Chapter 7
Operations Management and Quality
© 2007 Prentice Hall, Inc. All rights reserved.
7–1
LEARNING OUTCOMES
After reading this chapter, you should be able to:
Explain the meaning of the term production or operations.
Describe the three kinds of utility that operations processes
provide for adding customer value.
Explain how companies with different business strategies are
best served by having different operations capabilities.
Identify the major factors that are considered in operations
planning.
Discuss the information contained in four kinds of operations
schedules – the master production schedule, detailed schedule,
staff schedule, and project schedule.
Identify the activities involved in operations control.
Identify the activities and underlying objectives involved in total
quality management.
Explain how a supply chain strategy differs from traditional
strategies for coordinating operations among firms.
© 2007 Prentice Hall, Inc. All rights reserved.
7–2
What in It for Me?
By understanding this chapter’s methods for
managing operations and improving quality, you
can benefit in two ways:
1. As an employee, you’ll have a clearer picture of who
your customers are and what they want and how
your job depends on the services they receive from
you
2. You’ll better understand how companies around
you—even successful firms—have to change
production methods whenever they adopt new
business goals, to remain competitive
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7–3
What Does Operations Mean Today?
Operations (Production)
 All the activities involved in making products—goods
and services—for customers.
Service Operations (Service Production)
 Provide intangible and tangible service products
Goods Operations (Goods Production)
 Produce tangible products
Operations managers create utility for
customers through production, inventory, and
quality control.
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7–4
Creating Value Through Operations
Utility
 The ability of a product to satisfy a want or need

Form utility

Time utility

Place utility
Operations (Production) Management
 The systematic direction and control of processes
that transform resources into finished services and
goods that create value for and provide benefits to
customers
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7–5
Differences Between Service and
Goods Manufacturing Operations
Goods are produced, services are performed
Service operations differ from manufacturing
operations in that service operations:
1. involve interacting with consumers
2. are sometimes intangible and unstorable
3. involve a customer’s presence in the process
4. involve certain service quality considerations
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7–6
Operations Processes
Operations Process
 A set of methods and technologies used to produce
a good or a service
Goods Production Processes
 Make-to-order processes
 Make-to-stock processes
Service Production Processes
 Extent of Customer Contact

Low-contact systems: low customer involvement

High-contact systems: high customer involvement
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7–7
Business Strategy as the
Driver of Operations
Businesses with contrasting business strategies
choose different operations capabilities—the
activities or processes that production must do
especially well, with high proficiency
© 2007 Prentice Hall, Inc. All rights reserved.
7–8
Operations Planning
Capacity Planning
 Capacity: The amount of a product that a company
can produce under normal conditions
 Planning deals with determining how much can be
produced
Location Planning
 Location affects production costs and flexibility
 Planning deals with determining where it will be
produced
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7–9
Operations Planning (cont’d)
Layout Planning
 The layout of machinery, equipment, and supplies
determines whether a company can respond
efficiently to demand for more and different products
or whether it finds itself unable to match competitors’
speed and convenience
 Planning deals with determining how it will be
produced
Process layouts
 Product layouts

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7–10
Quality Planning
What Is Quality?
 The combination of “characteristics of a product or
service that bear on its ability to satisfy stated or
implied needs” (American Society for Quality)
 Quality planning begins when products are
designed: goals are set for performance and
consistency
 Quality planning includes deciding what constitutes a
high-quality product and determining how to
measure these quality characteristics
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7–11
Methods Planning
Managers identify each production step and
methods for performing it.
They reduce waste and inefficiency by
examining procedures in an approach called
methods improvement.
They reduce waste and inefficiency by
improving process flows.
 A detailed description, often a process flowchart,
helps managers organize and record information.
They attempt to improve customer service.
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7–12
Operations Scheduling
Operations Scheduling
 Identifying times when specific production activities
will occur
Kinds of Planning Schedules
 Master schedule: Shows which products will be
produced, and when, in upcoming time periods
 Detailed schedules: Show day-to-day activities that
will occur in production
 Staff schedules: Show who and how many
employees will be working, and when
 Project schedules: Coordinate completion of largescale projects
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7–13
Project Scheduling with PERT
Program Evaluation and Review Technique
(PERT)
 PERT charts break down large projects into steps to
be performed and specify the time required to
perform each one.
 Critical path: The sequence of the most timeconsuming set of required activities—for completing
the project.
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7–14
Operations Control
Operations Control
 Requires managers to monitor performance by
comparing results with detailed plans and schedules.
 Follow-up: Checking to ensure that production
decisions are being implemented—is a key and
ongoing facet of operations.
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7–15
Materials Management
Materials Management
 The process by which managers plan, organize, and
control the flow of materials from sources of supply
through distribution of finished goods
Materials Management Activities
 Supplier selection
 Purchasing
 Transportation
 Warehousing
 Inventory control
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7–16
Lean Production Systems:
Just-in-Time Operations
Lean Production Systems Goals
 Smooth production flows avoid inefficiencies
 Elimination of unnecessary inventories
 Continuous improvement in production processes
Just-in-Time (JIT) Production
 Bringing together all needed materials only when
they are required, creating fast and efficient
responses to customer orders
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7–17
Benefits of Just-in-Time Production
1. Reduces the number of goods in process
(goods not yet finished)
2. Minimizes inventory costs
3. Reduces inventory storage space requirements
4. Replaces stop-and-go production with
smooth movement
5. Disruptions are more visible and get resolved
more quickly
6. Continuous improvement of the process
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7–18
Quality Control
Quality Control
 Taking action to ensure that operations produce
products that meet specific quality standards.
 Requires establishment of specific standards and
measurements.
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7–19
Quality Improvement and
Total Quality Management
Quality Improvement
 Building quality into products and services rather
than trying to control quality by inspection
Total Quality Management (TQM)
 All of the activities necessary for getting high-quality
goods and services into the marketplace
Quality Ownership
 Quality belongs to each person who creates it while
performing a job and it requires a focus on quality by
all parts of an organization
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7–20
Total Quality Management
Always Delivering High Quality
 Planning for quality
 Organizing for quality
 Directing for quality
 Controlling for quality
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7–21
Tools for Total Quality Management
Competitive Product Analysis
 Analyzing competitor’s products to identify improvements
Value-Added Analysis
 Eliminating wasteful and unnecessary activities
Quality Improvement Teams
 Adopting quality circles
Getting Closer to the Customer
 Identifying internal and external customers
ISO 9000 and ISO 14000
 Ensuring certification of quality management in processes
Business Process Reengineering
 Starting over from scratch to improve processes
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7–22
Adding Value Through Supply Chains
Supply Chain (or Value Chain)
 The flow of information, materials, and services that
starts with raw-materials suppliers and continues
adding value through other stages in the network of
firms until the product reaches the end customer
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7–23
The Supply Chain Strategy
Supply Chain Management (SCM)
 Working with the supply chain as a whole to improve
overall flow through a system composed of
companies working together
Supply Chain Reengineering
 Improving the process for better results:

lower costs, speed up service, and coordinate flows of
information and material
Outsourcing and Global Supply Chains
 Paying suppliers and distributors to perform certain
business processes or to provide needed materials
or services
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7–24