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To achieve superior quality, efficiency, responsiveness to customers, and innovation,
managers at all levels in an organization must understand the significance of operations
management. The contribution of effective operations management to the attainment of each
of the four building blocks of competitive advantage is discussed. The chapter then explains
how managers can use operations management practices and techniques such as facilities
layout, flexible manufacturing, JIT, self-managed teams, and process reengineering to build
and sustain a competitive advantage.


1. Explain the role of operations management in achieving superior quality, efficiency, and
   responsiveness to customers. (LO1)
2. Describe what customers want, and explain why it is so important for managers to be
   responsive to customer needs. (LO2)
3. Explain why achieving superior quality in an organization’s operations and processes is so
   important. (LO3)
4. Explain why achieving superior efficiency is so important. (LO4)


Introduction of lean production and quality circles to the world of management during
previous decades helped Toyota gain its long standing reputation as an innovator in the areas
of efficiency and quality. To maintain its competitive advantage over its global competitors,
CEO Jujio Cho has introduced another set of initiatives designed to further enhance his
company’s strength in these critical areas. One such initiative was “pokayoke”, which
concentrates on identifying and correcting problems in stages of the assembly process that
previously caused problems. A second was “CCC21”, which requires Toyota’s managers to
work continually with suppliers to find ways to reduce the cost of components. A third
initiative was GBL, which uses a sophisticated, new assembly process to hold a car body
firmly in place so that all welding and assembly operations can be performed with maximum

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Operations management is the management of any aspect of the production system that
transforms inputs into finished goods and services.
     A production system is the system that an organization uses to acquire inputs,
        convert the inputs into outputs, and dispose of the outputs.

        Operations managers are managers who are responsible for managing an
         organization’s production system. They are responsible for managing the three stages
         of production: acquisition of inputs, control of conversion processes, and disposal of
         goods and services.

        Operations managers are responsible for ensuring that an organization has sufficient
         supplies of high-quality, low-cost inputs, and they are responsible for designing a
         production system that creates high-quality, low-cost products that customers are
         willing to buy.

        Quality refers to goods and services that are reliable, dependable, and satisfying.
         Efficiency refers to the amount of inputs required to produce a given output.
         Responsiveness to customers refers to actions taken to meet the needs and demands
         of customers.

Organizations produce outputs that are consumed by customers. Because customers are vital
to the organization’s survival, it is important for managers to correctly identify customers and
promote organizational strategies to respond to their needs.

What Do Customers Want? (LO2)
Although there may be some variation among industries, it is possible to identify some
universal product attributes that most customers in most industries want. Most customers
     A lower price to a higher price.
     Higher quality products to low-quality products.
     Quick service to slow service.
     Products with many features to products with few features.
     Products that are customized or tailored to their unique needs.

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Designing Production Systems That Are Responsive to Customers

       Managers try to design production systems that can produce outputs possessing the
        attributes that customers desire.

       The attributes of an organization’s outputs - their quality, cost, and features – are
        determined by the organization’s production system.

       In recent years, managers have adopted many new operations management techniques,
        in an effort to attract customers with improved products. These include total quality
        management, just-in-time inventory, flexible manufacturing systems, and new
        information systems and technologies.

       Managers must be careful not to promise a level of responsiveness to customers that is
        greater than its production system could profitably sustain.

High-quality products do the job for which they were designed and meet customer
requirements. Quality is a concept that can be applied to both manufacturing and service

Managers seek to control and improve the quality of their organization for two reasons:

       Customers usually prefer a higher-quality product to a lower-quality product. An
        organization that provides a product of higher quality for the same price is being more
        responsive to its customers than competitors. Also, providing high-quality products
        can create a brand name reputation, which in turn, may allow the organization to
        charge more for its products.

       Higher product quality can increase efficiency, lower operating costs, and boost
        profits. A higher product quality means that less employee time is wasted, translating
        into higher employee productivity, thus lower costs.

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Management Snapshot: Citibank Uses CRM t Increase Customer Loyalty

Citibank, one of the leading global financial institutions, has begun using customer
relationship management (CRM) to increase responsiveness to customers. The bank
recognizes that its customer base and their level of loyalty determine the bank’s future
success. First Citibank identified the factors that dissatisfied its customers. It then
implemented an organizational –wide CRM system as a means of increasing employee
responsiveness. The results were remarkable. As an example, the CRM program reduced by
75% the number of hand-offs required to process a loan request, reducing the average
response time from several hours to 30 minutes.

The third goal of operations management is to increase the efficiency of an organization’s
production system. Managers can measure efficiency in two ways:

       Total factor productivity looks at how well an organization utilizes all of its resources
        to produce its outputs. The problem with this measure is that each input is typically
        measured in different units. To compute total factor productivity, managers must
        convert all inputs to a common unit.

       Also, total factor productivity obscures the exact contribution of an individual input.
        Consequently, most organizations focus on specific measures of efficiency, known as
        partial productivity that measures the efficiency of an individual unit.

       The measure of labor productivity is an example of a partial productivity measure.
        Labor productivity is most commonly used to draw efficiency comparisons between
        different organizations.

       The management of efficiency is important be cause increased efficiency lowers
        production costs, allowing the organization to make a greater profit.

Facilities Layout, Flexible Manufacturing, and Efficiency

Another factor that influences efficiency is the way managers decide to layout or design an
organization’s physical work facilities. This is important for two reasons:

       The way in which machines and workers are organized affects the efficiency of the
        production system.

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       Also, a major determinant of efficiency is the cost associated with setting up the
        equipment to make a particular product.

Facilities layout is the operations management technique that attempts to design machine-
worker interfaces that increase production system efficiency. Flexible manufacturing is the
set of operations management techniques that attempt to reduce the setup costs associated
with a production system.
Facilities Layout
The way in which machines, robots, and people are grouped together affects how productive
they can be. There are three ways of arranging workstations: product layout, process layout,
and fixed-position layout.

       In a product layout, machines are organized so that each operation needed to
        manufacture a product is performed at workstations arranged in a fixed sequence.
        Typically, workers are stationary and a moving conveyor belt takes the product to the
        next workstation. Mass production is the familiar name for this layout.

       The introduction of modular assembly lines controlled by computers has made mass
        production an efficient means of creating small batches as well as large quantities.

       In a process layout, workstations are not organized in a fixed sequence. Each
        workstation is relatively self-contained, and a product goes to whichever workstation
        is needed to perform the next operation.

       Process layout is often suited to manufacturing a variety of custom-made products,
        each tailored to the needs of a different kind of customer. Process layout provides
        flexibility, but often reduces efficiency because it is expensive.

       In a fixed-position layout, the product stays in a fixed position. Component parts are
        produced in remote workstations and brought to the production area for final

       Self-managed teams are being used increasingly in fixed-position layouts. This layout
        is commonly used for products that are large, complex or difficult to assemble.

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Managing Globally: How to Improve Facilities Layout

Paddy Hopkirk opened a car accessories business in England after winning the prestigious
Monte Carlo rally. Although sales were brisk, Hopkirk realized that his production system
needed improvement.

The consultants Hopkirk hired determined that his facilities layout was the source of the
company’s production problems. They suggested that the workstations be reorganized into a
sequential product layout. Once the change was made, results were dramatic. The untidy
sprawl of workstations surrounded by piles of crates was transformed into tightly grouped
workstations arranged in a fixed sequence. Efficiency increased dramatically.
Flexible Manufacturing
     A major source of costs is setting up the equipment needed to make a particular
       product. If setup times for complex production equipment can be reduced, efficiency
       will rise.

       Flexible manufacturing aims to reduce the time required to set up production
        equipment. Setup time and its accompanying cost can be dramatically reduced if
        equipment used for manufacturing one product can be quickly replaced with
        equipment used for manufacturing a second product.

       Organizations are experimenting with new designs for production systems that allow
        workers to be more productive and make the work process more flexible.

Managing Globally: Igus’s Factory of the Future

In the 1990s, managers at Igus Inc., a bearings and cable products manufacturer located in
Cologne, Germany, realized they needed to build a new factory to handle their rapidly
growing product line. At Igus, new products are often introduced on a daily basis and many of
its products are highly customized.

Igus’ new factory was designed with flexibility in mind. All machines, computers, and
equipment can be moved and repositioned to suit changing product requirements. Workers
are equipped with power scooters to move around the plant quickly to reconfigure operations
and are cross-trained to perform the many production tasks necessary. Igus can change its
production system at a moment’s notice with minimal disruption. The company’s decision to
create a flexible factory of the future has paid off. In the last five years, sales have increased

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Just-in-Time Inventory and Efficiency

Although JIT systems, such as Toyota’s kanban system, were originally developed to improve
product quality, they also have implications for efficiency.

       Major cost savings can result from increasing inventory turnover and reducing
        inventory holding costs.

       Service companies as well as manufacturers can benefit from the JIT concept.

       One drawback of JIT systems is that they leave an organization without a buffer stock
        of inventory. Although buffer stocks of inventory can be expensive to store, they can
        help an organization when it is affected by shortages of inputs or when it needs to
        respond quickly to increases in customer demand.
    IV.     Self-Managed Work Teams and Efficiency

       Another efficiency-boosting innovation is the use of self-managed work teams. The
        typical team consists of from five to fifteen employees who produce an entire product
        instead of just parts of it.

       Team members learn all team tasks and move from job to job. The result is a flexible
        workforce. Team members also assume responsibility for work and vacation
        scheduling, ordering materials, and hiring new members. Traditionally, each of these
        was the responsibility of first line managers.

       The use of empowered, self-managed teams can increase productivity and efficiency.
        Cost savings also arise from eliminating supervisors and creating a flatter
        organizational hierarchy, which increases efficiency.

Process Reengineering and Efficiency

       Process reengineering is the fundamental rethinking and radical redesign of business
        processes to achieve dramatic improvements in critical measures of performance.

       Customer relationship management, for example, can be thought of as a business
        process. In this chapter’s opening case, Citibank managers decided to reengineer its
        processes to improve their level of customer responsiveness.

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         Another example of process reengineering is Ford Motor Company’s decision to
         simplify its procurement process.

        Managers at all levels have important roles to play in a company’s effort to boost
         efficiency. Top management’s role is to encourage efficiency improvements by
         emphasizing the need for continuous improvements. They are also responsible for
         ensuring that managers from different functional departments work together to find
         ways to increase efficiency.

        However, it is typically functional-level managers who are in the best position to
         identify opportunities for continuous improvement or reengineering, as they are
         involved in an organization’s production system on a day-to-day basis.

        Achieving superior responsiveness to customers through quality and efficiency often
         requires a profound shift in management operations and in the culture of an

        Failure of management to understand the dramatic culture shift required may result in
         disillusionment with JIT, flexible manufacturing, or reengineering.

        None of these systems is a quick panacea to cure industrial ills. Making these
         techniques work can pose a significant challenge that calls for hard work and
         persistence by the sponsoring managers.

        Managers also need to understand the ethical implications of the adoption of many of
         these techniques. The increases in organizational performance they yield often come at
         great cost to employees. Employees may see the demands of their job increase or they
         may see themselves reengineered out of a job.

        Continually increasing the demands placed on employees regardless of human costs in
         terms of job stress raises ethical concerns.

Ethics in Action: The Human Cost of Improving Productivity

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At a Toyota plant in Tokyo, members of a self-managed team work at a grueling pace, with
little room for error. A red button halts the production line if problems become severe, but
there is an unspoken rule against pushing it. Workers complain that constant attempts to
increase quality and reduce costs typically results in continuous speedup of operations,
resulting in even higher levels of job stress. While some pressure is good, beyond a certain
level, it can seriously harm workers. At US West, a team of billing clerks eagerly responded
to management’s request to assist in identifying ways to streamline operations, only to learn
that their efforts led to the loss of 9,000 jobs. According to one of company’s former
employees, “It was cut-your-own-throat. It makes you feel used”.

Lecture Enhancer 14.1

What should a company do for angry customers? According to experts: just about anything it
can. Studies show customers tell twice as many people about bad experiences as good ones,
so complainers left unhappy can send a company’s image crashing. Simply listening to
complaints boosts brand loyalty and a customer’s tendency to buy again.

One research firm calculated the return on company dollars invested in resolution of customer
complaints and inquiries. The average return for makers of consumer durables like washing
machines and refrigerators was 100 percent. In other words, if manufacturers spent $1 million
handling consumer complaints, they reaped $2 million in benefits. For banks, it was as high is
170 percent.

Lecture Enhancer 14.2

The modern office is likely to be equipped with personal computers linked through local area
networks to each other and to a host of specialized equipment, from laser printers to data
bases storing millions of customer records. Within this state-of-the-art operating system is a
turn-of-the-century bottleneck—the computer keyboard.

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The computer keyboard is simply a transplanted typewriter keyboard, the same keyboard that
has been used since the 1890s. While the arrangement of keys is familiar, it is far from
efficient. When the first typewriters were introduced, keys were arranged alphabetically
(vestiges of this arrangement can be seen on the second row of keys—D F G H J K L.)
Printing bars were mechanically pushed against the paper by the pressure on the keys. Typists
soon became proficient enough to cause jams as they typed faster than the mechanical bars
could move.

Typewriter manufacturers went back to the drawing boards and designed a new keyboard to
slow typists down to speeds within the limits of the crude mechanism. The resulting keyboard
is referred to as “Qwerty”, named for the first six keys of the top row. Keys were placed
awkwardly to force slower typing. The “A”, for instance, one of the most frequently used
keys, was placed under a typist’s left-hand little finger, the weakest finger on the hand. “E”
requires an awkward reach using the middle finger of the left hand. Results were
encouraging—typing speeds declined.
Today mechanical keys have been replaced by electronic ones, but the keyboard arrangement
has remained unchanged. In the 1930s August Dvorak designed a better keyboard that groups
the most frequently used letters on the home row and eliminates many awkward reaches. The
Dvorak system is faster to learn, easier to type, less tiring, and less likely to cause errors than
Qwerty. Using it increases typing speed by more than 20 percent. Yet the system never caught
on—typists did not want to learn a new system when their typewriters all used Qwerty, and
manufacturers did not want to produce Dvorak typewriters as long as typists used Qwerty.

Lecture Enhancer 14.3

One of the business techniques imported from Japan in the 1980s was the concept of just-in-
time (JIT) inventory. It entails having raw materials and components delivered to the user just
at the time they are needed for production. Effective use of JIT requires close coordination
between the supplier and the organizational buyer.

The cost of materials and other goods and services needed to produce a product is about half
the revenue received for it. Reducing this cost, even a small amount, can create a significant
improvement in a company’s bottom line. Statistics from the U.S. Department of Commerce
show a steady decline in the amount of inventory carried by producers relative to the sales of
their products or services. Just-in-time inventory and delivery have become the reality for
organizational marketers.

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When marketers and suppliers cooperate as partners, JIT has often worked well. Montreal-
based Future Electronics is hooked up by an electronic data interchange system to Bailey
Controls, an Ohio-based supplier of control systems. Every week, Bailey electronically sends
Future its latest forecasts of what materials the Canadian company will need for the next six
months. Future Electronics can then stock up in time.

Wal-Mart Stores Inc. is widely cited as one of the best practitioners of inventory management.
The Bentonville, Arkansas based discount retailer is constantly trying to better its
performance. Among its current projects is an inventory-reporting system it is developing
with W&H Systems Inc. in Carlstadt, N.J., and Rank Video Systems of America in
Northbrook. Since the bulk of movie videotape sales are on weekends, Wal-Mart will take an
electronic inventory of its shelves nationwide every Sunday night and automatically notify the
video distributor, which will then place an order with Rank early Monday morning to
manufacture the replacement tapes for delivery to stores on Thursday before rentals pick up

When cooperation has been lacking, JIT has become something of a corporate shell game in
many industries as companies vie to keep their inventory on some other companies’ books.
And there is evidence that despite all the money companies have spent on computers to track
sales and inventory, just-in-time inventory doesn’t always work.

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“The reality today is that with just-in-time, there are still a lot of empty shelves in the stores”,
says Perry Caicco, president of Toronto-based Consumers Distributing Inc.

Notes for Topics for Discussion and Action

1. Ask a manager how quality, efficiency, and responsiveness to customers are defined and
   measured in his or her organization. (LO1)

    Students may interview many different types of managers. Each manager will have unique
    definitions of quality, efficiency, and responsiveness to customers. Below are some
    general definitions that should encompass managers’ definitions.

    Quality refers to goods and services that are reliable, dependable, and satisfying in the
    sense that they do the job they were designed for and do it well, so that they give
    customers what they want. Quality may be measured by the number of defective parts per
    lot size.

    Efficiency refers to the amount of inputs required to produce a given output. Generally,
    the fewer inputs needed to produce a given number of outputs, the higher the efficiency of
    the process. Efficiency may be measured by the equations for total factor productivity or
    partial productivity. These equations look at the amount of input relative to the output.

    Responsiveness to customers refers to actions taken to be responsive to the demands and
    needs of customers. Organizations can increase responsiveness to customers by providing
    affordable, high-quality products with many desirable features that are customized to
    consumers’ unique needs. Companies should also strive to provide quick service.
    Responsiveness to customers may be measured in percentage of returned merchandise or
    customer survey responses.

2. Go into a local store, restaurant, or supermarket and list the ways in which you think the
   organization is being responsive or unresponsive to the needs of its customers. How could
   this business’s responsiveness to customers be improved? (LO2)

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    A drug store that is part of a national chain is located on a busy corner in a large city. The
    store is responsive to the needs of its customers because it provides a variety of products,
    such as school supplies, seasonal items, cosmetics, greeting cards, medicine, and others
    items. In addition, the prices are reasonable and lower than prices at smaller, privately
    owned drug stores. Also, store brands provide customers with high-quality products at
    lower prices than national brands. The store also has other features, such as film
    developing and prescription filling.
    One main issue at this store is the long lines at the checkout counters. This aspect of the
    production system is very unresponsive to customers. Customers often get frustrated
    because they have to wait so long, and may begin to go to other stores where the wait is
    shorter, even if their prices are higher.

    The store might look at ways to fix this situation. They should move all staff to the
    checkout lines at the busiest times of the day, typically during lunchtime and afternoon
    rush hour. They should also limit special services, such as film processing and raincheck
    cashing, that are performed at the counter during peak times. These suggestions may
    reduce the amount of time customers wait to be checked out, thereby increasing the store’s
    responsiveness to customers.

3. What is efficiency, and what are some of the techniques that managers can use to increase
   it? (LO4)

    Efficiency refers to the amount of inputs required to produce a given output. Inputs may
    include labor, component parts, skills, knowledge, or time. Outputs can be any goods and
    services that the customer wants. These may be products or they may be intangible things,
    like customer service.

    Managers can increase efficiency in several ways. One is to improve quality. When
    quality rises, less employee time is spent making defective products that have to be
    discarded or repaired. Designing products with fewer parts can increase efficiency since
    fewer parts to assemble reduces the total assembly time and makes products easier to
    assemble (e.g. less effort.) Managers can also change their facilities layout, or the way in
    which machines, robots, and people are grouped together. One layout may be more
    effective than another, depending on the product. Flexible manufacturing can also increase
    efficiency by reducing the time required to set up production equipment. Yet another
    tactic is just-in-time inventory, which reduces inventory holding costs and frees capital
    that would otherwise be tied up in inventory. Another way is to implement self-managed

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4. Why is it important for managers to pay close attention to their organization’s production
   system if they wish to be responsive to their customers? (LO2)

   The attributes of an organization’s outputs - their quality, cost, and features - are
   determined by the organization’s production system. The ability of an organization to
   satisfy the demands of its customers is derived from its production system. By monitoring
   this system, managers can find ways to improve quality while keeping prices low, as well
   as find ways to increase efficiency. Customers want value for money, and an organization
   whose efficient production system creates high-quality, low-cost products is best able to
   deliver this value.
5. “Total customer service is the goal toward which most organizations should strive”. To
   what degree is this statement correct? (LO2)

    Without customers, most organizations would cease to exist. It is important for managers
    to correctly identify and promote organizational strategies that respond to customer needs.
    To this extent, the above statement is correct. Yet organizations should not strive to have
    total customer service at the expense of other important factors in the production process.
    If an organization offers a level of responsiveness that is more than that production system
    can profitably sustain, the entire system will suffer in terms of efficiency and cost
    effectiveness. A company that customizes every product to the unique demands of the
    individual customers will likely see its cost structure become so high that the cost of
    production exceeds revenues. Also, efficiency will suffer because time and effort is
    required to customize and provide “total customer service”. To this extent, total customer
    service should be balanced with focus on efficiency and effectiveness.

AACSB standards: 1, 3, 9

Managing a Production System (LO1, 2, 3, 4)

1. What is the output of the organization?

    The organization that is the focus of these questions is a housecleaning service. The
    service provides cleaning for residential buildings and private houses. Services include
    vacuuming, dusting, bed making, cleaning of windows and floors, straightening of
    furniture, sweeping, and other cleaning activities.

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2. Describe the production system that the organization uses to produce this output.

   The production system that is in place requires each cleaning person to perform all
   cleaning tasks individually. When the person arrives at the house, he or she starts in one
   end of the house and performs all the tasks in one room before moving on to another area
   of the house. All of the cleaning service's staff are part-time workers who work flexible
   hours and do not receive benefits. After cleaning an entire house, the cleaning person
   computes the amount of time it took to complete all the tasks and submits a time sheet to
   the manager at the home office. Members of the cleaning staff are paid by the hour, not by
   salary. The manager then bills the house for the number of hours required for cleaning.
3. What product attributes do customers of the organization desire?

    Customers prefer a lower price to a higher price. They prefer higher-quality cleaning
    service to low-quality service, especially since many customers only use the service once
    or twice a week. They are willing to pay a little more so that the service is not needed as
    often. Customers also want quick service. They prefer that the cleaning staff not be there
    any longer than is necessary. Customers also like that the cleaning service provides
    several services, as opposed to a small number of services that might be limited to certain
    areas of the house or certain tasks. Finally, customers like to feel that their service is
    tailored to them and their unique needs. Members of the cleaning staff go out of their way
    to provide customers with service that meets their schedules and demands.

4. Does its production system allow the organization to deliver the desired product

    The production system allows the organization to keep prices low because employees are
    part-time workers that do not receive benefits. Also, overhead is low since there is no need
    for a large amount of office space. High-quality service is delivered because the
    organization carefully screens its employees and trains them intensely. A new employee
    must accompany a more experienced employee for a few weeks before the new employee
    is allowed to work on his or her own. The cleaning service does not always deliver quick
    service, though, since some houses are larger and require more cleaning than others. This
    creates a large amount of work for one person to do on his or her own.

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5. Try to identify improvements that might be made to the organization’s production system
   to boost the organization’s responsiveness to customers, quality, and efficiency.

    The organization may try using self-managed teams to clean the houses that repeatedly
    require more effort, time, and resources. If teams of cleaning staff are formed, they could
    go to the houses together, with each team member performing one task in all areas of a
    house. For example, one person could be responsible for vacuuming all rooms, while
    another is responsible for dusting all rooms. This way, less time would be spent cleaning a
    house and more houses could be cleaned in the same amount of time it normally takes to
    clean fewer houses. This strategy would improve the efficiency of the cleaning staff.
    Also, managers could devise a system that charges each house according to the amount of
    resources needed to clean it. This way, the houses that required more would be charged
    more, and the houses that required less would be charged less. This would increase the
    organization’s responsiveness to customers in that the service would be customized to the
    unique needs of each house, without sacrificing efficiency.

AACSB standards: 1, 3, 9

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  (Note: Student responses will vary.)

    1. Either by yourself or in a group, discuss how to think through the ethical implications
       of using new operations management techniques to improve organizational

    The implementation of new operations techniques, such as JIT, TQM, or flexible
    engineering, often require a substantial shift in organizational culture for which employees
    must be prepared. The human cost of improving productivity must be acknowledged and
    thoughtfully balanced against other stakeholder concerns, since employee support is vital
    to the new undertaking.

    2. What criteria would you use to decide what kind of technique is ethical to adopt
       and/or how far to push employees to raise the level of their performance?

    Pushing employees to raise their level of performance often induces stress. Reasonable
    levels of stress can sometimes yield positive consequences. However, when employees
    begin to exhibit signs of being physiologically or psychologically overwhelmed by
    management induced pressures, the new operational techniques that have created this
    unacceptable level of tension must be immediately reevaluated.

    3. How big, if any, of a layoff is acceptable? If layoffs are acceptable, what could be
       done to reduce their harm to employees?

    Improved operations techniques, as well as technological advances and the cyclical nature
    of a market economy often make layoffs inevitable. However, providing ample
    forewarning can reduce harm to employees by layoffs, so that they have time to plan and
    prepare. Also reasonable severance packages, outplacement assistance, and if necessary,
    retraining often helps to reduce the trauma inflicted upon employees by layoffs.

AACSB standards: 1, 2, 6, 7

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Notes for Small Group Breakout Exercise
How to Compete in the Sandwich Business (LO1, 2, 3, 4)

1. Identify the product attributes that a typical sandwich shop customer wants the most.

    Customers are central to the survival of almost any organization, so it is crucial that
    managers find out what customers want and devise ways to satisfy the customers’ needs.
    A typical sandwich shop customer will prefer a lower price to a higher price. Customers
    will also prefer a higher-quality product to a lower-quality product. Ingredients must look
    appetizing and taste fresh. Customers also want quick service. Many people do not have a
    long time for lunch, and a long wait will likely deter many potential customers. In general,
    customers will like a sandwich shop that provides many “extras”, and does not charge for
    these additional features. A customer will probably disapprove if the shop charges extra
    for condiments or other basic toppings. Also, customers like flexibility and would
    probably like a sandwich shop that makes their food to order, and does not prepackage
    their sandwiches. Customers like to be able to make their own sandwiches, and generally
    do not like to be told that there are no substitutions.

2. In what ways do you think you will be able to improve on the operations and processes of
   existing sandwich shops and achieve a competitive advantage through better (a) product
   quality, (b) efficiency, or (c) responsiveness to customers?

High quality products are reliable, dependable, satisfying, and capable of getting the job done.
Since a substantial portion of the shop’s “product” is customer service, orders must be
handled quickly, accurately, reliably, and consistently. Higher product quality obtained
through improved customer service can increase efficiency by lower operating costs and
thereby boosting profits. A production system that maximizes the use of workers, floor space,
and time will also increase efficiency. On a periodic basis, managers should conduct informal
market research among customers to determine the attributes they desire so that the sandwich
shop can be sure to meet them.

AACSB standards: 1, 3, 9

Jones and George, Essentials of Contemporary Management, Third Edition                14-18

Be the Manager
How to Build Flat Panel Displays (LO 1, 2, 3, 4)

1. What kinds of techniques discussed in the chapter can help them to increase efficiency?

    When hiring people, it will be important to screen for teamwork skills and the ability to
    work in a cross functional team setting. The production facility should be designed to
    incorporate flexible manufacturing technologies and use a just-in-time inventory system,
    in order to adapt to changing market conditions and customer demands.

2. In what ways can they go about developing a program to increase quality?

The attempt to improve quality requires finding ways to measure quality, setting quality
improvement goals, and soliciting input from employees concerning potential improvements
in product design and the manufacturing process.

3. What are the critical lessons that these managers can learn from operations

Lesson #1: The goal of most start-ups is to break even and begin earning profits as soon as
possible. Therefore, the management of efficiency is extremely important because increased
efficiency lowers production costs that, in turn, lead to profit generation.

Lesson #2: In its eagerness to please its new customers, managers of this start-up must be
careful not to promise a level of responsiveness to their customers that their company can not
yet profitability sustain.

Lesson #3: Be cautious of the temptation to continually increase the demands placed on
employees to increase productivity. Do not impose unreasonable levels of stress upon

AACSB standards: 1, 3, 9

Jones and George, Essentials of Contemporary Management, Third Edition               14-19


Case Synopsis: No One Does Lean Like the Japanese

Japan has long been a global leader in lean production. But now, as Japanese companies face
increasing competition from low cost rivals in Korea, China, and other parts of Asia, they are
working double time to stay ahead. Matsushita is at the forefront of this effort. Matsushita’s
management focus is upon increasing efficiency. Although their plant in Saga has doubled its
efficiency over the previous four years, management feels there is still additional fat to be

  1. What value chain techniques has Matsushita been using to improve its performance

Conveyor belts were ripped out and replaced with clusters of robots. New software
synchronizes production so each robot jumps into action as soon as the previous step is
completed. Factories have been rearranged so that they can quickly shift gears to make
products for which demand is greatest. Inventory costs have been substantially reduced due to
a dramatic increase in the speed of production. The need to constantly re-tool robots was
reduced when engineers designed a new circuit board.

    2. Why is it difficult for all companies to implement lean production?

Implementing lean production requires substantial start-up costs. New equipment and
technology must be purchased, factory space must be reconfigured, and workers must be
retrained. Also, an organizational culture that embraces innovation and change must in place.
Otherwise, both management and workers would probably respond negatively to the
uncertainty that a total re-haul of value-chain operations at the functional level would

AACSB standards: 1, 3, 4, 9, 12

Jones and George, Essentials of Contemporary Management, Third Edition               14-20

Chapter 14 Video Case Teaching Note

Panera Bread Company

Teaching Objective: To observe how a fast-casual restaurant chain delivers value to
customers, builds loyalty, and achieves a competitive advantage.

Video Summary: Panera Bread Co. combines some of the best aspects of fast food and sit-
down venues. Its bakery-cafés offer quick meals throughout the day and a casual, sit-down
place where customers are welcome to linger. Panera prides itself on high-quality food, the
inviting atmosphere, and great customer service provided by managers and employees
empowered to make decisions that increase responsiveness to customers. The Panera formula
leads to high levels of employee commitment and customer satisfaction and has fueled
tremendous growth for the company.


    1. How do Panera Bread’s corporate vision and strategy lead to a competitive
       advantage in the restaurant industry?

Founder and CEO Ron Shaich envisioned a bakery-café that serves nourishing food with the
speed of fast food restaurants and the engaging environment of sit-down venues. From the
vision, Panera has developed a strategy that emphasizes high-quality food, moderate prices,
excellent service, and a unique “gathering place” environment. Panera has concentrated on
this concept and perfected it while carefully planning and controlling growth.

    2. How does Panera achieve responsiveness to customers?

The Panera experience is designed to satisfy customers and provide value for their money.
The company’s food, service, and setting are tailored to customers’ needs. The foundation of
Panera is fresh, high-quality food, selections people want, moderate prices, quick and friendly
service, and a welcoming atmosphere. CEO Ron Shaich visits Panera outlets and talks to both
customers and store managers and staff. That way he keeps close to the customer and learns
what they want, and close to the employees, whose feedback helps improve or maintain
operation efficiency.

    3. How does its corporate culture help make Panera Bread a high-performing company?

Jones and George, Essentials of Contemporary Management, Third Edition                14-21

Panera ranks high in food quality and customer loyalty. The company is adding restaurants
yearly and its stock is performing well. Its corporate culture helps deliver that high
performance. The culture is based on a sound organizational vision and is built as the
company educates and enables managers to lead and empowers front-line employees to make
customer-service decisions. CEO Shaich imparts the core value of recognizing every
stakeholder in the business, including team members and customers.

Jones and George, Essentials of Contemporary Management, Third Edition           14-22

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