3-8
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Chapter 8:
Operations Control
Operating Costs Type of Cost Components Direct labor – variable
Wages and salaries of employees engaged in the direct generation of goods and services. This typically does not include wages and salaries of support personnel.
Materials – variable
Cost of materials that become a tangible part of finished goods and services.
Production overhead – variable
Training new employees, safety training, supervision and clerical, overtime premium, shift premium, payroll taxes, vacation and holiday, retirement funds, group insurance, supplies, travel, repairs and maintenance.
Production overhead – fixed
Travel, research and development, fuel, electricity, water, repairs and maintenance, rent, depreciation, real estate taxes, insurance. 2
Overhead • Variable overhead expenses – Expenses that change in proportion to the level of production or service.
• Fixed overhead – Expenses that do not change appreciably with fluctuations in the level of production or service.
3
Dimensions of Design Quality Dimension
Meaning
Performance
Primary product or service characteristics
Features
Added touches; bells and whistles; secondary characteristics
Reliability
Consistency of performance over time; probability of failing
Durability
Useful life
Serviceability
Ease of repair
Response
Characteristics of human-to-human interface (speed, courtesy, competence)
Aesthetics
Sensory characteristics (sound, feel, look, etc.)
Reputation
Past performance and other intangibles (perceived quality)
4
Customer Response Programs • Implementation keys: – Develop a new attitude toward customers. – Reduce management layers so that managers are in contact with customers. – Link quality and information systems to customer needs and problems. – Train employees in customer responsiveness. – Integrate customer responsiveness throughout the entire distribution channel. – Use customer responsiveness as a marketing tool. 5
Deming’s 14 Quality Elements 1. Create and publish to all employees a statement of the aims and purposes of the company or other organization. The management must demonstrate constantly their commitment to this statement. 2. Learn the new philosophy, top management and everybody. 3. Understand the purpose of inspection, for improvement of processes and reduction of cost. 4. End the practice of awarding business on the basis of price tag alone. 5. Improve constantly and forever the system of production and service. 6. Institute training. 7. Teach and institute leadership. 6
Deming’s 14 Quality Elements 1. Drive out fear. Create trust. Create a climate for innovation. 2. Optimize toward the aims and purposes of the company the efforts of teams, groups, and staff. 3. Eliminate exhortations for the workforce. 4. Eliminate numerical quotas for production; eliminate management by objective. 5. Remove barriers that rob people of pride and workmanship. 6. Encourage education and self-improvement for everyone. 7. Take action to accomplish the transformation.
7
Total Quality Management • Essential steps: – Find out what customers want. – Design a product or service that will meet (or exceed) what customers want. – Design a production process that facilitates doing the job right the first time. – Keep track of results, and use those results to guide improvement in the system. – Extend these concepts to suppliers and to distribution.
8
TQM vs. Traditional Approaches Aspect
Traditional
TQM
Overall mission
Maximize return on investment
Meet of exceed customer satisfaction
Objectives
Emphasis on short-term
Balance of long- and short-term
Management
Not always open; sometimes inconsistent objectives
Open; encourages employee input; consistent objectives
Role of manager
Issue and enforce orders
Coach, remove barriers, build trust
Customer requirements
Not highest priority; may be unclear
Highest priority; important to identify and understand 9
TQM vs. Traditional Approaches Aspect
Traditional
TQM
Problems
Assign blame; punish
Identify and resolve
Problem solving
Not systematic; by individuals
Systematic; by teams
Improvement
Erratic
Continual
Suppliers
Adversarial
Partners
Jobs
Narrow, specialized; much individual effort
Broad, more general; much team effort
Focus
Product oriented
Process oriented 10
Quality Improvement Approaches • Continuous improvement – Ongoing effort throughout the entire organization.
• Kaizen – “Good change”; continuous improvement; views employees as most valuable asset.
• Quality at the source – Philosophy of making each employee responsible for the quality of his or her own work.
11
Quality Improvement Approaches • Six sigma – Statistical and customer-driven; “what does the customer want in the way of quality?”
• Lean manufacturing – Focuses on identifying and eliminating waste and non-value-added activities.
12
Zero Defects • Zero defects program • Increasing quality by increasing everyone’s impact on quality.
• Characteristics of successful zero-defects programs: • Extensive communication regarding the importance of quality. • Organization-wide recognition for high-quality work. • Quality problem identification by employees. • Employee participation in goal setting. 13
Types of Quality Control • Product quality control • Relates to inputs or outputs of the system. • Used to evaluate quality of a batch of existing products or services.
• Process control • Relates to equipment and processes used during the production process.
• Acceptance sampling • Statistical method of predicting quality through inspection of a batch or large group of products. 14
Inventory Control Inventories add flexibility and allow the organization to: 1. Purchase, produce, and ship in economic lot sizes rather than in small jobs. 2. Produce on a smooth, continuous basis even if the demand for the finished product or raw material fluctuates. 3. Prevent major problems when forecasts of demand are in error or when unforeseen slowdowns or stoppages in supply or 15 production occur.
Just-in-Time Inventory Control Benefits: 2. Inventory levels are drastically lowered. 3. The time it takes products to go through the production facility is greatly reduced. This enables the organization to be more flexible and more responsive to changing customer demands. 4. Product/service quality is improved and the cost of scrap is reduced because defective parts and services are discovered earlier. 5. With smaller product batches, less space is occupied by inventory and materials-handling equipment. This also allows employees to work closer together, which improves communication and teamwork. 16
Percent of total inventory value
ABC Inventory Classification 100 80 60 40
A items
20 0
B items C items 0
20
40
60
80
100
Percent of total list of different stock items 17
Material Requirements Planning (MRP) 1. Reduces the average amount of inventory for dependent demand items (raw material, parts, and work-in-progress inventory). 2. Improves work flow; reduces elapsed time between the start and finish of jobs. 3. Enables delivery promises to be more reliable. 4. Minimizes parts shortages. 5. Keeps work item priorities up to date; shop work is more effective and appropriate. 18
Material Requirements Planning (MRP) 1. Helps plan the timing of design changes and aids in their implementation. 2. Can simulate and evaluate changes in the master schedule. 3. Tells management ahead of time if desired delivery dates appear achievable. 4. Changes (expedites or de-expedites) due dates for orders. 5. Facilitates capacity requirements planning. 19
Operations Control
Operating Costs Type of Cost Components Direct labor – variable
Wages and salaries of employees engaged in the direct generation of goods and services. This typically does not include wages and salaries of support personnel.
Materials – variable
Cost of materials that become a tangible part of finished goods and services.
Production overhead – variable
Training new employees, safety training, supervision and clerical, overtime premium, shift premium, payroll taxes, vacation and holiday, retirement funds, group insurance, supplies, travel, repairs and maintenance.
Production overhead – fixed
Travel, research and development, fuel, electricity, water, repairs and maintenance, rent, depreciation, real estate taxes, insurance. 2
Overhead • Variable overhead expenses – Expenses that change in proportion to the level of production or service.
• Fixed overhead – Expenses that do not change appreciably with fluctuations in the level of production or service.
3
Dimensions of Design Quality Dimension
Meaning
Performance
Primary product or service characteristics
Features
Added touches; bells and whistles; secondary characteristics
Reliability
Consistency of performance over time; probability of failing
Durability
Useful life
Serviceability
Ease of repair
Response
Characteristics of human-to-human interface (speed, courtesy, competence)
Aesthetics
Sensory characteristics (sound, feel, look, etc.)
Reputation
Past performance and other intangibles (perceived quality)
4
Customer Response Programs • Implementation keys: – Develop a new attitude toward customers. – Reduce management layers so that managers are in contact with customers. – Link quality and information systems to customer needs and problems. – Train employees in customer responsiveness. – Integrate customer responsiveness throughout the entire distribution channel. – Use customer responsiveness as a marketing tool. 5
Deming’s 14 Quality Elements 1. Create and publish to all employees a statement of the aims and purposes of the company or other organization. The management must demonstrate constantly their commitment to this statement. 2. Learn the new philosophy, top management and everybody. 3. Understand the purpose of inspection, for improvement of processes and reduction of cost. 4. End the practice of awarding business on the basis of price tag alone. 5. Improve constantly and forever the system of production and service. 6. Institute training. 7. Teach and institute leadership. 6
Deming’s 14 Quality Elements 1. Drive out fear. Create trust. Create a climate for innovation. 2. Optimize toward the aims and purposes of the company the efforts of teams, groups, and staff. 3. Eliminate exhortations for the workforce. 4. Eliminate numerical quotas for production; eliminate management by objective. 5. Remove barriers that rob people of pride and workmanship. 6. Encourage education and self-improvement for everyone. 7. Take action to accomplish the transformation.
7
Total Quality Management • Essential steps: – Find out what customers want. – Design a product or service that will meet (or exceed) what customers want. – Design a production process that facilitates doing the job right the first time. – Keep track of results, and use those results to guide improvement in the system. – Extend these concepts to suppliers and to distribution.
8
TQM vs. Traditional Approaches Aspect
Traditional
TQM
Overall mission
Maximize return on investment
Meet of exceed customer satisfaction
Objectives
Emphasis on short-term
Balance of long- and short-term
Management
Not always open; sometimes inconsistent objectives
Open; encourages employee input; consistent objectives
Role of manager
Issue and enforce orders
Coach, remove barriers, build trust
Customer requirements
Not highest priority; may be unclear
Highest priority; important to identify and understand 9
TQM vs. Traditional Approaches Aspect
Traditional
TQM
Problems
Assign blame; punish
Identify and resolve
Problem solving
Not systematic; by individuals
Systematic; by teams
Improvement
Erratic
Continual
Suppliers
Adversarial
Partners
Jobs
Narrow, specialized; much individual effort
Broad, more general; much team effort
Focus
Product oriented
Process oriented 10
Quality Improvement Approaches • Continuous improvement – Ongoing effort throughout the entire organization.
• Kaizen – “Good change”; continuous improvement; views employees as most valuable asset.
• Quality at the source – Philosophy of making each employee responsible for the quality of his or her own work.
11
Quality Improvement Approaches • Six sigma – Statistical and customer-driven; “what does the customer want in the way of quality?”
• Lean manufacturing – Focuses on identifying and eliminating waste and non-value-added activities.
12
Zero Defects • Zero defects program • Increasing quality by increasing everyone’s impact on quality.
• Characteristics of successful zero-defects programs: • Extensive communication regarding the importance of quality. • Organization-wide recognition for high-quality work. • Quality problem identification by employees. • Employee participation in goal setting. 13
Types of Quality Control • Product quality control • Relates to inputs or outputs of the system. • Used to evaluate quality of a batch of existing products or services.
• Process control • Relates to equipment and processes used during the production process.
• Acceptance sampling • Statistical method of predicting quality through inspection of a batch or large group of products. 14
Inventory Control Inventories add flexibility and allow the organization to: 1. Purchase, produce, and ship in economic lot sizes rather than in small jobs. 2. Produce on a smooth, continuous basis even if the demand for the finished product or raw material fluctuates. 3. Prevent major problems when forecasts of demand are in error or when unforeseen slowdowns or stoppages in supply or 15 production occur.
Just-in-Time Inventory Control Benefits: 2. Inventory levels are drastically lowered. 3. The time it takes products to go through the production facility is greatly reduced. This enables the organization to be more flexible and more responsive to changing customer demands. 4. Product/service quality is improved and the cost of scrap is reduced because defective parts and services are discovered earlier. 5. With smaller product batches, less space is occupied by inventory and materials-handling equipment. This also allows employees to work closer together, which improves communication and teamwork. 16
Percent of total inventory value
ABC Inventory Classification 100 80 60 40
A items
20 0
B items C items 0
20
40
60
80
100
Percent of total list of different stock items 17
Material Requirements Planning (MRP) 1. Reduces the average amount of inventory for dependent demand items (raw material, parts, and work-in-progress inventory). 2. Improves work flow; reduces elapsed time between the start and finish of jobs. 3. Enables delivery promises to be more reliable. 4. Minimizes parts shortages. 5. Keeps work item priorities up to date; shop work is more effective and appropriate. 18
Material Requirements Planning (MRP) 1. Helps plan the timing of design changes and aids in their implementation. 2. Can simulate and evaluate changes in the master schedule. 3. Tells management ahead of time if desired delivery dates appear achievable. 4. Changes (expedites or de-expedites) due dates for orders. 5. Facilitates capacity requirements planning. 19
