Chapter 12

1. Chapter12 Operations Control

2. Learning Outcomes • Understand the basic requirements for controlling operating costs • Define quality from the perspective of an operations manager • Explain the concept of total quality management (TQM)

3. Learning Outcomes • Define the following terms: continuous improvement, kaizen, six sigma, lean manufacturing and quality at the source • Understand the difference between raw material, in-process and finished-goods inventory classifications • Explain the concept of just-in-time (JIT) inventory

4. Operations Control • Effective Operations systems • Design • Control • Process monitored and quality ensured • Controlling Operations Costs • Variable overhead expenses • Fixed overhead expenses • Budgets • Compare budgeted costs to actual

5. Quality Management • Quality from perspective of manager • Achieve product/service specifications • Affect of quality on the organization • Loss of business • Liability • Costs • Productivity • Total customer response program to transfer workplace quality to customer dealings • Quality assurance

6. Quality Management • Quality assurance • Build quality into the product, instead of inspecting quality in • All employees should be responsible for quality • W. Edwards Deming: • Cause of poor quality: system, not the employees • Management needs to correct system

7. Total Quality Management (TQM) • Manages entire organization so that it excels in all dimensions of products and services important to the customer • Getting Started with TQM • Find out what customers want • Design a product or service to meet wants • Keep track of results • Extend concepts to suppliers and distribution

8. Implementing TQM • Demonstrate top-down commitment • Set tough improvement goals • Determine critical measurement factors • Identify costs • Rely on teamwork • Allow time to see progress • Key internal task: culture change

9. Barriers to TQM • Lack of consistency of purpose on the part of management • An emphasis on short-term profits • An inability to modify personnel review systems • Mobility of management (job hopping) • Lack of commitment to training and failure to instill leadership that is change-oriented • Excessive costs

10. Total Quality Management (TQM) • Continuous Improvement • Kaizen • Incremental refining of existing processes • Taking small steps to improve workplace • Quality at the Source • Each employee responsible for his or her work • Six Sigma • Precise set of statistical tools for continuous improvement

11. Total Quality Management (TQM) • ISO 9000 • International Organization for Standardization • International body that creates standards to facilitate the exchange of goods internationally • Outlined quality system requirements • ISO 14000 • Series of voluntary international standards covering environmental management tools and systems

12. Total Quality Management (TQM) • Zero Defects • Attempts to create a positive attitude toward the prevention of low quality • Extensive communication regarding the importance of quality • Organization-wide recognition • Problem identification by employees • Employee goal setting

13. Total Quality Management (TQM) • Malcolm Baldrige Awards • An award given to honor companies’ quality achievements

14. Types of Quality Control • Product quality control • Quality is being evaluated with respect to a batch of products or services • Process quality control • Monitoring quality while the product or service is in process

15. Types of Quality Control • Acceptance sampling • Method of predicting the quality of a batch by taking a sample from the batch • Used for the following reasons: • Cost of passing defective items not great relative to the cost of inspections • Inspection requires destruction of product • Sampling produces faster results

16. Types of Quality Control • Process control chart • Time-based graphic that shows whether a machine or process is producing output at the expected quality level • Charts calculate the desired level of a characteristic • Calculate upper & lower limits to determine how much characteristic can vary before machine/process is considered out of control

17. Inventory Control • Raw materials • The parts that go into making a completed good • In process • Products that are not finished yet, but have entering the manufacturing system • Finished goods • Goods that are finished and ready for shipping

18. Inventory Control • Inventories allow for: • Purchase, produce and ship in economic lot sizes rather than in small jobs • Produce on a smooth, continuous basis even if the demand for the finished product or raw material fluctuates • Prevent major problems when forecasts of demand are in error or when unforeseen slowdowns or stoppages in supply or production occur

19. Jus- in-Time (JIT) Inventory Systems • A system that schedules materials to arrive and leave as they are needed. In other words, large inventories are not kept in stock

20. Tracking Inventory • Bar code technology reduces errors in tracking inventory • RFIP • Physical inventory • Process of counting the number of units a company has in stock • Independent demand items • Finished goods or end products that are sold or shipped as opposed to being used in making another product

21. Just-in-Time (JIT) Inventory Systems • Dependant demand items • Goods that are subassemblies or component parts, which are used to make some finished product • ABC classification system • Manages inventories based on the total value of their usage per unit of time • Grouping items establishes appropriate control over each item

22. Just-in-Time (JIT) Inventory Systems • Safety stock • Accommodates unexpected changes in demand • Ordering costs include costs of preparing an order, shipping costs and setup costs • Economic ordering quality refers to the point at which ordering costs equal carrying costs