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Flashcards in Chapter 21 Packet Notes Deck (65):

The process used to create and deliver a good or service (value) to customers.



The planning and control of a conversion process that includes turning inputs into outputs (products and/or services) that customers desire.

Operations Management


  • How much flexibility is required to satisfy customers over time?
  • What is customer demand today? for the future? Are facilities and equipment adquate to keep up with demand?
  • What options are available for satisfying customers?
  • What skills or capabilities set the firm apart from its competitors such that the firm can best take advantage of these distinctive features in the market?
  • Does the competitive environment require certain capabilities that the enterprise lacks?

Important Questions about Operations Factors


Products are tangible, services are intangible

Managing Operations in a Service Business


  • Managing can produce goods for inventory; service operations cannot store or bank services.
  • Productivity and quality is more easily measured in manufacturing than service operations.
  • Quality is more difficult to establish and control in service than in manufacturing operations.
  • Customers are more involved in service than manufacturing operations and can influence the quality or service.
  • Technology can enable customers to provide more o ftheir own services.

Managing Operations in a Service Business


Input → Process → Output

The Operations Processes


  • Job Shop
  • Project Manufacturing
  • Repetitive Manufacturing
  • Flexible Manufacturing
  • Capacity Considerations
  • Planning and Scheduling
  • Incorporates demand management strategies

Types of Mnufacturing Operations


Operation in which short production runs are used to produce small quantities of items.

Job Shop


Operations used to create unique but similar items.

Project Manufacturing


Operations in which long production runs are used to produce a large quantity of standardized product.

Repetitive Manufacturing


Operations that usually involve computer- controlled equipment that can turn out products in smaller or more flexible quantities.

Flexible Manufacturing


  • Capacity limits a firm's ability to meet demand.
  • Capacity determines startup (fixed) costs.
  • Ability to adjust capacity differs among firms.

Capacity Considerations


  • Involves attempting to achieve the orderly, sequential flow of products or services to market.
  • Is critical in service industry operations.

Planning and Scheduling


Strategies to stimulate customer demand when it is normally low.

Incorporates Demand Management Strategies


  • Objectives of Inventory Management
  • Inventory Cost Control
  • ABC Inventory Classification
  • Just-in-time inventory (JIT) system

Inventory Management and Operations


  • Ensuring continuous operations
  • Maximizing sales
  • Protecting assets
  • Optimizing inventory investment

Objectives of Inventory Management


To support customer demand and balance sheet concerns is critical for a healthy business.

Balancing Inventory


The quantity to purchase in order to minimize total inventory costs.

  • Total Inventory Costs = Total Carrying Costs + total Ordering Costs

Economic Order Quantity (EOQ) - inventory cost control


A system of classifying items in inventory by relative value.

  • Category A (close/continuous control)
  • Category B (moderate control)
  • Category C (periodic control)

ABC Inventory Classification


High-value or critical production component items.

Category A (Close/Continuous Control)


Less costly, secondary importance items.

Category B (Moderate Control)


Low-cost and noncritical items.

Category C (Periodic Control)


A demand (pull) method of reducing inventory to an absolute minimum.

  • New inventory items arrive at the same time that the last inventory item is placed in service.

Just in Time Inventory (JIT) System


  • Closer coordination with suppliers
  • Consistent quality production
  • Lower safety stock levels

JIT Promotes:


  • Physical inventory system
  • Cycle counting
  • Perpetual inventory
  • Two-bin inventory system

Inventory Record-Keeping System


Provides for periodic counting of items in inventory.

Phyiscal Inventory System


Counts different segments of the physical inventory at different times during the year.

Cycle Counting


  • Keeps a running record of inventory.
  • Does not require a physical count except to ensure the accuracy of the system.

Perpetual Inventory


A method of inventory control based on use of two containers for each item in inventory: one to meet current demand and the other to meet future demand.

Two-Bin Inventory System


  • Quality as a competitive tool
  • Quality
  • Total quality management (TQM)

Operations Management and Quality


Quality is a must in international compeition.

Quality as a Competitive Tool


  • The features of a product or service that enable it to satisfy customers' needs.
  • A perception of the customer as to the suitability of the product or service of a firm.



An aggressive, all-encompassing management approach to providing superior, high-quality products and services.

Total Quality Management (TQM)


Employee Participation

  • Employee performance is a critical quality variable
  • The implementation of work teams and empowerment of employees to build workplace involvement.
  • Quality circle

Tools and Techniques of TQM


A group of employees who meet regularly to discuss quality-related problems.

Quality Circle


  • Customer driven
  • Organizational commitment
  • Culture of continuous improvement

Essential Features of Total Quality Management


  • Customer expectations
  • Customer feedback

Customer Focus of Quality Management


  • Quality is the extent to which a product or service satisfies customer's needs and expectations.
    • Product quality
    • Service quality
    • Produce and service quality combinations (good for funeral business).
  • "The customer is the focal point of quality efforts"

Customer Expectations


Customers are the eyes and ears of the business for quality matters.

Customer Feedback


  • The inspection process
  • Poka-Yoke

Quality Assurance Using Inspection Versus Poka-Yoke


The examination of a product to determine whether it meets quality standards.

  • Occurs after the fact- the defective good has already been produced.

The Inspection Process


A proactive approach to quality management that seeks to mistake-proof a firm's operations, thus avoiding problems and waste before they can occur.



The standards governing international certification of a firm's quality management procedures.

ISO 9000


  • Providing an excellent combination of tangible products and intangible services.
  • Providing personalized, high contact services.
  • Providing service quality without regard to the profitability of the customer.
  • Developing good measures to control service quality.

Opportunities for Small Service Companies


  • Purchasing
  • The importance of purchasing
  • Make-or-buy decisions
  • Outsourcing
  • Cooperative purchasing organization (COOP)
  • Diversifying sources of supply
  • Forming strategic alliances with suppliers
  • Forecasting supply needs
  • Using information systems

Purchasing Policies and Practices


The process of obtaining materials, equipment, and services from outside.



The process of acquiring quality raw material inputs affects:

  • The timely and consistent production of quality products.
  • Retailer sales of finished products to customers.
  • The costs of products, their profitability and their selling prices.

The Importance of Purchasing


A firm's choice between producing and purchasing component parts for its products.

Make-or-Buy Decisions


  • Increased utilization of plant capacity
  • Assurance of supply of critical components
  • Maintaining secrecy in designs and processes
  • Saving on transportation costs and supplier profits
  • Closer coordination and control of overall process
  • Higher quality components for inputs

Reasons for Making


  • Outside supplier is cheaper and/or higher quality
  • Investment savings on space, personnel, equipment
  • Less diversified managerial experience and skills required
  • Greater flexibility in matching supply and demand
  • increased focus on production of core product/services
  • No risk of equipment obsolescence

Reasons for Buying


Purchasing products or services that are outside the firm's area of competitive advantage.



Small business combine demand for products or services to negotiate as a group with suppliers.

Cooperative Purchasing Organization (COOP)


Reasons for having a sole supplier:

  • outstanding supplier quality
  • Quantity discounts for volume purchases
  • single orders too small to divide among suppliers
  • quality of supplier-customer relationship

Reasons for having multiple suppliers:

  • Choice of best quality, price, and service
  • Supplier competes for business
  • Insurance against input interruptions

Diversifying Sources of Supply


An organizational relationship that links two or more business entities in a common endeavor. It involves close coordination of buyers and sellers to:

  • Reduce product introduction lead time
  • Improve product quality
  • Engage in joint problem solving
  • Make joint adjustments to market conditions
  • Involve the supplier early in product development

Forming Strategic Alliances With Suppliers


Considers a variety of variables to determine expected sales.

Forecasting Supply Needs- Associative Forecasting


Increases operational effeciencies by reducing inventory management, ordering, payment collection, and personal costs.

Using Information Systems


Emphasizes efficiency through the elimination of all forms of waste in a firm's operations- using the minimum amount of resources to satisfy the greatest customer wants and needs.

Lean Production


  • Defects are costly because they have to be repaired or scrapped
  • Overproduction must be stored and may never be sold.
  • Transportation can be minimized by locating close to suppliers and customers.
  • Waiting can be wasteful because resources are idle.
  • Inventory in excess of the minimum required is unproductive and costly.
  • Motion, whether by product, people, or machinery, can be wasteful.
  • Processing itself is wasteful if it is not productive.

Lean Production Characteristics


An approach that recognizes the interdependence of assets and activities and manages them to optimize the entire firm's performance.

Synchronous Management


Any point in the operations process where limited capacity reduces the production capability of an entire chain of activities.



The most restrictive of bottlenecks, determining the capacity of the entire system.



  • Add capacity
  • Increase efficiency
  • Filter production

Common Methods for Addressing Bottlenecks and Constraints


  • Expand resources
  • Subdivide the work
  • Outsource production to a company with more capacity.

Add Capacity


  • Arrange schedules so that the resource takes no breaks (for example, have employees take breaks during setup, teardown, or maintenance activities)
  • Schedule maintainance on nights, weekends, and holidays rather than during productive time.
  • Increase productivity through training, upgraded tools, or automation.

Increase Efficiency


  • Inspect quality prior to a constraint.
  • Allow only work that achieves goals and contributes to performance (that is, a finished goods inventory would be unnecessary).

Filter Production