MANAGEMENT OF
GOODS AND
SERVICES
“Look for your choices, pick the best one, then go with it”
Peter Drucker
Brad Fink
1 February 2013
Management of Goods and Services
Executive Summary
As a manager, decisions need to be made on a daily basis; fortunately there are tools to help
us out along the way. Some of these tools are a House of Quality and a Decision Tree. Other
managers are concerned with production, shipping and taking orders, to help provide a service,
Bill of Material and Assembly Charts need to be constructed. The following are just small
examples of what may be encountered in our world of business.
The company needs to make a decision in the wristwatch design and make comparisons to
the watches of the competition; a house of quality is going to be the best solution to the dilemma.
In order for a company in the inventory control, ordering and shipping of parts a bill of
material is needed. This will also help the consumers order replacement parts in order to save
them money. A bill of material is needed for a pair of eyeglasses with a case.
An assembly chart for a table lamp is needed in order to ensure all items are present and
inspected before packaging. The assembly chart is designed to help the company and
manufacturer succeed in this task. Along with the assembly chart more often than not, an
assembly drawing and a set of detailed instructions will accompany the assembly chart.
Residents of Mill River have fond memories of ice skating at a local park. An artist has
captured the experience in a drawing and is hoping to reproduce it and sell framed copies to
current and former residents. He needs to make a decision tree to see which route he will take.
1
1/31/13
Management of Goods and Services
Contents
Problem
Topic
Page Number
5.1
Wrist Watch House of Quality………….. 3
5.5
Eyeglasses & Case Bill of Material…….. 7
5.8
Table Lamp Assembly Chart…………….8
5.13
Mill River……………………………… 11
Summary …………………………………………………………. 13
Index……………………………………………………………….. 14
Reference……………………………………………………………. 15
2
1/31/13
Management of Goods and Services
Wristwatch House of Quality (5.1)
A house of quality is needed to give the consumer’s a better product based on characteristics
they feel that is important. The House of Quality, shown in figure 1.6 is all based on not only the
consumers wants, but an evaluation of the competition as well. But before the house can be
constructed, several steps need to be addressed;
1. What the consumer wants.
2. What the company can do to meet the consumers wants.
3. How well the company can meet the consumers wants
4. An assessment of the competition.
5. Find the targets values (Technical attributes).
6. Find the technical evaluation.
1. The customer’s wants are surveyed from an importance rating scale. Figure 1 shows this
from a (1-5 rating), 1 being low and 5 being high.
Customer Importance Rating Scale:
1
2
3
4
5
Bad
Fair
Good
What the consumer
wants in a rating
scale.
Reasonable Prices
Comfort
Durability
Sleek Design
Weight
5
4
5
3
1
Figure 1 -What the customer wants.
3
1/31/13
Management of Goods and Services
Wristwatch House of Quality (5.1)
Once the consumers wants are identified, the next step is to figure out what the company can
Ways to give the
consumer what
they want
Light Weight Design
Thinner Casing
Metal Casing
Redesign Watch Band
Price Below Competition
do to meet those needs. Figure 1.1 shows how the company is going to do this.
Figure 1.1 -What the company can do.
2. Once the company has decided what they can do to meet the needs of the consumer, now it is
time to grade themselves as shown in figure 1.2.
The company graded
number times the
customer’s
importance rating
5
3
25
12
2
3
3
26
2
4
4
4
24
4
4
32
0
Figure 1.2 -How well the company can meet the
customers wants.
3. Now that the company has graded themselves, another important task is to grade their
competition. Again, a numbering scale is shown for the competition in figure 1.3.
4
1/31/13
Management of Goods and Services
Company A
Company B
Wristwatch House of Quality (5.1)
1
4
2
5
2
5
4
5
3
3
Competition
Assessment
5 = Good
3 = Fair
1 = Poor
Figure 1.3 -Assessment of the competition
4. The target values are what changes to the wristwatch will be acceptable, (weights: minimum
Overall Rating
Weight Goal 1.9oz Max.
Width of watch; .4cm max
Heavy metal base and scratch
resistance face
Add 3 different adjustments
on M/F bands
Target Values
(Technical
Attributes)
10% below leading
competition
or maximums) changes in dimensions and changes in materials. This is shown in figure 1.4..
Figure 1.4 -Company target values
5. At the bottom of the house is specific data that will show the company’s focus, this is the
technical data, as well as the competition. As seen in figure 1.5, the technical evaluation will
show the distinct values pertaining to the product.
5
1/31/13
Management of Goods and Services
Wristwatch House of Quality (5.1)
0.6
0.1
0.6
Technical
Evaluation
(Projected)
30%
20%
40%
yes
yes
No
5
2
3
yes
No
No
G
F
F
Company
Competition A
Competition B
Figure 1.5 -Technical evaluation
The last step is to put everything together. Now that all the steps are together, we can now
add the roof, the relationship between the things we can do. Figure 1.6 will show all steps put
together and how decisions are made in an organization.
Relationship between
the things we can do
Good
Fair
4
4
4
24
4
4
32
25
12
3
26
0.6
0.1
0.6
30%
20%
40%
yes
yes
No
5
2
3
yes
No
No
G
F
F
Company B
Light Weight Design
2
3
Company A
Thinner Casing
3
Overall Rating
Technical Evaluation
(Projected)
2
5
Weight Goal 1.9oz Max.
Target Values
(Technical Attributes)
5
4
5
3
1
Width of watch; .4cm max
1= Low
Reasonable Prices.
Comfort.
Durability
Sleek Design
Weight
Our Importance Rating
Heavy metal base and
scratch resistance face
What the Customer Wants
Redesign Watch Band
Good
Add 3 different adjustments
on M/F bands
Fair
What we can do to meet the
Customer's needs.
10% below leading
competition
Bad
Price Below Competition
CustomerImportance Rating Scale :
1
2
3
4
5
Metal Casing
Poor
1
4
2
5
2
5
4
5
3
3
0
Competitive
Assessment
5 = Good
3 = Fair
1 = Poor
How well we can
meet the customers
wants
Company
Competition A
Competition B
Figure 1.6 -Wristwatch House of Quality
6
1/31/13
Management of Goods and Services
Eye Glasses and Case Bill of Material (5.5)
When a general repair of eyeglasses is needed, it is cheaper to
simply replace one or more single parts versus purchasing a new pair
of eyeglasses. Below, in Table 1 is a bill of material for a pair of
eyeglasses and a case. This information is also significant for
inventory control and ordering and shipping parts.
Item #
National Stock # (NSN)
Description
Qty.
1
8412-01-249-0016
Glasses, eye, metal, gold
1
2
3
4
5
6
7
8
6721-00-428-3147
8412-01-249-0017
8401-01-249-0021
8401-01-249-0022
8401-01-249-0031
8401-01-249-0032
8401-01-245-1313
1
1
1
1
1
1
2
10
11
6952-00-346-0198
6952-00-346-0020
Case, plastic, black, eye glasses
Frame, metal, gold
Bracket, temple, metal, gold / L
Bracket, temple, metal, gold /R
Lens, left, poly, unfinished
Lens, right, poly, unfinished
Pad, nose, “D” shape, silicone,
L/R
Screw, temple, metal gold
Screw, Pad nose, metal gold
2
2
Table 1 -Bill of material eyeglasses with container case
7
1/31/13
Management of Goods and Services
Table Lamp Assembly Chart (5.8)
As more and more products are being purchased and sold, necessary procedures are needed
for the product to make it onto the shipping trucks and into the stores with no mistakes. One
document that helps the packers and inspectors accomplish this is an assembly chart, seen in
Figure 2. This is nothing more than a diagram that shows how the product is packed prior to
shipping and assembled.
Lamp Base
1
½” Hex Bolt
2
A1
Figure 2 -Table lamp
assembly chart
½” Flat Washer
3
Lamp Post w/stud bolt
4
5
6
A2
Schematic form of
how a product is
prepaired
Lamp Harp
Lamp Shade
A3
Lamp Finial
7
Pull Chain Socket
8
Electrical Cord
A4
9
10
0
Inspection
point
Part Number Tag
A5
9
11
0
Box w/ packing Material
A6
9
8
1/31/13
Management of Goods and Services
Table Lamp Assembly Chart (5.8)
Along with a product’s assembly chart is an assembly drawing, these are provided to help
give the consumer a better idea how to properly put the product together in accordance with
manufacturer’s specifications. Figure 2.1 shows an assembly drawing of the table lamp which
corresponds to the assembly chart in Figure 2.
5
1. Lamp Base
2. ½” Hex Bolt
3. ½” Flat Washer
4. Lamp Pole w/ ½” Stud Bolt
5. Lamp Harp
6. Lamp Shade
7. Lamp Finial
8. Pull Chain Socket on/off
9. Electrical Cord, Plug type
8
7
6
4
1
2
3
b
Electrical plug 7b(To wall
outlet)
9
a
Figure 2.1 -Table lamp assembly drawing
9
1/31/13
Management of Goods and Services
Table Lamp Assembly Chart (5.8)
In order to ensure the product is assembled correctly, the manufacturer will attach a detailed
set of instructions that correspond to the product assembly chart. Figure 2.2 shows the detailed
assembly instructions associated to both assembly chart and assembly drawing.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Insert end of electrical cable &a) through ½” washer (6).
Guide electrical cord (7a) through ½” hex nut (5).
Guide electrical cord (7a) into and through lamp post (3).
Insert bottom of lamp post (3) on the top of the lamp base (4).
Tighten the lamp post (3) using the ½” hex nut, ensuring the ½”
washer is between the hex nut (6) and the bottom of the lamp base
(4).
Using a ½” open end wrench, (not included) tighten clockwise.
Insert lamp harp (1) on top of lamp post (3), ensure the electrical
cord (7) is protruding approximately 3 inches.
Insert the electrical cord (7a) into the bottom socket of pull chain
socket on/off (2). (Note do not force it in; listen for a click to ensure
it is locked in place).
Screw the pull chain socket on/off (2) into the top of the lamp post
(3) 2 full turns.
Place the lamp shade (8) on top of the lamp harp (1).
Tighten the lamp finial (9) over the top of the lamp hade (8), using
the lamp harp (1) bolt stud.
WARNING: DO NOT EXCEED A 100 WATT LIGHT BULB, DOING SO MAY CAUSE
INJURY TO SELF, LAMP OR CAUSE A FIRE.
Figure 2.2 -Table Lamp Assembly Instructions
10
1/31/13
Management of Goods and Services
Mill River (5.13)
Residents of Mill River have fond memories of ice skating at a local park. An artist has
captured the experience in a drawing and is hoping to reproduce it and sell framed copies to
current and former residents. He thinks that if the market is good he can sell 400 copies of the
elegant version at$125 each. If the market is not good, he will sell only 300 at $90 each. He can
make a deluxe version of the same drawing instead. He feels that if the market is good he can
sell 500 copies of the deluxe version at $100 each. If the market is not good, he can sell only
400 at $70 each. In either case, production costs will be approximately $35,000. He can also
choose to do nothing. If he believes there is a 50% probability of a good market, what should he
do? Why?
Mill River Decision Tree
Elegant Drawing
Good
Market
Bad
Market
\
Deluxe Drawing
Good
Market
Bad
Market
Do Nothing
$50,000
$35,000
$15,000
Revenue ( $125 x 400 )
Production Cost
Net Profit
$27,000
$35,000
-$8,000
Revenue ( $90 x 300 )
Production Cost
Net Profit
$50,000
$35,000
$15,000
$27,000
$35,000
-$7,000
Revenue ( $125 x 400 )
Production Cost
Net Profit
Revenue ( $90 x 300 )
Production Cost
Net Profit
Zero Net
Figure 3 -Mill River Decision Tree
11
1/31/13
Management of Goods and Services
Mill River (5.13)
Both elegant and deluxe options give the same profit of $15,000 in a good market; however
in a bad market the elegant has a bigger loss. So he should automatically forget about the elegant
drawing. No matter what the outcome, there is still a 50% chance of the market going either
way. Figure 3.1 will show that he should go with the deluxe drawing based on a 50% bad or
good market.
Deluxe good market: 50% x $15,000 = $7,500
Deluxe bad market: 50% x (-$7,000) = (-$3,500)
$7,500
- $3,500
$4,000
So, with a 50% market variable, the deluxe drawing has a very good
chance of making a profit of $4,000.
Figure 3.1 -Mill River decision tree analysis
Based on the decision tree and the analysis, he should definitely dismiss the elegant drawing
plan and move forward with the deluxe drawing plan.
12
1/31/13
Management of Goods and Services
Summary
When a problem needs to be solved, a company can use a decision tree to help the company
make the right choices in order to satisfy the customer’s wants and keep ahead of the
competition, all with an easy to design matrix that can be produced with various software
applications most companies already have on hand.
Once a decision has been made to produce a product, it is rational to say, parts will break
either from normal wear and tear or damaged from negligence, having a parts list will prove
particularly useful for the purpose of ordering and shipping as shown from the eyeglasses and
case, bill of material.
When large quantities of a product are being packed in preparation of shipping, an assembly
chart is an excellent way to help inspectors ensure all materials are present and ultimately packed
before sending it out for purchase. Along with the assembly chart if required, is an assembly
drawing, an easy to read pictorial of how the manufacturer designed the product to be assembled.
When asking yourself, do I start a business, do I expand what I already have, do I just do
nothing; a decision tree will help answer these questions. Once your decision tree is constructed,
all that is left is to analyze the data; the decision tree will help with a difficult situation.
13
1/31/13
Management of Goods and Services
Index
Assembly Chart A graphic means of identifying how components flow into subassemblies and
final products.
Bill of Material A list of components, their description, and the quantity of each item required to
make one unit of a product.
Decision Tree A decision support tool that uses a tree-like graph or model of decisions and their
possible consequences, including chance event outcomes, resource costs
House of Quality is a diagram, resembling a house, used for defining the relationship between
customer desires and the firm/product capabilities.
14
1/31/13
Management of Goods and Services
Reference
Figure 2 (Table Lamp) images courtesy of www.images.goggle.com.
Quote “Look for your choices, pick the best one, then go with it”-- Pat Riley.
15
1/31/13