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Service and Manufacturing Operations
Business Management
“Copyright and Terms of Service
Copyright © Texas Education Agency. The materials found on this website are copyrighted © and trademarked ™ as the property of the Texas Education Agency and may not be reproduced without the express written permission of the Texas Education Agency, except under the following conditions:
1) Texas public school districts, charter schools, and Education Service Centers may reproduce and use copies of the Materials and Related Materials for the districts’ and schools’ educational use without obtaining permission from the Texas Education Agency;
2) Residents of the state of Texas may reproduce and use copies of the Materials and Related Materials for individual personal use only without obtaining written permission of the Texas Education Agency;
3) Any portion reproduced must be reproduced in its entirety and remain unedited, unaltered and unchanged in any way;
4) No monetary charge can be made for the reproduced materials or any document containing them; however, a reasonable charge to cover only the cost of reproduction and distribution may be charged.Private entities or persons located in Texas that are not Texas public school districts or Texas charter schools or any entity, whether public or private, educational or non-educational, located outside the state of Texas MUST obtain written approval from the Texas Education Agency and will be required to enter into a license agreement that may involve the payment of a licensing fee or a royalty fee.
Call TEA Copyrights with any questions you have.
2Copyright © Texas Education Agency, 2014. All rights reserved.
3
Service Businesses
Form
• Intangible, meaning that they cannot physically be touched
Quality
• Created by the provider, which means it can vary from one provider to another
Storage
• Because services are not products, they cannot be stored
Availabili
ty
• Only made available from the provider
Copyright © Texas Education Agency, 2014. All rights reserved.
4
Manufacturing Businesses
Form
• Tangible, can be touched
Quality
• Determined by the manufacturing process, should not vary much
Storage
• Can be stored, referred to as inventory
Availabili
ty
• Wherever the buyer needs the product/ online, brick and mortar location, or other locations
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5
Service Quality Standards
SERVQUAL survey
Franchising
Meeting customer needs
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SERVQUAL Surveys
• Measures five areas of service quality that are important to customers:– Reliability – can the service be performed
accurately and dependably– Responsiveness – prompt customer service– Assurance – trustworthy, knowledgeable
employees– Empathy – individualized attention– Tangible – physical appearance of facilities,
personnel, and equipment
6Copyright © Texas Education Agency, 2014. All rights reserved.
Franchising
• What is franchising?– A fee is paid to be able to sell a company’s
product or service • Benefits for service business standards
– Provided in many locations– Training provided ensuring consistency in quality
and service levels
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Meeting Customer Needs
• Offering extended hours• Providing more locations• Extending customer follow-up contact
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Manufacturing Considerations
9
Raw materials- supplies and
costs
Transportation- availability and
cost
Energy/utility costs
Land and building costs
Labor- hiring and training employees
Customers- locating and attracting
Legal/economic- taxes, zoning, environment
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10
Inventory Management
Work in Progress
Finished Goods
Raw Materials
Inventory- largestexpense of a business
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Problem - High Inventory Levels
• Can be a result of:– Not being marketed properly– Incorrect pricing– Poor quality– Inadequate supply chain management
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Problem - Inventory Storage Costs
• Costs associated with storing inventory:– Storage facility (for example, warehouses)– Insurance– Taxes– Depreciation– Labor – Loan costs if inventory purchased without using
cash
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Solutions
• Forecast sales more accurately• Build relationships with suppliers• Be realistic about inventory turnover goals• Calculate actual inventory costs to get a
realistic picture of costs• Use up-to-date technology to assist with
supplier information and point-of-sale data• Educate employees on inventory control
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Inventory Control Methods
• EOQ – Economic Order Quantity – the amount at which the amount of inventory ordered minimizes inventory costs
• Perpetual – maintaining a running count of inventory• Periodic – no continuous records are kept, inventory
physically counted periodically• Visual – making a visual inspection of inventory to
determine when inventory should be ordered• ABC Method – concentrates on the items that generate the
most sales• Just in Time – maintaining the smallest amount of
inventory needed to prevent out-of-stocks while being able to obtain stock as soon as it is needed
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EOQ
• Economic order quantity depends upon:– Unit cost– Carrying costs (storage costs)– Costs to order products and raw materials
• Purpose is to determine an order quantity that minimizes cost
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Perpetual Inventory Control
Advantages Disadvantages
Immediate inventory amounts If items are re-stocked, an employee can forget to scan
Universal Product Code (UPC) bar codes can make scanning inventory easier
If a manual recording method is used, an employee could forget to record a sale
Point-of-Sale (POS) systems can also maintain up-to-the-minute inventory counts
Computerized systems can be costly
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Periodic Inventory Control
• Inventory is physically counted• Even when other methods of inventory control are
used, periodically, or even at regular intervals, inventory should be counted to cross-check other methods
• Two counting methods:– Periodic – usually end-of-year inventory counts
after sales– Cycle – counting a few types of items on a
frequent basis instead of year-end17Copyright © Texas Education Agency, 2014. All rights reserved.
Visual Inventory
• Effective for lower-dollar items and smaller variety of merchandise
• Least effective for accuracy• Can result in out-of-stock items• Makes inventory forecasting more difficult
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ABC Inventory Control
• The relatively small amount of higher-dollar volumesA
• The amount of average- dollar volumesB
• The lower-dollar volume itemsC
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ABC Inventory Control (continued)
• Need the most control over the amount of inventory for the higher-dollar, high-volume (A) items
• (A) items lean toward a more perpetual, ongoing control of the inventory/ control system costs more with these items
• (B) items can use periodic counting of inventory/ control system costs less
• (C) items require the least complicated/ less costly control method
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Just in Time Inventory Control
• Reduces inventory costs• Keeps very little inventory on hand• Requires close relationships with suppliers
to be able to get products as soon as needed
• Usually requires updated technology to keep inventory activities in real time to coordinate with the suppliers
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Independent Practice Assignments
• Tour Guide Assignment #1 – Present the students with the following scenario: they live in the Florida Keys and are looking to start a tour guide business. They plan on offering tours around the particular island on which they live. Students are to imagine their own details for these tours. The assignment is to create a survey to assess the quality of their service, that is, the tours they offer. They should use the guide at the http://web.stcloudstate.edu/brklemz/servqual-1.doc website. Students should create this survey manually or in a word-processing program.
• Inventory Control Document Assignment #2 – Have students select five stores that they know carry inventory. The will create a document such as a table, diagram, or other type of document that will identify the name of the store; the type of inventory control method they think would be most appropriate (and an explanation of why they think that way); and finally a statement from an owner, manager, or other employee of the companies they have selected regarding what type of inventory control method they actually do use. They should also include a statement somewhere on their document regarding how their suggestion compares to the actual method used.
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Independent Practice Assignments (continued)
• Inventory Control Shrinkage Report Assignment #3 – Shrinkage is an issue concerning inventory that businesses must deal with. Shrinkage is the difference between the amount of inventory that is recorded and the actual amount of inventory on hand. Students will create a one-page on the causes and consequences of inventory shrinkage. They should detail at least three types or causes of shrinkage and explain the consequences of shrinkage. Proper writing conventions should be followed.
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