BUSINESS 101 CHAPTER 8:Producing Quality Goods & Services
How Do Managers Plan for Production?
1. Design & Planning 2. Facilities Planning 3. Human Resources 4. Plant Layout
Once Research and Development identifies an idea that meets customer needs, three additional steps are used to convert the idea to an actual good or service.
1. Design planning develops a plan to convert the idea into a new good or service. 2. Facilities planning identifies a site where the good or service can be produced. 3. Operational planning decides on the amount of goods or services that will be produced within a specific time period.
Operations Control: Inventory Control Methods
1. Materials requirements planning (MRP) 2. Manufacturing resource planning (MRP II) 3. Enterprise resource planning (ERP) 4. Just-in-time inventory system
Statistical process control (SPC)
A system that uses sampling to obtain data that are plotted on control charts and graphs to identify and pinpoint problems in the production process
Development and implementation
Activities undertaken to put new or existing knowledge to use in producing goods and services
Describe how research and development leads to new products and services.
Operations management often begins with product research and development and often referred to as R&D. The results of R&D may be entirely new products or services or extensions and refinements of existing products or services. R&D activities are classified as basic research (aimed at uncovering new knowledge), applied research (discovering new knowledge with some potential use), and development and implementation (using new or existing knowledge to produce goods and services). If a firm sells only one product or provides only one service, when customers quit buying the product or service, the firm will die. To stay in business, the firm must, at the very least, find ways to refine or extend the want-satisfying capability of its product or service.
Careers in Operations Management
Operations managers must appreciate the manufacturing process • Mass production • Analytical process • Synthetic process
Where Do New Products and Services Come From?
Research and Development (R&D) Product Extension and Refinement
Capacity
The amount of products or services that an organization can produce in a given time Required capacity must meet product demand
Productivity
The average level of output per worker per hour
Use of Technology
The degree of automation and technology must be determined based on the trade off between high initial investment costs with lower operating costs (for automation) and low initial with high operating costs (for human labor)
Quality Control Inspection
The examination of the quality of work in process
Product life cycle
The rise and fall pattern of sales associated with the introduction and acceptance of a product in the market place
Six Sigma
a disciplined approach that relies on statistical data and improved methods to eliminate defects for a firm's products and services
product line
a group of similar products that differ only in relatively minor characteristics
continuous process
a manufacturing process in which a firm produces the same product(s) over a long period of time
intermittent process
a manufacturing process in which a firm's manufacturing machines and equipment are changed to produce different products
just-in-time inventory system
a system designed to ensure that materials or supplies arrive at a facility just when they are needed so that storage and holding costs are minimized
Quality circle
a team of employees who meet on company time to solve problems of product quality
quality circle
a team of employees who meet on company time to solve problems of product quality
A manufacturing facility may employ one or more than one production process. a. True b. False
a. True
A process layout of a factory floor performs each operation in its own particular area. a. True b. False
a. True
One of the great advantages of an MRP system is its ability to juggle delivery schedules and lead times effectively. a. True b. False
a. True
Operations management refers to all activities required to produce goods and services. a. True b. False
a. True
Services, unlike manufactured goods, cannot be stored. a. True b. False
a. True
The ISO 14000 incorporates environmental concerns to existing standards. a. True b. False
a. True
The network of national standards develops standards for quality products and services that extend to over 160 different countries. a. True b. False
a. True
A synthetic process of manufacturing is the opposite of a mass production process. a. True b. False
b. False
A _______ manufacturing system combines electronic machines and computer-integrated manufacturing in a single-production system. continuous analytic synthetic flexible automation
flexible
One worker in Department A produces 45 units of work per day on a computer, whereas a co-worker produces only 40 units of work per day on a computer. Since the first worker produces more units, that worker has a lower capacity to use technology. higher productivity rate. desire to help the co-worker. computer-integrated system. computer-aided system
higher productivity rate.
fixed position layout
is used in producing a product that is too large to move
product layout (assembly line)
is used when all products undergo the same operations in the same sequence
Procter & Gamble uses ______ production to produce household products. efficient order demand supply order mass effective
mass
Two important components of scheduling are lead time and planning. designing and arranging. monitoring and controlling. place and time. logistics and flow.
place and time.
The process of acquiring materials, supplies, components, and parts from other firms is known as acquisition. planning. purchasing. inventory requisition. materials requirements planning.
purchasing.
The American economy is now characterized as a(n) economy. civilized stagnant service bureaucratic industrialized
service
Utility
the ability of a good or service to satisfy a human need
plant layout
the arrangement of machinery, equipment, and personnel within a production facility. Is used when small batches of different products are created or worked on in a different operating sequence
design planning
the development of a plan for converting an idea into an actual product or service
inspection
the examination of the quality of work-in-process
planning horizon
the period during which an operational plan will be in effect
automation
the total or near-total use of machines to do work
computer-aided design (CAD)
the use of computers to aid in the development of products
computer-aided manufacturing (CAM)
the use of computers to plan and control manufacturing processes
Robotics
the use of programmable machines to perform a variety of tasks by manipulating materials and tools
The goal of basic research is to uncover new knowledge without regard for its potential use. discover new knowledge with regard for potential use in development. discover knowledge for potential use. put new or existing knowledge to use. combine ideas.
uncover new knowledge without regard for its potential use.
Form Utility
utility created by people converting raw materials, finances, and information into finished products
Successful operations managers must:
• Be able to motivate and lead people • Understand how technology can make a manufacturer more productive and efficient • Appreciate the control processes that lower production costs and improve product quality • Understand the relationship between the customer, the marketing of a product, and the production of a product
How Do Managers Plan for Production? Human Resources
• Human resources manager and operations manager must work together • The appropriate skills must be identified • Employees with the right skills must be recruited • Or training programs must be developed
Where Do New Products and Services Come From? Product Extension and Refinement
• Product life cycle • Product refinement • Product extension
How Do Managers Plan for Production? Design & Planning
• Product line • Product design • Capacity • Use of technology • Labor-intensive technology • Capital-intensive technology
How Do Managers Plan for Production? Facilities Planning
• The process of determining where products or services are to be produced • Factors influencing the decision either to use an existing facility or to construct a new facility ----Does the existing facility have the capacity to handle the increased demand for production? ----Is the cost of refurbishing or expanding the existing facility less than constructing a new facility? • Factors influencing the location decision for a production facility ---- Locations of major customers ---- Availability of skilled and unskilled labor ---- Quality of life for employees and management ---- Cost of land and construction ---- Taxes, environmental regulations, zoning laws ---- Financial incentives from local and state governments ---- Special requirements for resources
Operations Control: Quality Control Improving quality through employee participation
-Quality circle -Total Quality Management (TQM) -Six Sigma
The impact of computers and robotics on productivity
1. Automation The total or near total use of machines to do work 2. Robotics - The use of programmable machines to perform a variety of tasks by manipulating materials and tools - Robots work quickly, accurately, and steadily - Robots are effective in tedious, repetitious, and hazardous tasks 3. Computer manufacturing systems Computer-aided design (CAD) Computer-aided manufacturing (CAM) Computer-integrated manufacturing (CIM) 4. Continuous Process A manufacturing process in which a firm produces the same product(s) over a long period of time 5. Flexible manufacturing systems (FMS) A single production system that combines electronic machines and computer-integrated manufacturing. 6. Intermittent process A manufacturing process in which a firm's manufacturing machines and equipment are changed to produce different products 7. Technological displacement Automation cuts manufacturing time, reduces error, and simplifies retooling procedures -Many robots work with humans to make jobs safer and easier -Automation will bring change to many jobs; many workers will have to retrain or seek jobs in other sectors of the economy
Causes of U.S. productivity small increase
1. Economic crisis; reduction in investment in new equipment and technology 2. Growth of the service sector without a corresponding increase in the rate of productivity growth 3. Increased government regulation
Improving productivity growth rates
1. Eliminate or modify government policies hindering productivity growth 2. Increase employee motivation and participation 3. Increase cooperation between labor and management 4. More investment by business in facilities, equipment, technology and automation, and employee training
The Conversion Process: Manufacturing Using a Conversion Process
1. Focus The resource or resources that make up the major or most important input; financial, material, information, people 2. Magnitude of change The degree to which the resources are physically changed 3. Number of production processes The number of production processes employed varies from one or a few for small firms to many for larger firms
Operations Control: For complex products, many operations managers prefer Gantt Chart & PERT
1. Gantt chart Graphic scheduling device that displays the tasks to be performed and the time required for each 2. PERT (Program Evaluation and Review Technique) A scheduling technique that identifies the major activities necessary to complete a project and sequences them based on the time required to perform each one
What Is Production?
1. Operations management All activities managers engage in to produce goods and services 2. Operations manager A person who manages systems that convert resources into goods and services Managers concern themselves with the control of operations to ensure that the organization's goals are achieved 3. Planning Planning takes place before anything is produced and during the production process
Improving Productivity with Technology
1. Productivity 2. Productivity Trends 3. Causes of U.S. Productivity small increase 4. Improving productivity growth rates 5. The impact of computers and robotics on productivity
How American Manufacturers Compete in the Global Marketplace
1. The U.S. was the most productive country after World War II 2. Competitors in European and Asian countries eventually recovered and began to compete with the U.S. firms 3. Productivity has increased due to • Innovation • Highly skilled workers • Previously work outsourced to foreign nations returning to the U.S. 4. The most successful U.S. firms have focused on: • Motivating employees to improve productivity • Reducing costs by carefully selecting suppliers • Using computer-aided and flexible manufacturing systems • Improving control procedures to lower manufacturing costs • Building foreign manufacturing facilities where labor costs are lower • Using green manufacturing to conserve natural resources
4 Types of Utility
1. form 2. place 3. time 4. possession
Outline how the conversion process transforms raw materials, labor, and other resources into finished goods or services.
A business transforms resources into goods and services in order to provide utility to customers. Utility is the ability of a good or service to satisfy a human need. Form utility is created by people converting raw materials, finances, and information into finished products. Conversion processes vary in terms of the major resources used to produce goods and services (focus), the degree to which resources are changed (magnitude of change), and the number of production processes that a business uses.
Product Line
A group of similar products that differ only in relatively minor characteristics
Statistical quality control (SQC)
A set of techniques used to monitor all aspects of the production process to ensure that both work in progress and finished products meet the firm's quality standards
Enterprise resource planning (ERP)
A sophisticated software system that can monitor inventory and production and also quality, sales, and supplier information
Operations Control: Purchasing
All the activities involved in obtaining required materials, components, supplies, and parts from other firms Objective: to ensure that the required materials are available when needed, in the proper amounts, and at minimum cost Factors affecting the choice of suppliers -Price -Quality -Reliability -Credit terms -Shipping costs
Product design
Creating a set of specifications from which a product can be produced
Applied research
Discovering new knowledge with some potential use
Manufacturing resource planning (MRP II)
Extends planning to the entire organization by providing a single common set of facts to be used by all managers to make decisions
A purchasing agent need not worry about a tiny difference in price when a large quantity is being bought.
False
Capacity is the degree to which input resources are physically changed by the conversion process.
False
For a food-processing plant such as Kraft Foods, capacity refers to the number of employees working on an assembly line.
False
Operations management is the process of creating a set of specifications from which the product can be produced.
False
When work stations are arranged to match the sequence of operations, a process layout is being used.
False
Work-in-process inventories are raw materials and supplies waiting to be processed.
False
Costs of inventory
Holding Costs Stock-Out Costs
Operations Control: Quality Control World quality standards: International Organization for Standardization (ISO)
ISO 9000: certification for meeting quality control standards in procedures in design, production processes, product testing ISO 14000: certification for incorporating environmental concerns into operations and product standards
4 Aspects of Operations Control
Implementing the operations control system in any business requires the effective use of purchasing, inventory control, scheduling and quality control. 1. Purchasing 2. Inventory Control 3. Scheduling 4. Quality Control
Product refinement
Improving a product's performance characteristics to increase its utility to consumers
Product extension
Improving and adding additional performance features that extend the want-satisfying capability of the product and its life cycle in the market
Explain the nature of production.
Operations management consists of all the activities that managers engage in to create goods and services. Operations are as relevant to service organizations as to manufacturing firms. Today, U.S. companies are forced to compete in an ever-smaller world to meet the needs of more-demanding customers. As a result, U.S. manufacturers have used innovation to improve productivity. Because of innovation, fewer workers are needed, but those workers who are needed possess the skills to use automation and technology. In an attempt to regain a competitive edge, manufacturers have taken another look at the importance of improving quality and meeting the needs of their customers. They also have used new techniques to motivate employees, reduced costs, used computer-aided and flexible manufacturing systems, improved control procedures, and used green manufacturing. Competing in the global economy is not only profitable but also an essential activity that requires the cooperation of everyone within an organization. A number of career options are available for employees in operations management.
Discuss the components involved in planning the production process.
Planning for production involves three major phases: design planning, site selection and facilities planning, and operational planning. First, design planning is undertaken to address questions related to the product line, required production capacity, and the use of technology. Then production facilities, human resources, and plant layout must be considered. Operational planning focuses on the use of production facilities and resources. The steps for operational planning include selecting a planning horizon, estimating market demand, comparing market demand with capacity, and adjusting production of products or services to meet demand.
Summarize how technology can make American firms more productive and competitive in the global marketplace.
Productivity is the average level of output per worker per hour. From 1979 to 2011, U.S. productivity growth averaged a 4.2% increase. More specifically, productivity in 2011 increased 2%. Although a 2% increase was lower when compared to our average productivity growth over the 1979 to 2011 time period, 11 other nations that the U.S. Bureau of Labor Statistics tracks each year had larger growth in productivity than the United States. Several factors must be considered if U.S. firms are going to increase productivity and their ability to compete in the global marketplace. Automation, the total or near-total use of machines to do work, has for some years been changing the way work is done in factories. A growing number of industries are using programmable machines called robots. Computer-aided design, computer-aided manufacturing, and computer-integrated manufacturing use computers to help design and manufacture products. A flexible manufacturing system (FMS) combines electronic machines and CIM to produce smaller batches of products more efficiently than on the traditional assembly line. Instead of having to spend vast amounts of time and effort to retool the traditional mechanical equipment on an assembly line for each new product, an FMS is rearranged simply by reprogramming electronic machines. An FMS is sometimes referred to as an intermittent process.
Types of Inventory
Raw Materials Work-In Process Finished Goods
Productivity trends
Recently the U.S. rate of productivity growth compares favorably with other nations
Where Do New Products and Services Come From? Research and Development (R&D)
Research and Development A set of activities intended to identify new ideas that have the potential to result in new goods and services • Basic research • Applied research • Development and implementation
The Conversion Process: The Increasing Importance of Services
Service Economy An economy in which more effort is devoted to the production of services than to the production of goods The production of services varies from the production of goods - Services are consumed immediately and cannot be stored - Services are provided when and where the customer desires - Services are usually labor intensive - Services are intangible, making it difficult to evaluate customer satisfaction The growth of service firms has increased so dramatically that we are now live in what is referred to as a service economy.
Four steps in operational planning
Step 1: Selecting a planning horizon The period during which a plan will be in effect; commonly one year Step 2: Estimating market demand The quantity that customers will purchase at the going price Demand is estimated for the planning horizon Step 3: Comparing market demand with capacity If market demand and the facility's capacity are not equal, adjustments may be necessary Step 4: Adjusting products or services to meet demand Increase capacity to meet demand Ignore excess demand Eliminate excess capacity
Understand the importance of service businesses to consumers, other business firms, and the nation's economy.
The application of the basic principles of operations management to the production of services has coincided with the growth and importance of service businesses in the United States. Today of American workers are employed in the service industry. In fact, the American economy is now characterized as a service economy. For a service firm, planning often begins with determining who the customer is and what needs the customer has. After customer needs are identified the next step is to develop a plan that will enable the firm to deliver the services that their customers want or need. Although it is often more difficult to measure customer satisfaction, today's successful service firms work hard at providing the services customers want. For example, compared with manufacturers, service firms often listen more carefully to customers and respond more quickly to the market's changing needs.
Explain how purchasing, inventory control, scheduling, and quality control affect production.
The major areas of operations control are purchasing, inventory control, scheduling, and quality control. Purchasing involves selecting suppliers. The choice of suppliers should result from careful analysis of a number of factors, including price, quality, reliability, credit terms, and shipping costs. Inventory control is the management of stocks of raw materials, work-in-process, and finished goods to minimize the total inventory cost. Scheduling ensures that materials and other resources are at the right place at the right time. Quality control guarantees that products and services are produced in accordance with design specifications. The major objective of quality control is to see that the organization lives up to the standards it has set for itself on quality. A number of different activities including quality circles, inspection, total quality management, and six sigma can be used to encourage employee participation and to improve quality.
Operations Control: Quality Control
The process of ensuring that goods and services are produced in accordance with specifications Objective is to see that the organization, lives up to the standards it has set for itself • Statistical process control (SPC) A system that uses sampling to obtain data that are plotted on control charts and graphs to identify and pinpoint problems in the production process • Statistical quality control (SQC) A set of techniques used to monitor all aspects of the production process to ensure that both work in progress and finished products meet the firm's quality standards • Inspection The examination of the quality of work in process
Operations Control: Scheduling
The process of ensuring that materials and other resources are at the right place at the right time 1. Routing of materials: The sequence of work stations that the materials will follow 2. Timing of materials When the materials will arrive at each work station and how long they will stay there 3. Follow-up Monitoring by managers to ensure timely work flows
Operations Control: Inventory Control
The process of managing inventories in such a way as to minimize inventory costs, including both holding costs and potential stock-out costs Types of inventory -Raw materials: materials that will become part of the product during the production process -Work-in-process: partially completed products -Finished-goods: completed goods Costs of inventory -Holding costs: the investment and storage costs of inventory -Stock-out costs: the costs of not having inventory available when needed
The Conversion Process
The purpose of manufacturing is to provide utility to customers The conversion process converts ideas and resources into useful goods and services. The ability to create ideas and to produce products and services is a crucial step in the economic development of any nation
A synthetic process combines raw materials or components to create a finished product.
True
Labor-intensive technology is accompanied by low initial costs and high operating costs.
True
Reshoring is sometimes referred to as onshoring or insourcing
True
The purpose of research and development is to identify new ideas that have the potential to result in new goods and services.
True
Basic research
Uncovering new knowledge; scientific advancement without regard for its potential use
computer-integrated manufacturing (CIM)
a computer system that not only helps to design products but also controls the machinery needed to produce the finished product
materials requirements planning (MRP)
a computerized system that integrates production planning and inventory control
lean manufacturing
a concept built on the idea of eliminating waste from all of the activities required to produce a product or service
mass production
a manufacturing process that lowers the cost required to produce a large number of identical or similar products over a long period of time
International Organization for Standardization (ISO)
a network of national standards institutes and similar organizations from over 160 different countries that is charged with developing standards for quality products and services that are traded throughout the globe
analytical process
a process in operations management in which raw materials are broken into different component parts
synthetic process
a process in operations management in which raw materials or components are combined to create a finished product
Capital-Intensive Technology
a process in which machines and equipment do most of the work
capital-intensive technology
a process in which machines and equipment do most of the work
Labor-Intensive Technology
a process in which people must do most of the work
labor-intensive technology
a process in which people must do most of the work
Analytical process
a process that breaks raw materials into different component parts
Synthetic process
a process that combines raw materials or components to create a finished product
Mass production
a process that lowers the cost required to produce a large number of identical or similar products over a long period of time
PERT (Program Evaluation and Review Technique)
a scheduling technique that identifies the major activities necessary to complete a project and sequences them based on the time required to perform each one. A PERT diagram identifies the activities necessary to complete a given project and arranges the activities based on the total time required for each to become an event. The activities on the critical path determine the minimum time required.
research and development (R&D)
a set of activities intended to identify new ideas that have the potential to result in new goods and services
flexible manufacturing system (FMS)
a single production system that combines electronic machines and CIM
reshoring
a situation in which U.S. manufacturers bring manufacturing jobs back to the United States
R & D in a company refers to research and development. a. True b. False
a. True
The responsibility of purchasing is to secure required materials, supplies, components, and parts from other firms. a. True b. False
a. True
Utility can be defined as the satisfaction of a human need that a good or service provides. a. True b. False
a. True
purchasing
all the activities involved in obtaining required materials, supplies, components, and parts from other firms
operations management
all the activities required to produce goods and services
Malcolm Baldrige National Quality Award
an award given by the President of the United States to organizations judged to be outstanding in specific managerial tasks that lead to improved quality for both products and services
service economy
an economy in which more effort is devoted to the production of services than to the production of goods
Services differ from the production of manufactured goods in all ways except that services are consumed immediately and cannot be stored. aren't as important as manufactured products to the U.S. economy. are provided when and where the customer desires the service. are usually labor-intensive. are intangible, and it's more difficult to evaluate customer service.
aren't as important as manufactured products to the U.S. economy.
Capacity can be defined as the amount of a product that can be sold by one individual manufacturer. a. True b. False
b. False
Drawbacks to robotics include the slow pace of work and the inaccuracy of the production. a. True b. False
b. False
Holding costs are associated with finished-goods inventory and work-in-process inventory but not associated with raw-materials inventory. a. True b. False
b. False
Mass production is a manufacturing process that incrementally raises the cost required to produce larger quantities. a. True b. False
b. False
Since the 1980's, the number of Americans employed in the manufacturing industry has increased by 20%.. a. True b. False
b. False
The notion of capacity of an organization only applies to manufacturing facilities, not to service organizations. a. True b. False
b. False
The number of U.S. workers employed in the manufacturing sector has stayed steady for the past 20 years. a. True b. False
b. False
The only responsibility of the purchasing area is to purchase products at the lowest cost possible. a. True b. False
b. False
The product design comes before the product line can be clearly determined. a. True b. False
b. False
From ________ to ________ the United States was one of the most productive countries in the world with leadership in this area never threatened. a. 1960; 1990 b. the end of WWII; the late 1970s c. the early 1950s; the late 1970s d. the end of WWI; the late 1970s e. 1950; 1985
b. the end of WWII; the late 1970s
A(n) ________ manager is someone who manages the system in an organization that converts resources into goods and services. a. human resources b. Inventory c. operations d. Planning e. Activities
c. operations
After World War II, which country became the most productive country in the world for almost 30 years? a. Korea b. Japan c. Germany d. United States e. Taiwan
d. United States
Gantt Chart
graphic scheduling device that displays the tasks to be performed and the time required for each. This chart details the job of building three dozen electric golf carts
process layout
is used when small batches of different products are created or worked on in a different operating sequence
A common planning horizon for production activities is one day. a week. a month. six months. one year.
one year.
Six Sigma
relies on statistical data and improved methods to eliminate defects for products and services
capacity
the amount of products or services that an organization can produce in a given time
product design
the process of creating a set of specifications from which a product can be produced
quality control
the process of ensuring that goods and services are produced in accordance with design specifications
scheduling
the process of ensuring that materials and other resources are at the right place at the right time
inventory control
the process of managing inventories in such a way as to minimize inventory costs, including both holding costs and potential stock-out costs
Quality Control Objective
to see that the organization lives up to the standards it has set for itself
form utility
utility created by people converting raw materials, finances, and information into finished products
If a good or service satisfies a human need, it has form. value. focus. magnitude. utility.
utility.