Managing Service and Manufacturing Operations Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Learning Outcomes Discuss the kinds of productivity and their importance in managing operations Explain the role that quality plays in managing operations Explain the essentials of managing a service business Describe the different kinds of manufacturing operations Explain why and how companies should manage inventory levels

Higher productivity results in: LO 1 Measure of performance that indicates how many inputs it takes to produce an output Higher productivity results in: Lower costs for the company Lower and affordable prices Faster service Higher market share Higher profits Higher standard of living

Kinds of Productivity Partial productivity LO 1 Measure of performance that indicates how much of a particular kind of input it takes to produce an output Partial productivity Overall measure of performance that indicates how much labor, capital, materials, and energy it takes to produce an output Multifactor productivity

Quality-Related Characteristics LO 2 Characteristics of a quality product Reliability Serviceability Durability Characteristics of a quality service Reliability Tangibles Responsiveness Assurance Empathy

ISO 9000: Series of five international standards (9000–9004) ISO 9000 and 14000 LO 2 ISO 9000: Series of five international standards (9000–9004) Aims to achieve consistency in quality management and quality assurance in companies throughout the world ISO 14000: Series of international standards Aims to manage, monitor, and minimize an organization’s harmful effects on the environment

ISO Certification LO 2 Companies are required to show that they are following their own procedures for: Improving production Updating design plans and specifications Keeping machinery in good condition Educating and training workers Satisfactorily dealing with customer complaints

Baldrige Performance Excellence Program LO 2 Recognizes U.S. companies for their achievements in quality and business performance Helps raise awareness about the importance of quality and performance excellence as a competitive edge Criteria for the award Leadership; strategic planning; customers; measurement, analysis, and knowledge management; workforce; operations; and results

Total Quality Management (TQM) LO 2 Integrated, principle-based, organization-wide strategy for improving product and service quality Principles Customer focus and satisfaction Continuous improvement Teamwork

Principles of TQM LO 2 Customer focus and satisfaction Goal to meet customer’s needs at all levels of the organization such that products and services provided exceed customer expectations Customer focus and satisfaction Ongoing commitment to constantly assess and improve the processes and procedures used to create products and services Continuous improvement Collaboration between managers and nonmanagers, across business functions, and between companies, customers, and suppliers Teamwork

LO 3 18.4 Service-Profit Chain

Restoring customer satisfaction to strongly dissatisfied customers Service Recovery LO 3 Restoring customer satisfaction to strongly dissatisfied customers Requires employees to delight highly dissatisfied customers by surpassing their expectations of fair treatment Enabled by empowering workers Permanently passing decision-making authority and responsibility from managers to workers

Classification of Manufacturing Operations LO 4 Amount of processing Refers to the assembly of products and services Manufacturing flexibility Degree to which manufacturing operations can quickly and easily change the kind, characteristics, and number of products produced

Amount of Processing Make-to-order operations LO 4 Product processing or assembly isn’t started until a customer order is received Make-to-order operations Manufacturing processes are divided into modules that are combined to create semicustomized products Assemble-to-order operations Parts are ordered, and standardized products are assembled before receiving customer orders Make-to-stock operations

Flexibility of Manufacturing Operations LO 4 Continuous-flow production: Produces goods at a continuous, rather than a discrete, rate Least flexible Line-flow production: Preestablished processes that occur in a serial or linear manner Dedicated to making one type of product Inflexible

Flexibility of Manufacturing Operations (continued) LO 4 Batch production: Produces goods in large batches in standard lot sizes Most flexible Job shops: Handle custom orders or small batch jobs Each shop is different

Types of Inventory LO 5 Raw material inventories Basic inputs in a manufacturing process Raw material inventories Basic parts used in manufacturing that are fabricated from raw materials Component parts inventories Partially finished goods consisting of assembled component parts Work-in-process inventories Final outputs of manufacturing operations Finished goods inventories

Average aggregate inventory Measuring Inventory LO 5 Average aggregate inventory Average overall inventory during a particular time period Weeks of supply Number of weeks required by a company to run out of its current supply of inventory Inventory turnover Number of times per year that a company sells, or turns over, its average inventory

Costs of Maintaining an Inventory LO 5 Ordering costs Setup costs Holding costs Stockout costs

Inventory Management Techniques LO 5 System of formulas that minimizes ordering and holding costs and determines how much and how often inventory should be ordered Economic order quantity (EOQ) Component parts arrive from suppliers just as they are needed at each stage of production Just-in-time (JIT) inventory system Determines the production schedule, production batch sizes, and inventory needed to complete final products Materials requirement planning (MRP)

EOQ formulas are used with independent demand systems Managing Inventory LO 5 EOQ formulas are used with independent demand systems Level of one kind of inventory does not depend on another JIT and MRP are used with dependent demand systems Level of inventory depends on the number of finished units to be produced

Key Terms Operations management Productivity Partial productivity Multifactor productivity Quality ISO 9000 ISO 14000 Total quality management (TQM) Customer focus Customer satisfaction Continuous improvement Variation Teamwork Internal service quality Service recovery Make-to-order operation Assemble-to-order operation Make-to-stock operation Manufacturing flexibility Continuous-flow production Line-flow production Batch production Job shops Inventory

Key Terms (continued) Raw material inventories Component parts inventories Work-in-process inventories Finished goods inventories Average aggregate inventory Stockout Inventory turnover Ordering cost Setup cost Holding cost Stockout cost Economic order quantity (EOQ) Just-in-time (JIT) inventory system Kanban Materials requirement planning (MRP) Independent demand system Dependent demand system

Inventory management goals Summary Higher productivity results in lower costs for the company, lower prices, faster service, higher market share, and higher profits High-value services lead to customer satisfaction and customer loyalty, which lead to long-term profits and growth Inventory management goals To prevent running out of stock To effectively reduce inventory levels and costs