18 Managing Service and Manufacturing Operations Copyright 2016

18 Managing Service and Manufacturing Operations Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

LEARNING OUTCOMES 1 Discuss the kinds of productivity and their importance in managing operations 2 Explain the role that quality plays in managing operations 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 Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 2

Productivity • Higher productivity results in: • Lower costs for the company, lower prices • Faster service, higher market share • Higher standard of living and increased profits • Kinds • Partial productivity: Measure of performance that indicates how much of a particular kind of input it takes to produce an output • Multifactor productivity: Indicates how much labor, capital, materials, and energy it takes to produce an output Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 3

Quality-Related Characteristics for Products and Services • Characteristics of quality product • Reliability • Serviceability • Durability • Characteristics of quality service • • Reliability Tangibles Responsiveness Assurance and empathy Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 4

ISO 9000 and 14000 • ISO 9000: Series of five international standards, from ISO 9000 to ISO 9004 • For achieving consistency in quality management and quality assurance in companies throughout the world • ISO 14000 • Series of international standards for managing, monitoring, and minimizing an organization’s harmful effects on the environment Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 5

Total Quality Management (TQM) • Integrated, principle-based, organizationwide strategy for improving product and service quality • Principles • Customer focus and satisfaction • Continuous improvement • Teamwork Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 6

Exhibit 18. 4 Service-Profit Chain Sources: R. Hallowell, L. A. Schlesinger, and J. Zornitsky, “Internal Service Quality, Customer and Job Satisfaction: Linkages and Implications for Management, ” Human Resource Planning 19 (1996): 20– 31; J. L. Heskett, T. O. Jones, G. W. Loveman, W. E. Sasser Jr. , and L. A. Schlesinger, “Putting the Service-Profit Chain to Work, ” Harvard Business Review (March–April 1994): 164– 174. Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 7

Service Recovery and Empowerment • Service recovery: Restoring customer satisfaction to strongly dissatisfied customers • Requires service employees to fix mistakes and perform heroic service acts • Empowering workers • Giving service employees the authority and responsibility to make decisions that immediately solve customer problems Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 8

Amount of Processing in Manufacturing Operations Make-to-order operation • Does not start processing or assembling products until a customer order is received Assemble-to-order operation • Divides manufacturing processes into modules that are combined to create semi customized products Make-to-stock operation (build-to-stock) • Orders parts and assembles standardized products before receiving customer orders Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 9

Flexibility of Manufacturing Operations Continuous-flow production • Produces goods at a continuous, rather than a discrete, rate • Least flexible Line-flow production • Preestablished and occur in a serial or linear manner • Inflexible Batch production • Produces goods in large batches in standard lot sizes • Most flexible • Job shops: Handle custom orders or small batch jobs Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 10

Types of Inventory Raw material inventories • Basic inputs in a manufacturing process Component parts inventories • Basic parts used in manufacturing that are fabricated from raw materials Work-in-process inventories • Partially finished goods consisting of assembled component parts Finished goods inventories • Final outputs of manufacturing operations Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 11

Measuring Inventory • Average aggregate inventory • Average overall inventory during a particular time period • Weeks of supply • Number of weeks required by a company to run out of its current supply of inventory • Inventory turnover • Number of times per year that a company sells, or turns over, its average inventory Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 12

Costs of Maintaining an Inventory Ordering cost Setup cost Holding cost Stockout cost Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 13

Inventory Management Techniques Economic order quantity (EOQ) • System of formulas that minimizes ordering and holding costs • Helps determine how much and how often inventory should be ordered Just-in-time (JIT) inventory • Component parts arrive from suppliers just as they are needed at each stage of production Materials requirement planning (MRP) • Determines the production schedule, production batch sizes, and inventory needed to complete final products Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 14

Managing Inventory • EOQ is used with independent demand systems • Independent demand system: Level of one kind of inventory does not depend on another • JIT and MRP are used with dependent demand systems • Dependent demand system: Level of inventory depends on the number of finished units to be produced Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 15

SUMMARY • Higher productivity results in lower costs for the company, lower prices, faster service, higher market share, and higher profits • High-value service leads to customer satisfaction and customer loyalty which in turn leads to long-term profits and growth • Inventory is the amount and number of raw materials, parts, and finished products that a company has in its possession Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 16

KEY TERMS • Operations management • Productivity • Partial productivity • Multifactor productivity • Quality • ISO 9000 • ISO 14000 • Total quality management (TQM) • Customer focus • Customer satisfaction • Continuous improvement • Variation • Teamwork • Internal service quality • Service recovery • Make-to-order operation Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 17

KEY TERMS • Assemble-to-order operation • Make-to-stock operation • Manufacturing flexibility • Continuous-flow production • Line-flow production • Batch production • Job shops • Inventory • Raw material inventories • Component parts inventories • Work-in-process inventories • Finished goods inventories • Average aggregate inventory Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 18

KEY TERMS Stockout Inventory turnover Ordering cost Setup cost Holding costs Stockout costs Economic order quantity (EOQ) • Just-in-time (JIT) inventory system • Kanban • • Materials requirement planning (MRP) • Independent demand system • Dependent demand system Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 19

Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MGMT 8 | CH 3 20