Operations Management and Human Resource - Controlling quality

- Scheduling work
Chapter 1 - Managing Inventory
Introduction to Operations and Supply Chain - Planning production
Management
Operations Function Finance
• Operation Management - Operations Accounting
0
- Design, operation, and improvement of productive - Marketing
systems - Finance and Accounting

Marketing
Suppliers
Operations
• Operations - Human Resources
- A function or system that transforms inputs into - Suppliers
outputs of greater value. Human
Resources
• Value Chain
- A series of activities from supplier to customer How is Operations Related to my Major?
that add value to a product/service. - Accounting – “as an auditor you must understand
the fundamentals of operations management”
Value Chain: - Information Technology- “IT is a tool, and there’s
I -> P -> O I= Input P= Process O=Output
no better place to apply it than in operations”
- Management- “We use so many things you learn
___Value___
in an operations class- scheduling, lean
production, theory of constraints, and tons of
• Transformation Process
quality tools.
- A series of activities along a value chain extending
- Economics- “its all about process. I live by
from supplier to customer
flowcharts and Pareto analysis”
- Activities that do not add value are superfluous
- Marketing- “How can you do a good job marketing
and should be eliminated
a product if you’re unsure of its quality or delivery
status”
Transformation Processes
- Finance- “most of our capital budgeting requests
- Physical: as in manufacturing operations
are from operations, and most of our cost savings,
- Locational: as in transportation/warehouse
too”
operation
- Exchange: as in retail operations
Historical Events in Operations Management
- Psychological: as in entertainment
- Physiological: as in health care
ERA EVENTS/CONCEPTS DATES ORIGINATOR
- Informational: as in communication
Industrial -Steam engine 1769 James Watt
Operations as a Transformation Process Revolution -Division of labor 1776 Adam Smith
-Interchangeable parts 1790 Eli Whitney
Input Output
-Material -Goods
-Machines Transformation Process -Services Scientific -Principles of scientific 1911 Frederick W.
-Labor Management management Taylor
-Management -Time and motion studies 1911 Frank and William
-Capital Gilbreth
-Activity scheduling art 1912 Henry Gantt
-Moving assembly line 1913 Henry Ford
The Operations Function Human -Hawthorne studies 1930 Elton Mayo
- Organizing work Relations 1940s Abraham Maslow
- Selecting Process -Motivation theories 1950s Frederick Herzberg
- Arranging layouts 1960s Douglas McGregor
- Locating Facilities
Operations -Linear Programming 1947 George Dantzig
- Designing Jobs
- Measuring Performance Research -Digital Computer 1951 Remington Rand
 -Simulation, waiting line 1950s Operations - Response to changes in demand
theory, decision theory, Research Group - Reliable sources of supply
PERT/CPM - Latest trends and technologies
-MRP, EDI, EFT, CIM 1960s, Joseph Orlicky,
Increased Globalization
1970s IBM and others
- Results from the internet and falling trade barriers
Quality -JIT (Just in Time) 1970s Taiichi Ohno
Revolution (Toyota) Productivity and Competitiveness
-TQM (Total Quality man) 1980s W. Edwards • Competitiveness
Deming, Joseph - A degree to which a nation can produce goods and
Juan services that meet the test of international
-Strategy and Operations 1980s Wickham Skinner, markets
Robert Hayes • Productivity
- Ratio of Output to input
-Reengineering 1990s Michael Hammer,
• Output
James Champy
- Sales made, products produced, customers served,
-Six Sigma 1990s G.E. Motorola meals delivered or calls answered
Internet -Internet, WWW, ERP, supply 1990s ARPANET, Tim • Input
Revolution chain management Berners Lee SAP, - Labor hours, investment in equipment, material
i2 Technologies, usage or square footage
ORACLE, Dell
E-Commerce 2000s Amazon, Yahoo, Strategy and Operations
eBay, Google and - How the mission of a company is accomplished
- Provides direction for achieving a mission
others
- Unites the organization
Globalization WTO, European Union, 1990s China, India, - Provides consistency in decisions
Global supply chains, 2000s Emerging - Keep organization moving in the right direction
Outsourcing, Service Science economies
Sustainability Global warming, Carbon Today Numerous Strategy Formulation
footprint, Green products, companies, 1. Defining a primary task
Corporate social responsibility statesmen, - What is the firm in the business of doing?
(CSR), UN Global Compact government, UN, - Represents the purpose of the firm
2. Answering core competencies
World Economic
- What does the firm do better than anyone else?
Forum
- Processes, not products or services
3. Determining order winners and order qualifiers
Product Life Cycle - What qualifies an item to be considered for
1. Introduction (Awareness) purchase?
2. Growth stage (Start sustainability) - What wins the order? -that is the order winner
3. Maturity (Sustainability) 4. Positioning the firm
4. Decline - How will the firm compete?
5. Deploying the strategy
Evolutions of Operations and Supply Chain
Management Strategic Planning
• Supply Chain Management
- Management of the flow of information, products, Mission and Vision
and services across a network of customers,
enterprises, and supply chain
Corporate Strategy
Globalization
• Why “go global”?
- Favorable cost
Financial Operations Marketing
- Access to international markets
Strategy Strategy Strategy
Positioning the firm • Hoshins
- Cost - Action plans generated from the policy
- Speed deployment process
- Quality
- Flexibility Balance Scorecard
• Balance scorecard
Positioning the Firm: Speed - Measuring more than financial performance
• Fast moves, fast adaptations, tight linkage - Finances, processes, customers, learning and
- Internet growing
- Customers expect immediate responses • Key performance indicators
• Service organizations - Set of measures to help managers evaluate
- Always competed on speed performance in critical areas.

Positioning the Firm: Cost Decision Analysis

• Waste eliminations
- Relentlessly pursuing the removal of all waste • Quantitative Method
• Examination of cost structure -
A set of tools for operations manager
- Looking at the entire cost structure of reduction • Decision Analysis
potential - A set of quantitative decision-making techniques
• Lean production for decision situations in which uncertainty exist.
- Providing low costs through disciplined operation
• Manufacturers Decision Making Without Probabilities
- Time based competition: build-to-order
production and efficient supply chains • States of Nature
• Fashion industry - Events that may occur in the future.
- Two-week design-to-rack lead time of Spanish • Decision making under risk
retailer, Zara - Probabilities can be assigned to the occurrence of
states of nature in the future.
Positioning the Firm: Quality • Decision making under uncertainty
• Minimizing defect rates or conforming to design - Probabilities can not be assigned to the
specification occurrence of states of nature in the future.
• Ritz- Carlton- one customer at a time
- Service system designed to “move heaven and Payoff Table
earth” to satisfy customer • Payoff Table
- Employees empowered to satisfy a guests wish - Method of organizing ang illustrating payoffs from
- Teams set objectives and devices quality action different decisions given various states of nature
plans • Payoff
• Each hotel has a quality leader - Outcome of decision

Positioning the Firm: Flexibility Decision making criteria under uncertainty

• Ability to adjust to changes in product mis,
production volume, or design • Maximax
• Mass communication - Choose decision with the maximum of maximum
- Mass production of customized parts payoffs
• National Bicycle Industrial Company • Maximin
- Offers 11,231,862 variations - Choose decision with the maximum of the
- Delivers within two weeks at cost only 10% above minimum payoffs
standard models • Minimax Regret
- Choose decision with the minimum of the
Policy Deployment maximum regrets for each alternative
• Policy deployment • Hurwicz
- Translates corporate strategy into measurable - Choose decision in which decision payoffs are
objectives weighted by a coefficient of optimism, alpha
 -
Coefficient of optimism is a measure of a decision
maker’s optimism, from 0 (completely pessimistic) Quality Management
to 1 (completely optimistic)
• Equal likelihood (La Place) What is Quality?
- Choose decision in which each state of nature is • Oxford American Dictionary
weighted equally - A degree or level of excellence
• American Society for Quality
Expected Value - Totality of features and characteristics that satisfy
needs without deficiencies
EV (x) = ∑𝑛𝑖=1 𝑝(x1)x1 • Consumer’s and Producers perspective
Where
X1= outcome 1 Meaning of Quality
P(x1)=probability of outcome i Meaning of Quality
Decision Making with Probabilities
- Risk involves assigning probabilities to states of
Producer's Consumer's
nature Perspective Perspective

• Expected Value
Quality of Quality of Design
- A weighted average of decision outcomes im conformance
_____________
_______________
Production - Quality
Marketing
which each future states of nature is assigned a - Conformance to
specification
characteristices
- Price
-Cost
probability of occurrence
Fitness for Consumer
Use

Expected Value of Perfect Information

• EVPI What is Quality:
- Maximum value of prefect information to the Customer’s Perspective
decision maker • Fitness for use
- Maximum amount that would be paid to gain - How well product or service does what it is
information that would result in a decision better supposed to
than the one made without perfect information • Quality of design
- Designing quality characteristics into a product or
• Good condition will exist 70% of the time service
-Choose maintain status quo with payoff of - A Mercedes and a Ford are equally “fit for use” but
$1,300,00 with different design dimensions
• Poor condition will exist 30% of the time
- Choose expand with payoff of $500,000 Dimensions of Quality:
• Expected value given perfect information Manufactured Products
= $1,300,000 (0.70) + 500,000 (0.30) • Performance
= $1,060,000 - Basic operating characteristics of a product; how
• Recall that expected value without perfect well a car handles or its gas mileage
information was $865,000 (maintain status quo) • Features
• EVPI= $1,060,000 – 865,000 - “extra” items added to basic features, such as a
stereo CD or a leather interior in a car
Sequential Decision Trees • Reliability
• A graphical method for analyzing decision situations - Probability that a product will operate properly
that require a sequence of decisions over time within an expected time frame; that is, a TV will
• Decision tree consists of work without repair for about seven years
- Square nodes- indicating decision points • Conformance
- Circle nodes- indicating states of nature - Degree to which a product meets pre-established
- Arcs- connecting nodes standards
• Durability
- how long product lasts before replacement
• Serviceability
- Ease of getting repairs, speed of repairs, courtesy
and competence of repair person
• Aesthetic • Armand V. Feigenbaum
- How a product looks, feels, sounds, smells, or - Introduced concepts of total quality control and
tastes continuous quality improvement
• Safety • Philip Crosby
- Assurance that customer will not suffer injury or - Emphasized that cost of poor quality far outweigh
harm from a product; an especially important cost
consideration for automobiles • Kaoru Ishikawa
• Perceptions - Promoted use of quality circles
- Subjective perceptions based on brand name,
advertising, etc. Deming’s 14 Points
1. Create consistency of purpose
Dimensions of Quality: Services 2. Adopt philosophy of prevention
• Time and timeliness 3. Cease mass inspection
- How long must a customer wait for service 4. Select a few suppliers based on quality
• Completeness 5. Constantly improve system and workers
- Everything customer asked for is provided 6. Institute worker training
• Courtesy 7. Instill leadership among supervisors
- Customers treated by employees 8. Eliminates fear among employees
• Consistency 9. Eliminates barriers between departments
- Same level of service provided to each customer 10. Eliminates slogans
each time 11. Eliminate numerical quotas
• Accessibility and Convenience 12. Enhance worker pride
- How easy service is obtained 13. Institute vigorous training and education
• Accuracy programs
- Service performed right every time 14. Develop a commitment from top management
• Responsiveness to implement above 13 points
- Company react to unusual situations
Quality Tools
Producer’s Perspective in Quality • Process flow chart
• Cause-and-effect
• Quality of conformance • Diagram
- Making sure product or service is produced • Check sheet
according to design • Pareto analysis
• Histogram
Final Perspective in Quality • Scatter diagram
• Statistical process control chart
Customer’s and producer’s perspectives depend on each
other • Process Flow Chart
• Producer’s perspective -
Diagram of the steps in a process
- Production process and COST • Cause-and-Effect Diagram
• Customer’s perspective - Chart sowing different categories of problem
- Fitness for use and Price

Evolution of Quality Management: Quality Gurus • Total Quality Management (TQM)

-
Customer-oriented, leadership, strategic planning,
• Walter Shewhart employee responsibility, continuous improvement,
- 1920s, develop control charts cooperation, statistical methods, and training and
• W. Edwards Deming education
- Develop courses WWII to teach statistical quality- • Quality Management System (QMS)
control techniques - System to achieve customer satisfaction that
• Joseph M. Juran complements other company systems
- Focused on strategic quality planning
 TQM Principles • Six Sigma
- Quality can and muse be managed - Process for developing and delivering virtually
- Customer defines quality perfect products and services
- Management must be involved and provide - Measure of how much a process deviates from
leadership perfection
- Continuous quality improvements is “the strategic
goal” • Six Sigma Process
1. Align
Focus of Quality Management- Customers - Executives create balanced scorecard
• TQM and QMSs 2. Mobilize
- Serve to achieve customer satisfaction - Project teams formed and empowered to act
- Satisfied customers are less likely to switch to a 3. Accelerate
competitor - Black, green bell execute project
- 94-96% of dissatisfied customers don’t complain 4. Govern
- Monitor and review projects
Quality Management in the Supply Chain 5. Champion
- Companies need support of their suppliers to - an executive responsible for project success
satisfy their customers
- Reduce the number of suppliers • Breakthrough Strategy: DMAIC
• Partnering 1. Define
- Relationship between a company and its supplier - Problem is defined
based on mutual quality standards 2. Measure
- Process measured, data collected
Measuring Customer Satisfaction 3. Analyze
- An important component of any QMS - Data analysis to find cause of problem
- Use customer service to hear “Voice of the 4. Improve
customer” - Develop solutions to problem
5. Control
Roles of Employees in Quality Improvement - Ensure improvements in continued
• Participate problem solving
- Employees involved in quality-management • Black Belt
• Kaizen - Project leader
- Involves everyone in process of continuous • Master Black Belt
improvement - A teacher and mentor for Black Belts
• Quality Circles • Green Belts
- Voluntary group of workers and supervisors from - Project team members
same area
Process (Quality) Improvement Teams Six Sigma Tools -1
- Focus attention on business processes rather than • Quality Function Deployment (QFD)
separate company functions - Capture the “voice of the customer”
- Process flowcharts are key tools • Cause and Effect Matrix
Quality in Services - Identify and prioritize cause of a problem
- Service defect are not always easy to measure • Failure Modes and Affects Analysis (FMEA)
because service output is not usually a tangible - Analyze potential problems before they occur
item
Quality Attributes in Services Six Sigma Tools- 2
- Principles of TQM apply equally well to services • I-Test
and manufacturing - Test for difference between groups
• Timeliness is an important dimension • Statistical Process Control (SPC) Chart
- How quickly a service is provided - Monitor a process over time for variations
• Benchmark • Design of Experiments (DOE)
- “best” level of quality achievement in one - Determining relationships between factors
company that other companies seek affecting inputs and outputs of a process
 Design for Six Sigma (DFSS)
- Systematic approach to designing products and
process
- Use some basic approach as breakthrough strategy

Lean Six Sigma

• Integrate six Sigma and lean system
• Lean seeks to optimize process flows
• Lean extends earlier efforts in efficiency
• Lean process improvement steps
1. Determine what creates value for customers
2. Identify ‘value stream’
3. Remove waste in the value stream
4. Make process responsive to customer needs
5. Continually repeat attempts to remove waste

• Six sigma and lean seek

- Process improvements
- Increased value to customers
• They approach the goals in different,
complementary ways

Cost of Quality
• Cost of achieving Good quality
Prevention cost
- Costs incurred during product design
Appraisal Cost
- Cost measuring, testing and analyzing
• Cost of Poor quality
Internal failure costs
- Include scrap, rework, process failure, downtime
and price reductions
External failure costs
- Include complaints, returns, warranty claims,
liability and lost sales