research and development (R&D) Work directed toward the innovation, introduction,
and improvement of products and processes.
An innovation is a new product or process that can be purchased. Put another way, an
idea may lead to an invention, but it cannot be called an innovation until it is
Respondents indicated that the three most important objectives of innovation are to
improve product quality, to increase production capacity, and to extend product range.
What have Canadian manufacturers done to regain a competitive edge? They've
emphasized the following:
• focusing on customers
• maintaining close relationships with suppliers and other companies to satisfy
• practising continuous improvement
• focusing on quality
• saving on costs through site selection
• relying on the Internet to unite companies
• adopting production techniques such as enterprise resource planning, computer-
integrated manufacturing, flexible manufacturing, and lean manufacturing
production The creation of finished goods and services using the factors of production:
land, labour, capital, entrepreneurship, and knowledge.
production management The term used to describe all of the activities that managers do
to help their firms create goods.
operations management A specialized area in management that converts or transforms
resources (including human resources) into goods and services.
In keeping with the need to focus on customers, one strategy in facility location is to find
a site that makes it easy for consumers to access the company's service and to maintain a
dialogue about their needs.
facility location The process of selecting a geographic location for a company's
operations. Why would companies spend millions of dollars to move their facilities from one
location to another? Issues that influence site selection include labour costs; availability
of resources, such as labour; access to transportation that can reduce time to market;
proximity to suppliers; proximity to customers; low crime rates; quality of life for
employees; a lower cost of living; and the ability to train or retrain the local workforce.
Another way to work closely with suppliers to satisfy your customers' needs is to locate
your production facilities near supplier facilities. That cuts the cost of distribution and
makes communication easier.15
Many of the major manufacturing companies (e.g., Microsoft) are developing new
Internet-focused strategies that will enable them and others to compete more effectively
in the future.25 These changes are having a dramatic effect on operations managers as
they adjust from a one-firm system to an inter-firm environment, and from a relatively
stable environment to one that is constantly changing and evolving. This linking of firms
is called supply chain management. We will briefly introduce you to this concept later in
facility layout The physical arrangement of resources (including people) in the
Many companies are moving from an assembly line layout, in which workers do only a
few tasks at a time, to a modular layout, in which teams of workers combine to produce
more complex units of the final product.
A process layout is one in which similar equipment and functions are grouped together.
When working on a major project, such as a bridge or an airplane, companies use a fixed-
position layout that allows workers to congregate around the product to be completed.
Before, quality control was often done by a quality control department at the end of the
production line. Products were completed and then tested. This resulted in several
1. There was a need to inspect other people's work. This required extra people and
2. If an error was found, someone would have to correct the mistake or scrap the
product. This, of course, was costly.
3. If the customer found the mistake, he or she might be dissatisfied and might even
buy from someone else thereafter.
quality Consistently producing what the customer wants while reducing errors before
and after delivery to the customer. six sigma quality A quality measure that allows only