Part 3 Managing for Quality and Competitiveness McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.

CHAPTER 6 The Nature of Management CHAPTER 7 Organization, Teamwork and Communication CHAPTER 8 Managing Service and Manufacturing Operations 8-2

Learning Objectives LO 8-1 Define operations management, and differentiate between operations and manufacturing LO 8-2 Explain how operations management differs in manufacturing and service firms LO 8-3 Describe the elements involved in planning and designing an operations system LO 8-4 Specify some techniques managers may use to manage the logistics of transforming inputs into finished products LO 8-5 Assess the importance of quality in operations management LO 8-6 Evaluate a business’s dilemma and propose a solution 8-3

Enter the World of Business Taco Bell Masters the Drive-thru The drive-thru is designated as the make-it-or-break-it portion of the fast food industry Taco Bell standardized procedures, eliminated bottlenecks and optimized staff efficiency They now serve customers, on average, in 164 seconds ? Why was it so important for Taco Bell to create a seamless drive-thru process? ? How does the Taco Bell drive-thru process manage for quality? ? Why is speed and accuracy of service just as important as the quality of finished food for Taco Bell? 8-4

Nature of Operations Management Historically, OM has been called “production” or “manufacturing” limiting it to the manufacture of physical goods The change from “production” to “operations” recognizes services and ideas and views the function as a whole Operations Management (OM) The development and administration of the activities involved in transforming resources into goods and services 8-5

Nature of Operations Management The activities and processes used in making tangible products; also called production Manufacturing The activities and processes used in making tangible products; also called manufacturing Production The activities and processes used in making both tangible and intangible products Operations 8-6

Transformation Process Operations managers control the process by Taking measurements (feedback) and comparing them to established standards Taking corrective action for any deviation The resources – such as labor, money, materials and energy – that are converted into outputs Inputs The goods, services and ideas that result from conversion of inputs Outputs At the heart of OM is the transformation process though which inputs are converted into outputs 8-7

Transformation Process 8-8

Responding to Business Challenges Volkswagen’s Plan to Rebound in America VW has not been successful in the U.S. since the ‘60’s Their failure to customize led to their cars being viewed as lower quality cars VW has now opened a plant in Tennessee and is attempting to build more toward American tastes Their sales have increased but their goal is to be the world’s largest automaker ? Why did Volkswagen fail to succeed in the U.S.? ? Describe Volkswagen’s new U.S. marketing strategy ? Do you feel Volkswagen has a chance to become the top automaker? Why or why not? 8-9

OM in Service Businesses Manufacturers and service providers differ in five basic ways 1.Nature and consumption of output – services require more customer contact and happen at the point of consumption 2.Uniformity of inputs – services are more “customized” to each consumer 3.Uniformity of output – each service is performed differently 4.Labor required – services are more labor-intensive 5.Measurement of productivity – intangibility of the service product makes measurement more difficult 8-10

OM in Service Businesses  Subway’s inputs are sandwich components such as bread, tomatoes and lettuce.  While Subway’s outputs are customized sandwiches 8-11

Planning and Designing Operations Systems Operations planning involves making the following decisions Planning the product  Marketing research helps determine the product and features customers want, gauge demand and set price  Once management has a product, they must plan how to produce the product  Operations managers plan for the resources needed to complete the transformation process What will we produce?Who are our customers? What processes will we use?Where will we make our product? 8-12

Planning and Designing Operations Systems Designing the Operations Process Products are manufactured using one of three processes Standardization The making of identical interchangeable components or products Modular Design The creation of an item in self- contained units, or modules, that can be combined or interchanged to create different products Customization Making products to meet a particular customer’s needs or wants 8-13

Planning and Designing Operations Systems o The unit of measurement could be a worker or machine, a department, a branch or an entire plant o Capacity can be stated in terms of inputs or outputs o Planning capacity too low results in unmet demand while planning it too high results in higher costs Capacity The maximum load that an organizational unit can carry or operate Planning Capacity 8-14

Planning and Designing Operations Systems  Proximity to market  Availability of raw materials, transportation, power and labor  Climatic influences and community characteristics  Taxes and inducements Planning Facility Location A complex and costly decision Facility Location Important factors to consider 8-15

Planning and Designing Operations Systems Planning Facility Layout Fixed-Position Layout A layout that brings all resources required to create the product to a central location Project Organizations Companies using a fixed-position layout because it is typically involved in large, complex projects such as construction or exploration 8-16

Planning and Designing Operations Systems Planning Facility Layout Process Layout A layout that organizes the transformation process into departments that group related processes Intermittent Organizations Organizations that deal with products of a lesser magnitude than project organizations; their products are not unique but possess a significant number of differences 8-17

Planning and Designing Operations Systems Planning Facility Layout Product Layout A layout requiring production be broken down into relatively simple tasks assigned to workers, who are usually positioned along an assembly line Continuous Manufacturing Organizations Companies that use continuously running assembly lines, creating products with many similar characteristics 8-18

Planning and Designing Operations Systems  Apple stores are designed to make the most efficient use of space  The layout of the stores allows customers to test its products before purchasing 8-19

Planning and Designing Operations Systems Planning Facility Technology The design of components, products and processes on computers instead of on paper Computer-Assisted Design (CAD) Employs specialized computer systems to actually guide and control the transformation process Computer-Assisted Manufacturing (CAM) 8-20

Planning and Designing Operations Systems Planning Facility Technology The direction of machinery by computers to adapt to different versions of similar operations Flexible Manufacturing A complete system that designs products, manages machines and materials, and controls the operations function Computer-Integrated Manufacturing (CIM) 8-21

Planning and Designing Operations Systems Sustainability and Manufacturing Sustainability issues are becoming increasingly important to stakeholders and consumers “Green” operations and manufacturing can improve a company’s reputation, increase customer and employee loyalty, leading to improved profits 8-22

Planning and Designing Operations Systems  Patagonia is always looking for a greener way to design, produce and recycle its products  Their mission statement: Build the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environmental crisis 8-23

Managing the Supply Chain Includes Obtaining and managing raw materials and component parts Managing finished products Packaging products Getting products to customers Supply Chain Management Connecting and integrating all parties or members of the distribution system in order to satisfy customers; also called logistics 8-24

Managing the Supply Chain »Aim is to obtain items of the desired quality in the right quantities at the lowest possible cost »Companies may be able to make some component parts more economically and efficiently »Can arrange to lease the item from another company Purchasing The buying of all the materials needed by the organization; also called procurement 8-25

Managing the Supply Chain  Finished-goods inventory – products ready for sale  Work-in-process inventory – products partly completed  Raw materials inventory – all materials purchased to be used as inputs for making other products Each item held in inventory carries with it a cost Managing Inventory Inventory All raw materials, components, completed or partially completed products, and pieces of equipment a firm uses 8-26

Managing the Supply Chain  Operations management must be closely coordinated with inventory control  Inventory managers try to determine the proper inventory level for each item Managing Inventory Inventory Control The process of determining how many supplies and goods are needed and keeping track of quantities on hand, where each item is, and who is responsible for it 8-27

Managing the Supply Chain Managing Inventory – Approaches to inventory control Identifies the optimum number of items to order to minimize the costs of managing (ordering, storing and using) them Economic Order Quantity (EOQ) Model Schedules the precise quantity of materials needed to make the product Material- Requirements Planning (MRP) A technique using smaller quantities of materials that arrive “just in time” for use in the transformation process and therefore require less storage space and other inventory management expense Just-In-Time (JIT) Inventory Management 8-28

Managing the Supply Chain  At Walmart, managing inventory involves finding the right balance between excess inventory and not enough inventory  Walmart uses just-in-time inventory management to minimize inventory costs and become more efficient 8-29

Managing the Supply Chain Globalization requires supply chain managers improve speed and balance resources to compete o Outsourcing, or contracting work to other companies, is linked with competitive advantage through:  Improved product quality  Customers obtain products sooner  Overall supply-chain efficiencies o However, outsourcing may raise negative public opinion 8-30

Managing the Supply Chain Many athletic shoe manufacturers such as Nike outsource production to China and Vietnam to take advantage of lower labor costs 8-31

Managing the Supply Chain 8-32

Going Green UPS Adds Green Practices to Its Logistics UPS is doing more with less; in 2010 package volume increased by 1.8%, but fuel consumption fell by 3.3% Using technology and data measurements to calculate it’s use of resources, UPS has become more efficient UPS is creating competitive advantage by becoming experts at implementing green practices in operations ? How is UPS using sustainability to cut costs? ? Which stakeholders have the ability to benefit from UPS’s green practices? ? How can UPS’s green practices act as a model for other companies to improve their operations? 8-33

Managing the Supply Chain Next, management must consider: Routing The sequence of operations through which the product must pass; sequence depends on the product specifications Once the routing is known, actual work can be scheduled Scheduling The assignment of required tasks to departments or even specific machines, workers or teams 8-34

Managing the Supply Chain o Program Evaluation and Review Technique (PERT)  Identifies all the major activities or events required  Arranges them in a sequence or path  Determines the critical path  Estimates the time required for each event o The path requiring the longest time from start to finish is called the critical path as that is the minimum amount of time needed for completion One popular method developed for scheduling is: 8-35

Managing the Supply Chain A Hypothetical PERT Diagram for a McDonald’s Big Mac 8-36

Managing Quality Quality, like cost and efficiency, is a critical element of operations management, for defective products can quickly ruin a firm  Quality reflects the degree to which a good or service meets the demands and requirements of customers  Determining quality can be difficult because it depends on customers’ perceptions of how well the product meets or exceeds their expectations  Quality is especially difficult to measure for a service  A company must define important quality characteristics into measurable terms 8-37

Managing Quality 8-38

Managing Quality J.D. Power & Associates Initial Automobile Quality Study 8-39

Managing Quality Quality is so important, it needs examination in the context of operations management Quality Control The processes an organization uses to maintain its established quality standards Statistical Process Control A system in which management collects and analyzes information about the production process to pinpoint quality problems in the production system 8-40

Managing Quality  TQM requires constant improvements in all areas of the company as well as employee empowerment  A primary tool of TQM is benchmarking, the measuring and evaluating of the quality produced by the best-performing companies in the industry  Quality control is viewed as an element of the product itself Top Quality Management (TQM) A philosophy that uniform commitment to quality in all areas of an organization will promote a culture that meets customers’ perceptions of quality 8-41

Toyota Excels at Continuous Improvement Toyota uses JIT systems to eliminate waste, inventory costs and storage costs Any employee can stop the production line if they detect a problem; allowing no defective finished products Toyota believes “good enough is never enough” and tries to continually improve operations ? Describe how Toyota’s just-in-time management principles contribute to quality ? Why is empowering employees to look for ways to continuously improve operations so effective for Toyota? ? Why do you think Toyota’s reputation is recovering so quickly after the recalls? 8-42

Managing Quality Product specifications and quality standards must be set so the company can create a product that will compete in the marketplace  A company must first determine what standard of quality it desires and then assess whether its products meet that standard o For manufacturing, that could be specifications such as thickness of metal or amount of a certain material o Service industries establish standards such as how long a customer waits, or how many fries are in an order  Once the desired quality characteristics, specifications and standards are stated in measurable terms, inspection follows 8-43

Managing Quality Companies must pass a rigorous certification process but for some industries, certification is necessary to compete A series of quality assurance standards designed by the International Organization for Standardization (ISO) to ensure consistent product quality under many conditions ISO 9000 A comprehensive set of environmental standards that encourages companies to conduct business in a cleaner, safer and less wasteful way; providing a uniform set of global standards ISO

Managing Quality Inspection Reveals whether a product meets quality standards Inspecting finished items determines quality level Inspecting work-in-process items finds defects before the product is completed so corrections can be made Sampling Allows a company to pass an entire batch of products through inspection by testing a sample There is always the risk of making an incorrect conclusion based on a sample Sampling is more likely to be used when inspection tests are destructive to the product 8-45

Integrating Operations and Supply Chain Management Managing operations and supply chains can be complex due to the number of participants in the process Managing the various partners is important because stakeholders hold the firm responsible Companies can adopt a Global Supplier Code of Conduct and ensure its communicated Companies must regularly audit its suppliers against company standards and take action against those found to be in violation 8-46

Solve the Dilemma Planning For Pizza McKing Corp. wanted to add pizza to its fast food menu Six months of testing led to the introduction of their 16- inch pizzas; cheese, pepperoni and deluxe They overlooked that a 16-inch pizza box will not pass through the smaller drive-thru windows ? What mistake did McKing make in approaching the introduction of pizza? ? How could this product introduction have been coordinated to avoid the problems encountered? ? If you were an executive at McKing, how would you proceed with the introduction of pizza? 8-47