Chapter 1 Textbook notes

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Published on 10 Nov 2010
MGTA04 / 01
Chapter 1: Producing Goods and Services
- Service operations are production activities that yield tangible and intangible service
products. (e.g. services such as entertainment, transportation, and education)
- Goods production are production activities that yield tangible products (e.g. products such
as radios, newspapers, buses and textbooks)
- The term production historically referred to the making of physical goods like automobiles,
toys, toothpaste etc. We now also use this term for services
- Service-sector managers focus less on equipment and technology than on the human
element in operations because success or failure depends on how employees deal with
customers. This is also a key difference between production and service operations
- Electronic communications are a key component in winning and keeping customers (e.g.
orders are placed faster, delivery times are shrinking and schedules are accelerated)
The Growth of Global Operations
- Global competition has reshaped production into a faster-paced, more complex business
- The factory remains the centrepiece for manufacturing but the smoke, grease, and danger
have been replaced by glistening high-WHFKPDFKLQHVFRPSXWHUVDQG³FOHDQURRPV´
- Production operations have also become much more environmentally friendly
- New technologies allow machines to run more cleanly, quickly, and safely, and to operate
on a global scale
- Newer machines are able to log onto the internet and adjust their own settings without
human help as well as communicate with other machines in the company (via an intranet)
around the world.
- Products provide businesses with both economic results (profits, wages, goods purchased
from other companies) and non-economic results (new technology, innovations, pollution)
- Term production has historically been associated with manufacturing, it has been replaced
in recent years by the term operations which reflects both services and goods production
- Operations (or production) management is the systematic direction and control of the
processes that transform resources into finished goods and services (responsible for creating
utility for customers)
- Production managers are managers who are responsible for ensuring that operations
processes create value and provide benefits (they bring in raw materials, equipment, and
labour together under a production plan that effectively uses all the resources available)
- Not all production managers work in factories, farmers are also production managers where
they create utility by converting soil, seeds, gas etc. and other inputs into beef cattle which
create milk
Operations Processes
- An operation process is a set of methods and technologies used in the production of a good
or a service
:KDW'RHV³3URGXFWLRQ0HDQ7RGD\" (pg. 6 ± 7)
Creating Value Through Production (pg. 7 ± 12)
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MGTA04 / 02
- We can describe goods according to the kind of transformation technology (the types of
production according to differences in their operations processes) they require
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 by the
analytic or synthetic nature of the transformation process
o Types of Transformation Technology (turning raw materials into finished goods)
Chemical process: raw materials are chemically altered (e.g. in aluminum)
Fabrication process: mechanically alter the basic shape or form of a product
(e.g. fabrication occurs in the woodworking and textile industries)
Assembly processes: put together various components (e.g. techniques are
common in the electronics, appliance and automotive industries)
Transport processes: goods acquire place utility by being moved from one
location to another (e.g. trucks move bicycles from manufacturing plants to
consumers through warehouses and discount stores)
Clerical processes: transform information. (e.g. compiling inventory reports
at a retail outlet)
o Analytic Versus Synthetic Processes
Analytic process breaks down the basic resources into components
Synthetic process combines a number of raw materials to produce a finished
product such as fertilizer or paint [opposite of analytic process]
Service-Producing Processes
- One way of classifying service is to ask whether a given service can be provided without the
customer being part of the production system. Services are classified according to the extent
of customer contact
o High-Contact Process
High-contact system is a system where service cannot be provided without
the customer being physically in the system (e.g. transit system)
For this reason, transit managers worry about the cleanliness of the trains and
buses and the appearance of the stations
o Low-Contact Process
Low-contact system is a system where service can be provided without the
customer being physically in the system (e.g. lawn care services)
For this reason, managers do not have to worry as much about the
cleanliness of the area or appearance
Differences Between Service and Manufacturing Operations
- Service and manufacturing operations both transform raw materials into finished products
- In service production, the raw materials are people who choose among sellers because they
have either unsatisfied needs or possessions. Finished products are people with needs met
and possessions serviced
Focus on Performance
- Obvious difference between service and manufacturing operations: goods are produced and
services are performed
- Customer-oriented performance is a key factor in measuring the effectiveness of a service
- The focus of service operations is more complex than that of goods production
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MGTA04 / 03
o Service operations feature a unique link between production and consumption
o Services are more intangible, more customized & less storable than most products
Focus on Process and Outcome
- Products offered by most service operations are actually a combination of goods and
services. Must focus on both the transformation process and its outcome
- Service operations require different skills from manufacturing operations (e.g. interpersonal
skills to communicate with customers or civilians)
Focus on Service Characteristics
characterized by three key qualities: intangibility, customization, and unstorability
o Intangibility
Often services cannot be touched, tasted, smelled, or seen
An important value, the intangible value that the customer experiences in the
form of pleasure, satisfaction, or a feeling of safety
E.g. you hire an attorney to help you resolve an issue and give you
reassurance that help is at hand
o Customization
When visiting a physician, you expect to be examined for your symptoms
When you purchase insurance or have a haircut, these services are typically
customized and designed for you
o Unstorablility
Services such as transportation cannot be produced ahead of time and then
Focus on the Customer-Service Link
- Because they transform customers or their possessions, service operations often
acknowledge the customer as part of the operations process itself
- E.g. to purchase a haircut, you must go to the beauty salon or barbershop
physical presence (e.g. call centers, delivery availability, product features)
systems by building customer-communications relationships
Focus on Service Quality Considerations
- Consumers use different criteria to judge services and goods
- E.g. you feel dissatisfied that you had to pick your car one day later than promised from the
auto repair shop even though the car was repaired flawlessly
- The success of any firm depends on the final result of the logical sequence of decisions
made by good managers (planning)
- The business plan and forecasts developed by top managers guide operations planning
- The business plan outlines goals and objectives, including the specific goods and services
that the firm will offer
- Forecasts are estimates of future demand for both new and existing products
- Managers develop a long-range production plan through forecasts
Operations Planning (pg. 13 ± 21)
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