Chapter 15
Managing Service and
Manufacturing Operations
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South-Western College Publishing
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What Would You Do?
Productivity at Huffman Corporation
Sales in the machine tool industry are
off by 60 percent
Huffman wants to increase productivity
How do you measure and improve
productivity?
Will improved productivity really matter
to the customers?
Management, by Williams
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Learning Objectives
Managing for
Productivity and Quality
After discussing this section,
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.
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Productivity
A measure of performance that indicates how many
inputs it takes to produce or create an output
Productivity
Why
Productivity
Matters
Kinds of
Productivity
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Why Productivity Matters
Higher
Productivity
Higher
Standard
of
Living
Lower
Costs
Lower
Prices
Higher
Profits
Higher
Market
Share
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Kinds of Productivity
Partial productivity =
Outputs
Single Kind of Input
Multifactor productivity =
Outputs
Labor + Capital + Materials + Energy
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Quality
Quality-Related Product Characteristics
Quality-Related Service Characteristics
ISO 9000
Baldrige National Quality Award
Total Quality Management
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Quality-Related Product
Characteristics
Reliability
the average time between breakdowns
Serviceability
the ease with which a product is fixed
Durability
mean time to failure
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Quality-Related Service
Characteristics
Reliability
Empathy
Assurance
Adapted from Exhibit 15.4
Quality
Service
Tangibles
Responsiveness
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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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Baldrige National Quality Award
Given to U.S. companies
Recognizes achievement in quality
Winners have been financially successful
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Criteria for the Baldrige National
Quality Award
12
Leadership
Strategic Planning
Customer and Market Focus
Information and Analysis
Human Resource Focus
Process Management
Business Results
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Total Quality Management
Customer Focus and Satisfaction
Continuous Improvement
Teamwork
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Sigma Quality Level
Defects at Six Sigma Quality
6 Sigma
3.4 defects per million
5 Sigma
230 defects per million
4 Sigma
6,210 defects per million
3 Sigma
66,800 defects per million
2 Sigma
1 Sigma
308,538 defects per million
690,000 defects per million
50
150 250 350 450 550 650 750
Defects Per Million Parts (000)
Adapted from Exhibit 15.7
Management, by Williams
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Learning Objectives
Managing Operations
After discussing this section,
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.
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South-Western College Publishing
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Service Operations
ServiceProfit
Chain
Service
Recovery and
Empowerment
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Service-Profit Chain
Internal Service Quality
Employee Satisfaction
Service Capability
High Value Service
Customer Satisfaction
Customer Loyalty
Profit and Growth
Adapted From Figure 15.8
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Components of Internal Service Quality
Policies and
Procedures
Do they facilitate serving customers?
Tools
Do service employees have tools needed?
Effective Training
Is job-specific training available?
Rewards and
Recognition
Are good performers rewarded/recognized?
Communication
Both vertical and horizontal communication?
Management
Support
Does management aid or hinder employees?
Goal Alignment
Teamwork
Adapted from Exhibit 15.9
Are goals of senior management and
frontline service employees aligned?
Is there teamwork among individuals
and departments?
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Service Recovery and Empowerment
Service recovery is restoring customer
satisfaction to strongly dissatisfied
customers
Empowering workers is one way to speed
up service recovery
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Costs of Empowering Service
Workers for Service Recovery
Increased costs of selection
Increased training costs
Higher wages
Less emphasis on service reliability
Overly eager, empowered service
workers may provide “giveaways”
Empowered service workers may be
overly eager to make up for poor service
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Benefits of Empowering Service
Workers for Service Recovery
21
Quicker response to customer complaints
and problems
Employees feel better about their jobs
Employee interaction with customers will
be warm and friendly
Employees more likely to offer ideas for
improving service and preventing
problems
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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 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
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Flexibility of Manufacturing
Operations
Continuous- LineBatch
Job
Project
Flow
Flow
Production Shops Manufacturing
Production Production
Least Flexible
Adapted From Figure 15.12
Most Flexible
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Inventory
Types of Inventory
Measuring Inventory
Costs of Maintaining an Inventory
Managing Inventory
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Types of Inventory
Raw
Materials
Fabrication
Customers
Vendors
Component
Parts
Initial Assembly
Retailers
Field
Warehouses
Wholesalers
Adapted From Figure 15.4
Work-inProgress
Distribution
Centers
Final Assembly
Finished
Goods
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Measuring Inventory
Average aggregate inventory
the average overall inventory for a certain
time period
Stockout
running out of inventory
Inventory turnover
the number of times a year that a company
sells its average inventory
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Inventory Turn Rates Across
Industries
30
Average Inventory Turn Rate
25
20
75th Percentile Inventory Turn
Rate
15
10
5
0
Adapted from Exhibit 15.14
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Blast From The Past
29
Guns, Geometry, and Fire
Whitney and standardized parts
interchangeable parts
fewer defects
Monge’s 3-dimensional drawings
more precise designs
Fire led to just-in-time at Oldsmobile
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Costs of Maintaining an Inventory
Ordering costs
all associated costs with ordering goods
Setup costs
changing goods produced
Holding costs
carrying inventory
Stockout costs
running out of inventory
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Managing Inventory
Independent Demand
Systems
Economic Order
Quantity
Dependent Demand
Systems
Just-in-Time
Materials Requirement
Planning
Kanban
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Been There, Done That
Lean Manufacturing at Wiremold
Wiremold has used continuous
improvement and just-in-time inventory
systems
Quality has increased and costs have
been reduced
The more inventory is turned, the better
customer service gets
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South-Western College Publishing
Copyright © 2003
What Really Happened?
33
Productivity at Huffman Corporation
Labor hours to produce a machine tool is 33
percent less, allowing a 20 percent price drop
Ended most recent year with record sales and
profits
Results find their way to customer performance,
for example some medical machines that
improve productivity of doctors
Management, by Williams
South-Western College Publishing
Copyright © 2003