MGTA04 - Chapters 1 & 2 Notes.doc

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MGTA04Introduction to Management II
Business Volume 2
Chapter 1 Producing Goods and Services (Pg 6-28)
Service Operations – Production activities that yield intangible services (Ex.
Entertainment, transportation, and education)
Goods Production – Production activities that yield tangible products (Ex.
Radios, newspaper, buses, and textbooks)
- Service-sector managers focus less on equipment and technology than on
the human element in operations -> Success or failure may depend on
provider-customer contact.
- Products provide business with both economic results (profits, wages, goods,
purchased from other companies) and non-economic results (new technology,
innovations, pollution)
- Since the term production has historically been associated with
manufacturing, it has been replaced in recent years by operations which
reflects both services and goods production.
Growth of Global Operations
Many countries have recently joined the global competition that has
reshaped production into a faster-paced, more complex business activity.
Factories bear little resemblance to its counterpart of a decade ago; smoke
grease, and danger have been replaced in many companies. Instead of
needing to maintain continuous mass production; factories with online
manufacturing machines can log on to the Internet, adjust their own settings,
and make minor decisions without human help.
Operations (Product) Management – The systematic direction and control
of the processes that transform resources into finished goods and services.
- Production managers are ultimately responsible for creating utility for
Production Managers – Managers responsible for ensuring that operations
processes create value and provide benefits
- Some examples of different types of production management include:
resources (land, capital, human resources, and material), transformation
activities, and products or services.
Operation Process – A set of methods and technologies used in the
production of a good or service
- Descriptions of goods accord to the kind of transformation technology they
require, or according to whether their operations process combine resources
or breaks them into component parts.
- Description of services accord to the extent of customer contact required
- All goods-manufacturing processes can be classified in 2 different ways: type
of transformation technology that transforms raw materials into finished goods
and analytic or synthetic nature of the transformation process
Goods-Producing Processes
Types of Transformation Technology
Manufacturers use the following 7 types of transformation processes to turn
raw materials into finished goods:
Chemical Processes: raw materials are chemically altered. (Ex.
Aluminum, steel, fertilizer, petroleum, and paint)
Fabrication Process: mechanically altered the basic shape or form of a
product. (Fabrication occurs in the metal forming, woodworking, and
Assembly Process: various components are put together. (Ex.
Electronics, appliances, and automotives)
Transport Processes: goods acquire place utility by being moved from
one location to another (Ex. Trucks routinely move bicycles from
manufacturing plants to consumers through warehouses and discount
Clerical Processes: transform information (Ex. Combining data on
employee absences and breaking it down into productivity report, and
compiling inventory reports at a retail outlet)
Analytic Process – Any production process in which resources are broken
down. It breaks down the basic resources into components (Ex. Alcan
manufactures aluminum by extracting it from an ore called bauxite)
Synthetic Process – Any production process in which resources are
combined. It combines raw materials to produce a finished product such as
fertilizer or plant.
Service-Producing Processes
- Services are classified according to the extent of customer contact
High-Contact System – A system in which the service cannot be provided
without the customer being physically in the system (Ex. Transit System)
Low-Contact System – A system in which the service can be provided
without the customer being physically in the system (Ex. Lawn care services)
Differences between Service and Manufacturing Operations
- In service productions, raw materials or inputs are people who choose among
sellers because they have either unsatisfied needs or possessions for which
they require some form of care or alteration.
- In service operations, “finished products” or “outputs” are people with needs
met and possessions serviced.
- One obvious difference is that goods are produced and services are
- Customer-oriented performance is a key factor in measuring the
effectiveness of a service company.
- Service products are characterized by 3 key qualities: intangibility,
customization, and unstorability
Intangibility: Services that cannot be touched, tasted, smelled, or seen.
(Ex. Hiring an attorney)
Customization: Services that are designed for your needs (customized).
(Ex. Getting a haircut, or pet grooming)
Unstorability: Services such as rubbish collection, transportation, and
house cleaning cannot be produced ahead of time and then stored.
- Service consumers have a unique ability to affect operation process. As a
customer, you’d expect the salon to be conveniently located, to be open for
business at convenient times, reasonable prices, and to extend prompt
- Managers try to meet the requirements of the customer (Ex. Reasonable
prices, convenient location, convenient operation hours, and prompt services)
-Service managers must understand that quality of work and services aren’t
synonymous. (Ex. Having a car fix in perfection is still dissatisfied if not fixed
by promised date)
- All managers start with planning. Many managers from different departments
contribute to the firm’s decisions about operations management.
- No matter how many decision makers are involved, the process can be
described as a series of logical steps.
-The success of any firm depends on the final result of this logical sequence of
Operations Planning
- Both goods and service operations start with planning
- Managers from many departments contribute to the firm’s decisions about
operations management, the process can be described as a series of logical
steps (Success of firms depends on the final result of this step).
- Business plan and forecasts guides operation planning (developed by top
Forecast – Estimates of future demand for both new and existing products
-Business plan outlines goals and objectives, including the specific goods and
services that the firm will offer.
- The production plan specifies the number of plants or services facilities and
the amount of labour, equipment, transportation, and storage that will be
needed to meet demand on a 2-5year period. Also how resources will be
- The main elements of operations planning fall into one of 5 categories:
capacity, location, layout, quality and methods planning.
Capacity – The amount of a good that a firm can produce under normal
working conditions