Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada CHAPTER 11 Producing Goods and Services

Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada

CHAPTER 11

Producing Goods

and Services

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Learning Objectives

Explain the meaning of the term production and operations

Describe the four kinds of utility provided by production

and explain the two classifications of operations

processes.

Identify the characteristics that distinguish service

operations from goods production and explain the main

differences in the service focus.

Describe the factors involved in operations planning.

Explain some factors in operations scheduling and

describe some activities involved in operations control,

including materials management and the use of certain

operation control tools.

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Goods and Services

Services Operationsproduction activities that yield tangible and

intangible service productsentertainmenttransportationeducationfood preparation

Goods Productionproduction activities that yield tangible products

things you can see and touch

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Utility: Adding Value

Time Utility Satisfying because of when the product is available

Place Utility Satisfying because of where the product is available

Ownership (Possession) Utility Satisfying during its consumption or use

Form Utility Satisfying because of

the product’s form (the transformation of raw materials into a finished product)

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Operations/Production Management

Systematic direction and control of the processes that transform resources into finished goods

Production Managers are responsible for creating utility for consumers regardless of industry

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The Transformation System

Production

Managers

Plan

Organize

ScheduleControl

Resources

Land

CapitalTransformation

Human Resources

Activities

Products and Services

Materials

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Operations Processes

methods and technologies used in the production of a good or service

classified by: type of transformation technology

type of process (analytic or synthetic)

amount of customer contact

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Goods-Producing Processes

Transformation TechnologyChemical processes

Fabrication processes

Assembly processes

Transport processes

Clerical processes

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Analytic vs. Synthetic Processes

Analytic resources are broken down in production

processextracting minerals from ore

Synthetic resources are combined in the production

processPaint production

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Service-Producing Processes

Customer are involved in and can affect the transformation process Low-contact system

customers do not need to be physically present to receive the service

electric power, automatic bank transfersHigh-contact system

customers need to be physically present haircuts, medical examinations, bus transportation

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Differences Between Goods and Services

Services are performed to meet the needs of customers Focus on the customers themselves

Haircut

Focus on their possessions Investments or auto repairs

Services are more customized, intangible, and perishable than goods consumers evaluate services differently than goods

the focus is on the service process and outcome

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Focus on Performance

Customer-oriented performance is the key in measuring the effectiveness of a service firm

More complex than in a goods firm Link between production and consumption, and

between process and outcome

Services are more intangible, more customized and less storable than goods

Quality must be well defined

Managing a service firm is different than managing a goods firm

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Focus on Process and Outcome

Most services have some goods attached to them

Focus on both the transformation process and its

outcome

Need different skills from manufacturing

interpersonal skills

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Business Sixth Canadian edition, Griffin, Ebert & Starke © 2008 Pearson Education Canada Inc.

Focus on Service Characteristics

Intangibility Services cannot be touched, tasted, smelled, or seen

Customization Each service is performed to the customer’s needs

dental work, veterinary services

Unstorability Most services must be taken when offered or the

opportunity is gone Plane flight

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E-Commerce: The Virtual Presence of the Customer

In a regular service environment, customers are

physically present

In an e-commerce environment,

the customers are virtually present,

with 7/24 access

Unique opportunity to

build customer relationships

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Operations Planning

Successful operations are carefully planned and implementedKey issues include Forecasting Planning

CapacityLocationLayoutQualityMethods planning

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Forecasting

Estimating future demand for new and existing products May be short to long term (2 to 5 years)

Qualitative Methods based on judgment and experience

obtained from experts or groups of experts

Quantitative Methods based on statistical projections

obtained by extrapolating from historical sales levels

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Capacity Planning

The amount of a product that a firm can produce under normal conditionscapacity should

slightly exceed normal demandaccommodate seasonal changes

and peak timesaddress ways to use excess capacity

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Location Planning

The decision of where to place a production facility is crucial and is based on: location of customers and suppliersavailability of labourproximity to raw materials transportation costs taxescommunity attractiveness

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Layout Planning

Productive facilities are used for transforming raw materials workstations, equipment

Nonproductive facilities do not transform storage & maintenance areas

Support facilities support the organization cafeteria, parking lot, restrooms

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Process Layout

Resources are grouped based on their function in the production process tasks are performed in

specialized locations

suitable for “job shops” (custom work)in a bakery, areas are dedicated to mixing,

baking, decorating, and packaging

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Cellular Layouts

A series of areas or “cells” are created

each cell is used to manufacture a product in a “family”

each product in the family goes through a similar process

Requires less adjustment of equipment, smaller flow

distances, reduced materials handling and transit time

clothing pockets (product family) with individual

products requiring similar steps in production

pants pockets, shirt pockets

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Product Layout

Resources are moved through a series of steps as they become finished goodsEquipment and people are arranged in a production line for each product being producedOften use assembly lines, where products are moved along a conveyor belt or similar equipmentCan be efficient and cost-effective streamlined production simplified tasks, can use unskilled labour

automobile manufacturing, food processing

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Flexible Manufacturing Systems (FMS)

Automatic equipment produces small batches of different products on the same production lineLinking company information systems and

production systems result in an increased ability to plan for changes in consumer tastes and seasonal demand

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Soft Manufacturing

Emphasis on computer software and networks rather than production equipment does not rely on complete automation, recognizing that

human labour can excel in ways that machines cannot

Humans can do fine work and do not break down or wear out the way robots do

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Layout Planning for Producing Services

Differs for low and high contact systems

Low-contact systems should be designed to enhance service production

High-contact systems should be arranged to meet customer’s needs and expectations

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Methods Planning

Must clearly identify: every production step

the specific methods for performing them

Methods improvement1. document the current method

process flow chart identifies the sequence, movements and tasks

2. analyze to identify wasteful activities, source of delays, and other inefficiencies

3. implement improvements,

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Methods Improvement in Services

Service Flow Analysisshows the process flows and helps determine

which processes are necessary Identifies areas that pose potential problems

“fail points”

Design to control employee discretionenhance consistency, perhaps by automating

Design for customer contactdevelop clear procedures

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Service Flow Analysis for Quick Photo-Finishing

1/2 minute 1 minute 45 minutes 2 minutes

Customer Receive exposed Develop Return filmdrive-in film from film and collect

customer payment

Standard execution time: 48.5 minutes Proper Fail pointdevelopment

Total acceptable execution time: 90 minutes

Customers will wait up to 90 minutes for photo-Customers will wait up to 90 minutes for photo-finishing before lowering their evaluation of service finishing before lowering their evaluation of service

quality.quality.

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Scheduling Goods Operations

Master production schedule (top level) Which products will be produced

When will production occur

What resources will be used

Time periods for resource use

Short-term detailed schedule: task assignments

order information

production specifics to meet incoming orders

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Scheduling Service Operations

Scheduling work and workersLow-contact services:

Scheduling based on desired completion dates and/or arrival

Less direct customer involvementreservations and appointment systems

High-contact services:Customer is directly involved in the production

processScheduling must revolve around the customer

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Scheduling tools

Gantt Chartsdiagram of steps in project and time required

for eachcan be used to check progress

PERT Chartsspecifies the sequence and critical path of

steps in a projectcan identify activities that will cause delay

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Gantt Chart

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PERT chart

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Operations Control

Operations control = monitoring performance by comparing results to original plans and schedulesFollow-up = checking to ensure that production

decisions are being implemented

Materials management

Process control

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Materials Management

Planning, organizing & controlling the flow of materials

from purchase to distribution of finished goods transportation warehousing inventory control purchasing

Standardization using standard and uniform components in the

production process

simplifies paperwork

reduces storage needs

eliminates unnecessary materials flow

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Supplier Selection

1) Survey possible suppliers

2) Visit and evaluate each supplier

3) Negotiate terms of service with chosen suppliers

4) Develop an ongoing order routine

and maintain a positive buyer-seller relationship

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Process Control: Training Workers

Staff skills are essential to render high quality goods and services

Staff manage both sales and service productionhuman relations skills are

vital in high-contact services

technical skills are vital in low-contact services

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Just-in-Time Production Systems (JIT)

Parts and components are delivered precisely when they are needed resources continually flowing reduces goods in progress and saves moneydisruptions visible and resolved quickly by

continuous improvement

Makes supply systems more volatile and uncertain

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Materials Requirements Planning (MRP)

Uses a computerized bill of materials to estimate production needs so resources are acquired and put into production only as needed

fewer early arrivalsless frequent stock shortageslower storage costs

Bill of materials a list of goods that are needed in the production

processes, and the method of combining the resources a bill of materials gives requirements for a single

production “batch”

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Manufacturing Resource Planning (MRP II)

Advanced version of MRP Ties together all parts of the organization into the company’s production activitiesProduction InventoryHuman resourcesMarketingFinance

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Quality Control

The management of the production process so as to manufacture the goods or supply services that meet specific quality standards

Documents

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada CHAPTER 11 Producing Goods and Services