Aambc om all in one

ADDIS ABABA MEDICAL AND BUSINESS COLLEGE
OPERATIONS MANAGEMENT
AUGUST, 2021
8/7/2021 1

Chapter One
Introduction to production and Operations
Management
Introduction POM
Why study POM
The Scope of Operations Management
Differentiating features of Operations Management
Operations management and decision making
The Historical evolution of Operations Management
Trends in business
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Introduction
• Operations is part of a business organization that is
responsible for producing goods and/or services.
• Goods: Physical items produced by business organizations.
• Services: Activities that provide some combination of time,
location, form, and psychological value.
Every book you read, every video you watch, every e-mail or text
message you send, every telephone conversation you have,
and every medical treatment you receive involves the
operations function of one or more organizations.
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…cont’d
• Production and operations management (POM) is the
management of an organization’s production system.
• A production system takes inputs and converts them into
outputs.
• The conversion process is the predominant activity of a
production system.
• The primary concern of an operations manager is the activities of
the conversion process.
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Organizational Model
• .
POM
Marketing
MIS
Engineering
HRM
QA
Accounting
Sales
Finance
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….cont’d
• The three basic functions of business organizations
Working together successfully means that
all members of the organization understand
not only their own role, but they also
understand the roles of others.
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….cont’d
• Operations and supply chains are intrinsically linked, and no
business organization could exist without both.
• A supply chain is the sequence of organizations—their facilities,
functions, and activities—that are involved in producing and
delivering a product or service.
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….cont’d
• The creation of goods or services involves transforming or
converting inputs into outputs.
• Various inputs such as capital, labor, and information are used to
create goods or services using one or more transformation
processes (e.g., storing, transporting, repairing).
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….cont’d
• The essence of the operations function is to add value during
the transformation process
• Value-added describe the difference between the cost of
inputs and the value or price of outputs.
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Examples of inputs, transformation, and outputs
.
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Operations Management
“Operations management: The management of systems or
processes that create goods and/or provide services.”
 The set of interrelated management activities, which are
involved in manufacturing certain products, is called Production
Management.
 If the same concept is extended to services management,
then the corresponding set of management activities is called as
Operations Management.
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Why study POM
There are number of good reasons to study it.
1. Operations management activities are at the core of all business
organizations, this is because every aspect of business affects or
is affected by operations.
2. 50% of the jobs are in operations management-related areas-
such as customer service, quality assurance, production planning,
scheduling, job design etc.
3. Activities in all of the other areas of business organizations, such
as finance, accounting, human resources, logistics, management
information systems, marketing, purchasing as well as others are
all interrelated with operations management activities.
So it is essential for people who work in these areas to have a basic
understanding of operations management.
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…cont’d
• Operations interacts with other functional areas of the
organization:
• The legal department must be consulted on contracts with
employees, customers, suppliers, and transporters, as well as on
liability and environmental issues.
• Accounting supplies information to management on costs of labor,
materials, and overhead, and may provide reports on items such
as scrap, downtime, and inventories.
• Management information systems (MIS) is concerned with
providing management with the information it needs to effectively
manage. MIS is also important for managing the control and
decision-making tools used in operations management.
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….cont’d
• The personnel or human resources department is concerned with
recruitment and training of personnel, labor relations, contract
negotiations, wage and salary administration, assisting in
manpower projections, and ensuring the health and safety of
employees.
• Public relations has responsibility for building and maintaining a
positive public image of the organization. Good public relations
provides many potential benefits.
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The Scope of Operations Management
• The scope of operations management ranges across the
organization.
• Operations management people are involved in product and
service design, process selection, selection and management of
technology, design of work systems, location planning, facilities
planning, and quality improvement of the organization’s
products or services.
• The operations function includes many interrelated activities,
such as forecasting, capacity planning, scheduling, managing
inventories, assuring quality, motivating employees, deciding
where to locate facilities, and more.
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OPERATIONS MANAGEMENT AND DECISION MAKING
• The chief role of an operations manager is that of
planner/decision maker.
• Most decisions involve many possible alternatives that can
have quite different impacts on costs or profits.
• Operations management professionals make a number of key
decisions that affect the entire organization. These include the
following:
What
When
Where
How
Who
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21
….cont’d
1. Strategic Decisions: These decisions are of strategic
importance and have long-term significance for the
organization.
Examples include deciding:
• the design for a new product’s production process
• where to locate a new factory
• whether to launch a new-product development plan
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22
….cont’d
2. Operating Decisions: These decisions are necessary if the
ongoing production of goods and services is to satisfy market
demands and provide profits.
• how much finished-goods inventory to carry
• the amount of overtime to use next week
• the details for purchasing raw material next month
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23
….cont’d
3. Control Decisions: These decisions concern the day-to-day
activities of workers, quality of products and services,
production and overhead costs, and machine maintenance.
• labor cost standards for a new product
• frequency of preventive maintenance
• new quality control acceptance criteria
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THE HISTORICAL EVOLUTION OF OPERATIONS MANAGEMENT
• The Industrial Revolution:
Craft production System in which highly skilled workers use simple, flexible
tools to produce small quantities of customized goods.
• Scientific Management: heavily emphasized the technical aspects of work
design. Mass production System in which low-skilled workers use
specialized machinery to produce high volumes of standardized goods.
• The Human Relations Movement: emphasized the importance of the
human element in job design
• Decision Models and Management Science: support by qualitative
models
• The Influence of Japanese Manufacturers: emphasized quality and
continual improvement, worker teams and empowerment, and achieving
customer satisfaction. 24
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Trends in Business /Operations Today
• Advances in information technology and global competition have
had a major influence on operations management.
• Business must constantly monitor new trends and take them into
account in their strategies and operations management.
1)The internet and e-business
• E-business: Use of the Internet to transact business.
• E-commerce: Consumer-to business transactions such as buying
online or requesting information.
2) Supply Chain Management
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…cont’d
Continuing Trends: A number of continuing trends influence
business and operations management.
• Quality and process improvement:
• Technology: Technological advances have lead to a vast array of
new products and processes.
• Globalization: Globalization competition, global markets, global
supply chains and international operations are having a growing
impact on the strategies and operations of businesses large and
small around the world.
• Operations Strategy: Now more and more companies are
recognizing the importance of operations strategy on the overall
success of their business as well as the necessity for relating it to
their overall business strategy.
• Environmental Issues: Pollution control and waste disposal are
key issues managers must contend with.
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….cont’d
• Corporate Downsizing: operations managers often have to find
ways to produce more with fewer workers.
. Lean Production: This is a system that uses minimal amount of
resources to produce a high volume of high-quality goods with
some variety.
• Six sigma: A process for reducing costs, improving quality, and
increasing customer satisfaction.
• Agility :The ability of an organization to respond quickly to
demands or opportunities.
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Chapter Two
System Design
1. What does product and service design do?
2. Reasons for product or service design
3. Objectives of product or service design
4. Idea Generation (Sources of ideas for new or redesigned products and services)
5. Legal, Ethical and Environmental issues
6. Environmental Factors: Sustainability
7. Other Design Considerations
8. Quality function deployment
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What does product and service design do?
• The essence of any organization is the product or services it offer.
• A range of activities fall under the heading of product and service
design.
• The activities and responsibilities of product and service design
include the following:
1. Translate customer wants and needs into product and service
requirements. (marketing, operations)
2. Refine/Improve existing products and services. (marketing,
operations )
3. Develop new products and/or services. (marketing, operations)
4. Formulate quality goals. (marketing, operations)
5. Formulate cost targets. (accounting, finance, operations)
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….cont’d
6. Construct and test prototypes. (operations, marketing,
engineering)
7. Document specifications.
8. Translate product and service specifications into process
specifications. (engineering, operations)
Therefore, Product and service design involves or affects nearly
every functional area of an organization.
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….cont’d
• From a buyer’s standpoint, most purchasing decisions entail two
fundamental considerations:
a. Cost
b. Quality/Performance.
• From the organization’s standpoint, the key questions are:
1. Is there demand for it? What is the potential size of the
market, and what is the expected demand profile (will demand
be long term or short term, will it grow slowly or quickly)?
2. Can we do it? Do we have the necessary knowledge, skills,
equipment, capacity, and supply chain capability? Called
manufacturability or serviceability .
• Manufacturability: The capability of an organization to
produce an item at an acceptable profit.
• Serviceability: The capability of an organization to provide a
service at an acceptable cost or profit. 31
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….cont’d
3. What level of quality is appropriate? What do customers
expect? What level of quality do competitors provide for
similar items? How would it fit with our current offerings?
4. Does it make sense from an economic standpoint? What
are the potential liability issues, ethical considerations,
sustainability issues, costs, and profits?
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Reasons for Product and Service Design or Redesign
• The main forces that initiate design or redesign are market
opportunities and threats.
• The factors that give rise to market opportunities and threats
can be one or more changes:
Economic
Social and demographic
Political, liability, or legal
Competitive
Cost or availability
Technological
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Objectives of product or service design
The over all objective for both is to satisfy the
customers while making reasonable profits.
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Idea Generation (Sources of ideas for new or
redesigned products and services)
• Ideas for new or redesigned products or services can come
from a variety of sources, including customers, the supply
chain, competitors, employees, and research.
• Reverse engineering: Dismantling and inspecting a
competitor’s product to discover product improvements.
• Research and development (R&D): Organized efforts to
increase scientific knowledge or product innovation.
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Legal, Ethical and Environmental issues
• Designers must be careful to take into account a wide array of legal and
ethical considerations. Moreover, if there is a potential to harm the
environment.
• Product liability can be a strong incentive for design improvements.
• Product liability is the responsibility of a manufacturer for any injuries or
damages caused by a faulty product because of poor workmanship or
design.
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Ethical …cont’d
• Ethical issues often arise in the design of products and services,
Marketing and promotion system design, it is important for
managers to be aware of these issues and for designers to
follow to ethical standards.
• Produce designs that are consistent with the goals of the
organization. For instance, if the company has a goal of high
quality, don’t cut corners to save cost,
• Give customers the value they expect.
• Make health and safety a primary concern 37
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….cont’d
HUMAN FACTORS:
Human factor issues often arise in the design of consumer
products. Safety and liability are two critical issues in many
instances, and they must be carefully considered.
CULTURAL FACTORS:
Product designers in companies that operate globally also
must take into account any cultural differences of different
countries or regions related to the product.
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SUSTAINABILITY
• Product and service design is a focal point in the search for
sustainability.
• Key aspects include:
1. Cradle-to-Grave Assessment:
Cradle-to-grave assessment , also known as life cycle
analysis, is the assessment of the environmental impact of a
product or service throughout its useful life, focusing on
such factors as global warming (the amount of carbon
dioxide released into the atmosphere), smog formation,
oxygen depletion, and solid waste generation.
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….cont’d
2. End-of-Life Programs
• End-of-life (EOL) programs deal with products that have reached
the end of their useful lives.
• The purpose of these programs is to reduce the dumping of
products
Example: IBM
Over the last 15 years, it has collected about 2 billion pounds of
product and product waste.
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…cont’d
3.The Three Rs: Reduce, Reuse, and Recycle
• Designers often reflect on three particular aspects of potential cost
saving and reducing environmental impact: reducing the use of materials
through value analysis; refurbishing and then reselling returned goods
that are deemed to have additional useful life, which is referred to as
remanufacturing; and reclaiming parts of unusable products for recycling.
• Reduce: Value Analysis: Examination of the function of parts and
materials in an effort to reduce cost and/or improve product
performance.
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….cont’d
• Reuse: Remanufacturing: refurbishing used products by replacing worn-
out or defective components, and reselling the products.
• Recycling means recovering materials for future use.
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OTHER DESIGN CONSIDERATIONS
1. Strategies for Product or Service Life Stages
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….cont’d
2. Degree of Standardization
• Standardization refers to the extent to which there is absence
of variety in a product, service, or process.
• Standardized products are made in large quantities of identical
items.
Example:
Calculators, Computers, Automatic Car Wash …etc
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….cont’d
3. Designing for Mass Customization
• Mass customization: A strategy of producing basically
standardized goods, but incorporating some degree of
customization in the final product or service.
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Tactics for mass customization:
1. Delayed differentiation: is a postponement tactic: the process of
producing, but not quite completing, a product or service,
postponing completion until customer preferences or
specifications are known. Eg: Furniture
2. Modular design: is a form of standardization. Modules represent
groupings of component parts into subassemblies, usually to the
point where the individual parts lose their separate identity.
Eg: computers, Mobile…etc, which have modular parts that can be replaced
if they become defective.
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4. Degree of Newness
• Product or service design change can range from the
modification of an existing product or service to an entirely new
product or service:
1. Modification of an existing product or service.
2. Expansion of an existing product line or service offering.
3. Clone of a competitor’s product or service.
4. New product or service.
It is important to carefully assess the risks and potential benefits
of any design change, taking into account clearly identified
customer wants.
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Quality Function Deployment
• Obtaining input from customers is essential to assure that they
will want what is offered for sale.
• Although obtaining input can be informal through discussions
with customers, there is also a formal way to document
customer wants.
• Quality Function Deployment (QFD) is a structured approach
for integrating the “voice of the customer” into both the
product and service development process.
• The purpose is to ensure that customer requirements are
factored into every aspect of the process. Listening to and
understanding the customer is the central feature of QFD.
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….cont’d
Concurrent Engineering
Concurrent Engineering means bringing design and
manufacturing engineering people together early in the
design phase to simultaneously develop the product and
processes for creating the product.
Computer-Aided Design( CAD):
Computers are increasingly used for product design.
Computer-Aided Design( CAD) uses computer graphics for
product design.
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Chapter Three
Capacity Planning
1. Introduction
2. Capacity decisions
3. Defining and measuring capacity
4. Determinants of effective capacity
5. Steps in the Capacity Planning Process
6. Forecasting capacity requirements
7. Developing capacity Strategies
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Introduction
• Capacity: refers to an upper limit or ceiling on the load that
an operating unit can handle.
• The load might be in terms of the number of physical units
produced or the number of services performed.
• The capacity of an operating unit is an important piece of
information for planning purposes; it enables managers to
quantify production capacity in terms of inputs or outputs and
there by make other decisions or plans related to those
quantities.
• Capacity planning is a key strategic component in designing the
system. It encompasses many basic decisions with long-term
consequences for the organization.
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…cont’d
• The goal of capacity planning is to achieve a match between
the long-term supply capabilities of an organization and the
predicted level of long-term demand.
• Organizations become involved in capacity planning for various
reasons:
changes in demand,
changes in technology,
changes in the environment, and
perceived threats or opportunities.
• A gap between current and desired capacity will result in
capacity that is out of balance.
• Overcapacity causes operating costs that are too high, while
under capacity causes strained resources and possible loss of
customers
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….cont’d
The key questions in capacity planning are the following:
• 1. What kind of capacity is needed?
• 2. How much is needed to match demand?
• 3. When is it needed?
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Capacity Decisions
• capacity decisions are among the most fundamental of all
the design decisions that managers must make.
• Capacity decisions have a real impact on the ability of the
organization to meet future demands for products and
services
• Capacity decisions affect operating costs. Capacity is usually
a major determinant of initial cost. Typically, the greater the
capacity of a productive unit, the greater its cost.
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….cont’d
• Capacity decisions often involve long-term commitment of
resources
• Capacity decisions can affect competitiveness.
• Capacity affects the ease of management; having
appropriate capacity makes management easier than when
capacity is mismatched.
• Globalization has increased the importance and the
complexity of capacity decisions.
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Defining and Measuring Capacity :
Capacity refers to an upper limit on the rate of output. Even
though this seems simple enough there are subtle difficulties in
actually measuring capacity in certain cases.
These difficulties arise because of different interpretations of
the term capacity and problems with identifying suitable
measures for a specific situation.
It can be refined into two useful definitions of capacity:
1. Design capacity : The maximum output rate or service
capacity an operation, process, or facility is designed for.
OR
Design capacity is the maximum rate of output achieved under
ideal conditions
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…cont’d
2. Effective capacity : Design capacity minus allowances
such as personal time, equipment maintenance, delays due
to scheduling problems, and changing the mix of products.
Effective capacity is always less than design capacity owing to
realities of changing product mix, the need for periodic
maintenance of equipment, lunch breaks, coffee breaks,
problems in scheduling and balancing operations, and similar
circumstances.
• Actual output cannot exceed effective capacity and is often
less because of machine breakdowns, absenteeism, shortages
of materials, and quality problems, as well as factors that are
outside the control of the operations managers
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Measures of capacity
Business Inputs Outputs
Auto manufacturing Labor hours, machine
hours
No of cars per shift
Steel mill Furnace (heater) size Tons of steel per day
Oil refinery Refinery size Gallons of fuel per day
Farming No of acres, number of
cows
Gallons of milk per day,
bushels of grain per acre
Restaurant No of tables, seating
capacity
No of meals served per
day
Theatre No of seats No of tickets sold per day
Retail sales Sq feet of floor space Revenue generated per day
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….cont’d
These different measures of capacity are useful in defining two
measures of system effectiveness:
1. Efficiency is the ratio of actual output to effective capacity.
2. Capacity utilization is the ratio of actual output to design
capacity.
Both measures are expressed as percentages.
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Example
• Given the following information, compute the efficiency and
the utilization of the vehicle repair department:
1. Efficiency 2. Utilization
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Class Exercise
Given the following information of JUNE Month, compute the efficiency
and the utilization of the vehicle repair department:
Design Capacity = 5 trucks per day
Effective Capacity = 125 trucks per month
Actual Output = 110 trucks per month
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Determinants of effective capacity
• Many decisions about system design have an impact on capacity.
The same is true for many operating decisions. The main factors
relate are related to:
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Steps in the Capacity Planning Process
1. Estimate future capacity requirements.
2. Evaluate existing capacity and facilities and identify gaps.
3. Identify alternatives for meeting requirements.
4. Conduct financial analyses of each alternative.
5. Assess key qualitative issues for each alternative.
6. Select the alternative to pursue that will be best in the long
term.
7. Implement the selected alternative.
8. Monitor results.
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Forecasting capacity requirements
• Capacity planning decisions involve both long-term and short-
term considerations.
• Long-term considerations relate to overall level of capacity,
such as facility size. Long-term capacity needs require
forecasting demand over a time horizon and then converting
those forecasts into capacity requirements.
• Short-term considerations relate to probable variations in
capacity requirements created by such things as seasonal,
random, and irregular fluctuations in demand.
• Short-term capacity needs are less concerned with cycles or
trends than with seasonal variations and other variations from
average.
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Developing capacity Strategies
• There are a number of ways to enhance development of
capacity strategies:
1. Design flexibility into systems. The long-term nature of many
capacity decisions and the risks inherent in long-term forecasts
suggest potential benefits from designing flexible systems.
2. Take stage of life cycle into account. Capacity requirements are
often closely linked to the stage of the life cycle that a product or
service is in.
3. Take a “big-picture” (i.e., systems) approach to capacity
changes. When developing capacity alternatives, it is important
to consider how parts of the system interrelate.
• For example, when making a decision to increase the number of
rooms in a motel, one should also take into account probable
increased demands for parking, entertainment and food, and
housekeeping. 65
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….cont’d
• A bottleneck operation: is an operation in a sequence of
operations whose capacity is lower than the capacities of other
operations in the sequence.
• As a consequence, the capacity of the bottleneck operation
limits the system capacity; the capacity of the system is
reduced to the capacity of the bottleneck operation.
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Chapter Four
Process selection and facility layout
1. Introduction
2. Process Selection
3. Automation
4. Process Strategy
5. Strategic Resource Organization: Facilities Layout
6. Product layouts
7. Process Layouts
8. Fixed-position layouts
9. Other service layouts
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Introduction
Process selection and facility layout – is the arrangement of
work place
Process selection refers to the way production of goods or
services is organized.
 Layout refers to the configuration of departments, work
centers, and equipment, with particular emphasis on
movement of work (customers or materials) through the
system.
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Process Selection
• Process choice is demand driven. The two key questions in
process selection are:
1. How much variety will the process need to be able to handle?
2. How much volume will the process need to be able to handle?
• Answers to these questions will serve as a guide to selecting an
appropriate process.
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Process Types
There are five basic process types:
• Job shop,
• Batch,
• Repetitive,
• Continuous,
• Project.
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1. Job Shop
• A job shop usually operates on a relatively small scale. It is
used when a low volume of high-variety goods or services
will be needed.
• Processing is intermittent; work includes small jobs, each
with somewhat different processing requirements.
• High flexibility using general-purpose equipment and skilled
workers are important characteristics of a job shop.
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2. Batch
• Batch processing is used when a moderate volume of goods or
services is desired, and it can handle a moderate variety in
products or services. The equipment need not be as flexible as in a
job shop, but processing is still intermittent.
• The skill level of workers doesn’t need to be as high as in a job
shop because there is less variety in the jobs being processed.
• Examples of batch systems include bakeries, which make bread,
cakes, or cookies in batches
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3. Repetitive
• When higher volumes of more standardized goods or services are
needed, repetitive processing is used. The standardized output
means only slight flexibility of equipment is needed. Skill of
workers is generally low. Examples of this type of system include
production lines and assembly lines.
• An example of a service system is an automatic carwash. Other
examples of service include cafeteria lines and ticket collectors at
sports events and concerts.
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4. Continuous
• When a very high volume of non-discrete, highly standardized
output is desired, a continuous system is used. These systems
have almost no variety in output and, hence, no need for
equipment flexibility.
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5. Project
• A project is used for work that is nonroutine, with a unique
set of objectives to be accomplished in a limited time frame.
• Examples range from simple to complicated, including such
things as putting on a play, consulting, making a motion picture,
launching a new product or service, publishing a book, building a
dam, and building a bridge.
• Equipment flexibility and worker skills can range from low to
high.
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Automation
• An increasingly asked question in process design is whether
to automate. Automation is machinery that has sensing
and control devices that enable it to operate automatically.
• Automation offers a number of advantages over human
labor.
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Process Strategy
• In current working environment, the importance of
flexibility as a competitive strategy is stressed.
• Decision makers choose flexible systems for either of two
reasons:
1. Demand variety or uncertainty exists about demand.
2. Forecasting and capacity planning
Choose a process strategy that will help you to win the
Competition in the industry.
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Strategic Resource Organization: Facilities Layout
• Layout refers to the configuration of departments, work
centers, and equipment, with particular emphasis on movement
of work (customers or materials) through the system.
• The basic objective of layout design is to facilitate a smooth flow
of work, material, and information through the system.
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…cont’d
The three basic types of layout are product, process, and
fixed-position.
1. Product layouts are most conducive to repetitive
processing,
2. process layouts are used for intermittent processing, and
3. fixed-position layouts are used when projects require
layouts.
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Repetitive Processing: Product Layouts
• Product layouts: are used to achieve a smooth and rapid flow of large
volumes of goods or customers through a system. This is made possible
by highly standardized goods or services that allow highly standardized,
repetitive processing.
• In manufacturing environments, the lines are referred to as production
lines or assembly lines, depending on the type of activity involved.
• Production line Standardized layout arranged according to a fixed
sequence of production tasks.
• Assembly line Standardized layout arranged according to a fixed
sequence of assembly tasks
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Nonrepetitive Processing: Process Layouts
• Process layouts (functional layouts) are designed to process items or
provide services that involve a variety of processing requirements.
• The variety of jobs that are processed requires frequent adjustments to
equipment. This causes a discontinuous work flow, which is referred to as
intermittent processing (Nonrepetitive processing).
• The layouts feature departments or other functional groupings in which
similar kinds of activities are performed.
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Fixed-Position Layouts
• Fixed-position layout is a Layout in which the product or project remains
stationary, and workers, materials, and equipment are moved as needed.
• Fixed-position layouts are widely used in farming, firefighting, road building,
home building, remodeling and repair, and drilling for oil. In each case,
compelling reasons bring workers, materials, and equipment to the “product’s”
location instead of the other way around
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Process and layout selection decision
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Chapter Five
Location Planning and Analysis
1. The need for location decisions
2. The nature of location decisions
3. General procedure for making decisions
4. Factors that affect location decisions
5. Global locations
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Introduction
• The choice of location for a business organization is important.
• Location decisions represent a key part of the strategic
planning process of every organization. And, although it might
appear that location decisions are one-time problems
pertaining to new organizations, existing organizations often
have a bigger stake in these kinds of decisions than new
organizations.
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The need for location decisions
Existing organizations may need to make location decisions for a
variety of reasons.
Firms such as banks, fast-food chains, supermarkets, and retail
stores view locations as part of marketing strategy and they look
for locations that will help them to expand their markets.
Other firms, a shift in markets causes them to consider
relocation, or the costs of doing business at a particular location
reach a point where other locations begin to look more
attractive. Basically , the location decisions in those cases reflect
the addition of new locations to an existing system.
A similar situation occurs when an organization experiences a
growth in demand for its products or services that can not be
satisfied by expansion at an existing location.
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THE NATURE OF LOCATION DECISIONS
• location decisions for many types of businesses are made
infrequently, but they tend to have a significant impact on the
organization.
• Importance of location decisions:
• 1. Strategic Importance of Location Decisions: Location decisions
are closely tied to an organization’s strategies. For example, a
strategy of being a low-cost producer might result in locating
where labor or material costs are low, or locating near markets or
raw materials to reduce transportation costs.
• 2. Objectives of Location Decisions: As a general rule, profit-
oriented organizations base their decisions on profit potential,
whereas nonprofit organizations strive to achieve a balance
between cost and the level of customer service they provide. It
would seem to follow that all organizations attempt to identify the
“best” location available.
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….cont’d
• 3. Supply Chain Considerations: Supply chain management must
address supply chain configuration. This includes determining
the number and location of suppliers, production facilities,
warehouses, and distribution centers.
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Location Options
Managers of existing companies generally consider options in location
planning.
1. Expand an existing facility.
2. Add new locations while retaining existing ones
3. Shut down at one location and move to another
4. Open new
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General Procedure for Making Location Decisions:
The general procedure for making location decisions usually
consists of the following steps:
1. Decide on the criteria to use for evaluating location alternatives,
such as increased revenues or community services
2. Identify important factors such as location markets and raw
materials
3. Develop location alternatives:
• Identify for the general region for a location
• Identify a small number of community alternatives
• Identify site alternatives among the community alternatives.
4. Evaluate the alternatives and make a selection.
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Factors that affect Location Decisions:
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Global Locations:
• Globalization has opened new markets, and it has meant
increasing dispersion of manufacturing and service operations
around the world.
• Recent trends in locating facilities, particularly manufacturing
facilities, reflects a combination of competitive and
technological factors.
• Another trend is Just-in-Time manufacturing techniques which
encourage customers and suppliers to locate near each other
to reduce supplier lead times.
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….cont’d
The following checklist provides the considerations pertaining to
decisions on global operations.
Foreign Government a. Policies on foreign ownership of production facilities Local
content requirements and import restrictions
Currency restrictions and environment Regulations
Local product standards
b. Stability issues
Cultural Differences Living circumstances for foreign workers and their dependents, Religious
holidays/ traditions
Customer Preferences Possible “buy locally” sentiment
Labor Level of training and education of workers
Work practices
Possible regulations limiting number of foreign employees
Language differences
Resources Availability and quality of raw materials, energy, transportation
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Country-of-Origin Effects
•Country-of-origin perceptions are the mental
associations and beliefs triggered by a country.
•Government officials want to strengthen their
country’s image to help domestic marketers who
export, and to attract foreign firms and investors.
•Marketers want to use positive country-of-origin
perceptions to sell their products and services.
8/7/2021 98

Chapter Six
Introduction to Quality and
Quality Control
1. Introduction to quality
2. The evolution of quality management
3. Insights on Quality Management
4. Quality Award and Certification
5. Total Quality Management (TQM)
6. Introduction to Quality Control
7. Inspection
8. Statistical process control
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Introduction to Quality
• Quality: refers to the ability of a product or service to
consistently meet or exceed customer requirements or
expectations.
• However, different customers will have different requirements,
so a working definition of quality is customer-dependent.
• Quality took a backseat to other concerns
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Who is affected by Quality?
8/7/2021 103

Insights on Quality Management
Successful management of quality requires that managers have
insights on various aspects of quality. These include:
Defining quality in operational terms,
Understanding the costs and benefits of quality,
Recognizing the consequences of poor quality, and
 Recognizing the need for ethical behavior.
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Quality Management
8/7/2021 107

Processes of Quality Management
8/7/2021 108

Quality Planning – Identifying which quality standards
are relevant to the project and determining how to
satisfy them.
8/7/2021 109

Quality Assurance – Evaluating overall project
performance on a regular basis to provide confidence
that the project will satisfy the relevant quality
standards.
8/7/2021 110

Quality Control – Monitoring specific project results to
determine if they comply with relevant quality standards and
identifying ways to eliminate causes of unsatisfactory
performance
8/7/2021 111

Quality Management principles
8/7/2021 112

Defining Quality: The Dimensions of Quality
One way to think about quality is the degree to which performance
of a product or service meets or exceeds customer expectations.
The difference between these two, that is Performance –
Expectations, is of great interest.
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….cont’d
1. Product Quality: is often judged on nine dimensions of quality
• Performance —main characteristics of the product.
• Aesthetics —appearance, feel, smell, taste.
• Special features —extra characteristics.
• Conformance —how well a product corresponds to design specifications.
• Reliability —dependable performance.
• Durability —ability to perform over time.
• Perceived quality —indirect evaluation of quality (e.g., reputation).
• Serviceability —handling of complaints or repairs.
• Consistency —quality doesn’t vary.
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….cont’d
2. Service Quality: The dimensions of product quality don’t adequately
describe service quality. Instead, service quality is often described using the
following dimensions:
1. Convenience —the availability and accessibility of the service.
2. Reliability —the ability to perform a service dependably, consistently,
and accurately.
3. Responsiveness— the willingness of service providers to help customers
in unusual situations and to deal with problems.
4. Time —the speed with which service is delivered.
5. Assurance —the knowledge exhibited by personnel who come into
contact with a customer and their ability to convey trust and confidence.
6. Empathy: The ability to understand and share the feelings of another.
7. Tangibles —the physical appearance of facilities, equipment, personnel,
and communication materials.
8. Consistency —The ability to provide the same level of good quality
repeatedly.
9. Expectations —Meet (or exceed) customer prospects.
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….cont’d
Assessing Service Quality
• Widely used tool for assessing service quality is SERVQUAL, an
instrument designed to obtain feedback on an organization’s
ability to provide quality service to customers.
• SERVQUAL focuses on five of the above-mentioned service
dimensions that influence customers’ perceptions of service
quality: tangibles, reliability, responsiveness, assurance, and
empathy.
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Quality Award and Certification
• Quality awards have been established to generate improvement in quality.
The Malcolm Baldrige Award, the European Quality Award, and the
Deming Prize are well-known awards given annually to recognize firms that
have integrated quality management into their operations.
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Quality Certification
• Many firms that do business internationally recognize the importance
of quality certification.
Example
• ISO 9000, 14000, and 24700
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Total Quality Management (TQM)
• Total quality management (TQM): A philosophy that involves everyone in
an organization in a continual effort to improve quality and achieve
customer satisfaction.
• TQM expands the traditional view of quality—looking only at the quality of
the final product or services—to looking at the quality of every aspect of
the process that produces the product or service.
• TQM systems are intended to prevent poor quality from occurring.
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….cont’d
• TQM approach are:
1. Find out what customers want.
2. Design a product or service that will meet (or exceed) what
customers want
3. Design processes that facilitate doing the job right the first
time: Determine where mistakes are likely to occur and try to
prevent them
4. Keep track of results, and use them to guide improvement in
the system
5. Extend these concepts throughout the supply chain
6. Top management must be involved and committed
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Problem Solving and Process Improvement
• Problem solving is one of the basic procedures of TQM. In order to be
successful, problem solving efforts should follow a standard approach.
• An important aspect of problem solving in the TQM approach is
eliminating the cause so that the problem does not recur. This is why users
of the TQM approach often like to think of problems as “opportunities for
improvement.”
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The Plan-Do-Study-Act Cycle (PDSA):
• Plan: Begin by studying the current process. Document that process. Then
collect data on the process or problem. Next, analyze the data and develop
a plan for improvement. Specify measures for evaluating the plan.
• Do: Implement the plan, on a small scale if possible. Document any changes
made during this phase. Collect data systematically for evaluation.
• Study: Evaluate the data collection during the do phase. Check how
closely the results match the original goals of the plan phase.
• Act: If the results are successful, standardize the new method and
communicate the new method to all people associated with the process.
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The Plan-Do-Study-Act Cycle (PDSA):
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Process improvement
• Process Improvement is a systematic approach to improve a
process.
• It involves documentation, measurement, and analysis for the
purpose of improving the functioning of a process.
• Typical goals of process improvement include increasing
customer satisfaction, achieving higher quality, reducing waste,
reducing cost, increasing productivity, and reducing processing
time.
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Six Sigma
Six sigma: A business process for improving quality, reducing
costs, and increasing customer satisfaction.
• Six sigma is based on these guiding principles:
1. Reduction of variation is an important goal.
2. The methodology is data driven; it requires valid
measurements.
3. Outputs are determined by inputs; focus on modifying
and/or controlling inputs to improve outputs.
4. Only a critical few inputs have a significant impact on
outputs; concentrate on those.
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…..cont’d
• DMAIC (define-measure-analyze-improve-control) is a formalized
problem-solving process of six sigma.
• It is composed of five steps that can be applied to any process to
improve its effectiveness. The steps are:
1. Define: Set the context and objectives for improvement.
2. Measure: Determine the baseline performance and capability
of the process.
3. Analyze: Use data and tools to understand the cause-and-
effect relationships of the process.
4. Improve: Develop the modifications that lead to a validated
improvement in the process.
5. Control: Establish plans and procedures to ensure that
improvements are sustained.
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Introduction to Quality Control
• Quality control is a process that measures output relative to a standard
and takes corrective action when output does not meet standards.
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Inspection
• Inspection is an appraisal activity that compares goods or
services to a standard.
• Inspection can occur at three points:
Before production: The logic of checking conformance before
production is to make sure that inputs are acceptable.
During production: The logic of checking conformance during
production is to make sure that the conversion of inputs into
outputs is proceeding in an acceptable manner.
After production: The logic of checking conformance of output is
to make a final verification of conformance before passing goods
on to customers.
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Chapter Seven
Aggregate Planning
1. Introduction
2. The purpose and scope of aggregate planning
3. Techniques of aggregate planning
4. Aggregate planning in service
5. Master scheduling
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Introduction
• Aggregate planning is intermediate-range capacity
planning that typically covers a time horizon of 2 to 12
months.
• The goal of aggregate planning is to achieve a production
plan that will effectively utilize the organization’s resources
to match expected demand.
• Planners must make decisions on output rates, employment
levels and changes, inventory levels and changes, back
orders, and subcontracting in or out.
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The purpose and scope of Aggregate planning
• Organizations make capacity decisions on three levels: long term,
intermediate term, and short term.
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….cont’d
• Aggregate planning begins with a forecast of aggregate
demand for the intermediate range. This is followed by a
general plan to meet demand requirements by setting output,
employment, and finished-goods inventory levels or service
capacities.
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Techniques of Aggregate Planning
• A general procedure for aggregate planning consists of the
following steps:
1. Determine demand for each period.
2. Determine capacities (regular time, overtime, subcontracting) for
each period.
3. Identify company or departmental policies that are appropriate
(e.g., maintain a safety stock of 5 percent of demand, maintain a
reasonably stable workforce).
4. Determine unit costs for regular time, overtime, subcontracting,
holding inventories, back orders, layoffs, and other relevant costs.
5. Develop alternative plans and compute the cost for each.
6. If satisfactory plans emerge, select the one that best satisfies
objectives. Otherwise, return to step 5.
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Aggregate planning in service
• Aggregate planning for services takes into account projected
customer demands, equipment capacities, and labor capabilities.
• The resulting plan is a time-phased projection of service staff
requirements.
Examples of service organizations that use aggregate planning:
• Hospitals
• Airlines
• Restaurants …… etc
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Master Scheduling
• The master schedule is the heart of production planning and
control.
• It determines the quantities needed to meet demand from all
sources, and that governs key decisions and activities
throughout the organization.
• Master production schedule (MPS): This schedule indicates the
quantity and timing of planned completed production.
• The master schedule interfaces with marketing, capacity
planning, production planning, and distribution planning
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Master Scheduling Process
141
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Chapter Eight
MRP and ERP
1. An Overview of MRP
2. MRP inputs
3. MRP processing
4. MRP outputs
5. Capacity Requirements planning
6. MRP II & ERP
142
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An Overview of MRP
• Material requirements planning (MRP): A methodology that translates
master schedule requirements for end items into time-phased requirements
for subassemblies, components, and raw materials.
• It is a methodology used for planning the production of assembled products
such as smart phones, automobiles, kitchen tables, and a whole host of
other products that are assembled.
• A material requirements plan indicates quantity and timing details needed
to achieve the master schedule.
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MRP Inputs, Processing and Outputs
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MRP INPUTS
• An MRP system has three major sources of information: a
master schedule, a bill-of-materials file, and an inventory records
file
1. Master schedule One of three primary inputs in MRP; states
which end items are to be produced, when these are needed, and
in what quantities.
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….cont’d
2. The Bill of Materials (BOM): contains a listing of all of the
assemblies, subassemblies, parts, and raw materials that are
needed to produce one unit of a finished product. Thus, each
finished product has its own bill of materials.
146
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….cont’d
3. The Inventory Records: refer to stored information on the
status of each item by time period, called time buckets.
This includes quantities on hand and quantities ordered.
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MRP PROCESSING
• MRP processing takes the end item requirements specified by the
master schedule and divide them into time-phased requirements
for assemblies, parts, and raw materials using the bill of materials
offset by lead times.
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MRP OUTPUTS
• MRP systems have the ability to provide management with a fairly
broad range of outputs. These are often classified as primary
reports, which are the main reports, and secondary reports, which
are optional outputs.
1. Primary Reports. Production and inventory planning and control
are part of primary reports (Planned orders, Order releases,
Changes)
2. Secondary Reports. Performance control, planning, and
exceptions belong to secondary reports.
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Capacity Requirements Planning
• Capacity requirements planning is the process of determining
short-range capacity requirements.
• The necessary inputs include planned-order releases for MRP,
the current shop load, routing information, and job times.
• Key outputs include load reports for each work center.
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MRP II
• Manufacturing Resources
Planning (MRP II): Expanded
approach to production resource
planning, involving other areas of
a firm in the planning process
and enabling capacity
requirements planning.
• MRP II expanded the scope of
materials planning to include
capacity requirements planning,
and to involve other functional
areas of the organization such as
marketing and finance in the
planning process.
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ERP
• Enterprise Resource Planning (ERP) Integration of financial,
manufacturing, and human resources in a single database.
153
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