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MGTA02H3 (361)
Chapter 11

Management II Chapter 11

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

Chapter 11: Producing Goods and Services Production  service operations: production activities that yield tangible and intangible service products. (bus driver, clerk, radio announcer  Goods production: production activities that yield tangible products  production: - historically referred to companies engaged in goods production, but now includes services  service sector managers focu0s less on equipment and technology and more on human resources (because of the importance of provider-customer contact)  growth of global operations: global competition has increased speed, complexity and technology of production (technology makes firms face constant change) Creating Value Through Production  products (goods and services) provide businesses with economic results (profits, wages, goods purchased from other companies) and non-economic results (technology, innovation, pollution) and provides consumers with “utility”  utility: the power of a product to satisfy a human want; something of value (there are 4 kinds)  time utility: the quality of a product satisfying a human want because if the time at which it is made available (item ready for Christmas)  place utility: the quality of a product satisfying a human want because of where it is made available (local department store has a “trim-a-tree” section)  ownership (possession) utility: the quality of a product satisfying a human want during its consumption or use (taking a box of ornaments home and decorating your tree)  form utility: that quality of a product satisfying a human want because of its form; requires raw materials to be transformed into a finished product. (ornament maker uses different materials)  the term “production” used to refer to manufacturing so it has been replaced with “operations”  operations (production” management: the systematic direction and control of the processes that transform resources into finished goods (responsible for creating utility)  production managers: managers responsible for ensuring that operations processes create value and provide benefits  production managers must combine raw materials, equipment and labour under a production plan (they must also control costs, quality levels, inventory, and plant and equipment) ex. Farmers Operations Processes  operations process: a set of methods and technologies used in the production of a good or service  goods producing process: classified in two different ways- by the type of transformation technology that transforms raw materials in to finished goods and by the analytic or synthetic nature of the transformation process  transformation technologies: first way of classifying production processes - chemical processes, raw materials are chemically altered. (aluminum, steel, paint) - fabrication processes mechanically alter the basic shape or form of a product. (medal forming, woodworking) - assembly processes put together various components. (electronics, appliance, automotive) - transport processes, goods acquire place utility by being moved from one location to another (trucks move bikes from plants to consumers through warehouses and stores) - clerical processes transform information. (compiling productivity or inventory reports)  analytic vs synthetic process: second way of classifying production processes - analytic process: any production process in which resources are broken down - synthetic process: any production process in which resources are combined  High-contact processes vs Low-contact processes: way of classifying services  High-contact system; a system in which the service cannot be provided without the customer being physically in the system (e.g. Transit systems)  Low-contact system: a system in which the service can be provided without the customer being physically in the system (e.g. Lawn care services) Differences Between Service and Manufacturing Operations  in manufacturing operations, raw materials may be steel and copper and the finished good may be a car; in service operations people with unmet needs are the raw materials and people with needs met and possessions serviced are the finished products (outputs)  Focus on performance: service operations have a unique link between production and consuimption- between processes and outcome. Services are more intanglible, customized, less storable than most products. Quality must be defined and managed differently than in manufacturing operations (Walmarts computer and telecommunications system)  Focus on process and outcome: products offered by most service operations are actually comninations of goods and services (services must focus on both transformation process and outcome eg. Making and delivering a pizza). Service operations employees also need interpersonal skills to communicate with customers more than manufacturing employees.  Focus on service characteristics: - Intangibility: services cannot be touched, tasted, smelled or seen. The value of services are in the intangible value that the customer experiences such as pleasure, satisfaction or safety - Customization: services must designed for your needs (they must adjust to every customer) - Unstorability: services (such as transportation) cannot be produced ahead of time and stored. If a service cannot be used when it is available, it is usually wasted  Focus on Customer Service Link: the customer is part of the operations process because it is the customer or the customers possessions that are being transformed. Therefore, the services must be convenient to the customer (hours of operation, conveniently located). Ecommerce allows customers to connect to the service system but not in a physical way (in real time)  Focus on Service Quality Considerations: Consumers use different criteria to evaluate quality of goods and services. Service managers must realize that the quality of work and quality of service are not the same (car is repaired but late) Operations Planning  forecast: estimates of future demand for both new and existing products  production plans cover a 2-5 year period specifying the number of plants or service facilities and amount of labour, equipment, transportation, and storage  capactiy: the amount of a good that a firm can produce under normal working conditions (depends on number of employees, number and size of facilities)  capacity planning for producing goods: ensures that a manufacturing firms capacity slightly exceeds the normal demand for its product  capacity planning for producting goods: - low-contact processes: maintaining inventory allows managers to set capacity at the level of average demand - high-contact processes: managers must plan capacity to meet peak demand (cash registers at a supermarket) Location Planning  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  Location planning for producing services: - low-contact services: services can be located near resouce supplies, labour customers, or transportation outlets - high contact services: are more restrictedbecause they must locate near the customers who are a part of the system  Layout planning: once a site has been selected, managers must devide on plant layout. Layout of macchinery, equipment and supplies determines whether a company can respond quickly and efficiently to customer requests or unable to compete Layout Planning for producing goods - product
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