Management of the Enterprise
Chapter 10: Producing World Class Goods and Services
October 20 2011
- One of the largest producers of forest products in the world, with plants in nearly all provinces
turning out a vast array of wood, furniture, and paper products.
- Is facing some serious challenges to its ability to remain a modern, competitive, industrial
- Today’s business climate is characterized by constant and restless change and dislocation, as
ever-newer technologies and increasing global competition force companies to respond quickly
to these challenges.
- Other companies will become stronger and more competitive, so the federal government’s
innovation strategy will focus on research and development as a way to improve our
Research and Development
- Research and Development (R&D) work directed toward the innovation, introduction, and
improvement of products and processes.
- The 3 most important objectives of innovation are to improve product quality, to increase
production capacity, and to extend product range.
- SIEID (Science, Innovation, and Electronic Information Division) believes that innovation and the
adoption and dissemination of innovation technologies and processes are vital to economic
growth and development.
- It continues to elaborate by stating that, through innovation, new products are introduced in
the market, new production processes are developed and introduced, and organizational
changes are made.
- Economic growth is being driven by the oil & gas and mineral and metals section, industries that
have traditionally low levels of R&D spending.
Canada’s Evolving Manufacturing and Services Base
- Canadian manufacturers did the following to regain a competitive edge:
Focusing on customers Maintaining close relationships with suppliers and other companies to satisfy
Practising continuous improvement
Focusing on quality
Saving on costs through site selection
Relying on the internet to unite companies
Adopting production techniques such as enterprise resource planning,
computer-integrated manufacturing, flexible manufacturing, and learn
- Manufacturing is not only important in employing Canadians, but is also critical to our economy,
as manufacturers perform 75% of private-sector R&D.
- Serious questions will be raised about replacing workers with robots and other machinery
- Major political decisions will be made regarding protection of Canadian manufacturers through
quotas and other restrictions on free trade.
- Service productivity is a real issue, as is the blending of service and manufacturing through the
From Production to Operations Management
- Production the creation of finished goods and services using the factors of production: land,
labour, capital, entrepreneurship and knowledge.
- Has historically been associated with manufacturing, but the nature of business has changed
significantly in the last 20 years or so.
- Canada is a service economy, that is dominated by the service sector which can be a benefit to
future graduates because many of the top-paying jobs are in legal services, medical services,
entertainment, broadcasting, and business services such as accounting, finance and
- Production Management the term used to describe all of the activities that managers do to
help their firms create goods.
- Operation Management a specialized area in management that converts or transforms
resources (including human resources) into goods and services.
Includes inventory management, quality control, production scheduling, follow-
up services and more.
Manufacturers Turn to a Customer Orientation and Services for Profit
- Many manufacturers have spent an enormous amount of money on productivity and quality
initiatives. - They’ve expanded operations management out of the factory and moved it closer to the
customer, providing services such as custom manufacturing, fast delivery, credit, installation and
- Another example of the growing importance of services is in the area of corporate computing.
- The average company spends only 1/5 of its annual personal computer budget on purchasing
- The rest (80%) goes to technical support, administration and other maintenance activities.
- Operations management has become much more focused on services, because by redirecting
corporate thinking towards satisfying customer needs better than the competition, they retain
- Facility Location the process of selecting a geographic location for a company’s operations.
- One strategy is to find a site that makes it easy for consumers to access the company’s service
and to maintain a dialogue about their needs.
- The ultimate in convenience is never having to leave home to get services.
Facility Location for Manufacturers
- A major issue of the recent past has been the shift of manufacturing organizations from one city
or province to another in Canada, or to other foreign sites.
- Such shifts sometimes result in pockets of unemployment in some geographic areas and lead to
tremendous economic growth in others that benefit from these shifts.
- Issues that influence site selection include labour costs, availability of resources, such as labour,
access to transportation that can reduce time to market; proximity to suppliers; proximity to
customers; low crime rates; quality of life for employees; a lower cost of living; and the ability to
train or retrain the local workforce.
- One of the most common reasons for a business move is the availability of inexpensive labour or
the right kind of skilled labour.
o Even though labour cost is becoming a smaller percentage of total cost in some highly
automated industries, the low cost of labour remains a key reason that many producers
move their plants.
o Inexpensive resources are another major reason for moving production facilities.
- Firms moving to areas where natural resources are inexpensive and plentiful, firms can
significantly lower costs – not only the cost of buying such resources but also the cost of
shipping finished products.
- Reducing time to market is another decision-making factor. o As manufacturers attempt to compete globally, they need sites that allow products to
move through the system quickly, at the lowest costs, so that they can be delivered
rapidly to customers.
o Access to various modes of transportation is thus critical.
- Work closely with suppliers to satisfy your customers’ needs, is to locate your production
facilities near supplier facilities.
Cuts the cost of distribution and makes communication easier.
- Building factories in foreign countries to get closer to international customers.
o When the firm selects foreign sites, they consider whether they are near airports,
waterways, and highways so that raw materials and finished goods can be moved
quickly and easily.
- Also study the quality of life for workers and managers.
Crime rate low?
Welcome new businesses?
- Outsourcing letting outside companies service them by doing what they are experts in.
Result sought is the best-quality products at the lowest possible price.
- The range of jobs now shifting to these countries includes accounting, financial analysis,
medicine, architecture, aircraft maintenance, law, film production and bank activities.
- While outsourcing may look good on paper financially, if a company does not do its homework,
outsourcing can become a problem due to language and cultural differences, differences in
- More than just a cost-saving tool, outsourcing is being used as a strategic tool for focusing
scarce human capital on core business activities.
Canada’s Auto Industry
- The auto industry is critical to Canada’s manufacturing economy.
- The industry supports jobs across Canada in 13 assembly plants, more than 540 parts
manufacturers, 3,900 dealerships and many other related industries.
- In recent years, faced with relatively high labour and pension costs, plants have closed,
eliminating thousands of jobs.
- To respond to the decreasing tend in new auto investments, a joint industry – government
council was established.
Has acknowledged tax cuts and provincial government support for the future of
the assembly industry. Taking Operations Management to the Internet
- Many of today’s rapidly growing companies do very little production themselves. They
outsource engineering, design, manufacturing, and other tasks to other companies that
specialize in those functions.
- Companies are creating whole new relationships with suppliers over the internet, so that
operations management is becoming an inter-firm process in which companies work together to
design, produce, and ship products to customers.
- These changes are having a dramatic effect on operations managers as they adjust from a one-
firm system to an inter-firm environment, and from a relatively stable environment to one that
is constantly changing and evolving.
- Supply chain Management linking of firms.
Facility Location in the Future
- Developments in information technology are giving firms and employees more flexibility than
ever before in choosing locations while staying in the competitive mainstream.
- One big incentive to locate or relocate in a particular city or province is the tax situation and
degree of government support.
- Some provinces and local government have higher taxes than others, yet many engage in fierce
competition by giving tax reductions and other support, such as zoning changes and financial
aid, so that businesses will locate there.
Operations Management Planning
- Issues include:
- Facility layout the physical arrangement of resources (including people) in the production
- The idea is to have offices, machines, storage areas, and other items in the best possible
position to enable workers to produce goods and provide services for customers.
- For services, the layout is usually designed to help the consumer find and buy things.
- Basically, services are becoming more and more customer oriented in how they design their
stores and their internet services. - Assembly line layout which workers do only a few tasks at a time.
- Modular Layout teams of workers combine to produce more complex units of the final
- Process Layout is one in which similar equipment and functions are grouped together.
Allows for flexibility
- Fixed-position Layout workers to congregate around the product to be completed.
- Quality consistently producing what the customer wants while reducing errors before and
after delivery to the customer.
- Products were completed and then tested, which resulted in several problems:
There was a need to inspect other people’s work. This required extra people and
If an error was found, someone would have to correct the mistake or scrap the
product. This, of course, was costly.
If the customer found the mistake, he or she might be dissatisfied and might
even buy from someone else thereafter.
- Therefore quality control should be part of the operations management planning process rather
than simply an end-of-the-line inspection.
- Six Signma Quality a quality measure that allows only 3.4 defects per million effects.
- Statistical Quality Control (SQC) The process that some managers use to continually monitor
all passes of the production process to ensure that quality is being built into the product from
- Statistical Process Control (SPC) the process of taking statistical samples of product
components at each stage of the production process and plotting those results on a graph. Any
variances from quality standards are recognized and can be corrected if beyond the set
- Ensuring that products meet standards all along the production process eliminates or minimizes
the need for having a quality control inspection at the end.
- Some companies call such an approac