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Chapter 8

Chapter 8. Producing Quality Goods and Services. Learning Objectives. Explain the nature of production. Outline how the conversion process transforms raw materials, labor, and other resources into finished products and services.

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Chapter 8

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  1. Chapter 8 Producing QualityGoods and Services

  2. Learning Objectives • Explain the nature of production. • Outline how the conversion process transforms raw materials, labor, and other resources into finished products and services. • Describe how research and development lead to new products and services. • Discuss the components involved in planning the production process. • Explain how purchasing, inventory control, scheduling, and quality control affect production. • Summarize how productivity and technology are related.

  3. Operations Management …all activities managers engage in to produce goods and services.

  4. Spotlight Production Salaries Source: Monster website, www.monster.com, accessed September 21, 2008.

  5. Where U.S. Jobs Have Gone Source: Bronfenbrenner & Luce, “Offshoring: The Evolving Profile of Corporate Global Restructuring,” Multinational Monitor, Dec. 2004, http://www.multinationalmonitor.org/mm2004/122004/bronfenbrenner.html.

  6. How Successful U.S. Firms Competein the Global Marketplace • Motivate employees to cooperate and improve productivity • Select suppliers offering higher-quality raw materials at good prices • Replace outdated equipment • Use computerized manufacturing • Improve control procedures • Build new facilities in foreign countries

  7. Output per Hour in Manufacturing Source: U.S. Department of Labor, Bureau of Labor Statistics, September 2008, “Output per Hour in Manufacturing: 15 Countries or Areas,1950–2007,” ftp://ftp.bls.gov/pub/special.requests/ForeignLabor/prodsuppt01.txt.

  8. Mass Production …a manufacturing process that lowersthe cost required to produce a largenumber of identical or similar productsover a long period of time.

  9. Analytical Process …a process in operations managementin which raw materials are broken into different component parts.

  10. Synthetic Process …a process in operations management in which raw materials or components are combined to create a finished product.

  11. Today’sOperations Managers Must • Be able to motivate/lead • Understand technology • Appreciate control processes • Understand customer

  12. Utility …the ability of a good or service tosatisfy a human need.

  13. Types of Utility • Form • Place • Time • Possession

  14. Form Utility …created by converting raw materials, people, finances, and information into finished goods or services.

  15. Figure 8.1: The Conversion Process The conversion process enables business firms to convert ideas and resources such as materials, finances, and information into useful goods and services. The ability to produce products, services, and ideas is a crucial step in the economic development of any nation.

  16. Conversion Process • Focus ─ resource(s) that make up the major input • Magnitude of change ─ degree to which physical resources are physically changed • Number of production processes ─ varies by product/industry

  17. Service Economy …an economy in which more effort is devoted to the production of services thanto the production of goods.

  18. Figure 8.2: Service Industries Source: U.S. Bureau of Labor Statistics website, www.bls.gov, accessed September 20, 2008.

  19. Production ofServices vs. Goods • Services consumed immediately; goods canbe stored • Services provided when/where customer desires • Services usually labor-intensive • Services intangible

  20. Major Activities inOperations Management • New Product Development • Planning for Production • Operations Control

  21. Research and Development (R&D) …a set of activities intended to identify new ideas that have potential to result in new goods and services.

  22. Types of R&D Activities • Basic ResearchAimed at uncovering new knowledge • Applied ResearchGeared toward discovering new knowledge with some potential use • Development and ImplementationUndertaken specifically to put new or existing knowledge to use in producing goods and services

  23. Product Modification Product extension or refinement gives new life to a product whose sales make up for the declining sales of a product…introduced earlier.

  24. Figure 8.3: Planning for Production

  25. Design Planning …the development of a plan forconverting a product idea into anactual product or service.

  26. Product Line …a group of similar products that differ only in relatively minor characteristics. Requires balancing customer preferences and production requirements

  27. Product Design …the process of creating a setof specifications from which a product can be produced.

  28. Capacity …the amount of products or services that an organization can produce in a given time.

  29. Use of Technology • Automation • Labor-intensive technologyProcess in which people do most of the work • Capital-intensive technologyProcess in which machines and equipment do most of the work

  30. Produce a New Product in Existing Factory If • Existing has enough capacity • Cost of refurbishing is less than cost of building new

  31. Production FacilityLocation Variables • Locations of major customers and suppliers • Availability and cost of skilled and unskilled labor • Quality of life for employees and management • Cost of land and construction • Local and state taxes, environmental regulations, zoning laws • Financial support from local and state governments • Special requirements such as great amounts of energy or water

  32. Plant Layout …arrangement of machinery, equipment, personnel within a production facility.

  33. Figure 8.4: Facilities Planning

  34. Operational Planning Step 1: Selecting a Planning Horizon Step 2: Estimating Market Demand Step 3: Comparing Market Demandwith Capacity Step 4: Adjusting Products/Servicesto Meet Demand

  35. When DemandExceeds Capacity • Operate facility overtime • Add 2nd, 3rd shift • Outsource a portion • Expand current facility or build another

  36. When CapacityExceeds Demand • Reduce number of employees • Shorten workweek • Close part of facility • Shift to production of other goods or services • Sell unused facilities

  37. Figure 8.5: Four Aspects of Operations

  38. Purchasing …all activities involved in obtainingrequired materials, supplies, components, and parts from other firms.

  39. Objective of Purchasing Ensure • Required materials • Available when needed • In proper amounts • At minimum cost

  40. Factors in Choosing Supplier • Price • Quality • Reliability • Credit Terms • Shipping Costs

  41. Inventory Types: • Raw Materials • Work-in-Process • Finished Goods Associated Costs: • Holding/Storage • Stock-Out

  42. Inventory Control …the process of managing inventories in such a way as to minimize inventory costs, including …holding costs and potential stock-out costs.

  43. Materials Requirements Planning (MRP) …a computerized system that integrates production planning and inventory control.

  44. Extensions of MRP • Manufacturing Resource PlanningLess-sophisticated software; involves just production and inventory personnel • Enterprise Resource PlanningMore-sophisticated software; can monitor not only inventory and production processes but also quality, sales, etc.

  45. Just-in-TimeInventory System (JIT) …a system designed to ensure that materials or supplies arrive at a facility just when they are needed so storage and holding costs are minimized.

  46. Debate: Should JIT Be Used to Reduce Inventory Costs? • YES • JIT ensures that materials or supplies arrive when they are needed. • JIT reduces inventory storage costs because suppliers must deliver goods when they are needed. • Former storage space can be diverted to more productive activities like manufacturing. • NO • Firm can encounter stock-out costs if supplier doesn’t deliver. • Supplier storing goods passes on storage cost in the form of higher prices. • If suppliers don’t deliver on time, manufacturer may have to shut down assembly line.

  47. Scheduling …the process of ensuring that materials and other resources are at the right place at the right time.

  48. Scheduling Concerns • Place/time • Routing of materials • Timing • Follow-up

  49. Quality Control …the process of ensuring that goods and services are produced in accordance with design specifications.

  50. Malcolm BaldrigeNational Quality Award • Given by U.S. President • Results in • Better employee relations • Higher productivity • Greater customer satisfaction • Increased market share • Improved profitability

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