chapter 18 managing service and manufacturing...

Chapter 18

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Copyright ©2011 by Cengage Learning. All rights reserved

Chapter 18Managing Service and

Manufacturing Operations

Designed & Prepared byB-books, Ltd.

MGMT3

Chuck Williams

2Copyright ©2011 by Cengage Learning. All rights reserved

Operations Management

Operations Management

Managing the daily production of goods and services.

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Managing for Productivity and Quality

After reading these sections, you should be able to:

1. discuss the kinds of productivity and theirimportance in managing operations.

2. explain the role that quality plays in managingoperations.

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Productivity

Productivity = OutputsInputs

Productivity = OutputsInputs

Why Productivity

Matters

Why Productivity

Matters

DifferentKinds of

Productivity

DifferentKinds of

Productivity

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Why Productivity Matters

HigherProductivity

HigherProductivity

LowerCosts

LowerCosts

LowerPricesLowerPrices

HigherMarketShare

HigherMarketShare

HigherProfitsHigherProfits

HigherStandard

of Living

HigherStandard

of Living

1.11.1


Why Productivity Matters

• Increased wages and new jobs

• More donations to charities

• More affordable and better products

1.11.1

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Kinds of Productivity

Partial productivity =

OutputsSingle Kind of Input

Multifactor productivity =

OutputsLabor + Capital + Materials + Energy

1.21.2


Multifactor Productivity Growth

1.21.2Source: “Productivity and Costs,” Bureau of Labor Statistics, available online at http://data.bls.gov/cgi-bin/surveymost?ip [accessed 1 July 2005].

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Quality

BaldrigeNational

Quality Award

BaldrigeNational

Quality Award

TotalQuality

Management

TotalQuality

Management

ISO 9000 & 14000

ISO 9000 & 14000

Quality-RelatedProduct

Characteristics

Quality-RelatedProduct

Characteristics

Quality-RelatedService

Characteristics

Quality-RelatedService

Characteristics

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Meanings for Quality

…A product or service free of deficiencies

…A product or service free of deficiencies

…The characteristics of a product orservice that satisfy customer needs

…The characteristics of a product orservice that satisfy customer needs

QualityQuality

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Quality-Related Product Characteristics

2.12.1

Rel

iabi

li ty Serviceability

Durability

Product


Characteristics of Service Quality

2.12.1

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ISO 9000 and 14000ISO 9000

A series of five international standards (ISO 9000 to ISO 9004) for achieving consistency in quality management and quality assurance in companies throughout the world.

ISO 14000

A series of international standards for managing, monitoring, and minimizing an organization’s harmful effects on the environment.

http://www.ansi.orghttp://www.asq.org

Web Link

2.22.2


Baldrige National Quality Award

• Given to U.S. companies to recognize achievement in quality and business performance

• Raises awareness about the importance of quality and performance excellence as a competitive edge

2.32.3


Criteria for the Baldrige National Quality Award

1. Leadership

2. Strategic Planning

3. Customer Focus

4. Measurement, Analysis, & Knowledge Management

5. Workforce Focus

6. Process Management

7. Results

2.32.3

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Baldrige Application Process

http://www.quality.nist.govWeb Link


Total Quality Management

Principles of TQMPrinciples of TQM

Continuous improvement Continuous improvement

TeamworkTeamwork

Customer focus and satisfactionCustomer focus and satisfaction

2.42.4


Total Quality Management

50 150 250 350 450 550 650 750

Defects Per Million Parts (000)Defects Per Million Parts (000)

Sig

ma

Qua

lity

Leve

lS

igm

a Q

ualit

y Le

vel

6 Sigma

5 Sigma

4 Sigma

3 Sigma

2 Sigma

1 Sigma 690,000690,000

3.4

230

6,210

66,800

308,538

2.42.4

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Managing Operations

After reading these sections, you should be able to:

3. explain the essentials of managing a servicebusiness.

4. describe the different kinds of manufacturingoperations.

5. explain why and how companies should manage inventory levels.


Service Operations

Services…

• are performed

• are intangible

• are unstorable

• 59% of GNP

Goods…

• are made

• are tangible

• are storable

• 30.8% of GNP

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Service Operations

Service-ProfitChain

Service-ProfitChain

ServiceRecovery

andEmpowerment

ServiceRecovery

andEmpowerment

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The Service-Profit Chain

3.13.1


Service Recovery and Empowerment

• Service recovery is restoring customer satisfaction to strongly dissatisfied customers– Fixing the mistakes that were made

– Performing heroic service that delights customers

• Empowering workers can help solve customer dissatisfaction– The goal is zero customer defections

3.23.2


Costs of Empowering Service Employees

1. Finding service workers capable of solving pro blems1. Finding service workers capable of solving pro blems

2. Training service workers2. Training service workers

3. Higher wages3. Higher wages

4. Less emphasis on service reliability4. Less emphasis on service reliability

5. Eagerness to provide giveaways5. Eagerness to provide giveaways

6. Unintentional unfair customer treatment6. Unintentional unfair customer treatment3.23.2

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Benefits of EmpoweringService Employees

1. Quicker response to customer complaints1. Quicker response to customer complaints

2. Employees feel better2. Employees feel better

3. Enthusiastic employee interaction with custome rs3. Enthusiastic employee interaction with custome rs

4. Employees offer ideas for improvement and prev ention4. Employees offer ideas for improvement and prev ention

5. Great word-of-mouth advertising and customer r etention5. Great word-of-mouth advertising and customer r etention

6. Satisfied employees more likely to stay with c ompany6. Satisfied employees more likely to stay with c ompany3.23.2

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Manufacturing Operations

Amount ofProcessingAmount ofProcessing

Flexibilityof Manufacturing

Flexibilityof Manufacturing

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Amount of Processing inManufacturing Operations

• Make-to-order operations– manufacturing doesn’t begin until an order is

placed

• Assemble-to-order operations

– used to create semi-customized products

• Make-to-stock operations– manufacture standardized products

4.14.1

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Amount of Processing inManufacturing Operations

MORE PROCESSING

Make-to-Order

Assemble-to-Order

Make-to-Stock

LESS PROCESSING

MORE PROCESSING

Make-to-Order

Assemble-to-Order

Make-to-Stock

LESS PROCESSING

4.14.1


Flexibility of Manufacturing Operations

LEAST FLEXIBLE

Continuous-Flow

Line-Flow

Batch

Job Shops

MOST FLEXIBLE

LEAST FLEXIBLE

Continuous-Flow

Line-Flow

Batch

Job Shops

MOST FLEXIBLE

4.14.1

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Flexibility of Manufacturing Operations

Handle small, specialty batches

Job shops

Produces specific quantities of different items, like a bakery or commissary

Batch production

Uses predetermined, linear steps, like beverage bottling

Line-flow production

Produces products continuously, like oil drilling

Continuous-flow production

4.24.2

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Inventory

Costs ofMaintainingInventory

Costs ofMaintainingInventory

Systems forManagingInventory

Systems forManagingInventory

Types ofInventory

MeasuringInventory Levels

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Types of Inventory

Raw materialsRaw materials

Component partsComponent parts

Work-in-process Work-in-process

Finished goodsFinished goods

Fabrication

Initial Assembly

Final Assembly

VendorsVendors

Purchasing

Purchasing

5.15.1


Types of Inventory

Finished GoodsInventories

Finished GoodsInventories

FieldWarehouses

FieldWarehouses

DistributionCenters

DistributionCenters

WholesalersWholesalers

RetailersRetailers

CustomersCustomers5.15.1

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Measuring Inventory

1. Average Aggregate Inventory– the average overall inventory for a certain

time period

2. Weeks of Supply– the number of weeks to run out of inventory

3. Inventory Turnover– the number of times a year that a company

sells its average inventory

5.25.2


Costs of Maintaining an Inventory

OrderingCost

OrderingCost

SetupCost

SetupCost

HoldingCost

HoldingCost

StockoutCosts

StockoutCosts

all costs associated with orderinginventory, correcting mistakes,determining when/how much to order

all costs associated with orderinginventory, correcting mistakes,determining when/how much to order

cost of downtime and lost efficiencywhen a machine is changed to producedifferent kinds of inventory

cost of downtime and lost efficiencywhen a machine is changed to producedifferent kinds of inventory

cost of keeping inventory until it isused or sold cost of keeping inventory until it isused or sold

cost when a company runs out of a productcost when a company runs out of a product

5.35.3

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Beyond the BookNCR Brings Production HomeAfter a costly and tumultuous experience outsourcing production of its ATMs for the last two years, NCR is bringing production back home, with plans to build all of its ATMs for North America from a single plant in Columbus, GA. The plant is located within two hours of NCR’s main customer service center, its innovation center, and its new Atlanta headquarters. Keeping production in house will help them streamline the process, cut down development times, and allow them to respond quickly when design changes are needed.

Source: P. Engardio, “Why NCR Said, ‘Let’s Go Back Home’”, Business Week, 24 & 31 August 2009. 19.

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Managing Inventory

EconomicOrder Quantity

EconomicOrder Quantity

Just-in-TimeInventory

Just-in-TimeInventory

MaterialsRequirement Planning

MaterialsRequirement Planning

EOQEOQ

JITJIT

MRP MRP

5.45.4

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Beyond the Book

Inventories Go LeanerDue to recent difficulties in the market and the economy, many retailers are striving to increase their profits working with a much leaner inventory, down by about 15 to 18 percent on average from a year ago. Terry Lundgren, CEO of Macy’s Inc., believes leaner inventories can increase profits, raise margins, and improve sell-throughs. Many retailers have found they can bring merchandise to the store closer to when it’s needed and make restocking purchases based more on actual sales results.

Source: V. M. Young, J. E. Palmieri, “Retail’s New Discipline: Keep Inventories Lean and Do More With Less”, Women’s Wear Daily, 7 July 2009. 1.


Managing Inventory

Kanban

Kanban, which is Japanese for “sign,” is a simple ticket-based JIT system that indicates when to reorder inventory.

5.45.4

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