Part 5 Control Challenges in the 21st Century

Chapter
16
Productivity
and Quality
in Operations

PowerPoint Presentation by Charlie Cook

The University of West Alabama
© 2007 Thomson/South-Western. All rights reserved.
 What is Operations Management?
• Operations Management
 The design, planning, and control of the factors that
enable us to provide the product or service outputs of
the organization.
• Operational managers must make decisions to
ensure that the firm’s product or service output
happens:
 In the amount demanded.
 At the right time.
 With the chosen quality level.
 In a manner compatible with organizational goals.

© 2007 Thomson/South-Western. All rights reserved. 16–2

 Manufacturing Versus Service Operating Systems

Manufacturing Service

Output is a physical Output often lacks physical

product qualities

Can stockpile inventories Cannot stockpile inventories

of finished products of finished products

Production and
Production and consumption
consumption is not
usually is simultaneous
simultaneous

Quality is relatively to Quality is more difficult to

access access

© 2007 Thomson/South-Western. All rights reserved. 16–3

 Figure 16.1 Classification Scheme for Different Operating Systems

© 2007 Thomson/South-Western. All rights reserved. 16–4

 Types of Manufacturing Systems
• Repetitive, Assembly Line, or Mass- Production
Systems
 Produces a high volume of discrete items.
• Continuous-Flow Production System
 Produces high volume of a continuous product or
nondiscrete items.
• Job-Shop Production System
 Produces small quantities of a wide variety of
specialized items.
• Project Production System
 Produces large scale, unique items.

© 2007 Thomson/South-Western. All rights reserved. 16–5

 Types of Service Systems
• Standard Service Systems
 Service systems (like a college dormitory cafeteria
line) that are “assembly line” in nature.
• Custom Service Systems
 Service systems that are designed to provide different
services to clients that have different needs.

© 2007 Thomson/South-Western. All rights reserved. 16–6

 Long-Term System Design Decisions
• Choice of a product or service
• Product or service design
• System capacity
• Process selection
• Facility location

© 2007 Thomson/South-Western. All rights reserved. 16–7

 Choice of Product or Service
• This decision is linked directly to corporate
strategy for it answers the question, “What
business are we in?”
 The choice of product of service will ultimately decide
what inputs will be necessary and what type of
transformation will be performed.
 To make a viable product/service selection decision,
considerable interaction with marketing will be
needed to accurately assess the wants and needs of
the marketplace as well as the strength of the
competition.

© 2007 Thomson/South-Western. All rights reserved. 16–8

 Product and Service Design
• The development of a product or service
involves a sequence of steps.
 Development of a concept.

 Development of a preliminary design or prototype.

 Development of “make versus buy” choices.

 Selection of production methods, equipment, and
suppliers.

© 2007 Thomson/South-Western. All rights reserved. 16–9

 Figure 16.2 Steps in Product Design

© 2007 Thomson/South-Western. All rights reserved. 16–10

 System Capacity
• Determines the level of product or service output
that the system will be able to provide.
• It is here that the firm will make its major
investment decisions:
 The number of facilities to be built.
 The size of each facility.
 Their individual capabilities.

 Amount and type of equipment to be purchased.

© 2007 Thomson/South-Western. All rights reserved. 16–11

 Process Selection
• Recall the volume/variety continuum that
categorized manufacturing and service
organizations.
• An organization’s self-assessment of the
volume, variety, and type of product or service
output likely to generated will help to indicate the
type of process to be selected.

© 2007 Thomson/South-Western. All rights reserved. 16–12

 Facility Location
• Once the physical structure has been built, its
high cost usually dictates that the location
decision will remain in effect for a considerable
amount of time.
• Survey data show that manufacturing location
decisions are dominated by five factors:
 Favorable labor climate
 Proximity to markets
 Quality of life
 Proximity to suppliers and resources
 Proximity to the parent company’s facilities

© 2007 Thomson/South-Western. All rights reserved. 16–13

 Table 16.1 Major Factors in Manufacturing Location Decisions

1. Favorable labor climate Management’s assessment of the labor climate would

be based on such parameters as union activity, wage rates, available labor skill
levels, required labor training, worker attitudes, and worker productivity.
2. Proximity to markets Consideration would be given to both the actual distance
to the markets and the modes of transportation available to deliver the products.
3. Quality of life Attention would be paid to the quality and availability of schools,
housing, shopping, recreation facilities, and other lifestyle indicators that reflect
the quality of life.
4. Proximity to suppliers and resources When companies rely on bulky or heavy
raw materials and supplies, this factor is of prime concern. Distance and
transportation modes would influence this factor.
5. Proximity to the parent company’s facilities This factor is important for
companies with multiplant configurations. When parts and materials must be
transferred between operating facilities, frequent interactions, communication,
and coordination will be necessary. Additionally, the time and cost of material
transfers must be minimized. All of this can be facilitated by geographical
proximity between the facilities.

© 2007 Thomson/South-Western. All rights reserved. 16–14

 Facility Layout
• The arrangement of the work areas and
equipment so that inputs progress through the
transformation process in as orderly a fashion as
possible.
• This will result in a smooth flow of material or
customers through the system.

© 2007 Thomson/South-Western. All rights reserved. 16–15

 Facility Layout Issues
• Process Layout
 A configuration flexible enough to accommodate a
wide diversity of products or customers.
• Product Layout
 A configuration set for a specific purpose, with all
product or service demands essentially identical.

© 2007 Thomson/South-Western. All rights reserved. 16–16

 Facility Layout Issues (cont’d)
• Hybrid Layout
 A configuration containing some degree of flexibility,
lying between the extremes of process and product
layouts.
• Fixed-position Layout
 A configuration used for large or bulky items that
remain stationary in the manufacturing process.

© 2007 Thomson/South-Western. All rights reserved. 16–17

 Short-Term Operating and Control
Decisions
• Aggregate planning
• Master production schedule
• Inventory management
• Materials requirement planning
• Just-in-time inventory management
• Supply chain management

© 2007 Thomson/South-Western. All rights reserved. 16–18

 Fundamentals of Productivity
• Productivity
 A measure of the efficiency with which a firm
transforms inputs into outputs, calculated as output
divided by input.
 In the broadest sense, productivity is defined as
follows:
Productivity = system outputs
system inputs

© 2007 Thomson/South-Western. All rights reserved. 16–19

 Table 16.3 Examples of Inputs and Outputs for Productivity Measurement

Output Input

Number of refrigerators Direct labor hours, raw materials,

manufactured machinery, supervisory hours, capital

Number of patients treated Doctor hours, nurse hours, lab technician

hours, hospital beds, medical equipment,
medicine and drugs, surgical supplies

Number of income tax Staff accounting hours, desktop

returns prepared computers, printers, calculators,
typewriters, supplies

© 2007 Thomson/South-Western. All rights reserved. 16–20

 Improving Productivity
• Productivity improvement through:
 Technology
 Diverse workforce
 Design

© 2007 Thomson/South-Western. All rights reserved. 16–21

 What is quality
•Quality is the totality of features
and characteristics of a product or
service that bear on its ability to
satisfy stated or implied needs. (
The American Society For Quality
Control )

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 Perspectives on Quality
• Consumer Perspective
 Quality can be defined as the degree to which the
product or service meets the expectations of the
customer.
• Producer Perspective
 Quality can be defined as the degree to which the
product or service conforms to design specifications.

© 2007 Thomson/South-Western. All rights reserved. 16–23

 Fundamentals of Quality
• Quality Control (QC)
 Focuses on the actual measurement of output to see
if specifications have been met.
• Quality Assurance (QA)
 Focuses on any activity that influences the
maintenance of quality at the desired level.
• Total Quality Management (TQM)
 A systematic approach for enhancing products,
services, processes, and operational quality control.

© 2007 Thomson/South-Western. All rights reserved. 16–24

 Factors for Assessing Quality
• Product Factors
 Aesthetics, features, performance, reliability,
serviceability, durability, conformance, and perceived
quality.
• Service Factors
 Responsiveness, reliability, assurance, empathy, and
tangibles.

© 2007 Thomson/South-Western. All rights reserved. 16–25

 Cost of Quality
• Prevention Costs
• Appraisal Costs
• Internal-Failure Costs
• External-Failure Costs

© 2007 Thomson/South-Western. All rights reserved. 16–26

 Cost of Quality

• Prevention cost -Costs to prevent defective

output from occurring.
• Appraisal cost – Cost to assess the quality of the
product
• Internal-failure cost – Cost to repair or dispose
the defective output before delivery to the
customer.
• External-failure cost -Cost resulting from
defective output that is not detected prior to
delivery to the customer.

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 Customer-Driven Standards
• External Customer
 User of an item who is not a part of the organization
that supplies the item.
• Internal Customer
 User of an item who is a member of, or employee of,
the organization that supplies the item.

© 2007 Thomson/South-Western. All rights reserved. 16–28

 Organization and Coordination of Effects
• Benchmarking
 The process of comparing one’s own products,
services, or processes against those of industry
leaders for the purpose of improvement.
• Kaizen
 Japanese term referring to the total quality
management principle of continuous improvement.

© 2007 Thomson/South-Western. All rights reserved. 16–29

 Employee Participation
• Quality Circle
 A work team that meets regularly to identify, analyze,
and solve problems related to its work area.
• Special-Purpose Team
 A temporary team formed to solve a special or
nonrecurring problem.

© 2007 Thomson/South-Western. All rights reserved. 16–30

 Prominent Quality Management
Philosophers
• W. Edwards Deming
 Perhaps the most prominent quality philosopher, he
devised a 14-point plan to summarize his philosophy
on quality improvement.
• Joseph Juran
 Observed that over 80 percent of quality defects are
caused by factors controllable by management.
 Developed a trilogy of planning, control, and
implementation.

© 2007 Thomson/South-Western. All rights reserved. 16–31

 Table 16.4 Deming’s 14 Points

1. Create constancy of purpose for improvement of product and service, and communicate
this aim to all employees.
2. Learn and adopt the new philosophy throughout all levels within the organization.
3. Understand that inspection only measures problems but does not correct them; quality
comes from improving processes.
4. Reduce the number of suppliers, and do not award business on the basis of price tag
alone.
5. Constantly improve processes, products, and services while reducing waste.
6. Institute modern aids to training on the job.
7. Improve supervision.
8. Drive out fear of expressing ideas and reporting problems.
9. Break down barriers between departments and get people working toward the goals of
the organization as a team.
10. Eliminate slogans, exhortations, and targets for the workforce.
11. Eliminate numerical quotas for production; concentrate on quality, not quantity.
12. Remove barriers that rob people of pride of workmanship.
13. Institute a program of education and self-improvement for everyone.
14. Put everyone in the organization to work to accomplish the transformation.

Source: W. Edwards Deming, Out of the Crisis (Cambridge, MA: MIT, Center for Advanced Engineering Study, 1986).
© 2007 Thomson/South-Western. All rights reserved. 16–32
 Prominent Quality Management
Philosophers (cont’d)
• Armand Feigenbaum
 Introduced the concept of total quality control.
• Kaoru Ishikawa
 Introduced quality control circles.
• Philip Crosby
 Introduced the philosophy that “quality is free.”

© 2007 Thomson/South-Western. All rights reserved. 16–33

 What is TQM?
•TQM is an organization wide
approach to continuously
improving the quality of all the
organization’s process, products,
and services.

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 The Key Ideas of TQM
1. A System Approach
2. The Tools of TQM
3. A customer orientation
4. The role of management
5. Employee participation

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 A System Approach
TQM focus on improving three
organizational systems :
a) The cultural/social system
b) The technical system
c) The management system

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 The Tools Of TQM
1.The fishbone diagram- also
known as the cause-and-effect
diagram that helps shows
possible causes of a problem.
2.Benchmarking-Comparing your
products and processes against
the best in the world.

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 Management and Labor Commitment
• If TQM is to pervade all levels of an organization
successfully, management must develop an
organizational culture in which all workers are
committed to the philosophy.
• If all parts of the organization are to coordinate
toward a common goal, then this goal must be:
 Embraced by top leaders
 Communicated by leaders throughout the
organization
 Have commitment to goal demonstrated through
actions, policies and decisions.

© 2007 Thomson/South-Western. All rights reserved. 16–38

 The role of management
• 1.Identify customer needs in well defined target market
• 2.Communicate customer expectation accurately to the product
designers
• 3.Make sure customer orders are filled in correctly and the products
deliver on time
• 4.Make customers receive proper instructions and training on how to
use the products
• 5.Measure company/product image and customer satisfaction on a
continuous basis
• 6.Continuously improve product quality

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 Employee participation
TQM requires active employees
involvement.TQM also requires
empowerment – letting
employees make decisions
without asking for approval from
managers

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 Hurdles in implementing TQM
1.Managers reluctance to implement
TQM e.g fear of failure or lack of
knowledge
2.Employee resistance to change
3.Interdepartmental conflicts
4.Lack of understanding on the basic
principles of TQM

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