Operations can be classified more simply in terms of their outputs, as either goods or services. The factors which distinguish them are:
G Tangibility – Goods are physical products which can be touched, seen, tasted, or smelled. As physical entities, goods can be stored and transported. The ownership of goods can be transferred from the supplier to the customer.
Services on the other hand are intangible, and therefore unlikely to possess any of these properties.
G Simultaneity – Services are distinguishable from goods in that their production and consumption usually take place simultaneously. As such, it is usually not possible to store a service that has just been produced for consumption at some time in the future. Normally customers have to be present to receive the service when it is produced. On the other hand, goods can usually be stored ready for future consumption by a customer.
G Customer contact – Because of their intangibility and simultaneity, services normally require some degree of contact with the customer, although the degree of that contact can vary. Similarly, some services are much more labour intensive than others, and might involve the customer coming into contact with large numbers of employees of the service delivery
organization.
G Quality – Because of the nature of the output of a service operation, it is much more difficult to define and measure the quality of a service. The quality of a product can be defined and measured in terms of its functionality (i.e. its fitness for the purpose for which it is intended). The quality of a service on the other hand, can often only be judged by its recipient. Service quality is dependent on the perception of a customer. Such perceptions may vary between one customer and another, and between the customer and the service deliverer. As such, service quality often depends upon the
psychological state of a customer at the time of consumption. Indeed some services are intended to change a customer’s psychological state.
It is possible to think of examples that equate to the extremes of pure goods (coal mining) and pure services (psychotherapy). However, a closer consideration of the outputs of most operations reveals that it is rare to find such extremes. Usually there are elements of service in most goods producing operations. For example, even extractors of commodity goods like coal or oil typically provide their cus-tomers with in formation about their chemical composition or offer technical advice on their use. Similarly, even producers of a highly customized service like manage-ment consultancy will usually produce some tangible output, such as a written re-port of some kind. It is usually more helpful to think of the outputs of operations as being located somewhere on a continuum between pure services and pure goods (see Figure 1.2).
As services have grown in importance in most of the world’s major economies, serv-ice operations management has emerged as an increasingly important field of study.
PART ONE INTRODUCTION TO OPERATIONS MANAGEMENT 8
services
The intangible outputs from an operation.
Services normally account for the overwhelming majority of the value of a country’s output, its gross domestic product (GDP). Although the USA remains the world’s biggest manufacturer, its manufacturing output makes up only 13 per cent of its GDP (The Economist 1 October 2005). Services also provide most sources of employment (see Table 1.1).
CHAPTER 1 OPERATIONS MANAGEMENT 9
Pure services Pure goods
Automobile manufacture
Takeaway food
Restaurant
Dentist
Management consultancy
Psychotherapy Coal mining
FIGURE 1.2 The goods-services continuum
C O U N T R Y
Germany Italy Japan France UK Canada USA
M A N U FA C T U R I N G A S P E R C E N TA G E O F T O TA L E M P LOY M E N T
1 9 7 0 2 0 0 5
40 22
28 22
27 18
28 16
35 14
22 14
25 10
TABLE 1.1 Manufacturing as percentage of total employment in major economies
SOURCE: THE ECONOMIST1ST OCTOBER 2005
gross domestic product (GDP) A measure of the size of a country’s economy. It is defined as the market value of all final goods and services produced within the country.
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Many service operations are different from those in manufacturing in that they usually require the operation to have some degree of contact with the customer.
Organizations that treat their customers in the same way that they treat the inanimate objects that are materials are neither likely to retain existing customers nor attract new ones.
The study of service operations has led to the development of some useful con-cepts in addition to those that have emerged from the study of manufacturing. One such concept is that of the difference between the front officeand the back office. The area in which contact with customers occurs is termed the front office. This prim arily involves customer processing operations. The area where there is normally no con-tact with customers is termed the back office. This may involve information and/or materials processing operations (see Figure 1.3).
The transforming resources required in the front office are likely to be significantly different from those needed in the back offices. In particular, operations in the front office need to revolve around the customer. The people that work in the front office are likely to require quite different skills from those in the back office. Front office staff need high levels of interpersonal skills if they are to interact successfully with customers. The physical resources used in the front office, buildings, machinery and equipment, may also need to be quite different from those in the back office. Indeed, the front and back offices may well be physically located in quite different places.
However, the relationship and interaction between front and back office operations is often a key part of the management of operations.
PART ONE INTRODUCTION TO OPERATIONS MANAGEMENT 10
Customers
Customers Front office
Back office FIGURE 1.3 Front office/Back
office operations
Unlike materials, customers do mind being made to wait
front office
The area of an operation in which contact with customers normally takes place.
back office
The area of an operation in which there is normally no contact with customers.
(BY IAN MILES-FLASHPOINT PICTURES/ALAMY)
CHAPTER 1 OPERATIONS MANAGEMENT 11
Disney’s newest theme park, Hong Kong Disneyland, opened to its first paying guests on 12th September 2005.
The $1.8 billion joint venture with the Hong Kong government was expecting to attract more than five-and-a-half million visitors in its first year. The park, Disney’s second in Asia (the first is in Tokyo), is hoping to attract visitors from all over SE Asia, but is mainly targeting China’s vast and increasingly wealthy population.
The park had already attracted criticism before its opening. Environmentalists had complained of dam-age to breeding grounds for fish and rare white dolphins. The company had already been forced to remove shark fin soup, a local delicacy, from its menus after campaigners condemned the dish as cruel and eco-logically destructive. Animal welfare groups had also complained about the destruction of 40 dogs that were roaming the site. Human rights activists have also pointed to the employment conditions of workers in a Chinese firm supplying merchandise to the park, claiming that workers had to work 13-hour days in unsafe conditions for less than the minimum wage.
Once completed, a number of operations problems soon became apparent. The park had set its daily capacity limit at 30,000 visitors. However, it was clear that this was an overestimate, when 29,000 locals flocked to the theme park at a test day prior to the official opening. They found they had to queue for over 45 minutes at the ‘fast’ food outlets and over two hours for rides. The local media described the day as
‘chaotic’. The park plans to extend opening times and increase discounts on ticket prices during weekdays.
On the grand opening day itself, some 16,000 entered the gates; about a third from mainland China. The presence of the mainlanders upset some locals. Complaints included queuejumping, smoking in restaur -ants and other non-smoking areas, children urinating in a flower bed, people being barefoot and putting their feet on chairs and spitting in public. Many Hongkongers blamed Disney for allowing such behaviour in the park. However, there were reports of some staff being unhelpful or even rude to visitors.
Some mainland Chinese have complained about the lack of the use of Mandarin, the principle language in China in Hong Kong Disneyland. Although both English and Chinese are its official languages, Cantonese