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Introduction to Management II - Lecture 001

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Management (MGT)
Chris Bovaird

10 January 2013 CHAPTER 1: PRODUCING GOODS & SERVICES Service Operations are production activities that yield tangible and intangible service products. Goods Production is production activities that yield tangible products. WHAT DOES “PRODUCTION” MEAN TODAY? A business is an organised effort to provide things that customers want to buy. This implies the ability to provide the things that people want to buy. A business must offer what it claims to offer (IE: A coffee shop must have coffee). It is the direction and control of processes that transform resources into finished goods or the management of the creation of goods and services, using the factors of production. Operations make things or make things happen. Production implCanadian businesses make products. In fact, 80% of Canadians work in services. Bankers, doctors, lawyers, professors, and accountants don’t make products; they provide ideas, analyses, and information but these things still need to be planned, managed, and supplied. Service sector mangers focus less on equipment and technology than on the human element in operations because success or failure may depend on provider-customer contact. Employees who deal directly with customers affect customers feelings about the service, and is a key difference between production and service operations in the customer’s involvement. Customers are involved in all kinds of production because electronic communications are key components in winning and keeping customers in a huge range of competitive industries. Production operations have become more environmentally friendly. New technologies allow machines to run more cleanly, quickly, and safely, and to operate on a global scale. They can communicate with other machines in the company (via an intranet) and with other companies’ machines (via the internet). With the internet, producers of both services and goods are integrating their production activities with those of far off suppliers and customers. Importance of Services Contribution to total Canadian GDP, 2007: 2.1% 28.8% 69.1% Agriculture Services Manufacturing (IE: Finance: loans, deposits, investment advice; Consulting services: marketing, head-hunting; Legal services: leases, wills, contracts; Education: schools, colleges, universities; Transportation: Air Canada, TTC, Taxis; Accounting: book-keeping, auditors, tax advice; Medical Services: hospitals, doctors, dentists; Leisure Services: ski-hill operators, cinemas; Hospitality: hotels, bars, restaurants, coffee shops; Business Services: photographers, PR companies) CREATING VALUE THROUGH PRODUCTION Products provide businesses with both economic results (IE: profits, wages, goods purchased from other companies) and non-economic results (IE: new technology, innovations, pollution). Products (IE: books) can be stored, services (IE: serving a meal) cannot. Products can be made without customer, services (IE: bus trip) cannot. Products (IE: jeans) should be the same, services (IE: haircuts) should not. Production has historically been associated with manufacturing; it has been replaced in recent years by operation. Operations (Production) Management is the systematic direction and control of the processes that transform resources into finished goods. Managers are responsible for ensuring that operations processes create value and provide benefits – creating utility for customers, bringing raw materials, equipment, and labor together under a production plan that effectively uses all the resources available in the production facility. As demand for a good increase, they must schedule and control work to produce the amount required, controlling costs, quality levels, inventory, and plant and equipment. Farmers can be production managers. Operations Process is a set of methods and technologies used in the production of a good or a service. We describe goods according to the kind of transformation technology they require, or according to whether their operations process combines resources or breaks them into component parts. We can describe services according to the extent of customer contact required. Production System Inputs Transformation Outputs Farm Land, tractors, fertilizer Cultivation of livestock Food products Jewelry Store Merchandise, showroom Exchange of merchandise  Customers Good-manufacturing processes can be classified in two different ways: by the type of transformation technology that transforms raw materials into finished goods and by the analytic or synthetic nature of the transformation process. Types of transformation technology:  Chemical Processes are raw materials and chemically altered through heat, cold or mixture change in material’s composition (IE: Aluminum, steel, fertilizer, petroleum, and paint industries)  Fabrication Processes mechanically alter the basic shape or form of a product, cutting something in half, bending it (IE: Tree into paper, metal forming, woodworking, textile industries)  Assembly Processes putting together various components, pieces or different ingredients (IE: Making bread and cheese into a sandwich, electronics, appliance, automotive)  Transport Processes are goods that acquire place utility by being moved from one location to another, moving products or raw materials from A to B (IE: Trucks moving bicycles, moving furniture from Halifax to Winnipeg)  Clerical Processes transforms information, adding information, advice or packaging knowledge (IE: Combining data on employee absences, turning financial data into an investment analysis) Analytic Process is any production process in which resources are broken down (IE: Extracting aluminum from an ore called bauxite) Synthetic Process is any production process in which resources are combined (IE: Combining raw materials to produce finished products such as fertilizer or paint) Service Producing Processes Classifying services to whether a given service can be provided without the customer being part of the production system.  High Contact Processes is a system in which the service cannot be provided without the customer being physically in the system (IE: Transit system)  Low Contact Processes is a system in which the service can be provided without the customer being physically in the system (IE: Lawn care services, cashing in a cheque) Differences between Service and Manufacturing Operations In service production the raw materials or inputs are people who choose among sellers because they have either unsatisfied needs or possessions for which they require some form of care or alteration. The finished products or outputs are people with needs met and possessions serviced.  Focus on Performance – Goods are processed but services are performed. Service operations feature a unique link between production and consumption between process and outcome/ Services are more intangible and more customized and less storable than most products. Quality considerations must be defined, and managed, differently in the service sector than in manufacturing operations  Focus on Process and Outcome – Local gas company employees may need the interpersonal skills necessary to calm and reassure frightened customers who have reported gas leaks, factory workers who install gas pipes are far less likely to need such skills  Focus on Service Characteristics o Intangibility are services that cannot be touched, tasted, smelled, or seen (IE: Customer experiences of pleasure, satisfaction, safety) o Customization is when you expect services to be designed for your needs (IE: Physician, life insurance) o Unstorability is a service that is not used when it is available (IE: Rubbish collection, transportation, childcare)  Focus on Customer Service Link – The customers expect the business to be conveniently located, to be open at convenient times, to offer needed services at reasonable prices, and to extend prompt service o E-Commerce, electronically sellers collecting information about product features, delivery availability, and after-sales service with around the clock services  Focus on Service Quality Considerations – Service managers must understand that quality of work and quality of service are not necessarily synonymous (IE: Dissatisfaction if you had to pick up a repaired car a day later than promised) OPERATIONS PLANNING The business plan and forecasts developed by top managers guide operations planning. The business plan outlines goals and objectives including the specific goods and services that the firm will offer.  Demand Planning forecasts how much you need to make (IE: A bad example would be a coffee shop that runs out of coffee). Forecasts estimate the future demand for both new and existing products. It covers a 2-5 year period. Operations planning and control: Business plan and forecasts  Long-range operations plan  Operations schedules  Operations control  Output to customers.  Capacity Planning is the amount of good that a firm can produce under normal working conditions. It ensures enough space, and workers to meet demand (IE: A bad example would be Tim Horton's at UTSC) o Producing Goods – Ensuring that a manufacturing firm’s capacity slightly exceeds the normal demand for its product. If capacity is too small to meet demand, the company must turn away customers. If capacity greatly exceeds demand, the firm is wasting money by maintaining a plant that is too large, by keeping excess machinery online, or by employing too many workers o Producing Services – In low contact processes, maintaining inventory allows managers to set capacity at the level of average demand. In high contact processes, managers must plan capacity to meet peak demand  Location Planning is finding the best location for getting materials, good employees, and transport to market. The location of a business affects its production costs and flexibility, sound location planning is crucial (IE: A good example would be auto making in Ontario) o Producing Goods – Location decisions are influenced by proximity to raw materials and markets, availability of labor, energy and transportation costs, local and provincial regulations and taxes, and community living conditions. o Producing Services – In low contract processes, companies have some options, services can be located near resource suppliers, labour, customers, or transportation outlets. In high contract processes, services are more restricted, they must locate near the customers who are a part of the system.  Layout Planning is arranging the store or factory for smooth flow of materials (IE: When garbage is always under the sink) o Producing Goods – Facilities that produce goods must be planned for three different types of space:  Productive Facilities are works
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