The Supply Chain

OPERATIONS MANAGEMENT AND ➢ A global network of organizations and activities that

TQM supply a firm with goods and services
➢ Members of the supply chain collaborate to achieve
(based only on presentation slides) high levels of customer satisfaction, efficiency and
~wel~

competitive advantage.
CHAPTER 1:
Operations and Productivity Why Study OM?
➢ OM is one of three major functions of any
organization, we want to study how people
What Is Operations Management? organize themselves for productive enterprise
➢ Production - creation of goods and services ➢ We want (and need) to know how goods and services
➢ Operations management (OM) - set of activities are produced
that create value in the form of goods and services ➢ We want to understand what operations managers
by transforming inputs into outputs do
➢ OM is such a costly part of an organization
Organizing to Produce Goods and Services
➢ Essential functions: What Operations Managers Do
1. Marketing – generates demand ➢ Basic Management Functions
2. Production/operations – creates the product o Planning
3. Finance/accounting – tracks how well the o Organizing
organization is doing, pay bills, collects the o Staffing
money o Leading
o Controlling
Organizational Charts (examples)
Ten Strategic Decisions
A. Commercial Bank 1. Design of Goods and Services
o Defines what is required of operations
o Product design determines quality,
sustainability and human resources
2. Managing Quality
o Determine the customer’s quality
expectations
o Establish policies and procedures to
identify and achieve that quality
3. Process and Capacity Design
o How is a good or service produced?
o Commits management to specific
technology, quality, resources, and
B. Airline investment
4. Location Strategy
o Nearness to customers, suppliers, and
talent.
o Considering costs, infrastructure, logistics,
and government.
5. Layout Strategy
o Integrate capacity needs, personnel levels,
technology, and inventory
o Determine the efficient flow of materials,
people, and information.
6. Human Resources and job design
o Recruit, motivate, and retain personnel
with the required talent and skills.
C. Manufacturing o Integral and expensive part of the total
system design.
7. Supply-chain Management
o Integrate supply chain into the firm’s
strategy.
o Determine what is to be purchased, from
whom, and under what conditions.
8. Inventory Management
o Inventory ordering and holding decisions.
o Optimize considering customer satisfaction,
supplier capability, and production
schedules.
9. Scheduling
o Determine and implement intermediate and
short-term schedules.
 o Utilize personnel and facilities while ➢ Internet (1995)
meeting customer demands.
Eli Whitney
10. Maintenance ➢ Born 1765; died 1825
o Consider facility capacity, production ➢ In 1798, received government contract to make
demands, and personnel. 10,000 muskets
o Maintain a reliable and stable process. ➢ Showed that machine tools could make
standardized parts to exact specifications
Where are the OM Jobs? o Musket parts could be used in any musket
➢ Technology/methods
➢ Facilities/space utilization Frederick W. Taylor
➢ Strategic issues ➢ Born 1856; died 1915
➢ Response time ➢ Known as ‘father of scientific management’
➢ People/team development ➢ In 1881, as chief engineer for Midvale Steel, studied
➢ Customer service how tasks were done
➢ Quality o Began first motion and time studies
➢ Cost reduction ➢ Created efficiency principles
➢ Inventory reduction
➢ Productivity improvement Taylor’s Principles
➢ Management Should Take More Responsibility for:
Opportunities o Matching employees to right job
➢ Plant Manager o Providing the proper training
➢ Operations Analyst o Providing proper work methods and tools
➢ Quality Manager o Establishing legitimate incentives for work
➢ Supply-Chain Manager and Planner to be accomplished
➢ Process Improvement Consultants Frank & Lillian Gilbreth
➢ Frank (1868-1924); Lillian (1878-1972)
Certifications ➢ Husband-and-wife engineering team
➢ APICS, the Association for Operations Management ➢ Further developed work measurement methods
➢ American Society for Quality (ASQ) ➢ Applied efficiency methods to their home and 12
➢ Institute for Supply Management (ISM) children!
➢ Project Management Institute (PMI) ➢ Book & Movie: “Cheaper by the Dozen,” “Bells on
➢ Council of Supply Chain Management Professionals Their Toes”
➢ Charter Institute of Purchasing and Supply (CIPS)
Henry Ford
Significant Events in OM ➢ Born 1863; died 1947
➢ In 1903, created Ford Motor Company
➢ In 1913, first used moving assembly line to make
Model T
o Unfinished product moved by conveyor
past work station
➢ Paid workers very well for 1911 ($5/day!)

W. Edwards Deming
➢ Born 1900; died 1993
➢ Engineer and physicist
➢ Credited with teaching Japan quality control
methods in post-WW2
➢ Used statistics to analyze process
➢ His methods involve workers in decisions

Contributions From
The Heritage of OM ➢ Human factors
➢ Division of labor (Adam Smith 1776; Charles ➢ Industrial engineering
Babbage 1852) ➢ Management science
➢ Standardized parts (Whitney 1800) ➢ Biological science
➢ Scientific Management (Taylor 1881) ➢ Physical sciences
➢ Coordinated assembly line (Ford/ Sorenson 1913) ➢ Information technology
➢ Gantt charts (Gantt 1916)
➢ Motion study (Frank and Lillian Gilbreth 1922) Operations for Goods and Services
➢ Quality control (Shewhart 1924; Deming 1950) ➢ Manufacturers produce tangible product, services
➢ Computer (Atanasoff 1938) often intangible
➢ CPM/PERT (DuPont 1957, Navy 1958) ➢ Operations activities often very similar
➢ Material requirements planning (Orlicky 1960) ➢ Distinction not always clear
➢ Computer aided design (CAD 1970) ➢ Few pure services
➢ Flexible manufacturing system (FMS 1975)
➢ Baldrige Quality Awards (1980) Differences Between Goods and Services
➢ Computer integrated manufacturing (1990)
➢ Globalization (1992) ➢ Characteristics of Services:
 o Intangible o One resource input → single-factor productivity
o Produced and consumed simultaneously
o Unique ➢ Multi-Factor Productivity
o High Customer interaction ➢ Also known as total factor productivity
o Inconsistent Product Definition
o Often Knowledge-based
o Services dispersed
o Quality may be hard to evaluate
o Reselling is unusual
➢ Output and inputs are often expressed in dollars
➢ Characteristics of Goods:
o Multiple resource inputs → multi-factor productivity
o Tangible
o Product can usually be kept in inventory
Measurement Problems
o Similar products produced
1. Quality - may change while the quantity of inputs and
o Limited customer involvement in production
outputs remains constant
o Product standardized
2. External elements - may cause an increase or decrease in
o Standard tangible product tends to make
productivity
automation feasible
3. Precise units of measure - may be lacking
o Product typically produced at a fixed facility
o Many aspects of quality for tangible
Productivity Variables
products are easy to evaluate
1. Labor – contributes about 10% of the annual increase
o Product often has some residual value
2. Capital – contributes about 38% of the annual increase
3. Management - contributes about 52% of the annual
Service Pay
increase
➢ Perception that services are low-paying
➢ 42% of service workers receive above average
Key Variables for Improved Labor Productivity
wages
1. Basic education appropriate for the labor force
➢ 14 of 33 service industries pay below average
2. Diet of the labor force
➢ Retail trade pays only 61% of national average
3. Social overhead that makes labor available
➢ Overall average wage is 96% of the average
o Challenge is in maintaining and enhancing skills in
the midst of rapidly changing technology and
Productivity Challenge
knowledge
➢ Productivity - is the ratio of outputs (goods and
services) divided by the inputs (resources such as
Labor Skills
labor and capital)
Capital

Management
➢ Ensures labor and capital are effectively used to
increase productivity
➢ Measure of process improvement o Use of knowledge
➢ Represents output relative to input o Application of technologies
➢ Only through productivity increases can our standard ➢ Knowledge societies
of living improve ➢ Difficult challenge
➢ The objective is to improve productivity!
Productivity and the Service Sector
The Economic System 1. Typically labor intensive
2. Frequently focused on unique individual attributes or
desires
3. Often an intellectual task performed by professionals
4. Often difficult to mechanize and automate
5. Often difficult to evaluate for quality

New Challenges in OM
➢ Global focus
➢ Supply-chain partnering
➢ Sustainability
➢ Rapid product development
➢ Mass customization
➢ Just-in-time performance
➢ Empowered employees
Productivity Calculations Ethics, Social Responsibility, and Sustainability
➢ Labor Productivity ➢ Challenges facing operations managers:
o Develop and produce safe, high-quality
green products
o Train, retrain, and motivate employees in a
safe workplace
o Honor stakeholder commitments
 CHAPTER 2:
4. Understand markets
The Global Environment and Operations ➢ Interacting with foreign customers,
Strategy suppliers, competition can lead to new
opportunities
Global Strategies by: o Cell phone design moved from
➢ Boeing – sales and supply chain are worldwide Europe to Japan
➢ Benetton – moves inventory to stores around the o Extend the product life cycle
world faster than its competition by building flexibility
into design, production, and distribution 5. Improve products
➢ Sony – purchases components from suppliers in ➢ Remain open to free flow of ideas
Thailand, Malaysia, and around the world ➢ Toyota and BMW manage joint research
➢ Volvo – considered a Swedish company, recently and development
purchased by a Chinese company, Geely. The o Reduced risk, state-of-the-art
current Volvo S40 is assembled in Belgium, South design, lower costs
Africa, Malaysia and China on a platform shared with
the Mazda 3 built in Japan and the Ford Focus built ➢ Samsung and Bosch jointly produce
in Europe. batteries
➢ Haier – A Chinese company, produces compact
refrigerators (it has one-third of the US market) and 6. Attract and retain global talent
wine cabinets (it has half of the US market) in South ➢ Offer better employment opportunities
Carolina o Better growth opportunities and
insulation against unemployment
Growth of World Trade o Relocate unneeded personnel to
more prosperous locations

Cultural and Ethical Issues

➢ Cultures can be quite different

➢ Attitudes can be quite different towards
o Punctuality
o Lunch breaks
o Environment
o Intellectual property
o Thievery
o Bribery
o Child labor

Companies Want To Consider

➢ National literacy rate
Reasons to Globalize ➢ Rate of innovation
➢ Rate of technology change
1. Improve the supply chain ➢ Number of skilled workers
➢ Locating facilities closer to unique resources ➢ Political stability
o Auto design to California ➢ Product liability laws
o Athletic shoe production to China ➢ Export restrictions
o Perfume manufacturing in France ➢ Variations in language
➢ Work ethic
2. Reduce costs (labor, taxes, tariffs, etc.) ➢ Tax rates
➢ Foreign locations with lower wage rates can ➢ Inflation
lower direct and indirect costs ➢ Availability of raw materials
➢ Trade agreements can lower tariffs ➢ Interest rates
o Maquiladoras ➢ Population
o World Trade Organization (WTO) ➢ Number of miles of highway
o North American Free Trade Agreement ➢ Phone system
(NAFTA)
o APEC, SEATO, MERCOSUR, CAFTA Developing Missions and Strategies
o European Union (EU) ➢ Mission statements - tell an organization where it is
going
3. Improve operations ➢ The Strategy - tells the organization how to get
➢ Understand differences between how there
business is handled in other countries
o Japanese – inventory Mission
management ➢ Mission - where is the organization going?
o Scandinavians – ergonomics o Organization’s purpose for being
➢ International operations can improve o Answers ‘What do we contribute to
response time and customer service society?’
o Provides boundaries and focus
 ➢ Factors Affecting Mission Issues In Operations Strategy
Strategic Process ➢ Resources view
➢ Value-chain analysis
➢ Porter’s Five Forces model
➢ Operating in a system with many external factors
➢ Constant change

Product Life Cycle

Strategy
➢ Action plan to achieve mission
➢ Functional areas have strategies SWOT Analysis
➢ Strategies exploit opportunities and strengths,
neutralize threats, and avoid weaknesses

Strategies for Competitive Advantage

1. Differentiation – better, or at least different
2. Cost leadership – cheaper
3. Response – more responsive

1. Competing on Differentiation
➢ Uniqueness can go beyond both the
physical characteristics and service
attributes to encompass everything that
impacts customer’s perception of value
2. Computing on Cost Strategy Development Process
➢ Provide the maximum value as perceived
by customer. Does not imply low quality.
3. Competing on Response
➢ Flexibility - matching market changes in
design innovation and volumes
➢ Reliability - meeting schedules
➢ Timeliness - quickness in design,
production, and delivery

OM’s Contribution to Strategy

Strategy Development and Implementation

➢ Identify key success factors
➢ Integrate OM with other activities
➢ Build and staff the organization
The operations manager’s job is to implement an OM
strategy, provide competitive advantage, and increase Product Decision
productivity. ➢ The objective of the product decision - to develop
and implement a product strategy that meets the
Strategic Planning, Core Competencies, and Outsourcing demands of the marketplace with a competitive
advantage
➢ Outsourcing – transferring activities that
traditionally been internal to external suppliers Product Strategy Options
➢ Accelerating due to: ➢ Differentiation
o Increased technological expertise ➢ Low Cost
o More reliable and cheaper transportation ➢ Rapid Response
o Rapid development and deployment of
advancements in telecommunications and Product Life Cycles
computers. ➢ May be any length from a few days to decades
➢ Subcontracting – contract manufacturing ➢ The operations function must be able to introduce
➢ Outsourced activities new products successfully
o Legal services
o Travel services Product Life Cycle
o Payroll
o Production
o Surgery
o
Theory of Comparative Advantage
➢ If an external provider can perform activities more
productively than the purchasing firm, then the
external provider should do the work
➢ Purchasing firm focuses on core competencies
➢ Drives outsourcing

Risks of Outsourcing

Life Cycle and Strategy

1. Introductory Phase
➢ Fine tuning may warrant unusual expenses for:
o Research
o Product development
o Process modification and enhancement
o Supplier development
2. Growth Phase
➢ Product design begins to stabilize
➢ Effective forecasting of capacity becomes necessary
Rating Outsourcing Providers ➢ Adding or enhancing capacity may be necessary
➢ Insufficient analysis most common reason for 3. Maturity Phase
failure ➢ Competitors now established
➢ Factor rating method ➢ High volume, innovative production may be needed
➢ Points and weights assigned for each factor to each ➢ Improved cost control, reduction in options, paring
down of product line
4. Decline Phase
CHAPTER 5: ➢ Unless product makes a special contribution to the
organization, must plan to terminate offering
Product Design
Product Life Cycle Costs
Goods and Services Selection
➢ Organizations exist to provide goods or services to
society
➢ Great products are the key to success
➢ Top organizations typically focus on core products
➢ Customers buy satisfaction, not just a physical good
or particular service
➢ Fundamental to an organization's strategy with
implications throughout the operations function
➢ Goods or services are the basis for an
organization's existence
➢ Limited and predicable life cycles requires
constantly looking for, designing, and developing
new products
➢ New products generate substantial revenue
 ➢ A Champion
Product-by-Value Analysis o Product manager drives the product
➢ Lists products in descending order of their through the product development system
individual dollar contribution to the firm and related organizations
➢ Lists the total annual dollar contribution of the ➢ Team approach
product o Cross functional – representatives from all
➢ Helps management evaluate alternative strategies disciplines or functions
o Product development teams, design for
Generating New Products manufacturability teams, value engineering
1. Understanding the customer teams
2. Economic change ➢ Japanese “whole organization” approach
3. Sociological and demographic change o No organizational divisions
4. Technological change
5. Political and legal change Manufacturability and Value Engineering
6. Market practice, professional standards, suppliers, 1. Benefits:
distributors o Reduced complexity of the product
o Reduction of environmental impact
Product Development Stage o Additional standardization of components
o Improvement of functional aspects of the
product
o Improved job design and job safety
o Improved maintainability (serviceability) of
the product
o Robust design

Cost Reduction of a Bracket via Value Engineering

Quality Function Deployment (QFD)

1. Identify customer wants

2. Identify how the good/service will satisfy customer wants Issues for Product Design
3. Relate customer wants to product hows
4. Identify relationships between the firm’s hows 1. Robust design
5. Develop customer importance ratings o Product is designed so that small
6. Evaluate competing products variations in production or assembly do
7. Compare performance to desirable technical attributes not adversely affect the product
o Typically results in lower cost and higher
QFD House of Quality quality

2. Modular design
o Products designed in easily segmented
components
o Adds flexibility to both production and
marketing
o Improved ability to satisfy customer
requirements
3. Computer-aided design (CAD)
o Using computers to design products and
prepare engineering documentation
o Shorter development cycles, improved
accuracy, lower cost
o Information and designs can be deployed
worldwide
Organizing for Product Development
o Design for Manufacturing and Assembly
➢ Traditionally – distinct departments
(DFMA)
o Duties and responsibilities are defined
o Solve manufacturing problems during the
o Difficult to foster forward thinking
design stage
o 3-D Object Modeling
o Small prototype development
 o CAD through the internet o Useful when technology is developing
o International data exchange through STEP o Reduces risks

4. Computer-aided manufacturing (CAM)

o Utilizing specialized computers and program Defining a Product
to control manufacturing equipment ➢ First definition – is in terms of functions
o Often driven by the CAD system (CAD/CAM) ➢ Rigorous specifications are developed during the
o Benefits of CAD/CAM: design phase
1. Product quality ➢ Manufactured products will have an engineering
2. Shorter design time drawing
3. Production cost reductions ➢ Bill of material (BOM) – lists the components of a
4. Database availability product
5. New range of capabilities
Product Documents
5. Virtual reality technology 1. Engineering drawing
o Computer technology used to develop an ➢ Shows dimensions, tolerances, and
interactive, 3-D model of a product from the materials
basic CAD data ➢ Shows codes for Group Technology
o Allows people to ‘see’ the finished design 2. Bill of Material
before a physical model is built ➢ Lists components, quantities and where
o Very effective in large-scale designs such as used
plant layout

6. Value analysis
o Focuses on design improvement during
production
o Seeks improvements leading either to a better
product or a product which can be produced
more economically with less environmental
impact

7. Sustainability and Life Cycle Assessment (LCA)

o Sustainability - means meeting the needs of
the present without compromising the ability of
future generations to meet their needs
o LCA - a formal evaluation of the environmental ➢ Shows product structure
impact of a product
Group Technology
Product Development Continuum ➢ Parts grouped into families with similar
➢ Product life cycles are becoming shorter and the characteristics
rate of technological change is increasing ➢ Coding system - describes processing and
➢ Developing new products faster can result in a physical characteristics
competitive advantage ➢ Part families can be produced in dedicated
➢ Time-Based Competition manufacturing cells
➢ Group Technology Benefits:
1. Improved design
2. Reduced raw material and purchases
3. Simplified production planning and control
4. Improved layout, routing, and machine loading
5. Reduced tooling setup time, work-in-process,
and production time

Documents for Production

1. Assembly drawing
➢ Shows exploded view of product
➢ Details relative locations to show how to
assemble the product
2. Assembly chart
➢ Purchasing technology by acquiring a firm ➢ Identifies the point of production where
o Speeds development components flow into subassemblies and
o Issues concern the fit between the ultimately into the final product
acquired organization and product and the 3. Route sheet
host ➢ Lists the operations and times required to
➢ Joint Ventures produce a component
o Both organizations learn 4. Work order
o Risks are shared ➢ Instructions to produce a given quantity of a
➢ Through Alliances particular item, usually to a schedule
o Cooperative agreements between
independent organizations
 5. Engineering change notices (ECNs)
➢ A correction or modification to a product’s Application of Decision Tree to Product Design
definition or documentation ➢ Particularly useful when there are a series of
o Engineering drawings decisions and outcomes which lead to other
o Bill of material decisions and outcomes
➢ Quite common with long product life cycles, long ➢ Procedure:
manufacturing lead times, or rapidly changing 1. Include all possible alternatives and states of
technologies nature - including “doing nothing”
2. Enter payoffs at end of branch
Configuration Management 3. Determine the expected value of each branch
➢ The need to manage ECNs has led to the and “prune” the tree to find the alternative with
development of configuration management the best expected value
systems
➢ A product’s planned and changing components are
accurately identified and control and
accountability for change are identified and
maintained

Product Life-Cycle Management (PLM)

➢ Integrated software that brings together most, if not
all, elements of product design and manufacture
o Product design
o CAD/CAM, DFMA
o Product routing
o Materials
o Assembly
o Environmental
Transition to Production
➢ Know when to move to production
Service Design
o Product development can be viewed as
➢ Service typically includes direct interaction with
evolutionary and never complete
the customer
o Product must move from design to production
➢ Process – chain – network (PCN) Analysis -
in a timely manner
focuses on the ways in which processes can be
➢ Most products have a trial production period to
designed to optimize interaction between firms and
insure producibility
their customers
o Develop tooling, quality control, training
Process-Chain-Network (PCN) Analysis
o Ensures successful production
1. Direct interaction region - includes process steps
➢ Responsibility must also transition as the product
that involve interaction between participants
moves through its life cycle
2. Surrogate (substitute) interaction region -
o Line management takes over from design
includes process steps in which one participant is
➢ Three common approaches to managing
acting on another participant’s resources
transition:
3. Independent processing region - includes steps in
1. Project managers
which the supplier and/or the customer is acting
2. Product development teams
on resources where each has maximum control
3. Integrate product development and
manufacturing organizations
Adding Service Efficiency
➢ Service productivity is notoriously low partially
because of customer involvement in the design or CHAPTER 6:
delivery of the service, or both Quality Management and International
➢ Complicates product design
Standards
➢ Limit the options
Quality and Strategy
o Improves efficiency and ability to meet
➢ Managing quality supports differentiation, low cost,
customer expectations
and response strategies
➢ Delay customization
➢ Quality - helps firms increase sales and reduce costs
➢ Modularization
➢ Building a quality organization is a demanding task
o Eases customization of a service
➢ Automation
Two Ways Quality Improves Profitability
o Reduces cost, increases customer service
➢ Moment of truth
o Critical moments between the customer
and the organization that determine
customer satisfaction
o
Documents for Services
➢ High levels of customer interaction necessitates
different documentation
➢ Often explicit job instructions
➢ Scripts and storyboards are other techniques
The Flow of Activities
ISO 9000 International Quality Standards
➢ International recognition
▪ Encourages quality management procedures,
detailed documentation, work instructions, and
recordkeeping
▪ 2009 revision emphasized sustained success
▪ Over one million certifications in 178 countries
▪ Critical for global business
▪ Management principles
▪ Top management leadership
▪ Customer satisfaction
▪ Continual improvement
▪ Involvement of people
▪ Process analysis
Defining Quality ▪ Use of data-driven decision making
• An operations manager’s objective is to build a total ▪ A systems approach to management
quality management system that identifies and ▪ Mutually beneficial supplier relationships
satisfies customer needs
• The totality of features and characteristics of a Costs of Quality
product or service that bears on its ability to satisfy 1. Prevention costs – reducing the potential for
stated or implied needs defects
2. Appraisal costs – evaluating products, parts, and
Different Views services
1. User-based: better performance, more features 3. Internal failure costs – producing defective parts or
2. Manufacturing-based: conformance to standards, service before delivery
making it right the first time 4. External failure costs – defects discovered after
3. Product-based: specific and measurable attributes delivery
of the product

Implications of Quality
1. Company reputation
➢ Perception of new products
➢ Employment practices
➢ Supplier relations
2. Product liability
➢ Reduce risk
3. Global implications
➢ Improved ability to compete

Malcolm Baldrige National Quality Award Takumi

➢ Established in 1988 by the U.S. government ➢ A Japanese character that
➢ Designed to promote TQM practices symbolizes a broader dimension than
➢ Recent winners include: quality, a deeper process than education,
▪ Lockheed Martin Missiles and Fire Control, and a more perfect method than
MESA Products Inc., North Mississippi Health persistence
Services, City of Irving, Concordia Publishing
House, Henry Ford Health System, MEDRAD, Leaders in Quality
Nestlé Purina PetCare Co., Montgomery County
Public Schools

Baldrige Criteria
➢ Applicants are evaluated on:
Ethics and Quality Management
➢ Operations managers must deliver healthy, safe,
quality products and services
➢ Poor quality risks injuries, lawsuits, recalls, and
regulation
➢ Ethical conduct must dictate response to problems
➢ All stakeholders much be considered

Total Quality Management

➢ Encompasses entire organization from supplier to
customer
➢ Stresses a commitment by management to have a Six Sigma Program
continuing companywide drive toward excellence in ➢ Originally developed by Motorola, adopted and
all aspects of products and services that are enhanced by Honeywell and GE
important to the customer ➢ Highly structured approach to process
improvement
Deming’s 14 Points for Implementing Quality o A strategy
Improvement o A discipline – DMAIC
o A set of 7 tools
1. Create consistency of purpose
2. Lead to promote change DMAIC Approach (under Six Sigma)
3. Build quality into the product; stop depending on 1. Defines the project’s purpose, scope, and outputs,
inspections to catch problems identifies the required process information keeping in
4. Build long-term relationships based on performance mind the customer’s definition of quality
instead of awarding business on price 2. Measures the process and collects data
5. Continuously improve product, quality, and service 3. Analyzes the data ensuring repeatability and
6. Start training reproducibility
7. Emphasize leadership 4. Improves by modifying or redesigning existing
8. Drive out fear processes and procedures
9. Break down barriers between departments 5. Controls the new process to make sure
10. Stop haranguing workers performance levels are maintained.
11. Support, help, and improve
12. Remove barriers to pride in work Implementing Six Sigma
13. Institute a vigorous program of education and self- ➢ Emphasize defects per million opportunities as a
improvement standard metric
14. Put everyone in the company to work on the ➢ Provide extensive training
transformation ➢ Focus on corporate sponsor support (Champions)
➢ Create qualified process improvement experts
Seven Concepts of TQM (Black Belts, Green Belts, etc.)
1. Continuous Improvement ➢ Set stretch objectives
➢ Never-ending process of continual ➢ This cannot be accomplished without a major
improvement commitment from top level management.
➢ Covers people, equipment, materials, procedures
➢ Every operation can be improved 3. Employee Empowerment
➢ Shewhart’s PDCA Model: ➢ Getting employees involved in product and process
improvements
➢ 85% of quality problems are due to process and
material
➢ Techniques:
1) Build communication networks
that include employees
2) Develop open, supportive supervisors
3) Move responsibility to employees
➢ Kaizen - describes the ongoing process of 4) Build a high-morale organization
unending improvement 5) Create formal team structures
➢ TQM and zero defects - also used to describe ➢ Quality Circles
continuous improvement o Group of employees who meet regularly to
solve problems
2. Six Sigma o Trained in planning, problem solving, and
➢ Two meanings statistical methods
• Statistical definition of a process that is o Often led by a facilitator
99.9997% capable, 3.4 defects per million o Very effective when done properly
opportunities (DPMO)
• A program designed to reduce defects, 4. Benchmarking
lower costs, save time, and improve ➢ Selecting best practices to use as a standard for
customer satisfaction performance:
➢ A comprehensive system for achieving and 1. Determine what to benchmark
sustaining business success 2. Form a benchmark team
 3. Identify benchmarking partners Seven Tools of TQM
4. Collect and analyze benchmarking information 1. Check Sheet: An organized method of recording
5. Take action to match or exceed the benchmark data.
➢ Internal Benchmarking 2. Scatter Diagram: A graph of the value of one
o When the organization is large enough variable vs. another variable
o Data more accessible 3. Cause-and-Effect Diagram: A tool that identifies
o Can and should be established in a variety of process elements (causes) that might effect an
areas outcome
4. Pareto Chart: A graph to identify and plot problems
5. Just-in-time (JIT) or defects in descending order of frequency
➢ Relationship to quality: 5. Flowchart (Process Diagram): A chart that
o JIT cuts the cost of quality describes the steps in a process
o JIT improves quality 6. Histogram: A distribution showing the frequency of
o Better quality means less inventory and better, occurrences of a variable
easier-to employ JIT system 7. Statistical Process Control Chart: A chart with time
➢ ‘Pull’ system of production scheduling including on the horizontal axis to plot values of a statistic
supply management
o Production only when signaled Inspection
➢ Allows reduced inventory levels ➢ Involves examining items to see if an item is good
o Inventory costs money and hides process and or defective
material problems ➢ Detect a defective product
➢ Encourages improved process and product quality o Does not correct deficiencies in process or
product
6. Taguchi concepts o It is expensive
➢ Engineering and experimental design methods to ➢ Issues
improve product and process design o When to inspect
o Identify key component and process variables o Where in process to inspect
affecting product variation ➢ When and Where to Inspect
➢ Taguchi Concepts 1. At the supplier’s plant while the supplier is
1. Quality robustness – ability to produce producing
products uniformly in adverse manufacturing 2. At your facility upon receipt of goods from your
and environmental conditions. supplier
• Remove the effects of adverse conditions 3. Before costly or irreversible processes
• Small variations in materials and process 4. During the step-by-step production process
do not destroy product quality 5. When production or service is complete
2. Quality loss function – shows that costs 6. Before delivery to your customer
increase as the product moves away from 7. At the point of customer contact
what the customer wants ➢ Many problems
• Costs include customer dissatisfaction, o Worker fatigue
warranty and service, internal scrap and o Measurement error
repair, and costs to society o Process variability
• Traditional conformance specifications are ➢ Cannot inspect quality into a product
too simplistic ➢ Robust design, empowered employees, and sound
processes are better solutions

Source Inspection
➢ Also known as source control
➢ The next step in the process is your customer
➢ Ensure perfect product to your customer
➢ Poka-yoke - the concept of foolproof devices or
techniques designed to pass only acceptable
product
➢ Checklists - ensure consistency and
completeness
3. Target-oriented quality
Attributes Versus Variables
7. Knowledge of TQM tools ➢ Attributes - items are either good or bad,
➢ TQM Tools: acceptable or unacceptable
A. Tools for Generating Ideas o Does not address degree of failure
1. Check Sheet ➢ Variables - measures dimensions such as weight,
2. Scatter Diagram speed, height, or strength
3. Cause-and-Effect Diagram o Falls within an acceptable range
B. Tools to Organize the Data ➢ Use different statistical techniques
1. Pareto Chart
2. Flowchart (Process Diagram) TQM In Services
C. Tools for Identifying Problems ➢ Service quality is more difficult to measure than the
1. Histogram quality of goods
2. Statistical Process Control Chart ➢ Service quality perceptions depend on
1) Intangible differences between products
 2) Intangible expectations customers have of
those products
Service Quality
➢ The Operations Manager must recognize:
o The tangible component of services is
important
o The service process is important
o The service is judged against the
customer’s expectations
o Exceptions will occur

Determinants of Service Quality

1. Reliability - involves consistency of performance
and dependability
2. Responsiveness - concerns the willingness or
readiness of employees to provide service
3. Competence - means possession of the required
skills and knowledge to perform the service
4. Access - involves approachability and ease of
contact
5. Courtesy - involves politeness, respect,
consideration, and friendliness
6. Communication - means keeping customers
informed and listening to them
7. Credibility - involves trustworthiness, believability,
and honesty
8. Security - is the freedom from danger, risk, or doubt
9. Understanding/knowing the customer - involves
making the effort to understand the customer’s
needs
10. Tangibles - include the physical evidence of the
service

Service Recovery Strategy

➢ Managers should have a plan for when services fail
➢ Marriott’s LEARN routine:
o Listen
o Empathize
o Apologize
o React
o Notify