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Chapter 1

MGTA02H3 Chapter Notes - Chapter 1: Capacity Planning, Material Requirements Planning, Business Plan

Management (MGT)
Course Code
H Laurence

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MGTA04 Chapter 1: Producing Goods and Services
Service operations: production activities that yield intangible services
Goods production: production activities that yield tangible products
Service sector managers focus less on equipment and technology than on the human element in
operations success/failure depends on customer-provider contact
Operations (production management): the systematic direction and control of processes that
transform resources into finished goods and services
Production managers: managers responsible for ensuring that operations processes create value
and provide benefit ultimately responsible for creating utility for customers bring raw
materials, equipment, and labor together under a production plan that effectively uses all the
resources available in the production facility
Operations processes: a set of methods and technologies used in the production of a good or
We can describe goods according to the kind of transformational technology they require or
according to whether their operations process combines resources or breaks them into
component parts
o Types of transformation technology: chemical (chemically altered) , fabrication (shape
or form is altered) , assembly (putting together various components) , in transport
(goods acquire place utility by being moved from one location to the next) and clerical
processes (transformation of information)
o Analytic process: any production in which resources are broken down
o Synthetic process: any production process in which resources are combined together
we can also classify services according to the extent of customer contact requires service-
producing processes:
o High contact system: a system in which the service cannot be provided without the
customer being physically in the system i.e. TTC
o 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)
o Focus on performance: performance is very important and helps to measure success
and profitability
o Focus on process and outcome
o Focus on service characteristics: service companies’ transactions always reflect the fact
that service products are characterized by three qualities: intangibility, customization,
and unstorability (i.e. of service not used when it is available it goes to waste)
o Focus on service quality considerations
Operations Planning:
The business plan and forecasts developed by top managers guide operations planning
Business plan outlines goals and objectives, including the specific goods and services that the
firm will offer
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Managers also develop a long range production plan through forecasts: estimates of future
demand for both new and existing products
Business plan and forecasts long range operations planoperations schedulesoperations
control output to customers (all include information results i.e. feedback)
Capacity: the amount of a good that a firm can produce under normal working conditions
Operations planning includes: capacity, location, layout, quality, and methods planning
o Capacity planning for producing goods: ensures that a manufacturing firm’s capacity
slightly exceeds the normal demand for its products. Stakes are high on the company’s
capacity decisions
o Capacity planning for producing services: in low contact processes: maintaining
inventory allows managers to set capacity at the level of average demand. In high
contact processes: managers must plan capacity to meet peak demand
o Location Planning For Producing Goods:
o Location planning for producing services: location decisions are influenced by proximity
to raw materials and markets, availability of labor, energy, and transportation costs.
Some location decisions are now being simplified by the rise of industrial parks
o Location planning for producing services: Low contact services: companies have some
options and can be located near resource supplies, labor, customers, or transportation
outlets. High contact services: more restricted as they must be located near the
customers who are part of the system
o Layout planning: layout of machinery, equipment, and supplies determines whether a
company can respond quickly or efficiently to customer requests for more and different
products or finds itself unable to match competitors production speed or convenience
of service
Layout Planning for producing goods
Productive facilities: work stations and equipment for transforming raw
Non-productive facilities: storage and maintenance areas
Support Facilities : offices, restrooms, parking lots, cafeterias, etc
o Process layout: a way of organizing production activities such
that equipment and people are grouped together according to
their function i.e. wood working shop
o Cellular layout: used to produce goods when families of
products can follow similar flow paths i.e. family of pockets
near continuous flow on a fixed flow path
o Product layout: a way of organizing production activities such
that equipment and people are set up to produce only one type
of good i.e. assembly line in which a partially finished product
moves through a plant on a conveyer belt or other equipment
i.e. car manufacturing
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