Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Production

and

Operations

Management

CHAPTER 9

LEARNING OBJECTIVES

9-2

1. Describe the current state of U.S. manufacturing and

what manufacturers have done to become more

competitive.

2. Describe the evolution from production to operations

management.

3. Identify various production processes and describe

techniques that improve productivity, including

computer-aided design and manufacturing, flexible

manufacturing, lean manufacturing and mass

customization.

LEARNING OBJECTIVES

9-3

4. Describe operations management planning issues

including facility location, facility layout, materials

requirement planning, purchasing, just-in-time

inventory control and quality control.

5. Explain the use of PERT and Gantt charts to control

manufacturing processes.

SHAHID KHANFlex-N-Gate

9-4

• Moved from Pakistan to the

U.S. at the age of 16.

• After college, he got a job

overseeing Flex-N-Gate.

• Bought the company after two

years and refined the

production process

• Now the company brings in

over $3 billion in sales each

year.

NAME that COMPANY

9-5

Operations management in this hotel company

includes restaurants that offer the finest in

service, elevators that run smoothly, and a front

desk that processes people quickly. It may

include fresh-cut flowers in the lobbies and

dishes of fruit in every room.

Name that company!

MANUFACTURING in the U.S.

9-6

LO 9-1

• Some areas in the U.S.

are experiencing

economic growth while

others are declining.

• Manufacturing in the

U.S. is so productive

fewer workers are

needed.

WHAT’S MADE in the USA?Leading U.S. Manufactured Goods

9-7

Products Value Number of Employees

Chemicals – Pharmaceuticals,

cosmetics, soaps, paints, fertilizers$250 Billion 830,000 Americans

Transportation Equipment –

Cars, planes, trains, ships$195 Billion

Over 1.4 Million

Americans

Processed Foods, Beverages

and Tobacco – Cookies, coffee,

cigarettes, prepared meals

$175 Billion 1.7 Million Americans

Computers and Electronics –

Computers and communication

equipment

$146 Billion 1.2 Million Americans

LO 9-1

Source: Parade Magazine, www.parade.com, accessed November 2014.

Source: Industry Week, www.industryweek.com, accessed November 2014.

MASSIVE MANUFACTURERSThe Top Ten U.S. Manufacturers

9-8

Rank Company Industry

1 Apple Computers

2 Renewable Energy Group Petroleum and Coal

3 Polaris Industries Transportation

4 WABCO Holdings Automobile Parts

5 Monster Beverage Beverages

6 Deluxe Corporation Publishing

7 Hershey Company Food

8 Coach, Inc. Apparel

9 CVR Energy Petroleum and Coal

10 New Market Corporation Chemicals

LO 9-1

YOUR OWN FARM in a BOX

9-9

• Freight Farms was developed after the founders

were unsatisfied with rooftop greenhouses.

• Each container is 320-square-feet and can

produce 900 heads of leafy greens each week.

• The company works with small and medium-

sized food distributers so local food can be

enjoyed year round.

TOP-PAYING SERVICE JOBS

9-10

LO 9-1

• 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

REMAINING COMPETITIVE in

GLOBAL MARKETS

9-11

LO 9-1

• U.S. is still the leader in nanotechnology and

biotechnology.

• How can U.S. businesses maintain a competitive

edge?

- Focusing on customers

- Maintaining close relationships with suppliers

- Practicing continuous improvement

- Focusing on quality

- Saving on costs through site selection

- Relying on the Internet to unite companies

- Adopting new production techniques

NOBODY DOES IT BETTER

9-12

• Germany’s economy is the

most powerful and

respected economy in

Europe.

• Mittlestand companies

design their own machines

and production processes.

• China has purchased many

German firms and are

studying their production

techniques.

• Production -- The creation of goods using land,

labor, capital, entrepreneurship and knowledge (the

factors of production).

PRODUCTION and

PRODUCTION MANAGEMENT

9-13

LO 9-2

• Production

Management -- All the

activities managers do to

help firms create goods.

OPERATIONS MANAGEMENT

9-14

LO 9-2

• 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

• All about creating a good experience for those

who use the service.

OPERATIONS MANAGEMENT

in the SERVICE SECTOR

9-15

LO 9-2

• In hotels, like Ritz-

Carlton, operation

management

includes fine dining,

fresh flowers, and

training for every

employee.

Source: PC Magazine, www.pcmag.com, accessed November 2014.

THERE’S an APP for THATTop Productivity Apps for iPad

9-16

App What it Does Price

Dropbox Syncs and backs up files Free

Dragon Dictation services Free

Cubby Easy and unlimited data syncing Free

GoToMyPC Remote computer control Free

Air Display Turns tablet into a second monitor $9.99

LO 9-2

TEST PREP

9-17

• What have U.S. manufacturers done to regain a

competitive edge?

• What must U.S. companies do to continue to

strengthen the country’s manufacturing base?

• What led companies to focus on operations

management rather than production?

The PRODUCTION PROCESS

9-18

LO 9-3

FORM UTILITY

9-19

LO 9-3

• Form Utility -- The value

producers add to materials

in the creation of finished

goods and services.

GROVE’S BASIC PRODUCTION

REQUIREMENTS

9-20

LO 9-3

1. To build and deliver products in response to the

demands of the customer at the scheduled

delivery time.

2. To provide an acceptable quality level.

3. To provide everything at the lowest possible

cost.

PROCESS and ASSEMBLY in

PRODUCTION

9-21

LO 9-3

• Process Manufacturing --The part of production that

physically or chemically

changes materials.

• Assembly Process -- The

part of the production process

that puts together components.

KEY PRODUCTION PROCESSES

9-22

LO 9-3

• 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.

MINUTE MADEProduction of Some of America’s Favorite Products

9-23

Product Number of Items

Made in a Minute

Krispy Kreme Doughnuts 5,208

Chips Ahoy! Cookies 4,000

Twinkies 972

Jello Boxes 764

LifeSavers 100 rolls

LO 9-3

DEVELOPMENTS MAKING U.S.

COMPANIES MORE COMPETITIVE

9-24

LO 9-3

1. Computer-aided design

and manufacturing

2. Flexible manufacturing

3. Lean manufacturing

4. Mass customization

COMPUTER-AIDED DESIGN and

MANUFACTURING

9-25

LO 9-3

• Computer-Aided Design

(CAD) -- The use of computers

in the design of products.

• Computer-Aided

Manufacturing (CAM) -- The

use of computers in the

manufacturing of products.

COMPUTER-INTEGRATED

MANUFACTURING

9-26

LO 9-3

• Computer-Integrated

Manufacturing (CIM) --The uniting of computer-

aided design with computer-

aided manufacturing.

• CIM is expensive but it cuts

as much as 80% of the time

needed to program machines

to make parts.

FLEXIBLE MANUFACTURING

9-27

LO 9-3

• Flexible Manufacturing -- Designing machines to

do multiple tasks so they can produce a variety of

products.

• Allen-Bradley uses flexible manufacturing to build

motor starters.

• 26 machines and robots build, test and package

parts.

LEAN MANUFACTURING

9-28

LO 9-3

• 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.

MASS CUSTOMIZATION

9-29

LO 9-3

• Mass Customization --Tailoring products to meet

the needs of a large

number of individual

customers.

• More manufacturers are

learning to customize.

• Mass customization

exists in the service

sector too.

MAKE YOUR OWN KIND of MUSIC

9-30

• Moniker Guitars

produces top quality,

personalized guitars for

everyday people.

• They follow a model

similar to NikeiD and

allows people to add

whatever design

elements they want –

even tiger stripes!

ROBOTICS and SENSING

9-31

LO 9-3

• The use of robotics allows manufacturing to

continue 24 hours a day.

• Sensors can detect problems immediately and

changes can be made quickly.

• Nanomanufacturing can manipulate on material

on the molecular level.

TEST PREP

9-32

• What is form utility?

• Define and differentiate the following: process

manufacturing, assembly process, continuous

process and intermittent process.

• What do you call the integration of CAD and

CAM?

• What is mass customization?

OPERATIONS MANAGEMENT

9-33

LO 9-4

• Operations management planning helps solve

problems like:

- Facility location

- Facility layout

- Materials requirement planning

- Purchasing

- Inventory control

- Quality control

• Facility Location --The process of

selecting a geographic

location for a

company’s operations.

FACILITY LOCATION

9-34

LO 9-4

• Rising numbers of Internet businesses means

brick-and-mortar retailers must find great

locations.

DO WE STAY or DO WE GO?

9-35

• 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?

OPERATIONS MANAGEMENT

on the INTERNET

9-36

LO 9-4

• 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.

FUTURE FACILITY LOCATION

9-37

LO 9-4

• Information technology gives firms increased

flexibility in terms of location.

• Telecommuting -- Working from home via

computer.

SETTING UP the FACILITY

9-38

LO 9-4

• 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

FACILITY LAYOUT OPTIONS

9-39

LO 9-4

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.

ASSEMBLY LINE LAYOUT

9-40

LO 9-4

MODULAR LAYOUT

9-41

LO 9-4

PROCESS LAYOUT

9-42

LO 9-4

FIXED-POSITION LAYOUT

9-43

LO 9-4

MRP and ERP

9-44

LO 9-4

• 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.

PURCHASING

9-45

LO 9-4

• Purchasing -- The function

that searches for high-quality

material resources, finds the

best suppliers and negotiates

the best price for goods and

services.

• The Internet has

transformed purchasing.

INVENTORY CONTROL

9-46

LO 9-4

• 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.

QUALITY CONTROL

9-47

Photo Credit: Argonne National Laboratory

LO 9-4

• 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.

Source: Bloomberg Businessweek, www.businessweek.com, accessed November 2014.

The SIX SIGMA PROCESS

9-48

LO 9-4

Define

Measure

Analyze

Improve

Control

6σ

STATISTICAL QUALITY CONTROL &

STATISTICAL PROCESS CONTROL

9-49

LO 9-4

• 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.

The BALDRIGE AWARDS

9-50

LO 9-4

• Companies can apply for awards in these areas:

- Manufacturing

- Services

- Small Businesses

- Non-Profit/Government

- Education

- Healthcare

Source: National Institute of Standards and Technology, www.quality.nist.gov, accessed November 2014.

THE WINNERS ARE…2014 Baldrige Award Recipients

9-51

Company Category Where from?

Elevation Credit Union Nonprofit Boulder, CO

St. David’s HealthCare Healthcare Austin, TX

Hill County Memorial Healthcare Fredrickburg, TX

PricewaterhouseCoopers Service McLean, VA

LO 9-4

WHAT is ISO?

9-52

LO 9-4

• 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 organization’s impact on the

environment.

TEST PREP

9-53

• What are the major criteria for facility location?

• What’s the difference between MRP and ERP?

• What’s just-in-time inventory control?

• What are Six Sigma quality, the Baldrige Award,

ISO 9000 and ISO 14000?

PERT

9-54

LO 9-5

• Program Evaluation and Review Technique

(PERT) -- A method for analyzing the tasks involved

in completing a given project and estimating the time

needed.

STEPS INVOLVED in PERT

9-55

LO 9-5

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.

PERT CHART for a MUSIC VIDEO

9-56

LO 9-5

GANTT CHARTS

9-57

LO 9-5

• Gantt Chart – A bar graph that shows what projects

are being worked on and how much has been

completed.

GANTT CHART for a

DOLL FACTORY

9-58

LO 9-5

TEST PREP

9-59

• Draw a PERT chart for making breakfast of three-

minute eggs, buttered toast and coffee. Define the

critical path.

• How could you use a Gantt chart to keep track of

production?