"The MGMT Solution," Vocabulary from Chapter 18

Another benefit of productivity is that it makes products more affordable or better.

Labor is one kind of input that is frequently used when determining partial productivity. Labor productivity typically indicates the cost or number of hours of labor it takes to produce an output. In other words, the lower the cost of the labor to produce a unit of output, or the less time it takes to produce a unit of output, the higher the labor productivity.

More specifically, multifactor productivity indicates how much labor, capital, materials, and energy it takes to produce an output.

Rather than serviceability and durability, the quality of service interactions often depends on how the service provider interacts with the customer.

Five characteristics typically distinguish a quality service: reliability, tangibles, responsiveness, assurance, and empathy.

Thus, tangibles refer to the appearance of the offices, equipment, and personnel involved with the delivery of a service.

Responsiveness is the promptness and willingness with which service providers give good service.

Assurance is the confidence that service providers are knowledgeable, courteous, and trustworthy.

Empathy is the extent to which service providers give individual attention and care to customers’ concerns and problems.

ISO, pronounced eye-so, comes from the Greek word isos, meaning “equal, similar, alike, or identical” and is also an acronym for the International Organization for Standardization, which helps set standards for 162 countries.

To become ISO certified, a process that can take months, a company must show that it is following its own procedures for improving production, updating design plans and specifications, keeping machinery in top condition, educating and training workers, and satisfactorily dealing with customer complaints.

An accredited third party oversees the ISO certification process, just as a certified public accountant verifies that a company’s financial accounts are up-to-date and accurate.

The Baldrige National Quality Award, which is administered by the U.S. government’s National Institute for Standards and Technology, is given “to recognize U.S. companies for their achievements in quality and business performance and to raise awareness about the importance of quality and performance excellence as a competitive edge.”

At a minimum, each company that applies receives an extensive report based on 300 hours of assessment from at least eight business and quality experts.

“The application and review process for the Baldrige Award is the best, most cost-effective and comprehensive business health audit you can get.”

Total quality management (TQM) is an integrated, organization-wide strategy for improving product and service quality. TQM is not a specific tool or technique. Rather, TQM is a philosophy or overall approach to management that is characterized by three principles: customer focus and satisfaction, continuous improvement, and teamwork.

Besides higher customer satisfaction, continuous improvement is usually associated with a reduction in variation. Variation is a deviation in the form, condition, or appearance of a product from the quality standard for that product.

Customer focus and satisfaction, continuous improvement, and teamwork mutually reinforce each other to improve quality throughout a company.

In other words, services are almost always labor-intensive: Someone typically has to perform the service for you.

Third, services are perishable and unstorable.

When mistakes are made, when problems occur, and when customers become dissatisfied with the service they’ve received, service businesses must switch from the process of service delivery to the process of service recovery, or restoring customer satisfaction to strongly dissatisfied customers.

Service recovery sometimes requires service employees to not only fix whatever mistake was made but also perform heroic service acts that delight highly dissatisfied customers by far surpassing their expectations of fair treatment.

Manufacturing operations can be classified according to the amount of processing or assembly that occurs after a customer order is received.

A make-to-order operation does not start processing or assembling products until it receives a customer order.

A company using an assemble-to-order operation divides its manufacturing or assembly process into separate parts or modules. The company orders parts and assembles modules ahead of customer orders. Then, based on actual customer orders or on research forecasting what customers will want, those modules are combined to create semicustomized products.

Because parts are ordered and products are assembled before customers order the products, make-to-stock operations are highly dependent on the accuracy of sales forecasts. If sales forecasts are incorrect, make-to-stock operations may end up building too many or too few products, or they may make products with the wrong features or without the features that customers want.

A second way to categorize manufacturing operations is by manufacturing flexibility, meaning the degree to which manufacturing operations can easily and quickly change the number, kind, and characteristics of products they produce.

By contrast, in continuous-flow production, products are produced continuously rather than at a discrete rate.

Line-flow production processes are preestablished, occur in a serial or linear manner, and are dedicated to making one type of product.

The next most flexible manufacturing operation is batch production, which involves the manufacture of large batches of different products in standard lot sizes.

Job shops are typically small manufacturing operations that handle special manufacturing processes or jobs. In contrast to batch production, which handles large batches of different products, job shops typically handle very small batches, some as small as one product or process per batch.

Inventory is the amount and number of raw materials, parts, and finished products that a company has in its possession.

Average aggregate inventory for a month can be determined by simply averaging the inventory counts at the end of each business day for that month. One way companies know whether they’re carrying too much or too little inventory is to compare their average aggregate inventory with the industry average for aggregate inventory.

The automobile industry records inventory in terms of days of supply, but most other industries measure inventory in terms of weeks of supply, meaning the number of weeks it would take for a company to run out of its current supply of inventory.

If company A turns its inventories twenty-six times a year, it will completely replenish its inventory every two weeks and have an average inventory of 20,000 widget parts and raw materials. By contrast, if company B turns its inventories only two times a year, it will completely replenish its inventory every twenty-six weeks and have an average inventory of 260,000 widget parts and raw materials.

Ordering cost is not the cost of the inventory itself but the costs associated with ordering the inventory. It includes the costs of completing paperwork, manually entering data into a computer, making phone calls, getting competing bids, correcting mistakes, and simply determining when and how much new inventory should be reordered.

Holding cost includes the cost of storage facilities, insurance to protect inventory from damage or theft, inventory taxes, the cost of obsolescence (holding inventory that is no longer useful to the company), and the opportunity cost of spending money on inventory that could have been spent elsewhere in the company.

This goal seeks a minimum level of inventory.

By having parts arrive just in time, the manufacturer has little inventory on hand and thus avoids the costs associated with holding inventory.

A third method for managing inventory is materials requirement planning (MRP). MRP is a production and inventory system that, from beginning to end, precisely determines the production schedule, production batch sizes, and inventories needed to complete final products.