Chapter+4 (1)

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After reading this chapter, you should be able to:

1.  Explain the meaning of the term production or operations.

2.  Describe the three kinds of utility that operations processes provide for adding customer value.

3.  Explain how companies with different business strategies are best served by having different operations capabilities.

4.  Discuss the productivity concept and how to measure it

Copyright © 2011 Pearson Education, Inc. publishing as

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•  By understanding this chapter’s methods for managing operations and improving quality, you can benefit in two ways: 1. As an employee, you’ll have a clearer picture of

who your customers are and what they want and how your job depends on the services they receive from you

2. You’ll better understand how companies around you—even successful firms—have to change production methods whenever they adopt new business goals to remain competitive


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•  Operations (Production) – All the activities involved in making products

(goods and services) for customers •  Service Operations (Service Production)

–  Provide intangible and tangible service products

•  Goods Operations (Goods Production) –  Produce tangible products

•  Operations managers create utility for customers through production, inventory, and quality control.


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•  Utility –  The ability of a product to satisfy a want or need

•  Form utility •  Time utility •  Place utility

•  Operations (Production) Management –  Systematic direction and control of processes that

transform resources into finished services and goods that create value for and provide benefits to customers


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•  Goods are produced, services are performed

•  Service operations: 1. Involve interacting with consumers 2. Are sometimes intangible and unstorable 3. Involve a customer’s presence in the process 4. Involve certain service quality considerations


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•  Operations Process – Methods and technologies used to produce

a good or service •  Goods Production Processes

– Make-to-order or make-to-stock processes •  Service Production Processes

–  Extent of Customer Contact •  Low-contact systems: low customer involvement •  High-contact systems: high customer involvement


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•  Companies design their operations based on business strategy (chapter 3)

•  (we will study deeply in Module 3) •  -Strategic position: the strategic description of itself the

company has chosen. (For instance: low-fare carrier; a charter airline; all cargo airline serving line-haul markets)

•  -Market position: whether the company has a single service or product concept (Ryanair) or a multi-service portfolio (Iberia). The operating system must be configured to deliver each type of service to targeted customers in a manner consisted with their desired positioning of that service relative to competitors in customers’ perceptions.


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•  Capacity Planning – Determining the amount of a product that a

company can produce under normal conditions •  Location Planning

– Determining where production will happen based on costs and flexibility


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•  Layout Planning – Planning for the layout of machinery,

equipment, and supplies – Determines whether a company can

respond to demand for more and different products or it finds itself unable to match competitors’ speed and convenience

•  Process layouts •  Product layouts


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•  What Is Quality? – The combination of “characteristics of a

product or service that bear on its ability to satisfy stated or implied needs” (American Society for Quality)

– Begins when products are designed: goals are set for performance and consistency

–  Includes deciding what constitutes a high-quality product and determining how to measure these quality characteristics


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•  Managers identify each production step and methods for performing it.

•  They reduce waste and inefficiency through methods improvement and improving process flows. –  A detailed description, often a process flowchart,

helps managers organize and record information. •  They attempt to improve customer service.


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•  Operations Scheduling – Times when specific production activities will occur

•  Kinds of Planning Schedules – Master schedule: Shows which products will be

produced, and when – Detailed schedule: Shows day-to-day activities – Staff schedules: Show who and how many

employees will be working, and when – Project schedules: Coordinate completion of large-

scale projects


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•  Gantt Chart – Breaks down projects into steps to be

performed – Specifies the time required to complete

each step – A Project Manager uses the Gantt chart

to: •  List all activities to be performed •  Estimate the time required for each step •  Record the progress on the chart •  Check the progress against the time scale on the

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•  Operations Control – Requires managers to monitor performance by

comparing results with detailed plans and schedules.

– Follow-up: Checking to ensure that production decisions are being implemented; critical, ongoing facet of operations.


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•  Materials Management – The process by which managers plan, organize,

and control the flow of materials from sources of supply through distribution of finished goods

•  Materials Management Activities – Supplier selection – Purchasing – Transportation – Warehousing –  Inventory control


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  It is important to understand 4 concepts:

◦ Utilization ◦ Productivity ◦ Efficiency ◦ Effectiveness


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  It is a measure of the extent to which a resource is being used.

  It can be expressed either in absolute terms   Aircraft utilisation in average block-hours per day or per year

  Or as a percentage of what is possible   Cabin floor space utilisation as a percentage seat factor

  All resources (staff, equipment, airport terminals, gates, simulators, information systems, distribution channels) should be utilised as full as possible

  Maximizing resource utilisation is now a critical element in the operating strategies of the well-managed implications


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  It is the ratio between inputs/outputs-either all inputs aggregated or just a single category, such as labour.

  If we want to asses airline productivity:

  1. partial productivity metrics   2. total productivity   3. statistical decomposition approach


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  Labour productivity: ◦  ASMs Available seat-mile: one seat flown one mile per

employee or per labour-hour ◦  ATMs: available ton-mile: one ton of payload capacity

flown one mile per employee or per labour-hour ◦  RPMs: revenue passenger-mile: one revenue passenger

flown one mile per employee or per labour-hour ◦  RTM: revenue ton-mile. One ton of payload flown one

mile per employee or per labour-hour   Flight equipment productivity ◦  ASMs produced per flight hour , day or year ◦  RPMs produced per flight hour , day or year

  Output per gallon or liter of fuel Copyright © 2011 Pearson

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  Efficiency is maximised when a given level of inputs is generating as much output as possible or when a given level of output is generated by the minimum level of inputs possible.

  Effectiveness is maximised when a targeted standard of performance is attained.

  The economic appeal of an operating system that is delivering output both effectively (conformer with customers’ expectations) and efficiently (depending on the nature of the output concerned)


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  Staff productivity: ◦  Outsourcing labour-intensive processes ◦  Greater automation, especially back-office

processes such as routine purchasing. ◦  More flexible work-rules and staff multi-skilling ◦  Having customers participating more actively in

service delivery (internet booking, self-service check-ins, smart-card airports facilitation)


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  Productivity can growth and market share can decline.

  Productivity can growth but profit can fall

◦  For instance: Jetblue removed 6 seats from the A320s to bring capacity down to 150 seats, this way they could reduce LEGALLY the number of flight attendants from 4 to 3 (1fa for each 50 seats or fraction thereof)


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  The institutional context: laws applied. ◦  hours worked per year affected by regulation and /

or union agreements ◦  The efficiency of work processes automation ◦  The extent of outsourcing (catering, maintenance,

IT, ground handling –in house do not impact output strongly but has a significant impact on staff numbers and staff productivity).

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Chapter+4 (1)