PowerPoint
Presentations for
Small Business Management:
Launching and Growing New Ventures,
Fifth Canadian Edition
Adapted by
Cheryl Dowell
Algonquin College
Chapter 12
Operations Management
and Control Systems
LOOKING AHEAD
After studying this chapter, you should be able to:
1. Discuss the nature of the operations process for both products and
services.
2. Describe the need for management control systems.
3. Explain the key elements of total quality management (TQM)
programs.
4. Explain how reengineering and other methods of work improvement
can increase productivity and make a firm more competitive.
5. Discuss the importance of purchasing and the nature of key purchasing
policies.
6. Describe ways to control inventory and minimize inventory costs.
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THE OPERATIONS PROCESS
• Operations Management:
– planning and control of the operations process
– activities that produce a firm’s goods and services
– acquiring inputs and overseeing their
transformation in products and services
LO 1
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THE OPERATIONS PROCESS
LO 1
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TYPES OF
MANUFACTURING OPERATIONS
Job Shops
Operations characterized by short production runs of
small quantities of unique items.
Repetitive
Manufacturing
Operations in which long production runs are used to
produce a large quantity of a standardized product.
Batch
Manufacturing
An intermediate form involving more variety in volume
and products than job shops and less than repetitive
manufacturing
LO 1
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PLANT MAINTENANCE
• Operations Planning and Scheduling
– Attempting to achieve the orderly, sequential flow
of products to market
• Production operations
• Service operations
LO 1
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PLANT MAINTENANCE
Maintenance
• correct equipment malfunctions and prevent breakdowns
Preventive maintenance
• activities intended to prevent machine breakdowns, injuries to
people, and damage to facilities
Corrective maintenance
• repairs necessary to restore equipment or a facility to good
condition
LO 1
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THE NEED FOR MANAGEMENT
CONTROL SYSTEMS
LO 2
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QUALITY GOALS OF
OPERATIONS MANAGEMENT
Quality: features of a product or
service that enable it to satisfy
customers’ needs.
Total Quality Management (TQM):
an all-encompassing management
approach to providing high quality
products and services
Essential Elements: focus on
customers, supportive culture,
appropriate tools
LO 3
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CUSTOMER FOCUS
TQM
• Customer Expectations
– quality is the extent to which a product or service satisfies customer’s
needs and expectations
• Product quality
• Service quality
• Product and service quality combinations
• Customer Feedback
– customers are the eyes and ears of the business for quality matters
• Benchmarking
– process of identifying the best products, services, and practices of
other businesses
LO 3
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TOOL AND TECHNIQUES
OF QUALITY MANAGEMENT
Employee
Participation
LO 3
• Quality Circle: group of employees who
meet regularly to discuss quality related
problems
Inspection
Process
• an examination of a product to determine
whether it meets quality standards
Inspection
standard
• a specification of a desired quality level
and allowable tolerances
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TOOL AND TECHNIQUES
OF QUALITY MANAGEMENT
Attribute
inspection
• the determination of product
acceptability based on whether it
will or will not work
Variable
inspection
• the determination of product
acceptability based on a variable
such as weight or length
LO 3
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STATISTICAL METHODS
OF QUALITY CONTROL
LO 3
Acceptance
sampling
• the use of a random, representative
portion to determine the
acceptability of an entire lot
Statistical
process
control
• the use of statistical methods to
assess quality during the operations
process
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STATISTICAL METHODS
OF QUALITY CONTROL
Control
chart
LO 3
• graphic illustration of the limits used in
statistical process control
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INTERNATIONAL CERTIFICATION FOR
QUALITY MANAGEMENT
• ISO 9000: 2000
–The standards governing international certification of a
firm’s quality management procedures.
1. Customer focus
2. Leadership
3. Involvement of people in the organization
4. A process approach to quality management
5. A systems approach to quality management
6. Continual improvement
7. A factual approach to decision making
8. Mutually beneficial supplier relationships
LO 3
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INTERNATIONAL CERTIFICATION
• ISO 14001
– Generic requirements for implementing an
environmental management system
– Minimize harmful effects on the environment
caused by its activities
– Continual improvements of its environmental
performance
LO 3
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QUALITY MANAGEMENT
IN SERVICE BUSINESSES
Being on target
• set and meet customer’s expectations
• do what was promised, when and where it was promised
• heighten the customer’s awareness of the service provider’s actions
Care and concern
• tune in to the customer’s situation, frame of mind, and needs
• be attentive and willing to help
Spontaneity
• empower service providers to think and respond quickly
LO 3
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QUALITY MANAGEMENT
IN SERVICE BUSINESSES
Problem solving
• train and encourage service providers to be problem solvers
Follow-up
• captures customers’ attention and is often sincerely appreciated.
• associated with caring and professionalism
• create a reputation for legendary service quality
Recovery
• customers experiencing problems have low expectations for resolution
& exceedingly mindful and appreciative of speedy solutions
LO 3
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COMPETITIVE STRENGTH THROUGH
IMPROVED PRODUCTIVITY
• Productivity
– the efficiency with which inputs are transformed
into outputs
Productivi ty 
LO 4
Products and/or services
Labour  Energy  Money  Raw Materials  Informatio n
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COMPETITIVE STRENGTH THROUGH
IMPROVED PRODUCTIVITY
• Reengineering:
– Fundamental restructuring to improve the
operations process
• “If it isn’t broken, take it apart and fix it anyway”
VS.
• Asking “Why?” is important in the reengineering
process
LO 4
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COMPETITIVE STRENGTH THROUGH
IMPROVED PRODUCTIVITY
Organizational change tips:
1.
2.
3.
4.
5.
6.
LO 4
Start at the beginning
Use structure
Adapt to the situation
Top management drives communication
Rely on individual employees
Surprising employees reduces their
commitment
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LEAN MANUFACTURING
Key Principles:
1.
2.
3.
4.
Define value from the customer’s perspective
Identify and map the value stream
Reduce or eliminate waste or improve flow
Pull from customers, using their information and
demand to establish production levels
5. Pursue perfection by returning to step one and
repeating this process periodically
LO 4
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LEAN MANUFACTURING
• Benefits
–
–
–
–
–
–
–
–
LO 4
Culture of continuous improvement
Decreasing manufacturing cycle times
Reducing waste
Empowering employees
Increasing profits and cash flow
Increasing production capacity
Increasing customer satisfaction
Reducing costs
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ESTABLISHING PERFORMANCE
STANDARDS
• Operations Analysis
– Laws of motion economy: arranging work in most
cost-effective and efficient manner possible
• Methods of Work Measurement
– Motion Study: analysis of all motions worker
makes to complete a given job
– Time Study: determination of the average time, it
takes to complete
LO 4
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PURCHASING POLICIES
AND PRACTICES
• Purchasing:
– process of obtaining materials, equipment, and services
from outside suppliers
• Effective Purchasing:
– Well-managed production process = excellent products
– Goods delivered when needed
– Securing the best possible price
– Increases the cost-effectiveness
– Determining which is best: make, buy, outsource, diversify
LO 5
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PURCHASING POLICIES AND COST
CONTROL
MAKE
BUY
• Increased utilization of plant
capacity
• Assurance of supply of critical
components
• Maintaining secrecy in designs
and processes
• Saving on transportation costs
and supplier profits
• Closer coordination and control
of overall process
• Higher quality components for
inputs
LO 5
• Supplier’s part/service is
cheaper and/or higher quality
• Investment savings on space,
personnel, equipment
• Greater flexibility in matching
supply and demand
• Increased focus on production
of core product/service
• No risk of equipment
obsolescence
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PURCHASING POLICIES AND COST
CONTROL
• Sole supplier
– may be outstanding in its product quality
– may lead to quantity discounts.
– may qualify for prompt treatment , receive
– management advice, market information, and
financial leniency
– a small firm may be linked to a specific supplier
by the very nature of its business
LO 5
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DIVERSIFYING SOURCES OF SUPPLY
• Diversify
– locate the best source in terms of price, quality,
and service
– provide better prices and service in order to
obtain a larger piece of the purchasing pie.
– provides insurance against interruptions caused
by strikes, fires, or similar problems with sole
suppliers
LO 5
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MANAGING INVENTORY
Objective: to have the right goods in the right
quantities at the right time and place
economic order
quantity (EOQ)
quantity to purchase in order to minimize
total inventory costs
ABC method
a system of classifying items in inventory by
relative value
just-in-time
a method of reducing inventory levels to an
inventory system absolute minimum
(JIT)
LO 6
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EOQ
LO 6
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ABC
LO 6
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INVENTORY
RECORD-KEEPING SYSTEMS
physical inventory
system
cycle counting
perpetual
inventory system
LO 6
• a method that provides for periodic
counting of items in inventory
• a system of counting different segments
of the physical inventory at different
times during the year
• a method for keeping a running record of
inventory
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