1 Chapter 18 Managing Service and Manufacturing Operations Designed & Prepared by B-books, Ltd. MGMT 2008 Chuck Williams

2 Operations Management Managing the daily production of goods and services.

3 Managing for Productivity and Quality After reading these sections, you should be able to: 1.discuss the kinds of productivity and their importance in managing operations. 2.explain the role that quality plays in managing operations.

4 Productivity Productivity = Outputs Inputs Productivity = Outputs Inputs Why Productivity Matters Different Kinds of Productivity 1 1

5 Why Productivity Matters Higher Productivity Higher Productivity Lower Costs Lower Costs Lower Prices Lower Prices Higher Market Share Higher Market Share Higher Profits Higher Profits Higher Standard of Living Higher Standard of Living 1.1

6 Why Productivity Matters Increased wages and new jobs More donations to charities More affordable and better products 1.1

7 Kinds of Productivity Partial productivity = Outputs Single Kind of Input Multifactor productivity = Outputs Labor + Capital + Materials + Energy 1.2

8 Multifactor Productivity Growth 1.2

9 Quality Baldrige National Quality Award Baldrige National Quality Award Total Quality Management Total Quality Management ISO 9000 & Quality-Related Product Characteristics Quality-Related Service Characteristics 2 2

10 Meanings for Quality …A product or service free of deficiencies …The characteristics of a product or service that satisfy customer needs …The characteristics of a product or service that satisfy customer needs Quality 2 2

11 Car Quality 2 2

12 Quality-Related Product Characteristics 2.1 Reliability Serviceability Durability Product

13 Serviceability Reva uses computer diagnostic system that can sync to the owner’s cell phone, indicating the type of service the vehicle needs.

14 Characteristics of Service Quality 2.1

15 ISO 9000 and ISO 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 A series of international standards for managing, monitoring, and minimizing an organization’s harmful effects on the environment Web Link 2.2

16 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 2.3

17 Criteria for the Baldrige National Quality Award 1.Leadership 2.Strategic Planning 3.Customer and Market Focus 4.Measurement, Analysis, & Knowledge Management 5.Human Resource Focus 6.Process Management 7.Business Results 2.3

18 Baldrige Application Process Link

19 Total Quality Management Principles of TQM Continuous improvement Teamwork Customer focus and satisfaction 2.4

20 Total Quality Management Defects Per Million Parts (000) Sigma Quality Level 6 Sigma 5 Sigma 4 Sigma 3 Sigma 2 Sigma 1 Sigma 690, ,210 66, ,

21 Managing Operations After reading these sections, you should be able to: 3.explain the essentials of managing a service business. 4.describe the different kinds of manufacturing operations. 5.explain why and how companies should manage inventory levels.

22 Service Operations Services… are performed are intangible are unstorable 57.2% of GDP Goods… are made are tangible are storable 32.7% of GDP 3 3

23 Service Operations Service-Profit Chain Service Recovery and Empowerment Service Recovery and Empowerment 3 3

24 The Service-Profit Chain 3.1

25 At Commonwealth, Customer Service Is a Priority Commonwealth Worldwide Chauffeured Transportation prides itself on customer service. The company hires employees who interact well with clients. It also keeps extra vehicles available to avoid service delays and promises clients that all phone calls will be answered within three rings. Source: Buchanan, Leigh, “What’s Wrong with this Picture? Nothing!” Inc., June 2007, p.104. Beyond the Book

26 Components of Internal Service Quality Both vertical and horizontal communication? Do service employees have tools needed? Are good performers rewarded/recognized? Does management aid or hinder employees? Is there teamwork among individuals and departments? Do they facilitate serving customers? Is job-specific training available? Are goals of senior management and frontline service employees aligned? Policies and Procedures Tools Effective Training Rewards and Recognition Communication Management Support Goal Alignment Teamwork 3.1

27 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 3.2

28 Costs of Empowering Service Employees 1. Finding service workers capable of solving problems 2. Training service workers 3. Higher wages 4. Less emphasis on service reliability 5. Eagerness to provide “giveaways” 6. Unintentional unfair customer treatment 3.2

29 Benefits of Empowering Service Employees 1. Quicker response to customer complaints 2. Employees feel better 3. Enthusiastic employee interaction with customers 4. Employees offer ideas for improvement and prevention 5. Great word-of-mouth advertising and customer retention 6. Satisfied employees more likely to stay with company 3.2

30 Manufacturing Operations Amount of Processing Flexibility of Manufacturing 4 4

31 Amount of Processing in Manufacturing 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 4.1

32 Amount of Processing in Manufacturing 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 4.1

33 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 4.1

34 Flexibility of Manufacturing Operations Continuous-flow productionProduces products continuously, like oil drilling Line-flow productionUses predetermined, linear steps, like beverage bottling Batch productionProduces specific quantities of different items, like a bakery or commissary Job shopsHandle small, specialty batches 4.2

35 Flexibility at Just Born 4.2

36 Inventory Costs of Maintaining Inventory Systems for Managing Inventory Types of Inventory Measuring Inventory Levels 5 5

37 Types of Inventory Raw materials Component parts Work-in-process Finished goods Fabrication Initial Assembly Final Assembly Vendors Purchasing 5.1

38 Manufacturers Pursue Vertical Integration Many big manufacturers are acquiring the producers of raw materials and crucial parts. Given the rising costs of commodities like copper and rubber, these companies feel pressure to protect themselves from supply scarcity. Owning suppliers also gives manufactures more control over the quality of their parts. Source: Aeppel, Timothy. “A Hot Commodities Market Spurs Buying Spree by Manufacturers.” The Wall Street Journal. August 14, Beyond the Book

39 Types of Inventory Finished Goods Inventories Field Warehouses Distribution Centers Wholesalers Retailers Customers 5.1

40 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 5.2

41 Costs of Maintaining an Inventory Ordering Cost Setup Cost Setup Cost Holding Cost Stockout Costs all costs associated with ordering inventory, correcting mistakes, determining when/how much to order all costs associated with ordering inventory, correcting mistakes, determining when/how much to order costs of downtime and lost efficiency when a machine is changed to produce different kinds of inventory cost of keeping inventory until it is used or sold costs when a company runs out of a product 5.3

42 Webfront Design Reduces Need For Inventory Nau, an outdoor clothing company, uses a webfront design in its stores. Customers can try clothes on at the store and then order garments shipped to their own home. Customers get free shipping and a 10% discount and Nau can build smaller stores and cut operating expenses. Source: Fast Company, June 2007, p. 98. Beyond the Book

43 Stockout Costs

44 Managing Inventory Economic Order Quantity Just-in-Time Inventory Materials Requirement Planning EOQ JIT MRP 5.3

45 Managing Inventory Kanban Kanban, which is Japanese for “sign,” is a simple ticket-based JIT system that indicates when to reorder inventory. 5.3