POM LEC Ch1 Goods, Services & OM

GOODS, SERVICES, &
OPERATIONS MANAGMENT
LEARNING OUTCOMES
LO1 Explain the concept of operations
management
LO2 Describe what operations manager do.
LO3 Explain the differences between goods and
services.
LO4 Describe a customer benefit package.
LO5 Explain the general types of processes.
LO6 Describe current challenges facing OM.
What do you think?
Describe the experience you had at a
theme park that illustrates either
good or bad customer service or
operational design. What can we
learn from your experience
regarding how a theme park can
create a positive customer
experience or improve on a bad one
through its design and operations?
Operations Management, Defined
 The science and art of ensuring
 that goods and services are created and delivered
 successfully to customers.
Applying the principles of OM, entails solid

understanding of:
 People
 Processes
 Technology
– how they are integrated with business systems
- to create value
What do Managers Do?
1. Translating knowledge of customers to design and
manage goods, services and processes.
2. Helping organizations to do more with less.
3. Ensuring that resources (labor, equipment,
materials, and information) and operations are
coordinated.
4. Exploiting technology to improve productivity.
5. Building quality into goods, services, and processes.
6. Determining resource capacity and schedules.
7. Creating a high-performance workplace.
8. Continually learning and adapting the organization
to global and environmental changes.
Operations Management
OM is an integrative and interdisciplinary body
of knowledge.
OM skills are needed in industries as diverse as

healthcare, education, telecommunications,
lodging, food service, banking, consulting,
and manufacturing.
Exercise #1 - Prelim
OM Application, Example
Teresa was an accounting major in college and started
her career at Chiquita Brands in a division that
produces and sells fruit ingredients such as frozen
slice banana and other types of fruits products.
Although her primary job title is accountant,
Teresa uses OM skills to support her work. these
include:
1. Quality and customer service issue

2. Performance measurement and evaluation
3. Managing inventory
OM Application, continued
1. Quality and customer service issue
If there is a quality issue with a product either at the
plant level or the customer level, the accounting
group has to account for it in the Inventory Reserve
account, which is reconciled during the closing
process.
2. Performance measurement and evaluation

Look at the monthly profit versus cost analysis by
product to calculate a net contribution.
3. Managing inventory
Make sure inventory balances are accurate as this is
what the percentage of sales is based on.
OM-Related Activities (credit card division)
1. Planning & 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.
2. Inventory management – overseeing the

management of inventory for items such as
plastic blank cards, inserts such as
advertisements, credit card rules, disclosure
inserts, etc.
OM-Related Activities (credit card division)
3. Scheduling & Capacity – scheduling of all

resources ( people, equipment, inventory)
necessary to issue new credit cards and
reissue cards that are up for renewal, replace
old, damaged cards, or stolen cards.
4. Quality – embossing the card with accurate

customer information & quickly getting the
card in the hands of the customer
Understanding Goods & Services
1. Goods – a physical product that you can see,
touch, or possibly consume.
1.1 Durable good – a product that typically lasts at

least 3 years.
1.2 Nondurable good – a perishable 7 generally
lasts for less than 3 years.
2. Service – any primary or complimentary activity

that does not directly produce a physical product.
The basic characteristics of services
(5 Is)
1) I-ntangibility: Services are intangible
 Services are an activity of experience and not a thing.
2) I-nseparability: as a degree of simultaneous

production and consumption. Creating a service
requires the presence and participation of the
customer during the production and consumption of
the service (two-sided human influence of service).
Service processes can start only when the customer is
present.
(5 Is)
3) I-nconsistency: as a degree of heterogeneity
 Standardizing services is quite difficult, raising questions such

as:
 Who controls the customers?

 Who tells the customer what is expected to do?
 What is the influence of tine on service quality?
 A service provider has to consistently balance employee

control and the customer’s perceived needs.
Ex. The ATM machine provides a standardized service

to bank customers. But even the ATM is programmed
and used by people and this will create variation.
(5 Is)
Ways to avoid heterogeneity in service quality:
 Controlling service quality
 Monitoring employees to deliver excellent service
quality
 Introduction of technology
4) I-nventory: as a degree of perishability
5) I-nability: to own a service due to lack of material

possession.
Customers judge the value of a service & form
perceptions through service encounters
Service encounter – an interaction between the
customer & the service provider.
Moment of truth – any transactions/experiences in

which a customer comes into contact with any aspect
of the delivery system, however remote, & thereby
has an opportunity to form an impression.
Examples: flight attendant, doctor, dentist, nurse,

lawyer, bank teller, customer service representative
Distinctions: Goods & Services
1. Goods are tangible while services are
intangible.
2. Customers participate in the service
processes (Inseparability)
3. Demand for services is more difficult to
predict that demand for services.
4. Services cannot be stored as physical
inventory.
Distinctions: Goods & Services
5. Service management skills are paramount to a
successful bossiness encounter.
Service management – integrates marketing,
human resource, & operations functions to plan,
create, & deliver goods & services, & their
associated service encounters.
6. Service facilities typically need to be in close
proximity to the customer.
Ex. Post office, hotel
Is proximity to customer necessary in
manufacturing ?
7. Patents do not protect services.
Five Eras of Operations Management
Exercise #2 -Prelim
Current Challenges in OM
Customer Benefit Packages (CBP)
CBP – a clearly defined set of tangible goods (goods-
content) & intangible (service-content) features
that the customer recognizes, pays for, uses, or
experiences.
A Primary good or service – is the “core” offering

that attracts customers & responds to their basic
needs.
Peripheral Goods or Services – those that are not

essential to the primary good or service, but
enhance it.
Customer Benefit Packages (CBP)
Ex. A personal “checking account” might be supported
and enhanced by such peripheral goods as:
a) a printed monthly bank/account statement
checkbooks
b) a specified credit card, and
c) such peripheral services as customer hotline
and online bill payment.
CURRENT CHALLENGES IN OM
1. Technology – enable managers to more
effectively manage & control complex operations.
advances in technology enhance delivery of goods
& services.
2. Globalization – resulted to “boarderless”
marketplace”
CURRENT CHALLENGES IN OM
3. Consumers demand for an increasing variety of
products with new & improved features.
4. Workers demand for empowerment & more
meaningful work.
5. Loss of manufacturing jobs – firms move
operations to other country, merge with other
firm, or face bankruptcy.
6. Sustainability – ability to strategically address
current business needs & successfully develop
long-term strategy that embraces opportunities &
manage risks to preserve resources for the future.
 .

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GOODS, SERVICES, &

Applying the principles of OM, entails solid

OM skills are needed in industries as diverse as

1. Quality and customer service issue

2. Performance measurement and evaluation

2. Inventory management – overseeing the

3. Scheduling & Capacity – scheduling of all

4. Quality – embossing the card with accurate

1.1 Durable good – a product that typically lasts at

2. Service – any primary or complimentary activity

2) I-nseparability: as a degree of simultaneous

 Standardizing services is quite difficult, raising questions such

 Who controls the customers?

 A service provider has to consistently balance employee

Ex. The ATM machine provides a standardized service

4) I-nventory: as a degree of perishability

5) I-nability: to own a service due to lack of material

Moment of truth – any transactions/experiences in

Examples: flight attendant, doctor, dentist, nurse,

A Primary good or service – is the “core” offering

Peripheral Goods or Services – those that are not

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