GOODS, SERVICES, AND

OPERATIONS MANAGEMENT
CHAPTER 1

DAVID A. COLLIER AND JAMES R. EVANS

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 CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT

1-1 Explain the concept and importance of

operations management.
1-2 Describe what operations managers do.
1-3 Explain the differences between goods and
services.
1-4 Describe a customer benefit package.
1-5 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.

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 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.

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 CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT

Three Issues at the Core of Operations Management

Efficiency

Cost

Quality

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 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
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 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

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 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.

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 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.
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 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
isinspected and must conform to the highest
quality standards. If a product does not conform
to standard (for example, wrongcolor, improper
packaging, improper labeling, improper weight,
size, or shape),then it is removed from inventory
to determine wherethe process broke down and
to initiate corrective action.
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 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.
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 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.

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 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.
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 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.

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 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.
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 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.
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 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.

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 CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT

Understanding Goods and Services

Service encounters consist of one or more
moments of truthany 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.
Examples:
A gracious welcome by an employee at a
hotel check-in counter
A grocery store employee who seems too
impatient to help
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 CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT

Exhibit 1.1
How Goods
and Services
Affect
Operations
Management
Activities

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 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.
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 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
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 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

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 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

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 CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT

Exhibit 1.2 A CBP Example for Purchasing a Vehicle

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 CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT

Exhibit Extra Another Example of a Consumer Benefit Package

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 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

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 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 servicesthe components of a CBP
are produced and delivered.

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 CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT

Processes
Key business processes:
Value creation processes, focused on producing
or delivering an organizations primary goods or
services, such as filling and shipping a customers
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
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 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.

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 CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT

Pals Sudden Service

Pals Sudden Service is a small chain of
mostly drive-through quick service
restaurants located in Northeast
Tennessee and Southwest Virginia.

Pals 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.
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 CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT

Pals Sudden Service

Pals 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.

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 CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT

Pals Sudden Service

Pals 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
hopefullyhappy customers.

Every process is flowcharted and analyzed

for opportunities for error, and then
mistake-proofed if at all possible.
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 CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT

Pals Sudden Service

Entry-level employeesmostly high school
students in their first jobreceive 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.

Pals collects performance measures such as

complaints, profitability, employee turnover,
safety, and productivity.
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 CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT

Exhibit 1.4 Six Eras of Operations Management

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 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.
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 CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT

Sustainability
Sustainability refers to an organizations
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.

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 CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT

Sustainability
Environmental sustainability is an
organizations commitment to the long-term
quality of our environment.
Social sustainability is an organizations
commitment to maintain healthy communities
and society that improve the quality of life.
Economic sustainability is an organizations
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.
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 CHAPTER 1 GOODS, SERVICES, AND OPERATIONS MANAGEMENT

Current Challenges in OM
Technology
Globalization
Changing customer expectations
Changing job designs
Quality
Global manufacturing

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