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Eleventh Chapter lf Business.

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  • This is Operations Management in Manufacturing and Service Industries, chapter 11 from the book AnIntroduction to Business (index.html) (v. 1.0).

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  • Chapter 11

    Operations Management in Manufacturing and ServiceIndustries

    The Challenge: Producing Quality Jetboards

    The product development process can be complex and lengthy. It took sixteen yearsfor Bob Montgomery and others at his company to develop the PowerSki Jetboard,and involved thousands of design changes. It seemed worth it: the Jetboard, anexciting, engine-propelled personal watercraft thats a cross between a high-performance surfboard and a competition water-ski/wakeboard, received extensivemedia attention and earned rave reviews. It was showered with honors, includingTime Magazines Best Invention of the Year award. Stories about the Jetboardappeared in more than fifty magazines around the world, and it appeared in severalmovies, in over twenty-five TV shows, and on YouTube.YouTubeLiquid BlueFeatures PowerSki Jetboards, http://www.youtube.com/watch?v=pyfIXBxC0_A(accessed June 1, 2008). One reviewer of the Jetboard exclaimed: Up, up and away.PowerSki's the closest you'll get to being Superman on the water. With 40 hp underyour toes, the 100-pound board literally flies. You supply the cape.Cliff Gromer,PowerSki Jetboard, Popular Mechanics, March 2000,http://www.popularmechanics.com/outdoors/adventures/1277611.html (accessedJune 1, 2008).

    Montgomery and his team at PowerSki enjoyed taking their well-deserved bows forthe job they did designing the product. But having a product was only thebeginning for the company. The next step was developing a system that wouldproduce high-quality Jetboards at reasonable prices. Before putting this system inplace, PowerSki managers had to address several questions: What kind ofproduction process should they use to make the Jetboards? How large should theirproduction facilities be, and where should they be located? How should the plant belaid out? Should every component be made in-house, or should some be furnishedby subcontractors? Where should they buy the materials they needed to buildJetboards? What systems would they need to ensure that production was as efficientas possible and that quality standards were maintained? Answering these questionshelped PowerSki set up a manufacturing system through which it could accomplishthe most important task that it had set for itself: efficiently producing qualityJetboards.


  • 11.1 Operations Management in Manufacturing


    1. Define operations management, and discuss the role of the operationsmanager in a manufacturing company.

    2. Describe the decisions made in planning the production process in amanufacturing company.

    Like PowerSki, every organizationwhether it produces goods or providesservicessees Job 1 as furnishing customers with quality products. Thus, tocompete with other organizations, a company must convert resources (materials,labor, money, information) into goods or services as efficiently as possible. Theupper-level manager who directs this transformation process is called an operationsmanager. The job of operations management (OM)1, then, consists of all theactivities involved in transforming a product idea into a finished product, as well asthose involved in planning and controlling the systems that produce goods andservices. In other words, operations managers manage the process that transformsinputs into outputs. Figure 11.1 "The Transformation Process" illustrates thistraditional function of operations management.

    1. Management of the processthat transforms resources intoproducts.

    Chapter 11 Operations Management in Manufacturing and Service Industries


  • Figure 11.1 The Transformation Process

    In the rest of this chapter, well discuss the major activities of operations managers.Well start by describing the role that operations managers play in the variousprocesses designed to produce goods and offer services. Next, well look at theproduction of goods in manufacturing firms; then, well describe operationsmanagement activities in companies that provide services. Well wrap up thechapter by explaining the role of operations management in such processes asquality control and outsourcing.

    Operations Management in Manufacturing

    Like PowerSki, all manufacturers set out to perform the same basic function: totransform resources into finished goods. To perform this function in todays businessenvironment, manufacturers must continually strive to improve operationalefficiency. They must fine-tune their production processes to focus on quality, tohold down the costs of materials and labor, and to eliminate all costs that add novalue to the finished product. Making the decisions involved in the effort to attainthese goals is the job of the operations manager. That persons responsibilities canbe grouped as follows:

    Chapter 11 Operations Management in Manufacturing and Service Industries

    11.1 Operations Management in Manufacturing 551

  • Production planning. During production planning, managers determinehow goods will be produced, where production will take place, and howmanufacturing facilities will be laid out.

    Production control. Once the production process is under way, managersmust continually schedule and monitor the activities that make up thatprocess. They must solicit and respond to feedback and makeadjustments where needed. At this stage, they also oversee thepurchasing of raw materials and the handling of inventories.

    Quality control. Finally, the operations manager is directly involved inefforts to ensure that goods are produced according to specificationsand that quality standards are maintained.

    Lets take a closer look at each of these responsibilities.

    Planning the Production Process

    The decisions made in the planning stage have long-range implications and arecrucial to a firms success. Before making decisions about the operations process,managers must consider the goals set by marketing managers. Does the companyintend to be a low-cost producer and to compete on the basis of price? Or does itplan to focus on quality and go after the high end of the market? Perhaps it wantsto build a reputation for reliability. What if it intends to offer a wide range ofproducts? To make things even more complicated, all these decisions involve trade-offs. Upholding a reputation for reliability isnt necessarily compatible with offeringa wide range of products. Low cost doesnt normally go hand in hand with highquality.

    With these factors in mind, lets look at the specific types of decisions that have tobe made in the production planning process. Weve divided these decisions intothose dealing with production methods, site selection, facility layout, andcomponents and materials management.

    Production-Method Decisions

    The first step in production planning is deciding which type of production processis best for making the goods that your company intends to manufacture. Inreaching this decision, you should answer such questions as the following:

    How much input do I receive from a particular customer beforeproducing my goods?

    Chapter 11 Operations Management in Manufacturing and Service Industries

    11.1 Operations Management in Manufacturing 552

  • Figure 11.2

    Am I making a one-of-a-kind good based solely on customerspecifications, or am I producing high-volume standardized goods tobe sold later?

    Do I offer customers the option of customizing an otherwisestandardized good to meet their specific needs?

    One way to appreciate the nature of this decision is by comparing three basic typesof processes or methods: make-to-order, mass production, and mass customization. Thetask of the operations manager is to work with other managers, particularlymarketers, to select the process that best serves the needs of the companyscustomers.


    At one time, most consumer goods, such as furniture and clothing, were made byindividuals practicing various crafts. By their very nature, products were customizedto meet the needs of the buyers who ordered them. This process, which is called amake-to-order strategy2, is still commonly used by such businesses as print orsign shops that produce low-volume, high-variety goods according to customerspecifications.

    Mass Production

    By the early twentieth century, however, a new conceptof producing goods had been introduced: massproduction (or make-to-stock stra