Page 586 - Introduction to Business

560 PART 6 Managing Business Operations, Management Information Systems, and the Digital Enterprise

may produce and inventory toys from January to October, when demand is low,
with the expectation of selling them in the high-demand holiday season. Service
organizations, on the other hand, cannot inventory services. For example, empty
rooms in a hotel when demand is low cannot be inventoried for when demand is
high. If a shoe manufacturer cannot sell a pair of shoes in a given week, the shoes
can be kept and sold the next week. If a commercial airline cannot sell an available
seat on a particular flight, the seat cannot be stored and sold later. Once the plane
leaves, the use of the seat on that particular flight is lost forever.

Tangibility. Goods are physical objects that can be touched; services are intan-
gible. As a consequence, managing operations in service systems is more complex
than in manufacturing systems. In particular, it is more difficult to measure pro-
ductivity and quality in services than in goods. For example, a manufacturer of soft
drinks will have an easier time measuring the productivity of a production line, say,
in cans per hour, than a clinic measuring the productivity of a doctor, say, in
patients per hour. While each can of soft drink produced is identical to each other,
each patient is obviously different from each other. At the same time, the same
manufacturer could easily establish methods for measuring quality in the soft
drinks produced, but it would be inherently more difficult to measure the quality of
health care provided by the doctor.

reality When you rent a movie, how much of what you are getting is goods
CH ECK and how much is services? When you buy clothes from a store, how
much of what you are getting is goods and how much is services?

Operations Management and Competitiveness

LEARNING OBJECTIVE 3
Evaluate the impact of operations management on the competitiveness
of a business organization.
In free market economies, all businesses face competitors in both the domestic and
international arenas. And as research has shown, good operations management
should play a pivotal role in helping a company stay ahead of its competitors. Busi-
1
nesses compete mostly along three dimensions: price, quality, and time.
Price. Since price and demand are intimately related, and for a company to be
profitable the price of a product has to exceed its production cost, good operations
management should lead to production costs that allow the firm to set competitive
prices and hence attract customer demand.

Quality. Because products are created by the production system, good opera-
tions management should lead to quality products that conform to the specifica-
tions that customers require.

Time. Competition among businesses has evolved from price only, to price and
quality, to price, quality, and time. After lowering prices and improving quality as
much as possible, businesses have found that time is an increasingly crucial dimen-
sion by which they can differentiate themselves from their competitors. Time-based
competition encompasses getting new products to market quicker, as well as deliv-
ering existing products faster and with greater reliability. Good operations manage-
ment should lead to a production system that quickly accommodates new products
and, at the same time, can produce existing products in competitive lead times.

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