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Operations Management C215 Study Guide
Competency 1: Quality Management Methods (16%) Chapter 5: Total Quality Management
- Total Quality management (TQM) Philosophy o TQM focuses on identifying quality problem root causes o Encompasses the entire organization o Involves the technical as well as people o Relies on seven basic concepts of ▪ Customer focus ▪ Continuous improvement ▪ Employee empowerment ▪ Use of quality tools ▪ Product design ▪ Process Management ▪ Managing supplier quantity - Quality Gurus and their contributions to TQM o Walter A. Shewhart: Contributed to understanding of process variability. Developed concept of statistical control charts. o W. Edwards Deming: Stressed management’s responsibility for quality. Developed “14 Points’ to guide companies into quality improvement o Joseph M. Juran: Defined quality as “fitness for use” and developed concept of cost of quality. o Armand V. Feigenbaum: Introduced concept of total quality control. o Philip B. Crosby: Coined phrase “quality is free” and introduced concept of zero defects. o Kaoru lshkawa: Developed cause and effect diagrams. Identified concept of “internal customer.” o Genichi Taguchi: Focused on product design quality. Developed Taguchi loss function. - Definitions of Quality o Conformance to Specifications: How well a product or service meets the targets and tolerances set by designers o Fitness for Use: How well the product performs its intended purpose or use. o Value for Price Paid: Quality defined in terms of consumer’s perception of usefulness of service or product related to prices paid. o Support Services: Quality defined in terms of the support provided after the product or service is purchased o Psychological Criteria: Way of dealing quality, focuses on the judgmental evaluation of what constitutes product or service excellence - Four Costs of Quality o Prevention and Appraisal: Costs that are incurred to prevent poor quality o Internal and External Failure: Costs that the company hopes to prevent
- The Organizational impact of quality o Quality function deployment (QFD) is a tool used to translate customer needs into specific engineering requirements. Seven problem-solving tools are used in managing quality. Often called the seven tools of quality control, they are cause- and-effect diagrams, flowcharts, checklists, scatter diagrams, Pareto analysis, control charts, and histograms. - Plan-Do-Act-Study Cycle o -Plan-do-act-study (PDSA) cycle describes the activities a company needs to perform in order to incorporate continuous improvement in its operation. o - Plan : Managers must evaluate the current process and make plans based on any problems they find. Document all current procedures, collect data, and identify problems. o - Do: Implementing the plan (do). Managers should document all changes made and collect data for evaluation. o -Study: Managers must study the data collected in the previous phase. The data are evaluated to see whether the plan is achieving the goals established in the plan phase. o - Act: Managers must act on the basis of the results. Communicate results to other members of the company and then implement the new procedure if it has been successful. The next step is to plan again and restart the cycle.
- o - Benchmarking: Another way companies implement continuous improvement is by studying business practices of companies considered “best in class.” The ability to learn and study how others do things. The benchmark company does not need to be in the same business as long as it excels at something the company is doing and wishes to emulate. (Ex. Lands’ End clothing catalog) - ISO 9000 Standards o Certification developed by International Organization for Standardization o Set of internationally recognized quality standards o Companies are periodically audited and certified - ISO 14000 Standards o Focuses on a company’s environmental responsibility **Review Chapter 6: Statistical Quality Control
- Definition of Statistical Quality Control o** The term used to describe the set of statistical tools used by quality professionals to evaluate organizational quality - Sources of Variation o Can exist in all processes o Common Causes ▪ Random causes that we cannot identify ▪ Unavoidable, (Ex. Slight differences in process variables like diameter weight, service time, temperature)
o Used where inspection is expensive, volume is high, or inspection is destructive
- Control Charts o A control chart is a graph used in SPC that shows whether a sample of data falls within the normal range of variation. A control chart has upper and lower control limits o Types of Control Charts ▪ X-Bar charts and R-charts monitor the range or dispersion of the values of a product characteristic. ▪ Variables - X-Bar charts and R-charts ▪ Attributes - C-charts and P-charts - C-Charts and P-Charts (what they are and used for) o Control charts for attributes include p-charts and c-charts. P-charts are used to monitor the proportion of defects in a sample, C-charts are used to monitor the actual number of defects in a sample. **Competency 2: Capacity Planning & Location Analysis (26%) Chapter 9: Capacity Planning and Facility Location
- Capacity Planning o** Deals with the maximum output rate that a facility can have, determined by the size of facilities and equipment o Definition and Importance to an organization ▪ If not planned correctly, it may find that it either does not have enough output capability to meet customer demands or has too much capacity sitting idle - Design and Effective Capacity o Only sustained for a short period of time, by using many temporary measures, such as: ▪ Overtime, overstaffing, maximum use of equipment, and subcontracting o Maximum output rate under normal conditions, lower than design capacity ▪ These conditions include realistic work schedules and breaks, regular staff levels, scheduled machine maintenance, and none of the temporary measures that are used to achieve design capacity - Capacity Utilization o Percentage measure of how well available capacity is being used - Selecting an ideal location o Analysis should follow 3 step process: ▪ Identify dominant location factors ▪ Develop location alternatives ▪ Evaluate locations alternatives - Location analysis
o Most important factor in real estate o Facility location is the process of identifying the best geographical location for a service or production facility o Long term commitment o Sizable financial investment and impact o Factors affecting location decisions ▪ Proximity to source of supply (Reduce transportation costs of perishable or bulky raw materials) ▪ Proximity to customers (High population areas, close to JIT partners ▪ Proximity to labor (Local wage rates, attitude toward unions, availability of special skills (Silicon Valley) ▪ Community considerations (Local community’s attitude toward the facility [prisons, utility plants, etc.]) ▪ Site considerations (Local zoning & taxes, access to utilities, etc.) ▪ Quality-of-life issues (Climate, cultural attractions, commuting time, etc.) ▪ Other considerations (Options for future expansion, local competition, transportation access and congestion, etc.)
- Decision support tools o Factor rating method ▪ A procedure to evaluate multiple alternative locations based on a number of selected factors o Load-distance model ▪ A procedure for evaluating location alternatives based on distance o Center of gravity approach ▪ Considers the center of gravity of the geographic area being considered for an alternative site o Break-even analysis ▪ Technique used to compute the amount of goods required to be sold to just cover costs o Transportation method - Globalization o The process of locating facilities around the world. o Advantages and Disadvantages ▪ Advantages: Inside track to foreign markets, avoid trade barriers, gain access to cheaper labor, closer to suppliers/manufacturers ▪ Disadvantages: Political risks may increase, loss of control of proprietary technology, local infrastructure (roads & utilities) may be inadequate, high inflation ▪ Also: Language barriers, different laws/regulations, different business cultures Chapter 3: Product Design and Process Selection ▪ Product Design
▪ Project Processes:
- Used to make one-of-a-kind products exactly to customer specifications. These processes are used when there is a high customization and low product volume, because each product is different (Ex. Construction, custom tailoring, interior design) ▪ Batch Processes: - Used to produce small quantities of products in groups of batches based on customer orders or product specifications. Also known as job shops (Ex. Bakeries, education) o Repetitive Operations ▪ Used to produce one or a few standardized products in high volume (Ex. Assembly line, cafeteria, or automatic car wash) - Mass production and capital intensive - Much invested in their facilities and equipment to provide a high degree of product consistency using automation and technology - Volume produced is usually based on forecast of future demands rather than on direct customer orders ▪ Line Processes: Designed to produce a large volume of standardized product for mass production, also known as flow shops, flow lines, or assembly lines (Ex. Cars, computers) ▪ Continuous Processes: Operate continually to produce a very high volumes of a fully standard product. (Ex. Refineries, water treatment plants, and certain paint facilities) ▪ Process Performance Metrics o Measurements of different process characteristics that tell us how a process is performing and changing over time. o Measures, definitions, and Formulas ▪ Throughput time - Average amount of time a product takes to move through the system. A lower throughput time mean that more products can move through the system. One goal of process improvement is to reduce throughput time. ▪ Process velocity - A metric that measures how much wasted time exists in a process. ▪ Productivity - How well a company uses its resources. ▪ Utilization - The proportion of time a resource is actually used (Ex. Equipment, labor) ▪ Efficiency - Measures performance relative to a standard. o Technology Decisions ▪ Information Technology ▪ Automation
▪ E-Manufacturing o Product Design & Process Selection Across the Organization Chapter 10: Facility Layout ▪ Layout Planning ▪ Types of Layouts
1. Process: Layouts that group resources based on similar processes or functions ▪ Characteristics - Seen in companies with intermittent processing systems - Where a large variety of items are produced in a low volume - Arrange items by type, as seen at grocery store sections, or a hospital (cardiology, radiology, lab, oncology, etc.) - Resources used are general purpose - Facilities are less capital intensive, more labor intensive - Resources have greater flexibility, processing rate are slower - Material handling costs are higher, and space requirements - Scheduling resources & work flow is more complex 2. Special Cases of Process Layout ▪ Warehouse Layouts **▪ Office Layouts
- Product:** Layouts that arrange resources in a straight-line fashion to promote efficient production. ▪ Characteristics - All resources are arranged to meet the production needs of a product, and resources are specialized - Used by companies that have repetitive processing systems and produce one or a few standardized products in large volume - Assembly lines in cafeterias or at a car wash. Product layouts the material moves continuously and uniformly through a series of workstations until the product is completed. - Facilities are capital intensive, processing rates are faster - Material handling costs are lower, space requirements for inventory are lower - Flexibility is low relative to the market 4. Hybrid: Combine aspects of both process and product layouts. Part of the operation is performed using an intermittent processing system and another part is performed using a continuous processing system. ▪ Group Technology (Cell) Layouts: Families of products that are similar in their processing characteristics and resource requirements are identified. Managers can then create cells, or small product layouts, that are dedicated to the production of these families of products. This approach brings greater efficiency to the process layout environment. 5. Fixed Position: Used when the product is large and cannot be moved due to its size. All the resources for producing the product-including equipment, labor,
- Work measurement: A way of determining how long it should take to do a job. Work measurement techniques are used to set a standard time for a specific job. o The length of time a qualified worker, using appropriate processes and tools to complete a specific job, allowing time for personal fatigue, and delays. o Costing: The labor component of products o Performance: Tracking employee performance o Planning: Scheduling and planning required resources - Worker compensation o Time based systems: Pay based on number of hours worked o Output based systems: Pay based on number of units completed o Group incentive plans: Reward employees when company achieves a certain performance objective ▪ Profit Sharing: An employee bonus pool based on sharing of company’s profits ▪ Gain Sharing: Focus on cost reduction vs. than profits o Incentive plan trends: Individual incentive systems undermine teamwork, short term focus, and group incentive systems typically outperform - Methods analysis: The study of how a job is done. Job design shows the structure of the job and the names of the tasks within the structure, methods analysis details the tasks and how to do them. o This technique eliminates unnecessary tasks and improves the process for completing the tasks. Results in a standard, detailed procedure for an operation. o Steps: 1. Identify the operation to be analyzed 2. Gather all relevant information 3. Talk with employees who use the operation 4. Chart the operation 5. Evaluate each step 6. Revise the existing or new operation as needed 7. Put the revised or new operation into effect, then follow up on the changes or new operation - Work system design across the organization o Accounting: Calculates the cost of products manufactured or services provided. o Marketing: Concerned with work system design because it is the basis for determining lead time. Accurate work projections enable marketing to make viable promise dates to customers. o Information Systems: Estimates of job duration and resources in the software for scheduling and tracking operations. o Human Resources: Uses work sampling to establish and validate hiring criteria. ▪ Work Sampling: A method used for estimating the proportion of time that an employee or machine spends on different work activities. Competency 4: Operating Efficiency (11%)
Chapter 7: Just-In-Time and Lean Systems o Just-In-Time (JIT) Philosophy ▪ JIT originated in Japan at Toyota Motor Company, fueled by a need to survive the devastation of post WW ▪ JIT gained worldwide prominence in the 1970’s ▪ Often termed “Lean Production” or “Lean Systems” ▪ Broad view that the entire organization has the same goal- to serve customers o Elimination of waste: Waste is anything that does not add value o Operations: Taking a broad view of operations o Simplicity: Simpler is better o Continuous Improvement: Often using kaizen blitz o Visibility: All waste must be visible to be identified and eliminated o Flexibility: To adapt to changes in environment
- Elements of JIT o Achieved by focusing on these elements: ▪ Inventory reduction: expose problems ▪ Kanbans & pull production systems ▪ Small lots & quick setups ▪ Uniform plant loading ▪ Flexible resources ▪ Efficient facility layouts o Just-in-time manufacturing ▪ Focuses on production system to achieve value-added manufacturing o Total quality management (TQM) ▪ An integrated effort designed to improve quality performance at every level o Respect for people ▪ Rests on the philosophy that human resources are an essential part of JIT philosophy - Impact of JIT and lean principles across the organization o Benefits of JIT: More cost efficient production, continuous quality improvement, waste elimination, improve productivity, improve supplier relationships, improve storage space used, reduce costs associated with storage, reduce manufacturing time - JIT and Lean Systems Across the Organization o Eliminates organizational barriers and improves communications o Accounting: Changes or relies on activity based costing o Marketing: Interfacing with the customers o Finance: Approves and evaluates financial investments o Information Systems: Create the network of information necessary for JIT to function
- Traffic Management: Arranging the method of shipment for both incoming and outgoing products or material - Distribution Management: Movement of material from manufacturer to the customer o Insourcing versus Outsourcing Decisions o Vertical Integration ▪ Backward Integration ▪ Forward Integration o Implementing Supply Chain Management (SCM): Analyzing the whole supply chain, starting by integrating internal functions first, integrating external suppliers through partnerships ▪ Strategies for leveraging SCM - Regularly assess your SC network to ensure continued suitability to your needs - Maintain a global view of demand - Decide how to get products to your customers - Improve asset productivity - Expand your visibility - Know what happens, when it happens - Design to deliver - Track performance to allow for continuous improvements o Supply Chain measurements: Customer demands for better quality requires companies to develop ways to measure improvements ▪ Warranty costs ▪ Products returned ▪ Cost reductions allowed because of product defects ▪ Company response times ▪ Transaction costs ▪ Traditional financial measures
- Return on investment (ROI), Profitability, Market share, and Revenue growth ▪ Traditional inventory performance measures
- Customer service levels, inventory turns, weeks of supply, and inventory obsolescence ▪ SCM across the organization - Accounting: Shares SCM benefits due to inventory level increases - Marketing: Benefits of improved customer service levels achieved by POS data collection - Information Systems: Critical for information sharing through POS data, EDI, RFID, the Internet, intranet, and extranets - Purchasing: Responsible for sourcing materials - Operations: Use timely demand information to more effectively plan production schedules and manufacturing capacity
Competency 6: Management and Planning (27%) Chapter 12: Inventory Management
- Types of inventory o Raw materials: Purchased items or extracted materials transformed into components or products o Components: Parts or subassemblies used in final product o Work in Process (WIP): Items in process throughout the plant o Finished goods: Products sold to customers o Distribution inventory: Finished goods in the distribution system o (MRO) – Maintenance, repairs, and operating supplies: Other supplies needed to the business (Ex. Extra computer ink, Clorox wipes) - Objectives of inventory management: Provide desired customer service level, to allow cost-efficient operations, and to minimize inventory investment o Customer service ▪ Measured by percentage of orders shipped on schedule, percentage of line items shipped on schedule, percentage of dollar volume shipped on schedule, idle time due to component and material shortages o Cost efficient operations ▪ Inventories help achieve cost-effective operations by using buffer stock to assure smooth production flow, maintaining a level workforce, allowing longer production runs, which spreads the cost of setups ▪ Taking advantage of quantity discounts o Minimize inventory investment ▪ Measured by any of the following, inventory turnover, weeks of supply, days of supply - Functions of inventory o Anticipation inventory, fluctuation inventory, lot-size inventory, **transportation inventory, speculative inventory, and MRO inventory
- Methods used to verify inventory** o Periodic counting ▪ Physical inventory is taken periodically, usually annually o Cycle counting ▪ Daily counting of pre-specified items provides the following advantages - Pull process o Procurement, production, and distribution are demand-driven rather than based on predictions. Goods are produced in the amount and time needed. - Push process o Products are pushed through the channel from the production up to the retailers, often leading to excess amounts of inventory in storage. - Inventory Management across the organization
▪ Reactive: Finished goods inventory-absorb fluctuations and develop a stable work environment. Backorders for fluctuations (unfilled orders) can be costly ▪ Proactive: Shifts the demand- patterns (incentives) to minimize fluctuations (Ex. Early bird dinner price at a restaurant) o Capacity-based options ▪ Changes output capacity to meet demand ▪ Uses: overtime, under time, subcontracting, hiring/firing, part timers ▪ Cost and operational implications
**- Aggregate planning across the organization Chapter 14: Resource Planning
- Enterprise Resource Planning (ERP) o** A software designed for organizing and managing business processes. Integrates the complete range of an organization’s operations in order to present a holistic view of the business functions from a single information and IT architecture. ▪ Modules share information across all business functions ▪ Can share customer sales data with the supply chain to help with global replenishment ▪ All modules are fully integrated and use a common database – some PC. Based o Benefits of ERP ▪ Presents a holistic view of the business functions from a single information and IT architecture ▪ Increases organizational information flow ▪ Increases ability to incorporate improved order management, speedier decision making, and cost reductions ▪ Allows replacement of disparate systems (Ex. ExxonMobil replaces 300 different systems) and reduction in staffing and inventory ▪ A study of ERP implementations reports that benefits typically start 8 months after implementation with median annual savings of 1.6$ million o Costs of ERP ▪ Costs for larger ERP systems range from hundreds of thousands of several million dollars ▪ Outside consultants are usually involved in selection, configuration, and implementation ▪ Consultant costs can run up 3 times the cost of the system itself ▪ Additional costs for people, new computer hardware, and the cost to develop a new, integrated database ▪ Successful implementation requires leadership and top management commitment to a vision for the business
- Selection criteria:
- Functionality
- Ease of use
- Total cost of ownership (TCO) - Material Requirements Planning (MRP): An information system that uses the concept of backward scheduling. Translated a master schedule of final products into time-phased net requirements for subassemblies, assemblies, and parts - Capacity Requirements Planning (CRP): Checks to make sure the scheduled workload profile is feasible - Types of Demand o Independent demand: Demand for finished products. Does not depend on the demand of other products. Needs to be forecasted. o Dependent demand: The demand for derived from finished products. The demand for component parts based on the number of end items being produced and is managed by the MRP system. - Resource planning across the organization: Since MRP determines the quantity and timing of materials needed, it affects several functional areas: o Accounting: Future material commitments based on MRP output o Marketing: Primarily concerned with MPS as the MRP reveals potential material shortages o Information Systems: Maintains the MRP and the MPS o Purchasing: Evaluates feasibility of contracts and delivery need o Manufacturing: Needs to develop daily schedule Chapter 16: Project Management ▪ Life Cycle of a Project o Conception: Identify the need o Feasibility Analysis or Study: Costs, benefits, and risks o Planning: Who, how long, what to do? o Execution: Doing the project o Termination: Ending the project ▪ Program evaluation and review technique (PERT) o Developed to manage the Polaris missile project o Used to determine a project’s planned completion date and identify the critical path ▪ Probabilistic: Process that uses optimistic, most likely, and pessimistic time estimates ▪ Use when there is uncertainty about duration (Ex. Bad weather delays, unexpected labor issues) ▪ Critical path method (CPM) o Developed to coordinate maintenance projects in the chemical industry o An algorithm for scheduling a set of project activities; identification of the critical path/s (longest) ▪ Deterministic: Assumes the activity duration is a known certainty ▪ Use when reliable estimates can be made based on similar activities in the past ▪ Project Management Across the Organization
