{"id":88,"date":"2020-11-02T13:35:43","date_gmt":"2020-11-02T18:35:43","guid":{"rendered":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/chapter\/opsmanagement\/"},"modified":"2024-12-04T15:18:10","modified_gmt":"2024-12-04T20:18:10","slug":"opsmanagement","status":"publish","type":"chapter","link":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/chapter\/opsmanagement\/","title":{"raw":"Chapter 13 - Operations Management","rendered":"Chapter 13 &#8211; Operations Management"},"content":{"raw":"<div class=\"textbox textbox--learning-objectives\"><header class=\"textbox__header\">\r\n<h1 class=\"textbox__title\">Learning Objectives<\/h1>\r\n<\/header>\r\n<div class=\"textbox__content\">\r\n\r\nBy the end of this chapter, you should be able to:\r\n<ol>\r\n \t<li>define operations management and discuss the role of the operations manager in a manufacturing company;<\/li>\r\n \t<li>describe the decisions and activities of the operations manager in overseeing the production process in a manufacturing company;<\/li>\r\n \t<li>explain the importance of both PERT and Gantt charts;<\/li>\r\n \t<li>explain how manufacturing companies use technology to produce and deliver goods in an efficient, cost-effective manner;<\/li>\r\n \t<li>describe the decisions made in planning the product delivery process in a service company;<\/li>\r\n \t<li>identify the characteristics that distinguish service operations from manufacturing operations and identify the activities undertaken to manage operations in a service organization;<\/li>\r\n \t<li>explain how total quality management provides value to customers;<\/li>\r\n \t<li>explain how outsourcing provides value to customers; and<\/li>\r\n \t<li>explain [pb_glossary id=\"456\"]key terms[\/pb_glossary] in the chapter.<\/li>\r\n<\/ol>\r\n<\/div>\r\n<\/div>\r\n<img class=\"alignleft wp-image-28 size-thumbnail\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/1E-ShowWhatYouKnow-1-150x150.png\" alt=\"\" width=\"150\" height=\"150\" \/>\r\n<h2>Show What You Know<\/h2>\r\n<p style=\"text-align: center\">[h5p id=\"42\"]<\/p>\r\n\r\n<div class=\"page-break-before\"><\/div>\r\n<h1>The Challenge: Producing Quality Jetboards<\/h1>\r\n[caption id=\"attachment_94\" align=\"aligncenter\" width=\"752\"]<img class=\"wp-image-94 size-full\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image6-1.png\" alt=\"Rider on a yellow board appearing to be skimming the water i.e. parallel to the water.\" width=\"752\" height=\"488\" \/> Figure 13.1 The Powerski jetboard in action! Source: PowerSki.com[\/caption]\r\n<p class=\"c6\">The product development process can be complex and lengthy. It took sixteen years for Bob Montgomery and others at his company to develop the PowerSki Jetboard, and this involved thousands of design changes. It was worth it, though: the Jetboard was an exciting, engine-propelled personal watercraft \u2014 a cross between a high-performance surfboard and a competition water-ski\/wakeboard that received extensive media attention and rave reviews. It was showered with honours, including Time magazine\u2019s \u201cBest Invention of the Year\u201d award.[footnote]Time. (2001, November 19). <em>Best Inventions of 2001<\/em>. https:\/\/content.time.com\/time\/specials\/packages\/article\/0,28804,1936165_1936240_1936351,00.html[\/footnote] Stories about the Jetboard appeared in more than fifty magazines around the world, and it was featured in several movies, over twenty-five TV shows, and on YouTube.[footnote]Hydroforce Group LLC (2012). <em>Powerski Jetboards<\/em>. http:\/\/www.powerski.com\/content\/psi_index[\/footnote]<\/p>\r\n<p class=\"c6\"><span class=\"c1\">Montgomery and his team at PowerSki enjoyed taking their well-deserved bows for the job they did designing the product, but having a product was only the beginning for the company. The next step was developing a system that would produce high-quality Jetboards at reasonable prices. Before putting this system in place, PowerSki managers had to address several questions. <\/span><\/p>\r\n\r\n<ul class=\"c35 lst-kix_list_5-0 start\">\r\n \t<li class=\"c10\"><span class=\"c1\">What kind of production process should they use to make the Jetboards? <\/span><\/li>\r\n \t<li class=\"c10\"><span class=\"c1\">How large should their production facilities be, and where should they be located? <\/span><\/li>\r\n \t<li class=\"c10\"><span class=\"c1\">Where should they buy needed materials? <\/span><\/li>\r\n \t<li class=\"c38 c44\"><span class=\"c1\">What systems would be needed to control the production process and ensure a quality product?<\/span><\/li>\r\n<\/ul>\r\n<p class=\"c6\"><span class=\"c1\">Answering these and other questions helped PowerSki set up a manufacturing system through which it could accomplish the most important task that it had set for itself: efficiently producing quality Jetboards.<\/span><\/p>\r\n\r\n<h1 class=\"c68\"><span class=\"c33 c19\">Operations Management in Manufacturing <\/span><\/h1>\r\n<p class=\"c6\">Like PowerSki, every organization \u2014 whether it produces goods or provides services \u2014 sees job #1 as furnishing customers with quality products. Thus, to compete with other organizations, a company must convert <span class=\"c19\">resources<\/span>\u00a0(materials, labour, money, information) into <span class=\"c19\">goods or services<\/span>\u00a0as efficiently as possible. The upper-level manager who directs this transformation process is called an <span class=\"c19\">operations manager<\/span>. The job of <span class=\"c19\">operations management <\/span>(OM) consists of all the activities involved in transforming a product idea into a finished product. Hence, because of the complexity of organizing all the activities in an organization it is more important than ever for Operations Management to ensure <span class=\"c19\">due diligence <\/span>is utilized to structure operations. Due diligence is the set of important actions taken by directors or managers of an organization to ensure that all potential risks and errors are mitigated entirely.<span class=\"c1\"> In addition, operations managers are involved in planning and controlling the systems that produce goods and services. In other words, operations managers manage the process that transforms inputs into outputs. The figure below illustrates these traditional functions of operations management.<\/span><\/p>\r\n\r\n\r\n[caption id=\"attachment_82\" align=\"aligncenter\" width=\"800\"]<img class=\"wp-image-82\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image2-1-1024x944.jpg\" alt=\"Operations managers overseeing inputs (customers, materials, information, capital, HR, natural resources) going through transformation processes and becoming outputs (products and services)\" width=\"800\" height=\"738\" \/> Chart 13.1 Transformation Process[\/caption]\r\n<p class=\"c6\">Like PowerSki, all <span class=\"c19\">manufacturers<\/span> set out to perform the same basic function: to transform resources into finished goods. To perform this function in today\u2019s business environment, manufacturers must continually strive to improve operational efficiency. They must fine-tune their production processes to focus on quality, hold down the costs of<span class=\"c1\">\u00a0<\/span>materials and labour, and eliminate all costs that add no value to the finished product.<\/p>\r\n<p class=\"c6\">The Supply Chain identifies the process of transforming a product idea into a finished product, and the ways in which the process will convert raw materials into goods or services as efficiently as possible. The Value Chain identifies how value is added throughout the creation of the final good or service produced and how the costs of operational activities represent a proportion of the final sale price of the good or service.<span class=\"c1\">\u00a0<\/span><\/p>\r\n\r\n\r\n[caption id=\"attachment_96\" align=\"aligncenter\" width=\"829\"]<img class=\"wp-image-96 size-full\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image4-1.png\" alt=\"Shows how the extraction of raw materials go through a manufacturing process and then out for distribution before being finally ready for retail. \" width=\"829\" height=\"634\" \/> Chart 13.2 Lifecycle of a cotton shirt.[\/caption]\r\n<p class=\"c38\">Another job of operations managers is making the decisions involved in the effort to attain this level of operational organization and achieve its goals. <span class=\"c1\">Their responsibilities can be grouped as follows:<\/span><\/p>\r\n\r\n<ul class=\"c35 lst-kix_list_6-0 start\">\r\n \t<li class=\"c10 c37\"><span class=\"c39 c41 c19\">Production planning<\/span><span class=\"c1\">. During production planning, managers determine how goods will be produced, where production will take place, and how manufacturing facilities will be laid out.<\/span><\/li>\r\n \t<li class=\"c10\"><span class=\"c39 c19 c41\">Production control<\/span><span class=\"c1\">. Once the production process is under way, managers must continually schedule and monitor the activities that make up that process. They must <\/span><span class=\"c1\">solicit and respond to feedback and make adjustments where needed. At this stage, they also oversee the purchasing of raw materials and the handling of inventories.<\/span><\/li>\r\n \t<li class=\"c10\"><span class=\"c39 c41 c19\">Quality control<\/span><span class=\"c1\">. The operations manager is directly involved in efforts to ensure that goods are produced according to specifications and that quality standards are maintained.<\/span><\/li>\r\n<\/ul>\r\n<p class=\"c6\"><span class=\"c1\">Let\u2019s take a closer look at each of these responsibilities.<\/span><\/p>\r\n\r\n<h2 class=\"c2\">Planning the Production Process<\/h2>\r\n<p class=\"c6\"><span class=\"c1\">The decisions made in the planning stage have long-range implications and are crucial to a firm\u2019s success. Before making decisions about the operations process, managers must consider the goals set by marketing managers. Does the company intend to be a low-cost producer and to compete on the basis of price? Or does it plan to focus on quality and go after the high end of the market? Many decisions involve trade-offs. For example, low cost doesn\u2019t normally go hand in hand with high quality. All functions of the company must be aligned with the overall strategy to ensure success.<\/span><\/p>\r\n<p class=\"c6\">With these thoughts in mind, let\u2019s look at the specific types of decisions that have to be made in the production planning process. We\u2019ve divided these decisions into those dealing with production methods, site selection, facility layout, and components and materials management.<\/p>\r\n\r\n<h2 class=\"c2\">Production-Method Decisions<\/h2>\r\n<p class=\"c6\">The first step in production planning is deciding which type of <span class=\"c19\">production<\/span>\u00a0<span class=\"c19\">process<\/span>\u00a0is best for making the goods that your company intends to manufacture. For example, this is depicted in figure above, illustrating the associated production process for a cotton shirt<span class=\"c1\">. In reaching this decision, you should answer such questions as:<\/span><\/p>\r\n\r\n<ul class=\"c35 lst-kix_list_7-0 start\">\r\n \t<li class=\"c47 c37 c71\"><span class=\"c1\">Am I making a one-of-a-kind good based solely on customer specifications, or am I producing high-volume standardized goods to be sold later?<\/span><\/li>\r\n \t<li class=\"c38 c71 c77\"><span class=\"c1\">Do I offer customers the option of \u201ccustomizing\u201d an otherwise standardized good to meet their specific needs?<\/span><\/li>\r\n<\/ul>\r\n<p class=\"c6 c37\"><span class=\"c1\">One way to appreciate the nature of this decision is by comparing three basic types of processes or methods: make-to-order, mass production, and mass customization. The task of the operations manager is to work with other managers, particularly marketers, to select the process that best serves the needs of the company\u2019s customers.<\/span><\/p>\r\n\r\n<h3 class=\"c2\"><span class=\"c45 c3 c36\">Make-to-Order<\/span><\/h3>\r\n<p class=\"c6\">At one time, most consumer goods, such as furniture and clothing, were made by individuals practising various crafts. By their very nature, products were customized to meet the needs of the buyers who ordered them. This process, which is called a <span class=\"c19\">make-to-order <\/span><span class=\"c1\">strategy, is still commonly used by such businesses as print or sign shops that produce low-volume, high-variety goods according to customer specifications. This level of customization often results in a longer production and delivery cycle than other approaches.<\/span><\/p>\r\n\r\n<h3 class=\"c2\"><span class=\"c45 c3 c36\">Mass Production<\/span><\/h3>\r\n<p class=\"c6\">By the early twentieth century, a new concept of producing goods had been introduced: <span class=\"c19\">mass production<\/span>\u00a0(or make-to-stock strategy), the practice of producing high volumes of identical goods at a cost low enough to price them for large numbers of customers. Goods are made in anticipation of future demand (based on forecasts) and kept in inventory for later sale. This approach is particularly appropriate for standardized goods ranging from processed foods to electronic appliances. It generally results in shorter cycle times than a make-to-order process. This type of production also takes advantage of <span class=\"c19\">economies of scale,\u00a0<\/span><span class=\"c1\">which refers to the reduced costs per unit that is realized from increased total number of units produced.<\/span><\/p>\r\n\r\n<h3 class=\"c2\"><span class=\"c45 c3 c36\">Mass Customization<\/span><\/h3>\r\n<p class=\"c6\">There is at least one big disadvantage to mass production: customers, as one old advertising slogan put it, can\u2019t \u201chave it their way.\u201d They have to accept standardized products as they come off assembly lines. Increasingly, however, customers are looking for products that are designed to accommodate individual tastes or needs but can still be bought at reasonable prices. To meet the demands of these consumers, many companies have turned to an approach called <span class=\"c19\">mass customization<\/span><span class=\"c1\">, which combines the advantages of customized products with those of mass production.<\/span><\/p>\r\n<p class=\"c6 c37\"><span class=\"c1\">This approach requires that a company interact with the customer to find out exactly what the customer wants and then manufacture the good, using efficient production methods to hold down costs. One efficient method is to mass-produce a product up to a certain cut-off point and then to customize it to satisfy different customers.<\/span><\/p>\r\n\r\n\r\n[caption id=\"attachment_97\" align=\"alignright\" width=\"280\"]<img class=\"wp-image-97 size-full\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/Personalized-MMs.jpg\" alt=\"Canister of yellow, blue, and white M&amp;Ms with a graduation theme\" width=\"280\" height=\"280\" \/> Figure 13.2 Personalized M&amp;Ms: Keep in mind for a year or two in the future![\/caption]\r\n<p class=\"c6\"><span class=\"c1\">One of the best-known mass customizers is Nike, which has achieved success by allowing customers to configure their own athletic shoes, apparel, and equipment through NikeiD program. The Web has a lot to do with the growth of mass customization. Levi\u2019s, for instance, lets customers find a pair of perfect fitting jeans by going through an online fitting process. Oakley offers customized sunglasses, goggles, watches, and backpacks, while Mars, Inc. can make M&amp;M\u2019s in any color the customer wants (say, school colours) as well as add text and even pictures to the candy.<\/span><\/p>\r\n<p class=\"c6\">Naturally, mass customization doesn\u2019t work for all types of goods. Most people don\u2019t care about customized detergents or paper products. And while many of us like the idea of customized clothes, footwear, or sunglasses, we often aren\u2019t willing to pay the higher prices they command.<\/p>\r\n\r\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Facilities Decisions<\/span><\/h2>\r\n<p class=\"c6\"><span class=\"c1\">After selecting the best production process, operations managers must then decide where the goods will be manufactured, how large the manufacturing facilities will be, and how those facilities will be laid out.<\/span><\/p>\r\n\r\n<h3 class=\"c57\"><span class=\"c11 c3\">Site Selection<\/span><\/h3>\r\n<p class=\"c6 c37\">In <span class=\"c19\">site selection<\/span><span class=\"c1\">\u00a0(choosing a location for the business), managers must consider several factors:<\/span><\/p>\r\n\r\n<ul class=\"c35 lst-kix_list_8-0 start\">\r\n \t<li class=\"c10 c37\"><span class=\"c1\">To minimize shipping costs, managers often want to locate plants close to suppliers, customers, or both.<\/span><\/li>\r\n \t<li class=\"c10\"><span class=\"c1\">They generally want to locate in areas with ample numbers of skilled workers.<\/span><\/li>\r\n \t<li class=\"c10\"><span class=\"c1\">They naturally prefer locations where they and their families will enjoy living.<\/span><\/li>\r\n \t<li class=\"c10\"><span class=\"c1\">They want locations where costs for resources and other expenses \u2014 land, labour, construction, utilities, and taxes \u2014 are low.<\/span><\/li>\r\n \t<li class=\"c38 c37 c44\"><span class=\"c1\">They look for locations with a favourable business climate \u2014 one in which, for example, local governments might offer financial incentives (such as tax breaks) to entice them to do business in their locales. For example, an enterprise zone is an area in which incentives are used to attract investments from private companies.<\/span><\/li>\r\n<\/ul>\r\n<p class=\"c6\">Managers rarely find locations that meet all these criteria. As a rule, they identify the more important criteria and aim at satisfying them. In deciding to locate in San Clemente, California, for instance, PowerSki was able to satisfy three important criteria: (1) proximity to the firm\u2019s suppliers, (2) availability of skilled engineers and technicians, and (3) favourable living conditions. These factors were more important than operating in a low-cost region or getting financial incentives from local government. Because PowerSki distributes its products throughout the world, proximity to customers was also unimportant.<\/p>\r\n\r\n<h3 class=\"c57\"><span class=\"c11 c3\">Capacity Planning<\/span><\/h3>\r\n<p class=\"c6\">Now that you know where you\u2019re going to locate, you have to decide on the quantity of products that you\u2019ll produce. You begin by <span class=\"c19\">forecasting<\/span><span class=\"c1\">\u00a0demand for your product, which isn\u2019t easy. To estimate the number of units that you\u2019re likely to sell over a given period, you have to understand the industry that you\u2019re in and estimate your likely share of the market by reviewing industry data and conducting other forms of research.<\/span><\/p>\r\n<p class=\"c6\">Once you\u2019ve forecasted the demand for your product, you can calculate the <span class=\"c19\">capacity requirements<\/span> of your production facility \u2014 the maximum number of goods that it can produce over a given time under normal working conditions. In turn, having calculated your capacity requirements, you\u2019re ready to determine how much investment in plant and equipment you\u2019ll have to make, as well as the number of labour hours required for the plant to produce at capaci<span class=\"c1\">ty and meet demand.<\/span><\/p>\r\n<p class=\"c6\">Like forecasting, capacity planning is difficult.\u00a0Unfortunately, failing to balance capacity and projected demand can be seriously detrimental to your bottom line. If you set capacity too low (and so produce less than you should), you won\u2019t be able to meet demand, and you\u2019ll lose sales and customers. If you set capacity too high (and turn out more units than you should), you\u2019ll waste resources and inflate operating costs.\u00a0Therefore <span class=\"c19\">continuous review, <\/span>the process of routinely reviewing the organization's processes to determine where improvements can be made to increase organizational efficiency, is very important in the capacity planning process to avoid producing too much or too little.<\/p>\r\n\r\n<h1 class=\"c68\"><span class=\"c33 c19\">Managing the Production Process in a Manufacturing Company <\/span><\/h1>\r\n<p class=\"c6\"><span class=\"c1\">Operations managers engage in the daily activities of materials management, which encompasses the activities of purchasing, inventory control, and work scheduling.<\/span><\/p>\r\n\r\n<h2 class=\"c2\">Purchasing and Supplier Selection<\/h2>\r\n<p class=\"c6\">The process of acquiring the materials and services to be used in production is called <span class=\"c19\">purchasing<\/span><span class=\"c1\">\u00a0(or procurement). For many products, the costs of materials make up about 50 percent of total manufacturing costs. Not surprisingly, materials acquisition gets a good deal of the operations manager\u2019s time and attention. As a rule, there\u2019s no shortage of vendors willing to supply materials, but the trick is finding the best suppliers. Operations managers must consider questions such as:<\/span><\/p>\r\n\r\n<ul class=\"c35 lst-kix_list_9-0 start\">\r\n \t<li class=\"c10\"><span class=\"c1\">Can the vendor supply the needed quantity of materials at a reasonable price?<\/span><\/li>\r\n \t<li class=\"c10\"><span class=\"c1\">Is the quality good?<\/span><\/li>\r\n \t<li class=\"c10\"><span class=\"c1\">Is the vendor reliable (will materials be delivered on time)?<\/span><\/li>\r\n \t<li class=\"c10\"><span class=\"c1\">Does the vendor have a favourable reputation?<\/span><\/li>\r\n \t<li class=\"c38 c44\"><span class=\"c1\">Is the company easy to work with?<\/span><\/li>\r\n<\/ul>\r\n<p class=\"c6 c37\">Getting the answers to these questions and making the right choices \u2014 a process known as <span class=\"c19\">supplier selection <\/span><span class=\"c1\">\u2014 is a key responsibility of operations management.<\/span><\/p>\r\n\r\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Procurement<\/span><\/h2>\r\n<p class=\"c6 c37\">Technology has changed the way businesses buy things. Through modern <span class=\"c19\">procurement<\/span><span class=\"c1\">, companies use the Internet to interact with suppliers. The process is similar to the one you\u2019d use to find a consumer good \u2014 say, a high-definition TV \u2014 over the Internet. To choose a TV, you might browse the websites of manufacturers like Sony, then shop prices and buy at Amazon, the world\u2019s largest online retailer. <\/span><\/p>\r\n<p class=\"c6 c37\"><span class=\"c1\">If you were a purchasing manager using the Internet to buy parts and supplies, you\u2019d follow basically the same process. You\u2019d identify potential suppliers by going directly to private<\/span><span class=\"c1\">\u00a0websites maintained by individual suppliers or to public sites that aggregate information on numerous suppliers. You could do your shopping through online catalogs, or you might participate in an online marketplace by indicating the type and quantity of materials you need and letting suppliers bid. Finally, just as you paid for your TV electronically, you could use a system called electronic data interchange (EDI) to process your transactions and transmit all your purchasing documents.<\/span><\/p>\r\n<p class=\"c6\"><span class=\"c1\">The Internet provides an additional benefit to purchasing managers by helping them communicate with suppliers and potential suppliers. They can use the Internet to give suppliers specifications for parts and supplies, encourage them to bid on future materials needs, alert them to changes in requirements, and give them instructions on doing business with their employers. Using the Internet for business purchasing cuts the costs of purchased products and saves administrative costs related to transactions. It\u2019s also faster for procurement and fosters better communications.<\/span><\/p>\r\n\r\n<h2 class=\"c2\">Inventory Control<\/h2>\r\n<p class=\"c6\"><span class=\"c1\">If a manufacturer runs out of the materials it needs for production, then production stops. In the past, many companies guarded against this possibility by keeping large inventories of materials on hand. It seemed like the thing to do at the time, but it often introduced a new problem \u2014 wasting money. Companies were paying for parts and other materials that they wouldn\u2019t use for weeks or even months, and in the meantime, they were running up substantial storage and insurance costs. If the company redesigned its products, some parts might become obsolete before ever being used.<\/span><\/p>\r\n<p class=\"c6\">Most manufacturers have since learned that to remain competitive, they need to manage inventories more efficiently. This task requires that they strike a balance between two threats to productivity: losing production time because they\u2019ve run out of materials and wasting money because they\u2019re carrying too much inventory. The process of striking this balance is called <span class=\"c19\">inventory control<\/span><span class=\"c1\">, and companies now regularly rely on a variety of inventory-control methods.<\/span><\/p>\r\n\r\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Just-in-Time Production<\/span><\/h2>\r\n<p class=\"c6\">One method is called <span class=\"c19\">just-in-time<\/span><span class=\"c1\">\u00a0(JIT) production: the manufacturer arranges for materials to arrive at production facilities just in time to enter the manufacturing process. Parts and materials don\u2019t sit unused for long periods, and the costs of \u201cholding\u201d inventory are significantly cut. JIT, however, requires considerable communication and cooperation between the manufacturer and the supplier. The manufacturer has to know what it needs and when. The supplier has to commit to supplying the right materials, of the right quality, at exactly the right time.<\/span><\/p>\r\n\r\n<div class=\"textbox\">Education, although not a business, still adopts business innovations to boost efficiency. Many institutions are moving to JIT printing or printing on demand. Rather than estimating the need and then ordering textbooks, only to return the vast majority, more and more educational bookstores are printing your textbook when you order it. New technologies allow the bookstores to produce a high-quality, bound textbook on site. The open library from BCcampus in British Columbia is harnessing this efficiency. You can order a low cost, high-quality print version of our textbooks thanks to our partnership with the Simon Fraser University and its commitment to student savings.<\/div>\r\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Material Requirements Planning<\/span><\/h2>\r\n<p class=\"c6\">A software tool called <span class=\"c19\">material requirements planning<\/span><span class=\"c1\">\u00a0(MRP), relies on sales forecasts and ordering lead times for materials to calculate the quantity of each component part needed for production and then determine when they should be ordered or made. The detailed sales forecast is turned into a master production schedule (MPS), which MRP then expands into a forecast for the needed parts based on the bill of materials for each item in the forecast. A bill of materials is simply a list of the various parts that make up the end product. The role of MRP is to determine the anticipated need for each part based on the sales forecast and to place orders so that everything arrives just in time for production.<\/span><\/p>\r\n\r\n<h1 class=\"c68\">G<span class=\"c33 c19\">raphical Tools: Gantt and PERT Charts<\/span><\/h1>\r\n<p class=\"c6\"><span class=\"c1\">To control the timing of all operations, managers set up schedules: they select jobs to be performed during the production process, assign tasks to work groups, set timetables for the completion of tasks, and make sure that resources will be available when and where they\u2019re needed. There are a number of scheduling techniques. We\u2019ll focus on two of the most common\u2014Gantt and PERT charts.<\/span><\/p>\r\n\r\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Gantt Charts<\/span><\/h2>\r\n<p class=\"c64 c37 c52\">A <span class=\"c19\">Gantt chart<\/span><span class=\"c1\">, named after the designer, Henry Gantt, is an easy-to-use graphical tool that helps operations managers determine the status of projects. Let\u2019s say that you\u2019re in charge of making the \u201chiking bear\u201d offered by the Toronto Teddy Bear Company. Below is a Gantt chart for the production of one hundred of these bears. As you can see, it shows that several activities must be completed before the bears are dressed: the fur has to be cut, stuffed, and sewn; and the clothes and accessories must be made. Our Gantt chart tells us that by day six, all accessories and clothing have been made. The sewing and stuffing, however (which must be finished before the bears are dressed), isn\u2019t scheduled for completion until the end of day eight. As operations manager, you\u2019ll have to pay close attention to the progress of the sewing and stuffing operations to ensure that finished products are ready for shipment by their scheduled date.<\/span><\/p>\r\n\r\n\r\n[caption id=\"attachment_98\" align=\"aligncenter\" width=\"668\"]<img class=\"wp-image-98 size-full\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/teddy-bear-prod.png\" alt=\"\" width=\"668\" height=\"359\" \/> Chart 13.3 Gantt chart for producing Toronto teddy bears.[\/caption]\r\n<h2 class=\"c2 c55\"><span class=\"c45 c3 c36\">PERT Charts<\/span><\/h2>\r\n<p class=\"c6 c37\">Gantt charts are useful when the production process is fairly simple and the activities aren\u2019t interrelated. For more complex schedules, operations managers may use <span class=\"c19\">PERT charts<\/span>. PERT (which stands for Program Evaluation and Review Technique) is designed to diagram the activities required to produce a good, specify the time required to perform each activity in the process, and organize activities in the most efficient sequence. It also identifies a <span class=\"c19\">critical path<\/span><span class=\"c1\">: the sequence of activities that will entail the greatest amount of time. Below is a PERT diagram showing the process for producing one \u201chiker\u201d bear at Toronto Teddy Bear.<\/span><\/p>\r\n<p class=\"c6\"><span class=\"c1\">Our PERT chart shows how the activities involved in making a single bear are related. It indicates that the production process begins at the cutting station. Next, the fur that\u2019s been cut for this particular bear moves first to the sewing and stuffing stations and then to the dressing station. At the same time that its fur is moving through this sequence of steps, the bear\u2019s clothes are being cut and sewn and its T-shirt is being embroidered. Its backpack and tent accessories are also being made at the same time. Note that fur, clothes, and accessories all meet at the dressing station, where the bear is dressed and outfitted with its backpack. Finally, the finished bear is packaged and shipped to the customer\u2019s house.<\/span><\/p>\r\n<p class=\"c6 c37\">What was the critical path in this process? The path that took the longest amount of time was the sequence that included cutting, stuffing, dressing, packaging, and shipping\u2014a sequence of steps taking sixty-five minutes. If you wanted to produce a bear more quickly, you\u2019d have to save time on this path. Even if you saved the time on any of the other paths, you still wouldn\u2019t finish the entire job any sooner: the finished clothes would just have to wait for the fur to be sewn and stuffed and moved to the dressing station. We can gain efficiency only by improving our performance on one or more of the activities along the critical path.<\/p>\r\n\r\n\r\n[caption id=\"attachment_99\" align=\"aligncenter\" width=\"711\"]<img class=\"wp-image-99 size-full\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/Pert-Chart.png\" alt=\"\" width=\"711\" height=\"399\" \/> Chart 13.4 PERT chart for Toronto teddy bears[\/caption]\r\n<h1 class=\"c68\">The Technology of Goods Production<\/h1>\r\n<p class=\"c6\"><span class=\"c1\">PowerSki founder and CEO Bob Montgomery spent sixteen years designing the Jetboard and bringing it to production. At one point, in his efforts to get the design just right, he\u2019d constructed thirty different prototypes. Montgomery thought that he could handle the designing of the engine without the aid of a computer. Before long, however, he realized that it was impossible to keep track of all the changes.<\/span><\/p>\r\n\r\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Computer-Aided Design<\/span><\/h2>\r\n<p class=\"c6\">That\u2019s when Montgomery turned to computer technology for help and began using a <span class=\"c19\">computer-aided design<\/span><span class=\"c1\">\u00a0(CAD) software package to design not only the engine but also the board itself and many of its components. The CAD program enabled Montgomery and his team of engineers to test the product digitally and work out design problems before moving to the prototype stage.<\/span><\/p>\r\n<p class=\"c6 c37\"><span class=\"c1\">The sophisticated CAD software allowed Montgomery and his team to put their design paper in a drawer and to start building both the board and the engine on a computer screen. By rotating the image on the screen, they could even view the design from every angle. Having used their CAD program to make more than four hundred design changes, they were ready to test the Jetboard in the water. During the tests, onboard sensors transmitted data to computers, allowing the team to make adjustments from the shore while the prototype was still in the water. Nowadays, PowerSki uses collaboration software to transmit design changes to the suppliers of the 340 components that make up the Jetboard. In fact, a majority of design work these days is done with the aid of computers, which add speed and precision to the process.<\/span><\/p>\r\n\r\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Computer-Aided Manufacturing<\/span><\/h2>\r\n<p class=\"c6\">For many companies, the next step is to link CAD to the manufacturing process. A <span class=\"c19\">computer-aided manufacturing<\/span><span class=\"c1\">\u00a0(CAM) software system determines the steps needed to produce the component and instructs the machines that do the work. Because CAD and CAM programs can \u201ctalk\u201d with each other, companies can build components that satisfy exactly the requirements set by the computer-generated model. CAD\/CAM systems permit companies to design and manufacture goods faster, more efficiently, and at a lower cost, and they\u2019re also effective in helping firms monitor and improve quality. CAD\/CAM technology is used in many industries, including the auto industry, electronics, and clothing. If you have ever seen how a 3-D printer works, you have a pretty good idea of how CAM works too.<\/span><\/p>\r\n\r\n<h2 class=\"c2\"><span class=\"c3 c36 c45\">Computer-Integrated Manufacturing<\/span><\/h2>\r\n<p class=\"c6 c37\">By automating and integrating all aspects of a company\u2019s operations, <span class=\"c19\">computer-integrated manufacturing<\/span> (CIM) systems have taken the integration of computer-aided design and manufacturing to a higher level \u2014 and are in fact revolutionizing the production process. CIM systems expand the capabilities of CAD\/CAM. In addition to design and production applications, they handle such functions as order entry, inventory control, warehousing, and shipping. In the manufacturing plant, the CIM system controls the functions of industrial robot \u2014 computer-controlled machines used to perform repetitive tasks that are also hard or dangerous for human workers to perform.<\/p>\r\n\r\n<h1 class=\"c65\"><span class=\"c33 c19\">Operations Management for Service Providers<\/span><\/h1>\r\n<p class=\"c6\">As the Canadian economy has changed from a goods producer to a service provider over the last sixty years, the dominance of the manufacturing sector has declined substantially. Today, only about 10 percent of Canadian workers are employed in manufacturing, in contrast to 30 percent in 1950.[footnote]Janzen, N. (2017). <em>The Decline in Manufacturing\u2019s Share of Total Canadian Output \u2013 A Source of Concern?<\/em> RBC Economics. http:\/\/www.rbc.com\/economics\/economic-reports\/pdf\/other-reports\/Manufacturing%20Trends-Feb2017.pdf[\/footnote]\u00a0Most of us now hold jobs in the <span class=\"c19\">service sector<\/span>, which accounts for approximately 80 percent of Canadian jobs.[footnote]Statistics Canada. <em>Table 14-10-0023-01 Labour force characteristics by industry, annual (x 1,000)<\/em>. https:\/\/doi.org\/10.25318\/1410002301-eng[\/footnote] In 2013, Walmart was America\u2019s largest employer, followed by McDonald\u2019s, United Parcel Service (UPS), Target and Kroger. Not until we drop down to the ninth-largest employer \u2014 Hewlett Packard \u2014 do we find a company with a manufacturing component.[footnote]Hess, A. E. M. (2013, August 22). <em>The 10 largest employers in America<\/em>. USA Today. https:\/\/eu.usatoday.com\/story\/money\/business\/2013\/08\/22\/ten-largest-employers\/2680249\/[\/footnote]<\/p>\r\n<p class=\"c6\"><span class=\"c1\">Though the primary function of both manufacturers and service providers is to satisfy customer needs, there are several important differences between the two types of operations. Let\u2019s focus on three of them:<\/span><\/p>\r\n\r\n<ul class=\"c35 lst-kix_list_10-0 start\">\r\n \t<li class=\"c10\"><span class=\"c39 c41 c19\">Intangibility<\/span><span class=\"c1\">. Manufacturers produce tangible products \u2014 things that can be touched or handled, such as automobiles and appliances. Service companies provide intangible products, such as banking, entertainment, or education.<\/span><\/li>\r\n \t<li class=\"c10\"><span class=\"c39 c41 c19\">Customization<\/span><span class=\"c1\">. Most manufactured goods are standardized. Services, by contrast, are often customized to satisfy the specific needs of a customer. For example, when you go to the hairdresser, you ask for a haircut that looks good on you because of the shape of your face and the texture of your hair. <\/span><\/li>\r\n \t<li class=\"c38 c44\"><span class=\"c39 c41 c19\">Customer contact<\/span><span class=\"c1\">. You could spend your entire working life assembling cars in Oshawa in Ontario and never meet a customer who bought a car that you helped to make. But if you were a restaurant server, you\u2019d interact with customers every day. In fact, their satisfaction with your product would be determined in part by the service that you provided. Unlike manufactured goods, many services are bought and consumed at the same time.<\/span><\/li>\r\n<\/ul>\r\n[caption id=\"attachment_100\" align=\"alignright\" width=\"300\"]<a href=\"https:\/\/commons.wikimedia.org\/wiki\/File:Burger_King_in_London.jpg\"><img class=\"wp-image-100 size-medium\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/Burger-King-in-London-England-scaled.jpg\" alt=\"Exterior, at night, of a busy Burger King restaurant. The signage is neon with the BK logo and name prominently displayed.\" width=\"300\" height=\"224\" \/><\/a> Figure 13.3 Exterior of Burger King restaurant. Source Wikimedia[\/caption]\r\n<p class=\"c6\">Here is just one of the over twelve thousand Burger King restaurants across the globe. Not surprisingly, operational efficiency is just as important in service industries as it is in manufacturing. To get a better idea of the role of operations management in the service sector, we\u2019ll look closely at Burger King (BK).\u00a0BK<span class=\"c1\">\u00a0has grown substantially since selling the first Whopper (for $0.37) almost half a century ago. The instant success of the fire-grilled burger encouraged the Miami founders of the company to expand by selling franchises.<\/span><\/p>\r\n<p class=\"c6\">Today, there are BK company-owned and independently-owned franchised restaurants in 100 countries, and they employ over 34,000 people.[footnote]Restaurant Brands International Limited Partnership (2016). <em>2015 SEC Form 10-K Annual Report<\/em>. https:\/\/s26.q4cdn.com\/317237604\/files\/doc_financials\/2016\/ar\/Restaurant-Brands-International-Limited-Partnership-2015-SEC-Form-10-K-An.pdf[\/footnote] More than eleven million customers visit BK each day.[footnote]Burger King. (n.d.). <em>About Us<\/em>. https:\/\/www.bk.com\/about-bk[\/footnote] Burger King even purchased Tim Hortons in December of 2014. The acquisition was made for $12 billion, making Burger King the third largest fast food service restaurant chain in the world. The company even moved its headquarters to Canada to assume a new tax nationality in order to reduce the corporate taxes the organization pays in the U.S.<\/p>\r\n\r\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Operations Planning<\/span><\/h2>\r\n<p class=\"c6\"><span class=\"c1\">When starting or expanding operations, businesses in the service sector must make a number of decisions quite similar to those made by manufacturers:<\/span><\/p>\r\n\r\n<ul class=\"c35 lst-kix_list_11-0 start\">\r\n \t<li class=\"c10\"><span class=\"c1\">What services (and perhaps what goods) should they offer?<\/span><\/li>\r\n \t<li class=\"c10\"><span class=\"c1\">Where will they locate their business, and what will their facilities look like?<\/span><\/li>\r\n \t<li class=\"c38 c44\"><span class=\"c1\">How will they forecast demand for their services?<\/span><\/li>\r\n<\/ul>\r\n<p class=\"c6\">Let\u2019s see how service firms like BK answer questions such as these.[footnote]Information on Burger King was obtained from an interview with David Sell, former vice president of Central, Eastern, and Northern Europe divisions and president of Burger King France and Germany.[\/footnote]<\/p>\r\n\r\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Operations Processes<\/span><\/h2>\r\n<p class=\"c6 c37\"><span class=\"c1\">Service organizations succeed by providing services that satisfy customers\u2019 needs. Companies that provide transportation, such as airlines, have to get customers to their destinations as quickly and safely as possible. Companies that deliver packages, such as FedEx, must pick up, sort, and deliver packages in a timely manner. Companies that provide both services and goods, such as Domino\u2019s Pizza, have a dual challenge: they must produce a quality good and deliver it satisfactorily.<\/span><\/p>\r\n<p class=\"c6\">Service providers that produce goods can adopt either a <span class=\"c19\">make-to-order<\/span>\u00a0or a <span class=\"c19\">make-to-stock<\/span>\u00a0approach to producing them. BK,<span class=\"c1\">\u00a0which encourages patrons to customize burgers and other menu items, uses a make-to-order approach, building sandwiches one at a time. Meat patties, for example, go from the grill to a steamer for holding until an order comes in. Although many fast food restaurants have adopted the make-to-order model, a few continue to make-to-stock. For example, Dunkin\u2019 Donuts does not customize doughnuts, and so they do not have to wait for customer orders before making them.<\/span><\/p>\r\n<p class=\"c6\">Like manufacturers, service providers must continuously look for ways to improve <span class=\"c19\">operational efficiency<\/span>. Throughout its sixty-year history, BK has introduced a number of innovations that have helped make the company (as well as the fast-food industry itself) more efficient. BK, for example, was the first to offer drive-through service (which now accounts for over 50 percent of its sales).[footnote]NPD (2012). <em>Drive-Thru Windows Still Put the Fast in Fast Food Restaurants<\/em>. Reports NPD. https:\/\/planning.lacity.org\/eir\/8150Sunset\/References\/4.E.%20Greenhouse%20Gas%20Emissions\/GHG.41_NPD%20Fast%20Food.pdf[\/footnote]<\/p>\r\n<p class=\"c6\">It was also BK Vice President David Sell<span class=\"c1\">\u00a0who came up with the idea of moving the drink station from behind the counter so that customers could take over the time-consuming task of filling cups with ice and beverages. BK was able to cut back one employee per day at every one of its more than eleven thousand restaurants. Material costs also went down because customers usually fill cups with more ice, which is cheaper than a beverage. Moreover, there were savings on supply costs because most customers don\u2019t bother with lids, and many don\u2019t use straws. On top of everything else, most customers liked the system (for one thing, it allowed them to customize their own drinks by mixing beverages), and as a result, customer satisfaction went up. Overall, the new process was a major success and quickly became the industry standard.<\/span><\/p>\r\n\r\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Facilities<\/span><\/h2>\r\n<p class=\"c6\"><span class=\"c1\">When starting or expanding a service business, owners and managers must invest a lot of time in selecting a location, determining its size and layout, and forecasting demand. A poor location or a badly designed facility can cost customers, and inaccurate estimates of demand for products can result in poor service, excessive costs, or both.<\/span><\/p>\r\n\r\n<h3 class=\"c57\"><span class=\"c11 c3\">Site Selection<\/span><\/h3>\r\n<p class=\"c6\"><span class=\"c19\">Site selection<\/span> is also critical in the service industry, but not for the same reasons as in the manufacturing industry. Service businesses need to be accessible to customers. Some service businesses, such as cable-TV providers, package-delivery services, and e-retailers, go to their customers. Many others, however \u2014 hotels, restaurants, stores, hospitals, and airports \u2014 have to attract customers to their facilities. These businesses must locate where there\u2019s a high volume of available customers. In picking a location, BK planners perform a detailed analysis of demographics and traffic patterns; the most important factor is usually traffic count\u2014the number of cars or people that pass by a specific location in the course of a day. In Canada, where we travel almost everywhere by car, BK looks for busy intersections, highway interchanges with easy off and on ramps, or such \u201cprimary destinations\u201d as shopping malls, tourist attractions, downtown business areas, or movie theaters. In Europe, where public transportation is much more common, planners focus on subway, train, bus, and trolley stops.<\/p>\r\n<p class=\"c6\"><span class=\"c1\">Once planners find a site with an acceptable traffic count, they apply other criteria. For example, it must be easy for vehicles to enter and exit the site, which must also provide enough parking to handle projected dine-in business. Local zoning must permit standard signage, especially along major highways. Finally, expected business must be high enough to justify the cost of the land and building.<\/span><\/p>\r\n\r\n<h3 class=\"c57\"><span class=\"c11 c3\">Size and Layout<\/span><\/h3>\r\n<p class=\"c6\"><span class=\"c1\">In the service sector, most businesses must design their facilities with the customer in mind; they must accommodate the needs of their customers while keeping costs as low as possible. Let\u2019s see how BK has met this challenge.<\/span><\/p>\r\n<p class=\"c6 c37\"><span class=\"c1\">For its first three decades, almost all BK restaurants were pretty much the same. They all sat on one acre of land (located \u201cthrough the light and to the right\u201d), had about four thousand square feet of space, and held seating for seventy customers. All kitchens were roughly the same size. As long as land was cheap and sites were readily available, this system worked well. By the early 1990s, however, most of the prime sites had been taken, if not by BK itself, then by one of its fast-food competitors or other businesses needing a choice spot, including gas stations and convenience stores. With everyone bidding on the same sites, the cost of a prime acre of land had increased from $100,000 to over $1 million in a few short years.<\/span><\/p>\r\n<p class=\"c6\"><span class=\"c1\">To continue growing, BK needed to change the way it found and developed its locations. Planners decided that they had to find ways to reduce the size of a typical BK restaurant. For one thing, they could reduce the number of seats, because the business at a typical outlet had shifted over time from 90 percent inside dining to a 50-50 split between drive through and eat-in service. <\/span><\/p>\r\n<p class=\"c6\"><span class=\"c1\">David Sell (the same executive who had recommended letting customers fill their own drink cups) proposed to save space by wrapping Whoppers in paper instead of serving them in the cardboard boxes that took up more space. So BK switched to a single paper wrapper with the label \u201cWhopper\u201d on one side and \u201cCheese Whopper\u201d on the other. To show which product was inside, employees just folded the wrapper in the right direction. Ultimately, BK replaced pallets piled high with boxes with just a few boxes of wrappers.<\/span><\/p>\r\n<p class=\"c6\">Ideas like these helped BK trim the size of a restaurant from four thousand square feet to as little as one thousand. In turn, smaller facilities enabled the company to enter markets that were once cost prohibitive. Now BK could locate profitably in airports, food courts, strip malls, centre-city areas, and even schools.<\/p>\r\n\r\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Capacity Planning<\/span><\/h2>\r\n<p class=\"c6 c37\">Estimating <span class=\"c19\">capacity<\/span><span class=\"c1\">\u00a0needs for a service business isn\u2019t the same thing as estimating those of a manufacturer. Service providers can\u2019t store their products for later use: hairdressers can\u2019t \u201cinventory\u201d haircuts, and amusement parks can\u2019t \u201cinventory\u201d roller-coaster rides. Service firms have to build sufficient capacity to satisfy customers\u2019 needs on an \u201cas-demanded\u201d basis. Like manufacturers, service providers must consider many variables when estimating demand and capacity:<\/span><\/p>\r\n\r\n<ul class=\"c35 lst-kix_list_12-0 start\">\r\n \t<li class=\"c10\"><span class=\"c1\">How many customers will I have?<\/span><\/li>\r\n \t<li class=\"c10\"><span class=\"c1\">When will they want my services (which days of the week, which times of the day)?<\/span><\/li>\r\n \t<li class=\"c10\"><span class=\"c1\">How long will it take to serve each customer?<\/span><\/li>\r\n \t<li class=\"c38 c44\"><span class=\"c1\">How will external factors, such as weather or holidays, affect the demand for my services?<\/span><\/li>\r\n<\/ul>\r\n<p class=\"c6\"><span class=\"c1\">Forecasting demand is easier for companies like BK, which has a long history of planning facilities, than for brand-new service businesses. BK can predict sales for a new restaurant by combining its knowledge of customer-service patterns at existing restaurants with information collected about each new location, including the number of cars or people passing the proposed site and the effect of nearby competition.<\/span><\/p>\r\n\r\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Managing Operations<\/span><\/h2>\r\n<p class=\"c6\">Overseeing a service organization puts special demands on managers, especially those running firms, such as hotels, retail stores, and restaurants, who have a high degree of contact with customers. Service firms provide customers with personal attention and must satisfy their needs in a timely manner. This task is complicated by the fact that demand can vary greatly over the course of any given day. Managers, therefore, must pay particular attention to employee work schedules and, in many cases, inventory management.<\/p>\r\n<p class=\"c6 c37\">Managing service operations is about more than efficiency of service. It is about finding a balance between profitability, innovation, customer satisfaction and associate satisfaction, sometimes referred to as the <span class=\"c19\">balance scorecard<\/span>. The balance scorecard model utilizes <span class=\"c19\">360 degree feedback<\/span>, a process of collecting feedback from all of a business's stakeholders, in order to improve operational efficiency.<\/p>\r\n<p class=\"c6\">In his book entitled <em><span class=\"c36\">Moments of Truth<\/span><\/em>, Jan Carlzon, former Chief Executive Office of SAS Group, refers to those moments when an employee interacts with a customer.[footnote]Carlzon, J. (1987). <em>Moments of Truth<\/em>. Cambridge, MA: Ballinger Publishing Company.[\/footnote] <span class=\"c1\">Moments can range from calling a help line, checking in at an airline counter, the greeting from a hostess in a restaurant to resolving a maintenance problem in a hotel guest room. The quality of staff a company hires, how they train their employees, and the focus management places on creating a culture of service, will determine how successful the company is in service delivery and maximizing the impact of these moments of truth.<\/span><\/p>\r\n<p class=\"c6 c37\"><span class=\"c1\">The Ritz-Carlton hotel company maximizes their moments of truth by living their motto, \u201cWe are Ladies and Gentleman serving Ladies and Gentleman\u201d. Ritz-Carlton's Three Steps of Service are:<\/span><\/p>\r\n\r\n<ol class=\"c35 lst-kix_list_13-0 start\" start=\"1\">\r\n \t<li class=\"c64 c67\"><span class=\"c1\">A warm and sincere greeting. Use the guest\u2019s name.<\/span><\/li>\r\n \t<li class=\"c64 c67\"><span class=\"c1\">Anticipation and fulfillment of each of the needs of each guest.<\/span><\/li>\r\n \t<li class=\"c38 c67\"><span class=\"c1\">Fond farewell. Give a warm good-bye and use the guest\u2019s name.<\/span>[footnote]The Ritz-Carlton. (n.d.). <em>Gold Standards<\/em>. https:\/\/www.ritzcarlton.com\/en\/about\/gold-standards[\/footnote]<\/li>\r\n<\/ol>\r\n<p class=\"c6\"><span class=\"c1\">Ritz-Carlton reinforces this service culture daily in short meetings with all staff at the beginning of each shift.<\/span><\/p>\r\n<p class=\"c6\">Chick-fil-A is recognized as an industry leader in service for the fast food industry in the United States. \u00a0Chick-fil-A uses the term \u201cmy pleasure\u201d which founder S. Truett Cathy credits to Ritz-Carlton.[footnote]Kelso, A. (2020, July 11). <em>Business lessons from the late founder of Chick-fil-A<\/em>. QSRweb. https:\/\/www.qsrweb.com\/articles\/business-lessons-from-the-late-founder-of-chick-fil-a\/[\/footnote] The company follows customer-centred leadership. Staff focus on being swift and attentive to customer needs. Chick-fil-A uses this YouTube video as part of their employee orientation and training: <span class=\"c60\"><a class=\"c22\" href=\"https:\/\/www.google.com\/url?q=https:\/\/www.youtube.com\/watch?v%3D2v0RhvZ3lvY&amp;sa=D&amp;ust=1524627998000000\">\u201cEvery life has a story\u201d<\/a><\/span><span class=\"c1\">.<\/span><\/p>\r\nThe video \u201cEvery life has a story\u201d shows different segments of our population and their stories. It shows that employees as well as customers are people with their own life stories, and that it is important for us all to be kind, respectful and compassionate.\r\n\r\n[embed]https:\/\/youtu.be\/2v0RhvZ3lvY[\/embed]\r\n<p class=\"c6\">Well-known blogger and marketing consultant Marcus Sheridan explains his view of the success of Chick-fil-A in this blog post:[footnote]Sheridan, M. (2021, February 5). <em>8 Reasons Why Chick-fil-A has the Best Business Model in America<\/em>. Impact. https:\/\/www.impactplus.com\/blog\/reasons-chick-fil-best-business-model[\/footnote]<\/p>\r\n\r\n<div class=\"textbox shaded\">\r\n<p class=\"c28 c27\"><span class=\"c1\">Dang I love it when I see great people and great businesses kicking butt at what they do. Such was the case recently when the fam and I stopped into a local Chick-fil-A restaurant here in Virginia and I was treated to a free course entitled, \u201cThis is How To Run a Business that Kicks Butt and Takes Names\u2026.\u201d, or at least that something like that \u2026..<\/span><\/p>\r\n<p class=\"c28 c27\"><span class=\"c1\">As the kids were all eating their food and I was busy being blown away by this perfect company and business model, I decided to ask my 9 year old daughter a simple question:<\/span><\/p>\r\n<p class=\"c28 c56\"><span class=\"c36 c19\">Me<\/span><span class=\"c24\">: Danielle, what do you notice about this restaurant that\u2019s different than others?<\/span><\/p>\r\n<p class=\"c28 c56\"><span class=\"c19 c36\">Danielle<\/span><span class=\"c24\">\u00a0(by now used to weird business questions from her father): Well, first of all everyone that works here is happy.<\/span><\/p>\r\n<p class=\"c28 c56\"><span class=\"c36 c19\">Me<\/span><span class=\"c24\">: Yes, they are, aren\u2019t they? How\u2019s that make you feel to see them smiling?<\/span><\/p>\r\n<p class=\"c28 c56\"><span class=\"c36 c19\">Danielle<\/span><span class=\"c24\">: It makes me feel good inside.<\/span><\/p>\r\n<p class=\"c28 c56\"><span class=\"c36 c19\">Me<\/span><span class=\"c24\">: I agree\u2026What else do you notice?<\/span><\/p>\r\n<p class=\"c28 c56\"><span class=\"c36 c19\">Danielle<\/span><span class=\"c24\">: There are pictures everywhere. And writings on the walls. And it\u2019s really clean.<\/span><\/p>\r\n<p class=\"c28 c56\"><span class=\"c36 c19\">Me<\/span><span class=\"c24\">: Good observations dear. Danielle, you\u2019re looking at the most well run business in America.<\/span><\/p>\r\n<p class=\"c28 c27\"><span class=\"c1\">For any of you that have been to Chick-fil-A before, you may already understand and appreciate what I\u2019m talking about. If you haven\u2019t gone to one and would like 4 years\u2019 worth of business school wrapped up in 45 minutes, then take a stroll on over to one of their restaurants for lunch and just sit, watch, and observe.<\/span><\/p>\r\n<p class=\"c28 c27\"><span class=\"c1\">But to make what could be a long blog much shorter, allow me to quickly list the 8 reasons why Chick-fil-A has the best business model in America.<\/span><\/p>\r\n<p class=\"c28 c27\"><span class=\"c19\">Happy Employees\/Service<\/span><span class=\"c1\">: It\u2019s unbelievable what type of employees this company has. Heck, while we were eating our meal the other day, an employee with a big smile came over and asked us if we\u2019d like refills on our drinks. For a fast food company, this is utterly unheard of in our society these days. It\u2019s obvious that Chick-fil-A doesn\u2019t go cheap on their people nor their way of doing things. I\u2019m sure they pay decent wages but they also create an atmosphere that attracts great people. What a wonderful model this is for any business.<\/span><\/p>\r\n<p class=\"c28 c27\"><span class=\"c19\">They\u2019re Clean!<\/span><span class=\"c1\">: Somewhere along the lines sanitation and cleanliness became a lost art in the fast food industry. Notwithstanding this trend, Chick-fil-A has bucked the system and their restaurants, as well as their bathrooms, are almost always immaculate. I don\u2019t know about you, but I\u2019ll pay more for clean any day of the week.<\/span><\/p>\r\n<p class=\"c27 c28\"><span class=\"c19\">They Know What They\u2019re GREAT At<\/span><span class=\"c1\">: Most businesses try to be a jack of all trades, which ends up causing them to be master of none. That\u2019s why Chick-fil-A will never have a burger on their menu. Why? Because they don\u2019t care. They know they\u2019ll never be the best at beef but they sure as heck have created a culture around the chicken sandwich. Wow, what a lesson this is for those businesses out there with no identity, niche, or individual greatness.<\/span><\/p>\r\n<p class=\"c28 c27\"><span class=\"c19\">They Ain\u2019t Cheap<\/span><span class=\"c1\">: Yep, having high prices is actually a GOOD business model. I don\u2019t know about you, but the idea of having to sell a lot to make a little stinks. Chick-fil-A has prices a good bit higher than most of their fast food competitors, notwithstanding they are always full of smiling customers, just waiting to spend the extra green stamps. These higher prices lead to better employees, service, food quality, customers, etc. I\u2019m sure never once has their management even asked, \u201cHow can we be the cheapest?\u201d But I\u2019d bet my home they\u2019ve asked, \u201cHow can we be the best, regardless of what it costs?\u201d<\/span><\/p>\r\n<p class=\"c28 c27\"><span class=\"c19\">Ambiance<\/span><span class=\"c1\">: The next time you go to Chick-fil-A check out all the little things they do to make their restaurants warm and attractive. They have photos of employees, quotes on the walls, paintings from local children, etc. Everywhere you look in one of their stores you\u2019ll find something that makes you smile.<\/span><\/p>\r\n<p class=\"c28 c27\"><span class=\"c19\">Community Involvement<\/span><span class=\"c1\">: Wow do they do this better than any fast food company. In fact, this one isn\u2019t even close. They are constantly doing promos within the community for youth teams, causes, etc. In fact, it\u2019s like they\u2019ve taken social media to another level because for them it\u2019s not just about using Facebook and the like, it\u2019s about actually being involved and in the trenches. Huge props to Chick-fil-A for this.<\/span><\/p>\r\n<p class=\"c28 c27\"><span class=\"c19\">Awesome Website<\/span><span class=\"c1\">: All of you that read this blog know how I feel about the importance of having a great website and web presence in order to be a successful business. If you want to see what a great business website looks like, head on over. Whether it\u2019s bios of the employees, social media links, customers stories, etc\u2014this site is spot-on.<\/span><\/p>\r\n<p class=\"c28 c27\"><span class=\"c19\">The Food is Actually Good<\/span><span class=\"c1\">: Ahh yes, lest we forget this other forgotten trait of fast food restaurants\u2014great food. Everybody likes Chick-fil-A. Nothing on their menu is poor quality. They\u2019re proud of their food and they have every right to be.<\/span><\/p>\r\n<p class=\"c28 c27\"><span class=\"c1\">So there you have it folks\u2014the 8 qualities of the best business model in America. What\u2019s great is that every business can copy the way Chick-fil-A has built their company. The qualities listed above are simply principles that can be applied to any business or any website for that matter. So if you\u2019re lacking inspiration for your business, it might be time for a Chicken Sandwich and waffle fries.<\/span><\/p>\r\n<p class=\"c28 c27\"><span class=\"c24\">**Author\u2019s Note: It goes without saying that I have no affiliation with Chick-fil-A, I just happen to write about greatness when I see it.<\/span><\/p>\r\n\r\n<\/div>\r\n<h2 class=\"c2 c55\">\u00a0<span class=\"c45 c3 c36\">Scheduling<\/span><\/h2>\r\n<p class=\"c6\">In manufacturing, managers focus on scheduling the activities needed to transform raw materials into finished goods. In service organizations, they focus on <span class=\"c19\">scheduling<\/span><span class=\"c1\">\u00a0workers so that they\u2019re available to handle fluctuating customer demand. Each week, therefore, every BK store manager schedules employees to cover not only the peak periods of breakfast, lunch, and dinner, but also the slower periods in between. If he or she staffs too many people, labour cost per sales dollar will be too high. If there aren\u2019t enough employees, customers have to wait in lines. Some get discouraged, and even leave, and many may never come back.<\/span><\/p>\r\n<p class=\"c6 c37\"><span class=\"c1\">Scheduling is made easier by information provided by a point-of-sale device built into every BK cash register. The register sends data on every sandwich, beverage, and side order sold by the hour, every hour of the day, every day of the week to a computer system that helps managers set schedules. To determine how many people will be needed for next Thursday\u2019s lunch hour, the manager reviews last Thursday\u2019s data, using sales revenue and a specific BK formula to determine the appropriate staffing level. Each manager can adjust this forecast to account for other factors, such as current marketing promotions or a local sporting event that will increase customer traffic.<\/span><\/p>\r\n\r\n<h2 class=\"c2\">Inventory Control<\/h2>\r\n<p class=\"c6 c37\">Businesses that provide both goods and services, such as retail stores and auto-repair shops, have the same <span class=\"c19\">inventory control<\/span> problems as manufacturers: keeping levels too high costs money, while running out of inventory costs sales. Technology, such as the point-of-sale registers used at BK, makes the job easier. BK\u2019s system tracks everything sold during a given time and lets each store manager know how much of everything should be kept in inventory. It also makes it possible to count the number of burgers and buns, bags and racks of fries, and boxes of beverage mixes at the beginning or end of each shift. Because there are fixed numbers of supplies \u2014 say, beef patties or bags of fries \u2014 in each box, employees simply count boxes and multiply. In just a few minutes, the manager knows whether the inventory is correct (and should be able to see if any theft has occurred on the shift).<\/p>\r\n\r\n<h1 class=\"c68\"><span class=\"c19 c33\">Producing for Quality<\/span><\/h1>\r\n<p class=\"c6\"><span class=\"c1\">What do you do if your brand-new phone doesn\u2019t work when you get it home? What if you were late for a test because it took you twenty minutes to get a burger and fries at a drive-through window? Like most people, you\u2019d probably be more or less disgruntled. As a customer, you\u2019re constantly assured that when products make it to market, they\u2019re of the highest possible quality, and you tend to avoid brands that have failed to live up to your expectations or to producers\u2019 claims.<\/span><\/p>\r\n<p class=\"c6 c37\">But what is <span class=\"c19\">quality<\/span>? According to the American Society for Quality, the term quality refers to \u201cthe characteristics of a product or service that bear on its ability to satisfy stated or implied needs.\u201d[footnote]American Society for Quality. (n.d.). <em>Six Sigma Forum \u2013 Community Home<\/em>. myASQ. https:\/\/my.asq.org\/communities\/home\/35\/[\/footnote] <span class=\"c1\">When you buy a mobile phone, you expect it to be able to easily connect and communicate. When you go to a drive-through window, you expect to be served in a reasonable amount of time. If your expectations are not met, you\u2019ll conclude that you\u2019re the victim of poor quality.<\/span><\/p>\r\n\r\n<h2 class=\"c2\">Quality Management<\/h2>\r\n<p class=\"c6\"><span class=\"c19\">Total quality management <\/span><span class=\"c1\">(TQM), or quality assurance, includes all the steps that a company takes to ensure that its goods or services are of sufficiently high quality to meet customers\u2019 needs. Generally speaking, a company adheres to TQM principles by focusing on three tasks:<\/span><\/p>\r\n\r\n<ol class=\"c35 lst-kix_list_14-0 start\" start=\"1\">\r\n \t<li class=\"c64 c67\"><span class=\"c1\">customer satisfaction;<\/span><\/li>\r\n \t<li class=\"c64 c67\"><span class=\"c1\">employee involvement; and<\/span><\/li>\r\n \t<li class=\"c38 c67\"><span class=\"c1\">continuous improvement.<\/span><\/li>\r\n<\/ol>\r\n<p class=\"c6\"><span class=\"c1\">Let\u2019s take a closer look at these three principles.<\/span><\/p>\r\n\r\n<h3 class=\"c57\"><span class=\"c11 c3\">1. Customer Satisfaction<\/span><\/h3>\r\n<p class=\"c6\">Companies that are committed to TQM understand that the purpose of a business is to generate a profit through <span class=\"c19\">customer satisfaction<\/span><span class=\"c1\">. Thus, they let their customers define quality by identifying desirable product features and then offering them. They encourage customers to tell them how to offer services that work the right way.<\/span><\/p>\r\n<p class=\"c6\"><span class=\"c1\">Armed with this knowledge, they take steps to make sure that providing quality is a factor in every facet of their operations \u2014 from design, to product planning and control, to sales and service. To get feedback on how well they\u2019re doing, many companies routinely use surveys and other methods to monitor customer satisfaction. By tracking the results of feedback over time, they can see where they need to improve.<\/span><\/p>\r\n\r\n<h3 class=\"c57\"><span class=\"c3 c11\">2. Employee Involvement<\/span><\/h3>\r\n<p class=\"c6\"><span class=\"c1\">Successful TQM requires that everyone in the organization, not simply upper-level management, commits to satisfying the customer. When customers wait too long at a drive-through window, it\u2019s the responsibility of a number of employees, not the manager alone. A mobile phone isn\u2019t solely the responsibility of the manufacturer\u2019s quality control department; it\u2019s the responsibility of every employee involved in its design, production, and even shipping. To get everyone involved in the drive for quality assurance, managers must communicate the importance of quality to subordinates and motivate them to focus on customer satisfaction. Employees have to be properly trained not only to do their jobs but also to detect and correct quality problems.<\/span><\/p>\r\n<p class=\"c6\">In many companies, employees who perform similar jobs work as teams, sometimes called <span class=\"c19\">quality circles<\/span><span class=\"c1\">, to identify quality, efficiency, and other work-related problems, to propose solutions, and to work with management in implementing their recommendations.<\/span><\/p>\r\n\r\n<h3 class=\"c57\"><span class=\"c11 c3\">3. Continuous Improvement<\/span><\/h3>\r\n<p class=\"c6\">An integral part of TQM is <span class=\"c19\">continuous improvement<\/span><span class=\"c1\">: the commitment to making constant improvements in the design, production, and delivery of goods and services.<\/span><\/p>\r\n<p class=\"c6\"><span class=\"c1\">Improvements can almost always be made to increase efficiency, reduce costs, and improve customer service and satisfaction. Everyone in the organization is constantly on the lookout for ways to do things better.<\/span><\/p>\r\n\r\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Statistical Process Control<\/span><\/h2>\r\n<p class=\"c6\">Companies can use a variety of tools to identify areas for improvement. A common approach in manufacturing is called<span class=\"c19\">\u00a0statistical process control<\/span>. This technique monitors production quality by testing a sample of output to see whether goods in process are being made according to predetermined specifications. An example of a statistical process control method is Six Sigma. A <span class=\"c19\">Six-Sigma<\/span><span class=\"c1\">\u00a0process is one in which 99.99966% of all opportunities to perform an operation are free of defects. This percentage equates to only 3.4 defects per million opportunities.<\/span><\/p>\r\n<p class=\"c6\"><span class=\"c1\">Assume for a moment that you work for Kellogg\u2019s, the maker of Raisin Bran cereal. You know that it\u2019s the company\u2019s goal to pack two scoops of raisins in every box of cereal.<\/span><\/p>\r\n<p class=\"c6\"><span class=\"c1\">How can you test to determine whether this goal is being met? You could use a statistical process control method called a sampling distribution. On a periodic basis, you would take a box of cereal off the production line and measure the amount of raisins in the box. Then you\u2019d record that amount on a control chart designed to compare actual quantities of raisins with the desired quantity (two scoops). If your chart shows that several samples in a row are low on raisins, you\u2019d take corrective action.<\/span><\/p>\r\n\r\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Outsourcing<\/span><\/h2>\r\n<p class=\"c6\">PowerSki\u2019s website states that \u201cPowerSki International has been founded to bring a new watercraft, the PowerSki Jetboard, and the engine technology behind it, to market.\u201d[footnote]Powerski (2005). <em>About Powerski International<\/em>. http:\/\/www.powerski.com\/aboutpsi.htm[\/footnote]\u00a0That goal was reached in May 2003, when the firm emerged from a lengthy design period. Having already garnered praise for its innovative product, PowerSki was ready to begin mass-producing Jetboards. At this juncture, the management team made a strategic decision; rather than producing Jetboards in-house, they opted for <span class=\"c19\">outsourcing<\/span><span class=\"c1\">: having outside vendors manufacture the engines, fiberglass hulls, and associated parts. Assembly of the final product took place in a manufacturing facility owned by All American Power Sports in Moses Lake, Washington. This decision doesn\u2019t mean that the company relinquished control over quality; in fact, every component that goes into the PowerSki Jetboard is manufactured to exact specifications set by PowerSki. One advantage of outsourcing its production function is that the management team can thereby devote its attention to refining its product design and designing future products.<\/span><\/p>\r\n\r\n<h3 class=\"c57\"><span class=\"c11 c3\">Outsourcing in the Manufacturing Sector<\/span><\/h3>\r\n<p class=\"c6\"><span class=\"c1\">Outsourcing has become an increasingly popular option among manufacturers. For one thing, few companies have either the expertise or the inclination to produce everything needed to make a product. Today, more firms, like PowerSki, want to specialize in the processes that they perform best \u2014 and outsource the rest. Like PowerSki, they also want to take advantage of outsourcing by linking up with suppliers located in regions with lower labour costs. Outsourcing can be local, regional, or even international, and companies can outsource everything from parts for their products, like automobile manufacturers do, to complete manufacturing of their products, like Nike and Apple do. <\/span><\/p>\r\n\r\n<h3 class=\"c57\"><span class=\"c11 c3\">Outsourcing in the Service Sector<\/span><\/h3>\r\n<p class=\"c28 c52\">Outsourcing is by no means limited to the manufacturing sector. Service providers also outsource many of their non-core functions. Some universities, for instance, outsource functions such as food services, maintenance, bookstore sales, printing, grounds keeping, security, and even residence operations. For example, there are several firms, like RGIS, who offer inventory services. They will send a team to your company to count your inventory for you. As RGIS puts it, \u201cOur teams deliver the hands-on help needed to complete a wide variety of retail projects of all sizes, allowing your team to keep customer service as the number one priority.\u201d[footnote]RGIS. (n.d.). <em>Retail<\/em>. https:\/\/www.rgis.com\/retail[\/footnote] <span class=\"c1\">Some software developers outsource portions of coding as a cost-saving measure. If you\u2019ve ever had to get phone or chat assistance on your laptop, there\u2019s a good chance you spoke with someone in an outsourced call centre. The centre itself may even have been located offshore. This kind of arrangement can present unique challenges in quality control as differences in accents and the use of slang words can sometimes inhibit understanding. Nevertheless, in this era of globalization, expect the trend towards outsourcing offshore to continue.<\/span><\/p>\r\n\r\n<h1>Comprehensive Check<\/h1>\r\n<ol>\r\n \t<li>Describe the role of an operations manager in a manufacturing company and provide three key tasks for which they are responsible.<\/li>\r\n \t<li>Describe the decisions and activities of the operations manager in the production process.<\/li>\r\n \t<li data-aria-posinset=\"1\" data-aria-level=\"1\">What is the meaning of the term production (or operations)?\u200b<\/li>\r\n \t<li data-aria-posinset=\"2\" data-aria-level=\"1\">What are the characteristics that distinguish service operations from goods production, and what are the main differences in the service focus?\u200b<\/li>\r\n \t<li data-aria-posinset=\"4\" data-aria-level=\"1\">Explain the connection between productivity and quality.\u200b<\/li>\r\n \t<li data-aria-posinset=\"7\" data-aria-level=\"1\">Explain the concept of total quality management and describe some tools that companies can use to achieve it.\u200b<\/li>\r\n \t<li>Explain how technology has improved cost-efficiency in the production process. Use an example to demonstrate your understanding.<\/li>\r\n \t<li>Detail how a service operation differs from a manufacturing operation.<\/li>\r\n<\/ol>\r\n<div class=\"page-break-before\"><\/div>\r\n<div class=\"textbox textbox--key-takeaways\"><header class=\"textbox__header\">\r\n<h1 class=\"textbox__title\">Key Takeaways<\/h1>\r\n<\/header>\r\n<div class=\"textbox__content\">\r\n\r\nImportant terms and concepts:\r\n<ol>\r\n \t<li>Operations management oversees the process of transforming resources into goods and services.<\/li>\r\n \t<li>During production planning, managers determine how goods will be produced, where production will take place, and how manufacturing facilities will be laid out.<\/li>\r\n \t<li>In selecting the appropriate production process, managers consider three basic methods:\r\n<ul>\r\n \t<li>make-to-order;<\/li>\r\n \t<li>mass production; and<\/li>\r\n \t<li>mass customization.<\/li>\r\n<\/ul>\r\n<\/li>\r\n \t<li>In site selection for a company\u2019s manufacturing operations, managers look for locations that minimize shipping costs, have an ample supply of skilled workers, provide a favorable community for workers and their families, offer resources at low cost, and have a favorable business climate.<\/li>\r\n \t<li>Commonly used inventory control methods include just-in-time (JIT) production, by which materials arrive just in time to enter the manufacturing process, and material requirements planning (MRP), a software tool to determine material needs.\r\nGantt and PERT charts are two common tools used by operations managers.<\/li>\r\n \t<li>A Gantt chart helps operations managers determine the status of projects.<\/li>\r\n \t<li>PERT charts diagram the activities and time required and identify the critical path \u2014 the sequence of activities that will require the greatest amount of time.<\/li>\r\n \t<li>Service firms provide intangible products that are often customized to satisfy specific needs. Unlike manufactured goods, many services are bought and consumed at the same time.<\/li>\r\n \t<li>Estimating capacity needs for a service business is more difficult than for a manufacturer because service providers can\u2019t store their services for later use.<\/li>\r\n \t<li>Many companies deliver quality goods and services by adhering to principles of total quality management (TQM).<\/li>\r\n \t<li>Outsourcing can save companies money by using lower cost, specialized labor, located domestically or abroad.<\/li>\r\n<\/ol>\r\n<\/div>\r\n<\/div>","rendered":"<div class=\"textbox textbox--learning-objectives\">\n<header class=\"textbox__header\">\n<h1 class=\"textbox__title\">Learning Objectives<\/h1>\n<\/header>\n<div class=\"textbox__content\">\n<p>By the end of this chapter, you should be able to:<\/p>\n<ol>\n<li>define operations management and discuss the role of the operations manager in a manufacturing company;<\/li>\n<li>describe the decisions and activities of the operations manager in overseeing the production process in a manufacturing company;<\/li>\n<li>explain the importance of both PERT and Gantt charts;<\/li>\n<li>explain how manufacturing companies use technology to produce and deliver goods in an efficient, cost-effective manner;<\/li>\n<li>describe the decisions made in planning the product delivery process in a service company;<\/li>\n<li>identify the characteristics that distinguish service operations from manufacturing operations and identify the activities undertaken to manage operations in a service organization;<\/li>\n<li>explain how total quality management provides value to customers;<\/li>\n<li>explain how outsourcing provides value to customers; and<\/li>\n<li>explain <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_88_456\">key terms<\/a> in the chapter.<\/li>\n<\/ol>\n<\/div>\n<\/div>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignleft wp-image-28 size-thumbnail\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/1E-ShowWhatYouKnow-1-150x150.png\" alt=\"\" width=\"150\" height=\"150\" srcset=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/1E-ShowWhatYouKnow-1-150x150.png 150w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/1E-ShowWhatYouKnow-1-65x65.png 65w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/1E-ShowWhatYouKnow-1-225x225.png 225w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/1E-ShowWhatYouKnow-1.png 294w\" sizes=\"auto, (max-width: 150px) 100vw, 150px\" \/><\/p>\n<h2>Show What You Know<\/h2>\n<p style=\"text-align: center\">\n<div id=\"h5p-42\">\n<div class=\"h5p-iframe-wrapper\"><iframe id=\"h5p-iframe-42\" class=\"h5p-iframe\" data-content-id=\"42\" style=\"height:1px\" src=\"about:blank\" frameBorder=\"0\" scrolling=\"no\" title=\"Right Institution (Personal Finance)\"><\/iframe><\/div>\n<\/div>\n<div class=\"page-break-before\"><\/div>\n<h1>The Challenge: Producing Quality Jetboards<\/h1>\n<figure id=\"attachment_94\" aria-describedby=\"caption-attachment-94\" style=\"width: 752px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-94 size-full\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image6-1.png\" alt=\"Rider on a yellow board appearing to be skimming the water i.e. parallel to the water.\" width=\"752\" height=\"488\" \/><figcaption id=\"caption-attachment-94\" class=\"wp-caption-text\">Figure 13.1 The Powerski jetboard in action! Source: PowerSki.com<\/figcaption><\/figure>\n<p class=\"c6\">The product development process can be complex and lengthy. It took sixteen years for Bob Montgomery and others at his company to develop the PowerSki Jetboard, and this involved thousands of design changes. It was worth it, though: the Jetboard was an exciting, engine-propelled personal watercraft \u2014 a cross between a high-performance surfboard and a competition water-ski\/wakeboard that received extensive media attention and rave reviews. It was showered with honours, including Time magazine\u2019s \u201cBest Invention of the Year\u201d award.<a class=\"footnote\" title=\"Time. (2001, November 19). Best Inventions of 2001. https:\/\/content.time.com\/time\/specials\/packages\/article\/0,28804,1936165_1936240_1936351,00.html\" id=\"return-footnote-88-1\" href=\"#footnote-88-1\" aria-label=\"Footnote 1\"><sup class=\"footnote\">[1]<\/sup><\/a> Stories about the Jetboard appeared in more than fifty magazines around the world, and it was featured in several movies, over twenty-five TV shows, and on YouTube.<a class=\"footnote\" title=\"Hydroforce Group LLC (2012). Powerski Jetboards. http:\/\/www.powerski.com\/content\/psi_index\" id=\"return-footnote-88-2\" href=\"#footnote-88-2\" aria-label=\"Footnote 2\"><sup class=\"footnote\">[2]<\/sup><\/a><\/p>\n<p class=\"c6\"><span class=\"c1\">Montgomery and his team at PowerSki enjoyed taking their well-deserved bows for the job they did designing the product, but having a product was only the beginning for the company. The next step was developing a system that would produce high-quality Jetboards at reasonable prices. Before putting this system in place, PowerSki managers had to address several questions. <\/span><\/p>\n<ul class=\"c35 lst-kix_list_5-0 start\">\n<li class=\"c10\"><span class=\"c1\">What kind of production process should they use to make the Jetboards? <\/span><\/li>\n<li class=\"c10\"><span class=\"c1\">How large should their production facilities be, and where should they be located? <\/span><\/li>\n<li class=\"c10\"><span class=\"c1\">Where should they buy needed materials? <\/span><\/li>\n<li class=\"c38 c44\"><span class=\"c1\">What systems would be needed to control the production process and ensure a quality product?<\/span><\/li>\n<\/ul>\n<p class=\"c6\"><span class=\"c1\">Answering these and other questions helped PowerSki set up a manufacturing system through which it could accomplish the most important task that it had set for itself: efficiently producing quality Jetboards.<\/span><\/p>\n<h1 class=\"c68\"><span class=\"c33 c19\">Operations Management in Manufacturing <\/span><\/h1>\n<p class=\"c6\">Like PowerSki, every organization \u2014 whether it produces goods or provides services \u2014 sees job #1 as furnishing customers with quality products. Thus, to compete with other organizations, a company must convert <span class=\"c19\">resources<\/span>\u00a0(materials, labour, money, information) into <span class=\"c19\">goods or services<\/span>\u00a0as efficiently as possible. The upper-level manager who directs this transformation process is called an <span class=\"c19\">operations manager<\/span>. The job of <span class=\"c19\">operations management <\/span>(OM) consists of all the activities involved in transforming a product idea into a finished product. Hence, because of the complexity of organizing all the activities in an organization it is more important than ever for Operations Management to ensure <span class=\"c19\">due diligence <\/span>is utilized to structure operations. Due diligence is the set of important actions taken by directors or managers of an organization to ensure that all potential risks and errors are mitigated entirely.<span class=\"c1\"> In addition, operations managers are involved in planning and controlling the systems that produce goods and services. In other words, operations managers manage the process that transforms inputs into outputs. The figure below illustrates these traditional functions of operations management.<\/span><\/p>\n<figure id=\"attachment_82\" aria-describedby=\"caption-attachment-82\" style=\"width: 800px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-82\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image2-1-1024x944.jpg\" alt=\"Operations managers overseeing inputs (customers, materials, information, capital, HR, natural resources) going through transformation processes and becoming outputs (products and services)\" width=\"800\" height=\"738\" srcset=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image2-1-1024x944.jpg 1024w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image2-1-300x277.jpg 300w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image2-1-768x708.jpg 768w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image2-1-65x60.jpg 65w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image2-1-225x207.jpg 225w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image2-1-350x323.jpg 350w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image2-1.jpg 1349w\" sizes=\"auto, (max-width: 800px) 100vw, 800px\" \/><figcaption id=\"caption-attachment-82\" class=\"wp-caption-text\">Chart 13.1 Transformation Process<\/figcaption><\/figure>\n<p class=\"c6\">Like PowerSki, all <span class=\"c19\">manufacturers<\/span> set out to perform the same basic function: to transform resources into finished goods. To perform this function in today\u2019s business environment, manufacturers must continually strive to improve operational efficiency. They must fine-tune their production processes to focus on quality, hold down the costs of<span class=\"c1\">\u00a0<\/span>materials and labour, and eliminate all costs that add no value to the finished product.<\/p>\n<p class=\"c6\">The Supply Chain identifies the process of transforming a product idea into a finished product, and the ways in which the process will convert raw materials into goods or services as efficiently as possible. The Value Chain identifies how value is added throughout the creation of the final good or service produced and how the costs of operational activities represent a proportion of the final sale price of the good or service.<span class=\"c1\">\u00a0<\/span><\/p>\n<figure id=\"attachment_96\" aria-describedby=\"caption-attachment-96\" style=\"width: 829px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-96 size-full\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image4-1.png\" alt=\"Shows how the extraction of raw materials go through a manufacturing process and then out for distribution before being finally ready for retail.\" width=\"829\" height=\"634\" \/><figcaption id=\"caption-attachment-96\" class=\"wp-caption-text\">Chart 13.2 Lifecycle of a cotton shirt.<\/figcaption><\/figure>\n<p class=\"c38\">Another job of operations managers is making the decisions involved in the effort to attain this level of operational organization and achieve its goals. <span class=\"c1\">Their responsibilities can be grouped as follows:<\/span><\/p>\n<ul class=\"c35 lst-kix_list_6-0 start\">\n<li class=\"c10 c37\"><span class=\"c39 c41 c19\">Production planning<\/span><span class=\"c1\">. During production planning, managers determine how goods will be produced, where production will take place, and how manufacturing facilities will be laid out.<\/span><\/li>\n<li class=\"c10\"><span class=\"c39 c19 c41\">Production control<\/span><span class=\"c1\">. Once the production process is under way, managers must continually schedule and monitor the activities that make up that process. They must <\/span><span class=\"c1\">solicit and respond to feedback and make adjustments where needed. At this stage, they also oversee the purchasing of raw materials and the handling of inventories.<\/span><\/li>\n<li class=\"c10\"><span class=\"c39 c41 c19\">Quality control<\/span><span class=\"c1\">. The operations manager is directly involved in efforts to ensure that goods are produced according to specifications and that quality standards are maintained.<\/span><\/li>\n<\/ul>\n<p class=\"c6\"><span class=\"c1\">Let\u2019s take a closer look at each of these responsibilities.<\/span><\/p>\n<h2 class=\"c2\">Planning the Production Process<\/h2>\n<p class=\"c6\"><span class=\"c1\">The decisions made in the planning stage have long-range implications and are crucial to a firm\u2019s success. Before making decisions about the operations process, managers must consider the goals set by marketing managers. Does the company intend to be a low-cost producer and to compete on the basis of price? Or does it plan to focus on quality and go after the high end of the market? Many decisions involve trade-offs. For example, low cost doesn\u2019t normally go hand in hand with high quality. All functions of the company must be aligned with the overall strategy to ensure success.<\/span><\/p>\n<p class=\"c6\">With these thoughts in mind, let\u2019s look at the specific types of decisions that have to be made in the production planning process. We\u2019ve divided these decisions into those dealing with production methods, site selection, facility layout, and components and materials management.<\/p>\n<h2 class=\"c2\">Production-Method Decisions<\/h2>\n<p class=\"c6\">The first step in production planning is deciding which type of <span class=\"c19\">production<\/span>\u00a0<span class=\"c19\">process<\/span>\u00a0is best for making the goods that your company intends to manufacture. For example, this is depicted in figure above, illustrating the associated production process for a cotton shirt<span class=\"c1\">. In reaching this decision, you should answer such questions as:<\/span><\/p>\n<ul class=\"c35 lst-kix_list_7-0 start\">\n<li class=\"c47 c37 c71\"><span class=\"c1\">Am I making a one-of-a-kind good based solely on customer specifications, or am I producing high-volume standardized goods to be sold later?<\/span><\/li>\n<li class=\"c38 c71 c77\"><span class=\"c1\">Do I offer customers the option of \u201ccustomizing\u201d an otherwise standardized good to meet their specific needs?<\/span><\/li>\n<\/ul>\n<p class=\"c6 c37\"><span class=\"c1\">One way to appreciate the nature of this decision is by comparing three basic types of processes or methods: make-to-order, mass production, and mass customization. The task of the operations manager is to work with other managers, particularly marketers, to select the process that best serves the needs of the company\u2019s customers.<\/span><\/p>\n<h3 class=\"c2\"><span class=\"c45 c3 c36\">Make-to-Order<\/span><\/h3>\n<p class=\"c6\">At one time, most consumer goods, such as furniture and clothing, were made by individuals practising various crafts. By their very nature, products were customized to meet the needs of the buyers who ordered them. This process, which is called a <span class=\"c19\">make-to-order <\/span><span class=\"c1\">strategy, is still commonly used by such businesses as print or sign shops that produce low-volume, high-variety goods according to customer specifications. This level of customization often results in a longer production and delivery cycle than other approaches.<\/span><\/p>\n<h3 class=\"c2\"><span class=\"c45 c3 c36\">Mass Production<\/span><\/h3>\n<p class=\"c6\">By the early twentieth century, a new concept of producing goods had been introduced: <span class=\"c19\">mass production<\/span>\u00a0(or make-to-stock strategy), the practice of producing high volumes of identical goods at a cost low enough to price them for large numbers of customers. Goods are made in anticipation of future demand (based on forecasts) and kept in inventory for later sale. This approach is particularly appropriate for standardized goods ranging from processed foods to electronic appliances. It generally results in shorter cycle times than a make-to-order process. This type of production also takes advantage of <span class=\"c19\">economies of scale,\u00a0<\/span><span class=\"c1\">which refers to the reduced costs per unit that is realized from increased total number of units produced.<\/span><\/p>\n<h3 class=\"c2\"><span class=\"c45 c3 c36\">Mass Customization<\/span><\/h3>\n<p class=\"c6\">There is at least one big disadvantage to mass production: customers, as one old advertising slogan put it, can\u2019t \u201chave it their way.\u201d They have to accept standardized products as they come off assembly lines. Increasingly, however, customers are looking for products that are designed to accommodate individual tastes or needs but can still be bought at reasonable prices. To meet the demands of these consumers, many companies have turned to an approach called <span class=\"c19\">mass customization<\/span><span class=\"c1\">, which combines the advantages of customized products with those of mass production.<\/span><\/p>\n<p class=\"c6 c37\"><span class=\"c1\">This approach requires that a company interact with the customer to find out exactly what the customer wants and then manufacture the good, using efficient production methods to hold down costs. One efficient method is to mass-produce a product up to a certain cut-off point and then to customize it to satisfy different customers.<\/span><\/p>\n<figure id=\"attachment_97\" aria-describedby=\"caption-attachment-97\" style=\"width: 280px\" class=\"wp-caption alignright\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-97 size-full\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/Personalized-MMs.jpg\" alt=\"Canister of yellow, blue, and white M&amp;Ms with a graduation theme\" width=\"280\" height=\"280\" \/><figcaption id=\"caption-attachment-97\" class=\"wp-caption-text\">Figure 13.2 Personalized M&amp;Ms: Keep in mind for a year or two in the future!<\/figcaption><\/figure>\n<p class=\"c6\"><span class=\"c1\">One of the best-known mass customizers is Nike, which has achieved success by allowing customers to configure their own athletic shoes, apparel, and equipment through NikeiD program. The Web has a lot to do with the growth of mass customization. Levi\u2019s, for instance, lets customers find a pair of perfect fitting jeans by going through an online fitting process. Oakley offers customized sunglasses, goggles, watches, and backpacks, while Mars, Inc. can make M&amp;M\u2019s in any color the customer wants (say, school colours) as well as add text and even pictures to the candy.<\/span><\/p>\n<p class=\"c6\">Naturally, mass customization doesn\u2019t work for all types of goods. Most people don\u2019t care about customized detergents or paper products. And while many of us like the idea of customized clothes, footwear, or sunglasses, we often aren\u2019t willing to pay the higher prices they command.<\/p>\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Facilities Decisions<\/span><\/h2>\n<p class=\"c6\"><span class=\"c1\">After selecting the best production process, operations managers must then decide where the goods will be manufactured, how large the manufacturing facilities will be, and how those facilities will be laid out.<\/span><\/p>\n<h3 class=\"c57\"><span class=\"c11 c3\">Site Selection<\/span><\/h3>\n<p class=\"c6 c37\">In <span class=\"c19\">site selection<\/span><span class=\"c1\">\u00a0(choosing a location for the business), managers must consider several factors:<\/span><\/p>\n<ul class=\"c35 lst-kix_list_8-0 start\">\n<li class=\"c10 c37\"><span class=\"c1\">To minimize shipping costs, managers often want to locate plants close to suppliers, customers, or both.<\/span><\/li>\n<li class=\"c10\"><span class=\"c1\">They generally want to locate in areas with ample numbers of skilled workers.<\/span><\/li>\n<li class=\"c10\"><span class=\"c1\">They naturally prefer locations where they and their families will enjoy living.<\/span><\/li>\n<li class=\"c10\"><span class=\"c1\">They want locations where costs for resources and other expenses \u2014 land, labour, construction, utilities, and taxes \u2014 are low.<\/span><\/li>\n<li class=\"c38 c37 c44\"><span class=\"c1\">They look for locations with a favourable business climate \u2014 one in which, for example, local governments might offer financial incentives (such as tax breaks) to entice them to do business in their locales. For example, an enterprise zone is an area in which incentives are used to attract investments from private companies.<\/span><\/li>\n<\/ul>\n<p class=\"c6\">Managers rarely find locations that meet all these criteria. As a rule, they identify the more important criteria and aim at satisfying them. In deciding to locate in San Clemente, California, for instance, PowerSki was able to satisfy three important criteria: (1) proximity to the firm\u2019s suppliers, (2) availability of skilled engineers and technicians, and (3) favourable living conditions. These factors were more important than operating in a low-cost region or getting financial incentives from local government. Because PowerSki distributes its products throughout the world, proximity to customers was also unimportant.<\/p>\n<h3 class=\"c57\"><span class=\"c11 c3\">Capacity Planning<\/span><\/h3>\n<p class=\"c6\">Now that you know where you\u2019re going to locate, you have to decide on the quantity of products that you\u2019ll produce. You begin by <span class=\"c19\">forecasting<\/span><span class=\"c1\">\u00a0demand for your product, which isn\u2019t easy. To estimate the number of units that you\u2019re likely to sell over a given period, you have to understand the industry that you\u2019re in and estimate your likely share of the market by reviewing industry data and conducting other forms of research.<\/span><\/p>\n<p class=\"c6\">Once you\u2019ve forecasted the demand for your product, you can calculate the <span class=\"c19\">capacity requirements<\/span> of your production facility \u2014 the maximum number of goods that it can produce over a given time under normal working conditions. In turn, having calculated your capacity requirements, you\u2019re ready to determine how much investment in plant and equipment you\u2019ll have to make, as well as the number of labour hours required for the plant to produce at capaci<span class=\"c1\">ty and meet demand.<\/span><\/p>\n<p class=\"c6\">Like forecasting, capacity planning is difficult.\u00a0Unfortunately, failing to balance capacity and projected demand can be seriously detrimental to your bottom line. If you set capacity too low (and so produce less than you should), you won\u2019t be able to meet demand, and you\u2019ll lose sales and customers. If you set capacity too high (and turn out more units than you should), you\u2019ll waste resources and inflate operating costs.\u00a0Therefore <span class=\"c19\">continuous review, <\/span>the process of routinely reviewing the organization&#8217;s processes to determine where improvements can be made to increase organizational efficiency, is very important in the capacity planning process to avoid producing too much or too little.<\/p>\n<h1 class=\"c68\"><span class=\"c33 c19\">Managing the Production Process in a Manufacturing Company <\/span><\/h1>\n<p class=\"c6\"><span class=\"c1\">Operations managers engage in the daily activities of materials management, which encompasses the activities of purchasing, inventory control, and work scheduling.<\/span><\/p>\n<h2 class=\"c2\">Purchasing and Supplier Selection<\/h2>\n<p class=\"c6\">The process of acquiring the materials and services to be used in production is called <span class=\"c19\">purchasing<\/span><span class=\"c1\">\u00a0(or procurement). For many products, the costs of materials make up about 50 percent of total manufacturing costs. Not surprisingly, materials acquisition gets a good deal of the operations manager\u2019s time and attention. As a rule, there\u2019s no shortage of vendors willing to supply materials, but the trick is finding the best suppliers. Operations managers must consider questions such as:<\/span><\/p>\n<ul class=\"c35 lst-kix_list_9-0 start\">\n<li class=\"c10\"><span class=\"c1\">Can the vendor supply the needed quantity of materials at a reasonable price?<\/span><\/li>\n<li class=\"c10\"><span class=\"c1\">Is the quality good?<\/span><\/li>\n<li class=\"c10\"><span class=\"c1\">Is the vendor reliable (will materials be delivered on time)?<\/span><\/li>\n<li class=\"c10\"><span class=\"c1\">Does the vendor have a favourable reputation?<\/span><\/li>\n<li class=\"c38 c44\"><span class=\"c1\">Is the company easy to work with?<\/span><\/li>\n<\/ul>\n<p class=\"c6 c37\">Getting the answers to these questions and making the right choices \u2014 a process known as <span class=\"c19\">supplier selection <\/span><span class=\"c1\">\u2014 is a key responsibility of operations management.<\/span><\/p>\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Procurement<\/span><\/h2>\n<p class=\"c6 c37\">Technology has changed the way businesses buy things. Through modern <span class=\"c19\">procurement<\/span><span class=\"c1\">, companies use the Internet to interact with suppliers. The process is similar to the one you\u2019d use to find a consumer good \u2014 say, a high-definition TV \u2014 over the Internet. To choose a TV, you might browse the websites of manufacturers like Sony, then shop prices and buy at Amazon, the world\u2019s largest online retailer. <\/span><\/p>\n<p class=\"c6 c37\"><span class=\"c1\">If you were a purchasing manager using the Internet to buy parts and supplies, you\u2019d follow basically the same process. You\u2019d identify potential suppliers by going directly to private<\/span><span class=\"c1\">\u00a0websites maintained by individual suppliers or to public sites that aggregate information on numerous suppliers. You could do your shopping through online catalogs, or you might participate in an online marketplace by indicating the type and quantity of materials you need and letting suppliers bid. Finally, just as you paid for your TV electronically, you could use a system called electronic data interchange (EDI) to process your transactions and transmit all your purchasing documents.<\/span><\/p>\n<p class=\"c6\"><span class=\"c1\">The Internet provides an additional benefit to purchasing managers by helping them communicate with suppliers and potential suppliers. They can use the Internet to give suppliers specifications for parts and supplies, encourage them to bid on future materials needs, alert them to changes in requirements, and give them instructions on doing business with their employers. Using the Internet for business purchasing cuts the costs of purchased products and saves administrative costs related to transactions. It\u2019s also faster for procurement and fosters better communications.<\/span><\/p>\n<h2 class=\"c2\">Inventory Control<\/h2>\n<p class=\"c6\"><span class=\"c1\">If a manufacturer runs out of the materials it needs for production, then production stops. In the past, many companies guarded against this possibility by keeping large inventories of materials on hand. It seemed like the thing to do at the time, but it often introduced a new problem \u2014 wasting money. Companies were paying for parts and other materials that they wouldn\u2019t use for weeks or even months, and in the meantime, they were running up substantial storage and insurance costs. If the company redesigned its products, some parts might become obsolete before ever being used.<\/span><\/p>\n<p class=\"c6\">Most manufacturers have since learned that to remain competitive, they need to manage inventories more efficiently. This task requires that they strike a balance between two threats to productivity: losing production time because they\u2019ve run out of materials and wasting money because they\u2019re carrying too much inventory. The process of striking this balance is called <span class=\"c19\">inventory control<\/span><span class=\"c1\">, and companies now regularly rely on a variety of inventory-control methods.<\/span><\/p>\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Just-in-Time Production<\/span><\/h2>\n<p class=\"c6\">One method is called <span class=\"c19\">just-in-time<\/span><span class=\"c1\">\u00a0(JIT) production: the manufacturer arranges for materials to arrive at production facilities just in time to enter the manufacturing process. Parts and materials don\u2019t sit unused for long periods, and the costs of \u201cholding\u201d inventory are significantly cut. JIT, however, requires considerable communication and cooperation between the manufacturer and the supplier. The manufacturer has to know what it needs and when. The supplier has to commit to supplying the right materials, of the right quality, at exactly the right time.<\/span><\/p>\n<div class=\"textbox\">Education, although not a business, still adopts business innovations to boost efficiency. Many institutions are moving to JIT printing or printing on demand. Rather than estimating the need and then ordering textbooks, only to return the vast majority, more and more educational bookstores are printing your textbook when you order it. New technologies allow the bookstores to produce a high-quality, bound textbook on site. The open library from BCcampus in British Columbia is harnessing this efficiency. You can order a low cost, high-quality print version of our textbooks thanks to our partnership with the Simon Fraser University and its commitment to student savings.<\/div>\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Material Requirements Planning<\/span><\/h2>\n<p class=\"c6\">A software tool called <span class=\"c19\">material requirements planning<\/span><span class=\"c1\">\u00a0(MRP), relies on sales forecasts and ordering lead times for materials to calculate the quantity of each component part needed for production and then determine when they should be ordered or made. The detailed sales forecast is turned into a master production schedule (MPS), which MRP then expands into a forecast for the needed parts based on the bill of materials for each item in the forecast. A bill of materials is simply a list of the various parts that make up the end product. The role of MRP is to determine the anticipated need for each part based on the sales forecast and to place orders so that everything arrives just in time for production.<\/span><\/p>\n<h1 class=\"c68\">G<span class=\"c33 c19\">raphical Tools: Gantt and PERT Charts<\/span><\/h1>\n<p class=\"c6\"><span class=\"c1\">To control the timing of all operations, managers set up schedules: they select jobs to be performed during the production process, assign tasks to work groups, set timetables for the completion of tasks, and make sure that resources will be available when and where they\u2019re needed. There are a number of scheduling techniques. We\u2019ll focus on two of the most common\u2014Gantt and PERT charts.<\/span><\/p>\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Gantt Charts<\/span><\/h2>\n<p class=\"c64 c37 c52\">A <span class=\"c19\">Gantt chart<\/span><span class=\"c1\">, named after the designer, Henry Gantt, is an easy-to-use graphical tool that helps operations managers determine the status of projects. Let\u2019s say that you\u2019re in charge of making the \u201chiking bear\u201d offered by the Toronto Teddy Bear Company. Below is a Gantt chart for the production of one hundred of these bears. As you can see, it shows that several activities must be completed before the bears are dressed: the fur has to be cut, stuffed, and sewn; and the clothes and accessories must be made. Our Gantt chart tells us that by day six, all accessories and clothing have been made. The sewing and stuffing, however (which must be finished before the bears are dressed), isn\u2019t scheduled for completion until the end of day eight. As operations manager, you\u2019ll have to pay close attention to the progress of the sewing and stuffing operations to ensure that finished products are ready for shipment by their scheduled date.<\/span><\/p>\n<figure id=\"attachment_98\" aria-describedby=\"caption-attachment-98\" style=\"width: 668px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-98 size-full\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/teddy-bear-prod.png\" alt=\"\" width=\"668\" height=\"359\" \/><figcaption id=\"caption-attachment-98\" class=\"wp-caption-text\">Chart 13.3 Gantt chart for producing Toronto teddy bears.<\/figcaption><\/figure>\n<h2 class=\"c2 c55\"><span class=\"c45 c3 c36\">PERT Charts<\/span><\/h2>\n<p class=\"c6 c37\">Gantt charts are useful when the production process is fairly simple and the activities aren\u2019t interrelated. For more complex schedules, operations managers may use <span class=\"c19\">PERT charts<\/span>. PERT (which stands for Program Evaluation and Review Technique) is designed to diagram the activities required to produce a good, specify the time required to perform each activity in the process, and organize activities in the most efficient sequence. It also identifies a <span class=\"c19\">critical path<\/span><span class=\"c1\">: the sequence of activities that will entail the greatest amount of time. Below is a PERT diagram showing the process for producing one \u201chiker\u201d bear at Toronto Teddy Bear.<\/span><\/p>\n<p class=\"c6\"><span class=\"c1\">Our PERT chart shows how the activities involved in making a single bear are related. It indicates that the production process begins at the cutting station. Next, the fur that\u2019s been cut for this particular bear moves first to the sewing and stuffing stations and then to the dressing station. At the same time that its fur is moving through this sequence of steps, the bear\u2019s clothes are being cut and sewn and its T-shirt is being embroidered. Its backpack and tent accessories are also being made at the same time. Note that fur, clothes, and accessories all meet at the dressing station, where the bear is dressed and outfitted with its backpack. Finally, the finished bear is packaged and shipped to the customer\u2019s house.<\/span><\/p>\n<p class=\"c6 c37\">What was the critical path in this process? The path that took the longest amount of time was the sequence that included cutting, stuffing, dressing, packaging, and shipping\u2014a sequence of steps taking sixty-five minutes. If you wanted to produce a bear more quickly, you\u2019d have to save time on this path. Even if you saved the time on any of the other paths, you still wouldn\u2019t finish the entire job any sooner: the finished clothes would just have to wait for the fur to be sewn and stuffed and moved to the dressing station. We can gain efficiency only by improving our performance on one or more of the activities along the critical path.<\/p>\n<figure id=\"attachment_99\" aria-describedby=\"caption-attachment-99\" style=\"width: 711px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-99 size-full\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/Pert-Chart.png\" alt=\"\" width=\"711\" height=\"399\" \/><figcaption id=\"caption-attachment-99\" class=\"wp-caption-text\">Chart 13.4 PERT chart for Toronto teddy bears<\/figcaption><\/figure>\n<h1 class=\"c68\">The Technology of Goods Production<\/h1>\n<p class=\"c6\"><span class=\"c1\">PowerSki founder and CEO Bob Montgomery spent sixteen years designing the Jetboard and bringing it to production. At one point, in his efforts to get the design just right, he\u2019d constructed thirty different prototypes. Montgomery thought that he could handle the designing of the engine without the aid of a computer. Before long, however, he realized that it was impossible to keep track of all the changes.<\/span><\/p>\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Computer-Aided Design<\/span><\/h2>\n<p class=\"c6\">That\u2019s when Montgomery turned to computer technology for help and began using a <span class=\"c19\">computer-aided design<\/span><span class=\"c1\">\u00a0(CAD) software package to design not only the engine but also the board itself and many of its components. The CAD program enabled Montgomery and his team of engineers to test the product digitally and work out design problems before moving to the prototype stage.<\/span><\/p>\n<p class=\"c6 c37\"><span class=\"c1\">The sophisticated CAD software allowed Montgomery and his team to put their design paper in a drawer and to start building both the board and the engine on a computer screen. By rotating the image on the screen, they could even view the design from every angle. Having used their CAD program to make more than four hundred design changes, they were ready to test the Jetboard in the water. During the tests, onboard sensors transmitted data to computers, allowing the team to make adjustments from the shore while the prototype was still in the water. Nowadays, PowerSki uses collaboration software to transmit design changes to the suppliers of the 340 components that make up the Jetboard. In fact, a majority of design work these days is done with the aid of computers, which add speed and precision to the process.<\/span><\/p>\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Computer-Aided Manufacturing<\/span><\/h2>\n<p class=\"c6\">For many companies, the next step is to link CAD to the manufacturing process. A <span class=\"c19\">computer-aided manufacturing<\/span><span class=\"c1\">\u00a0(CAM) software system determines the steps needed to produce the component and instructs the machines that do the work. Because CAD and CAM programs can \u201ctalk\u201d with each other, companies can build components that satisfy exactly the requirements set by the computer-generated model. CAD\/CAM systems permit companies to design and manufacture goods faster, more efficiently, and at a lower cost, and they\u2019re also effective in helping firms monitor and improve quality. CAD\/CAM technology is used in many industries, including the auto industry, electronics, and clothing. If you have ever seen how a 3-D printer works, you have a pretty good idea of how CAM works too.<\/span><\/p>\n<h2 class=\"c2\"><span class=\"c3 c36 c45\">Computer-Integrated Manufacturing<\/span><\/h2>\n<p class=\"c6 c37\">By automating and integrating all aspects of a company\u2019s operations, <span class=\"c19\">computer-integrated manufacturing<\/span> (CIM) systems have taken the integration of computer-aided design and manufacturing to a higher level \u2014 and are in fact revolutionizing the production process. CIM systems expand the capabilities of CAD\/CAM. In addition to design and production applications, they handle such functions as order entry, inventory control, warehousing, and shipping. In the manufacturing plant, the CIM system controls the functions of industrial robot \u2014 computer-controlled machines used to perform repetitive tasks that are also hard or dangerous for human workers to perform.<\/p>\n<h1 class=\"c65\"><span class=\"c33 c19\">Operations Management for Service Providers<\/span><\/h1>\n<p class=\"c6\">As the Canadian economy has changed from a goods producer to a service provider over the last sixty years, the dominance of the manufacturing sector has declined substantially. Today, only about 10 percent of Canadian workers are employed in manufacturing, in contrast to 30 percent in 1950.<a class=\"footnote\" title=\"Janzen, N. (2017). The Decline in Manufacturing\u2019s Share of Total Canadian Output \u2013 A Source of Concern? RBC Economics. http:\/\/www.rbc.com\/economics\/economic-reports\/pdf\/other-reports\/Manufacturing%20Trends-Feb2017.pdf\" id=\"return-footnote-88-3\" href=\"#footnote-88-3\" aria-label=\"Footnote 3\"><sup class=\"footnote\">[3]<\/sup><\/a>\u00a0Most of us now hold jobs in the <span class=\"c19\">service sector<\/span>, which accounts for approximately 80 percent of Canadian jobs.<a class=\"footnote\" title=\"Statistics Canada. Table 14-10-0023-01 Labour force characteristics by industry, annual (x 1,000). https:\/\/doi.org\/10.25318\/1410002301-eng\" id=\"return-footnote-88-4\" href=\"#footnote-88-4\" aria-label=\"Footnote 4\"><sup class=\"footnote\">[4]<\/sup><\/a> In 2013, Walmart was America\u2019s largest employer, followed by McDonald\u2019s, United Parcel Service (UPS), Target and Kroger. Not until we drop down to the ninth-largest employer \u2014 Hewlett Packard \u2014 do we find a company with a manufacturing component.<a class=\"footnote\" title=\"Hess, A. E. M. (2013, August 22). The 10 largest employers in America. USA Today. https:\/\/eu.usatoday.com\/story\/money\/business\/2013\/08\/22\/ten-largest-employers\/2680249\/\" id=\"return-footnote-88-5\" href=\"#footnote-88-5\" aria-label=\"Footnote 5\"><sup class=\"footnote\">[5]<\/sup><\/a><\/p>\n<p class=\"c6\"><span class=\"c1\">Though the primary function of both manufacturers and service providers is to satisfy customer needs, there are several important differences between the two types of operations. Let\u2019s focus on three of them:<\/span><\/p>\n<ul class=\"c35 lst-kix_list_10-0 start\">\n<li class=\"c10\"><span class=\"c39 c41 c19\">Intangibility<\/span><span class=\"c1\">. Manufacturers produce tangible products \u2014 things that can be touched or handled, such as automobiles and appliances. Service companies provide intangible products, such as banking, entertainment, or education.<\/span><\/li>\n<li class=\"c10\"><span class=\"c39 c41 c19\">Customization<\/span><span class=\"c1\">. Most manufactured goods are standardized. Services, by contrast, are often customized to satisfy the specific needs of a customer. For example, when you go to the hairdresser, you ask for a haircut that looks good on you because of the shape of your face and the texture of your hair. <\/span><\/li>\n<li class=\"c38 c44\"><span class=\"c39 c41 c19\">Customer contact<\/span><span class=\"c1\">. You could spend your entire working life assembling cars in Oshawa in Ontario and never meet a customer who bought a car that you helped to make. But if you were a restaurant server, you\u2019d interact with customers every day. In fact, their satisfaction with your product would be determined in part by the service that you provided. Unlike manufactured goods, many services are bought and consumed at the same time.<\/span><\/li>\n<\/ul>\n<figure id=\"attachment_100\" aria-describedby=\"caption-attachment-100\" style=\"width: 300px\" class=\"wp-caption alignright\"><a href=\"https:\/\/commons.wikimedia.org\/wiki\/File:Burger_King_in_London.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-100 size-medium\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/Burger-King-in-London-England-scaled.jpg\" alt=\"Exterior, at night, of a busy Burger King restaurant. The signage is neon with the BK logo and name prominently displayed.\" width=\"300\" height=\"224\" \/><\/a><figcaption id=\"caption-attachment-100\" class=\"wp-caption-text\">Figure 13.3 Exterior of Burger King restaurant. Source Wikimedia<\/figcaption><\/figure>\n<p class=\"c6\">Here is just one of the over twelve thousand Burger King restaurants across the globe. Not surprisingly, operational efficiency is just as important in service industries as it is in manufacturing. To get a better idea of the role of operations management in the service sector, we\u2019ll look closely at Burger King (BK).\u00a0BK<span class=\"c1\">\u00a0has grown substantially since selling the first Whopper (for $0.37) almost half a century ago. The instant success of the fire-grilled burger encouraged the Miami founders of the company to expand by selling franchises.<\/span><\/p>\n<p class=\"c6\">Today, there are BK company-owned and independently-owned franchised restaurants in 100 countries, and they employ over 34,000 people.<a class=\"footnote\" title=\"Restaurant Brands International Limited Partnership (2016). 2015 SEC Form 10-K Annual Report. https:\/\/s26.q4cdn.com\/317237604\/files\/doc_financials\/2016\/ar\/Restaurant-Brands-International-Limited-Partnership-2015-SEC-Form-10-K-An.pdf\" id=\"return-footnote-88-6\" href=\"#footnote-88-6\" aria-label=\"Footnote 6\"><sup class=\"footnote\">[6]<\/sup><\/a> More than eleven million customers visit BK each day.<a class=\"footnote\" title=\"Burger King. (n.d.). About Us. https:\/\/www.bk.com\/about-bk\" id=\"return-footnote-88-7\" href=\"#footnote-88-7\" aria-label=\"Footnote 7\"><sup class=\"footnote\">[7]<\/sup><\/a> Burger King even purchased Tim Hortons in December of 2014. The acquisition was made for $12 billion, making Burger King the third largest fast food service restaurant chain in the world. The company even moved its headquarters to Canada to assume a new tax nationality in order to reduce the corporate taxes the organization pays in the U.S.<\/p>\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Operations Planning<\/span><\/h2>\n<p class=\"c6\"><span class=\"c1\">When starting or expanding operations, businesses in the service sector must make a number of decisions quite similar to those made by manufacturers:<\/span><\/p>\n<ul class=\"c35 lst-kix_list_11-0 start\">\n<li class=\"c10\"><span class=\"c1\">What services (and perhaps what goods) should they offer?<\/span><\/li>\n<li class=\"c10\"><span class=\"c1\">Where will they locate their business, and what will their facilities look like?<\/span><\/li>\n<li class=\"c38 c44\"><span class=\"c1\">How will they forecast demand for their services?<\/span><\/li>\n<\/ul>\n<p class=\"c6\">Let\u2019s see how service firms like BK answer questions such as these.<a class=\"footnote\" title=\"Information on Burger King was obtained from an interview with David Sell, former vice president of Central, Eastern, and Northern Europe divisions and president of Burger King France and Germany.\" id=\"return-footnote-88-8\" href=\"#footnote-88-8\" aria-label=\"Footnote 8\"><sup class=\"footnote\">[8]<\/sup><\/a><\/p>\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Operations Processes<\/span><\/h2>\n<p class=\"c6 c37\"><span class=\"c1\">Service organizations succeed by providing services that satisfy customers\u2019 needs. Companies that provide transportation, such as airlines, have to get customers to their destinations as quickly and safely as possible. Companies that deliver packages, such as FedEx, must pick up, sort, and deliver packages in a timely manner. Companies that provide both services and goods, such as Domino\u2019s Pizza, have a dual challenge: they must produce a quality good and deliver it satisfactorily.<\/span><\/p>\n<p class=\"c6\">Service providers that produce goods can adopt either a <span class=\"c19\">make-to-order<\/span>\u00a0or a <span class=\"c19\">make-to-stock<\/span>\u00a0approach to producing them. BK,<span class=\"c1\">\u00a0which encourages patrons to customize burgers and other menu items, uses a make-to-order approach, building sandwiches one at a time. Meat patties, for example, go from the grill to a steamer for holding until an order comes in. Although many fast food restaurants have adopted the make-to-order model, a few continue to make-to-stock. For example, Dunkin\u2019 Donuts does not customize doughnuts, and so they do not have to wait for customer orders before making them.<\/span><\/p>\n<p class=\"c6\">Like manufacturers, service providers must continuously look for ways to improve <span class=\"c19\">operational efficiency<\/span>. Throughout its sixty-year history, BK has introduced a number of innovations that have helped make the company (as well as the fast-food industry itself) more efficient. BK, for example, was the first to offer drive-through service (which now accounts for over 50 percent of its sales).<a class=\"footnote\" title=\"NPD (2012). Drive-Thru Windows Still Put the Fast in Fast Food Restaurants. Reports NPD. https:\/\/planning.lacity.org\/eir\/8150Sunset\/References\/4.E.%20Greenhouse%20Gas%20Emissions\/GHG.41_NPD%20Fast%20Food.pdf\" id=\"return-footnote-88-9\" href=\"#footnote-88-9\" aria-label=\"Footnote 9\"><sup class=\"footnote\">[9]<\/sup><\/a><\/p>\n<p class=\"c6\">It was also BK Vice President David Sell<span class=\"c1\">\u00a0who came up with the idea of moving the drink station from behind the counter so that customers could take over the time-consuming task of filling cups with ice and beverages. BK was able to cut back one employee per day at every one of its more than eleven thousand restaurants. Material costs also went down because customers usually fill cups with more ice, which is cheaper than a beverage. Moreover, there were savings on supply costs because most customers don\u2019t bother with lids, and many don\u2019t use straws. On top of everything else, most customers liked the system (for one thing, it allowed them to customize their own drinks by mixing beverages), and as a result, customer satisfaction went up. Overall, the new process was a major success and quickly became the industry standard.<\/span><\/p>\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Facilities<\/span><\/h2>\n<p class=\"c6\"><span class=\"c1\">When starting or expanding a service business, owners and managers must invest a lot of time in selecting a location, determining its size and layout, and forecasting demand. A poor location or a badly designed facility can cost customers, and inaccurate estimates of demand for products can result in poor service, excessive costs, or both.<\/span><\/p>\n<h3 class=\"c57\"><span class=\"c11 c3\">Site Selection<\/span><\/h3>\n<p class=\"c6\"><span class=\"c19\">Site selection<\/span> is also critical in the service industry, but not for the same reasons as in the manufacturing industry. Service businesses need to be accessible to customers. Some service businesses, such as cable-TV providers, package-delivery services, and e-retailers, go to their customers. Many others, however \u2014 hotels, restaurants, stores, hospitals, and airports \u2014 have to attract customers to their facilities. These businesses must locate where there\u2019s a high volume of available customers. In picking a location, BK planners perform a detailed analysis of demographics and traffic patterns; the most important factor is usually traffic count\u2014the number of cars or people that pass by a specific location in the course of a day. In Canada, where we travel almost everywhere by car, BK looks for busy intersections, highway interchanges with easy off and on ramps, or such \u201cprimary destinations\u201d as shopping malls, tourist attractions, downtown business areas, or movie theaters. In Europe, where public transportation is much more common, planners focus on subway, train, bus, and trolley stops.<\/p>\n<p class=\"c6\"><span class=\"c1\">Once planners find a site with an acceptable traffic count, they apply other criteria. For example, it must be easy for vehicles to enter and exit the site, which must also provide enough parking to handle projected dine-in business. Local zoning must permit standard signage, especially along major highways. Finally, expected business must be high enough to justify the cost of the land and building.<\/span><\/p>\n<h3 class=\"c57\"><span class=\"c11 c3\">Size and Layout<\/span><\/h3>\n<p class=\"c6\"><span class=\"c1\">In the service sector, most businesses must design their facilities with the customer in mind; they must accommodate the needs of their customers while keeping costs as low as possible. Let\u2019s see how BK has met this challenge.<\/span><\/p>\n<p class=\"c6 c37\"><span class=\"c1\">For its first three decades, almost all BK restaurants were pretty much the same. They all sat on one acre of land (located \u201cthrough the light and to the right\u201d), had about four thousand square feet of space, and held seating for seventy customers. All kitchens were roughly the same size. As long as land was cheap and sites were readily available, this system worked well. By the early 1990s, however, most of the prime sites had been taken, if not by BK itself, then by one of its fast-food competitors or other businesses needing a choice spot, including gas stations and convenience stores. With everyone bidding on the same sites, the cost of a prime acre of land had increased from $100,000 to over $1 million in a few short years.<\/span><\/p>\n<p class=\"c6\"><span class=\"c1\">To continue growing, BK needed to change the way it found and developed its locations. Planners decided that they had to find ways to reduce the size of a typical BK restaurant. For one thing, they could reduce the number of seats, because the business at a typical outlet had shifted over time from 90 percent inside dining to a 50-50 split between drive through and eat-in service. <\/span><\/p>\n<p class=\"c6\"><span class=\"c1\">David Sell (the same executive who had recommended letting customers fill their own drink cups) proposed to save space by wrapping Whoppers in paper instead of serving them in the cardboard boxes that took up more space. So BK switched to a single paper wrapper with the label \u201cWhopper\u201d on one side and \u201cCheese Whopper\u201d on the other. To show which product was inside, employees just folded the wrapper in the right direction. Ultimately, BK replaced pallets piled high with boxes with just a few boxes of wrappers.<\/span><\/p>\n<p class=\"c6\">Ideas like these helped BK trim the size of a restaurant from four thousand square feet to as little as one thousand. In turn, smaller facilities enabled the company to enter markets that were once cost prohibitive. Now BK could locate profitably in airports, food courts, strip malls, centre-city areas, and even schools.<\/p>\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Capacity Planning<\/span><\/h2>\n<p class=\"c6 c37\">Estimating <span class=\"c19\">capacity<\/span><span class=\"c1\">\u00a0needs for a service business isn\u2019t the same thing as estimating those of a manufacturer. Service providers can\u2019t store their products for later use: hairdressers can\u2019t \u201cinventory\u201d haircuts, and amusement parks can\u2019t \u201cinventory\u201d roller-coaster rides. Service firms have to build sufficient capacity to satisfy customers\u2019 needs on an \u201cas-demanded\u201d basis. Like manufacturers, service providers must consider many variables when estimating demand and capacity:<\/span><\/p>\n<ul class=\"c35 lst-kix_list_12-0 start\">\n<li class=\"c10\"><span class=\"c1\">How many customers will I have?<\/span><\/li>\n<li class=\"c10\"><span class=\"c1\">When will they want my services (which days of the week, which times of the day)?<\/span><\/li>\n<li class=\"c10\"><span class=\"c1\">How long will it take to serve each customer?<\/span><\/li>\n<li class=\"c38 c44\"><span class=\"c1\">How will external factors, such as weather or holidays, affect the demand for my services?<\/span><\/li>\n<\/ul>\n<p class=\"c6\"><span class=\"c1\">Forecasting demand is easier for companies like BK, which has a long history of planning facilities, than for brand-new service businesses. BK can predict sales for a new restaurant by combining its knowledge of customer-service patterns at existing restaurants with information collected about each new location, including the number of cars or people passing the proposed site and the effect of nearby competition.<\/span><\/p>\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Managing Operations<\/span><\/h2>\n<p class=\"c6\">Overseeing a service organization puts special demands on managers, especially those running firms, such as hotels, retail stores, and restaurants, who have a high degree of contact with customers. Service firms provide customers with personal attention and must satisfy their needs in a timely manner. This task is complicated by the fact that demand can vary greatly over the course of any given day. Managers, therefore, must pay particular attention to employee work schedules and, in many cases, inventory management.<\/p>\n<p class=\"c6 c37\">Managing service operations is about more than efficiency of service. It is about finding a balance between profitability, innovation, customer satisfaction and associate satisfaction, sometimes referred to as the <span class=\"c19\">balance scorecard<\/span>. The balance scorecard model utilizes <span class=\"c19\">360 degree feedback<\/span>, a process of collecting feedback from all of a business&#8217;s stakeholders, in order to improve operational efficiency.<\/p>\n<p class=\"c6\">In his book entitled <em><span class=\"c36\">Moments of Truth<\/span><\/em>, Jan Carlzon, former Chief Executive Office of SAS Group, refers to those moments when an employee interacts with a customer.<a class=\"footnote\" title=\"Carlzon, J. (1987). Moments of Truth. Cambridge, MA: Ballinger Publishing Company.\" id=\"return-footnote-88-10\" href=\"#footnote-88-10\" aria-label=\"Footnote 10\"><sup class=\"footnote\">[10]<\/sup><\/a> <span class=\"c1\">Moments can range from calling a help line, checking in at an airline counter, the greeting from a hostess in a restaurant to resolving a maintenance problem in a hotel guest room. The quality of staff a company hires, how they train their employees, and the focus management places on creating a culture of service, will determine how successful the company is in service delivery and maximizing the impact of these moments of truth.<\/span><\/p>\n<p class=\"c6 c37\"><span class=\"c1\">The Ritz-Carlton hotel company maximizes their moments of truth by living their motto, \u201cWe are Ladies and Gentleman serving Ladies and Gentleman\u201d. Ritz-Carlton&#8217;s Three Steps of Service are:<\/span><\/p>\n<ol class=\"c35 lst-kix_list_13-0 start\" start=\"1\">\n<li class=\"c64 c67\"><span class=\"c1\">A warm and sincere greeting. Use the guest\u2019s name.<\/span><\/li>\n<li class=\"c64 c67\"><span class=\"c1\">Anticipation and fulfillment of each of the needs of each guest.<\/span><\/li>\n<li class=\"c38 c67\"><span class=\"c1\">Fond farewell. Give a warm good-bye and use the guest\u2019s name.<\/span><a class=\"footnote\" title=\"The Ritz-Carlton. (n.d.). Gold Standards. https:\/\/www.ritzcarlton.com\/en\/about\/gold-standards\" id=\"return-footnote-88-11\" href=\"#footnote-88-11\" aria-label=\"Footnote 11\"><sup class=\"footnote\">[11]<\/sup><\/a><\/li>\n<\/ol>\n<p class=\"c6\"><span class=\"c1\">Ritz-Carlton reinforces this service culture daily in short meetings with all staff at the beginning of each shift.<\/span><\/p>\n<p class=\"c6\">Chick-fil-A is recognized as an industry leader in service for the fast food industry in the United States. \u00a0Chick-fil-A uses the term \u201cmy pleasure\u201d which founder S. Truett Cathy credits to Ritz-Carlton.<a class=\"footnote\" title=\"Kelso, A. (2020, July 11). Business lessons from the late founder of Chick-fil-A. QSRweb. https:\/\/www.qsrweb.com\/articles\/business-lessons-from-the-late-founder-of-chick-fil-a\/\" id=\"return-footnote-88-12\" href=\"#footnote-88-12\" aria-label=\"Footnote 12\"><sup class=\"footnote\">[12]<\/sup><\/a> The company follows customer-centred leadership. Staff focus on being swift and attentive to customer needs. Chick-fil-A uses this YouTube video as part of their employee orientation and training: <span class=\"c60\"><a class=\"c22\" href=\"https:\/\/www.google.com\/url?q=https:\/\/www.youtube.com\/watch?v%3D2v0RhvZ3lvY&amp;sa=D&amp;ust=1524627998000000\">\u201cEvery life has a story\u201d<\/a><\/span><span class=\"c1\">.<\/span><\/p>\n<p>The video \u201cEvery life has a story\u201d shows different segments of our population and their stories. It shows that employees as well as customers are people with their own life stories, and that it is important for us all to be kind, respectful and compassionate.<\/p>\n<p><a href=\"https:\/\/youtu.be\/2v0RhvZ3lvY\">https:\/\/youtu.be\/2v0RhvZ3lvY<\/a><\/p>\n<p class=\"c6\">Well-known blogger and marketing consultant Marcus Sheridan explains his view of the success of Chick-fil-A in this blog post:<a class=\"footnote\" title=\"Sheridan, M. (2021, February 5). 8 Reasons Why Chick-fil-A has the Best Business Model in America. Impact. https:\/\/www.impactplus.com\/blog\/reasons-chick-fil-best-business-model\" id=\"return-footnote-88-13\" href=\"#footnote-88-13\" aria-label=\"Footnote 13\"><sup class=\"footnote\">[13]<\/sup><\/a><\/p>\n<div class=\"textbox shaded\">\n<p class=\"c28 c27\"><span class=\"c1\">Dang I love it when I see great people and great businesses kicking butt at what they do. Such was the case recently when the fam and I stopped into a local Chick-fil-A restaurant here in Virginia and I was treated to a free course entitled, \u201cThis is How To Run a Business that Kicks Butt and Takes Names\u2026.\u201d, or at least that something like that \u2026..<\/span><\/p>\n<p class=\"c28 c27\"><span class=\"c1\">As the kids were all eating their food and I was busy being blown away by this perfect company and business model, I decided to ask my 9 year old daughter a simple question:<\/span><\/p>\n<p class=\"c28 c56\"><span class=\"c36 c19\">Me<\/span><span class=\"c24\">: Danielle, what do you notice about this restaurant that\u2019s different than others?<\/span><\/p>\n<p class=\"c28 c56\"><span class=\"c19 c36\">Danielle<\/span><span class=\"c24\">\u00a0(by now used to weird business questions from her father): Well, first of all everyone that works here is happy.<\/span><\/p>\n<p class=\"c28 c56\"><span class=\"c36 c19\">Me<\/span><span class=\"c24\">: Yes, they are, aren\u2019t they? How\u2019s that make you feel to see them smiling?<\/span><\/p>\n<p class=\"c28 c56\"><span class=\"c36 c19\">Danielle<\/span><span class=\"c24\">: It makes me feel good inside.<\/span><\/p>\n<p class=\"c28 c56\"><span class=\"c36 c19\">Me<\/span><span class=\"c24\">: I agree\u2026What else do you notice?<\/span><\/p>\n<p class=\"c28 c56\"><span class=\"c36 c19\">Danielle<\/span><span class=\"c24\">: There are pictures everywhere. And writings on the walls. And it\u2019s really clean.<\/span><\/p>\n<p class=\"c28 c56\"><span class=\"c36 c19\">Me<\/span><span class=\"c24\">: Good observations dear. Danielle, you\u2019re looking at the most well run business in America.<\/span><\/p>\n<p class=\"c28 c27\"><span class=\"c1\">For any of you that have been to Chick-fil-A before, you may already understand and appreciate what I\u2019m talking about. If you haven\u2019t gone to one and would like 4 years\u2019 worth of business school wrapped up in 45 minutes, then take a stroll on over to one of their restaurants for lunch and just sit, watch, and observe.<\/span><\/p>\n<p class=\"c28 c27\"><span class=\"c1\">But to make what could be a long blog much shorter, allow me to quickly list the 8 reasons why Chick-fil-A has the best business model in America.<\/span><\/p>\n<p class=\"c28 c27\"><span class=\"c19\">Happy Employees\/Service<\/span><span class=\"c1\">: It\u2019s unbelievable what type of employees this company has. Heck, while we were eating our meal the other day, an employee with a big smile came over and asked us if we\u2019d like refills on our drinks. For a fast food company, this is utterly unheard of in our society these days. It\u2019s obvious that Chick-fil-A doesn\u2019t go cheap on their people nor their way of doing things. I\u2019m sure they pay decent wages but they also create an atmosphere that attracts great people. What a wonderful model this is for any business.<\/span><\/p>\n<p class=\"c28 c27\"><span class=\"c19\">They\u2019re Clean!<\/span><span class=\"c1\">: Somewhere along the lines sanitation and cleanliness became a lost art in the fast food industry. Notwithstanding this trend, Chick-fil-A has bucked the system and their restaurants, as well as their bathrooms, are almost always immaculate. I don\u2019t know about you, but I\u2019ll pay more for clean any day of the week.<\/span><\/p>\n<p class=\"c27 c28\"><span class=\"c19\">They Know What They\u2019re GREAT At<\/span><span class=\"c1\">: Most businesses try to be a jack of all trades, which ends up causing them to be master of none. That\u2019s why Chick-fil-A will never have a burger on their menu. Why? Because they don\u2019t care. They know they\u2019ll never be the best at beef but they sure as heck have created a culture around the chicken sandwich. Wow, what a lesson this is for those businesses out there with no identity, niche, or individual greatness.<\/span><\/p>\n<p class=\"c28 c27\"><span class=\"c19\">They Ain\u2019t Cheap<\/span><span class=\"c1\">: Yep, having high prices is actually a GOOD business model. I don\u2019t know about you, but the idea of having to sell a lot to make a little stinks. Chick-fil-A has prices a good bit higher than most of their fast food competitors, notwithstanding they are always full of smiling customers, just waiting to spend the extra green stamps. These higher prices lead to better employees, service, food quality, customers, etc. I\u2019m sure never once has their management even asked, \u201cHow can we be the cheapest?\u201d But I\u2019d bet my home they\u2019ve asked, \u201cHow can we be the best, regardless of what it costs?\u201d<\/span><\/p>\n<p class=\"c28 c27\"><span class=\"c19\">Ambiance<\/span><span class=\"c1\">: The next time you go to Chick-fil-A check out all the little things they do to make their restaurants warm and attractive. They have photos of employees, quotes on the walls, paintings from local children, etc. Everywhere you look in one of their stores you\u2019ll find something that makes you smile.<\/span><\/p>\n<p class=\"c28 c27\"><span class=\"c19\">Community Involvement<\/span><span class=\"c1\">: Wow do they do this better than any fast food company. In fact, this one isn\u2019t even close. They are constantly doing promos within the community for youth teams, causes, etc. In fact, it\u2019s like they\u2019ve taken social media to another level because for them it\u2019s not just about using Facebook and the like, it\u2019s about actually being involved and in the trenches. Huge props to Chick-fil-A for this.<\/span><\/p>\n<p class=\"c28 c27\"><span class=\"c19\">Awesome Website<\/span><span class=\"c1\">: All of you that read this blog know how I feel about the importance of having a great website and web presence in order to be a successful business. If you want to see what a great business website looks like, head on over. Whether it\u2019s bios of the employees, social media links, customers stories, etc\u2014this site is spot-on.<\/span><\/p>\n<p class=\"c28 c27\"><span class=\"c19\">The Food is Actually Good<\/span><span class=\"c1\">: Ahh yes, lest we forget this other forgotten trait of fast food restaurants\u2014great food. Everybody likes Chick-fil-A. Nothing on their menu is poor quality. They\u2019re proud of their food and they have every right to be.<\/span><\/p>\n<p class=\"c28 c27\"><span class=\"c1\">So there you have it folks\u2014the 8 qualities of the best business model in America. What\u2019s great is that every business can copy the way Chick-fil-A has built their company. The qualities listed above are simply principles that can be applied to any business or any website for that matter. So if you\u2019re lacking inspiration for your business, it might be time for a Chicken Sandwich and waffle fries.<\/span><\/p>\n<p class=\"c28 c27\"><span class=\"c24\">**Author\u2019s Note: It goes without saying that I have no affiliation with Chick-fil-A, I just happen to write about greatness when I see it.<\/span><\/p>\n<\/div>\n<h2 class=\"c2 c55\">\u00a0<span class=\"c45 c3 c36\">Scheduling<\/span><\/h2>\n<p class=\"c6\">In manufacturing, managers focus on scheduling the activities needed to transform raw materials into finished goods. In service organizations, they focus on <span class=\"c19\">scheduling<\/span><span class=\"c1\">\u00a0workers so that they\u2019re available to handle fluctuating customer demand. Each week, therefore, every BK store manager schedules employees to cover not only the peak periods of breakfast, lunch, and dinner, but also the slower periods in between. If he or she staffs too many people, labour cost per sales dollar will be too high. If there aren\u2019t enough employees, customers have to wait in lines. Some get discouraged, and even leave, and many may never come back.<\/span><\/p>\n<p class=\"c6 c37\"><span class=\"c1\">Scheduling is made easier by information provided by a point-of-sale device built into every BK cash register. The register sends data on every sandwich, beverage, and side order sold by the hour, every hour of the day, every day of the week to a computer system that helps managers set schedules. To determine how many people will be needed for next Thursday\u2019s lunch hour, the manager reviews last Thursday\u2019s data, using sales revenue and a specific BK formula to determine the appropriate staffing level. Each manager can adjust this forecast to account for other factors, such as current marketing promotions or a local sporting event that will increase customer traffic.<\/span><\/p>\n<h2 class=\"c2\">Inventory Control<\/h2>\n<p class=\"c6 c37\">Businesses that provide both goods and services, such as retail stores and auto-repair shops, have the same <span class=\"c19\">inventory control<\/span> problems as manufacturers: keeping levels too high costs money, while running out of inventory costs sales. Technology, such as the point-of-sale registers used at BK, makes the job easier. BK\u2019s system tracks everything sold during a given time and lets each store manager know how much of everything should be kept in inventory. It also makes it possible to count the number of burgers and buns, bags and racks of fries, and boxes of beverage mixes at the beginning or end of each shift. Because there are fixed numbers of supplies \u2014 say, beef patties or bags of fries \u2014 in each box, employees simply count boxes and multiply. In just a few minutes, the manager knows whether the inventory is correct (and should be able to see if any theft has occurred on the shift).<\/p>\n<h1 class=\"c68\"><span class=\"c19 c33\">Producing for Quality<\/span><\/h1>\n<p class=\"c6\"><span class=\"c1\">What do you do if your brand-new phone doesn\u2019t work when you get it home? What if you were late for a test because it took you twenty minutes to get a burger and fries at a drive-through window? Like most people, you\u2019d probably be more or less disgruntled. As a customer, you\u2019re constantly assured that when products make it to market, they\u2019re of the highest possible quality, and you tend to avoid brands that have failed to live up to your expectations or to producers\u2019 claims.<\/span><\/p>\n<p class=\"c6 c37\">But what is <span class=\"c19\">quality<\/span>? According to the American Society for Quality, the term quality refers to \u201cthe characteristics of a product or service that bear on its ability to satisfy stated or implied needs.\u201d<a class=\"footnote\" title=\"American Society for Quality. (n.d.). Six Sigma Forum \u2013 Community Home. myASQ. https:\/\/my.asq.org\/communities\/home\/35\/\" id=\"return-footnote-88-14\" href=\"#footnote-88-14\" aria-label=\"Footnote 14\"><sup class=\"footnote\">[14]<\/sup><\/a> <span class=\"c1\">When you buy a mobile phone, you expect it to be able to easily connect and communicate. When you go to a drive-through window, you expect to be served in a reasonable amount of time. If your expectations are not met, you\u2019ll conclude that you\u2019re the victim of poor quality.<\/span><\/p>\n<h2 class=\"c2\">Quality Management<\/h2>\n<p class=\"c6\"><span class=\"c19\">Total quality management <\/span><span class=\"c1\">(TQM), or quality assurance, includes all the steps that a company takes to ensure that its goods or services are of sufficiently high quality to meet customers\u2019 needs. Generally speaking, a company adheres to TQM principles by focusing on three tasks:<\/span><\/p>\n<ol class=\"c35 lst-kix_list_14-0 start\" start=\"1\">\n<li class=\"c64 c67\"><span class=\"c1\">customer satisfaction;<\/span><\/li>\n<li class=\"c64 c67\"><span class=\"c1\">employee involvement; and<\/span><\/li>\n<li class=\"c38 c67\"><span class=\"c1\">continuous improvement.<\/span><\/li>\n<\/ol>\n<p class=\"c6\"><span class=\"c1\">Let\u2019s take a closer look at these three principles.<\/span><\/p>\n<h3 class=\"c57\"><span class=\"c11 c3\">1. Customer Satisfaction<\/span><\/h3>\n<p class=\"c6\">Companies that are committed to TQM understand that the purpose of a business is to generate a profit through <span class=\"c19\">customer satisfaction<\/span><span class=\"c1\">. Thus, they let their customers define quality by identifying desirable product features and then offering them. They encourage customers to tell them how to offer services that work the right way.<\/span><\/p>\n<p class=\"c6\"><span class=\"c1\">Armed with this knowledge, they take steps to make sure that providing quality is a factor in every facet of their operations \u2014 from design, to product planning and control, to sales and service. To get feedback on how well they\u2019re doing, many companies routinely use surveys and other methods to monitor customer satisfaction. By tracking the results of feedback over time, they can see where they need to improve.<\/span><\/p>\n<h3 class=\"c57\"><span class=\"c3 c11\">2. Employee Involvement<\/span><\/h3>\n<p class=\"c6\"><span class=\"c1\">Successful TQM requires that everyone in the organization, not simply upper-level management, commits to satisfying the customer. When customers wait too long at a drive-through window, it\u2019s the responsibility of a number of employees, not the manager alone. A mobile phone isn\u2019t solely the responsibility of the manufacturer\u2019s quality control department; it\u2019s the responsibility of every employee involved in its design, production, and even shipping. To get everyone involved in the drive for quality assurance, managers must communicate the importance of quality to subordinates and motivate them to focus on customer satisfaction. Employees have to be properly trained not only to do their jobs but also to detect and correct quality problems.<\/span><\/p>\n<p class=\"c6\">In many companies, employees who perform similar jobs work as teams, sometimes called <span class=\"c19\">quality circles<\/span><span class=\"c1\">, to identify quality, efficiency, and other work-related problems, to propose solutions, and to work with management in implementing their recommendations.<\/span><\/p>\n<h3 class=\"c57\"><span class=\"c11 c3\">3. Continuous Improvement<\/span><\/h3>\n<p class=\"c6\">An integral part of TQM is <span class=\"c19\">continuous improvement<\/span><span class=\"c1\">: the commitment to making constant improvements in the design, production, and delivery of goods and services.<\/span><\/p>\n<p class=\"c6\"><span class=\"c1\">Improvements can almost always be made to increase efficiency, reduce costs, and improve customer service and satisfaction. Everyone in the organization is constantly on the lookout for ways to do things better.<\/span><\/p>\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Statistical Process Control<\/span><\/h2>\n<p class=\"c6\">Companies can use a variety of tools to identify areas for improvement. A common approach in manufacturing is called<span class=\"c19\">\u00a0statistical process control<\/span>. This technique monitors production quality by testing a sample of output to see whether goods in process are being made according to predetermined specifications. An example of a statistical process control method is Six Sigma. A <span class=\"c19\">Six-Sigma<\/span><span class=\"c1\">\u00a0process is one in which 99.99966% of all opportunities to perform an operation are free of defects. This percentage equates to only 3.4 defects per million opportunities.<\/span><\/p>\n<p class=\"c6\"><span class=\"c1\">Assume for a moment that you work for Kellogg\u2019s, the maker of Raisin Bran cereal. You know that it\u2019s the company\u2019s goal to pack two scoops of raisins in every box of cereal.<\/span><\/p>\n<p class=\"c6\"><span class=\"c1\">How can you test to determine whether this goal is being met? You could use a statistical process control method called a sampling distribution. On a periodic basis, you would take a box of cereal off the production line and measure the amount of raisins in the box. Then you\u2019d record that amount on a control chart designed to compare actual quantities of raisins with the desired quantity (two scoops). If your chart shows that several samples in a row are low on raisins, you\u2019d take corrective action.<\/span><\/p>\n<h2 class=\"c2\"><span class=\"c45 c3 c36\">Outsourcing<\/span><\/h2>\n<p class=\"c6\">PowerSki\u2019s website states that \u201cPowerSki International has been founded to bring a new watercraft, the PowerSki Jetboard, and the engine technology behind it, to market.\u201d<a class=\"footnote\" title=\"Powerski (2005). About Powerski International. http:\/\/www.powerski.com\/aboutpsi.htm\" id=\"return-footnote-88-15\" href=\"#footnote-88-15\" aria-label=\"Footnote 15\"><sup class=\"footnote\">[15]<\/sup><\/a>\u00a0That goal was reached in May 2003, when the firm emerged from a lengthy design period. Having already garnered praise for its innovative product, PowerSki was ready to begin mass-producing Jetboards. At this juncture, the management team made a strategic decision; rather than producing Jetboards in-house, they opted for <span class=\"c19\">outsourcing<\/span><span class=\"c1\">: having outside vendors manufacture the engines, fiberglass hulls, and associated parts. Assembly of the final product took place in a manufacturing facility owned by All American Power Sports in Moses Lake, Washington. This decision doesn\u2019t mean that the company relinquished control over quality; in fact, every component that goes into the PowerSki Jetboard is manufactured to exact specifications set by PowerSki. One advantage of outsourcing its production function is that the management team can thereby devote its attention to refining its product design and designing future products.<\/span><\/p>\n<h3 class=\"c57\"><span class=\"c11 c3\">Outsourcing in the Manufacturing Sector<\/span><\/h3>\n<p class=\"c6\"><span class=\"c1\">Outsourcing has become an increasingly popular option among manufacturers. For one thing, few companies have either the expertise or the inclination to produce everything needed to make a product. Today, more firms, like PowerSki, want to specialize in the processes that they perform best \u2014 and outsource the rest. Like PowerSki, they also want to take advantage of outsourcing by linking up with suppliers located in regions with lower labour costs. Outsourcing can be local, regional, or even international, and companies can outsource everything from parts for their products, like automobile manufacturers do, to complete manufacturing of their products, like Nike and Apple do. <\/span><\/p>\n<h3 class=\"c57\"><span class=\"c11 c3\">Outsourcing in the Service Sector<\/span><\/h3>\n<p class=\"c28 c52\">Outsourcing is by no means limited to the manufacturing sector. Service providers also outsource many of their non-core functions. Some universities, for instance, outsource functions such as food services, maintenance, bookstore sales, printing, grounds keeping, security, and even residence operations. For example, there are several firms, like RGIS, who offer inventory services. They will send a team to your company to count your inventory for you. As RGIS puts it, \u201cOur teams deliver the hands-on help needed to complete a wide variety of retail projects of all sizes, allowing your team to keep customer service as the number one priority.\u201d<a class=\"footnote\" title=\"RGIS. (n.d.). Retail. https:\/\/www.rgis.com\/retail\" id=\"return-footnote-88-16\" href=\"#footnote-88-16\" aria-label=\"Footnote 16\"><sup class=\"footnote\">[16]<\/sup><\/a> <span class=\"c1\">Some software developers outsource portions of coding as a cost-saving measure. If you\u2019ve ever had to get phone or chat assistance on your laptop, there\u2019s a good chance you spoke with someone in an outsourced call centre. The centre itself may even have been located offshore. This kind of arrangement can present unique challenges in quality control as differences in accents and the use of slang words can sometimes inhibit understanding. Nevertheless, in this era of globalization, expect the trend towards outsourcing offshore to continue.<\/span><\/p>\n<h1>Comprehensive Check<\/h1>\n<ol>\n<li>Describe the role of an operations manager in a manufacturing company and provide three key tasks for which they are responsible.<\/li>\n<li>Describe the decisions and activities of the operations manager in the production process.<\/li>\n<li data-aria-posinset=\"1\" data-aria-level=\"1\">What is the meaning of the term production (or operations)?\u200b<\/li>\n<li data-aria-posinset=\"2\" data-aria-level=\"1\">What are the characteristics that distinguish service operations from goods production, and what are the main differences in the service focus?\u200b<\/li>\n<li data-aria-posinset=\"4\" data-aria-level=\"1\">Explain the connection between productivity and quality.\u200b<\/li>\n<li data-aria-posinset=\"7\" data-aria-level=\"1\">Explain the concept of total quality management and describe some tools that companies can use to achieve it.\u200b<\/li>\n<li>Explain how technology has improved cost-efficiency in the production process. Use an example to demonstrate your understanding.<\/li>\n<li>Detail how a service operation differs from a manufacturing operation.<\/li>\n<\/ol>\n<div class=\"page-break-before\"><\/div>\n<div class=\"textbox textbox--key-takeaways\">\n<header class=\"textbox__header\">\n<h1 class=\"textbox__title\">Key Takeaways<\/h1>\n<\/header>\n<div class=\"textbox__content\">\n<p>Important terms and concepts:<\/p>\n<ol>\n<li>Operations management oversees the process of transforming resources into goods and services.<\/li>\n<li>During production planning, managers determine how goods will be produced, where production will take place, and how manufacturing facilities will be laid out.<\/li>\n<li>In selecting the appropriate production process, managers consider three basic methods:\n<ul>\n<li>make-to-order;<\/li>\n<li>mass production; and<\/li>\n<li>mass customization.<\/li>\n<\/ul>\n<\/li>\n<li>In site selection for a company\u2019s manufacturing operations, managers look for locations that minimize shipping costs, have an ample supply of skilled workers, provide a favorable community for workers and their families, offer resources at low cost, and have a favorable business climate.<\/li>\n<li>Commonly used inventory control methods include just-in-time (JIT) production, by which materials arrive just in time to enter the manufacturing process, and material requirements planning (MRP), a software tool to determine material needs.<br \/>\nGantt and PERT charts are two common tools used by operations managers.<\/li>\n<li>A Gantt chart helps operations managers determine the status of projects.<\/li>\n<li>PERT charts diagram the activities and time required and identify the critical path \u2014 the sequence of activities that will require the greatest amount of time.<\/li>\n<li>Service firms provide intangible products that are often customized to satisfy specific needs. Unlike manufactured goods, many services are bought and consumed at the same time.<\/li>\n<li>Estimating capacity needs for a service business is more difficult than for a manufacturer because service providers can\u2019t store their services for later use.<\/li>\n<li>Many companies deliver quality goods and services by adhering to principles of total quality management (TQM).<\/li>\n<li>Outsourcing can save companies money by using lower cost, specialized labor, located domestically or abroad.<\/li>\n<\/ol>\n<\/div>\n<\/div>\n<hr class=\"before-footnotes clear\" \/><div class=\"footnotes\"><ol><li id=\"footnote-88-1\">Time. (2001, November 19). <em>Best Inventions of 2001<\/em>. https:\/\/content.time.com\/time\/specials\/packages\/article\/0,28804,1936165_1936240_1936351,00.html <a href=\"#return-footnote-88-1\" class=\"return-footnote\" aria-label=\"Return to footnote 1\">&crarr;<\/a><\/li><li id=\"footnote-88-2\">Hydroforce Group LLC (2012). <em>Powerski Jetboards<\/em>. http:\/\/www.powerski.com\/content\/psi_index <a href=\"#return-footnote-88-2\" class=\"return-footnote\" aria-label=\"Return to footnote 2\">&crarr;<\/a><\/li><li id=\"footnote-88-3\">Janzen, N. (2017). <em>The Decline in Manufacturing\u2019s Share of Total Canadian Output \u2013 A Source of Concern?<\/em> RBC Economics. http:\/\/www.rbc.com\/economics\/economic-reports\/pdf\/other-reports\/Manufacturing%20Trends-Feb2017.pdf <a href=\"#return-footnote-88-3\" class=\"return-footnote\" aria-label=\"Return to footnote 3\">&crarr;<\/a><\/li><li id=\"footnote-88-4\">Statistics Canada. <em>Table 14-10-0023-01 Labour force characteristics by industry, annual (x 1,000)<\/em>. https:\/\/doi.org\/10.25318\/1410002301-eng <a href=\"#return-footnote-88-4\" class=\"return-footnote\" aria-label=\"Return to footnote 4\">&crarr;<\/a><\/li><li id=\"footnote-88-5\">Hess, A. E. M. (2013, August 22). <em>The 10 largest employers in America<\/em>. USA Today. https:\/\/eu.usatoday.com\/story\/money\/business\/2013\/08\/22\/ten-largest-employers\/2680249\/ <a href=\"#return-footnote-88-5\" class=\"return-footnote\" aria-label=\"Return to footnote 5\">&crarr;<\/a><\/li><li id=\"footnote-88-6\">Restaurant Brands International Limited Partnership (2016). <em>2015 SEC Form 10-K Annual Report<\/em>. https:\/\/s26.q4cdn.com\/317237604\/files\/doc_financials\/2016\/ar\/Restaurant-Brands-International-Limited-Partnership-2015-SEC-Form-10-K-An.pdf <a href=\"#return-footnote-88-6\" class=\"return-footnote\" aria-label=\"Return to footnote 6\">&crarr;<\/a><\/li><li id=\"footnote-88-7\">Burger King. (n.d.). <em>About Us<\/em>. https:\/\/www.bk.com\/about-bk <a href=\"#return-footnote-88-7\" class=\"return-footnote\" aria-label=\"Return to footnote 7\">&crarr;<\/a><\/li><li id=\"footnote-88-8\">Information on Burger King was obtained from an interview with David Sell, former vice president of Central, Eastern, and Northern Europe divisions and president of Burger King France and Germany. <a href=\"#return-footnote-88-8\" class=\"return-footnote\" aria-label=\"Return to footnote 8\">&crarr;<\/a><\/li><li id=\"footnote-88-9\">NPD (2012). <em>Drive-Thru Windows Still Put the Fast in Fast Food Restaurants<\/em>. Reports NPD. https:\/\/planning.lacity.org\/eir\/8150Sunset\/References\/4.E.%20Greenhouse%20Gas%20Emissions\/GHG.41_NPD%20Fast%20Food.pdf <a href=\"#return-footnote-88-9\" class=\"return-footnote\" aria-label=\"Return to footnote 9\">&crarr;<\/a><\/li><li id=\"footnote-88-10\">Carlzon, J. (1987). <em>Moments of Truth<\/em>. Cambridge, MA: Ballinger Publishing Company. <a href=\"#return-footnote-88-10\" class=\"return-footnote\" aria-label=\"Return to footnote 10\">&crarr;<\/a><\/li><li id=\"footnote-88-11\">The Ritz-Carlton. (n.d.). <em>Gold Standards<\/em>. https:\/\/www.ritzcarlton.com\/en\/about\/gold-standards <a href=\"#return-footnote-88-11\" class=\"return-footnote\" aria-label=\"Return to footnote 11\">&crarr;<\/a><\/li><li id=\"footnote-88-12\">Kelso, A. (2020, July 11). <em>Business lessons from the late founder of Chick-fil-A<\/em>. QSRweb. https:\/\/www.qsrweb.com\/articles\/business-lessons-from-the-late-founder-of-chick-fil-a\/ <a href=\"#return-footnote-88-12\" class=\"return-footnote\" aria-label=\"Return to footnote 12\">&crarr;<\/a><\/li><li id=\"footnote-88-13\">Sheridan, M. (2021, February 5). <em>8 Reasons Why Chick-fil-A has the Best Business Model in America<\/em>. Impact. https:\/\/www.impactplus.com\/blog\/reasons-chick-fil-best-business-model <a href=\"#return-footnote-88-13\" class=\"return-footnote\" aria-label=\"Return to footnote 13\">&crarr;<\/a><\/li><li id=\"footnote-88-14\">American Society for Quality. (n.d.). <em>Six Sigma Forum \u2013 Community Home<\/em>. myASQ. https:\/\/my.asq.org\/communities\/home\/35\/ <a href=\"#return-footnote-88-14\" class=\"return-footnote\" aria-label=\"Return to footnote 14\">&crarr;<\/a><\/li><li id=\"footnote-88-15\">Powerski (2005). <em>About Powerski International<\/em>. http:\/\/www.powerski.com\/aboutpsi.htm <a href=\"#return-footnote-88-15\" class=\"return-footnote\" aria-label=\"Return to footnote 15\">&crarr;<\/a><\/li><li id=\"footnote-88-16\">RGIS. (n.d.). <em>Retail<\/em>. https:\/\/www.rgis.com\/retail <a href=\"#return-footnote-88-16\" class=\"return-footnote\" aria-label=\"Return to footnote 16\">&crarr;<\/a><\/li><\/ol><\/div><div class=\"glossary\"><span class=\"screen-reader-text\" id=\"definition\">definition<\/span><template id=\"term_88_456\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_88_456\"><div tabindex=\"-1\"><p>Key terms appear throughout the chapter. When you click on them, a definition will pop up. If you are using a downloaded or printed format, check the glossary in the back of the book. Please make sure you can define them!<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><\/div>","protected":false},"author":120,"menu_order":5,"template":"","meta":{"pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-88","chapter","type-chapter","status-publish","hentry"],"part":366,"_links":{"self":[{"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/pressbooks\/v2\/chapters\/88","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/wp\/v2\/users\/120"}],"version-history":[{"count":23,"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/pressbooks\/v2\/chapters\/88\/revisions"}],"predecessor-version":[{"id":1838,"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/pressbooks\/v2\/chapters\/88\/revisions\/1838"}],"part":[{"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/pressbooks\/v2\/parts\/366"}],"metadata":[{"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/pressbooks\/v2\/chapters\/88\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/wp\/v2\/media?parent=88"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/pressbooks\/v2\/chapter-type?post=88"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/wp\/v2\/contributor?post=88"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/wp\/v2\/license?post=88"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}