Chapter

Twenty One
Managing
Operations, Quality,
and Productivity
Slide content created by Charlie Cook, The University of West Alabama
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 Learning Objectives
After studying this chapter, you should be able to:
1. Describe and explain the nature of operations management.
2. Identify and discuss the components involved in designing
effective operations systems.
3. Discuss organizational technologies and their role in operations
management.
4. Identify and discuss the components involved in implementing
operations systems through supply chain management.
5. Explain the meaning and importance of managing quality and total
quality management.
6. Explain the meaning and importance of managing productivity,
productivity trends, and ways to improve productivity.

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 The Nature of Operations
Management
• Operations Management
– The set of managerial activities used by an
organization to transform resource inputs into
products, services, or both.
• The Importance of Operations
– Efficient and effective management of operations
is necessary for competitiveness and overall
organization performance.
– Operations management creates value and utility
through the production of products and services.

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 The Nature of Operations
Management (cont’d)
• Manufacturing and Production
– Manufacturing
• A form of business that combines and
transforms resource inputs into tangible
outcomes that are then sold to others.

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 The Nature of Operations
Management (cont’d)
• Service Operations
– Service organization
• An organization that transforms resources into
an intangible output and creates time and place
utility for its customers.

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 The Nature of Operations
Management (cont’d)
• The Role of Operations in Organizational
Strategy
– Operations management has a direct impact on
competitiveness, quality, productivity, and
effectiveness.
– Operations management and organizational
strategy have reciprocal effects on each other.
– Strategic goals cannot be met if there are
deficiencies and insufficiencies in operations
resources.

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Designing Operations Systems
• Determining Product-Service Mix
– Involves deciding how many and what kinds of
products to offer in the marketplace.
• Capacity Decisions
– Involve choosing the amount of products, services,
or both that can be produced by an organization.
– Can be high-risk decisions due to uncertainty
about future product demand and the significant
costs of additional, possibly excess, capacity.

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Designing Operations Systems
(cont’d)
• Facilities Decisions
– Facilities are the physical locations where products or
services are created, stored, and distributed.
• Location is the physical positioning or geographic site of
facilities.
• Layout is the physical configuration of facilities, the
arrangement of equipment within facilities, or both.
– Types of layouts
• Product layout
• Process layout
• Fixed-position layout
• Cellular layout

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 Figure 21.1: Approaches to
Facilities Layout

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 Organizational Technologies
• Manufacturing Technology
– Technology
• The set of processes and systems used by organizations to
convert resources into products or services.
– Automation
• The process of designing work so that it can be completely or
almost completely performed by machines.
– Computer-assisted manufacturing (CAM)
– Computer-aided design (CAD)
– Computer-integrated manufacturing (CIM)
– Flexible manufacturing systems (FMS)

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 Figure 21.2: A Simple
Automatic Control Mechanism

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 Organizational Technologies
(cont’d)
• Manufacturing Technology (cont’d)
– Robot
• Any artificial device that can perform functions ordinarily
thought to be appropriate for human beings.
– Robotics
• The science and technology of the construction,
maintenance, and use of robots.
• Service Technology
– Services are rapidly moving toward automated
systems
and procedures (e.g., automated teller machines).

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Implementing Operations Systems
Through Supply Chain
Management
• Supply Chain Management
– The process of managing operations control,
resource and inventory acquisition and
purchasing, and thus improving overall efficiency
and effectiveness.
• Operations Management as Control
– Operations management can be used as a control
by coordinating it with other organizational
functions to insure that the system focuses on the
elements that are most crucial to goal attainment.

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Implementing Operations Systems
Through Supply Chain
Management (cont’d)
• Purchasing Management (Procurement)
– Controlling the buying of the materials and resources
is at the heart of effective supply chain management.
• Inventory Management
– Inventory control (Materials control)
• Managing the organization’s raw materials, work-in-process,
finished goods, and products in-transit.
– Just-in-time (JIT) method
• An inventory system than has necessary materials arriving
as soon as they are needed (just in time) so that the
production process is not interrupted.

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 Table 21.1: Inventory Types,
Purposes, and Sources of Control

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 Managing Total Quality
• The Meaning of Quality
– The totality of features and characteristics of a
product or service that bear on its ability to satisfy
stated or implied needs.
– Quality is both a relative and absolute concept.
– Quality is relevant to both products and services.
• The Importance of Quality
– Malcolm Baldrige Award
• Named after a former secretary of commerce, this award
is given by the Commerce Department to firms that
achieve major quality improvements.

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 Table 21.2: Eight
Dimensions of Quality

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Managing Total Quality (cont’d)
• The Importance of Quality (cont’d)
– Competition
• Quality has become one of the most important competitive
points in business today.
– Productivity
• Quality enhancement programs decrease the number of
defects, reduce resources dedicated to rework, and reduce
the need for inspectors as employees become responsible
for quality.
– Costs
• Improved quality reduces costs from customer returns,
warranty, and lawsuits for faulty products, and lost sales to
future customers.

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 Figure 21.3: Total Quality
Management

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Managing Total Quality (cont’d)
• TQM Tools and Techniques
– Value-added analysis
– Benchmarking
– Outsourcing
– Reducing cycle time
– ISO 9000:2000 (quality), ISO14000 (environment)
– Statistical quality control (SQC)
• Acceptance sampling
• In-process sampling
– Six Sigma

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 Table 21.3: Guidelines for
Increasing the Speed of Operations

Source: From Fortune, February 13, 1989. Copyright © 1989 Time, Inc. All rights reserved.

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 Managing Productivity
• Productivity
– An economic measure of efficiency that summarizes
the value of outputs relative to the value of the
resources used to produce them.
• Levels of Productivity
– The unit of analysis used to calculate or define
productivity.
• Aggregate productivity
• Industry productivity
• Company productivity
• Unit productivity
• Individual productivity

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 Managing Productivity (cont’d)
Forms of Productivity

• Total factor productivity • Labor productivity

– An overall indicator of – A partial productivity ratio
how well an organization that uses only one
uses all of its resources category of resource
(i.e., labor, capital, (labor) to gage the
materials, and energy) to organization’s
create all of its products productivity in utilizing
and services. that resource.
Outputs Labor Outputs
Productivity = =
Inputs Productivity Direct Labor

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 Managing Productivity (cont’d)
• The Importance of Productivity
– It is a primary determinant of an organization’s level
of profitability and its ability to survive.
– It partially determines people’s standard of living
within a particular country.
• Productivity Trends
– The U.S. has the highest level of productivity in the
world, although the gap is closing as other countries
become more productive.
– Manufacturing productivity growth continues to
exceed that of the service sector.

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 Table 21.4: Manufacturing and
Service Productivity Growth Trends

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 Managing Productivity (cont’d)
• Improving Productivity
– Improving Operations
• Spending more resources on research and development helps
identify new products, new uses for existing products, and new
methods for making products.
• Reworking transformation processes and facilities can boost
productivity.
– Increasing Employee Involvement
• Increased employee participation can increase quality and
productivity.
• Cross-training of employees allows the firm to function with
fewer workers.
• Rewards are essential to the success in improving productivity.

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 Key Terms
• operations management • cellular layout
• manufacturing • technology
• service organization • automation
• product-service mix • computer-assisted
• capacity manufacturing
• facilities • robot
• location • supply chain management
• layout • purchasing management
• product layout • inventory control
• process layout • just-in-time (JIT) method
• fixed-position layout • quality

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 Key Terms (cont’d)
• Malcolm Baldrige Award • total quality
• value-added analysis management (TQM,
• benchmarking also called quality
• outsourcing assurance)
• cycle time
• ISO 9000:2000
• ISO 14000
• statistical quality control
(SQC)
• Six Sigma

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