© Prentice Hall, 2002 20 - 1 Modern Management 9 th edition.

© Prentice Hall, 2002 20 - 1

Modern Management9th edition

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Objectives

• Definitions of production, productivity, and quality

• An understanding of the importance of operations and production strategies, systems, and processes

• Insights into the role of operations management concepts in the workplace

• An understanding of how operations control procedures can be used to control production

• Insights into operations control tools and how they evolve into a continual improvement approach to production management and control

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PRODUCTION

Defining Production

Productivity

productivity = outputs

inputs

Traditional strategies for increasing productivity:1. Improving effectiveness of organizational workforce through

training2. Improving production process through automation3. Improving product design to make products easier to assemble4. Improving production facility by purchasing more modern equipment5. Improving quality of workers hired to fill open positions

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PRODUCTION

Quality and ProductivityFocus on Continual ImprovementFocus on Quality and Integrated OperationsQuality Assurance

Statistical Quality Control"No Rejects" Philosophy

Quality Circles

Automation

Strategies, Systems, and Processes.


PRODUCTION

Figure 20.1Deming’s flow diagram for improving product quality

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PRODUCTION

Figure 20.2The quality circle problem-solving process

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OPERATIONS MANAGEMENT

Defining Operations Management

Operations Management Considerations

Key notions:

Involves managers

Takes place within context of objectives and policies

Criteria are standards for effectiveness and efficiency

Operations strategies

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Figure 20.3Major activities performed to manage production

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Operations Management Considerations (con’t)

Capacity Strategy

Capacity flexibility

Steps in Capacity Decisions:

1. Measure capacity of currently available facilities

2. Estimate future capacity needs on basis of demand forecasts

3. Compare future capacity needs and available capacity

4. Identify ways to accommodate long-range capacity changes

5. Select best alternative based on quantitative and qualitative evaluation

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Location Strategy

Factors in a Good LocationNearness to market and distribution centers

Nearness to vendors and resources

Requirements of federal, state, and local governments

The character of direct competition

The degree of interaction with the rest of the corporation

The quality and quantity of labor pools

The environmental attractiveness of the area

Taxes and financing requirements

Existing and potential transportation

The quality of utilities and services.




Product Strategy

Process StrategyTypes of Processes

Continuous processRepetitive processJob-shop process

Layout StrategyBasic types for manufacturing facilities:

1. Product2. Process (functional)3. Fixed-position

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Figure 20.4The three basic layout patterns

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Human Resources Strategy

Human resource imperatives:1. Optimize individual, group, and organizational

effectiveness

2. Enhance quality of organizational life

Operational Tools in Human Resources StrategyManpower planning

Job design

Work methods analysisMotion-study techniques

Work measurement methodsOperational tools to establish labor standards.


OPERATIONS CONTROL

Just-in-Time Inventory ControlBest Conditions for JIT

Advantages of JIT

Characteristics of JIT1. Closeness of suppliers2. High quality of materials purchased from suppliers3. Well-organized receiving and handling of materials4. Strong management commitment

Maintenance ControlPure-preventive maintenance policyPure-breakdown policy

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OPERATIONS CONTROL

Cost ControlStages in Cost Control

1. Establishing standard or planned cost amounts

2. Measuring actual costs incurred

3. Comparing planned costs to incurred costs

4. Making changes to reduce actual costs to planned costs

Following above stages:Establish planned costs for labor, materials, and overhead

Measure or calculate costs incurred for these activities

Compare actual operations costs to planned operations costs

Take steps to reduce actual operations costs to planned levels

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OPERATIONS CONTROL

Budgetary Control

Potential Pitfalls of Budgets

1. Placing too much emphasis on insignificant expenses

2. Increasing expenses without adequate information• Zero-base budgeting

3. Ignoring fact that budgets must be changed periodically• Variable budget

Human Relations Considerations in Using Budgets

Reducing Human Relations Problems

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OPERATIONS CONTROL

Ratio Analysis1. Liquidity ratios

2. Leverage ratios

3. Activity ratios

4. Profitability ratios

Using Ratios to Control OrganizationsEvaluate all ratios simultaneously

Compare computed values with industry averages

Incorporate trend analysis

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OPERATIONS CONTROL

Table 20.1 Four Categories of Ratios

Type Example Calculation Interpretation

Profitability Return on investment (ROI) Profit after taxes Productivity of assetsTotal assets

Liquidity Current ratio Current assets Short-term solvencyCurrent liabilities

Activity Inventory turnover Sales Efficiency of inventoryInventory management

Leverage Debt ratio Total debt How a company finances itselfTotal assets

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OPERATIONS CONTROL

Materials ControlProcurement of Materials

Receiving, Shipping, and TraffickingReceiving activities include:

•Unloading •Identifying •Inspecting •Reporting •Storing inbound shipments

Shipping and distribution activities include:•Preparing documents •Packaging •Labeling •Loading •Directing out shipments

Shipping and receiving are organized as one unit

Traffic manager’s main responsibilities are:•Selection of the transportation mode

•Coordination of the arrival and departure of shipments•Auditing freight bills

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OPERATIONS CONTROL

Materials Control (con’t)

Inventory and Shop-Floor Control

Inventory control subsystems:•Work-in-process •Finished-goods inventory

Inventory control specifies:•What •When •How much to buy

Shop-floor control activities include:•Input/output control •Routing•Scheduling•Dispatching•Sequencing•Expediting

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SELECTED OPERATIONSCONTROL TOOLS

Using Control Tools to Control Organizations

InspectionTo Inspect or Not to Inspect

Management by ExceptionEstablishing Rules

Examples of rules based on exception principle:A department manger must immediately inform the plant manager if actual:

1. Weekly labor costs exceed estimated weekly labor costs by more than 15%

2. Dollars spent on a special project exceed funds approved by more than 10%.



Management by Objectives

Break-Even AnalysisBasic Ingredients of Break-Even Analysis

Break-even analysis typically involves:•Reflection •Discussion •Reasoning •Decision makingRelative to major aspects of production:

1. Fixed costs 3. Total costs 5. Profits 7. Breakeven

2. Variable costs 4. Total revenue 6. Loss point

Types of Break-Even AnalysisAlgebraic Break-even Analysis BE =

FC(P – VC)

Graphic Break-even AnalysisAdvantages of Using the Algebraic and Graphic Break-even Methods

Control and Break-even Analysis.



Table 20.2 Fixed costs and Variable Costs for a Book Publisher

Fixed Costs (Yearly Basis) Variable Costs per Book Sold

1. Real estate taxes on property $1,000 1. Printing $2.00

2. Interest on loan to purchase equipment 5,000 2. Artwork 1.00

3. Building maintenance 2,000 3. Sales commission .50

4. Insurance 800 4. Author royalties 1.50

5. Salaried labor 80,000 5. Binding 1.00

Total fixed costs $88,800 Total variable costs per book $6.00

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Figure 20.5Break-even analysis for a book publisher

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Other Broad Operations Control ToolsDecision Tree Analysis

Process Control

Value Analysis

Computer-Aided Design (CAD)Computer Graphics

Computer-aided engineering (CAE)

Computer-Aided Manufacturing (CAM)

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Chapter Twenty

Questions

© Prentice Hall, 2002 20 - 1 Modern Management 9 th edition.

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Transcript of © Prentice Hall, 2002 20 - 1 Modern Management 9 th edition.