OPERATIONS MANAGEMENTOPERATIONS MANAGEMENTINTEGRATING MANUFACTURING AND SERVICESINTEGRATING MANUFACTURING AND SERVICES

FIFTH EDITIONFIFTH EDITION

Mark M. DavisMark M. DavisJanelle HeinekeJanelle HeinekeMark M. DavisMark M. Davis

Janelle HeinekeJanelle Heineke

Copyright ©2005, The McGraw-Hill Companies, Inc.Copyright ©2005, The McGraw-Hill Companies, Inc.

PowerPoint Presentation by PowerPoint Presentation by Charlie Cook, The University of West AlabamaCharlie Cook, The University of West Alabama

CHAPTER

PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie CookThe University of West AlabamaThe University of West Alabama

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Integrating Manufacturing and Services5

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CHAPTER OBJECTIVES• Demonstrate the importance of aligning the goods and services

components of the product bundle.

• Present several frameworks that provide insights for integrating manufacturing and services.

• Introduce alternative approaches for using services to create value for manufacturing firms.

• Illustrate how services can add value to goods.

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Managerial Issues

• Trend toward a single global economy–Increased availability and quality of products

• Shorter product life cycles–Rapid commoditization of products

• Products are now a bundle of benefits–Services in support of its goods has become a means of differentiating a firm’s products.

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Managerial Issues

• Bundle of Benefits–The overall product offering that includes goods and services.

–Order Qualifiers• The minimum characteristics of a firm or its products

that a firm must have to be considered as a source of purchase.

–Order Winners• The characteristics of a firm that distinguish it from its

competition so that it is selected as the source of purchase.

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The Increasing Role of Service in Manufacturing• Examples of Services

– Warranties– Customer support– Leasing, licensing, and rentals

• Service adds value (and profitability)– Service margins can be greater than

associated product margins

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Increased Emphasis on Services

Exhibit 5.1

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Defining Levels of Added Service:Little “s”

• Little “s,” or Operational, Services– Services from primarily within the firms’

operations that are applied to existing products function to make them more attractive to customers.

• Availability: speed of delivery is an important factor in buying a product.

• Customization: modifying the standard product offering to meet the needs of each individual customer is now possible due to advances in manufacturing technologies.

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Defining Levels of Added Service:Big “S”

• Big “S,” or Strategic, Services– Services that require coordination across

organizational (functional) boundaries that exist between within a strategic business unit (SBU), between SBUs, or even between independent organizations.

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The Service Factory’s Roles

• Consultant– Utilizing the expertise of factory workers to

address customer-related issues, especially with respect to problem solving.

• Showroom– Using the factory floor to demonstrate to

customers the technical expertise and the quality of the processes used to manufacture goods or components.

• Dispatcher– Using the factory for after-sales service support,

especially in solving problems with new products.

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Customer’s Activity Cycle

Exhibit 5.2Source: Reprinted from From Tin Soldiers to Russian Dolls: Creating Added Value through Services Sandra Vandermerwe (Oxford, England: Butterworth-Heinemann), © 1993, with permission by Elsvier.

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Integration of Manufacturing and Services

• The Customer’s Activity Cycle (CAC)

Component Actions

Pre-purchase activities Being responsive to customer inquires and the ability to demonstrate technical expertise.

Purchase activities Actual sale and delivery of the product and collecting payment.

Post-purchase activities After-sales service and product warranties

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Examples of Activities within the Customer’s Activity Cycle

Exhibit 5.3

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Downstream Activities (Wise and Baumgartner)

Service Strategy Function

Embedded Services Specific functions that are a part of the product itself.

Comprehensive Services The manufactured product is “married” to additional services.

Integrated Solutions Combining product and services into a seamless offering that addresses a specific customer requirement.

Distribution Control Manufacturing goes downstream to assume responsibility for product distribution.

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Additional Approaches for Integrating Manufacturing and Services• Demonstration of Knowledge and Expertise

– Reassuring customers by allowing them to view the production process and to have access to production employees.

• Improved Product Performance– Using technology to anticipate and correct

problems before they occur or to reduce response time.

• Customer Training– Providing product training to customers to build

product loyalty and increased use of products.

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Additional Approaches for Integrating Manufacturing and Services (cont’d)• Customer Training

– Providing product training to customers to build product loyalty and increased use of products.

• Expanded Product Capabilities– Providing services in the form of additional

product capabilities that go beyond the primary function of the product itself.

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Focusing on Core Capabilities

• Core Capabilities

–Specific strengths that allow a company to achieve its competitive priorities.

–The skill or set of skills that the operations management function develops that allows the firm to differentiate itself from its competitors.

• Focusing is achieved by:

–Divesting non-critical activities.

–Subcontracting ancillary activities and services.

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The Impact of Technology

• The Internet

– Helps firms offer services that replace goods.

– Allows firms to offer 24 × 7 service while at the same time being cost effective.

– Has reduced the cost of transmitting information while increasing the speed and the amount of data that can be sent between individuals.