Thursday, 22 December 2011

17: Productivity, Operations Management and Total Quality Management

Productivity Problems and Measurement

Undoubtedly, productivity is one of the major concerns of managers.

Productivity Problems
Productivity implies measurement. Although, there is a general agreement about the need for improving productivity, there is little consensus about the fundamental causes of the problem and what to do about them. The blame has been assigned to various factors. Some people place it on the greater proportion of less skilled workers with respect to the total labor force, but others disagree. Another reason given for the productivity dilemma is the growing affluence of people, which makes them less ambitious. Still others cite the breakdown in family structure, the worker’s attitude, and govt. policies and regulations. Increasingly, attention shifts to management as the cause of the problem—as well as the solution.

Measurement of Productivity of Knowledge Workers
Productivity is the input-output ratio within a time period with due consideration for quality. Measurement of skills work is relatively easy, but it becomes more difficult for knowledge work. Thus person on the production line would be considered a skills worker, while the assistant to the manager with planning as his or her main function would be a knowledge worker. Managers, Engineers and programmers are knowledge workers. In general productivity of the knowledge workers is more difficult to measure than that of the skills worker. One difficulty in measuring the productivity of knowledge workers is that some outputs are really activities that help achieve end results. Still another difficulty is that the quality of the knowledge workers output is often hard to measure. Productivity improvement is achieved by the good management practice.

Production and Operations Management—Manufacturing and Service

One of the major areas in any kind of enterprise is production and operation management. In the past, production management was the term used to refer to those activities necessary to manufacture products. However, in recent years, the area has been generally expanded to include such activities as purchasing, warehousing, transportation and other operations from the procurement of raw materials through various activities until a product is available to the buyer. The term operation management refers to activities necessary to produce and deliver a service as well as physical product.

Quality Measurement in the Information Age

Quality concepts are not just for products it is also equally applicable to services. This means such things as the measurement of expectations, experiences and emotions. Software package quality does not only include reliability but also technical support services, compatibility, upgradeability of the software and the integration of the information infrastructure not only with the company but also with its suppliers and customers. Focusing on the quality of the information infrastructure is critical for company success in the new information age.

Operations Management Systems

Operations management has to be seen as a system of inputs, transformation process, outputs and external factors. Inputs include needs of customers, information, technology, management and labor, fixed assets and variable assets that are relevant to the transformation process. Managers and workers use the information and physical factors to produce outputs. The transformation process incorporates planning, operating and controlling the system. There are many tools and techniques available to facilitate the transformation process. Outputs consist of products and services and may even be information, such as that provided by a consulting organization. Operations are influenced by external factors such as safety regulations or fair labor practice. Thus operation management is an open system interacting with its surroundings.

Planning Operations
Objectives, premises and strategies of an enterprise determine the search for and the selection of the product or service. After an end product has been selected, the specifications are determined and the technological feasibility of producing it is considered. The design of an operations system requires decisions concerning the location of facilities, the process to be used, the quantity to be produced, and the quality of the product.

Special Interest in a Product Decision
One of the basic decisions an enterprise makes is selecting a product or products it intends to produces and market. This requires gathering product ideas that will satisfy the needs of customers and contribute to the goals of the enterprise while being consistent with the strategy of the firm. In a product decision, the various interests of functional managers must be considered. The divergent interests of these functionally oriented managers and professionals influence what product will be produced and marketed, but it is the general manager who has to integrate the various interests and balance revenues with costs, profits with risks and long-term with short-term growth.

Product and Production Design
Following are the steps:
1. Create product ideas by searching for consumer needs and screening the various alternatives.
2. Select the product on the basis of various considerations, including data form market and economic analysis and make general feasibility study.
3. Prepare a preliminary design by evaluating various alternatives, taking into consideration reliability, quality and maintenance requirement.
4. Reach a final decision by developing, testing and simulating the process to see if they work.
5. Decide whether the enterprise’s current facilities are adequate or if new or modified facilities are required.
6. Select the process for producing the product; consider the technology and the methods available.
7. After the product is designed, prepare the layout of the facilities to be used, plan the system of production and schedule the various things that must be done.

System Design
One alternative is to arrange the layout in the order in which the product is produced or assembled e.g. a truck assembly. A second alternative is to lay out the production system according to the process employed e.g. in a hospital, specific steps are likely to be followed: the admission of the patient, the treatment of the patient (which involves sub-processes), billing for service, and dismissal and may be post-hospitalization treatment. A third kind of layout (sometimes called fixed-position layout) the product stays in one place for assembly. This layout is used for the assembly of extremely large and bulky items. The forth kind of layout is arranged according to the nature of the project. Building a bridge or tunnel is normally a one-time project designed. In fifth kind of layout the production process is arranged to facilitate the sale of products. A six basic approach to production layout is to design the process so that it facilitates storage or movement of products. Storage space is costly, and an effective and efficient design can keep the storage costs low.

Operating the System
After a product has been selected and the system for producing it has been designed and built, the next major step is to operate the system. This requires setting up an organization structure, staffing the positions and training people. Managers are needed who can provide the supervision and leadership to carry out activities necessary to produce desired products or provide services. The aim is to obtain the best productivity ratio within a time period with due consideration for quality.

Controlling Operations with Emphasis on Information Systems
Controlling operations requires setting performance criteria, measuring performance against them, and taking actions to correct undesirable deviations. Thus, one can control production, product quality and reliability levels, inventory levels and workforce performance.

Tools and Techniques for Improving Productivity

Tools and techniques include: inventory planning and control, just-in-tie inventory system, outsourcing, operational research, value engineering, work simplification, quality circles, total quality management, lean management, computer-aided design, computer-aided manufacturing and manufacturing automation protocol.

Inventory Planning and Control
Qe = Square Root of ( 2 D S / H )
Qe = Economic Order Quantity (EOQ)
D = Demand per year
S = Setup Costs
H = Inventory holding (carrying) cost per item, per year
The Economic Order Quality (EOQ) approach is used to determine inventory levels when demand is predictable and fairly constant throughout the year (that is, there are no seasonable patters). However, for determining inventory levels of parts and materials used for some production processes, the EOQ approach does not work well e.g. poor quality of parts may increase the demand for the production inputs.

Just-in-Time (JIT) Inventory System
In this system, the supplier delivers the components and parts to the production line “just-in-time” to be assembled. Other names for this or very similar methods are zero inventory and stockless production. In JIT, the quality of the parts must be very high also there must be dependable relationships and smooth cooperation with suppliers. Ideally suppliers should be located near the company.

Outsourcing means that products and operations are contracted to outside vendors that have expertise in a particular area. The aim may be to reduce costs by saving on personal benefits. Outsourcing is an important tool for a company to make it grow and to maintain a competitive position. It enables a firm to focus on its core competencies and let outside companies do what these firms can do best. For example, Nike, is using outsourcing for all of its shoe production, and only keeps the production of the sophisticated Nike Air system. Other reason of using outsourcing is gaining access to the best sources available worldwide, sharing of risks between the firm and its suppliers, allocating capital to key success factors, outsourcing functions that are difficult to manage, or a firm just may not have the capability to carry out certain tasks. Outsourcing may also serve as a strategic weapon. It has been suggested that before deciding on outsourcing, a business-practice-reengineering study should be conducted. The finding of this analysis may indicate which tasks are best suited for being continued within the company and which should be contracted to an outside source.

Operation Research
Operation Research is the application of scientific methods to the study of alternatives in a problem situation, with a view to obtaining a quantitative basis for arriving at a best solution. Thus, the emphasis is on scientific method, on the use of quantitative data, on goals, and on determination of the best means of reaching the goals. It is also called as “Quantitative Common Sense”

Value Engineering 
Value Engineering consists of analyzing the operations of the product or services, estimating value of each operation, and attempting to improve that operation by trying to keep cost low at each step or part. The following steps are suggested:
1. Divide the product into parts and operations.
2. Identify the costs for each part and operation.
3. Identify the relative value of the contribution of each part to the final unit or product.
4. Find a new approach for those items, which appear to have a high cost and low value.

Work Simplification
Work Simplification is the process of obtaining the participation of workers in simplifying their work.

Quality Circles
Quality Circles (QC) is a group of people from the same organizational area who meet regularly to solve problems they experience at work. Quality Circles evolved from suggestion programs. In Work Simplification and Quality Circles workers participate in solving work-related problems.

Total Quality Management (TQM)
TQM, Total Quality Management, involves the organization’s long-term commitment to the continuous improvement of quality, throughout the organization, and with the active participation of all members at all levels—to meet and exceed customer’s expectations. This top-management driven philosophy is considered a way of organizational life. TQM program requires a careful analysis of the customer’s needs, and assessment of the degree to which these needs are currently met, and a plan to fill the possible gap between the current and the desired situation. To make the TQM program effective, top managers must be involved. They must provide a vision, reinforce values emphasizing quality, set quality goals, and deploy resource for the quality program. It is obvious that TQM demands a free flow of information—vertically, horizontally and diagonally. Organization needs to be a learning organization. Learning how to use tools and techniques, teamwork are prerequisites for an effective and efficient operation. When done effectively, TQM should result in greater customer satisfaction, fewer defects and less waste, increased total productivity, reduced costs and improved profitability and an environment in which quality has high priority.

Lean Manufacturing
Lean Manufacturing emphasizes on continuous improvements with strategic breakthroughs. It aims at zero defects, just-in-time inventory system and recognizing everyone is responsible for problems; especially management.

Computer-aided Techniques
Product design and manufacturing have been changing greatly, largely because of the application of computer technology. CAD/CAM help engineers design products much more quickly. Capturing the market quickly is crucial in very competitive environment.

Supply Chain and Value Chain Management

The term Supply Chain and Value Chain Management are sometimes used interchangeably. However, Supply Chain Management focuses on the sequence of getting raw material and subassemblies through the manufacturing process in an economical manner. Value Chain Management, on the other hand, has a broader meaning by analyzing every step in the process ranging from the handling of raw material to end users, providing them with the greatest value at the lowest cost. Thus, Supply Chain Management focuses more on the internal process with an emphasis on efficient flow of resources, such as materials, while value chain management has similar aims with an additional concern for the external environment such as the customer. Professor Michael Porter popularized the value chain process model that includes the primary activities of inbound logistics, operations, outbound logistics, marketing/sales and services. The process is supported by the enterprise infrastructure, the management of human resources, technology and procurement. The goal of Value Chain Management is to create a seamless chain of activities from the supplier, to the manufacture to the customer to meet and exceed his or her expectation.

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