Management Chapter 8 Instructors Manual Ferrell Hirt Ferrell Business Mcgrawhill Education This Proprietary Material

Ferrell / Hirt / Ferrell:

Business

Instructor’s Manual – Chapter 8

Chapter 8: Managing Service and

Manufacturing Operations

Use this Instructor’s Manual to facilitate class discussion and incorporate the unique features of the text’s

highlights. Follow-up via the Connect exercises is then encouraged to provide a holistic understanding of the

chapter.

C H A P T E R F O R E C A S T

Here, we discuss the role of production or operations management in acquiring and managing the resources

necessary to create goods and services. Production and operations management involves planning and

L E A R N I N G O B J E C T I V E S

LO 8-1 Define operations management, and differentiate between operations and manufacturing.

LO 8-3 Describe the elements involved in planning and designing an operations system.

LO 8-5 Assess the importance of quality in operations management.

LO 8-6 Evaluate a business’s dilemma and propose a solution.

L E A R N T H E T E R M S

capacity (p. 239)

computer-assisted design (CAD)

(p. 242)

continuous manufacturing

organizations (p. 241)

customization (p. 239)

economic order quantity

intermittent organizations (p.

241)

inventory (p. 245)

management (p. 246)

manufacturing (p. 232)

material-requirements planning

(MRP) (p. 247)

outputs (p. 233)

process layout (p. 241)

product layout (p. 241)

routing (p. 249)

scheduling (p. 249)

standardization (p. 238)

Ferrell / Hirt / Ferrell:

Business

Instructor’s Manual – Chapter 8

K E Y T E R M S A N D D E F I N I T I O N S

capacity

The maximum load that an organizational unit can carry or operate.

computer-assisted design

(CAD)

The design of components, products, and processes on computers

instead of on paper.

computer-assisted

manufacturing (CAM)

Manufacturing that employs specialized computer systems to actually

guide and control the transformation processes.

computer-integrated

manufacturing (CIM)

A complete system that designs products, manages machines and

materials, and controls the operations function.

continuous manufacturing

organizations

Companies that use continuously running assembly lines, creating

products with many similar characteristics.

customization

Making products to meet a particular customer’s needs or wants.

economic order quantity

(EOQ) model

A model that identifies the optimum number of items to order to

minimize the costs of managing (ordering, storing, and using) inventory.

fixed-position layout

A layout that brings all resources required to create a product to a

central location.

flexible manufacturing

The direction of machinery by computers to adapt to different versions

of similar operations.

inputs

The resources—such as labor, money, materials, and energy—that are

converted into outputs.

intermittent organizations

Organizations that deal with products of a lesser magnitude than do

project organizations; their products are not necessarily unique but

possess a significant number of differences.

inventory

All raw materials, components, completed or partially completed

products, and pieces of equipment a firm uses.

inventory control

The process of determining how many supplies and goods are needed

and keeping track of quantities on hand, where each item is, and who is

responsible for it.

Ferrell / Hirt / Ferrell:

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Instructor’s Manual – Chapter 8

ISO 9000

A series of quality assurance standards designed by the International

Organization for Standardization (ISO) to ensure consistent product

quality under many conditions.

ISO 14000

A comprehensive set of environmental standards that encourage

companies to conduct business in a cleaner, safer, and less wasteful

way. ISO 14000 provides a uniform set of standards globally

just-in–time (JIT) inventory

management

A technique using smaller quantities of materials that arrive “just in

time” for use in the transformation process and therefore require less

storage space and other inventory management expense.

manufacturing

The activities and processes used in making tangible products; also

called production.

material-requirements

planning (MRP)

A planning system that schedules the precise quantity of materials

needed to make the product.

modular design

The creation of an item in self-contained units, or modules, that can be

combined or interchanged to create different products.

operations

The activities and processes used in making both tangible and intangible

products.

operations management

(OM)

The development and administration of the activities involved in

transforming resources into goods and services.

outputs

The goods, services, and ideas that result from the conversion of inputs.

process layout

A layout that organizes the transformation process into departments

that group related processes.

product layout

A layout requiring that production be broken down into relatively simple

tasks assigned to workers who are usually positioned along an assembly

line.

production

The activities and processes used in making tangible products; also

called manufacturing.

project organization

A company using a fixed-position layout because it is typically involved in

large, complex projects such as construction or exploration.

purchasing

The buying of all materials needed by the organization; also called

procurement.

Ferrell / Hirt / Ferrell:

Business

Instructor’s Manual – Chapter 8

quality control

The processes an organization uses to maintain its established quality

standards.

routing

The sequence of operations through which the product must pass.

scheduling

The assignment of required tasks to departments or even specific

machines, workers, or teams.

standardization

The making of identical, interchangeable components or products.

statistical process control

A system in which management collects and analyzes information about

the production process to pinpoint quality problems in the production

system.

supply chain management

Connecting and integrating all parties or members of the distribution

system in order to satisfy customers.

total quality management

(TQM)

A philosophy that uniform commitment to quality in all areas of an

organization will promote a culture that meets customers’ perceptions

of quality.

Ferrell / Hirt / Ferrell:

Business

Instructor’s Manual – Chapter 8

C O N T E N T O U T L I N E

The following section provides the flow of information using the LEARNING OBJECTIVES as a guide, KEY TERMS

learners will need to take away from the course and a notation of when to use POWERPOINT SLIDES with

LECTURE NOTES to drive home teaching points. There is also a reminder on when CONNECT activities can be

used. This is created so that you can facilitate in–class or online discussion effectively.

LO 8-1

Define operations management, and differentiate between

operations and manufacturing.

• Introduction

• The Nature of Operations

o The Transformation Process

Key Terms:

• Operations

management (OM)

• Manufacturing

• Production

• Operations

• Inputs

• Outputs

PowerPoint Slides

PPT 8.4

Lecture Outline and Notes:

I. The Nature of Operations Management

A. Operations management (OM) refers to the development and

administration of the activities involved in transforming resources into

goods and services.

1. Operations managers oversee the transformation process and

the planning and designing of operations systems, managing

logistics, quality, and productivity.

2. Quality and productivity have become fundamental aspects of

operations management because a company that cannot make

products of the quality desired by consumers, using resources

efficiently and effectively, will not be able to remain in business.

4. Also, the term “operations” represents an interest in viewing the

operations function as a whole rather than simply inputs and

two terms are often used interchangeably.

6. Operations describes the activities—including production—

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Instructor’s Manual – Chapter 8

PPT 8.6

connect

Transformation

Process for Goods

and Services? Visit

your Connect ebook

video tab for a brief

animated

explanation.

PPT 8.7-8.8

B. The Transformation Process

1. The transformation process is the process through which inputs are

converted into outputs. (Figure 8.1 & Figure 8.2)

b. Outputs are goods, services, and ideas.

2. The transformation process combines inputs in predetermined ways

using different equipment, administrative procedures, and

technology to create a product.

3. To ensure that the transformation process generates quality

products efficiently, operations managers control the process by

transformation process, comparing measurements to established

standards, and taking corrective action for any deviation.

4. Transformation may take place through one or more processes.

LO 8-2

Explain how operations management differs in manufacturing and

service firms.

o Operations Management in Service Businesses

Key Terms:

PPT 8.9

PPT 8.10

C. Operations Management in Service Businesses

1. Different types of transformation processes take place in

organizations that provide services.

2. Unlike tangible goods, services are effectively actions or

performances that must be directed toward consumers who use

3. Regardless of the level of customer contact, service businesses strive

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Business

Instructor’s Manual – Chapter 8

a. Because of the human element inherent in providing services, each

service tends to be performed differently.

7. Labor Required

a. Service providers are generally more labor intensive because of the

8. Measurement of Productivity

a. For manufacturers, measuring productivity is fairly straightforward

because of the tangibility of the output and its high degree of

more difficult.

9. Most organizations are a combination of manufacturer and service

provider, with both tangible and intangible qualities embodied in what

Ferrell / Hirt / Ferrell:

Business

Instructor’s Manual – Chapter 8

LO 8-3

Describe the elements involved in planning and designing an

operations system.

• Planning and Designing Operations Systems

o Planning the Product

o Designing the Operations Processes

o Planning Capacity

o Planning Facilities

o Sustainability and Manufacturing

Key Terms:

• Standardization

• Modular design

• Customization

• Capacity

• Fixed-position layout

• Project organization

• Process layout

• Intermittent

organizations

• Product layout

• Continuous

manufacturing

organizations

• Computer-assisted

design (CAD)

• Computer-assisted

manufacturing (CAM)

• Flexible manufacturing

• Computer-integrated

manufacturing (CIM)

PPT 8.12

II. Planning and Designing Operations Systems

A. Before a company can make a product, it must decide what it will

produce for what group of customers, what processes it will use to make

the products, and what facilities it needs for production.

4. The engineering or research and development department is

charged with turning a product idea into a workable design that can

be produced economically, as well as efficient production of the

5. Operations managers plan for the types and quantities of materials

needed to produce the product, the skills and quantity of people

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Instructor’s Manual – Chapter 8

PPT 8.13

PPT 8.14

C. Designing the Operations Processes

1. Before a firm can begin production, it must determine the

product.

2. Often, customers’ specific needs and desires dictate the process.

3. Usually products are designed to be manufactured by one of three

processes.

a. Standardization is making identical, interchangeable

1) Standardization speeds up production and quality control

and reduces production costs, although a customer might

not get exactly what he or she wants.

b. Modular design is the creation of an item in self-contained units,

or modules, which can be combined or interchanged to create

different products.

expensive, raising the cost of repair materials.

c. Customization is making products to meet a particular

customer’s needs or wants.

1) Products produced in this way are generally unique.

D. Planning Capacity

1. Capacity refers to the maximum load that an organizational unit can

carry or operate.

b. Maximum capacity can be stated in terms of the inputs or

outputs provided.

2. Efficiently planning the organization’s capacity needs is an important

process for the operations manager.

driven up needlessly due to unused and often expensive

resources.

c. To avoid such situations, organizations must accurately forecast

demand and then plan capacity based on these forecasts.

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Instructor’s Manual – Chapter 8

PPT 8.15

PPT 8.17

PPT 8.18

E. Planning Facilities

1. Many products are produced in factories, but others are produced in

stores, at home, or where the product ultimately will be used.

2. Companies must decide where to locate their operations facilities,

what layout is best for producing their particular product, and even

what technology to apply to the transformation process.

a. Some companies are using both physical and virtual locations.

3. Facility Location

a. Once a facility-location decision has been made and

implemented, the firm must live with it due to the high costs

involved.

b. When making the facility location decision, the firm must pay

careful attention to factors such as proximity to market,

availability of raw materials, availability of transportation,

availability of power, climatic influences, availability of labor,

community characteristics (quality of life), and taxes and

inducements.

1) A fixed-position layout has a central location for the basic

product, and all the resources required to create the product

are brought to the location. A company using a

fixed-position layout may be called a project organization

because it is typically involved in large, complex projects

such as construction.

2) The process layout organizes the transformation process

into departments that group related processes. Intermittent

3) The product layout breaks down work into relatively simple

tasks assigned to workers positioned along an assembly line.

Companies that use this layout are known as continuous

characteristics.

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PPT 8.19

PPT 8.22

c. The chosen layout should best accommodate the type of

activities performed in the facility. For instance, Apple stores are

designed to make the most efficient use of space. The layout of

the store allows customers to test its products before

purchasing.

5. Technology

operations of many businesses.

1) Computer-assisted design (CAD) is the design of

components, products, or processes on computers instead

of paper.

2) Computer-assisted manufacturing (CAM) is the use of

computers in manufacturing to guide and control the

transformation process.

3) Computers are also used to monitor and control the

4) Flexible manufacturing is a system that uses computers to

direct machinery to adapt to different versions of similar

important in assembly line uses, such as spot welding and

painting.

system that utilizes CAD/CAM, flexible manufacturing, and

robotics to design products, manage machines and

1. Manufacturing and operations systems are quickly being remade to

provide for the long-term well-being of the natural environment,

including all biological entities.

3. Issues include pollution of land, air and water; climate change; waste

management; deforestation; urban sprawl; protection of

biodiversity; and genetically modified foods.

4. Sustainability is increasingly important to stakeholders and can lead

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Instructor’s Manual – Chapter 8

LO 8-4

Specify some techniques managers may use to manage the

logistics of transforming inputs into finished products.

• Managing the Supply Chain

o Purchasing

o Managing Inventory

o Outsourcing

o Route and Scheduling

Key Terms:

• Supply chain

management

• Purchasing

• Inventory

• Inventory control

• Economic order

quantity (EOQ) model

• Just-in-time (JIT)

inventory management

• Material-requirements

planning (MRP)

• Routing

• Scheduling

PPT 8.25

III. Managing the Supply Chain

A. A major function of operations is supply chain management, which

refers to connecting and integrating all parties or members of the

distribution system in order to satisfy customers.

1. Also called logistics, supply chain management refers to all the

activities involved in obtaining and managing raw materials and

component parts, managing finished products, packaging them, and

getting them to customers.

2. The supply chain integrates firms such as raw material suppliers,

manufacturers, retailers, and ultimate consumers into a seamless

flow of information and products.

needed by the organization.

3. Not all organizations purchase materials; sometimes, a firm can

make materials more economically than an outside supplier. Others

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PPT 8.27

PPT 8.29

C. Managing Inventory

1. Inventory is every raw material, component, completed or partially

completed product, and piece of equipment a firm uses.

2. There are three basic types of inventory:

a. Finished-goods inventory includes those products that are ready

for sale, such as a fully assembled automobile ready to ship to a

b. Work-in-process inventory consists of those products that are

partly completed or are in some stage of the transformation

process.

c. Raw materials inventory includes all the materials that have

been purchased to be used as inputs for making other products.

4. Inventory managers spend a great deal of time trying to determine

the proper inventory level for each item.

storing, and using) them.

b. Just-in-time (JIT) inventory management eliminates waste by

using smaller quantities of materials that arrive “just in time” for

use in the transformation process, and therefore require less

storage space and other inventory management expense.

inventory. It uses just-in-time inventory management to

minimize inventory costs and become more efficient.

that schedules the precise quantity of materials needed to make

the product.

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PPT 8.31

PPT 8.33

PPT 8.34

D. Globalization has put pressure on supply chain managers to improve

speed and balance resources against competitive pressures.

E. Outsourcing

1. Outsourcing has increasingly become a component of supply chain

management in operations; it refers to the contracting of

manufacturing or other tasks to independent companies, often

overseas. (Table 8.1)

a. Many athletic shoe manufacturers, such as Nike, outsource

production to China and Vietnam to take advantage of lower

labor costs.

2. Companies that hire suppliers must make sure that their suppliers

up the time it takes products to get to the customer, and overall

supply-chain efficiencies.

focus on what they do best and to create better opportunities to

focus on customer satisfaction.

4. However, outsourcing may create conflict with labor and negative

must pass.

2. Scheduling is the process of assigning work to be done to

departments or even specific machines or persons.

a. A popular scheduling technique is the Program Evaluation and

Review Technique (PERT), which evaluates the sequence of

efficient or critical path.

b. The path that requires the longest time from start to completion

1) Producing a Big Mac involves several steps, including grilling

the patties; assembling the ingredients; and placing the Big

they usually would. (Figure 8.3)

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Instructor’s Manual – Chapter 8

LO 8-5

Assess the importance of quality in operations management.

• Economic Cycles and Productivity

o International Organization for Standardization (ISO)

o Inspection

o Sampling

• Integrated Operations and Supply Chain Management

Key Terms:

• Quality control

• Total quality

management (TQM)

• Statistical process

control

• ISO 9000

• ISO 14000

PPT 8.36

PPT 8.37

PPT 8.38

IV. Managing Quality

A. Quality, like cost and efficiency, is a critical element of operations

management because defective products can quickly ruin a firm.

1. Quality reflects the degree to which a product meets the demands

and requirements of customers.

a. For instance, customers often consider the quality of service of

many airlines to be poor due to frequent flights delays, lost

baggage, etc.

b. Independent sources such as the J.D. Power & Associates annual

initial quality survey can be helpful for companies in measuring

the quality of their products. (Figure 8.4)

4. Quality control refers to the processes an organization uses to

maintain its established quality standards.

5. A method companies may use is statistical process control, where

management collects and analyzes information about the

production process to pinpoint quality problems.

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PPT 8.39

6. To regain a competitive edge, a number of firms have adopted total

quality management (TQM), a philosophy that uniform commitment

to quality in all areas of the organization will promote a culture that

meets customers’ perceptions of quality.

a. TQM involves coordinating efforts to improve customer

satisfaction, increase employee participation and

empowerment, strengthen supplier partnerships, and form and

foster an organizational culture of continuous quality

improvement.

b. Continuous improvement of an organization’s products is built

around the notion that quality is free; in contrast, not having

high-quality products is expensive.

company can create a product that will compete in the

marketplace.

b. Quality standards can be incorporated into service businesses as

well.

1) Quality standards for manufacturing might be the thickness

of metal for amount of a certain material.

product quality under many conditions.

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PPT 8.42

a. The standards provide a framework for documenting how a

certified business keeps records, trains employees, tests

products, and fixes defects.

b. Certification has become a virtual necessity for doing business in

some high-technology businesses.

3. ISO 14000 is a comprehensive set of environmental standards that

encourages a cleaner, safer world.

1. Inspection reveals whether products meet established quality

standards.

2. Some inspection techniques are simple—such as weighing or

3. Organizations normally inspect purchased items, work-in-process

items, and finished items.

4. The inspection of purchased items and finished items takes place

after the fact; the inspection of work-in-process is preventive.

1. When inspection procedures are expensive to perform, use

elaborate testing equipment, destroy products, and require many

hours to complete, it is usually desirable to test just a sample of the

the items from the lot would also pass inspection.

3. Sampling will probably be used if tests are destructive to the