Producing Goods and Services CHAPTER 11 Producing Goods and Services

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. These learning objectives are based upon those at the beginning of the chapter. For a review of learning objectives, see the summary at the end of the chapter, as well as the list of key terms. Learning Objectives: p. 336 Summary: pp. 361-362 Key Terms: p. 362 Study Questions & Exercises: p. 363 Building Your Business Skills: p. 363 2 2

Goods and Services Services Operations Goods Production production activities that yield tangible and intangible service products entertainment transportation education food preparation Goods Production production activities that yield tangible products things you can see and touch Learning Objective: 1 Page 338 5 5

Utility: Adding Value Time Utility Place 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) Learning Objective: 2 Page 340 3 3

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 Learning Objective: 2 Page 340 4 4

The Transformation System Production Managers Plan Organize Schedule Control Resources Learning Objective: 2 Pages 340 (This is a duplication of the diagram in Figure 11.1 on page 340.) Land Products and Services Capital Transformation Materials Activities Human Resources 5 5

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 Learning Objective: 2 Page 341 6 6

Goods-Producing Processes Transformation Technology Chemical processes Fabrication processes Assembly processes Transport processes Clerical processes Learning Objective: 2 Page 341 7 7

Analytic vs. Synthetic Processes resources are broken down in production process extracting minerals from ore Synthetic resources are combined in the production process Paint production Learning Objective: 2 Page 342 13 13

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 transfers High-contact system customers need to be physically present haircuts, medical examinations, bus transportation Learning Objective: 2 Page 342 11 11

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 Learning Objective: 3 Pages 343-345 5 5

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 Learning Objective: 3 Page 343

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 Learning Objective: 3 Page 343 6 6

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 Learning Objective: 3 Pages 343-344 7 7

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 Learning Objective: 3 Page 345

Operations Planning Successful operations are carefully planned and implemented Key issues include Forecasting Planning Capacity Location Layout Quality Methods planning Learning Objective: 4 Pages 345-355 18 18

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 Learning Objective: 4 Page 345 19 19

Capacity Planning The amount of a product that a firm can produce under normal conditions capacity should slightly exceed normal demand accommodate seasonal changes and peak times address ways to use excess capacity Learning Objective: 4 Page 346 21 21

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 Learning Objective: 4 Page 347 23 23

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 Learning Objective: 4 Page 347 24 24

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 Learning Objective: 4 Page 348 25 25

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 Learning Objective: 4 Page 348 28 28

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, can use unskilled labour automobile manufacturing, food processing Learning Objective: 4 Pages 348-351 26 26

Flexible Manufacturing Systems (FMS) Automatic equipment produces small batches of different products on the same production line Linking company information systems and production systems result in an increased ability to plan for changes in consumer tastes and seasonal demand Learning Objective: 4 Page 351 30 30

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 Learning Objective: 4 Page 351 31 31

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 Learning Objective: 4 Pages 351-352 22 22

Methods Planning Must clearly identify: Methods improvement every production step the specific methods for performing them Methods improvement document the current method process flow chart identifies the sequence, movements and tasks analyze to identify wasteful activities, source of delays, and other inefficiencies implement improvements, Learning Objective: 4 Pages 352-353 33 33

Methods Improvement in Services Service Flow Analysis shows the process flows and helps determine which processes are necessary Identifies areas that pose potential problems “fail points” Design to control employee discretion enhance consistency, perhaps by automating Design for customer contact develop clear procedures Learning Objective: 4 Pages 353-355 23 23

Service Flow Analysis for Quick Photo-Finishing Learning Objective: 4 Page 354 (See Figure 11.5.) Customers will wait up to 90 minutes for photo-finishing before lowering their evaluation of service quality. 24 24

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 Learning Objective: 5 Page 355

Scheduling Service Operations Scheduling work and workers Low-contact services: Scheduling based on desired completion dates and/or arrival Less direct customer involvement reservations and appointment systems High-contact services: Customer is directly involved in the production process Scheduling must revolve around the customer Learning Objective: 5 Page 355-356

Scheduling tools Gantt Charts PERT Charts diagram of steps in project and time required for each can be used to check progress PERT Charts specifies the sequence and critical path of steps in a project can identify activities that will cause delay Learning Objective: 5 Pages 356-357 (See next two slides for examples.)

Gantt Chart Learning Objective: 5 Page 356 (See Figure 11.6.)

PERT chart Learning Objective: 5 Page 357 (See Figure 11.7.)

Operations Control Operations control = monitoring performance by comparing results to original plans and schedules Follow-up = checking to ensure that production decisions are being implemented Materials management Process control Learning Objective: 5 Page 357

Materials Management Standardization 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 Learning Objective: 5 Pages 357-358 37 37

Supplier Selection 1) Survey possible suppliers 2) Visit and evaluate each supplier 3) Negotiate terms of service with chosen suppliers Learning Objective: 5 Pages 358-359 4) Develop an ongoing order routine and maintain a positive buyer-seller relationship 43 43

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 Learning Objective: 5 Page 359 30 30

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 money disruptions visible and resolved quickly by continuous improvement Makes supply systems more volatile and uncertain Learning Objective: 5 Pages 359-360 45 45

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 arrivals less frequent stock shortages lower 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” Learning Objective: 5 Page 360 46 46

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 Learning Objective: 5 Page 360 47 47

Quality Control The management of the production process so as to manufacture the goods or supply services that meet specific quality standards Learning Objective: 5 Page 361