Service and Manufacturing
Operations
Business Management
“Copyright and Terms of Service
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Call TEA Copyrights with any questions you have.
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Service Businesses
Form
• Intangible, meaning that they cannot physically
be touched
Quality
• Created by the provider, which means it can vary
from one provider to another
Storage
• Because services are not products, they cannot
be stored
Availability
• Only made available from the provider
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Manufacturing Businesses
Form
Quality
Storage
Availability
• Tangible, can be touched
• Determined by the manufacturing process,
should not vary much
• Can be stored, referred to as inventory
• Wherever the buyer needs the product/ online,
brick and mortar location, or other locations
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Service Quality Standards
SERVQUAL
survey
Franchising
Meeting
customer needs
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SERVQUAL Surveys
• Measures five areas of service quality that are
important to customers:
– Reliability – can the service be performed
accurately and dependably
– Responsiveness – prompt customer service
– Assurance – trustworthy, knowledgeable
employees
– Empathy – individualized attention
– Tangible – physical appearance of facilities,
personnel, and equipment
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Franchising
• What is franchising?
– A fee is paid to be able to sell a company’s
product or service
• Benefits for service business standards
– Provided in many locations
– Training provided ensuring consistency in
quality and service levels
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Meeting Customer Needs
• Offering extended hours
• Providing more locations
• Extending customer follow-up contact
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Manufacturing Considerations
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Inventory Management
Raw Materials
Inventory- largest
expense of a
business
Work in
Progress
Finished Goods
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Problem - High Inventory Levels
• Can be a result of:
– Not being marketed properly
– Incorrect pricing
– Poor quality
– Inadequate supply chain management
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Problem - Inventory Storage Costs
• Costs associated with storing inventory:
– Storage facility (for example, warehouses)
– Insurance
– Taxes
– Depreciation
– Labor
– Loan costs if inventory purchased without using
cash
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Solutions
•
•
•
•
Forecast sales more accurately
Build relationships with suppliers
Be realistic about inventory turnover goals
Calculate actual inventory costs to get a
realistic picture of costs
• Use up-to-date technology to assist with
supplier information and point-of-sale data
• Educate employees on inventory control
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Inventory Control Methods
• EOQ – Economic Order Quantity – the amount at which the
amount of inventory ordered minimizes inventory costs
• Perpetual – maintaining a running count of inventory
• Periodic – no continuous records are kept, inventory
physically counted periodically
• Visual – making a visual inspection of inventory to
determine when inventory should be ordered
• ABC Method – concentrates on the items that generate the
most sales
• Just in Time – maintaining the smallest amount of
inventory needed to prevent out-of-stocks while being able
to obtain stock as soon as it is needed
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EOQ
• Economic order quantity depends upon:
– Unit cost
– Carrying costs (storage costs)
– Costs to order products and raw materials
• Purpose is to determine an order quantity
that minimizes cost
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Perpetual Inventory Control
Advantages
Disadvantages
Immediate inventory amounts
If items are re-stocked, an employee
can forget to scan
Universal Product Code (UPC) bar
codes can make scanning inventory
easier
If a manual recording method is used,
an employee could forget to record a
sale
Point-of-Sale (POS) systems can also
maintain up-to-the-minute inventory
counts
Computerized systems can be costly
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Periodic Inventory Control
• Inventory is physically counted
• Even when other methods of inventory control are
used, periodically, or even at regular intervals,
inventory should be counted to cross-check other
methods
• Two counting methods:
– Periodic – usually end-of-year inventory counts
after sales
– Cycle – counting a few types of items on a
frequent basis instead of year-end
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Visual Inventory
• Effective for lower-dollar items and smaller
variety of merchandise
• Least effective for accuracy
• Can result in out-of-stock items
• Makes inventory forecasting more difficult
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ABC Inventory Control
A
• The relatively small amount
of higher-dollar volumes
B
• The amount of averagedollar volumes
C
• The lower-dollar volume
items
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ABC Inventory Control (continued)
• Need the most control over the amount of
inventory for the higher-dollar, high-volume (A)
items
• (A) items lean toward a more perpetual,
ongoing control of the inventory/ control system
costs more with these items
• (B) items can use periodic counting of
inventory/ control system costs less
• (C) items require the least complicated/ less
costly control method
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Just in Time Inventory Control
• Reduces inventory costs
• Keeps very little inventory on hand
• Requires close relationships with suppliers
to be able to get products as soon as
needed
• Usually requires updated technology to keep
inventory activities in real time to coordinate
with the suppliers
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Independent Practice Assignments
•
•
Tour Guide Assignment #1 – Present the students with the following scenario:
they live in the Florida Keys and are looking to start a tour guide business.
They plan on offering tours around the particular island on which they live.
Students are to imagine their own details for these tours. The assignment is to
create a survey to assess the quality of their service, that is, the tours they offer.
They should use the guide at the http://web.stcloudstate.edu/brklemz/servqual1.doc website. Students should create this survey manually or in a wordprocessing program.
Inventory Control Document Assignment #2 – Have students select five
stores that they know carry inventory. The will create a document such as a
table, diagram, or other type of document that will identify the name of the store;
the type of inventory control method they think would be most appropriate (and
an explanation of why they think that way); and finally a statement from an
owner, manager, or other employee of the companies they have selected
regarding what type of inventory control method they actually do use. They
should also include a statement somewhere on their document regarding how
their suggestion compares to the actual method used.
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Independent Practice Assignments
(continued)
•
Inventory Control Shrinkage Report Assignment #3 – Shrinkage is an issue
concerning inventory that businesses must deal with. Shrinkage is the
difference between the amount of inventory that is recorded and the actual
amount of inventory on hand. Students will create a one-page on the causes
and consequences of inventory shrinkage. They should detail at least three
types or causes of shrinkage and explain the consequences of shrinkage.
Proper writing conventions should be followed.
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