Chapter 14 IM

CHAPTER FOURTEENOPERATIONS MANAGEMENT: MANAGING VITAL OPERATIONS AND PROCESSES

OVERVIEW OF THE CHAPTER

To achieve superior quality, efficiency, responsiveness to customers, and innovation, managers at all levels in an organization must understand the significance of operations management. The contribution of effective operations management to the attainment of each of the four building blocks of competitive advantage is discussed. The chapter then explains how managers can use operations management practices and techniques such as facilities layout, flexible manufacturing, JIT, self-managed teams, and process reengineering to build and sustain a competitive advantage.

LEARNING OBJECTIVES

1. Explain the role of operations management in achieving superior quality, efficiency, and responsiveness to customers. (LO1)

2. Describe what customers want, and explain why it is so important for managers to be responsive to customer needs. (LO2)

3. Explain why achieving superior quality in an organization’s operations and processes is so important. (LO3)

4. Explain why achieving superior efficiency is so important. (LO4)

MANAGEMENT SNAPSHOT: WHY TOYOTA IS A LEADER IN OPERATIONS MANAGEMENT

Introduction of lean production and quality circles to the world of management during previous decades helped Toyota gain its long standing reputation as an innovator in the areas of efficiency and quality. To maintain its competitive advantage over its global competitors, CEO Jujio Cho has introduced another set of initiatives designed to further enhance his company’s strength in these critical areas. One such initiative was “pokayoke”, which concentrates on identifying and correcting problems in stages of the assembly process that previously caused problems. A second was “CCC21”, which requires Toyota’s managers to work continually with suppliers to find ways to reduce the cost of components. A third initiative was GBL, which uses a sophisticated, new assembly process to hold a car body firmly in place so that all welding and assembly operations can be performed with maximum accuracy.

Jones and George, Essentials of Contemporary Management, Third Edition 14-1


LECTURE OUTLINE

I. OPERATIONS MANAGEMENT AND COMPETITIVE ADVANTAGE (LO1)

Operations management is the management of any aspect of the production system that transforms inputs into finished goods and services.

A production system is the system that an organization uses to acquire inputs, convert the inputs into outputs, and dispose of the outputs.

Operations managers are managers who are responsible for managing an organization’s production system. They are responsible for managing the three stages of production: acquisition of inputs, control of conversion processes, and disposal of goods and services.

Operations managers are responsible for ensuring that an organization has sufficient supplies of high-quality, low-cost inputs, and they are responsible for designing a production system that creates high-quality, low-cost products that customers are willing to buy.

Quality refers to goods and services that are reliable, dependable, and satisfying. Efficiency refers to the amount of inputs required to produce a given output. Responsiveness to customers refers to actions taken to meet the needs and demands of customers.

II. IMPROVING RESPONSIVENESS TO CUSTOMERSOrganizations produce outputs that are consumed by customers. Because customers are vital to the organization’s survival, it is important for managers to correctly identify customers and promote organizational strategies to respond to their needs.

What Do Customers Want? (LO2)Although there may be some variation among industries, it is possible to identify some universal product attributes that most customers in most industries want. Most customers prefer:

A lower price to a higher price. Higher quality products to low-quality products. Quick service to slow service. Products with many features to products with few features. Products that are customized or tailored to their unique needs.



Designing Production Systems That Are Responsive to Customers

Managers try to design production systems that can produce outputs possessing the attributes that customers desire.

The attributes of an organization’s outputs - their quality, cost, and features – are determined by the organization’s production system.

In recent years, managers have adopted many new operations management techniques, in an effort to attract customers with improved products. These include total quality management, just-in-time inventory, flexible manufacturing systems, and new information systems and technologies.

Managers must be careful not to promise a level of responsiveness to customers that is greater than its production system could profitably sustain.

III. IMPROVING QUALITY (LO3)High-quality products do the job for which they were designed and meet customer requirements. Quality is a concept that can be applied to both manufacturing and service organizations.

Managers seek to control and improve the quality of their organization for two reasons:

Customers usually prefer a higher-quality product to a lower-quality product. An organization that provides a product of higher quality for the same price is being more responsive to its customers than competitors. Also, providing high-quality products can create a brand name reputation, which in turn, may allow the organization to charge more for its products.

Higher product quality can increase efficiency, lower operating costs, and boost profits. A higher product quality means that less employee time is wasted, translating into higher employee productivity, thus lower costs.



Management Snapshot: Citibank Uses CRM t Increase Customer Loyalty

Citibank, one of the leading global financial institutions, has begun using customer relationship management (CRM) to increase responsiveness to customers. The bank recognizes that its customer base and their level of loyalty determine the bank’s future success. First Citibank identified the factors that dissatisfied its customers. It then implemented an organizational –wide CRM system as a means of increasing employee responsiveness. The results were remarkable. As an example, the CRM program reduced by 75% the number of hand-offs required to process a loan request, reducing the average response time from several hours to 30 minutes.

III. IMPROVING EFFICIENCY (LO4)The third goal of operations management is to increase the efficiency of an organization’s production system. Managers can measure efficiency in two ways:

Total factor productivity looks at how well an organization utilizes all of its resources to produce its outputs. The problem with this measure is that each input is typically measured in different units. To compute total factor productivity, managers must convert all inputs to a common unit.

Also, total factor productivity obscures the exact contribution of an individual input. Consequently, most organizations focus on specific measures of efficiency, known as partial productivity that measures the efficiency of an individual unit.

The measure of labor productivity is an example of a partial productivity measure. Labor productivity is most commonly used to draw efficiency comparisons between different organizations.

The management of efficiency is important be cause increased efficiency lowers production costs, allowing the organization to make a greater profit.

Facilities Layout, Flexible Manufacturing, and Efficiency

Another factor that influences efficiency is the way managers decide to layout or design an organization’s physical work facilities. This is important for two reasons:

The way in which machines and workers are organized affects the efficiency of the production system.



Also, a major determinant of efficiency is the cost associated with setting up the equipment to make a particular product.

Facilities layout is the operations management technique that attempts to design machine-worker interfaces that increase production system efficiency. Flexible manufacturing is the set of operations management techniques that attempt to reduce the setup costs associated with a production system.Facilities LayoutThe way in which machines, robots, and people are grouped together affects how productive they can be. There are three ways of arranging workstations: product layout, process layout, and fixed-position layout.

In a product layout, machines are organized so that each operation needed to manufacture a product is performed at workstations arranged in a fixed sequence. Typically, workers are stationary and a moving conveyor belt takes the product to the next workstation. Mass production is the familiar name for this layout.

The introduction of modular assembly lines controlled by computers has made mass production an efficient means of creating small batches as well as large quantities.

In a process layout, workstations are not organized in a fixed sequence. Each workstation is relatively self-contained, and a product goes to whichever workstation is needed to perform the next operation.

Process layout is often suited to manufacturing a variety of custom-made products, each tailored to the needs of a different kind of customer. Process layout provides flexibility, but often reduces efficiency because it is expensive.

In a fixed-position layout, the product stays in a fixed position. Component parts are produced in remote workstations and brought to the production area for final assembly.

Self-managed teams are being used increasingly in fixed-position layouts. This layout is commonly used for products that are large, complex or difficult to assemble.



Managing Globally: How to Improve Facilities Layout

Paddy Hopkirk opened a car accessories business in England after winning the prestigious Monte Carlo rally. Although sales were brisk, Hopkirk realized that his production system needed improvement.

The consultants Hopkirk hired determined that his facilities layout was the source of the company’s production problems. They suggested that the workstations be reorganized into a sequential product layout. Once the change was made, results were dramatic. The untidy sprawl of workstations surrounded by piles of crates was transformed into tightly grouped workstations arranged in a fixed sequence. Efficiency increased dramatically.Flexible Manufacturing

A major source of costs is setting up the equipment needed to make a particular product. If setup times for complex production equipment can be reduced, efficiency will rise.

Flexible manufacturing aims to reduce the time required to set up production equipment. Setup time and its accompanying cost can be dramatically reduced if equipment used for manufacturing one product can be quickly replaced with equipment used for manufacturing a second product.

Organizations are experimenting with new designs for production systems that allow workers to be more productive and make the work process more flexible.

Managing Globally: Igus’s Factory of the Future

In the 1990s, managers at Igus Inc., a bearings and cable products manufacturer located in Cologne, Germany, realized they needed to build a new factory to handle their rapidly growing product line. At Igus, new products are often introduced on a daily basis and many of its products are highly customized.

Igus’ new factory was designed with flexibility in mind. All machines, computers, and equipment can be moved and repositioned to suit changing product requirements. Workers are equipped with power scooters to move around the plant quickly to reconfigure operations and are cross-trained to perform the many production tasks necessary. Igus can change its production system at a moment’s notice with minimal disruption. The company’s decision to create a flexible factory of the future has paid off. In the last five years, sales have increased dramatically.



Just-in-Time Inventory and Efficiency

Although JIT systems, such as Toyota’s kanban system, were originally developed to improve product quality, they also have implications for efficiency.

Major cost savings can result from increasing inventory turnover and reducing inventory holding costs.

Service companies as well as manufacturers can benefit from the JIT concept.

One drawback of JIT systems is that they leave an organization without a buffer stock of inventory. Although buffer stocks of inventory can be expensive to store, they can help an organization when it is affected by shortages of inputs or when it needs to respond quickly to increases in customer demand.

IV. Self-Managed Work Teams and Efficiency

Another efficiency-boosting innovation is the use of self-managed work teams. The typical team consists of from five to fifteen employees who produce an entire product instead of just parts of it.

Team members learn all team tasks and move from job to job. The result is a flexible workforce. Team members also assume responsibility for work and vacation scheduling, ordering materials, and hiring new members. Traditionally, each of these was the responsibility of first line managers.

The use of empowered, self-managed teams can increase productivity and efficiency. Cost savings also arise from eliminating supervisors and creating a flatter organizational hierarchy, which increases efficiency.

Process Reengineering and Efficiency

Process reengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical measures of performance.

Customer relationship management, for example, can be thought of as a business process. In this chapter’s opening case, Citibank managers decided to reengineer its processes to improve their level of customer responsiveness.



Another example of process reengineering is Ford Motor Company’s decision to simplify its procurement process.

Managers at all levels have important roles to play in a company’s effort to boost efficiency. Top management’s role is to encourage efficiency improvements by emphasizing the need for continuous improvements. They are also responsible for ensuring that managers from different functional departments work together to find ways to increase efficiency.

However, it is typically functional-level managers who are in the best position to identify opportunities for continuous improvement or reengineering, as they are involved in an organization’s production system on a day-to-day basis.

V. OPERATIONS MANAGEMENT: SOME REMAINING ISSUES

Achieving superior responsiveness to customers through quality and efficiency often requires a profound shift in management operations and in the culture of an organization.

Failure of management to understand the dramatic culture shift required may result in disillusionment with JIT, flexible manufacturing, or reengineering.

None of these systems is a quick panacea to cure industrial ills. Making these techniques work can pose a significant challenge that calls for hard work and persistence by the sponsoring managers.

Managers also need to understand the ethical implications of the adoption of many of these techniques. The increases in organizational performance they yield often come at great cost to employees. Employees may see the demands of their job increase or they may see themselves reengineered out of a job.

Continually increasing the demands placed on employees regardless of human costs in terms of job stress raises ethical concerns.

Ethics in Action: The Human Cost of Improving Productivity



At a Toyota plant in Tokyo, members of a self-managed team work at a grueling pace, with little room for error. A red button halts the production line if problems become severe, but there is an unspoken rule against pushing it. Workers complain that constant attempts to increase quality and reduce costs typically results in continuous speedup of operations, resulting in even higher levels of job stress. While some pressure is good, beyond a certain level, it can seriously harm workers. At US West, a team of billing clerks eagerly responded to management’s request to assist in identifying ways to streamline operations, only to learn that their efforts led to the loss of 9,000 jobs. According to one of company’s former employees, “It was cut-your-own-throat. It makes you feel used”.VI. SUMMARY AND REVIEW

Lecture Enhancer 14.1KEEPING THE CUSTOMER HAPPY

What should a company do for angry customers? According to experts: just about anything it can. Studies show customers tell twice as many people about bad experiences as good ones, so complainers left unhappy can send a company’s image crashing. Simply listening to complaints boosts brand loyalty and a customer’s tendency to buy again.

One research firm calculated the return on company dollars invested in resolution of customer complaints and inquiries. The average return for makers of consumer durables like washing machines and refrigerators was 100 percent. In other words, if manufacturers spent $1 million handling consumer complaints, they reaped $2 million in benefits. For banks, it was as high is 170 percent.

Lecture Enhancer 14.2PRODUCTIVITY BOTTLENECK IN THE OFFICE: THE KEYBOARD

The modern office is likely to be equipped with personal computers linked through local area networks to each other and to a host of specialized equipment, from laser printers to data bases storing millions of customer records. Within this state-of-the-art operating system is a turn-of-the-century bottleneck—the computer keyboard.



The computer keyboard is simply a transplanted typewriter keyboard, the same keyboard that has been used since the 1890s. While the arrangement of keys is familiar, it is far from efficient. When the first typewriters were introduced, keys were arranged alphabetically (vestiges of this arrangement can be seen on the second row of keys—D F G H J K L.) Printing bars were mechanically pushed against the paper by the pressure on the keys. Typists soon became proficient enough to cause jams as they typed faster than the mechanical bars could move.

Typewriter manufacturers went back to the drawing boards and designed a new keyboard to slow typists down to speeds within the limits of the crude mechanism. The resulting keyboard is referred to as “Qwerty”, named for the first six keys of the top row. Keys were placed awkwardly to force slower typing. The “A”, for instance, one of the most frequently used keys, was placed under a typist’s left-hand little finger, the weakest finger on the hand. “E” requires an awkward reach using the middle finger of the left hand. Results were encouraging—typing speeds declined.Today mechanical keys have been replaced by electronic ones, but the keyboard arrangement has remained unchanged. In the 1930s August Dvorak designed a better keyboard that groups the most frequently used letters on the home row and eliminates many awkward reaches. The Dvorak system is faster to learn, easier to type, less tiring, and less likely to cause errors than Qwerty. Using it increases typing speed by more than 20 percent. Yet the system never caught on—typists did not want to learn a new system when their typewriters all used Qwerty, and manufacturers did not want to produce Dvorak typewriters as long as typists used Qwerty.

Lecture Enhancer 14.3THE NEW REALITY: REEVALUATING JUST-IN-TIME INVENTORY TECHNIQUES

One of the business techniques imported from Japan in the 1980s was the concept of just-in-time (JIT) inventory. It entails having raw materials and components delivered to the user just at the time they are needed for production. Effective use of JIT requires close coordination between the supplier and the organizational buyer.

The cost of materials and other goods and services needed to produce a product is about half the revenue received for it. Reducing this cost, even a small amount, can create a significant improvement in a company’s bottom line. Statistics from the U.S. Department of Commerce show a steady decline in the amount of inventory carried by producers relative to the sales of their products or services. Just-in-time inventory and delivery have become the reality for organizational marketers.



When marketers and suppliers cooperate as partners, JIT has often worked well. Montreal-based Future Electronics is hooked up by an electronic data interchange system to Bailey Controls, an Ohio-based supplier of control systems. Every week, Bailey electronically sends Future its latest forecasts of what materials the Canadian company will need for the next six months. Future Electronics can then stock up in time.

Wal-Mart Stores Inc. is widely cited as one of the best practitioners of inventory management. The Bentonville, Arkansas based discount retailer is constantly trying to better its performance. Among its current projects is an inventory-reporting system it is developing with W&H Systems Inc. in Carlstadt, N.J., and Rank Video Systems of America in Northbrook. Since the bulk of movie videotape sales are on weekends, Wal-Mart will take an electronic inventory of its shelves nationwide every Sunday night and automatically notify the video distributor, which will then place an order with Rank early Monday morning to manufacture the replacement tapes for delivery to stores on Thursday before rentals pick up again.

When cooperation has been lacking, JIT has become something of a corporate shell game in many industries as companies vie to keep their inventory on some other companies’ books. And there is evidence that despite all the money companies have spent on computers to track sales and inventory, just-in-time inventory doesn’t always work.



“The reality today is that with just-in-time, there are still a lot of empty shelves in the stores”, says Perry Caicco, president of Toronto-based Consumers Distributing Inc.

MANAGEMENT IN ACTIONNotes for Topics for Discussion and Action

1. Ask a manager how quality, efficiency, and responsiveness to customers are defined and measured in his or her organization. (LO1)

Students may interview many different types of managers. Each manager will have unique definitions of quality, efficiency, and responsiveness to customers. Below are some general definitions that should encompass managers’ definitions.

Quality refers to goods and services that are reliable, dependable, and satisfying in the sense that they do the job they were designed for and do it well, so that they give customers what they want. Quality may be measured by the number of defective parts per lot size.

Efficiency refers to the amount of inputs required to produce a given output. Generally, the fewer inputs needed to produce a given number of outputs, the higher the efficiency of the process. Efficiency may be measured by the equations for total factor productivity or partial productivity. These equations look at the amount of input relative to the output.

Responsiveness to customers refers to actions taken to be responsive to the demands and needs of customers. Organizations can increase responsiveness to customers by providing affordable, high-quality products with many desirable features that are customized to consumers’ unique needs. Companies should also strive to provide quick service. Responsiveness to customers may be measured in percentage of returned merchandise or customer survey responses.

2. Go into a local store, restaurant, or supermarket and list the ways in which you think the organization is being responsive or unresponsive to the needs of its customers. How could this business’s responsiveness to customers be improved? (LO2)



A drug store that is part of a national chain is located on a busy corner in a large city. The store is responsive to the needs of its customers because it provides a variety of products, such as school supplies, seasonal items, cosmetics, greeting cards, medicine, and others items. In addition, the prices are reasonable and lower than prices at smaller, privately owned drug stores. Also, store brands provide customers with high-quality products at lower prices than national brands. The store also has other features, such as film developing and prescription filling.One main issue at this store is the long lines at the checkout counters. This aspect of the production system is very unresponsive to customers. Customers often get frustrated because they have to wait so long, and may begin to go to other stores where the wait is shorter, even if their prices are higher.

The store might look at ways to fix this situation. They should move all staff to the checkout lines at the busiest times of the day, typically during lunchtime and afternoon rush hour. They should also limit special services, such as film processing and raincheck cashing, that are performed at the counter during peak times. These suggestions may reduce the amount of time customers wait to be checked out, thereby increasing the store’s responsiveness to customers.

3. What is efficiency, and what are some of the techniques that managers can use to increase it? (LO4)

Efficiency refers to the amount of inputs required to produce a given output. Inputs may include labor, component parts, skills, knowledge, or time. Outputs can be any goods and services that the customer wants. These may be products or they may be intangible things, like customer service.

Managers can increase efficiency in several ways. One is to improve quality. When quality rises, less employee time is spent making defective products that have to be discarded or repaired. Designing products with fewer parts can increase efficiency since fewer parts to assemble reduces the total assembly time and makes products easier to assemble (e.g. less effort.) Managers can also change their facilities layout, or the way in which machines, robots, and people are grouped together. One layout may be more effective than another, depending on the product. Flexible manufacturing can also increase efficiency by reducing the time required to set up production equipment. Yet another tactic is just-in-time inventory, which reduces inventory holding costs and frees capital that would otherwise be tied up in inventory. Another way is to implement self-managed teams.



4. Why is it important for managers to pay close attention to their organization’s production system if they wish to be responsive to their customers? (LO2)

The attributes of an organization’s outputs - their quality, cost, and features - are determined by the organization’s production system. The ability of an organization to satisfy the demands of its customers is derived from its production system. By monitoring this system, managers can find ways to improve quality while keeping prices low, as well as find ways to increase efficiency. Customers want value for money, and an organization whose efficient production system creates high-quality, low-cost products is best able to deliver this value.

5. “Total customer service is the goal toward which most organizations should strive”. To what degree is this statement correct? (LO2)

Without customers, most organizations would cease to exist. It is important for managers to correctly identify and promote organizational strategies that respond to customer needs. To this extent, the above statement is correct. Yet organizations should not strive to have total customer service at the expense of other important factors in the production process. If an organization offers a level of responsiveness that is more than that production system can profitably sustain, the entire system will suffer in terms of efficiency and cost effectiveness. A company that customizes every product to the unique demands of the individual customers will likely see its cost structure become so high that the cost of production exceeds revenues. Also, efficiency will suffer because time and effort is required to customize and provide “total customer service”. To this extent, total customer service should be balanced with focus on efficiency and effectiveness.

AACSB standards: 1, 3, 9

NOTES FOR BUILDING MANAGEMENT SKILLS

Managing a Production System (LO1, 2, 3, 4)

1. What is the output of the organization?

The organization that is the focus of these questions is a housecleaning service. The service provides cleaning for residential buildings and private houses. Services include vacuuming, dusting, bed making, cleaning of windows and floors, straightening of furniture, sweeping, and other cleaning activities.



2. Describe the production system that the organization uses to produce this output.

The production system that is in place requires each cleaning person to perform all cleaning tasks individually. When the person arrives at the house, he or she starts in one end of the house and performs all the tasks in one room before moving on to another area of the house. All of the cleaning service's staff are part-time workers who work flexible hours and do not receive benefits. After cleaning an entire house, the cleaning person computes the amount of time it took to complete all the tasks and submits a time sheet to the manager at the home office. Members of the cleaning staff are paid by the hour, not by salary. The manager then bills the house for the number of hours required for cleaning.

3. What product attributes do customers of the organization desire?

Customers prefer a lower price to a higher price. They prefer higher-quality cleaning service to low-quality service, especially since many customers only use the service once or twice a week. They are willing to pay a little more so that the service is not needed as often. Customers also want quick service. They prefer that the cleaning staff not be there any longer than is necessary. Customers also like that the cleaning service provides several services, as opposed to a small number of services that might be limited to certain areas of the house or certain tasks. Finally, customers like to feel that their service is tailored to them and their unique needs. Members of the cleaning staff go out of their way to provide customers with service that meets their schedules and demands.

4. Does its production system allow the organization to deliver the desired product attributes?

The production system allows the organization to keep prices low because employees are part-time workers that do not receive benefits. Also, overhead is low since there is no need for a large amount of office space. High-quality service is delivered because the organization carefully screens its employees and trains them intensely. A new employee must accompany a more experienced employee for a few weeks before the new employee is allowed to work on his or her own. The cleaning service does not always deliver quick service, though, since some houses are larger and require more cleaning than others. This creates a large amount of work for one person to do on his or her own.



5. Try to identify improvements that might be made to the organization’s production system to boost the organization’s responsiveness to customers, quality, and efficiency.

The organization may try using self-managed teams to clean the houses that repeatedly require more effort, time, and resources. If teams of cleaning staff are formed, they could go to the houses together, with each team member performing one task in all areas of a house. For example, one person could be responsible for vacuuming all rooms, while another is responsible for dusting all rooms. This way, less time would be spent cleaning a house and more houses could be cleaned in the same amount of time it normally takes to clean fewer houses. This strategy would improve the efficiency of the cleaning staff.Also, managers could devise a system that charges each house according to the amount of resources needed to clean it. This way, the houses that required more would be charged more, and the houses that required less would be charged less. This would increase the organization’s responsiveness to customers in that the service would be customized to the unique needs of each house, without sacrificing efficiency.




MANAGING ETHICALLY(Note: Student responses will vary.)

1. Either by yourself or in a group, discuss how to think through the ethical implications of using new operations management techniques to improve organizational performance.

The implementation of new operations techniques, such as JIT, TQM, or flexible engineering, often require a substantial shift in organizational culture for which employees must be prepared. The human cost of improving productivity must be acknowledged and thoughtfully balanced against other stakeholder concerns, since employee support is vital to the new undertaking.

2. What criteria would you use to decide what kind of technique is ethical to adopt and/or how far to push employees to raise the level of their performance?

Pushing employees to raise their level of performance often induces stress. Reasonable levels of stress can sometimes yield positive consequences. However, when employees begin to exhibit signs of being physiologically or psychologically overwhelmed by management induced pressures, the new operational techniques that have created this unacceptable level of tension must be immediately reevaluated.

3. How big, if any, of a layoff is acceptable? If layoffs are acceptable, what could be done to reduce their harm to employees?

Improved operations techniques, as well as technological advances and the cyclical nature of a market economy often make layoffs inevitable. However, providing ample forewarning can reduce harm to employees by layoffs, so that they have time to plan and prepare. Also reasonable severance packages, outplacement assistance, and if necessary, retraining often helps to reduce the trauma inflicted upon employees by layoffs.

AACSB standards: 1, 2, 6, 7



Notes for Small Group Breakout Exercise How to Compete in the Sandwich Business (LO1, 2, 3, 4)

1. Identify the product attributes that a typical sandwich shop customer wants the most.

Customers are central to the survival of almost any organization, so it is crucial that managers find out what customers want and devise ways to satisfy the customers’ needs. A typical sandwich shop customer will prefer a lower price to a higher price. Customers will also prefer a higher-quality product to a lower-quality product. Ingredients must look appetizing and taste fresh. Customers also want quick service. Many people do not have a long time for lunch, and a long wait will likely deter many potential customers. In general, customers will like a sandwich shop that provides many “extras”, and does not charge for these additional features. A customer will probably disapprove if the shop charges extra for condiments or other basic toppings. Also, customers like flexibility and would probably like a sandwich shop that makes their food to order, and does not prepackage their sandwiches. Customers like to be able to make their own sandwiches, and generally do not like to be told that there are no substitutions.

2. In what ways do you think you will be able to improve on the operations and processes of existing sandwich shops and achieve a competitive advantage through better (a) product quality, (b) efficiency, or (c) responsiveness to customers?

High quality products are reliable, dependable, satisfying, and capable of getting the job done. Since a substantial portion of the shop’s “product” is customer service, orders must be handled quickly, accurately, reliably, and consistently. Higher product quality obtained through improved customer service can increase efficiency by lower operating costs and thereby boosting profits. A production system that maximizes the use of workers, floor space, and time will also increase efficiency. On a periodic basis, managers should conduct informal market research among customers to determine the attributes they desire so that the sandwich shop can be sure to meet them.




Be the ManagerHow to Build Flat Panel Displays (LO 1, 2, 3, 4)

1. What kinds of techniques discussed in the chapter can help them to increase efficiency?

When hiring people, it will be important to screen for teamwork skills and the ability to work in a cross functional team setting. The production facility should be designed to incorporate flexible manufacturing technologies and use a just-in-time inventory system, in order to adapt to changing market conditions and customer demands.

2. In what ways can they go about developing a program to increase quality?

The attempt to improve quality requires finding ways to measure quality, setting quality improvement goals, and soliciting input from employees concerning potential improvements in product design and the manufacturing process. 3. What are the critical lessons that these managers can learn from operations

management?

Lesson #1: The goal of most start-ups is to break even and begin earning profits as soon as possible. Therefore, the management of efficiency is extremely important because increased efficiency lowers production costs that, in turn, lead to profit generation. Lesson #2: In its eagerness to please its new customers, managers of this start-up must be careful not to promise a level of responsiveness to their customers that their company can not yet profitability sustain.

Lesson #3: Be cautious of the temptation to continually increase the demands placed on employees to increase productivity. Do not impose unreasonable levels of stress upon employees.




BUSINESS WEEK CASES FOR DISCUSSION

Case Synopsis: No One Does Lean Like the Japanese

Japan has long been a global leader in lean production. But now, as Japanese companies face increasing competition from low cost rivals in Korea, China, and other parts of Asia, they are working double time to stay ahead. Matsushita is at the forefront of this effort. Matsushita’s management focus is upon increasing efficiency. Although their plant in Saga has doubled its efficiency over the previous four years, management feels there is still additional fat to be trimmed.

Questions:1. What value chain techniques has Matsushita been using to improve its performance

lately?

Conveyor belts were ripped out and replaced with clusters of robots. New software synchronizes production so each robot jumps into action as soon as the previous step is completed. Factories have been rearranged so that they can quickly shift gears to make products for which demand is greatest. Inventory costs have been substantially reduced due to a dramatic increase in the speed of production. The need to constantly re-tool robots was reduced when engineers designed a new circuit board.

2. Why is it difficult for all companies to implement lean production?

Implementing lean production requires substantial start-up costs. New equipment and technology must be purchased, factory space must be reconfigured, and workers must be retrained. Also, an organizational culture that embraces innovation and change must in place. Otherwise, both management and workers would probably respond negatively to the uncertainty that a total re-haul of value-chain operations at the functional level would introduce.

AACSB standards: 1, 3, 4, 9, 12



Chapter 14 Video Case Teaching Note

Panera Bread Company

Teaching Objective: To observe how a fast-casual restaurant chain delivers value to customers, builds loyalty, and achieves a competitive advantage.

Video Summary: Panera Bread Co. combines some of the best aspects of fast food and sit-down venues. Its bakery-cafés offer quick meals throughout the day and a casual, sit-down place where customers are welcome to linger. Panera prides itself on high-quality food, the inviting atmosphere, and great customer service provided by managers and employees empowered to make decisions that increase responsiveness to customers. The Panera formula leads to high levels of employee commitment and customer satisfaction and has fueled tremendous growth for the company.

Questions:

1. How do Panera Bread’s corporate vision and strategy lead to a competitive advantage in the restaurant industry?

Founder and CEO Ron Shaich envisioned a bakery-café that serves nourishing food with the speed of fast food restaurants and the engaging environment of sit-down venues. From the vision, Panera has developed a strategy that emphasizes high-quality food, moderate prices, excellent service, and a unique “gathering place” environment. Panera has concentrated on this concept and perfected it while carefully planning and controlling growth.

2. How does Panera achieve responsiveness to customers?

The Panera experience is designed to satisfy customers and provide value for their money. The company’s food, service, and setting are tailored to customers’ needs. The foundation of Panera is fresh, high-quality food, selections people want, moderate prices, quick and friendly service, and a welcoming atmosphere. CEO Ron Shaich visits Panera outlets and talks to both customers and store managers and staff. That way he keeps close to the customer and learns what they want, and close to the employees, whose feedback helps improve or maintain operation efficiency.

3. How does its corporate culture help make Panera Bread a high-performing company?



Panera ranks high in food quality and customer loyalty. The company is adding restaurants yearly and its stock is performing well. Its corporate culture helps deliver that high performance. The culture is based on a sound organizational vision and is built as the company educates and enables managers to lead and empowers front-line employees to make customer-service decisions. CEO Shaich imparts the core value of recognizing every stakeholder in the business, including team members and customers.


Chapter 14 IM

Documents

operations managers

role of operations management

assembly operations

organizations operations

vital operations

world of management

superior quality

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