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CHAPTER NINE

CHAPTER NINE. Operations Management (Production). Manufacturing. Service. America’s Manufacturing. To regain its competitive edge, U.S. industry has implemented many changes, including: A CUSTOMER FOCUS COST SAVINGS THROUGH SITE SELECTION

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CHAPTER NINE

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  1. CHAPTER NINE Operations Management (Production) Manufacturing Service

  2. America’s Manufacturing • To regain its competitive edge, U.S. industry has implemented many changes, including: • A CUSTOMER FOCUS • COST SAVINGS THROUGH SITE SELECTION • TOTAL QUALITY MANAGEMENT using ISO 9000 and ISO 14000 standards • NEW MANUFACTURING TECHNIQUES • Reliance on the INTERNET to unite companies

  3. Evolving Manufacturing • Important issues will need to be debated: • The merits of MOVING PRODUCTION FACILITIES TO FOREIGN COUNTRIES • REPLACING WORKERS WITH ROBOTS AND OTHER MACHINERY • PROTECTING AMERICAN MANUFACTURERS through quotas and other restrictions of free trade

  4. Evolving Manufacturing • The service sector has become a larger and larger part of the overall economy • Tomorrow’s college graduates will face tremendous challenges (and career opportunities) in redesigning and rebuilding America’s manufacturing base

  5. FROM PRODUCTION TO OPERATIONS MANAGEMENT. • PRODUCTION is the creation of finished goods and services using the factors of production • INPUTS are land, labor, capital, entrepreneurship, and knowledge • PRODUCTION MANAGEMENT is the term used to describe the creation of goods

  6. FROM PRODUCTION TO OPERATIONS MANAGEMENT • Production has historically been associated with manufacturing, but this is changing significantly • The SERVICE SECTOR has grown dramatically • The U.S. now has a SERVICE ECONOMY, one dominated by the service sector • To reflect these changes, the term PRODUCTION often is replaced by OPERATIONS

  7. FROM PRODUCTION TO OPERATIONS MANAGEMENT • OPERATIONS MANAGEMENT is a specialized area in management that converts or transforms resources into goods and services • Some organizations produce mostly goods; others produce mostly services; some produce both

  8. SHIFT TOWARDS SERVICES AND A CUSTOMER ORIENTATION FOR PROFIT • Companies that have prospered in the last decade have expanded operations management and moved it closer to the customer • The text uses the following examples: • Car companies increase revenues by providing parts and servicing used cars • Another example is IBM, which has lessened its reliance on selling computer hardware by expanding the sale of computer services • APPLICATIONS SERVICE PROVIDERS (ASPs) are companies that provide software services online so companies do not have to buy their own software

  9. OPERATIONS MANAGEMENT FUNCTIONS • FACILITY LOCATION is the process of selecting a geographic location for a company’s operations • One strategy is to make it easy for consumers to access your service • The ultimate convenience is shopping through the Internet • The most successful service-sector businesses are conveniently located • The shift of manufacturing and service organizations sometimes results in pockets of unemployment and tremendous growth in others

  10. What’s Had The Biggest Effect on Productivity?

  11. OperationsManagement Functions • Facility Location • For Manufacturers • Close to Markets • In the Future • Facility Layout • Quality Control • Baldridge Award • ISO 9000/ISO 140000

  12. FACILITY LOCATIONS • Entrepreneurs move their facilities from one location to another for several reasons: • Manufacturers often choose sites that are CLOSE TO THE RIGHT KIND OF LABOR OR CHEAP LABOR • Even though the cost of labor is becoming a smaller chunk of total production costs, CHEAP LABOR REMAINS A MAJOR REASON LESS TECHNOLOGICALLY ADVANCED MANUFACTURERS MOVE THEIR PLANTS • It is important for firms to maintain the SAME QUALITY STANDARDS AND FAIR LABOR PRACTICES wherever they produce.

  13. FACILITY LOCATIONS • Entrepreneurs move their facilities … • Another reason for moving facilities is for inexpensive resources • The most important resource is people, so companies tend to cluster where smart and talented people are • REDUCING TIME TO MARKET critical to successful global competition • Manufacturers need sites that move their products through the system quickly and at the lowest costs • One key to reducing time-to-market involves seeking countries with the most advanced information systems

  14. FACILITY LOCATIONS • LOCATING CLOSE TO MARKETS • Many businesses are building factories in foreign countries to get closer to international customers • When U.S. firms select foreign sites, they also study they quality of life for workers and managers • Site selection has become a critical issue in production and operations management.

  15. FACILITY LOCATIONS • FACILITY SELECTION IN THE FUTURE • New developments in information technology are enabling firms and employees more flexibility in choosing locations • TELECOMMUTING, working from home via computer and modem, is a major trend in business • Today, a big incentive to locate in a particular location is the TAX SITUATION AND DEGREE OF GOVERNMENT SUPPORT • Some states and local governments have higher taxes, yet many offer tax reductions and other supports to attract new businesses.

  16. FACILITY LOCATIONS • FACILITY LAYOUT • Facility layout depends on the processes that are to be performed • For SERVICES, the layout is usually designed to help the consumer find and buy things • Many stores are adding kiosks that help customers find things on the Internet.

  17. FACILITY LOCATIONS • For MANUFACTURING PLANTS, efficient facilities layout can result in cost savings • The text uses the example of Delphi Automotive Systems • The plant floor is now organized around customer-focused work cells that are modular and portable • As a result, productivity increased over 25%.

  18. FACILITY LOCATIONS • Many companies are moving from an assembly-line layout to a MODULAR LAYOUT • Many companies are outsourcing the production functions to specialists • With an Internet-based layout, the customer is tied into the process.

  19. FACILITY LOCATIONS • TAKING OPERATIONS MANAGEMENT TO THE INTERNET • Many rapidly growing companies outsource engineering, design, manufacturing, and other tasks • Companies are creating new relationships with suppliers over the Internet, creating an INTERFIRM process. • Coordination is critical. • Companies called ELECTRONIC HUBS (E-HUBS) make the flow of goods among firms faster and smoother. • Many firms are developing whole new Internet-focused strategies to compete more effectively • The concept of SUPPLY CHAIN MANAGEMENT

  20. Leading U.S.Manufacturing States New York Illinois Ohio California Pennsylvania Texas

  21. Quality Control • QUALITY CONTROL is the measurement of products and services against set standards • Earlier, quality control was often done at the end of the production line by a quality control department • QUALITY means satisfying customers by building in and ensuring quality from product planning to production, purchasing, sales, and service • Emphasis is placed on CUSTOMER SATISFACTION • TQM programs begin by analyzing the consumer to see what quality standards need to be established • Quality is then designed into products, and every product must meet those standards: Examples include quality successes at Holiday Inn, Motorola, and Xerox • The customer is ultimately the one who determines what the standard for quality should be

  22. Quality Standards • QUALITY STANDARDS: THE BALDRIGE AWARDS • One standard for quality was set with the introduction in 1987 of the MALCOLM BALDRIGE NATIONAL QUALITY AWARDS • To qualify, a company has to show quality in SEVEN KEY AREAS: leadership, strategic planning, customer and market focus, information and analysis, human resources focus, process management, and business results • The focus is shifting to provide TOP-QUALITY CUSTOMER SERVICE in all respects • The text uses the example of Sunny Fresh Foods, a recent Baldrige winner.

  23. Quality Standards • ISO 9000 AND ISO 14000 STANDARDS • The new global measures for quality are called ISO 9000 standards • ISO 9000 refers to quality management and assurance standards published by the International Organization for Standardization • The latest standards, called ISO 9000:2000 were published in November of 2000

  24. Quality Standards • ISO 9000 AND ISO 14000 STANDARDS • ISO standards provide a "common denominator" of business quality accepted around the world • The European Union is demanding that companies doing business with the EU be certified by ISO standards • ISO 14000 is a collection of the best practices for managing and organization's environmental impacts • Today, ISO 90000 and 14000 standards have been blended so that a firm can work on both at once.

  25. Performance Features Reliability Conformance Durability Serviceability Aesthetics Perceived Quality Dimensions of Quality Source: Harvard Business Review, “Competing on the Eight Dimensions of Quality”, 12/87.

  26. The Production& Operations Process Inputs Output Conversion Process Manufacturing UB’s Dry Cleaners Service

  27. Service Sector Operations Mgmt. • Measuring Quality • Interactivity

  28. Service Sector • Operations management in the service industry is about creating a good experience for those who use the service • Delighting customers has become the quality standard for luxury hotels and other service businesses • The greatest productivity problem in the U.S. is in the service economy • Operations management has led to PRODUCTIVITY INCREASES IN THE SERVICE SECTOR, but haven’t been reflected in national productivity figures.

  29. Service Sector • It is DIFFICULT TO MEASURE PRODUCTIVITY in the service sector • Productivity measures don’t capture improvements in quality • When new systems are developed to measure the quality improvement of goods and services, productivity in the service sector with go up dramatically.

  30. Service Sector • COMPUTERS are improving service sector productivity • Burger King’s workers now use headsets to take orders • ATMs speed banking transactions • Grocery stores use computerized checkout and universal product codes to speed checkout • Airlines are also experiencing productivity increases due to computerization. • Productivity increases in the service sector still have a long way to go.

  31. Service Sector • SERVICES GO INTERACTIVE • The service industry has always taken advantage of new technology to increase customer satisfaction • Now interactive computer networks are revolutionizing services • As computers and modems get faster, the Internet may take over much of traditional retailing • The service sector is experiencing the same kind of revolution as manufacturing has.

  32. Operations Mgmt Manufacturing Sector • Definition of Production • Process Planning • Assembly Process • Continuous Process • Intermittent Process • Materials Requirement Planning • Enterprise Resource Planning

  33. Manufacturing Sector • Production uses basic inputs to produce outputs • Production adds value, or utility, to materials or processes • FORM UTILITY is the value added by the creation of finished goods and services, such as the value added by taking silicon and making computer chips or putting services together to create a vacation package. • Form utility can exist at the retail levels as well • To be competitive, manufacturers must keep the costs of inputs down and the amount of output high • How does a producer keep costs low and still increase output?

  34. Process Planning • PROCESS PLANNING is choosing the best means for turning resources into useful goods and services • Andrew S. Grove, chief executive officer of Intel, defines the THREE BASIC REQUIREMENTS OF PRODUCTION: • To build and deliver products in response to the demands of the customer at a scheduled delivery time • To provide an acceptable quality level • To provide everything at the lowest possible cost.

  35. Process Planning • TYPES OF PRODUCTION OPERATIONS • PROCESS MANUFACTURING is an activity that physically or chemically changes material • In the ASSEMBLY PROCESS, components are put together to constitute a new entity. • CONTINUOUS VERSUS INTERMITTENT PROCESSES • A CONTINUOUS PROCESS is one in which long production runs turn out finished goods over time • An INTERMITTENT PROCESS is an operation where the production run is short and the machines are changed frequently to produce different products • Today, most new manufacturers use intermittent processes.

  36. MRP • MATERIALS REQUIREMENT PLANNING (MRP) is a computer‑based operations management system that uses sales forecasts to make sure the needed parts and materials are available at the right place and the right time • MRP was most popular with companies that made products with a lot of different parts. • MRP II is an advanced version of MRP that involves more than materials planning • It includes planning all the resources involved including projected sales, personnel, plant capacity, and distribution limitations • MRP II was called MANUFACTURING RESOURCE PLANNING.

  37. ERP • ENTERPRISE RESOURCE PLANING is a computer‑based production and operations system that links multiple firms into one, integrated production unit • The software enables the monitoring of quality and customer satisfaction as it’s happening • ERP monitors processes in MULTIPLE FIRMS at the same time • ERP systems are going global via the Internet • DYNAMIC PERFORMANCE MONITORING (DNP) lets plant operations monitor use of power, chemicals, and other resources

  38. ERP • Some firms are providing SEQUENTIAL DELIVERY, providing components in an order sequenced to their customers’ production process. • Eventually, such programs will link suppliers, manufacturers, and retailers in a completely integrated manufacturing and distribution system.

  39. Modern Production • The goal of manufacturing and process management is to provide high-quality goods and services instantaneously in response to customer demand • Traditional organizations were not designed to be so responsive, but to make a limited variety of products at a low cost • The whole idea of MASS PRODUCTION was to make a large number of limited variety of products at a very low cost. • Over the years, low cost often came at the expense of quality and flexibility • Such inefficiencies made U.S. companies subject to foreign competition • As a result of this competition, companies today must make a wide variety of high-quality custom-designed products at a very low cost.

  40. Just-In-Time (JIT) Inventory Purchasing Flexible Manufacturing Lean Manufacturing Mass Customizing Competing in Time Technology Assisted Computer-Aided Design (CAD) Computer-Aided Manufacturing (CAM) ModernProduction Techniques

  41. Control Procedures • Program Evaluation & Review Techniques (PERT) • Critical Path Method (CPM) • Gantt Chart

  42. How to IncreaseTeam Productivity • Teach other members by sharing skills/strengths • Emphasize concern for teammates • Ask/invite questions • Motivate teammates through praise & recognition

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