Chapter 15: Managing Operations, Quality, and Productivity PDF

C H A P T E R 15 Managing Operations, Quality, and Productivity Learning Outcomes After studying this chapter, you should be able to:...

C H A P T E R 15 Managing Operations, Quality, and Productivity Learning Outcomes After studying this chapter, you should be able to: 15-1 Describe the nature of operations management. 15-2 Discuss the components involved in designing effective operations systems. 15-3 Discuss organizational technologies and their role in operations management. 15-4 Identify the components involved in implementing operations systems through supply chain management. 15-5 Explain the meaning and importance of managing quality and total quality management. 15-6 Explain the meaning and importance of managing productivity, productivity trends, and ways to improve productivity. I n this chapter, we explore operations management, quality, and productivity. We first introduce operations management and discuss its role in general management and organizational strategy. The next three sections discuss the design of operations systems, organizational technologies, and implementing operations systems. We then introduce and discuss various issues in managing for quality and total quality. Finally, we discuss ­productivity, which is closely related to quality. We begin by analyzing the role of operations management in the retail industry and how Tesco has been using supply chain techniques to boost its global market share. Management in Action Out Supply-Chaining the King of Supply Chainers “... there isn’t a place in the world where Tesco has gone one-on-one with Walmart and Tesco hasn’t won.” —Kevin Coupe, Food-Retail Analyst It’s no secret that Walmart is the largest retailer (and indeed, the largest corporation based on revenue) on the planet, with total revenues in 2019 of $524 billion. It’s almost five times larger than the number-two retailer in the United States, Home Depot (2019 revenue, $110 billion), and it’s bigger than Europe’s three largest retailers—France’s Carrefour, Britain’s Tesco, and Germany’s Metro AG—combined. It is, according to the business-information service Hoover’s, “an irresistible (or at least unavoidable) retail force that has yet to meet any immovable 42 4 Copyright 2022 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  CHAPTER 15 | MANAGING OPERATIONS, QUALITY, AND PRODUCTIVITY 42 5 objects.” One key to Walmart’s success has been astute supply chain management. For example, Walmart was among the first to use point-of-sale scanners to track product sales and reorder quickly to meet shifting consumer buying patterns. And Walmart has also been ruthless at forcing its suppliers to continuously lower their own costs. But some experts have recently noted that Walmart is actually getting beaten at its own game by one of its European rivals, youngoggo/Shutterstock.com Tesco. Food-retail analyst Kevin Coupe points out that “there isn’t a place in the world where Tesco has gone one-on-one with Walmart and Tesco hasn’t won.” In Britain, for example, U.K.-owned Tesco, one of the world’s largest food retailers, com- Tesco is a master at supply chain management. mands a 34-­percent market share—double that of Walmart-owned Asda. Tesco’s 6,500 stores in 11 countries utilize five basic formats, customized to match the needs of the local market. Its ability to manage stores in multiple formats as well as multiple markets is one of the company’s greatest strengths. The key to this core competence is technology—or, more precisely, data management— which is critical in any effort to optimize inventory selection, size, and distribution. Tesco, reports retail-industry analyst Scott Langdoc, “is ruthless in supply-chain management.” In the United Kingdom, for instance, a wireless network connecting all Tesco stores facilitates real-time management of distribution and transportation. Workers use handheld PDAs for data entry and reporting, and radio frequency identification (RFID) tags allow them to track crates and pallets carrying anywhere from 3,500 to 60,000 different products going to markets located anywhere from Sussex to Seoul. Tesco is good not only at applying data management to supply chain management, but it has also developed considerable skill in applying data management to the analysis of consumer preferences in different markets. Tesco relies on a data-mining firm called Dunnhumby (of which it has majority control) to manage everything from targeting sales promotions to designing store formats and, perhaps most importantly, developing private-label products. Along with its ability to manage multiple store formats, many analysts regard Tesco’s ability to provide a better and broader range of private brands—products manufactured for retailers who sell them under their own names—as one of the most important factors in the company’s marketing success. U.S. retailers, on the other hand, have never been quite able to convince consumers that private-label products are as good as their brand-name counterparts. Walmart, for example, struggles to get 35 percent of its sales from private-label goods. In many countries, however, Tesco gets as much as 60 percent of its revenue from private-label products. The difference? Tesco, explains New York retail consultant Burt P. Flickinger III, knows which products to develop, how to price them, and how to integrate them into the product lines of its various stores. “[Our] range of high-quality own-label products,” says CEO Dave Lewis, “... is an integral part of our offer in every market in which we operate.” Tesco offers about 12,000 private-label and specialty brands at every price point. Some high-range products, such as Tesco Finest Chocolates, even sell at 50-percent premiums to established brands like Cadbury, and all of them sell at significantly higher margins than national brands. Copyright 2022 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 42 6 PART 5 | Controlling According to Flickinger, “Tesco is arguably the finest food retailer in the world,” and he suggests that, armed with a unique set of competencies, the British grocer may well be “Walmart’s worst nightmare.” But, like every business, Tesco isn’t perfect. In 2007, for instance, it rolled out a new chain of food stores, called Fresh & Easy, in California, Arizona, and Nevada. Unfortunately, its timing and location choice couldn’t have been worse. Tesco acquired its properties at the height of the U.S. property boom of the mid-2000s. California, Arizona, and Nevada, however, were among the worst-hit areas when the bubble in the U.S. housing market burst, dooming Fresh & Easy’s viability. Tesco has now pulled out of the U.S. market but some experts believe the company will launch a new push in the near future. Indeed, Walmart knows it cannot rest easy, for the U.S. market is too big for a skill- ful and aggressive rival like Tesco to ignore for long.1 15-1 THE NATURE OF OPERATIONS MANAGEMENT Operations management is at the core of what organizations do as they add value and create products and services. But what exactly are operations? And how are they managed? operations management Operations management is the set of managerial activities used by an organization to The total set of transform resource inputs into products and services. When Dell Computer buys electronic managerial activities used components, assembles them into PCs, and then ships them to retailers and individual by an organization to consumers, it is engaging in operations management. When a Pizza Hut employee orders transform resource inputs food and paper products and then combines dough, cheese, and tomato paste to create a pizza, into products, services, he or she is engaging in operations management. or both 15-1a The Importance of Operations Operations is an important functional concern for organizations because efficient and effec- tive management of operations goes a long way toward ensuring competitiveness and overall organizational performance, as well as enhancing quality and productivity. Inefficient or ineffective operations management, on the other hand, will almost inevitably lead to poorer performance and lower levels of both quality and productivity. In an economic sense, operations management creates value and utility of one type or another, depending on the nature of the firm’s products or services. If the product is a physi- cal good, such as a Harley-Davidson motorcycle, operations creates value and provides form utility by combining many dissimilar inputs (sheet metal, rubber, paint, internal combustion engines, and human skills) to make something (a motorcycle) that is more valuable than the actual cost of the inputs used to create it. The inputs are converted from their incoming form into a new physical form. This conversion is typical of manufacturing operations and essen- tially reflects the organization’s technology. In contrast, the operations activities of Delta Airlines create value and provide time and place utility through its services. The airline transports passengers and freight according to agreed-upon departure and arrival places and times. Other service operations, such as a Coors beer distributorship or a Zara retail store, create value and provide place and possession utility by bringing together the customer and products made by others. Although the organizations in these examples produce different kinds of products or services, their operations processes share many important features.2 15-1b Manufacturing and Production Operations manufacturing A form of business that Because manufacturing once dominated U.S. industry, the entire area of operations man- combines and transforms agement used to be called “production management.” Manufacturing is a form of business resource inputs into that combines and transforms resources into tangible outcomes that are then sold to others. tangible outcomes The Goodyear Tire & Rubber Company is a manufacturer because it combines rubber and Copyright 2022 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  CHAPTER 15 | MANAGING OPERATIONS, QUALITY, AND PRODUCTIVITY 427 chemical compounds and uses blending equipment and molding machines to create tires. Broyhill is a manufacturer because it buys wood and metal components, pads, and fabric and then combines them into furniture. During the 1970s, manufacturing entered a long period of decline in the United States, primarily because of foreign competition. U.S. firms had grown complacent even as new foreign competitors came onto the scene with better equipment and much higher levels of efficiency. For example, steel companies in the Far East were able to produce high-quality steel for much lower prices than were U.S. companies like Bethlehem Steel and U.S. Steel. At one time these two companies were among the largest steel producers in the world. Bethlehem, though, closed its doors in 2003 while U.S. Steel has undergone several changes and is today a smaller (but much more profitable) company. Indeed, faced with a battle for survival, many companies underwent a long and difficult period of change, eliminating waste and transforming themselves into leaner, more efficient and responsive entities. They reduced their workforces dramatically, closed antiquated or unnecessary plants, and modernized their remaining plants. Since 2000 their efforts have started to pay dividends, as U.S. businesses have regained their competitive positions in many different industries. Although manufacturers from other parts of the world are still formidable competitors, and U.S. firms may never again be competitive in some markets, the overall picture is much better than it was just a few years ago. And prospects continue to look bright.3 15-1c Service Operations During the decline of the manufacturing sector, a tremendous growth in the service sector service organization kept the U.S. economy from declining at the same rate. A service organization is one that An organization that transforms resources into an intangible output and creates time or place utility for its transforms resources customers. For example, Merrill Lynch makes stock transactions for its customers, Avis into an intangible output leases cars to its customers, and local hairstylists cut clients’ hair. In 1947 the service sector and creates time or place was responsible for less than half of the U.S. gross national product (GNP). By 1975, however, utility for its customers this figure had reached 65 percent. And in 2018 the service sector accounted for nearly 80 percent of the private-sector gross domestic product (GDP) and provided 100 million jobs.4 Managers in service organizations have come to see that many of the tools, techniques, and methods that are used in a factory are also useful to a service firm. For example, managers of automobile plants and hair salons both have to decide how to design their facilities, identify the best locations for them, determine optimal capacities, make decisions about inventory storage, set procedures for purchasing raw materials, and set standards for productivity and quality. 15-1d The Role of Operations in Organizational Strategy It should be clear by this point that operations management is very important to organizations. Beyond its direct impact on such factors as competitiveness, quality, and productivity, it also directly influences the organization’s overall level of effectiveness. For example, the deceptively simple strategic decision of whether to stress high quality regardless of cost, lowest possible cost regardless of quality, or some combination of the two has many important implications. A highest-possible-quality strategy will dictate state-of- the-art technology and rigorous control of product design and materials specifications. A combination strategy might call for lower-grade technology and less concern about product design and materials specifications. Just as strategy affects operations management, so, too, does operations management affect strategy. Suppose that a firm decides to upgrade the quality of its products or services. The organization’s ability to implement the decision is dependent in part on current production capabilities and other resources. If existing technology will not permit higher-quality work, and if the organization lacks the resources to replace its technology, increasing quality to the desired new standards will be difficult. The A World of Difference feature illustrates how operations can give a new start-up operation a competitive advantage. Copyright 2022 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 42 8 PART 5 | Controlling A WORLD OF DIFFERENCE Dispensing Hope On the outskirts of Santiago, Chile, food is expensive and wages, result in most residents struggling to meet their options are limited. The lack of population density, cou- most basic needs. Moller began to see these high prices pled with low household incomes, has resulted in very as a “poverty tax” imposed on the 70 percent of the Chil- few supermarkets. Most residents shop at small stores ean population living outside the major cities, and he was with narrow product lines and prices up to 40 percent determined to make a difference. higher than those found in more populated areas. In the The company estimates that its model has allowed buyers hope of improving the lives of people living in these areas, to save up to 40 percent per month on household products, Algramo, a Santiago-based company, has a unique distribu- allowing them to use the saved funds to obtain better health tion model. Algramo, whose name means “by the gram,” care or to provide quality educational opportunities for their buys products in bulk, keeping its costs low. The com- children. The benefits of Algramo’s business model are not pany installs high-tech vending machines in local stores limited to the consumer but also extend to shopkeepers. and stocks them with beans, lentils, rice, and sugar, as Algramo’s vending machines generate profits for small well as other products. Algramo doesn’t charge the stor- stores that operate on narrow margins, allowing them to eowner for installing the machine and shares the profits stay in business and improve the owners’ quality of life. from all sales equally with the shopkeeper. In just its first Benefits of the model even extend to the environment: year of operation, Algramo had dispensers in more than Algramo dispenses its products in reusable containers, 300 locations, serving approximately 36,000 customers. reducing the waste associated with disposable packaging. The company is the brainchild of Chilean student Jose Algramo earned a B Company certification in 2014, Manuel Moller. He and three friends moved to a small and in 2015 Fast Company selected Algramo as one of community outside Santiago in hopes of gaining a bet- the 50 most innovative companies in the world. In 2019, ter understanding of the conditions for residents. While Algramo had a presence in over 1,600 stores, serving the neighborhood stores are an important meeting place 220,000 customers in low-income areas and avoiding an for the community, high prices for food, coupled with low estimated 180,000 kilograms of waste.5 Managers should be able to distinguish between manufacturing and production Manager’s operations and service operations. Checklist You should also have a clear understanding of the operations management strategy or strategies in your organization. 15-2 DESIGNING OPERATIONS SYSTEMS The problems, challenges, and opportunities faced by operations managers revolve around the acquisition and utilization of resources for conversion. Their goals include both efficiency and effectiveness. A number of issues and decisions must be addressed as operations systems are designed. The most basic ones are product-service mix, capacity, and facilities. 15-2a Determining Product-Service Mix product–service mix A natural starting point in designing operations systems is determining the product–service How many and what kinds mix. This decision flows from corporate, business, and marketing strategies. Managers have of products or services (or to make a number of decisions about their products and services, starting with how many and both) to offer what kinds to offer.6 Procter & Gamble, for example, makes regular, whitening, tartar-control, and various other formulas of Crest toothpaste; offers each in a variety of flavors; and packages them in several different sizes and kinds of tubes, pumps, and other dispensers. Similarly, workers at Subway sandwich shops (referred to as “Sandwich Artists” by the company) can combine different breads, vegetables, meats, and condiments to create hundreds of different kinds of sandwiches. Decisions also have to be made regarding the level of quality desired, the optimal cost of each product or service, and exactly how each is to be designed. During a review of its manufacturing operations, managers at General Electric figured out how to Copyright 2022 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  CHAPTER 15 | MANAGING OPERATIONS, QUALITY, AND PRODUCTIVITY 42 9 Niloo/Shutterstock.com A firm’s product-service mix is determined in large part by corporate or business strategies. A logical next step is to design operations systems to efficiently produce products to be sold with the desired packaging and sizes. Of course, as shown here, most products are sold in a wide variety of forms and sizes. reduce the number of parts in its industrial circuit breakers from 28,000 to 1,275. This whole process was achieved by carefully analyzing product design and production methods. Some firms quickly altered their product–service mix during the 2020 COVID-19 pandemic. For example, some restaurants started home-delivery services, some curbside pickup, and some even started selling grocery items like bread and milk. LVMH modified a perfume facility to make hand sanitizer and Ford revamped a plant to make medical ventilators. capacity The amount of products, 15-2b Capacity Decisions services, or both that The capacity decision involves choosing the amount of products, services, or both that can be can be produced by an produced by the organization. Determining whether to build a factory capable of making 5,000 organization or 8,000 units per day is a capacity decision. So, too, is deciding whether to build a restaurant with 100 or 150 seats or a bank with five or 10 teller stations. The capacity decision is truly a high-risk one because of the uncertainties of future product demand and the large monetary stakes involved. An organization that builds capacity exceeding its needs may commit resources (capital investment, space, and so forth) that will never be recovered. Alternatively, an organization can build a facility with a smaller capacity than expected demand. Doing so may result in lost market opportunities, but it may also free capital resources for use elsewhere in the organization. Chris Allan/Shutterstock.com A major consideration in determining capacity is demand. A company operating with fairly constant monthly demand might build a plant capable of producing an amount each month roughly equivalent to its demand. But if its market Capacity decisions are an important part of operations management. Take is characterized by seasonal fluctuations, building this restaurant, for example. Right now, many people are waiting for tables. a smaller plant to meet normal demand and If the restaurant were larger, more customers could be seated immediately then adding extra shifts staffed with temporary and the restaurant would generate more revenue. However, during other workers or paying permanent workers extra to periods when demand might be lower, the restaurant would have unused work more hours during peak periods might be space and experience higher costs. the most effective choice. Likewise, a restaurant Copyright 2022 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 430 PART 5 | Controlling that needs 150 seats for Saturday night but never needs more than 100 at any other time during the week would probably be foolish to expand to 150 seats. During the rest of the week, it must still pay to light, heat, cool, and clean the excess capacity. Many customer service departments have tried to improve their capacity to deal with customers while also lowering costs by using automated voice prompts to direct callers to the right representative. Many businesses had to adjust their capacities during the 2020 COVID- 19 pandemic. For instance, at various times restaurants were restricted to 25 or 50 percent of their normal capacity. Theme parks like iStock.com/anilbolukbas Universal Studios and Disney World also limited the number of people who could visit each day. And many factories had to limit the number of employees who could work at the same time. In the wake of COVID-19, most entertainment venues like theme parks, movie theaters, and so forth imposed social-distancing measures. Universal 15-2c Facilities Decisions Studios, for instance, placed markers on the ground to remind people in ride Facilities are the physical locations where queues to maintain six feet of space between each party. products or services are created, stored, and distributed. Major decisions pertain to facilities location and facilities layout. Location Location is the physical positioning or geographic site of facilities and must be facilities determined by the needs and requirements of the organization. A company that relies heavily The physical locations on railroads for transportation needs to be located close to rail facilities. Nucor Steel, for where products or instance, only locates its mills adjacent to rail lines. General Electric decided that it did not services are created, need six plants to make circuit breakers, so it invested heavily in automating one plant and stored, and distributed closed the other five. Different organizations in the same industry may have different facilities location requirements. Benetton uses only one distribution center for the entire world, whereas The physical positioning Walmart has several distribution centers in the United States alone. A traditional retailer or geographic site of must choose its location very carefully to be convenient for consumers, while an industrial facilities facility can often be located in a less-visible business park or other area where rent is cheaper. layout Layout The choice of physical configuration, or the layout, of facilities is closely related to The physical other operations decisions. The three entirely different layout alternatives shown in Figure 15.1 configuration of facilities, help demonstrate the importance of the layout decision. the arrangement of A product layout is appropriate when large quantities of a single product are needed. It equipment within makes sense to custom-design a straight-line flow of work for a product when a specific task facilities, or both is performed at each workstation as each unit flows past. Most assembly lines use this format. product layout For example, Dell’s personal computer factories use a product layout. A physical configuration Process layouts are used in operations settings that create or process a variety of of facilities arranged products or activities. Auto repair shops and health care clinics are good examples. Each around the product; used car and each person is a separate “product.” The needs of each incoming job are diagnosed when large quantities of a as it enters the operations system, and the job is routed through the unique sequence of single product are needed workstations needed to create the desired finished product. In a process layout, each type of conversion task is centralized in a single workstation or department. All welding is done process layouts A physical configuration in one designated shop location, and any car that requires welding is moved to that area. of facilities arranged This setup is in contrast to the product layout, in which several different workstations around the process; used may perform welding operations if the conversion task sequence so dictates. Similarly, in facilities that create in a hospital, all x-rays are done in one location, all surgeries in another, and all physical or process a variety of therapy in yet another. Patients are moved from location to location to get the services products they need. Copyright 2022 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  CHAPTER 15 | MANAGING OPERATIONS, QUALITY, AND PRODUCTIVITY 4 31 Product Layout All incoming Finished jobs and product materials Process Layout Incoming Finished job 1 product 1 Incoming Finished job 2 product 2 Fixed-Position Layout fixed-position layout Workstation A physical configuration of facilities arranged around a single work Product area; used for the manufacture of large and F I G U R E 15.1 complex products such as airplanes Approaches to Facilities Layout When a manufacturer produces large quantities of a product (such as cars or cellular layouts computers), it may arrange its facilities in an assembly line (product layout). In A physical configuration a process layout, the work (such as patients in a hospital or custom pieces of of facilities used when furniture) moves through various workstations. Locomotives and bridges are both families of products can manufactured in a fixed-position layout. follow similar flow paths The fixed-position layout is used when the organization is creating a few very large and complex products. Aircraft manufacturers like Boeing and shipbuilders like General Dynamics use this method. An assembly line capable of moving one of Boeing’s 787 aircraft would require an enormous plant, so instead the airplane itself remains stationary, and people and machines move around it as it is assembled. CWA Studios/Shutterstock.com The cellular layout is a relatively new approach to facilities design. Cellular layouts are used when families of products can follow similar flow paths. A clothing manufacturer, for example, might create a cell, or designated area, dedicated to making a family of pockets, such as pockets for shirts, coats, Most hospitals use process layouts to treat patients. This blouses, and slacks. Although each kind of pocket is unique, the patient, for example, has been brought from his room to the same basic equipment and methods are used to make all of them. x-ray lab. After imaging is complete, he will return to his room Hence, all pockets might be made in the same area and then before then moving again to the operating theater to receive delivered directly to different product layout assembly areas the appropriate treatment. Later, he will be taken to the where the shirts, coats, blouses, and slacks are actually being physical therapy center to begin his recovery. assembled. Copyright 2022 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 4 32 PART 5 | Controlling Managers should know the three basic components in designing operations Manager’s systems. Checklist You should be familiar with the basic decisions that relate to each component in designing operations systems. 15-3 ORGANIZATIONAL TECHNOLOGIES One central element of effective operations management is technology. In Chapter 3 we technology defined technology as the set of processes and systems used by organizations to convert The set of processes resources into products or services. and systems used by organizations to convert 15-3a Manufacturing Technology resources into products or services Numerous forms of manufacturing technology are used in organizations. In Chapter 11 we discussed the research of Joan Woodward. Recall that Woodward identified three forms of technology: unit or small batch, large batch or mass production, and continuous process.7 Each form of technology was thought to be associated with a specific type of organization structure. Of course, newer forms of technology not considered by Woodward also warrant attention. Two of these are automation and computer-assisted manufacturing. automation Automation Automation is the process of designing work so that it can be completely or The process of designing almost completely performed by machines. Because automated machines operate quickly and work so that it can be make few errors, they increase the amount of work that can be done. Thus, automation helps to completely or almost improve products and services and fosters innovation. Automation is the most recent step in completely performed by the development of machines and machine-controlling devices. Machine-controlling devices machines have been around since the 1700s. James Watt, a Scottish engineer, invented a mechanical speed control to regulate the speed of steam engines in 1787. The Jacquard loom, developed by a French inventor, was controlled by paper cards with holes punched in them. Early accounting and computing equipment were controlled by similar punched cards. Automation relies on feedback, information, sensors, and a control mechanism. Feedback is the flow of information from the machine back to the sensor. Sensors are the parts of the system that gather information and compare it to preset standards. The control mechanism is the device that sends instructions to the automatic machine. Early automatic machines were primitive, and the use of automation was relatively slow to develop. These elements are illustrated by the example in Figure 15.2. A thermostat has sensors that monitor air tempera- ture and compare it to a preset value. If the air temperature falls below the preset value, the thermostat sends an electrical signal to the furnace, turning it on. The furnace heats the air. When the sensors detect that the air temperature has reached a value higher than the low pre- set value, the thermostat stops the furnace. The last step (shutting off the furnace) is known as feedback, a critical component of any automated operation. The big move to automate factories began during World War II. The shortage of skilled workers and the development of high-speed computers combined to bring about a tremendous interest in automation. Programmable automation (the use of computers to control machines) was introduced during this era, eventually replacing most conventional automation (the use of mechanical or electromechanical devices to control machines). The automobile industry began to use automatic machines for a variety of jobs. In fact, the term automation came into use in the 1950s in the automobile industry. The chemical and oil-refining industries also began to use computers to regulate production. During the 1990s, automation became a major element in the manufacture of computers and computer components, such as electronic chips and circuits. And in the last two decades automation has been extended to clothing manufacturing, package sorting and delivery, and order fulfillment in warehouses. It is this computerized, or programmable, automation that presents the greatest opportunities and challenges for management today. Copyright 2022 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  CHAPTER 15 | MANAGING OPERATIONS, QUALITY, AND PRODUCTIVITY 4 33 Feedback Detects high Turns off temperature furnace (information) (control) Thermostat tests air (sensor) Detects low Turns on temperature furnace (information) (control) Feedback F I G U R E 15. 2 A Simple Automatic Control Mechanism All automation includes feedback, information, sensors, and a control mechanism. A simple thermostat is an example of automation. Another example is Benetton’s distribution center in Italy. Orders are received, items pulled from stock and packaged for shipment, and invoices prepared and transmitted, with no human intervention. The impact of automation on people in the workplace is complex. In the short term, specific individuals whose jobs are automated may, in fact, end up without a job. In the long term, however, more jobs tend to be added than are lost. This is attributable to the idea that automation improves overall economic growth, spurring business growth and expansion and thus creating more jobs. Nevertheless, not all companies are able to help displaced workers find new jobs, so the human costs are sometimes high, especially in the short run. In the coal industry, for instance, automation has been used primarily in mining. The output per miner has risen dramatically from the 1950s on. The demand for coal, however, has decreased, and productivity gains resulting from automation have lessened the need for miners. Consequently, many workers have lost their jobs, and the industry has not been able to absorb them. In contrast, in the electronics industry, the rising demand for products has led to increasing employment opportunities despite the growing use of automation.8 Computer-Assisted Manufacturing Current extensions of automation generally revolve computer-assisted around computer-assisted manufacturing. Computer-assisted manufacturing is technology manufacturing that relies on computers to design or manufacture products. One type of computer-assisted A technology that relies manufacturing is computer-aided design (CAD)—the use of computers to design parts and complete on computers to design products and to simulate performance so that prototypes need not be constructed. Boeing uses or manufacture products CAD technology to study hydraulic tubing in its commercial aircraft. Japan’s automotive industry uses it to speed up car design. GE used CAD to change the design of circuit breakers, and Benetton uses CAD to design new styles and products. Oneida, the table flatware firm, uses CAD to design new flatware patterns; for example, it can design a new spoon in a single day. CAD is usually combined with computer-aided manufacturing (CAM) to ensure that the design moves smoothly to production. The production computer shares the design computer’s information and can have machines with the proper settings ready when production is needed. A CAM system is especially useful when reorders come in because the computer can quickly produce the desired product, prepare labels and copies of orders, and send the product out to where it is wanted. Closely aligned with this approach is computer-integrated manufacturing (CIM). In CIM, CAD and CAM are linked together, and computer networks automatically adjust machine placements and settings to enhance both the complexity and the flexibility of scheduling. In settings that use these technologies, all manufacturing activities are controlled by the com- puter network. Because the network can access the company’s other information systems, CIM is both a powerful and a complex management control tool. Copyright 2022 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 434 PART 5 | Controlling Flexible manufacturing systems (FMS) usually have robotic work units or workstations, assembly lines, and robotic carts or some other form of computer-controlled transport system to move material as needed from one part of the system to another. FMS like the one at Lexmark’s manufacturing facility in Lexington, Kentucky, rely on computers to coordinate and integrate automated production and materials-handling facilities. When garment retailers like Abercrombie & Fitch launch new product lines, they often plan several variations of specific products so that changes can be made once consumer demand is better understood. For instance, they might make shirt bodies without sleeves, knowing that long, mid-length, or short sleeves can be added as needed. Ford Motor Company has also been a pioneer in FMS. It can quickly adjust plant capabilities to produce pickups, SUVs, or small hybrids depending on fluctuations in demand and supply.9 These systems are not without disadvantages, however. For example, because they represent fundamental change, they also generate resistance. Additionally, because of their tremendous “Lean isn’t good enough anymore. The complexity, CAD systems are not always reliable. CIM systems are so expensive that they raise the breakeven point for firms new reality requires being both lean and using them. This means that the firm must operate at high flexible.” levels of production and sales to be able to afford the systems. —David Cole, Automobile Industry Expert robot Robotics Another trend in manufacturing technology is Any artificial device computerized robotics. A robot is any artificial device that can perform functions ordinarily that is able to perform thought to be appropriate for human beings. Robotics refers to the science and technology of the functions ordinarily construction, maintenance, and use of robots. The use of industrial robots has steadily increased thought to be appropriate over the last few decades and is expected to continue to increase slowly as more companies for human beings recognize the benefits that accrue to users of industrial robots. Welding was one of the first applications for robots, and it continues to be the area for most applications. A close second is materials handling. Other applications include machine loading and unloading, painting and finishing, assembly, casting, and such machining applications as cutting, grinding, polishing, drilling, sanding, buffing, and deburring. Daimler AG, for instance, replaced about 200 welders with 50 robots on an assembly line and increased productivity about 20 percent. The use of robots in inspection work is increasing. They can check for cracks and Jenson/Shutterstock.com holes, and they can be equipped with vision systems to perform visual inspections. Robots are also beginning to move from the factory floor to other applications. The Dallas police used a robot to apprehend a Many large manufacturers today make use of robots for part of their assembly processes. These robots, for instance, are welding together parts suspect who had barricaded himself in an of automobiles moving along an assembly line. The robots can perform apartment building. The robot smashed a these welding tasks faster and more accurately than can human workers. window and reached with its mechanical On the other hand, there are many other tasks that humans can perform arm into the building. The suspect panicked better than robots. and ran outside. At the Long Beach Memorial Hospital in California, brain surgeons are assisted by a robot arm that drills into “Neither workers nor robots can reach their the patient’s skull with extreme precision. Some newer productive potential without interacting applications involve remote work. For example, the use of robot submersibles controlled from the surface can help more closely.” divers in remote locations. Surveillance robots fitted with —Volker Grünenwald, Head of Systems Integration microwave sensors can do things that a human guard cannot at Pilz, A German Engineering Firm do, such as “seeing” through nonmetallic walls and in the Copyright 2022 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  CHAPTER 15 | MANAGING OPERATIONS, QUALITY, AND PRODUCTIVITY 4 35 dark. In other applications, automated farming (called “agrimation”) uses robot harvesters to pick fruit from a variety of trees. Robots are also used by small manufacturers. One robot slices carpeting to fit the inside of custom vans in an upholstery shop. Another stretches balloons flat so that they can be spray-painted with slogans at a novelties company. At a jewelry company, a robot holds class rings while they are engraved by a laser. These robots are lighter, faster, stronger, and more intelligent than those used in heavy manufacturing and are the types that more and more organizations will be using in the future. 15-3b Service Technology Service technology is also changing rapidly. And it, too, is moving more and more toward auto- mated systems and procedures. In banking, for example, technological breakthroughs led to automated teller machines and made it much easier to move funds between accounts or between different banks. Most people now have their paychecks deposited directly into a checking account from which many of their bills are then automatically paid. Electronic banking—where people can access their accounts, move money between accounts, and pay bills—has become commonplace, and many people deposit checks digitally using imaging from their smartphones. Hotels use increasingly sophisticated technology to accept and record room reservations. People can now, for instance, check in online and then use their smartphone to enter their room. Universities use digital technologies to electronically store and pro- vide access to books, scientific journals, government reports, and articles. Hospitals and other health care organizations use new forms of service technology to manage patient records, dispatch ambulances and EMTs, and monitor patient vital signs. Res- taurants use technology to record and fill customer orders, order food and supplies, and prepare food. If East pop/Shutterstock.com you’ve ever seen a performance by Cirque du Soleil, you probably have some idea of the role played by technology in its spectacular productions. Given the increased role that service organizations—from restaurants and dry cleaners to hotels and live per- Hotels are using increasingly sophisticated technology, including apps like formances—are playing in today’s economy, even Expedia, to enable guests to book reservations and upgrades. These same more technological innovations are certain to be apps can also be used to book flights, rental cars, and other travel services. developed in the years to come.10 Managers should be familiar with new manufacturing technologies. Manager’s Managers also need to be familiar with new service technologies. Checklist You should also understand your organization’s approach to manufacturing and/or service technologies. 15-4 IMPLEMENTING OPERATIONS SYSTEMS THROUGH SUPPLY CHAIN MANAGEMENT After operations systems have been properly designed and technologies developed, they must then be put into use by the organization. Their basic functional purpose is to control transformation processes to ensure that relevant goals are achieved in such areas as quality and costs. Operations management has a number of special purposes within this Copyright 2022 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 436 PART 5 | Controlling control framework, including purchasing and inventory management. Indeed, this area of management has become so important in recent years that a new term—supply chain supply chain management—has been coined. Specifically, supply chain management can be defined as the management process of managing operations control, resource acquisition and purchasing, and inventory The process of managing so as to improve overall efficiency and effectiveness.11 operations control, resource acquisition, 15-4a Operations Management as Control and inventory so as to improve overall efficiency One way of using operations management as control is to coordinate it with other functions. and effectiveness Bayer, for example, established a consumer products division that produces and distributes fertilizers and lawn chemicals. To facilitate control, the operations function was organized as an autonomous profit center. Bayer finds this effective because its manufacturing division is given the authority to determine not only the costs of creating the product but also the product price and the marketing program. In terms of overall organizational control, a division like the one used by Bayer should be held accountable only for the activities over which it has decision-making authority. It would be inappropriate, of course, to make operations accountable for profitability in an organization that stresses sales and market share over quality and productivity. Misplaced accountability results in ineffective organizational control, to say nothing of hostility and conflict. Depending on the strategic role of operations, then, operations managers are accountable for different kinds of results. For example, in an organization using bureaucratic control, accountability will be spelled out in rules and regulations. In a decentralized system, it is likely to be understood and accepted by everyone. Within operations, managerial control ensures that resources and activities achieve primary goals such as a high percentage of on-time deliveries, low unit-production cost, or high product reliability. Any control system should focus on the elements that are most crucial to goal attainment. For example, firms in which product quality is a major concern (as it is at Rolex) might adopt a screening control system to monitor the product as it is being created. If quantity is a higher priority (as it is at Timex), a postaction system might be used to identify defects at the end of the system without disrupting the manufacturing process itself. When Boeing started production of its Boeing 787 Dreamliner, the plane was hailed as the most commercially successful new plane of all time. Airlines around the world preordered over 900 of the planes at a cost of $178 million each before they ever took a test flight, based on its projected fuel efficiency, passenger comfort, low maintenance costs, flexibility, and other major design elements. But the first test flights for the plane were over two years late, largely because of supply chain issues. Boei