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					       Chapter 18
   Managing Service and
      Manufacturing
       Operations

    MGMT
                 Designed & Prepared by
Chuck Williams             B-books, Ltd.
                                       1
Operations Management
Operations Management

Managing the daily production of
goods and services.




                                   2
  Managing for Productivity
        and Quality
After reading these 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.
                                               3
           Productivity

         Productivity   =   Outputs
                             Inputs




       Why               Different
    Productivity          Kinds of
      Matters           Productivity


1
                                       4
         Why Productivity Matters

        Higher       Lower     Lower
      Productivity   Costs     Prices




       Higher
                               Higher
      Standard       Higher
                               Market
         of          Profits
                               Share
       Living

1.1
                                        5
        Why Productivity Matters
      • Increased wages and new jobs

      • More donations to charities

      • More affordable and better products




1.1
                                              6
      Kinds of Productivity

             Partial productivity =

                    Outputs
              Single Kind of Input


           Multifactor productivity =
                    Outputs
      Labor + Capital + Materials + Energy


1.2
                                             7
      Multifactor Productivity
              Growth




1.2
                                 8
               Quality

    Quality-Related   Quality-Related
      Product            Service
    Characteristics   Characteristics

                  ISO
              9000 & 14000

      Baldrige            Total
      National           Quality
    Quality Award      Management
2                                       9
      Meanings for Quality

                    …A product or service
                     free of deficiencies

    Quality
              …The characteristics of a product or
              service that satisfy customer needs




2
                                                10
    Car Quality




2
                  11
      Quality-Related Product Characteristics




                      Product


                     Durability



2.1
                                           12
                 Serviceability

Reva uses a
computer
diagnostic
system that
can sync to
the owner’s
cell phone,
indicating the
type of
service the
vehicle needs.


                                  13
      Characteristics of Service Quality




2.1
                                     14
        ISO 9000 and 14000
      ISO 9000

      A series of five international standards (ISO
      9000 to ISO 9004) for achieving consistency
      in quality management and quality
      assurance in companies throughout the
      world.
                                                   http://www.ansi.org
                                        Web Link
      ISO 14000                                    http://www.asq.org


      A series of international standards for
      managing, monitoring, and minimizing an
      organization’s harmful effects on the
      environment.
2.2
                                                               15
      Baldrige National Quality Award



      • Given to U.S. companies to recognize
        achievement in quality and business
        performance

      • Raises awareness about the importance of
        quality and performance excellence as a
        competitive edge
2.3
                                                   16
               Criteria for the
      Baldrige National Quality Award
      1.   Leadership
      2.   Strategic Planning
      3.   Customer and Market Focus
      4.   Measurement, Analysis, & Knowledge Management
      5.   Human Resource Focus
      6.   Process Management
      7.   Business Results


2.3
                                                           17
Baldrige Application Process




             Web Link   http://www.quality.nist.gov

                                             18
      Total Quality Management

               Principles of TQM



         Customer focus and satisfaction

            Continuous improvement

                   Teamwork


2.4
                                           19
      Total Quality Management
                            6 Sigma   3.4
      Sigma Quality Level


                            5 Sigma   230
                            4 Sigma   6,210
                            3 Sigma         66,800
                            2 Sigma                    308,538
                            1 Sigma                  690,000
                                       50     150 250 350 450 550 650 750
                                       Defects Per Million Parts (000)
2.4
                                                                         20
      Managing Operations
After reading these sections,
you should be able to:
  3. explain the essentials of managing a service
     business.
  4. describe the different kinds of manufacturing
     operations.
  5. explain why and how companies should
     manage inventory levels.
                                              21
          Service Operations
         Services…             Goods…

    •   are performed    •   are made
    •   are intangible   •   are tangible
    •   are unstorable   •   are storable
    •   57.2% of GDP     •   32.7% of GDP




3
                                            22
         Service Operations


     Service-Profit
        Chain




       Service
      Recovery
        and
    Empowerment
3
                              23
             Service Recovery and
                Empowerment

      • Service recovery is restoring customer
        satisfaction to strongly dissatisfied
        customers
        – Fixing the mistakes that were made
        – Performing heroic service that delights customers
      • Empowering workers can help solve
        customer dissatisfaction
        – The goal is zero customer defections
3.2
                                                         24
             Costs of Empowering
              Service Employees
      1. Finding service workers capable of solving problems


      2. Training service workers

      3. Higher wages

      4. Less emphasis on service reliability

      5. Eagerness to provide giveaways

      6. Unintentional unfair customer treatment
3.2
                                                          25
           Benefits of Empowering
             Service Employees
      1. Quicker response to customer complaints


      2. Employees feel better

      3. Enthusiastic employee interaction with customers

      4. Employees offer ideas for improvement and prevention

      5. Great word-of-mouth advertising and customer retention


3.2   6. Satisfied employees more likely to stay with company
                                                            26
    Manufacturing Operations



      Amount of        Flexibility
      Processing   of Manufacturing




4                                     27
           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


4.1
                                                          28
      Amount of Processing in
      Manufacturing Operations
             More Processing

               Make-to-Order


             Assemble-to-Order


               Make-to-Stock


             Less Processing
4.1
                                 29
      Flexibility of Manufacturing
                Operations

               LEAST FLEXIBLE
                Continuous-Flow
                   Line-Flow
                    Batch
                  Job Shops


               MOST FLEXIBLE


4.1
                                  30
           Flexibility of Manufacturing
                     Operations

      Continuous-flow production Produces products
                                 continuously, like oil drilling

      Line-flow production         Uses predetermined, linear
                                   steps, like beverage bottling
      Batch production             Produces specific quantities
                                   of different items, like a
                                   bakery or commissary
      Job shops                    Handle small, specialty
                                   batches


4.2
                                                             31
                Inventory


     Types of           Measuring
    Inventory        Inventory Levels


         Costs of          Systems for
       Maintaining          Managing
        Inventory           Inventory


5                                        32
                Types of Inventory

                       Raw materials
      Vendors                      Fabrication

                      Component parts

                         Initial   Assembly

                      Work-in-process

                         Final     Assembly

                       Finished goods
5.1
                                                 33
Manufacturers Pursue                                                                            Beyond the Book

Vertical Integration

• Many big manufacturers are acquiring the
  producers of raw materials and crucial parts.
• Given the rising costs of commodities like
  copper and rubber, these companies feel
  pressure to protect themselves from supply
  scarcity.
• Owning suppliers also gives manufactures more
  control over the quality of their parts.
Source: T. Aeppel, “A Hot Commodities Market Spurs Buying Spree by Manufacturers,” The Wall Street Journal, 14 August 2006.



                                                                                                                              34
         Types of Inventory
                   Finished Goods
                     Inventories

         Field                      Distribution
      Warehouses                      Centers
                     Wholesalers



                      Retailers



                      Customers
5.1
                                                   35
           Measuring Inventory
      1. Average Aggregate Inventory
        – the average overall inventory for a certain time
          period
      2. Weeks of Supply
        – the number of weeks to run out of inventory
      3. Inventory Turnover
        – the number of times a year that a company sells its
          average inventory


5.2
                                                             36
         Costs of Maintaining an
                Inventory
                 all costs associated with ordering
      Ordering
                 inventory, correcting mistakes,
        Cost     determining when/how much to order

                 cost of downtime and lost efficiency
       Setup
                 when a machine is changed to produce
       Cost      different kinds of inventory


      Holding    cost of keeping inventory until it is
       Cost      used or sold


      Stockout   cost when a company runs out of
       Costs     a product
5.3
                                                         37
Webfront Design     Beyond the Book

Reduces Need For Inventory
• Nau, an outdoor clothing
  company, uses a webfront
  design in its stores.
• Customers can try clothes on at
  the store and then order
  garments shipped to their own
  home.
• Customers get free shipping
  and a 10% discount and Nau
  can build smaller stores and cut
  operating expenses.
 Source: Fast Company, June 2007, 98.
                                        38
      Managing Inventory

                   Economic
       EOQ
                 Order Quantity


                  Just-in-Time
        JIT
                   Inventory


                    Materials
       MRP
              Requirement Planning

5.4
                                     39
        Managing Inventory

      Kanban

      Kanban, which is Japanese for “sign,” is
      a simple ticket-based JIT system that
      indicates when to reorder inventory.




5.4
                                                 40
                                         Beyond the Book
Biz Flix: Casino
                                         Does the casino
                                         have independent or
                                         interdependent
                                         demand systems?



                        Take Two Video

What type of                Click
operations
management does this
scene show—
manufacturing
operations
management or service
operations
management?                                               41

				
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posted:10/16/2011
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