Copyright © 2006 Pearson Education Canada Inc Chapter 10 Producing Goods and Services

Copyright © 2006 Pearson Education Canada Inc Learning Objectives Describe and explain the three classifications of operations processes Explain the activities involved in operations control, including materials management and the use of operation control tools Explain the concept of total quality management and describe nine tools that companies can use to achieve it

Copyright © 2006 Pearson Education Canada Inc Differences Between Goods and Services Goods are produced 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

Copyright © 2006 Pearson Education Canada Inc Operations (Production) Management Operation (production) management Systematic direction and control of the processes that transform resources into finished goods Production Managers Responsible for ensuring that operations processes create value and provide benefits

Copyright © 2006 Pearson Education Canada Inc The Transformation System Production Managers Plan Organize Schedule Control Resources Land Capital Transformation Human Resources ActivitiesProducts and Services Materials

Copyright © 2006 Pearson Education Canada Inc Service-producing Processes 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

Copyright © 2006 Pearson Education Canada Inc Differences Between Service and Manufacturing Operations 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

Copyright © 2006 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

Copyright © 2006 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

Copyright © 2006 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

Copyright © 2006 Pearson Education Canada Inc Operations Planning Successful operations are carefully planned and implemented Key issues include Forecasting Planning  Capacity  Location  Layout  Quality  Methods planning

Copyright © 2006 Pearson Education Canada Inc Forecasting Estimating future demand for new and existing products May be short to long term (2 to 5 years) Production plan specifies the number of plants or service facilities and the amount of labour, equipment, transportation, and storage that will be needed to meet demand

Copyright © 2006 Pearson Education Canada Inc Capacity Planning The amount of a good 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  Increase inventory levels

Copyright © 2006 Pearson Education Canada Inc Location Planning The decision of where to place a production facility is crucial and is based on: Availability of labour Proximity to raw materials and markets Transportation and energy costs Local taxes Community attractiveness

Copyright © 2006 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

Copyright © 2006 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

Copyright © 2006 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

Copyright © 2006 Pearson Education Canada Inc Materials Management Materials management Planning, organizing, and controlling the flow of materials from purchase through distribution of finished goods  Transportation, warehousing, inventory control, supplier selection, 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

Copyright © 2006 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 Company oversees everything from supplier selection to assembly to packaging

Copyright © 2006 Pearson Education Canada Inc Quality A product’s fitness for use in terms of offering the features that consumers want Firms may be efficient but still lack the quality that consumers seek Quality and quantity are not the same  Quantity measures efficiency of production, not product quality Canada’s competitive problems are largely linked to focusing on quantity issues

Copyright © 2006 Pearson Education Canada Inc Total Quality Management (TQM) TQM requires attention to both efficiency (quantity produced) and quality (the ability of the product to deliver the consumers’ expectations) TQM recognizes that: No defects are tolerable All employees are responsible for maintaining quality standards

Copyright © 2006 Pearson Education Canada Inc Quality Improvement Teams Employees are grouped into small teams Quality circles Each group chooses a team leader and determines rules for discussion Each team must define, analyze, and solve quality and other process-related problems within their areas of responsibility May involve brainstorming, discussion, and the use of quality/cost study

Copyright © 2006 Pearson Education Canada Inc Getting Close to the Customer Successful firms have an understanding of customer needs and wants Customers need and want good service Customers are “economic assets” Firms need to stay close to their customers

Copyright © 2006 Pearson Education Canada Inc ISO 9000 A system developed by the international standards organization (ISO) to evaluate a firm’s quality To earn the rating firms are measured by qualified consultants Product testing Employee training Record-keeping Correcting defects