Chapter 11
Achieving World-Class Operations Management
Prepared by
Norm Althouse
University of Calgary
Copyright © 2011 by Nelson Education Ltd.
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Learning Outcomes
1 Discuss why production and operations management is important in both
manufacturing and service firms.
2 List the types of production processes used by manufacturers and service
firms.
3 Describe how organizations decide where to put their production facilities
and what choices must be made in designing the facility.
4 Explain why resource-planning tasks like inventory management and
supplier relations are critical to production.
5 Discuss how operations managers schedule and control production.
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6 Evaluate how quality management and lean-manufacturing techniques
help firms improve production and operations management.
7 Identify the roles that technology and automation play in manufacturing
and service industry operations management.
8 List some of the key trends affecting the way companies manage
production and operations.
Copyright © 2011 by Nelson Education Ltd.
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Operations Management
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changes in
consumer
expectations,
technology, and
competition
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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
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Production and Operations Management
Production
The creation of products and services by turning
inputs into outputs, which are products
and services
Operations
Management
Management of the production process
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Production and Operations Management
1. Production Planning
Main Types of
Decisions
2. Production Control
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3. Improving production
and operations
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The Production Process
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Inputs
Raw
materials
Natural
resources
Human
resources
Capital
Outputs
Products
Conversion
process
Copyright © 2008 by Nelson, a division of
Thomson Canada Limited
Services
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Production and Operations Management
1. Production Planning
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Main
Types of
Decisions
2. Production Control
3. Improving production
and operations
Copyright © 2008 by Nelson, a division of
Thomson Canada Limited
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Production Planning
Short-Term
1 Year
Medium-Term
2 Years
Long-Term
3-5 Years
Type of Production Process
Site selection
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Facility layout
Decisions
in
Production
Planning
Resource planning
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Chapter 11
Classification of Production Types
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Converting Inputs to Outputs
Production involves converting inputs (raw materials, parts, human
resources) into outputs (products or services)
Process Manufacturing
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Assembly Process
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The basic input is broken down into one or
more outputs.
The basic inputs are combined or transformed
into the output.
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Production Timing
Continuous Process
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Intermittent Process
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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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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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Factors in Facility Location Decisions
Availability of production inputs
Marketing factors
Manufacturing environment
Local incentives
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International location
considerations
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Production location problem
Location of main
supply inputs
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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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Thomson Canada Limited
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Production location problem
Process
characteristic
 Physical weight loss
 Physical weight gain
Supply
Consumer
 Bulk loss
Supply
 Bulk gain
Consumer
 Perishability loss
Supply
Consumer
 Perishability gain
 Fragility loss
 Fragility gain
 Hazard loss
 Hazard gain
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…implies locating
close to
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
Geography,
Simon
Fraser of
University, Burnaby, 2004
Copyright ©of2008
by Nelson,
a division
(http://www.sfu.ca/geography/people/faculty/Faculty_sites/RogerHayter/books.htm)
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Production location problem
Location of main
supply inputs
Consumer
market A
Consumer
market C
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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.
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Thomson Canada Limited
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Designing the Facility
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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
Quantity of items needed
Standard or
nonstandard items
Factors
Size of components
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Special design features
Quality and reliability of suppliers
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Inventory Management
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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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Computerized Resource Planning
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Materials Requirement
planning (MRP)
Computerized system of controlling the flow
of resources and inventory
Manufacturing
Resource Planning II
(MRPll)
A complex computerized system that integrates
data from many departments to allow managers
to forecast and assess the impact of production
plans on profitability more accurately
Enterprise resource
planning (ERP)
A computerized resource-planning system that
incorporates information about the firm’s
suppliers and customer with its internally
generated data
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Chapter 11
Supply Chain Management
Supply Chain
The entire sequence of securing inputs,
producing goods, and delivering goods to
customers
Supply Chain
Management
The process of smoothing transitions along
the supply chain to satisfy customers and
develop tighter bonds with suppliers
Goal:
Satisfying customers with quality
products and services from their suppliers
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Production Control
Routing
Value-stream
mapping
Gantt charts
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Scheduling
Critical path
method
PERT
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Chapter 11
Gantt Chart
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Critical Path Method
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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
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2
101
10
10 3
10 4
Total Accumulated Production
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105
106
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Improving Production and Operations
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Quality
Goods and services that meet customer
exceptions by proving reliable performance
Quality Control
The process of creating standards for quality,
producing goods that meet them, and
measuring finished products and services
against them
Total Quality
Management
Deming’s concept that emphasizes the use of
quality principles in all aspects of a company’s
production and operations
Continuous
Improvement
A constant commitment to seeking better ways
of doing things to achieve greater efficiency and
improved quality
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Lean Manufacturing
Lean
manufacturing
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Just-in-time
(JIT)
Streamlining production by eliminating steps in the
production process that do not add benefits that
customers are willing to pay for.
A system in which materials arrive exactly when they
are needed for production, rather than being stored on
site.
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Technology and Automation at Your Service
Computer-Aided Design and
Manufacturing Systems
Robotics
Flexible Manufacturing Systems
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Computer-Integrated Manufacturing
POS, ATMs, etc.
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Trends in Operations Management
Asset management
Modular production
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Designs for production efficiency
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