Chapter 8
Operation Management
➔ all the activities required to produce goods and services
● To produce a product or service successfully, a business must perform a number of specific
activities, such as:
○ Marketing research
○ Control of operations
○ Product quality
○ Performance standards
○ Inventory
○ Production costs
The Bad News for Manufacturers
● The number of Americans employed in the manufacturing sector has decreased.
○ Today, fewer than one in ten work in manufacturing.
○ Most of the U.S. manufacturing jobs that were lost were outsourced to low-wage
workers in nations where there are few labour, safety, and environment regulations.
○ Manufacturing accounts for only about 8% of the current U.S. workforce
● Experts predict that U.S. employment in the manufacturing sector will continue to decline.
● result of the decline, China is now the largest manufacturing nation in the world.
The Goods News for Manufacturers
● Although the number of manufacturing jobs has declined, productivity has increased.
● Factors that account for the productivity increase:
○ Innovations
○ Highly skilled workers
● Restoring- a situation in which U.S. manufacturers bring manufacturing jobs back to the
United States
The Good News for Manufacturing (continued)
● The global marketplace has never been more competitive, & successful U.S. firms will focus
on the following:
○ Meeting the needs of customers and improving product quality
○ Motivating employees to cooperate with management and improve productivity
○ Reducing costs by selecting suppliers that offer higher-quality raw materials and
components at reasonable prices
○ Using computer-aided and flexible manufacturing systems that allow a higher degree
of customization
○ Improving control procedures to help ensure lower manufacturing costs
○ Using green manufacturing to conserve natural resources and sustain the planet
Careers in Operations Management
● Mass production- a manufacturing process that lowers the cost required to produce a large
number of identical or similar products over a long period of time
● Analytical process- a process in operations management in which raw materials are broken
into different component parts
● Synthetic process- a process in operations management in which raw materials or
components are combined to create a finished product
Today’s successful operations managers must:
○ Be able to motivate and lead people.
○ Understand how technology can make a manufacturer more productive.
○ Appreciate the cost-control processes that help lower production costs and improve
product quality.
○ Understand the relationship between the customer, the marketing of a product, and
the production of a product.
The Conversion Process
, The purpose of manufacturing or a service business is to provide utility to customers.
● Utility- the ability of a good or service to satisfy a human need
● Although there are four types of utilities—form, place, time, and possession—operations
management focuses primarily on form utility.
● Form utility- utility created by people converting raw materials, finances, and information
into finished products
Manufacturing Using a Coversion Progress
● Focus or Major Resource: the resource or resources (financial, material, information, and
people) that make up the major or most important input
● Magnitude of Change: the degree to which the resources are physically changed.
● Number of Production Processes: A single firm may employ one production process or many,
whereas larger firms that make a variety of products use multiple production processes.
The Increasing Importance of services
● The American economy is now characterised as a service economy.
● Service economy- an economy in which more effort is devoted to the production of
services than to the production of goods
Planning Quality Services
● For service firms, planning often begins with determining who the customer is and what
needs the customer has.
● After customer needs are identified, the next step is to develop a plan that will enable the
firm to deliver the services that their customers want or need.
● Once the firm provides a service to a customer, successful firms evaluate the way they
operate and measure customer satisfaction.
○ If necessary, they redesign their services to improve the customer’s experience
Evaluating the Quality of a Firm’s Services
● The production of services is very different from the production of manufactured goods in
the following five ways:
1. Customers are much more involved in obtaining the service they want or need.
2. Services are consumed immediately and cannot be stored.
3. Services are provided when and where the customer desires the service.
4. Services are usually labor-intensive.
5. Services are intangible, and it is therefore more difficult to evaluate customer satisfaction.
● Compared with manufacturers, service firms often listen more carefully to customers and
respond more quickly to the market’s changing needs.
Where Do New Products and Services Come From?
● Question: which of the following companies are developing a driverless automobile?
○ Mercedes Benz
○ Google
○ Tesla
○ Audi
- Answer; All of them are using research & development to develop a car that can
drive for you.
● New products - like a driverless car- start with an idea. No firm can produce a product or
service until it has an idea.
Research and Development (R&D)- involve a set of activities intended to identify new ideas that
have the potential to result in new goods and services.
● 3 three types of R&D activities;
1. Basic Research: consists of activities aimed at uncovering new knowledge; Goal is
scientific advancement, without regard for its potential use in the development of
goods and services.
2. Applied Research: consist of activities geared toward discovering new knowledge
with some potential use.
Operation Management
➔ all the activities required to produce goods and services
● To produce a product or service successfully, a business must perform a number of specific
activities, such as:
○ Marketing research
○ Control of operations
○ Product quality
○ Performance standards
○ Inventory
○ Production costs
The Bad News for Manufacturers
● The number of Americans employed in the manufacturing sector has decreased.
○ Today, fewer than one in ten work in manufacturing.
○ Most of the U.S. manufacturing jobs that were lost were outsourced to low-wage
workers in nations where there are few labour, safety, and environment regulations.
○ Manufacturing accounts for only about 8% of the current U.S. workforce
● Experts predict that U.S. employment in the manufacturing sector will continue to decline.
● result of the decline, China is now the largest manufacturing nation in the world.
The Goods News for Manufacturers
● Although the number of manufacturing jobs has declined, productivity has increased.
● Factors that account for the productivity increase:
○ Innovations
○ Highly skilled workers
● Restoring- a situation in which U.S. manufacturers bring manufacturing jobs back to the
United States
The Good News for Manufacturing (continued)
● The global marketplace has never been more competitive, & successful U.S. firms will focus
on the following:
○ Meeting the needs of customers and improving product quality
○ Motivating employees to cooperate with management and improve productivity
○ Reducing costs by selecting suppliers that offer higher-quality raw materials and
components at reasonable prices
○ Using computer-aided and flexible manufacturing systems that allow a higher degree
of customization
○ Improving control procedures to help ensure lower manufacturing costs
○ Using green manufacturing to conserve natural resources and sustain the planet
Careers in Operations Management
● Mass production- a manufacturing process that lowers the cost required to produce a large
number of identical or similar products over a long period of time
● Analytical process- a process in operations management in which raw materials are broken
into different component parts
● Synthetic process- a process in operations management in which raw materials or
components are combined to create a finished product
Today’s successful operations managers must:
○ Be able to motivate and lead people.
○ Understand how technology can make a manufacturer more productive.
○ Appreciate the cost-control processes that help lower production costs and improve
product quality.
○ Understand the relationship between the customer, the marketing of a product, and
the production of a product.
The Conversion Process
, The purpose of manufacturing or a service business is to provide utility to customers.
● Utility- the ability of a good or service to satisfy a human need
● Although there are four types of utilities—form, place, time, and possession—operations
management focuses primarily on form utility.
● Form utility- utility created by people converting raw materials, finances, and information
into finished products
Manufacturing Using a Coversion Progress
● Focus or Major Resource: the resource or resources (financial, material, information, and
people) that make up the major or most important input
● Magnitude of Change: the degree to which the resources are physically changed.
● Number of Production Processes: A single firm may employ one production process or many,
whereas larger firms that make a variety of products use multiple production processes.
The Increasing Importance of services
● The American economy is now characterised as a service economy.
● Service economy- an economy in which more effort is devoted to the production of
services than to the production of goods
Planning Quality Services
● For service firms, planning often begins with determining who the customer is and what
needs the customer has.
● After customer needs are identified, the next step is to develop a plan that will enable the
firm to deliver the services that their customers want or need.
● Once the firm provides a service to a customer, successful firms evaluate the way they
operate and measure customer satisfaction.
○ If necessary, they redesign their services to improve the customer’s experience
Evaluating the Quality of a Firm’s Services
● The production of services is very different from the production of manufactured goods in
the following five ways:
1. Customers are much more involved in obtaining the service they want or need.
2. Services are consumed immediately and cannot be stored.
3. Services are provided when and where the customer desires the service.
4. Services are usually labor-intensive.
5. Services are intangible, and it is therefore more difficult to evaluate customer satisfaction.
● Compared with manufacturers, service firms often listen more carefully to customers and
respond more quickly to the market’s changing needs.
Where Do New Products and Services Come From?
● Question: which of the following companies are developing a driverless automobile?
○ Mercedes Benz
○ Tesla
○ Audi
- Answer; All of them are using research & development to develop a car that can
drive for you.
● New products - like a driverless car- start with an idea. No firm can produce a product or
service until it has an idea.
Research and Development (R&D)- involve a set of activities intended to identify new ideas that
have the potential to result in new goods and services.
● 3 three types of R&D activities;
1. Basic Research: consists of activities aimed at uncovering new knowledge; Goal is
scientific advancement, without regard for its potential use in the development of
goods and services.
2. Applied Research: consist of activities geared toward discovering new knowledge
with some potential use.
