GEB 4455 Lecture 8: Ch 9 learnsmart

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GEB 4455
William A Christiansen

Ch 9 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 much. 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 States. 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 needs. • 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 service sector. 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 16 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. Production processes 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 widely. 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
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