1. 19-1 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Chapter 19 Quality Management and the Operations Process In the Spotlight: Carmelo’s Italian Restaurant In the Spotlight: Carmelo’s Italian Restaurant

2. 19-2 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Learning Objectives: Chapter 19 1. Explain the key elements of total quality management (TQM) programs. 2. Discuss the nature of the operations process for both products and services. 3. Explain how reengineering and other methods of work improvement can increase productivity and make a firm more competitive. 4. Discuss the importance of purchasing and the nature of key purchasing policies. 5. Describe ways to control inventory and minimize inventory costs.

3. 19-3 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing A Definition of Quality The American Society for Quality defines quality as “the totality of features and characteristics of a product or service that bears on its ability to satisfy stated or implied needs.”

4. 19-4 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Essential Elements of Successful Quality Management Appropriate Tools and Techniques Supportive Organizational Culture Focus on Customers Successful Quality Management

5. 19-5 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Tools and Techniques of Total Quality Management Work teams Empowerment of employees Quality circle Attribute inspection Variable inspection Acceptance sampling Statistical process control Control chart

6. 19-6 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Factors That Positively Influence Customers’ Perceptions of Service Quality 1. Being on target. Set and meet the customer’s expectations. 2. Care and concern. Be empathetic. 3. Spontaneity. Empower service providers to think and respond quickly. 4. Problem solving. Train and encourage service providers to be problem solvers. 5. Follow-up. Follow-up captures customers’ attention. 6. Recovery. Making things right quickly is a powerful factor in creating an enduring image of high-quality service. Source: Ken Myers and Jim Buckman, “Beyond the Smile: Improving Service Quality at the Roots,” Quality Progress, Vol. 25, No. 12 (December 1992), p. 57.

7. 19-7 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing A Definition of ISO 9000 The standards governing international certification of a firm’s quality management procedures.

8. 19-8 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing DesigningProcessingTreatingStoringAdvising FabricatingRefiningAssemblingShippingInstructing The Operations Process Inputs Money Raw Materials Labor Equipment InformationEnergy Operations Outputs Products Examples: Clothing Baked goods Paint Services Examples: Dry cleaning Appliance repair Automobile painting

9. 19-9 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Types of Manufacturing Operations 1. Job shops 2. Repetitive manufacturing 3. Batch manufacturing

10. 19-10 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Two Types of Maintenance Corrective Maintenance Involves major repairs and minor repairs Disrupts production Preventive Maintenance Involves inspection of equipment, cleaning and lubricating, and replacing worn parts Sustains production Minimizes corrective maintenance

11. 19-11 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing The Nature of Reengineering Emphasizes restructuring rather than fine tuning. Examines basic processes. Questions all traditional patterns. Directs attention to activities that create value for the customer.

12. 19-12 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Make-or-Buy Trade-Offs Make 1.Use idle capacity. 2. Assure supply. 3.Protect secret design. 4.Save transportation expense. 5.Permit close control of production. 6.Assure high quality. Buy 1.Use supplier’s know-how. 2. Avoid additional hiring and borrowing. 3.Use present management. 4.Provide production flexibility. 5.Concentrate on specialty. 6.Reduce risk of equipment obsolescence.

13. 19-13 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Kinds of Activities Outsourced Taxes/accounting/auditing Equipment maintenance/janitorial services Payroll/benefits administration Manufacturing/processing/assembling Marketing or sales 50% 44% 37% 29% 6% Activity Percentage of Respondents Note: Respondents were allowed to check more than one activity. Source: “Poll Results: Reader’s Views on Outsourcing,” Nation’s Business, Vol. 84, No. 5 (May 1996), p. 85.

14. 19-14 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Considerations in Selecting a Supplier Quality Price Reliability Location Other services (credit, repair)

15. 19-15 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Ways to Build Good Supplier Relationships Pay bills promptly. Give sales representatives a prompt, courteous hearing. Avoid abrupt cancellation of orders. Avoid attempts to browbeat the supplier into special concessions. Make suggestions for product improvement and/or cost reduction, whenever possible. Provide explanations when rejecting bids. Make fair adjustments in the case of disputes.

16. 19-16 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Objectives of Inventory Management Ensuring Continuous Operations Maximizing Sales Protecting Assets Minimizing Inventory Investment

17. 19-17 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Graphic Portrayal of Economic Order Quantity (EOQ) Cost ($) Order Quantity (Units ) Total Costs Carrying Costs Order Costs EOQ

18. 19-18 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Just-in-Time Inventory System Purchase in small quantities, only when needed. For best reliability, work with one supplier. Pros: Lower carrying costs Less warehouse space needed Risk shifted to suppliers Cons: Risk of stockouts Loss of quantity discounts Higher paperwork costs