CHAPTER 21
Managing Operations, Quality, and Productivity
CHAPTER SUMMARY
Chapter 21 first defines the nature of operations management and then discusses the design of operations
systems. Organizational technologies and supply chain management are described. Total quality is then
covered, and the chapter concludes with a section focusing on productivity.
LEARNING OBJECTIVES
After covering this chapter, students should be able to:
1. Describe and explain the nature of operations management.
2. Identify and discuss the components involved in designing effective operations systems.
The Orpheus Chamber Orchestra is unique in that its symphonies are played without a conductor.
Orpheus believes that its product (i.e., the music) is of the highest quality when its workers (the
musicians) are highly satisfied with their jobs. Orpheus, thus, has a new approach to motivation and
quality.
LECTURE OUTLINE
I. THE NATURE OF OPERATIONS MANAGEMENT
Operations management is the total set of managerial activities used by an organization to transform
resource inputs into products, services, or both.
A. The Importance of Operations
Operations management provides utility to the organization. In a manufacturing environment,
operations management provides form utility by combining many dissimilar inputs to create an
output. In a service organization, operations management provides time and place utility.
Chapter 21: Managing Operations, Quality, and Productivity
Extra Example: Other examples of large manufacturing firms include Merck (healthcare products),
Cummins Engine Company (diesel engines), Herman Miller (office furniture), and Procter & Gamble
(Cover Girl makeup, Crest toothpaste, Folgers coffee, Gillette, and more).
C. Service Operations
A service organization is one that transforms resources into services, which are intangible
outputs.
Teaching Tip: Point out to students that whether a company is a manufacturing or service firm is
sometimes not very clear cut. For example, is Red Lobster selling food (a product) or service? What
about a hair salon that cuts hair and then sells the customer a bottle of shampoo? Clearly, the concepts
of “manufacturing” and “service” are not two mutually-exclusive categories, but they exist on the two
extreme ends of a scale, and many organizations fall somewhere between the two extremes.
D. The Role of Operations in Organizational Strategy
Operations management affects strategy, and strategy affects operations.
Group Exercise: Have small groups of students relate different approaches to operations to the
different types of strategies discussed in Chapter 8.
II. DESIGNING OPERATIONS SYSTEMS
A. Determining Product-Service Mix
The product-service mix determines how many and what kinds of products and services (or
both) to offer.
B. Capacity Decisions
Capacity decisions involve choosing the amount of products, services, or both that can be
produced by an organization.
Chapter 21: Managing Operations, Quality, and Productivity
Extra Example: Similarly, in some college towns some merchants close early during the summer
because of reduced customer traffic.
C. Facilities Decisions
Facilities are the physical locations where products or services are created, stored, and
distributed.
1. Location is the organization’s physical positioning or geographic site. Location is
determined by what amenities (railroads, airports, etc.) or customers (mall shoppers,
downtown shoppers) it must be near.
2. Layout is the choice of the physical configuration of the facilities.
a) A product layout is a physical configuration arranged around the product and is
appropriate when large quantities of a single product are needed.
Group Exercise: Have students work together and identify different examples to illustrate each of the
three layouts noted in the text.
III. ORGANIZATIONAL TECHNOLOGIES
Technology is the set of processes and systems used by organizations to convert resources into
products or services.
Cross-Reference: Note that we also discuss technology in Chapter 12.
A. Manufacturing Technology
1. Automation is the process of designing work so that it can be completely or almost
completely performed by machines.
Chapter 21: Managing Operations, Quality, and Productivity
2. Computer-assisted manufacturing is a technology that relies on computers to design or
manufacture products.
a) Computer-aided design (CAD) involves using computers to design parts and
complete products so that prototypes need not be constructed.
Extra Example: Most computers today are designed with computer-aided design techniques and then
manufactured with computer-aided manufacturing techniques.
3. A robot is any artificial device that is able to perform functions ordinarily thought to be
appropriate for human beings. Robots are common on many factory floors.
Discussion Starter: Robots have played a big role in many science fiction movies such as Star Wars,
AI, and others. Ask students to identify other movies featuring robots. Discuss the realism (or lack of
same) in these movies.
Discussion Starter: Solicit student suggestions for other illustrations of service technology.
IV. IMPLEMENTING OPERATIONS SYSTEMS THROUGH SUPPLY CHAIN MANAGEMENT
Supply chain management is the process of managing operations control, resource acquisition and
purchasing, and inventory so as to improve overall efficiency and effectiveness.
A. Operations Management as Control
Operations management as control can be obtained by coordinating it with other functions.
Teaching Tip: Stress the fundamental role of operations management as control in organizations.
Operations management is often called upon to coordinate the activities of other units, so control is a
very important consideration.
Chapter 21: Managing Operations, Quality, and Productivity
Group Exercise: Have student groups identify five different kinds of organizations, and then identify
potential examples of each type of inventory.
V. MANAGING TOTAL QUALITY
A. The Meaning of Quality
Quality is the totality of features and characteristics of a product or service that bears on its
ability to satisfy stated or implied needs.
1. The eight dimensions of quality include: performance, features, reliability, conformance,
Group Exercise: Have students research the most recent firms to win a Baldrige Award.
Discussion Starter: Ask students if they have had any personal experiences with recent Baldrige
Award-winning firms, and, if so, if they agree with the merits of the award for that particular firm.
1. Quality has become one of the most competitive points in business today.
Discussion Starter: There is a potential dark side to quality. A major point to stress is that it is possible
for a firm to stress quality so much that it loses sight of other aspects of effective management.
C. Total Quality Management
Total quality management, or TQM, is a strategic commitment by top management to change
Chapter 21: Managing Operations, Quality, and Productivity
1. To undertake TQM, there must be a strategic commitment from top management.
2. Almost all successful quality enhancement programs involve making the person
Extra Example: Note that improving materials is not always a straightforward decision. In the early
days of notebook computers, manufacturers used metal cases. More recent models, however, use
lighter-weight plastic. The new computers are also much lighter than the earlier models, but not as
sturdy.
5. Improving the operating systems used by the organization during the actual
transformation process is another approach to improving quality.
D. TQM Tools and Techniques
1. Value-added analysis is the comprehensive evaluation of all work activities, material
Teaching Tip: One recent study found that 31 percent of U.S. firms benchmark regularly, while only 7
percent never benchmark at all.
Extra Example: IBM conducts around one hundred benchmarking studies a year. AT&T conducts
around forty to fifty studies a year.
3. Some firms boost quality by outsourcing—subcontracting services and operations to
4. Cycle time refers to the time needed by the organization to accomplish activities such as
developing, making, and distributing products or services. Reducing cycle time is
acquisition of raw materials, pollution, energy usage, and so on.
Teaching Tip: The correct pronunciation of ISO 9000 is not “I-S-O 9000,” but instead is “ICE´ oh
9000,” with the stress on “ICE.”
7. Statistical quality control is a set of specific statistical techniques that can be used to
monitor quality; includes acceptance sampling and in-process sampling. Techniques
include acceptance sampling and in-process sampling.
Chapter 21: Managing Operations, Quality, and Productivity
VI. MANAGING PRODUCTIVITY
A. The Meaning of Productivity
Productivity is an economic measure of efficiency that summarizes what is produced relative
to the resources used to produce it.
1. The level of productivity refers to the units of analysis used to calculate or define
productivity. Productivity may be defined at the country, industry, company, unit, or
resource instead of all of them.
B. The Importance of Productivity
Two reasons why productivity is important are that it determines (1) the organization’s ability
to survive and (2) people’s standard of living.
C. Productivity Trends
One trend in productivity is that the United States remains one of the most productive
Global Connection: While most experts have focused concern on productivity growth rates in Japan
and Germany, productivity in Canada and France have actually crept the closest to that of the United
States.
D. Improving Productivity
1. One way to improve operations is to spend more on research and development. Another
way is to revamp transformation facilities.
END OF CHAPTER QUESTIONS
Questions for Review
1. What is the relationship of operations management to overall organizational strategy? Where do
productivity and quality fit into that relationship?
Operations management should be fully integrated with the strategy of the organization. It is not
Chapter 21: Managing Operations, Quality, and Productivity
2. Describe three basic decisions that must be addressed in the design of operations systems. For each
decision, what information do managers need to make that decision?
Determining product-service mix involves choosing which products and services the firm will offer.
To make product-service mix decisions, the firm must consider its ability to supply the products and
3. What are some approaches to facilities layout? How do they differ from one another? How are they
similar?
One common layout is the product layout, which is best for processes that produce large quantities
of a single product. It resembles the classic “assembly line” formation with sequential performance
of work at fixed stations while work-in–process flows past each station.
The process layout is best when a facility produces multiple products that rely on the performance
of the same processes but in different sequences. For example, a doctor’s clinic may have a check-in
4. What is Total Quality Management? What are the major characteristics of TQM?
Total Quality Management is an organization-wide commitment to making quality a top priority for
the firm. Typically, TQM implementations include employee involvement at all levels, new
Questions for Analysis
5. Is operations management linked most closely to corporate-level, business-level, or functional
strategies? Why or in what way?
Operations management is related to all of these, but it is most closely linked to functional
strategies, particularly those associated with the production function. The primary function of the
Chapter 21: Managing Operations, Quality, and Productivity
6. “Automation is bad for the economy because machines will eventually replace almost all human
workers, creating high unemployment and poverty.” Do you agree or disagree? Explain your
answer.
It is clear that some workers, particularly those with low-tech skills, are being replaced by
7. Some quality gurus claim that high-quality products or services are those that are error free. Others
claim that high quality exists when customers’ needs are satisfied. Still others claim that high–
quality products or services must be innovative. Do you subscribe to one of these views? If not, how
would you define quality? Explain how the choice of a quality definition affects managers’
behavior.
This question asks students to consider their own personal definition of quality, which can involve a
ratings.
Questions for Application
8. How can a service organization use techniques from operations management? Give specific
examples from your college or university (a provider of educational services).
Clearly, answers will vary. Here’s one example: “At my university, a new classroom building was
9. Think of a firm that, in your opinion, provides a high-quality service or product. What attributes of
the product or service give you the perception of high quality? Do you think that everyone would
agree with your judgment? Why or why not?
Students’ answers will vary, but they should identify attributes such as reliability, ease of operation,
10. What advice would you give to the manager of a small local service business, such as a pizza parlor
or dry cleaner, about improvements in quality and productivity? Would your advice differ if the
small business were a manufacturing company—for example, a T-shirt-printing firm? Describe any
differences you would expect to see.
This question addresses the differences in implementation of quality improvements in service
Chapter 21: Managing Operations, Quality, and Productivity
END OF CHAPTER EXERCISES
Building Effective Communication Skills
I. Purpose
This exercise gives students practice in composing business letters related to issues of quality and
customer satisfaction.
II. Format
This exercise may be done in class or outside of class by individual students or small groups and
will take about 30 minutes to complete.
III. Follow-Up
A. Write an answer to the above letter which assumes that you now have the parts available.
The students should prepare a letter that apologizes for the mistake and offers a solution that is
acceptable to the customer. This may either be an exact fulfillment of the original demand, or
it may be an innovative but equally acceptable alternative solution.
B. How would your answer differ if ABC Autos were not a valued customer?
Students may be tempted to give a less valued customer less attention and support. To some
C. How would your answer differ if you found out that the parts were in the original shipment but
had been stolen by one of your delivery personnel?
D. How would your answer differ if you found out that the owner of ABC Autos made a mistake
and the order had been filled?
This is a difficult task because students have to decide whether it’s worth the risk of losing a
E. Now review your answers to the previous questions. What are the important components of an
effective response to a customer’s quality complaint (setting the tone, expressing an apology,
remains the same.
Building Effective Diagnostic Skills
I. Purpose
Students will use this exercise to learn about the relationship between quality, price, and
expectations for both services and products.
II. Format
Chapter 21: Managing Operations, Quality, and Productivity
III. Follow-Up
A. Assess the extent to which the quality that you associated with each was a function of price
and your expectations.
Answers will vary, but most students will agree that high-priced products and services
B. Could the quality of each product or service be improved without greatly affecting its price?
If so, how?
Students will develop a variety of ideas in answer to this question. For example, Wal-Mart
cashiers are trained to read a customer’s name from their check or credit card and to say,
“Thank you, Mrs. Smith” at the end of a transaction. This doesn’t add appreciably to the cost,
but many customers appreciate the personalized service.
C. Can high-quality service offset adequate or even poor product quality? Can outstanding
product quality offset only adequate or even poor customer service?
MANAGEMENT AT WORK
AMAZON REKINDLES ITS FLAIR FOR TECHNOLOGY
Amazon.com is an Internet retailing phenomenon. It has revolutionized the industry ever since its
inception in 1995. As the case describes, Amazon uses a variety of operations techniques to allow their
customers to order on the Internet and deliver the products to their doorstep. It has made good use of its
software expertise to automate a number of processes, so much so, that it offers software consulting to
other organizations. The case also describes Amazon’s newest product, Kindle, that enables users to read
books electronically.
Management Update: Professor Michael Rappa of North Carolina State University runs a website
1. Case Question 1: Describe Amazon’s product-service mix. Which areas of Amazon’s operations
are characteristic of a manufacturing organization? Which areas are characteristic of a service
organization? How do both areas relate to the marketing of Kindle and Kindle–related products?
Amazon sells a diversified range of products such as books, toys, music, electronics and software, and
Chapter 21: Managing Operations, Quality, and Productivity
2. Case Question 2: Describe the role of technology in both Amazon’s manufacturing and service
operations.
Technology plays a critical role in all of the activities conducted by Amazon. It use Internet
interface.
3. Case Question 3: Discuss the nature of Amazon’s supply chain in terms of control, purchasing
management, and inventory management. At what points in the supply chain does Amazon
outsource or contract activities to outside parties? How does Amazon’s supply chain affect its
revenues and costs?
Amazon’s seven distribution centers stock thousands of popular items, but many of the goods that
4. Case Question 4: Log on to Amazon.com and select an item that comes from Amazon itself rather
than from a drop shipper. What kind of purchasing decisions were necessary to make this product
available at Amazon’s price? What kind of inventory control decisions?
When Amazon decides to stock a particular item in its own warehouse it has to negotiate with
5. Case Question 5: What facets of Amazon’s operations allow it to to create and control quality, both
as a manufacturing organization and as a service organization? What facets of its operations allow
Amazon to control productivity (again, both as a manufacturing organization and as a service
organization)? Give two or three examples of ways in which Amazon’s operations contribute to
high productivity.
The key to the success of Amazon is offering an easy interface for customers and by delivering the