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rsm100 chapter 11.doc

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Rotman Commerce
John Oesch

Chapter 11 Service operations: production activities that provide tangible and intangible service products Goods production: production activities that provide tangible productions The term production has historically referred to the making of physical goods but now we use it to refer to services (just like the term, operation) Service sector managers focus less on equipment and technology than on the human element in operations because success/ failure depends on provider-customer contact Distinction between goods producers and service providers are often blurred as all businesses are service operations to some extent Products, both goods and services, provide businesses with both economic results (profits, wages, goods purchased from other companies) and non-economic results (new tech., innovations, pollution) Products provide consumers with utility o Utility: power of a product to satisfy a human want; something of value Time utility: the quality of a product satisfying a human want because of the time at which it is made available Place utility: the quality of a product satisfying a human want because of where it is made available Ownership (possession) utility: the quality of a product satisfying a human want during its consumption or use Form utility: the quality of a product satisfying a human want because of its form (getting a haircut); requires raw materials to be transformed into a finished product Operations (or production) management: systematic direction and control of the processes that transform resources into finished goods and services o Production managers are ultimately responsible for creating utility for customers Production manager: managers responsible for ensuring that operations processes create value and provide benefits o They must bring raw materials, equipment, and labour together under a production plan that effectively uses all resources available Farmers can be classified as production managers as they use inputs (i.e. land, tractors, labour, etc) and through transformation (i.e. cultivation of plants and livestock), they obtain outputs (i.e. food products, profits, jobs) Operations process: a set of methods and technologies used in the production of a good or a service o Goods producing processes: Types of transformation technology: i.e. chemical processes chemically alter raw materials, fabrication processes mechanically alter the basic shape of a product, assembly processes put together various components, transport processes move goods from one location to another, and clerical processes transform information Analytic process: any production process in which resources are broken down (extracting aluminum from ores) Synthetic process: any production process in which resources are combined o Service-producing processes: High-contact system: a system in which the service cannot be provided without the customer being physically in the system (i.e. transit systems) Low-contact system: a system in which the service can be provided without the customer being physically in the system (i.e. lawn care services or auto repair shops) There is no one standard way for doing production; rather, it is a flexible activity that can be moulded into many shapes to give different production (or operations) Successful firms design their operations to support the companys business strategy (production operations are adjusted to support the firms target markets) Operations capability (production capability): the activity or process that production must do especially well, with high proficiency o Firms operations will be devoted to the operations capability Over time, successful firms can expand into additional capabilities (i.e. FedEx was built on its dependability, and is now noted for service quality and cost containment) In service production, the inputs are people who have unsatisfied needs or possessions and the outputs are people whose satisfactions have been met; in manufacturing production, inputs are raw materials and outputs are finished goods Customer-oriented performance is a key factor in measuring the effectiveness of a service company Focus of service operations is more complex than that of goods production o Service operations feature a unique link between process and outcome o Services are more intangible and more customized and less storable than most products o Quality considerations must be defined and managed differently in the service sector than in manufacturing operations Manufacturing operations emphasize outcomes in terms of physical goods whereas service operations have a combinations of goods and services (making a pizza and delivering/ serving it) Service operations are more likely to require different skills from manufacturing operations Service products are characterized by 3 qualities: o Intangibility: mostly intangible, but can be tangible as well o Customization: i.e. getting a haircut, purchasing insurance, etc o Unstorability: services like transportation, childcare, etc cannot be produced ahead of time and then stored Because service operations transform customers or their possessions, the customer is often present in the operations process and so the firm must be more open to consumers demands (i.e. the business must be located in a convenient area (place utility), the business must be o
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