Chapter 1- Producing Goods and Services
Service operations: production activities that yield tangible and intangible service products.
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
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 skills
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, equipment
Transformation: exchange of merchandise between buyer and seller
Output: satisfied jewellery customers
Inputs: rubber and chemical compounds, blending equipment, tire moulds, factory, and human skills
Transformation: chemical reactions of raw materials
Output: tires for autos, airplanes, trucks, trailers, and other vehicles
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
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 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 Planning:
Capacity: the amount of a good that a firm can produce under normal working conditions.
- Capacity planning for producing goods: capacity planning for goods means ensuring that a
manufacturing firm’s 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 a