1. Chapter 15 Managing Service and Manufacturing Operations

2. 2 What Would You Do? Productivity at Huffman Corporation Sales in the machine tool industry are off by 60 percent Huffman wants to increase productivity How do you measure and improve productivity? Will improved productivity really matter to the customers?

3. 3 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.

4. 4 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

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

6. 6 Kinds of Productivity Partial productivity = Outputs Single Kind of Input Multifactor productivity = Outputs Labor + Capital + Materials + Energy

7. 7 Quality Quality-Related Service Characteristics Quality-Related Product Characteristics ISO 9000 Baldrige National Quality Award Total Quality Management

8. 8 Quality-Related Product Characteristics Reliability  the average time between breakdowns Serviceability  the ease with which a product is fixed Durability  mean time to failure

9. 9 Quality-Related Service Characteristics Responsiveness Reliability Tangibles Empathy Assurance QualityService Adapted from Exhibit 15.4

10. 10 ISO 9000 A series of five international standards Certifies quality processes Managers often want this to improve customer satisfaction

11. 11 Baldrige National Quality Award Given to U.S. companies Recognizes achievement in quality Winners have been financially successful

12. 12 Criteria for the Baldrige National Quality Award Leadership Strategic Planning Customer and Market Focus Information and Analysis Human Resource Focus Process Management Business Results

13. 13 Total Quality Management Customer Focus and Satisfaction Continuous Improvement Teamwork

14. 14 Defects at Six Sigma Quality 50150250350450550650750 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

15. 15 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.

16. 16 Service Operations Service- Profit Chain Service Recovery and Empowerment

17. 17 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

18. 18 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

19. 19 Service Recovery and Empowerment Service recovery is restoring customer satisfaction to strongly dissatisfied customers Empowering workers is one way to speed up service recovery

20. 20 Costs of Empowering Service Workers for Service Recovery Increased costs of selection Increased training costs Higher wages Less emphasis on service reliability Overly eager, empowered service workers may provide “giveaways” Empowered service workers may be overly eager to make up for poor service

21. 21 Benefits of Empowering Service Workers for Service Recovery Quicker response to customer complaints and problems Employees feel better about their jobs Employee interaction with customers will be warm and friendly Employees more likely to offer ideas for improving service and preventing problems

22. 22 Manufacturing Operations Amount of Processing in Manufacturing Operations Amount of Processing in Manufacturing Operations Flexibility of ManufacturingOperations ManufacturingOperations

23. 23 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

24. 24 Flexibility of Manufacturing Operations Least Flexible Most Flexible Continuous-FlowProductionLine-FlowProduction BatchProductionJobShopsProjectManufacturing Adapted From Figure 15.12

25. 25 Inventory Types of Inventory Managing Inventory Costs of Maintaining an Inventory Measuring Inventory

26. 26 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

27. 27 Measuring Inventory Average aggregate inventory  the average overall inventory for a certain time period Stockout  running out of inventory Inventory turnover  the number of times a year that a company sells its average inventory

28. 28 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 0 5 10 15 20 25 30 Average Inventory Turn Rate 75th Percentile Inventory Turn Rate Adapted from Exhibit 15.14

29. 29 Blast From The Past Guns, Geometry, and Fire Whitney and standardized parts  interchangeable parts  fewer defects Monge’s 3-dimensional drawings  more precise designs Fire led to just-in-time at Oldsmobile

30. 30 Costs of Maintaining an Inventory Ordering costs  all associated costs with ordering goods Setup costs  changing goods produced Holding costs  carrying inventory Stockout costs  running out of inventory

31. 31 Managing Inventory Economic Order Quantity Kanban Just-in-Time Materials Requirement Planning Independent Demand Systems Dependent Demand Systems

32. 32 Been There, Done That Wiremold has used continuous improvement and just-in-time inventory systems Quality has increased and costs have been reduced The more inventory is turned, the better customer service gets Lean Manufacturing at Wiremold

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