Achieving World-Class
Operations Management
Chapter 11
11
Chapter
Prepared by
Norm Althouse
University of Calgary
Copyright © 2008 by Nelson, a division of Thomson Canada Limited
1
Principles of Operations
Chapter 11
changes in
consumer
expectations,
technology, and
competition
finding the most efficient
and effective methods of
producing the goods or services
rethinking where, when and
how the organization
will produce products and
services
Copyright © 2008 by Nelson, a division of Thomson Canada Limited
2
1
Production and Operations Management
Production
The creation of products
and services by turning
inputs into outputs,
which are products
and services
Chapter 11
Operations
Management
Copyright © 2008 by Nelson, a division of Thomson Canada Limited
Management of the
production process
3
The Production Process
1
Chapter 11
Inputs
Raw
materials
Natural
resources
Human
resources
Capital
Outputs
Products
Conversion
process
Copyright © 2008 by Nelson, a division of Thomson Canada Limited
Services
4
1
Production and Operations Management
1. Production Planning
Main
Types of
Decisions
2. Production Control
Chapter 11
3. Improving production
and operations
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5
Production Planning
1
Short-Term
1 Year
Medium-Term
2 Years
Long-Term
3-5 Years
Type of Production Process
Site selection
Chapter 11
Facility layout
Decisions
in
Production
Planning
Resource planning
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6
Types of Production
2
Chapter 11
Mass
Production
The ability to manufacture many
identical goods at once.
Mass
Customization
Goods are mass-produced up to a
point, then custom tailored to
the needs of individual customers.
Customization
The production of goods or services
one at a time according to the
needs of individual customers.
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2
Classification and Timing of Production
Process
Manufacturing
Assembly
Process
Chapter 11
Continuous
Process
Intermittent
Process
The basic input is broken down into
one or more outputs.
The basic inputs are combined or
transformed into the output.
A production process that uses
long production runs without
equipment shutdowns.
A production process that uses short
production runs to make batches of
different products.
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Chapter 11
Manufacturing to order, or for inventory
Manufacture to
order
A product is not made until a
customer has placed an order for it.
E.g. Dell Computers, Burger King
Manufacture for
inventory
A product is made in advance of a
customer ordering it. E.g. Hewlett
Packard, McDonalds
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9
What colour bicycle would you like to order?
Copyright © 2008 by Nelson, a division of Thomson Canada Limited
llo
w
25%
Ye
25%
ed
hi
te
25%
W
la
c
k
25%
R
Black
White
Red
Yellow
B
Chapter 11
1.
2.
3.
4.
10
3
Factors in Facility Location Decisions
Availability of production inputs
Marketing factors
Manufacturing environment
Local incentives
International location
considerations
Chapter 11
Process layout
Make-or-buy decisions
Copyright © 2008 by Nelson, a division of Thomson Canada Limited
11
Production location problem
Location of main
supply inputs
Chapter 11
Location of main
consumption market
Where should the factory be built in Outlandia?
…near to the source of supply? … or near to the consumers?
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12
Production location problem
Chapter 11
Process
characteristic
…implies locating
close to


Physical weight loss
Physical weight gain
Supply
Consumer

Bulk loss
Supply

Bulk gain
Consumer


Perishability loss
Perishability gain
Supply
Consumer




Fragility loss
Fragility gain
Hazard loss
Hazard gain
Supply
Consumer
Supply
Consumer
Examples
Smelters; sawmills
Soft-drink bottling; manufacture of
cement blocks
Compressing cotton into highdensity bales
Manufacturing containers; sheetmetal work
Fish processing
Newspaper (and job) printing;
baking bread
Packing goods for shipment
Coking of coal
Deodorizing captured skunks
Manufacturing explosives; distilling
moonshine whiskey
Source: The Dynamics of Industrial Location: The Factory, the Firm and the Production System
by Roger Hayter, Department of Geography, Simon Fraser University, Burnaby, 2004
Copyright
© 2008 by Nelson, a division of Thomson Canada Limited
(http://www.sfu.ca/geography/people/faculty/Faculty_sites/RogerHayter/books.htm)
13
Production location problem
Location of main
supply inputs
Consumer
market A
Consumer
market C
Chapter 11
Consumer
market B
Where should the factory be built in Outlandia? A centre of gravity model
might be the answer when there are multiple consumption areas.
Copyright © 2008 by Nelson, a division of Thomson Canada Limited
14
Types of Facility Layouts
3
Chapter 11
Process
Layout
Work flows according to the
production process
Product
Layout
Workstations or departments are
arranged in a line with products
moving along the line
Fixed-Position
Layout
The product stays in one place
and workers and machinery
move to it as needed
Cellular
Manufacturing
Technique uses small, self-contained
production units each performing all
or most of the tasks necessary
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Make-or-Buy Decisions
4
Quantity of items needed
Standard or
nonstandard items
Factors
Size of components
Special design features
Chapter 11
Quality and reliability
Should we be backward integrated, or not?
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16
Inventory Management
Chapter 11
4
Inventory
The supply of goods that a firm
holds for use in production or for
sale to customers
Inventory
Management
The determination of how much
inventory a firm will keep on hand,
and the ordering, receiving, storing,
and tracking of inventory
Perpetual
Inventory
A continuously updated list of
inventory levels, orders,
sales, and receipts
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17
Supply Chain Management
4
Supply Chain
The entire sequence of securing
inputs, producing goods, and
delivering goods to customers
Chapter 11
Goal:
Satisfying customers with
quality products and services
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18
Production Control
5
Routing
Value-stream
mapping
Gantt charts
Scheduling
Critical path
method
Chapter 11
PERT
See Exhibits 11.6 and 11.7
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Gantt Chart
Chapter 11
11 - 6
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20
Critical Path Method
Chapter 11
11 - 7
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6
Improving Production and Operations
Quality management
techniques
Lean manufacturing
Chapter 11
Automation
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22
The Experience Curve
As Boeing originally discovered with the 707, manufacturing cost
continues to decline as you accumulate more production experience.
Slope of .2 to .3, meaning a 20% to 30%
reduction in unit manufacturing
costs for each doubling
of production
Cost
per
Unit
made
Chapter 11
2
101
10
10 3
10 4
Total Accumulated Production
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105
106
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Putting Quality First
Chapter 11
6
Quality
control
The process of creating standards for
quality, producing goods that meet them,
and then measuring finished products
against them.
Total Quality
Management
The use of quality principles in
all aspects of a company’s production and
operations.
Continuous
improvement
A commitment to constantly seek better
ways of doing things to maintain and
increase quality.
Six Sigma
A quality control process relying on
defining what needs to be done to ensure
quality, measuring and analyzing results,
and ongoing improvement.
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24
International Quality Standards
Chapter 11
6
ISO 9000
A set of five technical standards of
quality management to provide a uniform
way of determining whether
manufacturing plants and service
organizations conform to sound quality
procedures.
ISO 14000
A set of technical standards to promote
clean production processes to
protect the environment.
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25
Lean Manufacturing
Chapter 11
6
Lean
manufacturing
Streamlining production by eliminating
steps in the production process that do
not add benefits that customers are
willing to pay for.
Just-in-time
(JIT)
A system in which materials arrive exactly
when they are needed for production,
rather than being stored on site.
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26
Technology
7
Computer-Aided Design and
Manufacturing Systems
Robotics
Flexible Manufacturing Systems
Computer-Integrated Manufacturing
Chapter 11
POS, ATMs, etc.
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27
8
Trends in Operations Management
Asset management
Modular production
Chapter 11
Designs for production efficiency
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