Chapter 18 Managing Service and Manufacturing Operations

1. MGMT3 Chuck Williams Chapter 18Managing Service and Manufacturing Operations Designed & Prepared byB-books, Ltd.

2. Operations Management Operations Management Managing the daily production of goods and services.

3. Managing for Productivity and Quality After reading these sections, you should be able to: discuss the kinds of productivity and theirimportance in managing operations. explain the role that quality plays in managingoperations.

4. Productivity Why ProductivityMatters DifferentKinds ofProductivity Productivity = Outputs Inputs 1

5. Higher Productivity Lower Costs Lower Prices Higher Standard of Living Higher Profits Higher Market Share Why Productivity Matters 1.1

6. Why Productivity Matters • Increased wages and new jobs • More donations to charities • More affordable and better products 1.1

7. Kinds of Productivity Outputs Single Kind of Input Outputs Labor + Capital + Materials + Energy Partial productivity = Multifactor productivity = 1.2

8. Multifactor Productivity Growth 1.2 Source: “Productivity and Costs,” Bureau of Labor Statistics, available online at http://data.bls.gov/cgi-bin/surveymost?ip [accessed 1 July 2005].

9. Quality-RelatedProduct Characteristics Quality-RelatedServiceCharacteristics ISO 9000 & 14000 BaldrigeNational Quality Award Total Quality Management Quality 2

10. Meanings for Quality …A product or service free of deficiencies Quality …The characteristics of a product or service that satisfy customer needs 2

11. Reliability Serviceability Product Durability Quality-Related Product Characteristics 2.1

12. Characteristics of Service Quality 2.1

13. ISO 14000 A series of international standards for managing, monitoring, and minimizing an organization’s harmful effects on the environment. 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. Web Link http://www.ansi.org http://www.asq.org ISO 9000 and 14000 2.2

14. 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

15. Criteria for the Baldrige National Quality Award • Leadership • Strategic Planning • Customer Focus • Measurement, Analysis, & Knowledge Management • Workforce Focus • Process Management • Results 2.3

16. Web Link http://www.quality.nist.gov Baldrige Application Process

17. Total Quality Management Principles of TQM Continuous improvement Teamwork Customer focus and satisfaction 2.4

18. 3.4 6 Sigma 230 5 Sigma 6,210 4 Sigma Sigma Quality Level 66,800 3 Sigma 308,538 2 Sigma 690,000 1 Sigma 50 150 250 350 450 550 650 750 Defects Per Million Parts (000) Total Quality Management 2.4

19. Managing Operations After reading these sections, you should be able to: explain the essentials of managing a servicebusiness. describe the different kinds of manufacturingoperations. explain why and how companies should manage inventory levels.

20. Service Operations Services… Goods… • are performed • are intangible • are unstorable • 59% of GNP • are made • are tangible • are storable • 30.8% of GNP 3

21. Service Operations Service-ProfitChain ServiceRecoveryand Empowerment 3

22. The Service-Profit Chain 3.1

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. 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 Costs of Empowering Service Employees 3.2

25. 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 6. Satisfied employees more likely to stay with company Benefits of EmpoweringService Employees 3.2

26. Amount ofProcessing Flexibilityof Manufacturing Manufacturing Operations 4

27. 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 4.1

28. MORE PROCESSING Make-to-Order Assemble-to-Order Make-to-Stock LESS PROCESSING Amount of Processing inManufacturing Operations 4.1

29. LEAST FLEXIBLE Continuous-FlowLine-FlowBatchJob Shops MOST FLEXIBLE Flexibility of Manufacturing Operations 4.1

30. Flexibility of Manufacturing Operations 4.2

31. Costs ofMaintainingInventory Types ofInventory Systems forManagingInventory MeasuringInventory Levels Inventory 5

32. Raw materials Purchasing Vendors Fabrication Component parts Purchasing Initial Assembly Work-in-process Final Assembly Finished goods Types of Inventory 5.1

33. Finished GoodsInventories FieldWarehouses DistributionCenters Wholesalers Retailers Customers Types of Inventory 5.1

34. Measuring Inventory • Average Aggregate Inventory • the average overall inventory for a certain time period • Weeks of Supply • the number of weeks to run out of inventory • Inventory Turnover • the number of times a year that a company sells its average inventory 5.2

35. Costs of Maintaining an Inventory OrderingCost all costs associated with ordering inventory, correcting mistakes,determining when/how much to order Setup Cost cost of downtime and lost efficiencywhen a machine is changed to producedifferent kinds of inventory HoldingCost cost of keeping inventory until it isused or sold StockoutCosts cost when a company runs out of a product 5.3

36. Beyond the Book NCR Brings Production Home After 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.

37. EOQ EconomicOrder Quantity JIT Just-in-TimeInventory MRP MaterialsRequirement Planning Managing Inventory 5.4

38. Beyond the Book Inventories Go Leaner Due 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.

39. Kanban Kanban, which is Japanese for “sign,” is a simple ticket-based JIT system that indicates when to reorder inventory. Managing Inventory 5.4

40. Beyond the Book Biz Flix: In Bruges Ken is the customer, and the ticket seller responds to him as a customer. Do you think the ticket seller has a customer focus as emphasized in this chapter? Why or why not? Take Two Video Click These scenes offer a lesson in customer focus. What did the ticket seller fail to understand about his customers? Could he have handled the situation better?