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AFM 101 Midterm: Operations_Study_Notes (1).docx

Accounting & Financial Management
Course Code
Donna Zathy
Study Guide

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Operations Module Study Notes
Canada Today
Canada is a resource intensive country facing global competition and ever-changing
Issues include: lagging productivity, inadequate education/retraining of our workforce,
“branch plant economy” (profits not re-invested in Canada), lack of research and
development expenditures, stronger Canadian dollar (see Figures 10.1 on page 290)
Research and development directed toward innovation ( introduction and improvement
of products and processes along with organizational change) and its communication
Objectives of innovation - improve product quality, increase production capacity, and
extend product range
Canada’s Evolving Manufacturing and Services Base
To regain their competitive edge Canadian manufacturers have: focused on customers,
improved logistics, practice continuous improvement, focus on quality, saving on cost in
site selection, relying on the internet to unite companies, and adopting other modern
production techniques
Article, “Beat China on Cost” – ability of a Canadian company to compete
From Production to Operations Management
Production management creates goods has evolved into Operations management which
converts /transforms resources (including human) into goods and services (growing
Service sector in Canada)
Operations management includes: inventory management, quality control, production
scheduling, follow-up services
The customer orientation has led many organizations to focus more on services (IBM,
GE) as companies are spending more on services - computer hardware versus software
Operations Management in the Service Sector
Is all about creating a good experience for those who use the service - knowing their
needs and then satisfying them
Video, “Digital Domain”
Good experiences provided to their clients
How management operations is affected
Productivity tied to improvements in quality which aren’t being measured - things like
speed of delivery and customer satisfaction
Productivity also improved through the use of technology and automation - ATM
machines in banks and self checkout in grocery stores (remember the discussion of RFID in
Marketing II)
Operations Management Planning
Facility location – make it easy for customers:
make products more accessible - coffee shops everywhere or not having to leave
home because of the internet
Influences on site selection – availability of resources (including technology),
access to transportation, proximity to suppliers, quality of life, quality of
workforce, cost of living
all those functions that be done more efficiently by third parties leaving a
business to focus its scarce human capital on core business activities, or reduce
or control costs, or gain access to I.T. resources, or improve business or
customer focus
but issues that need to be addressed to outsource successfully - language,
culture and expectations
Makes sense for Canada and the U.S. to outsource between themselves
because: highly skilled and stable workforces, similar culture and language,
familiar business processes, same time zones support real time communication,
and quality of communication systems
level is stagnating or starting to fall of because: wage rate differences are getting
smaller, labor costs as a percentage of total product cost are falling and shipping
costs are rising
Significant impact of changes in the auto industry – critical role in manufacturing,
relatively high North American labor and pension costs, increased foreign
competition, medicare in Canada, currency rates and government incentives
Role of technology – internet facilitates coordination between firms as opposed
to within firms given the growth of outsourcing, and provides employees with
connectivity regardless of where they are
Internet provides increased flexibility
Facility layout:
Focus on helping customers in service business- including buying on-line
Also on improving efficiency of production process
othis process is called Activity Based Management (ABM) where all non
value adding activities that are currently part of the production process
are eliminated
oonce a value added process is completed you can charge more for your
good or service
Each of four layout designs
oassembly - workers do a few tasks
omodular - teams of workers produce more complex units
oprocess - similar equipment grouped together
ofixed position - major construction projects
statistical quality control and statistical process control ensure products meet
standards all along the production process, thereby reducing inspections at the
end of the process, applies the Deming cycle: Plan, Do, Check, Act (see further
discussion in the section on quality control)
Materials Requirement Planning:
Materials requirement planning –using sales forecasts to schedule material
Enterprise resource planning :
omanage all operations based on customer and sales information (see
Figure 10.4 on page 303)
oresults in: shorter time period between orders and payment, less staff to
do ordering and order processing, reduced inventories, better customer
omonitor quality and customer satisfaction
obut issue of managing all this data
searches for material inputs, finds best suppliers, negotiates prices
rely on fewer suppliers today given the amount of information shared
Just-in-Time Inventory Control:
Minimizes warehouse storage costs, obsolescence, theft, and damage costs
Issues with: accurate production schedules, logistics with suppliers and reliability
of suppliers
Quality control – consistently produce what customers want:
problems with quality tests at the end of a process: requires extra staff, incurs
cost of re-work or scrap, costs of lost future sales (therefore a never ending
different types of costs associated with quality:
oprevention costs - everything done to prevent defects from occurring
related to staff training
oinspection costs - everything done to ensure quality inputs are added to
the production process (minimized by having suppliers ISO certified)
ointernal failure costs - costs incurred with defective items before being
shipped to the customer (throwing out production, fixing faulty product,
loss in revenue from having to sell a product as a "second")
oexternal failure costs - costs incurred with defective items once sold to the
customer (warranty costs, lost future sales
six sigma is a standard of 3.4 defects / million opportunities
Quality in the service industry is difficult because it is so labor intensive
ISO is a worldwide federation of national standards( determining customer needs
including regulatory and legal requirements and ways to handle complaints,
process control, product testing, storage, delivery)
o17,000 standards with 1100 new standards yearly
o9000 series relate to quality
o14000 series relate to the environment