This Document Contains Chapters 7 to 8 CHAPTER 7 Creating a Flexible Organization 7.1 A WORD FROM THE AUTHORS Having outlined in the preceding chapter the management of a business organization, in this chapter we examine the organization itself. First, we define organization from a business perspective. Then we discuss five dimensions of organizational structure: (1) job specialization, (2) departmentalization, (3) centralization, (4) span of management, and (5) chain of command. Next, we discuss the various methods of combining these individual elements within a single business structure. We introduce four approaches to organizational structure—line, line-and-staff, matrix, and network—and present the advantages and disadvantages of each. We conclude the chapter with a brief discussion of how corporate culture, committees, informal groups, and the grapevine affect an organization. 7.2 TRANSITION GUIDE New in Chapter 7: Creating a Flexible Organization • A new Inside Business feature describes Kraft’s decision to split the company into two sections: snacks and groceries. • A new example about Intel offering short-term job assignments has been added to the section “Alternatives to Job Specialization.” • A new example about how PepsiCo is dividing its products and locations has been added to the section “Combinations of Bases.” • A new Going for Success feature, “Dell Restructures to Jump-Start Innovation,” describes how the company is using innovation as a means of restructuring. • The Going for Success feature, “Google Changes Corporate Culture at Web Speed,” has been deleted. • The Career Success feature, “Your Green Career Path?” has been deleted. • New examples about how Aqayo and GE use the matrix structure and cross-functional teams have been added to the section “The Matrix Structure.” • The Spotlight feature, “Top Ranked Barriers to Women in the Workplace,” has been deleted. • A new Ethical Success or Failure? feature, “Internships—Who Benefits?,” describes how both companies and students benefit from internships. • A new example about how Goldman Sachs needs a culture change has been added to the “Corporate Culture” section. • The Sustaining the Planet feature, “GE’s Environmental Stewardship,” has been deleted. • A new Sustaining the Planet feature, “Take the ‘R’ for Tomorrow,” describes how P&G encourages social responsibility. • A new Return to Inside Business about Kraft Foods has been provided at the end of the chapter. • The Building Skills for Career Success section contains a new Social Media Exercise. • The Exploring the Internet feature in Building Skills for Career Success has been deleted. 7.3 QUICK REFERENCE GUIDE Instructor Resource Location Transition Guide IM, p. 235 Learning Objectives Textbook, p. 188; IM, p. 237 Brief Chapter Outline IM, pp. 237–238 Comprehensive Lecture Outline IM, pp. 238–245 Going for Success Dell Restructures to Jump-Start Innovation Textbook, p. 195 Ethical Success or Failure? Internships—Who Benefits? Textbook, p. 203 Sustaining the Planet Take the “R” for Tomorrow Textbook, p. 203 Inside Business Crafting a Split of Snacks and Groceries at Kraft Textbook, p. 189 Return to Inside Business Textbook, p. 205 Questions and Suggested Answers, IM, p. 246 Marginal Key Terms List Textbook, pp. 206–207 Review Questions Textbook, p. 207 Questions and Suggested Answers, IM, pp. 246–248 Discussion Questions Textbook, p. 207 Questions and Suggested Answers, IM, p. 249 Video Case 7.1 (At Numi Organic Tea, Teams and Organizational Culture Are Critical) and Questions Textbook, pp. 207–208 Questions and Suggested Answers, IM, pp. 249–250 Case 7.2 (HP’s Corporate Challenge: To Remain Agile and Responsive in an Ever-Changing Environment) and Questions Textbook, pp. 208–209 Questions and Suggested Answers, IM, pp. 250–251 Building Skills for Career Success Textbook, pp. 209–210 Suggested Answers, IM, pp. 251–253 IM Quiz I & Quiz II IM, pp. 254–256 Answers, IM, p. 256 Classroom Exercises IM, p. 257 7.4 LEARNING OBJECTIVES After studying this chapter, students should be able to: 1. Understand what an organization is and identify its characteristics. 2. Explain why job specialization is important. 3. Identify the various bases for departmentalization. 4. Explain how decentralization follows from delegation. 5. Understand how the span of management describes an organization. 6 Describe the four basic forms of organizational structure. 7. Describe the effects of corporate culture. 8. Understand how committees and task forces are used. 9. Explain the functions of the informal organization and the grapevine in a business. 7.5 BRIEF CHAPTER OUTLINE I. What Is an Organization? A. Developing Organization Charts B. Major Considerations for Organizing a Business II. Job Design A. Job Specialization B. The Rationale for Specialization C. Alternatives to Job Specialization III. Departmentalization A. By Function B. By Product C. By Location D. By Customer E. Combinations of Bases IV. Delegation, Decentralization, and Centralization A. Delegation of Authority 1. Steps in Delegation 2. Barriers to Delegation B. Decentralization of Authority V. The Span of Management A. Wide and Narrow Spans of Management B. Organizational Height VI. Forms of Organizational Structure A. The Line Structure B. The Line-and-Staff Structure C. The Matrix Structure D. The Network Structure VII. Corporate Culture VIII. Committees and Task Forces IX. The Informal Organization and the Grapevine 7.6 COMPREHENSIVE LECTURE OUTLINE I. WHAT IS AN ORGANIZATION? An organization is a group of two or more people working together to achieve a common set of goals. A neighborhood dry cleaner owned and operated by a husband and wife team is an organization. So are IBM, Rubbermaid, and The Home Depot. A. Developing Organization Charts. An organization chart is a diagram that represents the positions and relationships within an organization—that is, it reveals the company’s organizational structure. (See Figure 7.1.) 1. The chain of command is the line of authority that extends from the highest to the lowest levels of the organization. 2. In an organization chart, connections shown as broken lines are not part of the direct chain of command; these people hold advisory, or staff, positions. 3. Most smaller organizations find organization charts useful. For two reasons, however, many large organizations do not maintain complete, detailed charts. a) It is difficult to chart accurately even a few dozen positions, much less the thousands that characterize larger firms. b) Larger organizations are almost always changing. Teaching Tip: Enter “organization chart” in your favorite search engine and bring up some examples of organization charts. Some good ones include the one for the Justice Department (www.usdoj .gov/dojorg.htm) and the one for the United Nations (http://www.un.org/en/aboutun/structure/org_ chart.shtml). Comparing these and the charts you found, what do you think constitutes a good organizational chart? B. Major Considerations for Organizing a Business 1. Job Design. Divide the work that is to be done by the entire organization into separate parts and assign those parts to positions within the organization. 2. Departmentalization. Group the various positions into manageable units, or departments. 3. Delegation. Distribute responsibility and authority within the organization. 4. Span of Management. Determine the number of subordinates who will report to each manager. 5. Chain of Command. Establish the organization’s chain of command by designating the positions with direct authority and those that are support positions. II. JOB DESIGN A. Job Specialization. Job specialization is the separation of all organizational activities into distinct tasks and the assignment of different tasks to different people. B. The Rationale for Specialization. Specialization is needed for several reasons. 1. The “job” of most organizations is simply too large for one person to handle. 2. When a worker has to learn only a specific, highly specialized task, that individual should be able to learn to do it very efficiently. 3. The worker who is doing the same job over and over does not lose time changing from one operation to another. 4. The more specialized the job, the easier it may be to design specialized equipment for those who do it. 5. The more specialized the job, the easier is the job training. Teaching Tip: As an example of job specialization, ask your students about the specialization in their family as they were growing up. Chances are that each member of the family had some tasks for which they were the family “expert.” For example, were they the computer guru in their house? C. Alternatives to Job Specialization. Specialization can also have some negative consequences, most notably employee boredom and dissatisfaction. There are possible solutions to the problems caused by job specialization. 1. Job rotation is the systematic shifting of employees from one job to another. 2. It is also possible to use job enlargement and job enrichment. These topics, along with other methods used to motivate employees, are discussed in Chapter 10. III. DEPARTMENTALIZATION. Departmentalization is the process of grouping jobs into manageable units. Common bases of departmentalization are: A. By Function. Departmentalization by function groups jobs that relate to the same organizational activity. 1. Most smaller and newer organizations base their departmentalization on function. 2. The disadvantages of this method are that it can lead to slow decision making and that it tends to emphasize the department rather than the organization as a whole. B. By Product. Departmentalization by product groups all activities related to a particular good or service. C. By Location. Departmentalization by location groups all activities according to the defined geographic area in which they are performed. D. By Customer. Departmentalization by customer groups all activities according to the needs of various customer populations. E. Combinations of Bases. Few organizations exhibit only one departmentalization base. Many firms use several different bases within a single organization. (See Figure 7.2.) Teaching Tip: Ask your students if any of them have ever worked for a restaurant or hotel. Ask them what type of departmentalization they might have encountered. A hotel might have a specific group of employees who only handle banquets and corporate meetings, which would be an example of customer-based departmentalization. At a restaurant, things might be arranged by function. As part of the discussion, ask students what improvements they might make. IV. DELEGATION, DECENTRALIZATION, AND CENTRALIZATION. Delegation assigns part of a manager’s work and power to other workers. A. Delegation of Authority 1. Steps in Delegation. Three steps are generally involved in the delegation process. (See Figure 7.3.) a) The manager must assign responsibility. Responsibility is the duty to do a job or perform a task. b) A manager must grant authority, which is the power, within the organization, to accomplish an assigned job or task. Teaching Tip: Ask students if anyone has ever given them the responsibility for accomplishing a task without giving them the authority to get it done. c) The manager must create accountability. Accountability is the obligation of a worker to accomplish an assigned job or task. Accountability is created, but it cannot be delegated. 2. Barriers to Delegation. For several reasons, managers may be unwilling to delegate work. a) Many managers are reluctant to delegate because they want to be sure that the work gets done. b) A manager may fear that a subordinate will do the work so well that he or she will attract the notice of top management and become a threat to the manager. c) Some managers are so disorganized that they simply are not able to plan and assign work effectively. Teaching Tip: Consider using “The Delegator” exercise here. It is a five-minute individual quiz that can be used as the basis for discussion regarding when it is and when it isn’t appropriate to delegate. B. Decentralization of Authority. The pattern of delegation throughout an organization determines the extent to which that organization is decentralized or centralized. 1. An organization in which management consciously attempts to spread authority widely in the lower organization levels is said to be a decentralized organization. 2. An organization that systematically works to concentrate authority at the upper levels is said to be a centralized organization. 3. A variety of factors can influence the extent to which a firm is decentralized. a) The external environment in which the firm operates. b) The nature of the decision to be made. The riskier or more important the decision, the greater is the tendency to centralize decision making. c) The ability of lower-level managers to make decisions. d) A firm that has traditionally practiced centralization is likely to maintain that centralization in the future, and vice versa. 4. In principle, neither decentralization nor centralization is right or wrong. What works for one organization may or may not work for another. V. THE SPAN OF MANAGEMENT. The fourth major step of organizing a business is establishing span of management (or span of control), which is the number of workers who report directly to one manager. A. Wide and Narrow Spans of Management. A wide span of management exists when a manager has a large number of subordinates. A narrow span exists when the manager has only a few subordinates. Several factors determine the span that is better for a particular manager. B. Organizational Height. Organizational height is the number of layers, or levels, of management in a firm. 1. The span of management plays a direct role in determining an organization’s height. (See Figure 7.4.) a) If spans of management are wider, fewer levels are needed, and the organization is flat. b) If spans of management are narrow, more levels are needed, and the resulting organization is tall. 2. In a taller organization, administrative costs are higher because more managers are needed. Communication among levels may become distorted. 3. All managers in a flat organization may have to perform more administrative duties because there are fewer managers. VI. FORMS OF ORGANIZATIONAL STRUCTURE. The four basic forms of organizational structure are line, line-and-staff, matrix, and network. A. The Line Structure. An organizational structure in which the chain of command goes directly from person to person throughout the organization is called line structure. 1. Managers within a line structure, called line managers, make decisions and give orders to subordinates to achieve the goals of the organization. 2. A line structure allows line managers to make decisions quickly with direct accountability because the decision-maker only reports to one supervisor. 3. The downside of a line structure is that line managers are responsible for many activities and therefore must have a wide range of knowledge about all of them. Consequently, line structures are more popular in small organizations rather than in medium and large size organizations where activities and issues are more numerous and more complex. B. The Line-and-Staff Structure. A line-and-staff structure utilizes the chain of command from a line structure, but also provides line managers with specialists, called staff managers. 1. Staff managers provide support, advice, and expertise to line managers. They are not part of the chain of command like line managers are, but they do have authority over their assistants. 2. Both line and staff managers are needed for effective management, but the two positions differ in important ways. (See Figure 7.5.) a) Line managers have line authority, which means that they can make decisions and issue directives relating to the organization’s goals. b) Staff managers have advisory and functional authority which means they can consult with the line manager and only make decisions and issue directives about their areas of expertise. 3. Conflict between line managers and staff managers can occur if line managers perceive that staff managers are a threat to their authority or if staff managers perceive that their recommendations are not being adopted by line management. There are several ways to minimize this conflict. a) Integrate line and staff managers into one team. b) Ensure that the areas of responsibility of line and staff managers are clearly defined. c) Hold line and staff managers accountable for the results of their activities. C. The Matrix Structure. The matrix structure combines vertical and horizontal lines of authority. 1. The matrix structure occurs when product departmentalization is superimposed on a functionally departmentalized organization. (See Figure 7.6.) 2. Authority flows both down and across. 3. In a matrix structure, people from different departments are assigned to a group, called a cross-functional team, to work on a new project. a) Frequently, cross-functional teams are charged with developing new products. b) The project manager is in charge of the team. c) Cross-functional teams may be temporary or permanent. 4. The matrix organization has several advantages. a) Added flexibility is probably the most obvious advantage. b) This structure can increase productivity, raise morale, and nurture creativity and innovation. c) Employees experience personal development by doing a variety of jobs. 5. The matrix organization also has several disadvantages. a) Having employees report to more than one supervisor can cause confusion about who has authority in various situations. b) Like committees, teams may take longer to resolve problems and issues than individuals working alone. c) Because more managers and support staff may be needed, a matrix structure may be more expensive to maintain than other forms of organizational structure. D. The Network Structure. In a network structure (sometimes called a virtual organization), administration is the primary function performed, and other functions such as engineering, production, marketing, and finance are contracted out. 1. This type of organization has only a few permanent employees consisting of top management and a few hourly clerical workers. 2. Leased equipment and facilities are temporary. 3. There is rather limited formal structure. 4. An obvious advantage is the flexibility that allows an organization to quickly adjust to changes. 5. Some of the challenges faced by managers include the following: a) Controlling the quality of work performed by other organizations b) Low morale and high turnover among hourly workers c) Vulnerability associated with relying on outside contractors Teaching Tip: Consider using the 30- to 60-minute “Virtual Network Structure” exercise here. This exercise will allow students to explore the complexities of building a network. VII. CORPORATE CULTURE. A corporate culture is generally defined as the inner rites, rituals, heroes, and values of a firm. A. Corporate culture is generally thought to have a very strong influence on a firm’s performance over time. B. Goffee and Jones have identified four types of corporate cultures. (See Figure 7.7.) 1. Networked culture 2. Mercenary culture 3. Fragmented culture 4. Communal culture Teaching Tip: Use the “What’s My Culture?” group exercise here. It takes approximately 15 to 20 minutes. C. Some experts believe that cultural change is needed when the company’s environment is changing significantly, when the industry is becoming more competitive, when the company’s performance is mediocre, when the company is growing rapidly, or when the company is about to become a truly large organization. VIII. COMMITTEES AND TASK FORCES A. Several types of committees can be used within an organizational structure. 1. An ad hoc committee is created for a specific short-term purpose, such as reviewing the firm’s employee benefits plan. 2. A standing committee is a relatively permanent committee charged with performing a recurring task. 3. A task force is a committee established to investigate a major problem or pending decision. B. Committees offer some advantages over individual action. 1. Several members are able to bring more information and knowledge to the task at hand. 2. Committees tend to make more accurate decisions and to transmit their results through the organization more effectively. C. There are also disadvantages to using committees. 1. Committee deliberations take much longer than individual action. 2. Unnecessary compromise may take place within the committee. IX. THE INFORMAL ORGANIZATION AND THE GRAPEVINE. Informal organization describes the pattern of behavior and interaction that stems from personal rather than official relationships. A. An informal group is created by the group members themselves to accomplish goals that may or may not be relevant to the organization. 1. Workers may create an informal group to go bowling, form a union, get a particular manager fired or transferred, or share lunch. 2. Informal groups can be powerful forces in organizations. Managers who fight the informal organization have a major obstacle to overcome. B. The grapevine is the informal communications network within an organization. 1. The grapevine is completely separate from—and sometimes much faster than—the organization’s formal channels of communication. 2. Managers would make a mistake if they tried to eliminate the grapevine. A more rational approach is to recognize the existence of the grapevine as a part (though an unofficial part) of the organization. CHAPTER 8 Producing Quality Goods and Services 8.1 A WORD FROM THE AUTHORS This chapter—the last of three chapters devoted to management and organization—focuses on the management responsibilities associated with operations management (or simply production). We define operations management as all the activities managers engage in to produce goods and services. We discuss global competition and show how U.S. firms are attempting to regain a competitive edge on foreign manufacturers. We also introduce careers in operational management and explain how a student, as an operations manager, can fit into the production process. We describe the conversion of resources into products and services through the focus of the conversion, its magnitude, and the number of production processes used by a business. We also note the relationship of operations management to the growing role of services in our economy. Then we examine more closely three important aspects of operations management: the need for new-product development, planning for production, and operations control, which includes purchasing, inventory control, scheduling, and quality control. We conclude with a discussion of two contemporary issues in operations management: the factors involved in recent productivity trends and the impact of robotics, computer manufacturing systems, and flexible manufacturing systems. 8.2 TRANSITION GUIDE New in Chapter 8: Producing Quality Goods and Services • A new learning objective about understanding the importance of service businesses to consumers, other business firms, and the nation’s economy has been added to this chapter. • A new Inside Business feature describes how Unilever produces quality goods the green way. • In the “What Is Production?” section, how Toyota plans and produces a new Lexus GS 350 automobile explains operations management. • The section “How American Manufacturers Compete in the Global Marketplace” has been expanded. • The section “Careers in Operations Management” now follows the “How American Manufacturers Compete in the Global Marketplace” section. • H&R Block is a new example that illustrates how service businesses use the conversion process to produce services in “The Conversion Process” section. • Figure 8.1 has been revised and now provides more details about the conversion process. • “The Increasing Importance of Services” section has been expanded and is now a major section in the text. • Figure 8.2 has been updated with new statistics for the importance of service businesses to the U.S. economy. • The Sustaining the Planet feature, “Sustainable Manufacturing Clearing House,” has been deleted. • The Ethical Challenges and Successful Solutions feature, “Ecotourism Services,” has been deleted. • A new Personal Apps feature describes how an entrepreneurial spirit can lead to business ownership or advancement in a larger business. • The number of researchers employed by 3M Corporation and the dollar amount spent for research and development have been updated in the “Research and Development” section. • The new Career Success feature, “If at First You Don’t Succeed …,” explains how reasonable risk taking may lead to future success. • The “Design Planning” section now describes how Samsung developed its Smart Fridge. • The Spotlight feature, “Manufacturing Employment,” has been deleted. • A new Sustaining the Planet feature, “Saving Energy—And the Environment,” describes how Rockwell Automation is helping make its customers’ operations cleaner, more energy efficient, and more competitive. • In the section “Human Resources,” a new example illustrates how Nestlé considered human resources when it chose Anderson, Indiana, for a new manufacturing facility. • Another example in the “Human Resources” section describes the decisions that must be made when a manufacturing facility is located in a foreign nation. • A new Entrepreneurial Success feature, “Africa’s New Role in Socially-Responsible Production,” describes how entrepreneurs are helping to develop small businesses in Africa. • The material on manufacturing resource planning and MRP II has been deleted in the “Inventory Control” section. • Table 8.1 provides information on how firms use benchmarking, continuous quality improvement, statistical process control, and statistical quality control to improve the quality of a firm’s goods or services. • The “Improving Quality Through Employee Participation” section has been revised. • A new Personal Apps feature explains why customers don’t want a shoddy product and why firms don’t want to manufacture shoddy products. • The Entrepreneurial Success feature, “Small Manufacturers Achieve Big Productivity Gains,” has been deleted. • The statistical information in the “Productivity Trends” section has been updated. • The section “Improving Productivity Growth” has been expanded and now includes the concept of lean manufacturing. • In the “Robotics” section, a description of Lincoln Electric’s robotic arc welders provides a new example of how robots are used in manufacturing. • The “Sustainability and Technological Displacement” section now addresses efforts to reduce waste and conserve resources and the need for qualified employees in production industries. • A new Return to Inside Business about Unilever is provided at the end of the chapter. • Video Case 8.1 has been revised to reflect current information about Burton Snowboards. • A new Case 8.2, “Inside Boeing’s Jet Factories,” has been added. • The Building Skills for Career Success section contains a new Social Media Exercise. • The Exploring the Internet feature in Building Skills for Career Success has been deleted. • A revised and updated end-of-part video case about Graeter’s has been included. 8.3 QUICK REFERENCE GUIDE Instructor Resource Location Transition Guide IM, pp. 265–266 Learning Objectives Textbook, p. 211; IM, p. 268 Brief Chapter Outline IM, pp. 268–269 Comprehensive Lecture Outline IM, pp. 269–281 Career Success If at First You Don’t Succeed … Textbook, p. 220 Sustaining the Planet Saving Energy—And the Environment Textbook, p. 222 Entrepreneurial Success Africa’s New Role in Socially-Responsible Production Textbook, p. 226 At Issue: Who is more to blame for the lower productivity growth rate—management or labor? IM, p. 281 Inside Business Unilever: Producing Quality Goods the Green Way Textbook, p. 212 Return to Inside Business Textbook, p. 235 Questions and Suggested Answers, IM, p. 282 Marginal Key Terms List Textbook, p. 237 Review Questions Textbook, p. 237 Questions and Suggested Answers, IM, pp. 282–285 Discussion Questions Textbook, p. 237 Questions and Suggested Answers, IM, pp. 286–287 Video Case 8.1 (Burton Snowboards’ High-Quality Standards) and Questions Textbook, pp. 237–238 Questions and Suggested Answers, IM, p. 287 Case 8.2 (Inside Boeing’s Jet Factories) and Questions Textbook, pp. 238–239 Questions and Suggested Answers, IM, p. 288 Building Skills for Career Success Textbook, pp. 239–240 Suggested Answers, IM, pp. 289–291 IM Quiz I & Quiz II IM, pp. 292–294 Answers, IM, p. 294 Classroom Exercises IM, pp. 295–296 8.4 LEARNING OBJECTIVES After studying this chapter, students should be able to: 1. Explain the nature of production. 2. Outline how the conversion process transforms raw materials, labor, and other resources into finished goods or services. 3. Understand the importance of service businesses to consumers, other business firms, and the nation’s economy. 4. Describe how research and development lead to new products and services. 5. Discuss the components involved in planning the production process. 6. Explain how purchasing, inventory control, scheduling, and quality control affect production. 7. Summarize how technology can make American firms more productive and competitive in the global marketplace. 8.5 BRIEF CHAPTER OUTLINE I. What Is Production? A. How American Manufacturers Compete in the Global Marketplace 1. The Bad News for Manufacturers 2. The Good News for Manufacturers B. Careers in Operations Management II. The Conversion Process A. Factors That Affect a Conversion Process 1. Focus 2. Magnitude of Change 3. Number of Production Processes III. The Increasing Importance of Services A. Planning Quality Services B. Evaluating the Quality of a Firm’s Services IV. Where Do New Products and Services Come From? A. Research and Development B. Product Extension and Refinement V. How Do Managers Plan Production? A. Design Planning 1. Product Line 2. Required Production Capacity 3. Use of Technology B. Site Selection and Facilities Planning 1. Human Resources 2. Plant Layout C. Operational Planning 1. Step 1: Selecting a Planning Horizon 2. Step 2: Estimating Market Demand 3. Step 3: Comparing Market Demand with Capacity 4. Step 4: Adjusting Products or Services to Meet Demand VI. Operations Control A. Purchasing B. Inventory Control C. Scheduling 1. Scheduling Through Gantt Charts 2. Scheduling via PERT D. Quality Control 1. Improving Quality Through Employee Participation 2. World Quality Standards: ISO 9000 and ISO 14000 VII. Improving Productivity with Technology A. Productivity Trends B. Improving Productivity Growth C. The Impact of Automation, Robotics, and Computers on Productivity 1. Robotics 2. Computer Manufacturing Systems 3. Flexible Manufacturing Systems D. Sustainability and Technological Displacement 8.6 COMPREHENSIVE LECTURE OUTLINE I. WHAT IS PRODUCTION? In Chapter 6, we described an “operations manager” as a person who manages the systems that convert resources into goods and services. This area of management is usually referred to as operations management; it consists of all the activities managers engage in to produce goods and services. To produce a product or service successfully, a business must perform a number of specific activities. We discuss each of these activities later in this chapter. A. How American Manufacturers Compete in the Global Marketplace. After World War II, the United States became the most productive country in the world. For almost 30 years, until the late 1970s, U.S. manufacturing leadership was never threatened. By then, however, manufacturers in Japan, Germany, Great Britain, Italy, Korea, Sweden, and other industrialized nations were increasingly competing with U.S. firms. Now the Chinese are manufacturing everything from sophisticated electronic equipment and automobiles to less-expensive everyday items—often for a lower cost than the same goods can be manufactured in other countries. 1. The Bad News for Manufacturers. The bad news is that the number of Americans employed in manufacturing jobs has decreased from just over 19 million in 1979 to approximately 12 million currently. Many of the manufacturing jobs that were lost were outsourced to low-wage workers in nations where there are few labor and environmental regulations. 2. The Good News for Manufacturers. The good news is that the United States remains one of the largest manufacturing countries in the world—producing approximately 20 percent of total global manufacturing output. While the number of manufacturing jobs has declined, productivity has increased. Two factors account for this increased productivity. a) Innovation—finding a better way to produce products—is the key factor that has enabled American manufacturers to compete in the global marketplace. b) Workers in the manufacturing sector are highly skilled and are making more goods with fewer employees. Many American manufacturers that previously outsourced work are beginning to manufacture goods in the United States. This is known as reshoring. While the global marketplace has never been more competitive, the most successful U.S. firms have focused on the following: a) Meeting the needs of customers and improving product quality. b) Motivating employees to cooperate with management and improve productivity. c) Reducing costs by selecting suppliers that offer higher-quality raw materials and components at reasonable prices. d) Using computer-aided and flexible manufacturing systems that allow a higher degree of customization. e) Improving control procedures to help ensure lower manufacturing costs. f) Using green manufacturing to conserve natural resources and sustain the planet. B. Careers in Operations Management. Although it is hard to provide information about specific career opportunities in operations management, some generalizations do apply to this management area. 1. First, you must appreciate the manufacturing process and the steps required to produce a product. Understanding the difference between an analytic process and a synthetic process is essential. a) Mass production is a manufacturing process that lowers the cost required to produce a large number of identical or similar products over a long period of time. b) An analytic process breaks raw materials into different component parts. c) A synthetic process is just the opposite of the analytic one; it combines raw materials or components to create a finished product. 2. Once you understand that operations managers are responsible for producing tangible products or services that customers want, you must determine how you fit into the production process. Today’s successful operations managers must do the following: a) Be able to motivate and lead people. b) Understand how technology can make a manufacturer more productive and efficient. c) Appreciate the control processes that help lower production costs and improve product quality. d) Understand the relationship between the customer, the marketing of a product, and the production of a product. II. THE CONVERSION PROCESS. The purpose of manufacturing is to provide utility to customers. Utility is the ability of a good or service to satisfy a human need. There are four types of utility—form, place, time, and possession. Operations management focuses primarily on form utility. Form utility is created by converting raw materials, people, finances, and information into finished products. A. Factors That Affect a Conversion Process. The conversion of resources into products and services can be described in at least three ways. (See Figure 8.1.) Teaching Tip: Ask your students how professors use technology to make the learning process more efficient. Follow up with a question regarding the application of technology and especially computers to the control process (making sure students are on track). 1. Focus. The focus of a conversion process refers to the resource or resources that comprise the major or most important input. The resources are financial, material, information, and people. 2. Magnitude of Change. The magnitude of a conversion process is the degree to which the resources are physically changed. 3. Number of Production Processes. A single firm may employ one production process or many. In general, larger firms that make a variety of products use multiple production processes. III. THE INCREASING IMPORTANCE OF SERVICES. The application of the basic principles of operations management to the production of services has coincided with a dramatic growth in the number and diversity of service businesses. In 1900, only 28 percent of American workers were employed in service firms. By 1950, this figure had grown to 40 percent, and by 2011, it had risen to 87 percent. The American economy is now characterized as a service economy—one in which more effort is devoted to the production of services than to the production of goods. (See Figure 8.2.) A. Planning Quality Services. While service firms are different from manufacturing firms, both types of businesses must complete many of the same activities in order to be successful. Service businesses must plan, design, execute, evaluate, improve, and redesign their services in order to provide goods and services that their customers want. B. Evaluating the Quality of a Firm’s Services. The production of services is very different from the production of manufactured goods in the following five ways: 1. Customers are more involved in obtaining the service they want or need. 2. Services are consumed immediately and, unlike manufactured goods, cannot be stored. 3. Services are provided when and where the customer desires the service. 4. Services are usually labor-intensive because the human resource is often the most important resource used in the production of services. 5. Services are intangible, and it is therefore more difficult to evaluate customer satisfaction. Today’s successful service firms work hard at exceeding the customer’s expectations. They often listen more carefully to customers and respond more quickly to the market’s changing needs. Many service firms also use social media to build relationships with their customers. Teaching Tip: Use the “Just How Good Is It?” exercise here. This is a 20-minute group exercise that requires students to quantify service performance of local eateries. IV. WHERE DO NEW PRODUCTS AND SERVICES COME FROM? A. Research and Development. For our purposes, research and development (R&D) is a set of activities intended to identify new ideas that have the potential to result in goods and services. Today, business firms use three general types of R&D activities. 1. Basic research consists of activities aimed at uncovering new knowledge, without regard for its potential use in the development of goods and services. 2. Applied research consists of activities geared to discovering new knowledge with some potential use. 3. Development and implementation are research activities undertaken specifically to put new or existing knowledge to use in producing goods and services. B. Product Extension and Refinement. When a new product is first marketed, its sales are zero and they slowly increase. If the product is successful, annual sales increase more and more rapidly until they reach some peak. Then, as time passes, annual sales begin to decline, and they continue to decline until it is no longer profitable to manufacture the product. 1. If a firm sells only one product, when that product reaches the end of its life cycle, the firm will die, too. To stay in business, the firm must at least find ways to extend or refine the want-satisfying capability of its product. 2. For most firms, extension and refinement are expected results of their research, development, and implementation activities. 3. Each refinement or extension results in an essentially “new” product whose sales make up for the declining sales of a product that was introduced earlier. Teaching Tip: Use the “Let’s Improve That Product!” exercise here. This is a group exercise that requires approximately 15 minutes of brainstorming. V. HOW DO MANAGERS PLAN PRODUCTION? Only a few of the many ideas for new products, refinements, and extensions ever reach the production stage. For those ideas that do, the next step is planning for production, which involves three different phases: design planning, facilities planning, and operational planning. (See Figure 8.3.) A. Design Planning. Design planning is the development of a plan for converting a product idea into an actual product or service. The major decisions involved in design planning deal with product line, required production capacity, and use of technology. 1. Product Line. A product line is a group of similar products that differ only in relatively minor characteristics. a) An important issue in deciding on the product line is to balance customer preferences and production requirements. Marketing managers play an important role in making product-line decisions. b) Each distinct product within the product line must be designed. Product design is the process of creating a set of specifications from which the product can be produced. 2. Required Production Capacity. Capacity is the amount of products or services that an organization can produce in a given period of time. a) Operations managers, working with the firm’s marketing managers, must determine the required capacity. This determines the size of the production facility. b) If the facility is built with too much capacity, valuable resources will lie idle. c) If the facility offers insufficient capacity, additional capacity may have to be added later, when it is much more expensive than in the initial building stage. d) The capacity of a service business is the number of customers it can serve at one time. Teaching Tip: Most people often spend quite a bit of time waiting in the waiting rooms of various medical providers, from dentists to emergency rooms. In the case of physicians, clearly there is over-scheduling and double-booking to make certain that all the expensive capacity is used. Ask students to work together to come up with strategies to both use the capacity and reduce waits. For example, text messages could be sent to cell phones if a provider is running late. 3. Use of Technology. Management must determine the degree to which automation will be used to produce a product or service. There is a tradeoff between high initial costs and low operating costs (for automation) and low initial costs and high operating costs (for human labor). a) A labor-intensive technology is a process in which people do most of the work. b) A capital-intensive technology is a process in which machines and equipment do most of the work. B. Site Selection and Facilities Planning. Generally, a business will choose to produce a new product in an existing factory as long as (1) the existing factory has enough capacity to handle customer demand for both the new product and established products, and (2) the cost of refurbishing an existing factory is less than the cost of building a new one. After exploring the capacity of existing factories, management may decide to build a new production facility. In determining where to locate production facilities, management must consider a number of variables, including the following: • Locations of major customers and suppliers. • Availability and cost of skilled and unskilled labor. • Quality of life for employees and management in the proposed location. • The cost of land and construction to build a new facility. • Local and state taxes, environmental regulations, and zoning laws. • The amount of financial support and subsidies, if any, offered by local and state governments. • Special requirements, such as great amounts of energy or water used in the production process. 1. Human Resources. At this stage, human resources and operations managers work closely together. The human resources manager will have to recruit managers and employees with the appropriate skills, develop training programs, or do both. It may even be necessary to transfer skilled workers to the new location or to train local workers. Teaching Tip: Use “The Crayon Factory” exercise here. This two-part exercise can take 30 minutes or more depending on the size of the class. This exercise demonstrates plant layout efficacy. 2. Plant Layout. Plant layout is the arrangement of machinery, equipment, and personnel within the production facility. Three general types of plant layout are used. (See Figure 8.4.) a) The process layout is used when different operations are required for creating small batches of different products or working on different parts of a product. b) The product layout (sometimes referred to as an assembly line) is used when all products undergo the same operations in the same sequence. c) A fixed-position layout is used when a very large product is produced. The product remains stationary while people and machines are moved as needed to assemble the product. C. Operational Planning. The objective of operational planning is to decide on the amount of products or services each facility will produce during a specific period of time. Four steps are required. 1. Step 1: Selecting a Planning Horizon. A planning horizon is the time period during which a plan will be in effect. a) A common planning horizon for production plans is one year. b) A planning horizon of one year is generally long enough to average out seasonal increases and decreases in sales. c) A planning horizon of one year is also short enough for planners to adjust production to accommodate long-range sales trends. 2. Step 2: Estimating Market Demand. The market demand for a product is the quantity that customers will purchase at the going price. 3. Step 3: Comparing Market Demand with Capacity. The third step in operational planning is to compare the estimated market demand with the facility’s capacity to satisfy that demand. One of three outcomes may result: a) Demand may exceed capacity. b) Capacity may exceed demand. c) Capacity and demand may be equal. If market demand and capacity are equal, the facility should be operated at full capacity. If they are not equal, adjustments may be necessary. 4. Step 4: Adjusting Products or Services to Meet Demand. The biggest reason for changes to a firm’s production schedule is changes in the amount of products or services that a company sells to its customers. a) When market demand exceeds capacity, several options are available. (1) Production of products or services may be increased by operating the facility overtime with existing personnel or by starting a second or third work shift. (2) A portion of the work can be subcontracted. (3) If the excess demand is likely to be permanent, the firm may expand the facility. b) When capacity exceeds market demand, there are several options. (1) To reduce output temporarily, workers may be laid off and part of the facility may be shut down. (2) The facility may be operated on a shorter-than-normal work week for as long as the excess capacity exists. (3) To adjust to a permanently decreased demand, management may shift the excess capacity to the production of other goods or services. (4) The most radical adjustment is to eliminate the excess capacity by selling unused facilities. Teaching Tip: Recent recessions and reduced consumer demand have caused more than one manufacturer to close manufacturing facilities. Even popular beverages such as Gatorade have been affected. In January 2010, PepsiCo shut down its largest Gatorade plant citing lack of consumer sales. Ask your students to think of other examples where a change in demand has caused corporations to take drastic action. VI. OPERATIONS CONTROL. There are four important areas of operations control. (See Figure 8.5.) A. Purchasing. Purchasing consists of all the activities involved in obtaining required materials, supplies, and parts from other firms. The objective of purchasing is to ensure that required materials are available when they are needed, in the proper amounts, and at minimum cost. 1. Purchasing personnel should constantly be on the lookout for new or backup suppliers, even when their needs are being met by their present suppliers. 2. The choice of suppliers should result from careful analysis of the following critical factors: a) Price—Comparing prices is always an essential part of selecting a supplier. b) Quality—The minimum acceptable quality is usually specified by product designers. c) Reliability—Purchasing personnel should check potential suppliers including their ability to meet delivery schedules. d) Credit terms—Does the supplier demand immediate payment, extend credit, or offer a cash discount or reduction in price for prompt payment? e) Shipping costs—The question of who pays the shipping costs should be answered before any supplier is chosen. B. Inventory Control 1. Operations managers realize the disasters that a shortage of needed materials can cause and are concerned with three types of inventories. a) The raw-materials inventory consists of materials that will become part of the product during the production process. b) The work-in-process inventory consists of partially completed products. c) The finished-goods inventory consists of completed goods awaiting shipment to customers. Teaching Tip: Working in pairs, ask students to identify three different kinds of organizations, and then list potential examples of each type of inventory within each organization. 2. Inventory control is the process of managing inventories to minimize inventory costs, including both holding costs (storage cost) and potential stock-out costs (the cost of running out of inventory). a) One of the most sophisticated methods of inventory control used today is materials requirements planning. Materials requirements planning (MRP) is a computerized system that integrates production planning and inventory control. A manager using an MRP system can arrange both order and delivery schedules so that materials, parts, and supplies arrive when they are needed. A popular extension of MRP used by firms today is known as enterprise resource planning, or ERP. ERP software monitors not only inventory and production, but also quality, customer satisfaction, and even variables at a supplier’s location. b) A just-in-time inventory system is designed to ensure that materials or supplies arrive at a facility just when they are needed so that storage and holding costs are minimized. C. Scheduling. Scheduling is the process of ensuring that materials and other resources are at the right place at the right time. These materials and resources may be raw materials, subassemblies, work in process, or finished goods. Place and time are important to scheduling for two reasons. First, the routing of materials is the sequence of workstations that the materials will follow. Second, the timing function specifies when the materials will arrive at each station and how long they will remain there. 1. Scheduling Through Gantt Charts. Developed by Henry L. Gantt, a Gantt chart is a graphic scheduling device that displays the tasks to be performed on the vertical axis and the time required for each task on the horizontal axis. (See Figure 8.6.) Gantt charts are not particularly suitable for scheduling extremely complex situations. 2. Scheduling via PERT. PERT (Program Evaluation and Review Technique) is a technique for scheduling a process or project and maintaining control of the schedule. (See Figure 8.7.) a) Begin by identifying all the major activities involved in the project. The completion of each activity is called an “event.” b) Next, arrange the events in a sequence. c) Next, arrows are used to connect events that must occur in sequence. d) Then estimate the time required for each activity and mark it near the corresponding arrow. e) The sequence of production activities that takes the longest time from start to finish is called the critical path. These activities are the ones that must be scheduled and controlled carefully. Teaching Tip: Ask students to work with a partner to develop a Gantt chart for a hypothetical major paper. This activity should take no more than 10 minutes. D. Quality Control. Quality control is the process of ensuring that goods and services are produced in accordance with design specifications. The major objective of quality control is to see that the organization lives up to the standards it has set for itself on quality. The Malcolm Baldrige National Quality Award is given to organizations that apply and are judged to be outstanding in specific managerial tasks that lead to improved quality in products and services. Using the Baldrige criteria can result in better employee relations, higher productivity, greater customer satisfaction, increased market share, and improved profitability. U.S. firms use several techniques to gather statistical information which is used to improve the quality of their products. (See Table 8.1.) Teaching Tip: Ask students how they “control” for quality on their papers. Is it mostly inspection, such as using a spell checker and/or proofing, or do they use some other methods? 1. Improving Quality Through Employee Participation. One of the first steps needed to improve quality is employee participation. Simply put: Successful firms encourage employees to accept full responsibility for the quality of their work. a) The use of a quality circle, a group of employees who meet on company time to solve problems of product quality, is another way manufacturers are achieving better quality at the operations level. b) Increased effort is also being devoted to inspection, which is the examination of the quality of work-in-process. Employees perform inspections at various times during production. c) As mentioned in Chapter 6, a total quality management (TQM) program coordinates the efforts directed at improving customer satisfaction, increasing employee participation, strengthening supplier partnerships, and facilitating an organizational atmosphere of continuous quality improvement. d) Another technique to improve quality and overall performance is Six Sigma, which is a disciplined approach that relies on statistical data and improved methods to eliminate defects for a firm’s products and services. 2. World Quality Standards: ISO 9000 and ISO 14000. Without a common standard of quality, customers may be at the mercy of manufacturers and vendors. As the number of companies competing in the world marketplace has increased, so has the seriousness of this problem. The International Organization for Standardization (ISO) is a nonprofit organization in Geneva, Switzerland, with a membership of 160 countries. It has brought together a panel of quality experts to define what methods a company must use to produce a quality product. a) This certification, issued by independent auditors and laboratory testing services, serves as evidence that a company meets the standards for quality control procedures in manufacturing design, production processes, product testing, training of employees, recordkeeping, and correction of defects. b) Although certification is not a legal requirement to do business globally, the organization’s member countries have approved the ISO standards. c) In fact, ISO is so prevalent around the globe that many customers refuse to do business with noncertified companies. d) The International Organization for Standardization has also developed ISO 14000, a series of international standards for incorporating environmental concerns into operations and product standards. VII. IMPROVING PRODUCTIVITY WITH TECHNOLOGY. Productivity is defined as the average level of output per worker per hour. A. Productivity Trends. Overall productivity growth for the U.S. business sector averaged 4.1 percent for the period 1979–2010. Output per hour for U.S. firms increased 5.8 percent in 2010. Twelve other nations that the U.S. Bureau of Labor Statistics tracks each year had larger growth in productivity than the United States. (See Figure. 8.8.) Teaching Tip: Use the “How Can You Improve Your Productivity?” brainstorming exercise here. B. Improving Productivity Growth. Lean manufacturing is a concept built on the idea of eliminating waste from all of the activities required to produce a product or service. Benefits of lean manufacturing include a reduction in the amount of resources required to produce a product or service, more efficient use of employee time, improved quality, and increased profits. Several additional techniques and strategies have been suggested to compete globally: 1. A stable economy in the United States and examining all government regulations to identify rules that hinder productivity growth. 2. Increased cooperation between management and labor could be fostered to increase employee motivation and participation resulting in improved productivity. 3. Satisfying customers’ needs with quality goods and services. 4. Use of automation, robotics, and technology to lower production costs. Teaching Tip: Go to the U.S. Department of Labor OSHA Web site, http://www.osha.gov/SLTC/ ergonomics/success_stories.html, which contains a list of companies reporting success stories from their ergonomics programs. By clicking on the company links, students will be able to read real-world accounts of companies that have improved productivity and reduced costs through their ergonomics programs. C. The Impact of Automation, Robotics, and Computers on Productivity. Automation is the total or near-total use of machines to do work. 1. Robotics. Robotics is the use of programmable machines to perform a variety of tasks by manipulating materials and tools. a) Robots work quickly, accurately, and steadily. b) They are especially effective in tedious repetitive assembly-line jobs as well as in handling hazardous materials. Teaching Tip: Go to the Tech Museum Web site on robotics to see some fun class activities that can be done to familiarize students with robotics. The site is http://www.thetech.org/exhibits/online/ robotics/activities/index.html. 2. Computer Manufacturing Systems. People are quick to point out how computers have changed their everyday life, but most individuals do not realize the impact that computers have had on manufacturing. a) In simple terms, the factory of the future has already arrived. b) For most manufacturers, the changeover began with the use of computer-aided design and computer-aided manufacturing. (1) Computer-aided design (CAD) is the use of computers to aid in the development of products. (2) Computer-aided manufacturing (CAM) is the use of computers to plan and control manufacturing processes. (3) Computer-integrated manufacturing (CIM) is a computer system that not only helps to design products but also controls the machinery needed to produce the finished product. 3. Flexible Manufacturing Systems. The flexible manufacturing system (FMS) combines electronic machines and computer-integrated manufacturing in a single production system. a) Assembly lines turn out large numbers of identical products economically, but they require expensive, time-consuming retooling of equipment when new products are manufactured. Such manufacturing is referred to as a continuous process, in which the same products are produced over a long period of time. b) In contrast, FMSs are rearranged by reprogramming electronic machines, so that smaller batches of a variety of products can be made without raising the production cost. c) Flexible manufacturing, also referred to as an intermittent process, is a manufacturing process in which a firm’s manufacturing machines and equipment are changed to produce different products. d) Customer-driven production describes a manufacturing system that is driven by customer needs and wants. D. Sustainability and Technological Displacement. In Chapter 1, sustainability was defined as meeting the needs of the present without compromising the ability of future generations to meet their own needs. While sustainability affects all aspects of a nation, its people, and the economy, the concept is especially important for manufacturers and service providers. 1. In the future, most experts agree that because U.S. manufacturers will continue to innovate, workers who have manufacturing jobs will be highly skilled and can work with the automated and computer-assisted manufacturing systems. 2. Those that don’t possess high-tech skills will be dispensable and unemployed. Instructor Manual for Business William M. Pride, Robert J. Hughes, Jack R. Kapoor 9781133595854, 9780538478083, 9781285095158, 9781285555485, 9781133936671, 9781305037083
Download
Close
Close
