1. Managing for Quality and Competitiveness
Part 3 Chapter 8
Managing for Quality and Competitiveness
We continue part 3 of your textbook, Managing for Quality and Competitiveness, with chapter 8, Managing Service and Manufacturing Operations.
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2. Operations Management
The development and administration of the activities involved in transforming resources into goods and services
Historically, OM has been called “production” or “manufacturing” limiting it to the manufacture of physical goods
The change from “production” to “operations” recognizes services and ideas and views the function as a whole
Operations management (OM), the development and administration of the activities involved in transforming resources into goods and services, is of critical importance. Operations managers oversee the transformation process and the planning and designing of operations systems, managing logistics, quality, and productivity. OM is the “core” of most organizations because it is responsible for the creation of the organization’s goods and services.
Historically, operations management has been called “production” or “manufacturing” primarily because of the view that it was limited to the manufacture of physical goods. Its focus was on methods and techniques required to operate a factory efficiently. The change from “production” to “operations” recognizes the increasing importance of organizations that provide services and ideas.
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3. The Nature of Operations Management
Manufacturing
The activities and processes used in making tangible products; also called production
Production
The activities and processes used in making tangible products; also called manufacturing
Operations
The activities used in making both tangible and intangible products
Today, OM includes a wide range of organizational activities and situations outside of manufacturing, such as health care, food service, banking, entertainment, education, transportation, and charity. Thus, we use the terms manufacturing and production interchangeably to represent the activities and processes used in making tangible products, whereas we use the broader term operations to describe those processes used in the making of both tangible and intangible products. Manufacturing provides tangible products such as a printer. Operations provides intangibles such as a hotel stay.
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4. Transformation Process
At the heart of OM is the transformation process though which inputs are converted into outputs
INPUTS: The resources – such as labor, money, materials and energy – that are converted into outputs
OUTPUTS: The goods, services and ideas that result from conversion of inputs
Operations managers control the process by taking measurements (feedback) and comparing them to established standards and taking corrective action for any deviation
At the heart of operations management is the transformation process though which inputs are converted into outputs.
Inputs are the resources – such as labor, money, materials and energy – that are converted into outputs.
Outputs are the goods, services and ideas that result from conversion of inputs.
Operations managers control the process by taking measurements (feedback) at various points in the transformation process and comparing them with previously established standards.
If there is any deviation, the manager may take corrective action.
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5. The Transformation Process of Operations Management
Combines inputs in predetermined ways using different equipment, administrative procedures, technology, to create a product
Any deviation between actual and desired outputs
Manager may take corrective actions
The transformation process combines inputs in predetermined ways using different equipment, administrative procedures, and technology to create a product. The figure on this slide displays the transformation process of operations management. To ensure that this process generates quality products efficiently, operations managers control the process by taking measurements (feedback) at various points in the transformation process and comparing them to previously established standards. If there is any deviation between the actual and desired outputs, the manager may take some sort of corrective action. All adjustments made to create a satisfying product are a part of the transformation process.
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6. OM in Service Businesses
Transformation processes occur in all organizations, regardless of what they produce or their objectives
Significant customer-contact component to most services
Strive to provide a standardized process, and technology offers an interface that creates an automatic and structured response
The output is generally intangible and even perishable
Few services can be saved, stored, resold, or returned
Transformation processes occur in all organizations, regardless of what they produce or their objectives. For most organizations, the ultimate objective is for the produced outputs to be worth more than the combined costs of the inputs. Unlike tangible goods, services are effectively actions or performances that must be directed toward the consumers who use them. Thus, there is a significant customer-contact component to most services. Regardless of the level of customer contact, service businesses strive to provide a standardized process, and technology offers an interface that creates an automatic and structured response. The ideal service provider will be high-tech and high-touch. The output is generally intangible and even perishable. Few services can be saved, stored, resold, or returned.
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7. Manufacturers and Service Providers Differences
Nature and consumption of output – services require more customer contact and happen at the point of consumption
Uniformity of inputs – services are more “customized” to each consumer
Uniformity of output – each service is performed differently
Labor required – services are more labor-intensive
Measurement of productivity – intangibility of the service product makes measurement more difficult
Though manufacturers and service providers often perform similar activities, they also differ in several respects. We can classify these differences in five basic ways:
The nature and consumption of output – service providers require a higher degree of customer contact and the performance of the service occurs at the point of consumption.
Uniformity of inputs – manufacturers control the variability of their products but services tend to be more “customized” to consumer.
Uniformity of outputs – due to differences in people, both employees and customers, each service is performed differently. Another challenge to service operations is that output is generally intangible and even perishable. Few services can be saved, stored, resold or returned.
Labor required – services are much more labor-intensive.
Measurement of productivity the intangibility of the service product makes it difficult to measure productivity.
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8. Subway’s Inputs and Outputs
Subway’s inputs are sandwich components such as bread, tomatoes and lettuce.
While Subway’s outputs are customized sandwiches.
Subway’s inputs are bread, tomatoes and lettuce while their outputs are customized sandwiches.
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9. Planning the Product (1 of 2)
Operations planning involves making the following decisions:
What will we produce?
Who are our customers?
What processes will we use?
Where will we make our products?
Before a company can produce any product, it must first decide what it will produce and for what group of customers. It must then determine what processes it will use to make these products as well as the facilities it needs to produce them. These decisions comprise operations planning.
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10. Planning the Product (2 of 2)
Marketing research helps determine the product and features customers want, gauge demand and set price
Once management has a product, they must plan how to produce the product
Operations managers plan for the resources needed to complete the transformation process
Before making any product, a company first must determine what consumers want and then design a product to satisfy that want. Most companies use marketing research to determine the kinds of goods and services to provide and the features they must possess. Marketing research can also help gauge the demand for a product and how much consumers are willing to pay for it. But when a market’s environment changes, firms have to be flexible. Developing a product can be a lengthy, expensive process. Once management has developed an idea for a product that customers will buy, it must then plan how to produce the product. Within a company, the engineering or research and development department is charged with turning a product idea into a workable design that can be produced economically.
Operations managers must plan for the types and quantities of materials needed to produce the product, the skills and quantity of people needed to make the product, and the actual processes through which the inputs must pass in their transformation to outputs.
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11. Designing the Operations Process
Products manufactured using one of three processes
Standardization
The making of identical interchangeable components or products
Modular Design
The creation of an item in self-contained units, or modules, that can be combined or interchanged to create different products
Customization
Making products to meet a particular customer’s needs or wants
Before a firm can begin production, it must first determine the appropriate method of transforming resources into the desired product. Often, consumers’ specific needs and desires dictate a process. A company must then determine the appropriate method of transforming resources into desired product. Typically, products are manufactured using one of three processes: standardization, modular design or customization.
Standardization is the making of identical interchangeable components or products. Used in firms that make large quantities for many customers.
Modular design is the creation of an item in self-contained units, or modules, that can be combined or interchanged to create different products. Allows for quick repair but is costly.
Customization is making products to meet a particular customer’s needs or wants. Products produced in this way are generally unique.
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12. Planning Capacity
The maximum load that an organizational unit can carry or operate
The unit of measurement could be a worker or machine, a department, a branch or an entire plant
Capacity can be stated in terms of inputs or outputs
Planning capacity too low results in unmet demand while planning it too high results in higher cost
Planning the operational processes for the organization involves two important areas: capacity planning and facilities planning.
The term capacity basically refers to the maximum load that an organizational unit can carry or operate. The unit of measurement may be a worker or machine, a department, a branch, or even an entire plant. Maximum capacity can be stated in terms of the inputs or outputs provided.
Efficiently planning the organization’s capacity needs is an important process for the operations manager. Capacity levels that fall short can result in unmet demand, and consequently, lost customers. On the other hand, when there is more capacity available than needed, operating costs are driven up needlessly due to unused and often expensive resources. To avoid such situations, organizations must accurately forecast demand and then plan capacity based on these forecasts.
Did you know?: Hershey’s has the production capacity to make more than 80 million chocolate kisses per day.
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13. Planning Facility Location
Significant due to the high costs involved and complex because it involves the evaluation of many factors, some of which cannot be measured with precision
Proximity to market
Availability of raw materials, transportation, power, labor
Climatic influences and community characteristics
Taxes and inducements
Where to locate a firm’s facilities is a significant question because, once the decision has been made and implemented, the firm must live with it due to the high costs involved. When a company decides to relocate or open a facility
at a new location, it must pay careful attention to factors such as
Proximity to market,
Availability of raw materials,
Availability of transportation,
Availability of power,
Climatic influences,
Availability of labor,
Community characteristics (quality of life),
Taxes and inducements.
Inducements and tax reductions have become an increasingly important criterion in recent years. The facility-location decision is complex because it involves the evaluation of many factors, some of which cannot be measured with precision. Because of the long-term impact of the decision, however, it is one that cannot be taken lightly.
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14. Facility Layout (Physical Layout) 1/3
Fixed-Position Layout
A layout that brings all resources required to create the product to a central location
Project Organizations
The name given to companies using a fixed-position layout because it is typically involved in large, complex projects such as construction or exploration
Arranging the physical layout of a facility is a complex, highly technical task. There are three basic layouts: fixed-position, process, and product.
A company using a fixed-position layout brings all resources required to create the product to a central location. The product—perhaps an office building, house, hydroelectric plant, or bridge—does not move. A company using a fixed-position layout may be called a project organization because it is typically involved in large, complex projects such as construction or exploration. Project organizations generally make a unique product, rely on highly skilled labor, produce very few units, and have high production costs per unit.
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15. Facility Layout 2/3 Process Layout Intermittent Organizations
A layout that organizes the transformation process into departments that group related processes
Intermittent Organizations
The name given to organizations that deal with products of a lesser magnitude than project organizations; their products are not unique but possess a significant number of differences
Firms that use a process layout organize the transformation process into departments that group related processes. A hospital may have an X-ray unit, an obstetrics unit, and so on. These types of organizations are sometimes called intermittent organizations, which deal with products of a lesser magnitude than do project organizations, and their products are not necessarily unique but possess a significant number of differences. Because of the low level of output, the cost per unit of product is generally high.
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16. Facility Layout 3/3 Product Layout
A layout requiring production be broken down into relatively simple tasks assigned to workers, who are usually positioned along an assembly line
Continuous Manufacturing Organizations
Companies that use continuously running assembly lines, creating products with many similar characteristics
The product layout requires that production be broken down into relatively simple tasks assigned to workers, who are usually positioned along an assembly line. Workers remain in one location, and the product moves from one worker to another. Each person in turn performs his or her required tasks or activities. Companies that use assembly lines are usually known as continuous manufacturing organizations, so named because once they are set up, they run continuously, creating products with many similar characteristics.
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17. Sustainability and Manufacturing
Sustainability issues increasingly important to stakeholders and consumers
“Green” operations improve a company’s reputation, increase customer/employee loyalty, lead to increased profits
Pollution of land, air, water
Urban sprawl
Climate change
Waste management
GMOs
Manufacturing and operations systems are moving quickly to establish environmental sustainability and minimize negative impact on the natural environment.
Issues include:
Pollution of land, air and water
Climate change
Waste management
Deforestation
Urban sprawl
Protection of biodiversity
And genetically modified foods
“green” operations and manufacturing can improve a firm’s reputation along with customer and employee loyalty, leading to improved profits.
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18. Patagonia and the Greener Way
Patagonia is always looking for a greener way to design, produce and recycle its products
Their mission statement: Build the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environmental crisis
The outdoor clothing company Patagonia is always looking for a greener way to design, produce and recycle its products. The company’s mission statement: build the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environmental crisis.
Do you think their sustainable practices attract and / or keep consumers?
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19. Supply Chain Management
Connecting and integrating all parties or members of the distribution system in order to satisfy customers; also called logistics
Obtaining/managing raw materials and component parts
Managing finished products
Packaging products
Getting products to customers
A major function of operations is supply chain management, which refers to connecting and integrating all parties or members of the distribution system in order to satisfy customers. Also called logistics, supply chain management includes all the activities involved in obtaining and managing raw materials and component parts, managing finished products, packaging them, and getting them to customers. The supply chain integrates firms such as raw material suppliers, manufacturers, retailers, and ultimate consumers into a seamless flow of information and products.
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20. Taco Bell Drive-Thru
Taco Bell’s efficient drive-thru operations mirror major factory operations such as standardized procedures, elimination bottlenecks, and optimization of staff efficiency
The restaurant averages 164 seconds per customer order
Taco Bell is now among the top for speed, accuracy, and efficiency
Employees at Taco Bell are divided into: Service Champions (drive-thru) and Food Champions (food preparation)
Taco Bell’s efficient drive-thru operations mirror major factory operations such as standardized procedures, elimination bottlenecks, and optimization of staff efficiency. The restaurant averages 164 seconds per customer order from the time the customer arrives to departure. With an assembly line of food items to construct, six different types of wrappers, and detailed procedures for every step of the process, Taco Bell is now among the top for speed, accuracy, and efficiency. Employees at Taco Bell are divided into two categories: Service Champions (drive-thru) and Food Champions (food preparation). Service Champions are trained to follow a specific script as they greet customers and take orders. They enter orders into the point-of-sale system, make drinks when needed, and handle payments. When processing orders for more complex menu items, Service Champions may assist Food Champions in food preparation. The script goes a long way toward eliminating botched orders. Beyond that, it comes down to teamwork, to everyone working together to create a seamless process free from mistakes. In this instance, speed and accuracy of service are as much a part of quality as the finished food.
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21. Managing Quality
Quality, like cost and efficiency, is a critical element of operations management; defective products can quickly ruin a firm
Quality reflects the degree to which a good or service meets the demands and requirements of customers
Determining quality can be difficult because it depends on customers’ perceptions
Quality is especially difficult to measure for a service
A company must define important quality characteristics into measurable terms
Quality, like cost and efficiency, is a critical element of operations management, for defective products can quickly ruin a firm.
Quality reflects the degree to which a good or service meets the demands and requirements of customers.
Determining quality can be difficult because it depends on customers’ perceptions of how well the product meets or exceeds their expectations.
It is especially difficult to measure quality characteristics when the product is a service. A company has to decide exactly which quality characteristics it considers important and then define those characteristics in terms that can be measured.
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.