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Chapter Nine

*
Production and Operations Management of Goods and Services

McGraw-Hill/Irwin

Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

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SAMUEL J. PALMISANO
IBM
Profile

Current CEO and President of IBM, he started in the company in 1973. The company invested $16 billion in acquiring 60 other companies. Switching the companys focus from production to service, Palmisano has led IBM to enter the emerging global market.
9-2

MANUFACTURING in the U.S.

*Manufacturing
and Services in Perspective LG1

From 2001 to 2009, manufacturing output in the U.S. rose 4% each year.
The U.S. is still the worlds leading manufacturer. Almost 25% of all goods produced each year come from the U.S.
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WHATS MADE in the USA?

Leading U.S. Manufactured Goods
Products Chemicals Pharmaceuticals, cosmetics, soaps, paints, fertilizers Transportation Equipment Cars, planes, trains, ships Processed Foods, Beverages and Tobacco Cookies, coffee, cigarettes, prepared meals Computers and Electronics Computers and communication equipment Value $250 Billion $195 Billion

*Manufacturing
and Services in Perspective LG1

Number of Employees 830,000 Americans Over 1.4 Million Americans

$175 Billion

1.7 Million Americans

$146 Billion

1.2 Million Americans

Source: Parade Magazine, www.parade.com/intel, April 19, 2009.

9-4

Exporters Extraordinaire
Top Ten States that Manufacture Goods for Export
State California Texas Ohio Michigan New York Illinois Pennsylvania Washington North Carolina Indiana
Source: BusinessWeek, www.businessweek.com, November 12, 2007.

*Manufacturing
and Services in Perspective LG1

Thousands of Workers 206.1 108.9 95.6 79.8 77.2 76.6 71.8 71.3 60.1 59.6

9-5

MASSIVE MANUFACTURERS
The Top Ten U.S. Manufacturers
Rank 1 2 3 4 5 6 7 8 9 10
Source: Industry Week, www.industryweek.com.

*Manufacturing
and Services in Perspective LG1

Company Exxon-Mobil Chevron ConocoPhillips General Electric General Motors Ford Motor Valero Energy Hewlett-Packard IBM Procter & Gamble

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The GREEN MOVEMENT IMPROVES the ECONOMY

(Thinking Green)

* *

The Green Economy is worth more than $200 billion annually and is expected to reach $1 trillion by 2020. Consumers like products that say all natural, locally grown, energy efficient, etc. The market for new green products and services is almost endless.

The Green Movement, however, is only beginning.

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TOP PAYING SERVICE JOBS

*Manufacturing
and Services in Perspective LG1

The U.S. economy is no longer manufacturing based.

85% of jobs are in the service sector.

The top-paying service jobs in the U.S. are in:

Legal services Medical services Entertainment Accounting Finance Management consulting
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REMAINING COMPETITIVE in GLOBAL MARKETS

Manufacturers and Service Organizations Become More Competitive

LG1

U.S. is still the leader in nanotechnology and biotechnology. How can U.S. businesses maintain a competitive edge?
Focusing on customers Practicing continuous improvement Focusing on quality Relying on the Internet to unite companies Adopting new production techniques.
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PRODUCTION and PRODUCTION MANAGEMENT

From Production to Operations Management

LG2

Production -- The creation of goods using land,

labor, capital, entrepreneurship and knowledge (the factors of production).

Production Management -- All the

activities managers do to help firms create goods.

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OPERATIONS MANAGEMENT

From Production to Operations Management

LG2

Operations Management -- A specialized area in

management that converts or transforms resources into goods and services.

Operations management includes: Inventory management Quality control Production scheduling Follow-up services
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*
PROGRESS ASSESSMENT

Progress Assessment

*
What have U.S. manufacturers done to regain a competitive edge? What must U.S. companies do to continue to strengthen the countrys manufacturing base? What led companies to focus on operations management rather than production?

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The PRODUCTION PROCESS

*Production
Processes LG3

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FORM UTILITY

*Production
Processes LG3

Form Utility -- The value producers add to materials

in the creation of finished goods and services.

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GROVES BASIC PRODUCTION REQUIREMENTS

*Production
Processes LG3

1. To build and deliver products in response to the demands of the customer. 2. To provide an acceptable quality level.

3. To provide everything at the lowest possible cost.

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PROCESS and ASSEMBLY in PRODUCTION

*Production
Processes LG3

Process Manufacturing -- The part of production

that physically or chemically changes materials.

Assembly Process -- The part of the production

process that puts together components.

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KEY PRODUCTION PROCESSES

*Production
Processes LG3

Production processes are either continuous or intermittent.

Continuous Process -- Long production runs turn

out finished goods over time.

Intermittent Process -- Production runs are short

and the producer adjusts machines frequently to make different products.

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MADE in a MINUTE
Production of Some of Americas Favorite Products

*Production
Processes LG3

Product

Number of Items Made in a Minute

Krispy Kreme Doughnuts

Chips Ahoy! Cookies Twinkies Jello Boxes LifeSavers

5,208
4,000 972 764 100 rolls

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DEVELOPMENTS MAKING U.S. COMPANIES MORE COMPETITIVE

The Need to Improve Production Techniques and Cut Costs

LG3

1. Computer-aided design and manufacturing 2. Flexible manufacturing 3. Lean manufacturing 4. Mass customization

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COMPUTER-AIDED DESIGN and MANUFACTURING

Computer-Aided Design (CAD) -- The use of
computers in the design of products.

Computer-Aided Design and Manufacturing

LG3

Computer-Aided Manufacturing (CAM) -The use of computers in the manufacturing of products.

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FLEXIBLE MANUFACTURING

*Flexible
Manufacturing LG3

Flexible Manufacturing -- Designing machines to

do multiple tasks so they can produce a variety of products.

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LEAN MANUFACTURING

*Lean
Manufacturing LG3

Lean Manufacturing -- Using less of everything

than in mass production.

Compared to others, lean companies:

Take half the human effort. Have half the defects in finished products. Require one-third the engineering effort. Use half the floor space. Carry 90% less inventory.

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MASS CUSTOMIZATION
Mass Customization -Tailoring products to meet the needs of a large number of individual customers.

*Mass
Customization LG3

More manufacturers are learning to customize.

Mass customization exists in the service sector too.

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*
PROGRESS ASSESSMENT
Whats form utility?

Progress Assessment

*
Define and differentiate the following: process manufacturing, assembly process, continuous process and intermittent process. What do you call the integration of CAD and CAM?
Whats mass customization?

9-24

OPERATIONS MANAGEMENT

*Operations
Management Planning LG4

Operations management planning helps solve problems like:

- Facility location - Facility layout - Materials requirement planning - Purchasing - Inventory control - Quality control
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FACILITY LOCATION

Facility Location
LG4

Facility Location -The process of selecting a geographic location for a companys operations.

Rising numbers of Internet businesses means brick-and-mortar retailers must find great locations.
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STAY or LEAVE
(Making Ethical Decisions)

Potential of low-cost labor is very attractive to companies hoping to remain competitive.

However, shuttering operations and moving can often cause severe economic problems in dependent areas. What would you do if you were the CEO of ChildrenWear Industries faced with this problem?

9-27

OPERATIONS MANAGEMENT on the INTERNET

Taking Operations Management to the Internet

LG4

Sometimes businesses outsource engineering, design and manufacturing to other companies. Often these relationships are managed through the Internet.

Many companies are developing Internet-focused strategies.

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FUTURE FACILITY LOCATION
Facility Location in the Future

LG4

Information technology gives firms increased flexibility in terms of location.

Telecommuting -- Working from home via
computer and modem.

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PARTNERING BEYOND COUNTRY BORDERS

(Reaching Beyond Our Borders)

* *

Dain Hancock of Lockheed Martin had the formidable task of uniting 80 companies into a single production unit.
Using the Internet and tech tools, like electronic white boards, kept the companies in touch in real time.
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SETTING UP the FACILITY
Facility Layout LG4

Facility Layout -- The physical arrangement of

resources, including people, to most efficiently produce goods and provide services.

Facility layout depends on the processes performed:

- Service: Help customers find products - Manufacturing: Improve efficiency

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FACILITY LAYOUT OPTIONS
Facility Layout LG4

1. Assembly Line Layout Workers do only a few

tasks at a time.

2. Modular Layout Teams of workers produce more

complex units of the final product.

3. Fixed-Position Layout Allows workers to

congregate around the product.

4. Process Layout Similar equipment and functions

are grouped together.
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ASSEMBLY LINE LAYOUT
Facility Layout LG4

9-33

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MODULAR LAYOUT
Facility Layout LG4

9-34

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PROCESS LAYOUT
Facility Layout LG4

9-35

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FIXED-POSITION LAYOUT
Facility Layout LG4

9-36

MRP and ERP

*Materials
Requirement Planning LG4

Materials Requirement Planning (MRP) -- A

computer-based operations management system that uses sales forecasts to make sure parts and materials are available when needed.

Enterprise Resource Planning (ERP) -- A newer

version of MRP, combines computerized functions into a single integrated software program using a single database.

9-37

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PURCHASING
Purchasing LG4

Purchasing -- The function that searches for highquality material resources, finds the best suppliers and negotiates the best price for goods and services.

The Internet has transformed purchasing.

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INVENTORY CONTROL

Just-in-Time Inventory Control

LG4

Just-in-Time (JIT) Inventory Control -- The

production process in which a minimum of inventory is kept and parts, supplies and other needs are delivered just in time to go on the assembly line.

To work effectively, the process requires excellent coordination with suppliers.

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QUALITY CONTROL
Quality Control LG4

Quality -- Consistently producing what the customer

wants while reducing errors before and after delivery.

Six Sigma Quality -- A quality measure that allows

only 3.4 defects per million opportunities.

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STATISTICAL QUALITY CONTROL & Quality Control STATISTICAL PROCESS CONTROL LG4

Statistical Quality Control -- A process used to

continually monitor all phases of the production process.

Statistical Process Control -- A process of

testing statistical samples of product components at each stage of production.

Measuring quality along the production process reduces the need for quality-control at the end.
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*
The BALDRIGE AWARDS
The Baldrige Awards
LG4

Companies can apply for awards in these areas:

- Manufacturing - Services

- Small Businesses
- Education - Healthcare

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THE WINNERS ARE
2008 Baldrige Award Recipients
The Baldrige Awards
LG4

Cargill Corn Milling North America

Wayzata, Minnesota (Manufacturing)

Poudre Valley Health System

Fort Collins, Colorado (Healthcare)

Iredell-Statesville Schools
Statesville, North Carolina (Education)

Source: National Institute of Standards and Technology, www.quality.nist.gov.

9-43

*ISO 9000 and

WHAT is the ISO?
ISO 14000 Standards LG4

The International Organization for Standardization (ISO) is a worldwide federation of national standards bodies.
ISO 9000 -- The common name given to quality
management and assurance standards.

ISO 14000 -- A collection of the best practices for

managing an organizations impact on the environment.
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PROGRESS ASSESSMENT

Progress Assessment

*
What are the major criteria for facility location?

Whats the difference between MRP and ERP?

Whats just-in-time inventory control?

What are Six Sigma quality, the Baldrige Award, ISO 9000 and ISO 14000?

9-45

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PERT

Control Procedures: PERT and GANTT Charts

LG5

Program Evaluation and Review Technique (PERT) -- A method for analyzing the tasks involved
in completing a given project and estimating the time needed.

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STEPS INVOLVED in PERT

Control Procedures: PERT and GANTT Charts

LG5

1. Analyzing and sequencing tasks 2. Estimating the time needed to complete each task 3. Drawing a PERT network illustrating the first two steps 4. Identifying the critical path
Critical Path -- The sequence of tasks that takes the longest time to complete.
9-47

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PERT CHART for a MUSIC VIDEO

Control Procedures: PERT and GANTT Charts

LG5

9-48

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GANTT CHARTS

Control Procedures: PERT and GANTT Charts

LG5

Gantt Chart A bar graph that shows what projects

are being worked on and how much has been completed.

9-49

GANTT CHART for a DOLL FACTORY

Control Procedures: PERT and GANTT Charts

LG5

9-50

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PROGRESS ASSESSMENT

Progress Assessment

*
Draw a PERT chart for making breakfast of threeminute eggs, buttered toast and coffee. Define the critical path. How could you use a Gantt chart to keep track of production.

9-51