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Chapter

17
Operations Management

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After reading this chapter, you should be able to:

Learning Objectives

Define operations management and its three stages: inputs, transformation and disposition. Describe how operations management ensures supplies of inputs and an efficient production system. Use tools of operations management, including Gantt charts, PERT networks, and statistical process tools. Explain the role of quality management in the operations management process. Understand and apply the principles of quality management, kaizen, just-in-time manufacturing, and kanban to the production process.
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What is Operations Management?

Operations management is the process an organization uses to:
Obtain the materials or ideas for the product it provides. Transform the materials or ideas into the product. Provide the final product to a user.

Operations management is closely linked to:

Strategic Management (Chapter 7) Planning (Chapter 5) Information Systems Management (Chapter 18)

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Skills for Operations Management

Organization Skills Analytical Problem Solving Skills Communication Skills

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The Operations Management Process

I nput s
Raw materials Labor Energy Knowledge

C onversi on
Facility Capacity Process Control

O ut s put
Goods Services Information

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Planning in Operations Management

Planning is the foundation of operations management. Planning the management function that assesses the management environment to set future objectives and map out activities necessary to achieve those objectives.

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Strategic Planning
Strategic management decisions involved in operations management: Make-buy analysis: whether to produce an item or to purchase it. Capacity: firms ability to produce the product during a given period. Facilities: design and location of an operations facility. Process: how a product or a service will be produced. Facilities layout design: physical arrangement that allows for efficient production.
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Acquiring Inputs
Inputs are the supplies needed to create a product. Materials requirements planning: analyzing a design to determine the materials and parts required in the production process. Inventory: the stock of raw materials, inputs, and component parts that the firm keeps on hand.
Reordering systems: the process used to help keep inventory levels more or less consistent.
Fixed point reordering system Fixed interval reordering system

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The Conversion Process

Conversion process: the stage in which the products inputs are converted to the final product. An effective conversion process:
Works to lower the cost of creating the product; or to Create a better product for the same cost.

Key decision areas:

Designing the process Monitoring the process

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Designing the Process

Process design begins with analyzing the general operation and identifying:
Every major step that needs to be done. The order that the steps must take. The flow of the steps from start to finish (including their relationship to each other). The amount of time each individual step requires.

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Example of Process Analysis Information

Step A. Get permit B. Order equipment C. Paint interior D. Install electrical fixtures E. Install floors F. Install equipment G. Test equipment
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Order Relation to Other Steps 1 1 2 3 4 5 6 None None None Following C Following C Following B, E Following F

Time 4 weeks 1 week 2 weeks 1 week 1 week 1 week 1 week

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Process Design Tools

Gantt Charts: provide a visual sequence of the process steps. Load Charts: type of Gantt chart based on departments or specific resources that are used in the process. Program Evaluation and Review Technique (PERT) Network: tool for analyzing the conversion process.
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Example of a Gantt Chart

WEEKS
Start 1 2 3 4 5

Get permit Order baking equipment Paint interior Install electrical fixtures Install floors Install baking equipment Test equipment

--------------------------------------------------------------------------------------------------------------------------------------------

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Example of a Load Chart

WEEKS
Start 1 2 3 4 5

Office Staff Order department Painter Electrician Carpenter

-------------------------------------------------------------------------------------------------------------

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Example of a PERT Network

Get permit
1 4 1

Start

1 1

Order baking equipment

1

Install baking equipment

1 1

Test equipment

Paint interior

Install electrical fixtures

Install floors

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Facilities Layout
Facilities layout - the grouping and organization of equipment and employees
Product layout - where each function is performed in a fixed sequence Process layout - where each work station is relatively selfcontained Fixed position layout - where remote work stations assemble components, and they are then brought to a final assembly area

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Flexible Manufacturing
Flexible manufacturing techniques that help reduce the setup costs associated with the production system
computer aided design, engineering, and manufacturing tools make the work process more flexible

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Process Monitoring Tools

A ccept ance Sam plng i

St i i atstcal Process C ont rol

Tot Fact al or Productviy i t

Partal i Productviy i t

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Statistical Process Control Tools

C heck Sheet s Paret A nal s o ysi

Process Fl ow A nal s ysi C auseandEf ectD i f agram s Process C apabiiy lt M easures

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C ont C hart rol s

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Disposition of the Product

The end result of the operations process is the product a good or a service. Operations management includes customer fulfillment process. Order review / release (ORR) activity: used to evaluate and track the order through the process:
Creating order documentation Material checking Capacity evaluation Load leveling

The order must be checked to verify it is complete.

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Managing Quality
Top management must make improvement in productivity a strategic objective of the firm. Top management must also be sure that managers from different areas of the firm work together to increase efficiency. A more efficient production process lowers production costs, increases profitability, may lead to lower prices, and attract new customers. W. Edwards Deming is considered the father of quality management.
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Managing Quality (continued)

The Quality Management Approach
Total Quality Management (TQM)

Kaizen (Continuous Improvement) and Efficiency Just-in-Time Systems Process Engineering

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Total Quality Management (TQM)

Continuous improvement of the production sequence should be one of the main objectives of operations management. Total Quality Management (TQM) based on the belief that all of an organizations activities need to be focused on improving its product. Four interrelated steps to quality:
Plan Do Check Act
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Total Quality Management (TQM)

(continued)

Management and TQM

Correct variances in operations management by using TQM principles to find and correct their source.

Employees and TQM

Operations managers must be sure their employees understand what TQM means and that each worker is responsible for improving quality. Managers must also be willing to act on any suggestions or problems that employees identify. Quality circles.
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Total Quality Management (TQM)

(continued)

Customers and TQM

Operations management can focus on improving the quality gap the difference between what customers want and what they actually get from the company.

Suppliers and TQM

Suppliers are seen as partners with the firm.

TQM and the Production Process

Operations management uses TQM techniques to focus on, and improve the production process.

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Kaizen (Continuous Improvement) and Efficiency

The Japanese process of continuous improvement in the organizations production system from numerous small, incremental improvements in production processes. One of the main principles of kaizen is reducing waste in materials, inventory, production steps, and activities that do not add value. Three steps:
Maintenance Kaizen Innovation
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Just-in-Time (JIT) Systems

Just-in-time (JIT) the concept behind creating the firms product in the least amount of time. Close coordination between manufacturers, suppliers, and customers. The firms inventory of inputs are kept at the lowest level possible. Inputs arrive at the organization when, not before, they are needed.
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Kanban
A form of JIT system originated in Japan Uses cards to generate inventory From the Japanese word for card or sign small batches of components to assembly line as needed

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Process Reengineering
Method of changing the entire production process rather than making incremental changes. The firm (including its operations management) is viewed as a complete process. Involves fundamentally rethinking and radically redesigning the entire process including:
Cutting out steps that are not needed. Reducing paperwork.

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Applications: Management is Everyones BusinessFor the Manager

Quality-centered management of operations is the key to remaining competitive and can lead to the survival of the organization. Effective managers understand and utilize the concepts and techniques of operations management.

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Applications: Management is Everyones BusinessFor Managing Teams

Team members need the technical skills involved in measurement and evaluation. Team members also need interpersonal skills so that the team structure facilitates rather than gets in the way of improving production processes.

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Applications: Management is Everyones BusinessFor Individuals

Workers must understand the objectives of the organization and how they are adding value to the process. Individuals make the difference in performance. Errors, waste, and poor productivity are simply not acceptable in todays competitive market.

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