Chapter

20

Operations Control

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives

After studying this chapter, you will be able to:

1. Understand the basic requirements for controlling

operating costs.

2. Define quality from the perspective of an operations

manager.

3. List the eight common dimensions of design quality.

4. Explain the concept of quality assurance.

5. Explain the concept of total quality management (TQM).

Learning Objectives (cont’d)

After studying this chapter, you will be able to:

6. Define the following terms: continuous improvement,

kaizen, six sigma, lean manufacturing, and quality at the

source.

7. Describe the ISO 9000, ISO 14000, and the zero-defects

approaches to quality.

8. Identify and define the two major types of quality control.

9. Recount the major reasons for carrying inventories.

Learning Objectives (cont’d)

After studying this chapter, you will be able to:

10.Explain the concept of just-in-time (JIT) inventory.

11.Describe the ABC classification system for managing

inventories.

12.Summarize the economic order quantity (EOQ)

concept.

13.Describe the basic purposes of material requirements

planning (MRP).

Effective Operating Systems

• Two aspects: design and control

• Efficient operation includes:– Monitoring the system processes – Assurance of quality – Management of inventories

• Good operations control can be a substitute for resources.

• Effective inventory control can reduce investment costs in inventories.

Controlling Operations Cost

• 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.

Operating Costs

Figure 20.1Source: N. Gaither, Production and Operations Management (Fort Worth: Dryden Press, 1980).

Dimensions of Design Quality

Figure 20.2Source: Richard B. Chase, F. Robert Jacobs, and Nicholas J. Aquilano, Operations Management for Competitive Advantage, 11th ed. (Burr Ridge, IL: McGraw-Hill/ Irwin, 2006), p. 322.

Quality Management

• For the operations manager, quality is determined in relation to the specifications or standards set in the design stages—the degree or grade of excellence specified.

• The quality of an organization’s goods and services can affect the organization in many ways.– Loss of business– Liability– Costs– Productivity

Deming’s 14 Quality Elements

Figure 20.3

Source: From W. Edwards Deming, Out of the Crisis, 1986. Copyright © 1986 by The MIT Press. Reprinted with permission.

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.

TQM vs. Traditional Approaches

Figure 20.4Source: From William J. Stevenson, Production and Operations Management 4th edition. Copyright © 1993 The McGraw-Hill Companies, Inc. Reprinted with permission.

Implementing TQM

• Demonstrate top-down commitment and involvement-push.• Set tough improvement goals, not just stretch goals.• Provide appropriate training, resources, and human resource

backup.• Determine critical measurement factors; benchmark and

track progress.• Spread success stories, especially those about favorable

benchmarking; always share financial progress reports.• Identify the costs of quality and routes to improvement; prove

the case that quality costs decline with quality progress.

Implementing TQM (cont’d)

• Rely on teamwork, involvement, and all-level leadership.• Respect the “gurus,” but tailor every initiative for a good

local fit.• Allow time to see progress, analyze the system’s

operation, reward contributions, and make needed adjustments.

• Finally, recognize that the key internal task is a culture change and the key external task is a new set of relationships with customers and suppliers.

Quality Improvement Approaches

• Continuous improvement– Refers to an ongoing effort to make improvements in

every part of the organization relative to all of its products and services.

• Kaizen– “Good change”; continuous and relentless 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.

Quality Improvement Approaches (cont’d)

• Six sigma– Both a precise set of statistical tools and a rallying cry for

continuous improvement, driven by “what does the customer want in the way of quality?”.

• Lean manufacturing– Focuses on identifying and eliminating waste and non-value-added

activities.

• Reengineering– Searching for and implementing radical change in business

processes to achieve breakthroughs in costs, speed, productivity, and service.

Quality Standards

• ISO 9000– A set of quality standards for international business.

• ISO 14000 – Addition to the ISO 9000 to control the impact of an organization’s

activities and outputs on the environment.– This certification requires compliance in four organizational areas:

• Implementation of an environmental management system.• Assurance that procedures are in place to maintain compliance

with laws and regulations.• Commitment to continual improvement.• Commitment to waste minimization and prevention of pollution.

Malcolm Balridge National Quality Award

• Recognition of U.S. companies’ achievements in quality.

• Purpose of the award is to encourage efforts to improve quality and to recognize the quality achievements of U.S. companies.

• A maximum of two awards may be given annually in each of five categories: – Manufacturing.– Service.– Small business (500 or less employees).– Education.– Health care.– Nonprofit and government organizations.

• Premier, Inc., San Diego, Calif. (service) 2006 winner

Acceptance Sampling

• Used for one of the following reasons:– The potential losses or costs of passing defective items

are not great relative to the cost of inspection; for example, it would not be appropriate to inspect every match produced by a match factory.

– Inspection of some items requires destruction of the product being tested, as is the case when testing flash bulbs.

– Sampling usually produces results more rapidly than does a census.

Process Control Chart

Figure 20.5

Just-in-Time Inventory Control

Figure 20.6Source: N. Gaither, Production and Operations Management (Fort Worth: Dryden Press, 1992).

ABC Inventory Classification

Figure 20.7Source: From Richard B. Chase, et al., Operation Management for Competitive Advantage with CD-ROM andPowerWeb. Copyright © 2004 The McGraw-Hill Companies, Inc. Reprinted with permission.