Chapter 14

Managing Service and Manufacturing Operations

©2004 by Nelson, a division of Thomson Canada Limited

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What Would You Do?

Newsday operates in a highly competitive environment Some customers are unhappy that latebreaking stories are not covered Stories have to be finalized and filed between 9:00 and 11:00 p.m. How can Newsday improve its processes to give better coverage of late-breaking stories?
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©2004 by Nelson, a division of Thomson Canada Limited

Learning Objectives: Managing for Productivity and Quality After reading these 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
©2004 by Nelson, a division of Thomson Canada Limited

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Productivity
A measure of performance that indicates how many inputs it takes to produce or create an output
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why productivity matters kinds of productivity

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Why Productivity Matters
Higher productivity  Lower costs  Lower prices  Higher market share  Higher profits  Higher standard of living
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Kinds of Productivity
Partial productivity = Outputs _________________ Single Kind of Input

Multifactor productivity = Outputs ________________________________ Labour + Capital + Materials + Energy
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Multifactor Productivity Growth Across Industries

Exhibit 14.1 ©2004 by Nelson, a division of Thomson Canada Limited

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Quality

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Quality-related product characteristics Quality-related service characteristics ISO 9000 Total quality management

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Quality-Related Product Characteristics

Reliability

the average time between breakdowns how easy or difficult it is to fix a product the mean time to failure
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Serviceability

Durability

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Quality-Related Service Characteristics
Quality service  Reliability  Tangibles  Responsiveness  Assurance  Empathy
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ISO 9000

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A series of five international standards Certifies quality processes Managers often want this to improve customer satisfaction

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Total Quality Management
An integrated, principle-based, organization-wide strategy for improving product and service quality  Customer focus  Customer satisfaction  Continuous improvement  Variation  Teamwork

©2004 by Nelson, a division of Thomson Canada Limited

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Learning Objectives: Managing Operations
After reading these 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. describe why and how companies should manage inventory levels
©2004 by Nelson, a division of Thomson Canada Limited

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Service Operations

The service-profit chain Service recovery and empowerment

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Service-Profit Chain

Exhibit 14.2 ©2004 by Nelson, a division of Thomson Canada Limited

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Service Recovery and Empowerment

Restoring customer satisfaction to strongly dissatisfied customers Empowering workers is one way to speed up service recovery

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Benefits of Empowering Service Workers for Service Recovery
1. Quicker responses to customer complaints and problems 2. Employees feel better about their jobs and themselves 3. Employee interaction with customers will be warm and enthusiastic 4. Employees are more likely to offer ideas for improving service or preventing problems
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Adapted from Exhibit 14.3

©2004 by Nelson, a division of Thomson Canada Limited

Costs of Empowering Service Workers for Service Recovery
Increased selection costs to find capable workers 2. Increased training costs 3. Higher wages to attract and keep talented service workers 4. Focus on recovery might lead to less focus on reliability 5. Empowered workers may cost the company money by providing too many “giveaways” 6. Workers may unintentionally treat customers Adapted from Exhibit 14.3 unfairly to make up for slow service
©2004 by Nelson, a division of Thomson Canada Limited

1.

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Manufacturing Operations

Amount of processing in manufacturing operations Flexibility of manufacturing operations

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Amount of Processing in Manufacturing Operations

Make-to-order operation

manufacturing does not begin until an order is received used to create semi-customized products manufacture standardized products
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Assemble-to-order operation

Make-to-stock operation

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Manufacturing Operations

Continuous-flow production

produces goods at a continuous rate Pre-established linear processes that produce one type of product

Line-flow production

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Manufacturing Operations

Batch production

operation that produces goods in large batches in standard lot sizes operation that handles customer orders or small batch jobs operation that produces large, expensive, specialized products
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Job shops

Project manufacturing

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Flexibility of Manufacturing Operations

Exhibit 14.4 ©2004 by Nelson, a division of Thomson Canada Limited

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Inventory
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Types of inventory Measuring inventory Costs of maintaining inventory Managing inventory

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Types of Inventory
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Raw materials inventories Component parts inventories Work-in-process inventories Finished goods inventories

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Measuring Inventory

Average aggregate inventory

the average overall inventory during a particular time period situation in which a company runs out of finished product the number of times per year that a company sells its average inventory
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Stockout

Inventory turnover

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Costs of Maintaining an Inventory

Ordering cost

costs associated with ordering inventory downtime and lost efficiency when changing goods produced cost of keeping inventory until used or sold cost of running out of inventory
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Setup cost

Holding cost

Stockout costs

©2004 by Nelson, a division of Thomson Canada Limited

Managing Inventory

Economic order quantity (EOQ)

formulas that help determine how much and how often inventory should be ordered parts arrive just as needed at each stage of production ticket-based system that indicate when to reorder

Just-in-time inventory system (JIT)

Kanban

Materials requirement planning (MRP)

determines production schedule, batch sizes and inventories 28 ©2004 by Nelson, a division of Thomson Canada Limited

Inventory Systems

Independent demand systems

the level of one kind of inventory does not depend on another, for example EOQ the level of inventory depends on the number of finished goods to be produced, for example, JIT or MRP

Dependent demand system

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What Really Happened?

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©2004 by Nelson, a division of Thomson Canada Limited

Extended deadlines for sports score from 11:20 p.m. to 11:55 p.m. Moved delivery times from 6:00 a.m. to 5:30 a.m. Offered a money-back guarantee for 5:30 a.m. delivery Improved printing room processes Improved flexibility Used JIT and MRP to improve handling of “inventory”

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