Deck 15: Managing Operations, Quality, and Productivity

Question 1

What differences would you expect to find in the quality dimensions of an upscale hotel and those of a lower-priced hotel?

Answer 1

The quality of an upscale hotel over a lower priced hotel would differ on the following:
• Facilities like spa, in room bar/refrigerator, bathtub, butler service and others
• Product spectrum in services, food, laundry and others.
• Room size, furnishing quality and décor.
• Staff efficiency and grooming for client interactions.

Question 2

Explore the websites of four hotel chains. Identify the specific quality dimensions used by each to promote its guest experience.

Answer 2

The budget business hotel chain G Hotels from Company T offers self-sufficient rooms in all its locations. It offers services based on customer driven requirements, in this case the business traveler. It pushes ecofriendly practices like reduced linen change cycles. Facilities like Wi-Fi zones, gyms, off hour services are available.
Luxury space brand W of the SW Hotels company was a victim of oversupply of rooms. They addressed the crisis with improved quality at all levels to make a mark in the customer's memory. They did this by creating a single department to address customer needs rather than say a call to housekeeping. Franchising was another solution to expand the brand. Suppliers were selected for meeting quality standards. This meets the requirement of quality for the employees, who further deliver the quality of experience to the customer. Technology support is given in the rooms for the customers to use their gadgets in the room.
The aim is to retain customers while waiting for the new ones to join up.
Hotel chain LT from F Hotels in 2012 went into a strategic partnership to expand their chain and upgrade to full service hotels. The hotels respond to reviews on travel sites building communities with customers. The fresh lime green and yellow colors associate with the expectation of ta fresh experience. Besides business facilities they have added coffee shops and specialty restaurants to enhance customer experience. Encouraging online booking are loyalty points and exclusive offers, bringing back return bookings. The statements on sustainability, feeding strays and other elements point to the ecofriendly operations. The chain has different scales of hotels for customers to fit in their requirements.
Super luxury brand HWM is a top end facility chain. The chain prides itself on consistent quality that is customer driven. As for all hotels the check in experience and the rooms are given maximum attention. The quality is maintained through intensive induction training at all levels. Known for cleanliness and safety these elements are maintained at all levels.

Question 3

Amazon Rekindles Its Flair for Technology
As you probably know, selling things online-online retailing, or e-tailing -is the only thing that Amazon.com does. Unlike online rivals, such as Barnes Noble.com or Walmart.com, Amazon has no roof over its head-no bricks-and-mortar presence to anchor its online presence. The seller and its customers interact by website, e-mail, or phone. Behind the website, however, is one of the largest direct-to-consumer distribution operations in the world.
Founded in 1995 as a bookseller, Amazon does pretty well these days-nearly $5 billion in sales for the second quarter of 2009-but it's had its ups and downs. Early investors believed that the promise of online business outweighed the risks associated with the new type of enterprise, but it wasn't long before giddy expectation gave way to more sober assessment, as soaring costs kept pace with expanding sales and wiped out profits. That's when Amazon diversified its range of product offerings, adding toys, music, electronics, software, and household goods. Expansion continued to eat into profits, and the company had to make huge investments in infrastructure and IT before it finally went into the black in 2002.
Though fairly commonplace among today's online enterprises, Amazon's business model was revolutionary for its time. There was no need to open stores in high-rent shopping areas, and the company was free to choose locations for distribution centers based on cost and convenience to transportation facilities. Amazon's seven distribution centers stock thousands of popular items, but many of the goods that consumers buy through Amazon are in fact "drop-shipped" directly from the manufacturer. Amazon, therefore, can offer a multitude of products without incurring high inventory expenses, and because the middleman has been eliminated, delivery times are faster.
In addition, much of the work at Amazon facilities is automated. Workers use simple, menu-driven computer programs to access and monitor customer orders. Goods are then picked from the shelves and placed in a vast system of automated chutes and bins that bundles them appropriately. At one point, Amazon had tried to minimize shipping costs by bundling all items for shipment to a single address into one package. Now, however, the system relies on a more effective sorting algorithm that calculates optimal package size to both protect items and reduce costs. Automated scanners track the progress of every order, and automated boxers and labelers prepare goods for shipping.
Software, of course, is an important part of Amazon's operations because better systems hold down labor costs, increase accuracy and speed, enhance the customer experience, and support effective planning. Supply chain software, for example, uses a complex formula to choose which goods should be carried in distribution centers and which should be drop-shipped. Yet another algorithm constantly recalculates item popularity ratings to choose which goods to store in the most-frequented sections of warehouses.
Amazon is also a pioneer in the development of several operations technologies:
• "One-click" buying allows customers to make final purchases with a single mouse click. (The process is patented and licensed to other companies.)
• Amazon was one of the first online retailers to let customers post online product reviews, which not only boost sales but also contribute to a sense of community among users.
• Customers can review their order histories, create wish and favorites lists, share information with friends, receive personalized recommendations and gift-giving reminders, and tag items with customized category data.
Amazon's operations software is so popular with other firms that the company has launched a feature called Amazon Web Services, which allows independent programmers and merchants to access Amazon's library of software and adapt it for their own use. The library is free unless the "borrower" intends to sell through Amazon, in which case there's a 15 percent commission on each sale. The service has proven so popular that 22 percent of Amazon's sales are now conducted by other merchants. In February 2009, as part of Amazon Web Services, Amazon launched Amazon SimpleDB, a system that allows businesses to store and quickly retrieve simple data. Some companies already rely on Amazon's expertise to manage their websites. Target and Office Depot, for instance, contract their online presence to Amazon.
And now-for consumers-there's Kindle, which, ironically, hearkens back to Amazon's origins as a bookseller. Developed by an Amazon subsidiary called Lab126, Kindle is a software-hardware platform for reading electronic print material. The first-generation Kindle device came out at the very end of 2007 and was aimed primarily at readers of books, who Amazon founder and CEO Jeff Bezos promptly labeled "the last bastion of analog." "The vision [of Kindle]," he hastened to add, "is that you should be able to get any book-not just any book in print, but any book that's ever been in print-on this device in less than a minute."
By the end of 2008, Amazon had more than 275,000 titles available for download, but Kindle is designed to handle much more than books. With this device, which doesn't require a computer, Amazon allows you not only to download 1,500 books, but also even to subscribe to newspapers and magazines, which will automatically be downloaded as soon as new issues go to press. You can search for material through Google, follow links from blogs and other webpages, jot down notes on the page you're reading, and even capture selected passages with the equivalent of an electric highlighter. Kindle 2 and Kindle DX, each with larger displays and other new and improved features, arrived in early 2009, and there's also a Kindle for iPhone.
Eight months after its release, Amazon had sold nearly $100 million worth of Kindles, and by the end of the year, amid speculation that it was the iPod of the book world, the Kindle had sold double its projected sales figure (and equaled sales of the iPod in its first year of release). Analysts expect sales of $1.2 billion to $1.4 billion by 2010, which would amount to about 4 percent of Amazon's yearly revenue.
Go online to Amazon.com and select an item that comes from Amazon itself rather than from a drop shipper. What kind of purchasing decisions were necessary to make this product available at Amazon's price? What kind of inventory control decisions?

Answer 3

On the site of Company A, a product K was selected as an electronic book reader. The purchasing decision was based on:
• Convenience of reading eBooks over paper books
• Acceptance of technology
• Viability of having adequate choice of products for reading and delivery
• Customer experience
Inventory control decisions were based on the following:
• Economies of manufacture for product development, facility location etc.
• Demand for particular models

Question 4

Exercise Overview
Communication skills refer to the ability not only to convey information and ideas to others but also to handle information and ideas received from them. This exercise shows how you can use your communication skills in addressing issues of quality.
Exercise Background
You're the customer service manager of a large auto parts distributor. The general manager of a large auto dealer, one of your best customers, has sent the following letter, and it's your job to write a letter in response.
Dear Customer Service Manager:
On the first of last month, ABC Autos submitted a purchase order to your firm. Attached to this letter is a copy of the order. Unfortunately, the parts shipment that we received from you did not contain every item on the order. Further, that fact was not noted on the packing slip that accompanied your shipment, and ABC was charged for the full amount of the order. To resolve the problem, please send the missing items immediately. If you are unable to do so by the end of the week, please cancel the remaining items and refund the overpayment. In the future, if you ship a partial order, please notify us at that time and do not bill for items not shipped. I look forward to your reply and a resolution to my problem.
Sincerely,
A. N. Owner, ABC Autos
Attachment: Purchase Order 00001
Exercise Task
How would your answer differ if you found out that the parts were in the original shipment but had been stolen by one of your delivery personnel?

Question 5

What are some approaches to facilities layout? How do they differ from one another? How are they similar?

Question 6

Amazon Rekindles Its Flair for Technology
As you probably know, selling things online-online retailing, or e-tailing -is the only thing that Amazon.com does. Unlike online rivals, such as Barnes Noble.com or Walmart.com, Amazon has no roof over its head-no bricks-and-mortar presence to anchor its online presence. The seller and its customers interact by website, e-mail, or phone. Behind the website, however, is one of the largest direct-to-consumer distribution operations in the world.
Founded in 1995 as a bookseller, Amazon does pretty well these days-nearly $5 billion in sales for the second quarter of 2009-but it's had its ups and downs. Early investors believed that the promise of online business outweighed the risks associated with the new type of enterprise, but it wasn't long before giddy expectation gave way to more sober assessment, as soaring costs kept pace with expanding sales and wiped out profits. That's when Amazon diversified its range of product offerings, adding toys, music, electronics, software, and household goods. Expansion continued to eat into profits, and the company had to make huge investments in infrastructure and IT before it finally went into the black in 2002.
Though fairly commonplace among today's online enterprises, Amazon's business model was revolutionary for its time. There was no need to open stores in high-rent shopping areas, and the company was free to choose locations for distribution centers based on cost and convenience to transportation facilities. Amazon's seven distribution centers stock thousands of popular items, but many of the goods that consumers buy through Amazon are in fact "drop-shipped" directly from the manufacturer. Amazon, therefore, can offer a multitude of products without incurring high inventory expenses, and because the middleman has been eliminated, delivery times are faster.
In addition, much of the work at Amazon facilities is automated. Workers use simple, menu-driven computer programs to access and monitor customer orders. Goods are then picked from the shelves and placed in a vast system of automated chutes and bins that bundles them appropriately. At one point, Amazon had tried to minimize shipping costs by bundling all items for shipment to a single address into one package. Now, however, the system relies on a more effective sorting algorithm that calculates optimal package size to both protect items and reduce costs. Automated scanners track the progress of every order, and automated boxers and labelers prepare goods for shipping.
Software, of course, is an important part of Amazon's operations because better systems hold down labor costs, increase accuracy and speed, enhance the customer experience, and support effective planning. Supply chain software, for example, uses a complex formula to choose which goods should be carried in distribution centers and which should be drop-shipped. Yet another algorithm constantly recalculates item popularity ratings to choose which goods to store in the most-frequented sections of warehouses.
Amazon is also a pioneer in the development of several operations technologies:
• "One-click" buying allows customers to make final purchases with a single mouse click. (The process is patented and licensed to other companies.)
• Amazon was one of the first online retailers to let customers post online product reviews, which not only boost sales but also contribute to a sense of community among users.
• Customers can review their order histories, create wish and favorites lists, share information with friends, receive personalized recommendations and gift-giving reminders, and tag items with customized category data.
Amazon's operations software is so popular with other firms that the company has launched a feature called Amazon Web Services, which allows independent programmers and merchants to access Amazon's library of software and adapt it for their own use. The library is free unless the "borrower" intends to sell through Amazon, in which case there's a 15 percent commission on each sale. The service has proven so popular that 22 percent of Amazon's sales are now conducted by other merchants. In February 2009, as part of Amazon Web Services, Amazon launched Amazon SimpleDB, a system that allows businesses to store and quickly retrieve simple data. Some companies already rely on Amazon's expertise to manage their websites. Target and Office Depot, for instance, contract their online presence to Amazon.
And now-for consumers-there's Kindle, which, ironically, hearkens back to Amazon's origins as a bookseller. Developed by an Amazon subsidiary called Lab126, Kindle is a software-hardware platform for reading electronic print material. The first-generation Kindle device came out at the very end of 2007 and was aimed primarily at readers of books, who Amazon founder and CEO Jeff Bezos promptly labeled "the last bastion of analog." "The vision [of Kindle]," he hastened to add, "is that you should be able to get any book-not just any book in print, but any book that's ever been in print-on this device in less than a minute."
By the end of 2008, Amazon had more than 275,000 titles available for download, but Kindle is designed to handle much more than books. With this device, which doesn't require a computer, Amazon allows you not only to download 1,500 books, but also even to subscribe to newspapers and magazines, which will automatically be downloaded as soon as new issues go to press. You can search for material through Google, follow links from blogs and other webpages, jot down notes on the page you're reading, and even capture selected passages with the equivalent of an electric highlighter. Kindle 2 and Kindle DX, each with larger displays and other new and improved features, arrived in early 2009, and there's also a Kindle for iPhone.
Eight months after its release, Amazon had sold nearly $100 million worth of Kindles, and by the end of the year, amid speculation that it was the iPod of the book world, the Kindle had sold double its projected sales figure (and equaled sales of the iPod in its first year of release). Analysts expect sales of $1.2 billion to $1.4 billion by 2010, which would amount to about 4 percent of Amazon's yearly revenue.
What types of decisions common to manufacturing firms does Amazon make? What types of decisions common to service firms? How do both types of decisions relate to the marketing of Kindle?

Question 7

Exercise Overview
As we noted in this chapter, the quality of a product or service is relative to price and customer expectations. This exercise is designed to show that a manager's diagnostic skills-his or her ability to visualize the most appropriate response to a situation-can be useful in positioning a product's quality relative to price and customer expectations.
Exercise Background
Think of a recent occasion when you purchased a tangible product-say, clothing, electronic equipment, luggage, or professional supplies-which you subsequently came to feel was of especially high quality. Now think of another product that you regarded as being of appropriate or adequate quality, and then a third product that you judged to be of low or poor quality. (You should now have three separate products in mind.) Next, recall three parallel experiences involving purchases of services. Examples might include an airline, train, or bus trip; a restaurant meal; a haircut; or an oil change for your car. (Again, you should have three examples in total.)
Finally, recall three experiences involving both products and services. Perhaps you got some information about a product that you were buying or you returned a defective or broken product for a refund or warranty repair. Were there any instances in which there was an apparent disparity between product and service quality? Did a poor-quality product, for instance, receive surprisingly good service or a high-quality product receive mediocre service?
Exercise Task
Can high-quality customer service offset adequate or even poor product quality? Can outstanding product quality offset adequate or even poor customer service?

Question 8

Exercise Overview
Communication skills refer to the ability not only to convey information and ideas to others but also to handle information and ideas received from them. This exercise shows how you can use your communication skills in addressing issues of quality.
Exercise Background
You're the customer service manager of a large auto parts distributor. The general manager of a large auto dealer, one of your best customers, has sent the following letter, and it's your job to write a letter in response.
Dear Customer Service Manager:
On the first of last month, ABC Autos submitted a purchase order to your firm. Attached to this letter is a copy of the order. Unfortunately, the parts shipment that we received from you did not contain every item on the order. Further, that fact was not noted on the packing slip that accompanied your shipment, and ABC was charged for the full amount of the order. To resolve the problem, please send the missing items immediately. If you are unable to do so by the end of the week, please cancel the remaining items and refund the overpayment. In the future, if you ship a partial order, please notify us at that time and do not bill for items not shipped. I look forward to your reply and a resolution to my problem.
Sincerely,
A. N. Owner, ABC Autos
Attachment: Purchase Order 00001
Exercise Task
Write an answer to the customer's letter that assumes that you now have the parts available.

Question 9

Some quality gurus claim that high-quality products or services are those that are error free. Others claim that high quality exists when customers' needs are satisfied. Still others claim that high-quality products or services must be innovative. Do you subscribe to one of these views? If not, how would you define quality? Explain how the choice of a quality definition affects managers' behavior.

Question 10

What is the relationship of operations management to overall organizational strategy? Where do productivity and quality fit into that relationship?

Question 11

Given what IDEO found out about hotel guest experiences in its research for Marriott, how might you use each of the following TQM components to improve quality at a mid-market hotel: strategic commitment, employee involvement, technology, and methods?

Question 12

Exercise Overview
As we noted in this chapter, the quality of a product or service is relative to price and customer expectations. This exercise is designed to show that a manager's diagnostic skills-his or her ability to visualize the most appropriate response to a situation-can be useful in positioning a product's quality relative to price and customer expectations.
Exercise Background
Think of a recent occasion when you purchased a tangible product-say, clothing, electronic equipment, luggage, or professional supplies-which you subsequently came to feel was of especially high quality. Now think of another product that you regarded as being of appropriate or adequate quality, and then a third product that you judged to be of low or poor quality. (You should now have three separate products in mind.) Next, recall three parallel experiences involving purchases of services. Examples might include an airline, train, or bus trip; a restaurant meal; a haircut; or an oil change for your car. (Again, you should have three examples in total.)
Finally, recall three experiences involving both products and services. Perhaps you got some information about a product that you were buying or you returned a defective or broken product for a refund or warranty repair. Were there any instances in which there was an apparent disparity between product and service quality? Did a poor-quality product, for instance, receive surprisingly good service or a high-quality product receive mediocre service?
Exercise Task
Review your list of nine purchase experiences and then do the following:
Assess the extent to which the quality that you associated with each was a function of price and your expectations.

Question 13

Amazon Rekindles Its Flair for Technology
As you probably know, selling things online-online retailing, or e-tailing -is the only thing that Amazon.com does. Unlike online rivals, such as Barnes Noble.com or Walmart.com, Amazon has no roof over its head-no bricks-and-mortar presence to anchor its online presence. The seller and its customers interact by website, e-mail, or phone. Behind the website, however, is one of the largest direct-to-consumer distribution operations in the world.
Founded in 1995 as a bookseller, Amazon does pretty well these days-nearly $5 billion in sales for the second quarter of 2009-but it's had its ups and downs. Early investors believed that the promise of online business outweighed the risks associated with the new type of enterprise, but it wasn't long before giddy expectation gave way to more sober assessment, as soaring costs kept pace with expanding sales and wiped out profits. That's when Amazon diversified its range of product offerings, adding toys, music, electronics, software, and household goods. Expansion continued to eat into profits, and the company had to make huge investments in infrastructure and IT before it finally went into the black in 2002.
Though fairly commonplace among today's online enterprises, Amazon's business model was revolutionary for its time. There was no need to open stores in high-rent shopping areas, and the company was free to choose locations for distribution centers based on cost and convenience to transportation facilities. Amazon's seven distribution centers stock thousands of popular items, but many of the goods that consumers buy through Amazon are in fact "drop-shipped" directly from the manufacturer. Amazon, therefore, can offer a multitude of products without incurring high inventory expenses, and because the middleman has been eliminated, delivery times are faster.
In addition, much of the work at Amazon facilities is automated. Workers use simple, menu-driven computer programs to access and monitor customer orders. Goods are then picked from the shelves and placed in a vast system of automated chutes and bins that bundles them appropriately. At one point, Amazon had tried to minimize shipping costs by bundling all items for shipment to a single address into one package. Now, however, the system relies on a more effective sorting algorithm that calculates optimal package size to both protect items and reduce costs. Automated scanners track the progress of every order, and automated boxers and labelers prepare goods for shipping.
Software, of course, is an important part of Amazon's operations because better systems hold down labor costs, increase accuracy and speed, enhance the customer experience, and support effective planning. Supply chain software, for example, uses a complex formula to choose which goods should be carried in distribution centers and which should be drop-shipped. Yet another algorithm constantly recalculates item popularity ratings to choose which goods to store in the most-frequented sections of warehouses.
Amazon is also a pioneer in the development of several operations technologies:
• "One-click" buying allows customers to make final purchases with a single mouse click. (The process is patented and licensed to other companies.)
• Amazon was one of the first online retailers to let customers post online product reviews, which not only boost sales but also contribute to a sense of community among users.
• Customers can review their order histories, create wish and favorites lists, share information with friends, receive personalized recommendations and gift-giving reminders, and tag items with customized category data.
Amazon's operations software is so popular with other firms that the company has launched a feature called Amazon Web Services, which allows independent programmers and merchants to access Amazon's library of software and adapt it for their own use. The library is free unless the "borrower" intends to sell through Amazon, in which case there's a 15 percent commission on each sale. The service has proven so popular that 22 percent of Amazon's sales are now conducted by other merchants. In February 2009, as part of Amazon Web Services, Amazon launched Amazon SimpleDB, a system that allows businesses to store and quickly retrieve simple data. Some companies already rely on Amazon's expertise to manage their websites. Target and Office Depot, for instance, contract their online presence to Amazon.
And now-for consumers-there's Kindle, which, ironically, hearkens back to Amazon's origins as a bookseller. Developed by an Amazon subsidiary called Lab126, Kindle is a software-hardware platform for reading electronic print material. The first-generation Kindle device came out at the very end of 2007 and was aimed primarily at readers of books, who Amazon founder and CEO Jeff Bezos promptly labeled "the last bastion of analog." "The vision [of Kindle]," he hastened to add, "is that you should be able to get any book-not just any book in print, but any book that's ever been in print-on this device in less than a minute."
By the end of 2008, Amazon had more than 275,000 titles available for download, but Kindle is designed to handle much more than books. With this device, which doesn't require a computer, Amazon allows you not only to download 1,500 books, but also even to subscribe to newspapers and magazines, which will automatically be downloaded as soon as new issues go to press. You can search for material through Google, follow links from blogs and other webpages, jot down notes on the page you're reading, and even capture selected passages with the equivalent of an electric highlighter. Kindle 2 and Kindle DX, each with larger displays and other new and improved features, arrived in early 2009, and there's also a Kindle for iPhone.
Eight months after its release, Amazon had sold nearly $100 million worth of Kindles, and by the end of the year, amid speculation that it was the iPod of the book world, the Kindle had sold double its projected sales figure (and equaled sales of the iPod in its first year of release). Analysts expect sales of $1.2 billion to $1.4 billion by 2010, which would amount to about 4 percent of Amazon's yearly revenue.
What facets of Amazon's operations allow it to offer a highquality shopping experience to customers?

Question 14

Is operations management linked most closely to corporate-level, business-level, or functional strategies? Why or in what way?

Question 15

Exercise Overview
Communication skills refer to the ability not only to convey information and ideas to others but also to handle information and ideas received from them. This exercise shows how you can use your communication skills in addressing issues of quality.
Exercise Background
You're the customer service manager of a large auto parts distributor. The general manager of a large auto dealer, one of your best customers, has sent the following letter, and it's your job to write a letter in response.
Dear Customer Service Manager:
On the first of last month, ABC Autos submitted a purchase order to your firm. Attached to this letter is a copy of the order. Unfortunately, the parts shipment that we received from you did not contain every item on the order. Further, that fact was not noted on the packing slip that accompanied your shipment, and ABC was charged for the full amount of the order. To resolve the problem, please send the missing items immediately. If you are unable to do so by the end of the week, please cancel the remaining items and refund the overpayment. In the future, if you ship a partial order, please notify us at that time and do not bill for items not shipped. I look forward to your reply and a resolution to my problem.
Sincerely,
A. N. Owner, ABC Autos
Attachment: Purchase Order 00001
Exercise Task
How would your answer differ if you found out that the owner of ABC Autos made a mistake and that the order had been filled correctly?

Question 16

Defining Quality and Productivity
Introduction: Quality is a complex term whose meaning has no doubt changed over time. The following assessment surveys your ideas about and approaches to quality.
Instructions: You will agree with some of the statements and disagree with others. In some cases, making a decision may be difficult, but you should force yourself to make a choice. Record your answers next to each statement according to the following rating scale:
Rating Scale
4 Strongly agree
3 Slightly agree
2 Somewhat disagree
1 Strongly disagree
_______ 1. Quality refers to a product's or service's ability to fulfill its primary operating characteristics, such as providing a sharp picture for a television set.
_______ 2. Quality is an absolute, measurable aspect of a product or service.
_______ 3. The concept of quality includes supplemental aspects of a product or service, such as the remote control for a television set.
_______ 4. Productivity and quality are inversely related, so that, to get one, you must sacrifice the other.
_______ 5. The concept of quality refers to the extent to which a product's design and operating characteristics conform to certain set standards.
_______ 6. Productivity refers to what is created relative to what it takes to create it.
_______ 7. Quality means that a product will not malfunction during a specified period of time.
_______ 8. Quality refers only to products; it is immeasurable for services.
_______ 9. The length of time that a product or service will function is what is known as quality.
_______ 10. Everyone uses exactly the same definition of quality.
_______ 11. Quality refers to the repair ease and speed of a product or service.
_______ 12. Being treated courteously has nothing to do with the quality of anything.
_______ 13. How a product looks, feels, tastes, or smells is what is meant by quality.
_______ 14. Price, not quality, is what determines the ultimate value of service.
_______ 15. Quality refers to what customers think of a product or service.
_______ 16. Productivity and quality cannot both increase at the same time.

Question 17

What is TQM? What are the major characteristics of TQM?

Question 18

As a customer, what are the three quality dimensions that you consider important in a hotel room?

Question 19

How can a service organization use techniques from operations management? Give specific examples from your college or university (a provider of educational services).

Question 20

Amazon Rekindles Its Flair for Technology
As you probably know, selling things online-online retailing, or e-tailing -is the only thing that Amazon.com does. Unlike online rivals, such as Barnes Noble.com or Walmart.com, Amazon has no roof over its head-no bricks-and-mortar presence to anchor its online presence. The seller and its customers interact by website, e-mail, or phone. Behind the website, however, is one of the largest direct-to-consumer distribution operations in the world.
Founded in 1995 as a bookseller, Amazon does pretty well these days-nearly $5 billion in sales for the second quarter of 2009-but it's had its ups and downs. Early investors believed that the promise of online business outweighed the risks associated with the new type of enterprise, but it wasn't long before giddy expectation gave way to more sober assessment, as soaring costs kept pace with expanding sales and wiped out profits. That's when Amazon diversified its range of product offerings, adding toys, music, electronics, software, and household goods. Expansion continued to eat into profits, and the company had to make huge investments in infrastructure and IT before it finally went into the black in 2002.
Though fairly commonplace among today's online enterprises, Amazon's business model was revolutionary for its time. There was no need to open stores in high-rent shopping areas, and the company was free to choose locations for distribution centers based on cost and convenience to transportation facilities. Amazon's seven distribution centers stock thousands of popular items, but many of the goods that consumers buy through Amazon are in fact "drop-shipped" directly from the manufacturer. Amazon, therefore, can offer a multitude of products without incurring high inventory expenses, and because the middleman has been eliminated, delivery times are faster.
In addition, much of the work at Amazon facilities is automated. Workers use simple, menu-driven computer programs to access and monitor customer orders. Goods are then picked from the shelves and placed in a vast system of automated chutes and bins that bundles them appropriately. At one point, Amazon had tried to minimize shipping costs by bundling all items for shipment to a single address into one package. Now, however, the system relies on a more effective sorting algorithm that calculates optimal package size to both protect items and reduce costs. Automated scanners track the progress of every order, and automated boxers and labelers prepare goods for shipping.
Software, of course, is an important part of Amazon's operations because better systems hold down labor costs, increase accuracy and speed, enhance the customer experience, and support effective planning. Supply chain software, for example, uses a complex formula to choose which goods should be carried in distribution centers and which should be drop-shipped. Yet another algorithm constantly recalculates item popularity ratings to choose which goods to store in the most-frequented sections of warehouses.
Amazon is also a pioneer in the development of several operations technologies:
• "One-click" buying allows customers to make final purchases with a single mouse click. (The process is patented and licensed to other companies.)
• Amazon was one of the first online retailers to let customers post online product reviews, which not only boost sales but also contribute to a sense of community among users.
• Customers can review their order histories, create wish and favorites lists, share information with friends, receive personalized recommendations and gift-giving reminders, and tag items with customized category data.
Amazon's operations software is so popular with other firms that the company has launched a feature called Amazon Web Services, which allows independent programmers and merchants to access Amazon's library of software and adapt it for their own use. The library is free unless the "borrower" intends to sell through Amazon, in which case there's a 15 percent commission on each sale. The service has proven so popular that 22 percent of Amazon's sales are now conducted by other merchants. In February 2009, as part of Amazon Web Services, Amazon launched Amazon SimpleDB, a system that allows businesses to store and quickly retrieve simple data. Some companies already rely on Amazon's expertise to manage their websites. Target and Office Depot, for instance, contract their online presence to Amazon.
And now-for consumers-there's Kindle, which, ironically, hearkens back to Amazon's origins as a bookseller. Developed by an Amazon subsidiary called Lab126, Kindle is a software-hardware platform for reading electronic print material. The first-generation Kindle device came out at the very end of 2007 and was aimed primarily at readers of books, who Amazon founder and CEO Jeff Bezos promptly labeled "the last bastion of analog." "The vision [of Kindle]," he hastened to add, "is that you should be able to get any book-not just any book in print, but any book that's ever been in print-on this device in less than a minute."
By the end of 2008, Amazon had more than 275,000 titles available for download, but Kindle is designed to handle much more than books. With this device, which doesn't require a computer, Amazon allows you not only to download 1,500 books, but also even to subscribe to newspapers and magazines, which will automatically be downloaded as soon as new issues go to press. You can search for material through Google, follow links from blogs and other webpages, jot down notes on the page you're reading, and even capture selected passages with the equivalent of an electric highlighter. Kindle 2 and Kindle DX, each with larger displays and other new and improved features, arrived in early 2009, and there's also a Kindle for iPhone.
Eight months after its release, Amazon had sold nearly $100 million worth of Kindles, and by the end of the year, amid speculation that it was the iPod of the book world, the Kindle had sold double its projected sales figure (and equaled sales of the iPod in its first year of release). Analysts expect sales of $1.2 billion to $1.4 billion by 2010, which would amount to about 4 percent of Amazon's yearly revenue.
Describe Amazon's entire supply chain. From which activities in this supply chain does Amazon make money? At what points in the supply chain does Amazon outsource or contract activities to outsiders?

Question 21

If you were the manager of an upscale hotel, which three or four quality dimensions would you examine first to improve overall quality? If you were the manager of an economy hotel, which three or four quality dimensions would you examine first to improve overall quality?

Question 22

Exercise Overview
Communication skills refer to the ability not only to convey information and ideas to others but also to handle information and ideas received from them. This exercise shows how you can use your communication skills in addressing issues of quality.
Exercise Background
You're the customer service manager of a large auto parts distributor. The general manager of a large auto dealer, one of your best customers, has sent the following letter, and it's your job to write a letter in response.
Dear Customer Service Manager:
On the first of last month, ABC Autos submitted a purchase order to your firm. Attached to this letter is a copy of the order. Unfortunately, the parts shipment that we received from you did not contain every item on the order. Further, that fact was not noted on the packing slip that accompanied your shipment, and ABC was charged for the full amount of the order. To resolve the problem, please send the missing items immediately. If you are unable to do so by the end of the week, please cancel the remaining items and refund the overpayment. In the future, if you ship a partial order, please notify us at that time and do not bill for items not shipped. I look forward to your reply and a resolution to my problem.
Sincerely,
A. N. Owner, ABC Autos
Attachment: Purchase Order 00001
Exercise Task
How would your answer differ if ABC Autos were not a valued customer?

Question 23

Amazon Rekindles Its Flair for Technology
As you probably know, selling things online-online retailing, or e-tailing -is the only thing that Amazon.com does. Unlike online rivals, such as Barnes Noble.com or Walmart.com, Amazon has no roof over its head-no bricks-and-mortar presence to anchor its online presence. The seller and its customers interact by website, e-mail, or phone. Behind the website, however, is one of the largest direct-to-consumer distribution operations in the world.
Founded in 1995 as a bookseller, Amazon does pretty well these days-nearly $5 billion in sales for the second quarter of 2009-but it's had its ups and downs. Early investors believed that the promise of online business outweighed the risks associated with the new type of enterprise, but it wasn't long before giddy expectation gave way to more sober assessment, as soaring costs kept pace with expanding sales and wiped out profits. That's when Amazon diversified its range of product offerings, adding toys, music, electronics, software, and household goods. Expansion continued to eat into profits, and the company had to make huge investments in infrastructure and IT before it finally went into the black in 2002.
Though fairly commonplace among today's online enterprises, Amazon's business model was revolutionary for its time. There was no need to open stores in high-rent shopping areas, and the company was free to choose locations for distribution centers based on cost and convenience to transportation facilities. Amazon's seven distribution centers stock thousands of popular items, but many of the goods that consumers buy through Amazon are in fact "drop-shipped" directly from the manufacturer. Amazon, therefore, can offer a multitude of products without incurring high inventory expenses, and because the middleman has been eliminated, delivery times are faster.
In addition, much of the work at Amazon facilities is automated. Workers use simple, menu-driven computer programs to access and monitor customer orders. Goods are then picked from the shelves and placed in a vast system of automated chutes and bins that bundles them appropriately. At one point, Amazon had tried to minimize shipping costs by bundling all items for shipment to a single address into one package. Now, however, the system relies on a more effective sorting algorithm that calculates optimal package size to both protect items and reduce costs. Automated scanners track the progress of every order, and automated boxers and labelers prepare goods for shipping.
Software, of course, is an important part of Amazon's operations because better systems hold down labor costs, increase accuracy and speed, enhance the customer experience, and support effective planning. Supply chain software, for example, uses a complex formula to choose which goods should be carried in distribution centers and which should be drop-shipped. Yet another algorithm constantly recalculates item popularity ratings to choose which goods to store in the most-frequented sections of warehouses.
Amazon is also a pioneer in the development of several operations technologies:
• "One-click" buying allows customers to make final purchases with a single mouse click. (The process is patented and licensed to other companies.)
• Amazon was one of the first online retailers to let customers post online product reviews, which not only boost sales but also contribute to a sense of community among users.
• Customers can review their order histories, create wish and favorites lists, share information with friends, receive personalized recommendations and gift-giving reminders, and tag items with customized category data.
Amazon's operations software is so popular with other firms that the company has launched a feature called Amazon Web Services, which allows independent programmers and merchants to access Amazon's library of software and adapt it for their own use. The library is free unless the "borrower" intends to sell through Amazon, in which case there's a 15 percent commission on each sale. The service has proven so popular that 22 percent of Amazon's sales are now conducted by other merchants. In February 2009, as part of Amazon Web Services, Amazon launched Amazon SimpleDB, a system that allows businesses to store and quickly retrieve simple data. Some companies already rely on Amazon's expertise to manage their websites. Target and Office Depot, for instance, contract their online presence to Amazon.
And now-for consumers-there's Kindle, which, ironically, hearkens back to Amazon's origins as a bookseller. Developed by an Amazon subsidiary called Lab126, Kindle is a software-hardware platform for reading electronic print material. The first-generation Kindle device came out at the very end of 2007 and was aimed primarily at readers of books, who Amazon founder and CEO Jeff Bezos promptly labeled "the last bastion of analog." "The vision [of Kindle]," he hastened to add, "is that you should be able to get any book-not just any book in print, but any book that's ever been in print-on this device in less than a minute."
By the end of 2008, Amazon had more than 275,000 titles available for download, but Kindle is designed to handle much more than books. With this device, which doesn't require a computer, Amazon allows you not only to download 1,500 books, but also even to subscribe to newspapers and magazines, which will automatically be downloaded as soon as new issues go to press. You can search for material through Google, follow links from blogs and other webpages, jot down notes on the page you're reading, and even capture selected passages with the equivalent of an electric highlighter. Kindle 2 and Kindle DX, each with larger displays and other new and improved features, arrived in early 2009, and there's also a Kindle for iPhone.
Eight months after its release, Amazon had sold nearly $100 million worth of Kindles, and by the end of the year, amid speculation that it was the iPod of the book world, the Kindle had sold double its projected sales figure (and equaled sales of the iPod in its first year of release). Analysts expect sales of $1.2 billion to $1.4 billion by 2010, which would amount to about 4 percent of Amazon's yearly revenue.
Give three or four examples of ways in which Amazon's operations contribute to high productivity.

Question 24

Describe three basic decisions that must be addressed in the design of operations systems. For each decision, what information do managers need to make that decision?

Question 25

Exercise Overview
Communication skills refer to the ability not only to convey information and ideas to others but also to handle information and ideas received from them. This exercise shows how you can use your communication skills in addressing issues of quality.
Exercise Background
You're the customer service manager of a large auto parts distributor. The general manager of a large auto dealer, one of your best customers, has sent the following letter, and it's your job to write a letter in response.
Dear Customer Service Manager:
On the first of last month, ABC Autos submitted a purchase order to your firm. Attached to this letter is a copy of the order. Unfortunately, the parts shipment that we received from you did not contain every item on the order. Further, that fact was not noted on the packing slip that accompanied your shipment, and ABC was charged for the full amount of the order. To resolve the problem, please send the missing items immediately. If you are unable to do so by the end of the week, please cancel the remaining items and refund the overpayment. In the future, if you ship a partial order, please notify us at that time and do not bill for items not shipped. I look forward to your reply and a resolution to my problem.
Sincerely,
A. N. Owner, ABC Autos
Attachment: Purchase Order 00001
Exercise Task
Now review your answers to the previous questions. What are the important components of an effective response to a customer quality complaint (setting the tone, expressing an apology, suggesting a solution, and so on)? How did you use these components in your various responses?

Question 26

Exercise Overview
As we noted in this chapter, the quality of a product or service is relative to price and customer expectations. This exercise is designed to show that a manager's diagnostic skills-his or her ability to visualize the most appropriate response to a situation-can be useful in positioning a product's quality relative to price and customer expectations.
Exercise Background
Think of a recent occasion when you purchased a tangible product-say, clothing, electronic equipment, luggage, or professional supplies-which you subsequently came to feel was of especially high quality. Now think of another product that you regarded as being of appropriate or adequate quality, and then a third product that you judged to be of low or poor quality. (You should now have three separate products in mind.) Next, recall three parallel experiences involving purchases of services. Examples might include an airline, train, or bus trip; a restaurant meal; a haircut; or an oil change for your car. (Again, you should have three examples in total.)
Finally, recall three experiences involving both products and services. Perhaps you got some information about a product that you were buying or you returned a defective or broken product for a refund or warranty repair. Were there any instances in which there was an apparent disparity between product and service quality? Did a poor-quality product, for instance, receive surprisingly good service or a high-quality product receive mediocre service?
Exercise Task
Could the quality of each product or service be improved without greatly affecting its price? If so, how?

Question 27

What is productivity? Identify various levels and forms of productivity.

Question 28

"Automation is bad for the economy because machines will eventually replace almost all human workers, creating high unemployment and poverty." Do you agree or disagree? Explain your answer.

Question 29

Think of a firm that, in your opinion, provides a high-quality service or product. What attributes of the product or service give you the perception of high quality? Do you think that everyone would agree with your judgment? Why or why not?