Chapter 14: Operations Management



CHAPTER 14 - OPERATIONS MANAGEMENT

LEARNING OUTCOMES

After reading this chapter students should be able to:

1. Define operations management and explain its role.

2. Define the nature and purpose of value chain management.

3. Describe how value chain management is done.

4. Describe contemporary issues in managing operations.

Opening Vignette—Smooth Ride

SUMMARY

One company that manufactures school buses is Blue Bird North Georgia. School buses are a product where quality is paramount. Achieving an organizational culture that’s dedicated to quality and to efficient manufacturing isn’t an easy thing to do. Blue Bird’s plant in Lafayette, Georgia, started on its “lean” journey—that is, having a lean, efficient operation system—in 2003. Under new management, Blue Bird got serious about tackling its quality issues and implemented specific programs including: a material review board that evaluates and monitors materials usage; a quality control lab equipped with a computerized maintenance management system; an employee suggestion system; weekly management roundtable meetings; and a safety incentive program. One key contributor to the company’s success is measurement. The facility’s production manager said, “If you don’t measure something, you don’t know how well you’re doing.”

The customer reject rate is basically zero, with on-time delivery at 100 percent. The director of quality and risk management said, “Doing it right the first time takes a lot less time.” Safety has also improved. The company’s recordable injury rate was down 65 percent, and time lost due to injuries was down by 87 percent. After four years of hard work, the company achieved initial ISO 9001-2000 certification in March 2007. In addition, the facility was named one of Industry Week’s Best Plants for three years running.

Teaching Notes

1. What is operations management?

2. Why is measurement important?

3. What part do managers play?

WHY IS OPERATIONS MANAGEMENT IMPORTANT TO ORGANIZATIONS?

1 Described

1. Operations management refers to the design, operation, and control of the transformation process that converts such resources as labor and raw materials into goods and services that are sold to customers. (See Exhibit 14-1.)

2. Why is operations management so important to organizations and managers?

a) It encompasses processes in all organizations—services as well as manufacturing.

b) It’s important in effectively and efficiently managing productivity.

c) It plays a strategic role in an organization’s competitive success.

2 How Do Service and Manufacturing Firms Differ?

1 Transformation process—an operations system that creates value by transforming inputs into finished goods and service outputs.

2 Manufacturing organizations produce physical goods.

3 Service organizations produce nonphysical outputs in the form of services.

4 The economies of developed countries have gone from being dominated by the creation and sales of manufactured goods to the creation and sales of services.

5 Most of the world’s industrialized nations are predominantly service economies.

6 In the United States, nearly 80 percent of all private sector jobs are now in service industries.

3 How Do Businesses Improve Productivity?

3. Improving productivity has become a major goal in virtually every organization.

a) Productivity—the overall output of goods and services produced divided by the inputs needed to generate that output.

b) For countries, high productivity can lead to economic growth and development.

c) For individual organizations, increased productivity lowers costs and allows firms to offer more competitive prices.

4. Increasing productivity is key to global competitiveness.

a) Example, Japan’s economic prosperity in the 1980s.

b) Example, response of U.S. businesses.

5. Organizations that hope to succeed globally are looking for ways to improve productivity.

a) Example, Pella

b) Example, McDonald’s.

c) Example, Skoda Auto AS.

6. Productivity is a composite of people and operations variables.

a) W. Edwards Deming believed that managers, not workers, were the primary source of increased productivity.

b) The truly effective organization will maximize productivity by successfully integrating people into the overall operations system.

c) Example, Grove Madsen Industries in Las Vegas.

4 What Role Does Operations Management Play in a Company's Strategy?

7. From the late 1940s through the mid-1970s, manufacturing activities in the United States were taken for granted.

8. Meanwhile, managers in Japan, Germany, and other countries took the opportunity to develop modern, computer-based, and technologically advanced facilities.

a) U.S. manufacturers discovered that foreign goods were being made not only less expensively but also with better quality.

b) Today, successful manufacturers recognize the crucial role that operations management plays as part of the overall organizational strategy to establish and maintain global leadership.

Teaching Notes _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

|From the Past to the Present |

|William Edwards Deming was an American statistician, professor, author, lecturer, and consultant.12 He is widely credited with improving |

|production in the United States during World War II, although he’s probably best known for his work in Japan. From 1950 onward, he taught |

|Japanese top managers how to improve product design, product quality, testing, and sales, primarily through applying statistical methods. His |

|philosophy has been summarized as follows: “Dr. W. Edwards Deming taught that by adopting appropriate principles of management, organizations |

|can increase quality and simultaneously reduce costs (by reducing waste, rework, staff attrition and litigation while increasing customer |

|loyalty). The key is to practice continual improvement and think of manufacturing as a system, not as bits and pieces.” |

|Putting that philosophy into practice required following Deming’s 14 points for improving management’s productivity. |

|Which points are the most important? Why? |

|What was Deming's most important contribution? |

Teaching Notes _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

WHAT IS VALUE CHAIN MANAGEMENT AND WHY IS IT IMPORTANT?

1 Introduction

9. Examples: Dell Computer, Siemens AG's Computed Tomography, Timken and Black & Decker.

10. The concepts of value chain management are transforming operations management strategies and turning organizations around the world into finely tuned models of efficiency and effectiveness.

2 What is Value Chain Management?

11. Every organization needs customers if it’s going to survive and prosper.

12. Customers want some type of value from the goods and services they purchase, or use, and these end users determine what has value.

13. Value is the performance characteristics, features and attributes, or any other aspects of goods and services for which customers are willing to give up resources (usually money).

14. How is value provided to customers?

a) Through the transformation of raw materials and other resources into some product or service that end users need or desire—in the form they want, when they want it.

1 The value chain is the entire series of organizational work activities that add value at each step, beginning with the processing of raw materials and ending with a finished product in the hands of end users.

15. Value chain management—the process of managing the entire sequence of integrated activities and information about product flows along the entire value chain.

a) Supply chain management is internally oriented and focuses on the efficient flow of incoming materials to the organization.

b) Value chain management is externally oriented and focuses on both incoming materials and outgoing products and services.

c) Supply chain management is efficiency oriented (its goal is to reduce costs and make the organization more productive).

d) Value chain management is effectiveness oriented and aims to create the highest value for customers.

3 What are the Goals of Value Chain Management?

1. Who has the power in the value chain?

a) Ultimately, customers are the ones with power.

b) They’re the ones who define what value is and how it’s created and provided.

2. Using value chain management, managers seek to find that unique combination in which customers are offered solutions that truly meet their needs and at a price that can’t be matched by competitors.

a) Example, Shell Chemical Company.

3. A good value chain is one in which a sequence of participants work together as a team, each adding some component of value such as faster assembly, more accurate information, or better customer response and service to the overall process.

a) When value is created for customers and their needs and desires are satisfied, everyone along the chain benefits.

b) Example, Iomega Corporation.

|Right or Wrong? |

|What happens when one partner in a value chain wields its power and makes significant demands? For example, Wal-Mart required all its major |

|suppliers to have RFID (radio frequency identification) tags installed on all their products. In doing so, Wal-Mart hoped to save more than $8|

|billion annually by reducing theft and stocking out of items. But it’s costing each supplier up to $23 million to meet this demand. |

|What do you think? |

|Is this ethical? Why or why not? |

4 How Does Value Chain Management Benefit Businesses?

4. A survey of manufacturers noted four primary benefits of value chain management:

a) improved procurement

b) improved logistics

c) improved product development

d) enhanced customer order management

Teaching Notes ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

HOW IS VALUE CHAIN MANAGEMENT DONE?

1 Introduction

5. New solutions may be needed for the contemporary workplace in the form of a new business model or a strategic design for how a company intends to profit from its broad array of strategies, processes, and activities.

6. Example - IKEA

2 What are the Requirements for Successful Value Chain Management?

7. What does successful value chain management require? (See Exhibit 14-2.)

a) There are six main requirements listed below.

1 Coordination and collaboration.

b) Comprehensive and seamless integration among all members of the chain is absolutely necessary.

c) All partners in the value chain must identify things that they may not value but that customers do.

d) Sharing of information and analysis requires open communication among the various value chain partners.

a) See Developing your Collaboration Skill

Developing Your Collaboration Skill

About the Skill

Collaboration is the teamwork, synergy, and cooperation used by individuals when they seek a common goal. Given that value chain management is contingent on all partners working together, collaboration is critically important to the process.

Steps in Practicing the Skill

1. Look for common points of interest.

2. Listen to others.

3. Check for understanding.

4. Accept diversity.

5. Seek additional information.

6. Don’t become defensive.

Practicing the Skill

Interview managers from three different organizations discuss how they collaborate with others. What specific tips have they discovered for effectively collaborating with others? What problems have they encountered when collaborating? How have they dealt with these problems?

Teaching notes

Ask students, either as individuals or in groups, to share information from their interviews.

Ask the class to compare and contrast the information provided from each interview. Consider what is similar and what might be different about the answers given. Why do the students think information was similar or different? Would this relate to the individuals being interviewed (their individual backgrounds, ages, experiences, industry, etc.) or to their perceptions of the value of or need for collaboration? Why?

8. Technology investment.

a) Successful value chain management isn’t possible without a significant investment in information technology.

1) Example, Rollerblade, Inc.

b) What types of technology are important?

1) The key tools include supporting enterprise resource planning software (ERP) system that links all of an organization’s activities, sophisticated work planning and scheduling software, customer relationship management systems, business intelligence capabilities, and e-business connections with trading network partners.

2) Example, Dell Computer manages its supplier relationships almost exclusively online.

9. Organizational processes.

a) Organizational processes—the way organizational work is done.

b) Core competencies—the organization’s unique skills, capabilities, and resources.

c) Non-value-adding activities should be eliminated.

1) Where can internal knowledge be leveraged to improve flow of material and information?

2) How can we better configure our product to satisfy both customers and suppliers?

3) How can the flow of material and information be improved?

4) How can we improve customer service?

d) Three important conclusions about how organizational processes must change.

1) Better demand forecasting is necessary and possible because of closer ties with customers and supplier.

a) Example, Wal-Mart and Warner-Lambert’s Consumer Group (now a division of Pfizer, Inc.) collaborated to improve product demand forecast information. Their mutual efforts led to a $6.5 million increase in Wal-Mart’s sales of Listerine.

2) Selected functions may need to be done collaboratively with other partners in the value chain. (See Ethical Dilemma in Management.)

a) Example, Saint-Gobain Performance Plastics.

3) New measures are needed for evaluating the performance of various activities along the value chain.

a) Managers need a better picture of how well value is being created and delivered to customers.

b) Example, Nestle USA—redesigned its measurement system to focus on one consistent set of factors, including accuracy of demand forecasts and production plans, on-time delivery, and customer service levels.

10. Leadership.

a) Successful value chain management isn’t possible without strong and committed leadership.

1) J. Michael Hagan, CEO of Furon Company: “Value is a mind-set that not only has to be driven from the top down, but also from the bottom up. Everyone has to be asking whether a given task adds value; and if it doesn’t, why do it.”

2) Managers must make a serious commitment to identifying what value is, how that value can best be provided, and how successful those efforts have been.

b) It’s important that leaders outline expectations for what’s involved in the organization’s pursuit of value chain management.

1) This should start with a vision or mission statement that expresses the organization’s commitment to identifying, capturing, and providing the highest possible value to customers.

2) Being clear about expectations also extends to partners.

11. Employee/human resources.

a) Three main human resources requirements for value chain management are flexible approaches to job design, an effective hiring process, and ongoing training.

1) Flexibility is the key description of job design in a value chain management organization.

a) Jobs need to be designed around work processes that link all functions involved in creating and providing value to customers.

b) Focus needs to be on how each activity performed by an employee can best contribute to the creation and delivery of customer value.

2) Flexible jobs require employees who are flexible.

a) The organization’s hiring process must be designed to identify those employees who have the ability to quickly learn and adapt.

3) The need for flexibility also requires that there be a significant investment in continual and ongoing employee training.

a) Managers must see to it that employees have the knowledge and tools they need to do their jobs.

b) Example, Alenia Marconi System, based in Portsmouth, England.

12. Organization culture and attitudes.

a) Having cultural attitudes that include sharing, collaborating, openness, flexibility, mutual respect, and trust.

1) These attitudes encompass not only the internal partners in the value chain but external partners as well.

a) Example, American Standard—lots of face time and telephone calls.

b) Example, Dell Computer—almost exclusively through cyberspace.

2) Both approaches reflect each company’s commitment to developing long-lasting, mutually beneficial, and trusting relationships that best meet customers’ needs.

3 What are the Obstacles of Value Chain Management?

13. Exhibit 14-3 highlights the obstacles of value chain management.

14. Organizational barriers.

a) Refusal or reluctance to share information, unwillingness to accept change, and security issues.

b) Reluctance or refusal of employees to accept change can impede efforts toward successful implementation of value chain management.

c) Because value chain management relies heavily on a substantial information technology infrastructure, system security and Internet security breaches are issues that need to be addressed.

15. Cultural attitudes.

a) An absence of cultural attitudes—especially trust and control—also can be obstacles to value chain management.

b) There must be mutual respect for, and honesty about, each partner’s activities all along the chain.

c) But too much trust can also be a problem.

1) Many organizations are vulnerable to theft of intellectual property—proprietary information that’s critical to a firm’s efficient and effective operation.

d) Another cultural attitude that can be an obstacle to successful value chain management is the belief that when an organization collaborates with external and internal partners, it no longer controls its own destiny.

16. Required capabilities.

a) Capabilities that value chain partners must have include extreme coordination and collaboration, the ability to configure products to satisfy customers and suppliers, and the ability to educate internal and external partners.

b) These are essential to capturing and maximizing the value of the value chain, but often are difficult to achieve.

17. People.

a) Without unwavering commitment and willingness of an organization’s members to make it work, value chain management isn’t going to be successful.

b) Value chain management takes an incredible amount of time and energy on the part of an organization’s employees.

Teaching Notes _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

WHAT CONTEMPORARY ISSUES DO MANAGERS FACE IN MANAGING OPERATIONS?

1 Introduction

18. Every aspect of the economy needs to be re-examined and many products must be redesigned for greater efficiency.

2 What Role Does Technology Play in Operations Management?

19. Smart companies are looking at ways to harness technology to improve operations management.

a) Example, McDonalds - boost accuracy by 11%.

20. Managers still need to realize that the organization’s production activities must be more responsive.

a) Operations managers need systems that can reveal available capacity, status of orders, and product quality while products are in the process of being manufactured—not just after the fact.

b) Operations across the enterprise, including manufacturing, must be synchronized.

21. Technology is allowing manufacturing plants to control costs particularly in the areas of predictive maintenance, remote diagnostics, and utility cost savings.

a) If a piece of equipment breaks or reaches certain preset parameters that it’s about to break, it can ask for help.

b) Technology can initiate an e-mail or signal a pager at a supplier, the maintenance department, or contractor describing the specific problem and requesting parts and service.

|Technology and the Manager's Job |

|Welcome to the Factory of the Future |

|Summary |

|Experts at Georgia Tech’s Manufacturing Research Center say that three important trends are driving what tomorrow’s factories will look like. |

|One trend is globalization of the supply chain. In the factories of the future, design and business processes will be performed where it’s |

|most efficient and effective to do so. The second trend is technology that simultaneously dematerializes the product while vastly increasing |

|complexity. The third trend is demographics and the impact on demand patterns. Products will have shorter life cycles and more variety and |

|choices. “The challenge is for the future factory to be both adaptable over many different product lifecycles and flexible with regard to the |

|number of different products being produced in the same time frame.” |

|How can companies identify future trends? |

3 How do Managers Control Quality?

22. Many experts believe that organizations unable to produce high-quality products won’t be able to compete successfully in the global marketplace.

23. What is quality? (See Exhibit 14-4).

24. Quality initiatives are achieved through the four management functions—planning, organizing and leading, and controlling.

a) When planning for quality, managers must have quality improvement goals and strategies and plans to achieve those goals.

b) When organizing and leading for quality, it’s important for managers to look to their employees.

1) Organizations with extensive and successful quality improvement programs tend to rely on two important people approaches: cross-functional work teams and self-directed or empowered work teams.

c) When controlling for quality that quality improvement initiatives aren’t possible without having some way to monitor and evaluate their progress.

4 What Quality Goals Might Organizations Pursue?

25. ISO 9000 is a series of international quality management standards established by the International Organization for Standardization (), which sets uniform guidelines for processes to ensure that products conform to customer requirements.

26. Six Sigma is a quality standard that establishes a goal of no more than 3.4 defects per million units or procedures.

a) Sigma is the Greek letter that statisticians use to define a standard deviation from a bell curve. The higher the sigma, the fewer the deviations from the norm, and the fewer the defects.

5 How Are Projects Managed?

27. A project is a one-time-only set of activities with a definite beginning and ending point.

28. Project management is the task of getting the activities done on time, within budget, and according to specifications.

29. Project management has expanded into almost every type of business.

a) It fits well with a dynamic environment and the need for flexibility and rapid response.

b) Organizations are increasingly undertaking projects that are somewhat unusual or unique, have specific deadlines, contain complex interrelated tasks requiring specialized skills, and are temporary in nature.

6 What are Some Popular Project Scheduling Tools?

30. The Gantt chart is a planning tool developed around the turn of the century by Henry Gantt. (See History Module.)

a) It is essentially a bar graph, with time on the horizontal axis and the activities to be scheduled on the vertical axis.

b) The bars show output, both planned and actual, over a period of time.

c) The Gantt chart visually shows when tasks are supposed to be done and compares the assigned date with the actual progress on each.

31. A Gantt chart actually becomes a managerial control device—the manager looks for deviations from the plan.

32. See Exhibit 14-5.

33. A modified version of the Gantt chart is a load chart.

a) Load charts list either whole departments or specific resources.

b) Allows managers to plan and control for capacity utilization.

c) Load charts schedule capacity by work stations.

7 What is a PERT Network Analysis?

34. What if a manager had to plan a large project—such as a complex reorganization, the launching of a major cost-reduction campaign, or the development of a new product—that required coordinating inputs from marketing, production, and product design personnel?

35. See Exhibit 14-6

36. The program evaluation and review technique—usually just called PERT, or the PERT network analysis—was originally developed in the late 1950s for coordinating the more than 3,000 contractors and agencies working on the Polaris submarine weapon system.

a) This project was incredibly complicated, with hundreds of thousands of activities that had to be coordinated.

b) PERT is reported to have cut two years off the completion date for the Polaris project.

37. A PERT network is a flowchart-like diagram that depicts the sequence of activities needed to complete a project and the time or costs associated with each activity.

38. With a PERT network, a project manager must think through what has to be done, determine which events depend on one another, and identify potential trouble spots.

39. To understand how to construct a PERT network, you need to know three terms: events, activities, and critical path.

a) Events are end points that represent the completion of major activities.

b) Activities are the actions that take place.

c) The critical path is the longest or most time-consuming sequence of events and activities required to complete the project in the shortest amount of time.

d) Example, apply PERT to a construction manager’s task of building a 6,500-square-foot custom home.

1) Outline the major events in the construction project and your estimate of the expected time required to complete each activity. (See Exhibit 14-8.)

2) Based on the events, activities, and critical path, create PERT network. (See Exhibit 14-9.)

40. How does PERT operate?

a) Your PERT network tells you that if everything goes as planned, it will take just over 32 weeks to build the house.

1) Trace the network’s critical path: A B C D E F G H I J K L M N P Q.

2) Any delay in completing the events along this path will delay the completion of the entire project.

3) Slack time is the time difference between the critical path and all other paths.

4) If the project manager notices some slippage on a critical activity, perhaps slack time from a noncritical activity can be borrowed and temporarily assigned to work on the critical one.

41. Isn’t PERT both a planning and a control tool?

a) PERT helps to estimate the times associated with scheduling a project and gives clues about where controls should be placed.

b) Because any event on the critical path that is delayed will delay the overall project, attention needs to be focused on the critical activities at all times.

Teaching Notes _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

REVIEW AND APPLICATIONS

CHAPTER SUMMARY

1. Define operations management and explain its role. Operations management is the transformation process that converts resources into finished goods and services. Manufacturing organizations produce physical goods. Service organizations produce nonphysical outputs in the form of services. Productivity is a composite of people and operations variables. A manager should look for ways to successfully integrate people into the overall operations system. Organizations must recognize the crucial role that operations management plays as part of their overall strategy in achieving successful performance. Operations management refers to the design, operation and control of the transformation process.

2. Define the nature and purpose of value chain management. The value chain is the sequence of organizational work activities that add value at each step from raw materials to finished product. Value chain management is the process of managing the sequence of activities and information along the entire product chain. The goal of value chain management is to create a value chain strategy that meets and exceeds customers’ needs and desires and allows for full and seamless integration among all members of the chain. There are four benefits from value chain management: improved procurement, improved logistics, improved product development, and enhanced customer order management.

3. Describe how value chain management is done. The six main requirements for successful value chain management include coordination and collaboration, investment in technology, organizational processes, leadership, employees or human resources, and organizational culture and attitudes. The obstacles to value chain management include organizational barriers (refusal to share information, reluctance to shake up the status quo, or security issues), unsupportive cultural attitudes, lack of required capabilities, and employees unwilling or unable to do it.

4. Discuss contemporary issues in managing operations. Companies are looking at ways to harness technology to improve their operations management by extensive collaboration and cost control. ISO 9000 is a series of international quality management standards that set uniform guidelines for processes to ensure that products conform to customer requirements. Six Sigma is a quality standard that establishes a goal of no more than 3.4 defects per million units or procedures. Project management involves getting a project’s activities done on time, within budget, and accomplished to specifications. A project is a one-time-only set of activities that has a definite beginning and ending point in time. Popular project scheduling tools include Gantt charts, load charts, and PERT network analysis.

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To check your understanding of outcomes 14.1 – 14.4, go to and try the chapter questions.

UNDERSTANDING THE CHAPTER

1. What is operations management and how is it used in both manufacturing and service organizations?

Answer – Operations management refers to the design, operation, and control of the transformation process that converts such resources as labor and raw materials into goods and services that are sold to customers. In manufacturing organizations, the transformation process is used to produce physical goods. In service organizations, the transformation process is used to produce nonphysical outputs in the form of services. In both manufacturing and service organizations, operations management is being used to create value by transforming inputs into finished goods and services outputs.

2. What strategic role does operations management play?

Answer – Today, successful manufacturers recognize the crucial role that operations management plays as part of the overall organizational strategy to establish and maintain global leadership. In a manufacturing organization, this would mean fully integrating manufacturing into strategic planning decisions. It could mean investing in improving manufacturing technology, increasing the corporate authority and visibility of manufacturing executives, and incorporating existing and future production requirements into the organization’s overall strategic plan.

3. How might operations management apply to other managerial functions besides control?

Answer – Control of the transformation process that converts such resources as labor and raw materials into goods and services that are sold to customers is only one aspect of operations management. Operations management also includes the design and operation of the transformation process.

4. What types of organizational benefits does value chain management provide?

Answer – The organizational benefits of value chain management include improved customer service, cost savings and accelerated delivery times, improved quality, and inventory reductions. Additional benefits of value chain management include improved logistics management, increased sales, and increased market share.

5. Explain why managing productivity is important in operations management.

Answer – Managing productivity is important in operations management because high productivity can lead to economic growth and development. Employees can receive higher wages and company profits can increase without causing inflation. For individual organizations, increased productivity lowers costs and allows firms to offer more competitive prices. Increasing productivity is key to global competitiveness.

6. Who has the power in the value chain? Explain your response.

Answer: In value chain management, ultimately customers are the ones with the power. They’re he ones who define what value is and how it’s created and provided. Using value chain management, managers seek to find that unique combination in which customers are offered solutions that truly meet their needs and at a price that can’t be matched by competitors.

7. Choose two tasks that you do every week (for example, shop for groceries, host a poker party, clean your house/apartment, do laundry). For each one, identify how you could (a) be more productive in doing that task and (b) have higher-quality output from that task.

Answer: Student answers will vary as they select the tasks and apply the chapter concepts.

UNDERSTANDING YOURSELF

What’s My Negotiating Style?

INSTRUMENT Listed below are seven characteristics related to a person’s negotiating style. Each characteristic demonstrates a range of variation. Indicate your own preference by selecting a point along the 1-to-5 continuum for each characteristic.

|1. Approach |Confrontational |1 |2 |3 |4 |5 |Collaborative |

|2. Personality |Emotional |1 |2 |3 |4 |5 |Rational |

|3. Formality |High |1 |2 |3 |4 |5 |Low |

|4. Communication |Indirect |1 |2 |3 |4 |5 |Direct |

|5. Candidness |Closed |1 |2 |3 |4 |5 |Open |

|6. Search for options |Limited |1 |2 |3 |4 |5 |Many |

|7. Willingness to use power |Low |1 |2 |3 |4 |5 |High |

SCORING KEY To calculate your score, add up the scores for the 7 items

ANALYSIS AND INTERPRETATION People differ in the way they handle negotiations. This instrument attempts to tap the key dimensions that differentiate preferences in negotiation style. Your score on this test will range between 7 and 35. Research indicates that negotiation style is influenced by a number of factors—including the situation, your cultural background, and your work occupation. Nevertheless, experts in negotiation generally recommend individuals use a style that will result in a high score on this test. That is, they favor collaboration, rationality, a direct communication style, etc. We think it best to consider your total score in a situational context. For instance, while a high total score may generally be favorable, the use of an informal style may be a handicap for North Americans or Europeans when negotiating with Nigerians, who favor high formality. Similarly, Latin Americans tend to show their emotions in negotiation. So if you’re negotiating with Brazilians or Costa Ricans, a more emotional approach on your part may be appropriate or even expected.

Overview

Negotiating styles clearly vary among national cultures. The French like conflict. They frequently gain recognition and develop their reputations by thinking and acting against others. As a result, the French tend to take a long time in negotiating agreements, and they are not overly concerned about whether their opponents like or dislike them. The Chinese also draw out negotiations but for a different reason. They believe that negotiations never end. Like the Japanese, the Chinese negotiate to develop a relationship and a commitment to work together rather than to tie up every loose end.

Americans are known around the world for their impatience and their desire to be liked. Astute negotiators from other countries often turn these characteristics to their advantage by dragging out negotiations and making friendship conditional on the final settlement. North Americans try to persuade by relying on facts and appealing to logic. They counter opponents’ arguments with objective facts. They make small concessions early in the negotiation to establish a relationship and usually reciprocate opponents’ concessions. North Americans treat deadlines as very important.

Arabs try to persuade by appealing to emotion. They counter opponents’ arguments with subjective feelings. They make concessions throughout the bargaining process and usually reciprocate opponents’ concessions. Arabs approach deadlines very casually. Russians base their arguments on asserted ideals. They make few, if any, concessions. Any concession offered by an opponent is viewed as a weakness and is almost never reciprocated. Finally, the Russians tend to ignore deadlines.

Teaching Notes

The two basic negotiation categories are called integrative and distributive bargaining. The most identifying feature of distributive bargaining is that it operates under zero-sum conditions. The essence of distributive bargaining is negotiating over who gets what share of a fixed pie. When engaged in distributive bargaining, the negotiator’s tactics focus on trying to get the opponent to agree to a desired specific target point or to get as close to it as possible.

In contrast to distributive bargaining, integrative problem solving operates under the assumption that one or more settlements exist that can create a win-win solution. All things being equal, integrative bargaining is preferable to distributive bargaining, because the former builds long-term relationships and facilitates working together in the future. We don’t see more integrative bargaining in organizations because of the conditions necessary for this type of negotiation: parties who are open with information and candid about their concerns, a sensitivity by both parties to the other’s needs, the ability to trust one another, and a willingness by both parties to maintain flexibility.

Exercises

1. Trust Me; I Am A Used Car Dealer! Have a discussion with the class about their experiences when purchasing a car. You might want to have students research some of the techniques that car dealers use (perhaps with

as a starting point). Discuss with the class the ethics of these sales techniques. In other words, is all negotiating behavior ethical? You might also discuss what style would work best in dealing with a card dealer based upon how they scored on this assessment.

Learning Objective(s): To illustrate negotiating techniques using a common real-life example.

Preparation/Time Allotment: This should be about a 20-minute discussion. The research can take a few days: reading the cited article may take some students up to an hour.

Advantages/Disadvantages/Potential Problems: This is always a hot topic, because everyone has been “played” by a car salesperson. Make sure you relate the techniques to how they can work in an organization. You also might want to point out that the techniques are very situational … you do not, for example, want to give your boss a “final offer” like you would a car dealer. It is also interesting to compare the negotiating styles of individuals from different cultures. Many international students are very comfortable purchasing a car, because they negotiate for so many things in their home culture.

2. Try It, You Will Like It! Have a role-play either using a car buying situation or negotiating for a pay raise. You act as the manager or the car salesperson, and the students attempt to purchase a car at the best price or get a raise from you. Use some of the different negotiation tactics, and see how the students respond. “Pause” the activity from time to time to point out some of the techniques. As an option, have student observers determine and report to the class what techniques were used, how they were countered, and the overall effectiveness of the negotiation.

Learning Objective(s): To role-play a real negotiation.

Preparation/Time Allotment: This should be about a 30-minute activity.

Advantages/Disadvantages/Potential Problems: Make sure you select a student that will take this seriously and enjoy the challenge. You do not want a student that will simply reject your offers, or accept the first thing that you say. As a suggestion, during the selection/volunteering process, build up the need for only the best negotiators to “apply” as you want a real challenge – most people are too “easy” for you. Type A students typically cannot resist such a public challenge and often will make enjoyable and instructive opponents. You may want to prep the student a day ahead of time so that they can prepare. You can also use many of the more structured negotiation exercises that are available in the management literature, such as the prisoner’s dilemma rather than this more free-flowing exercise.

|FYIA (For Your Immediate Action) |

|WestWood Travel Services |

|To: Ebben Crawford, Director of Operations |

|From: Anne Mendales, President |

|Subject: ISO 9001 Certification |

|I’ve been doing a lot of reading on total quality management and I think we need to look at using TQM principles. Since our business has grown|

|from one office to five offices with nearly 50 employees, I want to ensure that we’re doing everything we can to meet our clients’ needs, |

|especially since we’ve lost some clients to competitors. |

|How might you apply the concepts of customer focus, continuous process improvement, benchmarking, training teamwork, and empowerment to our |

|travel business to make us more competitive? |

|Which concepts would most quickly improve our bottom line? |

|Case Applications |

|Stirring Things Up |

|Summary |

|Starbucks understands the important role each participant in its value chain plays. Starbucks offers a selection of coffees from around the |

|world. There are many potential challenges in “transforming” the raw material into the quality product and experience that customers expect at|

|Starbucks. Weather, shipping and logistics, technology, political instability, could potentially impact what Starbucks is in business to do. |

|Although those are significant operations management challenges, the most challenging issue facing Starbucks today is balancing its vision of |

|the uniquely Starbucks’ coffee experience with the realities of selling a $4 latte. |

|Starbucks’ products have become an unaffordable luxury for many. As revenues and profits have fallen during the economic downturn, CEO Howard |

|Schultz realized that “the company needed to change almost everything about how it operates.” The recession and growing competition forced |

|Starbucks to become more streamlined. |

|At one of the first stores to implement the “lean” techniques, the store manager looked for ways for her employees to be more efficient with |

|simple things like keeping items in the same place, moving drink toppings closer to where drinks are handed to customers, and altering the |

|order of assembly. After two months under the new methods, her store experienced a 10 percent increase in transactions. |

|Discussion Questions |

|Would you describe Starbucks’ production/operations technology in its retail stores as unit, mass, or process? Explain your choice. (Hint: |

|You’ll probably need to review this material found in Chapter 5’s “From the Past to the Present” box.) How does its production/operations |

|technology approach affect the way products are produced? |

|Answer: The first category, unit production, described the production of items in units or small batches. The second category, mass |

|production, described large-batch manufacturing. Finally, the third and most technically complex group, process production included |

|continuous-process production. Organizations adapt their structures to their technology depending on how routine their technology is for |

|transforming inputs into outputs. The structure affects the way products are produced; the more routine the technology, the more mechanistic |

|the structure can be, and organizations with more non-routine technology are more likely to have organic structures. |

|What uncertainties does Starbucks face in its value chain? Can Starbucks manage those uncertainties? If so, how? If not, why not? |

|Answer: The uncertainties stem from doing business and purchasing raw materials from many different countries, with many different cultures, |

|languages, business practices, etc. The value chain can experience challenges at any point along its extensive value chain. It can be managed|

|with the proper people in place, measurement tools and experience. |

|Go the company’s Web site, , and find the information on the company’s environmental activities from bean to cup. Select one |

|of the steps in the chain (or your professor may assign one). Describe what environmental actions it’s taking. How might these affect the way |

|Starbucks “produces” its products? |

|Answer: There environmental activities are extensive. Starbucks - We've always believed in caring for the environment. We share our |

|customers' commitment to the environment. And we believe in the importance of caring for our planet and encouraging others to do the same. As |

|a company that relies on an agricultural product, it makes good business sense. And as people living in the world, it is simply the right |

|thing to do. |

|Students can select from any number of initiatives and write about them, such as the goal of 100% of the cups will be reusable or recyclable |

|by 2015. We will significantly reduce our environmental footprint through energy and water conservation, recycling and green construction. |

|Also, Starbucks is committed to buying and serving the highest-quality, responsibly grown, ethically traded coffee to help create a better |

|future for farmers and a more stable climate. Students can explain that the production of its products revolve around its |

|environmentally-sound vision. |

|Research the concept of lean manufacturing. What does it mean? What benefits does “lean” offer? How might a business like Starbucks further |

|utilize the concepts of being lean? |

|Answer: Originally a Japanese methodology known as the Toyota Production System designed by Sakichi Toyoda, lean manufacturing centers around |

|placing small stockpiles of inventory in strategic locations around the assembly line, instead of in centralized warehouses. These small |

|stockpiles are known as kanban, and the use of the kanban significantly lowers waste and enhances productivity on the factory floor In |

|addition to eliminating waste, lean manufacturing seeks to provide optimum quality by building in a method whereby each part is examined |

|immediately after manufacture, and if there is a defect, the production line stops so that the problem can be detected at the earliest |

|possible time. The lean manufacturing method has much in common with the Total Quality Management (TQM) strategy. Both strategies empower |

|workers on the assembly line, in the belief that those closest to production have the greatest knowledge of how the production system should |

|work. |

|Starbucks is already utilizing lean techniques. These techniques should be implemented in every step of the value chain process in order to |

|maximize efficiencies and productivity. Utilizing 100% recyclable materials is a great way to minimize waste and maximize profitability. |

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