Manufacturing and services in perspective
Some areas of the country are enjoying economic growth from manufacturing while others are
experiencing declines. 7 One key to ending such declines is to adapt to the new realities and
attract new manufacturers. Boston did that when it attracted many high-tech firms and became
another Silicon Valley. Another key is to train new workers in the new production processes. 8It
is important at this point to note that many U.S. firms are thinking more about producing in the
United States (versus Japan) since the 2011 earthquake, tsunami, and resulting nuclear industry
problems in Japan made it a less reliable source for auto parts
Don’t expect a comeback to result in the same number of jobs as were available before the
recession. Just as U.S. productivity gains in agriculture lowered the number of farmers needed,
today’s productivity gains in manufacturing have lowered the number of manufacturing workers
companies require. The U.S. economy is no longer manufacturing-based. Over 70 percent of U.S.
GDP and over 80 percent of U.S. jobs now are in the service sector. In fact, the majority of college
graduates are likely to be employed in the service sector. Top-paying jobs already exist in legal
services; medical services; entertainment; broadcasting; and business services such as
accounting, finance, and management consulting. In fact, the service sector in general has
suffered along with manufacturing as a result of the economic slowdown, but not nearly as
U.S. producers no longer strike fear in the heart of foreign competitors. In fact, they have much
to learn from them, although one reason foreign producers have become so competitive is that
they are using U.S. technology and concepts to increase effectiveness and efficiency. Overall,
that’s a good thing because it helps reduce poverty and hunger in developing countries and opens
new markets to the developed world.
Foreign producers are also streaming to the United States to take advantage of its labor force and
opportunities. The United States is still the leader in building big trucks, and in nanotechnology,
biotechnology, and other areas. 12 Its workforce is creative and dynamic. Nonetheless, U.S.
business cannot stand still; it must keep up with the latest production techniques and
processes. The Reaching Beyond Our Borders box looks at Germany and how some
companies there have found a competitive advantage that could be applied in the United
As the U.S. service sector becomes a larger part of the overall economy, managers will be more
occupied with service productivity, and with blending services and manufacturing through the
Internet. How can U.S. manufacturers and service organizations maintain a competitive edge?
Most of them are:
• Focusing more on customers.
• Maintaining closer relationships with suppliers and other companies to satisfy customer
• Practicing continuous improvement. 13
• Focusing on quality.
• Saving on costs through site selection.
• Relying on the Internet to unite companies that work together.
• Adopting production techniques such as enterprise resource planning, computerintegrated
manufacturing, flexible manufacturing, lean manufacturing, and robotics. From production to operations management
Production is the creation of finished goods and services using the factors of production: land,
labor, capital, entrepreneurship, and knowledge (see Chapter 1). Production has historically
meant manufacturing, and the term production management has described the management
activities that helped firms create goods. But the nature of business has changed significantly
over the last 20 years as the service sector, including Internet services, has grown
dramatically. The United States has become a service economy—that is, one dominated by the
Operations management is a term that is used in both manufacturing and service
organizations. Operations management is a specialized area in management that converts or
transforms resources, including human resources like technical skills and innovation, into goods
and services. It includes inventory management, quality control, production scheduling, follow-
up services, and more. In an automobile plant, operations management transforms raw materials,
human resources, parts, supplies, paints, tools, and other resources into automobiles. It does this
through the processes of fabrication and assembly.
In a college or university, operations management takes inputs—such as information, professors,
supplies, buildings, offices, and computer systems—and creates services that transform students
into educated people. It does this through a process called education.
Operations management in the service sector
Operations management in the service industry is all about creating a good experience for those
who use the service. 14 In a Ritz-Carlton hotel, for example, operations management includes
restaurants that offer the finest in service, elevators that run smoothly, and a front desk that
processes people quickly. It may include fresh-cut flowers in the lobbies and dishes of fruit in
every room. More important, it may mean spending thousands of dollars to provide training in
quality management for every new employee.
In short, delighting customers by anticipating their needs has become the quality standard for
luxury hotels, as it has for most other service businesses. But knowing customer needs and
satisfying them are two different things. That’s why operations management is so important: it
is the implementation phase of management. Can you see the need for better operations
management in airports, hospitals, government agencies, schools, and nonprofits like the Red
Cross? The opportunities seem almost unlimited. Much of the future of U.S. growth is in these
service areas, but growth is also needed in manufacturing.
The same is true of the production process in industry. It uses basic inputs to produce outputs
(see Figure 9.1). Production adds value, or utility, to materials or processes
Form utility is the value producers add to materials in the creation of finished goods and
services, such as by transforming silicon into computer chips or putting services together to
create a vacation package. Form utility can exist at the retail level as well.
Grove says this task encompasses the three basic requirements of production: (1) to build and
deliver products in response to the demands of the customer at a scheduled delivery time, (2) to
provide an acceptable quality level, and (3) to provide everything at the lowest possible cost. Process manufacturing physically or chemically changes materials. For example, boiling
physically changes the egg. Similarly, process manufacturing turns sand into glass or computer
chips. The assembly process puts together components (eggs, toast, and coffee) to make a
product (breakfast). Cars are made through an assembly process that puts together the frame,
engine, and other parts.
Production processes are either continuous or intermittent. A continuous process is one in which
long production runs turn out finished goods over time.
It usually makes more sense when responding to specific customer orders to use an intermittent
process. Here the production run is short (one or two eggs) and the producer adjusts machines
frequently to make different products
Today many manufacturers use intermittent processes. Computers, robots, and flexible
manufacturing processes allow firms to turn out custom-made goods almost as fast as mass-
produced goods were once produced. We’ll discuss how they do that in more detail in the next
few sections as we explore advanced production techniques and technology.
The ultimate goal of operations management is to provide high-quality goods and services
instantaneously in response to customer demand. As we stress throughout this book, traditional
organizations were simply not designed to be so responsive to the customer. Rather, they were
designed to make goods efficiently (inexpensively). The idea behind mass production was to
make a large number of a limited variety of products at very low cost.
Computer aided design and manufacturing
One development that has changed production techniques is the integration of computers into
the design and manufacturing of products. The first thing computers did was help in the design
of products, in a process called computer-aided design (CAD). Autodesk makes a fully
operational computer-aided design software program called 123 Design that’s free and allows
individuals to do things that automakers once required mainframe computers to do
The next step was to bring computers directly into the production process with computer-aided
manufacturing (CAM). CAD/ CAM, the use of both computer-aided design and computer-aided
manufacturing, makes it possible to custom-design products to meet the needs of small markets
with very little increase in cost.
CAD has doubled productivity in many firms. In the past CAD machines couldn’t talk to CAM
machines directly. Today, however, software programs unite CAD and CAM: the result
is computer-integrated manufacturing (CIM). The software is expensive, but it cuts as much as
80 percent of the time needed to program machines to make parts. The printing company
JohnsByrne uses CIM in its Niles, Illinois, plant and has noticed decreased overhead, reduced
outlay of resources, and fewer errors. Consult the International Journal of Computer Integrated
Manufacturing for other examples.
Flexible manufacturing means designing machines to do multiple tasks so they can produce a
variety of products.
Lean manufacturing is the production of goods using less of everything than in mass
production: less human effort, less manufacturing space, less investment in tools, and less
engineering time to develop a new product. 18 A company becomes lean by continuously increasing 19s capacity to produce high-quality goods while decreasing its need for
resources. Here are some characteristics of lean companies:
• They take half the human effort.
• They have half the defects in the finished product or service.
• They require one-third the engineering effort.
• They use half the floor space for the same output.
• They carry 90 percent less inventory.
Technological improvements are largely responsible for the increase in productivity and
efficiency of U.S. plants. That technology made labor more productive and made it possible to
pay higher wages. On the other hand, employees can get frustrated by innovations (e.g., they
must learn new processes), and companies must constantly train and retrain employees to stay
competitive. The need for more productivity and Page 250efficiency has never been greater. The
solution to growing the economy depends on such innovations. One step in the process is to
make products more individualistic. The next section discusses how that happens.
To customize means to make a unique product or provide a specific service to specific
individuals. Although it once may have seemed impossible, mass customization, which means
tailoring products to meet the needs of a large number of individual customers, is now practiced
Time-to-market: moving products quickly and at the lowest cost possible to customers in order
to remain competitive
Operations management planning
Operations management planning helps solve many of the problems in the service and
manufacturing sectors. These include facility