Part One managing operations and
Producing goods and services 9/14/2013 5:02:00 PM
Service operations: production activities that yield intangible services
Goods production: production activities that yield tangible products
What does production mean today?
Production means making physical goods and services
The growth of global operations. Contamination.
Creating value throuhg production
Products provide business with economic results
(profie/wage/goods purchased from others), and non economic
result (new technology/innovation/pollution).
Operations (production) management: systematic direction and
control of processes that transform resources into finished goods
Production managers: managers responsible for ensuring that
operations processes create value and provide benefit.
o Farmers are production manager because they convert soil
into tobacco and employ workers.
o Production manager: resource+transformaiton activites +
products of services
Operations processes: a set of methods/technologies used in
produciton of good/service
o Transfmoration technology: require combine resource/break
o Customer contact: service.
o Goods producing processes. All goods are classified by: 1)
type of transformation technology they transform raw
material into finished goods. 2) analytic/synthetic nature of
o 1) types of transformaiton technology: turn raw materials into
chemical process; raw material chemically altered. E.g
al, steel, fertilizer fabrication process: mechanically alter shape of
product. E.g woodworking/textile industry
assembly process: put together component. E.g
transport process: moving goods. E.g moving truck
clerical process: transform information. E.g combing
data/ machine breakdown into a report
o 2) analytic VS synthetic process.
Analytic process: production process in which resources
are broken down. E.g extracting ore
Synthetic process: production process in which resource
combined. E.g fertilizer or paint.
o Service-producing processes. Customer contact: when service
is provided without customer being part of production system.
High contact system: system where service can’t be
provided without customer being physically in system.
Low contact processes: system where service can be
provided withotu customer being physically there. E.g
lawn care service/car repair/bank
Differences between service and manufacturing operations.
o Service and manufacture operation transform raw into goods.
Service: not glass/steel: people who choose and if
customer needs met
o Focus on performance.
1)process and outcome
transformation process and outcome. E.g pipe
person fixes pipe and calms person down.
2) focus on service characteristics: intanbility,
intangibility: customer satisfaction with service
Customization: the service each person gets
personally. The differnet hair cut you need Unstorability: service that cannot be produced
ahead of time. House
o Focus on customer-service link. Hours of operation, available
service, number of employee to meet customer.
o Focus on service quality considerations.
Forecast: estimates of future demand for new/existing products.
Main elements of operation palanning: capacity, location, layout, quality,
1. Capacity planning
Capacity: the amount of goods that a firm can produce under
normal working condition. Number of employee, and size of
Capacity planning for producing goods.
Capacity planning for producing services. in low contact process,
managers set capacity at average demand. E.g one person deals
with 10 people. High contact process: manager make peak demand
capacity: more cashier in supermarket in weekend.
2. location planning
location planning for producing goods. Location decision influnce
by: proximity of raw material/market, availabile labour,
energy/transportation cost, local/provincial regulation/tax,
community living condition.
Location planning for producing services. low contact service:
service can be near resource supplies, labour, customers,
transportation outlet. High contact services: locate near customers
who are part of system.e.g mcdonald moving into hospital/shopping
3. Layout planning:supplies, company respond to customer, if match
Layout planning for producing goods: 3 types
i. Productive facilities: workstations/equipment for transforming
ii. Non productive facilities: storage and maintanence area
iii. Support facilities: office, restroom, café. Other layouts: process, celluar, product layouts
i. Process layout: organizing production activities such that
equipment/people are grouped together by function. E.g one
part for sawing wood, one part for painting
ii. Cellular layout: used to produce goods when products can
follow similar flow paths. Designing pockets. They are all
packaged the same. Advantage: similar products means less
machine adjustment, equipment set up, flow distance shorter,
more order. Disadvantgae: duplicates
iii. Product layout: way of organizing production activites such that
equipments and people set up to produce only one type of
good. Assembly line: product layout where particall finished
product moves through plant or other equipment. E.g
automobile, TV. Advantage: simple tasks for unskilled worker.
Disadvantage: heavy investiment on equipment, bored worker,
absence of one worker can stop process.
Layout planning for producing services.
i. Low contact system: mail system: product layout. Photocopy:
ii. High contact system. Cate: layout and service.
Methods improvement: operation system that reduce waste,
inefficiency, poor performance.
Methods improvemnet in goods.
o Process flow chart: identifies sequence of production acitivy,
movment mateirial, work performance.
Methods improvement in services.
o Service flow analysis: analysis that shows the process fows
that are necessary to provide service to customers; allows
manager to determine which processes are necessary.
o Designing to control employee discretion in services.
mcdonald ready made burger
o Design for customer contact in services: in high contact
service: exchange money/information=clear out customer contact. E.g dentist always clean after patient to prevent
Operations scheduling: timetable for acquiring resource for production
Scheduling goods operations.
o Master production schedule: schedule showing which products
will be produce, when production occurs, what resource
Scheduling service operations
o Low contact service: appoitnments. First come, first servce
o High contact service: emergency hospital, not even
appointment will help.
Tools for scheduing: for rennovation/relocating
o Gantt chart: production schedule diagram the step and time
of project.bar chart. Used for delayed appointment
o Pert chart: program evaluation and review technique:
production scheule specify sequence and step. Star chart. 1-
2-3-4. Start to end.
Operational control: managers monitor production performance by
comparing results with plan and scheules.
Follow up: checking to see production decision done.
Operational control include: materials managemnet/production
process control. Both ensure schedule are met and production
Materials management: planning, organizing, controlling flow of materials
from purchase through distribution of goods. Plans flow of materials.
Standardization: using standar/uniform component in production
process material management. E.g law firms file between
contracts, agreement, wills.
4 area in material management.
o 1. Transportation: means of tranpsorting resource to
company and finished goods to buyer
o 2. Warehousing: storage of incoming materials for production
and finished goods for physical distribution to customers o 3. inventory control: receiving storing, handling, counting all
raw materials. Ensure material inventories meet production
o 4. Purchasing; acquisition of all raw material/service that
company needs ot produce products.
o Forward buying: bought many mateirlas for long term need to
o Holding costs: costs of keeping extra supplies on hand. E.g
real costs of storage, handling, insurance, opportunity cost-
earning company needs to give up because they don’t have
o Hands to mouth pattern: placing small order frequently. Lead
time= in purchasing conrol, gap between customer’s
placement of order and seller’s shipment or product.
o Supplier selection: finding and determining suppliers to buy
from. 4 stages
1. Investigae possible suppliers
2. Evaluate/isolate best candidate
3. Negotiate terms of service
4. Maintain positive buyer-seller relationship.
Tools for operations process control.
Controlling operations: worker training, just in time production
system, material requirment planning, quality control.
Worker training: human resource, good customer service.
Just in time production system: JIT: method of inventory control in
which materials acquired/put into production jst as they need it. E.g
mount sinai does not store equipment: when it needs it , it orders
o Disadvantage: more rush.
o Advantage:save money. Increasing productivity and quality 9/14/2013 5:02:00 PM
The productivity-quality connection
Productivity: measure of efficiency that compares how much is
produced with resource used to produce it.
Quality: product’s fitness for use in terms of offering the features
that consumers want
Responding to productivity challenge.
4 factors of productivity; customers, quality, proudctivity, profit
o labour productivity: partial productivity raio calculated by
dividing gross domestic product by total numbers of worker.
Compare country’s total output goods with resource output.
Productivity among global competitors
o Factors on why nations have different productivity:
tecnologies, human skills, economic policies, natural resource,
Domestic productivity: high productivity shared among workers,
investor, customer. Low productivity when decrease wage, decrease
profit for invester, increase prices for customer.
Manufacturing VS service productivty. Manufacturing productivity
higher than service productivity. Machine replacing people. –
computer mimic orchestra during performance.
Industriy productivity. Continuous casting-where you don’t’ have to
wait until the steel is cooled, you can still work on it while its hot
Company productivity. High productivity=low cost=pay higher wage
with worker=help buyer/seller stock for invester.
Total quality management
Fishbone/ cause-effct diagram/ ishikawa diagram that helps
employee investigate and track down cuases of quality problem in
Managing for quality
Total quality mangement: concept that emphasize that no defects
are tolerable and that all employees are responsible for maintaining
quality standards.= quality assurance. Make high quality stuff! o TQM strategic approach; leadership. Customer focus,
inmpovement product, after sale service, internal process-
Planning for quality
o Performance quality; overall quality; how well features of a
product meet consumers need and how well product perform
o Quality reliability: consistency of quality of product.
Organizing for quality.
Leading for quality.
o Quality owndership: concept that quality belongs to each
employee who creates or destroys it in producing a
good/service; idea that all workers must take responsibility
for quality product.
Controlling for quality. –review works of employee
Business process re-engineering: redesigning of business processes
to improve performance, quality, productivity. Re engineering helps
improve measure of performance such as cost, quality, service,
The re-engineering process. 6 steps
o 1. Statements of benefits for customer and company
o 2. Identify business activity that will be changed
o 3. Evaluate information. Human resource to see if
requirements can be met for change
o 4. Diagnose current process to identify its strengths and
o 5. Create the new process design.
o 6. Implement new design.
Adding value through supply chains
Supply chain: flow of information, material, service that starts with
raw material suppliers and continue through other state in
operations process until product reaches customer. Raw
materialschangeproduct for customer.
The supply chain strategy. Based on idea that members of chain
worker together to gain advantage. Provide high quality in low
price. Supply chaing management: principle for looking at the chain as a
whole to improve overall flow through system. E.g Dell computer
allows people to share informaiton with supplier through internet.
Re engineering supply chains for better result. By lowering cost,
speed up service, coordinate flow of information, process
improvmenet, improve chain supply. Managing informaiton systems and
Communication technology 9/14/2013 5:02:00 PM
Information management: an overview
Information manager: manager responsible for activites needed to
generate, analyze, disseminate information that a compnay needs
to make good decisions
Information management; internal operation that arranges the
firm’s information resources to support business performance and
Data VS informaiton
Data: raw facts/ figures
Information: meaningful, useful interpretation of data.
Information systems: organized method of transforming data into
information that can be used for decision making. (IS).
IS managers: gather dataapply technolgoy to convert data into
info control flow of info so only people who need info gets info.
New business technologies in the information age.
Informaiton system assist in scheuling day to day vehicle trip,
innovative relationship with organization, new managemnet
process, new organizational design, faster technology
The exxpanding scope of information system.
Organizational system: business strategy, operating rules, business
Information system: hardware, database, software, eople, control,
telecommunications. Both organization, informaiton system are
Electronic business and communications technologies.
Electronic information technologies: EIT are Information system
applications for telecommunications technoogies.
o Function of EIT: provide coordination/communication within
firm. Speed up transaction with other firm
o Six most innovations:
fax machine-machine that quickly transmite copy of
document over telephone lones.
Voicemail-receiv telephone call on computer.
Email: allow people to communicate from computer. Electronic confercing: people to communicate from
different clocations, video ) data conferncing/
groupware: software that connect members for email
distribution, electronic meeting, storing.
Digital information services: online information
Data communication network: carry streams of digital data-
electronic message, documment) through telecommunication
o Internet: networks that offer information on business,
o ISP internet service provider: commercial firms that sells
connection to subscriber thorugh internet.
o World wide web: universal system for
storing/displaying/retrieving information. Homepage.
Aircanada.ca shows canada ariplane flight
Web servers: dedicated worksatations of large
computers for support website. Browser: software that
enable user to access information on web. Directories:
help people find content on web-yahoo. Search engines:
searching webpages that does not preclassify to
directory e.g just one word search.
o Intranet; company’s private network accessible for employees
only through a firewall.. Firewall: hardware and software
security system that ensure internal computer not accessible
o Extranet: network that allows outsider access to firm’s
internal informaiton. E.g seeing online for supplies.
New options for organizational design: the networked enterprise.
Leaner organizations. E.g 24 hour information system. Don’t need
More flexible operations. Mass customization: producing many
products but giving customers the choice of features they want.
Network and virtual company. Collaborate with network system.
Exhchange ideas. Greater independence of company and workplace. Use internet to
buy things from different location
Improved management processes.
o Enterprise resource planning ERP: large information system
for integrating all activity of company’s business unit. One
large database. Check for materials ordering, packasing,
Types of information system
User groups and system requirements.
4 type of user groups. Knowledge workers: employees whose job
involved use of information/knowledge as raw materials of their
work. E.g specialist to design new product.
Managers at different levels.
o Top level manager-strategic informaiton system=economy.
o mid level manager: management IS-set long goals
o knowledge woker: knowledge IS=technological project
o first level manager: operational IS.-oversee
functional areas and business process. each business functions:
marketing, human resource, accounting, production, finance.
Major systems by level.
Transaction processing system TPS: application of information
processing for basic day to day business transaction.customer
order, shipment, first level management. E.g POS lol.
System for knowledge workers and office applications. It support
activity of knowleddge worker and clerical worker.
o IS knowledge worker: system analysist and application
Systems analysts and designers deal with entire
computer system. IS design system and decide type of
computer/links to use
System/application programmer: write software
o Operations personnel/data workers. System operationals