BUS300 Study Guide

Site: Saylor Academy
Course: BUS300: Operations Management (2020.A.01)
Book: BUS300 Study Guide
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Date: Monday, December 4, 2023, 2:09 AM

Navigating this Study Guide

Study Guide Structure

In this study guide, the sections in each unit (1a., 1b., etc.) are the learning outcomes of that unit. 

Beneath each learning outcome are:

  • questions for you to answer independently;
  • a brief summary of the learning outcome topic; 
  • and resources related to the learning outcome. 

At the end of each unit, there is also a list of suggested vocabulary words.


How to Use this Study Guide

  1. Review the entire course by reading the learning outcome summaries and suggested resources.
  2. Test your understanding of the course information by answering questions related to each unit learning outcome and defining and memorizing the vocabulary words at the end of each unit.

By clicking on the gear button on the top right of the screen, you can print the study guide. Then you can make notes, highlight, and underline as you work.

Through reviewing and completing the study guide, you should gain a deeper understanding of each learning outcome in the course and be better prepared for the final exam!

Unit 1: Overview of Operations Management

1a. Define operations and operations management

  • What are the responsibilities of an operations manager?
  • What are the decisions that need to be made by an operations manager?

Operations management is how goods and services are created, produced, and delivered to the customer. This process can be quite complex, especially within a large organization where numerous departments are involved in the creation of these goods and services. Therefore, this process must be managed properly to meet customer needs and achieve organizational goals.

The Operations Manager is responsible for overseeing the process of how goods and services are manufactured and delivered. This covers a broad range of activities, including design, planning, procurement, finances, marketing, and other organizational functions. The extent that an Operations Manager is involved may depend on the organization's size, what is being produced, and the nature of the specific industry.

Some of the decisions that need to be made in this process include sourcing raw materials, the hiring and training of workers, where and how to produce the goods, and how to get those goods to customers.

The process becomes more complex when delivering services rather than actual goods. Consider how a hotel meets a specific guest's needs or how a hairdresser cuts a client's hair. It can be harder to satisfy a customer when the service is bought and used simultaneously.

To review, read Understanding Operations Management, Operations Management, and Service Operations.


1b. Differentiate between manufacturing and service operations

  • What are the specific activities involved in production planning, production control, and quality control?
  • What are the differences between service and manufacturing operations?
  • What are the operations activities of service providers?

Production planning requires a long-term strategy to ensure that the best approach is taken. Three basic types of processes – made-to-order, mass production, and mass customization – are evaluated to decide how to serve customer needs best.

Made-to-order involves goods that are customized to specific consumer requests, such as signs made by print shops. Mass production is when large numbers of identical products are made at low cost and are priced so that many customers can buy those goods. Mass customization is when large numbers of goods are produced at affordable prices, but can also be tailored to meet individual customer preferences such as shoes and apparel, which allow shoppers to make adjustments to meet their fit and taste requirements.

Production and quality control require constant monitoring of operations and output to ensure that the process is efficient and that the goods are consistent with standards and specifications.

Services differ from manufactured goods in that services are intangible, they can be customized, and they are produced at the same time that they are consumed. But, efficiency is equally important in the services sector as it is in manufacturing goods. Decisions that need to be made revolve around the types of services being offered, how they will be delivered, where they will be located, and how demand will be determined.

To review, read Operations Management in Manufacturing and Operations Management for Service Providers.


1c. Describe the role of an operations manager within an organization

  • What steps do managers take to ensure that operations are efficient and effective?
  • How can a manager work across departments to ensure organizational goals are being met?
  • How does a process perspective impact a manager's decision-making process?

Operations managers are responsible for all aspects of manufacturing activities, including long-term planning, procurement, logistics, and staffing. Managers must also decide on the optimal location for their production. Some of the factors to be considered include minimizing shipping costs, having availability to skilled workers and resources, and desirable locations for both workers and businesses.

Once a location has been determined, managers must decide on the demand for the products and the capacity requirements of the facility. This leads to a determination of plant equipment needs and the number of hours required to fulfill demand.

Additionally, attention to the overall process, integrating both internal and external factors, can provide managers with meaningful insight and provide them with a framework within which to address problems and issues that may arise. Specifically, examining the entire process can help managers work across all functions of the organization, achieve company goals between departments, and avoid fragmentation of operations and activities.

To review, read Understanding Operations Management and Functional Structure.


1d. Relate operations to the other functional areas of a business organization

  • What impact does the functional structure of an organization have on operations?
  • What is the strategic importance of Operations Management in a functional structure?

In a functional structure, organizations divide their activities into various areas, such as IT, finance, or marketing. One advantage of this design is that it allows individuals with similar skills and responsibilities to work closely together for greater effectiveness and efficiency. One drawback is that it may hinder communication with other departments, diminishing innovation, and creativity. To address this, many companies are implementing cross-functional teams so that members of each group can interact and share ideas and concepts.

When organizations transform inputs into outputs, they are creating goods and services that meet customer needs. When companies maximize the quality of this process, they can make it difficult for competitors to produce similar quality goods.

By closely controlling the operations management process, companies can achieve a competitive advantage. When functional areas within an organization can work together across disciplines, common organizational goals can be met.

To review, read Functional Structure and A Study of Process.


1e. Identify and apply the elements of the transformation model to the relationship between the inputs, processes, and outputs of an organization

  • In what ways does an operations manager utilize the transformation model to provide goods and services to customers?
  • What are the boundaries of an operations system?
  • What external factors influence operations?

The transformation process turns resources into finished goods. An operations manager must direct and oversee the inputs used to create an item. These inputs are classified as transformed resources and transforming resources. Transformed resources include materials, information, and customers. Transforming resources include staff and facilities.

The result of this process is an output that encompasses both goods and services that are created to meet customer needs.

The operations system allows managers to review every step of the transformation model, including inputs and outputs under the organization's control. However, external factors, such as suppliers, provide resources for the inputs; customers, who are the users of the outputs; and the environment, including technology, legislation, climate, competition, and other elements, are out of the control of the organization.

To review, read The Transformation Model and The Boundary of the Operations System.


Unit 1 Vocabulary

This vocabulary list includes terms that might help you with the review items above and some terms you should be familiar with to be successful in completing the final exam for the course.

Try to think of the reason why each term is included.

  • product operations
  • service providers
  • mass production
  • customization
  • strategic operations
  • tactical operations
  • intangibility
  • production planning
  • production control
  • quality control
  • site selection
  • capacity planning
  • transformation model
  • transformed resources
  • transforming resources
  • inputs
  • outputs
  • operations systems
  • functional areas and structure

Unit 2: Operations Strategy

2a. Identify the importance of operations strategy for creating corporate, business, and functional level strategies

  • What are the two main approaches to strategic management?
  • What are the five steps of strategic management?
  • What is the role of a Board in strategy development?
  • What is the function of a strategic architecture?
  • What are the main components of the planning process?

Strategic management is the broadest level of management within an organization in that it covers all aspects of an organization's operations. The industrial approach to management focuses on economic factors such as resource allocation, competition, and profit maximization. The sociological approach focuses on human interactions and behavior. Under these broad corporate strategies, operations for corporate, business, and functional activities are performed.

Strategic management encompasses all of the factors that impact the organization. This includes the mission and vision of the organization and the objective and policies that will lead to business growth. The steps for achieving these goals are analysis, strategy formulation, goal setting, structure, and feedback.

In determining strategic direction, Boards have generally been involved in only approving strategies and not necessarily setting them. Principally, this is because strategic planning is the responsibility of management and that a Board does not have the time or expertise to craft corporate direction. However, there are some situations where a greater Board involvement is needed, such as during a corporate crisis, a decline in productivity, or when a new CEO is brought on. Additionally, creating a process where directors can participate in the strategic planning process can result in greater knowledge of strategic planning, a more satisfying sense of involvement, and greater collaboration between the Board and top management.

Strategic architecture is a way to understand and control the complexities of an organization. The first step is to build the architecture, which explores the path of performance and the reasons for that performance. The next step is to use the architecture, which evaluates the current situation's details and what improvements are needed. The following step includes strategies for improvements and growth. The next activity defines how the process will be managed to ensure positive outcomes.

The planning process involves creating a corporate Mission Statement, which defines what the company does and why it exists. The next step is to analyze the company's internal and external environments. This is followed by setting organizational goals and objectives, and the tactics used to achieve those points.

To review, read Approaches to Strategic Management, Strategic Management, Who is Responsible for Strategy Development?, Building and Managing the Strategic Architecture, and Strategic Planning and Ten-Ten Planning.


2b. Explain the role of the value chain for operations strategy formulation

  • What is the role of a "brand" in the value chain?
  • How do economies of scale benefit the consumers?
  • How do companies compete with interchangeable brands?
  • How has technology expanded distribution channels?

A strong brand embodies all the company has to offer and can instill trust in consumers. A strong brand can set a company apart from other products in the marketplace and create a significant competitive advantage. If a customer cannot rely on a product, they will go elsewhere to solve their problems.

As companies grow, they can take advantage of economies of scale and produce their goods at a lower cost per item. This can be passed along to the consumer in the form of a lower selling price.

Since many products can be interchangeable, companies seek to differentiate themselves from the competition and offer a feature or benefit that is unique to their product. An example of this is orange juice, where one brand might highlight the source of the oranges, the lack of additives, or price.

The path by which a product reaches the consumer is essential to product success. Distribution channels have gone beyond traditional truck and rail routes to reach customers online via Amazon and their affiliates and Microsoft and Google.

To review, read Powerful Resources.


2c. discuss how operational competencies contribute to the development of a competitive advantage for an organization

  • What are Porter's Five Forces?
  • How do switching costs benefit an organization?
  • What is the impact of network effects on a company's position in the marketplace?
  • How can a company benefit from their intellectual property and other internal resources?

Porter's Five Forces are the rivalry among competitors, the threat of new entrants, the threat of substitute goods or services, buyers' bargaining power, and the bargaining power of sellers.

One of the factors that impacts each of these forces is technology. Consider the impact of email on document delivery services like the US Postal Service. Through email, we can send documents quickly without using any resources such as paper, stamps, or ink.

Government regulations can also impact the competitive advantage of an organization. Consider a food manufacturer that is now required to include more information on their packaging. What is the cost to re-design and distribute new goods?

Changes in demographics can also impact the operations of an organization. Population shifts of older consumers to warmer climates can impact the locations from which they are moving and the locations to which they are moving.

Switching costs are the expenses customers incur when they change from one tech provider to another. The company charges the customer for moving on to another product or service, which can deter the customer from making the change. This firms up the company's ownership of that customer, who may be reluctant to incur those costs.

As a company gains more customers or users, it becomes more attractive to other organizations. For example, a gaming company with a growing number of users may be more attractive to advertisers, related products or services, as well as potential employees.

Finally, intellectual property can provide companies with a competitive advantage, at least for a short time. An organization can protect its programs and innovations, but it can ultimately be copied. Companies are better served by protecting their employees' skills, corporate secrets, and manufacturing processes.

To review, read Key Framework: The Five Forces of Industry Competitive Advantage and Powerful Resources.


Unit 2 Vocabulary

This vocabulary list includes terms that might help you with the review items above and some terms you should be familiar with to be successful in completing the final exam for the course.

Try to think of the reason why each term is included.

  • strategic management
  • industrial approach
  • sociological approach
  • analysis
  • strategy formulation
  • goal setting
  • structure
  • feedback
  • boards
  • strategic architecture
  • the planning process
  • mission Statement
  • analysis
  • goals
  • objectives
  • tactics
  • brand
  • Porter's Five Forces
  • switching costs
  • network effects
  • intellectual property

Unit 3: Product Design and Process Selection

3a. Describe the steps in the product/service design process

  • What are the sources of innovation?
  • How are ideas generated and screened?
  • What are the steps management takes to conduct business analysis for a new business idea?
  • What questions need to be asked for the technical and marketing development of a new product idea?
  • What is involved in new product manufacturing, test marketing, and product release?

Corporate innovation is a function of a recognized need, the availability of skilled and knowledgeable workers, and financial resources. As companies identify market needs, they can utilize formal structures to conduct research both internally and externally. Additionally, innovations can be revealed through less formal activities such as making on-the-job revisions, reviewing consumer buying habits, and applying past experiences.

Ideas for new products come from customers, a company's internal research department, and other departments, the competition, market research, employees, and external sources. Brainstorming sessions are a popular strategy for new idea generation.

Once an idea has been determined, it is screened to determine whether it is worth pursuing. Some of the issues evaluated include whether customers will benefit from the product if it is technically possible for the company to produce the item and whether the company can realize a profit at a price consumers are willing to pay.

Once a new idea has been determined to be viable, management then determines a price for the product. This is based on the competition in the marketplace, as well as feedback from customers. This is followed by an estimate of potential sales, profitability, and the break-even point.

The first step in the technical development of a new product is to identify product specifications, followed by creating a prototype. At the same time, the marketing department will introduce the product to potential customers and create a marketing mix.

Questions that need to be answered include identifying the appropriate target market, the product features and benefits that will be most important to customers, potential customer reactions, production costs, and how to produce the item for maximum profitability.

Once a product is ready to be manufactured, a company must ensure that proper tooling, resources, finances, and skilled workers are in place. Marketing plans are ready to be implemented to coincide with product completion, and then the product is released to the public.

To review, see Innovation, Brainstorm to Box: Good Design, Igniting Creativity to Transform Corporate Culture, Increasing Returns on New Product Development Investments, and Following a Product Development Process.


3b. Discuss how managers can use the cost-volume-profit model to estimate profit level by volume

  • How does sensitivity analysis address changes in the variables that can alter profit levels?
  • What is the purpose of finding the target profit in units, and how is the profit equation used to determine this figure?

Variables that can impact profits include price adjustments, volume changes, and variations in fixed and variable costs.

When specifically exploring this interrelationship for volume, it is important to recognize that any sales volume changes will impact profit. Using a spreadsheet that illustrates all of the factors that can impact profits can enable an organization to clearly see how all of the elements are dependent on each other. Doing so makes it easy to see how a change in any one criterion can impact the others and enable a company to make more effective business decisions.

The profit equation can enable a company to set the target profit it would like to achieve. This can be based on various factors, with volume, or quantity, being of primary importance. The elements of this equation are:

S = Selling price per unit

V = Variable cost per unit

F = Total fixed costs

Q = Quantity of units produced and sold

Therefore, to determine the profit level by volume or quantity, the formula to use can be expressed as:

Q=(F+Target Profit) / (S-V)

To review, read Using Cost-Volume-Profit Models for Sensitivity Analysis and Cost-Volume-Profit Analysis for Single-Product Companies.


3c. Apply customer needs research methods as a way to improve design

  • What are the factors that define consumer behavior?
  • How do marketers influence consumer buying decisions?
  • How do companies utilize personal factors to meet our needs?

Consumers base their purchase decisions based on personal, situational, psychological, and social reasons. When a company understands the rationale behind these factors, they can better meet consumer needs and create products that offer features and benefits consumers are seeking.

Companies spend a great deal of time, money, and effort in researching trends to determine customer needs and how purchase decisions are made. Companies can also influence those decisions by creating store environments that reflect how consumers behave in a retail environment. Traffic patterns are carefully monitored, atmospherics are carefully controlled, and locations are carefully selected to ensure that our needs are met while also meeting organizational goals.

Organizations seek to understand our self-concept as well as our ideal self. Coupled with demographics and life-cycle, companies can determine what products and services improve the likelihood of purchasing those items.

To review, read Consumer Behavior and Product Development.


3d. Evaluate the appropriateness of applying project, batch, mass, and continuous process types

  • What are the benefits of a job/project production process, and how does it compare to mass production?
  • What are the characteristics of the batch process, and what are the common uses of this method?
  • What are the benefits of using a continuous process, and what industries most frequently utilize this method?

The job production process is used for one-off items such as a wedding cake or custom suit. This requires a great deal of time and a small number of workers. On the other hand, mass production processes are used to manufacture large numbers of items and are more likely to be produced by an automated mechanical process.

The batch process enables the shift of activities to periods of time when computer resources are less busy. It helps to reduce overtime by running a program only once for many transactions. It enables the systems to use different priorities for interactive and non-interactive work. The most common uses of a batch process include bulk database updates, the editing of image files, and converting files from one format to another.

In a continuous process, operations run on a 24-hour basis, 7 days a week, with only occasional shutdowns for maintenance or needed modifications. This process allows for production without interruption and is cost-effective since starting and stopping equipment takes time, effort, and is cost-effective. Operations are carefully planned, in advance, to maximize equipment, materials, and output. To ensure the safety of the environment and the workers, safety measures are adhered to at all times, and workers take rotating shifts.

To review, read Methods of Production, Batch Processing, and Continuous Production.


Unit 3 Vocabulary

This vocabulary list includes terms that might help you with the review items above and some terms you should be familiar with to be successful in completing the final exam for the course.

Try to think of the reason why each term is included.

  • innovation
  • idea generation
  • idea screening
  • product specifications & prototypes
  • marketing strategies
  • manufacturing readiness
  • product release
  • consumer behavior
  • personal factors
  • demographics
  • life cycles
  • retail atmospherics
  • in-store traffic patterns
  • self-concept
  • consumer trends
  • job production
  • mass production
  • batch process
  • continuous process
  • sensitivity analysis
  • cost-volume-profit
  • target profit in units
  • profit equation

Unit 4: Supply Chain Management (SCM)

4a. Apply the principles of supply chain management to various organizational settings

  • Why are there conflicting objectives in the supply chain process?
  • What are some of the challenges in today's global supply chain?
  • How can an organization maximize the benefits of an efficient supply chain?

Supply Chain Management addresses the integration of suppliers, manufacturers, storage facilities, and retailers to produce and distribute goods and services to consumers in the desired quantities at the desired times.

While this might imply that all players have the same or similar goals, there are actually situations where those goals may not be consistent. For example, while a purchasing department might want flexible delivery times, warehousing operators will likely want to keep low inventory. Customers may want a large variety of merchandise from which to choose, but manufacturers may not have the capacity to deliver.

Very long lead times in a global supply chain system can result in merchandise that is no longer desired once it arrives. Additionally, shifting customer expectations, coupled with an increase in labor costs in developing nations, can impact pricing and logistics costs. Further, sustainability has become more important to consumers, resulting in the need for greater oversight and new manufacturing practices.

Organizational expectations can also impact how a company responds to their suppliers and customers. An increase in outsourcing, with suppliers having goals that differ from the organization, can cause conflict. An awareness of these differences can lead to better supply chain management and more reasonable expectations.

By streamlining the logistics system, companies can realize higher profitability levels while also better meeting customer needs. Companies can also better match supply to demand while recognizing that this is not the only area of uncertainty on which to focus. By addressing a shorter product life cycle, the impact of eCommerce, and the emergence of a more informed customer base, companies can adapt their supply chain systems to ensure a more effective and efficient process.

Advances in technology have enabled all players in the supply chain to communicate throughout the process. For example, suppliers, manufacturers, distributors, and retailers can all be aware of the flow of goods and information, leading to improved relationships and inventory management.

To review, read Introduction to Supply Chain Management and Critical Factors Affecting Supply Chain Management.


4b. Explain the "bullwhip effect" and evaluate strategies to limit variation

  • What is the cause of the bullwhip effect?
  • What are the elements of the bullwhip effect?
  • How can the bullwhip effect factors be mitigated?

The bullwhip effect is caused by demand forecast updating, order batching, price fluctuation, rationing, and gaming.

Demand forecast updating occurs when all supply chain members individually revise their forecasts based on their received orders. As more individuals in the chain update their forecasts, the less the forecast will reflect actual demand. This problem can be mitigated by having departments share critical information and optimize inventory levels.

Order batching results from all members of the supply chain rounding their orders up or down depending on the constraints of their individual departments. Much like the issues with demand forecast updating, the more people in the process, the more the quantities actually needed becomes distorted. Again, communication across departments is essential, as is the need for a program and algorithm that measures accurate quantities needed.

Price fluctuations occur due to quantity discounts that encourage customers to make larger purchases than they require. This creates additional uncertainty when forecasting demand. Offering discounts only to customers with a history of making large purchases would enable companies to better plan for the future.

Rationing and gaming are when a seller limits quantities by only delivering a partial order. The buying responds by increasing the order quantity, which results in a distortion of what is being bought and sold. Honest business practices between buyer and seller and a relationship built on mutual trust can help mitigate this practice.

To review, read Causes of the Bullwhip Effect.


4c. Apply appropriate criteria in choosing suppliers

  • How do lean and agile practices impact supplier relations?
  • What are some of the questions an operations manager asks before selecting a supplier?
  • What are some of the methods companies use for inventory control?

Lean practices are suitable for products that have a low variety and high volume. Agile practices, however, enable a company to respond quickly to changes in market demand. These variations require companies to determine how they choose to make trade-offs between responding to market changes or being efficient.

However, despite these differences, both practices need to collaborate with all departments across the supply chain. The relationship with suppliers is essential, and communication, common goals, and shared philosophies are needed throughout the process.

When choosing a supplier, an operations manager must determine if that supplier can deliver the quantities needed at an acceptable price. Of course, the merchandise quality must meet organizational standards, and the supplier must be deemed reliable. The organization's reputation and how they are to work with are also factors in the decision-making process.

Threats to productivity include losing production time due to a shortage of materials and losing money due to too much inventory. Just-in-time (JIT) production is when materials arrive at the production facility at the exact time they are needed. In this way, materials are not unused and inventory costs are reduced. Materials requirement planning (MRP) uses computerized systems to determine how much is needed for products and when those materials are needed.

To review, read Lean and Agile in Small- and Medium-sized Enterprises: Complementary or Incompatible?, Managing the Production Process in a Manufacturing Company, and Enhancing Pharmaceutical Procurement.


4d. Describe the two main areas of distribution management

  • What are the benefits of supply chain optimization?
  • How can an organization forecast demand to create an effective distribution plan?

Supply chain optimization ensures that manufacturing and distribution processes are operating at their optimal levels. Companies must continually update and invest in their distribution channels to ensure that goods are delivered efficiently while also optimizing profits for the organization. This requires a balance of inventory, transportation costs, manufacturing, and supply chain management for all industries.

Companies can use statistical data to track trends and predict future demand. They can also manage unpredictability by setting safety stocks and levels. These strategies enable a company to determine how much merchandise is manufactured, where re-stocks are needed, and how to transport goods to replenish the supply.

To review, read Investment in Operations.


Unit 4 Vocabulary

This vocabulary list includes terms that might help you with the review items above and some terms you should be familiar with to be successful in completing the final exam for the course.

Try to think of the reason why each term is included.

  • suppliers
  • manufacturers
  • warehousing
  • sustainability
  • logistics
  • inventory management
  • bullwhip effect
  • demand forecast updating
  • batch ordering
  • price fluctuations
  • rationing and gaming
  • lean
  • agile
  • just-in-time
  • manufacturing resource planning
  • procurement
  • supply chain optimization
  • distribution efficiency
  • safety stocks

Unit 5: Just-In-Time and Lean Systems

5a. Discuss the origin of the "just-in-time" (JIT) philosophy

  • What is the basic principle behind just-in-time manufacturing?
  • How has JIT evolved from its origins to current business practices?

JIT focuses on the elimination of waste in a management or production system. This waste can be in the form of actual material, work, or time.

JIT was first used by the Japanese corporation Toyota. Today, this practice is utilized in many manufacturing industries. For example, a company may seek to reduce waste in how material goes from one step to another, making each step reliant on the needs of the next step or internal customers in the system. This process is known as KANBAN and enables wastes to be identified by programs that point out deficiencies or needs.

To review, read JIT.


5b. Apply continuous quality improvement strategies to improve organization processes

  • What are some of the characteristics of continuous quality improvement?
  • What factors contribute to a culture of continuous quality improvement?
  • What are the stages for change to a continuous quality improvement culture?
  • What are the core competencies of an organization that uses a continuous quality improvement strategy?

Continuous quality improvement recognizes that this is a process of ongoing learning, training, and applying new ways to make change. It requires a commitment to incremental revisions, rather than a quick-fix, by skilled and knowledgeable workers.

For continuous quality improvement to be a successful part of an organization's operations, a culture of curiosity must exist. People must be open to asking "how" and "why". There must be a practice of reflection, where feedback is sought and desired. There must be a tolerance for failure and an understanding of when corrections are needed. Feedback received must be used, and an evaluation of an entire system should be considered, as well.

The stages an organization goes through to change to one of continuous quality improvement include: dormant, where the organization is not sure where to begin, and members tend to feel overwhelmed; testing and coordinating, where the organization collects data, which is not yet connected to goals or plans; empowering, where performance indicators are widely used throughout the organization, with individual members taking responsibility for analyzing and applying results.

Organizations with a culture of continuous quality improvement tend to measure outcomes, as well as their efforts. They can identify the indicators used for measuring outcomes. They are clear about what they want to accomplish and have the skills and knowledge to reach their goals. They have a culture of learning and gathering information and can communicate their findings both internally and externally. There is leadership support and the support of staff members, and changes can be made as needed.

To review, read Continuous Improvement, What is a Kaizen Event?, and Creating a Culture of Continuous Improvement Based on Data.


5c. Categorize non-value-adding activities into eight types of waste

  • What are the eight types of waste as identified by both lean and six-sigma practices?

Both lean and six-sigma identify the same types of waste that can impact sustainability. Inventory waste addresses the inefficient uses of finances and resources. Talent waste refers to an organization's inefficient use of their internal talent and dissatisfaction among workers. Waiting waste occurs when machinery is idle or at low-capacity, resulting in increased costs and inefficient use of resources. Motion waste is when workers expel more energy than is needed, resulting in injuries and exhaustion. Defects waste results in excess refuse from packaging or materials and can decrease employee morale. Transportation waste can reduce opportunities for sales and can also increase distribution costs. Overprocessing waste causes unnecessary work and creates the potential for injury. Overproduction waste decreases profitability and increases overhead.

Review these resources. SBDC Lean Manufacturing Success, Operational Efficiency, and The Eight 8 Wastes of Lean.


5d. Explain the use of "kanbans" in JIT pull systems

  • How does the Kanban method process facilitate efficient manufacturing processes?
  • Why are materials for each step held back until they are needed?

Kanban is a method of manufacturing that incorporates visual signs and signals to help visualize the workflow. This helps teams see how their work is moving and make adjustments for greater efficiency.

This process also reduces the time it takes for an item to travel through the system by limiting the amount of unfinished work there is in the process. As a result, teams can work more quickly to produce a quality item in a more sustainable environment.

Since Kanban processes control the rate at which merchandise is produced, raw materials are delivered only when needed or "just in time". Products that are required for each step are identified only when the previous process has been completed.

Kanban can be applied to both for-profit businesses as well as for non-profits. The process can also be used in manufacturing goods, as well as in the delivery of services.

For more details, watch Open Kanban and read Kanban.


5e. Describe the strategic elements in Lean for use in manufacturing and service organizations

  • What are the characteristics of a lean system, and how can managers benefit from this system?
  • What are the five core principles of lean?

Lean control involves the non-financial aspects of a business's operations and focuses on improving quality and decreasing waste. While this process was originally used only in manufacturing, it is now used for all product and service development and related processes.

To gain the most from a lean system, managers must first understand what they seek to accomplish and identify the specific tools and techniques that will be effective for achieving their business goals and which tools are not appropriate.

The first core principle of lean control is to always look at the value being provided from the customer's viewpoint. Managers must understand how a product meets customer needs and seek to meet those needs by providing value at a price the customer is willing to pay.

The next step is to describe the activities required to bring a product to the customer. This is known as the value stream and includes both manufacturing processes and other activities such as purchasing and materials management. A manager's responsibility includes ensuring that only activities that provide value are performed.

The third step is to ensure that the process moves smoothly from one stage to another. This is referred to as "flow" in each value stream and seeks to increase flexibility and lower costs.

Lean control also requires that production takes place at the customer's demand, known as a "pull" strategy. This helps reduce lead times, increases flexibility, and seeks to meet customer demand rather than predict it in advance.

Finally, a lean process seeks continuous improvement, known by the Japanese word Kaizen. This mindset accepts that improvement is always possible, with companies launching kaizen events from time to time to improve specific activities or processes.

To review, read. Lean Manufacturing and Lean Control.


Unit 5 Vocabulary

This vocabulary list includes terms that might help you with the review items above and some terms you should be familiar with to be successful in completing the final exam for the course.

Try to think of the reason why each term is included.

  • just-in-time (JIT)
  • continuous quality improvement
  • corporate culture
  • curiosity
  • tolerance
  • feedback
  • Kaizen
  • lean
  • Six Sigma
  • sustainability
  • inventory waste
  • talent waste
  • waiting waste
  • motion waste
  • defects waste
  • transportation waste
  • overprocessing waste
  • overproduction waste
  • five core principles of lean
  • customer satisfaction
  • value stream
  • flow
  • pull strategy

Unit 6: Capacity Planning and Facility Layout

6a. Describe the determinants of effective capacity

  • What are the common strategies used for capacity planning?
  • Among the numerous determinants of effective capacity, which two are the most important?
  • What are the steps in the capacity planning process?

Capacity planning has significant implications for all of a business's operations. Decisions made in this area impact the entire organization. Some of the strategies typically used by an organization for capacity planning include leading capacity, where capacity increases to meet expected demand, following capacity, where companies wait for demand increases to expand, and tracking capacity, where capacity is increased over time to meet demand.

The determinants of effective capacity include facilities, product and service factors, process factors, human factors, policy factors, operational factors, supply chain factors, and external factors.

Among these, the most important factors are process the human element. Processes must be efficient and effective, and workers must be properly trained and possess the skills, knowledge, motivation, and experience to create quality output.

For a capacity planning process strategy to be effective, the following steps should be taken:

  1. Estimate future capacity requirements
  2. Evaluate existing capacity and facilities and identify gaps
  3. Evaluate alternatives for meeting requirements
  4. Conduct a financial analysis of each alternative
  5. Assess key qualitative factors for each alternative
  6. Select optimal long-term alternatives
  7. Monitor results

To review, read Strategic Capacity Planning for Products and Services and Forecasting.


6b. Describe the factors an organization must consider in selecting a facility location

  • Why is the selection of a facility's location essential to business success?
  • What are the key elements an organization should evaluate before choosing a location for their business?
  • What are some of the methods used for evaluation location options?

In choosing a business location, an organization should verify that the location meets its objectives and strategic plans. The requirements can vary for any specific situation or organization, depending on their industry and organizational needs.

Factors to be considered when choosing a location include proximity to resources and raw materials; proximity to customers who are most likely to purchase the company's goods and services; community factors such as climate, access to roads and utilities, as well as tax bases; labor factors, to ensure a sufficient pool of job applicants; outside factors such as the crime rate, access to schools and hospitals, and proximity to competition.

When evaluating location options, there are several methods that companies can use to determine the best choice. The cost-volume-profit analysis requires companies to determine their fixed and variable costs, plot total cost lines on the same graph, and determine the highest and lowest total output costs. This method assumes that fixed costs are constant and that variable costs are linear. It also assumes that only one product is involved and that the required output level can be closely estimated.

The factor rating method requires both qualitative and quantitative inputs, which are each given values. Steps here include determining which factors are relevant and important, assuring that each factor's values total to a weight of 1.0, determining a common scale for all factors, scoring each alternative, adjusting score weights and adding them up, and choosing the alternative with the highest score.

The center of gravity method enables a company to determine locations based on facilities that reduce travel time or lower shipping costs. This enables distribution costs to be viewed as a linear function of distance and quantity. Visual maps are used, with coordinates given a set of numerical values to be evaluated.

To review, read Location Choice and Site Planning and Location Planning and Analysis.


6c. Identify the benefits of four basic layout designs in the physical placement of resources

  • What are the characteristics of the product plant strategy?
  • What are the pros and cons of the market area plant strategy?
  • In what ways is the process plant strategy most useful?
  • What are the benefits of the general-purpose plant strategy?

For companies that have multiple manufacturing locations, they can use different strategies for producing their goods. Each method can offer the company a competitive advantage, but there are also implications for costs and managerial operations.

The product plant strategy is when products, or product lines, are produced at separate locations, each meeting the needs of the entire domestic market. This results in a narrow range of labor, materials, and equipment requirements, with lower operating costs. Plants may be located near each other, making overall distribution more cost-effective, but plants may also be far apart, making logistics more challenging.

With a market area plant strategy, a facility meets the needs of specific geographic locations and is useful when shipping costs to that area are high. This approach enables a plant to supply most of what is needed in a small geographic area. While operating costs may be higher, delivery, and response times for locals' needs are more quickly met. Also, adding or eliminating plants must be coordinated on a centralized basis due to changing local market conditions.

The process plant strategy is when plants each concentrate on a different aspect of the process. This is most beneficial when products have many components, reducing any confusion when there are numerous parts to be assembled. Plants become highly specialized and result in large production quantities that lead to economies of scale.

Plants that are most flexible and able to handle many products are elements of the general-purpose plant strategy. Plants can quickly respond to market changes but may be less productive than one of the strategies with a more focused approach. Also, solutions to problems at one plant can be applied to other facilities using the same strategy, reducing the time it takes to find and implement a solution at different locations.

For more information, review Location Planning and Analysis.


6d. Apply the Line Balancing steps to the design of an appropriate product layout

  • What are some common types of assembly line systems, and what do they have in common?
  • What are the objectives of assembly line balancing?
  • What technical benefits does line balancing provide to the assembly line process?

Some of the more common assembly line systems include the classic, automated, intermittent, and lean manufacturing models. They are each used to make different kinds of products but do have some shared characteristics.

For example, a single model assembly line is when all workers focus on the same product. A mixed-model assembly line results in assembling different product models on the same line and making the integration of components easier as the product moves up the line. This reduces set-up time, as long as the process remains homogeneous.

Multi-Model Assembly lines are present when components go through a line, which results in end items or finished products. This also includes waste and by-products and utilizes a variety of cost and yield methods.

On paced assembly lines, a fixed time is applied to each workstation, with all operations beginning at the same point and passing pieces to the next station at the same rate. In unpaced lines, pieces do not have a specific point in time for transfer and are passed along when their required operations are finished.

Assembly line balancing has several components. These include; the workstation, which is where a specific amount of work is performed; minimal rational work element, which describes the work unit beyond which a work element cannot be divided; and cycle time, which is the ratio between the amount of time available and the production volume for that period.

The objectives of assembly line balancing are to ensure an even distribution over work stations, facilities, and workers to ensure an efficient process for maximum output. In this way, worker delays are minimized, productivity can be improved, and obstacles can be eliminated.

The benefits of ensuring a balance between all technical elements in an assembly line include: minimizing the number of workstations for specific cycles and the cycle time for each station. Balance delays are minimized, and efficiency is maximized. Also, machinery idle time is minimized, as well as the overall length of the line.

To review, read, A Study on Basics of Assembly Line Balancing.


Unit 6 Vocabulary

This vocabulary list includes terms that might help you with the review items above and some terms you should be familiar with to be successful in completing the final exam for the course.

Try to think of the reason why each term is included.

  • leading capacity
  • following capacity
  • tracking capacity
  • steps in the capacity planning process
  • location selection
  • cost-volume-profit analysis
  • factor rating method
  • center of gravity method
  • product plant strategy
  • market area plant strategy
  • process plant strategy
  • general-purpose plant strategy
  • classic assembly line system
  • automated assembly line system
  • intermittent assembly line system
  • lean manufacturing system
  • single model assembly line
  • mixed model assembly line
  • multi-model assembly line
  • paced and unpaced assembly lines
  • line balancing

Unit 7: Work Systems Design

7a. Evaluate the appropriateness of a work systems design for a given operational context to optimize performance

  • What are the key elements of job design?
  • What are some popular theoretical models of job design?
  • What are some of the techniques of job design?
  • How can a high-performance work system improve performance?

Job design elements include the task, which is the work expected to be completed within a specific amount of time. Motivation encompasses the forces within individuals that influence the effort put into their work. When workers are motivated, they bring passion and excitement to their tasks. Resource allocation relates to the materials and elements provided to workers to enable them to complete their jobs. Proper allocation is essential in ensuring efficient production processes. Finally, a reward system describes the compensation a worker will receive and includes pay, bonuses, raises, benefits, etc. This package should be established when the job is designed.

Frederick Taylor developed his theory of scientific management so that each job within an organization would be based on an organizing principle. These include creating a standard method for each job, selecting and hiring the right workers, and training and supporting them.

The Socio-Technical Systems Approach proposes that the work of individuals leads to work groups. Here, employees are actively involved in the design of the overall organization, variances in products are addressed as close to the source as possible, tasks are completed in self-contained units of work, and the design allows for a positive work environment.

In the Core Characteristics Model, motivational and performance factors are defined by skill variety, task identity, task significance, autonomy, and job feedback. The positive expected outcomes are determined by psychological factors, including meaningfulness, responsibility, and knowledge of results.

In the Psychological Empowerment Theory, when workers are aware of their impact on the organization, they will enjoy greater benefits than if they did not know any positive impact from their activities.

Many companies incorporate job design into their operations to enhance motivation, increase productivity, and improve overall organizational and employee performance. This enables workers to bring a fresh perspective to their tasks and feels greater job satisfaction and a sense of accomplishment.

Job enlargement allows individuals to work at their own pace, giving them full responsibility for their output, mistakes, and strategies for accomplishing their tasks.

Job enrichment is similar to job enlargement, but it also offers the worker complete autonomy.

The Human Relations School looks at businesses as social systems where psychological and emotional factors play a large role in productivity. This theory focuses on the relationship between performance and good human relations, the connection between managers and their staff, a democratic managerial leadership style, and that workers are motivated by more than financial rewards.

In a high-performance work system, many employees participate in the HR process and keep track of important information through online business solutions and systems. In these kinds of business environments, employees are very involved in creating, designing, and implementing all workplace processes and, as a result, are more engaged and perform at higher levels. Overall organizational performance improves, and succession planning becomes more efficient since employees are involved in organizational operations and activities.

To review, read Defining Job Design, Job Design, and Designing a High-Performance Work System.


7b. Explain the principles behind using a motion study to improve process performance in service industries

  • What are the differences between time studies and motion studies?
  • What are the steps involved in conducting a time-motion study?

A time study is a continuous observation of a task and records the time taken to complete a task. Each aspect of a job is broken down into various parts and rearranged into the most efficient way of working. This is done using a timekeeping device and is applied when there are repetitive cycles of varying duration, when there is a variety of work being performed, and when process controls are part of the cycle. Winslow Taylor was a pioneer in time studies and sought to bring science and business together to solve problems in the workplace.

Motion studies, on the other hand, use technical language to explore work motions. Frank and Lillian Gilbreth pioneered this theory and used film recordings of workers' activities to study their body posture and movement to see how work was actually done. This enabled them to formulate strategies for getting their work done more effectively and creating standardized practices for completing various tasks.

An effective direct time study should include setting goals, a clear design for the procedures, the timing for data collection, and how the data will be analyzed. Once all information is collected and evaluated, a report of findings should be created. This process can be applied to any repetitive task in manufacturing and the service sector.

To review, read Time and Motion Study and Frederick Taylor's Scientific Management.


7c. Analyze worker output in non-repetitive job tasks using work sampling

  • What are the four elements of the workforce scorecard?
  • How can an organization effectively implement a scorecard initiative?
  • How can the employee experience be measured?

The Workforce Scorecard identifies and measures various employee factors such as behaviors, skills, and attitudes, and how this impacts overall company success. The four factors include the workforce mindset and culture, workforce competencies, leadership and workforce behavior, and workforce success. In combination, these factors ensure that the organizational environment is conducive to worker productivity, employees have the necessary skills to meet corporate goals, leadership behaves to enable the company to achieve stated objectives.

To apply a scorecard method, a company must first identify its human capital, an organization's most important asset. Management must utilize methods that can measure their employees' success rates, including reviewing employee retention, promotions, employee training, etc. to illustrate how they add value to the company. Both lagging and leading indicators should be used to identify what has been accomplished and what is forecasted for the future.

Companies that use a scorecard tend to perform better overall. When paying close attention to the metrics associated with this process, they are more likely to be identified as industry leaders.

The question of employee experience encompasses the nature of the measurement and identifying what elements are to be measured. It is important to note that an employee experience can describe both positive and negative feelings about work. Even if employees are coping with poor experiences, companies should still seek to improve conditions. When it comes to being happy at work, factors that go beyond the actual jobs are relevant, including internal relationships, corporate culture, atmosphere, and the work-life balance. Both qualitative and quantitative factors should be used for measurement, but the results of outcomes are essential.

To review, read Using the HR Balanced Scorecard and How to Measure Employee Experience.


Unit 7 Vocabulary

This vocabulary list includes terms that might help you with the review items above and some terms you should be familiar with to be successful in completing the final exam for the course.

Try to think of the reason why each term is included.

  • job design
  • task
  • motivation
  • resource allocation
  • scientific management
  • job design
  • socio-technical systems approach
  • psychological empowerment theory
  • core characteristics model
  • job enlargement
  • job enrichment
  • human relations school
  • high-performance work system
  • time study
  • motion study
  • Frederick Taylor
  • the Gilbreths
  • workforce scorecard
  • employee experience

Unit 8: Inventory

8a. Explain the relationship between demand planning and inventory control

  • How does demand planning add value to products?
  • In what ways does collaboration with supply chain partners benefit an organization?
  • What are the inventory factors that impact demand planning?

Demand planning enables a company to determine how much of their goods and services customers will buy. A company can determine how much they need to produce and the materials required for that production by having this information. Companies can plan their production schedules, manage their resources, and determine the lead time needed to bring their goods to market.

Companies also work with their suppliers for help with demand planning. Collaborative planning, forecasting, and replenishment are all part of the process of sharing information and coordinating operations to ensure that an organization has the resources needed to meet demand. The growing trend is toward this increased level of shared information known as supply chain visibility. When a supplier has a greater understanding of what an organization's sales, operations, and marketing efforts entail, they are better positioned to enable the company to meet customer needs.

Demand forecasting is part of a company's overall inventory control activities, with inventory control ensuring that the company has the supply to meet customer demand. If a company does not have sufficient inventory, a stockout occurs, and customers will buy their goods from someone else. As part of demand forecasting, companies can ensure that they have safety stock, a backup inventory in case demand changes.

To review, read Demand Planning and Inventory Control.


8b. Describe the three general classifications of inventory

  • What is the ABC analysis method of inventory management?
  • How are inventory items defined by their stages of completion?

The ABC analysis helps an organization control inventory costs by using specific inventory policies to control the process. These factors, also known as "selective inventory control", identify those items that impact overall industry costs but are not of equal value. These include three categories that describe inventories that require tight controls and accurate records; those that are less tightly controlled, with good records; and those items with the simplest of controls and minimal records.

Inventory refers to both finished and unfinished goods that have not yet been sold. Finished goods are those that are ready to be sold to customers. However, unfinished goods encompass the raw materials that will be used to make a product and work-in-progress, which includes materials that are already being transformed into finished goods.

To review, read ABC Technique and Inventory Management.


8c. Explain the inventory management models that help plan the timing and volume of inventory orders

  • How are projected inventory levels tied to sales and production?
  • What are the practices that maximize product storage while also minimize holding and handling costs?

One method of projecting needed inventory levels is to tie that inventory directly into sales and production activities. Sales and inventory projections are evaluated against actual figures and input into MIS systems. This data is used to plan production schedules. Altogether, this information is used to plan future activities to ensure adequate inventory levels.

This approach also reflects how a perpetual inventory system operates. In this method, the sale or purchase of inventory is immediately recorded into computerized systems, allowing for an accurate reflection of the goods available at any point in time and aids in production planning.

All inventory management systems must find a balance between the availability of the product, customer needs, and the costs of meeting those needs. Material and goods must be continually monitored and may use ABC analysis, as previously discussed, as well as lot tracking and cycle counting support. These practices enable organizations to enjoy economies of scale and minimize costs associated with inventory levels.

To review, read Benefits of Inventory Management and The Operations Plan.


8d. Apply the EOQ Model to calculate inventory order volume

  • What are the characteristics of the EOQ Model for calculating inventory volume, and under what conditions is this model used?
  • What are the variables used to calculate the EOQ?
  • What are some of the extensions to the EOQ as they relate to quantity discounts?

The economic order quantity (EOQ) minimizes the total holding costs and ordering costs and is one of the oldest production scheduling models. Also known as the Wilson EOQ Model, Wilson Formula, or Andler Formula, this model is applied when demand for a particular product is constant over a year. New orders are delivered in full when the current inventory reaches a zero level. Costs for each order are fixed no matter how many items are ordered, and there is a cost associated with each unit held in storage. This is known as a holding cost and may be calculated as a percentage of the item's purchase price.

The variables that are used to determine total cost include the purchase unit price/unit production cost (P), the quantity ordered (Q), the optimal order quantity (Q*), the annual demand quantity (D), and the fixed cost per order (K).

There are two types of quantity discounts under the EOQ model. These are all-units, where the optimal discount will occur at the breakpoint) and incremental, where the optimal discount will always occur at a specific EOQ value. The design of these discount schedules can be complex and challenging when the customer is unsure of demand. Additionally, other extensions such as back-ordering and multiple items can enable cost savings. For example, if a company is willing to accept backorders, costs will be lower since it reduces the holding costs. A discount can be realized for multiple items when the same reorder interval is used for families of items with similar ordering and carrying costs.

To review, read Economic Order Quantity.


8e. Calculate the reorder point to prevent a stock-out from occurring

  • What is the formula for the reorder point?
  • What is the benefit of an inventory point of sale system?

The reorder point is the level at which inventories need to be replenished to ensure that there is sufficient stock to meet demand. Different types of goods required different amounts of time to be ordered and received, so a formula for ensuring that stock-outs (not having sufficient inventory) is necessary.

The formula for calculating the reorder point is ROP=d*LT. This means that the reorder point is a function of the demand rate (d = units per period/day/week) times the lead time (LT = lead time for the units in demand). For example, if a ski shop expects to sell 30 pairs of skis during a weak at peak ski season, and the lead time is 5 days, the reorder point is 150.

An inventory point-of-sale (POS) system can electronically record all items at the time of their sale and help companies more accurately forecast demand. By having this information and knowing the required lead time for receiving merchandise, companies can be better equipped to meet customer demand.

To review, read Inventory Management.


Unit 8 Vocabulary

This vocabulary list includes terms that might help you with the review items above and some terms you should be familiar with to be successful in completing the final exam for the course.

Try to think of the reason why each term is included.

  • demand planning
  • supply chain partners
  • supply chain visibility
  • inventory control
  • ABC analysis
  • finished goods
  • raw materials
  • work-in-progress
  • perpetual inventory systems
  • economies of scale
  • EOQ
  • all-units discount
  • incremental discount
  • EOQ variables
  • reorder point formula
  • inventory POS system

Unit 9: Quality Management

9a. Explain quality management and apply quality management principles to continuous improvement in operations management

  • What are the principles of quality management?
  • What is a quality audit?

Quality management's focus is on present and future customer needs. When an organization places its priorities on customer satisfaction, they are more likely to achieve overall success. Quality management also requires all employees' full involvement and their commitment to creating an environment that focuses on quality both internally and externally.

Operations are systematic and efficient, and all facets of the organization are viewed as being interrelated. Decisions are based on facts and sound information, and companies with a quality focus tend to work closely with their suppliers to create a mutually beneficial relationship.

A quality audit examines the quality system and may be conducted by an internal or external audit team. Audits are conducted at predetermined times to ensure that the organization meets the criteria for a quality system and its activities.

The focus of an audit is on measuring the system's overall effectiveness and the results that have been achieved. The audit can identify areas in need of improvement, as well as those areas that have excelled. The audit results should be shared with everyone in the organization so that all parties can see the results of their practices.

To review, read Philosophies and Quality Inspections and Standards.


9b. Define total quality management

  • How does quality control contribute to total quality management?
  • On what specific aspects does total quality management focus?

The function of quality control is to ensure that an organization's standards are being met. This can be applied to how customers are treated, how goods are designed and produced, and how products and services are tested and judged. Top management is responsible for ensuring overall quality and is tasked with setting strategy, motivating workers, and implementing programs that promote the quality philosophy.

Total quality management (TQM) is an approach that is centered on quality throughout the entire organization and is focused on three aspects. The first of these include control, job management, defined processes and performance criteria, and record-keeping. The next focus is on performing specific tasks and requires competence, knowledge, skills, and experience. Finally, an organizational culture that supports a quality environment is essential. All employees must have high levels of integrity, confidence, and team spirit. This helps to create strong relationships and keeps everyone motivated.

Overall, a TQM approach requires an ongoing effort by everyone in an organization. All members of the supply chain need to be involved and ensure that organizational goals meet and exceed the standards set for quality control.

To review, read Quality Control.


9c. Describe W. Edwards Deming's impact on quality management

  • How does Deming define quality?
  • What are the concepts associated with Deming's approach to quality?
  • What is the essence of Deming's Shewhart Cycle?
  • How are the benefits of following Deming's 14 points?

Deming's view of quality is that it is not a single definition. He believed that the customer defines quality and that it can change depending on the customer's specific needs. To meet or exceed these needs, managers must have a good understanding of market research, statistical theory and thinking, and the application of statistical methods.

Deming takes a systems approach to quality and leadership and focuses on several concepts. These include the System of Profound Knowledge, the Plan-Do-Check-Act Cycle, Prevention by Process Improvement, the Chain Reaction for Quality Improvement, Common Cause, and Special Cause Variation, the 14 Points, and the Deadly" and Dreadful Diseases.

The substance of the Shewhart cycle is that to achieve success, organizations must first plan a change in their operations and then test those changes, preferably on a small scale. The effects of the change or test should then be observed and studied. Finally, action should be taken based on what was learned.

Deming's 14 points can be applied to any area in an organization and provide a foundation for transforming into a culture of quality and customer satisfaction. He believes that this is the responsibility of management to implement and that short-term goals should be put aside for a longer-term perspective to remain in business in the future.

To review, read Three Experts on Quality Management.


9d. Evaluate the differences in operational costs between a focus on continuous quality improvement vs.maintaining the status quo

  • What is the relationship between a reduction in costs and overall quality?
  • How does quality increase profit?
  • How can an improvement in production quality lead to higher levels of reliability for the finished product?

Reduced costs are the result of increased efficiency and effectiveness in production. When aiming for an efficient and effective process in creating a quality product, a reduction in costs will be realized as a by-product. If costs are cut without consideration for their impacts, such as reducing headcounts or closing departments, goals and objectives will likely not be achieved.

When finished goods experience even a small percentage of defects, it limits the profit that can be realized. When quality improves so that defects are no longer evident, there is a large increase in overall profits. This is evident even considering the labor and human resources cost to produce a higher percentage of goods that can be sold.

A product manufactured to higher standards will be more reliable and have other positive attributes once the product is finished. This will lead to higher levels of customer satisfaction, customer loyalty, and repeat sales.

To review, watch Profit, Costs, Quality: What is the Relationship?.


9e. Explain how statistical process control assesses variations to measure quality

  • What are the characteristics of statistical process control?
  • What are the phases associated with SPC activities?

Statistical process control (SPC) is used to monitor and control a process through statistical methods to ensure that the process operates at its optimal levels. Elements of this process include the use of control charts and flowcharts and a concentration on continuous improvement and how experiments are designed.

SPC is conducted in two stages, with the first step being the establishment of the process. This can be applied to any process, from a simple item to something more complex. This is followed by the actual use of the process and explains how something will be done. During this phase, changes might be made to the materials used, the human resources being exerted, or the actual production methods.

Using SPC enables organizations to focus on early detection and prevention rather than fixing problems after they have occurred. Rates of production are also seen to increase, and there is less likelihood that a product will need to be reworked.

The first phase of activity for SPC is understanding the process and its limits. This is followed by eliminating sources of variation to ensure process stability. Finally, the production process must be monitored to ensure early detection of any changes that might occur. As noted earlier, monitoring the process can help eliminate the production of any faulty and defective products and can increase output and profitability.

To review, read Statistical Process Control and Process Diagrams.


Unit 9 Vocabulary

This vocabulary list includes terms that might help you with the review items above and some terms you should be familiar with to be successful in completing the final exam for the course.

Try to think of the reason why each term is included.

  • quality management
  • quality management audit
  • quality control
  • corporate culture
  • organizational goals
  • leadership
  • W. Edwards Deming
  • elements of Deming's systems approach
  • Shewhart Cycle
  • 14 points
  • cost/quality relationship
  • impact of product defects on profitability
  • customer satisfaction
  • production improvements
  • statistical process control
  • continuous improvement
  • early detection and prevention
  • variations