Chapter 16: Managing Service and Manufacturing Operations TRUE/FALSE 1. Supervisors engaged in operations management manage the daily production of goods and services. Answer: True 2. At their core, companies are production systems that combine inputs such as labor, raw materials, capital, and knowledge to produce outputs such as finished goods or services. Answer: True 3. Higher productivity is good not only for individual companies that achieve it, but also for the countries in which they do business. Answer: True 4. Two common measures of productivity are extrinsic productivity and intrinsic productivity. Answer: False Two common measures of productivity are partial productivity and multifactor productivity. 5. Labor productivity is a frequently used example of extrinsic productivity. Answer: False Labor productivity is a frequently used example of partial productivity. 6. Extrinsic productivity indicates how much labor, capital, materials, and energy it takes to produce an output. Answer: False Multifactor productivity indicates how much labor, capital, materials, and energy it takes to produce an output. 7. While partial productivity assesses how efficiently companies use only one input, such as labor, when creating outputs, complete productivity is an overall measure of productivity that assesses how efficiently companies use all the inputs it takes to make outputs. Answer: False While partial productivity assesses how efficiently companies use only one input, such as labor, when creating outputs, multifactor productivity is an overall measure of productivity that assesses how efficiently companies use all the inputs it takes to make outputs. 8. The easier it is to maintain a working product or fix a broken product, the more reliable that product is. Answer: False The easier it is to maintain a working product or fix a broken product, the more serviceable that product is. 9. Durability has to do with how long a product lasts before it fails. Answer: True 10. Studies clearly show that customers care more about responsiveness than anything else when buying services. Answer: False Studies clearly show that customers care more about reliability more than anything else when buying services 11. The five characteristics that typically distinguish a quality service are reliability, tangibles, responsiveness, assurance, and empathy. Answer: True 12. The single characteristic of service quality that is most important to customers is empathy. Answer: False The single characteristic of service quality that is most important to customers is service reliability. 13. ISO 9000 is a series of five international standards for achieving consistency in quality management and quality assurance that describe how companies can carefully document the steps they take to create and improve product quality. Answer: True 14. The purpose of the Baldrige National Quality Award is to recognize U.S. companies for their achievements in quality and business performance and to raise awareness about the importance of quality and performance excellence as a competitive edge. Answer: True 15. The companies that have won the Baldrige Award have achieved superior financial returns. Answer: True 16. Since the Baldrige Award is directly based on ISO 9000 standards, it is essentially a U.S. version of recognition for excellence in meeting the ISO 9000 standards. Answer: False The Baldrige Award is not directly based on ISO 9000 standards; ISO 9000 certification covers less than 10 percent of the requirements for the Baldrige Award. An emphasis on demonstrated “results” in achieving world-class quality is what differentiates the Baldrige Award from the ISO 9000 standards, which simply indicate that a company is following its own internal quality management system. 17. Total quality management is an integrated organization-wide strategy for improving product and service quality. Answer: True 18. In total quality management, customer focus and satisfaction, continuous improvement, and teamwork mutually reinforce each other to improve quality throughout a company. Answer: True 19. The key concept behind the service-profit chain is external service quality or the quality of treatment that employees receive from a company’s internal service providers. Answer: False The key concept behind the service-profit chain is internal service quality, meaning the quality of treatment that employees receive from a company’s internal service providers. 20. The purpose of service recovery is to restore customer satisfaction to strongly dissatisfied customers Answer: True 21. It costs ten times as much to find a new customer as it does to keep an existing customer. Answer: True 22. According to the “Doing the Right Thing” box on protecting your frontline staff, the customer is always right. Answer: False This box explains how sometimes the customer is not right. 23. All manufacturing operations produce physical goods. Answer: True 24. Manufacturing operations are classified according to the depth of their inventory stock. Answer: False Manufacturing operations are classified according to the amount of processing that occurs after a customer order is received. 25. Make-to-stock operations are highly dependent on the accuracy of sales forecasts. Answer: True 26. Inventory is defined as the number of finished products that a company has in its possession either in the factory, in warehouses, or on delivery vehicles. Answer: False Inventory is the amount and number of raw materials, parts, and finished products that a company has in its possession. 27. Stockout is the point when a company runs out of finished products. Answer: True 28. The three basic measures of inventory are average aggregate inventory, weeks of supply, and inventory turnover. Answer: True 29. In general, the lower the number of inventory turns, the more efficiently the marketing department is operating. Answer: False In general, the higher the number of inventory turns, the better. In practice, a high turnover means that a company can continue its daily operations with just a small amount of inventory on hand. 30. The four kinds of costs incurred with inventory maintenance are ordering costs, setup costs, transaction costs, and stockout costs. Answer: False Maintaining an inventory incurs four kinds of costs: ordering, setup, holding, and stockout. Transaction costs are one type of stockout cost. 31. To effectively manage inventory, a manager should use EOQ formulas when inventory levels are independent, and JIT and MRP when inventory levels are dependent on the number of products to be produced. Answer: True 32. Assuming the optimal order quantity of integrated circuits for a manufacturer of security timers is 1,000 and the company uses 55 circuits daily, the manufacturer should place an order approximately every 10 days. Answer: False 1,000/55 = 18.18 days 33. Economic order quantity is intended for use with independent demand systems. Answer: True 34. An on-demand air-taxi service transports travelers from the Richard B. Russell Regional Airport in Georgia to destinations in the Southeast. Like other services, it will be judged by its customers on the basis of reliability, durability, and responsiveness. Answer: False High-quality products are characterized by reliability, serviceability, and durability. Services are different. With services, there’s no point in assessing durability. 35. ISO 9000 certification is similar to having a certified public accountant verify that a firm’s financial accounts are up-to-date and accurate. Answer: True 36. Service recovery only requires that employees fix a mistake that was made before. Answer: False Service recovery sometimes requires employees to fix whatever mistake was made, and to perform heroic service acts that delight highly dissatisfied customers. 37. An on-demand air-taxi service transports travelers form the Richard B. Russell Regional Airport to destinations in the Southeast. Because the air-taxi is a service, it will not need any kind of inventory other than the airplane. Answer: False Fuel and repair parts will be needed and are inventory. 38. The two basic kinds of stockout costs are the transactions costs incurred when the company attempts to replace the inventory and the loss of customer goodwill. Answer: True 39. One method for making sure that JIT works is to have a shared information system that allows a manufacturer and its suppliers to know the quantity and kinds of parts inventory the other has in stock. Answer: True MULTIPLE CHOICE 1. Paul Krisson works as a manager for Bergens Tidene, a Norwegian morning newspaper. He has full responsibility for the daily printing of the paper that the people of Norway read with their breakfasts. Krisson works in which of the following management areas? A. Sales management B. Operations management C. Human resource management D. Promotion management E. Financial management Answer: B Operations management is the management of the daily production of goods and services. 2. _____________ is the management of the daily production of goods and services. A. Operations management B. Inventory management C. Productivity management D. Total quality management E. Management by objectives Answer: A Definition of operations management. 3. _____________ is a measure of performance that indicates how many inputs it takes to produce or create an output. A. Reliability B. Performance accountability C. Productivity D. TQM E. Effectiveness Answer: C Definition of productivity. 4. At their core, companies are _____________ systems that combine inputs such as labor, raw materials, capital, and knowledge to produce finished products and other types of output. A. organizational B. production C. social D. predictable E. sociocultural Answer: B Companies combine inputs to produce outputs in a finished form. 5. Which of the following statements about productivity is true? A. Productivity is a ratio of benefits to costs (i.e., benefits divided by costs). B. For companies, higher productivity can lead to lower costs. C. For countries, higher productivity produces a lower standard of living. D. Productivity decreases make products more affordable. E. All of the statements about productivity are true. Answer: B For companies, higher productivity––that is, doing more with less––results in lower costs 6. Why is productivity important to countries? A. Productivity matters because it produces a higher standard of living. B. Greater productivity results in lower wages. C. Productivity increases supply and reduces demand for products. D. Productivity reduces taxation. E. None of these statements explains why productivity is important to countries. Answer: A One way productivity leads to a higher standard of living is through increased wages. 7. _____________ productivity is a measure of performance that indicates how much of a particular kind of input it takes to produce an output. A. Breakdown B. Segregated C. Unifactor D. Partial E. Fractional Answer: D Definition of partial productivity. 8. Which of the following shows the correct relationship for productivity, outputs, and inputs? A. Productivity = Inputs/Outputs B. Productivity = (Inputs ´ Outputs)/100 C. Outputs = (Productivity/Inputs) D. Productivity = Outputs/Inputs E. Inputs = Productivity/Outputs Answer: D Productivity is a measure of performance that indicates how many inputs it takes to produce or create an input. 9. The two types of productivity are: A. partial productivity and complete productivity B. multifactor productivity and partial productivity C. individual productivity and departmental productivity D. departmental productivity and organizational productivity E. organizational productivity and industry productivity Answer: B Two common measures of productivity are partial productivity and multifactor productivity. 10. In 2005, Caterpillar expressed concern about a tire shortage that would prevent it from meeting production level goals. Caterpillar was concerned about _____________ productivity. A. composite B. multifactor C. partial D. incremental E. fractional Answer: C Partial productivity is a measure of performance that indicates how much of a particular kind of input it takes to produce an output. 11. If the manager of a company that manufactures signs was interested in how much glass tubing was needed to produce a Las Vegas casino neon sign, the manager would be interested in _____________ productivity. A. composite B. multifactor C. partial D. breakdown E. fractional Answer: C Partial productivity is a measure of performance that indicates how much of a particular kind of input it takes to produce an output. 12. The CEO of a company that manufactures maple wooden cutting boards has determined that it takes a piece of maple lumber 18 inches square and two inches thick, two hours of labor, a planer, a sander, an electric saw, and $5.67 to make one maple cutting board. The CEO has determined the _____________ productivity of his company so he can compare its operation with that of its competition. A. integrated B. multifactor C. segregated D. functional E. breakdown Answer: B Multifactor productivity shows how much labor, capital, materials, and energy it takes to produce an output. 13. _____________ productivity shows how much labor, capital, materials, and energy it takes to produce an output. A. Temporal B. Multifactor C. Functional D. Continuous E. Quantitative Answer: B This defines partial productivity. 14. In general, managers should use _____________ to directly compare their overall level of productivity to that of their competitors and _____________ to analyze the contributions of individual components to that overall productivity. A. efficiency measures; a productivity analysis B. partial productivity; multifactor productivity C. integrated productivity; segregated productivity D. fragmented productivity; complete productivity E. multifactor productivity; partial productivity Answer: E Multifactor productivity has to do with productivity in relation to competitors, while partial productivity involves individual components in relation to overall productivity. 15. The American Society for Quality defines quality as: A. a product free of deficiencies, or the characteristics of a product or service that satisfy customer needs B. a product that customers perceive as free of deficiencies C. any product made from error-free components D. a product produced according to a satisficing design plan E. none of these Answer: A The American Society for Quality gives two meanings for quality. It can mean a product or service free of deficiencies, or it can mean the characteristics of a product or service that satisfy customer needs. 16. Which of the following is an important characteristic of a quality product? A. Reliability B. Validity C. Responsiveness D. Homogeneity E. Tangibility Answer: A Quality products usually possess three characteristics: reliability, serviceability, and durability. 17. The product quality characteristic of _____________ is defined as the mean time before product failure. A. reliability B. assurance C. durability D. responsiveness E. effectiveness Answer: C Definition of durability. 18. The easier it is to maintain a working product or fix a broken product, the more _____________ that product appears. A. reliable B. serviceable C. durable D. tangible E. effective Answer: B Serviceability refers to how easy or difficult it is to fix a product. 19. Most companies define product _____________ in terms of how easy or difficult it is to fix a product. A. reliability B. serviceability C. responsiveness D. consistency E. effectiveness Answer: B Definition of serviceability. 20. Shine Bros. Corp., a recycling company based in Spencer, Iowa, bought its first Fuchs machine––an MHL 320 scrap handler––in 1998. Since then, the company has bought two additional Fuchs scrap handlers to perform various scrap handling tasks at its Spencer yard. According to the owners of the company, “We now know the average time between breakdowns.” The owner was describing which characteristic of product quality? A. Durability B. Serviceability C. Responsiveness D. Consistency E. Effectiveness Answer: A Durability is defined as the mean time to failure. 21. Robin Subaru centrifugal pumps combine a powerful overhead cam engine, heavy-duty construction, and reliable performance for dewatering in light construction, flood control, homeowner, firefighting, and irrigation applications. Designed to offer durability, the centrifugal pumps: A. break down frequently B. demonstrate a short time frame between necessary maintenance C. must be sent back to the manufacturer for repair D. have a high mean time before product failure E. are easily repaired Answer: D Durability is defined as the mean time to failure. 22. Massey Ferguson, a division of AGCO Corp., has introduced two new front cut mowers designed to provide a high level of serviceability. “The new mowers are targeted toward golf course, municipality and commercial cutting operations and have been designed with easy operation and safety in mind,” the company said. This means that the mowers: A. demonstrate a long time frame between necessary maintenance B. must be sent back to the manufacturer for repair C. are easy to repair D. have a high mean time before product failure E. have a low median time between servicing Answer: C Serviceability refers to how easy or difficult it is to fix a product. 23. A product’s quality is determined by its: A. reliability, homogeneity, and durability B. reliability, validity, and effectiveness C. serviceability, tangibility, and homogeneity D. durability, reliability, and serviceability E. consistency, tangibility, and durability Answer: D High-quality products are characterized by reliability, serviceability, and durability. 24. Which of the following quality characteristics can be applied to both goods and services? A. Reliability B. Serviceability C. Durability D. Homogeneity E. Tangibility Answer: A Reliability can be applied to both goods and services. 25. The ability to consistently perform a service well is referred to as service: A. reliability B. assurance C. responsiveness D. tangibility E. durability Answer: A Definition of service reliability. 26. An article addressed to nurses who work in intensive care said, “Patients may feel isolated or ostracized from those around them, including medical staff, because of their condition or appearance. Practices affirming the patient’s intrinsic value and individual personality will be critical to establishing trust and rapport.” One method to affirm the patient’s intrinsic value is to provide: A. empathy B. serviceability C. durability D. homogeneity E. tangibility Answer: A Empathy is the extent to which service providers give individual attention and care to customers’ concern and problems. 27. In terms of the characteristics of service quality, a major newspaper is said to be _____________ if it provides news of interest to its readers consistently at the same time and place daily. A. proactive B. responsive C. durable D. accessible E. reliable Answer: E Service reliability is the ability to consistently perform a service well. 28. Studies clearly show that customers care more about _______ more than anything else when buying services. A. responsiveness B. assurance C. reliability D. tangibles E. empathy Answer: C When buying services, reliability matters most to customers. 29. In a CNNMoney.com article from 2005, there is a reported 106 Fortune 500 companies who are NASCAR sponsors––more than in any other sport. Stock car racing is entirely different, with team owners––who spend millions outfitting cars and fronting drivers––and track owners reliant on an independent NASCAR to bring them together. There are no union troubles, and if a team fails to perform, it doesn’t drag down the league––it’s simply replaced by the next new faster car and driver. If a track is getting shabby and failing to draw a capacity crowd, NASCAR can simply shift to another site. In other words, the fans know that they will get their money’s worth of entertainment every time they attend a NASCAR event. NASCAR provides its fans with: A. service reliability B. service assurance C. service responsiveness D. tangibility E. service durability Answer: A Service reliability is the ability to consistently perform a service well. 30. Clean, neatly pressed uniforms and college diplomas hanging on the wall are examples of which service quality characteristic? A. Tangibles B. Assurance C. Empathy D. Reliability E. Responsiveness Answer: A Tangibles refer to the appearance of the office, personnel, and equipment involved with the delivery of a service. 31. ISO 14000: A. provides ISO certification for service providers B. is a series of five international standards for achieving consistency in quality management and quality assurance in companies throughout the world. C. is a series of international standards for managing, monitoring, and minimizing an organization’s harmful effect on the environment. D. is the interim ISO certification that is granted in the event that ISO 9000 certification is temporarily withdrawn E. is only given to manufacturers who have achieved the highest possible level of product quality and assurance Answer: C ISO 14000 is a series of international standards for managing, monitoring, and minimizing and organization’s harmful effects on the environment. 32. Which of the following statements about ISO 9000 is true? A. ISO 9000 is a series of three standards for achieving consistency in quality management and quality assurance in U.S.-based organizations only. B. The ISO 9000 standards are specific and require companies who seek this certification to completely reorganize. C. To become ISO 9000 certified, companies must show that they are following their own procedures. D. The ISO standards were created by the Industrial Service Organizations. E. All of these statements about ISO 9000 are true. Answer: C ISO 9000 is a series of five international standards, from ISO 9000 to ISO 9004, for achieving consistency in quality management and quality assurance in companies throughout the world. Companies that qualify must achieve consistency in quality management. ISO stands for the International Organization for Standardization. 33. Which of the following statements about ISO 9000 is true? A. ISO 9000 is a single international standard for achieving consistency in quality management and quality assurance in companies throughout the world. B. The ISO 9000 standard is applicable only to the manufacturing of goods and not to the delivery of services. C. ISO 9000 certification may be suspended or canceled if companies fail a periodic audit following their initial certification. D. Ninety-eight percent of companies that already have achieved ISO 9000 certification said they did so because it increases profitability. E. Only service providers can achieve ISO 14000 certification. Answer: C ISO 9000 is a series of five international standards, from ISO 9000 to ISO 9004, for achieving consistency in quality management and quality assurance in companies throughout the world. Certification increases customer satisfaction. ISO 14000 certification has to do with an organization’s commitment to minimize its harmful effect on the environment. ISO 9000 is applicable to manufacturers and to service providers. Continued ISO certification is not guaranteed, however. Accredited third parties typically conduct periodic audits to make sure the company is still following quality procedures. If it is not, its certification is suspended or canceled. 34. Dell’s giant PC factory in Limerick, Ireland, is ISO 9000 certified. Which of the following statements about this certification is true? A. All Dell factories are ISO 9000 certified. B. Dell is allowed to sell computers in the European Union because it has ISO 9000 certification. C. Dell will be periodically audited to see if it deserves continued ISO 9000 certification. D. Dell was certified by an internal multifunctional committee that it met ISO 9000 standards. E. Dell is ethically bound not to use its ISO 9000 certification in its promotion. Answer: C ISO 9000 certification may be suspended or canceled if companies fail an audit following their initial certification. 35. Which of the following statements about ISO 9000 is true? A. ISO 9000 is a series of five international standards for achieving consistency in quality management and quality assurance in companies throughout the world. B. The ISO 9000 standards are applicable to the manufacturing of goods and to the delivery of services. C. Studies show that customers prefer to buy from companies with ISO 9000 certification. D. ISO 9000 certification may be suspended or canceled if companies fail an audit following their initial certification. E. All of these statements about ISO 9000 are true. Answer: E All of the statements are true with regard to ISO 9000. 36. The purpose of _____________ is to recognize U.S. companies for their achievements in quality and business performance and to raise awareness of how quality and performance excellence can be used to create a competitive edge. A. ISO 9000 certification B. the Baldrige Award C. the Herzberg Award for Excellence D. Kanban certification E. the Gantt Award Answer: B This describes the purpose of the Baldrige National Quality Award, which is administered by the U.S. government’s National Institute for Standards and Technology. 37. Which of the following is NOT a criterion on which companies are judged when applying for the Baldrige National Quality Award? A. Leadership B. Results C. Customer and workforce focus D. Competitive advantage E. Process management Answer: D See Exhibit 16.2. 38. Which of the following is a criterion on which companies are judged when applying for the Baldrige National Quality Award? A. Workforce diversity B. Results C. Global market development D. ISO 9000 certification E. Span of management Answer: B See Exhibit 16.2. 39. Which of the following statements about the Baldrige National Quality Award is true? A. The purpose of the Baldrige Award is to recognize all companies that operate in the business-to-business market for their achievements in quality and business performance and to raise awareness about the importance of quality and performance excellence as a competitive edge. B. The Baldrige Award is primarily concerned with improving customer satisfaction. C. Companies that apply for the Baldrige Award are judged on a 1,000-point scale based on three criteria: leadership, customer and market focus, and business results. D. An emphasis on “results” is what differentiates the Baldrige Award from the ISO 9000 standards. E. All of these statements about the Baldrige National Quality Award are true. Answer: D The Baldrige Award has an emphasis on results, while the ISO 9000 standards simply indicate whether a company is following the management system it put into place to improve quality. 40. Graniterock is a California-based supplier of construction materials such as rock, gravel, and sand. In 1992, this small business won the prestigious Baldrige National Quality Award. Which of the following statements about winning that award is true? A. By winning the Baldrige Award, Graniterock immediately became ISO 9000 certified. B. ISO 9000 certification would be superfluous for Graniterock. C. Graniterock received no performance feedback from Baldrige auditors. D. Like other winners, Graniterock received superior financial returns as a result of its win. E. According to the Baldrige Award, Graniterock is following the management system it put in place to improve quality. Answer: D ISO certification covers less than 10 percent of what is required to win a Baldrige Award. The results of winning a Baldrige Award are financially rewarding due to increased customer satisfaction. 41. The three principles that characterize TQM are continuous improvement, teamwork, and: A. third-party certification B. delegation C. participative management D. customer focus and satisfaction E. distinctive competence Answer: D Total quality management is characterized by customer focus and satisfaction, continuous improvement, and teamwork. 42. In TQM, _____________ is an organizational goal to make products or deliver services that meet or exceed customers’ expectations. A. the extension of core capabilities B. customer satisfaction C. continuous improvement D. added value E. market focus Answer: B Total quality management suggests that customer focus and customer satisfaction should be a company’s primary goals. 43. Ritz-Carlton placed first in customer satisfaction among luxury hotels in the most recent J.D. Power & Associates hotel survey. This means that in TQM terms: A. Ritz-Carlton satisfies every customer’s demands B. Ritz-Carlton is more interested in service durability than in any other service characteristic C. guests at Ritz-Carlton never experience service failure D. Ritz-Carlton consistently provides services that meet or exceed customers’ expectations E. guests at Ritz-Carlton know the hotel chain has an ISO 14000 certification Answer: D In total quality management terms, customer satisfaction is an organizational goal to provide products that meet or exceed customers’ expectations. It is important for students to note that not all customer demands can or should be satisfied. 44. The three principles that characterize TQM are continuous improvement, customer focus and satisfaction, and: A. teamwork B. organizational dialogue C. the equity theory D. autonomy E. competitive advantage Answer: A Total quality management is characterized by customer focus and satisfaction, continuous improvement, and teamwork. 45. Brake Parts Inc., manufacturer of Raybestos brand brakes, is at the forefront of the replacement brake industry as a result of its ongoing commitment to continuous product improvement and its uncompromising dedication to providing customers with the most advanced, premium-quality product technology through teamwork. In other words, Brake Parts is committed to: A. a bureaucratic structure B. total quality management C. winning ISO 8000 certification D. implementing an MRP program E. autonomous work stations Answer: B The three principles that characterize total quality management are continuous improvement, customer focus and satisfaction, and teamwork. 46. As reported at CNNMoney.com in May 2007, the most productive auto plant in North America, Oshawa No. 2, is doomed––it’s on the list of plants that General Motors is closing as the world’s largest automaker slashes capacity in a bid to stem losses. The Ontario plant, which makes the Pontiac Grand Prix and Buick LaCrosse and Allure, took only 15.68 hours on average to build a vehicle in 2006. That’s an improvement from the 16.08 hours it took in 2005 and is better than the 16.34 hours it takes to build a vehicle at the neighboring Oshawa GM assembly line. Which of the following statements best describes the plant that is to be closed? A. It is the most efficient automobile manufacturing plant in the world. B. The plant is capable of producing more vehicles with less input than GM’s other North American plant. C. The plant uses more inputs per vehicles when manufacturing a car or truck than any other GM plant in North America. D. The decision to close the plant is justifiable in terms of productivity measures. E. The Ontario plant’s improvements are not consistent with those in other manufacturing. Answer: B Efficiency is not a measure discussed in this statement. The text describes how productivity is improving everywhere. Productivity is a measure of performance that indicates how many inputs it takes to produce or create an output. The decision to close the plant is not explained by the information provided in the question. 47. Which of the following statements about total quality management (TQM) is true? A. TQM is an integrated organization-wide strategy for improving product and service quality. B. TQM is a specific technique used to reposition a company’s product so as to justify higher prices. C. TQM is based on four mutually reinforcing principles: customer focus, customer satisfaction, participative management, and delegation. D. TQM was developed and is monitored by the International Organization of Standards. E. All of these statements about TQM are true. Answer: A TQM is not a specific tool or technique. TQM is based on the three principles of continuous improvement, customer focus and satisfaction, and teamwork. 48. According to the TQM strategy, what should be a company’s primary goal? A. Customer focus and satisfaction B. Continuous improvement C. Teamwork D. Participative management E. Reciprocity Answer: A Total quality management suggests that customer focus and customer satisfaction should be a company’s primary goals. 49. TQM saved Xerox from bankruptcy when it was badly beleaguered by its Japanese rivals. In other words: A. every Xerox employee, from the top to the bottom, became focused on meeting or exceeding its customers’ needs B. the company became committed to continuous improvement in its products C. Xerox managers and nonmanagers entered into collaborations across business functions and with suppliers and customers D. Xerox adopted a philosophy that was reflected by changes in its organizational culture E. all of these occurred Answer: E All of responses apply with regard to total quality management and the situation at Xerox. 50. Continuous improvement is typically associated with: A. low morale and reduced customer satisfaction B. a reduction in variation and higher customer satisfaction C. batch processing and a broad chain of command D. a flat organizational structure and a broad chain of command E. higher customer satisfaction and a narrower chain of command Answer: B Variation is a deviation in the form, condition, or appearance of a product from the quality standard for that product. 51. _____________ is a deviation in the form, condition, or appearance of a product from the quality standard for that product. A. Performance breakdown B. Quality underperformance C. Aberration D. Divergence E. Variation Answer: E Definition of variation. 52. The levels of teamwork presumed in _____________ are between managers and nonmanagers, across business functions, and between the company and its customers and suppliers. A. an autonomy B. autocratic management C. TQM D. MBO E. environmental control Answer: C Teamwork means collaboration between managers and nonmanagers, across business functions, and between the company and its customers and suppliers. 53. Xerox is a firm believer in total quality management (TQM). Anne Mulcahy, the president of Xerox, was quoted as saying, “TQM may help employees figure out how to solve a specific problem. But the really big payoff comes when they share that solution with others.” In her statement, Mulcahy was promoting which characteristic of TQM? A. Continuous improvement B. Variation elimination C. Teamwork D. Market focus E. A customer orientation Answer: C In total quality management, teamwork is the collaboration between managers and nonmanagers across business functions and between companies, customers, and suppliers. 54. Many organizations rely on teaming as a key to their productivity and credit their use of teams with performance improvements such as increased efficiency, improved participation and innovation, error reduction, quality improvement, increased responsiveness, cost-effectiveness, better customer service, and improved employee satisfaction. This statement is another way to illustrate: A. the importance of benchmarking B. the prevalence of ISO certification C. how restructuring leads to stakeholder satisfaction D. the importance of morale in the creation of a positive bureaucracy E. how teamwork can result in total quality management Answer: E The three principles that characterize total quality management are customer focus and satisfaction, continuous improvement, and teamwork. 55. The key concept behind the service-profit chain is the establishment of: A. employee satisfaction B. service capability C. internal service quality D. high value service E. nonmonetary rewards Answer: C Internal service quality is the quality of treatment that employees receive from a company’s internal service providers. 56. Which of the following statements comparing goods and services is true? A. Services are produced, but goods are performed. B. Goods are intangible, but services are tangible. C. Goods can be collected and stored, but services are perishable and unstorable. D. Quality can be easily assessed for services, but not for goods. E. Goods account for a larger percentage of gross national product than do services. Answer: C Services are performed, but goods are produced. Goods are tangible, but services are intangible. Quality can be easily assessed for goods. Services account for 59 percent of gross national product, whereas manufacturing goods accounts for only 30.8 percent. 57. One of the key assumptions in the service business is that success depends on how well employees deliver their services to customer. However, according to the service-profit chain, success depends on: A. the availability of factors of production B. autocratic management C. a high degree of centralization D. how well employees are treated E. market size Answer: D Success begins with how well management treats service employees. 58. Wacker Corp., one of the leading light construction equipment suppliers to the rental industry, has purchased new software, which will allow its employees to extend its electronic support capabilities and parts-ordering efficiencies for its customers. Wacker’s improved _____________ should lead to improved employee satisfaction. A. service capability B. lean manufacturing C. service benchmarking D. service empowerment E. customer empathy Answer: A Service capability is an employee’s perception of his or her ability to serve customers well. 59. Which of the following is a specific component of internal service quality? A. MBO B. High value service C. Delegation D. Autonomy E. Span of management Answer: B See Exhibit 16.3. 60. This is a description of what happened to a patron at the United Kingdom’s Royal Mail (that country’s equivalent of the United States Postal Service. “In the 15 minutes I waited in line, during which I shuffled forward one yard and two places, I had ample opportunity to watch what the other three staff were doing. They were busy all right, but the main task was counting each stamp in their folders. In this vital work, two of the three were overseen by another member of staff. There was no eye contact with the waiting customers.” Assuming this experience is typical, the Royal Mail needs to engage in: A. service recovery B. process integration C. manufacturing flexibility D. just-in-time manufacturing E. process changeover Answer: A Service recovery is restoring customers’ satisfaction to strongly dissatisfied customers. 61. _____________ refers to restoring customer satisfaction to strongly dissatisfied customers. A. Service recovery B. Service enhancement C. Customer focus D. Customer reengineering E. Relationship marketing Answer: A Definition of service recovery. 62. The United Kingdom’s Royal Mail (that country’s equivalent of the United States Postal Service) needed to transform the image its customers had of the organization. A key part of the transformation was to permanently pass decision-making authority and responsibility to its workforce and allow them to develop and implement their ideas on how to improve performance and service to customers. According to one manager, “We understand now that people who work here care as much as managers do about the business.” The Royal Mail used _____________ to improve service. A. downsizing B. a taller organizational structure C. synergy D. empowerment E. bureaucratic techniques Answer: D Service recovery occurred because the employees were empowered to resolve customer complaints without managerial input. 63. Which of the following statements about service recovery is true? A. Service recovery refers to restoring customer satisfaction to strongly dissatisfied customers. B. Service recovery sometimes requires not only that mistakes be fixed but also that heroic service be performed that far surpasses the expectations dissatisfied customers have regarding fair treatment. C. The purpose of empowering service employees is zero customer defections. D. Service recovery increases the cost of selecting and hiring service workers who are capable of solving problems and dealing with irate customers. E. All of these statements about service recovery are true. Answer: E All of the statements are true with regard to service recovery. 64. Which of the following manufacturing operations makes standardized products? A. make-to-order B. make-to-stock C. assemble-to-order D. customized E. standardized Answer: B The lowest degree of processing occurs in make-to-stock operations, which makes standardized products. 65. The highest degree of processing occurs in _____________ operations. A. assemble-to-order B. make-to-order C. make-to-stock D. batch E. real-time Answer: B Make-to-order operations is where the highest degree of processing occurs. 66. Classifying manufacturing operations in terms of the amount of assembly that occurs after an order is received from customers is the same as classifying those operations in terms of: A. processing B. flexibility C. production D. operations E. technical skills Answer: A See Exhibit 16.4. 67. _______ refers to a manufacturing operation that divides manufacturing processes into separate parts or modules that are combined to create semicustomized products. A. Assemble-to-stock B. Assemble-to-order C. Make-to-order D. Make-to-stock E. Batch processing Answer: B Definition of assemble-to-order operation. 68. The lowest degree of processing occurs in _____________ operations, where a company orders parts and assembles standardized products before receiving customer orders. A. assemble-to-stock B. buy-to-sell C. make-to-order D. make-to-stock E. assemble-to-order Answer: D The lowest degree of processing occurs in make-to-stock operations, where a company orders parts and assembles standardized products before receiving customer orders. See Exhibit 16.4. 69. There is a relatively large Swiss population living in northern London, England. For three years, the Swiss daily newspaper Neue Zurucher Zeitung shipped in 800 copies of the newspaper. Only about 40 percent sold because the papers did not arrive until almost lunchtime, and its potential readers perceived the news it contained to already be old. In terms of the amount of processing, what type of operation did the newspaper publisher operate? A. Buy-to-sell B. Make-to-assemble C. Make-to-stock D. Assemble-to-stock E. Assemble-to-order Answer: C The lowest degree of processing occurs in make-to-stock operations, where a company orders parts and assembles standardized products before receiving customer orders. See Exhibit 16.4. 70. Which of the following types of operations are most dependent on the accuracy of sales forecasts? A. Project manufacturing B. Assemble-to-order C. Make-to-order D. Buy-to-sell E. Make-to-stock Answer: E With this method, products are made before orders are received. 71. There is a relatively large Swiss population living in northern London, England. The Swiss daily newspaper Neue Zurucher Zeitung has recently begun publishing the paper in London (instead of having copies flown in from Zurich). The paper contains many of the items that are in the Swiss-published paper as well as information that is important to the Swiss living in England. In terms of the amount of processing, what type of operation does the newspaper publisher operate? A. Buy-to-sell B. Make-to-assemble C. Make-to-stock D. Assemble-to-stock E. Assemble-to-order Answer: E Assemble-to-order refers to a manufacturing operation that divides manufacturing processes into separate parts or modules that are combined to create semicustomized products. 72. Pamela Katian makes cloth dolls, which she sells to friends and relatives. Her _____________ would include over 200 yards of fabric, 100 yards of ribbon, a box of 500 wiggle eyes, stuffing, 20 dolls in various stages of completing, and 15 completed dolls. A. raw materials B. component materials C. finished products D. inventory E. SKUs Answer: D Inventory is the amount and number of raw materials, parts, and finished products that a company has in its possession. 73. _____________ inventories include the basic inputs in a manufacturing process. A. Finished goods B. Work-in-process C. Component parts D. Raw materials E. Recyclable Answer: D Definition of raw materials inventories. 74. Texas Instruments Inc. (TI) announced in June 2007 that weaker than expected demand for calculators meant that it had greater than anticipated supply of calculators in stock. In other words, TI has a larger than expected inventory of: A. finished goods B. work-in-process C. component parts D. raw materials E. recyclables Answer: A Finished goods inventory refers to the final outputs of manufacturing operations. 75. Pamela Katian makes cloth dolls, which she sells to friends and relatives. Her total inventory includes over 200 yards of fabric, 100 yards of ribbon, a box of 500 eyes, stuffing, 20 dolls in various stages of completing, and 15 completed dolls. How many items are in Katian’s work-in-process inventory? A. 100 B. 200 C. 15 D. 20 E. Cannot tell from information given Answer: D Work-in-process inventory refers to partially finished goods consisting of assembled component parts. 76. Which of the following is NOT a kind of inventory a manufacturer would keep in stock? A. Raw materials B. Nonrenewable materials C. Component parts D. Finished goods E. Work-in-process Answer: B See Exhibit 16.5. 77. Pamela Katian makes cloth dolls, which she sells to friends and relatives. Her total inventory includes over 200 yards of fabric, 100 yards of ribbon, a box of 500 eyes, stuffing, 20 dolls in various stages of completing, and 15 completed dolls. How many items are in Katian’s finished goods inventory? A. 100 B. 500 C. 15 D. 20 E. Cannot be determined from the information given Answer: C Finished goods inventory refers to the final outputs of manufacturing operations. 78. In 2003, a national restaurant chain decided to offer an “all-you-can-eat” special on baby back ribs for $15.95. Unfortunately, the promotion was too successful, and many of the chain’s restaurants had to inform customers that the baby back ribs were all gone. In other words, many of the restaurants experienced: A. negative turnover B. a loss of aggregated inventory C. a stockout D. a loss of amortization E. a lack of inventory customization Answer: C A stockout occurs when a company runs out of finished product––in this case, the restaurant ran out of ribs. 79. Texas Instruments Inc. (TI) announced in June 2007 that weaker than expected demand for calculators meant that it had greater than anticipated supply of calculators in stock. Due to concern about the economy, retailers are delaying the purchase of back-to-school calculators until closer to the start of school this year. If retailers wait too long to purchase the calculators, they could experience: A. a loss of amortization B. negative sales C. a stockout D. aggregated turnover E. negative turnover Answer: C A stockout occurs when a company runs out of finished product. 80. The three basic measures of inventory are inventory turnover, average aggregate inventory, and: A. inventory depreciation B. inventory amortization C. weeks of supply D. multifactor inventory E. speed of obsolescence Answer: C Average aggregate inventory, weeks of supply, and inventory turnover are the three basic measures of inventory. 81. Hattie Cao operates Peachy Keen and sells her products through catalog orders. The small company has three employees. It produces and sells seven kinds of peach pies, three kinds of peach cake, two kinds of peach cookies, and a peach salsa. She normally keeps 250 jars of salsa in stock, but she noticed today that she has more than 500 bottles in her inventory. Cao decided to reduce her inventory by lowering her price. Her plan to get rid of excessive inventory was so successful that she found herself completely sold out in just a couple of days. In other words, Cao experienced: A. a loss of amortization B. negative sales C. a stockout D. aggregated turnover E. negative turnover Answer: C A stockout occurs when a company runs out of finished product. 82. Hattie Cao operates Peachy Keen and sells her products through catalog orders. The small company has three employees. It produces and sells seven kinds of peach pies, three kinds of peach cake, two kinds of peach cookies, and a peach salsa. She normally keeps 250 jars of salsa in stock, but she noticed today that she has more than 500 bottles in her inventory. What does the text recommend this business owner do with her excess inventory? A. Cut prices on the salsa to increase its sales B. Donate the salsa and get a tax write-off C. Throw the excess away D. Throw a party E. Raise prices and sell the salsa as a premium product Answer: A She needs to increase her inventory turnover. In general, the higher the number of inventory “turns,” the better. 83. _____________ is the number of times per year that a company sells or replaces its average inventory. A. Stock rollover B. Average aggregate inventory C. The average inventory replacement cycle D. Inventory turnover E. The ratio of inputs to outputs Answer: D Definition of inventory turnover. 84. Mass distributors lowered prices substantially to sell increased volumes of hardware products, and hardware stores managed the _____________ costs of maintaining larger than needed inventories by including them as overhead. A. containment B. stockout C. holding D. amortization E. setup Answer: C Holding costs are the costs of keeping inventory until it is used or sold, including storage costs, insurance, taxes, obsolescence, and opportunity costs. 85. Texas Instruments Inc. (TI) announced in June 2007 that weaker than expected demand for calculators meant that it had greater than anticipated supply of calculators in stock. Due to concern about the economy, retailers are delaying the purchase of back-to-school calculators until closer to the start of school this year. When retailers place their orders, their _____________ costs will increase, while TI’s _____________ costs will decrease. A. downtime; setup B. holding; setup C. stockout; setup D. setup; holding E. ordering; holding Answer: E Ordering costs are the costs associated with placing the order for the inventory. Holding costs are the cost of keeping inventory until it is sold or needed. 86. Which of the following is NOT a kind of cost associated with maintaining an inventory? A. Ordering B. Stockout C. Holding D. Amortization E. Setup Answer: D Amortization is not a cost associated with maintaining an inventory. 87. Downtime and lost efficiency are both examples of: A. ordering costs B. setup costs C. holding costs D. stockout costs E. depreciation costs Answer: B Setup costs are the costs of downtime and lost efficiency that occur when a machine is changed or adjusted to produce a different kind of inventory. 88. Transaction costs and loss of customer goodwill are both examples of: A. ordering costs B. setup costs C. holding costs D. depreciation costs E. stockout costs Answer: E Stockout costs are the costs incurred when a company runs out of product, including transaction costs to replace inventory and the loss of customers’ goodwill. 89. In 2003, a national restaurant chain decided to offer an “all-you-can-eat” special on baby back ribs for $15.95. Unfortunately, the promotion was too successful, and many of the chain’s restaurants had to inform customers that the baby back ribs were all gone. What kind of inventory maintenance costs did the restaurants experience? A. Holding costs and loss of customer goodwill B. Loss of customer goodwill and transaction costs C. Setup costs and ordering costs D. Setup costs and stockout costs E. Downtime costs and stockout costs Answer: B Stockout costs are the costs incurred when a company runs out of product, including transaction costs to replace inventory and the loss of customers’ goodwill. 90. A company that embroiders t-shirts, baseball caps, and backpacks uses 15,000 plain t-shirts annually. The optimal order quantity is 500 shirts. The company embroiders approximately 150 shirts daily. Using the _____________ calculations, the company knows it should place an order approximately every 3 days. A. materials requirement planning B. just-in-time inventory management C. break-even D. economic order quantity E. independent demand Answer: D Economic order quantity is a system of formulas that minimizes ordering and holding costs and helps determine how much and how often inventory should be ordered. 91. Which of the following is NOT a technique for managing inventory? A. Progressive inventory management (PIM) B. Just-in-time inventory (JIT) C. Materials requirement planning (MRP) D. Economic order quantity (EOQ) E. Kanban Answer: A The just-in-time inventory system, materials requirement planning, economic order quantity, and kanban are the techniques for managing inventory. 92. The maker of Beecham’s barbecue sauces uses 3,000 bottles annually. The optimal order quantity for bottles is 300. The company fills approximately 150 bottles daily. How often should the manufacturer place an order for more bottles? A. Every day B. Every two days C. Once a week D. Twice a week E. Every other month Answer: B 300/150 = 2 days 93. Rhett Butler Trucking is a viable bulk carrier providing just-in-time transportation for both chemical and dry bulk products throughout the United States and into Canada. Companies that use the transport company: A. expect the chemical and dry bulk products to be delivered as they are needed by the production line B. cannot continue operations if a stockout occurs C. have high inventory turnover rates D. use a master production schedule to control service recovery costs E. spend more on holding costs than on any other form of inventory costs Answer: A Just-in-time (JIT) is an inventory system in which component parts arrive from suppliers just as they are needed at each stage of production. 94. Dr. Samuel Johnson said it best: “Nothing so concentrates the mind as the sight of the gallows.” In other words, to get stuff done, we humans need a deadline. Which of the following tools best illustrates the motivational power of deadlines? A. Progressive inventory management (PIM) B. Just-in-time inventory (JIT) C. Materials requirement planning (MRP) D. Economic order quantity (EOQ) E. Planned event review timetable (PERT) Answer: B Just-in-time (JIT) is an inventory system in which component parts arrive from suppliers just as they are needed at each stage of production. 95. _____________ is a ticket-based system that indicates when to reorder inventory. A. An MRP system B. A just-in-time system C. Kanban D. An independent demand system E. A dependent demand system Answer: C Definition of kanban. 96. In inventory management situations involving independent demand systems, _____________ should be used, whereas with dependent demand systems, _____________ should be used. A. JIT; MRP and/or EOQ B. EOQ; JIT and/or MRP C. MRP; JIT and/or EOQ D. MRP; JIT or EOQ E. EOQ; JIT or MBO Answer: B Economic order quantity (EOQ) formulas are intended for use with independent demand systems, while just-in-time (JIT) and materials requirement planning (MRP) are used with dependent demand systems. 97. How does a company benefit from the use of kanban? A. It greatly reduces paperwork and ordering costs. B. It creates independent demand systems.. C. It greatly reduces setup costs. D. It supports a continuous-flow production process. E. It eliminates holding costs. Answer: A Kanban tickets greatly reduce paperwork and ordering costs. 98. Materials requirement planning (MRP) is: A. a method for inventory mining B. used with dependent demand systems C. used with tickets that indicate when to reorder various inventory items D. used with independent demand systems E. not concerned with finished product inventories Answer: B Materials requirement planning (MRP) and just-in-time (JIT) inventory are to types of inventory management systems that are used with dependent demand systems. 99. The three key parts of material requirement planning (MRP) are: A. aggregate inventory, suppliers’ invoices, and bills of laden B. inventory records, trend analyses, and production schedules C. the master production schedule, the bill of materials, and inventory records D. suppliers’ invoices, distribution schedules, and inventory records E. inventory turnovers, master production schedules, and storage space Answer: C The master production schedule, the bill of materials, and inventory records are the three key parts of material requirement planning (MRP) systems. 100. Refer to “What Would You Do?” When JCPenney calculates the total costs that go into making, marketing, and distributing a Liz Claiborne item, the retailer is measuring: A. partial productivity B. multifactor productivity C. inventory costs D. ordering costs E. marketing costs Answer: B Multifactor productivity is an overall measure of performance that indicates how much labor, capital, materials, and energy it takes to produce an output. 101. Refer to “What Would You Do?” Zippers and buttons that are used to make Liz Claiborne skirts are part of __________ inventory. A. finished goods B. raw materials C. work-in-process D. component parts E. in-stock Answer: D Component parts inventories are the basic parts used in manufacturing that are fabricated from raw materials. 102. Refer to “What Would You Do?” Which characteristic of quality service is being provided when JCPenney’s Manhattan store uses technology to ensure its bathrooms are cleaned each hour? A. Tangibles B. Assurance C. Reliaibility D. Responsiveness E. Dependability Answer: A Tangibles refer to the appearance of the offices, equipment, and personnel involved with the delivery of a service. SHORT ANSWER 1. Define productivity. Provide an everyday example of a measure of productivity that consumers sometimes use in deciding which car to purchase. Answer: Productivity is a measure of performance that indicates how many inputs it takes to produce or create an output. The fewer inputs it takes to create an output (or the greater the output from one input), the higher the productivity. For example, a car’s gas mileage is a common measure of productivity. A car that gets 35 miles (output) per gallon (input) is more productive and fuel efficient than a car that gets 18 miles per gallon. 2. Define the two common measures of productivity used by managers. Specify the circumstances under which each should be used. Answer: Two common measures of productivity are partial productivity and multifactor productivity. Partial productivity indicates how much of a particular kind of input it takes to produce an output. Partial productivity assesses how efficiently companies use only one input, such as labor, when creating outputs. Multifactor productivity is an overall measure of productivity that assesses how efficiently companies use all the inputs it takes to make outputs. More specifically, multifactor productivity indicates how much labor, capital, materials, and energy it takes to produce an output. In general, managers should use multifactor productivity to directly compare their overall level of productivity to that of their competitors, and partial productivity measures to analyze the contributions of individual components to that overall productivity. 3. There are two ways to define quality. Describe both of them. Answer: The American Society for Quality gives two meanings for quality. First, it can mean a product or service free of deficiencies, such as the number of problems per 100 cars. Second, quality can mean the characteristics of a product or service that satisfy customer needs. In this sense, today’s cars are of higher quality because of the additional standard features (power brakes and steering, stereo/CD player, power windows and locks, rear defrosters, cruise control, etc.) they have compared to 20 years ago. 4. Make a list of the characteristics that define quality for goods. Then make a second list of characteristics that define quality for services. Why do these lists differ? Why does one characteristic appear on both lists? Answer: Quality products usually possess three characteristics: reliability, serviceability, and durability. Quality service means reliability, tangibles, responsiveness, assurance, and empathy. These lists differ because products are physical things that last for determinate periods of time and can break down. Services, on the other hand, are consumed the minute they are performed and cannot be repaired––only repeated. The one dimension that is common in both of these lists is reliability, which is essentially the degree to which the product or service functions as expected. Since the purchase of a product or service is essentially an exchange of money for some predictable outcome (either a physical thing or a specific type or level of behavior from a service provider), this basic dimension is crucially important to the exchange process, and thus appears on both lists. Students may appropriately provide different rationales regarding why the dimension of reliability appears on both lists. 5. Briefly explain the difference between ISO 9000 certification and the Baldrige National Quality Award. Answer: An emphasis on results is what differentiates the Baldrige Award from the ISO 9000 standards. The Baldrige Award indicates the extent to which companies have actually achieved world-class quality. ISO 9000 standards simply indicate whether a company is following the management system it put in place to improve quality. In fact, ISO 9000 certification covers less than 10 percent of the requirements for the Baldrige Award. 6. What types of public recognition are given to companies that demonstrate the highest probability that they are consistent producers of high quality goods or services? Answer: Companies may receive two types of public recognition related to quality: ISO 9000 certification and the Baldrige National Quality Award. Of these two types of recognition, only the Baldrige Award includes an assessment of “business results.” The Baldrige Award indicates the extent to which companies have actually achieved world-class quality, and thus demonstrates the highest probability that they are producers of high quality products or services. ISO 9000 standards simply indicate whether a company is following the management system it put in place to improve quality. 7. Briefly describe total quality management (TQM). Answer: Total quality management (TQM) is an integrated organization-wide strategy for improving product and service quality. TQM is not a specific tool or technique; rather, it is a philosophy or overall approach to management, which is based on three mutually reinforcing principles: customer focus and satisfaction, continuous improvement, and teamwork. TQM suggests that the entire organization be focused on meeting customer needs by making products or delivering services that meet or exceed customers’ expectations, in a collaborative environment that is constantly assessing and improving the processes and procedures used to create those products and services. 8. Manufacturing processes are classified according to the amount of processing or assembly that occurs after receiving an order from customers. Briefly describe the three types of manufacturing processes. Answer: Make-to-order operations have the highest degree of processing, in which assembly doesn’t begin until products are ordered. The next-highest degree of processing occurs in assemble-to-order operations, in which preassembled modules are combined after orders are received to produce semicustomized products. The lowest degree of processing occurs in make-to-stock operations, in which, on the basis of sales forecasts, standard parts are ordered and assembled before orders occur. 9. List and describe the four kinds of inventory that a manufacturer stores. Answer: A manufacturer stores four kinds of inventory: raw materials, component parts, work-in-process, and finished goods. Raw material inventories are the basic inputs in the manufacturing process. Raw materials are fabricated or processed into component parts inventories, meaning the basic parts used in manufacturing a product. The component parts are then assembled to make unfinished work-in-process inventories, which are also known as partially finished goods. Next, all the work-in-process inventories are assembled to create finished goods inventories, which are the final outputs of the manufacturing process. 10. List and briefly identify the three basic measures of inventory that managers use to keep inventory costs from becoming too large. Answer: Three basic measures of inventory are average aggregate inventory, weeks of supply, and inventory turnover. Because of day-to-day differences in inventories, companies often measure average aggregate inventory, which is the average overall inventory during a particular time period. Inventory is also measured in terms of weeks of supply, meaning the number of weeks it would take for a company to run out of its current supply of inventory. Finally, inventory turnover, is the number of times per year that a company sells or “turns over” its average inventory. 11. Briefly identify the three different methods of inventory management. Specify the circumstances under which each should be used. Answer: Companies meet the basic goals of inventory management (avoiding stockouts and reducing inventory without hurting daily operations) through economic order quantity (EOQ) formulas, just-in-time (JIT) inventory systems, and materials requirement planning (MRP). EOQ formulas are intended for use with independent demand systems, in which the level of one kind of inventory does not depend on another. By contrast, JIT and MRP are used with dependent demand systems, in which the level of inventory depends on the number of finished units to be produced. The best inventory management results will be obtained when each technique is used under the appropriate circumstances. ESSAY 1. Briefly explain how production and productivity relate to the financial success of companies as well as the countries in which the companies are located. Given the nature of today’s global economy, comment on how these relationships might be particularly important in developing (as opposed to industrialized) countries, where the industrial base and standard of living are low. Answer: At their core, organizations are production systems. Companies combine inputs, such as labor, raw materials, capital, and knowledge, to produce outputs in the form of finished products or services. Productivity is a measure of performance that indicates how many inputs it takes to produce or create an output. The fewer inputs it takes to create an output (or the greater the output from one input), the higher the productivity. For companies, higher productivity (i.e., doing more with less) results in lower costs. In turn, lower costs can lead to lower prices, higher market share, and higher profits. For countries, productivity matters because it produces a higher standard of living. One way productivity leads to a higher standard of living is through increased wages. When companies can do more with less, they can raise employee wages without increasing prices or sacrificing normal profits. Being able to offer higher wages also helps the company by attracting and retaining good workers. Rising income stemming from increased productivity creates numerous other benefits including increased charitable giving and increased medical coverage for employees. Finally, productivity also increases the standard of living by making products more affordable. Thus, increased productivity helps companies lower costs, which can lead to lower prices, higher market share, and higher profits, while increased productivity helps countries by leading to higher wages, lower product prices, and a higher standard of living. 2. What is quality? First, list and define three characteristics of quality for goods and for services. Explain why these characteristics are different for good and services. Then, identify the one dimension that is common in both lists. Finally, specify a good or service that you were very dissatisfied with during the past year, and explain on which of these quality dimensions the good or service was deficient. Answer: In it most general sense, quality can have two meanings. The American Society for Quality defines quality as either a product or service free of deficiencies or as the characteristics of a product or service that satisfy customer needs. In discussing quality, it is important to note the basic difference between products and services. Products are physical things that last for determinate periods of time and can break down. Services, on the other hand, are consumed the minute they are performed and cannot be repaired––only repeated. Thus, different quality dimensions are used to define quality for products and services. Quality products usually possess three characteristics: reliability, serviceability, and durability. A breakdown occurs when a product quits working or doesn’t do what it was designed to do. Many companies define product reliability in terms of the average time between breakdowns. Serviceability refers to how easy or difficult it is to fix a product. The easier it is to maintain a working product or fix a broken product, the more serviceable that product is. Product failure means that products can’t be repaired; they can only be replaced. Thus, durability is a quality characteristic that applies to products that can’t be repaired. Durability is defined as the mean time to failure. Since services are typically performed by service providers and differ from products as described above, the following five characteristics are typically used to distinguish a quality service: reliability, tangibles, responsiveness, assurance, and empathy. Service reliability is the ability to consistently perform a service well. Studies clearly show that reliability matters more to customers than anything else when buying services. Tangibles refer to the appearance of the offices, equipment, and personnel involved with the delivery of a service. Responsiveness is the promptness and willingness with which service providers give good service. Assurance is the confidence that service providers are knowledgeable, courteous, and can be trusted. Empathy is the extent to which service providers give individual attention and care to customers’ concerns and problems. The one dimension that is common in both of these lists is reliability, which is essentially the degree to which the product or service functions as expected. Student examples should appropriately comment on deficiencies from the product or service characteristic lists and may demonstrate varying levels of insight and understanding. 3. Describe the changes that many service organizations are making to enhance the process of service recovery. Give an example of such a change that could enhance service recovery for dissatisfied students at your college or university. Answer: When mistakes are made and customers have become dissatisfied with the service they’ve received, service businesses must switch from the process of service delivery to the process of service recovery, or restoring customer satisfaction to strongly dissatisfied customers. Sometimes, service recovery requires service employees to not only fix whatever mistake was made but also perform “heroic” service acts that “delight” highly dissatisfied customers by far surpassing their expectations of fair treatment. Unfortunately, when mistakes occur, service employees typically don’t have the discretion to resolve customer complaints. Now, however, many companies are empowering their service employees. With respect to service recovery, empowering workers means giving service employees the authority and responsibility to make decisions that immediately solve customer problems. The purpose of empowering service employees is zero customer defections, that is, to turn dissatisfied customers back into satisfied customers who continue to do business with the company. Most colleges and universities are highly bureaucratic institutions characterized by multiple levels of red tape, resulting in many student complaints. Thus, students should have little difficulty identifying examples of things that could be done differently to enhance service recovery. Better answers will take into account both the students’ needs and desires, and the university’s need for overall quality control, and will provide realistic recommendations that would prove workable in a real-world situation. Such answers should clearly explain how a specific service worker is being empowered to make a specific level of decision in order to (reasonably and realistically) surpass the expectations of a dissatisfied student. 4. What is inventory? Explain the potential costs associated with inventory. Briefly describe the systems of inventory management that are available to managers to control these costs, and specify which method of inventory management is best. Answer: Inventory is the amount and number of raw materials, parts, and finished products that a company has in its possession. There are four kinds of inventory that a manufacturer stores: raw materials, component parts, work-in-process, and finished goods. Maintaining an inventory incurs four kinds of costs: ordering (costs associated with ordering inventory, such as data entry, phone calls, etc.), setup (costs of downtime and lost efficiency that occur with machinery), holding (costs of keeping inventory until it is used or sold), and stockout (costs incurred when a company runs out of a product, including transaction costs to replace inventory and the loss of customers’ goodwill). The combination of these costs for a company can be enormous. To control these costs, companies measure and track inventory in three ways: average aggregate inventory, weeks of supply, and turnover. Companies meet the basic goals of inventory management (avoiding stockouts and reducing inventory without hurting daily operations) through economic order quantity (EOQ) formulas, just-in-time (JIT) inventory systems, and materials requirement planning (MRP). EOQ formulas minimize holding and ordering costs by determining how much and how often inventory should be ordered. By having parts arrive just when they are needed at each stage of production, JIT systems attempt to minimize inventory levels and holding costs. JIT systems often depend on proximity, shared information, and the Japanese system of kanban. MRP precisely determines the production schedule, production batch sizes, and the ordering of inventories needed to complete final products. The three key parts of MRP systems are the master production schedule, the bill of materials, and inventory records. There is no best method of inventory management. The different methods are designed to be used under different circumstances. EOQ formulas are intended for use with independent demand systems, in which the level of one kind of inventory does not depend on another. By contrast, JIT and MRP are used with dependent demand systems, in which the level of inventory depends on the number of finished units to be produced. The best inventory management results will be obtained when each technique is used under the appropriate circumstances. 5. Explain why operations management is potentially relevant to every employee in every organization in the 21st century. Answer: This question is not directly addressed in the chapter. As such, this test question is one that some students might find particularly challenging, since it requires recall, analysis, and synthesis of the chapter material in order to arrive at a creative and original conclusion. While there could be many possible responses to this item, one suggested approach is outlined below: Operations management deals with managing the daily production of goods and services in organizations. Since virtually all work organizations exist to produce either goods or services, all employees work in organizations for which operations management is relevant. Given the increasingly competitive global environment facing businesses in the 21st century, effectiveness in the management of operations is one significant factor that can cause a company to gain (or lose) a competitive advantage. Thus, employees are likely to have to adjust their performance and work behavior over time to assist in the overall management of operations in their organization, and they will likely personally feel the effects of the organization’s overall degree of success in operations management (e.g., though pay and morale increases and/or increased job security if the company is successful, or through pay cuts, increased workloads, and/or layoff if the company is not). Better answers will go on to integrate specific components of the chapter material to illustrate how these aspects of operations management are crucially important to competitive success in the 21st century marketplace, and how these aspects of operations management link back to the experience of individual workers. Logical and appropriate topics to discuss include productivity and quality (which are easily linked to both marketplace success and individual worker experience), as well as differences in operations management between service and manufacturing organizations (e.g., relevance of the service-profit chain in service organizations versus processing, flexibility, and inventory issues in manufacturing organizations). Since the question material is not directly covered in the chapter, the use of examples from within the text discussion to appropriately support the student’s thesis should be seen as part of a high-quality answer. Test Bank for Effective Management Chuck Williams 9781285866246
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