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PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie Cook
Copyright Copyright © © 2003 South-Western College Publishing.2003 South-Western College Publishing. All rights reserved.All rights reserved.
Social and Social and Ethical IssuesEthical IssuesSocial and Social and Ethical IssuesEthical Issues
2121
Small Business Management
12e
Copyright © by South-Western College Publishing. All rights reserved. 21–2
Ethics and Small BusinessEthics and Small BusinessEthics and Small BusinessEthics and Small Business
• Doing the Right Thing–Ethical issues—questions of right and wrong
• Kinds of Ethical Issues–Ethical issues in business operations
Income and expense reporting (income tax fraud)“Truth in advertising”—persuasion and deceptionBribing customers and rigging bidsDirect selling—pyramid schemes, bait-and-switch
sellingEffects of owners’ ethics on their employeesAccurately reporting financial information
Copyright © by South-Western College Publishing. All rights reserved. 21–3
Ethics and Small Business (cont’d)Ethics and Small Business (cont’d)Ethics and Small Business (cont’d)Ethics and Small Business (cont’d)
• Kinds of Ethical Issues (cont’d)–Ethical issues and employees
“To do an honest day’s work”Fraudulent workers’ compensation claimsTheft of company property and embezzlement of
fundsViolation of personal ethics to make a sale
Copyright © by South-Western College Publishing. All rights reserved. 21–4
Ethics and Small Business (cont’d)Ethics and Small Business (cont’d)Ethics and Small Business (cont’d)Ethics and Small Business (cont’d)
• Internet ethics–Risks of buying and selling on the Internet–Maintenance of personal privacy
Monitoring employees’ e-mail and Internet access at work.
–Protection of intellectual propertyOriginal intellectual creations, including
inventions, literary creations, and works of art, that are protected by patents or copyrights.
Copyright © by South-Western College Publishing. All rights reserved. 21–5
Ethics and Small Business (cont’d)Ethics and Small Business (cont’d)Ethics and Small Business (cont’d)Ethics and Small Business (cont’d)
• International Ethical Perspectives–Bribery versus customary local business practices–Ethical imperialism
The belief that the ethical standards of one’s own country can be applied universally.
–Ethical relativismThe belief that ethical standards are subject to
local interpretation.“When in Rome, do as the Romans do”
Copyright © by South-Western College Publishing. All rights reserved. 21–6
Difficult Ethical Issues Facing Small FirmsDifficult Ethical Issues Facing Small FirmsDifficult Ethical Issues Facing Small FirmsDifficult Ethical Issues Facing Small Firms
Ethical Issue
Number of Responses
Examples of Responses
Compliance with governmental requirements and reporting to governmental agencies
17 “Having to deal with so-called anti-discrimination laws which in fact force me to discriminate”
“Employing people who may not be legal [citizens] to work”
Human resource decisions 14 Whether to lay off workers who [are] surplus to our needs and would have a problem finding work or to deeply cut executive pay and perks”
“Sexual harassment”
Environmental and social responsibilities
5 “Whether to pay to have chemicals disposed of or just throw them in a dumpster” “Environmental safety versus cost to prevent accidents”
Source: Justin Longenecker, Joseph A. McKinney, and Carlos W. Moore, “Ethical Attitudes, Issues, and Pressures in Small Business,” paper presented at the International Council for Small Business Conference, Sydney, Australia, June 1995.
Copyright © by South-Western College Publishing. All rights reserved. 21–7
Building an Ethical BusinessBuilding an Ethical BusinessBuilding an Ethical BusinessBuilding an Ethical Business
• Strong Underlying Values–Unarticulated ethical beliefs that provide a
foundation for ethical behavior in a firm.Are based on personal views of the universe and
mankind.Strongly held views can lead to tough choices.Ethics of the firm affects how outsiders view of
the firm and their decisions about the firm.
Copyright © by South-Western College Publishing. All rights reserved. 21–8
Building an Ethical Business (cont’d)Building an Ethical Business (cont’d)Building an Ethical Business (cont’d)Building an Ethical Business (cont’d)
• Ethical Leadership–Owner/leaders and their ethics have more direct
and pronounced effects in small firms.–Owner/leaders can insist that ethical principles be
followed by employees.
Copyright © by South-Western College Publishing. All rights reserved. 21–9
Building an Ethical Business (cont’d)Building an Ethical Business (cont’d)Building an Ethical Business (cont’d)Building an Ethical Business (cont’d)
• A Supportive Culture–Building an ethical culture requires
Full commitment to ethical conduct by the firmStrong, ethical managerial leadership
–Code of ethicsOfficial standards of employee behavior set by
the firm.Foundation for ethical conduct by employeesClarifies the rules and gives guidance to
employees
Copyright © by South-Western College Publishing. All rights reserved. 21–10
Building an Ethical Business (cont’d)Building an Ethical Business (cont’d)Building an Ethical Business (cont’d)Building an Ethical Business (cont’d)
• Better Business Bureau–Provides free buying guidelines and information
about companies to consumers.–Attempts to resolve questions or disputes
concerning purchases.–Bait advertising
An insincere offer to sell a product or service at a very low price, used to lure customers in so that they can be switched later to a more expensive product.
Copyright © by South-Western College Publishing. All rights reserved. 21–11
Social Responsibilities and Small BusinessSocial Responsibilities and Small BusinessSocial Responsibilities and Small BusinessSocial Responsibilities and Small Business
• Social Responsibility–The role of a small business as a good citizen in
its community in meeting its ethical obligations to customers, employees, and the general community.Regarded as the price of freedom to operate in a
free economic system.Frequently takes the form of personal
contributions, volunteerism and the contribution of services by the firm and its employees.
Copyright © by South-Western College Publishing. All rights reserved. 21–12
Social Responsibilities of Small FirmsSocial Responsibilities of Small FirmsSocial Responsibilities of Small FirmsSocial Responsibilities of Small Firms
SocialSocialResponsibilitiesResponsibilities
ConsumerismConsumerism
Support of Support of EducationEducation
Compliance with Compliance with Government Government RegulationsRegulations
Response to Response to Community NeedsCommunity Needs
Contributions to Contributions to Community Community
OrganizationsOrganizations
Obligations to Obligations to StakeholdersStakeholders
EnvironmentalEnvironmentalProtectionProtection
Copyright © by South-Western College Publishing. All rights reserved. 21–13
Challenges of EnvironmentalismChallenges of EnvironmentalismChallenges of EnvironmentalismChallenges of Environmentalism
• Environmental Issues–Environmentalism
The effort to protect and preserve the environment
• Positive impact of environmentalism–Builds customer loyalty–Improves firm’s image in the community–Provides business opportunities
• Negative impact of environmentalism–Entails cost of modifying facilities–Adds government regulation–Increases likelihood of lawsuits
Copyright © by South-Western College Publishing. All rights reserved. 21–14
Challenges of ConsumerismChallenges of ConsumerismChallenges of ConsumerismChallenges of Consumerism
• Consumerism–A movement that stresses the needs of
consumers and the importance of serving them honestly and well.
• Consumer Issues and Regulatory Legislation–No longer “Buyer Beware”
Product features: safety, reliability, durability
Product marketing: Truth-in-advertising, written warranties
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PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie Cook
Copyright Copyright © © 2003 South-Western College Publishing.2003 South-Western College Publishing. All rights reserved.All rights reserved.
Managing Managing Human Human ResourcesResources
Managing Managing Human Human ResourcesResources
Small Business Management
12e
Copyright © by South-Western College Publishing. All rights reserved. 19–16
Recruiting PersonnelRecruiting PersonnelRecruiting PersonnelRecruiting Personnel
• The Need for Quality Employees–Employee performance affects the capability of
the firm to service customer needs.–Employee performance affects profitability.–Payroll costs affect firm’s bottom line.–Quality of employees determines the long-term
competitive potential of the firm.
Copyright © by South-Western College Publishing. All rights reserved. 19–17
The Lure of Small FirmsThe Lure of Small FirmsThe Lure of Small FirmsThe Lure of Small Firms
• Advantages of Employment in Small Firms–Quicker movement to decision-making levels of
management–Greater managerial freedom–More opportunities for broad-based managerial
experience–Flexibility in work scheduling
and job sharing
Copyright © by South-Western College Publishing. All rights reserved. 19–18
Sources of EmployeesSources of EmployeesSources of EmployeesSources of Employees
Sources of EmployeesSources of EmployeesSources of EmployeesSources of Employees
Walk-insWalk-insWalk-insWalk-ins
SchoolsSchoolsSchoolsSchools
Public EmploymentPublic Employment Agencies Agencies
Public EmploymentPublic Employment Agencies Agencies
Executive SearchExecutive SearchFirmsFirms
Executive SearchExecutive SearchFirmsFirms
Employee ReferralsEmployee ReferralsEmployee ReferralsEmployee Referrals
Private EmploymentPrivate EmploymentAgenciesAgencies
Private EmploymentPrivate EmploymentAgenciesAgencies
InternetInternetRecruitingRecruiting
InternetInternetRecruitingRecruiting
Help-WantedHelp-WantedAdvertisingAdvertising
Help-WantedHelp-WantedAdvertisingAdvertising
Temporary HelpTemporary HelpAgenciesAgencies
Temporary HelpTemporary HelpAgenciesAgencies
Copyright © by South-Western College Publishing. All rights reserved. 19–19
Diversity in the WorkforceDiversity in the WorkforceDiversity in the WorkforceDiversity in the Workforce
• Workforce Diversity–Differences among employees in terms of such
dimensions as gender, age, and race.–Diversity is increasing with higher proportions of
women, older workers, and racial minorities entering the workforce.
Copyright © by South-Western College Publishing. All rights reserved. 19–20
Job DescriptionJob DescriptionJob DescriptionJob Description
• Job Description–A written summary of the essential duties required
by a specific jobAids in personnel recruitment.Helps focus employees on their work.Provides direction in training.Serves as the basis for performance review.
• Job Specification–A list of the skills and abilities needed by the job
holder to successfully perform a specific jobAids in selecting the most qualified job applicant.
Copyright © by South-Western College Publishing. All rights reserved. 19–21
Job Description for a Stock Clerk in Retail Food StoreJob Description for a Stock Clerk in Retail Food StoreJob Description for a Stock Clerk in Retail Food StoreJob Description for a Stock Clerk in Retail Food Store
Title: Stock ClerkPrimary Function: To stock shelves food products and other itemsSupervision Received: Works under direct supervision of store managerSupervision Exercised: None
Duties:1. Receive and store products in storage area.2. Take products from storage, open outer wrapping, and place on store
shelves.3. Provide information and/or directions to customers seeking particular products or having other questions.4. Monitor quantity of products on shelves and add products when supplies
are low.5. Perform housekeeping duties when special need arises—for example,
when a container is broken or products fall on the floor.6. Assist cashiers in bagging products as needed during rush periods.7. Assist in other areas or perform special assignments as directed by the
store manager.
Title: Stock ClerkPrimary Function: To stock shelves food products and other itemsSupervision Received: Works under direct supervision of store managerSupervision Exercised: None
Duties:1. Receive and store products in storage area.2. Take products from storage, open outer wrapping, and place on store
shelves.3. Provide information and/or directions to customers seeking particular products or having other questions.4. Monitor quantity of products on shelves and add products when supplies
are low.5. Perform housekeeping duties when special need arises—for example,
when a container is broken or products fall on the floor.6. Assist cashiers in bagging products as needed during rush periods.7. Assist in other areas or perform special assignments as directed by the
store manager.
Figure 19.1
Copyright © by South-Western College Publishing. All rights reserved. 19–22
Evaluating Prospects and Selecting EmployeesEvaluating Prospects and Selecting EmployeesEvaluating Prospects and Selecting EmployeesEvaluating Prospects and Selecting Employees
Steps in Recruiting EmployeesSteps in Recruiting Employees
Application FormsApplication Forms
Applicant interviewApplicant interview
Reference checkingReference checking
Applicant testingApplicant testing
Physical ExaminationPhysical Examination
Copyright © by South-Western College Publishing. All rights reserved. 19–23
Training and Developing Employees Training and Developing Employees Training and Developing Employees Training and Developing Employees
• Purposes of Training and Development–Prepare recruit to perform the duties of the job.–Improve the performance of current employees.–Prepare employees for career advancement.–Improve morale of current employees.–Serve as an inducement to potential applicants.
• Factors in Establishing a Training Program–Determining the need for training–Creating a plan for training–Setting a timetable for training–Providing employee counseling
Copyright © by South-Western College Publishing. All rights reserved. 19–24
Types of Training and DevelopmentTypes of Training and DevelopmentTypes of Training and DevelopmentTypes of Training and Development
Development of Development of Managers and Managers and ProfessionalsProfessionals
Orientation ofOrientation ofNew PersonnelNew Personnel
Training to Training to Improve QualityImprove Quality
Training of Training of Nonmanagerial Nonmanagerial
EmployeesEmployees
TrainingTrainingandand
DevelopmentDevelopment
Copyright © by South-Western College Publishing. All rights reserved. 19–25
PREPARE EMPLOYEES
• Put employees at ease.• Place them in appropriate jobs. • Find out what they know.• Get them interested in learning.
PREPARE EMPLOYEES
• Put employees at ease.• Place them in appropriate jobs. • Find out what they know.• Get them interested in learning.
PRESENT THE OPERATIONS
• Tell, show, and illustrate the task.• Stress key points.• Instruct clearly and completely.
PRESENT THE OPERATIONS
• Tell, show, and illustrate the task.• Stress key points.• Instruct clearly and completely.
TRY OUT PERFORMANCE
• Have employees perform the task.• Have them tell, show, and explain.• Ask employees questions and correct any errors.
TRY OUT PERFORMANCE
• Have employees perform the task.• Have them tell, show, and explain.• Ask employees questions and correct any errors.
FOLLOW UP
• Check on employees frequently.• Tell them how to obtain help.• Encourage questions.
FOLLOW UP
• Check on employees frequently.• Tell them how to obtain help.• Encourage questions.
Steps in Job Steps in Job InstructionInstruction
Steps in Job Steps in Job InstructionInstruction
Figure 19.2
Copyright © by South-Western College Publishing. All rights reserved. 19–26
Compensation and Incentives for Small Compensation and Incentives for Small Business EmployeesBusiness Employees
Compensation and Incentives for Small Compensation and Incentives for Small Business EmployeesBusiness Employees
• Financial Incentives–Keys to developing an effective bonus plan:
Set attainable goals.Set meaningful goals.Bring workers in
(employee participation).Keep targets moving.Aim carefully.
Copyright © by South-Western College Publishing. All rights reserved. 19–27
Compensation and Incentives for Small Compensation and Incentives for Small Business Employees (cont’d)Business Employees (cont’d)
Compensation and Incentives for Small Compensation and Incentives for Small Business Employees (cont’d)Business Employees (cont’d)
• Fringe Benefits–Supplements to compensation designed to be
attractive and beneficial to employees.Benefits are a substantial portion of payroll costs.Small firms tend to provide fewer benefits.Small firms are increasingly outsourcing the
administration of their benefits programs.
Copyright © by South-Western College Publishing. All rights reserved. 19–28
Employee Stock Ownership PlansEmployee Stock Ownership PlansEmployee Stock Ownership PlansEmployee Stock Ownership Plans
• Employee Stock Ownership Plans (ESOPs)–Plans through which a firm is sold either in part or
in total to its employees.Employees’ performance is motivated by their
sharing of ownership in the firm.Owners can cash out and withdraw without
selling to outsiders.ESOPs offer tax advantages to owners and
employees.
Copyright © by South-Western College Publishing. All rights reserved. 19–29
Special Issues in HRMSpecial Issues in HRMSpecial Issues in HRMSpecial Issues in HRM
• Employee Leasing–The “renting” of personnel from an organization
that handles paperwork and administers benefits for those employeesLeasing allows small firms to provide employee
benefits.Leasing makes small firms subject to additional
government regulations.
–Professional Employment OrganizationA personnel-leasing company that places
employees on its own payroll and then “rents” them to employers on a permanent basis.
Copyright © by South-Western College Publishing. All rights reserved. 19–30
What Employee-Leasing CompaniesWhat Employee-Leasing CompaniesOffer to Small FirmsOffer to Small Firms
What Employee-Leasing CompaniesWhat Employee-Leasing CompaniesOffer to Small FirmsOffer to Small Firms
• Better health insurance• Preparation of paychecks• Payment of payroll taxes• Analysis of government regulations• Preparation of government reports• Monitoring of vacation and sick days
Copyright © by South-Western College Publishing. All rights reserved. 19–31
Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)
• Legal Protection of Employees–Employment (Equal Pay for Men and Women) Act
December 1, 1975Legislation that prohibits discrimination of
compensation based on sex
–THE LABOUR RELATIONS AND INDUSTRIAL DISPUTES ACTLegislation that clarifies how industrial disputes should be resolved and required relations between employee and employer
Copyright © by South-Western College Publishing. All rights reserved. 19–32
Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)
• Legal Protection of Employees (cont’d)–Sexual harassment policy guidelines
Establish clear and meaningful policies regarding sexual harassment in the workplace.
Meet with employees and supervisory personnel to discuss the policies.
Investigate any and all complaints of sexual harassment fairly and thoroughly.
Take timely and appropriate action against all violators.
Copyright © by South-Western College Publishing. All rights reserved. 19–33
Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)
• Legal Protection of Employees (cont’d)–Factories Act (to be replaced by Occupational
Safety and Health Act)Legislation that regulates the safety of
workplaces and work practices.
Copyright © by South-Western College Publishing. All rights reserved. 19–34
Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)
• Legal Protection of Employees (cont’d)–Maternity Leave Act (1979)
Legislation requiring firms to provide up to twelve weeks paid maternity leave
–Holiday with Pay Act Legislation requiring firms to provide employees with
up to 3 weeks of paid vacation leaveRequires firms to pay employees during periods of
illness up to 2 normal working weeks
Copyright © by South-Western College Publishing. All rights reserved. 19–35
Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)
• Formalizing of Employer-Employee Relationships–Employee handbook contents
Expression of company philosophyRecruitmentSelectionTrainingVacationsGrievancesDisciplinePerformance reviews
Copyright © by South-Western College Publishing. All rights reserved. 19–36
Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)
• The Need for a Human Resource Manager–Conditions favoring the appointment of an HR
manager:A substantial number of employees (100+)Unionized employeesA high labor turnover rateA strong need to recruit skilled and professional
employeesSupervisors or operative employees in need of
trainingLow employee moraleIntense job market competition for personnel
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PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie Cook
Copyright Copyright © © 2003 South-Western College Publishing.2003 South-Western College Publishing. All rights reserved.All rights reserved.
Quality Management Quality Management and the Operations and the Operations ProcessProcess
Quality Management Quality Management and the Operations and the Operations ProcessProcess
2020
Small Business Management
12e
Copyright © by South-Western College Publishing. All rights reserved. 20–38
Looking AheadLooking AheadLooking AheadLooking Ahead
After studying this chapter, you should be able to:
1. Explain the key elements of total quality management (TQM) programs.
2. Discuss the nature of the operations process for both products and services.
3. Explain how reengineering and other methods of work improvement can increase productivity and make a firm more competitive.
4. Discuss the importance of purchasing and the nature of key purchasing policies.
5. Describe ways to control inventory and minimize inventory costs.
Copyright © by South-Western College Publishing. All rights reserved. 20–39
Quality Goals of Operations ManagementQuality Goals of Operations ManagementQuality Goals of Operations ManagementQuality Goals of Operations Management
• Quality–The features of a product or service that enable it
to satisfy customers’ needs.–A perception of the customer as to the suitability
of the product or service of a firm.
• Total Quality Management (TQM)–An aggressive, all-encompassing management
approach to providing high-quality products and services.
Copyright © by South-Western College Publishing. All rights reserved. 20–40Fig. 20.1
Successful Quality Management
SupportiveOrganizational
Culture
AppropriateTools and
Techniques
Focus onCustomers
Essential Elements ofEssential Elements ofSuccessful Quality ManagementSuccessful Quality Management
Essential Elements ofEssential Elements ofSuccessful Quality ManagementSuccessful Quality Management
Copyright © by South-Western College Publishing. All rights reserved. 20–41
Customer Focus on Quality ManagementCustomer Focus on Quality ManagementCustomer Focus on Quality ManagementCustomer Focus on Quality Management
• Customer Expectations–Quality is the extent to which a product or service
satisfies customer’s needs and expectations.Product qualityService qualityProduct and service quality combinations
–“The customer is the focal point of quality efforts.”
• Customer Feedback–Customers are the eyes and ears of the business
for quality matters.
Copyright © by South-Western College Publishing. All rights reserved. 20–42
Organizational Culture and TQMOrganizational Culture and TQMOrganizational Culture and TQMOrganizational Culture and TQM
• Organizational Culture–The behavior, beliefs, and values that characterize
a particular firm.
• Continuous Quality Improvement–A constant and dedicated effort to improve quality.
• Benchmarking–The process of studying the products, services,
and practices of other firms and using the insights gained to improve quality internally.
Copyright © by South-Western College Publishing. All rights reserved. 20–43
Tools and Techniques of TQMTools and Techniques of TQMTools and Techniques of TQMTools and Techniques of TQM
• Employee Participation–Employee performance is a critical quality
variable.–Quality circle
A group of employees who meet regularly to discuss quality-related problems.
Copyright © by South-Western College Publishing. All rights reserved. 20–44
Tools and Techniques of TQMTools and Techniques of TQMTools and Techniques of TQMTools and Techniques of TQM
• The Inspection Process–The examination of a product to determine
whether it meets quality standards.–Inspection standard
A specification of a desired quality level and allowable tolerances.
–Attribute inspectionThe determination of product acceptability based
on whether it will or will not work.
–Variable inspectionThe determination of product acceptability based
on a variable such as weight or length.
Copyright © by South-Western College Publishing. All rights reserved. 20–45
Statistical Methods of Quality ControlStatistical Methods of Quality ControlStatistical Methods of Quality ControlStatistical Methods of Quality Control
• Acceptance Sampling–The use of a random, representative portion to
determine the acceptability of an entire lot.
• Statistical Process Control–The use of statistical methods
to assess quality during the operations process.
• Control Chart–A graphic illustration
of the limits used in statistical process control.
Copyright © by South-Western College Publishing. All rights reserved. 20–46
International Certification forInternational Certification forQuality ManagementQuality Management
International Certification forInternational Certification forQuality ManagementQuality Management
• ISO 9000–The standards governing international certification
of a firm’s quality management procedures.
Copyright © by South-Western College Publishing. All rights reserved. 20–47
The Operations ProcessThe Operations ProcessThe Operations ProcessThe Operations Process
• The Nature of the Operations Process–Operations management
The planning and control of the operations process
Involves acquiring inputs and overseeing their transformation in products and services
Copyright © by South-Western College Publishing. All rights reserved. 20–48Fig. 20.2
Inputs
Operations
Outputs
• Designing • Processing • Treating • Storing • Advising• Fabricating • Refining • Assembling • Shipping • Instructing
ClothingBaked goodsPaint
Dry cleaningAppliance repairAutomobile painting
Products Services
Money Labor Equipment Information EnergyRaw
Materials
Examples: Examples:
The Operations ProcessThe Operations ProcessThe Operations ProcessThe Operations Process
Copyright © by South-Western College Publishing. All rights reserved. 20–49
The Operations Process (cont’d)The Operations Process (cont’d)The Operations Process (cont’d)The Operations Process (cont’d)
• Manufacturing Versus Service Operations–Productivity is more easily measured in
manufacturing than service operations–Quality is more difficult to establish in service
than manufacturing operations.–Customers are more involved in service than
manufacturing operations.–Manufacturing can produce goods for inventory;
service operations cannot store or bank services.
Copyright © by South-Western College Publishing. All rights reserved. 20–50
Types of ManufacturingTypes of ManufacturingTypes of ManufacturingTypes of Manufacturing
• Job Shops–Operations characterized by short production runs
of small quantities of unique items.
• Repetitive Manufacturing–Operations in which long production runs are
used to produce a large quantity of a standardized product.
• Batch Manufacturing–An intermediate form involving more variety in
volume and products than job shops and less than repetitive manufacturing.
Copyright © by South-Western College Publishing. All rights reserved. 20–51
The Operations Process (cont’d)The Operations Process (cont’d)The Operations Process (cont’d)The Operations Process (cont’d)
• Operations Planning and Scheduling–Attempting to achieve the orderly, sequential flow
of products to market.Production operationsService operations
• Plant Maintenance–The role of maintenance
To correct equipment malfunctions and prevent breakdowns
–Types of maintenancePreventive maintenanceCorrective maintenance
Copyright © by South-Western College Publishing. All rights reserved. 20–52
Competitive Strength ThroughCompetitive Strength ThroughImproved ProductivityImproved Productivity
Competitive Strength ThroughCompetitive Strength ThroughImproved ProductivityImproved Productivity
• The Importance of Improving Productivity–Productivity is the efficiency with which inputs are transformed into outputs.–Productivity is more difficult to increase in service industries than in
manufacturing sectors.
Inputs
OutputstyProductivi
nInformatio MaterialsRaw Money Energy Labor
services and/or ProductstyProductivi
Copyright © by South-Western College Publishing. All rights reserved. 20–53
Competitive Strength ThroughCompetitive Strength ThroughImproved Productivity (cont’d)Improved Productivity (cont’d)Competitive Strength ThroughCompetitive Strength ThroughImproved Productivity (cont’d)Improved Productivity (cont’d)
• Reengineering for Improved Productivity–Reengineering
A fundamental restructuring to improve the operations process.
Asking “Why?” is important in the reengineering process.
Copyright © by South-Western College Publishing. All rights reserved. 20–54
Competitive Strength ThroughCompetitive Strength ThroughImproved Productivity (cont’d)Improved Productivity (cont’d)Competitive Strength ThroughCompetitive Strength ThroughImproved Productivity (cont’d)Improved Productivity (cont’d)
• Operations Analysis–Laws of motion economy
Arranging work in the most cost-effective and efficient manner possible.
• Methods of Work Measurement–Motion Study
An analysis of all the motions a worker makes to complete a given job.
–Time StudyA determination of the average time, it takes to
complete
Copyright © by South-Western College Publishing. All rights reserved. 20–55
Purchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and Practices
• Purchasing–The process of obtaining materials, equipment,
and services from outside.
• The Importance of Purchasing–The process of acquiring quality raw material
inputs affects:The timely and consistent production of quality
products.Retailer sales of finished products to customers.The costs of products, their profitability and their
selling prices.
Copyright © by South-Western College Publishing. All rights reserved. 20–56
Purchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and Practices
• Purchasing Practices and Profitability–Making or buying
A firm’s choice between producing and purchasing component parts for its products.
–Reasons for making:Increased utilization of plant capacityAssurance of supply of critical componentsMaintaining secrecy in designs and processesSaving on transportation costs and supplier
profitsCloser coordination and control of overall processHigher quality components for inputs
Copyright © by South-Western College Publishing. All rights reserved. 20–57
Purchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and Practices
• Purchasing Practices and Profitability–Outsourcing
Purchasing products or services that are outside the firm’s area of competitive advantage.
–Reasons for BuyingSupplier’s part/service is cheaper and/or higher
qualityInvestment savings on space, personnel,
equipmentGreater flexibility in matching supply and demandIncreased focus on production of core
product/serviceNo risk of equipment obsolescence
Copyright © by South-Western College Publishing. All rights reserved. 20–58
Purchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and Practices
• Purchasing Practices and Profitability–Buying on the Internet
Small firms save on inputs by using the Internet to seek out the lowest cost suppliers.
Copyright © by South-Western College Publishing. All rights reserved. 20–59
Purchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and Practices
• Diversifying sources of supply–Reasons for having a sole supplier
Outstanding supplier qualityQuantity discounts for volume purchasesSingle orders too small to divide among suppliersQuality of supplier-customer relationship
–Reasons for having multiple suppliersChoice of best quality, price, and serviceSupplier competes for businessInsurance against input interruptions
Copyright © by South-Western College Publishing. All rights reserved. 20–60
Purchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and Practices
• Relationships with suppliers–Selecting suppliers
Price and qualityLocation and delivery reliabilityServices offered—credit, product support,
promotion
• Building good relationships with suppliers–Purchasing practices
Pay bills promptlyBe courteous to sales representativesAvoid abrupt cancellations of ordersMaintain a professional relationship
Copyright © by South-Western College Publishing. All rights reserved. 20–61
Purchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and Practices
• Developing Strategic Alliances–Strategic alliance is an organizational relationship
that links two independent business entities in a common endeavor. Involves close coordination of buyers and sellers to:Reduce product introduction lead timeImprove product qualityEngage in joint problem solvingMake joint adjustments to market conditionsInvolve the supplier early in product development
Copyright © by South-Western College Publishing. All rights reserved. 20–62
EnsuringContinuousOperations
MaximizingSales
ProtectingAssets
MinimizingInventory
Investment
Fig. 20.3
Inventory Management and OperationsInventory Management and OperationsInventory Management and OperationsInventory Management and Operations
• Objectives of Inventory Management
Copyright © by South-Western College Publishing. All rights reserved. 20–63
Inventory Management and OperationsInventory Management and OperationsInventory Management and OperationsInventory Management and Operations
• Inventory Cost Control–Economic order quantity (EOQ)
The quantity to purchase in order to minimize total inventory costs.
Totalinventory
costs
Totalordering
costs
Totalcarrying
costs= +
Copyright © by South-Western College Publishing. All rights reserved. 20–64
EOQ Total Costs
Ordering Costs
Carrying Costs
Order Quantity (Units)
Cost ($)
Fig. 20.4
Graphic Portrayal of the Economic Order QuantityGraphic Portrayal of the Economic Order QuantityGraphic Portrayal of the Economic Order QuantityGraphic Portrayal of the Economic Order Quantity
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Inventory Management and OperationsInventory Management and OperationsInventory Management and OperationsInventory Management and Operations
• ABC Inventory Analysis–A system of classifying items in inventory by
relative value–Category A (close/continuous control)
High-value or critical production component items
–Category B (moderate control)Less costly, secondary importance items
–Category C (periodic control)Low-cost and noncritical items
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Inventory Management and OperationsInventory Management and OperationsInventory Management and OperationsInventory Management and Operations
• Just-In-Time Inventory (JIT) System, also Kanban–A method of reducing inventory level to an
absolute minimum.New items arrive at the same time that the last
inventory item is placed in service
–JIT promotes:Closer coordination with suppliersConsistent quality productionLower safety stock levels
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Inventory Management and OperationsInventory Management and OperationsInventory Management and OperationsInventory Management and Operations
• Inventory Record-Keeping Systems–Physical inventory system
A method that provides for periodic counting of items in inventory
–Cycle countingA system of counting different segments of the
physical inventory at different times during the year.
–Perpetual inventoryA method for keeping a running record of
inventory.