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Class Notes For Operations Management: Processes and Supply Chains, 11th Edition

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Class Notes For Operations Management: Processes and Supply Chains, 11th Edition simplifies complex topics with easy-to-understand notes.

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    A Note to Instructors Instructors have distinctive, ever evolving approaches for designing and teaching courses in operations management, and so we offer a wide variety of resources beyond what is provided by the textbook. Pick, choose, and adapt them to your own needs. Only a modest portion of the resources is prin ted in this manual. Our book’s w eb site at www.pearsonhighered.com/krajewski provides a full array of materials, either through the Instructors Resource link or the Companion Website link. Resources in This Manual We provide here two types of materials for convenience, with the electronic versions available for downloading at our book’s Web site. The se elements are grouped on a chapter - by - chapter basis. We are indebted to Jack Jensen of the University of South Carolina for helping create these materials. 1. Instructor Notes. These annotated chapter outlines cover the key aspects of each chapter or supplement, with boxed notes to the instructor on ideas that might be brought out in class, and supplementary materials such as the “Applications” that might apply. If you wish to use the material as a class handout (particularly useful for large lecture - based classes when combined with PowerPoints), edit the portions that you wish to delete, revise, or add. Important art or figures (such as from selected PowerPoint slides) can be pasted in as needed. The lecture notes might also be made available as supplementary notes to the student, even if they are not covered in a lecture. They can be a useful resource for distance - learning courses. Applications are embedded within the Instructor Notes. Instructors often need some in - class exercises to illustrate how to handle certain quantitative techniques. PowerPoint present ations (obtained at the w eb site ) give the overall approach for both concepts and techniques. However, there is nothing like a hands - on opportunity in class for students to try out the technique on their own. “Applications,” handed out at the beginning of the class, allow a student to interact with fellow students or with the instructor on a one - on - one basis to clear up any confusion. Applications are provided for most chapters and supplements, and can be downloaded from the Website. Applic ation Solutions: After the students have had a chance to solve an application, or at least make major progress on it, the instructor can show the solution to the whole class. Our experience is that overhead projectors work best here, so the Application Solutions are formatted so that they can be photocopied onto a transparency sheet. Often there are questions to be answered, with the responses written on the transparency itself. The hard copies of these application solutions appear in this manual, giving you transparency masters for the ones that you wish to use. They a lso can be downloaded from the w eb site. 2. Student Notes. These are chapter outlines that the Instructor can give to students as a Handout , which the students could use to follow along with the lecture and power points and take notes. These could then be used while studying for exams. Lee J. Krajewski, Manoj K. Malhotra , Larry P. Ritzman

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    Chapter 1 Using Operations To Create Value Course Introduction 1. Today’s objectives: a. What are the course requirements? b. What is OM? OM deals with processes that produce services and goods that people use every day. TEACHING TIP Ask the students to share their ideas on a business they would like to start. Discuss the major OM, Accounting, Finance, Human Resources, Management Information Systems, and Marketing decisions. c. Why study OM? 2. Course objectives: a. Primary goal of this textbook is to gain an understanding of how to make operations a competitive weapon b. Strategy and a nalysis 3. Syllabus a. Go over course outline b. Performance measures c. Office hours and other administration d. Questions e. Nature of assignments TEACHING TIP Introduce with Disney . The operational planning at Disney provides one example of designing processes for competitive operations. 1. Operations management deals with the systematic design, direction, and control of processes. a. “A process is an activity or group of activities that takes one or more inputs, transforms them, and provides one or more outputs for its customers.” b. An “ Operation is a group of resources performing all or part of one or more processes .” c. “ Supply chain management is the synchronization of a firm’s processes with those of its suppliers and customers to match flow of materials, services, and information with customer demand.”

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    1. Role of Operations in an Organization 1. Operations serve as an excellent career path to upper management positions in many organizations because operations managers are responsible for key decisions that affect the success of the organization. 2. Operations is one of several functions within an organization a. Cross - functional coordination is essential to effective management b. Operations plays an important role in meeting global competition 3. Historical Evolution and Perspectives a. James Watt invented the steam engine in 1785. b. With the invention of the cotton gin in 1794, Eli Whitney introduced the concept of inter - changeable parts. c. The foundations of modern manufacturing and technological breakthroughs were also inspired by the creation of a mechanical computer by Charles Babbage in the e arly part of the nineteenth cen tury. d. S cientific management of operations and supply chain management was further improved upon by Frederick Taylor in 1911 e. First is the invention of the assembly line for the Model T car by Henry Ford in 1909 f. Alfred Sloan in the 1930s introduced the idea of strategic planning for achieving pr oduct proliferation and variety g. Toyota Production System in 1978, Taiichi Ohno laid the groundwork for removing wasteful activities from an organization. h. The 1980s were characterized by wide availability of computer aided design (CAD), computer aided manufacturing (CAM), and automation . 2. Process View Departments within an organization typically have their own set of objectives and a set of resources with capabilities to meet those objectives. The concept of a process is much broader: a process can have it s own set of objectives where the work flow may cross different department boundaries , and require resources from several departments . 1. Any process has inputs and outputs a. Inputs can include a combination of human resources (workers and managers), capital (equipment and facilities), purchased materials and services, land, and energy. b. Processes provide outputs to customers. Outputs could be services ( that can take the form of information) or a tangible product. c. Customer - supplier relationships  Every process and every person within an organization has customers  External customers  Internal customers  Every process and every person in an organization also relies on suppliers

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     External suppliers  Internal suppliers d. Inputs and outputs vary, depending on the service or product (examples)  Jewelry store  Inputs: merchandise, the store building, registers, the jeweler, and customers  Outputs: to the external customers are services and sold merchandise  Factory manufacturing blue jeans  Inputs: denim, machines, the plant, workers, managers, and services by outside consultants  Outputs: clothing and supporting services 2. Nested processes a. Process within a process b. Interconnectivity within a business c. Nature of each process’s inputs and outputs d. Greater detail in Chapter 4 “Process Analysis” 3. Service and Manufacturing Processes a. Ratio of services to manufacturing jobs b. Differences  Nature of output  Degree of customer contact c. S imilarities  Customers expect good service and good products 3. A Supply Chain View The strategic view is that processes must add value for customers throughout the supply chain ; r einforcing the link between processes and performance . This includes a firm’s internal processes with those of external customers and suppliers. 1. Core process es a. Supplier relationship process b. New service/product development process c. Order fulfillment process d. Customer relationship process 2. Support process es a. provide vital resources and inputs to the core processes b. capabilities c. other inputs that allow core processes to function

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    3. Supply Chain Processes a. A dding value with process innovation in supply chains  Outsourcing  Warehousing  Sourcing  Customer Service  Logistics  Cross - docking 4. Operations Strategy 1. Operations strategy a. S pecifies the means by which operations implements corporate strategy and helps to build a customer - driven firm. b. It links long - term and short - term operations decisions to corporate strategy and develops the capabilities the firm needs to be competitive. 2. Corporate strategy a. Environmental scanning b. Developing core competencies  Workforce  Facilities  Market and financial know - how  Systems and technology c. Developing core processes d. Developing g lobal strategies  S trategic alliance  L ocating abroad. 3. Market analysis a. Market segmentation b. Needs assessment  Service or Product Needs. Attributes of the service or product, such as price, quality, and degree of customization.  Delivery System Needs. Attributes of the processes and the supporting systems, and resources needed to deliver the service or product, such as availability, convenience, courtesy, safety, accuracy, reliability, delivery speed, and delivery dependability.  V olume Needs. Attributes of the demand for the service or product, such as high or low volume, degree of variability in volume, and degree of predictability in volume.

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     Other Needs. Other attributes, such as reputation and number of years in business, after - sale technical support, ability to invest in international financial markets, and competent legal services. 5. Competitive Priorities and Capabilities 1. Competitive priorities are the critical operational dimensions a process or supply chain must possess to satisfy internal or external customer, both now and in the future. 2. Competitive capabilities are the cost, quality, time, and flexibility dimensions that a process or supply chain actually processes and is able to deliver. An abbreviated list with examples is provided here. Dimension Definition Example Low - cost operations Delivering a service or product at the lowest cost possible . Costco achieves low costs by designing all processes for efficiency. Top quality Delivering an outstanding service or product . Rolex is known globally for top - quality precision timepieces Consistent quality Producing services or products that meet design specifications on a consis tent basis. McDonald’s standardizes work methods, staff training processes, and procurement to achieve consistency. Delivery speed Quickly filling customer orders Dell engineered processes to deliver reliable and inexpensive computers with short lead times. On - time delivery Meeting delivery - time promises United Parcel Service (UPS) uses expertise in logistics and warehousing processes to deliver on - time. Development speed Quickly introducing new services or products. Zara is known by its ability to bring fashions from the runway to market quickly Customization Satisfying unique needs of customers Ritz Carlton customizes services to individual customers. Variety A wide assortment of services or products. Amazon.com uses information technology along with order fulfillment processes to deliver a vast variety of items to customers. Volume flexibility Accelerating or decelerating the rate of production The United States Post Office (USPS) can have severe demand peak fluctuations. 3. Order winners and qualifiers a. Order winner is a criterion that customers use to differentiate the services or products of one firm from those of another, such as cost, quality, time, and flexibility b. Order qualifier is the minimal requirement for doing business in a particular market segment.

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    4. Using competitive priorities: an airline example (two market segments: first - class passengers and coach passengers) a. Customer relationships  Top quality : High levels of customer contact and lounge service for the first - class passengers  Consistent quality : The information and service must be error free  Delivery speed : Customers want immediate information regarding flight schedules and other ticketing information  Variety : The process must be capable of handling the service needs of all market segments and promotional programs b. New service development  Developing speed : It is important to get to the market fast to preempt the competition  Customization : The process must be able to create unique services  Top quality : New services must be carefully designed because the future of the airline industry depends on them c. Order fulfillment  Low - cost operations : Airlines compete on price and must keep operating costs in check  Top quality : High quality meal and beverage service delivered by experienced cabin attendants ensures that the service provided to first - class passengers is kept top notch.  Consistent quality : Once the quality level is set, it is important to achieve it every time  On - time delivery : The airline strives to arrive at destinations on schedule, otherwise passengers might miss connections to other flights  Variety : Maintenance operations are required for a variety of aircraft models d. Supplier relationship  Low - cost operations : Costs of acquiring inputs must be kept to a minimum to allow for competitive pricing  Consistent quality : Quality of the inputs must adhere to the required specifications. In addition, information provided to suppliers must be accurate  On - time delivery : Inputs must be delivered to tight schedules  Variety : Many different inputs must be acquired, including maintenance items, meals and beverages.  Volume flexibility : The process must be able to handle variations in supply quantities efficiently 5. Identifying Gaps Between Competitive Priorities and Capabilities

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    a. Operations strategy translates service or product plans and competitive priorities for each market segment into decisions affecting the supply chains that support those market segments. b. Once managers determine the competitive priorities for a process, it is necessary to assess the competitive capabilities of the process. 6. Addressing the Trends and Challenges in Operations Management 1. Productivity improvement a. The value of outputs produced is divided by the value of input resources. Productivity = Output Input b. In the United States, w hile there are signs of improvement, service sector productivity gains have been much lower than those in the manufacturing sector. c. Use Example 1.1: Productivity Calculations to give students the chance to make their own productivity calculations. d. Productivity measures – two approaches  Single factor  In example 1.1, the single (input) factor is employee hours  Multifactor  In example 1.1, the multiple (input) factors are labor cost, materials cost, and overhead costs. e. Managers must examine productivity from the level of the value chain, i.e . , the collective performance of individual processes. f. Additional examples are provided as Solved Problems g. Application 1.1 This Yr. Last Yr. Year Before Last Factory unit sales ($) 2,762,103 2,475,738 2,175,447 Employment (hrs) 112,000 113,000 115,000 Sales of manufactured products ($) $49,363 $40,831 — Total manufacturing cost of sales ($) $39,000 $33,000 —  Calculate the year - to - year labor productivity. This Yr. Last Yr. Year Before Last employment sales unit factory hr / 66 . 24 $ 000 , 112 103 , 762 , 2  hr / 91 . 21 $ 000 , 113 738 , 475 , 2  hr / 91 . 18 $ 000 , 115 447 , 175 , 2 

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     Calculate the multifactor productivity. This Yr. Last Yr. t mfg total products mfg of sales cos 27 . 1 000 , 39 $ 363 , 49 $  24 . 1 000 , 33 $ 831 , 40 $  2. Global competition a. Firms can increase their market penetration by locating their production facilities in foreign countries because it gives them a local presence that reduces customer aversion to buying imports b. Five developments have stimulated the need for sound global strategies  Improved transportation and communication technology  Loosened regulations on financial institutions  Increased demand for imported services and goods  Reduced import quotas and other international trade barriers  European Union (EU)  North American Free Trade Agreement ( NAFTA )  Comparative cost advantages c. Comparative cost advantage  What role does China play in globalization today?  What role does India play? d. Disadvantages of globalization  Relinquish proprietary technology  Political risks  Employee skills may be lower in foreign countries Teaching Tip Managerial Practice 1.1: “ Japanese Earthquake and its Supply Chain Impact .” Japanese earthquake disaster exposes supply chain weakness: reliance on small concentrated network of suppliers . Economic losses have been felt worldwide. 3. Ethical, and workforce diversity and environmental issues a. Decisions about the design and operations of production systems consider the environment, ethics, and workplace diversity issues TEACHING TIP Discuss examples such as: toxic waste, poisoned drinking water, poor air quality, and climate change . 4. Designing and Operating Processes and Supply Chains

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    a. The management of processes and supply chains goes beyond designing them; it requires the ability to ensure they achieve their goals. b. A ll effective operations decisions follow from a sound operations strategy. c. The text has three major parts:  Part 1: “ Managing Processes”  F ocus on analyzing processes and how they can be improved to meet the goals of the operations strategy.  Part 2: “Managing Customer Demand”  F ocus of this part of the book is on effectively forecasting and managing customer demand.  Part 3: “ Managing Supply Chains”  F ocus of Part 3 is on supply chains involving processes both internal and external to the firm and the tools that enhance their execution. 5. Adding Value with Process Innovation a. Each part of an organization, not just the operations function, must design and operate processes that are part of a supply chain and deal with quality, technology, and staffing issues. b. E ach function of an organization has its own identity and yet is connected with operations through shared processes.

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    Chapter 2 Process Strategy and Analysis TEACHING TIP This chapter focuses on process strategy and analysis , which specifies the pattern of decisions made in managing processes so that the processes will achieve their competitive priorities assigned to it, such as quality, flexibility, time, and cost. Note that supply chains have processes also, they just have external suppliers and customers. The chapter then provides some tools and perspectives of process analysis TEACHING TIP Introduce with a business example, such as McDonald ’ s Corporation . The opening illustrates that c areful design and execution of processes that appropriately reflect product designs and market trends ultimately drive business outcomes and financial success. 1. Emphasize that processes are everywhere, in all functional areas of the enterprise. a. As explained in Chapter 1: p rocesses are found in accounting, finance, human resources, management information systems, marketing, supply chain, and operations. b. They are the basic unit of work. 2. Managers must see to it that processes in all departments are adding as much customer value as possible. 3. T wo basic change strategies for analyzing and modifying processes: process reengineering and process improvement 4. Three particularly important principles concerning process strategy a. Successful process decisions require choices that fit the situation and make sense together ( strategic fit ). b. Individual processes are the building blocks that eventually create the firm’s whole supply chain. c. Management must pay particular attention to the interfaces between processes whether they are performed internally or externally by outside suppliers or customers. These interfaces underscor e the need for cross - functional coordination. 5. Four common process decisions a. Process structure b. Customer involvement c. Resource flexibility d. Capita l intensity 1 . Process Structure in Services TEACHING TIP

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    One of the first decisions a manager makes in designing a well - functioning process is to choose a process type that best achieves the relative importance of quality, time, flexibility, and cost for that process. 1. Nature of Service Processes: Customer Contact a. A good process strategy for a service process:  Depends on the type and amount of customer contact.  Customer contact: the extent to which the customer is present, is actively involved, and receives personal attention during the service process. b. Dimensions of customer contact  Physical presence (face - to - face interaction is sometimes called a moment of truth , or service encounter )  What is processed  People - processing services  Possession - processing services  Information - based services  Contact intensity  Active contact: the customer is very much a part of the creation of the service, and affects the service process itself. Dental, psychiatric services for example.  Passive contact: the customer is not involved in tailoring the process to meet special needs, or in how the process is performed. Public transportation, theaters, for example.  Personal attention  When contact is more personal, the customer “experiences” the service rather than just receiving it.  Me thod of delivery used  Face - to - face or telephone versus regular mail or standardized e - mail message 2. Customer - contact matrix ( fitting the service processes with customer contact) a. Customer contact and customization  A key competitive priority is how much customization is needed  Competitive priorities require more customization , the more the customer is present and active ly involved. b. Process divergence and flow  Process divergence: extent to which the process is highly customized with considerable latitude as to how it is performed  High divergence involves much judgment and discretion. Consulting and law, for example  Low divergence is more repetitive and standardized

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     Process flow, closely related to divergence, may range from highly diverse to linear.  Flexible flow means movements in diverse ways.  Line flow means movement in fixed sequence. 3. Service process structuring (three process structures forming a continuum) a. Front office: a process with higher customer contact where the service provider interacts directly with the customer b. Hybrid office: a process with moderate levels of customer contact and standard services with some options available c. Back office: a process with low customer contact where the service provider interacts little with the customer TEACHING TIP T he Ritz - Carlton Hotel Company targets the top 1 to 3 percent of luxury traveler, and so gives a huge emphasis on customization and top quality. The associates at the front desk characterize a front office, because the customers are present, take an active part in creating the service, receive personal attention, and have face - to - face contact. 2 . Process Structure in Manufacturing TEACHING TIP Emphasize that many processes in a manufacturing setting are actually services to internal (or external) customers, so the previous section applies also to manufacturing. Manufacturing processes convert materials into goods that have a physical form. 1. Product - process matrix  Three elements  Volume  Product customization  Process characteristics  A good strategy for a manufacturing structure depends first on volume.  Customer contact is not normally a consideration for manufacturing processes, although it is a factor for the service processes in manufacturing organizations.  Vertical dimension deals with the same two characteristics in the customer - contact matrix: divergence and flow 2. Manufacturing process structuring  Process choice: A way of structuring the process by organizing resources around the process or organizing them around the products  Four process choices, forming a continuum  Job process, high variety of products  Batch process, higher volumes, batching of customer orders. Further differentiated as small batch and large batch processes.

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     Line process, high - volumes, standardized products, dedicated resources, repetitive manufacturing  Continuous flow process, the extreme end of high - volumes, rigid line flows. Primary material moves without stopping. 3. Production and inventory strateg ies  Design - to - Order Strategy  Designing new products that do not currently exist  Manufacturing to meet unique customer specifications  Make - to - order strategy  Make products to customer specifications in low volumes with job or small batch processes,  Matches up with flexibility (customization) and top quality  Assemble - to - order strategy  Producing a wide variety of products from relatively few sub assemblies and components after the customers orders are received  Allows delivery speed and high process divergence  Principle of postponement  Make - to - stock strategy  Feasible for standardized products with high volumes and reasonably accurate forecasts with line or continuous flow processes  Holding items in stock for immediate delivery  Combined with line process, it is sometimes called mass production  Choice for delivery speed and low cost 4. Layout A layout is the physical arrangement of operations (or departments) created from the various processes and puts them in tangible form An operation is a group of human and capital resources performing all or part of one or more processes. See Supplement K 3 . Process Strategy Decisions 1. Customer Involvement TEACHING TIP While eBay devised one way to accommodate the variability created by customer involvement, Starbucks faces a different kind of customer variability. Starbucks attempts to teach customers its ordering protocol. First, it provides a “guide - to - ordering pamphlet” for customers. Second, it trains clerks to repeat the order in the correct sequence for the beverage makers, which may not

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    be how the customer presented it. This process not only makes it easier for the beverage makers, but also indirectly “trains” the customer in how to place their orders. a. Possible advantages  Improved competitive capabilities  Can increase value to customer  Can improve quality for some services if the customer seeks to be more active and to receive more attention  Can mean better quality and speed up delivery, or at least reduce the perceived waiting time  Might help when customization and high variety are highly valued  Costs can be reduced  Customers can perform final assembly: bicycles, toys for example  Can also help coordinate across the supply chain. b. Emerging technologies: in a market where customers are technology - enabled, companies can now engage in an active dialogue with customers and make them partners in creating value. c. Possible disadvantages  Can be disruptive, making the process less efficient  Can make the process too divergent  Quality measurement becomes more difficult  Requires more interpersonal skills  Layouts may have to be revised  Can require many smaller decentralized facilities closer to the customer or a mobile service capability 2. Resource Flexibility a. Workforce  Implications of a flexible workforce  Requires more education and training  Alleviates capacity bottlenecks, volume flexibility  Often increased job satisfaction  Volume flexibility and needed skills determine the type of workforce.  Steady volume, high skills — permanent workforce  Variable volume, low skills — part - time or temporary employees to supplement permanent workforce  Variable volume, high skills — trained flexible force that can be moved to produce whatever the market demands

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    b. Equipment  Managers must account for process divergence and diverse process flows when making resource flexibility decisions. Break - even analysis can be useful.  Application 2.1 Break - Even Analysis in Process Choice . BBC is deciding whether to weld bicycle frames manually or to purchase a welding robot. If welded manually, investment costs for equipment are only $10,000. The per - unit cost of manually welding a bicycle frame is $50.00 per frame. On the other hand, a robot capable of performing the same work costs $400,000. Robot operating costs including support labor are $20.00 per frame. At what volume would BBC be indifferent to these alternative methods? If welded manually (Make) If welded by robot (Buy) Fixed costs $10,000 $400,000 Variable costs $50 $20 m b b m c c F F Q    =     frames 000 , 13 50 20 000 , 300 000 , 10     Tutor 2 .2 in my om lab demonstrates how to do a break - even analysis for equipment selection. 3. Capital Intensity a. Capital intensity is the mix of equipment and human skills in the process; the greater the relative cost of equipment, the greater is the capital intensity. b. Automating manufacturing processes  Advantage  Classic way of improving productivity when volume is high  Disadvantage s  Automated (capital intensive) operations must have high utilization.  Automation may not fit with competitive priorities being emphasized.  More capital intensity is not always best. TEACHING TIP Give business example, such as Gillette’s package customization.  Fixed automation : a manufacturing process that produces one type of part or product in a fixed sequence of simple operations  High demand volume  Stable product design  Long life cycle

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    TEACHING TIP Mention chemicals and oil.  Flexible (or programmable) automation : a manufacturing process that can be changed easily to handle various products .  Useful in both low - customization and high - customization  Can be quickly set up to make a variety of products in small batches  Perhaps show photos of the JustBorn robots c. Automating service processes  Using capital inputs as a labor - saving device is also possible for service processes. Examples:  Long - distance learning technology  ATMs  Financial services  Need volume to justify expensive automation, just as in manufacturing  May be front or back office d. Economies of Scope Requires a family of products having enough collective volume to utilize equipment fully

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    4. Strat e gic Fit The manager process strategist should understand how the four major process decisions tie together. 1. Decision patterns for service processes a. Process structure b. Customer involvement c. Resource flexibility d. Capital intensity 2. Decision patterns for manufacturing processes a. Process structure b. Customer involvement c. Resource flexibility d. Capital intensity 3. Gaining focus a. Focus by process segments  Plants within plants (PWPs) b. Focused service operations c. Focused factories 5. Strategies for Change 1. Process reengineering TEACHING TIP Mention Bell Atlantic reengineered its telephone business. After 5 years, it cut the time to connect new customers from 16 - days to just hours. a. Critical processes  Emphasis is placed on core business processes.  Processes are broadly defined in terms of costs and customer value. b. Strong leadership  Senior executives must provide a strong leadership for reengineering success c. Cross - functional teams  Reengineering works best at high - involvement workplaces. d. Information technology  Primary enabler of process engineering. e. Clean - slate philosophy

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     Start with the way a customer wants to deal with the company. f. Process analysis.  Understanding current processes can reveal areas where new thinking will provide the biggest payoff 2. Process Improvement a. The systematic study of the activities and flows of each process to improve it. b. The purpose is to understand the process. 3. Process Analysis a. T he documentation and detailed understanding of how work is performed and how it can be redesigned b. Six Sigma Process Improvement Model : employees must be trained in the “whys” and the “how - tos” of process performance and what it means to customers, both internal and external  Define : t he scope and boundaries of the process to be analyzed are first established .  Measure : o nce the metrics are identified, it is time to collect information on how the process is currently performing on each one.  Analyze : u se the data on measures to perform process analysis to determine where improvements are necessary .  Improve : design team generates a long list of ideas for improvements. These ideas are then sifted and analyzed.  Control : monitor the process to make sure that high performance levels are maintained. 6. Documenting and Evaluating the Process TEACHING TIP Introduce this section with business example s . It could be how processes were improved at McDonald’s Corporation , which increased customer value with better processes, informed by innovative data collection . 1. Techniques give management insight on current processes and possible changes. a. flowcharts b. work measurement techniques c. process charts 2. Flowcharts a. Diagrams that trace the flow of information, customers, equipment, or materials through the various steps of a process. b. Flowcharts show how organizations produce their outputs through a myriad of cross functional work processes, allowing the design team to see all the critical interfaces between functions and departments.

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    c. Swim Lane Flowcharts  A diagram that groups functional areas responsible for different sub - processes into lanes.  It is most appropriate when business processes span several departmental boundaries . d. Service blueprints  A special flowchart of a service process that shows which of its steps has high customer contact.  Special feature: line of visibility that identifies which steps are visible to the customer. TEACHING TIP A more comprehensive treatment of work measurement techniques is provided in my om lab Supplement H, “Measuring Output Rates” Supplement I, “Learning Curve Analysis” 3. Work Measurement techniques a. Time study method  Selecting the work elements within the process to be studied  Timing the elements  Determining the sampling size  Setting the final standard b. Elemental standard data approach  Database of standards compiled internally for basic elements  Works well when work elements within a certain jobs are similar to those in other jobs  Sometimes the time required for a work element depends on variable characteristics of the jobs c. Predetermined data approach  Published database that divides each work element even more, into micromotions d. Work sampling method  Estimates proportion of time spent on different activities  Supplement H, “Measuring Output Rates” in my om lab e. Learning curve analysis  Takes into account learning that takes place on ongoing basis  Learning curve and concept of doubling  Supplement I, “Learning Curve Analysis” in my om lab 4. Process Charts a. Concentrates in more detail on a smaller number of steps than does a flowchart.

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    b. It is an organized way of documenting all of the activities performed by a person or a group of people at a workstation, with a customer, or working with certain materials. c. Five possible categories  Operation  Transportation  Inspection  Delay  Storage d. E stimate the annual cost of the entire process.  It becomes a benchmark against which other methods for performing the process can be evaluated.  Annual labor cost can be estimated by finding the product of  (1) time in hours to perform the process each time  (2) variable costs per hour  (3) number of times the process is performed each year TEACHING TIP Mention Video Case: “Process Analysis at Starwood.” If possible, show the video that accompanies it, using the questions at the end of the written case and the “pause point” in the video itself to encourage class discussion. 5. Data analysis tools a. Checklists: a form used to record the frequency of occurrence of certain process failures. b. Histograms and bar charts  Histogram: summarizes data measured on a continuous scale, showing the frequency distribution of some process failures.  Bar chart: a series of bars representing the frequency of occurrence of data characteristics measured on a yes - and - no basis  Use Figure 2.11 c. Pareto Charts: a bar chart on which the factors are plotted in decreasing order of frequency along the horizontal axis.  Use Example 2 .2 d. Scatter diagrams: a plot of two variables showing whether they are related. e. Cause - and - effect diagram: relates a key performance problem to its potential causes (sometimes called a fishbone diagram ).  Use Example 2 .3 f. Graphs: representations of data in a variety of pictorial forms, such as line and pie charts.  Line charts (see the “Quality and Performance” Chapter )

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     Forecasting (see Chapter 8 , “Forecasting”) 6. Data snooping a. The power of the data analysis tools is greatest when they are used together. b. Data snooping is the use of the tools to sift data, clarify issues and deduce causes. c. Use Example 2 .4 7. Simulation a. The act of reproducing the behavior of a process using a model that describes each step of the process. b. Shows how the process performs dynamically over time. c. See Supplement E , “Simulation” 7 . Redesigning and Managing Process Improvement s 1. Generating ideas: questioning and brainstorming a. A questioning attitude: ask six questions about each step in the process  What is being done?  When is it being done?  Who is doing it?  Where is it being done?  How is it being done?  How well does it do on the various metrics of importance? TEACHING TIP For each question, ask why ? As time permits, have the class “brainstorm” Solved Problem 2 on changing auto engine oil . Have students shout out their ideas in rapid fire manner without time lost just yet for evaluation. 2. Creativity can be stimulated by having a brainstorming session: a time when a group of people, knowledgeable on the process propose ideas for change by saying whatever comes to mind 3. Benchmarking : focuses on setting quantitative goals for improvement a. Competitive benchmarking is based on comparisons with a direct industry competitor. b. Functional benchmarking compares areas such as administration, customer service, and sales operations with those of outstanding firms in any industry. c. Internal benchmarking involves using an organizational unit with superior performance as the benchmark for other units. 4. Implementing: Seven mistakes to avoid in managing processes: a. Not connecting with strategic issues b. Not involving the right people in the right way

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    c. Not giving the design teams and process analysts a clear charter, and then holding them accountable d. Not being satisfied unless fundamental “reengineering” changes are made e. Not considering the impact on people f. Not giving attention to implementation g. Not creating an infrastructure for continuous improvement

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    Chapter 3 Quality and Performance Process performance and quality should be everyone’s concern. TEACHING TIP Introduce with QVC as one example of a company that met the challenge by designing and managing processes that provide customers with total satisfaction . QVC’s relentless focus on quality and exceeding customer expectations by placing them at the center of its business processes has paid off handsomely. TEACHING TIP This chapter first addresses the costs of quality and then focuses on Total Quality Management and Six Sigma, two philosophies and tools that many companies embrace to evaluate and improve quality and performance . If possible, show the video case “ Process Performance and Quality at Starwood Hotel & Resorts ”. 1 . Costs of Quality Any instance w hen a process fails to satisfy a customer is considered a defect. Most experts estimate that the cost of quality range from 20 to 30 percent of gross sales. These costs can be broken down into f our major categories . 1. Prevention costs a. P reventing defects before they happen b. Redesign the processes to remove causes of poor performance c. Redesign the service or product to make it simpler, easier to produce d. Train ing employees in methods of continuous improvement e. Working with suppliers to increase quality of purchased items or contracted services 2. Appraisal costs: a. Costs incurred to identify and assess performance problems b. As prevention measures improve performance, appraisal costs decrease 3. Internal failure costs a. Rework — incurred if some aspect of a service or product must be performed again . b. Scrap — incurred if a defective item is unfit for further processing TEACHING TIP Mention an analysis of the viability of acquiring a company that is missing the company’s history of environmental compliance , or poor paint finish on a car , as e xamples.

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    4. External failure costs a. Costs when a defect is discovered after the customer receive s the service or product . b. Warranty service 5. Ethical Failure Costs a. T he societal and monetary costs associated with deceptively passing defective services or products to internal or external customers such that it jeopardizes the well being of stockholders, customers, employees, partners, and creditors b. Deceptive business practice involves three elements:  the conduct of the provider is intentional and motivated by a desire to exploit the customer  the provider conceals the truth based upon what is actually known to the provider  the transaction is intended to generate a disproportionate economic benefit to the provider at the expense of the customer. c. Firms that engage in deception, however, undermine the ability and competence of their employees and demean their relationship with external customers. d. Ethical behavior falls on the shoulders of all employees of an organization 2 . Total Quality Management and Six Sigma Total quality management (TQM) is a philosophy the stresses three principles for achieving high levels of process quality and performance . (1) customer satisfaction (2) employee involvement (3) continuous improvement in performance. TEACHING TIP TQM also involves a number of important elements covered in t his text: tools and process analysis techniques useful for solving, redesign, and improvement in Chapter 2 “Process Strategy and Analysis ” , Toyota Production System in Chapter 6 “Lean Systems” and P roblem - solving tools in Supplement A “Decision Making” 1. C ustomer satisfaction (internal or external) : when customers’ expectations have been met or exceeded . a. Conformance to specifications  It is the processes that produced the service or product that are really being judged .  Specifications may relate to consistent quality, on - time delivery, or delivery speed . b. Value  How well the service or product serves its intended purpose at a price customers are willing to pay . c. Fitness for use: customer may consider the convenience of a service or the mechanical features of a product . d. Support: the service or product support may be as important to the customer as the service or product itself .

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    e. Psychological impressions: atmosphere, i mage, or aesthetics TEACHING TIP Mention Managerial Practice 3 .1 “Quality at Verizon. ” With its focus on quality in operations, products, services, and technology, it is not surprising that Verizon Wireless has built a great reputation with its customer base and has also been recognized through several best wireless service awards. 2. Employee involvement a. Cultural change  Challenge is to define customer for each employee  External customers buy the service or product.  Internal customers are employees in the firm who rely on output of other employees. An assembly line is a chain of internal customer - supplier relationships, with an external customer purchasing the finished goods.  Top management must motivate cultural change.  Eve ryone is expected to contribute and share the view that quality control is an end to itself  Quality at the source b. Teams  Employee involvement is a key tactic for improving processes and quality  Small groups of people  Common purpose.  Set their own performance goals and approaches  Hold themselves accountable for success  Three employee - empowerment approaches to teamwork  Problem - solving teams ( also called quality circles)  Special - purpose teams  Self - managing teams, the highest level of worker participation 3. Continuous Improvement a. Based on the Japanese concept, kaizen b. The philosophy of continually seeking ways to improve processes . c. Not unique to quality. Applies to process improvement as well.  Getting started  SPC training  Make SPC a normal aspect of daily operations.  Build work teams and employee involvement.  Utilize problem - solving tools within the work teams.

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     Develop operator ownership in the process . d. Problem - solving process: The Deming Wheel  Plan — select a process needing improvement, document process, analyze data, set improvement goals, discuss alternatives, assess benefits and costs, develop a plan and improvement measures.  Do — implement plan, monitor improvements.  Study — analyze data to evaluate effectiveness of the plan.  Act — document and disseminate improved process as a standard procedure . 4. Six Sigma a. Relies heavily on the principles of TQM and is a comprehensive and flexible system for achieving, sustaining, and maximizing business success by minimizing defects and variability in processes. b. It is driven by a close understanding of customer needs; the disciplined use of facts, data, and statistical analysis; and diligent attention to managing, improving, and reinventing business processes. TEACHING TIP Discuss the roles of Motorola and GE. c. Six Sigma : A comprehensive and flexible system for achieving, sustaining, and maximizing business success by minimizing defects and variability in processes. 3 . Acceptance Sampling 1. The application of statistical techniques to determine if a quality of material should be accepted or rejected based on the inspection or test of a sample. 2. Acceptable quality level (AQL) is a statement of the proportion of defective items that will be accepted. 3. In a supply chain, any company can be both a producer of goods purchased by another company and a consumer of goods or raw materials supplied by another company. a. The buyer’s specifications for various dimensions of quality become the targets the supplier sho o ts for in a supply contract. b. The supplier’s internal processes must be up to the task; TQM or Six Sigma can help achieve the desired performance. c. The buyer’s sampling plan will provide a high probability of accepting AQL (or better). 4. Supplement G, “Acceptance Sampling Plans,” in my om lab shows how to design an acceptance sampling plan that meets the level of risk desired. 4 . Statistical Process Control TEACHING TIP

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    Relate to tools discussed in Chapter 2 : checklists, histograms and bar charts, Pareto charts, scatter diagrams, cause - and - effect diagrams, and graphs . Statistical process control ( S PC ) : The application of statistical techniques to determine whether a process is delivering what a customer wants . Control charts are primarily used to detect defects. 1. Examples of process change that can be detected by SPC a. A decrease in the average number of complaints per day at a hotel b. A sudden increase in the proportion of defective gear boxes c. An increase in the time to process a mortgage application d. A decline in the number of scrapped units at a milling machine e. An increase in the number of scrapped units at a milling machine 2. Variation of outputs a. Performance measurements  Variables — service or product characteristics measured on a continuous scale  Advantage: if defective, we know by how much — the direction and magnitude of corrections are indicated.  Disadvantage: measurements typically involve special equipment, employee skills, exacting procedures, and time and effort.  Attributes — a characteristic counted in discrete units, (yes - no, integer number) that could be quickly counted .  Used to determine conformance to complex specifications, or when measuring variables is too costly .  Advantages:  Quickly reveals when quality has changed, provides an integer number of how many are defective .  Requires less effort, and fewer resources than measuring variables .  Disadvantages:  Doesn't show by how much they were defective, the direction and magnitude of corrections are not indicated .  Requires more observations, since each observation provides little information . b. Sampling  Complete inspection  Used when  Costs of failure are high relative to costs of inspection .  Inspection is automated  Sampling plans  Used when

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     Inspection costs are high  Inspection destroys the product  Sampling plans include  Sample size, n random observations  Time between successive samples  Decision rules that determine when action should be taken c. Sampling distributions  The distribution of sample means can be approximated by the normal distribution (reference the central limit theorem described in statistics texts). TEACHING TIP It is important to distinguish the relationship between the distribution of sample means and the process distribution itself  sample range  standard deviation d. Common causes  Random, or unavoidable source s of variation within a process. TEACHING TIP Mention, as an example, the time to process specimens at an intensive - care unit lab in a hospital .  Characteristics of distributions  Location — measured by the m ean of the distribution  Spread — measured by the range or standard deviation  Shape — whether the observations are symmetrical or skewed e. Assignable causes  Any cause of variation that can be identified and eliminated.  Change in the mean, spread, or shape of a process distribution is a symptom that an assignable cause of variation has developed.  After a process is in statistical control, SPC is used to detect significant change , indicating the need for corrective action. 3. Control charts a. A control chart has a nominal value, or center line, which can be the process’s historic average or a target that managers would like the process to achieve . b. A sample characteristic measured above the upper control limit ( UCL ) or below the lower control limit ( LCL ) indicates that an assignable cause probably exists.  Steps for using a control chart:  Take a random sample, measure the quality characteristic, and calculate a variable or attribute performance measure.

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     Plot the statistic; if it falls outside the control limits, look for assignable causes.  Eliminate the cause if it degrades performance. Incorporate the cause if it improves performance. Recalculate the control chart.  Periodically repeat the procedure. c. Indicators of out of control conditions  A trend in the observations (the process is drifting) .  A sudden or step change in the observations .  A run of five or more observations on the same side of the mean (If we flip a coin and get “heads” five times in a row, we become suspicious of the coin or of the coin flipping process.)  Several observations near the control limits (Normally only 1 in 20 observations are more than 2 standard deviations from the mean.)  One or more observations outside of the control limits d. Two types of error are possible with the use of control charts  Type I  Type II TEACHING TIP If possible use Experi ential Learning “Statistical Process Control with a Coin Catapult.” Exercise A: Control Charts for Variables . Exercise B: Control Charts for Attributes 4. Control charts for variables used to monitor the mean and the variability of the process distribution . a. R - C harts (also known as r ange charts )  Monitor process variability  First remove assignable causes of variation.  While process is in statistical control, collect data to estimate the average range of output that occurs.  To establish the upper and lower control limits for the R - chart, we use Table 3 .1, which provides two factors; D 3 and D 4 . These factors establish the UCL R and LCL R at three standard deviations above and below R . R D LCL R D UCL R R 3 4  

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