18 Managing Service and Manufacturing Operations Copyright 2017

18 Managing Service and Manufacturing Operations Copyright © 2017 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 © 2017 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 10 | CH 18 2

Productivity LO 1 • Measure of performance that indicates how many inputs it takes to produce an output • Higher productivity results in: • • • Lower costs for the company Lower and affordable prices Faster service Higher market share Higher profits Higher standard of living Copyright © 2017 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 10 | CH 18 3

LO 1 Kinds of Productivity Partial productivity • Measure of performance that indicates how much of a particular kind of input it takes to produce an output Multifactor productivity • Overall measure of performance that indicates how much labor, capital, materials, and energy it takes to produce an output Copyright © 2017 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 10 | CH 18 4

LO 2 Quality-Related Characteristics of a quality product • Reliability • Serviceability • Durability Characteristics of a quality service • Reliability • Tangibles • Responsiveness • Assurance • Empathy Copyright © 2017 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 10 | CH 18 5

LO 2 ISO 9000 and 14000 • ISO 9000: Series of five international standards (9000– 9004) • Aims to achieve consistency in quality management and quality assurance in companies throughout the world • ISO 14000: Series of international standards • Aims to manage, monitor, and minimize an organization’s harmful effects on the environment Copyright © 2017 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 10 | CH 18 6

ISO Certification LO 2 • Companies are required to show that they are following their own procedures for: • • • Improving production Updating design plans and specifications Keeping machinery in good condition Educating and training workers Satisfactorily dealing with customer complaints Copyright © 2017 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 10 | CH 18 7

Baldrige Performance Excellence Program LO 2 • Recognizes U. S. companies for their achievements in quality and business performance • Helps raise awareness about the importance of quality and performance excellence as a competitive edge • Criteria for the award • Leadership; strategic planning; customers; measurement, analysis, and knowledge management; workforce; operations; and results Copyright © 2017 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 10 | CH 18 8

LO 2 Total Quality Management (TQM) • Integrated, principle-based, organizationwide strategy for improving product and service quality • Principles • Customer focus and satisfaction • Continuous improvement • Teamwork Copyright © 2017 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 10 | CH 18 9

LO 2 Principles of TQM Customer focus and satisfaction • Goal to meet customer’s needs at all levels of the organization such that products and services provided exceed customer expectations Continuous improvement • Ongoing commitment to constantly assess and improve the processes and procedures used to create products and services Teamwork • Collaboration between managers and nonmanagers, across business functions, and between companies, customers, and suppliers Copyright © 2017 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 10 | CH 18 10

Exhibit 18. 4 Service-Profit Chain Copyright © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 3 MGMT 10 | CH 18 11

Service Recovery LO 3 • Restoring customer satisfaction to strongly dissatisfied customers • Requires employees to delight highly dissatisfied customers by surpassing their expectations of fair treatment • Enabled by empowering workers • Permanently passing decision-making authority and responsibility from managers to workers Copyright © 2017 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 10 | CH 18 12

Classification of Manufacturing Operations LO 4 • Amount of processing • Refers to the assembly of products and services • Manufacturing flexibility • Degree to which manufacturing operations can quickly and easily change the kind, characteristics, and number of products produced Copyright © 2017 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 10 | CH 18 13

LO 4 Amount of Processing Make-to-order operations • Product processing or assembly isn’t started until a customer order is received Assemble-to-order operations • Manufacturing processes are divided into modules that are combined to create semicustomized products Make-to-stock operations • Parts are ordered, and standardized products are assembled before receiving customer orders Copyright © 2017 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 10 | CH 18 14

LO 4 Flexibility of Manufacturing Operations • Continuous-flow production: Produces goods at a continuous, rather than a discrete, rate • Least flexible • Line-flow production: Preestablished processes that occur in a serial or linear manner • Dedicated to making one type of product • Inflexible Copyright © 2017 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 10 | CH 18 15

Flexibility of Manufacturing Operations LO 4 (continued) • Batch production: Produces goods in large batches in standard lot sizes • Most flexible • Job shops: Handle custom orders or small batch jobs • Each shop is different Copyright © 2017 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 10 | CH 18 16

LO 5 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 © 2017 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 10 | CH 18 17

LO 5 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 © 2017 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 10 | CH 18 18

Costs of Maintaining an Inventory Ordering costs Setup costs Holding costs Stockout costs Copyright © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 5 MGMT 10 | CH 18 19

LO 5 Inventory Management Techniques Economic order quantity (EOQ) • System of formulas that minimizes ordering and holding costs and determines how much and how often inventory should be ordered Just-in-time (JIT) inventory system • 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 © 2017 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 10 | CH 18 20

LO 5 Managing Inventory • EOQ formulas are used with independent demand systems • Level of one kind of inventory does not depend on another • JIT and MRP are used with dependent demand systems • Level of inventory depends on the number of finished units to be produced Copyright © 2017 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 10 | CH 18 21

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 Assemble-to-order operation Make-to-stock operation Manufacturing flexibility Continuous-flow production Line-flow production Batch production Job shops Inventory Copyright © 2017 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 10 | CH 18 22

KEY TERMS • • • Raw material inventories Component parts inventories Work-in-process inventories Finished goods inventories Average aggregate inventory Stockout Inventory turnover Ordering cost Setup cost Holding cost • Stockout cost • Economic order quantity (EOQ) • Just-in-time (JIT) inventory system • Kanban • Materials requirement planning (MRP) • Independent demand system • Dependent demand system Copyright © 2017 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 10 | CH 18 23

SUMMARY • Higher productivity results in lower costs for the company, lower prices, faster service, higher market share, and higher profits • High-value services lead to customer satisfaction and customer loyalty, which lead to long-term profits and growth • Inventory management goals • To prevent running out of stock • To effectively reduce inventory levels and costs Copyright © 2017 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 10 | CH 18 24

Copyright © 2017 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 10 | CH 18 25