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Operations & Productivity Chapter No.2 Lecture Nos. 3 & 4 April 14, 2015 06/16/2022 1

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Slide 1

Operations & ProductivityChapter No.2

Lecture Nos. 3 & 4

April 14, 201514-May-20151What Is Operations Management?Production is the creation of goods and servicesOperations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs14-May-201522Organizational ChartsOperationsTeller SchedulingCheck ClearingCollectionTransaction processingFacilities design/layoutVault operationsMaintenanceSecurityFinanceInvestmentsSecurityReal estateAccountingAuditingMarketingLoans Commercial Industrial Financial Personal MortgageTrust DepartmentCommercial BankFigure 1.1(A)

14-May-201533

Organizational ChartsOperationsGround support equipmentMaintenanceGround Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications DispatchingManagement scienceFinance/ accountingAccounting Payables Receivables General LedgerFinance Cash control International exchangeAirlineFigure 1.1(B)MarketingTraffic administration Reservations Schedules Tariffs (pricing)SalesAdvertising14-May-201544

MarketingSales promotionAdvertisingSalesMarket researchOrganizational ChartsOperationsFacilities Construction; maintenanceProduction and inventory control Scheduling; materials controlQuality assurance and controlSupply chain managementManufacturing Tooling; fabrication; assemblyDesign Product development and design Detailed product specificationsIndustrial engineering Efficient use of machines, space, and personnelProcess analysis Development and installation of production tools and equipmentFinance/ accountingDisbursements/ credits Receivables Payables General ledgerFunds Management Money market International exchangeCapital requirements Stock issue Bond issue and recallManufacturingFigure 1.1(C)14-May-201555Options for Increasing ContributionSales$100,000$150,000$100,000$100,000Cost of Goods 80,000 120,000 80,000 64,000Gross Margin20,00030,00020,00036,000Finance Costs 6,000 6,000 3,000 6,000Subtotal14,00024,00017,00030,000Taxes at 25% 3,500 6,000 4,250 7,500Contribution$ 10,500$ 18,000$ 12,750$ 22,500Finance/MarketingAccountingOMOptionOptionOption

IncreaseReduceReduceSalesFinanceProductionCurrentRevenue 50%Costs 50%Costs 20%6What Operations Managers DoPlanningOrganizingStaffingLeadingControllingBasic Management Functions

14-May-201577Ten Critical DecisionsTen Decision AreasDesign of goods and servicesManaging qualityProcess and capacity design Location strategyLayout strategyHuman resources and job design Supply chain managementInventory managementSchedulingMaintenance14-May-201588Significant Events in OM

14-May-201599New Challenges in OMGlobal focusJust-in-timeSupply chain partneringRapid product development, alliancesMass customizationEmpowered employees, teamsToFromLocal or national focusBatch shipmentsLow bid purchasing

Lengthy product development

Standard products

Job specialization14-May-20151010Characteristics of GoodsTangible productConsistent product definitionProduction usually separate from consumptionCan be inventoriedLow customer interaction

14-May-20151111Characteristics of ServiceIntangible productProduced and consumed at same timeOften uniqueHigh customer interactionInconsistent product definitionOften knowledge-basedFrequently dispersed

14-May-20151212Industry and Services as Percentage of GDPServicesManufacturingAustraliaCanadaChinaCzech RepFranceGermanyHong KongJapanMexicoRussian FedSouth AfricaSpainUKUS90 80 70 60 50 40 30 20 10 0 13Goods Versus ServicesCan be resoldCan be inventoriedSome aspects of quality measurableSelling is distinct from productionProduct is transportable

Site of facility important for cost

Often easy to automateRevenue generated primarily from tangible productAttributes of Goods(Tangible Product)Attributes of Services (Intangible Product)Reselling unusualDifficult to inventoryQuality difficult to measure

Selling is part of service

Provider, not product, isoften transportableSite of facility important forcustomer contactOften difficult to automateRevenue generated primarily from the intangible service14-May-20151414Goods and ServicesAutomobileComputerInstalled carpetingFast-food mealRestaurant meal/auto repairHospital careAdvertising agency/investment managementConsulting service/teachingCounselingPercent of Product that is a GoodPercent of Product that is a Service100%7550250255075100%|||||||||Figure 1.4

14-May-20151515120 100 80 60 40 20 0 |||||||1950197019902010 (est)196019802000Employment (millions)Manufacturing and Service EmploymentFigure 1.5 (A)ManufacturingService14-May-20151616Development of the Service EconomyUnited StatesCanadaFranceItalyBritainJapanW. Germany19702008 (est)|||||4050607080Percent14-May-20151717Operations & SC StrategyScope of the firms strategy must not only focus the economic viability of its shareholders, but should also consider the environmental and social impact on key stakeholders

THE TRIPPLE BOTTOM LINESocialEconomicEnvironmental14-May-201518Operations & SC Strategy - Formulation 1. Develop / Refine the StrategyDefine vision, mission, objectivesConduct Strategic AnalysisDefine Strategic competitive priorities

2. Translate Strategy into Operations & SC InitiativesProduct design / revision initiativesSourcing / Location of facilities initialization

3. Major Focus Points & projectsMajor operations initiativesMajor logistics / distribution initiatives14-May-201519Operation & SC StrategyCompetitive DimensionsCost or PriceQualityDelivery SpeedDelivery ReliabilityCoping with changes in DemandFlexibility & New-Product introduction SpeedOther Product Specific Criteria SupportThe Notion of Trade OffsStraddling: when a company seeks to match the benefits of a successful position while maintaining its existing position. 14-May-201520ProductivityA measure of how well resources are used , but it is a relative measure.14-May-201521Productivity ChallengeProductivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labour and capital)The objective is to improve productivity!Important Note!Production is a measure of output only and not a measure of efficiency14-May-20152222Feedback loopOutputsGoods andservicesProcessesThe economic system transforms inputs to outputs at about an annual _____ increase in productivity per year. The productivity increase is the result of a mix of capital, labour and management .The Economic SystemInputsLabour,capital,management14-May-20152323Improving Productivity at StarbucksA team of 10 analysts continually look for ways to save time. Some improvements:Stop requiring signatures on credit card purchases under $25Saved 8 seconds per transactionChange the size of the ice scoopSaved 14 seconds per drinkNew espresso machinesSaved 12 seconds per shot

14-May-20152424Improving Productivity at StarbucksA team of 10 analysts continually look for ways to shave time. Some improvements:Stop requiring signatures on credit card purchases under $25Saved 8 seconds per transactionChange the size of the ice scoopSaved 14 seconds per drinkNew espresso machinesSaved 12 seconds per shot

Operations improvements have helped Starbucks increase yearly revenue per outlet by $200,000 to $940,000 in six years.Productivity has improved by 27%, or about 4.5% per year.14-May-20152525Measure of process improvementRepresents output relative to inputOnly through productivity increases can our standard of living improveProductivityProductivity =Units producedInput used14-May-20152626Productivity CalculationsProductivity =Units producedLabour-hours used= = 4 units/labour-hour1,000250Labour ProductivityOne resource input single-factor productivity14-May-20152727Multi-Factor Productivity OutputLabor + Material + Energy + Capital + MiscellaneousProductivity =Also known as total factor productivityOutput and inputs are often expressed in dollarsMultiple resource inputs multi-factor productivity14-May-20152828Collins Title ProductivityStaff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:=Old labour productivity8 titles/day32 labour-hrs14-May-20152929Collins Title ProductivityStaff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:8 titles/day32 labour-hrs=Old labour productivity= .25 titles/labour-hr14-May-20153030Collins Title ProductivityStaff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:14 titles/day Overhead = $800/dayNew System:8 titles/day32 labour-hrs=Old labour productivity=New labour productivity= .25 titles/labour-hr14 titles/day32 labour-hrs14-May-20153131Collins Title ProductivityStaff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:14 titles/day Overhead = $800/dayNew System:8 titles/day32 labour-hrs=Old labour productivity= .25 titles/labour-hr14 titles/day32 labour-hrs=New labour productivity= .4375 titles/labour-hr14-May-20153232Collins Title ProductivityStaff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:14 titles/day Overhead = $800/dayNew System:=Old multifactor productivity8 titles/day$640 + 40014-May-20153333Collins Title ProductivityStaff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:14 titles/day Overhead = $800/dayNew System:8 titles/day$640 + 400=Old multifactor productivity= .0077 titles/dollar14-May-20153434Collins Title ProductivityStaff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:14 titles/day Overhead = $800/dayNew System:8 titles/day$640 + 400=Old multifactor productivity=New multifactor productivity= .0077 titles/dollar14 titles/day$640 + 80014-May-20153535Collins Title ProductivityStaff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:14 titles/day Overhead = $800/dayNew System:8 titles/day$640 + 40014 titles/day$640 + 800=Old multifactor productivity=New multifactor productivity= .0077 titles/dollar= .0097 titles/dollar14-May-20153636Productivity VariablesLabor - contributes about 10% of the annual increaseCapital - contributes about 38% of the annual increase

Management - contributes about 52% of the annual increase

14-May-20153737Key Variables for Improved Labor ProductivityBasic education appropriate for the labor forceDiet of the labor forceSocial overhead that makes labor availableMaintaining and enhancing skills in the midst of rapidly changing technology and knowledge14-May-20153838Investment and Productivity 1086420Percent increase in productivityPercentage investment101520253035

14-May-20153939Service ProductivityTypically labor intensiveFrequently focused on unique individual attributes or desiresOften an intellectual task performed by professionalsOften difficult to mechanizeOften difficult to evaluate for quality14-May-20154040Productivity at Taco BellImprovements:Revised the menu Designed meals for easy preparationShifted some preparation to suppliersEfficient layout and automationTraining and employee empowerment14-May-20154141Productivity at Taco BellImprovements:Revised the menu Designed meals for easy preparationShifted some preparation to suppliersEfficient layout and automationTraining and employee empowermentResults:Preparation time cut to 8 secondsManagement span of control increased from 5 to 30In-store labour cut by 15 hours/dayStores handle twice the volume with half the labourFast-food low-cost leader14-May-20154242Ethics and Social ResponsibilityChallenges facing operations managers:Developing and producing safe, quality productsMaintaining a clean environmentProviding a safe workplaceHonouring community commitments14-May-20154343