1. Chapter Nine Producing Quality Goods and Services

2. Copyright © Houghton Mifflin Company. All rights reserved.9 | 2 What Is Production? Operations management –All of the activities that managers engage in to produce goods and services Operations manager –A person who manages systems that convert resources into goods and services

3. Copyright © Houghton Mifflin Company. All rights reserved. 9 | 3 The Conversion Process To convert resources into goods and services. 1.Wheat, corn sugar, salt 2.Money 3.Managers, production workers 4.Economic forecasts Resources Conversion Process Cereal

4. Copyright © Houghton Mifflin Company. All rights reserved.9 | 4 The Increasing Importance of Services Service economy –An economy in which more effort is devoted to services than to the production of goods –The production of services varies from the production of goods 1.Services are consumed immediately and cannot be stored 2.Services are provided when and where the customer desires 3.Services are usually labor intensive 4.Services are intangible, making it difficult to evaluate customer satisfaction See p. 281

5. Copyright © Houghton Mifflin Company. All rights reserved.9 | 5 Service Industries Source: U.S. Bureau of Labor Statistics website: www.bls.gov; accessed October 30, 2005.www.bls.gov Insert 9e, Figure 9.2, p. 280

6. Copyright © Houghton Mifflin Company. All rights reserved.9 | 6 Where Do New Products and Services Come From? Research and Development –Activities aimed at identifying new goods and services.

7. Copyright © Houghton Mifflin Company. All rights reserved.9 | 7 Where Do New Products and Services Come From? (cont’d) Product extension and refinement –Product life cycle The rise and fall pattern of sales associated with the introduction and acceptance of a product in the market place –Product refinement Improving a product’s performance to increase its utility – TV have clearer images –Product extension Improving and adding additional features – TV’s include VCR’s

8. Copyright © Houghton Mifflin Company. All rights reserved.9 - 8 Operations Management involves… 1.Planning and 2.Operations Control Purchasing Inventory Control Scheduling Quality Control

9. Copyright © Houghton Mifflin Company. All rights reserved.9 - 9 Planning for Production Design Planning –Creating the plan for converting a product idea into an actual product –Product line A group of similar products that differ only in relatively minor characteristics

10. Copyright © Houghton Mifflin Company. All rights reserved.9 - 10 Planning for Production (cont’d) Facilities Planning –The process of determining where products or services are to be produced –Use existing facility or build a new facility? Does the existing facility have the capacity? Is the cost of expanding the existing facility less than constructing a new facility?

11. Copyright © Houghton Mifflin Company. All rights reserved.9 - 11 Planning for Production (cont’d) Human Resources planning –Recruit employees with the right skills –Train employees to do the job –The HR manager should provide information such as the availability of skilled workers and wage rates

12. Copyright © Houghton Mifflin Company. All rights reserved.9 | 12 Four Aspects of Operations Control

13. Copyright © Houghton Mifflin Company. All rights reserved.9 - 13 Operations Control: 1) Purchasing Purchasing –All the activities involved in obtaining required materials, supplies, and parts. What would a company need to purchase? –Materials are available when needed in the proper amounts minimum cost How do you choose a supplier? –Price –Quality –Reliability –Credit terms –Shipping costs

14. Copyright © Houghton Mifflin Company. All rights reserved.9 - 14 Operations Control: 2) Inventory Control Inventory Control –The process of managing inventories that minimizes cost Types of inventory –Raw materials: materials that will become part of the product during the production process –Work-in-process: partially completed products –Finished-goods: completed goods Costs of inventory –Holding costs: the investment and storage costs of inventory –Stock-out costs: the costs of not having inventory available when needed

15. Copyright © Houghton Mifflin Company. All rights reserved.9 - 15 Operations Control: 3) Scheduling Scheduling –Ensuring that materials are at the right place at the right time –Routing of materials: the sequence of work stations that the materials will follow –Timing of materials: when the materials will arrive at each work station

16. Copyright © Houghton Mifflin Company. All rights reserved.9 - 16 Operations Control: 4) Quality Control Quality Control –Goods and services are produced in accordance with specifications –Objective: to see that the organization lives up to the standards it has set for itself –Inspection The examination of the quality of work in process –Quality control inspectorQuality control inspector

17. Higher productivity Toyota, Nissan, Honda, GM, Chrysler – which has highest productivity? Discuss how higher productivity leads to lower costs. Check page 296. Who is to blame for US lower productivity? Copyright © Houghton Mifflin Company. All rights reserved.9 | 17

18. Discussion Why would Rubbermaid – a successful US company – need to expand and sell its products in foreign countries? Copyright © Houghton Mifflin Company. All rights reserved.9 | 18

19. Copyright © Houghton Mifflin Company. All rights reserved.9 | 19 How can business increase productivity? –Increase employee motivation and participation –Change the incentives for work by paying for what employees contribute, not just for their time –Increase cooperation between management and labor –More investment by business in facilities, equipment, and employee training –Eliminate or modify government policies hindering productivity growth

20. Copyright © Houghton Mifflin Company. All rights reserved.9 | 20 The Impact of Computers and Robotics on Production Automation –The total or near total use of machines to do work Robotics –The use of programmable machines to perform a variety of tasks by manipulating materials and tools –Robots work quickly, accurately, and steadily –Robots are effective in tedious, repetitious, and hazardous tasks