1

Chapter 1

Introduction to the Field

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 2

OBJECTIVES
 Operations Management
 Why Study Operations Management?
 Transformation Processes Defined
 Operations as a Service
 The Importance of Operations
Management
 Historical Development of OM
 Current Issues in OM

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 3

What is Operations Management?

Defined
Operations management (OM) is
defined as the design, operation,
and improvement of the systems
that create and deliver the firm’s
primary products and services

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 4

Why Study Operations

Management?
Systematic Approach
to Org. Processes

Business Education Operations Career Opportunities

Management

Cross-Functional
Applications

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 5

What is a Transformation
Process?

Defined
A transformation process is defined
as a user of resources to transform
inputs into some desired outputs

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Transformations
 Physical--manufacturing
 Locational--transportation
 Exchange--retailing
 Storage--warehousing
 Physiological--health care
 Informational--telecommunications

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 7

What is a Service and What is a

Good?

 “If you drop it on your foot, it won’t

hurt you.” (Good or service?)

 “Services never include goods and

goods never include services.” (True
or false?)

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 8

OM in the Organization Chart

Finance Operations
Operations Marketing

Plant
Plant Operations
Operations Director
Director
Manager
Manager Manager
Manager

Manufacturing,
Manufacturing, Production
Production control,
control,
Quality
Quality assurance,
assurance, Engineering,
Engineering,
Purchasing,
Purchasing, Maintenance,
Maintenance, etc
etc

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 9

Core Services
Defined

Core services are basic things

that customers want from
products they purchase

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 10

Core Services Performance Objectives

Quality

Operations
Flexibility Speed
Managemen
t

Price (or cost

Reduction)

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 11

Value-Added Services
Defined
Value-added services
differentiate the organization
from competitors and build
relationships that bind
customers to the firm in a
positive way

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 12

Value-Added Service Categories

Problem Solving

Operations Sales Support

Information
Management

Field Support

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The Importance of
Operations Management

 Synergies must exist with other

functional areas of the
organization
 Operations account for 60-80%

of the direct expenses that

burden a firms profit.

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 14

Chapter 5

Process Analysis

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 15

OBJECTIVES
 Process Analysis

 Process Flowcharting

 Types of Processes

 Process Performance Metrics

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Process Analysis Terms

 Process: Is any part of an organization

that takes inputs and transforms them
into outputs
 Cycle Time: Is the average successive
time between completions of
successive units
 Utilization: Is the ratio of the time that a
resource is actually activated relative to
the time that it is available for use

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Process Flowcharting
Defined
 Process flowcharting is the use of a
diagram to present the major elements
of a process
 The basic elements can include tasks or
operations, flows of materials or
customers, decision points, and storage
areas or queues
 It is an ideal methodology by which to
begin analyzing a process

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 18

Flowchart Symbols
Purpose and Examples
Tasks or operations Examples:
Examples: Giving
Givingan an
admission
admissionticket
ticket to
toaa
customer,
customer, installing
installingaa
engine
enginein
inaacar,
car, etc.
etc.

Decision Points Examples:

Examples: How
Howmuch
much
change
changeshould
shouldbebe
given
givento
toaacustomer,
customer,
which
whichwrench
wrenchshould
should
be
be used,
used, etc.
etc.

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Flowchart Symbols
Purpose and Examples
Storage areas or Examples:
Examples: Sheds,
Sheds,
queues lines
linesofof people
people waiting
waiting
for
for aaservice,
service, etc.
etc.

Flows of Examples:
Examples: Customers
Customers
materials or moving
moving to toaa seat,
seat,
customers mechanic
mechanicgetting
gettingaa
tool,
tool, etc.
etc.

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 20

Example: Flowchart of
Student Going to School

Go to Yes
Drive to Walk to
school school class
today?

No

Goof
off

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 21

Types of Processes

Single-stage Process

Stage 1

Multi-stage Process

Stage 1 Stage 2 Stage 3

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 Types of Processes
22

(Continued)

A buffer refers to a storage area between

stages where the output of a stage is placed
prior to being used in a downstream stage

Multi-stage Process with Buffer

Buffer
Stage 1 Stage 2

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 23

Other Process Terminology

 Blocking
– Occurs when the activities in a stage must stop
because there is no place to deposit the item just
completed
– If there is no room for an employee to place a unit of
work down, the employee will hold on to it not able
to continue working on the next unit
 Starving
– Occurs when the activities in a stage must stop
because there is no work
– If an employee is waiting at a work station and no
work is coming to the employee to process, the
employee will remain idle until the next unit of work
comes

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Other Process Terminology

(Continued)
 Bottleneck
– Occurs when the limited capacity of a
process causes work to pile up or become
unevenly distributed in the flow of a
process
– If an employee works too slow in a multi-
stage process, work will begin to pile up in
front of that employee. In this is case the
employee represents the limited capacity
causing the bottleneck.
 Pacing
– Refers to the fixed timing of the movement
of items through the process
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 25

Other Types of Processes

 Make-to-order
– Only activated in response to an actual order
– Both work-in-process and finished goods
inventory kept to a minimum
 Make-to-stock
– Process activated to meet expected or
forecast demand
– Customer orders are served from target
stocking level

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 Process Performance 26

Metrics
 Operation time = Setup time + Run time

 Throughput time = Average time for a unit

to
move through the system

 Velocity = Throughput time

Value-added time

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 27

Process Performance
Metrics (Continued)
 Cycle time = Average time between
completion of units

 Throughput rate = 1 .
Cycle time
 Efficiency = Actual output
Standard Output

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 28

Process Performance Metrics

(Continued)

 Productivity = Output
Input

 Utilization = Time Activated

Time Available

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 29

Cycle Time Example

Suppose
Suppose you
you had
had to
to produce
produce 600
600 units
units in
in 80
80 hours
hours
to
to meet
meet the
the demand
demand requirements
requirements ofof aa product.
product.
What
What is
is the
the cycle
cycle time
time to
to meet
meet this
this demand
demand
requirement?
requirement?

Answer:
Answer: There
There are
are 4,800
4,800 minutes
minutes (60(60
minutes/hour
minutes/hour xx 80
80 hours)
hours) in
in 80
80 hours.
hours. So So the
the
average
average time
time between
between completions
completions would
would have
have
to
to be:
be: Cycle
Cycle time
time == 4,800/600
4,800/600 units
units == 88 minutes.
minutes.

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 30

Process Throughput Time

Reduction

 Perform activities in parallel

 Change the sequence of activities

 Reduce interruptions

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 31

End of Chapter 5

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 32

Chapter 8

Quality Management

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 33

OBJECTIVES
 Total Quality Management Defined
 Quality Specifications and Costs

 Six Sigma Quality and Tools

 External Benchmarking

 ISO 9000

 Service Quality Measurement

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 34

Total Quality Management

(TQM)

 Total quality management is

defined as managing the entire
organization so that it excels on all
dimensions of products and
services that are important to the
customer

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 35

Quality Specifications

 Design quality: Inherent value of the

product in the marketplace

– Dimensions include: Performance, Features,

Reliability/Durability, Serviceability,
Aesthetics, and Perceived Quality.

 Conformance quality: Degree to which

the product or service design
specifications are met

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 36

Costs of Quality

Appraisal Costs

External Failure Costs of

Costs Quality Prevention Costs

Internal Failure
Costs

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 37

Six Sigma Quality

 A philosophy and set

ofmethods companies use
to eliminate defects in
their products and
processes
 Seeks to reduce variation
in the processes that lead
to product defects
 The name, “six sigma”
refers to the variation that
exists within plus or
minus three standard
deviations of the process
outputs

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 38

Six Sigma Quality (Continued)

 Six Sigma allows managers to readily
describe process performance using a
common metric: Defects Per Million
Opportunities (DPMO)

Number
of defects
DPMO = x1,000,000
 Number of 
 opportunit
ies xNo.of units
 forerrorper 
 unit 
 

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 39

Six Sigma Quality (Continued)

Example
Example of of Defects
DefectsPer
Per Million
Million So,
So,for
forevery
everyone
one
Opportunities million
millionletters
Opportunities(DPMO)
(DPMO) calculation.
calculation. delivered
letters
Suppose deliveredthis
this
Suppose we weobserve
observe 200
200 letters
letters city’s
city’spostal
postal
delivered
delivered incorrectly
incorrectly to
tothe
the wrong
wrong managers
managerscan can
addresses
addresses in inaa small
small city
city during
duringaa expect
expecttotohave
have
single
single day
day when
whenaa total
total of
of 200,000
200,000 1,000
1,000letters
letters
letters incorrectly
incorrectlysent
letterswere
were delivered.
delivered. What
What isisthe
the to
sent
DPMO tothe
thewrong
wrong
DPMO in in this
thissituation?
situation? address.
address.

200
DPMO = = 1, 000
x1,000,000
[ 1] x200,000

Cost
Cost of
of Quality:
Quality:What
Whatmight
mightthat
that DPMO
DPMO mean
mean in
in terms
terms
of
of over-time
over-timeemployment
employment to
tocorrect
correct the
theerrors?
errors?
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 40

Six Sigma Quality: DMAIC

Cycle
 Define, Measure, Analyze, Improve, and
Control (DMAIC)
 Developed by General Electric as a
means of focusing effort on quality
using a methodological approach
 Overall focus of the methodology is to
understand and achieve what the
customer wants
 A 6-sigma program seeks to reduce the
variation in the processes that lead to
these defects
 DMAIC consists of five steps….

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 41

Six Sigma Quality: DMAIC

Cycle (Continued)
1. Define (D) Customers and their priorities

2. Measure (M) Process and its performance

3. Analyze (A) Causes of defects

4. Improve (I) Remove causes of defects

5. Control (C) Maintain quality

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 42

Example to illustrate the

process…

 We are the maker of this cereal.

Consumer reports has just published
an article that shows that we
frequently have less than 15 ounces
of cereal in a box.
 What should we do?

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 43

Step 1 - Define

 What is the critical-to-quality

characteristic?
 The CTQ (critical-to-quality)

characteristic in this case is the

weight of the cereal in the box.

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 44

2 - Measure

 How would we measure to evaluate

the extent of the problem?
 What are acceptable limits on this

measure?

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 45

2 – Measure (continued)
 Let’s assume that the government
says that we must be within ± 5
percent of the weight advertised on
the box.
 Upper Tolerance Limit = 16 + .05(16)
= 16.8 ounces
 Lower Tolerance Limit = 16 – .05(16)
= 15.2 ounces

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 46

2. Measure (continued)
 We go out and buy 1,000 boxes of
cereal and find that they weight an
average of 15.875 ounces with a
standard deviation of .529 ounces.
 What percentage of boxes are

outside the tolerance limits?

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 47

Process
Lower Tolerance Mean = 15.875 Upper Tolerance
= 15.2 Std. Dev. = .529 = 16.8

What percentage of boxes are defective (i.e. less than 15.2 oz)?

Z = (x – Mean)/Std. Dev. = (15.2 – 15.875)/.529 = -1.276

NORMSDIST(Z) = NORMSDIST(-1.276) = .100978

Approximately, 10 percent of the boxes have less than 15.2

Ounces of cereal in them!

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 48

Step 3 - Analyze - How can

we improve the capability of
our cereal box filling
process?
– Decrease Variation
– Center Process
– Increase Specifications

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 49

Step 4 – Improve – How

good is good enough?
Motorola’s “Six Sigma”
– 6σ minimum from process center to nearest
spec

12σ

6σ

3 2 1 0 1 2 3

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 50

Motorola’s “Six Sigma”

 Implies 2 ppB “bad” with no process shift

 With 1.5σ shift in either direction from center (process will
move), implies 3.4 ppm “bad”.

12σ

3 2 1 0 1 2 3

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 51

Step 5 – Control
 Statistical Process Control (SPC)
– Use data from the actual process
– Estimate distributions
– Look at capability - is good quality
possible
– Statistically monitor the process
over time

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 52

Analytical Tools for Six Sigma and

Continuous Improvement: Flow Chart

Material
No,
Received Continue…
Inspect
from
Material for Defects
Supplier
Defects found?

Yes

Can
Canbebeused
usedto
to
find
findquality
quality Return to
problems
problems Supplier
for Credit

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 53

Analytical Tools for Six Sigma and

Continuous Improvement: Run Chart
Can
Canbebeused
usedtotoidentify
identify
when
whenequipment
equipmentor or
processes
processesarearenot
not
behaving
behavingaccording
accordingtoto
Diameter

specifications
specifications
0.58
0.56
0.54
0.52
0.5
0.48
0.46
0.44
1 2 3 4 5 6 7 8 9 10 11 12
Time (Hours)
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 54

Analytical Tools for Six Sigma and

Continuous Improvement: Pareto Analysis

Can 80%
Can be be used
used
to
to find
find when
when
80%
80% of of the
the
problems
problems Frequency
may
may be be
attributed
attributed to to
20%
20% of of the
the
causes
causes
Design Assy. Purch. Training
Instruct.

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 Analytical Tools for Six Sigma 55

and Continuous Improvement:

Checksheet
Can
Canbebeused
usedtotokeep
keeptrack
trackof
of
defects
defectsororused
usedtotomake
makesure
sure
people
peoplecollect
collectdata
datain
inaa
Monday correct
correctmanner
manner
Billing Errors

Wrong Account

Wrong Amount

A/R Errors

Wrong Account

Wrong Amount

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 56
Analytical Tools for Six Sigma
and Continuous Improvement:
Histogram
Can
Canbebeused
usedto
toidentify
identifythe
thefrequency
frequencyof ofquality
quality
Number of Lots

defect
defectoccurrence
occurrenceand
anddisplay
displayquality
quality
performance
performance

0 1 2 3 4 Defects
Data Ranges in lot
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 57

Analytical Tools for Six Sigma

and Continuous Improvement:
Cause & Effect Diagram

Possible The
Theresults
Possiblecauses:
causes: results
or
or effect
effect
Machine Man

Environment Effect

Method Material

Can
Canbebeused
usedto
tosystematically
systematicallytrack
trackbackwards
backwardsto
to
find
findaapossible
possiblecause
causeof
ofaaquality
qualityproblem
problem(or
(or
effect)
effect)
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 Analytical Tools for Six Sigma and 58

Continuous Improvement: Control

Charts

Can
Canbebeused
usedto
tomonitor
monitorongoing
ongoingproduction
productionprocess
process
quality
qualityand
andquality
qualityconformance
conformanceto
tostated
statedstandards
standardsof
of
quality
quality
1020
UCL
1010
1000
990
980
LCL

970
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

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 59

Other Six Sigma Tools

 Failure Mode and Effect Analysis
(DMEA) is a structured approach to
identify, estimate, prioritize, and
evaluate risk of possible failures at
each stage in the process
 Design of Experiments (DOE) a

statistical test to determine cause-

and-effect relationships between
process variables and output

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 60

Six Sigma Roles and

Responsibilities
1. Executive leaders must champion
the process of improvement
2. Corporation-wide training in Six
Sigma concepts and tools
3. Setting stretch objectives for
improvement
4. Continuous reinforcement and
rewards

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 61

The Shingo System: Fail-Safe

Design

 Shingo’s argument:
– SQC methods do not prevent defects
– Defects arise when people make errors
– Defects can be prevented by providing
workers with feedback on errors

 Poka-Yoke includes:
– Checklists
– Special tooling that prevents workers from
making errors

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 62

ISO 9000
 Series of standards agreed upon by the
International Organization for
Standardization (ISO)
 Adopted in 1987
 More than 100 countries
 A prerequisite for global competition?
 ISO 9000 directs you to "document
what you do and then do as you
documented"

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 63

Three Forms of ISO

Certification

1. First party: A firm audits itself against

ISO 9000 standards

2. Second party: A customer audits its

supplier

3. Third party: A "qualified" national or

international standards or certifying
agency serves as auditor

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 External Benchmarking 64

Steps

1. Identify those processes needing

improvement

2. Identify a firm that is the world leader in

performing the process

3. Contact the managers of that company

and make a personal visit to interview
managers and workers

4. Analyze data

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 65

Service Quality
Measurement:Servqual
 A perceived service quality
questionnaire survey methodology

 Examines “Dimensions of Service

Quality” including: Reliability,
Responsiveness, Assurance, Empathy,
and Tangibles (e.g., appearance of
physical facilities, equipment, etc.)

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 Service Quality 66

Measurement: Servqual
(Continued)
 New version of this methodology is
called “e-Service Quality” dealing
service on the Internet
 Dimensions of Service Quality on the e-
Service methodology include:
Reliability, Responsiveness, Access,
Flexibility, Ease of Navigation,
Efficiency, Assurance/Trust,
Security/Privacy, Price Knowledge, Site
Aesthetics, and
Customization/Personalization

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