Operations Management Study guide

CHAPTER 1:

Production: is the creation of goods and services.

Operations management: activities that relate to the creation of goods and
services thorough the transformation of inputs and outputs. Its started in the area of
manufacturing around the 30s, then moved to a system approach and became more
applicable to more forms of businesses.

Services: economic activities that typically produce an intangible product (such as
education, entertainment, etc).

Productivity: the ratio of outputs (goods and service) divided by one or more
inputs (such as labor, capital or management).

Basic functions of a firm:
-Marketing: which generates the demand, or at least takes the order for a product or
service (nothing happens until there is a sale)
-Production/operations: which creates the product
-Finance/accounting: which tracks how well the organization is doing, pays the bills
and collects the money.

The four elements that make up management:
Planning, leading, organizing and controlling. Sometimes also staffing.

Why study Operations management?
The text suggests four reasons to study OM. We want to understand (1) is one of the
3 major functions of a firm. Its how people organize themselves for productive
enterprise, (2) how goods and services are produced, (3) what operations managers
do, and (4) this costly part of our economy and most enterprises.

Productivity Variables:
-Labor: which contributes about 10% of annual increase. Improvements in the
contribution of labor to productivity is the result of a healthier, better educated,
and better nourished labor force. Key factors to improved labor are: basic education,
diet, social overhead that makes labor available, such as transportation and
sanitation.
-Capital: which contributes about 38%% of annual increase. Things such as Taxes,
inflation, exchange rates affect the cost of capital.
-Management: which contributes about 52% of annual increase. Most important
one. Knowledge society: a society in which much of the labor force has migrated from
manual work to work based on knowledge.



Productivity in the service sector: productivity in the service sector is often
proven difficult to improve because service- sector work is:
-typically labor intensive (counseling, teaching)
-Frequently focused on unique individual attributes or desires (for example
investment advice)
-Often an intellectual task performed by professionals (medical diagnosis)
-Often difficult to mechanize and automate (a haircut)
-Often difficult to evaluate for quality (performance law firm)

Ethical challenges faced by operations manager:
-Efficiently developing and producing safe, quality products.
-Maintaining a suitable environment
-Providing a safe workplace
-Honoring stakeholder commitments.

Discussion Questions:

Why should one study operations management?
-The text suggests four reasons to study OM. We want to under- stand (1) is one of
the 3 major functions of a firm. Its how people organize themselves for productive
enterprise, (2) how goods and services are produced, (3) what operations managers
do, and (4) this costly part of our economy and most enterprises.

What are the 3 basic functions of a firm?
-The basic functions of a firm are marketing, accounting/ finance, and operations. An
interesting class discussion: Do all firms/organizations (private, government, not-for-
profit) perform these three functions? The authors hypothesis is yes, they do.
The U.S and indeed much of the world, has been described as a knowledge society.
How does this affect productivity measurement and the comparison of productivity
between the US and other countries?
-Productivity is harder to measure when the task becomes more intellectual. A knowledge
society implies that work is more intellectual and therefore harder to measure. Because
the U.S. (and many other countries) are increasingly knowledge societies, productivity
is harder to measure. Using labor hours as a measure of productivity for a postindustrial
society vs. an industrial or agriculture society is very different. For example, decades
spent developing a marvelous new drug or winning a very difficult legal case on
intellectual property rights may be significant for post- industrial societies, but not show
much in the way of productivity improvement measured in labor hours.

What is scientific management? And what were Taylors contributions to it?
According to Taylor, scientific management is a mental revolution by workers and
management. Mental revolution means to focus on the surplus, making it larger instead of
splitting up the surplus. He contributed to personnel selection, planning, scheduling,
motion study and the now popular field of ergonomics. He also contributed by saying that
management should be much more resourceful and aggressive in the improvement of
work methods. Some of his other contributions where matching employees to the right
job. Providing proper training. Providing proper work and tools and establishing
legitimate incentives for work to be accomplished.


Soldering: (2types) Taylor hated soldering.
-Lazyness
-When a group of people will work together to minimize their output.

CHAPTER 2:
Mission: the purpose or rationale for an organizations existence. What a firm will
contribute to a society.
Strategy: how an organization expects to achieve the missions and goals. Firms achieve
missions in three conceptual ways: (1) differentiation, (2) cost leadership and (3)
response.
Competitive advantage: the creation of a system that has a unique advantage over
competitors. The idea is to create customer value in an efficient and sustainable way.
Differentiation: distinguishing the offerings of an organization in a way that the
customer perceives added value.. it should be though as going beyond physical
characteristics and service.
Experience differentiation: engaging a customer with a product through imaginative use
of the five senses, so the customer experiences the product.
Competition on cost: utilizing resources effectively. Identifying the optimum size (and
investment) allows firms to spread overhead costs, producing a cost advantage.
Low cost leadership: achieving maximum value as perceived by the customer.
Response: response is often thought of as flexible response, but it also refers to reliable
and quick response. Indeed we define response as including the entire range of values
related to timely product development and delivery, as well as reliable scheduling and
flexible performance.
Operation Decisions: the strategic decisions of OM are goods and service design,
quality, process design, location selection, layout design, human resources and job
design, supply chain management, inventory, scheduling, and maintenance.
Process focused: JOB SHIOPS (print shops, emergency room, machine shop, fine dining
restaurant.
Repetitive/modular: ASSEMBLY LINE (cars,appliances, TVs, fast food reastaurants)
Mass customization: customization at high volume (Dell computers PC, cafeteria)
Product focused: CONTINUOUS (steel, beer, paper, bread, institutional kitchen)
Value Chain analysis: a way to identify those elements in the product/service chain that
uniquely adds value.
SWOT analysis: analyzing internal strength, weaknesses, and external opportunities,
threats.
CHAPTER 6:
Quality: defined by AMG: the totality of the features and characteristics of a product or
service that bears on its ability to satisfy stated or implied needs. By the book: the ability
of a product or service to meet customer needs.

Implications of quality: company reputation, product liability, global implications.

Prizes:
-Malcolm Bridge National Quality Award (American): named after the secretary of the
commerce Malcolm Bridge.
-Deming Prize (Japanese): named after Edward Deming

Cost of quality: the cost of doing things wrong, the price of non conformance.
-Prevention costs, appraisal costs, internal failure, external costs.

W. Edwards Deming: insisted management accept responsibility for building good
systems. The employee cannot produce products that on average exceed the quality of
what the process is capable of producing TQM and his 14 points.

Joseph Juran: a pioneer in teaching the Japanese how to improve quality. Juran believed
strongly in top management commitment, support and involvement in the quality effort.
He was also a believer in teams that continually see to raise quality standards. Juran
varies from Deming somewhat in focusing on the customer and defining quality as fitness
for use, not necessarily the written specification.

Phillip B. Crosby: Quality is free was Crosbys attention-getting book published in
1979. Crosby believed that in the traditional trade off between the cost of improving
quality and the cost of poor quality, the cost of poor quality is understated. The cost of
poor quality should include all the things that are involved in not doing the job right the
first time. Crosby coined the term zero defects and defects and stated: there is
absolutely no reason for having errors or defects in any product or service.

ISO 9000: a set of quality standards developed by the international organization for
standardization

ISO 14000: a series of environmental management standards established by the
international organization for standardization.

Total Quality Management (TQM): management of an entire organization so that it
excels in all aspects of products and services that are important to the customer.

Seven concepts of Total Quality Management:
-CONTINUOUS IMPROVEMENT: continuous improvement of processes, people,
suppliers, equipment, material and procedures.
PDCA: Plan-do-check-act.
-Six sigma: a program to save time, improve quality and lower costs. 3.4 defects per
million (3SD), 2700 defects per million (2SD)
-Employee empowerment: enlarging employee jobs so that added responsibility and
authority is moved to the lowest level possible in the organization
Quality Circle: a group of employees meeting regularly with a facilitator to solve work
related problems in their work area.
-Benchmarking: selected demonstrated standard of performance that represents the very
best performance for a process or an activity. Steps: determine what to benchmark. Form
a benchmark team. Identify benchmarking partners. Collect and analyze benchmark
information. Take action to match or exceed the benchmark.
-Just in Time (JIT): reduction of waste. JIT reduces the cost of quality, improves
quality
-Taguchi concepts:
quality robustness: products that are consistently built to meet customer needs in
spite of adverse conditions in production process
quality loss function and quality loss function.
-Customer focus

Statistical Process control: a process used to monitor standards, make measurements,
and take corrective actions as a product or service is being produced.

Control charts: graphic presentations of process data over time with predetermined
control limits.

Determinants of service quality:
-Tangibles: the appearance of physical facilities, personnel, equipment and
communication materials. (Always voted as the most important)
-Reliability: ability to perform the promised service, dependably and accurately
-Responsiveness: the willingness to help customers and provide prompt service.
-Assurance: knowledge and courtesy of employees and their ability to convey trust and
confidence.
-Empathy: carrying individualized attention that the firm provides its customer.

Conceptual model of service quality:
Gap 1 is between customer expectations and managements perception of these
expectations.
Gap 2 is the difference between managements perception of customer expectations and
the translation of those perceptions into service quality specifications.
Gap 3 is the difference between the service quality specifications and the delivery of
those specifications to the customer.
Gap 4 is the difference between the service delivered to customers and the external
communications about the service.
Gap 5 is the difference between customers perceptions of an actual service experience
and the customers expectations of an ideal service.


Tools of TQM: check sheets, scatter diagram, cause-effect diagram, pareto charts,
flowchart, histograms.

Discussion Questions:

Explain how improving quality can lead to reduced costs?
-Higher quality leads to greater demand, to greater market share, to greater
economies of scale. Additionally, higher quality leads to less scrap, rework, and
warranty cost, hence to less input required for same output.

Which 3 of the 14 of Deming points you think are most important to the
success of TQM programs and why?
Of Demings 14 points, finding problems is certainly one of the three. The selection
of the other two is not as clear-cut. Many would say reducing fear is important, but
its purpose is really to find problems. The first point, on getting management to put
forth common goals and stick with themconstancy of purposeis our second
choice. The third is methodsnot giving goals without providing the methods to
achieve them.
The seven tools for TQM
The seven tools of TQM are: Checksheet, Scatter diagram, Histograms, Pareto
charts, Flow charts, Cause-and-effect diagrams, Statistical process control chart

CHAPTER 6S:

Statistical Process control: a process used to monitor standards, make measurements,
and take corrective actions as a product or service is being produced.

Control charts: graphic presentations of process data over time with predetermined
control limits.

Natural variations: variability that affects every production process to some
degree and is to be expected

Assignable cause: variation is a production process that can be traced to specific
causes

Central limit theorem: the theoretical foundation for x charts, which states that
regardless of the distribution of the population of all parts or services, the
distribution of Xs tends to follow a normal curve as the number of samples
increases.

CHAPTER 16:

JIT: continuous and forced problem solving via a focus on throughout and reduced
inventory.
Toyota production System (TPS): focus on continuous improvement, respect for
people and standard work practice.

Lean Operations: eliminate waste through a focus on exactly what the customer
wants.

Ohnos seven wastes are:
-overproduction, queues, transportation, inventory, motion, overprocessing and
defective product

5Ss of Lean production: sort, simplify, shine, standardize and sustain.

Variability: any deviation from the optimum process that delivers perfect product
on time, every time.

Discussion Questions:

What is JIT?
-JIT is a philosophy of continuous and forced problem solving. It is a continuous program
that replaces a series of fad programs.
What are the 3 ways in which JIT and Quality are related?
-Quality relates to JIT: JIT cuts the cost of obtaining good quality; JIT improves quality;
and better quality means fewer buffers and therefore a better, easier-to-use JIT system.

What are the Characteristics of JIT partnerships with respect to suppliers?
-JIT partnering with suppliers; few suppliers; nearby suppliers; repeat business with the
same suppliers; analysis to enable desirable suppliers to become/stay price competitive;
competitive bidding mostly limited to new purchases; buyer resists vertical integration
and subsequent wipeout of supplier business; and suppliers are encouraged to extend JIT
buying to their suppliers.