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RSM100Y1 (431)
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Chapter 11

RSM100- Chapter 11.docx

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Rotman Commerce
John Oesch

Producing Goods & Services [Chapter 11] What does “production” mean today?  Service operations: production activities that yield tangible and intangible service products  Goods production: production activities that yield tangible products  Growth of global operations: production operations have become much more efficient and safe (machines, smart machines, and environmentally friendly); new technologies allow machines to un more cleanly, safely, and to operate on global scale o They can do operations themselves without humans and communicate with other machines in the company o Allows to integrate their production activities with those of far off suppliers and customers Creating value through production  Products (both goods and services): provide businesses with both economic results (profits, wages, goods purchased etc) and non economic results (ne tech, innovations, pollution) o Also provide consumers with utility: the power of a product to satisfy a human want; something of value  4 basic kinds of utility would not be possible without production o Time utility: that quality of a product satisfying a human want because of the time at which it is made available o Place utility: that quality of a product satisfying a human want because of where it is made available o Ownership (possession) utility: that quality of a product satisfying a human want during its consumption or use o Form utility: satisfying a human want because of its form; requires raw materials to be transformed into a finished product  Production has been replaced with the term operations  Operations (or production) management: the systematic direction and control of the processes that transform resources into finished goods  production managers are ultimately responsible for creating utility for customers  Production managers: managers responsible for ensuring that operations processes create value and provide benefits  also control costs, quality levels, inventory etc Operations Processes  A set of methods and technologies used in the production of a good or service  Can describe goods according to the kind of transformation technology they require or whether their operations process combines resources or breaks them into component parts  The transformation system: Production managers (plan, organize schedule, control)  resources (land, capital, HR, material), transformation activities, products or services Goods-producing processes: all goods-manufacturing processes can be classified in 2 different ways: o The type of transformation technology that transforms raw materials into finished goods o The analytic or synthetic nature of the transformation process  Types of transformation technology: manufactures use the following types to turn raw materials into finished goods: o Chemical processes (raw materials chemically altered) o Fabrication processes (mechanically alter the shape) o Assembly processes (put together components) o Transport processes (place utility) o Clerical processes (transfer info)  Analytic vs. synthetic processes: a second way of classifying production processes in which resources are converted into finished goods o Analytic process: any production process in which resources are broken down o Synthetic process: any production process in which resources are combined Service-producing processes: can the given service be provided without the customer being part of the production system?  High contact processes: a system in which the service cannot be provided without the customer being physically in the system (eg. transit systems)  Low contact processes: a system in which the service can be provided without the customer being physically in the system (eg. lawn care services) Business strategy as the driver of operations  Business strategy determines operations capabilities: o Operations capability (production capability): the activity or process that production must do especially well, with high proficiency  Expanding into additional capabilities: o Over time, firms achieve more than just one competence Differences between service and manufacturing operations  Both transform raw materials into finished products but in service operations the “finished products/output” are people with needs met and possessions serviced  Several key areas where service operations differ from production operations o Focus on performance: goods are produced and services are performed  customer oriented performance is a key factor in measuring the effectiveness of a service company o Focus on process and outcome: manufacturing operations emphasize outcomes in terms of physical goods o Focus on service characteristics: 3 key qualities; intangibility, customization and unstorability  Intangibility: services that cannot be touched, smelled, tasted or seen  Customization: when you get services customized for you  Unstorability: services that cannot be produced ahead of time and then sored  Focus on the customer service link: the customer is often present and if they ask for something on the spot then the service provider has to balance customer satisfaction with a tight schedule; customers expect place utility, time utility and form utility o Ecommerce: the virtual presence of the customer: customers interact electronically with sellers, collecting info about product features, delivery availability, and after sales service  Focus on service quality considerations: consumers use different criteria to judge services and goods Operations planning  A consideration of production is planning  The business plan (developed by top managers guide operations planning- outline goals and objectives) and forecasts (estimate of future demand for both new and existing products)  5 categories for planning: capacity, location, layout, quality, methods planning 1. Capacity Planning  Capacity: the amount of a good that a firm can produce under normal working conditions o Capacity depends on how many people the firm employs and number and size of its facilities o Capacity planning for producing goods: ensuring that a manufacturing firm’s capacity slightly exceeds the normal demand for its product 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 2. Location planning  Location affects its production costs and flexibility o Location planning for producing goods: location decisions are influenced by proximity to raw materials and markets, availability of labour, energy and transportation costs, local an provincial regulations and taxes etc o Location planning for producing services: in planning low contact services, companies have options: can be located near resource supplies, labour, customers, transportation outlets--- high contact services are more restricted and must be located near the customers who are a part of the system 3. Layout planning [Layout planning for producing goods]: o Layouts must be planned for 3 different types of space:  Productive facilities (workstations and equipment for transforming raw materials – eg)  Non productive facilities (storage and maintenance areas)  Support facilities (offices, restrooms, parking lots, cafs etc  Alternatives for layout planning include process, cellular, product layouts o Process layouts: a way of organizing production activities such that equipment an
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