Operations Management and Control Systems the key elements of total quality management (TQM) ......

Chapter 12 Copyright © 2010 by Nelson Education Ltd.

Operations

Management and

Control Systems

12

PowerPoint Presentation by

Ian Anderson, Algonquin College


Looking Ahead

After studying this chapter, you should be able to:

1. Discuss the nature of the operations process for both products and services.

2. Describe the need for management control systems.

3. Explain the key elements of total quality management (TQM) programs.

4. Explain how reengineering and other methods of work improvement can increase productivity and make a firm more competitive.

5. Discuss the importance of purchasing and the nature of key purchasing policies.

6. Describe ways to control inventory and minimize inventory costs.

12-2


The Operations Process

• The Nature of the Operations Process

–Operations management

• The planning and control of the operations process

– The activities that produce a firm’s goods and services

• Involves acquiring inputs and overseeing their

transformation in

products and services

12-3


The Operations Process

Inputs

Operations

Outputs

• Designing • Processing • Treating • Storing • Advising

• Fabricating • Refining • Assembling • Shipping • Instructing

Clothing

Baked goods

Paint

Dry cleaning

Appliance repair

Automobile painting

Products Services

Money Labour Equipment Information Energy Raw

Materials

Examples: Examples:

Exhibit 12-1


Manufacturing versus Service

• Manufacturing Versus Service Operations

–Productivity is more easily measured in manufacturing than service operations

–Quality is more difficult to establish in service than manufacturing operations.

–Customers are more involved in service than manufacturing operations.

–Manufacturing can produce goods for inventory; service operations cannot store or bank services.

12-5


Types of Manufacturing

• Job Shops –Operations characterized by short production runs of

small quantities of unique items.

• Repetitive Manufacturing –Operations in which long production runs are used to

produce a large quantity of a standardized product.

• Batch Manufacturing –An intermediate form involving more variety in volume

and products than job shops and less than repetitive manufacturing.

12-6


Planning and Scheduling

and Maintenance

• Operations Planning and Scheduling

–Attempting to achieve the orderly, sequential flow of products to market.

• Production operations

• Service operations

• Plant Maintenance

–The role of maintenance

• To correct equipment malfunctions and prevent breakdowns

–Types of maintenance

• Preventive maintenance

• Corrective maintenance 12-7


The Control Cycle

• Control Cycle

– A period of time over which an activity is planned,

measured, corrected, and re-planned

• Variance

– The difference between planned forecast activity

and actual activity

• Critical questions

– What, how and how often to measure?

– What is unacceptable variance and how to correct?

12-8


The Control Cycle Illustrated

Exhibit 12-2

12-9


Successful Quality Management

Supportive

Organizational

Culture

Appropriate

Tools and

Techniques

Focus on Customers

Essential Elements of

Successful Quality Management


Total Quality Management and Quality

Goals of Operations Management

• Total Quality Management (TQM)

–An aggressive, all-encompassing management approach

to providing high-quality products and services.

• Quality

–The features of a product or service that enable it to

satisfy customers’ needs.

–A perception of the customer as to the suitability of the

product or service of a firm.

12-11


Customer Focus on Quality Management

• Customer Expectations

–Quality is the extent to which a product or service satisfies customer’s needs and expectations.

• Product quality

• Service quality

• Product and service quality combinations

– ―The customer is the focal point of quality efforts.‖

• Customer Feedback

–Customers are the eyes and ears of the business for quality matters.

12-12


Benchmarking and TQM

• Benchmarking

–The process of studying the products, services, and

practices of other firms and using the insights gained to

improve quality internally.

–Identify best practices, understand them, and use the

insights gained to improve one’s operations

• Continuous Quality Improvement

–A constant and dedicated effort to improve quality.

12-13


Tools and Techniques of TQM

• Employee Participation

–Employee performance is a critical quality

variable.

–Quality circle

• A group of employees who meet regularly to discuss

quality-related problems.

12-14


Tools and Techniques of TQM

• The Inspection Process

–The examination of a product to determine whether it meets quality standards.

–Inspection standard

• A specification of a desired quality level and allowable tolerances.

–Attribute inspection

• The determination of product acceptability based on whether it will or will not work.

–Variable inspection

• The determination of product acceptability based on a variable such as weight or length.

12-15


Statistical Methods of Quality Control

• Acceptance Sampling –The use of a random, representative portion to determine

the acceptability of an entire lot.

• Statistical Process Control –The use of statistical methods

to assess quality during the operations process.

• Control Chart –A graphic illustration

of the limits used in statistical process control.

12-16


International Certification for

Quality Management

• ISO 9000

–The standards governing international certification of a

firm’s quality management procedures.

–QM variables include customer focus, leadership and

continual improvement

• ISO 14000

–A set of generic management standards for responsible

environmental management.

12-17


Quality Management in

Service Businesses

• Six factors positively influence customers’ perception of service quality

1. Being on target

2. Care and Concern

3. Spontaneity

4. Problem Solving

5. Follow up

6. Recovery

12-18


Competitive Strength Through

Improved Productivity

• The Importance of Improving Productivity

–Productivity is the efficiency with which inputs are transformed into outputs.

–Productivity is more difficult to increase in service industries than in manufacturing sectors.

Inputs

OutputstyProductivi

nInformatio Materials Raw Money Energy Labour

servicesand/or ProductstyProductivi

…continued

12-19


Competitive Strength Through

Improved Productivity

• Reengineering for Improved Productivity

–Reengineering

• A fundamental restructuring to improve the operations

process.

• Asking ―Why?‖ is important in the reengineering

process.

…continued

12-20


Avoid Failure in

Process Improvement

• Be customer focused

• Phase in improvements

• Involve the employees

• Divide the project up

• Communicate

12-21


Lean Manufacturing

• Three-pronged approach to:

1. Eliminate waste

2. Ensure quality

3. Involve employees in designing and managing their

work

• Key principles:

– Define value from the customer’s perspective

– Identify and map the value stream

– Reduce or eliminate waste or improve flow

12-22


Reducing or Eliminating Waste

• Stop overproduction for building inventory

• Prevent unnecessary use/storage of raw materials

• Streamline transportation

• Optimize motion and actions of personnel

• Reduce waiting and idle time in process

• Reduce or eliminate defects

• Reduce steps/features not valued by customers

12-23


Benefits of “Being Lean”

• Culture of continuous improvement

• Decreasing manufacturing cycle times

• Reducing waste

• Empowering employees

• Increasing profits and cash flow

• Increasing production capacity

• Increasing customer satisfaction

• Reducing costs

12-24


• Operations Analysis

–Laws of motion economy • Arranging work in the most cost-effective and efficient manner

possible.

• Methods of Work Measurement

–Motion Study • An analysis of all the motions a worker makes to complete a given

job.

–Time Study • A determination of the average time, it takes to complete

Work Improvement

12-25


Purchasing Policies and Practices

• Purchasing –The process of obtaining materials, equipment, and

services from outside.

• The Importance of Purchasing –The process of acquiring quality raw material inputs

affects:

• The timely and consistent production of quality products.

• Retailer sales of finished products to customers.

• The costs of products, their profitability and their selling prices.

12-26


Make or Buy Decisions

• Purchasing Practices and Profitability

–Making or buying

• A firm’s choice between producing and purchasing component parts for its products.

–Reasons for making:

• Increased utilization of plant capacity

• Assurance of supply of critical components

• Maintaining secrecy in designs and processes

• Saving on transportation costs and supplier profits

• Closer coordination and control of overall process

• Higher quality components for inputs

12-27


Outsourcing and

Reasons for Buying

• Purchasing Practices and Profitability

–Outsourcing

• Purchasing products or services that are outside the firm’s

area of competitive advantage.

–Reasons for Buying

• Supplier’s part/service is cheaper and/or higher quality

• Investment savings on space, personnel, equipment

• Greater flexibility in matching supply and demand

• Increased focus on production of core product/service

• No risk of equipment obsolescence

12-28


Sources of Supply

• Diversifying sources of supply

–Reasons for having a sole supplier

• Outstanding supplier quality

• Quantity discounts for volume purchases

• Single orders too small to divide among suppliers

• Quality of supplier-customer relationship

–Reasons for having multiple suppliers

• Choice of best quality, price, and service

• Supplier competes for business

• Insurance against input interruptions

12-29


Relationships with Suppliers

• Relationships with suppliers

–Selecting suppliers • Price and quality

• Location and delivery reliability

• Services offered—credit, product support, promotion

• Building good relationships with suppliers

–Purchasing practices • Pay bills promptly

• Be courteous to sales representatives

• Avoid abrupt cancellations of orders

• Maintain a professional relationship

• EDI

12-30


Strategic Alliances

• Developing Strategic Alliances

–Strategic alliance is an organizational relationship that

links two independent business entities in a common

endeavour. Involves close coordination of buyers and

sellers to:

• Reduce product introduction lead time

• Improve product quality

• Engage in joint problem solving

• Make joint adjustments to market conditions

• Involve the supplier early in product development

12-31


Inventory Management

and Operations

• Inventory Cost Control

–Economic order quantity (EOQ)

• The quantity to purchase in order to minimize total

inventory costs.

Total

inventory

costs

Total

ordering

costs

Total

carrying

costs = +

12-32


Graphic Portrayal of the

Economic Order Quantity

EOQ Total Costs

Ordering Costs

Carrying Costs

Order Quantity (Units)

Cost ($)

Exhibit 12-3


Inventory Management and Operations

• ABC Inventory Analysis

–A system of classifying items in inventory by relative value

–Category A (close/continuous control)

• High-value or critical production component items

–Category B (moderate control)

• Less costly, secondary importance items

–Category C (periodic control)

• Low-cost and noncritical items

…continued

12-34



• Just-In-Time Inventory (JIT) System, also Kanban

–A method of reducing inventory level to an absolute

minimum.

• New items arrive at the same time that the last inventory

item is placed in service

–JIT promotes:

• Closer coordination with suppliers

• Consistent quality production

• Lower safety stock levels

…continued

12-35



• Inventory Record-Keeping Systems

–Physical inventory system

• A method that provides for periodic counting of items in inventory

–Cycle counting

• A system of counting different segments of the physical inventory at different times during the year.

–Perpetual inventory

• A method for keeping a running record of inventory.

12-36

Operations Management and Control Systems the key elements of total quality management (TQM) ......

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