Chapter 1: Producing Goods and Services
Service operations: production activities that yield tangible and intangible service
products (e.g. entertainment, transportation, education & food preparation).
Goods production: activities that yield tangible products (e.g. radios, newspapers,
books & text books).
WHAT DOES PRODUCTION MEAN TODAY?
Historically applied to goods only, but now includes productions of services.
Many of the things we need or want are produced by service operations.
Therefore, service-sector managers now focus more on the human element in
operations rather than the equipment and technology. This is because the
success or failure now relies on the provider-customer contact. Happier
consumers lead to a more successful firm. To ensure happier customers, firms
are now placed faster, schedules are accelerated and delivery times are
Growth of Global Operations
o Many countries have joined the global competition.
o Although the factory remains the centrepiece for manufacturing, it plays
a smaller role than it did a decade ago. Its labourers have been replaced
by high-tech machines, computers and clean rooms.
o Production operations have become more environmentally friendly.
(Read example on Interface Inc. on page 7)
o New technologies allow machines to run more cleanly, quickly & safely
and can operate on a global scale. Machines have the capabilities to
make minor decisions without human assistance. Internet has become
an important player in the role of global business. Producers of both
services and goods are integrating their production activities with those
of far-off suppliers and customers.
CREATING VALUE THROUGH PRODUCTION
Products provide businesses with both economic results (e.g. wages, profits
and goods purchased) and non economic results (e.g. new technology,
The term production has been replaced in recent years by operations because
of its historical association with manufacturing. Thus operations (production)
management the systematic direction and control of the processes that
transform resources into finished goods and serviceshas become the new
term. It is ultimately responsible for creating utility for the customers.
Look at figure 1.1. It shows that production managers responsible for
ensuring that operations processes create value and provide benefitsmust
bring raw materials, equipment, and labour together under a production plan that effectively uses all resources available. As well, they must schedule and
control work to produce the amount required and at the same time must
control costs, quality levels, inventory, and plant & equipment.
o Operations process a set of methods and technologies used in the
production of a good or a service. We classify various types of
production according to differences in their operations processes.
o Goods-Producing Processes: all good-manufacturing processes
can be classified in two different ways: by the type of
transformation technology that transforms raw materials into
finished goods and the analytic or synthetic nature of the
Types of Transformation Technology (1 way of classifying
Chemical Processes: Raw materials are chemically
altered. Common in the aluminum, steel and paint
Fabrication Processes: Mechanically alter the basic
shape or form of a product. It occurs in the metal
forming, woodworking and the textile industries.
Assembly Processes: Put together various
components. Common in the electronics, appliance
& automotive industries.
Transport Processes: Goods acquire place utility by
being moved from one location to another (e.g.
trucks routinely move bicycles from plants to
consumers through warehouses).
Clerical Processes: transform information (e.g.
combining data on employee absences and machine
breaking downs into a productivity report or
compiling inventory reports).
Analytic Versus Synthetic Processes (2 ndway of classifying
production). An analytic process breaks down the basic
resources into components (e.g. manufacture aluminum by
extracting it from an ore called Bauxite). The reverse is
synthetic process which combines a number of raw
materials to produce a finished product (e.g. paint).
o Service-Producing Processes (services are classified by the extent
of customer contact). High-Contact Processes: A system in which the
service cannot be provided without the customer
being physically in the system (e.g. transit systems).
There managers must worry about issues such as
cleanliness and appearance.
Low-Contact Processes: A system in which the
service can be provided with the customer being
physically in the system (e.g. lawn care services).
o Differences between Services and Manufacturing Operations: Both
transform raw materials into finished products. However, in service
production, the raw materials are not glass or steel but rather, they are
people who choose among sellers. There their finished products are
people with needs met and possessions serviced.
o Focus on Performance: While goods are produced, services are
performed. Thus, customer-oriented performance is key factor in
measuring the effectiveness of a service company. Read example
on Wal-Mart (pg. 11). In many ways the focus of service
operations is more complex than that of goods. First, service
operations feature a unique link between production and
consumption. Second, services are more intangib