BBDM2153_OM_T1

DIFFERENCES BETWEEN GOODS AND SERVICES

Goods

Services

Tangible product - Can be seen and touched. It is physical. Example: Mobile phone Consistent product definition - The physical characteristics of the good can be specified clearly and consistently. Every unit of the good has the same specifications. Consider the specifications of your mobile phone. Production usually separate from consumption - goods are produced now but purchased later. Its consumption can be delayed. Date of manufacturing and date of sale can be different. Long lead time - refers to the period between the ordering of the good and the actual production of the good. Is relatively long compared to services. Can be inventoried - goods produced can be stored for a period of time before being sold or disposed. Low customer interaction - there is low level or no communication between manufacturer and customer. Capital intensive - machines and equipment are used extensively in the production of goods. Quality is objectively determined - goods can be objectively measured for their quality. They can be tested scientifically through a variety of ways.

Intangible product - Cannot be seen and touched. There is no physical element. Example: Education - the transfer of knowledge and wisdom from teacher to student is not visible. Inconsistent product definition - service given may not be consistent, sometimes more intense, sometimes less. Are your teachers all same in every way? Often unique - each customer requires different attention and service level. Services provided are different to cater to different needs of customers.  Produced and consumed at same time - you are sick, doctor attend to you. The production and usage of the doctor's expertise occur together. Short lead time - Services are usually provided on order. They are not produced to stock. Frequently dispersed - meaning services can be provided anywhere. There may not be a fixed production plant. High customer interaction - there is relatively high degree of connection with customers. Often knowledge-based. Services provided are often based on the experience and knowledge of the provider, less based on technology or engineering as compared to goods. Quality is subjectively determined - it is different to measure the quality of services provided. You can say, maybe, good or bad. But cannot quantify how good or how bad.

DEFINITION OF OPERATIONS MANAGEMENT

Operations management refers to the management of an organization’s production system, which converts inputs into outputs, i.e. the organization’s products or services. It encompasses forecasting, capacity planning, scheduling, managing inventories, assuring quality, motivating employees, deciding where to locate facilities, buying material and equipment and maintaining them, and more.

WHY STUDY OPERATIONS MANAGEMENT?

Operations is one of the three strategic functions of any organization. This means that it is a vital part of accomplishing the organization's strategy and ensuring its long-term survival. The other two areas of strategic importance to the organization are marketing and finance. The operations strategy should support the overall organization strategy.

Operations management is chiefly concerned with planning, organizing and supervising in the contexts of production, manufacturing or the provision of services. As such, it is delivery-focused, ensuring that an organization successfully turns inputs to outputs in an efficient manner. The inputs themselves could represent anything from materials, equipment and technology to human resources such as staff or workers.

Examples of the types of duties or specialist positions this encompasses are procurement (acquiring goods or services from external sources), managing relations with those involved in processes, and improving a company’s sustainability with regard to its use of resources.

PRODUCTIVITY MEASUREMENT PROBLEMS

1. Precise units of measure may be lacking. How do we measure the productivity of a teacher? Shall we count the number of students who graduate? What about the teacher's involvement in developing the students' soft skills? Or the number of hours the teacher spent in counselling students? When seeking data on output, it can be very difficult to point precisely the amount and type of output produced. The output can be in many different forms.

2. Quality of the output may not be consistent. Some units of the output may be better than others.Therefore, can we just simply add them together? A graduate with CGPA 4 flat is not the same as one who barely passed. Productivity tends to measure only the physical aspect. Quality is neglected. An increase in productivity while compromising on quality may not be a good thing. We may have produced more but if quality is lowered, then we may not be able to sell as much as before.

3. Exogenous variables may affect productivity. Exogenous variables are those factors outside the control of the organization. An example is the weather. The recent haze hazard has caused farm productivity to go down. Management must be able to recognize that the cause of the reduced productivity is due to the weather and not caused by a drop in workers' performance. Therefore, workers must not be penalized for the reduced output.

DIFFICULTIES IN IMPROVING PRODUCTIVITY IN THE SERVICE SECTOR

1. Many services are labor-intensive. Being labor-intensive, it is difficult to improve productivity. Vast amount of money may need to be spent to train and retrain workers without achieving the desired increase in productivity. This is unlike being capital-intensive, whereby new machines with more sophisticated technology can just be bought to replace obsolete machines, thereby increasing productivity.

2. Services are personally processed, e.g. haircut. Due to differing demands from customers, the time taken to process an order may be greatly different. Teaching weaker students is much harder than teaching good students - quality of customers are not the same. How do you improve on the number of passes (and thus, productivity) when your students do not have the desire to succeed? Your productivity is also dependent on your customers!!

3. Service industry is usually knowledge-based. Knowledge workers are those who deal with ideas. They may be responsible for creating innovations in the company. It is difficult to keep track of this kind of contribution in a busy office. There are innovations which succeed and innovations which fail. Should failed innovations be counted as productive? Or we only consider successful innovations? If we demand only success, then failure is to be punished, then nobody will want to come up with ideas. 

4. Often difficult to mechanize and automate. It is easier to increase productivity with improved technology and automation. The same cannot be said for the service industry which requires a relatively high degree of personal attention. The more personal the service to be rendered, the more difficult it is to increase productivity. This is due to the uniqueness of the demand of customers and the problems that they face.

5. Difficult to evaluate for quality. It is impossible to quantify the quality of the service given. We can rank but we cannot quantify. We can say that X provides better service than Y. We rank X higher than Y. X does a better job with your hair, but how many marks can you objectively give to him? We cannot evaluate quality objectively. If we cannot evaluate, then we cannot measure. If we cannot measure productivity, then increasing productivity is no longer relevant. In order to increase, first we must be able to measure.

FACTORS AFFECTING OPERATIONS MANAGEMENT TODAY

1. Global competition - Competition has become more intense. It has changed from domestic competition to global competition. This increased competition has made it become more difficult for organizations to get the quantity and quality of resources that they want.

2. Quality and customer service - Customers are becoming more and more difficult to satisfy. They have become more knowledgeable and they demand better and more efficient service. Operations Managers have to constantly strategize on how to improve not just the quality of their products but also the quality of the service they give to customers.

3. Cost challenges - With competition in a global market, firms have to sell their products at a competitive price. In order to remain competitive, firms try to save on cost without compromising on quality. Operations Managers are constantly looking into ways to become cost-efficient.

4. Advanced production technologies - In a world where consumers are increasingly aware of innovation and options, substantial pressure is placed on firms to respond in a creative way. Operations Managers must rapidly respond with product designs and flexible production processes that cater to the whims of consumers.

5. Service sector becomes more prominent - Operations Managers have to respond by enriching jobs and moving decision-making to the worker. As the service sector becomes increasingly more important, emphasis has to be given to increasing the knowledge, competence and quality of the human resource.

6. Scarcity of production resources - Due to the scarcity of resources, Operations Managers need to constantly look into ways to improve effectiveness and efficiency. Cutting-edge technology has become crucial in gaining that competitive advantage when other production resources are hard to come by.

STEPS IN FREDERICK TAYLOR'S MANAGEMENT APPROACH

• Determine the skills, strength, and learning ability for each worker

• Set standard output per worker for each task using stopwatch studies

• Use work method or tools - use instruction cards, routing sequences, and material specifications to coordinate the works

• Have selection and training for workers, esp. to promote the workers or to improve the works

• Use incentive pay systems to increase efficiency and motivate

THREE SIGNIFICANT EMPHASIZES ON OPERATIONS

• Cost focus – prior to 1980 – until mass production era

• Quality focus – 1980 – 1995 – JIT & lean production era

• Customization focus – after 1995 – mass customization era

LAKE SWAM SEAFOOD

a) Productivity before change

= Output/Input

= 500 boxes/20 hours

= 25 boxes per hour

Productivity after change

= 650 boxes/24 hours

= 27.08 boxes per hour

b) Increase in productivity

= (27.08 - 25)/25

= 0.0832

= 8.32%

c) New productivity 

= 700 boxes/24 hours

= 29.17 boxes per hour

CARBONDALE CASTING

a) Labor productivity of the line

= 160 valves/(10 x 8) labor hours

= 160 valves/80 labor hours

= 2 valves per labor hour

b) New labor productivity

= 180 valves/80 labor hours

= 2.25 valves per labor hour

c) Increase in productivity

= (2.25 - 2)/2

= 0.125

=12.5%