Quiz 20: Appendix: Managing the Value Chain Glossary Name Index Company Index Subject Index


Manufacturing and service organizations both produce products for customers, but there are some significant differences between them: • Manufacturing organizations produce physical goods, and service organizations produce nonphysical outputs. • Manufacturing organizations can inventory goods for later sale, but service organizations produce and deliver the output at the same time. • Manufacturing organizations can directly measure the quality of their products, but service organization quality is based on customer perception and is difficult to quantify. • Manufacturing organizations can produce standardized outputs, but service organizations customize each service delivery based on the needs of the customer. • Manufacturing organizations have a production process away from the consumer, but service organizations include the customer as a participant in the production process. In spite of their differences, both types of organizations can benefit from social networking tools such as wikis and social networking sites. These tools allow for real time communication and feedback from customers, and for sharing of knowledge between customers. All of this information can be used to improve the customer experience, by providing products that better meet their needs and easy access to information about the product.

Outsourcing can be a benefit to the company, when it hires an outside expert to perform specific functions. This prevents the cost of the company obtaining the knowledge necessary itself, and also reduces the need for facilities and personnel to produce that part of the product. There can also be hazards, such as a delayed delivery which holds up completion of an entire project or product. When deciding whether or not to outsource to a multinational supply chain or manufacture in-house, the following issues should be considered: • What is the past performance of the supply chain? Has it delivered on time or suffered from frequent delays in the past? • Is there the possibility of outsourcing to multiple suppliers, to reduce the impact of a delivery delay by one of them? • What would the cost be to bring the expertise in-house, and to operate a facility to produce the necessary items? How does that compare to the cost to outsource production? • Are there other issues which impact the decision, such as a need to produce a good in a specific country due to barriers to import or financial incentives? Once these issues are evaluated, the company should make a final decision based on both cost and schedule factors.

The ideal production layout of a facility depends on the needs of the customer. For example, an auto dealership should arrange its facility using a process layout. In this layout, activities are arranged in a path that the customer moves along. Here are the process steps a customer would encounter at the dealership: • When the customer enters the facility, they should first meet up with a sales person who can guide them through the process. The sales person will walk them to the showroom area where the vehicles are displayed, and work with the customer until a vehicle is selected. • Next the customer will enter a waiting area, where they will negotiate the price of the vehicle. • After a price is agreed upon, the customer will move to the financing office, where they will work out the details of payment for the vehicle. • If their vehicle is available, it will simultaneously be taken to the washing station for a final wash and prep. • Finally, the customer will meet up with their new vehicle at the back of the facility, and take charge of the keys. In contrast, an insurance company offering multiple product lines should organize its office in a cellular layout. When a customer arrives, they move to the next available open station to meet with an insurance representative. That representative will be able to help them with all the different types of insurance available through the office, so the customer will not have to move to multiple locations and speak to multiple people to purchase several policies at once.