12
Operations
Management and
Control Systems
PowerPoint Presentation by
Ian Anderson, Algonquin College
Chapter 12
Copyright © 2010 by Nelson Education Ltd.
Looking Ahead
After studying this chapter, you should be able to:
1. Discuss the nature of the operations process for both products and
services.
2. Describe the need for management control systems.
3. Explain the key elements of total quality management (TQM)
programs.
4. Explain how reengineering and other methods of work
improvement can increase productivity and make a firm more
competitive.
5. Discuss the importance of purchasing and the nature of key
purchasing policies.
6. Describe ways to control inventory and minimize inventory costs.
Chapter 12
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The Operations Process
• The Nature of the Operations Process
–Operations management
• The planning and control of the operations process
– The activities that produce a firm’s goods and services
• Involves acquiring inputs and overseeing their
transformation in
products and services
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The Operations Process
Inputs
Raw
Materials
Money
Labour
Equipment
Information
Energy
Operations
• Designing
• Fabricating
•
•
Processing
Refining
•
•
Storing
Shipping
Outputs
Products
Examples:
• Treating
• Assembling
Clothing
Baked goods
Paint
• Advising
• Instructing
Services
Examples: Dry cleaning
Appliance repair
Automobile painting
Exhibit 12-1
Chapter 12
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Manufacturing versus Service
• Manufacturing Versus Service Operations
–Productivity is more easily measured in
manufacturing than service operations
–Quality is more difficult to establish in service
than manufacturing operations.
–Customers are more involved in service than
manufacturing operations.
–Manufacturing can produce goods for inventory;
service operations cannot store or bank services.
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Types of Manufacturing
• Job Shops
–Operations characterized by short production runs of
small quantities of unique items.
• Repetitive Manufacturing
–Operations in which long production runs are used to
produce a large quantity of a standardized product.
• Batch Manufacturing
–An intermediate form involving more variety in volume
and products than job shops and less than repetitive
manufacturing.
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Planning and Scheduling
and Maintenance
• Operations Planning and Scheduling
–Attempting to achieve the orderly, sequential flow of
products to market.
• Production operations
• Service operations
• Plant Maintenance
–The role of maintenance
• To correct equipment malfunctions and prevent
breakdowns
–Types of maintenance
• Preventive maintenance
• Corrective maintenance
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The Control Cycle
• Control Cycle
– A period of time over which an activity is planned,
measured, corrected, and re-planned
• Variance
– The difference between planned forecast activity
and actual activity
• Critical questions
– What, how and how often to measure?
– What is unacceptable variance and how to correct?
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12-8
The Control Cycle Illustrated
Exhibit 12-2
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Essential Elements of
Successful Quality Management
Successful Quality Management
Focus on
Customers
Chapter 12
Supportive
Organizational
Culture
Copyright © 2010 by Nelson Education Ltd.
Appropriate
Tools and
Techniques
Total Quality Management and Quality
Goals of Operations Management
• Total Quality Management (TQM)
–An aggressive, all-encompassing management approach
to providing high-quality products and services.
• 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.
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Customer Focus on 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.
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12-12
Benchmarking and TQM
• Benchmarking
–The process of studying the products, services, and
practices of other firms and using the insights gained to
improve quality internally.
–Identify best practices, understand them, and use the
insights gained to improve one’s operations
• Continuous Quality Improvement
–A constant and dedicated effort to improve quality.
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Tools and Techniques of TQM
• Employee Participation
–Employee performance is a critical quality
variable.
–Quality circle
• A group of employees who meet regularly to discuss
quality-related problems.
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Tools and Techniques of TQM
• The Inspection Process
–The examination of a product to determine whether it
meets quality standards.
–Inspection standard
• A specification of a desired quality level and allowable
tolerances.
–Attribute inspection
• The determination of product acceptability based on
whether it will or will not work.
–Variable inspection
• The determination of product acceptability based on a
variable such as weight or length.
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Statistical Methods of Quality Control
• Acceptance Sampling
–The use of a random, representative portion to determine
the acceptability of an entire lot.
• 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.
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12-16
International Certification for
Quality Management
• ISO 9000
–The standards governing international certification of a
firm’s quality management procedures.
–QM variables include customer focus, leadership and
continual improvement
• ISO 14000
–A set of generic management standards for responsible
environmental management.
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12-17
Quality Management in
Service Businesses
•
Six factors positively influence customers’
perception of service quality
1. Being on target
2. Care and Concern
3. Spontaneity
4. Problem Solving
5. Follow up
6. Recovery
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12-18
Competitive Strength Through
Improved Productivity
• The Importance of Improving Productivity
–Productivity is the efficiency with which inputs
are transformed into outputs.
–Productivity is more difficult to increase in
service industries than in manufacturing sectors.
Productivity 
Outputs
Inputs
Products and/or services
Productivi ty 
Labour  Energy  Money  Raw Materials  Informatio n
…continued
Chapter 12
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12-19
Competitive Strength Through
Improved Productivity
• Reengineering for Improved Productivity
–Reengineering
• A fundamental restructuring to improve the operations
process.
• Asking “Why?” is important in the reengineering
process.
…continued
Chapter 12
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12-20
Avoid Failure in
Process Improvement
•
•
•
•
•
Be customer focused
Phase in improvements
Involve the employees
Divide the project up
Communicate
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Lean Manufacturing
• Three-pronged approach to:
1. Eliminate waste
2. Ensure quality
3. Involve employees in designing and managing their
work
• Key principles:
– Define value from the customer’s perspective
– Identify and map the value stream
– Reduce or eliminate waste or improve flow
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Reducing or Eliminating Waste
•
•
•
•
•
•
•
Stop overproduction for building inventory
Prevent unnecessary use/storage of raw materials
Streamline transportation
Optimize motion and actions of personnel
Reduce waiting and idle time in process
Reduce or eliminate defects
Reduce steps/features not valued by customers
Chapter 12
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Benefits of “Being Lean”
•
•
•
•
•
•
•
•
Culture of continuous improvement
Decreasing manufacturing cycle times
Reducing waste
Empowering employees
Increasing profits and cash flow
Increasing production capacity
Increasing customer satisfaction
Reducing costs
Chapter 12
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12-24
Work Improvement
• Operations Analysis
– Laws of motion economy
• Arranging work in the most cost-effective and efficient manner
possible.
• Methods of Work Measurement
– Motion Study
• An analysis of all the motions a worker makes to complete a given
job.
– Time Study
• A determination of the average time, it takes to complete
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12-25
Purchasing Policies and Practices
• Purchasing
–The process of obtaining materials, equipment, and
services from outside.
• The Importance of Purchasing
–The process of acquiring quality raw material inputs
affects:
• The timely and consistent production of quality products.
• Retailer sales of finished products to customers.
• The costs of products, their profitability and their selling
prices.
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Make or Buy Decisions
• Purchasing Practices and Profitability
–Making or buying
• A firm’s choice between producing and purchasing
component parts for its products.
–Reasons for making:
•
•
•
•
•
•
Chapter 12
Increased utilization of plant capacity
Assurance of supply of critical components
Maintaining secrecy in designs and processes
Saving on transportation costs and supplier profits
Closer coordination and control of overall process
Higher quality components for inputs
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Outsourcing and
Reasons for Buying
• Purchasing Practices and Profitability
–Outsourcing
• Purchasing products or services that are outside the firm’s
area of competitive advantage.
–Reasons for Buying
•
•
•
•
•
Chapter 12
Supplier’s part/service is cheaper and/or higher quality
Investment savings on space, personnel, equipment
Greater flexibility in matching supply and demand
Increased focus on production of core product/service
No risk of equipment obsolescence
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Sources of Supply
• Diversifying sources of supply
–Reasons for having a sole supplier
•
•
•
•
Outstanding supplier quality
Quantity discounts for volume purchases
Single orders too small to divide among suppliers
Quality of supplier-customer relationship
–Reasons for having multiple suppliers
• Choice of best quality, price, and service
• Supplier competes for business
• Insurance against input interruptions
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Relationships with Suppliers
• Relationships with suppliers
–Selecting suppliers
• Price and quality
• Location and delivery reliability
• Services offered—credit, product support, promotion
• Building good relationships with suppliers
–Purchasing practices
•
•
•
•
•
Chapter 12
Pay bills promptly
Be courteous to sales representatives
Avoid abrupt cancellations of orders
Maintain a professional relationship
EDI
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Strategic Alliances
• Developing Strategic Alliances
–Strategic alliance is an organizational relationship that
links two independent business entities in a common
endeavour. Involves close coordination of buyers and
sellers to:
•
•
•
•
•
Chapter 12
Reduce product introduction lead time
Improve product quality
Engage in joint problem solving
Make joint adjustments to market conditions
Involve the supplier early in product development
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Inventory Management
and Operations
• Inventory Cost Control
–Economic order quantity (EOQ)
• The quantity to purchase in order to minimize total
inventory costs.
Total
inventory
costs
Chapter 12
=
Total
carrying
costs
+
Total
ordering
costs
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Graphic Portrayal of the
Economic Order Quantity
Cost ($)
EOQ
Total Costs
Carrying Costs
Ordering Costs
Order Quantity (Units)
Exhibit 12-3
Chapter 12
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Inventory Management and Operations
• ABC Inventory Analysis
–A system of 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
…continued
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Inventory Management and Operations
• Just-In-Time Inventory (JIT) System, also Kanban
–A method of reducing inventory level to an absolute
minimum.
• New 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
…continued
Chapter 12
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Inventory Management and Operations
• Inventory Record-Keeping Systems
–Physical inventory system
• A method that provides for periodic counting of items
in inventory
–Cycle counting
• A system of counting different segments of the
physical inventory at different times during the year.
–Perpetual inventory
• A method for keeping a running record of inventory.
Chapter 12
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