CHAPTER 15 1 ment ition illiams Copyright 2005

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CHAPTER 15 1 ment ition illiams Copyright © 2005 by South-Western, a division of

CHAPTER 15 1 ment ition illiams Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved

What Would You Do? You are the manager of the England furniture factory… .

What Would You Do? You are the manager of the England furniture factory… . The furniture industry is a laggard—a low tech industry. You need to improve manufacturing speed and productivity to remain competitive—and still provide custom products What’s the best way to optimize productivity and hold down costs? How can you keep inventory costs under control? Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 2

Managing for Productivity and Quality After reading the next two sections, you should be

Managing for Productivity and Quality After reading the next two sections, you should be able to: 1. discuss the kinds of productivity and their importance in managing operations. 2. explain the role that quality plays in managing operations. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 3

Productivity Why Productivity Matters = Outputs Inputs Different Kinds of Productivity 1 Copyright ©

Productivity Why Productivity Matters = Outputs Inputs Different Kinds of Productivity 1 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 4

Why Productivity Matters Higher Productivity Higher Standard of Living Lower Costs Lower Prices Higher

Why Productivity Matters Higher Productivity Higher Standard of Living Lower Costs Lower Prices Higher Profits Higher Market Share 1. 1 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 5

Kinds of Productivity Partial productivity = Outputs Single Kind of Input Multifactor productivity =

Kinds of Productivity Partial productivity = Outputs Single Kind of Input Multifactor productivity = Outputs Labor + Capital + Materials + Energy 1. 2 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 6

Quality-Related Product Characteristics Quality-Related Service Characteristics ISO 9000 Baldrige National Quality Award Total Quality

Quality-Related Product Characteristics Quality-Related Service Characteristics ISO 9000 Baldrige National Quality Award Total Quality Management 2 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 7

Meanings for Quality …A product or service free of deficiencies …The characteristics of a

Meanings for Quality …A product or service free of deficiencies …The characteristics of a product or service that satisfy customer needs 2 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 8

Quality-Related Product Characteristics Reliability Serviceability Durability 2. 1 Copyright © 2005 by South-Western, a

Quality-Related Product Characteristics Reliability Serviceability Durability 2. 1 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 9

Quality-Related Service Characteristics Reliability Responsiveness Tangibles Assurance Empathy 2. 2 Copyright © 2005 by

Quality-Related Service Characteristics Reliability Responsiveness Tangibles Assurance Empathy 2. 2 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 10

ISO 9000. A series of five international standards: ISO 9000 to ISO 9004. Certifies

ISO 9000. A series of five international standards: ISO 9000 to ISO 9004. Certifies quality processes. Customers are increasingly demanding ISO 9000 certification http: //www. iso. ch 2. 3 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 11

Baldrige National Quality Award. Given to U. S. companies. Recognizes achievement in quality and

Baldrige National Quality Award. Given to U. S. companies. Recognizes achievement in quality and business performance. Raises awareness about the importance of quality and performance excellence as a competitive edge. Winners have been financially successful http: //www. quality. nist. gov 2. 4 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 12

Criteria for the Baldrige National Quality Award 1. Leadership 2. Strategic Planning 3. Customer

Criteria for the Baldrige National Quality Award 1. Leadership 2. Strategic Planning 3. Customer and Market Focus 4. Information and Analysis 5. Human Resource Focus 6. Process Management 7. Business Results 2. 4 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 13

Total Quality Management Principles of TQM Customer focus and satisfaction Continuous improvement Teamwork 2.

Total Quality Management Principles of TQM Customer focus and satisfaction Continuous improvement Teamwork 2. 5 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 14

Sigma Quality Level Total Quality Management 6 Sigma 3. 4 5 Sigma 230 4

Sigma Quality Level Total Quality Management 6 Sigma 3. 4 5 Sigma 230 4 Sigma 6, 210 3 Sigma 66, 800 308, 538 2 Sigma 690, 000 1 Sigma 50 150 250 350 450 550 650 750 Defects Per Million Parts (in thousands) 2. 5 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved Adapted from Exhibit 15. 7 15

Managing Operations After reading the next three sections, you should be able to: 3.

Managing Operations After reading the next three sections, you should be able to: 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 © 2005 by South-Western, a division of Thomson Learning. All rights reserved 16

Service Operations Services… Goods… . are performed . are made . are intangible .

Service Operations Services… Goods… . are performed . are made . are intangible . are unstorable . are storable . 50. 3% of GDP . 29. 7% of GDP 3 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 17

Service Operations Service-Profit Chain Service Recovery and Empowerment 3 Copyright © 2005 by South-Western,

Service Operations Service-Profit Chain Service Recovery and Empowerment 3 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 18

The Service-Profit Chain Internal Service Quality Employee Satisfaction Service Capability High Value Service Customer

The Service-Profit Chain Internal Service Quality Employee Satisfaction Service Capability High Value Service Customer Satisfaction Customer Loyalty Profit and Growth 3. 1 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved Adapted From Figure 15. 8 19

Components of Internal Service Quality Policies and Procedures Do they facilitate serving customers? Tools

Components of Internal Service Quality Policies and Procedures Do they facilitate serving customers? Tools Do service employees have tools needed? Effective Training Is job-specific training available? Rewards and Recognition Are good performers rewarded/recognized? Communication Both vertical and horizontal communication? Management Support Does management aid or hinder employees? Goal Alignment Teamwork Are goals of senior management and frontline service employees aligned? Is there teamwork among individuals and departments? 3. 1 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved Adapted From Figure 15. 9 20

Service Recovery and Empowerment. Service recovery is restoring customer satisfaction to strongly dissatisfied customers

Service Recovery and Empowerment. Service recovery is restoring customer satisfaction to strongly dissatisfied customers Ø Fixing the mistakes that were made Ø Performing “heroic” service . Empowering workers can help solve customer dissatisfaction Ø The goal is zero customer defections 3. 2 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 21

Costs of Empowering Service Employees 1. Finding service workers capable of solving problems 2.

Costs of Empowering Service Employees 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 3. 2 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 22 Adapted from Exhibit 15. 10

Benefits of Empowering Service Employees 1. Quicker response to customer complaints 2. Employees feel

Benefits of Empowering Service Employees 1. Quicker response to customer complaints 2. Employees feel better 3. Enthusiastic employee interaction with customers 4. Employees offer ideas for improvement and prevention 3. 2 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 23 Adapted from Exhibit 15. 10

Manufacturing Operations Amount of Processing Flexibility of Manufacturing 4 Copyright © 2005 by South-Western,

Manufacturing Operations Amount of Processing Flexibility of Manufacturing 4 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 24

Amount of Processing in Manufacturing Operations. Make-to-order operations Ø manufacturing doesn’t begin until an

Amount of Processing in Manufacturing Operations. Make-to-order operations Ø manufacturing doesn’t begin until an order is placed . Assemble-to-order operations Ø used to create semi-customized products . Make-to-stock operations Ø manufacture standardized products 4. 1 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 25

Amount of Processing in Manufacturing Operations More Processing Make-to-Order Operations Assemble-to-Order Operations Make-to-Stock Operations

Amount of Processing in Manufacturing Operations More Processing Make-to-Order Operations Assemble-to-Order Operations Make-to-Stock Operations 4. 1 Less Processing Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 26 Adapted from Exhibit 15. 11

Flexibility of Manufacturing Operations Continuous-flow production Produces products continuously, like oil drilling Line-flow production

Flexibility of Manufacturing Operations Continuous-flow production Produces products continuously, like oil drilling Line-flow production Uses predetermined, linear steps, like beverage bottling Batch production Produces specific quantities of different items, like a bakery or commissary Job shops Handle small, specialty batches Project manufacturing Is for large, expensive, specialized products like aircraft carriers Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 27

Flexibility of Manufacturing Operations LEAST FLEXIBLE Continuous-Flow Production Line-Flow Production Batch Production Job Shops

Flexibility of Manufacturing Operations LEAST FLEXIBLE Continuous-Flow Production Line-Flow Production Batch Production Job Shops Project Manufacturing MOST FLEXIBLE 4. 2 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved Adapted from Exhibit 15. 12 28

Inventory Types of Inventory Measuring Inventory Levels Costs of Maintaining Inventory Systems for Managing

Inventory Types of Inventory Measuring Inventory Levels Costs of Maintaining Inventory Systems for Managing Inventory 5 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 29

Types of Inventory Raw materials Fabrication Component parts Initial Assembly Work-in-process Final Assembly Finished

Types of Inventory Raw materials Fabrication Component parts Initial Assembly Work-in-process Final Assembly Finished goods 5. 1 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved More Adapted from Exhibit 15. 13 30

Types of Inventory Finished goods Field Warehouses Distribution Centers Wholesalers Retailers Customers 5. 1

Types of Inventory Finished goods Field Warehouses Distribution Centers Wholesalers Retailers Customers 5. 1 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved Adapted from Exhibit 15. 13 31

Types of Inventory Raw Materials Fabrication Customers Purc hasi ng Vendors Component Parts Initial

Types of Inventory Raw Materials Fabrication Customers Purc hasi ng Vendors Component Parts Initial Assembly Retailers Field Warehouses Wholesalers Adapted From Figure 15. 13 Work-in. Progress Final Assembly Finished Goods Distribution Centers Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 32

Measuring Inventory 1. Average aggregate inventory Ø the average overall inventory for a certain

Measuring Inventory 1. Average aggregate inventory Ø the average overall inventory for a certain time period 2. Stockout Ø running out of inventory 3. Inventory turnover Ø the number of times a year that a company sells its average inventory 5. 2 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 33

Inventory Turn Rates 30 Average Inventory Turn Rate 25 75 th Percentile Inventory Turn

Inventory Turn Rates 30 Average Inventory Turn Rate 25 75 th Percentile Inventory Turn 20 Rate 15 10 5 ge ve ra M A ig h H ac hi ne Ph ry ar m Pr ac in eu tin tic g al an s d Pu bl is hi ng Te ch le s ab ur D ct t& du m en ro ip er P qu l. E In d us tr ia on C 5. 2 su m er P ac k ag ed su m G oo ds /N C on on du st r ra b uc le s tio n ic al s C he m iv e ut A A er os om ot pa ce 0 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved Adapted from Exhibit 15. 14 34

Blast From The Past Guns, Geometry, and Fire. Guns: Eli Whitney and standardized parts

Blast From The Past Guns, Geometry, and Fire. Guns: Eli Whitney and standardized parts Ø interchangeable parts Ø fewer defects . Geometry: Gaspard Monge used three-dimensional drawings Ø more precise designs . Fire: A fire at Oldsmobile led to “hand-to-mouth” inventories Ø just-in-time inventory systems 5. 2 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 35

Costs of Maintaining an Inventory Ordering Cost Setup Cost all costs associated with ordering

Costs of Maintaining an Inventory Ordering Cost Setup Cost all costs associated with ordering inventory, correcting mistakes, determining when/how much to order costs of downtime and lost efficiency when a machine is changed to produce different kinds of inventory Holding Cost cost of keeping inventory until it is used or sold Stockout Costs costs when a company runs out of a product 5. 3 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 36

Managing Inventory EOQ Economic Order Quantity JIT Just-in-Time Inventory MRP Materials Requirement Planning 5.

Managing Inventory EOQ Economic Order Quantity JIT Just-in-Time Inventory MRP Materials Requirement Planning 5. 3 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 37

Been There Done That Lean Manufacturing at Wiremold has used continuous improvement and just-in-time

Been There Done That Lean Manufacturing at Wiremold has used continuous improvement and just-in-time inventory systems. Quality has increased and costs have been reduced. It is imperative to keep going back and improving operations 5. 3 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 38

Economic Order Quantity D = Demand O = Ordering costs H = Holding costs

Economic Order Quantity D = Demand O = Ordering costs H = Holding costs Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 39

Demand Systems Independent Demand Systems Dependent Demand Systems Copyright © 2005 by South-Western, a

Demand Systems Independent Demand Systems Dependent Demand Systems Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved EOQ MRP JIT 40

What Would You Do—II? Chrysler. The Jeep Cherokee is being replaced with the Liberty

What Would You Do—II? Chrysler. The Jeep Cherokee is being replaced with the Liberty Ø make it right—the first time Ø eliminate component parts inventory Ø build in a state-of-the-art manufacturing facility How would you organize the manufacturing operations? How do you increase the quality and make cars quickly? Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 41