Producing Quality Goods and Services Chapter Nine Producing Quality Goods and Services

What Is Production? Operations Manager The creation of utility; especially in the the making of goods Operations Manager A person who manages systems that convert resources into goods and services Need to understand the system in order to manage it

Manufacturing Processes Analytic process: a process that breaks raw materials into different component parts Synthetic process: a process that combines raw materials or components to create a finished product

Reason for Conversion Processes The purpose of the resources conversion process is to provide utility (value) to customers Utility: the ability of an item to satisfy a human need Four types of utility: form, place, time, and possession Form utility: utility created by converting raw materials, people, finances, and information into finished products

How to Categorize Conversion By Focus the resource that comprises the major or most important input i.e.-money for banks or info for colleges By Magnitude of Change The degree to which the resources must be physically changed to provide utility Plastics =high, services = little But what exactly are services?

The Increasing Importance of Services Service Economy An economy in which more effort is devoted to services than to the production of goods –US 81% in 2001 Service characteristics cannot be stored (perishability) produced & consumed at the same time (inseparable) labor intensive (heterogeneity) can’t be sensed (intangible)

Where Do We Get New Products and Services ? Research and Development Basic research Uncover new knowledge Goal is scientific advancement and knowledge creation without regard for its potential use Applied research Use existing knowledge to produce new and/or better goods and services Goal is development and implementation of knowledge

Planning for Production Design Planning-how to get from idea to item Product line A group of similar products that differ only in relatively minor characteristics-how many sizes/flavors do I need to satisfy demand? Capacity The amount of products or services that an organization can produce in a given time Required capacity must meet product demand Too much ability to produce leaves plant idle Too little ability to produce misses sales

Planning for Production Use of technology Labor-intensive technology: a process in which people must do most of the work Capital-intensive technology: a process in which machines and equipment do most of the work The degree of automation is based on the tradeoff between high initial investment costs with lower operating costs (for automation) and low initial investment costs with high operating costs (for human labor)

Planning for Production-Plant Layout Process Layout used when small batches of different products are created or worked on in a different operating sequence

Planning for Production-Plant Layout Product Layout The product layout (assembly line) is used when all products undergo the same operations in the same sequence

Planning for Production-Plant Layout The fixed position layout is used in producing a product that is too large to move

Operational Planning- how much product should I make at each plant Step 1: Selecting a Planning Horizon Period during which a plan will be in effect; commonly one year Step 2: Estimating Market Demand The quantity that customers will purchase at the going price Demand is estimated for the planning horizon Step 3: Comparing Market Demand with Capacity If market demand and facility’s capacity unequal, … Step 4: Adjusting Products to Meet Demand Increase capacity to meet demand Ignore excess demand Eliminate excess capacity Sell excess capacity for private brand production Shut down the plant

Four Aspects of Operations Control Now that I have a plan and a plant, I must start producing!!

Operations Control Purchasing Control Objective: to ensure that the required materials are available when needed, in the proper amounts, and at minimum cost Factors affecting the choice of suppliers Quality Reliability Price Credit terms Shipping costs

Operations Control Inventory Control - Goal is to minimize costs Types of inventory Raw materials: materials that will become part of the product during the production process Work-in-process: partially completed products Finished-goods: completed goods Costs of inventory Holding costs: the investment and storage costs of inventory Just-in-time inventory system materials or supplies arrive at just when they are needed to minimize storage and holding costs Stock-out costs: the costs of not having inventory available when needed

Operations Control Scheduling The process of ensuring that materials and other resources are at the right place at the right time Routing of materials: the sequence of work stations that the materials will follow Timing of materials: when the materials will arrive at each work station

Scheduling: A Gantt Chart • This chart details the job of building three dozen electric golf carts Source: Robert Kreitner , Management, 8th ed. Copyright © 2001 by Houghton Mifflin Company. Reprinted with permission.

Operations Control Quality Control The process of ensuring that goods and services are produced in accordance with specifications World Quality Standards: International status quo ISO 9000: certification for meeting quality control standards in procedures for the development and production of products ISO 14000: certification for incorporating environmental concerns into operations and product standards