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Chapter 18: Managing Service and Manufacturing Operations
Pedagogy Map
This chapter begins with the learning outcome summaries and terms covered in the chapter, followed by a
set of lesson plans for you to use to deliver the content in Chapter 18.
• Lesson Plan for Lecture (for large sections)
• Lesson Plan for Group Work (for smaller sections)
• Assignments with Teaching Tips and Solutions
What Would You Do Case Assignment – Louis Vuitton
Self-Assessment – How to Handle Disgruntled Customers
Management Decision – Is Bigger Always Better?
Additional Activities and Assignments
Highlighted Assignments
Key Points
What Would You Do?
Louis Vuitton is looking to design factories that can increase
overall productivity while also maintaining flexibility to produce
small batches of exclusive goods.
Should Starbucks use lean production methods to increase the
number of drinks that baristas can make?
Students examine service failure and service recovery in the
salon and day spa industry.
Practice Being a Manager
Students practice developing productivity and quality measures.
Develop Your Career Potential
Taking factory tours enables students to understand the
complexity of managing manufacturing operations.
and his boss Harry interacting with a ticket seller who makes it
Supplemental Resources
Where to Find Them
Course Pre-Assessment
IRCD
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Course Post-Assessment
IRCD
Learning Outcomes
1 Discuss the kinds of productivity and their importance in managing operations.
Productivity is a measure of how many inputs it takes to produce or create an output. The greater the
2 Explain the role that quality plays in managing operations.
Quality can mean a product or service free of deficiencies or the characteristics of a product or service
that satisfies customer needs. Quality products usually possess three characteristics: reliability,
3 Explain the essentials of managing a service business.
Services are different from goods. Goods are produced, tangible, and storable. Services are performed,
intangible, and perishable. Likewise, managing service operations is different from managing production
4 Describe the different kinds of manufacturing operations.
Manufacturing operations produce physical goods. Manufacturing operations can be classified according
Who Wants to Be a Manager game
IRCD and online
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5 Explain why and how companies should manage inventory levels.
There are four kinds of inventory: raw materials, component parts, work-in-process, and finished goods.
Because companies incur ordering, setup, holding, and stockout costs when handling inventory, inventory
Terms
assemble-to-order operation
average aggregate inventory
batch production
component parts inventories
continuous improvement
continuous-flow production
make-to-order operation
make-to-stock operation
manufacturing flexibility
materials requirement planning (MRP)
multifactor productivity
operations management
Lesson Plan for Lecture
Pre-Class Prep for You:
Pre-Class Prep for Students:
• Review the chapter and determine what points
to cover.
• Bring PPT slides
• Bring book.
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Content
Delivery
Topics
PowerPoint Slides
Activities
Managing for
Productivity & Quality
1. Productivity
1.1. Why Productivity
1: Managing Service and
Manufacturing Operations
2: What Would You Do?
3: Operations Management
Ask students, “How
productive are you on a
scale of 1 to 10, with 10
being extremely
2. Quality
2.1. Quality-Related
Characteristics
for Products and
Services
9: Quality
10: Quality Is…
11: Quality-Related Product
Characteristics
12: Characteristics of Service
Ask students how
important quality is to
them when they buy a
product. Are they ever
willing to buy
Managing Operations
3. Service Operations
3.1. Service-Profit
Chain
18: Managing Operations
19: Service Operations
20: Service Operations
21: The Service-Profit Chain
22: Components of Internal
Ask students if they
think the service-profit
chain is applicable in
nonservice businesses.
Consider recounting the
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5. Inventory
5.1. Types of
Inventory
5.2. Measuring
30: Inventory
31: Types of Inventory
32: Measuring Inventory
33: Inventory Turn Rates
34: Costs of Maintaining an
Ask students, “When
was the last time you
wanted to buy
Special
Items
Conclusion
Lesson Plan for Group Work
Pre-Class Prep for You:
Pre-Class Prep for
Students:
• Review the material to cover and modify the lesson plan to meet
your needs.
• Bring a laptop and make sure your class has an Internet
• Bring book.
Warm Up
Introduce the chapter by asking students, “How productive are you on a scale of 1 to 10, with
10 being extremely productive?” and “What keeps you from being more productive?” After
polling a few students, ask, “What is productivity?” If students reiterate the text definition,
push them by saying, “So what does that mean?”
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Content
Delivery
Lecture on Productivity and Quality (Sections 1 & 2).
Lecture on Service Operations (Section 3), and then break for the following activity:
“Recovery Plan”
Segue into the next section by asking students if the service-profit chain has relevance for
manufacturing companies.
Lecture on Manufacturing Operations (Section 4). Ask students to name as many companies
as they can the allow you to create custom products (M&Ms, Chuck Taylor, Nike, etc.)
If you have finished covering Chapter 18, assign students to review Chapter 18 and read the
next chapter on your syllabus.
Remind students about any upcoming events.
Assignment with Teaching Tips and Solutions
Case Assignment – What Would You Do
What Really Happened? Solution
LOUIS VUITTON
In the opening case, you learned that the luxury goods market has doubled in size in the last decade to
$220 billion a year, with much of that growth coming from China. Not surprisingly, that growth has
From a production standpoint, this creates a number of challenges. First, don’t run out of the most
popular products, yet also have the flexibility to produce small batches (i.e., limited editions) of a large
number of different luxury goods. But how do you design factories to do both, and increase productivity?
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Productivity is a measure of performance that indicates how many inputs it takes to produce or create
Two common measures of productivity are partial productivity and multifactor productivity. Partial
productivity indicates how much of a particular kind of input it takes to produce an output. Labor is one
Louis Vuitton is interested in maximizing multifactor productivity across its entire line of luxury
goods. It wants to produce its most popular products to meet broad demand, while also being able to have
the flexibility to switch production from those high volume goods to small batches of a large number of
For example, Louis Vuitton generally releases one new bag a season, or four per year. Because its
factories were working on long-term production schedules for its most popular products, they lacked the
ability to scale up production if one of those seasonal bags suddenly became popular. In other words,
they weren’t flexible. This also meant that they were hitting production ceilings where, under their old
system, their 17 factories weren’t capable of producing more goods without building more factories. As a
result, it experienced frequent stockouts where it didn’t have enough product to stock the shelves in its
stores. It was so low on inventory that it simply closed its high traffic French stores early in the day. It’s
precisely this tradeoff between flexibility, capacity, and productivity that Louis Vuitton wants to avoid.
But how?
One improvement came from robots. How does the world’s leading maker of luxury goods, which
touts it products as handmade, make use of robots? By using those products to move unfinished
Another productivity enhancing step was the development of a software program to help Vuitton’s
While those steps help with productivity, how has Louis Vuitton addressed flexibility in its factories?
Let’s learn how in the answer to the next question.
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Second, because workers complete just one task, such as cutting leather, gluing and sewing, or stitching
the lining, it generally takes 30 craftsmen eight days to produce just one Louis Vuitton bag. Production
bottlenecks are common as the faster workers are forced to wait on the slower workers. So, how can you
restructure production process to add more capacity without building any more factories?
Louis Vuitton designs and makes some of the most expensive, best-selling purses, shoulder bags, tote
In one sense, we can say that the Louis Vuitton factories were running batch production, which
involves the manufacture of large batches of different products in standard lot sizes. A worker in a batch
But by seeking a balance between its most popular products, and maintain exclusivity by producing
very small batches of “uber–luxury items,” it needed to combine the characteristics of high-volume batch
Louis Vuitton fixed the problem by switching to teams of six to twelve workers and who learned to
complete multiple production steps. So instead of having three workers separately handle gluing,
The result? It now takes just 1 day and six to twelve workers to produce a Louis Vuitton bag.
Furthermore, since team members complete multiple tasks, teams can now work on different kinds of
bags, which allows the company to quickly switch production to its best selling items. Finally, with
quality up significantly, returns of defective bags have dropped by two-thirds.
7.
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Self-Assessment
SERVICE ORIENTATION
[*Note: The title in the textbook, “How to Handle Disgruntled Customers” is erroneous. The assessment is
actually on customer and selling orientations.]
Customer-focused management strategies, including things like relationship marketing and share-of-
In-Class Use
Have students open their books to page 690 of the text and tell them to imagine they have a job in which
they work directly with customers. That may actually be the case with some (or most) of your students.
When completing the assessment, have students indicate ways they would act with a customer. Give your
students 8 to 10 minutes to complete the inventory and then a moment to add their raw score. Go over
49-54.
Scoring
All odd-numbered items relate to customer orientation, and even-numbered items relate to selling
orientation. The scales help students evaluate their desire to help customers, assess their needs, offer
satisfactory products, adequately describe products, and use deceptive or manipulative sales tactics. That
means, if a student put a 1 in the blank, he or she should change it to a 5 before tabulating a final score.
Scores range from 12, which represents a lower tendency toward that orientation, to 108, which indicates
a high tendency toward that orientation.
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Management Decision
IS BIGGER ALWAYS BETTER
Purpose
This exercise provides students with an opportunity to think about how a company’s size is related to its
performance.
Setting It Up
Ask students: “What is the ideal size for a business? Should a company be as big as possible?”
Questions
1. As the owner and manager of this small business, what pace of growth do you think is ideal –
slow or rapid? Why?
Students’ responses will vary. Ideally, their responses will include thoughts about how the size of
2. What steps could you take to make sure that the quality of your products, and the customer
service your employees offer, do not suffer with expansion of the business?
In their response, students should discuss how they would apply the various concepts related to
improving service and quality as discussed in the text. One method of maintaining high levels of
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Management Team Decision
GOING LEAN AT STARBUCKS
Purpose
The purpose of this case study is to have students consider whether a cafe, often renowned for a warm and
Setting It Up
You can introduce the case by asking students to agree or disagree with the following statement: “The
Questions
1. How would an increase in efficiency and production benefit your employees?
For companies, higher productivity—that is, doing more with less—results in lower costs for the
2. How would you address employees’ concerns that they are being transformed into cofee-making
robots?
One of the key assumptions in the service business is that success depends on how well employees,
the service providers, deliver their service to customers. However, according to the service-profit
chain, success actually begins with how well management treats service employees. The key concept
Practice Being a Manager
DEVELOPING MEASUREMENTS
Success in service and manufacturing operations requires managers to maintain high levels of both
productivity and quality. High productivity ensures that the company is cost competitive with rivals; and
high quality helps the company to attract customers and grow revenues and profits. Because productivity
and quality are basic drivers of company success, managers must be adept at measuring and improving
both. This exercise will give you some practice in developing productivity and quality measures.
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Step 1: Get into groups. Your professor will organize your class into small groups of three or four
students.
Scenario: Your group is a management team working to improve productivity and quality in a
pharmaceutical company. You have been assigned two units of this company as the focus of your
improvement efforts. The first is a pill-packaging unit, and the second is a research and development
(R&D) laboratory.
Workers in the packaging unit are responsible for checking to ensure that the pills in the box
Step 2: Develop metrics. Working as a team, develop some productivity and quality measures for (a)
Step 3: Foresee consequences. Critically examine your team’s measures for each unit. What unintended
Step 4: Debrief as a class. What are some of the challenges of measuring productivity and quality? Are
these challenges greater for particular types of work? Which level of measurement and accountability—
TEACHING NOTES
Exercise Overview and Objective
This exercise places students in the context of a major pharmaceutical company, where their role is as a
Preparation
No student preparation is required for this exercise. You may want to decide in advance how to best
assign students to small teams of three (3) or four (4) per team. Composition of these small groups is not
an important feature of the exercise; so convenient groupings (e.g., existing project teams) should work
fine here.