Management, by Williams South-Western College Publishing Copyright © 2003 Chapter 15 Managing Service and Manufacturing Operations

Management, by Williams South-Western College Publishing Copyright © What Would You Do? Productivity at Huffman Corporation 4Sales in the machine tool industry are off by 60 percent 4Huffman wants to increase productivity 4How do you measure and improve productivity? 4Will improved productivity really matter to the customers?

Management, by Williams South-Western College Publishing Copyright © After discussing this section, you should be able to: Learning Objectives Managing for Productivity and Quality 1.discuss the kinds of productivity and their importance in managing operations. 2.explain the role that quality plays in managing operations.

Management, by Williams South-Western College Publishing Copyright © A measure of performance that indicates how many inputs it takes to produce or create an output Productivity Why Productivity Matters Kinds of Productivity Productivity

Management, by Williams South-Western College Publishing Copyright © Why Productivity Matters Higher Productivity Lower Costs Lower Prices Higher Market Share Higher Profits Higher Standard of Living

Management, by Williams South-Western College Publishing Copyright © Kinds of Productivity 4Partial productivity = Outputs Single Kind of Input 4Multifactor productivity = Outputs Labor + Capital + Materials + Energy

Management, by Williams South-Western College Publishing Copyright © Quality Quality-Related Service Characteristics Quality-Related Product Characteristics ISO 9000 Baldrige National Quality Award Total Quality Management

Management, by Williams South-Western College Publishing Copyright © Quality-Related Product Characteristics 4Reliability Tthe average time between breakdowns 4Serviceability Tthe ease with which a product is fixed 4Durability Tmean time to failure

Management, by Williams South-Western College Publishing Copyright © Quality-Related Service Characteristics Responsiveness Reliability Tangibles Empathy Assurance QualityService Adapted from Exhibit 15.4

Management, by Williams South-Western College Publishing Copyright © ISO A series of five international standards 4Certifies quality processes 4Managers often want this to improve customer satisfaction

Management, by Williams South-Western College Publishing Copyright © Baldrige National Quality Award 4Given to U.S. companies 4Recognizes achievement in quality 4Winners have been financially successful

Management, by Williams South-Western College Publishing Copyright © Criteria for the Baldrige National Quality Award 4Leadership 4Strategic Planning 4Customer and Market Focus 4Information and Analysis 4Human Resource Focus 4Process Management 4Business Results

Management, by Williams South-Western College Publishing Copyright © Total Quality Management Customer Focus and Satisfaction Continuous Improvement Teamwork

Management, by Williams South-Western College Publishing Copyright © Defects at Six Sigma Quality Defects Per Million Parts (000) Sigma Quality Level 6 Sigma 5 Sigma 4 Sigma 3 Sigma 2 Sigma 1 Sigma 690,000 defects per million 3.4 defects per million 230 defects per million 6,210 defects per million 66,800 defects per million 308,538 defects per million Adapted from Exhibit 15.7

Management, by Williams South-Western College Publishing Copyright © After discussing this section, you should be able to: Learning Objectives Managing Operations 3.explain the essentials of managing a service business. 4.describe the different kinds of manufacturing operations. 5.describe why and how companies should manage inventory levels.

Management, by Williams South-Western College Publishing Copyright © Service Operations Service- Profit Chain Service Recovery and Empowerment

Management, by Williams South-Western College Publishing Copyright © Service-Profit Chain Internal Service Quality Employee Satisfaction Service Capability High Value Service Customer Satisfaction Customer Loyalty Profit and Growth Adapted From Figure 15.8

Management, by Williams South-Western College Publishing Copyright © 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? Both vertical and horizontal communication? Are goals of senior management and frontline service employees aligned? Components of Internal Service Quality Policies and Procedures Tools Effective Training Rewards and Recognition Communication Management Support Goal Alignment Teamwork Adapted from Exhibit 15.9

Management, by Williams South-Western College Publishing Copyright © Service Recovery and Empowerment 4Service recovery is restoring customer satisfaction to strongly dissatisfied customers 4Empowering workers is one way to speed up service recovery

Management, by Williams South-Western College Publishing Copyright © Costs of Empowering Service Workers for Service Recovery 4Increased costs of selection 4Increased training costs 4Higher wages 4Less emphasis on service reliability 4Overly eager, empowered service workers may provide “giveaways” 4Empowered service workers may be overly eager to make up for poor service

Management, by Williams South-Western College Publishing Copyright © Benefits of Empowering Service Workers for Service Recovery 4Quicker response to customer complaints and problems 4Employees feel better about their jobs 4Employee interaction with customers will be warm and friendly 4Employees more likely to offer ideas for improving service and preventing problems

Management, by Williams South-Western College Publishing Copyright © Manufacturing Operations Amount of Processing in Manufacturing Operations Amount of Processing in Manufacturing Operations Flexibility of ManufacturingOperations ManufacturingOperations

Management, by Williams South-Western College Publishing Copyright © Amount of Processing in Manufacturing Operations 4Make-to-order operations Tmanufacturing doesn’t begin until an order is placed 4Assemble-to-order operations Tused to create semi-customized products 4Make-to-stock operations Tmanufacture standardized products

Management, by Williams South-Western College Publishing Copyright © Flexibility of Manufacturing Operations Least Flexible Most Flexible Continuous-FlowProductionLine-FlowProduction BatchProductionJobShopsProjectManufacturing Adapted From Figure 15.12

Management, by Williams South-Western College Publishing Copyright © Inventory Types of Inventory Managing Inventory Costs of Maintaining an Inventory Measuring Inventory

Management, by Williams South-Western College Publishing Copyright © Types of Inventory Raw Materials Distribution Centers Field Warehouses Wholesalers Retailers Component Parts Fabrication Work-in- Progress Initial Assembly Finished Goods Final Assembly Adapted From Figure 15.4 Vendors Purchasing Customers

Management, by Williams South-Western College Publishing Copyright © Measuring Inventory 4Average aggregate inventory Tthe average overall inventory for a certain time period 4Stockout Trunning out of inventory 4Inventory turnover Tthe number of times a year that a company sells its average inventory

Management, by Williams South-Western College Publishing Copyright © Inventory Turn Rates Across Industries Aerospace Automotive Chemicals Construction Consumer Packated Goods/Nondurables Consumer Product Durables High Tech Industrial Equipment & Machinery Pharmaceuticals Printing and Publishing Average Average Inventory Turn Rate 75th Percentile Inventory Turn Rate Adapted from Exhibit 15.14

Management, by Williams South-Western College Publishing Copyright © Blast From The Past Guns, Geometry, and Fire 4Whitney and standardized parts Tinterchangeable parts Tfewer defects 4Monge’s 3-dimensional drawings Tmore precise designs 4Fire led to just-in-time at Oldsmobile

Management, by Williams South-Western College Publishing Copyright © Costs of Maintaining an Inventory 4Ordering costs Tall associated costs with ordering goods 4Setup costs Tchanging goods produced 4Holding costs Tcarrying inventory 4Stockout costs Trunning out of inventory

Management, by Williams South-Western College Publishing Copyright © Managing Inventory Economic Order Quantity Kanban Just-in-Time Materials Requirement Planning Independent Demand Systems Dependent Demand Systems

Management, by Williams South-Western College Publishing Copyright © Been There, Done That 4Wiremold has used continuous improvement and just-in-time inventory systems 4Quality has increased and costs have been reduced 4The more inventory is turned, the better customer service gets Lean Manufacturing at Wiremold

Management, by Williams South-Western College Publishing Copyright © What Really Happened? Productivity at Huffman Corporation 4Labor hours to produce a machine tool is 33 percent less, allowing a 20 percent price drop 4Ended most recent year with record sales and profits 4Results find their way to customer performance, for example some medical machines that improve productivity of doctors