GOODS SERVICES AND OPERATIONS MANAGEMENT CHAPTER 1 DAVID

GOODS, SERVICES, AND OPERATIONS MANAGEMENT CHAPTER 1 DAVID A. COLLIER AND JAMES R. EVANS © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT 1 -1 Explain the concept and importance of operations management. 1 -2 1 -3 1 -4 1 -5 Describe what operations managers do. Explain the differences between goods and services. Describe a customer benefit package. Explain the role of processes in OM and identify three general types of processes. 1 -6 Summarize the historical development of OM. 1 -7 Describe current challenges facing OM. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT • Operations management (OM) is the science and art of ensuring that goods and services are created and delivered successfully to customers. − Design of goods, services, and the processes that create them. − Day-to-day management of those processes. − Continual improvement of these goods, services, and processes. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Three Issues at the Core of Operations Management • Efficiency • Cost • Quality © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT What Do Operations Managers Do? • • • Forecasting Supply chain management Facility layout and design Technology selection Quality management Purchasing Resource and capacity management Process design Job design Service encounter design Scheduling © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT OM in the Workplace Operations Managers have such titles as: • • Chief Operating Officer Hotel or Restaurant Manager Vice President of Manufacturing Customer Service Manager Plant Manager Field Services Manager Supply Chain Manager © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT OM in the Workplace Shelly Decker, an accounting and information systems major in college, and her sister created an entrepreneurial venture to manufacture and sell natural soaps and body products. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT OM in the Workplace Shelly uses OM skills every day: • • Process design – When a new product is to be introduced, the best way to produce it must be determined. This involves charting the detailed steps needed to make the product. Inventory management – Inventory is tightly controlled to keep cost down and to avoid production that isn't needed. Inventory is taken every four weeks and adjusted in the inventory management system accordingly. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT OM in the Workplace • • Scheduling – Production schedules are created to ensure that enough product is available for both retail and wholesale customers, taking into account such factors as current inventory and soap production capacity. Quality management – Each product is inspected and must conform to the highest quality standards. If a product does not conform to standard (for example, wrong color, improper packaging, improper labeling, improper weight, size, or shape), then it is removed from inventory to determine where the process broke down and to initiate corrective action. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT OM in the Workplace Brooke Wilson is a Process Manager for J. P. Morgan Chase in the Credit Card Division. He was an accounting major in college. Among his OM-related activities are: • • Planning and budgeting: Representing the plastic card production area in all meetings, developing annual budgets and staffing plans, and watching technology that might affect the production of plastic credit cards. Inventory management: Overseeing the management of inventory for items such as plastic blank cards, inserts such as advertisements, envelopes, postage, and credit card rules and disclosure inserts. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT OM in the Workplace • Scheduling and capacity: Daily to annual scheduling of all resources (equipment, people, inventory) necessary to issue new credit cards and reissue cards that are up for renewal, replace old or damaged cards, and one's that are stolen. • Quality: Embossing the card with accurate customer information and quickly getting the card in the hands of the customer. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Understanding Goods and Services • A good is a physical product that you can see, touch, or possibly consume. Examples of goods include: oranges, flowers, televisions, soap, airplanes, fish, furniture, coal, lumber, personal computers, paper, and industrial machines. • A durable good is a product that typically lasts at least three years. Vehicles, dishwashers, and furniture are some examples of durable goods. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Understanding Goods and Services • A non-durable good is perishable and generally lasts for less than three years. Examples are toothpaste, software, shoes, and fruit. • A service is any primary or complementary activity that does not directly produce a physical product. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Similarities Between Goods and Services 1. Goods and services provide value and satisfaction to customers who purchase and use them. 2. They both can be standardized or customized to individual wants and needs. 3. A process creates and delivers each good or service, and therefore, OM is a critical skill. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Differences Between Goods and Services 1. Goods are tangible while services are intangible. 2. Customers participate in many service processes, activities, and transactions. 3. The demand for services is more difficult to predict than the demand for goods. 4. Services cannot be stored as physical inventory. 5. Service management skills are paramount to a successful service encounter. 6. Service facilities typically need to be in close proximity to the customer. 7. Patents do not protect services. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Understanding Goods and Services • Service management integrates marketing, human resources, and operations functions to plan, create, and deliver goods and services, and their associated service encounters. • A service encounter is an interaction between the customer and the service provider. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Understanding Goods and Services • Service encounters consist of one or more moments • Examples: − A gracious welcome by an employee at a hotel check-in counter − A grocery store employee who seems too impatient to help − Trying to navigate a confusing Web site of truth—any episodes, transactions, or experiences in which a customer comes into contact with any aspect of the delivery system, however remote, and thereby has an opportunity to form an impression. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Exhibit 1. 1 How Goods and Services Affect Operations Managemen t Activities © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Customer Benefit Packages • A customer benefit package (CBP) is a clearly • • defined set of tangible (goods-content) and intangible (service-content) features that the customer recognizes, pays for, uses, or experiences. In simple terms, a CBP is some combination of goods and services configured in a certain way to provide value to customers. A CBP consists of a primary good or service, coupled with peripheral goods and/or services. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Customer Benefit Packages • A primary good or service is the “core” offering that attracts customers and responds to their basic needs. For example, the primary service of a personal checking account is the capability to do convenient financial transactions. • Examples: − an airline flight − a checking account − a brief case − a football game − tax preparation advice © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Customer Benefit Packages • Peripheral goods or services are those that are not essential to the primary good or service, but enhance it. • Examples for a personal checking account: − online access and bill payment − debit card − designer checks − paper or electronic account statement © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Customer Benefit Packages • A variant is a CBP attribute that departs from the standard CBP and is normally location- or firm -specific. • Example: − a fishing pond or pool at an automobile dealership where kids can fish while the parents shop for vehicles © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22

CHAPTER 1 Exhibit 1. 2 GOODS, SERVICES, AND OPERATIONS MANAGEMENT A CBP Example for Purchasing a Vehicle © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23

CHAPTER 1 Exhibit Extra GOODS, SERVICES, AND OPERATIONS MANAGEMENT Another Example of a Consumer Benefit Package © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 24

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Customer Benefit Packages • Many “goods” and “services” have a mixture of both goods and service content. Exhibit 1. 3 Examples of Goods and Service Content © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Processes • A process is a sequence of activities that is intended to create a certain result. • Processes are the means by which goods and services—the components of a CBP—are produced and delivered. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Processes Key business processes: • Value creation processes, focused on producing or • • delivering an organization’s primary goods or services, such as filling and shipping a customer’s order, assembling a dishwasher, or providing a home mortgage. Support processes, such as purchasing materials and supplies used in manufacturing, managing inventory, installation, health benefits, technology acquisition, day care on-site services, and research and development. General management processes, including accounting and information systems, human resource management, and marketing. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 27

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Processes • Nearly every major activity within an organization involves a process that crosses traditional organizational boundaries. • Networks of processes are called value chains, which we focus on in Chapter 2. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 28

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Pal’s Sudden Service • Pal’s Sudden Service is a small chain of mostly drive-through quick service restaurants located in Northeast Tennessee and Southwest Virginia. • Pal’s competes against major national chains and outperforms all of them by focusing on important customer requirements such as speed, accuracy, friendly service, correct ingredients and amounts, proper food temperature, and safety. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 29

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Pal’s Sudden Service • Pal’s uses extensive market research to fully understand customer requirements: convenience; ease of driving in and out; easy-to -read menu, simple, accurate order-system; fast service; wholesome food; and reasonable price. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 30

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Pal’s Sudden Service • Pal’s value chain begins with raw materials and suppliers providing items such as meat, lettuce, tomatoes, buns, and packaging; uses intermediate processes for order taking, cooking, and final assembly; and ends with order delivery and—hopefully—happy customers. • Every process is flowcharted analyzed for opportunities for error, and then mistake-proofed if at all possible. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 31

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Pal’s Sudden Service • Entry-level employees—mostly high school students in their first job—receive 120 hours of training on precise work procedures and process standards in unique self-teaching, classroom, and on-the-job settings, reinforced by a “Caught Doing Good” program that provides recognition for meeting quality standards and high performance expectations. • Pal’s collects performance measures such as complaints, profitability, employee turnover, safety, and productivity. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 32

CHAPTER 1 Exhibit 1. 4 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Six Eras of Operations Management © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 33

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Today, more than 90 percent of the jobs in the U. S. economy are in service processes (half of the jobs in goods-producing industries, or about 9%, plus 81% in service industries). Service involves designing and managing service-, information-, or entertainment-intensive processes. Most people in the United States are working in the service sector or service processes such as health care and education, or in service-related aspects of manufacturing firms such as human resource management and accounting. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 34

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Sustainability refers to an organization’s ability to strategically address current business needs and successfully develop a long-term strategy that embraces opportunities and manages risk for all products, systems, supply chains, and processes to preserve resources for future generations. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 35

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Sustainability • Environmental sustainability is an organization’s • • commitment to the long-term quality of our environment. Social sustainability is an organization’s commitment to maintain healthy communities and society that improve the quality of life. Economic sustainability is an organization’s commitment to address current business needs and economic vitality, and to have the agility and strategic management to prepare successfully for future business, markets, and operating environments. © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 36

CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT Current Challenges in OM • • • Technology Globalization Changing customer expectations Changing job designs Quality Global manufacturing © 2013 OM 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 37