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Chapter 14
Managing Service and
Manufacturing Operations
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What Would You Do? Newsdayoperates in a highly
competitive environment
Some customers are unhappy that late-breaking stories are not covered
Stories have to be finalized and filedbetween 9:00 and 11:00 p.m.
How can Newsday improve its processesto give better coverage of late-breakingstories?
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Learning Objectives:Managing for Productivity
and Quality
After reading these next twosections, you should be able to:
1. discuss the kinds of productivityand their importance in managing
operations2. explain the role that quality playsin managing operations
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Productivity
A measure of performance thatindicates how many inputs it takesto produce or create an output why productivity matters kinds of productivity
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Why Productivity
MattersHigher 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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Growth Across
Industries
Exhibit 14.1
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Quality Quality-related product
characteristics Quality-related service
characteristics ISO 9000Total quality management
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Quality-Related Product
Characteristics Reliability
the average time between
breakdowns Serviceability
how easy or difficult it is to fix a
product Durability
the mean time to failure
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Quality-Related Service
CharacteristicsQuality service
ReliabilityTangibles Responsiveness
Assurance Empathy
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ISO 9000 A series of five international
standards Certifies quality processes Managers often want this to
improve customer satisfaction
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Total Quality
ManagementAn integrated, principle-based,organization-wide strategy for
improving product and servicequality Customer focus
Customer satisfaction Continuous improvement Variation
Teamwork
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Learning Objectives:
Managing OperationsAfter reading these next threesections, you should be able to:
3. explain the essentials of managing aservice business
4. describe the different kinds of
manufacturing operations5. describe why and how companiesshould manage inventory levels
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Service Operations The service-profit
chain
Service recoveryandempowerment
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Service-Profit Chain
Exhibit 14.2
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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
B fit f E i
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Benefits of EmpoweringService Workers for Service
Recovery1. Quicker responses to customer
complaints and problems
2. Employees feel better about their jobsand themselves
3. Employee interaction with customerswill be warm and enthusiastic
4. Employees are more likely to offerideas for improving service orpreventing problems
Adapted from Exhibit 14.3
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os s o mpower ngService Workers for
Service Recovery1. Increased selection costs to find capable
workers
2. Increased training costs3. Higher wages to attract and keep talentedservice workers
4. Focus on recovery might lead to less focus
on reliability5. Empowered workers may cost the company
money by providing too many giveaways
6. Workers may unintentionally treat customers
unfairly to make up for slow service
Adapted from Exhibit 14.3
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ManufacturingOperations
Amount of processing inmanufacturing operations
Flexibility of manufacturingoperations
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in ManufacturingOperations
Make-to-order operation manufacturing does not begin until an
order is received Assemble-to-order operation
used to create semi-customized
products Make-to-stock operation
manufacture standardized products
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ManufacturingOperations
Continuous-flow production produces goods at a continuous rate
Line-flow production Pre-established linear processes that
produce one type of product
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ManufacturingOperations
Batch production operation that produces goods in large
batches in standard lot sizes Job shops
operation that handles customer orders orsmall batch jobs
Project manufacturing operation that produces large, expensive,
specialized products
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ManufacturingOperations
Exhibit 14.4
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Inventory
Types of inventory Measuring inventory Costs of maintaining inventory Managing inventory
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Types of Inventory
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 Stockout
situation in which a company runs out offinished product
Inventory turnover the number of times per year that a
company sells its average inventory
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Costs of Maintainingan Inventory
Ordering cost costs associated with ordering inventory
Setup cost downtime and lost efficiency when changing
goods produced
Holding cost
cost of keeping inventory until used or sold Stockout costs
cost of running out of inventory
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Managing Inventory
Economic order quantity (EOQ) formulas that help determine how much and
how often inventory should be ordered
Just-in-time inventory system (JIT) parts arrive just as needed at each stage of
production Kanban
ticket-based system that indicate when toreorder Materials requirement planning
(MRP) determines production schedule, batch sizes
and inventories
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Inventory Systems
Independent demand systems the level of one kind of inventory
does not depend on another, forexample EOQ
Dependent demand system the level of inventory depends on the
number of finished goods to be
produced, for example, JIT or MRP
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What Really Happened?
Extended deadlines for sportsscore from 11:20 p.m. to 11:55p.m.
Moved delivery times from 6:00a.m. to 5:30 a.m.
Offered a money-back guaranteefor 5:30 a.m. delivery
Improved printing roomprocesses
Improved flexibility Used JIT and MRP to improve
handling of inventory