Defination of service - Intangibility of the product - **Simultaneous production and consumption **No finished goods inventory - Difficulty in defining

g and measuring quality and productivity Other Differences between Manufacturing and Service: Ownership is not transferred - Resale is generally not possible - Service does not exist before purchase Service cannot be transported - The buyer can perform part of the production (actually true in both) Fundamental difference between product and service Services are process focused. Customers served as first come, first served. --Labor is scheduled, not the customer (or product). -- Location often near customers. Result: service production tends to be less efficient than production of goods Types of Service - Pure Service ->No product with intrinsic value involved. e.g. lawyer Service/Product bundle - >Combination of product with service (most common) Pure Product ->Very rare. Yard sale. Blacksmith. Service - Product bundle tangible service (explicit service)what the seller does for you. - psychological benefits (implicit service)how you feel about it. - physical goods (facilitating goods)what you can carry away Customer contact matrix Low customer contact -High production efficiency - Low sales opportunity - Workers with clerical skills - Focus on paper handling - Office innovation High customer contact - Low production efficiency - High sales opportunity -Workers with diagnostic skills Focus on client mix - Client/worker teams as innovation Inventory - : a stock of materials used to facilitate production or to satisfy customer demand. Types of inventory - Raw materials/purchased parts (RM/PP) - Work in process (WIP) -Finished goods (FG) = Maintenance, repair & operating supplies (MRO) Purpose of Inventory To protect against uncertainties - in demand (finished goods (e.g. retail), MRO) - supply (RM/PP, MRO) lead times (RM/PP or WIP) - schedule changes (WIP) -Reduction: shorten throughput time To allow economic production and purchase (as in discounts for buying RM/PP in bulk)- Reduction: dont do it To cover anticipated changes in demand (as in a level strategy) or supply o finished goods - RM/PP - Reduction: chase strategy or shorten throughput times To provide for transit (pipeline inventories) -RM/PP - finished goods - WIP (independence of operations) Reduction: shorten the pipeline Speculation - finished goods - RM/PP -If firms expect a future price increase, they will buy now to avoid it, or hold finished goods until the increase takes place.e.g. If you think the price of gasoline will rise, you fill your tank now, even if only half empty. Reduction: this inventory is held for financial reasons, so there is not much operations can do about it. Inventory cost Structure Expressed as cost per unit or SKU(stock keeping unit). Gets into LIFO and FIFO issues. Problem can be compounded by quantity discounts. Determining cost of Inventory - First in, first out (FIFO) Last in, first out (LIFO) -Average cost systems Standard cost systems - Replacement cost systems - Actual cost systems - Value-added costing systems Shrinkage - Shrinkage is the difference between recorded and actual inventory. Hidden cost of Inv.- Longer lead times - Reduced responsiveness - Underlying problems are hidden rather than being exposed and solved - Quality problems are not identified immediately - No incentive for improvement of the process Types of inventory Demand - Independent demand - finished goods, spare parts, MRO - based on market demand requires forecasting - managed using replenishment philosophy, i.e. reorder when reach a pre -specified level (super market philosophy ) Dependent demand - parts that go into the finished products, RM/PP or WIP - dependent demand is a known function of independent demand - calculate instead of forecast - Managed using a requirements philosophy, i.e. only ordered as needed for higher level components or products. - Use systems such as MRP and ERP SUPPLY CHAIN MANAGEMENT: Supply Chain The steps and the firms that perform these steps in the transformation of raw inputs into finished products bought by customers. Inbound LogisticsThe delivery of goods and services that are purchased from suppliers and/or their distributors.Outbound LogisticsThe delivery of goods and services that are sold to a firms customers and/or distributors. DEFINING THE SUPPLY CHAIN: Natural resources->processor->manufacturer>assembler->distributor->retailer->end user. Company Supply Chain: second tier supplier->first tier supplier->(inbound logistics)->transformation process->(outbound logistic)->distributor->retailer. Evolution:(isolating technical core) suppliers(many)->raw material inventory->technical core->finished goods inventory->customer.(using jit).(Use of single logistic partner) supplier->logistic(inbound)->technical core-> Logistic(outbound)->customer.(bringing supplier into the plant).Build to stock: raw material->component manufacturer->product manufacturer->distributor>(retailer(forecasting)->customer)customer order cycle. Assemble to Order: raw material->component manufacturer>(product manufacturer(forecasting)->retailer(sometimes)->customer) customer order cycle. Build to Order: raw material->(product manufacturer (forecasting)->customer) customer order cycle. Design to order: ( product designer>product manufacturer->customer) customer order cycle. Supplier-Managed InventoriesInventories in a firms facility that are the responsibility of the supplier to maintain and to replenish as necessary. Consignment Inventories Inventories that are physically present in a firms facility but that are still owned by the supplier. EDI (electronic data exchange)Direct link between a manufacturers database and that of the vendor. Causes of Bullwhip Effect: Demand Forecasting Updating Order Batching Price Fluctuations Rationing and Shortage Gaming. Factors Affecting Supply

Chain: reduced number of Suppliers, increased competition, shorter product cycle, shared or reduced risk, advance in technology, contingent inventory, supplier managed inventory. Success of supply chain: trust, individual strengths, information sharing, long term relationship. Current trend in supply chain management: Reduced Number of Suppliers Increase in Competition Shorter Product Life Cycles Increase in Vendor Managed Inventories (VMI) Increase in Consignment Inventories Shared or Reduced Risk. Disintermediation The trend to reduce many of the steps in the supply chain by reducing the number of intermediaries in the chain. Cross-docking Direct-to-store shipments JIT II Direct database linkage with vendors manufacturing facility. Supply chain provide 2 types of function physical function and market mediation. Market mediation ensuring the variety of products reaching the marketplace matches consumer wants. Economic Order Quantity answer the question how much to order - Used for independent demand items. Objective is to find order quantity (Q) that minimizes the total cost (TC) of managing inventory. Must be calculated separately for each SKU. - Widely used and very robust (i.e. works well in a lot of situations, even when its assumptions dont hold exactly). Basic Assumptions of EOQ Demand rate is constant, recurring, and known. - Lead time is constant and known. No stockouts allowed. - Material is ordered or produced in a lot or batch and the lot is received all at once - Costs are constant ->Unit cost is constant (no quantity discounts) ->Carrying cost is a constant per unit (SKU) ->Ordering (setup) cost per order is fixed -The item is a single product or SKU EOQ Lot size choice- There is a trade-off between frequency of ordering (or the size of the order) and the inventory level. Frequent orders (small lot size) lead to a lower average inventory size, i.e. higher ordering cost and lower holding cost. --Fewer orders (large lot size) lead to a larger average inventory size, i.e. lower ordering cost and higher holding cost. EOQ measurement units-- D =Demand rate, units per year S =Cost per order placed, or setup cost,dollars per order C =Unit cost, dollars per unit i =Carrying rate, percent of value per year Q =Lot size, units TC=total of ordering cost plus carrying cost. COST EQUATIONS EOQ ---Ordering cost = (cost per order) x orders per year) = SD/Q Carrying cost per year = (annual carrying rate) x (unit cost) x average inventory = iCQ/2 Total annual cost (TC) = ordering cost per year + carrying cost per year = SD/Q + iCQ/2 TC = ordering cost + holding cost = S*(D/Q) + iC*(Q/2) - EOQ = Q =_/2SD/iC Stock or Invt position =Inventory + amount on Order backorder Continuous Review System Demand is assumed to be random Check Inv each time there is demand Inv Position drops below the reorder point, place an order for EOQ. Reorder point is independent of EOQ! - EOQ tells how much to order. - Reorder point tells when to order Total quality management is defined as managing the entire organization so that it excels on all dimensions of products and services that are important to the customer. Quality is meeting, or exceeding, customer requirements now and in the future; i.e. the product or service is fit for the customers use SERVQUAL Tangibles Reliability Responsiveness Assurance Empathy Gap 1 - also known as the management perception gap the difference between expected service by customers and the management's perceptions of the consumer's expectations Gap 2- quality specification gap the difference between management perception and the actual specification of the customer experience Gap 3 - also known as the Service delivery gap the difference between customer driven service design and standards and service delivery Gap 4 - also known as market communication gap the difference between the delivery of the customer experience and what is communicated to customers Gap 5 - also known as the perceived service quality gap the difference between a customer's perception of the experience and the customer's expectation of the service Poka Yoke Mistake Proofing Design the product and process so that mistakes cannot occur or are immediately detectable. Six Sigma: Define: Select the process to improve. Measure: Collect and analyze data. Analyze: Perform causal analysis. Six Sigma uses a project/team approach. A process is selected for improvement A crossfunctional team is formed.A six sigma black belt is chosen to head the team.The team uses the DMAIC metho d for finding root causes and improving the process. Lean and Six-Sigma: Lean- An integrated set of activities designed to achieve high-volume flexible production using minimal inventories of raw material. Element lean services:-Synchronization and balance of information and workflow Total visibility of all components and processes Continuous improvement of the process Holistic approach to the elimination of waste Flexibility in the use of resources Respect for people. Elements of lean production: Focused factory networks Group technology Jidoka Quality at the source Just-in-time production Uniform plant loading Kanban production control system Minimized setup times. Ohnos 7 wastes: defects, overproduction, waiting, transportation, movement, unnecessary processing, inventory. Kanban Pull System -A manual, self-regulating system for controlling the flow of material. Workers produce only when the Kanban ahead of them is empty, thereby creating apull system through the factor.