Chapter 09 – Production and Operations Management of Goods and Services
9-31
2. ENTERPRISE RESOURCE PLANNING (ERP)
is a newer version of MRP that combines the
computerized functions of all the divisions and
subsidiaries of the firm—such as finance, human
resources, and order fulfillment—into a single in-
tegrated software program that uses a single da-
tabase.
3. The result is shorter time between orders and
payment plus better customer service.
H. PURCHASING
1. PURCHASING is the function in a firm that
searches for quality material resources, finds the
best suppliers, and negotiates the best price for
quality goods and services.
2. In the past, manufacturers dealt with many dif-
ferent suppliers.
3. Today, they rely more heavily on one or two
vendors, and the relationship between suppliers
and manufacturers is much closer.
4. INTERNET-BASED PURCHASING SERVICES
allow companies to find the best supplies at the
best price.
I. JUST-IN–TIME INVENTORY CONTROL
1. Holding parts and other items in warehouses is
one major cost of production.
2. JUST-IN-TIME (JIT) INVENTORY CONTROL is
a production process in which a minimum of in-
ventory is kept on the premises and parts, sup-
plies, and other needs are delivered just in time
to go on the assembly line.
Chapter 09 – Production and Operations Management of Goods and Services
9-32
PPT 9-45
Purchasing
PURCHASING
9-45
LO 9-4
• Purchasing — The function
that searches for high-quality
material resources, finds the
best suppliers and negotiates
the best price for goods and
services.
• The Internet has
transformed purchasing.
lecture enhancer 9-7
SPYING ON THE GREEN GIANT
In the early years of production, Green Giant managers resort-
ed to spying to learn the secrets of canning. (See the complete
lecture enhancer on page 9.70 of this manual.)
PPT 9-46
Inventory Control
INVENTORY CONTROL
9-46
LO 9-4
• Just-in-Time (JIT) Inventory Control — The
production process in which a minimum of inventory
is kept and parts, supplies and other needs are
delivered just in time to go on the assembly line.
• To work effectively, the process requires excellent
coordination with suppliers.
Chapter 09 – Production and Operations Management of Goods and Services
9-33
a. To work effectively, however, JIT requires an
accurate production schedule.
b. Suppliers deliver their products “just in time”
to go on the assembly line; a MINIMUM IN-
VENTORY is kept.
c. To work efficiently, JIT requires CLOSE
COORDINATION among selected suppliers.
3. JIT systems make sure the right MATERIALS
are at the right PLACE at the right time at the
cheapest COST to meet customer needs.
4. JIT is problematic when there is significant dis-
tance between firms. The text uses the example
of Japan’s disruption due to the 2011 earth-
quake and tsunami.
J. QUALITY CONTROL
1. QUALITY is consistently producing what the
customer wants while reducing errors before
and after delivery to the customer.
a. Historically, quality control was often done at
the END OF THE PRODUCTION LINE by a
quality control department.
b. Quality management occurred after produc-
tion, when the product has already been
produced.
c. Companies realized that quality control
should be part of the operations manage-
ment planning process.
2. Firms now use MODERN QUALITY CONTROL
Chapter 09 – Production and Operations Management of Goods and Services
9-34
PPT 9-47
Quality Control
QUALITY CONTROL
9-47
PhotoCredit:ArgonneNa onalLaboratory
LO 9-4
• Quality — Consistently
producing what the customer
wants while reducing errors
before and after delivery.
• Six Sigma Quality — A
quality measure that allows
only 3.4 defects per million
opportunities.
lecture enhancer 9-8
MOTOROLA AND SIX SIGMA
The philosophy of Six Sigma is most closely identified with
Jack Welch and GE, but Motorola invented it in the late
1970s. (See the complete lecture enhancer on page 9.71 of this
manual.)
Chapter 09 – Production and Operations Management of Goods and Services
9-35
STANDARDS such as Six Sigma.
a. SIX SIGMA QUALITY is a quality measure
that allows only 3.4 defects per million op-
portunities.
b. STATISTICAL QUALITY CONTROL (SQC)
is the process some managers use to con-
tinually monitor all phases of the production
process to ensure that quality is being built
into the product from the beginning.
c. STATISTICAL PROCESS CONTROL (SPC)
is the process of taking statistical samples of
product components at each stage of the
production process and plotting those results
on a graph.
d. Any variances from quality standards are
recognized and can be corrected if beyond
the set standards.
e. Checking products against standards all
along the production process eliminates the
need for quality control inspection at the
end.
f. This approach to quality control is often
called the DEMING CYCLE (after the late
W. Edwards Deming): Plan, Do, Check, Act
(PDCA).
g. Emphasis is placed on CUSTOMER
SATISFACTION.
Chapter 09 – Production and Operations Management of Goods and Services
9-36
PPT 9-48
The Six Sigma Process
Source:BloombergBusinessweek,www.businessweek.com,ac cessedNovember2014.
The SIX SIGMA PROCESS
9-48
LO 9-4
Define
Measure
Analyze
Improve
Control
6σ
PPT 9-49
Statistical Quality Control and
Statistical Process Control
STATISTICAL QUALITY CONTROL &
STATISTICAL PROCESS CONTROL
9-49
LO 9-4
• Statistical Quality Control — A process used to
continually monitor all phases of the production
process.
• Statistical Process Control — A process of testing
statistical samples of product components at each
stage of production.
• Measuring quality along the production process
reduces the need for quality control at the end.
Chapter 09 – Production and Operations Management of Goods and Services
9-37
K. THE BALDRIGE AWARDS
1. One standard for quality was set with the intro-
duction of the MALCOLM BALDRIGE
NATIONAL QUALITY AWARDS in 1987.
2. To qualify, a company has to show quality in
SEVEN KEY AREAS:
a. Leadership
b. Strategic planning
c. Customer and market focus
d. Information and analysis
e. Human resources focus
f. Process management
g. Business results
3. The focus is shifting to provide TOP-QUALITY
CUSTOMER SERVICE in all respects.
L. ISO 9000 AND ISO 14000 STANDARDS
1. The INTERNATIONAL ORGANIZATION FOR
STANDARDIZATION (ISO) is a worldwide fed-
eration of national standards bodies that set the
global measures for the quality of individual
products.
2. ISO 9000 is the common name given to quality
management and assurance standards.
3. The latest standards are called ISO 9001:2008.
4. The EUROPEAN UNION is demanding that
companies doing business with the EU be
certified by ISO standards.
Chapter 09 – Production and Operations Management of Goods and Services
9-38
PPT 9-50
The Baldrige Awards
The BALDRIGE AWARDS
9-50
LO 9-4
• Companies can apply for awards in these areas:
– Manufacturing
– Services
– Small Businesses
– Non-Profit/Government
– Education
– Healthcare
PPT 9-51
The Winners Are . . .
Source:Na onalIns tuteofStandardsandTechnology,www.quality.nist.gov,accessedNovember2014.
THE WINNERS ARE…
2014 Baldrige Award Recipients
9-51
Company Category Where from?
Elevation Credit Union Nonprofit Boulder, CO
St. David’s HealthCare Healthcare Austin, TX
Hill County Memorial Healthcare Fredrickburg, TX
PricewaterhouseCoopers Service McLean, VA
LO 9-4
PPT 9-52
What Is ISO?
WHAT is ISO?
9-52
LO 9-4
• The International Organization for
Standardization (ISO) is a worldwide federation of
national standards bodies.
• ISO 9000 — The common name given to quality
management and assurance standards.
• ISO 14000 — A collection of the best practices for
managing an organization
’
s impact on the
environment.
Chapter 09 – Production and Operations Management of Goods and Services
9-39
5. ISO 14000 is a collection of the best practices
for managing an organization’s impact on the
environment.
6. Today, ISO 9000 and 14000 standards have
been blended so a firm can work on both at
once.
learning objective 5
Explain the use of PERT and Gantt charts to control manufacturing processes.
V. CONTROL PROCEDURES: PERT AND GANTT
CHARTS
A. The production manager’s job is to ensure that
products are manufactured and delivered on time.
B. PROGRAM EVALUATION AND REVIEW TECH-
NIQUE (PERT)
1. PROGRAM EVALUATION AND REVIEW
TECHNIQUE (PERT) is a method for analyzing
the tasks involved in completing a given project,
estimating the time needed to complete each
task, and identifying the minimum time needed
to complete the total project.
2. STEPS IN USING PERT
a. Step 1: Analyzing and sequencing tasks that
need to be done
b. Step 2: Estimating the time needed to com-
plete each task
c. Step 3: Drawing a PERT network illustrating
the information from steps 1 and 2
Chapter 09 – Production and Operations Management of Goods and Services
9-40
test
prep
PPT 9-53
Test Prep
TEST PREP
9-53
• What are the major criteria for facility location?
• What’s the difference between MRP and ERP?
• What’s just-in-time inventory control?
• What are Six Sigma quality, the Baldrige Award,
ISO 9000 and ISO 14000?
PPT 9-54
PERT
PERT
9-54
LO 9-5
• Program Evaluation and Review Technique
(PERT) — A method for analyzing the tasks involved
in completing a given project and estimating the time
needed.
PPT 9-55
Steps Involved in PERT
STEPS INVOLVED in PERT
9-55
LO 9-5
1. Analyzing and sequencing tasks
2. Estimating the time needed to complete each
task
3. Drawing a PERT network illustrating the first two
steps
4. Identifying the critical path
• Critical Path — The sequence of tasks that
takes the longest time to complete.
Chapter 09 – Production and Operations Management of Goods and Services
9-41
d. Step 4: Identifying the CRITICAL PATH, the
sequence of tasks that takes the longest
time to complete. (This is referred to as the
CRITICAL PATH because a delay in the
time needed to complete this path would
cause the project or production run to be
late.)
3. DRAWING A PERT CHART
a. The text uses the example of producing a
music video.
b. SQUARES on the chart indicate COM-
PLETED TASKS.
c. ARROWS indicate the TIME NEEDED to
complete each task.
d. The path from one completed task to anoth-
er shows the relationships among tasks.
4. A PERT network can include thousands of
events over many months, and is usually done
by computer.
5. The GANTT CHART is a bar graph showing
production managers what projects are being
worked on and what stage they are in at any
given time.
a. The Gantt chart calculations, once done by
hand, are now computerized.
b. Using a Gantt-like computer program, a
manager can trace the production process
Chapter 09 – Production and Operations Management of Goods and Services
9-42
critical thinking
exercise 9-5
DRAWING A PERT DIAGRAM
This exercise lets students design a PERT diagram for various
production processes. (See the complete exercise on
page 9.79 of this manual.)
PPT 9-56
PERT Chart for a Music Video
TEXT FIGURE 9.3
PERT Chart for a Music Video
PERT CHART for a MUSIC VIDEO
9-56
LO 9-5
PPT 9-57
Gantt Charts
GANTT CHARTS
9-57
LO 9-5
• Gantt Chart – A bar graph that shows what projects
are being worked on and how much has been
completed.
PPT 9-58
Gantt Chart for a Doll Factory
TEXT FIGURE 9.4
Gantt Chart for a Doll Manufacturer
GANTT CHART for a
DOLL FACTORY
9-58
LO 9-5
Chapter 09 – Production and Operations Management of Goods and Services
9-43
minute by minute.
VI. PREPARING FOR THE FUTURE
A. There are tremendous opportunities for careers in
operations management.
B. Relatively few college students major in production
and operations management, creating opportunities
for those students who do.
VII. SUMMARY
Chapter 09 – Production and Operations Management of Goods and Services
9-44
lecture enhancer 9-9
THE FUTURE OF MANUFACTURING
TECH
There’s lots to look forward to in American manufacturing.
(See the complete lecture enhancer on page 9.71 of this manu-
al.)
test
prep
PPT 9-59
Test Prep
TEST PREP
9-59
• Draw a PERT chart for making breakfast of three-
minute eggs, buttered toast and coffee. Define the
critical path.
• How could you use a Gantt chart to keep track of
production?
Chapter 09 – Production and Operations Management of Goods and Services
9-45
PowerPoint slide notes
PPT 9-1
Chapter Title
Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Production
and
Operations
Management
CHAPTER 9
PPT 9-2
Learning Objectives
LEARNING OBJECTIVES
9-2
1. Describe the current state of U.S. manufacturing and
what manufacturers have done to become more
competitive.
2. Describe the evolution from production to operations
management.
3. Identify various production processes and describe
techniques that improve productivity, including
computer-aided design and manufacturing, flexible
manufacturing, lean manufacturing and mass
customization.
PPT 9-3
Learning Objectives
LEARNING OBJECTIVES
9-3
4. Describe operations management planning issues
including facility location, facility layout, materials
requirement planning, purchasing, just-in-time
inventory control and quality control.
5. Explain the use of PERT and Gantt charts to control
manufacturing processes.