Managing Operations
Competing with Operations
• Operations
The processes used to create and deliver a good or service
(value) to customers.
• Operations Management
The planning and control of a conversion process that
includes turning inputs into outputs (products and/or
services) that customers desire.
21–2
Competing with Operations (cont.)
• Important Questions about Operations Factors:
How much flexibility is required to satisfy customers over
time?
What is customer demand today? for the future? Can
facilities and equipment keep up with demand?
What options are available for satisfying customers?
21–3
Competing with Operations (cont.)
• Important Questions about Operations Factors (cont.):
What skills or capabilities set the firm apart from its
competitors such that the firm can best take advantage of
these distinctive features in the market?
Does the competitive environment require certain
capabilities that the enterprise lacks?
21–4
The Operations Process
• Managing Operations in a Service Business
Products are tangible, services are intangible.
Manufacturing can produce goods for inventory;
service operations cannot store or bank services.
Productivity and quality is more easily measured in
manufacturing than service operations.
Quality is more difficult and control to establish in
service than manufacturing operations.
21–5
The Operations Process (cont.)
• Managing Operations in a Service Business (cont.)
Customers are more involved in service than
manufacturing operations and can influence the quality
of service.
21–6
The Operations Process (cont.)
• Planning and Scheduling
Involves attempting to achieve the orderly, sequential
flow of products or services to market.
Incorporates demand management strategies to stimulate
customer demand when it is normally low.
21–7
Inventory Management and Operations
(cont.)
• ABC Inventory Classification
Classifying items in inventory by relative value:
Category A (close/continuous control)
• High-value or critical production component items
Category B (moderate control)
• Less costly, secondary importance items
Category C (periodic control)
• Low-cost and noncritical items
21–8
Inventory Management and Operations
(cont.)
• Just-In-Time Inventory (JIT) System
A demand (pull) method of reducing inventory level to an
absolute minimum.
New inventory items arrive at the same time that the
last inventory item is placed in service.
JIT promotes:
Closer coordination with suppliers
Consistent quality production
Lower safety stock levels
21–9
Inventory Record-Keeping Systems
• Physical Inventory System
Provides for periodic counting of items in inventory.
• Cycle Counting
Counts different segments of the physical inventory at different times
during the year.
• Two-bin Inventory System
A method of inventory control based on use of two containers for each
item in inventory: one to meet current demand and the other to meet
future demand.
21–10
Quality
and Operations Management
• Quality as a Competitive Tool
Quality is a must in international competition
• Quality
The features of a product or service that enable it to
satisfy customers’ needs.
A perception of the customer as to the suitability of the
product or service of a firm.
21–11
Tools and Techniques of TQM
• Employee Participation
Employee performance is a critical quality variable.
The implementation of work teams and empowerment of
employees to build workplace involvement.
Quality circle
A group of employees who meet regularly to
discuss quality-related problems.
21–12
The Customer Focus of
Quality Management
• 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
“The customer is the focal point of quality efforts.”
• Customer Feedback
Customers are the eyes and ears of the business for
quality matters.
21–13
Quality Assurance Using Inspection
versus Poka-Yoke
• The Inspection Process
The examination of a product
whether it meets quality standards.
to
determine
Statistical Methods of Quality Control
• Acceptance Sampling
The use of a random, representative portion to
determine the acceptability of an entire lot.
• Attributes
Product or service parameters that can be counted as
being present or absent.
• Variables
Measured parameters that fall on a continuum, such as
weight or length.
21–15
Statistical Methods of Quality Control (cont.)
• Statistical Process Control
The use of statistical methods to assess quality during the
operations process.
• Control Chart
A graphic illustration of the limits used in
statistical process control.
21–16
International Certification
for Quality Management
• ISO 9000
The standards governing international certification of a
firm’s quality management procedures.
Documents compliance of the firm’s operations with
its quality management procedures.
Serves as an indicator of supplier reliability to its
customers.
Is a requirement before becoming a supplier
to larger U.S. and overseas firms.
21–17
Purchasing Policies and Practices
• Purchasing
The process of obtaining materials, equipment, and services
from outside.
21–18
Purchasing Policies and Practices (cont.)
• Cooperative Purchasing Organization (COOP)
Small businesses combine demand for products or
services to negotiate as a group with suppliers.
Benefits: increased buying power, more access to
resources and information
Small firms save on inputs by using the Internet to
seek out the lowest cost suppliers.
21–19
Purchasing Policies and Practices (cont.)
• Diversifying sources of supply
Reasons for having a sole supplier:
Outstanding supplier quality
Quantity discounts for volume purchases
Quality of supplier-customer relationship
21–20
Purchasing Policies and Practices (cont.)
• Diversifying sources of supply (cont.)
Reasons for having multiple suppliers:
Choice of best quality, price, and service
Supplier competes for business
Insurance against input interruptions
21–21
Purchasing Policies and Practices (cont.)
• Measuring Supplier Performance
Supply Chain Operations Reference (SCOR) model
A list of critical factors that provides a helpful starting
place when assessing a supplier’s performance.
21–22
Purchasing Policies and Practices (cont.)
• Measuring Supplier Performance (cont.)
SCOR Model Supplier Attributes
Reliability
Responsiveness
Flexibility
Cost
Asset efficiency
21–23
Purchasing Policies and Practices (cont.)
• Building Good Relationships with Suppliers
Pay bills promptly.
Minimize
cancellation
of
to gain a temporary advantage.
orders
merely
21–24
Lean Production
• Lean Production (cont.)
Waiting can be wasteful because resources are idle.
Inventory above the minimum is unproductive and costly.
21–25
Synchronous Management
• Synchronous Management
An approach that recognizes the interdependence of assets
and activities and manages them to optimize the entire
firm’s performance.
• Bottleneck
Any point in the operations process where limited capacity
reduces the production capability of an entire chain of
activities.
21–26