L1: Quality Management Total quality management (TQM) is an integrative

Quality management recognizes a number of philosophy of management for continuously

management principles that can be used as a improving the quality of products and processes.
framework to guide organizations toward
improved performance. The principles include What is the Impact of Quality Management to
customer focus, leadership, involvement of Productivity?
people, process approach, system approach to
management, continual improvement, factual Modern Total Quality Management techniques or
approach to decision-making, and mutually TQM look at all aspects of a business, from the
beneficial supplier relationships. It provides a sourcing of raw materials and components, to
suitable guidance to build upon Quality production line technology, staff skills, planning,
Assurance standards to achieve business back-office roles, sales, marketing and customer
benefits for all stakeholders and focuses on relationship management. The aim is to ensure all
continual performance improvement to sustain the departments are working at optimal level and
customer satisfaction. together in harmony in order to provide the end
customer with a quality product
Total Quality Management is an outgrowth of
Deming’s (W. Edwards Deming) work. This is a A well-designed TQM strategy manages to take into
process that makes quality principles part of the consideration the need to keep costs low and
organization’s strategic objectives, applying improve productivity, without compromising on
them to all aspects of operations and striving to
quality – a tough balancing act. The road to 'TQM'
meet customers’ needs by doing things right the
or initial implementation of it does takes a degree of
first time.
planning to achieve as it can reshape the way the
The search for quality is closely related to company works.
the emphasis on continuous improvement. The
The end result of a TQM strategy is to increase
notion is that one can never be satisfied;
something always can and should be improved on. productivity and quality, employees will be motivated,
Another important aspect of total quality clients will be happy and there will be continuous
operation is cycle time - - the elapsed time improvement.
between receipt of an order and delivery of the
finished product. The quality objective here is to International Quality Standards
reduce cycle time by finding ways to serve
customer needs more quickly. What is ISO 9001?

Dimensions of Quality: The ISO 9001 standard is a set of

1. Performance requirements that outlines the criteria for a
2. Features QMS. It emphasizes process approach and risk-
3. Reliability based thinking to ensure organizations
4. Conformance consistently meet customer requirements and
5. Durability enhance overall performance. By adhering to
6. Serviceability this standard, businesses can demonstrate their
7. Aesthetics commitment to quality management and gain a
Perceived Quality competitive edge in their industry.

Total Quality Management – it is managing with The ISO 9001 standard covers various areas,
an organization-wide commitment to continuous including leadership involvement, planning,
improvement, product quality, and customer resource management, process control,
needs.
 performance evaluation, and continual - Strategy that emphasizes convenience
improvement. It provides a framework that for the customer: have many locations
helps organizations establish policies and where customers can transact their business
procedures tailored to their unique needs while or make purchase.
aligning with international best practices.
Poor choice of location might result in excessive
Implementing the ISO 9001 standard offers transportation costs, a shortage of qualified
numerous benefits for businesses of all sizes labor, loss of competitive advantage, inadequate
and sectors. Firstly, it helps improve customer supplies of raw materials, or some similar
satisfaction by ensuring products or services condition that is detrimental to operations.
consistently meet customer requirements. This
leads to enhanced trust and loyalty among Objectives of Location Decisions:
customers.
- Profit-oriented organizations base their
Secondly, by implementing the ISO 9001 decisions on profit potential
standard’s systematic approach to quality
management, organizations can streamline their - Non-profit organizations strive to achieve a
processes and reduce waste. This results in balance between costs and the level of
increased operational efficiency and cost customer service they provide.
savings.
- Location criteria can depend on where a
ISO 9001 standard can significantly benefit business is in the supply chain: retail end of
businesses by enhancing customer satisfaction, the chain – focus more on accessibility,
improving efficiency, driving continual consumer demographics, traffic patterns and
improvement, and boosting reputation. local customs; beginning of the supply chain –
as a supplier, locate near the source of raw
L2: Facility Location and Layout materials; middle of the chain – locate near
suppliers or near their markets (depending on
Strategic Importance of Location Decisions: the condition).

- they entail a long-term commitment (mistakes The four (4) major layout patterns:
are difficult to overcome); have an impact on 1. Product – an arrangement based on the
investment requirements, operating costs and sequence of operations that is performed
revenues, and operations; can impact capacity during the manufacturing of a good or
and flexibility (space constraints that may delivery of a service.
limit future expansion options, local 2. Process – it consists of functional grouping
restrictions may restrict the type of products of equipment or activities that do similar
or services that can be offered (limiting work.
future options for new products or services). 3. Cellular – it is a layout in which workstations
are grouped into a cell that can process
- Strategy of being a low-cost producer: items that have similar processing
locate where labor or material costs are low requirements. (The cells become a miniature
or locating near markets or raw materials to version of product layout.)
reduce transportation costs. 4. Fixed-position – a layout in which the item
being worked on remains stationary, and
- Strategy of increasing profits by workers, materials, and equipment are moved
increasing market share: locate in high as needed.
traffic areas
Facility Layout in Service Organizations for a given production rate or maximizes the
- In service organizations, services must production rate for a given number of
consider the volume of demand, range of the workstations,
types of services offered, degree of the
personalization of the service, skills of In assembly line balancing, we need to know 3 types
employees and cost. They can use product, of information:
process, cellular or fixed-position layouts to 1. The set of tasks to be performed and the time
organize different types of work. required to perform each task.
2. The precedence relations among the tasks –
Designing Product Layout the sequence in which tasks must be
- Product layout in flow shops generally consist performed.
of a fixed sequence of workstations. 3. The desired output rate or forecast of
Workstations are generally separated by demand for the assembly line.
buffers (queues of work-in-process) to store
work waiting for processing, and are often The first 2 can be obtained from the analysis of
linked by gravity conveyors (which cause parts design specifications of a good or a service. The
to simply roll to the end and stop) to allow easy third is primarily a management policy issue:
transfer of work. Product layouts, however, whether management decide to produce exactly as
can suffer from two sources of delay: flow- the forecast, overproduce and hold inventory,
blocking delay (happens when a work center subcontract, etc.
completes a unit but cannot release it because
the in-process storage at the next stage is full) Designing Process Layout
and lack of work (occurs when one stage In designing process layouts, we are concerned
complete work and no units from the previous with the arrangement of departments or work
stage and are awaiting processing) delay. centers relative to each other. Costs associated
- The sources of delay can be minimized by with moving materials or the inconvenience that
adding additional workstations in parallel to customers might experience in moving between
balance the process. physical locations are usually the principal design
- An important type of product layout is criteria for process layouts. In general, work
assembly line. It is a product layout dedicated centers with large number of moves between them
in combining the components of a good or should be located close to one another.
service that has been created previously. Good
for mass market (automobiles, appliances, Workplace Design
processing laundry, insurance policies and The design of the workplace should allow for
financial transactions). maximum efficiency and effectiveness as the work
- Assembly line balancing is a technique to group task or activity is performed, but it may also need
tasks among workstations so that each to facilitate service management skills in high-
workstation has the same amount of work. This contact, front-office environments.
is to avoid idle time in every workstation. With
same amount of work, ideally, the output of The following should be addressed in the
the 1st workstation automatically becomes the workstation level:
input of the next workstation. In reality, this 1. Who will use the workplace? Will the
is seldom possible, so the objective is to workstation be shared? How much space is
minimize the imbalance among workstations required?
while trying to achieve a desired output rate. 2. How will the work be performed? What tasks
A good balance results in achieving throughput are required? How much time does each task
necessary to meet sales commitments and take? How much time is required to set up
minimize the cost of operations. Typically, one for the workday or for a particular job? How
either minimizes the number of workstations
 might the tasks be grouped into work - The key functions: sales and order processing;
activities most effectively? transportation and distribution, operations,
3. What technology is needed? inventory and materials management, finance,
4. What must be the employee be able to see? and customer service.
5. What must be the employee be able to hear? - Supply chains must focus on exploiting demand
6. What environmental and safety issues need information to better match production levels to
to be addressed? What protective clothing reduce costs; tightly integrate design.
or gear must the employee wear? Development, production, delivery, and marketing;
and provide more customization to meet
Ergonomics – it is concerned with improving increasingly demanding customers.
productivity and safety by designing workplaces
equipment, instruments, computers, workstations The Supply Chain Operations Reference (SCOR)
and so on that take into account the physical Model
capabilities of people. - This is based on five basic functions involved in
managing a supply chain and provides an excellent
The Human Side of Work – Job Design framework for understanding the scope of SCM.
The physical design of a facility and the workplace The functions are:
can influence significantly how workers perform 1. Plan
their jobs as well as their psychological well-being. - Developing a strategy that balances
Thus operations managers who design jobs for resources with requirements and establishes
individual workers need to understand how the and communicates plans for the entire supply
physical environment can affect people. chain.
2. Source
Job Design – involves determining the specific job - Procuring goods and services to meet
tasks and responsibilities, the work environment, and planned or actual demand.
the methods by which the tasks will be carried out 3. Make
to meet the goals of operations. - transforming goods and services to a
finished state to meet demand
Job enlargement – it is the horizontal expansion of 4. Deliver
the job to give the worker more variety, although - Managing orders, transportation, and
not necessarily more responsibility. distribution to provide the goods and
services
Job enrichment – it is the vertical expansion of a 5. Return
job duties to give the worker more responsibility. - Processing customer returns; providing
maintenance, repair and overhaul; and dealing
L3: Supply Chain Management with excess goods.
- It involves strategic management of all
operations linking an organization and its Designing Supply Chain
suppliers, including such areas as purchasing,
manufacturing, transportation, and distribution. Supply chains should support an organization’s
- The goals of supply chain management are to strategy, mission and competitive priorities. Both
achieve efficiency in all aspects of the supply strategic and operational perspectives must be
chain while assuring on-time availability of included in supply chain design decisions.
quality resources and products.
- The basic purpose of a supply chain is to Contract manufacturer – is a firm that specializes
coordinate the flow of materials, services, and in certain types of goods-producing activities, such
information among the elements of the supply as customized design, manufacturing, assembly, and
chain to maximize customer value. packaging, and works under contract for end users.
Outsourcing to contract manufacturers can offer
significant competitive advantages, such as access 1. Selecting transportation services
to advance manufacturing technologies, faster 2. Supplier evaluation
product time-to-market, customization of goods in 3. Technology
regional markets, and lower total costs resulting
from economies of scale. L4: Managing Inventories
 Inventory – it is any asset held for future use
Efficient supply chains – they are designed for or sale
efficiency and low cost by minimizing inventory and  Inventory Management – involves planning,
maximizing efficiencies in process flow. coordinating and controlling the acquisition,
storage, handling, movement, distribution, and
Responsive supply chains – focus on flexibility and possible sale of raw materials, component parts
responsive service and are able to react quickly to and subassemblies, supplies and tools,
changing market demand and requirements. replacement parts, and other assets that are
needed to meet customer wants and needs.
Push system – it produces goods in advance of - Explain the importance of inventory and types
customer demand using a forecast of sales and of inventories
moves them through the supply chain to points of
sale where they are stored as finished goods Types of inventories:
inventory. 1. Raw materials, component parts,
subassemblies, and supplies
Pull system – produces only what is needed at 2. Work-in-process
upstream stages in the supply chain in response to 3. Finished goods inventory
customer demand signals from downstream stages. 4. Safety stock inventory

Supply Chain Metrics - What are the major characteristics that

These metrics are used to evaluate performance impact inventory decisions?
and identify improvements to the design and
operation of the supply chains. Inventory Characteristics:
1. Delivery reliability – often measured by 1. Number of items held by the company
perfect order fulfillment. 2. Nature of demand :
2. Responsiveness – measured by order a. Independent demand – unrelated to the
fulfillment lead time or by perfect delivery demand of other inventory items and need
fulfillment. to be forecasted
3. Customer-related measure – focus on the b. Dependent demand – if their demand is
ability of the supply chain to meet customer directly related to the demand of other
wants and needs. inventory items and can be calculated
4. Supply chain efficiency measures include without needing to be forecasted
average inventory value and inventory turnover. 3. Number and duration of time periods: goods
5. Financial measures show how supply chain sold within a short selling season are
performance affects the bottom line. These uneconomical to store them for the next year
might include total supply chain costs and 4. Lead Time – the time between placement of
costs of processing returns and warranties. order and its receipt.
5. Stockouts – the inability to satisfy the
Order amplification – it is a phenomenon that demand for an item (A backorder occurs when
occurs when each member of a supply chain “orders the customer is willing to wait for the item; a
up” to buffer its own inventory. This results to what lost sale occur when a customer is unwilling to
is called “bullwhip effect.” wait and purchases the item elsewhere.

Other Issue in Supply Chain Management

 3. “B” items are between A and C
ABC analysis provides managers useful information
Two basic decisions on inventory management: to identify the best methods to control each
1. When to order items from a supplier (or when to category of inventory. (Which category requires
initiate production runs if the firm makes its close control?)
own items) - How does a fixed order quantity inventory
2. How much to order or produce each time a system operates, and how to use the EOQ
supplier or production order is placed and safety stock models?

Four major categories of inventory costs: Fixed Quantity System (FQS) – the order quantity
1. Ordering or set-up costs – these costs are or lot size is fixed; that is, the same amount, Q, is
incurred as a result of the work involved in ordered every time.
placing orders with suppliers or configuring
tools, equipment, and machines within a The EOQ Model
factory to produce them. They do not depend Economic Order Quantity Model – it is a classic
on the number of items purchased or economic model developed in the early 1900s that
manufactured, but rather on the number of minimizes the total cost, which is the sum of the
orders that are placed. inventory-holding cost and the ordering cost.
2. Inventory-holding costs – or inventory-
carrying costs are the expenses associated How do you compute for the following?
with carrying inventory. Costs of maintaining - Average cycle inventory = (Maximum Inventory
storage facilities, such as electricity, taxes, + Minimum Inventory) / 2 = Q/2
insurance, and labor and equipment necessary - Annual inventory holding cost
to handle, move, and retrieve an inventory - Annual ordering cost
item (or inventory units) - Total annual cost
3. Shortage costs – or stockout costs are costs - Order quantity
associated with an inventory item not
available when needed to meet demand. Fixed Period system (FPS) or periodic review
4. Unit cost of the SKUs (SKU – stock system – is one in which the inventory position is
keeping unit) checked only at fixed intervals or time, rather than
- (A stock keeping unit (SKU) is a product on a continuous basis.
and service identification code for a store or
product, often portrayed as a machine- CAPACITY MANAGEMENT
readable bar code that helps track the item
for inventory. A stock keeping unit (SKU) Understanding Capacity
does not need to be assigned to physical Capacity is the capability of a manufacturing or
products in inventory.) service resource such as facility, process,
- (RFID chips – RADIO FREQUENCY workstation, or piece of equipment to accomplish its
IDENTIFICATION chips embedded in purpose over a specified time period. It can be
packaging or products allow scanners to track viewed in two ways:
SKUs as they move throughout the store. 1. As the maximum rate of output per unit of time or
2. As units of resource availability
ABC Inventory consists of categorizing inventory
items or SKUs into three groups according to their Operations managers must decide on the
total annual peso usage: appropriate levels of capacity to meet current
1. “A” items account for a large peso value but a (short-term) and future (long-term) demand. Short-
relatively small percentage of total items term capacity decisions usually involve adjusting
2. “C” items account for a small peso value but a schedules or staffing levels. Long-term decisions
large percentage of total items usually involve major capital investments.
Capacity decisions are often influenced by processes or facilities or buildups in physical
economies and diseconomies of scale. inventories.
Economies of scale are achieved when the average
unit cost of a good or service decreases as the Safety Capacity or capacity cushion
capacity and/or volume of throughput (output) - It is an amount of capacity reserved for
increases. unanticipated events such as demand surges,
materials shortages, and equipment breakdowns, is
Diseconomies of scale occur when the average unit normally planned into a process or facility.
cost of the good or service begins to increase as the - The actual utilization rates at most facilities are
capacity and/or volume of throughput increase. not planned to be 100% of effective capacity.

As a single facility adds more and more goods and/or Long-Term Capacity Strategies
services to its portfolio, the facility can become too To develop a long-range capacity plan, a firm must
large or “unfocused.” At some point, diseconomies of make a basic economic trade-off between the cost
scale arise and unit costs increase because dissimilar of capacity and the opportunity cost of not having
product lines, processes, people skills, and adequate capacity. Capacity costs include bot the
technology exist in the same facility. In trying to initial investment in facilities and equipment and the
manage a large facility with too many objectives and annual cost of operating and maintaining them. The
missions, key competitive priorities such as delivery, cost of not having sufficient capacity is the
quality, customization, and cost performance can opportunity loss incurred from lost sales and
begin to deteriorate. This leads to the concept of a reduced market share.
focused factory.
Long-term capacity planning must be closely tied
A focused factory is a way to achieve economies of to the strategic direction of the organization – what
scale without extensive investments in facilities and products and services it offers. For example, many
capacity by focusing on a narrow range of goods or goods and services are seasonal, resulting in unused
services, target market segments, and/or dedicated capacity during the off-season. Many firms offer
processes to maximize efficiency and effectiveness. complementary goods and services. Complementary
The focused factory argues to “divide and conquer” goods or services balance seasonal demand cycles
by adopting smaller more focused facilities and therefore use the excess capacity available. For
dedicated to: instance, demand for lawn mowers peaks in the
1. A few products spring and summer; to balance manufacturing
2. A specific technology capacity, the producer might also produce leaf
3. A certain process design and capability blowers and vacuums for the autumn season and
4. A specific competitive priority objective such snow blowers for the winter season.
as next day delivery
5. Particular market segments or customers and Capacity Expansion
associated volumes. Capacity requirements are rarely static; changes
in market and product lines and competition will
Capacity Measurement. eventually require a firm to either plan to increase
Capacity provides the ability to satisfy demand. or reduce long-term capacity. Such strategies
To satisfy customers in the long run, capacity must require determining the amount, timing, and form of
be at least as large as the average demand. However, capacity changes. To illustrate capacity expansion
demand for many goods and services typically varies decisions, let us make two assumptions:
over time. A process may not be capable of meeting 1. Capacity is added in “chunks” or discrete
peak demand at all times, resulting in either lost increments and
sales or customers who must wait until the good or 2. Demand is steadily increasing.
service becomes available. At other periods of time,
capacity may exceed demand, resulting in idle
Four basic strategies for expanding capacity over
some fixed time horizon which can also be applied
to capacity reduction.
1. One large capacity increase
2. Small capacity increases that match average
demand
3. Small capacity increases that lead demand
4. Small capacity increases that lag demand.

TO DO: READ MORE ON THE FOUR BASIC

STRATEGIES

Short-Term Capacity Management

If short-term demand is stable and sufficient
capacity is available, then managing operations to
ensure that demand is satisfied is generally easy.
However, when demand fluctuates above and below
average capacity level, firms have two basic choices:
1) they can adjust capacity or it will be unable to
meet all of the demand.
2) to manage capacity by shifting and stimulating
demand.

Managing Capacity by Adjusting Short-Term

Capacity Levels
When short-term demand exceeds capacity, a firm
must either temporarily increase its capacity or it
will be unable to meet all of the demand. Similarly, if
demand falls well below capacity, then idle resources
reduce profits. Short-term adjustments to capacity
can be done in a variety of ways, which are
summarized below:
1. Add or share equipment
2. Sell unused capacity
3. Change labor capacity and schedules
4. Change labor skill mix
5. Shift work to slack periods

Managing Capacity by Shifting and Stimulating

Demand
Some general approaches to influence customers to
shift demand from periods without adequate
capacity to periods with excess capacity or to fill
times with excess capacity, include the following:
1. Vary the price of goods and services
2. Provide customers with information
3. Advertising and promotion
4. Add peripheral goods and/or services
5. Provide reservations