Introduction to Business

Managing Processes
Module Learning Outcomes

12.1: Explain operations management in the production of goods and services

12.2: Describe the main categories of production processes
12.3: Explain the components involved in planning and scheduling the production process
12.4: Identify existing and emerging technologies that are changing the way goods are prod
uced and delivered
12.5: Explain the importance of supply chain management
12.6: Summarize common management techniques used to ensure high-quality goods and s
ervices
Operational Management
Learning Outcomes: Operational Management

12.1: Explain operations management in the production of goods and services

12.1.1: Define operations management
12.1.2: Explain the role of operations manager
12.1.3: Explain how operations management relates to the service industry
Production
Production, the creation of products and services, is an essential function in every firm. Production turns
inputs, such as natural resources, raw materials, human resources, and capital, into outputs, which are products
and services. This process is shown below. Managing this conversion process is the role of operations
management.
What does an Operations Manager do?

An Operations Manager is charged with managing and supervising the conversion process. They
control about three-fourths of a firm’s assets, including inventories, wages, and benefits. They also
work closely with other major divisions of the firm, such as marketing, finance, accounting, and
human resources, to ensure that the firm produces its goods profitably and satisfies its customers.

Marketing personnel help them decide which products to make or which services to offer.
Accounting and human resources help them face the challenge of combining people and resources to
produce high-quality goods on time and at reasonable cost. They are involved in the development
and design of goods and determine what production processes will be most effective.
Three Stages of Operations Management

Production and operations management involve three main types of decisions, typically made at three
different stages:

1. Production planning. The first decisions facing operations managers come at the planning stage.
At this stage, managers decide where, when, and how production will occur. They determine site
locations and obtain the necessary resources.
2. Production control. At this stage, the decision-making process focuses on controlling quality and
costs, scheduling, and the actual day-to-day operations of running a factory or service facility.
3. Improving production and operations. The final stage of operations management focuses on
developing more efficient methods of producing the firm’s goods or services.
Operations Management in the Service Industry

Operations management is about taking inputs and transforming them into outputs; this applies
not only to producing tangible goods, but also in the service industry.

Example: in a theme park, a few examples of issues facing an operations manager might be:
• How to control crowds
• How many cars to attach to a rollercoaster to maximize number of riders but ensure
safety
• How many tons of icecream to order to 4th of July weekend
• How to staff entrances and exits
Practice Question 1

By definition, Operations is primarily concerned with:

A. Production
B. Profitability
C. Customer satisfaction
D. Distribution
Practice Question 2

You have assumed a VP Operations position at a medium-sized frozen foods company. Your job
would focus on:
A. Ensuring working capital is available to fund operations
B. Planning adequate production capability to meet the forecasts from sales
C. Managing data collection from your online sources to estimate demand
D. Forecasting revenue versus the six-month plan
Practice Question 3

You are the operations manager for a large auto dealership services department. Which of the
following would you be most concerned with?
A. Coordinating prices with other dealerships carrying the same brand.
B. Number of cars on the lot for July 4 sale.
C. Mechanic staff availability to ensure most services are complete in one working day.
D. Customer outreach to track satisfaction levels of purchases
Production Processes
Learning Outcomes: Production Processes

12.2: Describe the main categories of production processes

12.2.1: Describe project- or job-based production
12.2.2: Describe batch production
12.2.3: Describe mass production
Understanding Production Processes

Operations management includes decisions about the way in which production will proceed.

Four common production processes include:

• Project-based
• Batch
• Mass
• Continuous production
Project- and Job-based Production

Project- or Job-based production is one-of-a-kind production in which only one unit is

manufactured at a time. This is often used for very large projects or for individual customers.

Examples
• Custom home construction
• Haircut
• Yachts
Advantages and Disadvantages to Project- and Job-based
Production

Advantages Disadvantages
• Unique, high-quality products are made • Very labor-intensive, so selling prices are
• Workers are often more motivated and usually higher
take pride in their work • Production can take a long time and can
• Products are made according to have higher production costs (e.g., if
individual customer needs and and special materials or tools are required)
improve customer satisfaction
• Production is easy to organize
Batch Production

Batch production is a method used to produce similar items in groups, stage by stage. The
product goes through each stage of the process together before moving on to the next stage.

Examples:
• Bakeries
• Textiles
• Furniture
Advantages and Disadvantages of Batch Production

Advantages Disadvantages
• Since large numbers are made, unit costs • Workers are often less motivated because
are lower the work becomes repetitive
• Offers the customer some variety of choice • Initial set-up costs are high
• Materials can be bought in bulk, so they are • Expensive to move products around the
cheap workplace
• Production is flexible since different • Storage space will be needed to store raw
batches are made materials
• Workers specialize in one process
Mass Production

Mass production,manufacturing many identical goods at once, was a product of the Industrial
Revolution. Henry Ford’s Model-T automobile is a good example of early mass production.

Other examples:
• Canned goods
• Over-the-counter drugs
• Household appliances
Advantages and Disadvantages of Mass Production

Advantages Disadvantages
• Labor costs are usually lower • Machinery is very expensive to buy, so
• Materials can be purchased in large production lines are very expensive to set
quantities, so they are often cheaper up
• Large number of goods are produced, • Workers are not very motivated since
lowering unit cost their work is very repetitive
• Production lines are Not very flexible and
are difficult to change
• If one part of the line breaks, the whole
production process will have to stop
• Maintenance costs are very high
Discussion Question

What would be the best facility layout and production process to produce candles? Why?
Production Planning
Learning Outcomes: Production Planning

12.3: Explain the components involved in planning and scheduling the production
process
12.3.1: Explain facility location
12.3.2: Explain facility layout
12.3.3: Explain materials-requirement planning (MRP)
12.3.4: Explain just-in-time inventory control (JIT)
12.3.5: Differentiate between Gantt charts, PERT, and the critical path method
Understanding Production Planning

Depending on the product being manufactured, operations planning needs to decide:

• Facility Location: Where will the facility will be located?
• Facility Layout: How will the facility will be organized?
• Material-requirements Planning (MRP): What materials are needed for production?
• Inventory control: How will the various activities that go into the production process will be
scheduled?
Considerations for Facility Location
Facility locations is the most strategic and critical
• Proximity to customers, suppliers, and skilled labor
• Environmental regulations
• Financial incentives offered by state and local development authorities
• Quality-of-life considerations
• Potential for future expansion
Facility Layout

The primary aim of facility layout is to design a workflow that maximizes worker and
production efficiency. The layout of a facility is most often determined by the product being
manufactured.

Types of layouts
• Process layout: arrange equipment according to its function.
• Product layout: a series of workstations at which already-made parts are assembled.
• Fixed position layout: large products stay in place and workers and equipment go to them.
• Cellular layout: each cell is designed for a specific process, part, or a complete product.
Process Layout
The process layout arranges workflow around the production process. All workers performing similar
tasks are grouped together. Products pass from one workstation to another (but not necessarily to every
workstation). Best for firms that produce small numbers of a wide variety of products.
Product Layout
Products that require a continuous or repetitive production process use the product (or assembly-line)
layout. When large quantities of a product must be processed on an ongoing basis, the workstations or
departments are arranged in a line with products moving along the line. Automobile and appliance
manufacturers, as well as food-processing plants, usually use a product layout.
Fixed Position Layout

Some products cannot be put on

an assembly line or moved
about in a plant. A fixed-
position layout lets the product
stay in one place while workers
and machinery move to it as
needed.

Products that are impossible to

move—ships, airplanes, and
construction projects—are
typically produced using a
fixed-position layout.
Material-requirements planning (MRP)

Materials requirement planning (MRP) is one type of computerized systems to control the flow of
resources and inventory.

MRP helps ensure a smooth flow of finished products by using a master schedule to ensure that the
materials, labor, and equipment needed for production are at the right places in the right amounts at
the right times.
MRP Scheduling

The MRP schedule

• Is based on forecasts of demand for the company’s products
• Says exactly what will be manufactured during the next few weeks or months
• Says when the work will take place.

Sophisticated computer programs coordinate all the elements of MRP. The computer comes up with
materials requirements by comparing production needs to the materials the company already has on
hand. Orders are placed so items will be on hand when they are needed for production, while
maintaining the lowest possible amount of materials and product to remain in house.
ERP Systems

Some manufacturing firms have moved beyond MRP systems and are now using enterprise
resource planning (ERP) systems which
• provide an integrated and continuously updated view of core business processes using shared
databases
• track business resources and the status of business commitments
• facilitate information flow between all business functions and manages connections to outside
stakeholders
Just-in-time (JIT) manufacturing

Just-in-time (JIT) manufacturing is a strategy companies employ to increase efficiency and

decrease waste by receiving goods only when they are needed.

Operations managers must accurately forecast the need for materials, since even the slightest
deviation can result in a slowdown of production.

Unexpected events like the shutdown of ports due to Hurricane Harvey and the devastation
and flooding caused by Hurricane Maria in Puerto Rico can cause chaos in the supply chains
of manufacturers, resulting in problems for firms relying on JIT
Scheduling Tools

Three tools that are used by operations managers to ensure that projects and tasks are
completed on time are:
1. Gantt charts
2. Critical path method (CPM)
3. PERT
Gantt Charts

• A Gantt chart is a timeline

• Multiple projects can be added to the timeline with start and finish dates and milestones and
deadlines
• The chart is used to determine:
• How long a project will take to complete
• The resources needed for the project
• The order in which the tasks need to be completed
Gantt Chart Example
Critical Path Method (CPM)

In the critical path method (CPM), the manager identifies all of the activities required to complete the
project, the relationships between these activities, and the order in which they need to be completed. Then, the
manager develops a diagram that uses arrows to show how the tasks are dependent on each other.

The longest path through these linked activities is called the critical path. If the tasks on the critical path are
not completed on time, the entire project will fall behind schedule.
Critical Path Method Figure
Program Evaluation and Review Technique (PERT)

• Program evaluation and review technique (PERT) identifies critical tasks and assess how delays in
certain activities will affect operations or production
• In both PERT and CRM, managers use diagrams to see how operations and production will flow

• Important difference between PERT and CPM

• CPM assumes that the amount of time needed to finish a task is known with certainty
• PERT assigns three time estimates for each activity: an optimistic time for completion, the most
probable time, and a pessimistic time
Practice Question 4

The following are all important criteria in

determining a facility location EXCEPT:
A. Natural resource abundance
B. Expansion potential
C. Environmental regulations
D. Financial incentives
Practice Question 5

You are the Operations Manager for a high-end

furniture manufacturer. Your marketing
department has introduced a line of custom,
made-to-order products that vary in style and
will be sold in small quantities due to the high
cost of the products. You decide to use this
type of facility layout for the production:
A. Product (assembly line) layout
B. Fixed position layout
C. Process layout
D. Modular layout
Practice Question 6

The major difference in usage between Gantt,

PERT, and CPM is:
A. Whether the project is for military or civilian
purposes
B. The degree of complexity of the project
C. Gantt uses tables, PERT uses squares, and
CPM uses circles to represent work
D. Gantt and PERT are used for non-mission
critical projects
Practice Question 7

Just-in-time inventory controls (JIT) compare

with MRP systems in this way:
A. JIT systems are focused on trimming
employee tardiness
B. MRP systems focus on manufacturing retail
products (MRP)
C. Both are systems focused on reducing
inventory costs while making materials available
for on-time production
D. Both are systems utilize by Operations
Managers to provide reports to senior
management
New Technologies
Learning Outcomes: New Technologies

12.4: Identify existing and emerging technologies that are changing the way goods
are produced and delivered
12.4.1: Describe CAD
12.4.2: Describe CAM
12.4.3: Describe 3D printing
12.4.4: Describe flexible manufacturing
Understanding New Technologies

Companies can manufacture products faster and more efficiently using new technologies:
• CAD (computer-aided design)
• CAM (computer-aided manufacturing)
• Flexible manufacturing
• 3D printing
• CIM (computer-integrated manufacturing)
CAD (Computer-aided Design)

In Computer-aided design (CAD), computers are used to design and test new products and modify
existing ones.
Engineers use these systems to draw products and look at them from different angles. They can
• analyze the products
• make changes
• test prototypes before manufacturing a single item
CAM (Computer-aided Manufacturing)

Computer-aided manufacturing (CAM) is the use of software to control machine tools in the
manufacturing of workpieces.

Its primary purpose is to speed the production process and produce components and tooling
with more precise dimensions and material consistency.

CAD/CAM systems combine the advantages of CAD and CAM by integrating design, testing, and
manufacturing control into one linked computer system. The system helps design the product,
control the flow of resources needed to produce the product, and operate the production process.
3D Printing
3D printing (or additive manufacturing, AM) is any of various processes used to make a three-
dimensional object. In 3D printing, additive processes are used, in which successive layers of material are
laid down under computer control.

Specialized printers can create products or parts for use in early prototypes, and some industries print
certain components on site rather than shipping them.

These objects can be of almost any shape or geometry, and are produced from a 3D model or other
electronic data source.

A 3D printer is a type of industrial robot. The printers were originally large, expensive, and highly limited
in what they could produce; today they are much cheaper and more versatile.
FMS (Flexible manufacturing systems)
A flexible manufacturing system (FMS) offers flexibility in the way the production system
reacts to change, whether planned or unplanned.

The flexibility is typically built into one of the following:

• Machine flexibility: the system can be changed to produce new product types or alter the
order of operations executed on a part
• Routing flexibility: the system has multiple machines than can perform the same operation
on a part, or the system can absorb large-scale changes in volume, capacity, or capability

An FMS has immense advantages over traditional production lines. When the firm needs to
switch a production line to manufacture a new product, substantial time and money are often
spent modifying the equipment. An FMS makes it possible to change equipment set-ups merely
by reprogramming computer-controlled machines.
CIM (Computer-integrated manufacturing)

Computer-integrated manufacturing (CIM) combines computerized manufacturing processes

(such as robots and flexible manufacturing systems) with other computerized systems that control
design, inventory, production, and purchasing.

This integration allows individual processes to exchange information with one another and initiate
actions.

Although CIM can be faster and less error prone than conventional manufacturing, the main
advantage is the ability to create automated manufacturing processes.
Supply Chain Management and Logistics
Learning Outcomes: Supply Chain Management and
Logistics
12.5: Explain the importance of supply chain management and logistics
12.5.1: Summarize the components of supply chain management
12.5.2: Differentiate between supply chain management and logistics
12.5.3: Differentiate between inbound and outbound logistics
Understanding Supply Chain Management

• Supply chain management is the process of

managing the movement of the raw materials and
parts from the beginning of production through
delivery to the consumer.
• The supply chain is a system of organizations,
people, activities, information, and resources
involved in moving a product or service from
supplier to customer.
Elements of a Supply Chain
The complexity of the supply chain varies with the size of the business. Most supply chains
have elements in common, such as the following:
• Customers: Customers start the chain of events when they decide to purchase a product.
• Planning: The planning department will create a production plan.
• Purchasing: The purchasing department received a list of raw materials and services
required by the production department.
• Inventory: The raw materials are received from the suppliers, checked for quality and
accuracy, and moved to the warehouse.
• Production: The raw materials are moved to the production area.
• Transportation: When the finished product arrives in the warehouse, the shipping
department determines the most efficient method to ship the products.
Class Activity: Supply Chains

Divide into teams of 3–4 members. Each team will research one of the supply chain structures
of the following organizations:

McDonalds, Dell, P & G, The Coca-Cola Company, Intel, Cisco, Wal-Mart.

Discussion Questions:
• Describe how these top supply-chain organizations have structured their processes.
• Compare differences and similarities between these successful supply-chain processes.
Present: Supply Chains
Logistics

• Logistics is an important subset of Supply Chain Management. In business, logistics is the

management of the flow of things between the point of origin and the point of consumption.
• Inbound logistics: A manager in charge of inbound logistics will focus on managing supplier
relationships, accessing raw materials, negotiating materials pricing, and arranging quicker delivery.
• Outbound logistics: A manager working in outbound logistics will be focuses on two issues: storage
and transportation.
Quality Assurance
Learning Outcomes: Quality Assurance

12.6: Summarize common management techniques used to ensure high-quality

goods and services
12.6.1: Differentiate between statistical process control, benchmarking, lean manufacturing,
and Six Sigma
12.6.2: Explain the benefits of national and international quality standards in the production of
goods and services
Understanding Quality Assurance

In order to ensure that their products, goods, and

services meet consumer quality standards, companies
employ quality-control techniques such as:

• Statistical Process Control (SPC)

• Benchmarking
• Lean manufacturing
• Six Sigma

They can also seek certification through national and

international quality-assurance organizations.
Statistical Process Control (SPC)

Statistical process control (SPC) is a method of quality control that uses statistical or

mathematical methods to monitor and control a process.

Goal: to ensure that production operates at its full potential.

“Full potential” indicates the point where the process produces as much conforming product
as possible with a minimum of defective parts, rework, or scrap.
Benchmarking

• Benchmarking involves comparing business processes and performance metrics to industry

bests and best practices from other companies.

• Metrics compared: quality, time, and cost.

• Management identifies the best firms in their industry—or in another industry where similar
processes exist—and compares the results and processes of those studied (the “targets”) to
one’s own results and processes.
Lean Manufacturing

Lean manufacturing focuses on eliminating waste from the manufacturing process using the
following goals and assumptions:
• Continuous improvement
• Respect for people
• Long-term approach to process improvement
• The right process will produce the right results
• Add value to the organization by developing your people and partners
• Continuously solving root problems
Six Sigma

Six Sigma focuses on measuring the number of defects and systematically eliminating them
to get as close to “zero defects” as possible
• A focus on measurable financial returns
• Emphasis on good management
• A commitment to making data-driven
International Quality Standards

ISO 9000 and ISO 14000

The International Organization for Standardization (ISO), a nongovernmental agency based in

Switzerland, provides information about organizations that have people and processes in place
for delivering products that satisfy customers’ quality requirements.

The ISO standards focus on the way a company does its work, not on its output. Compliance
with ISO standards is voluntary, and the certification process is time-consuming and complex.
Malcolm Baldrige National Quality Award
In 1987 the U.S. government created the Malcolm Baldrige National Quality Award to
encourage companies to improve quality.

The Commerce Department’s National Institute of Standards and Technology (NIST) manages
the award in cooperation with the private sector.

Recipient candidates are evaluated on seven areas defined by the Baldrige Excellence
Framework: Leadership, Strategy, Customers, Measurement, Analysis and Knowledge
Management, Workforce, Operations, and Results
Quick Review

• What is operations management?

• What are the 4 categories of production processes?
• How do organizations support operations by mining, warehousing, and sharing data?
• What are the components involved in planning and scheduling the production process?
• What existing and emerging technologies are changing the way goods are produced and
delivered?
• Why are supply chain management and logistics important?
• What common management techniques are used to ensure high-quality goods and services?