Chapter

Introduction to Operations Management

CHAPTER OUTLINE
Defining Operations Management Understanding Operations (:omparing (ioods and Services Operations Add Value Technology and Operations

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Gaining Strategk Advantage at Allen Bradley: Using Automated Assembly Lines aIncrease kiarket Share

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International Trade and Competition Operations and Teamwork

Understanding the Systems Approach to Operations The 0lpanir;ltion as Part of the Economic and Government System Operations as Part of the Organization Operations as a Series of Related Subsystems

LEARNING OBJECTIVES
After completing this chapter, you should be able t o Discuss the role of operations in the organization. Describe the differences between producers of services and produc ers of goods. Explain why the approach to managing operations should grow from the organization's goals. tDefine systems theory and discuss the relationships between operiitions and the other functional areas in the organization, including marketing and engineering. Describe how operations can be divided into several parts or subsystems, including facility layout, scheduiing, purchasing, inventor!. control, and quality management. Explain how this framework helps to define the relationships among the subsystems of operations: designing operations, planning operations, and managing and controlling operations.

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iNTRODUCTIONTC; OPERA1 IONS MANAGEMENT

General Electric: Emphasis on Operations

General Electric is pursuing a path that could lead. the company to prominence as a world-class manufacturer. To do this, top management has cl;t back middle-management staffing levels and ::old parts of the organization that did not meet tough productivity, cost, and proiit criteria. A GE b~.!slnessunit IS expected to be number one or two in profit in its industry. Top management realizes that an organizat i n 1 l~ke GE is a system of interrelated parts that need to be effect~vely coordinated and managed 13achieve the desired results. When these layers c ~ rn~ddle f management were eliminated, decision making and respons~bil~ty were transferred to the operating divisions. This has promoted a feeling of ownership, inspiring managers to act as entrepreneurs ~nstead of employees. These changes have created an atmosphere in which managers are not fearful of crossing traditionalldepartmental boundaries to solve problems. Marketing managers and operations managers are more likely to work together to solve problems involving product des~gn, scheduling, and quality. In addition, GE is investing heavily in facilities and equipment to build some of the most product~ve factories in the United States. With a streaml!ned organization and efficient operations capable of producing high-quality products to meet changing customer needs, GE can gain an edge on the competition. Early efforts have paid dividends for GE. The first result of the automation effort was the dishwasher facility built in Louisville, Kentucky, GE increased market share by 12 percent by achieving low-cost, high-quality products. GE has moved into the refrigerator market wlth an innovative compressor that is smaller, takes less space away from storage, and will be cheaper to manufacture. The efficiencies at the compressor plant are such that costs are lower and quality is better than compressors produced by foreign competitors. In 1988, GE nearly doubled its capacity at the refrigerator plant by investing $238 million. Effective management of operations will allow GE and companies like it to become leaders in today's competitive international markets. They will accomplish this by lowering costs, reducing lead time, improving production quality, and responding to customer requirements with highquality product designs. Operations can be used to gain an edge on the competition when management understands the importance of operations and is willing to integrate operations with the overall strategy of the organization.

DEFINING OPERATIONS MANAGEMENT

0rg;inizations exist t o meet the needs 01 sociely that people working :tlonc. cannot. Only organizations can produce t h e tremendous array of products in tlic \,ast quantities consumed each day. Operations play a critical role in ;ill org;~ni. zations. Operations are t h e means by which organiz:ttions in this countr), producc. I 0 million cars and light trucks, 1 .H million rcsidences, billions o f hank tr;tns;~c-tions. a11d many other products each year. Operations are t h e processes by which people, capital, and materi;~l( inputs ) iirc combined t o produce the services and goods consumed by the public ( o ~ r t { N I ~). \ shown in Exhibit 1.1. Operations employ labor and management (people' J ant1 usc t'lcilities and equipment (capital) t o change materials into finishcd goocl3 ( c . ~ .t'.lrrn . tractors) o r t o pro\.idc services (e.g., computer s o h v a r e tlcvclop-

CHAPTER 1

INTRODUCTION TO OPERATIOVS PA@\NAGrMErdl

Exhibit 1.1 O~erations

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ment). 'I'hc outputs of the operation should bc worth nio1.c to tllc conlinicr t1,.11 the total cost of the inputs. In this way, organizations create ~venlthli)r socicr; Services are intangible products. and g o o d s are physical products. ;\ccorcl ing to classification schemes used by the U.S. Departments of (;omrnercc :(I:. Labor, the service sector includes transportation. utilitic.>.lodging, entcrt:iinmcrii health care. legal services. education, communications. \\.holesale ant1 retail tr;!~.lc banking and finance, public administration, insurance, rral cst:itc, and other n!l\ cellaneous services. Goods are defined as articles of trade. merchandise, or \v;t!-c.\ Manufacturing is a specific term referring to the production of goods. T h r o ~ ~ g l out the text, the term p r o d u c t is used to refer t o hi~rviccsor gooclh. Operations are part of both private-sector (protit-driven) and pitblic-sccc111 (not-for-profit)organizations. Exhibit 1.2 lists many different services and goods produced by organizations. The distinction between services and goods is not ;IS clcns a\ the t l c . h ~ - ~ i r ~ c ~ and examples used in tlic preceding paragraphs inlpl~,. Sr!illt. o1~cr;ition.s cl;~~~!i. as services actually provide both services arid goods. For example. :uitolnuti\ r repair scrvices sell and install parts, so customcrs arc ~,urch:taing somctl:~~~!: tangibIc as well as the 1:tbor to instaIl i t . At a rest:tur:tnt. cL1strlrncrs P L I ~ C ~ I ; I: I~ ( ( . L. only food, but also food preparation. If w e examine the distinction? bct\\c.c~! services and goods more closely, w e discover that thc demands for goocl . i l i t ! services are interwoven. The purchase of a good contains some measure o f s c r vice, and the purchase of a service involves the purchase ofgoods, either dircctll. or indirectly. When a consumer buys a dishwasher. part of the purchase price is

Exhibit 1.2 Examples of Goods and Services Produced bv Oraanizations

Goods Profit Starter motors Electronics Oil refining Air conditioners Appliances Hair driers Furniture Not-for-Profit Highways Dams Flood control projects License plates (made in prisons) Workshops for handicapped Profit Banking Health care Stock brokerage Telephone ~ e r \ ~ l c e s Repair serviccs Education Rct:~iling Services Not-for Profit Police protectton Ilealth a r e Public ueliarc I'arks sncl rccrcxtton Fire protection litluc;~ti~)n

CLiAPTER 1

INTRODUCTION 1.0 OPERATIONS MANAGEMEN1

usctl to pa)' for retail servicc>s. cxtern;~lauclits of the nianilfactc~rcr'sI>ookr I\.. :tccoiunta~its. and consulting services. W.hcn consumers pay tor a tasi c ; ~ h 01.1 ~ ~ 1 1 ride, part of the money is used t o pay for the purchase of vehicles that provitlc ti):: service. h thriving economy and an increasing standard of living dcpcnd o n str-orI!.: and efficient service providers and mani~facturers. Operations management is decision making involving the design, [ ~ l z ~ i ! i i ~ g and control of the many factors that affect operations. Decisions include \\.llic.!~ products to produce, how large a facility to build, h o w many people lo hire ; I I ) , ~ what methods t o use to improve quality. Operations managers apply itle;~c.ill<{ knowledge to increase productivity ancl reduce costs, improve flexibility to rn(-t.I rapidly changing customer needs, enhance product quality, ancl improve c . u tomer service. An organization that can achieve these advantages through ol>c~'ations will gain a competitive edge. Operations should b e viewed ;IS a part o f the total organiz:~tion.which nl:i\also include such departments as accounting, finance, marketing. inforrn;itio~i systems, engineering, and personnel. When relationships among operations. marketing, and engineering are strong, it is possible to design high-quality proclucts that are well liked by customers and cheaper and easier t o produce. I !ndersr;~n(ling these links between functions in an organization is critical to an cmplo!cc's advancement beyond an entry-level position. Middle- and upper-level ni:rn;igcsr\ have broad responsibilities and a great cleal of interaction with other cliscil)litic>

Organizations produce and deliver the services and goods demantlecl I>!, ~ I I S ~ O I I I crs. If an organization can produce and deliver high-quality, low-cost pr:)cluc.:'that meet customer needs. and if it can d o so in a timely manner, its prolx~l>ili:: of success is greatly increased. Operations ; ~ n d operations managers p l ; ~ );!!I 1 1 1 portant role in achieving thcse ohjecti\zes, because their effectiveness in o r s : u ~ i / ~ ing, planning, and managing operations shapes the firm's cornpetitivencss. 'I'h( Operations in Action example at the beginning of the chapter illustr;~tcsiirr importance of operations to General Electric's rise in status t o bccomc :I \i-or/:: cl:iss manufacturer. ~l';iti T o understand operations and h o w they can contribute t o the s~~c.cc.s.~ organization, i t is important to understand ( I ) the differences ;lncl \in~il;~r-itic.~ between producing services and producing goods, ( 2 ) the value-;idclccl [ntltrc I! operations, ( 3 ) the impact that technology can have o n performance. ( i ) tllc increasing levcl of international competition, and ( 5 ) the importance or iC;l!v work in achieving operating and organization:~l objectives.

Service-producing organizations and goods-producing organizations h;l\.' I l i ; I i l \ . similarities. The Lima Fire Department and Air-Temp Corporation 0pcr;uions i:i Action illustrate many of these similarities. Both are concernetl w.irh p!-crcl~:k : improvements. For a fire department. protluct iniprovements arc measl~~.c.c: 2 1 reslx'nse time, the quality o f its fire prevention program. and the cicpcn(l.~l~iiii\1 the service. For Air-Temp, iniprovements arc. measured by the power- o f r i l c . t i , conditioning unit to cool and the unit's spciial fcaturcs. Both thc I.in~,r1 : i r - c
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CHAPTER

INTRODUCTION TO OPERATIOhS MI?I\I"<C;'

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Lima, Ohio, Fire Department: Operating Decisions

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A fire department is an excellent example of a

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service operation. The Lima Fire Department should deliver fast, dependable, high-quality service to customers in a wide area. Its managers should address many questions directly related to operations. What is the maximum time that should elapse between a fire signal and the arrival of the fire equipment? How many fire stations are required? Where should these stations be located

to maximize effectiveness? What type of and how much equipment should be purchased? How many firefighters will be required? What should be their qualifications, and how will they be trained? The answers to these questions shape the service provided and determine the capital requiied to build facilities, purchase equipment, and train personnel. Operating decisions also determine the costs of providing the service.

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Air-Temp Corporation: Operating Decisions

Air-Temp Corporation produces room air conditioners. Developing high-quality, competitively priced products is the result of carefully investigating many related questions. When Air-Temp decided to improve its operations, it considered the following questions: How is the product designed? What are its performance level and special features-thermostat control, multiple-speed blower, and so on? How many air conditioners should be produced? What type of and how much equipment is needed for efficient production?

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How many employees will be required? What type of training will they need? How many plants will there be, and where will they be located? Answers to these questions had a significant impact on the company's abilily to compete. Changes made resulted in a 10 percent reduction in production costs and improved product quality and reliability. In addition, the product became easier to produce, and planned customer m a r tenance was reduced by 30 percent. Air-Temp used operations to nain a competitive advantage

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Department and Air-Temp arc concerned with their ;lbilit). t o proviclc p r o t l u c t ~ through acquiring equipment, designing facilities, and training employees. Although operating decisions for services and goods have man): similarities. there is one important difference between the two products: a good is tangible. and a service is not. This has two important consequences. First. ;I ser\:ice opcration cannot inventory finished goods because a service is int;~ngiblc :inti is pcrformed on demand. (Most service organizations, however. tlo ha\,e supporting inventory. Hospitals have linens, drugs, and food; banks Iia\.e forms, ribbons, and other supplies; telephone companies have spare parts and eqiiipnient.) Second. because a good is tangible, the product designer must deal with physical ctiaracteristics (height, strength, elasticity, durability, etc. ).

Some Sewice Operations Cannot Have Finished Goods Inventory

Not having inventory might seem to be an advantage becnuse inventor). is c.spensive to maintain and time-consuming to manage. But the inability o f sel.vicc organizations to maintain finished goods inventory can be a disadvantage ns \veil. Service organizations cannot separate production from consumption. A ctisromcr can buy a car on Saturday, even tlioiigh the assembl!- pl:lnr is ciosetl. l>cc;~uw rlic

CHAPTER 1

INTRODUCTION TO OPERATIONS MANAGEMENT

dealer can sell one from inventory. But this is not so for services like banking and telephone communications. The telephone company cannot perform services in anticipation of demand because it has no finished goods inventory. Banks cannot perform transactions before a request is made. Customers of service organizations must d o without the service or wait until it can be performed. Banks have reacted by installing computerized tellers to extend service hours and relieve pressure on branch banks. Telephone companies offer discounts on calls made during nonpeak hours. In contrast, Air-Temp can build air conditioners during the slow winter months to offset demand in the spring and summer. Clearly, then, the planning implications of not having finished goods inventory can be significant. During the morning rush, if seventy people want to ride a public bus with a capacity of fifty, then twenty must wait o r be turned away. The possible solution of adding another bus may not be cost-effective because the extra bus will not be heavily used. The consequences of turning customers away are the short-term loss of revenue and the potential long-term loss of customers caused by dissatisfaction with the present service level. Many bus lines try to relieve the capacity problem by shifting demand to off-peakperiods. Senior-citizen discounts are often given during late morning and early afternoon hours. The use of public transportation by high school students is scheduled so it will not conflict with the morning or afternoon demand peaks. Thus, when managers of senrice operations consider capacity, they should focus on maximum demand, not average demand. They cannot use inventory to smooth peak demand, not even the 'peaks that occur from hour to hour.
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Physical Design Requirement for Goods

As mentioned previously, because goods are tangible and services are not, designing goods requires consideration of physical properties that services simply do not have. Usually, designing goods requires training in engineering because strength, durability, and performance are important. There are also strong implications for marketing in styling and consumer perception of shape and usefulness.

Operations Add Valzce

Consumers are willing to pay more for an organization's services and goods than the total cost of the inputs. In essence, operations add value to the final product over and above the product's cost. In the private sector, the difference between the price consumers pay and the cost is profit that can be reinvested to build new and better products, thus creating wealth for society. Without profits, a company cannot raise capital to continue its operations and will eventually become a casualty of competition. With profits, organizations like Allen Bradley and General Electric are able to invest in new technology and new facilities, which lead to improved operations and lower prices. More efficient production of services and goods frees resources (people, capital, and materials) for n e v product development and innovation. This makes an organization stronger and more competitive. In thc public sector which is not-for-profit, the value added to products represents improved wealth to society. For example, value-added fire protection saves more dollar value (in homes and businesses) than the cost of the service. 'The wealth created o r preserved by such value-added operations contributes to cconomic growth and makes more resources available for other wealth-creating

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CHAPTER 1

INTRODUCTION TO OPERATIONS MANAGEMENT

Using Automated Assembly Lines to Increase Market Share

"A computer integrated manufacturing facility was necessary to allow us to sell world-class products anywhere in the world and still make a profit." These are the words of J. Tracy O'Rourke, president and chief executive officer at Allen Bradley. Allen Bradley is using one of the world's smartest automated assembly lines to capture a bigger share of the international market for contactors and relays used in electric starter motors for cars and trucks. Its totally automated'facility cost $15 million, and the new assembly lines have reduced production costs by 35 percent. Allen Bradley believes it is the lowest-cost producer of contactors in the world. This is an important strategic advantage in an expanding international marketplace. Allen Bradley's Milwaukee complex has been producing motor contactors-and control relays for the world market in a fully) automated facility. These contactors and relays can be made in 125 variations and in lot sizes as small as one. The only human intervention in .the production line is provided by six attendants who stand by to solve problems; they are rarely needed. This automation effort is an alternative to locating the facility in a foreign country where labor costs are lower. Allen Bradley elected to automate because management saw two important strategic advantages. First, their market rezearch indicated that a global market was emerging. To stay competitive, they had to offer attractively priced world-class products. In addition, their strategic directions were changing. Among their five-year goals were objectives to increase market share and develop high-quality products. Second, as a major player in automated machine tool controls, they had the productivity concept and the automation control technology necessary to make a fully automated factory a reality, but they did not have a working

A contact insertion machine automatically places lower contact and pressure plates in the correct configuration on relays and contactors made in the World Contactor Assembly Courtesy:

model. The development of this automated fac tory has become an important tool for marketing their technology to other companies. The new facility has allowed Allen Bradley to take orders away from competitors because of lower cost, improved quality, and the ability to meet changing customer needs. Allen Bradley capitalized on the opportunity to start a new facility by designing the product and process in tandem. The employees label each product at the outset with a computer bar code, allowing them to program the assembly line to vary product specifications. (The uniform product codes found on most items in supermarkets are another example of bar codes.) As a result, contactors and relays can be tailored without slowing the line. This imaginative approach enabled Allen Bradley to increase market share.

CHAPTER 1

INTRODUCTION TO OPERATIONS MANAGEMENT

International Trade and Competition

A country that wants to enhance the living standard of its people will engage in

international trade. The country w i l import those goods and services that are not available locally, or that cost more to make at home than their foreign-made counterparts. Even when a country is the most efficient producer of all goods and services, it can be demonstrated that the country would be better off engaging in international trade. The reason the country should trade is that its relative advantage in one product-for example, pitchforks--would be greater than its relative advantage in another product-say, furniture. Relative advantage is defined as the difference between the lowest-cost producer and the next-lowestcost producer. The country with the pitchfork production advantage should produce pitchforks for the international market and may import to meet all or some of its furniture needs. As barriers to trade such as import quotas and tariffs decline and countries better understand the benefits of international trade, the level of trade between nations will continue to climb. Recently, international trade in goods and services reported by governments outpaced growth in tk- world's total production. This means that the percentage of world production moving between nations is increasing. This does not include products made for domestic consunlption by firms that are foreign owned. This increase in trade has resulted in increased international competition, and the effects of this competition can be seen in nearly every industry. Markets for many items, such as those produced by the electronics, steel, automotive, textile, and photographic equipment industries, are world markets dominated by multinational firms. In order for firms to compete, they must be among the best in the world, not simply the best in the nation. These firms must compete with firms from other countries where the labor costs, material costs, material availability, culture, and sociopolitical environment are substantially different. These differences makes a manager's job more difficult. For example, when Ford Motor Company's primary competitors were General Motors and Chrysler, Ford had the same work force and labor cost per hour, virtually the same material costs, and the same set of government regulations as its national competitors. In many cases, these national firms traded executives back and forth so these organizations had similar ideas and approaches to management. Now, Ford faces foreign competitors that have substantially different cost factors and management styles. Organizations that will be successful in the nineties and into the twenty-first century will develop an understanding of marketing, distribution systems, fmancial and capital markets, accounting, and operations that is global rather than national. International competition has had and will continue to have a tremendous impact on operations and operations managers. Product performance, product quality, efficiency, and delivery lead time are all elements of competition affected by operations. The impact of international competition on operations is discussed throughout the text.

Operations and Teamwork

Well-managed, teamwork-oriented operations provide services and goods of high quality at prices that consumers can afTord. This is gooci for the organization, labor, consumers, and management.

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INTRO~UCTION 70 OPERATIONS MANAGEMENT

1. For the organization, *he ability to meet the increasing demand for high-

quality, low-cost products can lead to greater success in competitive world markets.
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For labor, well-managed operations provide continuing job opportunities. An inefficient operation drives prices up and makes the service o r good subject to competitive pressure from efficient producers, both foreign and domestic. Increases in efficiency allow noninflationary increases in wages, which give labor increased purchasing power.

3. For consilmers, a lower price means that more people will be able to buy the
product. In addition, consumers will have money left for other purchases. 4. For management, lower production costs can lead to increased sales and higher profit.

UNDERSTANDING THE SYSTEMS APPROACH TO OPERATIONS

Operations management is only one part of the organization, which i n turn is a part of the larger economic and government system. A system is a group of items, events, or actions in which no item. event, or action occurs independently. Thus, no item studied in isolation will act in the same \vay as it would in the system. For example, a study that focuses on minimizing transportation costs might 'suggest that materials be ordered in larger quantities to reduce the number of trips and save transportation costs. However, larger shipments will require more storage capacity, and the increase in storage costs could be greater than the decrease in transportation costs. When making decisions, a manager should consider these important relationships. In a system, all items, events, o r actions are somehow related. A system can be divided into a series of parts or subsystems, and any system is a part of a larger system. [Jnderstanding the relationship among the various subsystems is an integral part o f tIlc study of operations management. We will examine relationships between the organization and its environment, relationships between operations and the rest of the organization, and relationships within operations. Exhibit 1.3 illustrates that an organization is part of the total economic and government system. In turn, the organization is composed of several subsystems, one of which is operations. Operations managers work with managers in marketing, finance, accounting, engineering, and other areas to reach the goals set by top management. Finally, the operations subsystem is itself divided into a series of subsystems because of the many functions it encompasses. When studying the operations management subsystem, it is important to keep in mind the larger picture of operations. the organization, and the external environment. The s).stems approach is ;I central theme that is reinforced at other points in the texl. In orcler to effectively design, plan, and manage and control operations, managers shor~ldbe aware that
1. An organization is part of the total econonlic and government system. 2.

Operations are an integral part of the organization. 3. Operations are composed of a series of related subsystems.

CHAPTER 1

INTRODUCTION TO OPERATIONS MANAGEMENT

Exhibit 1.3 A Systems View of Operations, the Organization, and-the organizationis Environment
Economic a n d g o v e r n m e n t systems United States
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Japan Korea etc. Westinghouse
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Organizations Organization Subsystems Operations Subsystems

Ford Motor Company Operations

Kentucky Fried Chicken Finance

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Marketing

etc.

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Production planning

Inventory control

Quality management

etc.

The remainder of this chapter focuses on these three levels in a systems view of operations. It is important to understand the impact that decisions made by operations managers can have on the other parts of the organization and on overall organizational performance.

The Organization as Part of the Economic and Government System

Organizations operate in an environment that includes several interest groupsstockholders, management, labor, consumers, and the general public. Business leaders have realized that to achieve long-term success and to be good corporate neighbors, they should serve all of these interests. Thus, they should be responsive to issues involving wage rates, working conditions, pollution. product safety, and international competition, in addition to the stockholders' return on investment. All of these factors are part of the larger economic and government system 1 within which organizations operate. 1 The importances of these broader issues becomes clear as the followingl factors are discussed. 1
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Wage rates and working conditions Pollution Product safety International competition

Interest Group Labor and middle management General public Consumers Stockholders, labor, and middle management

Impact o f Operations Decisions

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Good working conditions and fair waga , " can be positive factors in employee performance. Well-managed operations should not , cause pollution. U hen products are well designed, 1 consumers are safer and more sat~sfied. When operations are well managed. costs are not excessive. This, coupled with high quality, d~scourages foreign I
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History provides interesting insights into the impact of operating decisions on a : business's external environment.
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INTRODUCTION TO OPERATIONS MANAGEMENT

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Owens-lllin~is.~ Inc. (OI), proauces glass containwith the Environmental Protection Agency. ers for the beverage industry in plants throughout ,. : 01's efforts focused on convincing the the United States. When decisions are made, 0 1 agency that the container did not pose addi. should consider customer needs and environ"onal threats to the environment. 'he introduction of the ail-plastic bottle remental concerns, as well as internal ope?ratingissues,& : luired working with government agencles to 'nsure that no health problems would result. ' As recycling glass and plastic became a I .Response fo ~uktomer ~ e e d ~ ' , ... concern, 0 1 developed recycling programs ' 1. Beverage bottlers, such as coca-~oia. and and supported recycling stations. This expeMiller Brewing Co.. want low-cost packaging rience became important when some states because the bottle can cost as much as the began requiring deposits on nonrefillable beverage. H~gh-prtcedbottles s~gn~ficantly bottles. reduce proflts 2. Bottlers want dependable and frequent delivery. They need dependable delivery beline. cause they do not want to stop the f~ll~ng AP?romh PPWblemSolving They need frequent deliveries because neither-01nor the bottler wants too many bottles 0 1 makes,a strong effort to develop products of in inventory; bottles take a large amount of superior quality and low cost and to provide despace and are easily broken. pendable delivery systems. Thus, it has formed 3. The bottles should be of high quality. If botteams made up of engineers, marketing managtles break in the filling lines, the filling proers, and operations managers to solve customer cess slows, reducing capacity and increasproblems. A team's first charge is to solve immeing costs. diate customer complaints. However, it is not satisfactory to simply send more bottles to replace defective ones. The team must find the cause of Response to 1 makes the problem and solve it at the source. 0 Environmental Concerns a strong effort to understand problems at a sys1, Development work on a container made of tem level and to use teamwork to increase sucglass and plastic required close cooperation cess in problem solving.

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Labor Relations
As late as the 1930s in the United States, many developing businesses required their production employees to work long hours for low pay. These businesses wanted to keep costs low and to increase their return on investment. In addition, many plants had poor or unsafe working conditions. In many cases, workers rebelled against management. They fought hard and often engaged in battles with management for better pay, better working conditions, and the right to form unions. Eventually labor was able to unionize because the federal government passed laws in the late 1930s that permitted and protected unions. From these conflicts, labor unions and businesses developed an adversarial relationship that exists today.

CHAPTER 1

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Both groups need to learn that their security lies in cooperative efforts, primarily in the effort to make better-quality products with better performance at a lower unit cost. Such quality and productivity improvements will help secure jobs in the United States and make our products competitive in world markets. Business leaders therefore need to focus on long-term consequences of operating decisions, not simply o n short-term cost savings.

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Environmental Impact
In the 1920s and 1930s, many business leaders did not consider pollution a problem because few people fully understood its consequences. Waste from operations was something to dispose of at the least cost. When pollution prob- . lems began to surface in the 1950s and 1960s, some businesses were reluctant to change their position. As a result, businesses in this country operate under one of the most restrictive sets of environmental pollution laws and reporting procedures in the world.

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Product Safety
Because product design and manufacturing are part of operations, operations management decisions clearly play a significant role in determining product

The Steel Industry and the R]per I n cdustry: Two Approaches to Environnnental lProtection

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The steel industry, which has long fought pollution part of the system, rather than as an add-on. As a control, now faces laws w~th tougher standards result, plants operate more efflc~ently. Third, some than might have existed with voluntary compliof the pollution control programs have p a ~ d a full or partial return on their investment by recovering ance. More important, the industry has had to add equipment to co~trol emibblm 10 tolstistlhQ"TantSIIY4 ..+aRtf'recycIingvi3lilUable resources from waste wad .rq:l "Adding ori"--as opposed to "designing in"ter. It is clear that the skel industryand the paper results in greater operating and investment costs. industry represent ~ o d i f f e r e napproaches t to the The steel industry still faces substantial investments to meet new, tougher standards. proble~ n of pollution control. The paper ~ndbstfy in .. . a In contrast, the paper industry has taken .-.-. . . rnls country is strong and bompetitiveland is not , " positive stance toward pollution control. It has acthreatehed by foreign~~orhpetition~ The steel intively pursued programs to reduce emissions dustry is suffering seriously,fromthd import of lowfrom its operations for more than thirty years, and cost foreign steel. Part of the dost disadvantage' fmr Ann these programs have consistently surpassed the nestic steel can be traced to expensive ret- , legislative requirements for emissions. Thr2 indusrofitting of existing production facilities with pollu- ; try accomplished this by a consistent nianagetion control devices. These retrofitted devices ment policy to eliminate pollution at the source. add more to the operating cost than devices that . How has the paper industry benefited? First, it has are built into the System design do. Also, the uncreated a positive working relationship with govplanned investment in these devices took capital ernment agencies. Second, new plant construcaway from other projects that could have imtion has included designed-in pollution control as:'_' proved productivity~., * ,,, .- + , , - .
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CHAPTER 1

INTRODUCTION TO OPERATIONS MANAGEMENT

safety. Companies such as Kodak, General Electric, Black and Decker, and Procter and Gamble owe their excellent reputations partly to their concern for product safety. These companies realize that high product quality and safety are compatible with high profits and long-term success. If foreign and domestic competition is not sufficient to keep out unsafe products, then consumer groups and legislative action will. The past twenty years have seen the rising power of consumer advocates and efforts to protect consumer interests, evaluate products, and educate consumers.

Product Quality and International Competition

In the early 1960s, the product label "Made in Japan" was a synonym for low quality. Today, it means top quality and low price. The Japanese have gained market shares in steel, automobiles, electronics, and other industries by showing domestic fums that high quality and low cost actually go together. Recently, other countries along the Asian rim, including South Korea and Taiwan, have followed the lead of the Japanese and are aggressively increasing exports. How did certain industries get into an unfavorable competitive position while others did not? The answer is complex, but it can be partially understood by reviewing our earlier points on labor relations, the environment, and the customer. Some organizations have attempted to maximize short-term earnings per share to the stockholder by minimizing costs. These actions have separated management from labor, the consumer, and the general public. I n the longer term, such actions alienated these interest groups and forced them to takk action. The actions, often legislative, helped to create an environment that is not conducive to competition in today's world markets. Eventually this environment forced costs up and made some industries vulnerable to foreign competition. In the authors' view, one reason that foreign competition has not hurt industries like paper and oil is that these industries have a balanced view, focusing on both long-term objectives and short-term performance. A solution to the problem of world competition is difficult and will require significant time to implement. To meet this challenge, management should consider labor, the general public, and the consumer in decision making. Labor and management must work together to build better facilities and better products and to improve productivity. Organizations should use each employee's full range of physical and mental skills. The cooperation and mutual respect between labor and management will be a positive factor in improving operations and building better working relationships.

Operations as Part of the Organization

Exhibit 1.3 illustrated that although an organization is part of the larger economic and government system, it is also a system containing such subsystems as marketing, finance, accounting, personnel, and engineering, in addition to operations. These subsystems, often called functional areas, should be linked by common organizational goals and a means of communicating these goals. These common goals are part ofan organization's strategy. Strategy consists of the organizational goals and the methods for implementing the goals, called key policies. Strategy defines how the organization chooses to compete within the framework dictated by the exrernal environment. The usual means of implementing and communicating strategy is the budgeting and planning process which most organizations go through annually.

CHAPTER 1

INTRODUCTION TO OPERATIONS MANAGEMENT

15

Strategy
Operations should be linked to the organization by developing operating strategies consistent with the organization's overall strateby. Links between operations and the rest of the organization can be built into the planning process. A plan is a list of actions that management expects to take. A plan is a basis for allocating the organization's resources t o deal with opportunities and problems present in the environment. Resources allocated by operations managers should help the organization achieve its goals. The links between strategy and operations can be illustrated by comparing a fast-food restaurant with a four-star restaurant. Customers expect fast-food restaurants to deliver good-quality food at a low price, with a wait of only a few, minutes. This implies a limited menu, some advance preparation, and a service operation with a smooth and simple means of communicating orders and delivering food. The training of counter workers and cooks should emphasize speed, efficient movement, and uniform performance of duties. Compare these requirements with those of a four-star restaurant with a heavy tourist trade. Here, customers expect food of exceptional quality and variety; fine wine, imported beer, and the best liquor; high prices; and a leisurely dinner. This implies a wide selection on the menu, comfortable and pleasant surroundings, entertainment, and little or no advance food preparation. All operations, from training cooks to food procurement, are different from those in a fast-food restaurant. Four-star restaurants do not have counter help. The emphasis is on service to the individual customer rather than on uniformity and quick response. This comparison illustrates two dHerent approaches to operating a restaurant successfully. Success in a fast-food restaurant is based on providing quality products at low prices and maintaining high customer volume. Success in a four-star restaurant is based on providing entertainment and atmosphere, as well as quality food. The allocation of resources in the design and planning of these restaurants should reflect the differences.

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StrucNre
The development of strategy leads to the question of organizational structure. Organizational structure is the formal relationship between different functions o r subsystems. The marketing function is responsible for investigating demand for services and goods and for establishing a distribution chain that delivers these products to customers. The operations function is responsible for producing these services and goods. The operations manager's role is essential because without product (output) the organization has no means of achieving its purpose.

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Understanding the Operations and Marketing Inteiface. Exhibit 1.4 illus- I trates the operations and marketing interface. Let us begin with market re- j ,
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Exhibit 1.4 The Operations and Marketing Interface

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Operations Subsystem -----------------------Product and I I process design acqulsltlon - + Production I ------------------------

Marketing and
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CHAPTER 1

INTRODUCTION TO OPERATIONS MANAGEMENT

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search, which is an effort to measure customers' needs and preferences. The goals of market research are to determine new markets for existing products and to discover demand for new products. Market research leads to product designs that can satisfy consumers' needs at a reasonable cost and a high level of quality. A s the product is being designed, the process for making the product should also be designed. Process design is concerned with how the services or goods are actually produced. For example, if a teacher requires a "typed" term paper, either a conventional typewriter or a computer-based word processing system can be used. Each approach requires different methods and equipment (a different process), but each delivers a document that meets the specification (a "typed" term paper). After the process has been designed, it is necessary to acquire r e s o u r c e s material, trained people, and equipment. The production of the product includes concern for quality, cost, and on-time completion. Finally, marketing and distribution of the product take place. At this point, the customer's reaction to the product is measured, and another round of market research to monitor changing needs should occur. Exhibit 1.5 illustrates how decisions in operations can sect marketing. Product cost must be covered by the market price with enough left over to cover overhead, administrative, and selling expenses, and to provide the organization's profit. Effective scheduling helps the organization to make timely delivery. Flexibility permits operations to deliver specially designed products at low cost. making qarketing's job easier. High-quality products pay dividends in repeat sales and new customers.

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Marketing and Operations Are Important ~ubs~st~ in m an s Organization Organization's

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CHAPTER 1

INTRODUCTION TO OPERATIONS MANAGEMENT

17

Organization Chart: Line and Staff Relationships. Operations and marketing are line functions within the organization. Line functions transfer authority and decision-making responsibility from top management to the level of plant supervisor in operations and the salesperson in marketing. The organizational subsystems of finance, accounting, computers and information systems, and engineering are staff functions, and they assist operations and marketing from product development through product distribution. When the staff functions are added to the line functions of marketing and operations, the organization's structure may take the shape shown in Exhibit 1.6.

Communications
An organization should have ( 1 ) a strategy (goals and methods for attaining'

them), (2) key policies (broad guidelines as to how the objectives might be achieved), and (3) a structure (a I~gical way to organize its resources). To be effective, an organization must develop a means of communicating its strategic direction and key policies to all areas or subsystems of the organization. In a one-person firm, communication is obviously not a problem. Even in a small business, face-to-face meetings among all personnel can be held regularly to discuss important ideas and establish policies and procedures. However, communication problems become significant in large organizations, where communications among the parts must be formally maintained. Such companies as General Electric, Champion International, and Ford have thousands of employees. As a result, they have developed formal procedures to communicate within the organization. How d o these companies communicate with and coordinate the different functional areas in business? How can a manager in a plant in Atlanta, Georgia, work toward the same goals as a marketing representative in Denver, Colorado? To do this, the goals and objectives are formulated by top management and flow down from the top of the organization. This is illustrated by the colored arrows

Exhibit 1.6 The Business System

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CHAPTER 1

INTRODUCTION TO OPERATIONS MANAGEMENT

shown in Exhibit 1.6. The information flow represented by the arrows passes through each level of the organization, down to the facility manager. The goals and objectives formulated by top management are usually general statements. Line functions, operations, and marketing implement these general statements by preparing production and sales goals for products. Operations and marketing managers work from the same general statements. Operations and marketing must work across functions (i.e., develop lateral relations, shown as dashed lines in Exhibit 1.6) to ensure that production plans are consistent with present market conditions. It would be unreasonable to prepare a plan that could not be supported by market demand, o r that had sales of 50,000 units when operations can produce only 5,000 units. Exhibit 1.6 shows the operations manager passing these plans along to the facility managers, who prepare detailed plans for each facility or plant. Part of the product plan is called an operating budget. It includes estimates of the costs of the material, labor, and other facilities necessary to meet the forecasted production goal. Facility managers may request capital improvements. A capital budget is the organization's plan for spending money to improve facilities. These improvrments are justified by returns to the organization, including increases in output, lower costs, and improvements in quality. These capital improvement requests become part of the capital budget, which includes items that have an impact on the organization that exceeds one year. For example, adding another asseml>ly line to increase dishwasher production or replacing equipment that will improve product quality would be part of a capital budget. After they are prepared, operating and capital budgets are passed to higher levels in the organization, as shown in Exhibit 1.6. The plans are coordinated and evaluated at each level, with feedback to the facility manager. The plans may havc to be reformulated before tentative approval is given and before the plans are given to top management for final approval. This planning and budgeting process occurs annually and is a typical method of coordination and communication in many organizations.

Operations as a Series of Related Subsystems

Earlier sections have described the relationships between the organization and the environment in which it operates. These sections also described an organization as a series of related subsystems, with operations as one of those subsystems. As illustrated in Exhibit 1.3, operations, in turn, can be subdivided into different parts or subsystems, including quality management, inventory control, and scheduling. A detailed study of operations requires that each of these subsystems be treated separately. To facilitate understanding of the subsystems, and to make the relationships between these parts clear, we provide the overview of operations shown in Exhibit 1.7.The three parts of the exhibit (designing, planning, and managing and controlling) comprise the three major sections of the text. Designing the system includes all the decisions necessary to establish the facilities and information systems required to produce the service or good. Planning the system relates to the way in which the organization expects to use physical facilities, people, and materials to meet the estimated demand. Manag

CHAPTER 1

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19

Exhibit 1.7 Overview of the Systems Approach to Operations

OPERATIONS MANAGEMENT

Design

ing and controlling the system includes executing production plans and measuring, evaluating, and providing feedback on performance. Each part of this overview can be discussed by dividing i t into the series of related topics shown in the detailed framework in Exhibit 1.8.The topics in this framework correspond to the chapters within each major part of the text. Following is a summary of the topics covered in the text.

Designing the System

As shown in Exhibit 1.8, good/service design, the first step in systems design, is the determination of the characteristics and features of the product. I t includes the preparation of plans and specifications for building the good or providing the service. Products should be designed to deliver high-quality performance. Efforts to reduce costs should be based on the cost over the life of the product, including original purchase price, maintenance costs, operating expense, and downtime for unplanned repairs. This concept, called life cycle costing, is important to the organization's customers. Product development is discussed in Chapter 4. Product design has a direct impact on both system capacity and process design. Capacity is the maximum number of units that can be produced in a given time period. Process design determines how the product will be produced. Capacity decisions are covered in Chapter 5, and process selection is discussed in Chapter 7. Selecting the location of a facility is part of system design In some organirations, especially service industries, marketing and distribution issues override operating decisions. In these cases, facilities are numerous and are usually located close to markets. Restaurants, banks,and retail stores are good examples. In other cases, operating questions are more critical. Hospitals, oil refmeries, .and appliance manufacturers have a limited number of facilities because construction and operating costs override market convenience. Facility location is discussed in Chapter 6. Facility layout is the physical relationship of machines and departments. Material flow, inventory, and the use of people in the facility are coordinated with

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CHAPTER 1

INTRODUCTION TO OPERATIONS MANAGEMENT

Exhibit 1.8 Framework for Operations Management

The Ofganization's Goals and Objectives

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the equipment to provide an effective and efficient layout. Facility layout is discussed in Chapter 8. The details of the facility design include describing individual jobs to be performed and determining operating standards to measure performance. These job design and work measurement issues are important in both service and manufacturing organizations. They are discussed in Chapter 9. Designing the production system requires a careful look at the information requirements for managing operations. Providing this information should be an integral part of the production system. For example, does the organization need computer technology in designing products or processes? How will maintenance be tracked? How detailed should the information be, and how will the reports be organized? What cost data will be collected? These are only a few of the questions that should be addressed if the system design is to integrate information effectively.

Planning the System The next major portion of Exhibit 1.8 is planning. Planning operations involve considering how present facilities can be used to meet customer demand in order to satisfy organizational goals. This may lead back to the design phase because

CHAPTER 1

INTRODUCTION TO OPERATIONS MANAGEMENT

21

existing facilities may require changes to become more effective. This presents a fundamental problem for planners because a firm's productive assets are fixed and are not easily or cheaply changed. On the other hand, demand changes continually and is difficult to forecast. Thus, the problem is how to satisfy changing demand with fixed production resources. Two solutions are
1. Building flexibility into the facilities so that changes can be made easily. 2. Examining facilities to find ways to modify them easily.

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What horizon or length of time should a plan cover? Because planning and system design are strongly linked, planning for operations should consider a horizon that is at least as distant as the time required to replace the firm's assets... Otherwise, even an organization with a perfect forecast would not have sufficient lead time to react to market, technological, and environmental changes. How far into the future should an organization plan? The answer is a function of the industry in which it competes. Although the phases of planning are somewhat arbitrary, long-range planning, middle-range planning, and production scheduling are commonly used. Generally, long-range production plarining involves examination of the organization's ability to adapt to change. In this phase of planning, all aspects of the firm's production capabilities are candidates for revision. The framework for transforming strategic plans into business and operating plans is discussed in Chapter 10. Medium-range planning involves a shorter time period than long-range planning. It is usually limited to making minor changes in the facilities and equipment used to produce the services and goods. Changes can be made t o improve productivity, enhance quality, or incrementally increase capacity. Medium-range planning focuses on resource planning and allocation. Manufacturing resource planning and material requirement planning are"discussed in Chapter 11. Chapter 12 describes just-in-time. In production scheduling, even more severe limits are placed on changing the production system because the plan (schedule) may be executed in only a

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INTRODUCTION TO OPERATIONS MANAGEMENT

few days or a few hours. The purpose of production scheduling is to coordinate people, material, and equipment to produce the services and goods demanded. Production scheduling is discussed in Chapter 13. Project management is discussed in Chapter 14.

Managing and Controlling Operations

After a system is designed and planned, it can produce services and goods. Thus, the next area illustrated in Exhibit 1.8 is managing and controlling the system. Plans and schedules should be communicated within the organization and the results of production measured so that results tie back to the plan for operations and ultimately to the organization's goals. In some organizations, more than 50 percent of the finished product cost is material. Material management and inventory control deserve special attention because of the tremendous impact they can have on organizational performance. Chapter 15 discusses material management issues, including purchasing, material flow in the facility, warehousing, and distribution. Chapter 16 discusses lot-sizing models and inventory control. Quality management, which is discussed in Chapter 17, has become a key factor in today's international marketplace. High quality is essential to maintain competitiveness. Managing and controlling operations includes managing human resources effectively. People are the organization. Without people, an organization ceases to exist. Humm resource topics are discussed in Chapter 18. To manage operations, information systems should provide timely data for decision haking. Performance and cost data, the monitoring of material flows, and information links to other subsystems in the organization are described in Chapter 19. Finally, Exhibit 1.8 illustrates that the true test of an organization's success in operations is determined in the marketplace. Feedback can be gathered from customers and used to improve product and process designs, production planning and scheduling practices, quality management systems, and other vital areas within operations and the organization.

SUMMARY
Operations are the processes by which people, capital, and material are combined to produce the services and goods consumed by the public. Products should be value added; that is, the services and goods are worth more to the customer than the cost of the inputs. Operations can be designed and used in a manner to gain competitive advantage. A system is a group of items, events, or actions in which no item, event, or action occurs independently. The systems approach is a central theme that runs through the text. The organization must compete within the constraints presented by its external environment. These constraints include competitors, economic conditions, and government regulation. Successful operations management requires teamwork between operations

CHAPTER 1

INTRODUCTION TO OPERATIONS MANAGEMENT

and other functional areas (subsystems) within an organization. These areas include marketing, finance, accounting, engineering, and information systems. Operations are composed of many parts or subsystems, which should be effectively coordinated to build the organization's competitive position. This includes responsibility for material procurement, quality, production planning, and facility layout.

PROFILE
Ken Wallers
Plant Manager Sheller-Globe Corp.

Ken Wallers manages a plant that produces parts for office equipment. He is responsible for plotting the future direction of the plant and achieving a top performance rating. Top management evaluates his performance based on product quality, delivery lead time to the customer, and costs. Wallers is responsible for preparing a detailed operating budget for the next year, as well as for preparing capital requests for the next several years. To gain approval for the capital request, Wallers must convince his boss that his requests will help the organization reach its goals. In addition to operating responsibility, Wallers works with government regulators from the Environmental Protection Agency on plant emissions and from the Occupational Safety and Health Administration (OSHA) on plant safety. He meets with the village council to request a change in zoning and with a local &oup that would like the corporation to donate funds to improve the county library system.

Work Experience and Opportunities

Before he was appointed plant manager, Wallers worked as a first-shift supervisor responsible for the performance of the stamping department. He also spent time in plant scheduling and as material manager. He was assigned to corporate staff for two years as a financial analyst. There, his responsibilities included preliminary analysis of plant managers' requests for capital. A likely promotion for W a l l m would be to division operations manager. In this position, he would have several 1 plants reporting to him. Beyond that lies the vice-presidency of bperations and 1 other high-level corporate assignments.

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QUESTIONS
1. What is the role of operations in the organization? 2. What does value-added operations mean? How would it apply to not-for-profit organizations?

3. Explain the major differences between producers of services and producers of goods? How d o these differences affect operations?
4. Agrrc or disagree with this statement and support your position: Operations management issues and problems should be narrowly focused o n for-profit producers of goods, such as General Motors, Westinghouse, and General Electric.

12. Find an article about labor relations. Summarize the article in one paragraph. In a second paragraph, describe how the findings in the article affect operations. Provide the article reference o r a copy of the article.

13. Find an article that discusses environmental problems. Summarize the article in one paragraph. In a second paragraph, describe how the findings in the article affect operations. Provide the article reference o r a copy of the article.

5. What impact has international competition had o n operations?

6. What is meant by the systems approach to operations?

7. Why should an or'inization have a strategy? How is the strategy communicated within the rest of the organization?
8. What is the basic framework for operations managemcnt presented in this chapter?

14. Find an article that discusses product safety. Summarize the article in o n e paragraph. In a second paragraph, describe h o w the findings in the article affect f operations. Provide the article reference o r a copy o the article.
15. Find an article that discusses product qnality. Summarize the article in one paragraph. In a second paragraph, describe how the findings in the article affect operations. Provide the article reference or a copy of the article.

9. What are the issues in designinga production systcm? Give a brief description of each.
10. What are the issues in planning a production systcm? Give a brief description of each. 11. What are the issues in managing and controlling a production system? Give a brief description of each.

16. Find an article that discusses international compctition. Summarize the article in one paragraph. In a second paragraph, describe how the findings in the article impact operations. Provide the article reference o r a copy of the article.

Our Lady of Lourdes Hospital

As a management trainee for a large consulting firm, you are part of a team that has been assigned to study operations at Our lady of 1-ourdes Hospital (OLL). Recently. OLL was purchased by a for-profit health care
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Following are summaries of key points from interviews the team had with the directors of marketing. operations, and medicine.

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makr recommendations t o enhance revenues and reduce expenses. Ilclc)rc i l \\-.I> h c ~ l c l . 0 1 . 1 . 11.1~1 Itcgu~l111a11y 01 the outrcach programs that are common today in health carc. An alcohol and drug rehabilitation center, a women's center, and a sleep therapy center already cxist, but all have lost money.

Director o f Marketing:
1. A major problem has been the lack of a budget for

advertising these centers. These projects need large sums of up-front money for advertising and promotion. 2. We are having trouble getting the kind of cooperation necessary to make these programs work. Things

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INTRODUCTION TO OPERATIONS MANAGEMENT

from meal preparation to cleaning and maintenance have not been done well. Medical problems at these centers are given a lower priority by the medical staff because the patients "aren't reallv sick."

Flick Fabrication, Inc.

Flick Fabrication, Inc., is responsible for providing sheet metal parts to assembly plants in the home appliance industry. One set of parts used in the door of a dishwasher passes through a stamping department. where the metal is bent into the proper shape. Nest, the welding department attaches threaded fr~stencrs that will accept a bolt during final assembly at a cus. tomer's plant. Engineers at Flick, working to inlprove productivity and reduce manufacturing costs, have redesigned the threaded fastener to eliminate the welding operation. The new equipment will cost Flick 5100,000. In addition, there will be a S.05 increase in material costs for each set of parts. Attaching the new threaded fastener to the sheet metal will increase assembly costs by 8.01. Also, modification to the dies uscd in the stamping press will require an additional investment of
825,000.

3. What w e need is time t o work the kinks out of these programs.

1) i rector of Operations: 1. 1 don't have any problems that could not be solved if I had an unlimited supply of money. Major renovation efforts are needed to improve food preparation areas, the laundry, and the heating system. These three improvements could probably save enough to cover OLL's annual deficit.
2. If these problems aren't bad enough, my people are saddled with several new responsibilities. These new centers require more work than the administrators think. Sufficient operating funds were not allocated to cover the expenses. Several of the centers are off the main site, making it difficult for my supervisors t o d o a proper job.

3. In my opinion, these centers are a drain o n resources.

Director o f Medicine:
1. The medical staff requires better support. Certain key medical equipment requires immediate replacement, and the laboratories need updating. To attract the best doctors, w e need to purchase equipment w e have never had before. 2. The new centers are taking time away from the medical staff. We don't get proper credit for the work we do in those centers.

Savings generated by this change include a S.035 reduction in welding labor and a S.005 reduction in welding mate~ials.Operating expenses for stamping will decline by 5.03 per set of parts. Engineering estimates that changing the fastener will allow Flick's customers to reduce their assembly labor by S.06 because quicker location and fastening techniques can be used. Flick's engineers also believe this method will provide a better-quality product with less chance of failure in assembly at cu$omers7 plants and after the dishwasher is purchased for home use. Prepare a report that atldresses the folloaring:
1. List the benefits and costs that will result if this change is implemented. Do not limit your search for benefits to Flick's operations.

3. We need to pull back and re-examine our commitment to these 'new efforts. The leader for the consultants has asked each member of the team t o review the interview summaries and to report o n the following points by tomorrow:
1. What are the major areas of conflict that exist in the organization? 2. Do you think having scarce resources is typical of most organizations?

2. What are the risks to Flick if it proceeds with this process improvement? What are the risks if it does not?

3. If Flick produces 2 million sets of parts in a year, can it recover the total investment in five years? (Con'sider only those savings internal to Flick.)
4. With the costs and benefits given in the case, how
long will it take Flick to pay for the investment? (Hint: How many units have to b e sold to earn back the 5 125,000 investn.ent?)

3. Are key administrators working together to make these new centers successful?

5. Why is it important to understand the systems concept t o work effectively within the organization?

4. How would you propose t o move all parts of the organization toward common goals?

6. How should Flick consider the savings generated for its customers?