MGTA02H3 Study Guide - Midterm Guide: Operations Management, Microsoft Onenote, Mass Production
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MGTA #2 Midterm Notes
Friday, March 13, 2020 11:19 AM
Operations: Providing the Things that People Want
•Operations: the function of the business that transforms factors of production into the goods or services that customers want
Why "Operations and Not Production"
•The responsibility of managers in this function was called production management
•Production operations: activities that turn inputs into tangible goods
•Many of the things that we need or want are services
○The term operations is more inclusive, and helps us to remind us that like goods, services also require input
•Service operations: activities that turn inputs into intangible services
•Generally, the provision of services involves less focus on machinery and technology and a greater emphasis on human input
○Many services rely on human interaction
•Operations management: management of the creation of goods are services, and their satisfactory provision to the buyer
Special Characteristics of Services
1. Goods are made while services are performed
a. In many ways, this makes the provision of services more complex than the production of goods
2. Goods can be made in advance, services are performed immediately
a. Most goods can be made in a different time, and a different place from their purchase or consumption
b. If you are hungry and want to buy a meal, you need it immediately and where you are
i. This means that the operations managers of service businesses must do a great deal of precise planning for demand
c. Immediacy: the quality that makes something important or relevant because it is happening now
3. Many services require the involvement of the consumer
a. High contact services: service operations that necessarily involve interaction with the customer
b. Low contact services: service operations that don't necessarily involve interaction with the customer
c. Customer involvement adds complexity to the operations manager's job
i. Business must offer consumers sufficient capacity at the right time and place
ii. Employees of service businesses need the interpersonal skills that factory workers may not
4. Services are intangible
a. Manufactured products are tangible -> can see and touch them
b. Intangibility: the characteristic of services that makes them unable to be seen or touched
c. An important aspect of any service is the feeling of pleasure, satisfaction, or improvement that the customer receives as a result of receiving the
i. Service business needs to identify, and anticipate what intangible aspects of the service are needed to best satisfy the customer's needs
5. Services are customized
a. Customization: the characteristic that means that no two customers need the identical service, delivered in the same way
b. Customization means that services are harder to schedule
i. Operations managers of service business must build flexibility into their scheduling, or they must collect and analyze many customer
interactions in order to predict the distribution of service provisions
6. Services can not be stored
a. Services typically can't be purchased in bulk
Service Operations: Issues
•Immediacy: services can't be stored
○Goods: (a book) can be stored
○Services: (a meal) can not
○Goods (a pen) can be made without customer
○Services (a bus trip) can not
•Services are customized
○Goods (jeans) should be identical
○Services (hair cuts) should not
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High & Low (Human) Contact Services
The Activities of Operations Management
•Operations planning involves determining how much the business will be supplying to its customers
○Operations takes it starting point from the organization's overall business plan
•The business' owners and strategic leaders will use their prior knowledge and intuition, observation of existing competitors, and market research to develop
an idea of the potential size of the overall market
○Will allow business to forecast future demand for the business' goods or services
•Forecast: an estimate of the future demand for a business' goods and services
•Operations plan then needs to address:
1. Capacity: How much of the market should the business prepare to capture?
2. Location: Where should factories, warehouses, stores and offices be located?
3. Scheduling: What days of the week and hours will the business operate?
4. Layout: What’s the most efficient way to design factories, shops or offices?
5. Material Management: If raw materials and other inputs need to be acquired, from whom should they be bough, what quantities should be obtained,
and when must they be ordered
•Capacity: the quantity of product that a business plans to produce under normal working conditions
•Business’s capacity depends on the quantity of machinery and equipment that it uses, and on the number of people that it employs.
•A business whose capacity is too small may have to turn customers away, a business whose capacity is too large is wasting money on unused machinery and
under-employed workers. -> balance
•Location planning: decision as to where best to locate the business’ facilities and operations
•Choosing the best location for performing operations needs to take into consideration the location and availability of: raw materials, employees, electricity,
transportation, distribution intermediaries, customers.
•Canada’s most important industries was the manufacturing of automobiles, many of which were exported to US. Canada has competitive advantage in this
industry because important inputs are abundantly available in or near southern Ontario.
•High contact service business must be located close to the customer (location-location-location).
•Manufacturer of tangible goods enjoys more flexibility
○However, transportation isn’t free, and distribution intermediates add cost to a product
○So, even a business that make tangible goods must strike a balance between locating where the inputs are inexpensively abundant and locating close
to the market
•Layout planning: designing the business’ factories, shops, offices so as to provide maximum efficiency and effectiveness.
•Scheduling: determining when an activity should take place so as to accomplish a goal by its target completion date.
○Closely connected with planning (“I’ve run you a bath. I need you to jump in it and give yourself a good scrub”
Why Operations Management
•General managers are often too busy to pay attention to details
•A lot of projects facing costs; time; quality constraints
•Gantt Chart: a visual representation of all the activities required to complete an activity and the time needed to accomplish each activity.
○Intended to show the start and end date of the whole project, and the dates by which certain activities are to be accomplished if the project is to be
completed on time.
○X-axis at the top is expressed in hours, days, weeks, months, years, etc. y-axis – activities.
Supply Chain Management
•Very few goods/services can be created without buying goods and services from other businesses
•Supply chain: flow of materials and services between all the businesses that provide inputs into a finished product.
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○Eg. If your business is to tutor algebra to high school students, you’ll need to buy pens, paper from some stores; Car is assembled from steel, copper,
•Supply chain management: managing the flow of information and materials between all the suppliers and customers.
Doing More With Less
•Productivity: a ratio which measures how much gets achieved relative to the inputs that are used to achieve it
•Another word for productivity is efficiency
•Efficiency: a synonym for productivity. A ratio which measures how much gets achieved relative to the inputs that are used to achieve it
•All resources are scarce
○The amount of time, money and other inputs to create and deliver a product to a customer is finite
○It is in every business' interest to maximize its productivity or efficiency
•Examples of productivity:
○Average speed travelled by car
○Ratio of "bits per second" or "bps"
○Speed at which data travels
•One important measure of productivity
○Gross domestic product (GDP) per capita
○GDP per capita is the most widely used measure of a country's wealth relative to that of other countries
•Economic productivity: a measure of productivity that uses dollar value as the measure of output
•Eg. GDP per capita is calculated by dividing the total value of all the goods and services produced in a country, by the number of people who live there
○Allows us to compare productivity of bankers in different countries
Economic Productivity Influenced by Access to Factors of Production
•Canadians are wealthier than the citizens of all but a handful of countries
•Canada's prosperity is due to the fact that we enjoy plentiful supplies of all of the factors of production
○Many valuable natural resources
○Has one of the world's most sophisticated, safe and well-run banking systems
○Has one of the world's best-educated and best-trained labour forces
•Burundi -> one of the smallest and poorest countries
○Adult literacy rate of just 67%
•A measure of how productive an economy is GDP (capita)
•A country can be productive when it has plentiful, high quality factors of production that are used effectively
Real GDP Per Person/Capita
•Real GDP divided by population
•Better measure of material well-being than Nominal and Real GDP
•A country with higher GDP and large population might not fair well in this calculation
•Eg. India: Real GDP rank: 03*
○Real GDP per capita rank: 124*
Prosperity is Not the Result of Working Long Hours
•Working longer hours does not seem to make a country wealthier
•The Organisation of Economic Cooperation and Development (OECD) is a research organization with 34 member countries
○Collects and distributes research and data on the wealth creation, economic development, and productivity of its members
Why Canada is "productive"
•Clean water, fertile soil, oil, gold, natural forests, preserved eco-systems
•Healthy, well-educated, well-trained
•Canada has highest post secondary education participation among OECD countries
•Good transport, good communication, good finance system
•Canadian government supports business initiatives
•Patents, scholarly journals, global research
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