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BUSN 1200 Fundamentals of Business

Operations Management

CH 11 Producing Goods & Services

Instructor: Shari Ann Herrmann

Learning Objectives
Explain the meaning of the term production and

operations
Describe the four kinds of utility production provides. 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 the activities involved in operations control,

including materials management and the use of materials requirement planning (MRP)
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Production
Services Operations production activities that yield tangible and intangible service products

entertainment transportation education food preparation

Goods Production production activities that yield tangible products

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things you can see and touch

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The Transformation System

Resources
Land Capital Technology Information Materials Human Resources

Production Managers
Plan Organize Schedule Control

Transformation Activities

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Products Services

What Does Production Mean Today?

More emphasis on the customer and less on equipment and technology Success is dependent on providercustomer contact Electronic communication has become important to both production of goods and services Many companies are providers of both goods and services

Operations/Production Management
Operations Management (also called Production Management) = the 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
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Creating Value through Production

Time 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 products form (the

transformation of raw materials into a finished product)

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Creating Value through Production

Business Strategy as the Driver of Operations Depends upon: quality lower prices flexibility dependability

Creating Value through Production

Business Strategy Determines Operations Capabilities

Production operations are adjusted to support the firms target markets Operations capability matches up with its business strategy (low cost, quality, etc.) so that the firms activities are focused in a particular direction Many firms achieve more than one core competence

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Differences Between Goods and Services

Goods are produced - Services are performed
Services operations are more complicated:
customers presence in the process a virtual presence in ecommerce interaction with customers need interpersonal skills intangible and unstorable service quality considerations judgement of intangibles
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Service-Producing Processes
Customers are involved in and can affect the transformation process
Low-contact system
customers do not

need to be physically present to provide service

electric power, automatic bank transfers

High-contact system
customers must

be physically present

haircuts, medical examinations, bus transportation

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Layout Planning for Services

Layout planning differs between low and high contact systems
Low-contact
should be designed to enhance

service production High-contact

should be arranged to meet

customers needs and expectations

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Operations Planning
Successful operations are carefully planned and implemented
Forecasts of future demand: both for existing and

planned products.
Planning

Capacity Location Layout Quality Methods planning

Long range production plan: 2 to 5 years

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Capacity Planning
Capacity is the amount of a product that a firm can produce under normal conditions
For goods capacity should slightly exceed normal demand For services set at average demand, for low-contact accommodate peak demand, for highcontact

Operations managers must also address ways to use excess capacity

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Location Planning
The decision of where to place a facility is crucial. For goods location is based on:
proximity to raw materials and markets availability of labour energy and transportation costs regulations and taxes community attractiveness

For services: low contact: near suppliers, labour or transportation high contact: near customers
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Layout Planning
For goods manufacturing, layout planning must include: Productive facilities (used to transform raw materials) Non-productive facilities (such as storage & maintenance areas) Support facilities (cafeteria, parking lot, restrooms, etc.) Layout Alternatives:
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Process, Cellular and Product layouts.

Methods Planning
Methods planning clearly identifies: 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
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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 Process control = monitoring and controlling the production process worker training is key. Materials management
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Materials Management
is the planning, organizing & controlling the flow of materials from purchase to distribution of finished goods. It includes all of the following: transportation warehousing inventory control supplier selection purchasing
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Materials Management
Standardization = using standard and uniform components in the production process simplifies paperwork reduces storage needs eliminates unnecessary materials flow

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Just-in-Time Production Systems (JIT)

In JIT systems, parts and components are delivered precisely when they are needed
reduces goods in progress and saves money disruptions visible and resolved quickly can be disrupted by external events

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Materials Requirements Planning (MRP)

In MRP a computerized Bill of Materials (BoM) is used to estimate production needs: A BoM is a recipe for a finished product
specifies necessary parts, quantity and sequence fewer early arrivals less frequent stock shortages lower storage costs
Information is entered into a computer that

controls inventory levels.

Reduces shortages and lowers storage costs
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Preparation for Next Week

Read Chapter 12 on Quality Control Read Chapter 14 on Accounting
REMINDER: Term Papers are due TWO WEEKS FROM TODAY on November 5th.

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Questions?

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