Module 8 • Operations management 2. Designing operation systems 2.1 Products and services
The difference between products and services is that a service is intangible; you can’t touch or see it. A service differs further in that production and consumption are taking place at the same time. In other words, you can’t really store a service. Think of an empty taxi seat. If it is not occupied on a specific trip, it is gone. Examples of service businesses are hotels, laundries, banks and airlines.
The design of both products and services must be market driven. This means that the business must be clear about its target market, understand their needs and design products and services according to the needs of the target market. Refer back to the market research section.
The product and service design development process: Idea Generation Facilities exist Product Selection Preliminary Design New Facilities Required Final Design
Process Selection Capacity Planning Production Planning Scheduling
2.2
Capacity Chop Chop
Chop Chop fast food outlet’s fixed cost is R4000 per month. The average cost (variable) of a standard take-away is R4. Their average selling price is R9 per unit. If they sell 2000 meals per month, R2 of each sale goes towards covering the fixed costs. Chop Chop’s profit per unit is then R3. However, if they have the capacity to make and sell 4000 meals then the fixed cost per unit drops to R1. Chop Chop can keep their selling price the same and make R4 profit per unit. Or they can reduce their price by R1 and become more competitive. This could mean a further increase in their sales and a decrease of the fixed cost percentage per unit. An economy of scale is created in this manner.
Determining capacity Capacity is the ability or power to hold, contain, accommodate or to produce. In operations management, capacity can either be measured in terms of the input ability (machines, tools, facilities, etc) or to the output ability. The latter includes volumes or units that can be produced or customers (students) that can be served.
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