Exhibit 1.1 How Goods and Services Affect Operations Management Activities OM Activity Goods Services Forecasting Forecasts involve longer-term time horizons. Goodsproducing firms can use physical inventory as a buffer to mitigate forecast errors. Forecasts can be aggregated over larger time frames (e.g., months or weeks). Forecast horizons generally are shorter, and forecasts are more variable and time-dependent. Forecasting must often be done on a daily or hourly basis, or sometimes even more frequently. Facility Location Goods-producing facilities can be located close to raw materials, suppliers, labor, or customers/markets. Service facilities must be located close to customers/ markets for convenience and speed of service. Facility Layout and Design Factories and warehouses can be designed for efficiency because few, if any, customers are present. The facility must be designed for good customer interaction and movement through the facility and its processes. Technology Goods-producing facilities use various types of automation to produce, package, and ship physical goods. Service facilities tend to rely more on information-based hardware and software. Quality Goods-producing firms can define clear, physical and measurable quality standards and capture measurements using various physical devices. Quality measurements must account for customer's perception of service quality and often must be gathered through surveys or personal contact. Goods-producing firms use physical inventory such as raw materials and finished goods as a Inventory Capacity buffer for fluctuations in demand. Service capacity such as equipment or employees is the substitute for physical inventory. Process Design Because customers have no participation or involvement in goods-producing processes, the processes can be more mechanistic and controllable. Customers usually participate extensively in service creation and delivery (sometimes called co- production), requiring more flexibility and adaptation to special circumstances. Job Service Encounter Design Goods-producing employees require strong technical and production skills. Service employees need more behavioral and service management skills. Scheduling Scheduling revolves around the movement and location of materials, parts, and subassemblies and when to assign resources (i.e., employees, equipment) to accomplish the work most efficiently Scheduling focuses on when to assign employees and equipment (1.e., service capacity) to accomplish the work most efficiently without the benefit of physical inventory. Goods-producing firms focus mainly on the physical flow of goods, often in a global network. Service providing firms focus mainly on the flow of people, information and services, often in a global Supply Chain Management with the goal of maximizing customer satisfaction and profit, and minimizing delivery time. network, with the goal of maximizing customer satisfaction and profit, and minimizing delivery time, costs, and environmental impact. costs, and environmental impact. A similar classification of OM activities in terms of high/low customer contact was first proposed in the classic article: Chase, R. B., "Where does the customer fit in a service operation?" Harvard Business Review, November-December 1978, p. 139.
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