1. 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.

2. 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

3. 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

4. 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

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

6. 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

7. 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

8. 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

9. 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

10. 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

11. LO 3
18.4 Service-Profit Chain

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

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

20. 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)

21. 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

22. 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

23. 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

24. 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