OPM Reviewer (Finals) Chapter 5: Strategic Capacity Planning PDF

OPM REVIEWER (FINALS) - Three very important factors in planning service capacity are (1) there may be a need to be near customers, (2) the inability to store ser...

OPM REVIEWER (FINALS) - Three very important factors in planning service capacity are (1) there may be a need to be near customers, (2) the inability to store services, CHAPTER 5 - Strategic Capacity Planning for Products and Services and (3) the degree of volatility of demand. - Capacity refers to an upper limit or ceiling on the load - Convenience for customers is often an important aspect of service. that an operating unit can handle. Generally, a service must be located near customers. - The goal of strategic capacity planning is to achieve a match between the -Capacity also must be matched with the timing of demand. Unlike goods, long-term supply capabilities of an organization and the predicted level of services cannot be produced in one period and stored for use in a later long-term demand. Organizations become involved in capacity planning period. for various reasons. - Demand volatility presents problems for capacity planners. It tends to be 5.3 DEFINING AND MEASURING CAPACITY higher for services than for goods, not only in the timing of demand, but - Capacity often refers to an upper limit on the rate of output. Even also in the amount of time required to service individual customers. though this seems simple enough, there are subtle difficulties in actually - In some instances, demand management strategies can be used to offset measuring capacity in certain cases. capacity limitations. Pricing, promotions, discounts, and similar tactics can Two useful definitions of capacity: help to shift some demand away from peak periods and into slow periods, 1. Design capacity: The maximum output rate or service capacity an allowing organizations to achieve a closer match in operation, process, or facility is designed for. supply and demand. 2. Effective capacity: Design capacity minus allowances such as personal 5.8 DO IT IN-HOUSE OR OUTSOURCE IT? time, and preventive maintenance. Once capacity requirements have been determined, the organization must decide whether to produce a good or provide a service itself, or to 5.4 DETERMINANTS OF EFFECTIVE CAPACITY outsource from another organization. Many organizations buy parts or - Facilities The design of facilities, including size and provision for contract out services, for a variety of reasons. Among those factors are: expansion, is key. Locational factors, such as transportation costs, Available capacity. If an organization has available the equipment, distance to market, labor supply, energy necessary skills, and time, it often makes sense to produce an item or sources, and room for expansion, are also important. perform a service in-house. - Product or service design can have a tremendous influ- Expertise. If a firm lacks the expertise to do a job satisfactorily, buying ence on capacity. might be a reasonable alternative. - Process Factors The quantity capability of a process is an obvious Quality considerations. Firms that specialize can usually offer higher determinant of capacity. quality than an organization can attain itself. - Human Factors The tasks that make up a job, the variety of activities The nature of demand. When demand for an item is high and steady, involved, and the training, skill, and experience required to perform a job the organization is often better off doing the work itself. all have an impact on the potential Cost. Any cost savings achieved from buying or making must be weighed and actual output. against the preceding factors. - Policy Factors Management policy can affect capacity by allowing or not Risks. Buying goods or services may entail considerable risks. allowing capacity options such as overtime or second or third shifts. 5.9 DEVELOPING CAPACITY STRATEGIES - Operational Factors Scheduling problems may occur when an 1. Design flexibility into systems. The long-term nature of many capacity organization has differences in equipment capabilities among alternative decisions and the pieces of equipment or differences in job risks inherent in long-term forecasts suggest potential benefits from requirements. designing flexible systems. - Supply chain factors must be taken into account in capacity planning if 2. Take stage of life cycle into account. Capacity requirements are often substantial capacity changes are involved. closely linked to the stage of the life cycle that a product or service is in. - External Factors Product standards, especially minimum quality and At the introduction phase, it can be difficult to determine both the size of performance standards, can restrict management’s options for increasing the market and the organization’s eventual share of that market. and using capacity. Therefore, organizations should be cautious in making large and/or 5.5 STRATEGY FORMULATION inflexible capacity investments. In the growth phase, the overall market - The three primary strategies are leading - leading capacity strategy may experience rapid growth. However, the real issue is the rate at which builds capacity in anticipation of future demand increases. A following the organization’s market share grows, which may be more or less than strategy builds capacity whendemand exceeds current capacity. A the market rate, depending on the success of the organization’s strategies. tracking strategy is similar to a following strategy, but it adds capacity in In the decline phase, an organization is faced with underutilization of relatively small increments to keep pace with increasing demand. capacity due to declining demand. Organizations may eliminate the excess - A decision may be made to incorporate a capacity cushion, which is an capacity by selling it, or by introducing new products or services. amount of capacity in excess of expected demand when there is some 3. Take a “big-picture” (i.e., systems) approach to capacity changes. uncertainty about demand. When developing capacity alternatives, it is important to consider how Steps in the Capacity Planning Process parts of the system interrelate. 1. Estimate future capacity requirements. A bottleneck operation is an operation in a sequence of operations whose 2. Evaluate existing capacity and facilities and identify gaps. capacity is lower than the capacities of 3. Identify alternatives for meeting requirements. other operations in the sequence. 4. Conduct financial analyses of each alternative. 5. Assess key qualitative issues for each alternative. 6. Select the alternative to pursue that will be best in the long term. 4. Prepare to deal with capacity “chunks.” Capacity increases are often 7. Implement the selected alternative. acquired in fairly large chunks rather than smooth increments, making it 8. Monitor results. difficult to achieve a match between desired capacity and feasible 5.6 FORECASTING CAPACITY REQUIREMENTS capacity. - Capacity planning decisions involve both long-term and short-term 5. Attempt to smooth out capacity requirements. Unevenness in capacity considerations. Long-term considerations relate to overall level of requirements also can create certain problems. capacity, such as facility size, whereas short-term considerations relate to 6. Identify the optimal operating level. Production units typically have an probable variations in capacity requirements created by such things as ideal or optimal level of operation in terms of unit cost of output. seasonal, random, and irregular fluctuations in demand. If the output rate is less than the optimal level, increas- - Long-term capacity needs require forecasting demand over a time ing the output rate will result in decreasing average unit costs. This is horizon and then converting those forecasts into capacity requirements. known as economies of scale. However, if output is increased beyond the - Short-term capacity needs are less concerned with cycles or trends than optimal level, average unit costs will with seasonal variations and other variations from average. become increasingly larger. This is known as diseconomies of scale. 5.7 ADDITIONAL CHALLENGES OF PLANNING 1. Choose a strategy if expansion is involved. Consider whether SERVICE CAPACITY incremental expansion or single step is more appropriate. 5.10 CONSTRAINT MANAGEMENT A constraint is something that limits the performance of a process or demand, and higher capacity utilization. The key risks are loss of market system in achieving its goals. Constraint management is often based on share and the inability to meet demand if expansion requires a long lead the work of Eli Goldratt (The Theory of Constraints), and Eli Schragenheim time. and H. William Dettmer (Manufacturing at Warp Speed). - In cases where capacity contraction will be undertaken, capacity disposal There are seven categories of constraints: strategies become important. This can be the result of the need to replace Market: Insufficient demand aging equipment with newer Resource: Too little of one or more resources (e.g., workers, equipment, equipment. It can also be the result of outsourcing and downsizing and space) operations. The cost or benefit of asset disposal should be taken into Material: Too little of one or more materials account when contemplating these actions. Financial: Insufficient funds Supplier: Unreliable, long lead time, substandard quality Knowledge or competency: Needed knowledge or skills missing or 5 SUPPLEMENT - Decision Theory incomplete Policy: Laws or regulations interfere 5S.1 INTRODUCTION Constraint issues can be resolved by using the following five steps: - Decision theory represents a general approach to decision making. It is 1. Identify the most pressing constraint. suitable for a wide 2. Change the operation to achieve the maximum benefit, given the range of operations management decisions. constraint. Among them are capacity planning, product and 3. Make sure other portions of the process are supportive of the service design, equipment selection, and location planning. Decisions constraint that lend themselves to 4. Explore and evaluate ways to overcome the constraint. a decision theory approach tend to be characterized by the following 5. Repeat the process until the level of constraints is acceptable. elements: 5.11 EVALUATING ALTERNATIVES A set of possible future conditions that will have a bearing on the results - An organization needs to examine alternatives for future capacity from a of the decision. number of different A list of alternatives for the manager to choose from. perspectives. Most obvious are economic considerations: Will an A known payoff for each alternative under each possible future alternative be economically feasible? How much will it cost? How soon condition. can we have it? What will operating and maintenance costs be? What To use this approach, a decision maker would employ this process: will its useful life be? Will it be compatible with present personnel and 1. Identify the possible future conditions (e.g., demand will be low, present operations? medium, or high; the - Cost–volume analysis focuses on relationships between cost, revenue, competitor will or will not introduce a new product). These are called and volume of output. The purpose of cost–volume analysis is to estimate states of nature. the income of an organization under 2. Develop a list of possible alternatives, one of which may be to do different operating conditions. It is particularly useful as a tool for nothing. comparing capacity alternatives. 3. Determine or estimate the payoff associated with each alternative for - The volume at which total cost and total revenue are equal is referred to every possible as the break-even point (BEP). When volume is less than the break-even future condition. point, there is a loss; when volume is greater than the break-even point, 4. If possible, estimate the likelihood of each possible future condition. there is a profit. 5. Evaluate alternatives according to some decision criterion (e.g., - Indifference point: the quantity at which a decision maker would be maximize expected indifferent between two competing alternatives. profit), and select the best alternative. Financial Analysis - The information for a decision is often summarized in a payoff table, - Operations personnel need to have the ability to do financial analysis. A which shows the problem that is universally encountered by managers is how to allocate expected payoffs for each alternative under the various possible states of scarce funds. A common approach is to use financial analysis to rank nature. investment proposals, taking into account the time value of money. Two important terms in financial analysis are cash flow and present value: 5S.2 THE DECISION PROCESS AND CAUSES Cash flow refers to the difference between the cash received from sales OF POOR DECISIONS (of goods or services) and other sources (e.g., sale of old equipment) and Despite the best efforts of a manager, a decision occasionally turns out the cash outflow for labor, materials, overhead, and taxes. poorly due to unforeseeable circumstances. Luckily, such occurrences are Present value expresses in current value the sum of all future cash flows not common. Often, failures can be traced to a combination of mistakes in of an investment proposal. the decision process, to bounded rationality, or to suboptimization. - Decision theory is a helpful tool for financial comparison of alternatives The decision process consists of these steps: under conditions of 1. Identify the problem. risk or uncertainty. 2. Specify objectives and criteria for a solution. Simulation can be a useful tool in evaluating what-if scenarios, and is 3. Develop suitable alternatives. described on this book’s website. 4. Analyze and compare alternatives. 5.12 OPERATIONS STRATEGY 5. Select the best alternative. - The strategic implications of capacity decisions can be enormous, 6. Implement the solution. impacting all areas of the organization. From an operations management 7. Monitor to see that the desired result is achieved. standpoint, capacity decisions establish a set of conditions within which - Another factor with which managers must contend is bounded operations will be required to function. rationality, or the limits imposed on decision making by costs, human - Flexibility can be a key issue in capacity decisions, although flexibility is abilities, time, technology, and the availability of information. not always an option, particularly in capital-intensive industries. - Suboptimization the result of different departments each attempting to - Efficiency improvements and utilization improvements can provide reach a solution that is optimum for that department. capacity increases. Such improvements can be achieved by streamlining operations and reducing waste. 5S.3 DECISION ENVIRONMENTS - Bottleneck management can be a way to increase effective capacity, by Operations management decision environments are classified according scheduling non-bottleneck operations to achieve maximum utilization of to the degree of certainty present. There are three basic categories: bottleneck operations. Certainty means that relevant parameters—such as costs, capacity, and - The other approach is the wait-and-see strategy (i.e., to expand capacity demand—have only after demand known values. materializes, perhaps incrementally). Its advantages include a lower Risk means that certain parameters have probabilistic outcomes. chance of oversupply due to more accurate matching of supply and Uncertainty means that it is impossible to assess the likelihood of various being planned. However, it also occurs periodically due to technological possible changes in products or equipment, as well as competitive pressures. future events. How an organization approaches process selection is determined by the organization’s process strategy. Key aspects include: 5S.4 DECISION MAKING UNDER CERTAINTY Capital intensity: The mix of equipment and labor that will be used by - When it is known for certain which of the possible future conditions will the organization. actually happen, the decision is usually relatively straightforward: Simply Process flexibility: The degree to which the system can be adjusted to choose the alternative that has the best changes in processing requirements due to such factors as changes in payoff under that state of nature. product or service designchanges in volume processed, and changes in technology. 5S.5 DECISION MAKING UNDER UNCERTAINTY At the opposite extreme is complete uncertainty: No information is 6.2 PROCESS SELECTION available on how likely the various states of nature are. Process choice is demand-driven. The two key questions in process Under those conditions, four possible decision criteria are: selection are: Maximin—Determine the worst possible payoff for each alternative, and 1. How much variety will the process need to be able to handle? choose the alternative that has the “best worst.” 2. How much volume will the process need to be able to handle? Maximax—Determine the best possible payoff, and choose the - Answers to these questions will serve as a guide to selecting an alternative with that payoff. The maximax approach is an optimistic, “go appropriate process. Usually, volume and variety are inversely related; a for it” strategy; it does not take into account any payoff other than the higher level of one means a lower level of the other. However, the need best. for flexibility of personnel and equipment is directly related to the level of Laplace—Determine the average payoff for each alternative, and choose variety the process will need to handle: The lower the variety, the less the the alternative with the best average. The Laplace approach treats the need for flexibility, while the higher the variety, the greater the need for states of nature as equally likely. flexibility. Minimax regret—Determine the worst regret for each alternative, and Process Types choose the alternative with the “best worst.” This approach seeks to There are five basic process types: minimize the difference between the payoff that is realized and the best 1. Job Shop. A job shop usually operates on a relatively small scale. It is payoff for each state of nature. used when a low volume of high-variety goods or services will be needed. Processing is intermittent; work includes small jobs, each with somewhat - Regret (opportunity loss) - The difference between a given payoff and different processing requirements. High flexibility using general-purpose the best payoff for a state of nature. equipment and skilled workers are important characteristics of a job shop. 2. Batch. Batch processing is used when a moderate volume of goods or 5S.6 DECISION MAKING UNDER RISK services is desired, and it can handle a moderate variety in products or - Expected monetary value (EMV) criterion—Determine the expected services. The equipment need not be as flexible as in a job shop, but payoff of each alternative, and choose the alternative that has the best processing is still intermittent. The skill level of workers doesn’t need to expected payoff. be as high as in a job shop because there is less variety in the jobs being - The expected monetary value approach is most appropriate when a processed. decision maker is neither risk averse nor risk seeking, but is risk neutral. 3. Repetitive. When higher volumes of more standardized goods or services are needed, repetitive processing is used. The standardized 5S.7 DECISION TREES output means only slight flexibility of equipment is needed. Skill of - Decision trees are tools that have many practical applications, not only in workers is generally low. health care but also in legal cases and a wide array of management 4. Continuous. When a very high volume of nondiscrete, highly decision making, including credit card fraud; loan, credit, and insurance standardized output is desired, a continuous system is used. These risk analysis; decisions on new product or service development; and systems have almost no variety in output and, hence, no need for location analysis. equipment flexibility. Workers’ skill requirements can range from low to - A decision tree is a schematic representation of the alternatives high, depending on the complexity of the system and the expertise that available to a decision maker and their possible consequences. workers need. Generally, if equipment is highly specialized, worker skills - A decision tree is a schematic representation of the alternatives available can be lower. to a decision maker and their possible consequences. 5. A project is used for work that is nonroutine, with a unique set of - Square nodes denote decision points, and circular nodes denote chance objectives to be accomplished in a limited time frame. events. Read the tree from left to right. Branches leaving square nodes represent alternatives; branches leaving circular nodes represent chance Product and Service Profiling events (i.e., the possible states of nature). - Process selection can involve substantial investment in equipment and - Square nodes denote decision points, and circular nodes denote chance have a very specific influence on the layout of facilities, which also require events. Read the tree from left to right. Branches leaving square nodes heavy investment. Moreover, mismatches between operations represent alternatives; branches leaving circular nodes represent chance capabilities and market demand and pricing or cost strategies can events (i.e., the possible states of nature). have a significant negative impact on the ability of the organization to compete or, in government agencies, to effectively service clients. 5S.8 EXPECTED VALUE OF PERFECT INFORMATION Therefore, it is highly desirable to assess the degree of correlation - Expected value of perfect information (EVPI) The difference between between various process choices and market conditions before making the expected payoff with perfect information and the expected payoff process choices in order to achieve an appropriate matching. under risk. - Product or service profiling can be used to avoid any inconsistencies by identifying key product or service dimensions and then selecting 5S.9 SENSITIVITY ANALYSIS appropriate processes. - Sensitivity analysis provides a range of probability over which the choice Sustainable Production of Goods and Services of alternatives would remain the same. - Business organizations are facing increasing pressure from a variety of sources to operate sustainable production processes. CHAPTER 6 - Process Selection and Facility Layout - According to the Lowell Center for Sustainable Production, “Sustainable Production is the creation of goods and services using processes and 6.1 INTRODUCTION systems that are: non-polluting; conserving of energy and natural - Process selection refers to deciding on the way production of goods or resources; economically efficient; safe and healthful for workers, services will be organized. It has major implications for capacity planning, communities, and consumers; and socially and creatively rewarding for all layout of facilities, equipment, and design of work systems. Process working people.” selection occurs as a matter of course when new products or services are To achieve this, the Lowell Center advocates designing and operating 6.4 PROCESS STRATEGY processes in ways that: - The importance of flexibility as a competitive strategy is stressed. “wastes and ecologically incompatible byproducts are reduced, However, flexibility does not always offer the best choice in processing eliminated or recycled on-site; decisions. Flexible systems and equipment are often more expensive and chemical substances or physical agents and conditions that present not as efficient as less flexible alternatives. hazards to human health or the environment are eliminated; energy and materials are conserved, and the forms of energy and 6.5 STRATEGIC RESOURCE ORGANIZATION: FACILITIES LAYOUT materials used are most appropriate for the desired ends; and - Layout refers to the configuration of departments, work centers, and work spaces are designed to minimize or eliminate chemical, ergonomic equipment, with particular emphasis on movement of work (customers or and physical hazard.” materials) through the system. - To achieve these goals, business organizations must focus on a number As in other areas of system design, layout decisions are important for of factors that include energy use and efficiency, CO2 (carbon footprint) three basic reasons: and toxic emissions, waste genertion, lighting, heating, cooling, ventilation, (1) they require substantial investments of money and effort; (2) they noise and vibration, and worker health and safety. involve long-term commitments, which makes mistakes difficult to overcome; and (3) they have a significant impact on the cost and Lean Process Design efficiency of operations. - Lean process design is guided by general principles. One principle of - The need for layout planning arises both in the process of designing new particular interest here is waste reduction, which relates to sustainability facilities and in redesigning existing facilities. objectives. Lean design also focuses on variance reduction in workload - Poor layout design can adversely affect system performance. over the entire process to achieve level production and thereby improve The three basic types of layout are: process flow. 1. Product layouts are most conducive to repetitive processing, - Successful lean design results in reduced inventory and floor space; 2. Process layouts are used for intermittent processing, and quicker response times and shorter lead times; reduced defects, rework, 3. Fixed-position layouts are used when projects require layouts. and scrap; and increased productivity. Repetitive and Continuous Processing: Product Layouts 6.3 TECHNOLOGY - Product layouts are used to achieve a smooth and rapid flow of large - Technological innovation refers to the discovery and development of volumes of goods or customers through a system. This is made possible by new or improved products, services, or processes for producing or highly standardized goods or services that allow highly standardized, providing them. Technology refers to applications of scientific knowledge repetitive processing. to the development and improvement of goods and services and/or the - Production line. Standardized layout arranged according to a fixed processes that produce or provide them. The term high technology refers sequence of production tasks. to the most advanced and developed equipment and/or methods. - Assembly line. Standardized layout arranged according to a fixed - Process technology includes methods, procedures, and equipment sequence of assembly tasks. used to produce goods and provide services. This not only involves - Preventive maintenance—periodic inspection and replacement of worn processes within an organization, it also extends to supply chain processes. parts or those with high failure rates—reduces the probability of - Information technology (IT) is the science and use of computers and breakdowns during the operations. other electronic equipment to store, process, and send information. - A U-shaped line is more compact; it often requires approximately half Automation the length of a straight production line. In addition, a U-shaped line An increasingly asked question in process design is whether to automate. permits increased communication among workers on the line because Automation is machinery that has sensing and control devices that enable workers are clustered, thus facilitating teamwork. it to operate automatically. - Automation offers a number of advantages over human labor. It has low Intermittent Processing: Process Layouts variability, whereas it is difficult for a human to perform a task in exactly - Process layouts (functional layouts) are designed to process items or the same way, in the same amount of time, and on a repetitive basis. provide services that involve a variety of processing requirements. - Both manufacturing and service organizations are increasing their use of - This causes a discontinuous work flow, which is referred to as automation as a way to reduce costs, increase productivity, and improve intermittent processing. quality and consistency. - Fixed-position layouts, the item being worked on remains stationary, - Fixed automation is the least flexible. Programmable automation and workers, materials, and equipment are moved about as needed. This involves the use of high-cost, general-purpose equipment con- is in marked contrast to product and process layouts. trolled by a computer program that provides both the sequence of - Cellular production is a type of layout in which workstations are operations and specific details about each operation. grouped into what is referred to as a cell. Cellular manufacturing enables - Computer-aided manufacturing (CAM) refers to the use of computers in companies to produce a variety of products with as little waste as possible. process control, ranging from robots to automated quality control. - Single-minute exchange of die (SMED) enables an organization to - Numerically controlled (N/C) machines are programmed to follow a set quickly convert a machine or process to produce a different (but similar) of processing instructions based on mathematical relationships that tell product type. the machine the details of the operations to be performed. - Right-sized equipment is often smaller than equipment used in - A flexible manufacturing system (FMS) is a group of machines that traditional process layouts, and is mobile, so it can quickly be reconfigured include supervisory computer control, automatic material handling, and into a different cellular layout in a different location. robots or other automated processing equipment. - Effective cellular manufacturing must have groups of identified items - Computer-integrated manufacturing (CIM) is a system that uses an with similar processing characteristics. This strategy for product and integrating computer system to link a broad range of manufacturing process design is known as group technology and involves identifying activities, including engineering design, flexible manufacturing systems, items with similarities in either design characteristics or manufacturing purchasing, order processing, and production planning and characteristics, and grouping them into part families. control. - Warehouse and Storage Layouts. The design of storage facilities - The internet of things is the extension of internet connectivity into presents a different set of factors than the design of factory layouts. devices such as cell phones, vehicles, audio and video device, and much - Retail Layouts. The objectives that guide design of manufacturing more, some of which you are probably familiar with. These devices can layouts often pertain to cost minimization and product flow. send and receive information with others over the internet. - Office Layouts. Office layouts are undergoing transformations as the - 3D printing, also known as additive manufacturing, involves processes flow of paperwork is replaced with the increasing use of electronic that create three-dimensional objects by applying successive layers of communications. materials to create the objects. - Restaurant Layouts. There are many different types of restaurants, - Drones are unmanned aircraft, usually small, and remotely controlled or ranging from food trucks to posh establishments. programmed to fly to a specific location. - Hospital Layouts. Key elements of hospital layout design are patient care - Another factor that influences motivation, productivity, and employee– and safety, with easy access to critical resources such as X-ray, CAT scan, management relations is trust. In an ideal work environment, there is a and MRI equipment. high level of trust between workers and managers. When managers trust - Automation in Services. One way to improve productivity and reduce employees, there is a greater tendency to give employees added costs in services is to remove the customer from the process as much as responsibilities. When employees trust management, they are more likely possible. to respond positively. Conversely, when they do not trust management, they are more likely to respond in less desirable ways. 6.6 DESIGNING PRODUCT LAYOUTS: LINE BALANCING Teams - The process of deciding how to assign tasks to workstations is referred to - The efforts of business organizations to become more productive, as line balancing. The goal of line balancing is to obtain task groupings competitive, and customer oriented have caused them to rethink how that represent approximately equal time requirements. This minimizes the work is accomplished. Significant changes in the structure of some work idle time along the line and results in a high utilization of labor and environments have been the increasing use of teams and the way equipment. workers are paid, particularly in lean production systems. - Idle time occurs if task times are not equal among workstations; some - Self-directed teams, sometimes referred to as self-managed teams, are stations are capable of producing at higher rates than others. These “fast” designed to achieve a higher level of teamwork and employee stations will experience periodic waits for the output from slower stations involvement. Although such teams are not given absolute authority to or else be forced into idleness to avoid buildups of work between stations. make all decisions, they are typically empowered to make changes in the Unbalanced lines are undesirable in terms of inefficient utilization of labor work processes under their control. and equipment and because they may create morale problems at the - Ergonomics (or human factors) is the scientific discipline concerned with slower stations for workers who must work continuously. the understanding of interactions among humans and other elements of a - Lines that are perfectly balanced will have a smooth flow of work as system, and the profession that applies theory, principles, data, and activities along the line are synchronized to achieve maximum utilization methods to design in order to optimize human well-being and overall of labor and equipment. The major obstacle to attaining a perfectly system performance. balanced line is the difficulty of forming task bundles that have the same duration. 7.3 QUALITY OF WORK LIFE - The cycle time is the maximum time allowed at each workstation to - People work for a variety of reasons. Generally, people work to earn a perform assigned tasks before the work moves on. living. Also, they may be seeking self-realization, status, physical and mental stimulation, and socialization. Quality of work life affects not only 6.7 DESIGNING PROCESS LAYOUTS workers’ overall sense of well-being and contentment, but also worker - The main issue in designing process layouts concerns the relative productivity. positioning of the departments involved. Working conditions are an important aspect of job design. Physical Measures of Effectiveness factors such as temperature, humidity, ventilation, illumination, and noise - One advantage of process layouts is their ability to satisfy a variety of can have a significant impact on worker performance in terms of processing requirements. productivity, quality of output, and accidents. In many instances, Minimizing Transportation Costs or Distances government regulations apply. - The most common goals in designing process layouts are minimization of - Temperature and Humidity. Although human beings can function under transportation costs or distances traveled. a fairly wide range of temperatures and humidity, work performance tends to be adversely affected if tem peratures or humidities are outside a CHAPTER 7 - Work Design and Measurement very narrow comfort band. 7.1 INTRODUCTION - Ventilation. Unpleasant and noxious odors can be distracting and - The importance of work design is underscored by an organization’s dangerous to workers. dependence on human efforts (i.e., work) to accomplish its goals. - Illumination. The amount of illumination required depends largely on Furthermore, many of the topics in this chapter are especially relevant for the type of work being performed; the more detailed the work, the higher productivity improvement and continuous improvement. the level of illumination needed for adequate performance. - Noise and Vibrations. Noise is unwanted sound. It is caused by both 7.2 JOB DESIGN equipment and humans. Noise can be annoying or distracting, leading to - Job design involves specifying the content and methods of jobs. Job errors and accidents. Vibrations can be a factor in job design even without designers focus on what will be done in a job, who will do the job, how a noise component, so merely eliminating sound may not be sufficient in the job will be done, and where the job will be done. The objectives of job every case. design include productivity, safety, and quality of work life. - Work Time and Work Breaks. Reasonable (and sometimes flexible) work Specialization hours can provide a sense of freedom and control over one’s work. Work - The term specialization describes jobs that have a very narrow scope. breaks are also important. Long work intervals tend to generate boredom - Sometimes the amount of knowledge or training required of a specialist and fatigue.Productivity and quality can both deteriorate. Similarly, and the complexity of the work suggest that individuals who choose such periodic vacation breaks can give workers something to look forward to, a work are very happy with their jobs. This seems to be especially true in change of pace, and a chance to recharge themselves. the “professions” - Occupational Health Care. Good worker health contributes to Behavioral Approaches to Job Design productivity, minimizes health care costs, and enhances workers’ sense of In an effort to make jobs more interesting and meaningful, job designers well-being. frequently consider: - Safety. Worker safety is one of the most basic issues in job design. This Job enlargement means giving a worker a larger portion of the total task. area needs constant attention from management, employees, and This constitutes horizontal loading—the additional work is on the same designers. Workers cannot be effectively motivated if they feel they are in level of skill and responsibility as the original job. physical danger. Job rotation means having workers periodically exchange jobs. This allows - Ethical Issues. Ethical issues affect operations through work methods, workers to broaden their learning experience and enables them to fill in working conditions and employee safety, accurate record keeping, for others in the event of sickness or absenteeism. unbiased performance appraisals, fair compensation, and opportunities Job enrichment involves an increase in the level of responsibility for for advancement. planning and coordination tasks. It is sometimes referred to as vertical loading. Compensation - Motivation is a key factor in many aspects of work life. Not only can it - Compensation is a significant issue for the design of work systems. It is influence quality and productivity, it also contributes to the work important for organizations to develop suitable compensation plans for environment. People work for a variety of reasons in addition to their employees. If wages are too low, organizations may find it difficult to compensation. attract and hold competent workers and managers. If wages are too high, the increased costs may result in lower profits, or may force the Hold refers to retention of an object after it has been grasped. organization to increase its prices, which might adversely affect demand Transport load means movement of an object after hold. for the organization’s products or services. Release load means to deposit the object. Variety of approaches to compensate employees: - Frank Gilbreth and his wife, Lillian, an industrial psychologist, were also - Time-based systems, also known as hourly and measured daywork responsible for introducing motion pictures for studying motions, called systems, compensate employees for the time the employee has worked micromotion study. during a pay period. - Output-based (incentive) systems compensate employees according to 7.6 WORK MEASUREMENT the amount of output they produce during a pay period, thereby tying pay - Job design determines the content of a job, and methods analysis directly to performance. determines how a job is to be performed. Work measurement is + Individual incentive plans take a variety of forms. The simplest concerned with determining the length of time it should plan is straight piecework. Under this plan, a worker’s pay is a direct linear take to complete the job. function of his or her output. - A standard time is the amount of time it should take a qualified worker + A variety of group incentive plans, which stress sharing of produc- to complete a specified task, working at a sustainable rate, using given tivity gains with employees, are in use. methods, tools and equipment, raw material inputs, and workplace - Knowledge-Based Pay Systems. Organizations are increasingly recogniz- arrangement. ing this, and they are setting up pay systems to reward workers who - Stopwatch time study was first introduced over a hundred years ago by undergo training that increases their skill levels. This is sometimes Frederick Winslow Taylor to set times for manufacturing and construction referred to as knowledge-based pay. It is a portion of a worker’s pay that activities. It was met with much resistance from workers, who felt they is based on the knowledge and skill that the worker possesses. were being taken advantage of. Knowledge-based pay has three dimensions: Horizontal skills reflect the + used to develop a time standard based on observations of variety of tasks the worker is capable of performing; vertical skills reflect one worker taken over a number of cycles. That is then applied to the managerial tasks the worker is capable of; and depth skills reflect quality work of all others in the organization who perform the same task. and productivity results. - Standard elemental times are derived from a firm’s own historical time - Management Compensation. Many organizations that traditionally study data. Over the years, a time study department can accumulate a file rewarded managers and senior executives on the basis of output are now of elemental times that are common to many jobs. seriously reconsidering that approach. - Predetermined time standards involve the use of published data on - Recent Trends. Many organizations are moving toward compensation standard elemental times. systems that emphasize flexibility and performance objectives, with - Work sampling is a technique for estimating the proportion of time that variable pay based on performance. Some are using profit-sharing plans, a worker or machine spends on various activities and in idle time. or bonuses based on achieving profit or cost goals. - Random number table, which consists of unordered sequences of numbers (i.e., random). Use of these tables enables the analyst to 7.4 METHODS ANALYSIS incorporate randomness into the observation schedule. - Methods analysis focuses on how a job is done. Job design often begins with an analysis of the overall operation. 7.7 OPERATIONS STRATEGY - Selecting an Operation to Study. Sometimes a foreman or supervisor - It is important for management to make the design of work systems a will request that a certain operation be studied. key element of its operations strategy. Despite the major advances in - Documenting the Current Method. Use charts, graphs, and verbal computers and operations technology, people are still the heart of a descriptions of the way the job is now being performed. This will provide a business. clear understanding of the job and serve as a basis of comparison against which revisions can be judged. SUPPLEMENT 7 - LEARNING CURVES - Analyzing the Job and Proposing New Methods. Job analysis requires 7S.1 THE CONCEPT OF LEARNING CURVES careful thought about the what, why, when, where, and who of the job. - Human performance of activities typically shows improvement when the - Flow process charts are used to review and critically examine the overall activities are done on a repetitive basis: The time required to perform a sequence of an operation by focusing on the movements of the operator task decreases with increasing repetitions. or the flow of materials. These charts are helpful in identifying nonproductive parts of the process (e.g., delays, temporary storages, 7S.2 APPLICATIONS OF LEARNING CURVES distances traveled). Learning curve theory has found useful applications in a number of areas, - A worker-machine chart is helpful in visualizing the portions of a work including: cycle during which an operator and equipment are busy or idle. Manpower planning and scheduling - Installing the Improved Method. Successful implementation of Negotiated purchasing proposed method changes requires convincing management of the Pricing new products desirability of the new method and obtaining the cooperation of workers. Budgeting, purchasing, and inventory planning - The Follow-Up. In order to ensure that changes have been made and Capacity planning that the proposed method is functioning as expected, the analyst should - Knowledge of output projections in learning situations can help review the operation after a reasonable period and consult again with the managers make better decisions about how many workers they will need operator. than they could determine from decisions based on initial output rates. - Negotiated purchasing often involves contracting for specialized items 7.5 MOTION STUDY that may have a high degree of complexity. - Motion study is the systematic study of the human motions used to perform an operation. The purpose is to eliminate unnecessary motions CHAPTER 8 - Location Planning and Analysis and to identify the best sequence of motions for maximum efficiency. 8.1 THE NEED FOR LOCATION DECISIONS - Motion study principles, which are guidelines for designing motion- - Existing organizations may need to make location decisions for a variety efficient work procedures. The guidelines are divided into three categories: of reasons. Firms such as banks, fast-food chains, supermarkets, and retail principles for use of the body, principles for arrangement of the work- stores view locations as part of marketing strategy, and they look for place, and principles for the design of tools and equipment. locations that will help them to expand their markets. - Therbligs are basic elemental motions. The term therblig is Gilbreth spelled backward (except for the th). The approach is to break jobs down 8.2 THE NATURE OF LOCATION DECISIONS into basic elements and base improvements on an analysis of these basic Strategic Importance of Location Decisions elements by eliminating, combining, or rearranging them. - Location decisions are closely tied to an organization’s strategies. For example, a strategy of being a low-cost producer might result in locating Search implies hunting for an item with the hands and/or the eyes. where labor or material costs are low, or locating near markets or raw Select means to choose from a group of objects. materials to reduce transportation costs. A strategy of increasing Grasp means to take hold of an object. profits by increasing market share might result in locating in high-traffic - Legal and regulatory. There may be more favorable liability and labor areas, and a strategy that emphasizes convenience for the customer laws, and less restrictive environmental and other regulations. might result in having many locations where customers can transact their - Financial. Companies can avoid the impact of currency changes and business or make purchases (e.g., branch banks, ATMs, service tariffs that can occur when goods are produced in one country and sold in stations, fast-food outlets). other countries. - Location choices can impact capacity and flexibility. Certain locations - Other. Globalization may provide new sources of ideas for products and may be subject to space constraints that limit future expansion options. services, new perspectives on operations, and solutions to problems. Moreover, local restrictions may restrict the types of products or services Disadvantages that can be offered, thus limiting future options for new products or There are a number of disadvantages of having global operations. These services. In some situations, locating near a highway or expressway or a can include the following: rail line can have benefits for shipping. - Transportation costs. High transportation costs can occur due to poor - Location decisions are strategically important for other reasons as well. infrastructure or having to ship over great distances, and the resulting One is that they entail a long-term commitment, which makes mistakes costs can offset savings in labor and materials costs. difficult to overcome. Another is that location decisions often have an - Security costs. Increased security risks and theft can increase costs. Also, impact on investment requirements, operating costs and revenues, and security at international borders can slow shipments to other countries. operations. - Unskilled labor. Low labor skills may negatively impact quality and - A poor choice of location might result in excessive transportation productivity, and the work ethic may differ from that in the home country. costs, a shortage of qualified labor, loss of competitive advantage, Additional employee training may be required. inadequate supplies of raw materials, or some similar condition that is - Import restrictions. Some countries place restrictions on the importation detrimental to operations. of manufactured goods, thus having local suppliers avoids those issues. - For services, a poor location could result in lack of customers and/or high - Criticisms. Critics may argue that cost savings are being generated operating costs. For both manufacturing and services, location decisions through unfair practices such as using sweatshops, in which employees can have a significant impact on competitive advantage. Another are paid low wages and made to work in poor conditions; using child labor; reason for the importance of location decisions is their strategic and operating in countries that have less stringent environmental importance to supply chains. requirements. Supply Chain Considerations - Productivity. Low labor productivity may offset low labor costs or other - Location criteria can depend on where a business is in the supply chain. advantages. For instance, at the retail end of a chain, site selection tends to focus Risks more on accessibility, consumer demographics (population density, age - Protecting intellectual property rights. Companies that outsource distribution, average buyer income), traffic patterns, and local customs. production to foreign countries need to have assurance that intellectual - Supply chain management must address supply chain configuration. This property rights will be preserved. includes determining the number and location of suppliers, production - Political. Political instability and political unrest can create risks for facilities, warehouses, and distribution centers. The location of these personnel safety and the safety of assets. facilities can involve a long-term commitment of resources, so - Terrorism. Terrorism continues to be a threat in many parts of the world, known risks and benefits should be considered carefully. putting personnel and assets at risk and decreasing the willingness of Location Options domestic personnel to travel to or work in certain areas. Managers of existing companies generally consider four options in - Economic. Economic instability might create inflation or deflation, either location planning. of which can negatively impact profitability. - Expand an existing facility. This option can be attractive if there is - Legal. Laws and regulations may change, reducing or eliminating what adequate room for expansion, especially if the location has desirable may have been key benefits. features that are not readily available elsewhere. Expansion costs are - Ethical. Corruption and bribery, common in some countries, may be often less than those of other alternatives. illegal in a company’s home country. - Add new locations while retaining existing ones. This is done in many - Cultural. Cultural differences may be more real than apparent. retail operations. In such cases, it is essential to take into account what - Quality. Lax quality controls can lead to recalls and liability issues. the impact will be on the total system. - Shut down at one location and move to another. An organization must 8.4 GENERAL PROCEDURE FOR MAKING LOCATION DECISIONS weigh the costs of a move and the resulting benefits against the costs and - New firms typically locate in a certain area simply because the owner benefits of remaining in an existing location. lives there. Similarly, managers of small firms often want to keep - Do nothing. If a detailed analysis of potential locations fails to uncover operations in their backyard, so they tend to focus almost exclusively on benefits that make one of the previous three alternatives attractive, a firm local alternatives. may decide to maintain the status quo, at least for the time being. - Large established companies, particularly those that already operate in more than one location, tend to take a more formal approach. 8.3 GLOBAL LOCATIONS - Globalization has opened new markets, and it has meant increasing 8.5 IDENTIFYING A COUNTRY, REGION, COMMUNITY, AND SITE dispersion of manufacturing and service operations around the world. Identifying a Country Facilitating Factors - Each country carries its own set of potential benefits and risks, and A number of factors have made globalization attractive and feasible for decision makers need to be absolutely clear on what those benefits and business organizations. Two key factors are trade agreements and risks are, as well as their likelihood of occurrence so they can make an technological advances. informed judgment on whether locating in that country is desirable. - Trade Agreements. Barriers to international trade such as tariffs and Identifying a Region quotas can have a detrimental effect on trade, while trade agreements - Location of Raw Materials. Firms locate near or at the source of raw that are fair to all sides can help trade to flourish. materials for three primary reasons: necessity, perishability, and - Technology. Technological advances in communication and information transportation costs. sharing have been very helpful. These include texting, e-mail, cell phones, - Location of Markets. Profit-oriented firms frequently locate near the teleconferencing, and the internet. markets they intend to serve as part of their competitive strategy, Benefits whereas nonprofit organizations choose locations relative to the needs of Companies are discovering a wide range of benefits in globalizing their the users of their services. operations. - Labor Factors. Primary labor considerations are the cost and availability - Markets. Companies often seek opportunities for expanding markets for of labor, wage rates in an area, labor productivity and attitudes toward their goods and services, as well as better serving existing customers by work, and whether unions are a serious potential problem. being more attuned to local needs and having a quicker response time - Other Factors. Climate and taxes sometimes play a role in location when problems occur. decisions. - Cost savings. Among the areas for potential cost savings are transportation costs, labor costs, raw material costs, and taxes. Identifying a Community CHAPTER 9 - Management of Quality - Many communities actively try to attract new businesses, offering 9.1 INTRODUCTION financial and other incentives, because they are viewed as potential Broadly defined, quality refers to the ability of a product or service to sources of future tax revenues and new job opportunities. However, consistently meet or exceed customer requirements or expectations. communities do not, as a rule, want firms that will create pollution problems or otherwise lessen the quality of life in the community. 9.2 THE EVOLUTION OF QUALITY MANAGEMENT - Ethical Issues. Ethical issues can arise during location searches, - Frederick Winslow Taylor, the “Father of Scientific Management,” so it is important for companies and governments to have policies in Management,” gave new emphasis to quality by including product place before that happens, and to keep ethical aspects of decisions inspection and gauging in his list of fundamental areas of manu- in mind while negotiating favorable treatment. facturing management. Identifying a Site  In 1924, Bell Telephone Laboratories introduced statistical control - The primary considerations related to sites are land, transportation, charts that could be used to monitor production. and zoning or other restrictions.  Around 1930, H. F. Dodge and H. G. Romig, also of Bell Labs, Multiple Plant Manufacturing Strategies introduced tables for sampling. -Product Plant Strategy. With this strategy, entire products or product  By the end of the 1940s, the U.S. Army, Bell Labs, and major lines are produced in separate plants, and each plant usually supplies the universities were training engineers in other industries in the use of entire domestic market. statistical sampling techniques. About the same time, professional - Market Area Plant Strategy. With this strategy, plants are designed to quality organizations were emerging throughout the country. serve a particular geographic segment of a market.  During the 1950s, the quality movement evolved into quality - Process Plant Strategy. With this strategy, different plants concentrate assurance. In the mid-1950s, total quality control efforts enlarged on different aspects of a process. the realm of quality efforts from its primary focus on manufacturing - General-Purpose Plant Strategy. With this strategy, plants are flexible to include product design and incoming raw materials. and capable of handling a range of products.  During the 1960s, the concept of “zero defects” gained favor. This A geographic information system (GIS) is a computer-based tool for approach focused on employee motivation and awareness, and the collecting, storing, retrieving, and displaying demographic data on maps. expectation of perfection from each employee. The following are some ways businesses use geographic information  In the 1970s, quality assurance methods gained increasing emphasis systems: in services including government operations, health care, banking, Logistics companies use GIS data to plan fleet activities such as routes and the travel industry. and schedules  Something else happened in the 1970s that had a global impact on based on the locations of their customers. quality. An embargo on oil sales instituted by the Organization of Publishers of magazines and newspapers use a GIS to analyze circulation Petroleum Exporting Countries (OPEC) caused an increase in energy and attract advertisers. costs, and automobile buyers became more interested in fuel- Real estate companies rely heavily on a GIS to make maps available efficient, lower-cost vehicles. online to prospective home and business buyers.  American producers, alarmed by their loss of market share, spent Banks use a GIS to help decide where to locate branch banks and to much of the late 1970s and the 1980s trying to improve the quality understand the composition and needs of different market segments. of their goods while lowering their costs. Insurance companies use a GIS to determine premiums based on  The evolution of quality took a dramatic shift from quality assurance population distribution, crime figures, and the likelihood of natural to a strategic approach to quality in the late 1970s. disasters, such as flooding in various locations, and to manage risk. Retailers are able to link information about sales, customers, and 9.3 THE FOUNDATIONS OF MODERN QUALITY MANAGEMENT: demographics to geographic locations in planning locations. THE GURUS Utility companies use a GIS to balance supply and demand, and identify - Walter Shewhart. Was a genuine pioneer in the field of quality control, problem areas. and he became known as the “father of statistical quality control.” He Emergency services use a GIS to allocate resources to locations to developed control charts for analyzing the output of processes to provide adequate determine when corrective action was necessary. Shewhart had a strong coverage where they are needed. influence on the thinking of two other gurus, W. Edwards Deming and Joseph Juran. 8.6 SERVICE AND RETAIL LOCATIONS - W. Edwards Deming. Deming, a statistics professor at New York - Service and retail are typically governed by somewhat different University in the 1940s, went to Japan after World War II to assist the considerations than manufacturing organizations in making location Japanese in improving quality and productivity. decisions. For one thing, nearness to raw materials is usually not a factor, + Deming Prize, which is awarded annually to firms that distinguish nor is concern about processing requirements. Customer access is some- themselves with quality management programs and to individuals who times a prime consideration, as it is with banks and supermarkets, but not lead such efforts. a consideration in others, such as call centers, catalog sales, and online - Joseph M. Juran. Juran, like Deming, taught Japanese manufacturers services. how to improve the quality of their goods, and he, too, can be regarded as - When businesses locate near similar businesses, it is referred to as a major force in Japan’s success in quality. Juran viewed quality as fitness- clustering. for-use. He also believed that roughly 80 percent of quality defects are management controllable; thus, management has the responsibility to 8.7 EVALUATING LOCATION ALTERNATIVES correct this deficiency. He described quality management in terms of a The Transportation Model trilogy consisting of quality planning, quality control, and quality - Transportation costs sometimes play an important role in location improvement. decisions. These can stem from the movement of either raw materials or - Armand Feigenbaum. Feigenbaum was instrumental in advancing the finished goods. “cost of nonconformance” approach as a reason for management to Factor Rating commit to quality. He recognized that quality was not simply a collection - Factor rating is a technique that can be applied to a wide range of of tools and techniques, but a “total field.” According to Feigenbaum, it is decisions ranging from personal (buying a car, deciding where to live) to the customer who defines quality. professional (choosing a career, choosing among job offers). - Philip B. Crosby. Crosby developed the concept of zero defects and + Factor rating is a general approach that is useful for evaluating a given popularized the phrase “Do it right the first time.” He stressed prevention, alternative and comparing alternatives. and he argued against the idea that “there will always be some level of The Center-of-Gravity Method defectives.” The quality-is-free concept presented in his book, Quality Is The center-of-gravity method is a method to determine the location of a Free, is that the costs of poor quality are much greater than traditionally facility that will minimize shipping costs or travel time to various defined. destinations. - Kaoru Ishikawa. The late Japanese expert on quality was strongly purposes and in such a way that it will continue to function properly and influenced by bothDeming and Juran, although he made significant safely. contributions of his own to quality management. Among his key Responsibility for Quality contributions were the development of the cause-and-effect diagram It is true that all members of an organization are in some way responsible (also known as a fishbone diagram) for problem solving and the for quality, but certain parts of an organization have key areas of implementation of quality circles, which involve workers in quality responsibility: improvement. - Top management. Top management is ultimately responsible for quality. - Genichi Taguchi. Taguchi is best known for the Taguchi loss function, While establishing strategies for quality, top management must institute which involves a formula for determining the cost of poor quality. programs to improve quality; guide, direct, and motivate managers and - Taiichi Ohno and Shigeo Shingo. Both developed the philosophy and workers; and set an example by being involved in quality initiatives. methods of kaizen, a Japanese term for continuous improvement, at - Design. Quality products and services begin with design. This includes Toyota. Continuous improvement is one of the hallmarks of successful not only features of the product or service, it also includes attention to quality management. the processes that will be required to produce the products and/or services necessary to deliver the service to customers. 9.4 INSIGHTS ON QUALITY MANAGEMENT - Procurement. The procurement department is responsible for obtaining Successful management of quality requires that managers have insights goods and services that will not detract from the quality of the on various aspects of quality. organization’s goods and services. Defining Quality: The Dimensions of Quality - Production/operations. is responsible for ensuring that processes yield - One way to think about quality is the degree to which performance of a products and services that conform to design specifications. product or service meets or exceeds customer expectations. -Quality assurance. Quality assurance is responsible for gathering and  Product quality is often judged on nine dimensions of quality: analyzing data on problems and working with operations to solve Performance—main characteristics of the product problems. Aesthetics—appearance, feel, smell, taste - Packaging and shipping. This department must ensure that goods are Special features—extra characteristics not damaged in transit, that packages are clearly labeled, that instructions Conformance—how well a product corresponds to design specifications are included, that all parts are included, and that shipping occurs in a Reliability—dependable performance timely manner. Durability—ability to perform over time - Marketing and sales. This department is responsible for determining Perceived quality—indirect evaluation of quality (e.g., reputation) customers’ needs and communicating them to appropriate areas of the Serviceability—handling of complaints or repairs organization. Consistency—quality doesn’t vary - Customer service. Customer service is often the first department to  Service Quality. The dimensions of product quality don’t learn of problems. It is responsible for communicating that information to adequately describe service quality. Instead, service quality is appropriate departments, dealing in a reasonable manner with customers, often described using the following dimensions: working to resolve problems, and following up to confirm that the Convenience—the availability and accessibility of the service situation has been effectively remedied. Reliability—the ability to perform a service dependably, consistently, and The Costs of Quality accurately - Appraisal costs relate to inspection, testing, and other activities Responsiveness—the willingness of service providers to help customers in intended to uncover defective products or services, or to assure that there unusual situations and to deal with problems are none. Time—the speed with which service is delivered - Prevention costs relate to attempts to prevent defects from occurring. Assurance—the knowledge exhibited by personnel who come into contact - Failure costs are incurred by defective parts or products, or by faulty with a customer and their ability to convey trust and confidence services. Courtesy—the way customers are treated by employees who come into +Internal failures are those discovered during the production process, contact with them whereas external failures are those discovered after delivery to the Tangibles—the physical appearance of facilities, equipment, personnel, customer. and communication materials The return on quality (ROQ) approach focuses on the economics of Consistency—the ability to provide the same level of good quality quality efforts. In this approach, quality improvement projects are viewed repeatedly as investments, and as such, they are evaluated like any other investment, Expectations—meet (or exceed) customer expectations using metrics related to return on investment (ROI). Assessing Service Quality 9.5 QUALITY AND PERFORMANCE EXCELLENCE AWARDS - A widely used tool for assessing service quality is SERVQUAL, an - The Baldrige Award instrument designed to obtain feedback on an organization’s ability to Named after the late Malcolm Baldrige, an industrialist and former provide quality service to customers. It focuses on five of the previously secretary of commerce, the annual Baldrige Award is administered by the mentioned service dimensions that influence customers’ perceptions of Baldrige Performance Excellence Program at the National Institute of service quality: tangibles, reliability, responsiveness, assurance, and Standards and Technology. The purpose of the award is to identify empathy. and recognize role-model organizations, establish criteria for evaluating The Determinants of Quality improvement efforts (known as the Baldrige Excellence Framework), and The degree to which a product or a service successfully satisfies its disseminate and share best practices. intended purpose has four primary determinants: - The European Quality Award Design The European Quality Award is Europe’s most prestigious award for How well the product or service conforms to the design organizational excellence. The European Quality Award sits at the top of Ease of use regional and national quality awards, and applicants have often won one Service after delivery or more of those awards prior to applying for the European Quality Award. - Design involves decisions about the specific characteristics of a product - The Deming Prize or service such as size, shape, and location. Quality of design refers to the The Deming Prize, named in honor of the late W. Edwards Deming, is intention of designers to include or exclude certain features in a product Japan’s highly coveted award recognizing successful quality efforts. It is or service. given annually to any company that meets the award’s standards. - Quality of conformance refers to the degree to which goods and services conform to (i.e., achieve) the intent of the designers. This is 9.6 QUALITY CERTIFICATION affected by factors such as the capability of equipment used; the skills, ISO 9000, 14000, and 24700 training, and motivation of workers. The International Organization for Standardization (ISO) promotes - Ease of use and user instructions are important. They increase the worldwide standards for the improvement of quality, productivity, and chances, but donot guarantee, that a product will be used for its intended operating efficiency through a series of standards and guidelines. - ISO 9000 pertains to quality management. It concerns what an organization does to ensure its products or services con- - Do. Implement the plan, on a small scale if possible. Document any form to its customers’ requirements. changes made during this phase. Collect data systematically for evaluation. - ISO 14000 concerns what an organization does to minimize - Study. Evaluate the data collection during the do phase. Check how harmful effects to the environment caused by its operations. closely the results match the original goals of the plan phase. Both ISO 9000 and ISO 14000 relate to an organization’s processes rather - Act. If the results are successful, standardize the new method and than its products and services, and both stress continual improvement. communicate the new method to all people associated with the process. Eight quality management principles form the basis of the latest version Process improvement is a systematic approach to improving a process. It of ISO 9000: involves documentation, measurement, and analysis for the purpose of 1. A customer focus improving the functioning of a process. 2. Leadership Six Sigma A business process for improving quality, reducing costs, and 3. Involvement of people increasing customer satisfaction. 4. A process approach DMAIC (define-measure-analyze-improve-control) is a formalized 5. A system approach to management problem-solving process of Six Sigma. It is composed of five steps that can 6. Continual improvement be applied to any process to improve its effectiveness. The steps are: 7. Use of a factual approach to decision making 1. Define: Set the context and objectives for improvement. 8. Mutually beneficial supplier relationships 2. Measure: Determine the baseline performance and capability of the The standards for ISO 14000 certification bear upon three major areas: process. Management systems—systems development and integration of 3. Analyze: Use data and tools to understand the cause-and-effect environmental responsibilities into business planning relationships of the process. Operations—consumption of natural resources and energy 4. Improve: Develop the modifications that lead to a validated Environmental systems—measuring, assessing, and managing emissions, improvement in the process. effluents, and other waste streams 5. Control: Establish plans and procedures to ensure that improvements - ISO 24700 pertains to the quality and performance of office equipment are sustained. that contains reused components. 9.10 QUALITY TOOLS 9.7 QUALITY AND THE SUPPLY CHAIN - A flowchart is a visual representation of a process. As a problem-solving tool, a flowchart can help investigators identify possible points in a 9.8 TOTAL QUALITY MANAGEMENT process where problems occur. - The term total quality management (TQM) refers to a quest for quality - A check sheet is a simple tool frequently used for problem identification. in an organization. There are three key philosophies in this approach. One Check sheets provide a format that enables users to record and organize is a never-ending push to improve, which is referred to as continuous data in a way that facilitates collection and analysis. improvement; the second is the involvement of everyone in the - A histogram can be useful in getting a sense of the distribution of organization; and the third is a goal of customer satisfaction, which means observed values. Among other things, one can see if the distribution is meeting or exceeding customer expectations. symmetrical, what the range of values is, and if there are any unusual + Fail-safing Incorporating design elements that prevent incorrect values. procedures. - Pareto analysis is a technique for focusing attention on the most impor- A number of other elements of TQM are important: tant problem areas. The Pareto concept, named after the 19th-century 1. Continuous improvement.(Kaizen) The philosophy that seeks to Italian economist Vilfredo Pareto, is that a relatively few factors generally improve all factors related to the process of converting inputs into account for a large percentage of the total cases. outputs on an ongoing basis is called continuous improvement. - A scatter diagram can be useful in deciding if there is a correlation 2. Competitive benchmarking. This involves identifying other between the values of two variables. A correlation may point to a cause of organizations that are the best at something and studying how they do it a problem. to learn how to improve your operation. -A control chart can be used to monitor a process to see if the process 3. Employee empowerment. Giving workers the responsibility for output is random. It can help detect the presence of correctable causes of improvements and the authority to make changes to accomplish them variation. provides strong motivation for employees. - A cause-and-effect diagram offers a structured approach 4. Team approach. The use of teams for problem solving and to achieve to the search for the possible cause(s) of a problem. (fishbone diagram) consensus takes advantage of group synergy, gets people involved, and - A run chart can be used to track the values of a variable over time. This promotes a spirit of cooperation can aid in identifying trends or other patterns that may be occurring. and shared values among employees. Methods for Generating Ideas 5. Decisions based on facts rather than opinions. Management gathers - Brainstorming is a technique in which a group of people share thoughts and analyzes data as a basis for decision making. and ideas on problems in a relaxed atmosphere that encourages 6. Knowledge of tools. Employees and managers are trained in the use of unrestrained collective thinking. quality tools. - One way companies have tapped employees for ideas concerning 7. Supplier quality. Suppliers must be included in quality assurance and quality improvement is through quality circles. quality improvement efforts so their processes are capable of delivering - Benchmarking is an approach that can inject new energy into improve- quality parts and materials in a timely manner. ment efforts. 8. Champion. A TQM champion’s job is to promote the value and importance of TQM principles throughout the company. 9. Quality at the source. Quality at the source refers to the philosophy of making each worker responsible for the quality of his or her work. 10. Suppliers are partners in the process, and long-term relationships are encouraged. This gives suppliers a vital stake in providing quality goods and services. 9.9 PROBLEM SOLVING AND PROCESS IMPROVEMENT - The plan-do-study-act (PDSA) cycle, also referred to as either the Shewhart cycle or the Deming wheel, is the conceptual basis for problem- solving activities. There are four basic steps in the cycle: - Plan. Begin by studying the current process. Document that process, and then collect data on the process or problem. Next, analyze the data and develop a plan for improvement. Specify measures for evaluating the plan.