Part One Chapter One.docx

Part One Chapter One – Producing Goods and Services Definitions: Service Operations: Production activities that yield intangible services. Ex: entertainment, transportation, education, food preparation Goods Production: Production activities that yield tangible products. Ex: radios, newspapers, buses, textbooks WHAT DOES “PRODUCTION” MEAN TODAY? - The term production historically referred to the making of physical goods like automobiles, toothpaste, televisions, toys, etc - The term now also refers to services -Service Managers focus less on equipment and technologt and more on the human element in operations because the success or failure may depend on provider-customer contact The Growth of Global Operations - Production operations have become a lot safer, with more technology - They have also become a lot more environmentally friendly - New technology has allowed machines to run more cleanly, quickly, and safely. CREATING VALUE THROUGH PRODUCTION - To understand the production process of a firm, you need to understand the importance of products, both goods and services. - Products provide businesses with both economic results (profits, wages, etc) and non-economic results (new technology, innovations, pollution) - The term production has historically been associated with manufacturing, it has been replaced in recent years with the word operations Definitions: Operations Management: The systemic direction and control of the processes that transform resources into finished goods and services Production Managers: Managers responsible for ensuring that operations processes create value and provide benefits - Production managers must bring raw materials, equipment, and labour together under a production plan that effectively uses all the resources available in the production facility *INSERT PICTURE 1 HERE* Operations Processes Definition: Operations Process: A set of methods and technologies used in the production of a good or service - We classify various types of production according to differences in their operations processes - AKA we can describe goods according to the kind of transformation technology they require - We describe services according to the extent of customer contact required Goods-Producing Processes Service-Producing Processes - All goods manufacturing processes can be - One way of classifying services is to ask classified in two different ways: by the type of whether a given service can be provided transformation technology that transforms raw without the customer being part of the materials into finished goods and by the production system analytic or synthetic nature of the - In answering this question, services are transformation process classified according to the extent of customer contact Class I: Types of Transformation Technology High-Contact Processes Chemical Processes: Raw materials are - A system in which the service cannot be chemically altered. Such techniques are provided without the customer being physically in the system common in the aluminum, steel fertilizer, petroleum and paint industries. - Examples: haircuts, public transit systems, etc. Fabrication Processes: Mechanically alter the basic shape or form of a product. Fabrication Low- Contact Processes occurs in the metal forming woodworking and textile industries - A system in which the service can be provided without the customer physical being in the Assembly Processes: Put together various components. These techniques are common in system the electronics, appliance, and automotive - Examples: lawn care services, cheque cashing industries services Transport Processes: Goods acquired 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 retail outlet Class II: Analytic Versus Synthetic Processes Analytic Process: Breaks down the basic resources into components. Ex. Alcan Differences Between Service and Manufacturing Operations an ore called bauxite Synthetic Process: combines a number of raw materials to produce a finished product such as fertilizer or paint - Service and manufacturing operations both transform raw materials into finished products - In service production the inputs are not glass or steel but rather people who choose among sellers because they have either unsatisfied needs or possessions for which they require some form of care or alteration. Focus on Performance - The obvious difference is that goods are produced and services are performed - Customer oriented performance is a key factor in measuring the effectiveness of a service company - The focus of service operations is more complex than that of goods production in many ways - Service operations feature a unique link between production and consumption – between process and consumption - Services are more intanglible and more customized and less storable than most products. - Quality considerations must be defined and managed different in the service sector than in the manufacturing operations Focus on Process and Outcome - Manufacturing operations focus on the outcome of the production process. - The products offered by most service operations are actually combinations of goods and services - Services, therefore must focus on both the transformation process and its outcome- both on making pizza and on delivering it to the buyer. - Example: Local gas companies may need interpersonal skills in reassuring customers that there are no gas leaks as well as the skills to repair a gas leak. Focus on Service Characteristics Intangibility - The service must have value in the form of pleasure, satisfaction or a feeling of safety - Example: Purchasing legal expertise as well as the equally intangible reassurance that help is at hand Customization - Knowing that services are specifically tailored to you. - Example: haircuts, doctors treatment for your symptoms, etc Unstorability - Services cannot be stored and then used at a later date like manufactured products can Focus on the Customer-Service Link - Services of acknowledge the customer as part of the operations process itself - Example: Haircuts. The service cannot be performed without someone there to give a haircut to, so they have the ability to affect the process. - Hours of operation, available services and appropriate number of employees are all factors in maintaining a good Customer-Service Link Focus on Service Quality Considerations - Service managers must understand that quality of work and quality of service are not necessarily the same. - Example: Although your car may have been flawlessly repaired, you might feel dissatisfied with the service if you were forced to pick it up a day later than promised OPERATIONS PLANNING - Managers from many departments contribute to the firms decisions about operations management - The process can be described as a series of logical steps, and the success of any firm depends on the final result of this logical sequence of decisions. - Managers develop a long-range production through forecasts of future demand for both new and existing products. - Covering a two to five year period, the production plan specifies the number of plants or service facilities and the amount of labour, equipment, transportation and storage that will be needed to meet demand, also specifying where resources are to be obtained Definition: Forecast: Estimates of future demand for both new and existing products. - the main elements of operations planning are capacity, location, layout, quality and methods planning Capacity Planning Definition: Capacity: The amount of a good that a firm can produce under normal working conditions - The capacity of a goods or service firm depends on how many people in employs and the number and size of its facilities. - Long range planning must take into account both current and future capacity 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 - The stakes are high in the company’s capacity decisions - While expanding fast enough to meet future demand and to protect market share from competitors, it must also weigh the increased costs of expanding Capacity Planning for Producing Services - Low contact processes: maintaining inventory allows managers to set capacity at the level of average demand. Example: a catalogue sales warehouse may hire enough order fillers to handle 1000 orders per day. When daily orders exceed this average demand, some orders are placed in inventory to be processed on a day when fewer than 1000 orders are received -High contact processes: managers must plan capacity to meet peak demand. Example: A supermarket has far more cash registers than it needs on an average day; but on a Saturday morning or during the three days before Thanksgiving, all registers will be running at full speed Location Planning - Location of a factory, office or store affects its production costs and flexibility Location Planning for Producing Goods - 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. Example: Slovakia has a Volkswagen plant producing 850,000 cars a year with skilled workers, a good work ethic, wages below surrounding countries and a good railroad system that allows easy transportation of raw materials and outgoing cars. - Some places are setting up planned sites that comes with zoned land, shipping facilities, utilities and waste disposal outlets already in place Location Planning for Producing Services - In planning low-contact services, companies have some options. Services can be located near resource supplies, labour, customers or transportation outlets. Example: Wal-Mart distribution centre is located near the hundreds of Wal-Mart stores it supplies, not near the companies that supply the distribution centre. - High contact services are more restricted. They must locate near the customers who are a part of the system. Example: Taco Bell, McDonalds, Burger King, etc. have begun moving to non-traditional locations with high traffic Layout Planning - 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 Layout Planning for Producing Goods - In facilities that produce goods, layout must be planned for three different types of space: Productive facilities (workstations and equipment for transforming raw materials), Non productive facilities (storage and maintenance areas), Support facilities (offices, restrooms, parking lots, cafeterias, and so forth) - Three types of productive facilities: Process Layouts: Definition: Process Layout: A way of organizing production activities such that equipment and people are grouped together according to their function - Example: In a woodworking shop for example, machines cut the wood in an area devoted to sawing, sanding occurs in a dedicated area, and jobs that need painting are taken to a dust-fr