Operations
Management:
Managing Quality,
Efficiency, and
Responsiveness to
Customers
Technology
Operations Management
Refers to the management of the production system
that transforms inputs into finished goods and
services.
Production system: the way a firm acquires inputs then
converts and disposes outputs.
Operations managers: responsible for the
transformation process from inputs to outputs.
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Operations management seeks to increase the
quality, efficiency, and responsiveness of the firm.
Seeks to provide a competitive advantage.
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The Purpose of Operations Management
Figure 18.1
The Production System
Inputs
•raw materials
Conversion
• skills
•component parts • machines
•labor
• computers
Outputs
•goods
•services
Operations Management Concepts
Quality: goods and services that are reliable and
perform correctly.
Quality allows customers to receive the performance that
they expect.
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Efficiency: the amount of input to produce a given
output.
Less input required lowers cost and waste.
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Responsiveness to customers: actions taken to
respond to customer needs.
Firm can react quickly and correctly to customer needs as
they arise.
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Improving Responsiveness to Customers
Without customers, organizations cease to exist.
Non-profit and for-profit firms all have customers.
Managers need to identify who the customer is and their
needs.
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What do customers want? Usually customers prefer:
A lower price to a higher price.
High quality over low quality.
Fast service over slow service.
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Also good after sale support. 
Many features over few features.
Products tailored to their specific needs.
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Price/Attribute Relationship
Figure 18.2
Price
P2
P2/A2
At price P1, a firm
offer a product with
A1 attributes and
cover costs. To offer
A2 attributes, firm
must charge P2 or
lose money.
P1
A1
A2
Attributes
Price v. Attributes
Firms offering high quality, fast service and other
customer desires, often must raise price.
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Customers must tradeoff price for attributes.
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Operations management tries to push the
price/attribute curve to the right with better
production.
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Provides more attributes at the same cost. 
By enhancing the price/attribute relationship, the firm
can increase its competitive position.
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Price/Attribute Relationship
Figure 18.3
Price
Federal-Mogul
1987
Federal-Mogul was able
to offer products with
more attributes at a
lower price
P2/A1
Federal-Mogul
P2
1993
P1
P1/A2
A1
A2
Attributes
Customer Responsive Production
Systems
An output’s attributes is determined by the
production system.
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Firms must strike a balance between cost and 
attributes
Improving Quality: can apply to firms
producing goods and services.
A firm that provides higher quality than others at the 
same price is more responsive to customers.
Higher quality can also lead to better efficiency. 
Lowers waste levels and operating costs. 
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Impact of Increased Quality on
Organizational
Performance
Figure 18.4
Increased
Reliability
Higher
Prices
Increased
Quality
Higher
Profits
Increased
Productivity
Lower
Costs
Total Quality Management
Seeks improvement in the quality of a firm’s goods
or services.
Stress that all activities be directed to this goal.
TQM is really a company-wide management philosophy
developed by Dr. Edwards Demming.
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Japanese firms were the first to use TQM. 
TQM results have been outstanding in many firms.
Xerox has reduced defects and problems dramatically.
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TQM can fail when managers do not really support
it.
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Successful TQM Implementation
Successful firms have followed these steps:
1) Build organizational commitment to quality.
All employees must embrace TQM concepts. 
2) Focus on the customer as definition of quality.
3) Find ways to measure quality.
Easy in manufacturing areas but harder in service jobs.
4) Set goals and create incentives to be reached.
5) Solicit input from employees.
Quality circles: groups of employees meeting to discuss how to
increase quality.
Managers must respect employee opinion.
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Successful TQM Implementation
6) Identify defects and trace to source.
Managers must find out why the defect happened.
7) Introduce Just-in-Time (JIT) inventory systems.
Inventory is the stock of raw materials. JIT has parts arriving in the
plant just when needed and not stored in advance.
KANBAN: Japanese name for JIT that seeks to avoid stockpiles of
costly inventory.
8) Work with suppliers. You need good parts to make
great products.
9) Design products for easy manufacture.
10) Remove barriers between departments.
Managers and TQM
Managers are critical to a successful TQM
system:
Functional managers carry the responsibility for most of
the 10 steps to success.
For TQM to work, functional managers must totally
embrace TQM.
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Top management must also show their strong
support.
They need to arrange training for all managers (including
themselves).
Reward functional managers that move TQM forward.
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Improving Efficiency
The fewer the inputs required to produce a given
output, the higher the production efficiency.
A common measure is called Total factor productivity.
Outputs
Total factor productivity = All Inputs
It is a simple formula but each input is measured in
different units (labor in hours, steel in tons)
Therefore, most firms measure partial productivity.
Focus on one input at a time.
Outputs
Labor productivity = Direct Labor
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Improving Efficiency
Labor productivity allows labor comparisons
between organizations.
Improved efficiency leads to lower costs and better
performance.
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TQM and Efficiency: TQM can lead to much
higher labor productivity.
When quality rises, less time is wasted on scrap.
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Flexible manufacturing and efficiency: reduces
the set-up costs for production systems.
Facilities layout: seeks to design the machine-worker
interface to increase production efficiency.
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Facilities Layouts
Figure 18.5
Final Product
Product layout
Final
Product
Final Product
Process
layout
Fixedposition
layout
Facilities Layouts
Product layout: work stations arranged in
sequence.
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Mass production systems are a common example. 
Workers are stationary and a belt moves work to them. 
Process Layout: work stations are self contained
and not in a fixed sequence.
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Well suited to making a wide variety of products tailored 
to customers.
Provides flexibility to change products quickly 
Fixed-position layout: product stays in a fixed spot,
components produced at remote stations and
brought to final assembly.
Good for jet aircraft assembly. 
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Efficient Manufacturing
Most firms face major expense when setting up to
produce a product.
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These costs must be paid before production begins. 
The more often products to be built change, the higher setup costs 
become.
Flexible Manufacturing reduces setup costs. 
Just-in-Time (JIT) inventory, while developed for
TQM, also adds to efficient production.
Many costs are reduced including warehousing, holding 
costs and inventory tracking.
Firm does not have a supply of parts, but can be vulnerable to strikes 
or supply problems.
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Efficient Manufacturing
Self-managed teams boost efficiency by allowing
for a flatter organization structure.
The team takes the role of the supervisor.
Teams working together often become very skilled at
enhancing productivity.
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Kaizen: Japanese term for a management philosophy
the stresses the need for continuous improvement.
Better operations can come from many, small, continuous
improvements.
Focus on what adds value to the product and try to
eliminate steps that do not add value (such as inspection for
defects).
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Reengineering
Process Reengineering: the fundamental rethinking
and radical redesign of the business process.
Can boost efficiency by directing efforts to activities that
add value to the good or service produced.
While Kaizen focuses on continuous enhancements,
process reengineering considers wholesale change.
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Top managers must support operations
enhancement tools for them to be accepted by
workers.
Usually, a successful operations change means a complete
change in the organizational culture.
Without a supporting culture, change will not succeed.
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