Chapter 9 Producing World-Class Goods & Services

Chapter 9

Producing World-Class Goods & Services

U.S. Manufacturing

Foreign CompetitionU.S. Auto Industry not keeping up with importsInsourcing of jobs for Japan, Europe & South

Korea

How can U.S. firms reverse this perception of falling behind?

Insourcing

Foreign firms move production facilities to U.S.

Service sector jobs the USA does best:AccountingComputer Networking

What are U.S. Manufacturer doing to become more Competitive

Focus on CustomersMaintain close relationships with suppliers &

other firms to meet/exceed customer needsPractice continuous improvementFocus on qualitySave on cost through site selectionRely on internet to unite companiesAdopt new production techniques

enterprise resource planning, computer integrated manufacturing, flexible manufacturing, & lean manufacturing

Production to Operation Management

Manufacturing ServicesProduction management Operation managementManager Activities that Manager Activities that help produce goods help turn resources

into goods & services

INPUTS PRODUCTION CONTROL OUTPUTScapital Plan Goodsentrepreneurship Route Servicesland Schedule Ideaslabor Dispatchknowledge Follow-up

Production Processes

Value added during productionForm Utility = process of adding value to input

as a good or service is producedProcesses in manufacturing

physical or chemicalassembly

intermittent or continuousAll done to meet a want; with acceptable quality; at

the lowest possible cost

Improving Production Technique& Cutting Costs

Mass Production = make a limit variety of goods as efficiently & at a very low cost.

Not very flexible or responsive to customers desires

Supply chain bottle necks = suppliers unable to deliver consistentamounts of inputs

Firms required to have greater inventory of inputs or partswhich is costly to store & track

Reducing cost by using CAD design & computerized inventory within Computer-aided Manufacturing (CAM) or Computer-integrated Manufacturing (CIM) firms

Improving Quality & Consumer Choice

Flexible Manufacturingproduction of a variety of products with the same machine.

Industrial Automation & Robotics

Mass Customization

Lean Manufacturing: using less inputs to make products

Operations Management Planning

Facility LocationFacility LayoutMaterial Requirement PlanningPurchasingInventory ControlQuality Control

Product Layout

How do all the parts (inputs come together to make the product?

Assembly Line Layout

Process Layout

Recipe of steps taken to make product or implement a service& ship to customer, distributor, or outlet

Other Layouts

Cellular or Module Layout

Fixed-Position Layout

Materials Requirement Planning

Scheduling when materials/parts are available at the right time & place

MRP ( a computer-based operations system) is a form of ERP (enterprise resource planning)

manages finance, planning requirements, human resources, & order fulfillment

Purchasing

Responsible for finding quality materials from the best (reliable) suppliers & negotiated the best price.

Internet purchasing & reduction in the number of suppliers used by a firm reduces costs through volume pricing & discounts.

JIT – Just In Time: Inventory Control

Reduces storage costs by decreasing amount of storage time for products

Quality Control

Work/product inspected by otherscostly & no additional product madeif defective or low quality

product scrapped or fixedif customer discovers the defect

might be dissatisfied or by from another firm

Six Sigma Quality & others

3.4 defects per million units

SQC (Statistical Quality Control)all phases of production checked to find defects

SPC (Statistical process control)samples taken at each stage of productionReduces cost of quality inspection at end of production

International Standard

ISO 9000 – >140 countries use; standards

ISO 1400 – collection of best practices

PERT & GANTT Charts

Program Gantt ChartsEvaluation & show timing of processesReview in manufacturingTechniqueAnalyze & sequence tasksEstimate time neededDraw a PERT network (chart)Identify the critical path

The Future

Because of the competition of foreign firms & domestic one, the need for managers is great.

Some careers:Product DesignProduction & Operations ManagementInventory Management

Chapter 10

Motivating Employees &

Building Self-Managed Teams

Intrinsic Reward vs Extrinsic Reward

Worthwhile work BonusesMaking a difference BenefitsSaving the planet Approval of othersWise use of resources RecognitionSaving money Promotion

Frederick Taylor

Scientific management - 1911TimeMethodsRules of work

Goals: to improve productivity to benefit the worker & the firm

Tools: Observation & a Stopwatchtime-motion studies

Followers of Taylor

Henry Gantt – remember the Gantt Charts from an earlier chapter

Frank & Lillian Gilbeth – principles of motion economy; break each job down into steps to reduce wasted motion

Elton Mayo – Hawthorne studies; 1927levels of illumination & productivity

What matter more than light intensity?Special place to meet; having more input on

decisions; more pay from being more productive

Maslow’s Hierarchy of Needs

Self-Actualization Need

Esteem Need

Social Need

Safety Need

Physiological Need

Applying Maslow’s Theory

Andrew Grove, former CEO & current Chairman of Intel

Motivate people to do more by knowing how to manage their needs & achievement

Herzberg’s Motivating Factors

Sense of achievement Earned RecognitionInterest in the work itself Opportunity for growthOpportunity for Importance of responsibility

advancement Peer & group relationships Status

Supervisor fairness Company policies & rulePay Job securitySupervisor Working condition

friendliness

Herzberg’s

Motivators

Job Hygiene Factors

Applying Herzberg’s Theories

22 firms have been on the Fortune 100 list of best places to work every year since 1998.

Why do employees that want to work for these firms?

Nordstrom Synovus

Timberland W. L. Gore

Keeping Worker/Employees Happy

Sincere appreciation for a job well done = Praise & Recognition

Job Enrichment: Strategies for motivating worker through the job itself

Task completion; challenge; achievement;recognition

5 characteristics of work that Motivates

Skill VarietyTask IdentityTask SignificanceAutonomyFeedback

Job Enlargement & RotationMaytag redesign of process allowed

employees to assemble an entire water pump, rather than just one part.

Cross-trained to do several jobsrelieves boredom

McGregor’s Theory X & Theory Y

Theory X Theory YPeople dislike work People like workmust be forced, work toward goalcontrolled, directed, for which there is threatened commitment/rewardLittle ambition & Conditionally acceptlikes to be directed, responsibility of workavoid responsibility Imagination & Potential

Incentive vary

Ouchi’s Theory ZType J Type A

Japanese management American management Lifetime employment Short term employment

collective responsibility individual responsibilityconsensual decisions individual decisionsslow evaluation rapid evaluationslow promotion rapid promotionimplied control explicit controlcareer path variable special career pathholistic concern for segmented concern for

employee employee

Theory ZHybrid of Type J & A

Moving toward Type J in American firmsEmployee involvement, key to increased productivityEmployee control implied & informalShared responsibility & decisionsEnvironment of trust& cooperationEmployee guaranteed employment & will accept slow evaluation & promotion

Goal Setting Theory & Management by Objectives

Peter Drucker, “Managers cannot motivate people; they can only thwart people’s motivation because people motivate themselves.”

MBO – Ford Motor Company U.S. Defense Dept.

Victor Vroom - Expectancy Theory

1) Can I complete the task?2) If I do, what will be my reward?3) Is the reward worth it?

Managers: What reward are valued by employees?Individual performance standardAre standards attainableGuaranteed rewards tied to performanceMake sure that rewards are adequate

Reinforcement Theory

Carrot & Stick ApproachCarrot = positive incentivesStick = negative consequences

Extinction/Punishment/Positive/Negative

Equity Theory

Treating Employees Fairly

What is fair?

Is It Worth It?

Secrecy may cause workers to exaggerate the pay of others, or their own contributions.

Openness and frequent communication can defuse this problem.

Listening

Create a corporate culture that rewards listeningTrain supervisors & managers to listenRemove barriers to open communicationActively undertake efforts to facilitate

communication

Self-managed Team: open communication at work

To produce high quality, customized goods & servicesrequires extensive personal service & attention to detail

Working Smart, not just hard

Managers must know the needs of:their employeesdistributors/dealerscustomers

Remember, motivation from the worthwhile work of the job itself is key.

Chapter 11

Human Resource Management

Finding & Keeping the Best Employees

Working with Peopleis just the beginning

Developing the Ultimate ResourceHR = Human Resource:

The first step what does the firm needHow many need to be recruited & selected?What skills & characteristics do the recruits need?What training can be done to prepare them?

Hone their abilitiesMotivate their Loyalty & EffortEvaluate their potentialSchedule the work they will doCareer development

ChallengesPeople with good ideas needed

Shortages in future growth areasComputers, biotech, robotics, “the sciences”Workers from declining industries (skilled & unskilled)

steel, automobiles, garment/apparel makingWorker unprepared for business environmentAge & societal shift of the workforce: job-sharing; DINKLaws & regulationWorker attitude toward workMorale & downsizing & use of temporary workers

Find out your firm’s HR Need

1) Human resource inventorya) Include Ages, Names, Education, Capabilities,b) Training, Special skills, & other important

information (languages spoken)

2) Prepare a job analysis3) Assess future demand4) Assess future supply5) Establish a strategic plan to reach your

recruitment goals

Job Analysis

A. Observe current worker doing the jobB. Discuss job with managersC. Have workers keep a diary of their activities

From this information, outline all the separate activities into a job description.

What requirements do people need to qualify for this job? During recruitment do the prospects understand and like

doing what your firm needs done. Is it something they can see themselves doing?

Checklist of Job Specifications

Example:Two year experiencePositive attitudeWell-groomed appearanceGood communication skillsHigh school diploma & 2 yrs college credit

External vs Internal recruitmentExternal Sources Internal Sources

employment agencies Transferspersonal applications Promotionsnew graduates Employee recommendationformer employees Retrained employeespart-time workers Department reorganizationcompetitor firmsunionsadvertisementsbusiness associatescollege professorsinternetjob fairsinternships

Selecting Productive Employees

Obtain complete application formsConduct initial and follow-up interviewGive employment testsBackground investigationPhysical examsProbationary period

Contingent Workers

Less than Full-time: 1-34 hrstemporary, fill in workmay have priority for full-time after a

probationary periodReceive less than full benefits

More flexibility for workers & firms

Training for Optimum Performance

In what skills does the firm need more training?

What should the training look like?

How effective was the training?

Training

Employee OrientationOn-The-Job Training/shadowing/field trainingApprentice programsOff-The-Job trainingOnline trainingVestibule trainingJob simulation

Management Development

On-the job coachingUnderstudy positionsJob rotationOff-the job course & training

Networking

Contacts/associations

Mentorship

Diversity in management development

Performance Appraisal

Set StandardsCommunication of standardsEvaluate performanceDiscuss results with employeesTaking corrective actionUse results to make decisions

The dos & don’ts of evaluations

Don’t even start, if you or the other person has had a trying day.

Don’t attack their personalityAllow sufficient time (take the phone off the hook)Talk privately & don’t make the employee uncomfortableInclude the employee in the self-improvement part of the

programDon’t bring out a list of problem areas that should have

been handled at another timeEnd with positive suggestions for improvement

Attract & Keep the Best

Attract sufficient numbersProvide employees with incentives to work

efficientlyKeep valued employees from going to competitor

firms or starting their ownMaintain competitiveness: cost low &

productivity highProvide some financial security through insurance

& retirement benefits

Pay Systems

SalaryHourly WagePiecework SystemCommissionBonus PlansProfit-sharing PlansGain-sharing PlansStock Options

How many ways do you get paid?

Commission: 75% up front & 25% split over months 10, 11 & 12 as earned

Trail fees/continuation of business/royaltiesOverrides: paid % of team productionPAC Commission: for every additional purchase on a

monthly or more frequent basisBonuses: 10%, 20% or 30% based on team businessRenewals: Continuation of programFinders Fee: Based on a referral of service

Compensating Teams

When goals met, all receive bonusThose who contribute exceptionally can also be recognized for their work

Fringe BenefitsParking spot closest to the officeSick leaveCafeteria PlansVacation Time

Scheduling

Flextime Plans8 hrs/day 6am-3pm; 7am-4pm; 8am-5pm5 days/wk 9am-6pm; 10am-7pm

10 hrs/day 70 on/70 off4 days/wk

Home-Based & Mobile Work

Benefits Challengesfewer sick days job appraisal tougherhigher job satisfaction less team cohesionbroaden talent pool work sharing/contactsreduces office space costs isolation/lost influenceless commuting time zoning for home officeenvironmentally friendly less interpersonal

interaction

Job-sharing

2 part-time employees share a full-time positionWho does it works for:

single moms parents older workersthose developing a side

interest/businessfolks who want less stress

Up, Over & Out

Promoting & Reassigning

Terminating

Retiring/Losing

HR Laws

National Labor Relations Board - 1935

Civil Rights Act of 1964Title VII (seven)

Equal Employment Opportunity Act (1972)Amended Title VIIGave broad powers to EEOC

Affirmative Action; Reverse Discrimination

More Laws

Social Security Act of 1935Age Discrimination in Employment Act of 1967Occupational Safety & Health Act of 1970Vocational Rehabilitation Act of 1973Employment Retirement Income Security Act of 1974Americans With Disabilities Act (1990)Civil Rights Act of 1991

Firms must act in accordance with these and other laws or face costly court cases.

Chapter 12

Dealing with Employee-Management Issues

&Relationships

Basic Issues

Recruitment/SelectionPay/CompensationWorking Conditions:

schedule/overtime/atmosphereEvaluationsIntervention/Discipline/TerminationBenefits

Insurance/Retirement/Others

Collective Bargaining

Union versus non-union jobsPublic Sector versus Private Sector Jobs

Historical Union Causes:Child Labor Laws40 hour work week/Minimum wageSafety & Job securityBetter Pay/Benefits

Many of these are codified in U.S. & state laws

The Rise of Organized Labor in U.S.

1792 – Craft union meeting in PhiladelphiaShoe MakersCopper & silversmiths

Craft Union has members that are skilled in some specialty

As the industrialization of America grew & short-lived, local/regional labor groups came & went, greater demand for unskilled factory labor lead to the formation of the first national labor organization.

Knight of Labor

Uriah Smith Stevens – 1869 founded By 1886 – 700,000 members

Included employers & workerspromoted social causes & economic issues

Goal: amass significant political power & eventually restructure the entire U.S. economy

The fall of the Knight of Labor

Blamed for a bomb that killed 8 policemen at a labor rally at Haymarket Square in Chicago in 1886

A rival group, The American Federation of Labor (AFL), was formed in 1886 & was the top labor union by 1890 (under the leadership of Samuel Gompers) – a craft union

Masons, carpenters, plumbers, etc.

AFL branches into unskilled labor

Committee of Industrial Organizations (CIO)under the leadership of John L. Lewis, head of the United Mine Workers start recruiting industrial workers with no defined skill.

In 1935, CIO changed its name to the Congress of Industrial Organizations & broke away from the AFL, soon rivaled the AFL in size & power.

The National Labor Relations Act (Wagner Act) in 1935 gave the workers the right to join/form a union.

AFL-CIO merger

George Meany (1955) 16 million union members

7 unions left of the AFL-CIO in 2005 to form the SEIU, Service Employees International Union (1.8 million members)

Today, AFL-CIO membership is 9 million

Labor Legislation

1932 – Norris-LaGuardia Act1935 – National Labor Relations Act (Wagner Act)

1938 – Fair Labor Standards Act1947 – Labor-Management Relations Act

(Taft-Hartley Act)1959 – Labor-Management Reporting &

Disclosure Act (Landrum-Griffin Act)

National Labor Relations Board

Certify or Decertify UnionCollect support: unionizing or decertification

30% of workers petition NLRBElection to change require over 50% of votes

cast – Secret BallotNLRB certifies results of election

Important Concepts

Negotiated Labor-Management AgreementUnion Security Clause

if a worker receives benefit from a union, they must join the union or pay dues, even if they are not a member.

Closed Shop – must be union member to be hired (outlawed by Taft-Hartley Act – 1947)

Current Shop Arrangements

Union Shop – must become member to keep job

Agency Shop – must pay due whether member or not

Open Shop – membership in union is optional, no due paid if not a member.

Right-to-work Laws

Taft-Hartley Act gave states the right to pass Right-to-work Laws = Open Shop

22 states have right-to-work lawsID NV AZ UT WY ND SD NB IAKS OK TX LA AR MS AL TN

VANC SC GA FL

Resolving Disagreements

Grievance (two side see different side of an issue)

SeniorityOvertimePromotionLayoffsTransfersJob Assignment

Shop Steward may settle many grievances

Mediation & Arbitration

Bargaining Zone = options either side wantsImpasse = no agreement after

Mediation = use of a 3rd party; a mediatormakes suggestions to move toward resolution

(cooling off period)

Arbitration = individual or panel decides the outcome; both sides must agree to this

Union Tactics

Strike = collective refusal to workPrimary Boycott

Secondary Boycott: prohibited by Taft-HartleyAct

Work Slow Down

Management Tactics

Lockout = Keep union workers from working

Injunction against what the union is doing (striking, boycotting, etc.)

Strikebreaker/Replacement workers/(scabs)1938 Supreme Court ruling allows this

First used in the 1980s

Global Competition & Technology

Put pressure on unions that have made many unions to grant concession or givebacks when negotiating terms of a new contract.

Pay increases reduced; overtime pay reduced

Resistance against retirement givebacks

UAW membership down 60%Union membership down from 35.5% of labor to 12.5%

throughout the economy & 8% in the private sectorStates with higher percentages of union workers over 15%

have been hit harder in the current economy.

Unionization: making a comeback?

Growing membershipnot in industrial workers (mostly white males)in healthcare workers (nursing, more females) & white collar jobs & foreign-born workers

Does nursing lack the respect of the general public?Are nurses underpaid workers? $25-$55/hrDo the goals of organized labor match the need for more

health care professionals while holding down healthcare costs?

Do gains in pay disappear in higher union dues?

Management-Labor Partnerships

Cooperation not confrontation

Shared responsibility in the design of tasks for workers to increase productivity

In order to compete, waste & inefficiency must be reduced

Do the objectives of union change over time?Job security & benefits

Controversial Issues

Executive CompensationCEO pay in the rest of the world is 20 to 50 times an average worker’s pay

CEO pay in the USA can be 400 to 500 times an average worker’s pay

For a major corporations CEO compensation in 2004 was $36 million when an average worker was paid $33,176

The Past Level of CEO Pay

1960 – average CEO pay was $160,000/yrWith inflation at 4.5% for 50 yrs, the CEO pay

equivalent to 1960 for 2010 would be:

$1,445,222$36 million is nearly 25 times that number

Why the disproportionate increases in CEO pay?

Reasons for high CEO Pay

Stock Options = 57% of CEO payGolden Parachutes

“You shouldn’t pay anyone to fail.” - Charles Elson, director of the Center for Corporate Governance at the University ofDelaware

Bonuses for the meeting of goals

What is reasonable & appropriate?

Peter Drucker, management consultant, suggested, “CEOs not be paid more than 20 times their lowest paid employee.”

That translates into this concept, “If you want to earn one million dollars per year as a CEO, then your lowest paid employee should earn $50,000 a year. (not $33,176)

If a CEO makes barely $1,000,000/yr then movie stars & athletes won’t make that much.

Pay Equity

Equal pay for equal workMen versus womenAsian/White/Colored

Improvements & cracking the Glass Ceiling

Sexual Harassment

Quid pro quo

Hostile work environment

Child Care/Elder Care

Flexible scheduling to assist workers take care of children & aging parents or spouses

Provide company day care

Time off: Maternity leave; Paternity leave;Bereavement leave; etc.

Drug Testing

6.2% of the U.S. workforce believed to be heavy drinkers.40% of industrial injuries & fatalities linked to alcohol

consumption.8% of full-time workers ages 18-49 use illegal drugs.3.5 times more likely to be involved in a workplace

accident & 5 times more likely to file for workman’s compensation than nonusers.

Productivity Lost: $81 billion/yr; $11,000 per drug using worker (7.3 million)

70% of companies test job applicants for substance abuse.

Violence

A growing problem16% of workplace deathHomicide is 3rd as a cause of death at work

StressHow people are treated at work

Being Proactive: before violence happens