing: Improve efficiency

9-31
 *
FACILITY LAYOUT OPTIONS Facility Layout

LG4
*
1. Assembly Line Layout – Workers do only a few
tasks at a time.

2. Modular Layout – Teams of workers produce more

complex units of the final product.

3. Fixed-Position Layout – Allows workers to

congregate around the product.

4. Process Layout – Similar equipment and functions

are grouped together.

9-32
 *
ASSEMBLY LINE LAYOUT Facility Layout

LG4
*

9-33
 *
MODULAR LAYOUT Facility Layout

LG4
*

9-34
 *
PROCESS LAYOUT Facility Layout

LG4
*

9-35
 *
FIXED-POSITION LAYOUT Facility Layout

LG4
*

9-36
 *Materials
MRP and ERP Requirement
Planning
LG4
*
• Materials Requirement Planning (MRP) -- A
computer-based operations management system that
uses sales forecasts to make sure parts and
materials are available when needed.

• Enterprise Resource Planning (ERP) -- A newer

version of MRP, combines computerized functions
into a single integrated software program using a
single database.

9-37
 *
PURCHASING Purchasing

LG4
*
• Purchasing -- The function that searches for high-
quality material resources, finds the best suppliers
and negotiates the best price for goods and services.

• The Internet has

transformed
purchasing.

9-38
 *
Just-in-Time
INVENTORY CONTROL Inventory Control

LG4
*
• Just-in-Time (JIT) Inventory Control -- The
production process in which a minimum of inventory
is kept and parts, supplies and other needs are
delivered just in time to go on the assembly line.

• To work effectively, the process requires

excellent coordination with suppliers.

9-39
 *
QUALITY CONTROL Quality Control

LG4
*
• Quality -- Consistently producing what the customer
wants while reducing errors before and after delivery.

• Six Sigma Quality -- A quality measure that allows

only 3.4 defects per million opportunities.

9-40
 *
STATISTICAL QUALITY CONTROL & Quality Control
STATISTICAL PROCESS CONTROL LG4
*
• Statistical Quality Control -- A process used to
continually monitor all phases of the production
process.

• Statistical Process Control -- A process of

testing statistical samples of product components at
each stage of production.

• Measuring quality along the production process

reduces the need for quality-control at the end.

9-41
 *
The BALDRIGE AWARDS The Baldrige
Awards
LG4
*
• Companies can apply for awards in these areas:
- Manufacturing
- Services
- Small Businesses
- Education
- Healthcare

9-42
 *
THE WINNERS ARE… The Baldrige
Awards
2008 Baldrige Award Recipients
LG4
*
• Cargill Corn Milling North America
Wayzata, Minnesota (Manufacturing)
• Poudre Valley Health System
Fort Collins, Colorado (Healthcare)
• Iredell-Statesville Schools
Statesville, North Carolina (Education)

Source: National Institute of Standards and Technology, www.quality.nist.gov.

9-43
 *ISO 9000 and
WHAT is the ISO? ISO 14000
Standards
LG4
*
• The International Organization for Standardization
(ISO) is a worldwide federation of national
standards bodies.

• ISO 9000 -- The common name given to quality

management and assurance standards.

• ISO 14000 -- A collection of the best practices for

managing an organization’s impact on the
environment.

9-44
 *Progress
PROGRESS ASSESSMENT Assessment

*
• What are the major criteria for facility location?

• What’s the difference between MRP and ERP?

• What’s just-in-time inventory control?

• What are Six Sigma quality, the Baldrige Award,

ISO 9000 and ISO 14000?

9-45
 * Control
Procedures:
PERT PERT and
GANTT Charts
LG5
*
• Program Evaluation and Review Technique
(PERT) -- A method for analyzing the tasks involved
in completing a given project and estimating the time
needed.

9-46
 * Control
Procedures:
STEPS INVOLVED in PERT PERT and
GANTT Charts
LG5
*
1. Analyzing and sequencing tasks
2. Estimating the time needed to complete each
task
3. Drawing a PERT network illustrating the first two
steps
4. Identifying the critical path

• Critical Path -- The sequence of tasks that

takes the longest time to complete.

9-47
 * Control
Procedures:
PERT CHART for a MUSIC VIDEO PERT and
GANTT Charts
LG5
*

9-48
 * Control
Procedures:
GANTT CHARTS PERT and
GANTT Charts
LG5
*

• Gantt Chart – A bar graph that shows what projects

are being worked on and how much has been
completed.

9-49
 * Control

GANTT CHART for a Procedures:

PERT and
GANTT Charts
DOLL FACTORY LG5
*

9-50
 *Progress
PROGRESS ASSESSMENT Assessment

*
• Draw a PERT chart for making breakfast of three-
minute eggs, buttered toast and coffee. Define
the critical path.

• How could you use a Gantt chart to keep track of

production.

9-51