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Production & Operations Management. Chapter 9. Goals. USA Manufacturing Production  Operations Management Production Processes Production techniques that have improved productivity in USA Operations management planning issues Control Procedures. USA Manufacturing.

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Production & Operations Management

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Production & Operations Management

Chapter 9


  • USA Manufacturing

  • Production  Operations Management

  • Production Processes

  • Production techniques that have improved productivity in USA

  • Operations management planning issues

  • Control Procedures

USA Manufacturing

  • In recent history manufacturing has declined while the service industry has grown

  • 70% of US GDP comes from service sector

  • 85% of jobs comes from service sector

  • 25% of all goods produced in world come from US manufacturing sector (largest % in world)

  • This means that we must study how to produce goods and services

  • Manufacturing industries doing well: green technology, nanotechnologies, biotechnologies

    • Tesla Motors (Electric carmaker)

    • Solyndra (solar company)

    • Codexis (biofuels firm)

    • 3M (nano research done by 3M for adhesives, LCD displays and more)

Production Operations Management

  • Production

    • The creation of finished goods and services using the factors of production: land, labor, capital, entrepreneurship and knowledge.

  • Production Management

    • Term used to describe all the activities managers do to help their firms create goods

  • Operations management

    • Term used to describe all the activities managers do to help their firms create goods and services

    • Converting resources into goods and services

Operations Management

  • Product creation, development, production, distribution, managing purchases, inventory control, quality control, storage, logistics and evaluations

  • A great deal of focus is on effectiveness & efficiency of processes

  • Substantial measurement and analysis of internal processes in order to become more effective and efficient

What Is Operations Management Like At:

  • Appliance Manufacturer (Product)

    • Operations Management take raw materials, human resources, parts, supplies, paints, tools and more to make appliance

    • Example:

      • Dacor kitchen wear


    • List of companies manufacturing appliances in USA


  • Sears (Retail, Finance & Repair - Product & Service)

    • Operations Management covers everything: purchases, sales, finances, repairs

What Is Operations Management Like At:

  • Colleges (Service)

    • Operations Management take information, teachers, buildings, computers, students and creates a service that transforms students into educated people

  • Hospitals (Service)

    • Hospitals Operations Management take information, buildings, high-tech machines, computers, supplies, highly skilled labor and creates a service that transforms sick people into healthy people

Form Utility

  • The value added by the creation of finished goods and services, such as:

    • The value added by taking silicon and making computer chips

    • Putting services together to create a vacation package

    • The value added by taking wood, paint, labor, packaging, and other costs and making a boomerang

Goal of production(Andrew S. Grove – Intel)

  • Build and deliver products that customers demand at a scheduled delivery time

  • Acceptable quality

  • Lowest possible price

Production Processes

  • Process Manufacturing

    • That part of the production process that physically or chemically changes materials

    • Examples:

      • Poor the steel into the mold to make parts for excavator

      • Cook steak, vegetables and rice

  • Assembly Process

    • The part of the production process that puts together components

    • Examples:

      • Assemble parts to make excavator

      • Assemble steak, vegetables and rice to make dinner

Production Processes

  • Continuous Process

    • A production process in which long production runs turn out finished goods over time

    • Examples:

      • Tortilla factory or lumber factory

  • Intermittent Process

    • A production process in which the production run is short and the machines are changed frequently to make different products

    • Examples:

      • Auto factories can switch between models

      • Bakers can make cakes and pies and tarts

Production techniques that have improved productivity in USA

  • CAD (Computer-aided Design)

    • The use of computers in the design of products

  • CAM (Computer-aided Manufacturing)

    • The use of computers in the manufacturing of products

  • CIM (Computer-integrated Manufacturing)

    • One machine that does both CAD and CAM

  • Expensive but cuts manufacturing costs dramatically

  • Examples:


Production techniques that have improved productivity in USA

  • Mass Production (Perfective in US by companies like Ford)

    • Make a lot of one thing

    • Like Henry Ford did

  • Flexible Manufacturing

    • Designing machines to do multiple tasks so that they can produce a variety of products


  • Lean Manufacturing (Originated in Japan)

    • Manufacturing that uses fewer inputs (resources) to make the same number of outputs than before. Increase productivity.

    • Reduce labor hours, waste, defects, floor space, inventory


Production techniques that have improved productivity in USA

  • Mass Customization

    • Tailoring products to meet the needs of individual customers on a mass scale

    • Examples:

      • Dell – design your own computer

      • Vans shoes – design your own shoe

      • Colleges – design your own degree

      • Season Tickets to Mariner Games

Reverse Innovation or Frugal Innovation(Originated in emerging markets)

  • Reverse Innovation or Frugal Innovation

    • What are needs of poor  create product

    • “Turbo Charged Lean Manufacturing”

  • Examples:

    • Tata Motors (Indian Company) makes $2200 car

    • Kenya leads the world in mobile phone money transfer

    • GE R & D labs in Bangalore, India makes hand-held ECG (electrocardiogram) for $800 (instead of $2000)

    • TCS (India) create inexpensive water filter from rice husks (waste product)

    • Narayana Hrudayalaya Hospital (India) Heart Surgery for $2000 (same success rate as US)

    • BYD (China) makes lithium batteries for $12 (instead of $40)

Reverse Innovation or Frugal Innovation

  • Key ideas:

    • Dramatically reduce costs by:

      • Redesign products & processes

      • Applying division of labor (expert does what they are expert at) and economies of scale in new areas like surgery

    • Listening to what the poor need

    • Product must be tough and easy to use

    • Use minimal raw materials

    • Not harsh on environment

Reverse Innovation or Frugal Innovation

  • Rethinking Production processes:

    • Contract out more work and stick to core competency

    • Use existing technology in new ways

      • Computers are rare in India and TVs are common, so TCS designed a box that connects mobile phone (can get internet) to TV

    • Narayana Hrudayalaya Hospital

      • 1000 beds instead of more common 200 (economies of scale)

      • Surgeons can specialize in one operation and become that best at the one operations

Operations Management Planning Issues (Manufacturing And Service):

  • Facility location

  • Facility layout

  • Materials requirement planning

  • Purchasing

  • JIT (just-in-time inventory) control

  • Quality control

Operations Management Planning

  • Facility Location

    • The process of selecting a geographic location for a company’s operations

    • Considerations:

      • Less expensive property, labor, logistic costs

      • Location, Location, Location

      • Attractive communities to live in – life style to attract employees

      • Are suppliers close?

      • Are there enough customers or employees?

      • Tax breaks

      • Can we just do things on the internet? Retail or engineer?

Operations Management Planning

  • Facility Layout

    • The physical arrangement of resources (including people) in the production process

    • Products:


    • Services:

      • Aravind Eye Hospital (India): 4 operating beds next to each other and 2 doctors

Operations Management Planning

  • MRP (Material Requirement Planning)

    • A computer-based production management system that uses sales forecasts to make sure that needed parts and materials are available at the right time and place (for a single firm)

  • ERP (Enterprise Resource Planning)

    • A computer application that enables multiple divisions or firms to manage all of their operations (finance, requirements planning, human resources and order fulfillment) on the basis of a single, integrated set of corporate data

    • ERP Programs help to bring operations management to the Internet

Operations Management Planning

  • Purchasing

    • The function in a firm that searches for quality material resources, finds the best suppliers, and negotiates the best price for the goods and services

    • Pays all bills that allow discounts during the discount period

      • 2/10/net 30

      • $1000 owed

      • Discount if pay within 10 days = $1000*.02 = $20

      • $20 discount for paying 20 days early

      • Annual rate earned = (1+.02)^(365/20)-1 = 43.53%

Operations Management Planning

  • JIT (Just-in-time Inventory Control)

    • The production process in which a minimum of inventory is kept on the premises and parts, supplies, and other needs are delivered just in time to go on the assembly line

    • Reduces storage costs, facility space, obsolesces

    • Requires close ties with suppliers

Operations Management Planning

  • Quality

    • Consistently producing what the customer wants while reducing errors before and after delivery to the customer

    • The before in the most important

  • Statistical Quality Control (SQC)

    • Statistics used to continually monitor quality

    • Six Sigma Quality (Six Standard Deviation Quality)

      • A quality measure that allows only 3.4 defects per million opportunities

Control Procedures

  • Pert Charts (Critical Path)

    • A method for analyzing that tasks involved in completing a given project

    • The Critical Path is the path that takes the longest and this is most critical to avoid delays on this path

  • Gantt Charts

    • Bar graph showing production managers what projects are being worked on and what stage they are in any given time

How Manufacturers Have Become More Effective

  • Focus more on customers

  • Maintain close relationships

  • Continuous improvement

  • Focus on quality

  • Save costs through site selection

  • Rely on the Internet to unite partners

  • New production techniques

  • Looking overseas to get new ideas for production and innovation in providing goods and services

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