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After reading this chapter, you should be able to:

1. Explain the meaning of the term production or operations. 2. Describe the three kinds of utility that operations processes provide for adding customer value. 3. Explain how companies with different business strategies are best served by having different operations capabilities. 4. Discuss the productivity concept and how to measure it
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7-2

By understanding this chapters methods for managing operations and improving quality, you can benefit in two ways:

1.As an employee, youll have a clearer picture of who your customers are and what they want and how your job depends on the services they receive from you 2.Youll better understand how companies around youeven successful firmshave to change production methods whenever they adopt new business goals to remain competitive
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Operations (Production) All the activities involved in making products (goods and services) for customers Service Operations (Service Production) Provide intangible and tangible service products Goods Operations (Goods Production) Produce tangible products Operations managers create utility for customers through production, inventory, and quality control.
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Utility
The ability of a product to satisfy a want or need
Form utility Time utility Place utility

Operations (Production) Management

Systematic direction and control of processes that transform resources into finished services and goods that create value for and provide benefits to customers

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7-5

Goods are produced, services are performed Service operations:

1.Involve interacting with consumers 2.Are sometimes intangible and unstorable 3.Involve a customers presence in the process 4.Involve certain service quality considerations

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Operations Process

Goods Production Processes

Methods and technologies used to produce a good or service Make-to-order or make-to-stock processes Extent of Customer Contact

Service Production Processes

Low-contact systems: low customer involvement

High-contact systems: high customer involvement

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7-7

(we will study deeply in Module 3)

Companies design their operations based on business strategy (chapter 3) -Strategic position: the strategic description of itself the company has chosen. (For instance: low-fare carrier; a charter airline; all cargo airline serving line-haul markets) -Market position: whether the company has a single service or product concept (Ryanair) or a multi-service portfolio (Iberia). The operating system must be configured to deliver each type of service to targeted customers in a manner consisted with their desired positioning of that service relative to competitors in customers perceptions.

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Capacity Planning Location Planning

Determining the amount of a product that a company can produce under normal conditions Determining where production will happen based on costs and flexibility

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7-10

Layout Planning

Planning for the layout of machinery, equipment, and supplies Determines whether a company can respond to demand for more and different products or it finds itself unable to match competitors speed and convenience
Process layouts Product layouts

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What Is Quality?

The combination of characteristics of a product or service that bear on its ability to satisfy stated or implied needs (American Society for Quality) Begins when products are designed: goals are set for performance and consistency Includes deciding what constitutes a high-quality product and determining how to measure these quality characteristics
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7-13

Managers identify each production step and methods for performing it. They reduce waste and inefficiency through methods improvement and improving process flows. They attempt to improve customer service.
A detailed description, often a process flowchart, helps managers organize and record information.

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Operations Scheduling

Times when specific production activities will occur Master schedule: Shows which products will be produced, and when Detailed schedule: Shows day-to-day activities Staff schedules: Show who and how many employees will be working, and when Project schedules: Coordinate completion of largescale projects
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Kinds of Planning Schedules

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Gantt Chart

Breaks down projects into steps to be performed Specifies the time required to complete each step A Project Manager uses the Gantt chart to:
List all activities to be performed Estimate the time required for each step Record the progress on the chart Check the progress against the time scale on the report
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Operations Control

Requires managers to monitor performance by comparing results with detailed plans and schedules. Follow-up: Checking to ensure that production decisions are being implemented; critical, ongoing facet of operations.

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7-18

Materials Management

Materials Management Activities

Supplier selection Purchasing Transportation Warehousing Inventory control

The process by which managers plan, organize, and control the flow of materials from sources of supply through distribution of finished goods

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7-19

It is important to understand 4 concepts: Utilization Productivity Efficiency Effectiveness

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7-20

It is a measure of the extent to which a resource is being used. It can be expressed either in absolute terms

Or as a percentage of what is possible

Aircraft utilisation in average block-hours per day or per year Cabin floor space utilisation as a percentage seat factor

All resources (staff, equipment, airport terminals, gates, simulators, information systems, distribution channels) should be utilised as full as possible Maximizing resource utilisation is now a critical element in the operating strategies of the wellmanaged implications
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It is the ratio between inputs/outputs-either all inputs aggregated or just a single category, such as labour. If we want to asses airline productivity:

1. partial productivity metrics 2. total productivity 3. statistical decomposition approach

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7-22

Labour productivity:

Flight equipment productivity

ASMs Available seat-mile: one seat flown one mile per employee or per labour-hour ATMs: available ton-mile: one ton of payload capacity flown one mile per employee or per labour-hour RPMs: revenue passenger-mile: one revenue passenger flown one mile per employee or per labour-hour RTM: revenue ton-mile. One ton of payload flown one mile per employee or per labour-hour ASMs produced per flight hour , day or year RPMs produced per flight hour , day or year

Output per gallon or liter of fuel

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Efficiency is maximised when a given level of inputs is generating as much output as possible or when a given level of output is generated by the minimum level of inputs possible. Effectiveness is maximised when a targeted standard of performance is attained. The economic appeal of an operating system that is delivering output both effectively (conformer with customers expectations) and efficiently (depending on the nature of the output concerned)
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Staff productivity:

Outsourcing labour-intensive processes Greater automation, especially back-office processes such as routine purchasing. More flexible work-rules and staff multi-skilling Having customers participating more actively in service delivery (internet booking, self-service check-ins, smart-card airports facilitation)

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Productivity can growth and market share can decline. Productivity can growth but profit can fall
For instance: Jetblue removed 6 seats from the A320s to bring capacity down to 150 seats, this way they could reduce LEGALLY the number of flight attendants from 4 to 3 (1fa for each 50 seats or fraction thereof)

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The institutional context: laws applied.

hours worked per year affected by regulation and / or union agreements The efficiency of work processes automation The extent of outsourcing (catering, maintenance, IT, ground handling in house do not impact output strongly but has a significant impact on staff numbers and staff productivity).