Chapter 1- Producing Goods and Services
Service operations: production activities that yield tangible and intangible service
Goods operations: production activities that yield tangible products.
Creating Value through Production
Operation (production) management: the systematic direction and control of the
processes that transform resources into finished goods. They are ultimately responsible
for creating utility for customers.
Production managers: managers responsible for ensuring that operations processes
create value and provide benefits. As demand increases, they must schedule and control
work to produce amount required. Meanwhile they must control costs, quality levels,
inventory, and plant and equipment. An example of a production manager who does not
work in a factory is a farmer (converting soil, seeds, human labour and gas into
agricultural products, livestock and related products (eggs, milk). They have the option of
employing many workers to help them with the work, or use automated machinery in
order to do most of it for them.
Examples of Production System
Inputs: land, tractors, equipment, labour, buildings, fertilizer, farmer’s management
Transformation: cultivation of plants and livestock
Outputs: food products, profit for owner, jobs for farmer’s family
Input: fashion-conscious customers, merchandise, sales clerks, showroom, fixtures,
Transformation: exchange of merchandise between buyer and seller
Output: satisfied jewellery customers
Inputs: rubber and chemical compounds, blending equipment, tire moulds, factory, and
Transformation: chemical reactions of raw materials
Output: tires for autos, airplanes, trucks, trailers, and other vehicles Goods-Producing Processes
Types of Transformation Technology:
Chemical Processes: raw materials that are chemically altered. Such techniques
are common in the aluminium, steel, fertilizer, petroleum and paint industries.
Fabrication Processes: the basic shape or form of a product that is mechanically
altered. Fabrication occurs in the metal form, woodworking and textile industries.
Assembly Processes: put together various components. These techniques are
common in the electronics, appliance and automotive industries.
Transport Processes: goods acquire place utility by being moved from one
location to another. An example can be seen in trucks moving finished bicycles
from manufacturing plants to consumers through warehouses and discount stores.
Clerical processes: transform information. Combining data on employee
absences and machine breakdown into a productivity report is a clerical process.
So is compiling inventory reports at a retail outlet.
Analytic versus Synthetic Processes:
Analytic Process: any production process in which resources are broken down.
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 (example: transits systems)
Low-Contact System: a system in which the service can be provided without the
customer being physically in the system (example: lawn care services)
Differences between Service and Manufacturing Operations:
Focus on Performance: whereas goods are produced, services are performed,
since they are more intangible, and less storable than goods.
Focus on Service Characteristics: products offered by most service operations
are combinations of goods and services.
Focus of Service Characteristics:
Intangibility: services cannot be seen, touched, smelled or tasted.
However an important value is the intangible feeling of pleasure,
satisfaction and/or safety that the customer feels when they purchase the
service. There are also some tangible aspects of services, (example: wills
are an example of a service).
Customization: what a customer expects when they purchase and/or
receive a service. For an example, a person visiting a dentist will expect
the dentist to check their teeth, and if necessary, perform the required
processes to clean their teeth.
Unstorability: Services such as rubbish collection, transportation,
childcare and housecleaning cannot be produced ahead of time and then stored. If a service is not used when it is available, it is usually wasted.
Services are typically characterized by a high degree of unstorability.
Focus on the Customer-Service Link: because they transform customers or their
possessions, service operations often acknowledge as part of the operations
process itself. An example can bee seen in a barbershop. Since a customer is a
physical participant in the operations process, service consumers have a unique
ability to affect that processes. In other words, the consumers expect the salon to
be conveniently located, to offer needed services at reasonable prices, and to
extend prompt services.
Focus on Service Quality Considerations: consumers use different criteria to
judge services and goods. Service managers must understand that quality of work
and quality of service are not necessarily synonymous. For example although a
car may have been repaired perfectly, the fact that it was finished a day late may
cause some dissatisfaction for the customer.
Forecasts: estimates of future demand for both new and existing products.
Capacity: the amount of a good that a firm can produce under normal working
Capacity planning for producing goods: capacity planning for goods means
ensuring that a manufacturing firm’s capacity slightly exceeds the normal demand
for its product. To see why this policy is best, consider the alternatives. If capacity
is too small to meet demand, the company must turn away customers- a situation
that not only cuts into profits, but also alienates customers and salespeople. If
capacity greatly exceeds demand, it means the firm is wasting money, by
maintaining a plant that are too large, keeping excessive machinery online, and/ or
by employing too many workers.
Capacity planning for producing services: in low-contact processes,