operation management chp 1

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1 - 1 2011 Pearson Education, Inc. publishing as Prentice Hall

1Operations and

Productivity

PowerPoint presentation to accompanyHeizer and RenderOperations Management, 10ePrinciples of Operations Management, 8e

PowerPoint slides by Jeff Heyl


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The Hard Rock Cafe

First opened in 1971

Now129 restaurants in over 40 countries

Rock music memorabilia

Creates value in the form of good foodand entertainment

3,500+custom meals per day in Orlando

How does an item get on the menu?

Role of the Operations Manager


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1 - 3

Learn ing Object ives

Definition of Operations Management (OM)Organizational Functions

Why Study OM?

A brief history of operations management

The future of the discipline

Goods Versus Services

Measuring productivity

Career opportunities in operations management

2011 Pearson Education, Inc. publishing as Prentice Hall


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What Is Operat ions

Management?

Productionis the creation of

goods and servicesOperations management (OM)isthe set of activities that createvalue in the form of goods and

services by transforming inputsinto outputs


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Organ izing to Produce

Goods and Serv ices Essential functions:1. Marketinggenerates demand

2. Production/operationscreatesthe product

3. Finance/accountingtracks howwell the organization is doing,pays bills, collects the money

4. Human Resourcesprovideslabor, wage and salaryadministration and job evaluation


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Commercial Bank

Operations

Teller Scheduling

Check Clearing

Collection

Transaction processing

Facilities design/layout

Vault operations

Maintenance

Security

Finance

Investments

Security

Real estate

Accounting

Auditing

Marketing

Loans

Commercial

Industrial

Financial

Personal

Mortgage

Trust Department

Human Resources

Recruitment

Job evaluation

Performance evaluation

Wage and Salary Adm.

Personnel records

Organ izat ional Charts


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Manufacturing

Operations

FacilitiesConstruction; maintenance

Production and inventory controlScheduling; materials control

Quality assurance and controlSupply-chain managementManufacturing

Tooling; fabrication; assembly

DesignProduct development and designDetailed product specifications

Industrial engineeringEfficient use of machines, space,

and personnelProcess analysis

Development and installation ofproduction tools and equipment

Finance/ accountingDisbursements/

creditsReceivablesPayablesGeneral ledger

Funds ManagementMoney marketInternational

exchangeCapital requirements

Stock issueBond issue

and recall

MarketingSales

promotion

AdvertisingSalesMarket research

Human Resources

Recruitment

Job evaluation

Performance evaluation

Wage and Salary Adm.

Personnel records

Organ izat ional Charts



Why Study OM?

1. OM is one of four major functions ofany organization, we want to studyhow people organize themselves forproductive enterprise

2. We want (and need) to know howgoods and services are produced

3. We want to understand whatoperations managers do

4. OM is such a costly part of anorganization



Options for IncreasingContr ibut ion

Table 1.1

Sales $100,000 $150,000 $100,000 $100,000

Cost of Goods 80,000 120,000 80,000 64,000

Gross Margin 20,000 30,000 20,000 36,000

Finance Costs 6,000 6,000 3,000 6,000Subtotal 14,000 24,000 17,000 30,000

Taxes at 25% 3,500 6,000 4,250 7,500

Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500

Finance/Marketing Accounting OM

Option Option Option

Increase Reduce Reduce

Sales Finance ProductionCurrent Revenue 50% Costs 50% Costs 20%



What Operat ions

Managers Do

Planning Organizing

Staffing

Leading

Controlling

Basic Management Functions



Ten Crit ical Dec isionsTen Decision Areas Chapter(s)

1. Design of goods and services 52. Managing quality 6, Supplement 6

3. Process and capacity 7, Supplement 7design

4. Location strategy 85. Layout strategy 96. Human resources and 10

job design

7. Supply-chain 11, Supplement 11management

8. Inventory, MRP, JIT 12, 14, 16

9. Scheduling 13, 15

10. Maintenance 17 Table 1.2


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The Cri t ical Dec isions

1. Design of goods and services

What good or service should weoffer?

How should we design theseproducts and services?

2. Managing quality

How do we define quality?

Who is responsible for quality?

Table 1.2 (cont.)


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3. Process and capacity design

What process and what capacity willthese products require?

What equipment and technology isnecessary for these processes?

4. Location strategy

Where should we put the facility?

On what criteria should we base thelocation decision?

Table 1.2 (cont.)


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5. Layout strategy How should we arrange the facility?

How large must the facility be to meet

our plan?6. Human resources and job design

How do we provide a reasonablework environment?

How much can we expect ouremployees to produce?

Table 1.2 (cont.)


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7. Supply-chain management Should we make or buy this

component?

Who should be our suppliers and howcan we integrate them into our strategy?

8. Inventory, material requirementsplanning, and JIT

How much inventory of each itemshould we have?

When do we re-order?

Table 1.2 (cont.)


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9. Intermediate and shorttermscheduling

Are we better off keeping people on

the payroll during slowdowns? Which jobs do we perform next?

10.Maintenance

How do we build reliability into ourprocesses?

Who is responsible for maintenance?

Table 1.2 (cont.)


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Opportuni t ies

Figure 1.2


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Sign i f icant Even ts in OM

Figure 1.3


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The Heritage of OM

Division of labor (Adam Smith 1776;Charles Babbage 1852)

Standardized parts (Whitney 1800)

Scientific Management (Taylor 1881)

Assembly line (Ford/ Sorenson 1913)

Gantt charts (Gantt 1916)

Motion study (Frank and Lillian Gilbreth

1922) Quality control (Shewhart 1924; Deming

1950)


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The Heritage of OM

First Digital Computer (Atanasoff 1938)

CPM/PERT (DuPont 1957, Navy 1958)

Material requirements planning (Orlicky 1960)

Computer aided design (CAD 1970) Flexible manufacturing system (FMS 1975)

Baldrige Quality Awards (1980)

Computer integrated manufacturing (1990)

Globalization (1992)

Internet (1995)

Mass Customization (2000s)


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New Challenges in OM

Global focus

Just-in-time

Supply-chainpartnering

Rapid productdevelopment,alliances

Masscustomization

Empoweredemployees, teams

ToFrom Local or national focus

Batch shipments

Low bid purchasing

Lengthy productdevelopment

Standard products

Job specialization


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Character is t ics o f Goods

Tangible product

Consistent productdefinition

Production usuallyseparate fromconsumption

Can be inventoried

Low customerinteraction


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Charac ter ist ics o f Serv ice

Intangible product

Produced andconsumed at same time

Often unique High customer

interaction

Inconsistent productdefinition

Often knowledge-based

Frequently dispersed


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Industry and Services as

Percen tage of GDPServices Manufacturing

Australia

Canada

China

CzechRep

France

Germany

HongKong

Japan

Mexico

RussianFed

SouthAfrica

Spain

UK

US

Turkey

90

80

70

60

50

40

30

20

10

0


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Allocation of GDP by Sector,Turkey, 2010

Agriculture 8.8%

Industry 25.7%

Services 65.5%


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Goods and Services

AutomobileComputer

Installed carpeting

Fast-food meal

Restaurant meal/auto repair

Hospital care

Advertising agency/investment management

Consulting service/teaching

Counseling

Percent of Product that is a Good Percent of Product that is a Service

100% 75 50 25 0 25 50 75 100%| | | | | | | | |


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Changing Chal lenges

TraditionalApproach Reasons forChange CurrentChallenge

Ethics andregulationsnot at theforefront

Public concern overpollution, corruption,child labor, etc.

High ethical andsocialresponsibility;increased legal

and professionalstandards

Local ornationalfocus

Growth of reliable, lowcost communicationand transportation

Global focus,internationalcollaboration

Lengthyproductdevelopment

Shorter life cycles;growth of globalcommunication; CAD,Internet

Rapid productdevelopment;designcollaboration

Figure 1.5


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Low costproduction,with littleconcern for

environment;freeresources(air, water)ignored

Public sensitivity toenvironment; ISO 14000standard; increasingdisposal costs

Environmentallysensitiveproduction; greenmanufacturing;

sustainability

Low-cost

standardizedproducts

Rise of consumerism;

increased affluence;individualism

Mass

customization

Figure 1.5


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Emphasis onspecialized,often manualtasks

Recognition of theemployee's totalcontribution; knowledgesociety

Empoweredemployees;enriched jobs

In-houseproduction;low-bidpurchasing

Rapid technologicalchange; increasingcompetitive forces

Supply-chainpartnering; jointventures,alliances

Large lot

production

Shorter product life

cycles; increasing needto reduce inventory

Just-In-Time

performance;lean; continuousimprovement

Figure 1.5


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New Trends in OM

Ethics Global focus

Environmentally sensitive production

Rapid product development Mass customization

Empowered employees

Supply-chain partnering Just-in-time performance


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Product iv i ty Challenge

Productivity is the ratio of outputs (goodsand services) divided by the inputs

(resources such as labor and capital)

The objective is to improve productivity!

Impo rtant Note!Produc t ion is a measure of outp ut

on ly and not a measure of eff ic iency


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Eff ic iency VersusEffect iveness

The difference between efficient and effective is thatefficiency refers to how well you do something, whereaseffectiveness refers to how useful it is.

Efficiency is doing things right; effectiveness isdoing the right things.

Doing the Right Things is MoreImportant than Doing Things Right


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Eff ic iency VersusEffect ivenes

For example, if a company is not doingwell and they decide to train their

workforce on a new technology. Thetraining goes really well - they train alltheir employees in avery short time andtests show they have absorbed the

training well. But overall productivitydoesn't improve. In this case thecompany's strategy was efficient but noteffective.


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Feedback loop

Outputs

Goodsand

services

Transformation

Economic systemtransforms inputs to outputs/CONVERSITION PROCESS

The Econom ic System

Inputs

Labor,capital,

management

Figure 1.6


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Measure of process improvement

Represents output relative to input

Only through productivity increasescan our standard of living improve

Product iv i ty

Productivity =Units produced

Input used


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Produc t iv i ty Calculat ions

Productivity =Units produced

Labor-hours used

= = 4units/labor-hour1,000

250

Labor Productivity

One resourc e input sing le-facto r product iv i ty


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Mult i -Facto r Product iv i ty

Output

Labor + Material + Energy+ Capital + Miscellaneous

Productivity =

Also known as total factor productivity

Output and inputs are often expressedin dollars

Mult ip le resou rce inpu ts mul t i -factor product iv i ty


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Col l ins Ti t le Product iv i ty

Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day

Old System:

=Old labor

productivity

8 titles/day

32 labor-hrs


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Old System:

8 titles/day

32 labor-hrs=

Old laborproductivity = .25 titles/labor-hr


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Old System:

14 titles/day Overhead = $800/day

New System:

8 titles/day

32 labor-hrs=

Old laborproductivity

=New labor

productivity

= .25 titles/labor-hr

14 titles/day

32 labor-hrs


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Old System:


New System:

8 titles/day

32 labor-hrs=

Old laborproductivity = .25 titles/labor-hr

14 titles/day

32 labor-hrs=

New laborproductivity

= .4375 titles/labor-hr


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Old System:


New System:

=Old multifactor

productivity

8 titles/day

$640 + 400


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Old System:


New System:

8 titles/day

$640 + 400=

Old multifactorproductivity

= .0077 titles/dollar


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Old System:


New System:

8 titles/day

$640 + 400=

Old multifactorproductivity

=New multifactor

productivity


14 titles/day

$640 + 800


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Old System:


New System:

8 titles/day

$640 + 400

14 titles/day

$640 + 800

=Old multifactor

productivity

=New multifactor

productivity




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Measu rement Prob lems

1. Qualitymay change while the quantityof inputs and outputs remains constant(HDTV, iphones)

2. External elementsmay cause anincrease or decrease in productivity(using more reliable electric powersystem)

3. Precise unitsof measure may belacking


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Product iv i ty Variables

1. Labor- contributesabout 10% of theannual increase

2. Capital- contributesabout 38% of theannual increase

3. Management-contributes about 52%of the annual increase


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Key Variab les for ImprovedLabor Produc t iv i ty

1. Basic education appropriate for the laborforce

2. Diet of the labor force

3. Social overhead that makes laboravailable such as transportation andsanitation

Challenge is in maintaining andenhancing skills in the midst of rapidlychanging technology and knowledge


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Investment and Product iv i ty

10

8

6

4

2

0Percentincreaseinpro

ductivity

Percentage investment

10 15 20 25 30 35


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Service Product iv i ty

1. Typically labor intensive (teaching,counseling)

2. Frequently focused on unique individual

desires (customer representatives in banks)3. Often an intellectual task performed by

professionals

4. Often difficult to mechanize

5. Often difficult to evaluate for quality


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Ethics and

Social Responsib i li tyChallenges facingoperations managers:

Developing and producing safe,quality products

Maintaining a clean environment

Providing a safe workplace Honoring stakeholder commitments


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Entry-Level Jobs in OMPurchasing planner/buyer

Production (or operations) supervisor

Production (or operations)scheduler/controller

Production (or operations) analyst

Inventory analyst

Quality specialist

Others

operation management chp 1

Documents

pearson education

renderoperations management

prentice hallwhat

prentice hallwhy study

prentice hallorgan izing

salary adm

form of goods andservices

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