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,
• 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.
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
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.)
Ensureenoughspace,andworkersto meet demand.(badexample:Tim Horton’satUTSC)
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
Arrange store/factory for smooth flow of materials. (good layout: subways. Bad layout: Tim
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 processis aset of methods and technologies used in the production of agood or a
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
• 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
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
Both serviceandmanufacturing operationstransform raw materialsinto finishedproducts.
One very obcious difference exists between service and manufactring operations: Whereas
ServiceOperations: Special Issues
Services(serving ameal) cannot.
Products(a paper cup) canbemadewithout customer.
Products(jeans) should bethesame.
Service(hair cuts) should not. Service are experience, everyone needs differently. (dental, haircut) make management
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.
Contribution to Total Cdn. GDP2007
Finance: loans,deposits, investment advice
Consulting services: marketing, head-hunting Legal services: leases,wills, contracts
Education: schools, colleges,universities
Accounting: book-keeping, auditors, tax advice
Medical services: hospitals, doctors, dentists
Leisureservices: ski-hill operators,cinemas
Hospitality: hotels, bars,restaurants,coffeeshops
A business takes factors of production, and transforms them into products or services which
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
Productivity considersboth theamountsandthequaility of what is produced.
A ratio that compares:
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.
Most countriesuselabour productivity to measuretheir level of productivity: GDP/ total # of
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…)
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.
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.
An individual business’ measure of outputs (products or services) : inputs (labour, $$,
High ratio of output : inputs, higher profits!
Manufacturing: Labour hours/ product
Retailing: sales/ squarefoot
Restaurants: Revenue/ table, Revenue/ store
Productivity: Fast Food
McDonald’s $30billion avg. $6.00sales/store$2,300,000
Burger King $9.1 billion avg. $5.75 sales/store$1,300,000
Subway $9.6 billion avg. $6.95 sales/store$450,000
Productivity: Why it matters Peopleandraw materials cost $$
Themoretimeyou spendmaking aproduct: themoreit costs
Themorematerialsyou spendmaking aproduct: themoreit costs
Operationsmanagersconcernedwith thebest way to “make” things
Text book’s definition:
A product’s fitnessfor usein termsof offering thefeaturesthat consumerswant.
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
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
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
Benefits of superior quality:
Give thecustomer what they want:
No return of product
No repairing product
Lessbureaucracy no“junking” of defective products
Give thecustomer what they want:
They comeback: repeat customers
They comeback: easysales
Therefore: you canchargemore
Why “Quality” Is Important
Customerswho aren’t happy:
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!
Original cost $500
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
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
Every business consists of processes – activities that it performs regularly and routinely in
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
Business process re-engineering is redesigning of business processes to improve
1) Identify thebusinessactivity that will bechanged
2) Evaluate information and human resourcesto seeif they can meet the requirements
3) Diagnosethecurrent processto identify its strengthsandweaknesses
4) Createthenew processdesign
5) Implement thenew design. Understanding Accounting (1)
The "Functional" Areas
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.
Recording accounting transactions.(onephaseof accounting)
Who UsesAccounting Info?
Directors: Reward (or correct) Management (e.g. they need to know if fire or reward
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.
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)
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.)
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
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