Business Chapter #1 – Producing Goods and Services
Service Operations – Producing activities that yield tangible and intangible
Goods Production – Production activities that yield tangible products
Operations (Production) Management - The systematic direction and
control of the processes that transform resources into finished goods.
Production Managers – Managers responsible for ensuring that
operations processes create value and provide benefits
Operations Process – a set of methods and technologies used in the
production of a good or a service.
All goods-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
- In chemical processes, raw materials are chemically altered. Such
techniques are common in the aluminum, steel, fertilizer, petroleum,
and paint industries
- Fabrication processes mechanically alter the basic shape or form of a
product. Fabrication occurs in the metal forming, woodworking, and
- Assembly processes put together various components. These
techniques are common in the electronics, appliance, and automotive
- In transport processes, goods acquire place utility by being moved
from one location to another. For example, trucks routinely move
bicycles from manufacturing plants to consumers through
warehouses and discount stores.
- Clerical processes transform information. Combining data on
employee absences and machine breakdowns into a productivity
report is a clerical process. So is compiling inventory reports at a
Analytic Process – any production process in which resources are broken
Synthetic Process – any production process in which resources are
combined High Contact System – A system in which the service cannot be provided
without the customer being physically in the system (e.g. transit systems)
Low Contact System – A system in which the service can be provided
without the customer being physically in the system (e.g. lawn care
There are several key areas where service operations differ from
production operations. One very obvious difference exists between service
and manufacturing operations: Whereas goods are produced, services are
First, service operations feature a unique link between production and
consumption-between process and outcome. Second, services are more
intangible and more customized and less storable than most products.
Finally, quality considerations must be defined and managed, differently in
the service sector than in manufacturing operations.
Service companies’ transactions always reflect the fact that service
products are characterized by three key qualities: intangibility,
customization and unstorability.
Intangibility – the intangible value that the customer experiences in the form
of pleasure, satisfaction, or a feeling of safety.
Customization – When you visit a physician, you expect to be examined for
your symptoms, or have your haircut, or purchase insurance are all
services to be designed for your needs. Typically, therefore, services are
Unstorability – Services such as rubbish collection, transportation, childcare
and house cleaning cannot be produced ahead of time and then stored. If a
service is not used when it is available, it is usually wasted. Services, then,
are typically characterized by a high degree of unstorability.
Forecast – Estimates of future demand for both new and existing products
Capacity – the amount of a good that a firm can produce under normal
The capacity of a goods or service firm depends on how many people it
employs and the number and size of its facilities. Long range planning must
take into account both current and future capacity.
Because the location of a factory, office, or store affects its production
costs and flexibility, sound location planning is crucial. In goods-producing
operations, location decisions are influenced by proximity to raw materials and markets, availability of labour; energy and transportation costs, local
and provincial regulations and taxes, and community living conditions.
Once a site has been selected, managers must decide on plant layout.
Layout of machinery, equipment, and supplies determines whether a
company can respond quickly and efficiently to customer requests for more
and different products or finds itself unable to match competitors’
production speed or convenience of service.
In facilities that produce goods, layout must be planned for three different
types of space:
Productive facilities: workstations and equipment for transforming raw
materials, for example.
Non-productive facilities: storage and maintenance areas
Support Facilities: offices, restrooms, parking lots, cafeterias and so forth
Process Layout – a way of organizing production activities such that
equipment and people are grouped together according to their function
Cellular Layout – Used to produce goods when families of products can
follow similar flow paths
Product Layout – A way of organizing production activities such that
equipment and people are set up to produce only one type of good
Assembly Line – A type of product layout in which a partially finished
product moves through a plant on a conveyor belt or other equipment
U-Shaped Production Line – Production layout in which machines are
placed in a narrow U shape rather than in a straight line
Flexible Manufacturing System (FMS) – A production system that allows a
single factory to produce small batches of different goods on the same
Soft Manufacturing – reducing huge FMS operations to smaller, more
manageable groups of machines
In planning production systems and facilities, managers must keep in mind
the firm’s quality goals. Thus any complete production plan includes
systems for ensuring that goods are produced to meet the firm’s quality
In designing operations systems, managers must clearly identify every
production step and the specific methods for performing them. They can then work to reduce waste, inefficiency, and poor performance by
examining procedures on a step by step basis – an approach called
Service Flow Analysis – An analysis that shows the process of flows that
are necessary to provide a service to customers; it allows managers to
determine which processes are necessary
In some cases, however, the purpose of service design is to limit the range
of activities of both employees and customers. By careful planning- and
sometimes even by automating to control human discretion – managers
can make services more customer oriented because they can ensure
In a high-contact service, the demands on system designs are somewhat
different. Here, managers must develop procedures that clearly spell out
the ways in which workers interact with customers. These procedures must
cover such activities as exchanging information or money, delivering, and
receiving materials, and even making physical contact.
Once plans identify needed resources and how they will be used to reach a
firm’s goals, managers must develop timetables for acquiring resources for
production. This aspect of operations is called scheduling.
Master Production Schedule – schedule showing which products will be
produced, when production will take place, and what resources will be
Gantt Chart – Production schedule diagramming the steps in a project and
specifying the time required for each.
PERT Chart – Production schedule specifying the sequence and critical
path for performing the steps in a project
Operations Control – Managers monitor production performance by
comparing results with plans and schedules
Follow Up – Checking to ensure that production decisions are being
Operations control features materials management and production process
control. Both activities ensure that schedules are met and that production
goals are fulfilled, both in quantity and in quality.
Materials Management – Planning, organizing, and controlling the flow of
materials from purchase through distribution of finished goods Standardization – Using standard and uniform components in the
Once the product has been designed, materials managers purchase the
necessary materials and monitor the production process through the
distribution of finished goods. There are four major areas in materials
- Transportation includes the means of transporting resources to the
company and finished goods to buyers
- Warehousing is the storage of both incoming materials for
production and finished goods for physical distribution to customers
- Inventory Control includes the receiving, storing, handling, and