Chapter 9
Goals
 USA Manufacturing
 Production  Operations Management
 Production Processes
 Production techniques that have improved
productivity in USA
 Operations management planning issues
 Control Procedures
USA Manufacturing
 In recent history manufacturing has declined while the





service industry has grown
70% of US GDP comes from service sector
85% of jobs comes from service sector
25% of all goods produced in world come from US
manufacturing sector (largest % in world)
This means that we must study how to produce goods and
services
Manufacturing industries doing well: green technology,
nanotechnologies, biotechnologies
 Tesla Motors (Electric carmaker)
 Solyndra (solar company)
 Codexis (biofuels firm)
 3M (nano research done by 3M for adhesives, LCD displays
and more)
Production  Operations Management
 Production
 The creation of finished goods and services using the
factors of production: land, labor, capital,
entrepreneurship and knowledge.
 Production Management
 Term used to describe all the activities managers do to
help their firms create goods
 Operations management
 Term used to describe all the activities managers do to
help their firms create goods and services
 Converting resources into goods and services
Operations Management
 Product creation, development, production,
distribution, managing purchases, inventory control,
quality control, storage, logistics and evaluations
 A great deal of focus is on effectiveness & efficiency of
processes
 Substantial measurement and analysis of internal
processes in order to become more effective and
efficient
http://www.managementhelp.org/ops_mgnt/ops_mgnt.htm
What Is Operations Management Like At:
 Appliance Manufacturer (Product)
 Operations Management take raw materials, human
resources, parts, supplies, paints, tools and more to make
appliance
 Example:

Dacor kitchen wear

http://www.dacor.com/About-Us/The-Dacor-Family.aspx
 List of companies manufacturing appliances in USA

http://www.ssrsi.org/Made%20In%20%20USA/apliances.htm
 Sears (Retail, Finance & Repair - Product & Service)
 Operations Management covers everything: purchases, sales,
finances, repairs
6
What Is Operations Management Like At:
 Colleges (Service)
 Operations Management take information, teachers,
buildings, computers, students and creates a service that
transforms students into educated people
 Hospitals (Service)
 Hospitals Operations Management take information,
buildings, high-tech machines, computers, supplies, highly
skilled labor and creates a service that transforms sick people
into healthy people
7
Form Utility
 The value added by the creation of finished goods and
services, such as:
 The value added by taking silicon and making computer
chips
 Putting services together to create a vacation package
 The value added by taking wood, paint, labor, packaging,
and other costs and making a boomerang
Goal of production
(Andrew S. Grove – Intel)
 Build and deliver products that customers demand at a
scheduled delivery time
 Acceptable quality
 Lowest possible price
Production Processes
 Process Manufacturing
 That part of the production process that physically or chemically
changes materials
 Examples:


Poor the steel into the mold to make parts for excavator
Cook steak, vegetables and rice
 Assembly Process
 The part of the production process that puts together components
 Examples:


Assemble parts to make excavator
Assemble steak, vegetables and rice to make dinner
10
Production Processes
 Continuous Process
 A production process in which long production runs turn out
finished goods over time
 Examples:

Tortilla factory or lumber factory
 Intermittent Process
 A production process in which the production run is short and the
machines are changed frequently to make different products
 Examples:


Auto factories can switch between models
Bakers can make cakes and pies and tarts
11
Production techniques that have improved
productivity in USA
 CAD (Computer-aided Design)
 The use of computers in the design of products
 CAM (Computer-aided Manufacturing)
 The use of computers in the manufacturing of products
 CIM (Computer-integrated Manufacturing)
 One machine that does both CAD and CAM
 Expensive but cuts manufacturing costs dramatically
 Examples:
 http://www.youtube.com/watch?v=nvZBtJncEM&feature=related
12
Production techniques that have improved
productivity in USA
 Mass Production (Perfective in US by companies like Ford)
 Make a lot of one thing
 Like Henry Ford did
 Flexible Manufacturing
 Designing machines to do multiple tasks so that they can produce a
variety of products
 http://www.youtube.com/watch?v=cb-I4FhF36Q&feature=related
 Lean Manufacturing (Originated in Japan)
 Manufacturing that uses fewer inputs (resources) to make the
same number of outputs than before. Increase productivity.
 Reduce labor hours, waste, defects, floor space, inventory
 http://www.youtube.com/watch?v=AUPji7L9aSs&feature=related
13
Production techniques that have improved
productivity in USA
 Mass Customization
 Tailoring products to meet the needs of individual customers
on a mass scale
 Examples:




Dell – design your own computer
Vans shoes – design your own shoe
Colleges – design your own degree
Season Tickets to Mariner Games
14
Reverse Innovation or Frugal Innovation
(Originated in emerging markets)
 Reverse Innovation or Frugal Innovation
 What are needs of poor  create product
 “Turbo Charged Lean Manufacturing”
 Examples:
 Tata Motors (Indian Company) makes $2200 car
 Kenya leads the world in mobile phone money transfer
 GE R & D labs in Bangalore, India makes hand-held ECG
(electrocardiogram) for $800 (instead of $2000)
 TCS (India) create inexpensive water filter from rice husks
(waste product)
 Narayana Hrudayalaya Hospital (India) Heart Surgery for
$2000 (same success rate as US)
 BYD (China) makes lithium batteries for $12 (instead of $40)
Reverse Innovation or Frugal Innovation
 Key ideas:
 Dramatically reduce costs by:


Redesign products & processes
Applying division of labor (expert does what they are expert
at) and economies of scale in new areas like surgery
 Listening to what the poor need
 Product must be tough and easy to use
 Use minimal raw materials
 Not harsh on environment
Reverse Innovation or Frugal Innovation
 Rethinking Production processes:
 Contract out more work and stick to core competency
 Use existing technology in new ways

Computers are rare in India and TVs are common, so TCS
designed a box that connects mobile phone (can get internet)
to TV
 Narayana Hrudayalaya Hospital


1000 beds instead of more common 200 (economies of scale)
Surgeons can specialize in one operation and become that
best at the one operations
Operations Management Planning
Issues (Manufacturing And Service):
 Facility location
 Facility layout
 Materials requirement planning
 Purchasing
 JIT (just-in-time inventory) control
 Quality control
Operations Management Planning
 Facility Location
 The process of selecting a geographic location for a
company’s operations
 Considerations:







Less expensive property, labor, logistic costs
Location, Location, Location
Attractive communities to live in – life style to attract
employees
Are suppliers close?
Are there enough customers or employees?
Tax breaks
Can we just do things on the internet? Retail or engineer?
Operations Management Planning
 Facility Layout
 The physical arrangement of resources (including
people) in the production process
 Products:

http://www.youtube.com/watch?v=AUPji7L9aSs&feature=rel
ated
 Services:

Aravind Eye Hospital (India): 4 operating beds next to each
other and 2 doctors
Operations Management Planning
 MRP (Material Requirement Planning)
 A computer-based production management system that
uses sales forecasts to make sure that needed parts and
materials are available at the right time and place (for a
single firm)
 ERP (Enterprise Resource Planning)
 A computer application that enables multiple divisions or
firms to manage all of their operations (finance,
requirements planning, human resources and order
fulfillment) on the basis of a single, integrated set of
corporate data
 ERP Programs help to bring operations management to
the Internet
Operations Management Planning
 Purchasing
 The function in a firm that searches for quality
material resources, finds the best suppliers, and
negotiates the best price for the goods and services
 Pays all bills that allow discounts during the discount
period





2/10/net 30
$1000 owed
Discount if pay within 10 days = $1000*.02 = $20
$20 discount for paying 20 days early
Annual rate earned = (1+.02)^(365/20)-1 = 43.53%
Operations Management Planning
 JIT (Just-in-time Inventory Control)
 The production process in which a minimum of
inventory is kept on the premises and parts, supplies,
and other needs are delivered just in time to go on the
assembly line
 Reduces storage costs, facility space, obsolesces
 Requires close ties with suppliers
Operations Management Planning
 Quality
 Consistently producing what the customer wants while
reducing errors before and after delivery to the customer
 The before in the most important
 Statistical Quality Control (SQC)
 Statistics used to continually monitor quality
 Six Sigma Quality (Six Standard Deviation Quality)

A quality measure that allows only 3.4 defects per million
opportunities
Control Procedures
 Pert Charts (Critical Path)
 A method for analyzing that tasks involved in completing
a given project
 The Critical Path is the path that takes the longest and
this is most critical to avoid delays on this path
 Gantt Charts
 Bar graph showing production managers what projects
are being worked on and what stage they are in any
given time
How Manufacturers Have Become More
Effective
 Focus more on customers
 Maintain close relationships
 Continuous improvement
 Focus on quality
 Save costs through site selection
 Rely on the Internet to unite partners
 New production techniques
 Looking overseas to get new ideas for production and
innovation in providing goods and services