1. ©2008 by Nelson, a division of Thomson Canada Limited 1 Management Second Canadian Edition Chuck Williams Alex Z. Kondra Conor Vibert Slides Prepared by: Kerry Rempel, Okanagan College

2. ©2008 by Nelson, a division of Thomson Canada Limited 2 Chapter 14 Managing Service and Manufacturing Operations

3. ©2008 by Nelson, a division of Thomson Canada Limited 3 What Would You Do? Hyundai’s reputation for producing cars of inferior quality has hurt their ability to generate revenue. How can Hyundai: Improve quality? Change the mindset of workers? Change the mindset of customers?

4. ©2008 by Nelson, a division of Thomson Canada Limited 4 Learning Objectives: Managing for Productivity and Quality After reading the next two 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

5. ©2008 by Nelson, a division of Thomson Canada Limited 5 Productivity A measure of performance that indicates how many inputs it takes to produce or create an output why productivity matters kinds of productivity

6. ©2008 by Nelson, a division of Thomson Canada Limited 6 Why Productivity Matters Higher productivity Lower costs Lower prices Higher market share Higher profits Higher standard of living

7. ©2008 by Nelson, a division of Thomson Canada Limited 7 Kinds of Productivity Partial productivity = Outputs _________________ Single Kind of Input Multifactor productivity =Outputs ________________________________ Labour + Capital + Materials + Energy

8. ©2008 by Nelson, a division of Thomson Canada Limited 8 Multifactor Productivity Growth Across Industries Exhibit 14.1

9. ©2008 by Nelson, a division of Thomson Canada Limited 9 Quality Quality-related product characteristics Quality-related service characteristics ISO 9000 Total quality management

10. ©2008 by Nelson, a division of Thomson Canada Limited 10 Quality-Related Product Characteristics Reliability the average time between breakdowns Serviceability how easy or difficult it is to fix a product Durability the mean time to failure

11. ©2008 by Nelson, a division of Thomson Canada Limited 11 Quality-Related Service Characteristics Quality service Reliability Tangibles Responsiveness Assurance Empathy

12. ©2008 by Nelson, a division of Thomson Canada Limited 12 ISO 9000 A series of five international standards Certifies quality processes Managers often want this to improve customer satisfaction

13. ©2008 by Nelson, a division of Thomson Canada Limited 13 Total Quality Management An integrated, principle-based, organization-wide strategy for improving product and service quality Customer focus Customer satisfaction Continuous improvement Variation Teamwork

14. ©2008 by Nelson, a division of Thomson Canada Limited 14 Learning Objectives: Managing Operations After reading the next three sections, you should be able to: 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

15. ©2008 by Nelson, a division of Thomson Canada Limited 15 Service Operations The service-profit chain Service recovery and empowerment

16. ©2008 by Nelson, a division of Thomson Canada Limited 16 Service-Profit Chain Exhibit 14.4

17. ©2008 by Nelson, a division of Thomson Canada Limited 17 Service Recovery and Empowerment Restoring customer satisfaction to strongly dissatisfied customers Empowering workers is one way to speed up service recovery

18. ©2008 by Nelson, a division of Thomson Canada Limited 18 Benefits of Empowering Service Workers for Service Recovery 1.Quicker responses to customer complaints and problems 2.Employees feel better about their jobs and themselves 3.Employee interaction with customers will be warm and enthusiastic 4.Employees are more likely to offer ideas for improving service or preventing problems Adapted from Exhibit 14.5

19. ©2008 by Nelson, a division of Thomson Canada Limited 19 Costs of Empowering Service Workers for Service Recovery 1.Increased selection costs to find capable workers 2.Increased training costs 3.Higher wages to attract and keep talented service workers 4.Focus on recovery might lead to less focus on reliability 5.Empowered workers may cost the company money by providing too many “giveaways” 6.Workers may unintentionally treat customers unfairly to make up for slow service Adapted from Exhibit 14.5

20. ©2008 by Nelson, a division of Thomson Canada Limited 20 Manufacturing Operations Amount of processing in manufacturing operations Flexibility of manufacturing operations

21. ©2008 by Nelson, a division of Thomson Canada Limited 21 Amount of Processing in Manufacturing Operations Make-to-order operation manufacturing does not begin until an order is received Used for highly specialized or customized products Assemble-to-order operation used to create semi-customized products Special orders determine the final assembly checklist Make-to-stock operation manufacture standardized products No specialization

22. ©2008 by Nelson, a division of Thomson Canada Limited 22 Flexibility of Manufacturing Operations Continuous-flow production produces goods at a continuous rate Production of the final good never stops Line-flow production Pre-established linear processes that produce one type of product

23. ©2008 by Nelson, a division of Thomson Canada Limited 23 Flexibility of Manufacturing Operations Batch production operation that produces goods in large batches in standard lot sizes Job shops operation that handles customer orders or small batch jobs Project manufacturing operation that produces large, expensive, specialized products

24. ©2008 by Nelson, a division of Thomson Canada Limited 24 Flexibility of Manufacturing Operations Exhibit 14.7

25. ©2008 by Nelson, a division of Thomson Canada Limited 25 Inventory Types of inventory Measuring inventory Costs of maintaining inventory Managing inventory

26. ©2008 by Nelson, a division of Thomson Canada Limited 26 Types of Inventory Raw materials inventories Component parts inventories Work-in-process inventories Finished goods inventories

27. ©2008 by Nelson, a division of Thomson Canada Limited 27 Measuring Inventory Average aggregate inventory the average overall inventory during a particular time period Weeks of Supply Stockout situation in which a company runs out of finished product Inventory turnover the number of times per year that a company sells its average inventory

28. ©2008 by Nelson, a division of Thomson Canada Limited 28 Costs of Maintaining an Inventory Ordering cost costs associated with ordering inventory Setup cost downtime and lost efficiency when changing goods produced Holding cost cost of keeping inventory until used or sold Stockout costs cost of running out of inventory

29. ©2008 by Nelson, a division of Thomson Canada Limited 29 Managing Inventory Economic order quantity (EOQ) formulas that help determine how much and how often inventory should be ordered Just-in-time inventory system (JIT) parts arrive just as needed at each stage of production Kanban ticket-based system that indicate when to reorder Materials requirement planning (MRP) determines production schedule, batch sizes and inventories

30. ©2008 by Nelson, a division of Thomson Canada Limited 30 Inventory Systems Independent demand systems the level of one kind of inventory does not depend on another, for example EOQ Dependent demand system the level of inventory depends on the number of finished goods to be produced, for example, JIT or MRP

31. ©2008 by Nelson, a division of Thomson Canada Limited 31 What Really Happened? Hyundai sent visible messages about quality to managers and employees They reduced variation in their production processes and outputs They innovated with quality and performance in mind Increased the size of the quality department and had them report directly to the CEO Encouraged employees to share ideas Quick responses to customer complaints became the norm They now hold “concept clinics” to get customer feedback.