Midterm Exam Notes Chapter 1, 2, 4 & 5 .docx

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

Service Operations Production activities that yield intangible services. (entertainment, transportation, education, andfood preparation.) Goodsproduction Production activitiesthat yield tangible products. WHAT DOES“PRODUCTION” MEAN TODAY? • Historically production referred to the making of physical goods like automobiles, toothpaste,televisions,toys, andsoforth. • Theconceptsaswe now usealsomeansservices. • As a rule, service-sector managers focus less on equipment and technology than on the humanelement in operations. TheGrowth of Global Operations • Production operationsaremoreenvironmentally friendly. CreatingValueThrough Production Products provide businesses with both economic results (profits, wages, goods purchased from other companies) andnon-economic results(new technology, innovations,pollution). Term production has historically been associated with manufacturing, it has been replaced in recent yearsby operations, aterm that reflectsboth servicesandgoodsproduction. “Operations” Management Defined: Textbook: Thedirection andcontrol of processesthat transform resourcesinto finishedgoods OR Chris: Themanagement of thecreation of goodsandservices,using thefactorsof production Production managers responsible for ensuring that operations processes create value and provide benefits. Must bring raw materials, equipment, and labour together under a production planthat effectively usesall theresourcesavailable in theproduction facility. What OperationsManagersDo? Makethingsor makethingshappen. Demandplanning: Forecast how much you needto make. (bad example: coffeeshop that runs out of coffee.) Capacity planning: Ensureenoughspace,andworkersto meet demand.(badexample:Tim Horton’satUTSC) Location planning: Find best location for getting materials, good employees, transport to market. (good example: auto making in Ontario. Bad example: REX DAN restaurant in UTSC student center down stairs) Layout planning: Arrange store/factory for smooth flow of materials. (good layout: subways. Bad layout: Tim Horton’s.) Schedule: To finish ontime, start ontime. (1976 Olympic Stadium finished1981) Farmers are also production managers. They create form utility by converting soil, seeds, sweat, gas and other inputs into beef cattle, tobacco, heat, milk, cash, and outputs. As production managers, farmers have the option of employing many workers to plant and harvest their crops. Or they may decide to useautomated machinery or some combination of workers and machinery. These decesions affect farmers’ costs, the building and equipment they own, andthequality andquantity of goodstheyproduce. Operation Processes Operation processis aset of methods and technologies used in the production of agood or a service. We can 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. Goods-Producing Processes • All goods-manufacturing processescan beclassified in two different ways: by the type of transformation technology that transforms raw materials into finished goodsandby theanalytic or synthetic natureof thetransformation process. Typesof TransformationTechnology. OperationsCreateValue–How? Fabrication: mechanically alter the basic shape or form of a product. Cut something in half, bendit. Makeatreeinto apaper. Assembly: put pieces/different ingredientstogether. Makebreadandcheeseinto asandwich. Transport: moving products/raw material from A to B. Move furniture from Halifax to Winnipeg. Clerical: Transform information. Combining data on employee absences and machine breakdownsinto aproductivity report is aclerical process.Add information/advice/packaging knowledge.Turn financial datainto aninvestment analysis. Chemical: Raw materials are chemically altered. Through heat/cold/mixture change material’s composition. DiffenencesBetweenServiceandManufacturing Operations Both serviceandmanufacturing operationstransform raw materialsinto finishedproducts. FocusonPerformance One very obcious difference exists between service and manufactring operations: Whereas goodsareproduced, servicesareperformed. ServiceOperations: Special Issues ServicesCan’t beStored Products(books) canbestored. Services(serving ameal) cannot. Servicesinvolve thecustomer Products(a paper cup) canbemadewithout customer. Services(bustrip) cannot. Servicesarecustomised Products(jeans) should bethesame. Service(hair cuts) should not. Service are experience, everyone needs differently. (dental, haircut) make management harder. “Operations” A businessmust offer what it claimsto offer ( acoffeeshopmust havecoffee) Why Its Called “Operations” “Production” impliesthat Canadianbusinessesmake“products”. In fact, 80%of Canadianswork in “services” Bankers,doctors, lawyers, professors,accountants: Don’t makeproducts But: thesesthingsstill needto beplanned,managed,supplied. Thus: “Operations” TheImportanceof Services Contribution to Total Cdn. GDP2007 Services69.1% Manufacturing 28.8% Agriculture2.1% Examplesof Services Finance: loans,deposits, investment advice Consulting services: marketing, head-hunting Legal services: leases,wills, contracts MoreServices Education: schools, colleges,universities Transportation:Air Canada,TTC,Taxis Accounting: book-keeping, auditors, tax advice Medical services: hospitals, doctors, dentists Leisureservices: ski-hill operators,cinemas Hospitality: hotels, bars,restaurants,coffeeshops Businessservices: photographers,PRcompanies OperationsCreateValue A business takes factors of production, and transforms them into products or services which customersvalue. Operations involve taking raw materials/other factors of production and adding value or utility. Productivity: Defined Tb: A measure of efficiency that compares how much is produced with the resourcesused to produceit. Productivity considersboth theamountsandthequaility of what is produced. A ratio that compares: Resources: products Inputs: outputs Responding to theProductivity Chanllenge Whenonecountry is moreproductive thananother, it will accumulatemorewealth. A nation whose prodctivity fails to increase as rapidly as that of competitor nations will see its standard of living fall. National Productivity Most countriesuselabour productivity to measuretheir level of productivity: GDP/ total # of workers A measureof how productive aneconomy is: acountry is productive whenit hasplentiful, cheap, high quality factorsof production. E.g. why Norway GDPis sohigh, becausethey havealot well educated,well trainedpeople. A country rich becauseits havealot of raw materials, natural resources.(oil, minerals…) ManufacturingVS. ServiceProductivity Manufacturing productivity is higher thanserviceproductivity. Industry productivity Agriculture is more productive in Canada than in many other nations because we use more sophisticatedtechnology ansuperior natural productivity edgein many areas. Company Productivity High productivity gives a company a competitive edge because its costs are lower: As a result, it canoffer its product atalower price(gain customers), or makegreater profit oneach item sold, pay workershigher wageswithout raising price. BusinessProductivity An individual business’ measure of outputs (products or services) : inputs (labour, $$, materials) High ratio of output : inputs, higher profits! Productivity: CommonRatios Manufacturing: Labour hours/ product Retailing: sales/ squarefoot Restaurants: Revenue/ table, Revenue/ store Productivity: Fast Food McDonald’s $30billion avg. $6.00sales/store$2,300,000 Burger King $9.1 billion avg. $5.75 sales/store$1,300,000 Subway $9.6 billion avg. $6.95 sales/store$450,000 Productivity: Why it matters Peopleandraw materials cost $$ Themoretimeyou spendmaking aproduct: themoreit costs Themorematerialsyou spendmaking aproduct: themoreit costs Operationsmanagersconcernedwith thebest way to “make” things Quality Defined Text book’s definition: A product’s fitnessfor usein termsof offering thefeaturesthat consumerswant. My definition Meeting or surpassing thecustomer’s expectations Both mention: CUSTOMER EXPECTATIONS Managing For Quality Total Quality Management (TQM) is a concept that exphasizes that no defects are tolerable andthat all employeesareresponsiblefor maintaining quality standard. Cheaper to doit properly thefirst time, thento repair or replacedefects. TQM involvesplanning, organizing, directing, andcontrolling. Planning for Quality Begin before products aredesigned or redesigned. Managersshould set goals for both quality levelsandquality reliability in thebeginning. Performancequality refersto theoverall degreeof quality; how well thefeaturesof aproduct meetconsumer’s needsandhow well theproduct performs. Performancequality mayor may not berelatedto quality reliability in aproduct Quality reliability refersto theconsistency of quality from unit to unit of aproduct. Organizing for Quality Everyonein acompany is responsible to ensurethequality. E.g. all employees are responsible for inspecting their own work. The overall goal is to reduce eventual problems to a minimumn by making the product correctly from the beginning. Leading for Quality Managers must inspire and motivate employees throughout the company to achieve quality goals. They need to help employees see how they affected quality and how quality affects their jobsandtheir company. Quality ownership – the idea that quality belongs to each person who creates or destroys it while performing a job; the idea that all workers must take responsibility for producing a quality product. Controlling for Quality By monitoring its products and services, a company can detect mistakes and make corrections. To do so, managers must first establish specific quality standards and measurements. Superior Quality Benefits of superior quality: Fewer costs: Give thecustomer what they want: No return of product No repairing product Lesstimeoncustomer service Lessbureaucracy no“junking” of defective products Additional revenues Give thecustomer what they want: They comeback: repeat customers They comeback: easysales Therefore: you canchargemore Why “Quality” Is Important Customerswho aren’t happy: they complain they demandrepair they demandrefund they stop buying they tell others Quality & Productivity: Example Buys alaptop atFutureShoppays$1,000 Laptop selling price= $1,000 10hourslabour x $25/hr = (250) $250raw materials = (250) Profit =$500(50%) Takeslaptop home,it doesn’t work! Angry unhappy customer complain! Customersdemandrepair Original price$1000 Original cost $500 Additional cost ComplaintsDept (1 hr. @$25) = 25 Repair Dept (1hr. @$25) = 25 Replacement part = 50 Revisedprofit = $400(40%) Results of Quality Problems Unhappy customers: 90% don’t complain They just… don’t goback Businesslosesall futuresales Unhappy customers,onaverage… Tell 9other peopleabout their experience Productivity & Quality Businessesmust recognizeconnection between: “quality” (do it right/meet expectations) and “productivity” (fewer defects/fewer repairs). Productivity & Quality: Conclusion Business:Makeproductscustomersarewilling to payfor Profit : Revenuesmust exceedexpenses Businessmust minimizetime, cost, effort of making products BusinessProcessRe-engineering Every business consists of processes – activities that it performs regularly and routinely in conducting business. E.g. receiving and storing materials from suppliers, billing patients for medical treatment, filing insurance claims for auto accidents, inspecting property for termites, opening chequing acchoutsor new custormers,filling custormer ordersfrom internet sales. Any businessprocesscan add value and customer satisfaction by performing processeswell. Any business can disappoint customers and irritate business partners by managing them poorly, Business process re-engineering is redesigning of business processes to improve performance,quality, andproductivity. TheRe-engineering Process 1) Identify thebusinessactivity that will bechanged 2) Evaluate information and human resourcesto seeif they can meet the requirements for change 3) Diagnosethecurrent processto identify its strengthsandweaknesses 4) Createthenew processdesign 5) Implement thenew design. Understanding Accounting (1)  The "Functional" Areas Human resource-Operations-Accounting-Marketing-Finance WhatAccountants Do? Tell a business profit and revenue. What is accounting? How to effient run a business. You need to collect information, organize information, present and analys information (data). Accounting - Definition Asystem for collecting, analysing and communicating financial information. Acconting - Purpose Measure business performance (e.g. $ sales, expenses, profits or losses, taxes) Translate this info so managers (and others) can make decisions. Bookkeeping Recording accounting transactions.(onephaseof accounting) Who UsesAccounting Info? Directors: Reward (or correct) Management (e.g. they need to know if fire or reward the manager) Shareholders: Buy more, or sell, shares? Bankers: Will the loan will be repaid? Employyees: Will I receive profit sharing? Receive such benefits as health care, insurance, vacation time, and retirement pay. (e.g. they want know if the business growing, or need to find another job.) Government: How much tax is owing? Investors and creditors: estimate returns to stockholders, to determine a company’s growth prospects, and to decide if the company is a good credit risk before investing or lending. So, everybody uses accounting information. But Mostly: Managers: Need to know how well a business is performing, and whether it is financially sound. Managers use accounting information to set goals, develop plans, set budgets, and evaluate future prospects. To measure, analyse and appraise all businesses, we need a common unit of measurement : the Dollar. Two Kinds ofAccounting Info. In any company, two fields of accounting – financial and managerial – can be distinguished by the different users they serve. Financial accounting system Tells external users (consumer groups, unions, shareholders, and government agencies) about financial condition of firm. Tends to look at business as a whole. (collect, analysing, present all of the information) ManagerialAccounting system Tells internal users (managers at all levels, employees, engineers, salepeople) about performance and problems, for planning, decision making and control purposes. Tends to look at individual products, plants or divisions. (more narrow needs.) FinancialAccounting -Audit Audit: an accountant’s examination of a company’s financial records to determine if it used proper procedures to prepare its financial reports Companies normally must provide audited financial reports when applying for loans or when selling stock. The audit will determine if the firm has controls to prevent errors or fraud from going undetected. FinancialAccounting – Fiscal Year Financial accounting information is collected on an annual basis. Because external users (shareholders, lenders) want to know if “the books” have been done correctly Year end does not need to be Dec. 31st. Owners choose start/end of financial year. Known as "fiscal" year. FinancialAccounting – Tax Accountants help businesses plan and prepare annual tax return – ensure taxes payments comply with thelaw. Financial Statements - GAAP One of the auditor’s responsibilities is to ensure that the client’s accounting system adheres go generally accepted accounting principles (GAAP) – Standard rules and methods used by accountantsin preparing financial reports. All businessesmust usesamepr
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