Chapter 1: Producing Goods and Services
Beginning and What Does Production Mean?
- Service Operations are production activities that make tangible and intangible service products
- Goods Productions are production activities that make tangible products
- Tangible products are products that can be touched and seen.
- Production is the making of physical goods like automobiles, toothpaste, etc.
- Service sector managers focus more on provider – customer contact or human elements
The Growth of Global Operations
- Safer work conditions and better technology allows for better performance data.
Creating Value through Production
- Production has been replaced by operations, which considers both goods and services
- Operations (or production management) Management is a system that directs and controls
processes that transform resources in to finished goods and services.
- Three key areas:
o 1. Planning production through materials, equipment, labour and information
o 2. Scheduling operations to make efficient use of resources
o 3. Controlling the work, cost, quantity, and quality of production.
- Production managers are ensures that operations processes create value and provide benefits
o Production managers bring raw materials, equipment, and labour together under
production plan. Control schedule and work to produce amount required.
- Operations process are methods and technology used in production of goods and services
o Operations process involve transformation technology, and the services are known as
Example of an Input, Transformation, and Output in Production system
Production system: Farm (each links from top to bottom)
Input: Land, tractors, etc ->
Transformation: Cultivation of plants and live stock ->
Output: Food products, profits, etc. ->
Types of Transformation Technology (CCFAT)
- Chemical Processes: raw materials are chemically altered. E.g. techniques with aluminium
- Clerical Processes: transforming information. E.g. combining data on employee absences
- Fabrication Process: altering the basic shape or form of a product. E.g. woodworking
- Assembly Processes: putting together various parts. E.g. Electronics - Transport Processes: moving a product. E.g. trucking company moving a bicycle
Other types of processes
- Analytic process is one that breaks down basic resources in to components. E.g. breaking down
specific organisms for the resources
- Synthetic processes is where it involves combining raw materials. E.g. gold ring.
Service Producing Processes
Service Producing processes are usually the customer contact part.
- High contact system is which the service cannot be provided without customer being there. E.g.
- Low contact system is which the service can provided without the customer being there. E.g.
Gas Service and auto-repair shops.
Difference between service and manufacturing operations
- Goods are produced, services are performed
- For services, firstly, operations focus on link between process and outcome
- Secondly, services are more intangible and more customized and less storable
- Some products offered are in goods and services production. E.g. gas company employees
reassure frightened customers who have gas leaks.
Focus on Service Characteristics
Service products are characterized by three key qualities: intangibility, customization, and unstorability
- Intangibility: services often cannot be touched, tasted, smelled, or seen. Must ensure customer
gains satisfaction from intangible service. Some are tangible. E.g. Lawyer helps you make a living
- Customization: Services that are customized. E.g. going to doctor for specific symptoms.
- Unstorability: Services are usually needed right at the moment they are called for. E.g. childcare
Focus on the Customer-Service Link
- Electronic Data Systems (EDS) helps clients develop networks among their computers.
- Different criteria for judging services and goods. E.g. car might have been flawlessly repaired,
but might be dissatisfied with service
- Forecasts are estimate of future demand for both new and existing goods. They help managers
with long-range production plans - Process of operations planning: Business plan and forecasts –> Long range operations plan (e.g.
location) -> Operations schedule (master production schedule) -> operations control (quality
control)-> Output to customers -> feedback each step’s performance.
Main elements of operations planning is: capacity, location, layout, quality, and methods planning
- Capacity is the amount of a good that a firm can produce under normal conditions
o Capacity must exceed normal demand. If too low, then customers will be alienated. If
too much, then it becomes a waste.
o Managers can set capacity at average demand. E.g. hire enough order fillers to handle
the orders. If there are extra orders, they are processed when there are fewer orders.
o Peak demand is when managers plan capacity to meet high demand. E.g. Supermarkets
do not use all the cash registers in normal day, but use them during peak seasons such
- Location can affect goods-producing operations, closeness to raw materials and markets,
available labour, energy, taxes, and living conditions.
- Layout of machinery, equipment, and supplies are planned in three different ways:
o Productive facilities: Workstations and equipment for transforming raw materials
o Non-productive facilities: Storage and maintenance areas.
o Support Facilities: Offices, restrooms, parking lots, and etc
- Quality planning – ensuring quality standards are met
- Methods planning – eliminating waste
Alternatives to layout planning includes: process, cellular, product, U-shaped, and FMS
- Process Layout: organizing production activities in a way that equipment and people are
grouped together according to their function. Production involves one of kind products.
Equipment is shared with production of goods.
-E.g. Product X requires saw, sanding, packaging, and shipping. While Product Y requires drill,
saw, paint, packaging, and shipping. (two different is paint and sanding areas).
o Downside: May provide congestion, if there are many products that need to be
- Cellular Layouts: used to produce goods when family of products follow similar paths. E.g.
Manager sets product sections for pants and shirts.
- E.g. Product X requires saw, sand, package, paint, and shipping. While Product Y requires drill,
saw, paint, assemble, and package, and shipping. Difference between process is that there is
two packaging employees, one for X and one Y.
o Upside: Require less machine adjustment, equipment set-up time is reduced. Flow
distances are shorter, so less material handling and transit time. Inventories of goods in
and paperwork is simpler to handle. LEFIP
o Downside: Duplication of equipment is required.
- Product Layouts: a system of production, where equipment and people are set up to produce
one type of good. E.g. for producing products that require large volumes of product quickly. Assembly lines are type of product layout where a partially finished product moves through a
plant on a conveyor belt.
o E.g. Bend metal frame, Drill holes in frame, add wood front, sand wood and metal, test
for use and fit, packaging, and etc. All for mass production of one product.
o Upside: work skill is built in to equipment.
o Downside: Hard and costly to rearrange process, workers are subject to boredom, and
when there are absentees, others cannot help (due to far distances).
- U-Shaped Production line: rather than straight line, machines are in a narrow U shape. Workers
can do more ta