B16 - Operations Management

Business Driven Technology 5th Edition by

Baltzan ISBN 0073376841 9780073376844
Download solution manual at:
https://testbankpack.com/p/solution-manual-for-business-driven-
technology-5th-edition-by-baltzan-isbn-0073376841-
9780073376844/

Download full test bank at :

https://testbankpack.com/p/test-bank-for-business-driven-
technology-5th-edition-by-baltzan-isbn-0073376841-
9780073376844/

BUSINESS PLUG-IN B16

Operations Management

Organizations that excel in operations management and specifically supply chain management perform
better in almost every financial measure of success, according to a report from Boston-based AMR
Research Inc. When supply chain excellence improves operations, companies experience a 5 percent
higher profit margin, 15 percent less inventory, 17 percent stronger “perfect order” ratings, and 35 percent
shorter cycle times than their competitors. “The basis of competition for winning companies in today’s
economy is supply chain superiority,” said Kevin O’Marah, vice president of research at AMR Research.
“These companies understand that value chain performance translates to productivity and market-share
leadership. They also understand that supply chain leadership means more than just low costs and
efficiency: It requires a superior ability to shape and respond to shifts in demand with innovative products
and services.”

LEARNING OUTCOMES
1 Define the term operations management
Books, DVDs, downloaded MP3s, and dental and medical procedures are all examples of goods and
services. Production management describes all the activities mangers do to help companies create
goods. To reflect the change in importance from manufacturing to services, the term production often
has been replaced by operations to reflect the manufacturing of both goods and services. Operations
management (OM) is the management of systems or processes that convert or transform resources
(including human resources) into goods and services. Operations management is responsible for
managing the core processes used to manufacture goods and produce services.

B16-1
B16 - Operations Management

2 Explain operations management role in business.

The scope of OM ranges across the organization and includes many interrelated activities, such as
forecasting, capacity planning, scheduling, managing inventories, assuring quality, motivating
employees, deciding where to locate facilities, and more.

3 Describe the correlation between operations management and information technology.

Managers can use IT to heavily influence OM decisions including productivity, costs, flexibility, quality,
and customer satisfaction. One of the greatest benefits of IT on OM is in making operational decisions
as operations management exerts considerable influence over the degree to which the goals and
objectives of the organization are realized. Most OM decisions involve many possible alternatives that
can have varying impacts on revenues and expenses. OM information systems are critical for
managers to be able to make well-informed decisions.

B16-2
B16 - Operations Management

Recall how decision support systems and executive information systems can help an organization
perform what-if analysis, sensitivity analysis, drill-down, and consolidation. Numerous managerial and
strategic key decisions are based on OM information systems that affect the entire organization
including:
• What: What resources will be needed, and in what amounts?
• When: When will each resource be needed? When should the work be scheduled? When should
materials and other supplies be ordered? When is corrective action needed?
• Where: Where will the work be performed?
• How: How will the product or service be designed? How will the work be done (organization,
methods, equipment)? How will resources be allocated?
• Who: Who will perform the work?

4 Describe the five characteristics of competitive priorities.

The key to developing a competitive OM strategy lies in understanding how to create value-added
goods and services for customers. Specifically value is added through the competitive priority or
priorities that are selected to support a given strategy. There are five key competitive priorities that
translate directly into characteristics that are used to describe various processes by which a company
can add value to its OM decisions including:
1. Cost
2. Quality
3. Delivery
4. Flexibility
5. Service

CLASSROOM OPENER
Nike – Running Back on Track
It drives Vice President Roland Wolfram crazy that while the rest of the world knows his company for its
swooshbuckling marketing and its association with the world's most famous athletes, the IT world thinks of
Nike as the company that screwed up its supply chain—specifically, the i2 demand-planning engine that, in
2000, spat out orders for thousands more Air Garnett sneakers than the market had appetite for and called
for thousands fewer Air Jordans than were needed.

Too many Air Garnetts. Too few Air Jordans. Nike lost money, time and a measure of pride when its
demand-planning software led it astray. How did it recover? Patience, perseverance and, most important,
an understanding of what it was trying to accomplish in the first place

B16-3
B16 - Operations Management

Wolfram calls the i2 problem—a software glitch that cost Nike more than $100 million in lost sales,
depressed its stock price by 20 percent, triggered a flurry of class-action lawsuits, and caused its chairman,
president and CEO, Phil Knight, to lament famously, "This is what you get for $400 million, huh?"—a
"speed bump." Some speed bump. In the athletic footwear business, only Nike, with a 32 percent
worldwide market share (almost double Adidas, its nearest rival) and a $20 billion market cap that's more
than the rest of the manufacturers and retailers in the industry combined, could afford to talk about $100
million like that.

But there was a lesson too for people who do, in fact, follow "this sort of thing," specifically CIOs. The
lesson of Nike's failure and subsequent rebound lies in the fact that it had a business plan that was widely
understood and accepted at every level of the company. Given that, and the resiliency it afforded the
company, in the end the i2 failure turned out to be, indeed, just a "speed bump."

CLASSROOM EXERCISE
SCM Video
See how employees at KiMs, a midsize international manufacturer based in Denmark, got improved
visibility throughout the supply chain which in turn helped them trim inventory levels and streamline
production.
• More accurate forecasts with demand planning
• Automatic response to critical situations with event management
• A new level of product visibility with Radio Frequency ID (RFID) Technology
http://www.microsoft.com/dynamics/ax/product/kims.mspx (click on the video link on the right side of the
page)

CLASSROOM VIDEO
Ford’s Integrated OM Supply Chain
Great video on Ford's integrated manufacturing supply chain.
http://www.youtube.com/watch?v=qyO9QSo0FjU

B16-4
B16 - Operations Management

CLASSROOM VIDEO
Microsoft’s Supply Chain Xbox 360
For its next-generation Microsoft® Xbox 360™ video game system, Microsoft faced more complex
manufacturing requirements than it saw with the original Xbox console. It also faced a need to speed
production and reduce inventory costs compared to the performance of its earlier, Electronic Data
Interchange (EDI)-based supply-chain solution. To provide full, real-time visibility into the supply chain for
the product’s graphics chips, Microsoft created an integrated business process automation solution based
on Microsoft Windows Server System™ integrated server software components, including Microsoft
BizTalk® Server and the BizTalk Accelerator for RosettaNet. As a result, the company expects to speed
on-time deliveries by 20 percent and reduce inventories by 10 percent. Those gains, plus increased
productivity of manufacturing and IT staffs, will help deliver a first-year return on investment (ROI) of 126
percent. Developing the solution was 50 percent faster and more cost-effective than using EDI, saving six
months off the development schedule.
http://www.microsoft.com/download/en/details.aspx?id=445

CLASSROOM EXERCISE
Analyzing Listerine’s Operations and Supply Chain
Break your students into groups and ask them to review Closing Case Two: Listerine’s Journey. Inform
your students that they are working for Listerine and need to perform a risk assessment of the supply chain.
In other words, they need to determine all areas and potential threats that make the supply chain
vulnerable. For example:
• Explain OM’s role in Listerine’s business
• Why are operations management important to Listerine’s business
• An unusually bad season in Australia causes the eucalyptus harvest to fall short of expectation
production levels, which causes the price to skyrocket
• The factory in Lititz, Pennsylvania, is destroyed by a fire
• One of its transportation ships sinks
• A hurricane causes one of its transportation ships to be delayed

***For additional classroom ideas, exercises, videos, and activities please visit the MISForum at
www.mhhe.com/mis.

B16-5
B16 - Operations Management

CORE MATERIAL
The core chapter material is covered in detail in the PowerPoint slides. Each slide contains detailed
teaching notes including exercises, class activities, questions, and examples. Please review the
PowerPoint slides for detailed notes on how to teach and enhance the core chapter material.

CLOSING CASE ONE

How Levi’s Got its Jeans into Wal-Mart
Wal-Mart is becoming more of a fashion retailer as the sluggish economy and changing priorities have
forced families to become more price-conscious. Wal-Mart is expected to strengthen that reputation during
the back-to-school season, powered by a deal with Levi Strauss & Co. that puts discount denim men's,
women's, and children's lines into Wal-Mart stores. The partnership marks Levi's debut at a discount chain.
The Levi's addition, along with Wal-Mart's makeover of its teen and preteen fashion areas, puts even more
pressure on department and specialty stores that have lost back-to-school business to mass merchants.

"Levi's . . . will help identify us as a destination for credible fashion," said Celia Clancy, Wal-Mart's senior
vice president of general merchandise and apparel. The Signature Levi's jeans are priced from $18 to $24.
That is about 15 to 35 percent less than the $30 to $35 price for Levi's most popular basic jeans called The
Red Tab. Besides adding Levi's, Wal-Mart has spruced up No Boundaries, its store brand for teens;
expanded its Mary-Kate and Ashley label tied to the teenage TV celebrity Olsen twins; and brought in
underwear that is more stylish. It soon will be adding a line of apparel linked to the Disney Channel's
animated series "Kim Possible."

Levi Strauss & Co. stated that its new relationship with Wal-Mart Stores Inc. is off to a healthy start --
enough so that the jeansmaker's new Signature brand being sold at Wal-Mart boosted Levi's overall third-
quarter 2003 sales in line with expectations. Levi's profit nearly doubled during the quarter, to $26.7 million
from $13.7 million last year, helped by currency fluctuations and decreased marketing and incentive-
compensation costs.

1. How did Levi Strauss achieve business success through the use of supply chain management?
Levi’s used its SCM system to decreased the power of its buyers, increased its own supplier power,
increased switching costs to reduce the threat of substitute products or services, created entry barriers
thereby reducing the threat of new entrants, and increased efficiencies while seeking a competitive
advantage through cost leadership.

B16-6
B16 - Operations Management

2. What might have happened to Levi’s if its top executives had not supported investments in
SCM?
One of the main factors that brought Levi’s back from the dead was its ability to sell jeans in Wal-Mart.
Wal-Mart demands that all partners have up-to-date SCM systems that can easily integrate with Wal-
Mart’s systems. If Levi’s top executives did not have the foresight to view selling jeans at Wal-Mart as a
competitive advantage, then chances are the company would not have made a strong comeback in the
highly competitive clothing market. Although Levi’s was in the process of upgrading its systems, it was
going to take over five years to implement. This was simply too long. Levi’s had no choice but to spend
the money to upgrade its SCM system if it wanted to do business with Wal-Mart.

3. David Bergen, Levi’s CIO, put together a cross-functional team of key managers from IT,
finance, and sales to transform Levi’s systems to meet Wal-Mart’s requirements. Analyze the
relationships between these three business areas and OM systems. How can OM systems help
support these three critical business areas?
Business personnel and IT personnel must work together for an organization to succeed. If Levi’s failed
to include IT personnel, finance personnel, or sales personnel in the cross-functional team, it would
have had a difficult time achieving a successful system transformation. All managers in all areas of the
company will need to use the SCM system to make strategic decisions.

4. Describe the five basic SCM components in reference to Wal-Mart’s business model.
1. Plan – This is the strategic portion of supply chain management. A company must have a plan for
managing all the resources that go toward meeting customer demand for products or services. A
big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient,
costs less, and delivers high quality and value to customers. Dell must plan how it wants to handle
its supply chain – efficiently or effectively.
2. Source – Companies must carefully choose reliable suppliers that will deliver goods and services
required for making products. Companies must also develop a set of pricing, delivery, and payment
processes with suppliers and create metrics for monitoring and improving the relationships. Dell will
need to choose partners who have the same innovative mindset and are capable of keeping up
with Dells fast pace.
3. Make – This is the step where companies manufacture their products or services. This can include
scheduling the activities necessary for production, testing, packaging, and preparing for delivery.
This is by far the most metric-intensive portion of the supply chain, measuring quality levels,
production output, and worker productivity. Dell needs to ensure all of its computers are of the
highest quality – quality issues in the PC market will kill a PC manufacturer.
4. Deliver – This step is commonly referred to as logistics. Logistics is the set processes that plans for
and controls the efficient and effective transportation and storage of supplies from suppliers to
customers. During this step, companies must be able to receive orders from customers, fulfill the
orders via a network of warehouses, pick transportation companies to deliver the products, and
implement a billing and invoicing system to facilitate payments. This step is critical to Dell since it
does not have a distributor to deliver its products.

B16-7
B16 - Operations Management

5. Return – This is typically the most problematic step in the supply chain. Companies must create a
network for receiving defective and excess products and support customers who have problems
with delivered products. Since Dell does no have any distributors it must make the return process
as easy as possible for customers.

Wal-Mart plans each of the above components into and throughout its supply chain. Since Wal-
Mart is essentially a distributor and does not manufacture anything itself, it must be able to plan,
source, make, deliver, and return everything it distributes from its manufacturers.

5. Explain the future trends of SCM and how Levi’s could use these technologies to streamline its
business operations.
Radio frequency identification (RFID) technologies use active or passive tags in the form of chips or
smart labels that can store unique identifiers and relay this information to electronic readers. RFID tags
contain a microchip and an antenna, and typically work by transmitting a serial number via radio waves
to an electronic reader, which confirms the identity of a person or object bearing the tag. Levi’s can add
RFID tags to every product and shipping box. At every step of the item’s journey, a reader scans one of
the tags and updates the information on the server. Levi’s can observe sales patterns in real time and
make swift decisions about production, ordering, and pricing. Integrating RFID in the supply chain will
help Levi’s achieve greater efficiency and effectiveness through the use of real-time information.

6. Identify any security and ethical issues that might occur for a company doing business with
Wal-Mart.
There are numerous security and ethical issues facing Wal-Mart including:
• Theft
• Loss prevention
• Manipulating supply levels to change prices
• Manipulating demand levels to change prices
• Identity theft
• Sharing sensitive information
• Passing on viruses

B16-8
B16 - Operations Management

CLOSING CASE TWO

The Digital Hospital
1. Why would operations management be a critical component to a hospital?
Books, DVDs, downloaded MP3s, and dental and medical procedures are all examples of goods and
services. Production management describes all the activities mangers do to help companies create
goods. To reflect the change in importance from manufacturing to services, the term production often
has been replaced by operations to reflect the manufacturing of both goods and services. Operations
management (OM) is the management of systems or processes that convert or transform resources
(including human resources) into goods and services. Operations management is responsible for
managing the core processes used to manufacture goods and produce services. The scope of OM
ranges across the organization and includes many interrelated activities, such as forecasting, capacity
planning, scheduling, managing inventories, assuring quality, motivating employees, deciding where to
locate facilities, and more. Hospitals would depend heavily on OM to run everything from its cafeteria to
operating rooms.

2. How would a hospital use each of the three OM planning strategies to improve its operations?
Operations strategy is concerned with the development of a long-term plan for determining how to best
utilize the major resources of the firm so that there is a high degree of compatibility between these
resources and the firm’s long-term corporate strategy. Operations strategy addresses very broad
questions about how these major resources should be configured in order to achieve the desired
corporate objectives. Some of the major long-term issues addressed in operations strategy include:
• How big to make the facilities?
• Where to locate the facilities?
• When to build additional facilities?
• What type of process(es) to install to make the products?

Strategic Planning: Today, many organizations, especially larger conglomerates, operate in terms of
strategic business units (SBUs), which consist of several stand alone businesses. When companies
become really large, they are best thought of as being composed of a number of businesses (or SBUs).
Decisions at the SBU level focus on being effective, that is, “on doing the right things.” These decisions
are sometimes referred to as strategic planning which focuses on long range planning such as plant
size, location, and type of process to be used.

Tactical Planning: Strategic decisions impact intermediate-range decisions, often referred to as

tactical planning, which focuses on being efficient, that, “doing things right.” Tactical planning focuses
on producing goods and services as efficiently as possible within the strategic plan. Here the emphasis
is on producing quality products including when material should be delivered, when products should be
made to best meet demand, and what size the workforce should be. One of the primary systems used
in tactical planning includes global inventory management.

B16-9
B16 - Operations Management

Operational Planning and Control: Operational planning and control (OP&C) which deals with the
day-to-day procedures for performing work, including scheduling, inventory management, and process
management. Inventory management and control systems provide control and visibility to the status of
individual items maintained in inventory. The software maintains inventory record accuracy, generates
material requirements for all purchased items, and analyzes inventory performance. Inventory
management and control software provides organizations with the information from a variety of sources
including:
• Current inventory and order status
• Cost Accounting
• Sales forecasts and customer orders
• Manufacturing capacity
• New-product introductions

3. How might a hospital use each of the five competitive priorities to increase value to its goods
and services?
The key to developing a competitive OM strategy lies in understanding how to create value-added
goods and services for customers. Specifically value is added through the competitive priority or
priorities that are selected to support a given strategy. There are five key competitive priorities that
translate directly into characteristics that are used to describe various processes by which a company
can add value to its OM decisions including:
• Cost – decrease cost by improving the efficiency and effectiveness of its operations
• Quality – improve quality and increase the number of patients it saves
• Delivery – ensure there is always enough rooms and staff to support operations
• Flexibility – use operations to offer the flexibility for customers to use the facility in different ways
• Service – ensure there is always enough rooms and staff to support operations

MAKING BUSINESS DECISIONS

Instructor Note: There are few right or wrong answers in the business world. There are really only
efficient and inefficient, and effective and ineffective business decisions. If there were always right answers
businesses would never fail. These questions were created to challenge your students to apply the
materials they have learned to real business situations. For this reason, the authors cannot provide you
with one version of a correct answer. When grading your students’ answers, be sure to focus on their
justification or support for their specific answers. A good way to grade these questions is to compare your
student’s answers against each other.

B16-10
B16 - Operations Management

AYK 1: OPERATIONAL MOWING

After losing her job, Mary Lou asked him how much he’d be willing to pay for her to mow his lawn. Soon
Mary Lou was mowing the lawns of ten neighbors. Other neighbors wanted her to work on their lawns, but
she did not feel that she could spare any more time from her job search. However, as the rejection letters
began to pile up, Mary Lou knew she had to make a decision if she would go into business for herself or
continue her job search.

By the end of her first year in business Mary Lou was easily earning a good living. She began performing
other services such as fertilizing lawns, weeding gardens, trimming shrubs, and installing sprinkler systems.
Business was so good that Mary Lou hired several employees to assist her and believed she could further
expand her business. As Mary Lou begins to plan her expansion she needs your assistance in answering
the following questions:
1. In what ways are Mary Lou’s customers most likely to judge the quality of her lawn care services?
Customers will most likely judge her lawn services based on the five competitive priorities. There are
five key competitive priorities that translate directly into characteristics that are used to describe various
processes by which a company can add value to its OM decisions including:
• Cost: Dell is the low-cost provider of computers and the company strategically uses OM from a
strategic, tactical, and OP&C levels to continually drive down costs, which drives down prices.
Removing the intermediary was a primary way that the company drives down costs.
• Quality: Dell must continuously monitor its operations to ensure it is delivering high-quality
products and support service. Nothing kills a computer company quicker than bad products –
quality is key.
• Delivery: Dell promises quick delivery – typically within 24 to 72 hours. It must continuously
monitor its operations to ensure all orders are met when promised and delivered as quickly as
possible.
• Flexibility: Customers have the ability to design systems as they want – with each component
customized. Dell must continue to meet this high-demanding customer needs to remain in the
top market space.
• Service: Customer service is key and Dell has taken a great deal of negative publicity when its
service level decreased after outsourcing its help centers to India. Without proper service the
company will lose its customers.
2. Mary Lou is the operations manager of her business. Among her responsibilities are forecasting,
inventory management, scheduling, quality assurance, and maintenance.
Managers can use IT to heavily influence OM decisions including productivity, costs, flexibility, quality,
and customer satisfaction. One of the greatest benefits of IT on OM is in making operational decisions
as operations management exerts considerable influence over the degree to which the goals and
objectives of the organization are realized. Most OM decisions involve many possible alternatives that
can have varying impacts on revenues and expenses. OM information systems are critical for
managers to be able to make well-informed decisions. Recall how decision support systems and
executive information systems can help an organization perform what-if analysis, sensitivity analysis,
drill-down, and consolidation. Numerous managerial and strategic key decisions are based on OM
information systems that affect the entire organization including:

B16-11
B16 - Operations Management

• What: What resources will be needed, and in what amounts?

• When: When will each resource be needed? When should the work be scheduled? When should
materials and other supplies be ordered? When is corrective action needed?
• Where: Where will the work be performed?
• How: How will the product or service be designed? How will the work be done (organization,
methods, equipment)? How will resources be allocated?
• Who: Who will perform the work?

1. What kinds of things would likely require forecasts? Operations strategy is concerned with the
development of a long-term plan for determining how to best utilize the major resources of the
firm so that there is a high degree of compatibility between these resources and the firm’s long-
term corporate strategy. Operations strategy addresses very broad questions about how these
major resources should be configured in order to achieve the desired corporate objectives.
Some of the major long-term issues addressed in operations strategy include:
• How big to make the facilities?
• Where to locate the facilities?
• When to build additional facilities?
• What type of process(es) to install to make the products?
2. What inventory items does Mary Lou probably have? Name one inventory decision she has to
make periodically. She will need to keep inventory of all lawn equipment, landscaping
equipment, plants, trees, vehicles, etc. She will need to make many inventory decisions such
as when to buy a new mower and when to upgrade her digger for the sprinkler systems.
3. What scheduling must she do? What things might occur to disrupt schedules and cause Mary
Lou to reschedule? Mary Lou must schedule her customers, employees, maintenance on
equipment, etc. Sick employees, bad weather, and defunct equipment could all cause Mary
Lou to reschedule her appointments.
4. How important is quality assurance to Mary Lou’s business? Quality will be critical to Mary
Lou’s business. This is a tough market with few entry barriers and the competition will be
fierce. If Mary Lou does not produce high-quality services her customers will find new lawn
care companies.

3. What are some of the trade-offs that Mary Lou probably considered relative to:
• Working for a company instead of for herself?
• Expanding the business?
• Launching a website?

Responsibility is the biggest trade-off for Mary Lou. She is now personally responsible for her
business, for her employees, for her insurance – business and health, etc. This is a big risk for any
person to undertake and the rewards will need to outnumber the risk. As the business grows she will
need more employees, accountants to do her taxes, and managers to help her run the business.
Growing is risky as her employees could cannibalize her customers one day – she will need to be
careful when she hires employees.

B16-12
B16 - Operations Management

4. The town is considering an ordinance that would prohibit grass clippings at the curb for pickup because
local landfills cannot handle the volume. What options might Mary Lou consider if the ordinance is
passed? Strategic Planning: Today, many organizations, especially larger conglomerates, operate in
terms of strategic business units (SBUs), which consist of several stand alone businesses. When
companies become really large, they are best thought of as being composed of a number of
businesses (or SBUs). As displayed in Figure 8.5, operations strategy supports the long-range strategy
developed at the SBU level. Decisions at the SBU level focus on being effective, that is, “on doing the
right things.” These decisions are sometimes referred to as strategic planning which focuses on long
range planning such as plant size, location, and type of process to be used. This could be a great
opportunity for Mary Lou to open a new line of business (SBU) where she could off picking up and
proper disposal of curb side clippings. She could also outsource the pickup to another vendor.

5. Mary Lou decided to offer her employees a bonus of $250 for ideas on how to improve the business,
and they provided several good ideas. One idea that she initially rejected now appears to hold great
promise. The employee who proposed the idea has left the company and is currently working for a
competitor. Should Mary Lou send the employee a check for the idea? This is an ethical decision
that each student will answer depending on his or her ethics.

AYK 2: TOTAL RECAL

In mid-2000, the Firestone Tire Company issued a recall of some of its tires – those mounted on certain
sport-utility vehicles (SUV) of the Ford Motor Company. This was done in response to reports that tire
treads on some SUVs separated in use, causing accidents, some of which involved fatal injuries as
vehicles rolled over.

At first, Firestone denied there was a problem with its tires, but it issued the recall under pressure from
consumer groups and various government agencies. All of the tires in question were produced at the same
tire plant, and there were calls to shut down that facility. Firestone suggested that Ford incorrectly matched
the wrong tires with its SUVs. There were also the suggestions that the shock absorbers of the SUVs were
rubbing against the tires, causing or aggravating the problem.

Both Ford and Firestone denied that this had been an ongoing problem. However, there was a public
outcry when it was learned that Firestone had previously issued recalls of these tires in South America, but
companies had settled at least one lawsuit involving an accident caused by tread separation several years
earlier.

This case raises a number of issues, some related to possible causes, as well as ethical issues. Discuss
each of these factors and their actual or potential relevance to what happened:

B16-13
B16 - Operations Management

1. Product: Firestone and Ford both produce products. When a company produces products and
services they must constantly monitor the five competitive priorities. All of these factors could
contribute to the issues with the tire. The key to developing a competitive OM strategy lies in
understanding how to create value-added goods and services for customers. Specifically value is
added through the competitive priority or priorities that are selected to support a given strategy. There
are five key competitive priorities that translate directly into characteristics that are used to describe
various processes by which a company can add value to its OM decisions including:
• Cost
• Quality
• Delivery
• Flexibility
• Service

2. Quality control: Assuring quality: Quality is indispensable in an airline where safety is the highest
priority. Today’s travelers expect high-quality customer service during ticketing, check-in, curb service,
and unexpected issues where the emphasis is on efficiency and courtesy. Quality can be divided into
two categories; product quality and process quality. Product quality levels vary as to the particular
market that it is aimed to serve. For example, a generic bike is of significantly different quality than the
bike of a world-class cyclist. Higher quality products command higher prices in the marketplace.
Organizations must establish the “proper level” of product quality by focusing on the exact
requirements of their customers. Overdesigned products with too much quality will be viewed as being
prohibitively expensive. Under-designed products, on the other hand, will lose customers to products
that cost a little more but are perceived by the customers as offering greater value.

Process quality is critical in every market segment. Regardless of whether the product is a generic
bike or a bike for an international cyclist, customers want products without defects. Thus, the primary
goal of process quality is to produce error-free products. Improving quality is an investment that pays
off in better customer relationships and higher revenues. Many organizations have turned to the use of
modern quality control standards including:
• Six sigma quality: Detects potential problems to prevent their occurrence and allows just 3.4
defects per million opportunities. That is important to companies like Bank of America, which
makes 4 million transactions a day.
• Malcolm Baldrige National Quality Awards: In 1987 in the United States, a standard was set for
overall company quality with the introduction of the Malcolm Baldrige National Quality Awards,
named in hone of the late U.S. secretary of commerce. Companies can apply for these awards in
each of the following areas: manufacturing, services, small businesses, education, and health care.
To qualify, an organization has to show quality in seven key areas: leadership, strategic planning,
customer and market focus, information and analysis, human resources focus, process
management, and business results.

B16-14
B16 - Operations Management

• ISO900: The common name given to quality management and assurance standards. The
International Organization for Standardization (ISO) is a nongovernmental organization established
in 1947 to promote the development of world standards to facilitate the international exchange of
goods and services. ISO is a worldwide federation of national standards bodies from more than
140 countries. ISO 900 standards require a company to determine customer needs, including
regulatory and legal requirements. The company must also make communication arrangements to
handle issues such as complaints. Other standards involve process control, product testing,
storage, and delivery.
• ISO 14000: A collection of the best practices for managing an organization’s impact on the
environment. ISo 14000 does not prescribe specific performance levels, but establishes
environmental management systems. The requirements for certification include having an
environmental policy, specific improvement targets, conduct audits of environmental programs, and
maintain top management review of processes. Certification in ISO 14000 displays that a firm has
a world-class management system in both quality and environmental standards.
• CMMI: CMMI stands for Capability Maturity Model Integration. CMMI is a framework of best
practices. The current version, CMMI-DEV, describes best practices in managing, measuring and
monitoring software development processes. The CMMI model does not describe the processes
themselves; it describes the characteristics of good processes, thus providing guidelines for
companies developing or honing their own sets of processes.

3. Ethics: Ethics is everywhere is this dilemma. Should a company take responsibility for product
problems? The obvious answer is yes, but when the problem becomes diluted with many different
vendors involved in the issues the blame is not always clear. Student answers to this question will vary
depending on his/her personal ethics.

B16-15