MGT 3370 Chapter 18

made-to-order operations

-a manufacturing operation that does not start processing or assembling products until a customer order is received -some make-to-order operations may not even order parts until a customer order is received -produce or assemble highly specialized or customized products for customers

The Baldrige National Quality Award

-administered by the US government's National Institute for Standards and Technology, and is given "to recognize US companies for their achievements in quality and business performance and to raise awareness about the importance of quality and performance excellence as a competitive edge

service capability

-an employee's perception of his or her ability to serve customers well -when an organization serves its employees in ways that help them to do their jobs well, employees, in turn, are more likely to believe that they can and ought to provide high-value service to customers

Total quality management (TQM)

-an integrated, principle-based, organization-wide strategy for improving product and service quality -not a specific tool or technique, but a philosophy or overall approach to management that is characterized by three principles

Just-in-time (JIT) inventory system

-an inventory system in which component parts arrive from suppliers just as they are needed at each stage of production -attempts to eliminate holding costs by reducing inventory levels to near zero -By having parts arrive just in time, the manufacturer has little inventory on hand and thus avoids the costs associated with holding inventory

Dependent demand systems

-an inventory system in which the level of inventory depends on the number of finished units to be produced -JIT and MRP are used with dependent demand systems --> so, when optimal inventory levels depend on the number of products to be produced, use a JIT or MRP management system

Independent demand systems

-an inventory system in which the level of one kind of inventory does not depend on another -EOQ formulas are intended for use with independent demand systems

customer satisfaction

-an organization goal to provide products or services that meet or exceed customers' expectations -should be the result of customer focus

continuous improvement

-an organization's ongoing commitment to increase product and service quality by constantly assessing and improving the processes and procedures used to create those products and services

Multifactor productivity

-an overall measure of productivity that assesses how efficiently companies use all the inputs it takes to make outputs (=outputs/(labor+capital+materials+energy) -indicates how much labor, capital, materials, and energy it takes to produce

Process to become ISO certified

-can take months -a company must show that it is following its own procedures for improving production, updating design plans and specifications, keeping machinery in top condition, educating and training workers, and satisfactorily dealing with customer complaints -an accredited third party oversees the ISO certification process -once a company has been certified, the accredited third party will issue an ISO 9000 certificate that the company can use in its advertising and publication -accredited third parties typically conduct periodic audits to make sure the company is still following quality procedures --> if not, its certification is suspended or canceled

When mistakes occur, service employees often don't have the discretion to resolve customer complaints. Why does this happen and what is the result?

-company rules prevent them from engaging in acts of service recovery meant to turn dissatisfied customers back into satisfied customers -results in frustration for customers and service employees and lost customers for the company

How do customer focus and satisfaction, continuous improvement, and teamwork mutually reinforce each other to improve quality throughout a company?

-customer-focused, continuous improvement is necessary to increase customer satisfaction -continuous improvement depends on teamwork from different functional and hierarchical parts of the company

make-to-oder companies and inventory

-even make-to-order companies turn their inventory -in theory, these companies have no inventory --> in fact they've go inventory, but you have to measure it in hours

Six Sigma quality

-just 3.4 defective or nonstandard parts per million (ppm) -achieving this goal would eliminate almost all product variation

line-flow production

-manufacturing processes that are pre-established, occur in a serial (must occur in a particular order) or linear manner, and are dedicated to making one type of product -in this way, the 10 different steps required to make product X can be completed in a separate manufacturing process from the 12 different steps required to make product Y -are inflexible because they are typically dedicated to manufacturing one kind of product

Do services have serviceability?

-no, you can't maintain or fix a service -if a service wasn't performed correctly, all you can do is perform it again

employee satisfaction

-occurs when companies treat employees in a way that meets or exceeds their expectations -the better employees treated, the more satisfied they are, and the more likely they are to give high-value service that satisfies customers -how employers treat employees is important because it affects service capability

downtime

-occurs whenever a machine is not being used to process inventory -is costly because companies earn an economic return only when machines are actively turning raw materials into parts or parts into finished products

empowering workers

-permanently passing decision-making authority and responsibility from managers to workers -with respect to service recovery, this means giving service employees the authority and responsibility to make decisions that immediately solve customer problems

product serviceability

-refers to how easy or difficult is is to fix a product -the easier it is to maintain a working product or fix a broken product, the more serviceable that product is

Service recovery

-restoring customer satisfaction to strongly dissatisfied customers -sometimes requires service employees to not only fix whatever mistake was made but also to perform heroic service acts that delight highly dissatisfied customers by far surpassing their expectations of fair treatment

Tangibles

-services themselves are not tangible but are provided in tangible places -thus, tangibles refer to the appearance of the offices, equipment, and personnel involved with the delivery of a service

What differentiates the Baldrige Award from the ISO 9000 standards

-the Baldrige Awards emphasis on results -it indicates the extent to which companies have actually achieved world-class quality -the ISO 9000 standards simply indicate whether a company is following the management system it put into place to improve quality -the ISO 9000 certification covers less than 10 percent of the requirements for the Baldrige Award

Service relaibility

-the ability to consistently perform a service well -studies show that reliability matters more to customers than anything else when buying services

inventory

-the amount and number of raw materials, parts, and finished, products a company has in its possession

average aggregate inventory

-the average overall inventory during a particular time -one way companies know whether they're carrying too much or too little inventory is to compare their average aggregate inventory with the industry average for aggregate inventory

component parts

-the basic parts used in manufacturing that are fabricated from raw materials -some component parts are purchased from vendors rather than fabricated in-house

stockout cost

-the cost incurred when a company runs out of a product, including transaction costs to replace inventory and the loss of customers' goodwill

holding cost (also known as carrying or storage cost)

-the cost of keeping inventory until it is used or sold, including storage, insurance, taxes, obsolescence (holding inventory that is no longer useful to the company), and the opportunity cost of spending money on inventory that could have been spent elsewhere in the company

Ordering cost

-the costs associated with ordering inventory, including the cost of completing paperwork, data entry, phone calls, obtaining bids, correcting mistakes, and determining when and how much inventory to order

Setup cost

-the costs of downtime and lost efficiency that occur when a machine is changed or adjusted to produce a different kind of inventory -each time a machine has to be changed to handle a different kind of inventory, setup costs (downtime and lost efficiency) rise

manufacturing flexibility

-the degree to which manufacturing operations can easily and quickly change the number, kind, and characteristics of products they produce -a second way to categorize manufacturing operations -flexibility allows companies to respond quickly to changes in the marketplace and to reduce the lead time between ordering and final delivery of products

trade-off between flexibility and cost

-the most flexible manufacturing operation frequently have higher costs per unit -least flexible operations have lower costs per unit

weeks of supply

-the number of weeks it would take for a company to run out of its current supply of inventory -in general, there is a acceptable number of weeks of inventory for a particular kind of business

internal service quality

-the quality of treatment employees receive from a company's internal service providers, such as management and other divisions of a company -key concept behind the service-profit chain -good internal service leads to employee satisfaction and service capability

How does productivity lead to a higher standard of living?

-through increased wages--> when companies can do more with less, they can raise employee wages without increases prices or sacrificing normal profits -increases in productivity allow for the creation of new jobs--> when more people have jobs that pay more, they give more to charity

Why do managers need good measures of inventory

-to prevent inventory costs from becoming too large -uncontrollable inventory can lead to huge costs for a manufacturing operation

Labor productivity

-typically indicates the cost or number of hours of labor it takes to produce an output -the lower the cost of the labor to produce a unit of output, or the less time it takes to produce a unit of output, the higher the labor productivity

job shops

-typically small manufacturing operations that handle special manufacturing processes or jobs -typically handle very small batches -each job in a job shop is different (custom), and once a job is done, the job shop moves on to a completely different manufacturing process for, most likely, a different customer

3 inventory management techniques

1) Economic Order Quantity (EOQ) 2) Just-In-Time Inventory (JIT) 3) Materials Requirement Planning (MRP)

3 basic measures of inventory

1) average aggregate inventory 2) weeks of supply 3) inventory turnover

flow of inventory through a manufacturing plant

1) begins when the purchasing department buys raw materials from vendors 2) Fabrication: raw materials are fabricated or processed into component parts inventories (some component parts are purchased from vendors) 3) Initial Assembly: the component parts are then assembled to make unfinished work-in-process inventories (also known as partially finished goods) 4) Final Assembly: all the work-in-process inventories are assembled to create finished goods inventories 5) In the last step in the process, the finished goods are sent to field warehouses, distribution centers, or wholesalers, and then to retailers for final sale to customers

2 basic kinds of stockout costs

1) transaction costs 2) loss of customers' goodwill

productivity

a measure of performance that indicates how many inputs it takes to produce or create an output (=outputs/inputs)

quality

a product or service free of deficiencies, or the characteristics of a product or service that satisfy customer needs

Why does the productivity of businesses within a country matter to that country?

because it results in a higher standard of living

Why is there no point in assessing the durability of a service?

because services don't last but are consumed the they're performed

How do companies know whether they're achieving continuous improvement?

besides higher customer satisfaction, customer improvement is usually associated with a reduction in variation

According to TQM, what should be a companies primary goals?

customer focus and customer satisfaction

According the service-profit chain, high-value service least to ___ and ___, which, in turn, lead to ___

customer satisfaction; customer loyalty; long-term profits and growth

the fewer inputs it takes to create an output (or the greater the output from one input), the _____ the productivity

higher

What does the quality of service interactions depend on?

how the service provider interacts with the customer

operations management

managing the daily production of goods and services

product failure

means a product can't be repaired, they can only be replaced

work-in-process inventories

partially finished goods consisting of assembled component parts

When mistakes are made, when problems occur, and when customers become dissatisfied with the service they've received, service businesses must switch from the process of ____ to the process of ___

service delivery; service recovery

product reliabity

the average time between breakdowns

raw materials inventories

the basic inputs in a manufacturing process

Assurance

the confidence that service providers are knowledgeable, courteous, and trustworthy

Empathy

the extent to which service providers give individual attention and care to customers' concerns and problems

finished goods inventories

the final outputs of manufacturing operations

product durability

the mean time to product failure

stockout

the point when a company runs out of finished product

Responsiveness

the promptness and willingness with which service providers give good service

What is the purpose of the International Organization for Standardization?

to develop and publish standards that facilitate the international exchange of goods and services

Kanban

-Japanese for "sign" and is simple a ticket-based JIT system that indicates when to reorder inventory -suppliers attach kanban cards to batches of parts --> then, when an assembly-line worker uses the first part out of a batch, the kanban card is removed --> the cards are then collected, sorted, and quickly returned to the supplier, who begins resupplying the factory with parts that match the order information on the kanban cards -kanban tickets greatly reduce paperwork and ordering costs because prices and batch sizes are typically agreed to ahead of time

Should managers use multiple or partial productivity measures?

-They should use both -multifactor productivity indicates a company's overall level of productivity relative to its competitors -mangers need to use partial productivity to analyze the specific contributions of individual components --> doing so can help them determine what factors need to be adjusted or in what area adjustments can make the most difference in overall productivity

master production schedule

-a detailed schedule that indicates the quantity of each item to be produced, the planned delivery dates for those items, and the time by which each step of the production process must be completed in order to meet those delivery dates

variation

-a deviation in the form, condition, or appearance of a product from the quality standard for that product -the less a product varies from the quality standard, or the more consistently a company's products meet a quality standard, the higher the quality

assemble-to-order operations

-a manufacturing operation that divides manufacturing or assembly processes into separate parts or modules -the company orders parts and assembles modules ahead of customer orders --> then based on actual customer orders or on research forecasting what customers will want, those modules are combined to create semi-customized products

made-to-stock operations (also called build-to-stock)

-a manufacturing operation that orders parts and assembles standardized products (meaning each product is exactly the same as the next) before receiving customer orders -customers then purchase these standardized products at retail stores or directly from the manufacturer -highly dependent on the accuracy of sales forecasts --> if they are incorrect, make-to-stock operation may end up building too many or too few products, or they may make products with the wrong features or without features customers want

continuous-flow production

-a manufacturing operation that produces goods at a continuous, rather than a discrete, rate -production of the final product never stops -because of their complexity, continuous-flow production processes are the most standardized and least flexible manufacturing operations

batch production

-a manufacturing operation that produces large batches of different products in standard lot sizes -a worker in a batch production operation will perform the same manufacturing process on one hundred copies of product X, followed by two hundred copies of product Y, and then fifty copies of product Z --> these batches move through each manufacturing department or process in identical order

Partial productivity

-a measure of performance that indicates how much of a particular kind of input it takes to produce an output (=outputs/single kind of input) -assesses how efficiently companies use only one input when creating outputs

Materials Requirement Planning (MRP)

-a production and inventory system that, from beginning to end, precisely determines the production schedule, production batch sizes, and inventories needed to complete final products -today, nearly all MRP systems are available in the form of powerful, flexible computer software

ISO 9000

-a series of five international standards, from ISO 9000 to ISO 9004, for achieving consistency in quality management and quality assurance in companies throughout the world -don't describe how to make a better quality car, computer, or widget --> instead, they describe how companies can extensively document (and thus standardize) the steps they take to create and improve the quality of their products

Economic Order Quantity (EOQ)

-a system of formulas that minimizes ordering and holding costs and helps determine how much and how often inventory should be reordered -takes into account the overall demand (D) for a product while trying to minimize ordering costs (O) and holding costs (H) --> EOQ = sqrt ((2DO)/H) -EOQ formulas and models can become much more complex as adjustments are made for price changes, quantity discounts, setup costs, and many other factors

inventory turnover

-another common measure of inventory which is the number of times per year that a company sells, or "turns over," its average inventory -the higher the number of inventory turns, the better --> in practice, a higher turnover means that a company can continue its daily operations with just a small amount of inventory on hand

lost efficiency

-arises when recalibrating a machine to its optimal settings after a switchover -takes some time --> may take several days of fine-tuning before a machine finally produces the number of high-quality parts that it is supposed to

bill of materials

-based on the quantity and kind of products set forth in the master production schedule, the bill of materials identifies all the necessary parts and inventory, the quantity or volume of inventory to be ordered, and the order in which the parts and inventory should be assembled

Why should companies go to the trouble to achieve ISO 9000 certification?

-because their customers increasingly want them to -studies show that customers clearly prefer to buy from companies that are ISO 9000 certified -companies believe that being certified helps them keep customers who might otherwise switch to a certified competitor

Teamwork

-collaboration between managers and non-managers, across business functions, and between companies, customers, and suppliers -quality improves when everyone in the company is given the incentive to work together and the responsibility and authority to make improvements and solve problems

ISO

-comes from the Greek word isos, meaning "equal, similar, alike, or identical" and is also an acronym for the International Organization for Standardization, which helps set standards for 164 countries

Why does productivity matter?

-for companies, higher productivity--that is, doing more with less--results in lower costs for the company, lower prices, faster service, higher market share, and higher profits -it makes products more affordable or better

How do services differ from goods?

-goods are produced or made, but services are performed--> services are almost always labor intensive -goods are tangible but services are intangible -services are perishable and unstorable --> if you don't use them when they're available, they're wasted -services account for 59% of gross national product, whereas manufacturing accounts for only 30.8%

transaction costs

-includes overtime work, shipping, and the like in trying to quickly replace out-of-stock inventories with new inventories

inventory records

-indicate the kind, quantity, and location of inventory that is on had or that has been ordered -when they are combined with the bill of materials, the resulting report indicates what to buy, when to buy it, and what it will cost to order

loss of customers' goodwill

-occurs when a company cannot deliver the products it promised

To have just the right amount of inventory arrive at just the right time requires a tremendous amount of coordination between manufacturing operations and suppliers. 2 ways to promote tight coordination under JIT are

1) close proximity 2) to have a shared information system that allows a manufacturer and its suppliers to know the quantity and kinds of parts inventory the other has in stock --> generally, factories and suppliers facilitate information sharing by using the same part numbers and names 3) Kanban

some common manufacturing operations, arranged in order from the least flexible to the most flexible, are:

1) continuous-flow production 2) line-flow production 3) batch production 4) job shops

3 principles of TQM

1) customer focus and satisfaction 2) continuous improvement 3) teamwork

2 kinds of setup costs

1) downtime 2) lost efficiency

Businesses that apply for the Baldrige Award are judges on a 1,000-point scale based on 7 criteria which are

1) leadership [120 points] 2) strategic planning [85 points] 3) customer focus [85 points] 4) measurement, analysis, and knowledge management [90 points] 5) workforce focus [85 points] 6) process management [85 points] 7) results [450 points]

4 costs incurred through maintaining inventory

1) ordering costs 2) setup costs 3) holding costs 4) stockout costs

Two common measures of productivity

1) partial productivity 2) multifactor productivity

4 kinds of inventory a manufacturer stores

1) raw materials 2) component parts 3) work-in-process 4) finished goods

3 characteristics of quality products

1) reliability 2) serviceability 3) durability

5 characteristics of quality service

1) reliability 2) tangibles 3) responsiveness 4) assurance 5) empathy

3 key parts of MRP systems

1) the master production schedule 2) the bill of materials 3) inventory records

2 basic goals of inventory management

1) to avoid running out of stock and thus angering and dissatisfying customers --> this goal seeks to increase inventory to a safe level that won't risk stockouts 2) to efficiently reduce inventory levels and costs as much as possible without impairing daily operations --> this goal seeks a minimum level of inventory -inventory management techniques offer different ways of balancing these competing goals

Thanks to long-term increases in business productivity, the average American family today earns ___ percent more than the average family in 1980 and ___ percent more than the average family in 1967.

12; 31

ISO 14000

a series of international standards for managing, monitoring, and minimizing an organizations harmful effects on the environments

customer focus

an organizational goal to concentrate on meeting customers' needs at all levels of the organization

The average number of inventory turns across all kinds of manufacturing plants is?

approximately 8 per year, although the average can be higher or lower for different industries

At their core, why are organizations production systems?

because companies combine inputs such as labor, raw materials, and knowledge to produce outputs in the form of finished products or services

a type of input that is frequently used when determining partial productivity is?

labor

Manufacturing operations can be classified according to the amount of processing or assembly that occurs after a customer order is received. The highest degree if processing occurs in ____, a moderate degree of processing occurs in ____, and the lowest degree of processing occurs in ____.

made-to-order operations; assemble-to-order operations; made-to-stock operations