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INTRODUCTION

to
Operations Management

Chapter 1, The Operations Function


Chapter Outline
• Definition of Operations Management
• Decisions at Pizza U.S.A.
• Operations Decisions - A Framework
• Cross-Functional Decision Making
• Operations as a System
• Contemporary Operations Themes

2
Definition of
Operations Management
•Operations is responsible for supplying the product
or serviceof the organization.
•Operations managers make decisions regarding
the operations function and its connection with
other functions.
•Operations managers plan and control the
production process and its interfaces within the
organization and with the external environment.

3
Key Points in OM Definition

Decisions the operations manager


must make

Functions in the organization.

Process for producing goods and


services
4
Major Decisions at Pizza USA
A Framework for OM
• Process
– How to produce & deliver
• Quality
– Criteria, measurement & process for
achieving
• Capacity
– Physical facilities & labor
• Inventory
– What, when & how much?

5
Cross-Functional
Decision Making
• Operations as the primary function.
• Other primary functions:
– Marketing
– Finance
• Supporting functions: all others
• Major cross-functional decisions (See
Table 1.1)

6
Operations as a Process

Inpu Transformation Outp


t (Conversion) ut
Process

7
Operations as a Process

Transformatio Transformatio
Inpu Outp
n n
t ut
Fabrication Assembly

Fabrication: making the parts


Assembly: putting the parts together

8
Operations as a Process
(Figure 1.1)

Ener
gy
Materi
als
L Transformation
Goods
abor (Conversion)
Capit or
Process
al Service
Informati
on
Feedback
information for
control of process
inputs
9
Relation of Operations to its
Environment
(Figure 1.2)
SOCIETY
External
Environm
Human
EngineeringMarketing ent
Resources

Supplie Operations transformation system CUSTOME


RS
rs
Accounting Finance MIS

COMPETITOR
GOVERNMENT S

10
Contemporary Operations
Themes
• Service and Manufacturing (differences
and implications)
• Customer-Directed Operations
• Time Reduction (Lean Operations)
• Integration of Operations and Other
Functions
• Environmental Concerns
• Supply Chain Management
• Globalization of Operations

11
Environmental Concerns
“Volkswagen, Germany’s biggest car
maker, was reported to be setting
aside DM1 billion ($470m) to pay
for compliance with a European
directive that will come into force
in 2007 forcing car makers to pay
for recycling their vehicles. New
cars will be
required to be 85% recyclable.”
--The Economist, 15 February 2001
12
Globalization: Who took my
job?
• Early 1990s
• Small town near Charlotte, NC
• Aluminum smelter closed after 50
years
• Only significant industry in town
• In many families, several generations
had worked there. Now all out of
work.
• Who caused it to close?
13
Miklós Németh
WHO!?!?!?
U.S. production of aluminum dropped dramatically
in the early 1990s because the Russians dumped
aluminum on the world market. Why? The opening
of the Hungarian border, 2 May 1989, led to the fall
of the Berlin Wall in November, 1989, which led to
the breakup of the Soviet Union in 1991, which
caused them to downsize their military, which gave
them overcapacity in aluminum production, which
caused them to dump in the world markets, which
led to the closing of U.S. smelters such as the one
near Charlotte, NC.

15
Miklós Németh
Was the Hungarian Prime
Minister who opened the
border on 2 May 1989.
Moral of the Story
In an age of globalization, you never
know who will be the competition or
who is doing something that will
affect your job or your life.

The aluminum workers in NC had


never heard of Miklós Németh, but he
ultimately cost them their jobs.
Summary
• Definition of Operations Management
• Decisions at Pizza U.S.A.
• Operations Decisions - A Framework
• Cross-Functional Decision Making
• Operations as a System
• Contemporary Operations Themes

18
End of Chapter One

19
OPERATIONS and SUPPLY
CHAIN STRATEGY
Chapter 2
Outline
1. Operations Strategy Model
2. Emphasis on Operations Objectives
3. Linking Strategies
4. Operations Competence
5. Global Scope of Operations

21
Operations Corporate strategy

Strategy Model
(Figure 2.1)
Business strategy

Operations
Internal Strategy Functional strategies
analysis Mission in
marketing, finance,
Distinctive engineering, human
Competence resources, and
External information systems
Objectives
analysis (cost, quality, flexibility,

Policies
(process, quality systems,
capacity,

Consistent pattern of decisions

Results
22
Distinctive Competence
“Something an organization does

better than any competing

organization that adds value for

the customer.”

23
Operations Strategic
Objectives
• Quality
• Flexibility—schedule or product change
• Delivery
– Time
– Reliability
• Cost efficiency

How does a firm use them to gain a


competitive advantage, and how do
they trade-off?
24
Examples of Important Policies in Operations (Table
2.2)

25
Linking Operations to Business
Strategies
• Business strategy alternatives
– Product imitator
• Operations must focus on keeping costs
low. (generic drugs)
– Product innovator
• Operations must maintain flexibility in
processes, labor and suppliers.
(Rubbermaid)

• Order qualifiers and Winners


– Qualifiers: why you consider the
product
– Winners: why you choose the product 26
Operations Competence

To be sustainable, a distinctive
competence must not only be
unique, it must be difficult to imitate
or copy.

27
Examples of Operations Distinctive
Competence
• Skills of employees
• Proprietary equipment or processes
• Rapid continuous improvement
• Well developed partnerships
• Location
• Organizational knowledge
• Proprietary information or control
systems
28
Global Scope of
Operations
• “Traditional” versus “Global”
company, i.e. companies operating in
one country vs. those operating in
many.
• Characteristics of “Global
Corporation”: facilities, products,
suppliers, transportation…
• Operations must have a global
distinctive competence.
29
Summary
• Operations Strategy Model
• Emphasis on Operations Objectives
• Linking Strategies
• Operations Competence
• Global Scope of Operations

30
End of Chapter Two

31
Product Design

Chapter 3
Outline
• DESIGN PROCESS
– Strategies for New-Product
Introduction
– New-Product Development Process
– Cross-Functional Product Design
• DESIGN TOOLS
– Quality Function Deployment
– Design for Manufacturing
• Value Analysis
• Modular Design
33
Why Does Operations Care?
• In the old days, “over the wall”
• Now
– must be able to make it
• technology
• availability of resources
– must have the capacity
– must deliver a quality product or service
– must decide inventory policies

34
Strategies for New-Product
Introduction

• Market Pull (“We Make What We Can


Sell”)
– food industry

• Technology Push (“We Sell What We


Can Make”)
– electronics

• Interfunctional View
– personal computers
35
New Product Development
Process
• Concept Development

• Product or Service Design

• Pilot Production/Testing

36
New Product Design Process (Figure
3.2)

Concept development

Product design Preliminary process design

Pilot production/testing Final process design

37
New Product Design Process

•To be ISO 9000 certified, an


organization must define and follow a
new product design process.
•ISO = International Organization for
Standards.
•We will talk about it more in Chapter 8.

38
Cross Functional Product Design (Figure 3.3)

39
40
Why Don’t Different Areas Cooperate?

• They don’t speak the same language.


• They have different performance
measures.
• They tend to have different personality
types, i.e. they don’t think alike.
• They are defensive about their own
turfs.
• They are in different physical locations.
• They “don’t have time.” 41
Quality Function Deployment
(QFD)
• Also known as “House of Quality”
• Developed in Japan in 1972.
• Tool for concurrent design of
products
• Customer Attributes (“Voice of the
Customer”)
• Engineering Characteristics (“Voice
of the Engineer”)
• Tradeoffs
• Competitors’ Comparison 42
HOUSE OF QUALITY (QFD)

43
Design for Manufacturing
(DFM)
• Value Analysis (or engineering)
– Simplification of products and
processes

• Modular Design
– Multiple products using common
parts, processes and modules.
44
Value Analysis

• Terms in Value Analysis:


– Objective: primary purpose of the product
– Basic Function: Makes the objective possible
– Secondary Function: How to perform the basic
function
• Value analysis seeks to improve the
secondary function, e.g. how to open a can
or make a tool box.

45
Objectives of Value Analysis
• Enhance the design of a good or service to
provide higher quality at the same price,
or the same quality at a lower price.

• Modify the design of production process to


lower the cost of a good or service while
maintaining or improving quality.

• In other words, improve the ratio of


usefulness (quality) to cost.

46
DFM: An Example

(a) The original (b) Revised (c) Final


design design design

Assembly using One-piece base & Design for push-and-


common elimination of snap
fasteners fasteners assembly

47
DFM: An Example (continued)

a. Original Design
• 24 different parts to assemble
• 7 unique parts to manage in inventory
c. Revised Design
• 4 different parts to assemble
• 3 unique parts to manage in inventory
e. Final Design
• 2 parts to assemble and manage

Question: How easy would it be to detect an assembly error


with each of the designs?

48
Modular Design
• Allows greater variety through ‘mixing and matching’
of modules

• Develops a series of basic product components


(modules) for later assembly into multiple products

• Reduces complexity and costs associated with large


number of product variations

• Easy to subcontract production of modules

49
Dana’s “Rolling Chassis”

A module they make for Chrysler.


50
Summary
• DESIGN PROCESS
– Strategies for New-Product
Introduction
– New-Product Development Process
– Cross-Functional Product Design
• DESIGN TOOLS
– Quality Function Deployment
– Design for Manufacturing
• Value Analysis
• Modular Design
51
End of Chapter Three

52
PROCESS SELECTION

Chapter 4
Chapter Outline
• Product-Flow Characteristics
• Classification by Type of Customer
Order
• Process Selection Decisions
• Product-Process Strategy
• Focused Operations
• Mass-customization
• Cross Functional Decision Making
54
Product-Flow Characteristics
• Types of Product Flow
– Line Flow
– Batch Flow
– Project Flow
• Characteristics of Flows (see Table
4.1)

55
Line Flow
(metal bracket, see fig. 4.1)

cut drill bend paint

Task or work
station
Product
flow
56
Batch Flow
(three metal brackets, see fig. 4.2)

Bend

Batch A
Cut Paint Batch B
Batch C

Drill

Task or work Product


station flows

57
Classification by Type of
Customer Order

• Make to Stock (MTS)


• Make to Order (MTO)
• Assemble to Order (ATO)

58
Make to Stock (MTS)
• Produce finished goods; customer
buys from inventory
• Advantage: smooth production
• Disadvantage: inventory
• Key performance measures (next
slide)

59
MTS Performance Measures
• Service level (orders filled when
requested)
• Inventory turnover (sales/avg.
inventory)
• Back order fill rate
• Inventory accuracy
• Time to replenish
• Others, such as shrinkage rate 60
Make to Order (MTO)
• Start production when customer
orders.
• Advantage: no finished goods
inventory
• Disadvantage: intermittent
production
• Key performance measures
– Lead time
– Orders completed on time (or late)
– Quality measures 61
Assemble to Order (ATO)
• Make parts and subassemblies; finish
when customer places order.
• Advantages: less inventory, faster
service
• Disadvantage: some WIP inventory
• Key performance measures
– speed of service
– inventory levels
– quality of product and service

62
MTS and MTO Comparison

63
Make-to-Stock (Figure 4-3)

Forecast
orders

custom Production
er

Customer Order
Product
Product
Finished Goods
Inventory

64
Make-to-Order (Figure 4-3)

custom
er
Customer
Order
Product

Production

65
Assemble-to-Order (Figure 4-
3)

Forecast
orders

custom Production of
er Subassemblie
s
Customer
order Subassembl
y
Product Assembly of Inventory
the Order of
Subassemblies

66
Process Selection Decisions
• Process characteristics matrix

• Factors affecting process choice

67
Process Characteristics Matrix (Table 4.3)

68
Factors Affecting Process
Choice
• Market conditions and
competition
• Capital requirements
• Labor supply and cost
• State of technology

69
Product-Process Strategy
• Strategy must consider not only the
product or service, but also how to
produce it.
• As many industries move through
their product life cycles, they also
move through a process life cycle.
e.g. the traditional bread bakery vs.
the modern automated bakery.

70
Product Life Cycle Stages
Low volume-low standardization, one
of a kind
Multiple products, low volume
Few major products, higher volume
High volume-high standardization,
commodity product

71
Process Life Cycle Stages
Jumbled flow (job shop)
Disconnected line flow (batch)
Connected line flow (assembly line)
Continuous flow

72
PRODUCT-PROCESS MATRIX (Figure
4.4)
PRODUCT STRUCTURE (Product Life
Cycle)
I II III III
Low volume-low Multiple Few major High volume-
standardization, products, products high
one low volume higher volume standardization,
I
Jumbled
flow Commercial
(job shop) Printer

II
PROCESS STRUCTURE (Process Life

NONE
Disconnecte
d Heavy
line flow Equipment
(batch)
III
Connected Automobile
line flow assembly
(assembly
line)
Sugar
IV Refinery
Continuous
Cycle)

flow NONE

73
Focused Operations
• Company may have products or
services with different volumes and
levels of standardization.
• Mixing them in the same operation can
cause significant problems.
• Focus involves separating different
products or services in the same
facility into PWPs.

74
Types of Focus
• Product focus
• Process type
• Technology
• Volume of sales
• Make-to-stock and make-to-order
• New products and mature products

75
Mass Customization

• Possible because of flexible


manufacturing

• Based on economies of scope instead


of economies of scale, i.e. a high
variety of products from a single
process.

76
Forms of Mass
Customization
• Mass-customized services (e.g.
Hertz)
• Modular production & ATO (e.g. Dell)
• Fast changeover (e.g. Motorola)
• Postponement (e.g. Hewlett-Packard)

77
Cross-Functional Decision Making
or, who has a stake in process choice?

• Marketing wants fast response to


customer demand
• Finance must find the funds to configure
the process
• HR must provide the properly skilled
workers
• IT must serve different data
requirements
• Accounting must be flexible in setting
78
Summary
• Product-Flow Characteristics
• Classification by Type of Customer
Order
• Process Selection Decisions
• Product-Process Strategy
• Focused Operations
• Mass-customization
• Cross Functional Decision Making
79
End of Chapter Four

80
Service Process Design

Chapter 5

81
Chapter 5: Outline
• Defining Service
• Service Guarantees/service recovery
• The Service-Product Bundle
• Cycle of Service
• Customer Contact
• Service Matrix
• Service/Profit Chain

82
The
Shift to
Service

83
Services in Europe

“The Service Sector accounts


for about 70 percent of the
European economy.”
Source: Wall Street Journal, 4 March 2005, p. A13

84
Definition of Service
Key Concepts

• No finished goods inventory


• Intangibility of the product
• Simultaneous production and consumption
• Difficulty in defining and measuring quality
and productivity
• Other Differences between Manufacturing and
Service (See Table 5.1)

85
Production of Services vs.
Goods
• Services are process focused.
• Customers served as first come, first served.
• Labor is scheduled, not the customer.
• Location often near customers.
• Result: service production tends to be less
efficient than production of goods.

86
Related Concepts
• Service guarantee
– Analogous to a guarantee for a product
– Requires specific criteria and responses
• Service Recovery
– What you do to compensate the customer for bad
service.

87
The Service/Product
Continuum
• Pure Service
– No product with intrinsic value involved. e.g. lawyer
• Service/Product bundle
– Combination of product with service (most common)
• Pure Product
– Very rare. Yard sale. Blacksmith.

88
Service-Product
Bundles
The Service-Product Bundles has three parts:

• physical goods (facilitating goods)—what


you can carry away

• tangible service (explicit service)—what the


seller does for you.

• psychological service (implicit service)—


how you feel about it.

89
Comparison of Goods and Services (Figure
5.1)

Good Servic
s es
1 75 50 25 0 25 50 75 1
00% % % % % % % % 00%

Self-service groceries
Automobile
Installed carpeting
Fast-food restaurant
Gourmet restaurant
Auto maintenance
Haircut
Consulting services

90
Moments of Truth
• Moment of Truth = customer contact with a
service system.
• Service is defined as the cumulative effect
of all the moments of truth.
• One failed moment of truth can cause
failure of the entire service.
• Therefore, service systems must be
designed as a whole, not in parts.

91
Moments of Truth
Examples from book:
• SAS airlines has 50,000 moments of
truth per day.
• Marriott hotels has 6,000,000 moments
of truth per day.

92
Cycle of Service for an Airline (Figure 5.2)
Customer
requests
Leav schedule Makes
es reserva
Airp tion
Recei
ve Arrive
Bagg s at
airpor
Depa
rts Checks
Plane baggage
Recei and
ves checks
in- in for
flight
Proceeds to
Boar gate
ds and security
aircr Receives
boarding
pass 93
Customer Contact (1)

• Definition of “contact”—interaction
between service provider and the customer.
Each “moment of truth” is a contact.

94
Customer Contact (2)
Potential inefficiency in services is a function of
the amount of customer contact
• Why?
– Customer determines the time
– Customer determines the order of service
– Customer influences what happens during the
service

95
Customer Contact (3)
• High contact (front room) services
– Direct customer contact
– Customer has control of process
• Low-contact (back room) services
– Out of sight of customer
– Provider has control of process
• Goal: move as much activity as possible to
the back room—why?

96
Service Matrix (Figure 5.3)

Degree of Interaction and


Customization
Lo H
w igh
Service Service
Lo factory shop
Degree of Labor

Airlines Hospitals
w Trucking Auto
Hotels repair
Resort and
intensity

Mass Professional
services Services
H Retailing Lawyers
igh Wholesaling Doctors
Schools Accountants
Retail aspects Architects
of
97
Links in the service-profit chain
(See Figure 5.4)

• Internal service quality, leads to…


• Employee satisfaction, leads to…
• Employee retention & productivity, lead to…
• External service value, leads to…
• Customer satisfaction, leads to…
• Customer loyalty, leads to…
• Revenue growth & profitability (the goal)

98
Summary
• Defining Service
• Service Guarantees/service recovery
• The Service-Product Bundle
• Cycle of Service
• Customer Contact
• Service Matrix
• Service/Profit Chain

99
End of Chapter Five

100
Choice of Technology

Chapter 6
Outline of Chapter 6
• Definition
• Computer-Integrated Manufacturing
• Automated Offices and Services
• Enterprise Resource Planning
Systems
• The Internet and the e-Business
• Technology Choice

102
Definition
“Technology is a set of processes, tools,
methods and equipment used to produce goods
and services.”
This is the technology of the production
process, not of the goods and services
themselves.
What is wrong with statement 2? In services,
we have simultaneous production &
consumption, so the two cannot be separated.

103
Computer Integrated
Manufacturing (CIM)
• “Factory of the Future”
• Computer Aided Design (CAD)
• Computer Aided Manufacturing (CAM)
– Group Technology (GT)
– Flexible Manufacturing Systems (FMS)
• Numerically Controlled (NC) Machines and Robotics
• Economies of Scope

104
Computer Aided Design
(CAD)
• Benefits to operations:
– Participate in concurrent design process
– Less proliferation of parts
– Shorter throughput time
– Faster implementation of engineering
changes
– Link to manufacturing process choices

105
Computer Aided Manufacturing
(CAM)
• Can streamline batch operations
– Use of group technology (GT)
• Can add flexibility (FMS)
– Multiple model auto production lines
• Computer-aided process planning
(CAPP)

106
Batch Layout

A B B
A A A
B B

C C D

C D

107
Group Technology Layout

A A C C

C B A D

B C D A

D D B B

108
U-Shaped Cell Layout

C B B C

A D A D

C B C B

A D D A = work
station

109
NC Machines & Robotics
• NC Machines are automated but don’t have
‘arms’ as robots do
– Early NC machines were mechanically
controlled
– Later controlled by tape
– Now controlled directly by computer
• e.g. computer controlled lathe
• Robots: can imitate human motions
– e.g. welding machines in auto plant
110
Automated Offices and
Services
• Transformation in offices: typical functions
– Handling messages
– Typing or keyboarding files
– Copying printed or electronic materials
– Filing
– Keeping a calendar

111
Impact on Services
• Bringing the industrial model (production
line approach) to services
• Services gaining efficiency of product focus
(e.g. ATM machines)
• Physical & geographic boundaries falling
(on-line banking, e-business)
• Making possible productivity increases in
services.

112
Automated Office
• Impact of automation on offices
– Changing role of secretaries
– Redistribution of work
– Different ways of interacting with
customers
– Decentralization

113
Pay for parking
with a mobile
phone

114
Enterprise Resource Planning
(ERP) Systems
• Integration of functions through
common database
– Forces standard systems throughout
company
• ERP as the backbone of Supply
Chain Management

115
Enterprise Resource Planning
(ERP) Systems
• Some ERP software vendors
– SAP (Systems, Applications & Products)
– Baan (was Dutch, now IBM)
– PeopleSoft (purchased by Oracle)
– J.D. Edwards (purchased by PeopleSoft)
– Oracle
• See: www.erpfans.com
116
The Internet and e-Business
• Growth of e-Business and B2B
Commerce
– Order entry, reverse auctions, etc.
• Business to Consumer (B2C)
• Types of e-Business (see Table 6.3):
e-Market companies (e-bay.com)
e-Service providers (travelocity.com)
e-Retailers and wholesalers (amazon.com)
e-Producers (Cisco)

117
Technology Choice (1)
• Role of technology strategy
– Must support enterprise strategy, e.g. is the
distinctive competence to be low price, product
variety, fast throughput……?
• Technology decision needs to be made with
the strategy & system in mind, not on a
machine by machine basis.

118
Technology Choice (2)
• Must provide minimally acceptable return on
investment
• Must consider the effect on the workers, i.e. socio-
technical system.
– Technological determinism
– Social & human consequences

119
Sociotechnical Design

al Desig
Sociotechnic
Socia n Technic
l al

120
Summary
• Definition
• Computer-Integrated Manufacturing
• Automated Offices and Services
• Enterprise Resource Planning
Systems
• The Internet and the e-Business
• Technology Choice

121
End of Chapter Six

122
Process-Flow Analysis

Chapter 7
Outline of Chapter 7
• Systems Thinking
• The Process View of Business
• Measuring Process Flows
• Flowchart Analysis
• Materials-Flow Analysis
• Information-Flow Analysis
• Service Blue Printing
• Business Process Reengineering (BPR)

124
Systems Thinking
• Definition of a “system”
– Whole > sum of parts
• Application of systems thinking to businesses
– “Can’t sell from an empty wagon.”
– Defining systems boundaries
• Role of “cross functional” teams in systems analysis
– Systems thinking requires cross-functional teams
to include all affected functions.

125
Process View of Business

126
Measuring Process Flows
• Little’s Law
– Relates number of items in the system to arrival
rate and length of time in the system.
– Formula:
I=TxR
I = average number in the system
T = average throughput time
R = average flow rate into the process
• Assumes system is in a ‘steady state’

127
Applications of Little’s Law
• Manufacturing
• Waiting lines
• Invoice processing
• Legal office transactions
• Accounts receivable processing
• Etc.

128
Measuring Process Flows
• Capacity of a system = capacity of the most
constraining resource.
– This resource is called a ‘bottleneck.’

• The flow rate of a process is the minimum of


– Supply
– Demand
– Capacity

129
Flow-Process Chart Analysis
• Purpose: to describe a process visually to find ways
of improving the current process.
– Find repetitive operations
– Identify bottlenecks
– Describe directions and distances of flows (people, material
and information)
– Reduce waste
• Required for certifications such as ISO9000.

130
Process Flow Analysis Might
Change:
• Raw materials
• Product (output) design
• Job design
• Processing steps used
• Management control information
• Equipment or tools
• Suppliers
• i.e. Anything but customers may be
changed!!

131
Steps in process flowchart analysis
using the systems approach
1. Select a process to study
2. Form a team to analyze & improve the
system
3. Decide on the objectives of the analysis
4. Define customers and suppliers
5. Flowchart the existing transformation
process
6. Develop improved process design
7. Gain management approval of the improved
design 132
Symbols for Flow-Process
Chart
Operation (a task or work
activity)

Inspection (an inspection of the product for


quantity or quality)

Transportation (a movement of material from


one point to another)

Storage (an inventory or storage of


materials
awaiting the next operation)
Delay (a delay in the sequence of
operations)

133
134
Questions to Ask in FPA
• What does the customer need?, operations are necessary? Can
some operations be eliminated, combined, or simplified?….
• Who is performing the job? Can the operation be redesigned to
use less skill or less labor? Can operations be combined to enrich
jobs? ….
• Where is each operation conducted? Can layout be improved?
….
• When is each operation performed? Is there excessive delay or
storage? Are some operations creating bottlenecks? …..
• How is the operation done? Can better methods, procedures, or
equipment be used? ….

135
Information Flow Analysis
• Purpose: to improve the efficiency and
effectiveness of the process.

• Types of information flow:


– Information is the product of operation
– Information is used for management control

136
Symbols for Information Processing Flow
Chart
Origin of record (used to identify an operation that involves the addition
of significant data to a blank form)

Subsequent writing (a step in which significant data is added to an existing


record)

Handling operations (any nonproductive step, such as sorting, stapling, or


folding)

Move (a step in which the record is transported from one person, department,
or work place to another)

Inspection (used when the step involves examination of the quality or


clearness of a record)

Delay, file, and destroy (identifies a point or time at which the record is
inactive

137
Service Blue Printing
• Flow charting of a service operation
• Shows the ‘cycle of service.’
• Points on SBP are “moments of truth”
• Ask the same questions as in PFA (what, who,
where, when, and how)

138
Business Process
Reengineering (BPR)
• BPR defined (Hammer and
Champy, 1993)
• BPR Philosophy
• Principles of BPR
• Success of BPR

139
BPR Defined
• BPR is “the fundamental rethinking
and radical redesign of business [or
organizational] processes to achieve
dramatic improvements in critical,
contemporary measures of
performance, such as cost, quality,
service and speed.”

140
BPR Defined
• This is in contrast to incremental
change or continuous improvement of
an existing process.
• “If I were recreating this company
today, given what I know and given
current technology, what would it look
like?”

141
BPR Philosophy
Does the reengineering consultant see the
glass as half full or half empty?

Neither.
It’s the wrong size of glass!
Or, should it be a glass? …or a liquid?

142
Principles of BPR
• Organize around outcomes
• Have the people who do the work, process
their own information
• Put the decision point where work is
performed and build control into the process
• Eliminate unnecessary steps in the process

143
The Success of BPR
• According to Hammer & Champy, 50-70
percent of the organizations attempting BPR
do not achieve the results they expected.
Why?
• Because they make one or more of the 17
common mistakes:

144
BPR Mistakes
• Trying to fix a process instead of changing it
• Not focusing on business processes
• Focusing only on the process redesign
• Neglecting people’s values & beliefs
• Settling for minor results
• Quitting too early
• Constraining the scope of the problem & effort
• Letting corporate culture & mgmt attitudes get in the way
• Trying to reengineer from the bottom up

145
BPR Mistakes (cont.)
• Assigning a leader who doesn’t understand BPR
• Skimping on the resources
• Not making BPR a top corporate priority
• Trying to do too much at once & dissipating resources.
• Concentrating only on design & not implementation.
• Trying to keep everyone happy.
• Pulling back if people resist.
• Dragging out the effort & taking too long.

Source: Hammer & Champy, Reengineering the Corporation, chapter 14.

146
Summary
• Systems Thinking
• The Process View of Business
• Measuring Process Flows
• Flowchart Analysis
• Materials-Flow Analysis
• Information-Flow Analysis
• Service Blue Printing
• Business Process Reengineering (BPR)

147
End of Chapter Seven

148
Managing Quality

Chapter 8
Chapter 8 Outline
• Quality Definitions
• Service Quality
• Quality Planning, Control, and Improvement
• The Quality Gurus
• ISO 9000 Standards
• Malcolm Baldrige Award
• Quality and Financial Performance
• Why Some Quality Improvement Efforts Fail

150
Quality
Meeting, or exceeding, customer
requirements now and in the future.

i.e. the product or service is fit for the


customer’s use

151
Dimensions of Quality
The
“Abilities”

Quality
of
QUALIT Field
Conformance Y Service

Quality
of
Design
152
Quality of Design

• Determined before the product is produced


• Translates the “wishes” of customers into
specifications
• Concurrent design through the QFD process.

153
Quality of Conformance

Producing a product to meet the


specifications
(independent of quality of design)

154
Abilities
• Availability (Continuity of service to customers)
• Reliability (Length of time that a product can be used before
it fails—MBTF)
• Maintainability (Restoration of the product or service once
it has failed—MTTR)

155
Field Service
• Warranty and repair or replacement of the
product after it has been sold.
• Also called customer service, sales
service, or just service
• Dimensions
– Promptness
– Competence
– Integrity

156
Different Types of Quality (Figure
8.1)
Quality of market research
Quality of Quality of concept
design Quality of specification
Technology
Quality of Employees
conformance Management
Customer
satisfactio Reliability
n Availability Maintainability
Logistical support
Promptness
Field Competence
service Integrity

157
Service Quality
• Service measures are perceptual or subjective
• SERVQUAL most popular measure
– Tangibles
– Reliability
– Responsiveness
– Assurance
– Empathy

158
The Quality Cycle
Concurrent Needs CUSTOMER Product
engineering team
Specifies quality needs
(QFD)

MARKETING
Interprets customer needs
Works with customer to
design product to fit
operations

Interpretation of
needs OPERATIONS
Produces the product
ENGINEERING Specifications or
Defines design concept services
Prepares specifications
Define quality QUALITY
characteristics CONTROL
Plans and monitors

159
Quality Cycle in Mass Transit System

County planning
Regional planning Rider’s
State transportation needs
agency

Operations office

Evaluation
Planner Routes Method Inspection Public
Scheduler Schedules Facilities Audits
Budgets Equipment Surveys
Hearings

160
Implementation of quality
improvement through the quality cycle
Define quality attributes on the basis of customer
needs
Decide how to measure each attribute
Set quality standards
Establish appropriate tests for each standards
Find and correct causes of poor quality
Continue to make improvements

161
The Quality Gurus
• W. Edwards Deming (1900-1993)

• Joseph Juran (1904- )

• Phillip Crosby (1926- 2001)

• plus many others

162
W. Edwards Deming
• The 14 Management Principles
• Advocate of statistical process control
• Emphasis on continuous improvement
• PDCA Wheel
• http://www.deming.org/

163
CI Methodology: PDCA Cycle
(Shewart/Deming Wheel)
1. Plan a change
4. Institutionalize aimed at
the change or improvement.
abandon or do
it again.
4. 1.
Act Plan

3. 2.
Check Do

3. Study the results; did 2. Execute the


it work? change.
164
Root Causes of Quality
Problems
• Text: “…most quality problems are caused by
poor systems, not by the workers.”
• Deming: 90 percent of quality problems are
caused by management.
• J.D. Power: at least 2/3 of the long-term quality
problems in autos are engineering and design
problems.

165
Joseph Juran
• Quality “Trilogy”—planning,
control and improvement
• Emphasis on management
• “Quality Handbook”
• 100 years old on 24 Dec 2004
• http://www.juran.com/main.html

166
Phillip
Crosby
• Zero defects
• 14-step quality implementation
program
• Emphasis on “conformance”
in the definition of quality
• Quality is Free
• http://www.philipcrosby.com/main.htm

167
Crosby’s Absolutes of
Quality Management

• Quality means conformance to requirements


• Problems are functional in nature
• There is no optimum level of defects
• Cost of quality is the only useful measurement
• Zero defects is the only performance standard

168
When 99.9% Quality is Not Enough (Table
8.2)

• Two million documents would be lost by IRS each year


• 22,000 checks would be deducted from the wrong bank
account in the U.S.
• 1,314 phone calls in the U.S. would be misrouted each
day
• 12 babies would be given to the wrong parents each day
• Two plane landings daily at O’Hare would be unsafe.
• The space shuttle would explode every time it is
launched.

169
How Much Quality is Enough?
• 1999: 98,000 deaths from medical errors in
the U.S., 7000 from medication errors.
• Only 80% of hospitals in the U.S. have
procedures in place to avoid operating on
the wrong body parts.
• IRS agents give bad or no information 43
percent of the time (in 2002 study by Dept.
of Treasury)

170
ISO 9000
• Guidelines for designing, manufacturing,
selling, and servicing products.
• Selecting an ISO 9000 certified supplier
provides some assurance that supplier follows
accepted business practices in areas covered
by the standard.
• Required by many companies, esp. in Europe,
before one can be a supplier.
• www.iso.ch

171
QS 9000
• Quality Standards for the U.S. automobile
industry.
• Imbeds ISO 9000 in many of its standards.

• http://www.os-9000.org

172
ISO 9000 Standards
Quality Management Principles

• Principle 1 Customer focus


• Principle 2 Leadership
• Principle 3 Involvement of people
• Principle 4 Process approach
• Principle 5 System approach to management
• Principle 6 Continual improvement
• Principle 7 Factual approach to decision making
• Principle 8 Mutually beneficial supplier relationships

173
ISO 14000
• Series of standards covering environmental
management systems, environmental auditing,
evaluation of environmental performance,
environmental labeling, and life-cycle assessment.
• Intent is to help organizations improve their
environmental performance through documentation
control, operational control, control of records,
training, statistical techniques, and corrective and
preventive actions.

174
Malcolm Baldrige
Award
• Established in 1987 to promote better quality
management practices and improved quality results by
American industry.
• Named for Malcolm Baldrige, former Secretary of
Commerce
• Given to at most two companies in each of five
categories (see next slide)
• Criteria and points (See Table 8.4 and the Web site:
http://baldrige.org/)

175
Categories for the Baldrige
Award
• Manufacturing companies or subsidiaries that
– produce and sell manufactured products or manufacturing
processes or
– produce agricultural, mining, or construction products.
• Service companies or subsidiaries that sell service
• Small businesses
• Health care organizations
• Educational institutions
The 2004 Baldrige Award recipients:
(60 applicants)

The Bama Companies, Tulsa, OK. (manufacturing category)

Texas Nameplate Company, Inc., Dallas, TX. (small business


category) [repeat winner. Also in 1998]

Kenneth W. Monfort College of Business, UNC, Greeley, CO.


(education category)

Robert Wood Johnson University Hospital Hamilton, Hamilton, NJ.


(health care category).

No Winner in the Service Category.


177
Quality and Financial
Performance
• Quality costs
– Prevention costs
– Appraisal Costs
– Internal Failure Costs
– External Failure Costs
• Incurring prevention costs can lead to avoiding or
reducing the other three.

178
How Quality Contributes to
Profitability
QUALITY
(Design and conformance)

Reduced Greater Greater


waste productivity Value

Lower
Costs Increased
market

Improved asset Improved


utilization margins Revenue
growth

IMPROVED PROFITABILITY

179
Reasons for Failure in Quality
Improvement Programs

• Focus on short-term financial results


• “Blame the employee” syndrome
• Belief in “tradeoffs” in quality (don’t believe
“quality is free”)
• Management interference with true teamwork
• Sloppy procedures and processes

180
More Reasons for Failure in Quality
Improvement Programs
• Lack of top management support
• Resistance to change
• Internal politics and rivalries
• Belief the quality is just the latest buzz word
• Insufficient training
• Management mobility

181
Summary
• Quality Definitions
• Service Quality
• Quality Planning, Control, and Improvement
• The Quality Gurus
• ISO 9000 Standards
• Malcolm Baldrige Award
• Quality and Financial Performance
• Why Some Quality Improvement Efforts Fail

182
End of Chapter Eight

183