CHAPTER 7

Achieving World-Class
Operations Management
Case: Coca-Cola’s Crisis Management in
Belgium

 Coca-cola faced one of its greatest potential

challenges in Europe when 33 children fell ill after
dinking Coca-Cola bottled in a plant in Antwerp,
Belgium. Another 80% people in France were
similarly affected; at the heights of the crisis, 250
people were complaining of intestinal problem.
 In response, Coca-Cola recalled and destroyed 17
million cases of drink from five European countries.
 Learning Goals

Why is production and operations management

1 important in both manufacturing and service firms?

What types of production processes do

manufacturers and service firms use?
2
How do organizations decide where to put their
production facilities? What choices must be made in
3 designing the facility?

3
Learning Goals

Why are resource-planning tasks like inventory

4 management and supplier relations critical to
production?

How do operations managers schedule and

5 control production?

How can quality management and lean-

6 manufacturing techniques help firms improve
production and operations management?

4
 Production and Operations Management

Why is production and operations management

important in both manufacturing and
service firms?

• Finding the most efficient and effective

methods of producing the goods or services
it sells to customers.
• This chapter explains how manufacturers
and service firms manage and control the
creation of products and services.
1 5
 Service Operations (Service Production)
– activities producing intangible and
tangible products, such as entertainment,
transportation, and education
 Goods Operations (Goods Production)
– activities producing tangible products,
such as radios, newspapers, buses, and
textbooks
Growth in the Services and Goods Sectors
GDP from Goods and Services
 Production and
Operations Management

The creation of products and services by

turning inputs into outputs, which are
Production
products and services.

Operations Management of the production

Management process.

1 9
 The Production Process
Inputs Outputs

Raw Natural Products

materials resources Conversion
Human process
Capital
resources Services

• Managing this conversion process is the role of operations management. In

the 1980s, many U.S. industries lost customers to foreign competitors
because their production systems could not provide the quality customers
demanded.
• As a result, most American companies now consider a focus on quality to be a
central component of effective operations management.
• The goal of customer satisfaction is also an important part of effective
production and operations.
• Focused on customers and customer satisfaction. 10
Production and Operations Management

1. Production Planning

Main
Types of 2. Production Control
Decisions

3. Improving production
and operations

11
The Production Process
Production and operations management involves three main
types of decisions that are made at three different stages:

1.Production planning: The first decisions come at the planning

stage, at which time managers decide where, when and how
production will occur.
2.Production control. The decision-making process focuses on
scheduling, controlling quality and costs, and the actual day-to-
day operations of running a factory or service facility.
3.Improving production and operations: The final stage focuses
on developing more efficient methods of producing the firm’s
goods.

These three types of decisions are ongoing and often occur

simultaneously.

12
Production Planning
• During production planning, the firm considers
the competitive environment and its own
strategic goals in an effort to find the best
production methods.

• Production planning involves three phases:

Short-Term Medium-Term Long-Term

1 Year 2 Years 3-5 Years

1
13
Decisions in Production Planning
Four important decisions must be made in production planning.
They involve the :

Type of Production Process

Site selection

Facility layout

Resource planning

1
14
 How Do We Make It?

What types of production

processes do manufacturers and
service firms use?

2 15
 Production Processes

In addition to production type, operations managers

classify production processes in two ways:

1) How inputs are converted into outputs

2) The timing of the process

2 16
 How Do We Make It?
Three types of production

Mass
The ability to manufacture many
Production identical goods at once.
(One for all)

Mass Goods are mass-produced up to a

Customization point, then custom tailored to
(Just for you) the needs of individual customers.

The production of goods or services

Customization one at a time according to the
needs of individual customers. Unlike
mass customization, each product or
service is unique
2 17
How Do We Make It?

 Mass production was a product of the Industrial

Revolution, with Henry Ford’s Model-T automobile a
good example. Each car was identical, right down to the
color of black. The emphasis of mass production is on
keeping manufacturing costs low by producing highly
uniform products using repetitive and standardized
processes. 11 cars were built there during the first full
month of production. Ford assembly line -12,000 Model
Ts.
 Mass customization involves producing goods using
mass-production techniques, but custom tailoring the
products to the needs or desires of individual customers.

18
 Converting Inputs
Into Outputs
The two basic processes for converting inputs into
outputs are:

The basic input is broken down into

Process one or more outputs.
Manufacturing (E.g Bauxite -> aluminum,..)

The basic inputs are combined or

transformed into the output.
Assembly
(e.g Airplane-> is created by
Process assembling thousands of part which
are its material input)

2 19
 Production Timing

A second consideration in choosing a production process is timing.

A continuous process is best for high-volume, low-variety products with standardized

parts. The intermittent process is best for low-volume, high-variety products such as
those produced by mass customization or customization.

Most firms rely on intermittent processes.

A production process that uses
Continuous long production runs without
Process equipment shutdowns.
E.g electric company
A production process that uses short
Intermittent production runs to make batches of
Process different products.

2 20
 Where Do We Make It?

How do organizations decide where to put their

production facilities? What choices must be
made in designing the facility?

3 21
 Where Do We Make It?
The facility’s location affects operating and shipping costs, and mistakes made at this
stage can be costly because moving a facility is expensive.
The factors to consider include:

Availability of production inputs

Marketing factors

Manufacturing environment

Local incentives

International location
considerations

Process layout
3
22
 Where Do We Make It?
 The factors to consider include:
1. Availability of production inputs: Assess the availability of raw
materials, parts, and equipment, as well and availability and cost of labor.
2. Marketing factors: Evaluate how their facility location will affect their
availability to serve their customers. Locating near customers can
provide market advantages. Consider the location of competitors. With
more than one facility, consider how far to spread their locations in order to
maximize market coverage.
3. Manufacturing environment: When a large number of manufacturers are
already located in an area, that area is likely to offer greater availability of
resources, better accessibility to suppliers and transportation, and other
factors that increase efficiency.
4. Local incentives: Incentives offered by countries, states, or cities, such
as tax breaks and exemptions.
5. International location considerations: Labor costs are lower in countries
like Singapore, China, and Mexico. Foreign countries may have fewer
regulations.
6. Process layout: arranges work flow around the production process.
23
 Where Do We Make It?
Process Work flows according to the
Layout production process

Workstations or departments are

Product
arranged in a line with products moving
Layout
along the line

The product stays in one place

Fixed-Position
and workers and machinery
Layout
move to it as needed

Technique uses small, self-contained

Cellular
production units each performing all or
Manufacturing
most of the tasks necessary

Cellular manufacturing combines some aspects of both product and fixed-position layout. There3
are usually five to ten workers in cell, and they are trained to be able to do any of step in
production process.. Create team environment. From beginning to end 24
 Facility
Layouts

3 25
 Resource Planning

Why are resource-planning tasks like inventory

management and supplier relations critical to
production?

Purchasing is the process of buying

production inputs from various sources.

4 26
 Resource Planning

Resource planning begins by specifying which raw materials, parts, and

components will be required, and when, to produce finished goods. To
determine the amount of each item needed, the expected quantity of finished
goods must be forecast.

A list of the items and the number of

Bill of Material each required to make a given
product.

The process of buying production

Purchasing inputs from various sources; also
called procurement.

4 27
 Make or Buy?
 The firm must decide whether to make its own
production materials or buy them from outside
sources. This is the Make-or-Buy decision. The
factors to be considered are listed –next slide.

 Make-or-buy decisions: The quantity of items needed

is one consideration—if a small number of parts is
needed, outsourcing may be the most cost effective.
However, if a product has special design features that
need to be kept secret, a firm may decide to produce
all parts internally.

28
Make or Buy?
Quantity of items needed

Standard or
non-standard items

Factors Size of components

Special design features

Quality and reliability

4
29
 Make or Buy?...Cont
Factors that may influence firms to buy a part externally
include: (Burt et al, 2013)
1. Lack of expertise
2. Suppliers' research and specialized know-how
exceeds that of the buyer
3. Cost considerations (less expensive to buy the item)
4. Small-volume requirements
5. Limited production facilities or insufficient capacity
6. Desire to maintain a multiple-source policy

30
 Make or Buy?...Cont
Factors that may influence firms making a part in-house include:
(Burt et al, 2013)
1. Cost considerations (less expensive to make the part)
2. Desire to integrate plant operations
3. Need to exert direct control over production and/or quality
4. Better quality control
5. Design secrecy is required to protect proprietary technology
6. Unreliable suppliers
7. Quantity too small to interest a supplier
8. Control of lead time, transportation, and warehousing costs
9. Political, social or environmental reasons (union pressure)

31
 Inventory Management

The supply of goods that a firm

Inventory holds for use in production or for
sale to customers.

The determination of how much

Inventory inventory a firm will keep on hand,
Management and the ordering, receiving, storing,
and tracking of inventory.

A continuously updated list of

Perpetual
inventory levels, orders,
Inventory
sales, and receipts.

4 32
 Costs in Determining
Inventory Levels

One way to determine the best inventory levels

is to look at these three costs:

Holding inventory

Frequent reordering

Not keeping enough inventory

Managers must measure all three costs and try to minimize them.
4
33
 Computerized
Resource Planning

Materials A computerized system of controlling the

Requirement flow of resources and inventory.
Planning
(MRP) A master schedule is used to ensure that
the materials, labor, and equipment
needed for production are at the right
places in the right amounts at the right
times.

4 34
 Supply Chain Management
In the past, relationships between purchasers and suppliers was often
competitive, antagonistic, and short-term. Today, many firms are moving toward a
new concept in supplier relationships, called a supply chain. A critical element
of effective supply chain management is to develop tighter bonds with suppliers.

If any links in this process are weak, customers may end up dissatisfied.

Supply Chain The entire sequence of securing inputs,

producing goods, and delivering goods to
customers.

Supply Chain The process of smoothing transitions

Management along the supply chain so that the firm
can satisfy its customers with quality
products and services; focuses on
developing tighter bonds with suppliers.
4 Antagonistic = feeling opposition 35
Supply Chain Strategies
Supply chain strategies that cut costs are shown in this exhibit.

 Integrate Supply Chains

 Track Shipments

 Synchronize Flows

 Plan for Disasters

 Shorten Supply Lines

4 36
Supply Chain
 Production and Operations Control

How do operations managers schedule and

control production?

5 38
 Production and Operations Control
The coordination of materials, equipment, and human
resources to achieve production and operating efficiencies is
called production control. Two of its key aspects are routing
and scheduling.

Value-stream
Routing
mapping

Gantt charts

Critical path
Scheduling
method

PERT

5 39
 Production and Operations Control
 Routing is the first step in production control,
setting the work flow of machines and operations
through which a product progresses from start to
finish. One useful tool is value-stream mapping,
where production managers map the flow from
suppliers through the factory and to customers.

 Scheduling involves specifying and controlling the

time required for each step in the production
process. Three common scheduling tools used for
complex situations are Gantt charts, the critical
path method (CPM), and program evaluation and
review technique (PERT).
value-stream mapping: Customer Need:

A Simple Example Stapled pages

Info: Location of stapler Info: Where to place staple

Pick Up Paper Walk to Stapler Staple Paper

Time: 1 sec. Time: 5 sec. Time: 2 sec.

Distance: 0 Distance: 20 ft. Distance: 0

Excess Travel

Walk to Desk Put Down Paper

Total Time: 14 sec.
Total Dist: 40 ft.
Time: 5 sec. Time: 1 sec.
Value Added Time: 4 sec.
Distance: 20 ft. Distance: 0
Value Added Dist: 0

Value Added Time: 28%

value-stream mapping: example2

42
Gantt Chart
The Critical Path Method: Example

CPM is used if the completion time of each activity

is known for sure, where the level of completion of
the settlement realization compared to the plan is
relatively minimal or even negligible. 44
 The PERT Method

 The difference between CPM and PERT

is that CPM uses one type of time to
estimate the completion time of each
activity while PERT uses three types of
time, namely:
i. optimistic time forecasts,
ii. most time possible, and

iii. pessimistic time.

5
45
 PERT Chart e.g 2

 It can be observed that every arrow direction will show a sequence

of workmanship. Such work is done first (start), then can be
continued by work 2, 3, 4, after that work 5.6. Point 7 is the finish
point where the last job is done and is the end of a project.
 PERT diagram also shows an inseparable interaction of work. The
attachment can be seen with the working examples 2, 3, 4 only if
work 1 is done. 46
 Looking for a Better Way

How can quality management and lean-

manufacturing techniques help firms improve
production and operations management?

6 47
Improving Production and Operations
Methods used to help keep production costs down include quality
management techniques, lean manufacturing, and automation.

Quality management
techniques

Lean manufacturing

Automation
6
48
 Putting Quality First
The process of creating standards for
Quality quality, producing goods that meet them, and
control then measuring finished products against
them.

The use of quality principles in

Total Quality
all aspects of a company’s production and
Management
operations.

A commitment to constantly seek better ways

Continuous
of doing things to maintain and increase
improvement
quality.

A QC process that relies on defining what

needs to be done to ensure quality, measuring
Six Sigma
and analyzing results, and ongoing
improvement.

6 49
 Quality Standards
International Organization for Standardization (ISO)

A set of five technical standards of quality

management to provide a uniform way of
ISO 9000 determining whether manufacturing plants
and service organizations conform to sound
quality procedures.

A set of technical standards to promote clean

ISO 14000 production processes to
protect the environment.

6 50
 Lean Manufacturing

Streamlining production by eliminating

Lean steps in the production process that do not
manufacturing add benefits that customers are willing to pay
for.

A system in which materials arrive exactly

Just-in-time
when they are needed for production, rather
(JIT)
than being stored on site.

6 51
Applying What You’ve Learned

1. Explain the meaning of the term production or

operations and describe the three kinds of utility that
operations processes provide for adding customer
value.
2. Identify the characteristics that distinguish service
operations from goods production.
3. Identify the major factors that are considered in
operations planning.
4. Discuss the information contained in four kinds of
operations schedules—the master operations schedule,
detailed schedule, staff schedule, and project schedule.
5. Discuss the two key activities required for operations
control.