Managing Operations

Managing Operations PART 5 Managing Growth in the Small Business

Competing with Operations • Operations • The processes used to create and deliver a good or service (value) to customers. • Operations Management • The planning and control of a conversion process that includes turning inputs into outputs (products and/or services) that customers desire.

Competing with Operations (cont’d) • Important Questions about Operations Factors: • How much flexibility is required to satisfy customers over time? • What is customer demand today? for the future? Are facilities and equipment adequate to keep up with demand? • What options are available for satisfying customers? • What skills or capabilities set the firm apart from its competitors such that the firm can best take advantage of these distinctive features in the market? • Does the competitive environment require certain capabilities that the enterprise lacks?

The Operations Process • Managing Operations in a Service Business • Products are tangible, services are intangible. • Manufacturing can produce goods for inventory; service operations cannot store or bank services. • Productivity and quality is more easily measured in manufacturing than service operations. • Quality is more difficult and control to establish in service than manufacturing operations. • Customers are more involved in service than manufacturing operations and can influence the quality of service. • Technology can enable customers to provide more of their own services.

Exhibit 21.1The Operations Processes (Input  Processes  Output)

The Operations Process (cont’d) • Capacity Considerations • Capacity limits firm’s ability to meet demand • Capacity determines startup (fixed) costs • Ability to adjust capacity differs among firms • Planning and Scheduling • Involves attempting to achieve the orderly, sequential flow of products or services to market. • Is critical in service industry operations • Incorporates demand management strategies to stimulate customer demand when it is normally low.

Inventory Management and Operations • Objectives of Inventory Management

Inventory Management and Operations (cont’d) • ABC Inventory Classification • Classifying items in inventory by relative value: • Category A (close/continuous control) • High-value or critical production component items • Category B (moderate control) • Less costly, secondary importance items • Category C (periodic control) • Low-cost and noncritical items

Inventory Management and Operations (cont’d) • Just-In-Time Inventory (JIT) System • A demand (pull) method of reducing inventory level to an absolute minimum. • New inventory items arrive at the same time that the last inventory item is placed in service. • JIT promotes: • Closer coordination with suppliers • Consistent quality production • Lower safety stock levels

Inventory Record-Keeping Systems • Physical inventory system • Provides for periodic counting of items in inventory. • Cycle counting • Counts different segments of the physical inventory at different times during the year. • Perpetual inventory • Keeps a running record of inventory that does not require a physical count except to ensure the accuracy of the system. • Two-bin inventory system • A method of inventory control based on use of two containers for each item in inventory: one to meet current demand and the other to meet future demand.

Operations Management and Quality • Quality as a Competitive Tool • Quality is a must in international competition • Quality • The features of a product or service that enable it to satisfy customers’ needs. • A perception of the customer as to the suitability of the product or service of a firm. • Total Quality Management (TQM) • An aggressive, all-encompassing management approach to providing superior, high-quality products and services.

Tools and Techniques of TQM • Employee Participation • Employee performance is a critical quality variable. • The implementation of work teams and empowerment of employees to build workplace involvement. • Quality circle • A group of employees who meet regularly to discuss quality-related problems.

Exhibit 21.3Essential Features of Total Quality Management

Customer Focus of Quality Management • Customer Expectations • Quality is the extent to which a product or service satisfies customer’s needs and expectations. • Product quality • Service quality • Product and service quality combinations • “The customer is the focal point of quality efforts.” • Customer Feedback • Customers are the eyes and ears of the business for quality matters.

Quality Assurance Using Inspection versus Poka-Yoke • The Inspection Process • The examination of a product to determine whether it meets quality standards. • Occurs after the fact—the defective good has already been produced. • Poka-Yoke • A proactive approach to quality management that seeks to mistake-proof a firm’s operations, thus avoiding problems and waste before they can occur.

Statistical Methods of Quality Control • Acceptance Sampling • The use of a random, representative portion to determine the acceptability of an entire lot. • Attributes • Product or service parameters that can be counted as being present or absent. • Variables • Measured parameters that fall on a continuum, such as weight or length.

Quality Management in Service Businesses • Opportunities for Small Service Companies • Providing an excellent combination of tangible products and intangible services. • Providing personalized, high contact services. • Providing service quality without regard to the profitability of the customer. • Developing good measures to control service quality.

Purchasing Policies and Practices • Purchasing • The process of obtaining materials, equipment, and services from outside. • The Importance of Purchasing • The process of acquiring quality raw material inputs affects: • The timely and consistent production of quality products. • Retailer sales of finished products to customers. • The costs of products, their profitability and their selling prices.

Purchasing Policies and Practices (cont’d) • Make-or-Buy Decisions • A firm’s choice between producing and purchasing component parts for its products. • Reasons for making: • Increased utilization of plant capacity • Assurance of supply of critical components • Maintaining secrecy in designs and processes • Saving on transportation costs and supplier profits • Closer coordination and control of overall process • Higher quality components for inputs

Purchasing Policies and Practices (cont’d) • Make or Buy Decisions (cont’d) • Reasons for Buying: • Outside supplier is cheaper and/or higher quality • Investment savings on space, personnel, equipment • Less diversified managerial experience and skills required • Greater flexibility in matching supply and demand • Increased focus on production of core products/services • Risk of obsolescence transferred to outsiders

Purchasing Policies and Practices (cont’d) • Outsourcing • Purchasing products or services that are outside the firm’s area of competitive advantage. • Cooperative Purchasing Organization (COOP) • Small businesses combine demand for products or services to negotiate as a group with suppliers. • Benefits: increased buying power, more access to resources and information • Small firms save on inputs by using the Internet to seek out the lowest cost suppliers.

Purchasing Policies and Practices (cont’d) • Diversifying sources of supply • Reasons for having a sole supplier: • Outstanding supplier quality • Quantity discounts for volume purchases • Single orders too small to divide among suppliers • Quality of supplier-customer relationship • Reasons for having multiple suppliers: • Choice of best quality, price, and service • Supplier competes for business • Insurance against input interruptions

Purchasing Policies and Practices (cont’d) • Building Good Relationships with Suppliers • Pay bills promptly. • Give sales reps a timely and courteous hearing. • Minimize abrupt cancellation of orders merely to gain a temporary advantage. • Avoid attempts to browbeat a supplier into special concessions or unusual discounts. • Cooperate with the supplier by making suggestions for product improvements and/or cost reductions, whenever possible.

Purchasing Policies and Practices (cont’d) • Forming Strategic Alliances with Suppliers • Involves close coordination of buyers and sellers to: • Reduce product introduction lead time • Improve product quality • Engage in joint problem solving • Make joint adjustments to market conditions • Involve the supplier early in product development

Managing Operations