Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. CHAPTER 11 Producing Goods and Services

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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.

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Utility: Adding Value Time Utility Satisfaction because the product is available when it is wanted Place Utility Satisfaction because the product is available where it is needed Form Utility Satisfaction because the product is available when it is transformed into the needed final product Possession Utility The product is consumed and satisfaction occurs during the consumption process

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc The Transformation System Production Managers Plan Organize Schedule Control Resources Land Capital Transformation Human Resources ActivitiesProducts and Services Materials

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Goods-Manufacturing Processes Operations Classification type of transformation technology type of process (analytic or synthetic) product flow pattern used during transformation extent of labour use during transformation

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Transformation Technology Chemical processes Fabrication processes Assembly processes Transport processes Clerical processes

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Analytic vs. Synthetic Processes Analytic resources are broken down in production process extracting minerals from ore Synthetic resources are combined in the production process Paint production

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Customer Contact 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 transfers High-contact system customers need to be physically present haircuts, medical examinations, bus transportation

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Focus on Process and Outcome Most services have some goods attached to them The emphasis is on the process of transforming the resources into a service outcome Service staff need to have interpersonal skills to deal with the process as well as the outcome, and the customer contact that is required

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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 access 7 days weekly, 24 hours daily Unique opportunity to build customer relationships

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Operations Planning Successful operations are carefully planned and implemented Key issues include Forecasting Planning Capacity Location Layout Quality Methods planning

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Capacity Planning The amount of a product that a firm can produce under normal conditions capacity should slightly exceed normal demand accommodate seasonal changes in production address ways to use excess capacity

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Capacity Adjustments Companies may make or buy the parts & components required in its production process making the component requires additional capacity buying the component reduces capacity required Companies may price products high or low to stimulate/curtail demand and coordinate demand and supply given their capacity Seasonal prices vs. off-Season prices

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Location Planning The decision of where to place a production facility is crucial and is based on: location of customers and suppliers availability of labour proximity to raw materials transportation costs taxes community attractiveness

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Product Layout Resources are moved through a series of steps as they become finished goods Equipment and people are arranged in a production line for each product being produced Often use assembly lines, where products are moved along a conveyor belt or similar equipment Can be efficient and cost-effective streamlined production simplified tasks therefore unskilled labour can be used automobile manufacturing, food processing

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Flexible Manufacturing Systems (FMS) Linking company information systems and production systems result in an increased ability to plan for changes in consumer tastes and seasonal demand changes Automatic equipment produces small batches of different products on the same production line to meet demand

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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 Allows firms to meet the needs of customized products for individual customers (not well met by automatic equipment)

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Methods Planning Each step in the process must be clearly designed Each method must be specified Methods improvement step-by-step examination of the production process and individual tasks to reduce waste and inefficiency may involve the use of a process flow chart, which identifies the sequence, procedures, wasteful activities, possible delays, and inefficiencies

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Service Flow Analysis Identifies areas that pose potential problems “fail points” each fail point can potentially create a bad service experience Can aid service scheduling by indicating what consumers expect good service vs. a bad service

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Service Flow Analysis for Quick Photo-Finishing Customers will wait up to 90 minutes for photo- finishing before lowering their evaluation of service quality.

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Scheduling Service Operations Differs for high and low-contact services requires scheduling both work and employees low-contact services scheduled around desired completion dates and/or arrival of orders (auto repair) high-contact services scheduled to accommodate specific customer needs (emergency medical care)

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc More About Scheduling Service Operations Scheduling work and workers Low-contact services: Scheduling based on desired completion dates Less direct customer involvement High-contact services: Customer is directly involved in the production process Scheduling must revolve around the customer Scheduling tools Gantt Charts PERT Charts

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Operations Control When long range plans are in place Operations control requires production managers to monitor performance by comparing results to original plans Follow-up requires checking up to ensure that production decisions are being implemented

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Materials Management The management of materials from purchase to distribution of finished goods transportation, warehousing, inventory control, and purchasing Standardization using standard and uniform components in the production process may involve common parts or components across product lines saves production costs simplifies the materials management process

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Supplier Selection 1) Survey possible suppliers 2) Visit and evaluate each supplier 3) Negotiate terms for dealing with appropriate suppliers 4) Develop an ongoing order routine and maintaining the buyer-seller relationship

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Process Control: Training Workers Staff skills are essential to render high quality goods and services Staff manage both sales and service production human relations skills are vital in high-contact services technical skills are vital in low-contact services

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Just-in-Time Inventory Systems (JIT) Minimizes trade-offs between holding time and costs Parts and components are delivered precisely when they are needed Does not require forward-buying, or carrying of stock of parts and components Smoothes the production process, relieving inefficiencies of stop and go systems Does not meet the needs for flexibility in all industries

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Materials Requirements Planning (MRP) Inventory control method in which a computerized bill of materials is used to estimate production needs so that resources are acquired only as they are needed in the production process 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”

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Manufacturing Resource Planning (MRP II) Advanced version of MRP Ties together all parts of the organization into the company’s production activities Production Inventory Human resources Marketing Finance

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Quality Control The management of the production process so as to manufacture the goods or supply services that meet specific quality standards

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Meeting the Challenge of Customization Customer contact can be minimized by: using reservations or appointment-only systems handle routine transactions/requests by mail or telephone separate information-gathering from the service delivery (pre-registration) locate drop-off or exchange points at remote spots more accessible to customers separate service consumption from its booking, information retrieval, or payment (such as airline services)

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Meeting the Challenge of Unstorability If services are not consumed when ready, they are lost hotel room nights or airline seats Overbooking overcomes the perishability problem by further ensuring that hotel rooms are not empty, airline seats are full, and doctors’ office hours are not wasted

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Meeting the Challenge of Customer Involvement Customer involvement can be advantageous if customers can produce part of the service transformation themselves, or assist in other ways completing order forms dialling toll-free numbers entering information via computer into a database having customers pack their own groceries