CHAPTER 9. Production and Operations Management. McGraw-Hill/Irwin. Copyright 2015 by the McGraw-Hill Companies, Inc. All rights reserved.

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1 CHAPTER 9 Production and Operations Management McGraw-Hill/Irwin Copyright 2015 by the McGraw-Hill Companies, Inc. All rights reserved.

2 LEARNING OBJECTIVES 1. Describe the current state of U.S. manufacturing and what manufacturers have done to become more competitive. 2. Describe the evolution from production to operations management. 3. Identify various production processes and describe techniques that improve productivity, including computer-aided design and manufacturing, flexible manufacturing, lean manufacturing and mass customization. 9-2

3 LEARNING OBJECTIVES 4. Describe operations management planning issues including facility location, facility layout, materials requirement planning, purchasing, just-in-time inventory control and quality control. 5. Explain the use of PERT and Gantt charts to control manufacturing processes. 9-3

4 SHAHID KHAN Flex-N-Gate Moved from Pakistan to the U.S. at the age of 16. After college, he got a job overseeing Flex-N-Gate. Bought the company after two years and refined the production process Now the company brings in over $3 billion in sales each year. 9-4

5 NAME that COMPANY Operations management in this hotel company includes restaurants that offer the finest in service, elevators that run smoothly, and a front desk that processes people quickly. It may include fresh-cut flowers in the lobbies and dishes of fruit in every room. Name that company! 9-5

6 MANUFACTURING in the U.S. LO 9-1 Some areas in the U.S. are experiencing economic growth while others are declining. Manufacturing in the U.S. is so productive fewer workers are needed. 9-6

7 WHAT S MADE in the USA? Leading U.S. Manufactured Goods LO 9-1 Products Value Number of Employees Chemicals Pharmaceuticals, cosmetics, soaps, paints, fertilizers $250 Billion 830,000 Americans Transportation Equipment Cars, planes, trains, ships $195 Billion Over 1.4 Million Americans Processed Foods, Beverages and Tobacco Cookies, coffee, cigarettes, prepared meals Computers and Electronics Computers and communication equipment $175 Billion 1.7 Million Americans $146 Billion 1.2 Million Americans Source: Parade Magazine, accessed November

8 MASSIVE MANUFACTURERS The Top Ten U.S. Manufacturers LO 9-1 Rank Company Industry 1 Apple Computers 2 Renewable Energy Group Petroleum and Coal 3 Polaris Industries Transportation 4 WABCO Holdings Automobile Parts 5 Monster Beverage Beverages 6 Deluxe Corporation Publishing 7 Hershey Company Food 8 Coach, Inc. Apparel 9 CVR Energy Petroleum and Coal 10 New Market Corporation Chemicals Source: Industry Week, accessed November

9 YOUR OWN FARM in a BOX Freight Farms was developed after the founders were unsatisfied with rooftop greenhouses. Each container is 320-square-feet and can produce 900 heads of leafy greens each week. The company works with small and mediumsized food distributers so local food can be enjoyed year round. 9-9

10 TOP-PAYING SERVICE JOBS LO 9-1 The U.S. economy is no longer manufacturing based. 85% of jobs are in the service sector. The top-paying service jobs in the U.S. are in: - Legal services - Medical services - Entertainment - Accounting - Finance - Management consulting 9-10

11 REMAINING COMPETITIVE in GLOBAL MARKETS LO 9-1 U.S. is still the leader in nanotechnology and biotechnology. How can U.S. businesses maintain a competitive edge? - Focusing on customers - Maintaining close relationships with suppliers - Practicing continuous improvement - Focusing on quality - Saving on costs through site selection - Relying on the Internet to unite companies - Adopting new production techniques 9-11

12 NOBODY DOES IT BETTER Germany s economy is the most powerful and respected economy in Europe. Mittlestand companies design their own machines and production processes. China has purchased many German firms and are studying their production techniques. 9-12

13 PRODUCTION and PRODUCTION MANAGEMENT LO 9-2 Production -- The creation of goods using land, labor, capital, entrepreneurship and knowledge (the factors of production). Production Management -- All the activities managers do to help firms create goods. 9-13

14 OPERATIONS MANAGEMENT LO 9-2 Operations Management -- A specialized area in management that converts or transforms resources into goods and services. Operations management includes: - Inventory management - Quality control - Production scheduling - Follow-up services 9-14

15 OPERATIONS MANAGEMENT in the SERVICE SECTOR LO 9-2 All about creating a good experience for those who use the service. In hotels, like Ritz- Carlton, operation management includes fine dining, fresh flowers, and training for every employee. 9-15

16 THERE S an APP for THAT Top Productivity Apps for ipad LO 9-2 App What it Does Price Dropbox Syncs and backs up files Free Dragon Dictation services Free Cubby Easy and unlimited data syncing Free GoToMyPC Remote computer control Free Air Display Turns tablet into a second monitor $9.99 Source: PC Magazine, accessed November

17 TEST PREP What have U.S. manufacturers done to regain a competitive edge? What must U.S. companies do to continue to strengthen the country s manufacturing base? What led companies to focus on operations management rather than production? 9-17

18 The PRODUCTION PROCESS LO

19 FORM UTILITY LO 9-3 Form Utility -- The value producers add to materials in the creation of finished goods and services. 9-19

20 GROVE S BASIC PRODUCTION REQUIREMENTS LO To build and deliver products in response to the demands of the customer at the scheduled delivery time. 2. To provide an acceptable quality level. 3. To provide everything at the lowest possible cost. 9-20

21 PROCESS and ASSEMBLY in PRODUCTION LO 9-3 Process Manufacturing -- The part of production that physically or chemically changes materials. Assembly Process -- The part of the production process that puts together components. 9-21

22 KEY PRODUCTION PROCESSES LO 9-3 Production processes are either continuous or intermittent. Continuous Process -- Long production runs turn out finished goods over time. Intermittent Process -- Production runs are short and the producer adjusts machines frequently to make different products. 9-22

23 MINUTE MADE Production of Some of America s Favorite Products LO 9-3 Product Number of Items Made in a Minute Krispy Kreme Doughnuts 5,208 Chips Ahoy! Cookies 4,000 Twinkies 972 Jello Boxes 764 LifeSavers 100 rolls 9-23

24 DEVELOPMENTS MAKING U.S. COMPANIES MORE COMPETITIVE LO Computer-aided design and manufacturing 2. Flexible manufacturing 3. Lean manufacturing 4. Mass customization 9-24

25 COMPUTER-AIDED DESIGN and MANUFACTURING LO 9-3 Computer-Aided Design (CAD) -- The use of computers in the design of products. Computer-Aided Manufacturing (CAM) -- The use of computers in the manufacturing of products. 9-25

26 COMPUTER-INTEGRATED MANUFACTURING LO 9-3 Computer-Integrated Manufacturing (CIM) -- The uniting of computeraided design with computeraided manufacturing. CIM is expensive but it cuts as much as 80% of the time needed to program machines to make parts. 9-26

27 FLEXIBLE MANUFACTURING LO 9-3 Flexible Manufacturing -- Designing machines to do multiple tasks so they can produce a variety of products. Allen-Bradley uses flexible manufacturing to build motor starters. 26 machines and robots build, test and package parts. 9-27

28 LEAN MANUFACTURING LO 9-3 Lean Manufacturing -- Using less of everything than in mass production. Compared to others, lean companies: - Take half the human effort. - Have half the defects in finished products. - Require one-third the engineering effort. - Use half the floor space. - Carry 90% less inventory. 9-28

29 MASS CUSTOMIZATION LO 9-3 Mass Customization -- Tailoring products to meet the needs of a large number of individual customers. More manufacturers are learning to customize. Mass customization exists in the service sector too. 9-29

30 MAKE YOUR OWN KIND of MUSIC Moniker Guitars produces top quality, personalized guitars for everyday people. They follow a model similar to NikeiD and allows people to add whatever design elements they want even tiger stripes! 9-30

31 ROBOTICS and SENSING LO 9-3 The use of robotics allows manufacturing to continue 24 hours a day. Sensors can detect problems immediately and changes can be made quickly. Nanomanufacturing can manipulate on material on the molecular level. 9-31

32 TEST PREP What is form utility? Define and differentiate the following: process manufacturing, assembly process, continuous process and intermittent process. What do you call the integration of CAD and CAM? What is mass customization? 9-32

33 OPERATIONS MANAGEMENT LO 9-4 Operations management planning helps solve problems like: - Facility location - Facility layout - Materials requirement planning - Purchasing - Inventory control - Quality control 9-33

34 FACILITY LOCATION LO 9-4 Facility Location -- The process of selecting a geographic location for a company s operations. Rising numbers of Internet businesses means brick-and-mortar retailers must find great locations. 9-34

35 DO WE STAY or DO WE GO? Potential of low-cost labor is very attractive to companies hoping to remain competitive. However, shuttering operations and moving can often cause severe economic problems in dependent areas. What would you do if you were the CEO of ChildrenWear Industries faced with this problem? 9-35

36 OPERATIONS MANAGEMENT on the INTERNET LO 9-4 Sometimes businesses outsource engineering, design and manufacturing to other companies. Often these relationships are managed through the Internet. Many companies are developing Internet-focused strategies. 9-36

37 FUTURE FACILITY LOCATION LO 9-4 Information technology gives firms increased flexibility in terms of location. Telecommuting -- Working from home via computer. 9-37

38 SETTING UP the FACILITY LO 9-4 Facility Layout -- The physical arrangement of resources, including people, to most efficiently produce goods and provide services. Facility layout depends on the processes performed: - Service: Help customers find products - Manufacturing: Improve efficiency 9-38

39 FACILITY LAYOUT OPTIONS LO Assembly Line Layout Workers do only a few tasks at a time. 2. Modular Layout Teams of workers produce more complex units of the final product. 3. Fixed-Position Layout Allows workers to congregate around the product. 4. Process Layout Similar equipment and functions are grouped together. 9-39

40 ASSEMBLY LINE LAYOUT LO

41 MODULAR LAYOUT LO

42 PROCESS LAYOUT LO

43 FIXED-POSITION LAYOUT LO

44 MRP and ERP LO 9-4 Materials Requirement Planning (MRP) -- A computer-based operations management system that uses sales forecasts to make sure parts and materials are available when needed. Enterprise Resource Planning (ERP) -- A newer version of MRP, combines computerized functions into a single integrated software program using a single database. 9-44

45 PURCHASING LO 9-4 Purchasing -- The function that searches for high-quality material resources, finds the best suppliers and negotiates the best price for goods and services. The Internet has transformed purchasing. 9-45

46 INVENTORY CONTROL LO 9-4 Just-in-Time (JIT) Inventory Control -- The production process in which a minimum of inventory is kept and parts, supplies and other needs are delivered just in time to go on the assembly line. To work effectively, the process requires excellent coordination with suppliers. 9-46

47 QUALITY CONTROL LO 9-4 Quality -- Consistently producing what the customer wants while reducing errors before and after delivery. Six Sigma Quality -- A quality measure that allows only 3.4 defects per million opportunities. Photo Credit: Argonne National Laboratory 9-47

48 The SIX SIGMA PROCESS LO 9-4 6σ Control Improve Analyze Measure Define Source: Bloomberg Businessweek, accessed November

49 STATISTICAL QUALITY CONTROL & STATISTICAL PROCESS CONTROL LO 9-4 Statistical Quality Control -- A process used to continually monitor all phases of the production process. Statistical Process Control -- A process of testing statistical samples of product components at each stage of production. Measuring quality along the production process reduces the need for quality control at the end. 9-49

50 The BALDRIGE AWARDS LO 9-4 Companies can apply for awards in these areas: - Manufacturing - Services - Small Businesses - Non-Profit/Government - Education - Healthcare 9-50

51 THE WINNERS ARE 2014 Baldrige Award Recipients LO 9-4 Company Category Where from? Elevation Credit Union Nonprofit Boulder, CO St. David s HealthCare Healthcare Austin, TX Hill County Memorial Healthcare Fredrickburg, TX PricewaterhouseCoopers Service McLean, VA Source: National Institute of Standards and Technology, accessed November

52 WHAT is ISO? LO 9-4 The International Organization for Standardization (ISO) is a worldwide federation of national standards bodies. ISO The common name given to quality management and assurance standards. ISO A collection of the best practices for managing an organization s impact on the environment. 9-52

53 TEST PREP What are the major criteria for facility location? What s the difference between MRP and ERP? What s just-in-time inventory control? What are Six Sigma quality, the Baldrige Award, ISO 9000 and ISO 14000? 9-53

54 PERT LO 9-5 Program Evaluation and Review Technique (PERT) -- A method for analyzing the tasks involved in completing a given project and estimating the time needed. 9-54

55 STEPS INVOLVED in PERT LO Analyzing and sequencing tasks 2. Estimating the time needed to complete each task 3. Drawing a PERT network illustrating the first two steps 4. Identifying the critical path Critical Path -- The sequence of tasks that takes the longest time to complete. 9-55

56 PERT CHART for a MUSIC VIDEO LO

57 GANTT CHARTS LO 9-5 Gantt Chart A bar graph that shows what projects are being worked on and how much has been completed. 9-57

58 GANTT CHART for a DOLL FACTORY LO

59 TEST PREP Draw a PERT chart for making breakfast of threeminute eggs, buttered toast and coffee. Define the critical path. How could you use a Gantt chart to keep track of production? 9-59