Economics, Business Studies and Geography

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CH 14]

Business 101 — The Basics

14-1

Chapter 14

Production and Operations Management
Learning Goals
1. Outline the roles of specialization, standardization in mass production. mechanization, and

2. Explain the contributions and problems associated with the use of assembly lines, automation, and robots in producing products and services. 3. Discuss the three components of production and operations management. 4. Identify the major factors involved in deciding plant locations. 5. Discuss the alternative designs for production facilities. 6. Explain the steps involved in the purchasing process. 7. Discuss the advantages and disadvantages of maintaining large amounts of inventory. 8. Outline the steps in the production control process. 9. Identify the contributions of quality circles in improving quality control.

14-2

Production and Operations Management
Chapter Overview

[CH 14

utility Want-satisfying power of a product or service. form utility Utility created through the conversion of raw materials and other inputs into finished goods and services. production Use of people and machinery to convert materials into finished products or services.

Firms will continue to do business as long as they meet consumer demands. By producing and selling goods and services that satisfy consumer needs businesses will compete in the marketplace. What firms create for the marketplace, economists call utility—the want-satisfying power of a good or service. Economists have defined four types of utility: time, place, ownership, and form. Time, place, and ownership utility exist through marketing and distribution — having goods and services available for consumers at locations convenient for them and that facilitate title transfer at the time of purchase. Form utility is created when raw materials are converted into finished goods or services. A chair is the sum of wood, design, manufacture and assembly. Cotton is harvested from fields, processed into thread, woven into fabric, and then by cutting, shaping, sewing, adding zippers and belt loops are made into Wrangler jeans. A firms production function is responsible for the creation of form utility. Production is the process of using people and machinery to convert materials into finished goods and services. Although the term production is sometimes used interchangeably with manufacturing, production is a broader term and includes a number of non-manufacturing processes. For example, production encompasses such extractive industries as fishing, lumber, and mining. Production also applies to the creation of services. Services are intangible outputs of the production system. They include outputs as diverse as trash hauling, education, haircuts, tax accounting, health delivery systems, mail services, transportation, and lodging. Table 14.1 lists five examples of production systems for a variety of goods and services. Whether production results in a tangible good or an intangible service, both are created by the conversion of inputs into outputs. The conversion process may involve major changes in raw materials or a simple combining of finished parts. The butcher performs a production function by cutting up a side of beef into ground beef, steaks, chuck roasts, and other cuts of meat. General Motors combines tires, spark plugs, a battery, and thousands of other components to complete a new Saturn. These processes result in the creation of form utility. This chapter describes the process of producing goods and services. We begin by explaining how production techniques, technology, and the concept of quality increase productivity. Then we identify the tasks of the production and operations manager in planning for production, implementing the plan, and controlling the production process. Finally, we discuss the impact of production on the environment.

Mass Production and the Assembly Line
mass production Manufacture of products in large quantities as a result of...
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