Part 3
Managing for
Quality and
Competitiveness
© 2015 McGraw-Hill Education.
8-2
CHAPTER 6
The Nature of Management
CHAPTER 7
Organization, Teamwork, and Communication
CHAPTER 8
Managing Service and Manufacturing
Operations
8-3
Learning Objectives
LO 8-1
Define operations management and differentiate
between operations and manufacturing.
LO 8-2
Explain how operations management differs in
manufacturing and service firms.
LO 8-3
Describe the elements involved in planning and
designing an operations system.
LO 8-4
Specify some techniques managers may use to
manage the logistics of transforming inputs into finished
products.
LO 8-5
Assess the importance of quality in operations
management.
8-4
Nature of Operations Management
Operations Management (OM)
• The development and administration of the activities
involved in transforming resources into goods and services
Historically, OM has been called
“production” or “manufacturing” limiting
it to the manufacture of physical goods
The change from “production” to
“operations” recognizes services
and ideas and views the function
as a whole
8-5
Nature of Operations Management
Manufacturing
• The activities and processes used in making
tangible products; also called production
Production
• The activities and processes used in making
tangible products; also called manufacturing
Operations
• The activities and processes used in making
both tangible and intangible products
8-6
Transformation Process
At the heart of OM is the transformation process
though which inputs are converted into outputs
Inputs
• The resources – such as labor, money, materials
and energy – that are converted into outputs
Outputs
• The goods, services and ideas that result from
conversion of inputs
Operations managers control the process by
•
Taking measurements (feedback) and comparing
them to established standards
•
Taking corrective action for any deviation
8-7
3D Printing
3D printing has become popular among businesses for the
purposes of manufacturing certain items more efficiently and
inexpensively
 It is also used to create tools needed for work or manufacturing

processes
The designs of the product or tool are put into a computer and
printed with liquid metals or plastics…

A wide range of industries are taking advantage of this method from
aircraft to dental product manufacturers

3D printing decreases the number of pieces in the assembly of an
item making it less likely to break

For example, the National Aeronautics and Space Administration
(NASA) printed a fuel injector for a rocket in two pieces that once require
115 pieces for complete assembly
SOURCE: Economist. “From Dental Braces to Astronaut Seats”. www.economist.com. September 7, 2013.
http://www.economist.com/news/leaders/21585005-signs-are-3d-printing-transforming-manufacturing-not-ways-you-might. (accessed
September 24, 2013).
8-8
OM in Service Businesses
Manufacturers and service providers differ in five basic ways
1. Nature and consumption of output – services require
more customer contact and happen at the point of
consumption
2. Uniformity of inputs – services are more “customized” to
each consumer
3. Uniformity of output – each service is performed
differently
4. Labor required – services are more labor-intensive
5. Measurement of productivity – intangibility of the service
product makes measurement more difficult
8-9
OM in Service Businesses
 Subway’s inputs are
sandwich components
such as bread,
tomatoes and lettuce.
 While Subway’s
outputs are
customized
sandwiches
8-10
Planning and Designing Operations Systems
Operations planning involves making the following decisions
What will we produce?
Who are our customers?
What processes will we use? Where will we make our product?
Planning the product
 Marketing research helps determine the product and
features customers want, gauge demand and set
price
 Once management has a product, they must plan
how to produce the product
 Operations managers plan for the resources needed
to complete the transformation process
8-11
Designing the Operations Process
Products are manufactured using one of three processes
Standardization
Modular Design
Customization
• The making of
identical
interchangeable
components or
products
• The creation of
an item in selfcontained units,
or modules, that
can be
combined or
interchanged to
create different
products
• Making products
to meet a
particular
customer’s
needs or wants
8-12
Planning Capacity
Capacity
• The maximum load that an organizational unit can
carry or operate
o The unit of measurement could be a worker or
machine, a department, a branch or an entire plant
o Capacity can be stated in terms of inputs or
outputs
o Planning capacity too low results in unmet demand
while planning it too high results in higher costs
8-13
Planning Facility Location
Facility Location
• A complex and costly decision
Important factors to consider
 Proximity to market
 Availability of raw materials, transportation,
power and labor
 Climatic influences and community
characteristics
 Taxes and inducements
8-14
Planning Facility Layout
Fixed-Position Layout
• A layout that
brings all
resources
required to create
the product to a
central location
Project Organizations
• Companies using
a fixed-position
layout because it
is typically
involved in large,
complex projects
such as
construction or
exploration
8-15
Planning Facility Layout
Process Layout
• A layout that
organizes the
transformation
process into
departments that
group related
processes
Intermittent
Organizations
• Organizations that
deal with products of
a lesser magnitude
than project
organizations; their
products are not
unique but possess
a significant number
of differences
8-16
Planning Facility Layout
Product Layout
• A layout requiring
production be
broken down into
relatively simple
tasks assigned to
workers, who are
usually
positioned along
an assembly line
Continuous
Manufacturing
Organizations
• Companies that
use continuously
running
assembly lines,
creating products
with many similar
characteristics
8-17
Planning and Designing Operations Systems
 Apple stores are designed
to make the most efficient
use of space
 The layout of the stores
allows customers to test its
products before purchasing
8-18
Planning Facility Technology
Computer-Assisted Design (CAD)
• The design of components, products and
processes on computers instead of on paper
Computer-Assisted Manufacturing
(CAM)
• Employs specialized computer systems to
actually guide and control the transformation
process
8-19
Planning Facility Technology
Flexible Manufacturing
• The direction of machinery by computers to
adapt to different versions of similar operations
Computer-Integrated Manufacturing
(CIM)
• A complete system that designs products,
manages machines and materials, and
controls the operations function
8-20
Sustainability and Manufacturing
Sustainability issues are
becoming increasingly
important to stakeholders
and consumers
“Green” operations and
manufacturing can improve
a company’s reputation,
increase customer and
employee loyalty, leading to
improved profits
8-21
Planning and Designing Operations Systems
 Patagonia is always looking for a greener way to
design, produce and recycle its products
 Their mission statement:
Build the best product,
cause no unnecessary
harm, and use business to
inspire and implement
solutions to the
environmental crisis
8-22
Managing the Supply Chain
Supply Chain Management
• Connecting and integrating all parties or members of
the distribution system in order to satisfy customers;
also called logistics
Includes
 Obtaining and managing raw
materials and component parts
 Managing finished products
 Packaging products
 Getting products to customers
8-23
Managing the Supply Chain
Purchasing
• The buying of all the materials needed by the
organization; also called procurement
» Aim is to obtain items of the desired quality in the
right quantities at the lowest possible cost
» Companies may be able to make some component
parts more economically and efficiently
» Can arrange to lease the item from another
company
8-24
Managing Inventory
Inventory
• All raw materials, components, completed or partially
completed products, and pieces of equipment a firm uses
 Finished-goods inventory – products ready for sale
 Work-in-process inventory – products partly
completed
 Raw materials inventory – all materials purchased to
be used as inputs for making other products
8-25
Managing Inventory
Inventory Control
• The process of determining how many supplies and
goods are needed and keeping track of quantities on
hand, where each item is, and who is responsible for it
 Operations management must be closely
coordinated with inventory control
 Inventory managers try to determine the proper
inventory level for each item
8-26
Approaches to Inventory Control
Economic Order • Identifies the optimum number of items to
order to minimize the costs of managing
Quantity (EOQ)
(ordering, storing and using) them
Model
Materialthe precise quantity of materials
Requirements • Schedules
needed to make the product
Planning (MRP)
Just-In-Time
(JIT) Inventory
Management
• A technique using smaller quantities of materials that
arrive “just in time” for use in the transformation
process and therefore require less storage space and
other inventory management expense
8-27
Managing the Supply Chain
Globalization requires supply chain managers improve
speed and balance resources to compete
o Outsourcing, or contracting work to other
companies, is linked with competitive advantage
through:
 Improved product quality
 Customers obtain products sooner
 Overall supply-chain efficiencies
o However, outsourcing may raise negative public
opinion
8-28
Managing the Supply Chain
Next, management must consider:
Routing
• The sequence of operations through which the product
must pass; sequence depends on the product
specifications
Once the routing is known, actual work can be
scheduled
Scheduling
• The assignment of required tasks to departments or even
specific machines, workers or teams
8-29
Managing the Supply Chain
One popular method developed for scheduling is:
o Program Evaluation and Review Technique (PERT)
 Identifies all the major activities or events required
 Arranges them in a sequence or path
 Determines the critical path
 Estimates the time required for each event
o The path requiring the longest time from start to
finish is called the critical path as that is the minimum
amount of time needed for completion
8-30
Managing the Supply Chain
A Hypothetical PERT Diagram for a McDonald’s Big Mac
8-31
Taco Bell Drive-Thru

Taco Bell’s efficient drive-thru operations mirror major factory operations
such as standardized procedures, elimination bottlenecks, and
optimization of staff efficiency

The restaurant averages 164 seconds per customer order from the time
the customer arrives to departure

With an assembly line of food items to construct, six different types of
wrappers, and detailed procedures for every step of the process, Taco
Bell is now among the top for speed, accuracy, and efficiency

Employees at Taco Bell are divided into two categories: Service
Champions (drive-thru) and Food Champions (food preparation)

Service Champions are trained to follow a specific script as they greet
customers and take orders. They enter orders into the point-of-sale system,
make drinks when needed, and handle payments

When processing orders for more complex menu items, Service
Champions may assist Food Champions in food preparation.
Beyond that, it comes down to teamwork, to everyone working
together to create a seamless process free from mistakes.
8-32
Managing Quality
Quality, like cost and efficiency, is a critical element of operations
management, for defective products can quickly ruin a firm
 Quality reflects the degree to which a good or service meets
the demands and requirements of customers
 Determining quality can be difficult because it depends on
customers’ perceptions of how well the product meets or
exceeds their expectations
 Quality is especially difficult to measure for a service
 A company must define important quality characteristics
into measurable terms
8-33
Managing Quality
Quality is so important, it needs examination in the context of
operations management
Quality Control
• The processes an organization uses to maintain its
established quality standards
Statistical Process Control
• A system in which management collects and analyzes
information about the production process to pinpoint
quality problems in the production system
8-34
Managing Quality
Top Quality Management (TQM)
• A philosophy that uniform commitment to quality in
all areas of an organization will promote a culture
that meets customers’ perceptions of quality
 TQM requires constant improvements in all areas of the
company as well as employee empowerment
 A primary tool of TQM is benchmarking, the measuring and
evaluating of the quality produced by the best-performing
companies in the industry
 Quality control is viewed as an element of the product itself
8-35
Managing Quality
Product specifications and quality standards must be set so the
company can create a product that will compete in the
marketplace
 A company must first determine what standard of quality it
desires and then assess whether its products meet that
standard
o
For manufacturing, that could be specifications such as
thickness of metal or amount of a certain material
o
Service industries establish standards such as how long
a customer waits, or how many fries are in an order
 Once the desired quality characteristics, specifications and
standards are stated in measurable terms, inspection follows
8-36
Managing Quality
ISO 9000
• A series of quality assurance standards designed by the
International Organization for Standardization (ISO) to
ensure consistent product quality under many conditions
 Companies must pass a rigorous certification process but for
some industries, certification is necessary to compete
ISO 1400
• A comprehensive set of environmental standards that
encourages companies to conduct business in a
cleaner, safer and less wasteful way; providing a
uniform set of global standards
8-37
Managing Quality
Inspection
Sampling
• Reveals whether a
product meets quality
standards
• Inspecting finished items
determines quality level
• Inspecting work-inprocess items finds
defects before the product
is completed so
corrections can be made
• Allows a company to pass
an entire batch of
products through
inspection by testing a
sample
• There is always the risk of
making an incorrect
conclusion based on a
sample
• Sampling is more likely to
be used when inspection
tests are destructive to
the product
8-38
Integrating Operations and Supply Chain
Management
Managing operations and supply chains can be complex
due to the number of participants in the process
 Managing the various partners is important because
stakeholders hold the firm responsible
 Companies can adopt a Global Supplier Code of
Conduct and ensure its communicated
 Companies must regularly audit its suppliers against
company standards and take action against those
found to be in violation
8-39
Discussion
?
?
In what industry would
the fixed-position layout
be most efficient? The
process layout? The
product layout? Use real
examples.
Define supply chain
management and
summarize the activities
it involves.