Chapter 18
Chapter 18 Managing Service and Manufacturing Operations MGMT3 Chuck Williams
Designed & Prepared by B-books, Ltd. 1
Copyright ©2011 by Cengage Learning. All rights reserved
Operations Management Operations Management Managing the daily production of goods and services.
2 Copyright ©2011 by Cengage Learning. All rights reserved
Managing for Productivity and Quality After reading these 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. 3
Copyright ©2011 by Cengage Learning. All rights reserved
1
Chapter 18
Productivity Productivity Productivity
Why Why Productivity Productivity Matters Matters
==
Outputs Outputs Inputs Inputs
Different Different Kinds Kindsof of Productivity Productivity
1 4
Copyright ©2011 by Cengage Learning. All rights reserved
Why Productivity Matters Higher Higher Productivity Productivity
Lower Lower Costs Costs
Lower Lower Prices Prices
Higher Higher Standard Standard of of Living Living
Higher Higher Profits Profits
Higher Higher Market Market Share Share
1.1 5 Copyright ©2011 by Cengage Learning. All rights reserved
Why Productivity Matters • Increased wages and new jobs • More donations to charities • More affordable and better products
1.1 6 Copyright ©2011 by Cengage Learning. All rights reserved
2
Chapter 18
Kinds of Productivity Partial productivity = Outputs Single Kind of Input
Multifactor productivity = Outputs Labor + Capital + Materials + Energy 1.2 7
Copyright ©2011 by Cengage Learning. All rights reserved
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].
8 Copyright ©2011 by Cengage Learning. All rights reserved
Quality Quality-Related Quality-Related Product Product Characteristics Characteristics
Quality-Related Quality-Related Service Service Characteristics Characteristics
ISO ISO 9000 9000&& 14000 14000 Baldrige Baldrige National National Quality QualityAward Award 2
Total Total Quality Quality Management Management 9
Copyright ©2011 by Cengage Learning. All rights reserved
3
Chapter 18
Meanings for Quality …A …Aproduct productor or service service free freeof of deficiencies deficiencies
Quality Quality …The …Thecharacteristics characteristics of of aaproduct productor or service servicethat thatsatisfy satisfycustomer customer needs needs
2 10 Copyright ©2011 by Cengage Learning. All rights reserved
Quality-Related Product Characteristics
ice
Re liab
ilit y
rv Se il it ab y
Product Durability
2.1
11 Copyright ©2011 by Cengage Learning. All rights reserved
Characteristics of Service Quality
2.1 12 Copyright ©2011 by Cengage Learning. All rights reserved
4
Chapter 18
ISO 9000 and 14000 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. ISO 14000
Web Link
http://www.ansi.org http://www.asq.org
A series of international standards for managing, monitoring, and minimizing an organization’s harmful effects on the environment. 2.2 13 Copyright ©2011 by Cengage Learning. All rights reserved
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 14 Copyright ©2011 by Cengage Learning. All rights reserved
Criteria for the Baldrige National Quality Award 1.
Leadership
2.
Strategic Planning
3.
Customer Focus
4.
Measurement, Analysis, & Knowledge Management
5.
Workforce Focus
6.
Process Management
7.
Results
2.3 15 Copyright ©2011 by Cengage Learning. All rights reserved
5
Chapter 18
Baldrige Application Process
Web Link
http://www.quality.nist.gov 16
Copyright ©2011 by Cengage Learning. All rights reserved
Total Quality Management Principles Principles of of TQM TQM
Customer Customer focus focus and and satisfaction satisfaction Continuous Continuous improvement improvement Teamwork Teamwork 2.4 17
Copyright ©2011 by Cengage Learning. All rights reserved
Sigma Quality Level
Total Quality Management 6 Sigma
3.4
5 Sigma
230
4 Sigma
6,210 66,800
3 Sigma
308,538
2 Sigma
690,000 690,000
1 Sigma 50
150 250 350 450 550 650 750
Defects Per Million Parts (000) 2.4 18 Copyright ©2011 by Cengage Learning. All rights reserved
6
Chapter 18
Managing Operations After reading these 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. 19
Copyright ©2011 by Cengage Learning. All rights reserved
Service Operations Services…
• • • •
are performed are intangible are unstorable 59% of GNP
Goods…
• • • •
are made are tangible are storable 30.8% of GNP
3 Copyright ©2011 by Cengage Learning. All rights reserved
20
Service Operations
Service-Profit Service-Profit Chain Chain
3
Service Service Recovery Recovery and and Empowerment Empowerment 21 Copyright ©2011 by Cengage Learning. All rights reserved
7
Chapter 18
The Service-Profit Chain
3.1 22 Copyright ©2011 by Cengage Learning. All rights reserved
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 23 Copyright ©2011 by Cengage Learning. All rights reserved
Costs of Empowering Service Employees 1. 1. Finding Finding service service workers workers capable capable of of solving solving problems problems 2. 2. Training Training service service workers workers 3. 3. Higher Higher wages wages 4. 4. Less Less emphasis emphasis on on service service reliability reliability 5. 5. Eagerness Eagerness to to provide provide giveaways giveaways
3.2
6. 6. Unintentional Unintentional unfair unfair customer customer treatment treatment 24 Copyright ©2011 by Cengage Learning. All rights reserved
8
Chapter 18
Benefits of Empowering Service Employees 1. 1. Quicker Quicker response response to to customer customer complaints complaints 2. 2. Employees Employees feel feel better better 3. 3. Enthusiastic Enthusiastic employee employee interaction interaction with with customers customers 4. 4. Employees Employees offer offer ideas ideas for for improvement improvement and and prevention prevention 5. 5. Great Great word-of-mouth word-of-mouth advertising advertising and and customer customer retention retention 3.2
6. 6. Satisfied Satisfied employees employees more more likely likely to to stay stay with with company company 25 Copyright ©2011 by Cengage Learning. All rights reserved
Manufacturing Operations
Amount Amountof of Processing Processing
Flexibility Flexibility of ofManufacturing Manufacturing
4
26 Copyright ©2011 by Cengage Learning. All rights reserved
Amount of Processing in Manufacturing 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 Copyright ©2011 by Cengage Learning. All rights reserved
27
9
Chapter 18
Amount of Processing in Manufacturing Operations MORE MOREPROCESSING PROCESSING Make-to-Order Make-to-Order Assemble-to-Order Assemble-to-Order Make-to-Stock Make-to-Stock
LESS LESSPROCESSING PROCESSING 4.1 28 Copyright ©2011 by Cengage Learning. All rights reserved
Flexibility of Manufacturing Operations LEAST LEAST FLEXIBLE FLEXIBLE Continuous-Flow Continuous-Flow Line-Flow Line-Flow Batch Batch Job JobShops Shops
MOST MOST FLEXIBLE FLEXIBLE 4.1 29 Copyright ©2011 by Cengage Learning. All rights reserved
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
4.2
30 Copyright ©2011 by Cengage Learning. All rights reserved
10
Chapter 18
Inventory Types of Inventory
Measuring Inventory Levels
Costs Costs of of Maintaining Maintaining Inventory Inventory
Systems Systems for for Managing Managing Inventory Inventory
5
31 Copyright ©2011 by Cengage Learning. All rights reserved
Types of Inventory ing Purchas
Raw Raw materials materials
Purch asing
Component Component parts parts
Vendors Vendors
Fabrication
Initial
Assembly
Work-in-process Work-in-process Final
Assembly
Finished Finished goods goods 5.1 32 Copyright ©2011 by Cengage Learning. All rights reserved
Types of Inventory Finished Finished Goods Goods Inventories Inventories Field Field Warehouses Warehouses
Distribution Distribution Centers Centers Wholesalers Wholesalers
Retailers Retailers
Customers Customers
5.1 33 Copyright ©2011 by Cengage Learning. All rights reserved
11
Chapter 18
Measuring Inventory 1. Average Aggregate Inventory – the average overall inventory for a certain time period
2. Weeks of Supply – the number of weeks to run out of inventory
3. Inventory Turnover – the number of times a year that a company sells its average inventory 5.2 34 Copyright ©2011 by Cengage Learning. All rights reserved
Costs of Maintaining an Inventory Ordering Ordering Cost Cost Setup Setup Cost Cost
5.3
all all costs costs associated associated with withordering ordering inventory, inventory, correcting correcting mistakes, mistakes, determining when/how much determining when/how muchto to order order cost cost of of downtime downtime and and lost lost efficiency efficiency when when aa machine machine isis changed changed to to produce produce different kinds of inventory different kinds of inventory
Holding Holding Cost Cost
cost cost of of keeping keepinginventory inventory until until itit isis used used or or sold sold
Stockout Stockout Costs Costs
cost cost when when aa company company runs runs out out of of aa product product 35
Copyright ©2011 by Cengage Learning. All rights reserved
NCR Brings Production Home
Beyond the Book
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.
36 Copyright ©2011 by Cengage Learning. All rights reserved
12
Chapter 18
Managing Inventory EOQ EOQ
Economic Economic Order Order Quantity Quantity
JIT JIT
Just-in-Time Just-in-Time Inventory Inventory
MRP MRP
Materials Materials Requirement Requirement Planning Planning
5.4 37 Copyright ©2011 by Cengage Learning. All rights reserved
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.
38 Copyright ©2011 by Cengage Learning. All rights reserved
Managing Inventory Kanban Kanban, which is Japanese for “sign,” is a simple ticket-based JIT system that indicates when to reorder inventory.
5.4 39 Copyright ©2011 by Cengage Learning. All rights reserved
13
