Organization as a Production System

The organization is described as a system used for transforming input into output. At the centre of this transformation process is the technical core, which is the heart of the organization’s production of its product or service. In an automobile company the technical core includes the plants that manufactures automobiles. In a university, the technical core includes the academic activities of teaching and research. Inputs into the technical core include human resources, land, equipment, buildings and technology. Outputs from the technical core include the goods and services that are provided for customers and clients. Operations strategy and control feedback shape the quality of outputs and the efficiency of operations within the technical core.

The topic  of operations management pertains to the day to day management  of the technical core as illustrated. Operations management is formally defined as the field of management that specializes in the production of goods and services and uses special tools and technique for solving  production problems. In essence, operations managers are concerned  with all the activities involved in the conversion of input into output. This includes decisions about where to locate facilities and what equipment to install in them.

However,  as with all areas of management, operations management also requires the ability to lead people. Besides installing the methodology for running an efficient assembly line such as just in time shipments of suppliers, managers must also instill the necessary attitudes such as concern for quality and a desire  to innovate.

Manufacturing and Service Operations:

Although terms such as production and operations seem to imply manufacturing organizations, operations management applies to all organizations. The service sector has increased three times as fast as the manufacturing sector in the North American economy. Operations management tools and techniques apply to services as well as manufacturing.

Manufacturing  organization are those that produce physical goods, such as cars, books, computers, or tennis balls. In contrast, service organization produce nonphysical outputs, such as medical, educational, communication or transportation services provided for customers. Doctors, consultants,  online auction companies and the local barber all provide services. Services also include the sale of merchandise. Although merchandise is a physical good, the service company does not manufacture it but merely sells it as a service to the customer.

Difference between Manufacturing and Service Organization:

Manufacturing Organization

  • Produce physical goods.
  • Goods inventoried for later consumption
  • Quality measured directly
  • Standardized output
  • Production process removed from consumer
  • Facilities site  moderately important to business success.
  • Capital  intensive e.g. Automobile  manufactures, Steel  companies, Soft drink  companies.

Service organization:

  • Produce nonphysical outputs
  • Simultaneous production and consumption
  • Quality perceived and difficult to measure
  • Customized output
  • Consumer participates in production process.
  • Facilities site crucial to success of firms
  • Labour  intensive e.g. Airlines, Hotels, Law firms.

Services differ from manufactured products in two ways. First, the service customer is involved in the actual production process. The patient actually visits the doctor to receive the service and it’s difficult to imagine a hair stylist providing services without direct customer contact. The same is true for airlines, restaurants, and banks. Second, manufactured goods can be placed in inventory whereas service outputs, being intangible, cannot be stored. Manufactured products such as clothes, food cars and DVD players all can  be put  in warehouses and sold at a later date. However, a hair stylist cannot wash, cut and style hair in advance and leave it on the shelf  for the customer’s arrival nor can a doctor place examinations in inventory. The service must be created and provided for the customer exactly when he or she wants it.

Despite the differences between manufacturing and service firms, they face similar operational problems. First, each kind of organization needs to be concerned with scheduling. A medical clinic must schedule appointments so that  the doctor’s and patient’s time is used efficiently. Second, both manufacturing and service organizations must obtain materials and suppliers. Third, both types of organizations should be concerned with quality and productivity. Because many operational problems are similar,  operations  management tools and techniques can and should be applied to service organizations as readily as they are to manufacturing operations.

Many operations managers are involved in day to day problem solving and lose sight of the fact that the best way to control operations is through strategic planning. The more operations managers become enmeshed in operational details the less likely they are to see the big picture with respect to inventory build ups, parts shortages and seasonal fluctuations. To manage operations effectively managers, must understand operations strategy.

Operations strategy is the recognition of the important role of operations in organizational success and the involvement of operations managers in the organization’s strategic planning. Superior operations effectiveness can support existing strategy and contribute to new strategic directions  that can be difficult for competitors to copy. When an organization’s effectiveness is based on capabilities that are ingrained in its employees, its culture, and its operating processes, the company can be tough to beat.

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