CHAPTER 5 services; capacity essentially limits the
rate of output possible.
Capacity – upper limit or ceiling on the load
that an operating unit can handle.
Load – number of physical units produced or
number of services performed
Operating unit – plant, department, machine
store or worker
Capacity – equipment, space and employee
skills
Capacity planning – a key strategic component
in designing the system. It encompasses many
basic decisions with long-term consequences
for the organization.
Goal of strategic capacity planning – achieve a
match between the long-term supply
capabilities of an organization and the predicted
level of long-term demand.
Reasons – changes in demand, technology,
environment and perceived threats or
opportunities
Factors that influence – stability of demand,
rate of technological change in equipment and
product design, and competitive factors, the
type of product or service and whether style
changes are important.
Overcapacity – causes operating costs that are
too high
Under capacity – causes strained resources and
possible loss of customer
Key questions
1. What kind of capacity is needed?
2. How much is needed to match
demand?
3. When is it needed?
Capacity decisions are strategic
1. Capacity decisions have a real impact
on the ability of the organization to
meet future demands for products and
.
2. Capacity decisions affect operating
costs.
3. Capacity is usually a major determinant
of initial cost.
4. Capacity decisions often involve long-
term commitment of resources and the
fact that, once they are implemented,
those decisions may be difficult or
impossible to modify without incurring
major costs.
5. Capacity decisions can affect
competitiveness.
6. Capacity affects the ease of
management
7. Globalization has increased the
importance and the complexity of
capacity decisions.
8. Because capacity decisions often
involve substantial financial and other
resources, it is necessary to plan for
them far in advance.
Two useful definitions
1. Design capacity – maximum output rate
or service capacity an operation,
process or facility is designed for or
achieved under ideal conditions
2. Effective capacity – design capacity
minus allowances such as personal time
and maintenance of equipment, lunch
breaks, coffee breaks, problems in
scheduling and balancing operations,
and similar circumstances
Two measures of system effectiveness
1. Efficiency – ratio of actual output to
effective capacity, acts as a lid on actual
output
 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦
𝐴𝑐𝑡𝑢𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡
= 𝑥 100%
𝐸𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦
2. Capacity utilization – ratio of actual
output to design capacity depends on
being able to increase effective
capacity. Benefits of high utilization are
realized only when there is demand for
the output. Disadvantage is
counterproductive and operating costs
may increase because of increasing
waiting time due to bottleneck
conditions.
𝑈𝑡𝑖𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛
𝐴𝑐𝑡𝑢𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡
= 𝑥 100%
𝐷𝑒𝑠𝑖𝑔𝑛 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦
Determinants of effective capacity
1. Facilities
2. Product and Service factors
3. Process factors
4. Human factors
5. Policy factors
6. Operational factors
7. Supply chain factors
8. External factors
Strategy formulation
Three primary strategies
1. Leading capacity strategy builds
capacity in anticipation of future
demand increases. If capacity
increases involve a long lead time
this strategy may be the best
option.
2. Following strategy builds capacity
when demand exceeds current
capacity
3. Tracking strategy is similar to a
following strategy, but it adds
capacity in relatively small
increments to keep pace with
increasing demand
Capacity strategy are based on
assumptions and predictions about
1. long-term demand patterns
2. technological changes
3. behavior of competitors
Involves
1. Growth rate and variability of
demand
2. Costs of building and operating
facilities of various sizes
3. Rate and direction of technological
innovation
4. Likely behavior of competitors
5. Availability of capital and other
inputs
Capacity cushion – an amount of capacity in
excess of expected demand when there is some
uncertainty about demand, extra capacity used
to offset demand uncertainty
Capacity cushion = capacity –
expected demand
* the greater the degree of demand
uncertainty, the greater the amount of cushion
used *
* organizations that have standard products or
services generally have smaller capacity
cushions *
Steps in the capacity planning process
1. Estimate future capacity
requirements.
2. Evaluate existing capacity and
facilities and identify gaps.
3. Identify alternatives for meeting
requirements.
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.
7. Implement the selected alternative.
8. Monitor results.
Forecasting capacity requirements
Long-term considerations – overall level of
capacity such as facility size
Short-term considerations – probable
variations in capacity requirements created
by such things as seasonal, random and
irregular fluctuations in demand
Long-term capacity needs require forecasting
demand over a time horizon and then
converting those forecasts into capacity
requirements. Basic patterns there are more
complex patterns, such as a combination of
cycles and trends. Alternatives include
expansion or contraction of an existing facility,
opening or closing branch facilities, and
relocation of existing operations.
Trends issues when identified
1. How long the trend might persist
2. Slope of the trend
Cycles focus when identified
1. Approximate length of cycles
2. Amplitude of the cycles
Short-term capacity needs are less concerned
with cycles or trends than with seasonal
variations and other variations from average.
These deviations are particularly important
because they can place a severe strain on a
system’s ability to satisfy demand at some
times and yet result in idle capacity at other
times.
Additional challenges of planning service
capacity
Three important factors in planning
service capacity
1. There may be a need to be near
customers
2. Inability to store services
3. Degree of volatility of demand
Demand management strategies can be used
to offset capacity limitations. Pricing,
promotions, discounts, and similar tactics can
help to shift some demand away from peak
periods and into slow periods, allowing
organizations to achieve a closer match in
supply and demand.
Do it in-house or outsource it?
Reasons of outsourcing
1. Available capacity an organization
has available the equipment,
necessary skills, and time, it often
makes sense to produce an item or
perform a service in-house. The
additional costs would be relatively
small compared with those
required to buy items or
subcontract services. On the other
hand, outsourcing can increase
capacity and flexibility.
2. Expertise. If a firm lacks the
expertise to do a job satisfactorily,
buying might be a reasonable
alternative.
3. Quality considerations. Firms that
specialize can usually offer higher
quality than an organization can
attain itself. Conversely, unique
quality requirements or the desire
to closely monitor quality may
cause an organization to perform a
job itself.
4. The nature of demand. When
demand for an item is high and
steady, the organization is often
better off doing the work itself.
However, wide fluctuations in
demand or small orders are usually
better handled by specialists who
are able to combine orders from
multiple sources, which results in
higher volume and tend to offset
individual buyer fluctuations.
5. Cost. Any cost savings achieved
from buying or making must be
weighed against the preceding
factors. Cost savings might come
from the item itself or from
transportation cost savings. If there
are fixed costs associated with
making an item that cannot be
reallocated if the service or product
 is outsourced, that has to be
recognized in the analysis.
Conversely, outsourcing may help a
firm avoid incurring fixed costs.
6. Risks. Buying goods or services may
entail considerable risks. Loss of
direct control over operations,
knowledge sharing, and the
possible need to disclose
proprietary information are three
risks. And liability can be a
tremendous risk if the products or
services of other companies cause
harm to customers or the
environment, as well as damage to
an organization’s reputation.
Reputation can also be damaged if
the public discovers that a supplier
operates with substandard working
conditions.
Developing capacity strategies
Ways to enhance development of
capacity strategies
1. Design flexibility into systems –
less modification for expansion
2. Take stage of life cycle into account
– life cycle (1) introduction phase
determining the size of the market
and organization’s eventual share
of that market (2) growth phase
rapid growth, increase in profit and
increase in output levels (3)
maturity phase size of the market
levels off, stable market shares (4)
decline phase underutilization of
capacity due to declining demand
3. Take a “big-picture” approach to
capacity changes – how parts of the
system interrelate
Bottleneck operation – is an
operation in a sequence of
operations whose capacity is
lower than the capacities of
other operations in the
sequence. As a consequence,
the capacity of the bottleneck
operation limits the system
capacity; the capacity of the
system is reduced to the
capacity of the bottleneck
operation.
4. Prepare to deal with capacity
chunks – excess or produce short
5. Attempt to smooth out capacity
requirements – unevenness in
capacity requirements
6. Identify the optimal operating
level – ideal or optimal level of
operation in terms of unit cost of
output
At the ideal level, cost per unit
is the lowest for that
production unit
Economies of scale – if the
output is less than the optimal
level, increasing the output rate
will result in decreasing average
cost unit costs
Reasons
a) Fixed costs are
spread over more
units, reducing the
fixed cost per unit.
b) Construction costs
increase at a
decreasing rate
with respect to the
size of the facility to
be built.
c) Processing costs
decrease as output
rates increase
because operations
become more
standardized, which
reduces unit costs.
Diseconomies of scale – if
output is increased beyond
optimal level, average unit costs
would become increasingly
larger
Reasons
a) Distribution costs
increase due to
traffic congestion
 and shipping from
one large Steps in resolving constraints issues
centralized facility 1. Identify the most pressing
instead of several constraint. If it can easily be
smaller, overcome, do so, and return to Step
decentralized 1 for the next constraint.
facilities. Otherwise, proceed to Step 2.
b) Complexity 2. Change the operation to achieve
increases costs; the maximum benefit, given the
control and constraint. This may be a short-
communication term solution.
become more 3. Make sure other portions of the
problematic. process are supportive of the
c) Inflexibility can be constraint (e.g., bottleneck
an issue. operation).
d) Additional levels of 4. Explore and evaluate ways to
bureaucracy exist, overcome the constraint. This will
slowing decision depend on the type of constraint.
making and For example, if demand is too low,
approvals for advertising or price change may be
changes. an option. If capacity is the issue,
7. Choose a strategy if expansion is working overtime, purchasing new
involved – incremental expansion equipment, and outsourcing are
or single step, factors, lead, follow possible options. If additional funds
or track. Leading is more risky but are needed, working to improve
have greater reward cash flow, borrowing, and issuing
stocks or bonds may be options. If
Constraint management suppliers are a problem, work with
them; find more desirable suppliers,
Constraint – something that limits the or in source. If knowledge or skills
performance of a process or system in achieving are needed, seek training or
its goals. Constraint management is often based consultants, or outsource. If laws or
on the work of Eli Goldratt ( The Theory of regulations are the issue, working
Constraints ), and Eli Schragenheim and H. with lawmakers or regulators may
William Dettmer ( Manufacturing at Warp be an option.
Speed ). 5. Repeat the process until the level of
constraints is acceptable.
Seven Categories
1. Market – insufficient demand Evaluating alternatives
2. Resource – too little or more
3. Material – too little or more Cost-volume analysis – focuses on relationships
4. Financial – insufficient funds between cost, revenue, and volume of output.
5. Supplier – unreliable, long lead The purpose of cost–volume analysis is to
time, substandard estimate the income of an organization under
6. Knowledge or competency – different operating conditions. It is particularly
needed knowledge or skills missing useful as a tool for comparing capacity
7. Policy – laws or regulations alternatives.
interfere
Fixed cost – tend to remain constant regardless
of volume of output. Examples include rental
costs, property
taxes, equipment costs, heating and cooling
expenses, and certain administrative costs.
Total Cost (TC) = Fixed cost (FC) + Variable cost
(VC)
Variable cost – vary directly with volume of
output. The major components of variable costs
are generally materials and labor costs. We will
assume that variable cost per unit remains the
same regardless of volume of output, and that
all output can be sold.
Variable cost (VC) = Quantity of output (Q) x
Variable cost per unit (v)
Revenue per unit, like variable cost per unit, is
assumed to be the same regardless of quantity
of output.
Total Revenue (TR) = Revenue (R) x Quantity (Q)
Break-even point volume at which total cost
and total revenue are equal
* When volume is less than the
break-even point, there is a
loss; when volume is greater
than the break-even point,
there is a profit. The greater the
deviation from this point, the
greater the profit or loss.
Profit (P) = TR – TC = R x Q – (FC + v x Q)
rearrange as P = Q(R - v) – FC
Contribution margin – the difference between
the revenue per unit and variable cost per unit
(R - v)
Required volume
𝑃+𝐹𝐶
𝑄=
𝑅−𝑣
Break-even point
𝐹𝐶
𝑄𝐵𝐸𝑃 =
𝑅−𝑣
Indifference point – the quantity at which a
decision maker would be indifferent between
two competing alternatives
Step cost – cost that increase stepwise as
potential volume increases
Cost–volume analysis can be a valuable
tool for comparing capacity alternatives if
certain assumptions are satisfied:
1. One product is involved.
2. Everything produced can be sold.
3. The variable cost per unit is the same
regardless of the volume.
4. Fixed costs do not change with volume
changes, or they are step changes.
5. The revenue per unit is the same
regardless of volume.
6. Revenue per unit exceeds variable cost
per unit.
Cost–volume analysis works best
with one product or a few products that
have the same cost characteristics. A
notable benefit of cost–volume
considerations is the conceptual framework
it provides for integrating cost, revenue,
and profit estimates into capacity decisions.
If a proposal looks attractive using cost–
volume analysis, the next step would be to
develop cash flow models to see how it
fares with the addition of time and more
flexible cost functions.
Financial Analysis – allocation of scarce funds
by operations personnel to rank investment
proposals, taking into account the time value of
money
Two terms
1. Cash flow – the difference between the
cash received from sales (of goods or
services) and other sources (e.g., sale of
old equipment) and the cash outflow
for labor, materials, overhead, and
taxes.
2. Present value - expresses in current
value the sum of all future cash flows of
an investment proposal.

Three methods
1. Payback is a crude but widely used
method that focuses on the length of
time it will take for an investment to
return its original cost. For example, an
investment with an original cost of
$6,000 and a monthly net cash flow of
$1,000 has a payback period of six
months. Payback ignores the time value
of money. Its use is easier to rationalize
for short-term than for longterm
projects.
2. The present value (PV) method
summarizes the initial cost of an
investment, its estimated annual cash
flows, and any expected salvage value
in a single value called the equivalent
current value, taking into account the
time value of money (i.e., interest
rates).
3. The internal rate of return (IRR)
summarizes the initial cost, expected
annual cash flows, and estimated future
salvage value of an investment proposal
in an equivalent interest rate. In other
words, this method identifies the rate
of return that equates the estimated
future returns and the initial cost.
Decision Theory
Decision theory is a helpful tool for
financial comparison of alternatives under
conditions of risk or uncertainty. It is suited to
capacity decisions and to a wide range of other
decisions managers must make. It involves
identifying a set of possible future conditions
that could influence results, listing alternative
courses of action, and developing a financial
outcome for each alternative–future condition
combination.
Waiting-Line Analysis
Analysis of lines is often useful for
designing or modifying service systems. Waiting
lines have a tendency to form in a wide variety
of service systems (e.g., airport ticket counters,
telephone calls to a cable television company,
hospital emergency rooms). The lines are
symptoms of bottleneck operations. Analysis is
useful in helping managers choose a capacity
level that will be cost-effective through
balancing the cost of having customers wait
with the cost of providing additional capacity. It
can aid in the determination of expected costs
for various levels of service capacity.
Simulation
Simulation can be a useful tool in
evaluating what-if scenarios. Simulation is
described on the book’s Web site.
Operations Strategy
Flexibility can be a key issue in capacity
decisions, although flexibility is not always an
option, particularly in capital-intensive
industries. However, where possible, flexibility
allows an organization to be agile—that is,
responsive to changes in the marketplace. Also,
it reduces to a certain extent the dependence
on long-range forecasts to accurately predict
demand. And flexibility makes it easier for
organizations to take advantage of
technological and other innovations.
Maintaining excess capacity (a capacity cushion)
may provide a degree of flexibility, albeit at
added cost.
Some organizations use a strategy of
maintaining a capacity cushion for the purpose
of blocking entry into the market by new
competitors. The excess capacity enables them
to produce at costs lower than what new
competitors can. However, such a strategy
means higher-than-necessary unit costs, and it
makes it more difficult to cut back if demand
slows, or to shift to new product or service
offerings.
Bottleneck management can be a way
to increase effective capacity, by scheduling
non bottleneck operations to achieve maximum
utilization of bottleneck operations.
Two strategies for determining the
timing and degree of capacity expansion
1. Expand-early management – before
the demand materializes, intent might
 be to achieve economies of scale, to
expand market share, or to preempt
competitors from expanding. The risks
of this strategy include an oversupply
that would drive prices down, and
underutilized equipment that would
result in higher unit costs.
2. Wait and see strategy – to expand
capacity only after demand
materializes, its advantages include a
lower chance of oversupply due to
more accurate matching of supply and
demand, and higher capacity utilization.
The key risks are loss of market share
and the inability to meet demand if
expansion requires a long lead time.
3. Capacity disposal – need to replace
aging equipment with newer
Chapter 6
Process Selection and Facility Layout
Process Selection: refers to deciding on the way
production of goods or services will be
organized. Key aspects include
1. Capital Intensity: the mix of equipment
and labor that will be used by the
organization.
2. Process Flexibility: the degree to which
the system can be adjusted to changes in
processing requirements due to such
factors as changes in product or service
design, changes in volume processed,
and changes in technology.
Three primary questions bear on process
selection:
1. How much variety in products or
services will the system need to handle?
2. What degree of equipment flexibility
will be needed?
3. What is the expected volume of output?
Process Types:
1. Job Shop: A job shop usually operates on
a relatively small scale. It is used when a
low volume of high-variety goods or
services will be needed. Processing is
intermittent.
2. Batch: Batch processing is used when a
moderate volume of goods or services is
desired, and it can handle a moderate
variety in products or services.
3. Repetitive: When higher volumes of
more standardized goods or services are
needed, repetitive processing is used.
4. Continuous: When a very high volume of
nondiscrete, highly standardized output
is desired, a continuous system is used.
These systems have almost no variety in
output and, hence, no need for
equipment flexibility.
5. Project: A project is used for work that
is nonroutine, with a unique set of
objectives to be accomplished in a
limited time frame.
Product or Service Profiling: can be used to avoid
any inconsistencies by identifying key product or
service dimensions and then selecting
appropriate processes.
Sustainable Production: (Lowell Center for
Sustainable Production) is the creation of goods
and services using processes and systems that
are: non-polluting; conserving of energy and
natural resources; economically efficient; safe
and healthful for workers, communities, and
consumers; and socially and creatively
rewarding for all working people.
Lean Design: also focuses on variance reduction
in workload over the entire process to achieve
level production and thereby improve process
flow.
Lean Process Design: has broad applications in
seemingly diverse areas such as health care
delivery systems, manufacturing, construction
projects, and process reengineering.
Technological Innovation: refers to the discovery
and development of new or improved products,
services, or processes for producing or providing
them.
Technology: refers to applications of scientific
discoveries to the development and
improvement of goods and services and/or the
processes that produce or provide them.
 High Technology: refers to the most
advanced and developed equipment
and methods.
 Process Technology: includes methods,
procedures, and equipment used to
produce goods and provide services.
 Information Technology (IT): is the
science and use of computers and other
electronic equipment to store, process,
and send information.
Automation: is machinery that has sensing and
control devices that enable it to operate
automatically.
 Fixed Automation: is the least flexible. It
uses high-cost, specialized equipment
for a fixed sequence of operations.
 Programmable Automation: involves the
use of high-cost, general-purpose
equipment controlled by a computer
program that provides both the
sequence of operations and specific
details about each operation.
Computer-Aided Manufacturing (CAM): refers to
the use of computers in process control, ranging
from robots to automated quality control.
Numerically Controlled (N/C) Machines: are
programmed to follow a set of processing
instructions based on mathematical
relationships that tell the machine the details of
the operations to be performed.
Computerized Numerical Control (CNC): refers to
individual machines that have their own
computer.
Direct Numerical Control (DNC): one computer
may control a number of N/C machines.
Flexible Automation: evolved from
programmable automation.
Flexible Manufacturing System (FMS): is a group
of machines that include supervisory computer
control, automatic material handling, and robots
or other automated processing equipment.
Computer-Integrated Manufacturing (CIM): is a
system that uses an integrating computer
system to link a broad range of manufacturing
activities, including engineering design, flexible
manufacturing systems, purchasing, order
processing, and production planning and
control.
Layout: refers to the configuration of
departments, work centers, and equipment,
with particular emphasis on movement of work
(customers or materials) through the system.
Layout decisions are important for three basic
reasons:
1. they require substantial investments of
money and effort;
2. they involve long-term commitments,
which makes mistakes difficult to
overcome; and
3. they have a significant impact on the
cost and efficiency of operations.
The basic objective of layout design is to
facilitate a smooth flow of work, material, and
information through the system.
The three basic types of layout are
 Product:
 o Product layouts are most
conducive to repetitive
processing.
o are used to achieve a smooth
and rapid flow of large volumes
of goods or customers through a
system.
 Process:
o process layouts are used for
intermittent processing.
o are designed to process items or
provide services that involve a
variety of processing
requirements.
 Fixed-Position
o fixed-position layouts are used
when projects require layouts.
o the item being worked on
remains stationary, and
workers, materials, and
equipment are moved about as
needed.
Repetitive Processing: Product Layouts
In manufacturing environments, the lines are
referred to as production lines or assembly
lines.
Assembly line: Standardized layout arranged
according to a fixed sequence of assembly tasks.
Production line: Standardized layout arranged
according to a fixed sequence of production
tasks.
The main advantages of product layouts are
1. A high rate of output.
2. Low unit cost due to high volume.
3. Labor specialization, which reduces
training costs and time, and results in a
wide span of supervision.
4. Low material-handling cost per unit.
5. A high utilization of labor and
equipment.
6. The establishment of routing and
scheduling in the initial design of the
system.
7. Fairly routine accounting, purchasing,
and inventory control.
U-shaped Line: is more compact; it often
requires approximately half the length of a
straight production line.
Nonrepetitive Processing: Process Layouts
Intermittent processing: Nonrepetitive
processing
Machine Shop: which has separate departments
for milling, grinding, drilling, and so on.
Variable-Path Material Handling Equipment
(forklift trucks, jeeps, tote boxes): is needed to
handle the variety of routes and items.
General-Purpose Equipment: provides the
flexibility necessary to handle a wide range of
processing requirements.
Fixed-Position Layouts
Combination Layouts: The three basic layout
types are ideal models, which may be altered to
satisfy the needs of a particular situation.
Cellular Production: is a type of layout in which
workstations are grouped into what is referred
to as a cell.
Part Families: Set of similar items
Single-Minute Exchange of Die (SMED): enables
an organization to quickly convert a machine or
process to produce a different (but similar)
product type.
Right-sized Equipment: is often smaller than
equipment used in traditional process layouts,
and mobile.
Group Technology: involves identifying items
with similarities in either design characteristics
or manufacturing characteristics, and grouping
them into part families.
Service Layouts: can often be categorized as
product, process, or fixed-position layouts.
Warehouse and Storage Layouts: The design of
storage facilities presents a different set of
factors than the design of factory layouts.
Retail Layouts: The objectives that guide design
of manufacturing layouts often pertain to cost
minimization and product flow.
Office layouts: are undergoing transformations
as the flow of paperwork is replaced with the
increasing use of electronic communications.
Automation in Services: Automating services
means more-standardized services and less need
to involve the customer directly.
Line Balancing: The process of deciding how to
assign tasks to workstations.
Idle Time: occurs if task times are not equal
among workstations.
Unbalanced Lines: are undesirable in terms of
inefficient utilization of labor and equipment and
because they may create morale problems at the
slower stations for workers who must work
continuously.
Cycle Time: is the maximum time allowed at
each workstation to perform assigned tasks
before the work moves on.
Precedence Diagram: It visually portrays the
tasks that are to be performed along with the
sequential requirements, that is, the order in
which tasks must be performed.
Heuristic (Intuitive) Rules: which provide good
and sometimes optimal sets of assignments.
Balance Delay: Percentage of idle time of a line.
Technological Constraints: tell us which
elemental tasks are eligible to be assigned at a
particular position on the line.
Output Constraints: determine the maximum
amount of work that a manager can assign to
each workstation.
Following Tasks: are all tasks that you would
encounter by following all paths from the task in
question through the precedence diagram.
Preceding Tasks: are all tasks you would
encounter by tracing all paths backward from
the task in question.
Positional Weight: for a task is the sum of the
task times for itself and all its following tasks.
Parallel Workstations: These are beneficial for
bottleneck operations which would otherwise
disrupt the flow of product as it moves down the
line.
Cross-train Workers: they are able to perform
more than one task.
Dynamic Line Balancing: used most often in lean
production systems.
Mixed Model Line: design a line to handle more
than one product on the same line.
Material-Oriented Systems: necessitate the use
of variable-path material-handling equipment to
move materials from work center to work
center.
Customer-Oriented Systems: people must travel
or be transported from work center to work
center.
Muther suggests the following list:
1. They use same equipment or facilities.
2. They share the same personnel or
records.
3. Required sequence of work flow.
 4. Needed for ease of communication.
5. Would create unsafe or unpleasant
conditions.
6. Similar work is performed.
Chapter 7
Work Design and Measurement
Working Conditions: are an important aspect of
job design.
 Temperature and Humidity: work
performance tends to be adversely
affected if temperatures or humidities
are outside a very narrow comfort band
 Ventilation: Unpleasant and noxious
odors can be distracting and dangerous
to workers.
 Illumination: The amount of illumination
required depends largely on the type of
work being performed; the more
detailed the work, the higher the level of
illumination needed for adequate
performance.
 Noise and Vibrations: Noise is unwanted
sound. Vibrations can come from tools,
machines, vehicles, human activity, air-
conditioning systems, pumps, and other
sources.
 Work Time and Work Breaks:
Reasonable (and sometimes flexible)
work hours can provide a sense of
freedom and control over one’s work.
 Occupational Health Care: Good worker
health contributes to productivity,
minimizes health care costs, and
enhances workers’ sense of well-being.
 Safety: Worker safety is one of the most
basic issues in job design.
The two basic causes of accidents are worker
carelessness and accident hazards.
Protection against hazards involves use of
proper lighting, clearly marked danger zones,
use of protective equipments, safety devices,
emergency equipment, and thorough instruction
in safety procedures and use of regular and
emergency equipment.
Housekeeping: (clean floors, open aisles, waste
removal) is another important safety factor.
Occupational Safety and Health Administration
(OSHA): emphasized the importance of safety
considerations in systems design.
Ethical Issues: Ethical issues affect operations
through work methods, working conditions and
employee safety, accurate record keeping,
unbiased performance appraisals, fair
compensation, and opportunities for
advancement.
Compensation: is a significant issue for the
design of work systems.
Time-based Systems (Hourly and Measured
Daywork Systems): compensate employees for
the time the employee has worked during a pay
period.
 Individual incentives
 Group incentives
Output-based (Incentive) Systems: compensate
employees according to the amount of output
they produce during a pay period, thereby tying
pay directly to performance.
Straight Piecework: a worker’s pay is a direct
linear function of his or her output.
Group Incentive Plans: A variety of group
incentive plans, which stress sharing of
productivity gains with employees, are in use.
Team Approach: The emphasis is on team, not
individual, performance.
Knowledge-based Pay: It is a portion of a
worker’s pay that is based on the knowledge and
skill that the worker possesses.
 Horizontal Skills: reflect the variety of
tasks the worker is capable of
performing.
 Vertical Skills: reflect managerial tasks
the worker is capable of.
 Depth Skills: reflect quality and
productivity results
Management Compensation: Many
organizations that traditionally rewarded
managers and senior executives on the basis of
output are now seriously reconsidering that
approach.
Recent Trends: Many organizations are moving
toward compensation systems that emphasize
flexibility and performance objectives, with
variable pay based on performance.
Job Design: involves specifying the content and
methods of jobs.
 Efficiency School: emphasizes a
systematic, logical approach to job
design.
 Behavioral School: emphasizes
satisfaction of wants and needs.
Specialization: describes jobs that have a very
narrow scope.
Job Enlargement: means giving a worker a larger
portion of the total task.
 Horizontal Loading: the additional work
is on the same level of skill and
responsibility as the original job.
Job Rotation: means having workers periodically
exchange jobs.
Job Enrichment: involves an increase in the level
of responsibility for planning and coordination
tasks.
 Vertical Loading
Motivation: is a key factor in many aspects of
work life.
Trust: Another factor that influences motivation,
productivity, and employee–management
relations.
Self-Directed Teams or Self-Managed Teams: are
designed to achieve a higher level of teamwork
and employee involvement.
Ergonomics: (or human factors) is the scientific
discipline concerned with the understanding of
interactions among humans and other elements
of a system, and the profession that applies
theory, principles, data and methods to design in
order to optimize human well-being and overall
system performance.
Three domains:
 Physical (e.g., repetitive movements,
layout, health, and safety)
 Cognitive (mental workload, decision
making, human–computer interaction,
and work stress)
 Organizational (e.g., communication,
teamwork, work design, and telework)
Methods Analysis: focuses on how a job is done.
Selecting an Operation to Study: Sometimes a
foreman or supervisor will request that a certain
operation be studied.
Some general guidelines for selecting a job to
study are to consider jobs that
1. Have a high labor content.
2. Are done frequently.
3. Are unsafe, tiring, unpleasant, and/or noisy.
4. Are designated as problems (e.g., quality
problems, processing bottlenecks).
Documenting the Current Method: Use charts,
graphs, and verbal descriptions of the way the
job is now being performed.
Analyzing the Job and Proposing New Methods:
Job analysis requires careful thought about the
what, why, when, where, and who of the job.
 Flow Process Charts: used to review and
critically examine the overall sequence
of an operation by focusing on the
movements of the operator or the flow
of materials.
 Worker-machine Chart: is helpful in
visualizing the portions of a work cycle
during which an operator and
equipment are busy or idle.
Installing the Improved Method: Successful
implementation of proposed method changes
requires convincing management of the
desirability of the new method and obtaining the
cooperation of workers.
The Follow-Up: In order to ensure that changes
have been made and that the proposed method
is functioning as expected, the analyst should
review the operation after a reasonable period
and consult again with the operator.
Motion Study: is the systematic study of the
human motions used to perform an operation.
The most-used techniques are the following:
1. Motion study principles.
2. Analysis of therbligs.
3. Micromotion study.
4. Charts.
Motion Study Principles: are guidelines for
designing motion-efficient work procedures.
Three categories:
 Principles for use of the body.
 Principles for arrangement of the
workplace.
 Principles for the design of tools and
equipment.
Therbligs : are basic elemental motions. The
term therblig is Gilbreth spelled backward
(except for the th) . The approach is to break
jobs down into basic elements and base
improvements on an analysis of these basic
elements by eliminating, combining, or
rearranging them.
Basic elemental motions:
 Search: implies hunting for an item with
the hands and/or the eyes.
 Select: means to choose from a group of
objects.
 Grasp: means to take hold of an object.
 Hold: refers to retention of an object
after it has been grasped.
 Transport load: means movement of an
object after hold.
 Release load: means to deposit the
object.
Micromotion Study: Use of motion pictures and
slow motion to study motions that otherwise
would be too rapid to analyze.
 Simo Chart: used to study simultaneous
motions of the hands.
Work Measurement: is concerned with
determining the length of time it should take to
complete the job.
Standard Time: is the amount of time it should
take a qualified worker to complete a specified
task, working at a sustainable rate, using given
methods, tools and equipment, raw material
inputs, and workplace arrangement.
The most commonly used methods of work
measurement are:
  Stopwatch time study
 Historical times
 Predetermined data
 Work sampling
Stopwatch Time Study: is used to develop a time
standard based on observations of one worker
taken over a number of cycles.
The number of cycles that must be timed is a
function of three things:
1. the variability of observed times
2. the desired accuracy
3. the desired level of confidence for the
estimated job time.
Observed Time: The observed time is simply the
average of the recorded times.
Normal Time: The normal time is the observed
time adjusted for worker performance.
Standard Time: the normal time multiplied by an
allowance factor for these delays.
Standard Elemental Times: are derived from a
firm’s own historical time study data.
Predetermined Time Standards: involve the use
of published data on standard elemental times.
 Methods-time Measurement (MTM):
which was developed in the late 1940s
by the Methods Engineering Council.
 Times of the basic elements are
measured in Time Measurement Units
(TMUs).
Work Sampling: is a technique for estimating the
proportion of time that a worker or machine
spends on various activities and the idle time.
Two primary uses are in
 Ratio-delay studies, which concern the
percentage of a worker’s time that
involves unavoidable delays or the
proportion of time a machine is idle.
 Analysis of nonrepetitive jobs.
Random Number Table: consists of unordered
sequences of numbers (i.e., random).
Three sets of numbers from the table for each
observation:
 the first set will correspond to the day.
 the second to the hour.
 the third to the minute when the
observation is to be made.
Chapter 8
Location Planning and Analysis
Location Decisions: are closely tied to an
organization’s strategies.
Most organizations do not set out with the
intention of identifying the one best location;
rather, they hope to find a number of acceptable
locations from which to choose.
Supply Chain Management: must address supply
chain configuration. This includes determining
the number and location of suppliers,
production facilities, warehouses, and
distribution centers.
Four options in location planning:
 Expand an existing facility. This option
can be attractive if there is adequate
room for expansion, especially if the
location has desirable features that are
not readily available elsewhere.
 Add new locations while retaining
existing ones. This is done in many retail
operations.
 Shut down at one location and move to
another. An organization must weigh
the costs of a move and the resulting
benefits against the costs and benefits of
remaining in an existing location.
 Do nothing. If a detailed analysis of
potential locations fails to uncover
benefits that make one of the previous
 three alternatives attractive, a firm may
decide to maintain the status quo, at
least for the time being.
Two key factors are trade agreements and
technological advances:
 Trade Agreements: Barriers to
international trade such as tariffs and
quotas have been reduced or eliminated
with trade agreements.
 
 Technology: Technological advances in
communication and information sharing
have been very helpful.
List of Benefits:
 Markets: Companies often seek
opportunities for expanding markets for
their goods and services, as well as
better serving existing customers by
being more attuned to local needs and
having a quicker response time when
problems occur.
 Cost Savings: Among the areas for
potential cost saving are transportation
costs, labor costs, raw material costs,
and taxes.
 Legal and Regulatory: There may be
more favorable liability and labor laws,
and less restrictive environmental and
other regulations.
 Financial: Companies can avoid the
impact of currency changes that can
occur when goods are produced in one
country and sold in other countries.
 Other: Globalization may provide new
sources of ideas for products and
services, new perspectives on
operations, and solutions to problems.
There are a number of disadvantages of having
global operations.
 Transportation Costs: High
transportation costs can occur due to
poor infrastructure or having to ship
over great distances, and the resulting
costs can offset savings in labor and
materials costs.
 Security Costs: Increased security risks
and theft can increase costs.
 Unskilled labor: Low labor skills may
negatively impact quality and
productivity, and the work ethic may
differ from that in the home country.
Criticisms: Critics may argue that cost
savings are being generated through
unfair practices
Risks
 Political: Political instability and political
unrest can create risks for personnel
safety and the safety of assets.
 Terrorism: Terrorism continues to be a
threat in many parts of the world.
 Economic: Economic instability might
create inflation or deflation, either of
which can negatively impact
profitability.
 Legal: Laws and regulations may change,
reducing or eliminating what may have
been key benefits.
 Ethical: Corruption and bribery,
common in some countries, may be
illegal in a company’s home country.
 Cultural: Cultural differences may be
more real than apparent.
General procedure for making location decisions
1. Identifying a region, community or site.
2. Identifying a country.
3. Identifying a region.
4. Identifying a site.
5.
Another factor to consider is the currency and
exchange rate risk that occurs when producing
in one country and buying or selling in another
country.
The primary regional factors involve: Market Area Plant Strategy: With this strategy,
plants are designed to serve a particular
 Raw Materials
geographic segment of a market.
 Markets
 Labor Considerations. Process Plant Strategy: With this strategy,
different plants concentrate on different aspects
Location of Raw Materials: Firms locate near or of a process.
at the source of raw materials for three primary
reasons: necessity, perishability, and
transportation costs.

Location of Markets: Profit-oriented firms

General-Purpose Plant Strategy: With this
frequently locate near the markets they intend
strategy, plants are flexible and capable of
to serve as part of their competitive strategy.
handling a range of products.
Labor Factors: Primary labor considerations are
Geographic Information System (GIS): is a
the cost and availability of labor, wage rates in
computer-based tool for collecting, storing,
an area, labor productivity and attitudes toward
retrieving, and displaying demographic data on
work, and whether unions are a serious potential
maps.
problem.
Here are some of the ways businesses use
Other Factors: Climate and taxes sometimes play
geographical information systems:
a role in location decisions.
 Logistics companies use GIS data to plan
Microfactory: Small factory with a narrow
fleet activities such as routes and
product focus, located near major markets.
schedules based on the locations of their
Ethical Issues: Ethical issues can arise during customers.
location searches, so it is important for  Publishers of magazines and
companies and governments to have policies in newspapers use a GIS to analyze
place before that happens, and to keep ethical circulation and attract advertisers.
aspects of decisions in mind while negotiating  Real estate companies rely heavily on a
favorable treatment. GIS to make maps available online to
prospective home and business buyers.
The primary considerations related to sites are:
 Banks use a GIS to help decide where to
 Land locate branch banks and to understand
 Transportation and zoning the composition and needs of different
 Other restrictions market segments.
 Insurance companies use a GIS to
Multiple Plant Manufacturing Strategies: When determine premiums based on
companies have multiple manufacturing population distribution, crime figures,
facilities, they can organize operations in several and likelihood of natural disasters such
ways. as flooding in various locations, and to
Product Plant Strategy: With this strategy, entire manage risk.
products or product lines are produced in  Retailers are able to link information
separate plants, and each plant usually supplies about sales, customers, and
the entire domestic market.
 demographics to geographic locations
in planning locations.
 Utility companies use a GIS to balance
supply and demand, and identify
problem areas.
 Emergency services use a GIS to allocate
resources to locations to provide
adequate coverage where they are
needed.
Clustering: Similar types of businesses locate
near each other.
Locational Cost-Profit Volume Analysis:
Technique for evaluating location choices in
economic terms.
Approximate: ranges for which the various
alternatives will yield the lowest costs.
Exact: ranges can be determined by finding the
output level at which lines B and C and lines C
and A cross.
The Transportation Model: Transportation costs
sometimes play an important role in location
decisions. These can stem from the movement of
either raw materials or finished goods.
Factor Rating: is a technique that can be applied
to a wide range of decisions ranging from
personal to professional.
Center of Gravity Method: is a method to
determine the location of a facility that will
minimize shipping costs or travel time to various
destinations.
Chapter 9
Management Quality
Quality: refers to the ability of a product or
service to consistently meet or exceed customer
requirements or expectations.
Product Quality: Product quality is often judged
on eight dimensions of quality:
 Performance: main characteristics of the
product.
 Aesthetics: appearance, feel, smell,
taste.
 Special features: extra characteristics.
 Conformance: how well a product
corresponds to design specifications.
 Reliability: dependable performance.
 Durability: ability to perform over time.
 Perceived quality: indirect evaluation of
quality (e.g., reputation).
 Serviceability: handling of complaints or
repairs.
Service Quality: The dimensions of product
quality don’t adequately describe service
quality. Instead, service quality is often
described using the following dimensions:
 Convenience: the availability and
accessibility of the service.
 Reliability: the ability to perform a
service dependably, consistently, and
accurately.
 Responsiveness: the willingness of
service providers to help customers in
unusual situations and to deal with
problems.
 Time: the speed with which service is
delivered.
 Assurance: the knowledge exhibited by
personnel who come into contact with a
customer and their ability to convey
trust and confidence.
 Courtesy: the way customers are treated
by employees who come into contact
with them.
 Tangibles: the physical appearance of
facilities, equipment, personnel, and
communication materials.
 Consistency: The ability to provide the
same level of good quality repeatedly.
SERVQUAL: an instrument designed to obtain
feedback on an organization’s ability to provide
quality service to customers.
Design Phase: is the starting point for the level of
quality eventually achieved.
Quality of Design: refers to the intention of
designers to include or exclude certain features
in a product or service. For example, many
different models of automobiles are on the
market today.
Poor Design: can result in difficulties in
production or service.
Quality of Conformance: refers to the degree to
which goods and services conform to (i.e.,
achieve) the intent of the designers.
Ease of Use and User Instructions: are
important. They increase the chances, but do not
guarantee, that a product will be used for its
intended purposes and in such a way that it will
continue to function properly and safely.
Responsibility for Quality
 Top Management: has the ultimate
responsibility for quality.
 Design: quality products and services
begin with design.
 Procurement: department has
responsibility for obtaining goods and
services that will not detract from the
quality of the organization’s goods and
services.
 Production/Operations: has
responsibility to ensure that processes
yield products and services that conform
to design specifications.
 Quality Assurance: is responsible for
gathering and analyzing data on
problems and working with operations
to solve problems.
 Packaging and Shipping: This
department must ensure that goods are
not damaged in transit, that packages
are clearly labeled, that instructions are
included, that all parts are included, and
that shipping occurs in a timely manner.
 Marketing and Sales: This department
has the responsibility to determine
customer needs and to communicate
them to appropriate areas of the
organization.
 Customer Service: is often the first
department to learn of problems. It has
the responsibility to communicate that
information to appropriate
departments, deal in a reasonable
manner with customers, work to resolve
problems, and follow up to confirm that
the situation has been effectively
remedied.
Benefits of Good Quality
 an enhanced reputation for quality, the
ability to command premium prices, an
increased market share, greater
customer loyalty, lower liability costs,
and fewer production or service
problems.
Major areas affected by Quality
1. Loss of business
2. Liability
3. Productivity
4. Costs
Poor Designs or Defective Products or services
can result in loss of business.
Quality Costs:
 Appraisal Costs: relate to inspection,
testing, and other activities intended to
uncover defective products or services,
or to assure that there are none.
 Prevention Costs: relate to attempts to
prevent defects from occurring.
  Failure Costs: are incurred by defective
parts or products or by faulty services.
 Internal Failures: are those discovered
during the production process.
 External Failures: are those discovered
after delivery to the customer.
Rework Costs: involve the salaries of workers
and the additional resources needed to perform
the rework.
Resulting Costs: include warranty work, handling
of complaints, replacements, liability/litigation,
payments to customers or discounts used to
offset the inferior quality, loss of customer
goodwill, and opportunity costs related to lost
sales.
Return on Quality (ROQ): approach focuses on
the economics of quality efforts.
Ethical Behavior: comes into play in many
situations that involve quality.
THE EVOLUTION OF QUALITY MANAGEMENT
- A division of labor accompanied the
Industrial Revolution; each worker was
then responsible for only a small portion
of each product.
- Frederick Winslow Taylor, the “Father of
Scientific Management,” gave new
emphasis to quality by including product
inspection and gauging in his list of
fundamental areas of manufacturing
management.
- G. S. Radford improved Taylor’s
methods.
- In 1924, Bell Telephone Laboratories
introduced statistical control charts that
could be used to monitor production.
- 1930, H. F. Dodge and H. G. Romig, also
of Bell Labs, introduced tables for
sampling.
- The U.S. Army refined sampling
techniques for dealing with large
shipments of arms from many suppliers.
- By the end of the 1940s, the U.S. Army,
Bell Labs, and major universities were
training engineers in other industries in
the use of statistical sampling
techniques.
- 1940S, professional quality
organizations were emerging
throughout the country. One of these
organizations was the American Society
for Quality Control (ASQC, now known as
ASQ).
- During the 1950s, the quality movement
evolved into quality assurance.
- In the mid-1950s, total quality control
efforts enlarged the realm of quality
efforts from its primary focus on
manufacturing to also include product
design and incoming raw materials
- During the 1960s, the concept of “zero
defects” gained favor.
Zero Defects: focused on employee motivation
and awareness, and the expectation of
perfection from each employee.
- 1970s, quality assurance methods
gained increasing emphasis in services
including government operations,
health care, banking, and the travel
industry.
- The evolution of quality took a dramatic
shift from quality assurance to a
strategic approach to quality in the late
1970s.
Walter Shewhart: was a genuine pioneer in the
field of quality control, and he became known as
the “father of statistical quality control.” He
developed control charts.
W. Edwards Deming: a statistics professor at
New York University in the 1940s, went to Japan
after World War II to assist the Japanese in
improving quality and productivity.
Deming Prize: which is awarded annually to firms Baldrige Award: is administered by the National
that distinguish themselves with quality Institute of Standards and Technology. The
management programs. purpose of the award competition is to stimulate
efforts to improve quality, to recognize quality
Deming felt that it was management’s
achievements, and to publicize successful
responsibility to correct the system to achieve
programs.
the desired results.
- Applicants are evaluated in seven main
Joseph M. Juran: taught Japanese
areas: leadership, information and
manufacturers how to improve the quality of
analysis, strategic planning, human
their goods, and he, too, can be regarded as a
resource management, customer and
major force in Japan’s success in quality. Juran
market focus, process management, and
viewed quality as fitness-for-use.
business results.
Armand Feigenbaum: was instrumental in
Benefits of the Baldrige competition include the
advancing the “cost of nonconformance”
following:
approach as a reason for management to
commit to quality. He recognized that quality 1. Winners achieve financial success.
was not simply a collection of tools and 2. Winners share their knowledge.
techniques, but a “total field.” 3. The process motivates employees.
4. The process provides a well-designed
Philip B. Crosby: developed the concept of zero
quality system.
defects and popularized the phrase “Do it right
5. The process requires obtaining data.
the first time.” He stressed prevention, and he
6. The process provides feedback.
argued against the idea that “there will always
be some level of defectives.” European Quality Award: is Europe’s most
prestigious award for organizational excellence.
Kaoru Ishikawa: was strongly influenced by both
The European Quality Award sits at the top of
Deming and Juran. Among his key contributions
regional and national quality awards and
were the development of the cause-and-effect
applicants have often won one or more of those
diagram (also known as a fishbone diagram) for
awards prior to applying for the European
problem solving and the implementation of
Quality Award.
quality circles, which involve workers in quality
improvement. The Deming Prize: named in honor of the late W.
Edwards Deming, is Japan’s highly coveted
Genichi Taguchi: is best known for the Taguchi
award recognizing successful quality efforts. It is
loss function, which involves a formula for
given annually to any company that meets the
determining the cost of poor quality.
award’s standards.
Taiichi Ohno and Shigeo Shingo: both developed
ISO 9000: pertains to quality management. It
the philosophy and methods of kaizen, a
concerns what an organization does to ensure
Japanese term for continuous improvement
that its products or services conform to its
(defined more fully later in this chapter), at
customers’ requirements.
Toyota.
ISO 14000: concerns what an organization does
Quality Awards: have been established to
to minimize harmful effects to the environment
generate improvement in quality.
caused by its operations.
ISO 9000 standards include the following  One is a never-ending push to improve,
categories: which is referred to as continuous
improvement;
- System requirements
 Second is the involvement of everyone
- Management requirements
in the organization; and
- Resource requirements
 Third is a goal of customer satisfaction,
- Realization of requirements
which means meeting or exceeding
- Remedial requirements
customer expectations.
Eight quality management principles form the
We can describe the TQM approach as follows:
basis of the latest version of ISO 9000:
1. Find out what customers want.
1. A customer focus.
2. Design a product or service that will
2. Leadership.
meet (or exceed) what customers want.
3. Involvement of people.
3. Design processes that facilitate doing
4. A process approach.
the job right the first time.
5. A system approach to management.
4. Keep track of results, and use them to
6. Continual improvement.
guide improvement in the system.
7. Use of a factual approach to decision
5. Extend these concepts throughout the
making.
supply chain.
8. Mutually beneficial supplier
relationships. Fail-safing: Incorporating design elements that
prevent incorrect procedures.
The standards for ISO 14000 certification bear
upon three major areas: Pokayoke: Elements are incorporated in product
or service design that make it virtually impossible
 Management systems: systems
for an employee (or sometimes a customer) to
development and integration of
do something incorrectly.
environmental responsibilities into
business planning. Foolproofing: use of this term may be taken to
 Operations: consumption of natural imply that employees (or customers) are fools—
resources and energy. not a wise choice!
 Environmental systems: measuring,
A number of other elements of TQM are
assessing, and managing emissions,
important:
effluents, and other waste streams.
1. Continuous improvement: The
ISO 24700: pertains to the quality and
philosophy that seeks to improve all
performance of office equipment that contains
factors related to the process of
reused components.
converting inputs into outputs on an
A primary role of management is to lead an ongoing basis is called continuous
organization in its daily operation and to improvement.
maintain it as a viable entity into the future. 2. Competitive benchmarking: This
involves identifying other organizations
Total Quality Management (TQM): refers to a
that are the best at something and
quest for quality in an organization. There are
studying how they do it to learn how to
three key philosophies in this approach.
improve your operation.
 3. Employee empowerment: Giving
workers the responsibility for
improvements and the authority to
make changes to accomplish them
provides strong motivation for
employees.
4. Team approach: the use of teams for
problem solving and to achieve
consensus takes advantage of group
synergy, gets people involved, and
promotes a spirit of cooperation and
shared values among employees.
5. Decisions based on facts rather than
opinions: Management gathers and
analyzes data as a basis for decision
making.
6. Knowledge of tools: Employees and
managers are trained in the use of
quality tools.
7. Supplier quality: Suppliers must be
included in quality assurance and quality
improvement efforts so that their
processes are capable of delivering
quality parts and materials in a timely
manner.
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.
Kaizen: refer to continuous improvement.
Six sigma: A business process for improving
quality, reducing costs, and increasing customer
satisfaction.
Black belts: are project team leaders responsible
for implementing process improvement
projects.
DMAIC: A six-sigma process: define, measure,
analyze, improve, and control.
Lean/six sigma: An approach to continuous
improvement that integrates lean operation
principles and six-sigma techniques.
Basic steps in problem solving:
 Step 1 Define the problem and establish
an improvement goal.
 Step 2 Develop performance measures
and collect data.
 Step 3 Analyze the problem.
 Step 4 Generate potential solutions.
 Step 5 Choose a solution. Identify the
criteria for choosing a solution.
 Step 6 Implement the solution. Keep
everyone informed.
 Step 7 Monitor the solution to see if it
accomplishes the goal.
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.
 Do: Implement the plan, on a small scale
if possible.
 Study: Evaluate the data collection
during the do phase.
 Act: If the results are successful,
standardize the new method and
communicate the new method to all
people associated with the process.
Process improvement: is a systematic approach
to improving a process.
Overview of process improvement:
  Map the process
 Analyze the process
 Redesign the process

Flowcharts: is a visual representation of a

process.

Check Sheet: is a simple tool frequently used for

problem identification.

Histogram: can be useful in getting a sense of the

distribution of observed values.

Pareto Chart: A diagram that arranges categories

from highest to lowest frequency of occurrence.

Scatter diagram: A graph that shows the degree

and direction of relationship between two
variables.

Control chart: A statistical chart of time-ordered

values of a sample statistic (e.g., sample means).

Cause and effect diagram: A diagram used to

organize a search for the cause(s) of a problem;
also known as a fishbone diagram.

Run chart: can be used to track the values of a

variable over time.

Brainstorming: is a technique in which a group of

people share thoughts and ideas on problems in
a relaxed atmosphere that encourages
unrestrained collective thinking.

Quality Circles: One way companies have tapped

employees for ideas concerning quality
improvement is through quality circles. The
circles comprise a number of workers who get
together periodically to discuss ways of
improving products and processes.

Benchmarking: is an approach that can inject

new energy into improvement efforts.