Managing Operations and Improving Quality
Operations (or production) is the process and activities for transforming resources into finished services and goods for customers. The operations function creates four kinds of utility – time utility, place utility, possess utility, and form utility – to meet customer needs.
Performing a service is different from manufacturing a good in several key ways: the raw material for service production includes the people who are seeking the service. In addition, most services are intangible, customized, and can not be stored. Because of these characteristics, service providers generally focus on the customer service, often acknowledging the customer as part of the operations process.
Operations planning for both goods and services involves the analysis of five key factors: Capacity planning requires determining how much of a product a firm must be able to produce. Location planning involves choosing among potential facility sites. Layout planning entails designing an effective, efficient facility. Quality planning ensures that products meet a firm’s quality standards. Methods planning involves identifying specific production steps and methods for performing them.
Total quality management (TQM) includes any activity designed to get high quality products to the marketplace. Important TQM tools include statistical process control, quality/cost studies, getting closer to the customer, business process reengineering, IS 9000, and outsourcing.
The concept behind supply chain management is that members of the supply chain – the stream of all activities and companies that create a product – can gain competitive advantage by working together as a coordinated system of units. Managing the chain as a whole has yielded better service and lower prices, leading customers to prefer the products produced by the supply chain, which, in turn, benefits all of its members.
Opening Case: A Supersonic Project Gets Off the Ground (I)
Service operations provide tangible and intangible services; firms that make tangible products are engaged in goods production.
The economic significance of the manufacturing sector is increasing. Real income from manufacturing has been steadily rising, increasing by more than 30 percent in the past decade; in addition, the United States returned to the number-one spot for the eighth straight year in 2001 – ahead of Japan and Germany.
Global competition has made production a faster-paced, higher-tech, “cleaner” activity.
Both services and goods provide consumers with utility, which is the ability of a product to satisfy a human want. Time utility is created when marketers make products available when consumers want them; place utility is created when products are made available where they are convenient for consumers; ownership utility is created when products become available for consumer to own and use; and, form utility is created merely through transforming raw materials into finished goods.
An operations process is a set of methods and technologies used in the production of goods and services.
Managers from many departments contribute to the firm’s decisions about operations management; this is a process of logical steps upon which the success of the firm depends. The overall business plan guides operations planning, as do qualitative and quantitative forecasts.
The amount of a product that a company can produce under normal working conditions is its capacity. A firm’s capacity depends on how many people it employs and the number and size of its facilities.
Facility location affects production costs and flexibility. Depending on the site of its facility, a company may either be capable of producing a low-cost product or may find itself at an extreme cost disadvantage.
Layout determines whether firms can respond quickly and efficiently to customer requests for additional or different products or finds itself unable to match competitors’ speed and convenience.
Operations processes must be geared to creating fitness for use; that is, offering features that customers want. Any complete operations plan must ensure that products are produced to meet the firm’s standards of quality.
In operations systems, methods improvement refers to methods implemented to reduce waste, inefficiency, and poor performance.
Operations scheduling involves developing timetables for acquiring resources needed for production.
Goods scheduling occurs on different levels of the firm: A master production schedule shows which products will be produced, when production will occur, and what resources will be used; detailed schedules indicate start-up and stop times and employee work assignments.
In a low-contact service, scheduling can be based either on desired completion dates or on the time of order arrivals. In a high-contact service, scheduling may not always be possible; the customer is part of the system and must be accompanied. Gantt charts diagram steps to be performed and specify the time required to complete each step. PERT charts break down large projects into steps and specify the time required to perform each one.
Once long-range plans have been put into action and schedules have been drawn up, operations control requires production managers to monitor production performance. If schedules or quality standards are not met, managers must take corrective action.
The process of materials management plans, organizes, and controls the flow of materials. The five major areas of materials management are transportation, warehousing, purchasing, supplier selection, and inventory control.
Total Quality Management (TQM) includes all of the activities necessary for getting quality goods and services into the marketplace; this process involves all parts of the business, including customers, suppliers, and employees. To bring all the interests of the stakeholders together, TQM involves planning, organizing, directing, and controlling.
A supply chain for any product is the flow of information, materials, and services that starts with raw-materials suppliers and continues through other stages in the operations process until the product reaches the end customer.
Supply chain strategy is based on the idea that members of the chain, working as a coordinated unit, will gain competitive advantage.
This process looks at the supply chain as a whole in order to improve the overall flow through a system composed of companies working together.
Answers to Questions and Exercises
Questions for Review
Time utility involves making products available when customers want them. Place utility involves making products available where they are convenient for customers. Possession utility involves giving customers the ability to benefit from possessing and using a product. Form utility involves creating the product in the first place.
Service operations focus on performance, process and outcome, service characteristics, customer-service link, and service quality considerations.
Capacity planning, location planning, layout planning, quality planning, and methods planning are the five major categories of operations planning.
Statistical process control, quality/cost studies, getting closer to the customer, business process reengineering, ISO 9000, and outsourcing are all involved in total quality management.
Supply chain management is managing the supply chain as a whole to more closely coordinate activities. The result is often better service at lower prices, leading to a competitive advantage for all the players in the chain.
Questions for Analysis
For a real estate firm, labor and customers are the resources; coordinating buyers and sellers is the product. For a child care facility, labor, customers, and products are the resources; child care is the product. For a bank, labor, equipment, and money are the resources; financial services are the products. For the city water and electric department, labor, equipment, and raw materials are the resources; continuous supplies of water and power are the products. In a hotel, labor, equipment, and facilities are the resources; lodging and amenities are the products.
Answers will vary, but students should recognize the process involved in producing the relevant goods or services and possible inefficiencies stemming from poor operations planning.
Answers will vary, but students should identify the full range of stages in the supply chain, including less obvious ones such as raw materials, storage, transportation, and distribution.
Students’ answers will vary.
Answers will vary, but students should consider external and internal failures. Anticipated costs should include the costs of correcting external failures.
Answers to Exercising Your Ethics
The underlying ethical issues are management’s commitment to its own quality program and to its employees. To what financial extent should the company pursue quality? Should the company have more effectively communicated cost/benefit analysis to its employees? Should the company have fired Ruth for putting customers first regardless of cost? What message does that send to other employees?
Senior management has clearly opted to rank short-term profit considerations first. The long-term impact on quality may be negative, depending on how they communicate their decision to employees, who in turn interact with customers.
Answers will vary, but students should recognize that different levels of correction are possible.
Answers to Building Your Business Skills
Answers will vary, but students should point out that technology makes customization easier, cheaper, and more accessible than ever before, which raises customer expectations.
Answers will vary, but it seems quite likely that consumers will expect more from products and services that are tailored just for them.
The trend creates new needs and wants that entrepreneurs can fill.
Answers will vary, although human relations skills clearly play a critical role in any personal, one-to-one business. A doctor, for example, may be valued more for medical skills than human relations skills, while a manicurist may be valued more for human relations skills.
Web site to visit: http://occonline.occ.cccd.edu
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