1. Producing Goods and Services
CHAPTER 11
Producing Goods
and Services

2. 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
Key Terms: p. 362
Study Questions & Exercises: p. 363
Building Your Business Skills: p. 363 2 2

3. 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

4. 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

5. 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

6. 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

7. 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

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

9. 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

10. 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

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 5 5

12. 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

13. 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

14. 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 7 7

15. 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

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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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 26 26

24. 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

25. 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

26. 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 22 22

27. 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 33 33

28. 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 23 23

29. 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

30. 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

31. 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

32. 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 (See next two slides for examples.)

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

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

35. 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

36. 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 37 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
4) Develop an ongoing order routine and maintain a positive buyer-seller relationship 43 43

38. 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

39. 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 45 45

40. 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

41. 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

42. 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