Chapter 18
1
1
Copyright ©2011 by Cengage Learning. All rights reserved
Chapter 18Managing Service and
Manufacturing Operations
Designed & Prepared byB-books, Ltd.
MGMT3
Chuck Williams
2Copyright ©2011 by Cengage Learning. All rights reserved
Operations Management
Operations Management
Managing the daily production of goods and services.
3
Copyright ©2011 by Cengage Learning. All rights reserved
Managing for Productivity and Quality
After reading these sections, you should be able to:
1. discuss the kinds of productivity and theirimportance in managing operations.
2. explain the role that quality plays in managingoperations.
Chapter 18
2
4Copyright ©2011 by Cengage Learning. All rights reserved
Productivity
Productivity = OutputsInputs
Productivity = OutputsInputs
Why Productivity
Matters
Why Productivity
Matters
DifferentKinds of
Productivity
DifferentKinds of
Productivity
11
5Copyright ©2011 by Cengage Learning. All rights reserved
Why Productivity Matters
HigherProductivity
HigherProductivity
LowerCosts
LowerCosts
LowerPricesLowerPrices
HigherMarketShare
HigherMarketShare
HigherProfitsHigherProfits
HigherStandard
of Living
HigherStandard
of Living
1.11.1
6Copyright ©2011 by Cengage Learning. All rights reserved
Why Productivity Matters
• Increased wages and new jobs
• More donations to charities
• More affordable and better products
1.11.1
Chapter 18
3
7Copyright ©2011 by Cengage Learning. All rights reserved
Kinds of Productivity
Partial productivity =
OutputsSingle Kind of Input
Multifactor productivity =
OutputsLabor + Capital + Materials + Energy
1.21.2
8Copyright ©2011 by Cengage Learning. All rights reserved
Multifactor Productivity Growth
1.21.2Source: “Productivity and Costs,” Bureau of Labor Statistics, available online at http://data.bls.gov/cgi-bin/surveymost?ip [accessed 1 July 2005].
9
Copyright ©2011 by Cengage Learning. All rights reserved
Quality
BaldrigeNational
Quality Award
BaldrigeNational
Quality Award
TotalQuality
Management
TotalQuality
Management
ISO 9000 & 14000
ISO 9000 & 14000
Quality-RelatedProduct
Characteristics
Quality-RelatedProduct
Characteristics
Quality-RelatedService
Characteristics
Quality-RelatedService
Characteristics
22
Chapter 18
4
10Copyright ©2011 by Cengage Learning. All rights reserved
Meanings for Quality
…A product or service free of deficiencies
…A product or service free of deficiencies
…The characteristics of a product orservice that satisfy customer needs
…The characteristics of a product orservice that satisfy customer needs
QualityQuality
22
11
Copyright ©2011 by Cengage Learning. All rights reserved
Quality-Related Product Characteristics
2.12.1
Rel
iabi
li ty Serviceability
Durability
Product
12Copyright ©2011 by Cengage Learning. All rights reserved
Characteristics of Service Quality
2.12.1
Chapter 18
5
13Copyright ©2011 by Cengage Learning. All rights reserved
ISO 9000 and 14000ISO 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.
ISO 14000
A series of international standards for managing, monitoring, and minimizing an organization’s harmful effects on the environment.
http://www.ansi.orghttp://www.asq.org
Web Link
2.22.2
14Copyright ©2011 by Cengage Learning. All rights reserved
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
2.32.3
15Copyright ©2011 by Cengage Learning. All rights reserved
Criteria for the Baldrige National Quality Award
1. Leadership
2. Strategic Planning
3. Customer Focus
4. Measurement, Analysis, & Knowledge Management
5. Workforce Focus
6. Process Management
7. Results
2.32.3
Chapter 18
6
16Copyright ©2011 by Cengage Learning. All rights reserved
Baldrige Application Process
http://www.quality.nist.govWeb Link
17Copyright ©2011 by Cengage Learning. All rights reserved
Total Quality Management
Principles of TQMPrinciples of TQM
Continuous improvement Continuous improvement
TeamworkTeamwork
Customer focus and satisfactionCustomer focus and satisfaction
2.42.4
18Copyright ©2011 by Cengage Learning. All rights reserved
Total Quality Management
50 150 250 350 450 550 650 750
Defects Per Million Parts (000)Defects Per Million Parts (000)
Sig
ma
Qua
lity
Leve
lS
igm
a Q
ualit
y Le
vel
6 Sigma
5 Sigma
4 Sigma
3 Sigma
2 Sigma
1 Sigma 690,000690,000
3.4
230
6,210
66,800
308,538
2.42.4
Chapter 18
7
19
Copyright ©2011 by Cengage Learning. All rights reserved
Managing Operations
After reading these sections, you should be able to:
3. explain the essentials of managing a servicebusiness.
4. describe the different kinds of manufacturingoperations.
5. explain why and how companies should manage inventory levels.
20Copyright ©2011 by Cengage Learning. All rights reserved
Service Operations
Services…
• are performed
• are intangible
• are unstorable
• 59% of GNP
Goods…
• are made
• are tangible
• are storable
• 30.8% of GNP
33
21Copyright ©2011 by Cengage Learning. All rights reserved
Service Operations
Service-ProfitChain
Service-ProfitChain
ServiceRecovery
andEmpowerment
ServiceRecovery
andEmpowerment
33
Chapter 18
8
22Copyright ©2011 by Cengage Learning. All rights reserved
The Service-Profit Chain
3.13.1
23Copyright ©2011 by Cengage Learning. All rights reserved
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
3.23.2
24Copyright ©2011 by Cengage Learning. All rights reserved
Costs of Empowering Service Employees
1. Finding service workers capable of solving pro blems1. Finding service workers capable of solving pro blems
2. Training service workers2. Training service workers
3. Higher wages3. Higher wages
4. Less emphasis on service reliability4. Less emphasis on service reliability
5. Eagerness to provide giveaways5. Eagerness to provide giveaways
6. Unintentional unfair customer treatment6. Unintentional unfair customer treatment3.23.2
Chapter 18
9
25Copyright ©2011 by Cengage Learning. All rights reserved
Benefits of EmpoweringService Employees
1. Quicker response to customer complaints1. Quicker response to customer complaints
2. Employees feel better2. Employees feel better
3. Enthusiastic employee interaction with custome rs3. Enthusiastic employee interaction with custome rs
4. Employees offer ideas for improvement and prev ention4. Employees offer ideas for improvement and prev ention
5. Great word-of-mouth advertising and customer r etention5. Great word-of-mouth advertising and customer r etention
6. Satisfied employees more likely to stay with c ompany6. Satisfied employees more likely to stay with c ompany3.23.2
26
Copyright ©2011 by Cengage Learning. All rights reserved
Manufacturing Operations
Amount ofProcessingAmount ofProcessing
Flexibilityof Manufacturing
Flexibilityof Manufacturing
44
27Copyright ©2011 by Cengage Learning. All rights reserved
Amount of Processing inManufacturing 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
4.14.1
Chapter 18
10
28Copyright ©2011 by Cengage Learning. All rights reserved
Amount of Processing inManufacturing Operations
MORE PROCESSING
Make-to-Order
Assemble-to-Order
Make-to-Stock
LESS PROCESSING
MORE PROCESSING
Make-to-Order
Assemble-to-Order
Make-to-Stock
LESS PROCESSING
4.14.1
29Copyright ©2011 by Cengage Learning. All rights reserved
Flexibility of Manufacturing Operations
LEAST FLEXIBLE
Continuous-Flow
Line-Flow
Batch
Job Shops
MOST FLEXIBLE
LEAST FLEXIBLE
Continuous-Flow
Line-Flow
Batch
Job Shops
MOST FLEXIBLE
4.14.1
30
Copyright ©2011 by Cengage Learning. All rights reserved
Flexibility of Manufacturing Operations
Handle small, specialty batches
Job shops
Produces specific quantities of different items, like a bakery or commissary
Batch production
Uses predetermined, linear steps, like beverage bottling
Line-flow production
Produces products continuously, like oil drilling
Continuous-flow production
4.24.2
Chapter 18
11
31
Copyright ©2011 by Cengage Learning. All rights reserved
Inventory
Costs ofMaintainingInventory
Costs ofMaintainingInventory
Systems forManagingInventory
Systems forManagingInventory
Types ofInventory
MeasuringInventory Levels
55
32Copyright ©2011 by Cengage Learning. All rights reserved
Types of Inventory
Raw materialsRaw materials
Component partsComponent parts
Work-in-process Work-in-process
Finished goodsFinished goods
Fabrication
Initial Assembly
Final Assembly
VendorsVendors
Purchasing
Purchasing
5.15.1
33Copyright ©2011 by Cengage Learning. All rights reserved
Types of Inventory
Finished GoodsInventories
Finished GoodsInventories
FieldWarehouses
FieldWarehouses
DistributionCenters
DistributionCenters
WholesalersWholesalers
RetailersRetailers
CustomersCustomers5.15.1
Chapter 18
12
34Copyright ©2011 by Cengage Learning. All rights reserved
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
5.25.2
35Copyright ©2011 by Cengage Learning. All rights reserved
Costs of Maintaining an Inventory
OrderingCost
OrderingCost
SetupCost
SetupCost
HoldingCost
HoldingCost
StockoutCosts
StockoutCosts
all costs associated with orderinginventory, correcting mistakes,determining when/how much to order
all costs associated with orderinginventory, correcting mistakes,determining when/how much to order
cost of downtime and lost efficiencywhen a machine is changed to producedifferent kinds of inventory
cost of downtime and lost efficiencywhen a machine is changed to producedifferent kinds of inventory
cost of keeping inventory until it isused or sold cost of keeping inventory until it isused or sold
cost when a company runs out of a productcost when a company runs out of a product
5.35.3
36
Copyright ©2011 by Cengage Learning. All rights reserved
Beyond the BookNCR Brings Production HomeAfter a costly and tumultuous experience outsourcing production of its ATMs for the last two years, NCR is bringing production back home, with plans to build all of its ATMs for North America from a single plant in Columbus, GA. The plant is located within two hours of NCR’s main customer service center, its innovation center, and its new Atlanta headquarters. Keeping production in house will help them streamline the process, cut down development times, and allow them to respond quickly when design changes are needed.
Source: P. Engardio, “Why NCR Said, ‘Let’s Go Back Home’”, Business Week, 24 & 31 August 2009. 19.
Chapter 18
13
37Copyright ©2011 by Cengage Learning. All rights reserved
Managing Inventory
EconomicOrder Quantity
EconomicOrder Quantity
Just-in-TimeInventory
Just-in-TimeInventory
MaterialsRequirement Planning
MaterialsRequirement Planning
EOQEOQ
JITJIT
MRP MRP
5.45.4
38
Copyright ©2011 by Cengage Learning. All rights reserved
Beyond the Book
Inventories Go LeanerDue to recent difficulties in the market and the economy, many retailers are striving to increase their profits working with a much leaner inventory, down by about 15 to 18 percent on average from a year ago. Terry Lundgren, CEO of Macy’s Inc., believes leaner inventories can increase profits, raise margins, and improve sell-throughs. Many retailers have found they can bring merchandise to the store closer to when it’s needed and make restocking purchases based more on actual sales results.
Source: V. M. Young, J. E. Palmieri, “Retail’s New Discipline: Keep Inventories Lean and Do More With Less”, Women’s Wear Daily, 7 July 2009. 1.
39Copyright ©2011 by Cengage Learning. All rights reserved
Managing Inventory
Kanban
Kanban, which is Japanese for “sign,” is a simple ticket-based JIT system that indicates when to reorder inventory.
5.45.4