ADMN 201 — Ch10: Operations Management, Productivity, and Quality
This chapter covers the full lifecycle of operations: how firms plan and run production of goods and services, how they connect productivity to quality, and how they manage the extended network of suppliers that feeds their operations.
mindmap root((Ch10: Operations)) Operations Management Four Utilities Form · Time · Place · Possession Goods vs Services High/Low Contact Intangible · Unstorable Process Types Analytic - break down Synthetic - combine Operations Planning Capacity Planning Location Planning Layout Planning Process · Product · Fixed-Position FMS · Soft Manufacturing Quality Planning Methods Planning Operations Control Materials Management Supplier Selection · Purchasing Inventory Control · JIT Lean Production Process Control Bill of Materials · MRP · MRP II Gantt Charts · PERT Charts Productivity and Quality Quality Wheel - Heskett 1987 Two Dimensions Performance Quality Quality Reliability TQM Toolkit - 9 Tools Analysis Tools Process Control System-Wide Redesign Supply Chain Management Value Chain SCM vs Traditional Outsourcing Social Responsibility
Learning Objectives Map
| LO | Topic | Key Concept Page |
|---|---|---|
| LO1 | Production, operations, four utilities | OperationsManagement |
| LO2 | Goods vs. service operations; high/low contact | OperationsManagement |
| LO3 | Analytic vs. synthetic processes | OperationsManagement |
| LO4 | Operations planning (5 areas) and operations control | OperationsPlanning |
| LO5 | Productivity–quality connection; Quality Wheel | TotalQualityManagement |
| LO6 | TQM, two dimensions, 9 tools | TotalQualityManagement |
| LO7 | Supply chain strategy vs. traditional coordination | SupplyChainManagement |
Section 1 — Operations Management & Utilities (LO1–LO3)
Operations (or production) = all activities that transform inputs into finished goods and services.
Not an isolated function: marketing determines what to make, accounting tracks costs, finance raises capital, and operations makes it happen.
Four Utilities
Production creates value by delivering utility — the power of a product to satisfy a human want:
- Form: Creates the product in a useful form (e.g., assembling a smartphone from raw materials)
- Time: Delivers the product when customers want it (e.g., 24-hour service; next-day delivery)
- Place: Delivers it where customers want it (e.g., corner store; e-commerce)
- Possession: Transfers ownership to the customer (e.g., smooth checkout process)
Goods vs. Services
| Goods Production | Service Operations | |
|---|---|---|
| Tangibility | Tangible; storable | Intangible; unstorable — idle capacity is permanently lost |
| Customer contact | Low | High or low (high-contact vs. low-contact systems) |
| Quality | Built-in; measurable pre-delivery | Relational; realized during the interaction |
High-contact system: Customer must be present (transit, haircuts, medical care).
Low-contact system: Customer is absent (lawn care, cheque processing, streaming).
Analytic vs. Synthetic Processes
- Analytic: Breaks resources down into components — e.g., extracting aluminum from bauxite ore.
- Synthetic: Combines inputs into a finished product — e.g., assembling car components.
Section 2 — Operations Planning (LO4)
The long-range operations plan addresses five strategic areas:
1. Capacity Planning
- Goods-producers: plan slightly above normal demand.
- Low-contact services: plan for average demand (peaks can queue).
- High-contact services: plan for peak demand (customers cannot wait).
2. Location Planning
- Goods: near raw materials, cheap labour, good transport.
- Low-contact services: near supplies or transport hubs.
- High-contact services: near customers.
3. Layout Planning — 5 Types
| Layout | Logic | Best For |
|---|---|---|
| Process (Custom-Product) | Grouped by function | Job shops; small custom batches |
| Product (Assembly Line) | One product, fixed sequence | High-volume single-product runs |
| Fixed-Position | Product stays; resources come to it | Aircraft, buildings, ships |
| Flexible Manufacturing System (FMS) | Multiple products on one line | Product variety (e.g., Nissan multiple car models) |
| Soft Manufacturing | Software/networks-driven | Automated or knowledge-intensive production |
4. Quality Planning
Begins before design. Links to TQM (see Section 3).
5. Methods Planning
Uses Process Flowcharts to document every step, identify bottlenecks, and eliminate waste. Example: Hotel checkout redesigned from 5 steps to 1 TV scan.
Section 3 — Operations Control (LO4 continued)
Materials Management
- Controls the flow from raw material purchase to finished goods distribution.
- Materials cost 50–75% of total expenses — critical priority.
- JIT (Just-in-Time): Lean production — materials arrive at the exact moment needed; reduces inventory to near zero. Example: Sobeys cut storage room size ~10%.
Production Process Control Tools
| Tool | Function |
|---|---|
| Bill of Materials | ”Recipe” for ingredients, order, and quantities |
| MRP | Computerizes the Bill of Materials to schedule acquisitions; buy only what is needed, when needed |
| MRP II | Advanced MRP — ties Finance, HR, and Marketing into the production plan |
| Gantt Chart | Timeline showing task durations and overlaps |
| PERT Chart | Sequence diagram identifying the critical path (minimum completion time) |
| Worker Training | Ensures consistent quality in service delivery |
Section 4 — Productivity, Quality & TQM (LO5–LO6)
The Productivity–Quality Link
High quality prevents waste → boosts productivity → lowers cost per unit → competitive edge (lower prices or higher margin).
Poor quality costs are typically higher than the savings from cutting corners (rework, scrap, lawsuits, lost customers).
The Quality Wheel (Heskett, 1987)
Satisfied employees → quality output → satisfied customers → firm success → employee recognition → satisfied employees.
Quality starts with people.
Two Dimensions of Quality
- Performance Quality: How well features meet consumer needs (e.g., taste of Godiva chocolate).
- Quality Reliability: Consistency unit to unit (e.g., every Marriott room worldwide).
TQM — 9 Tools (3 Categories)
Analysis Tools
- Competitive Product Analysis — disassemble a competitor’s product to find improvements (legal industrial espionage)
- Value-Added Analysis — scrutinize every activity to eliminate non-value-adding steps
- Quality/Cost Studies — identify internal failures (during production) vs. external failures (after delivery; far more costly)
Process Control & Improvement 4. Statistical Process Control (SPC) — control charts + process variation studies; catch problems before they ship 5. Quality Improvement (QI) Teams — cross-department employee groups solving production problems 6. Benchmarking — compare against internal past performance or external industry leaders (e.g., FedEx)
System-Wide Standards & Redesign 7. ISO 9000 / ISO 14000 — international certification for quality management (9000) and environmental performance (14000) 8. Business Process Re-Engineering (BPR) — radical redesign from scratch when incremental improvement isn’t enough 9. Getting Closer to the Customer — build feedback loops directly into product design (Example: Coast Capital’s “You’re the Boss Mortgage”)
Quality Ownership: Every employee creates or destroys quality — it is not just the inspector’s job.
Section 5 — Supply Chain Management (LO7)
The Supply Chain (Value Chain) = the flow of information, materials, and services from raw material suppliers to end customer. Every stage must add value.
Example chain: Farmer → Grain Storage → Flour Mill → Baker → Distributor → Grocery Store → Customer
SCM vs. Traditional Strategy
| Traditional | SCM | |
|---|---|---|
| Perspective | Each firm acts alone | Whole chain managed as one system |
| Information | Guarded | Shared across all stages |
| Inventory | Each stage buffers independently | Coordinated; reduced chain-wide |
| Result | Delays, excess stock | Lower cost, faster delivery, better quality |
Outsourcing expands the chain globally but creates single-point-of-failure risk — a shortage in one link can paralyze the whole chain (pandemic cardboard box example).
Social Responsibility: Firms are accountable for their suppliers’ labour and environmental practices, not just their own.
Key Terms Quick Reference
| Term | Definition |
|---|---|
| Utility | Power of a product to satisfy a human want |
| High-Contact System | Customer must be present during service delivery |
| Low-Contact System | Service provided without customer present |
| Analytic Process | Breaks inputs down (e.g., oil refining) |
| Synthetic Process | Combines inputs (e.g., car assembly) |
| JIT | Materials arrive exactly when needed; near-zero inventory |
| MRP | Computerized production scheduling using Bill of Materials |
| MRP II | MRP extended to all departments |
| Gantt Chart | Task timeline scheduling tool |
| PERT Chart | Sequence + critical path scheduling tool |
| TQM | All employees responsible; no defects tolerable; customer focus |
| Performance Quality | How well features meet consumer needs |
| Quality Reliability | Consistency of quality unit to unit |
| Quality Ownership | Every employee creates or destroys quality |
| ISO 9000 | Quality management certification |
| ISO 14000 | Environmental performance certification |
| BPR | Radical redesign of a process from scratch |
| Supply Chain | Flow of materials/info/services from suppliers to end customer |
| SCM | Managing the whole chain as one integrated system |
| Outsourcing | Paying external parties to perform processes or supply materials |