© 2006 prentice hall, inc.1 – 1 operations management chapter 1 – operations and productivity...

© 2006 Prentice Hall, Inc. 1 – 1

Operations ManagementOperations ManagementChapter 1 – Operations and ProductivityChapter 1 – Operations and Productivity

© 2006 Prentice Hall, Inc.

PowerPoint presentation to accompanyPowerPoint presentation to accompany Heizer/Render Heizer/Render Principles of Operations Management, 6ePrinciples of Operations Management, 6eOperations Management, 8e Operations Management, 8e


What Is Operations What Is Operations Management?Management?

ProductionProduction is the creation of is the creation of goods and servicesgoods and services

Operations management (OM)Operations management (OM) is the set of activities that is the set of activities that

creates value in the form of creates value in the form of goods and services by goods and services by

transforming inputs into transforming inputs into outputsoutputs


Organizing to Produce Organizing to Produce Goods and ServicesGoods and Services

Essential functions:Essential functions: Marketing – generates demandMarketing – generates demand

Production/operations – creates Production/operations – creates the productthe product

Finance/accounting – tracks how Finance/accounting – tracks how well the organization is doing, pays well the organization is doing, pays bills, collects the moneybills, collects the money


MarketingSales promotionAdvertisingSalesMarket research

Organizational ChartsOrganizational Charts

OperationsFacilities Construction; maintenance

Production and inventory control Scheduling; materials control

Quality assurance and controlSupply-chain managementManufacturing Tooling; fabrication; assembly

Design Product development and design Detailed product specifications

Industrial engineering Efficient use of machines, space, and personnel

Process analysis Development and installation of production tools and equipment

Finance/ accountingDisbursements/ credits Receivables Payables General ledgerFunds Management Money market International exchangeCapital requirements Stock issue Bond issue and recall

Manufacturing

Figure 1.1(C)Figure 1.1(C)


Organizational ChartsOrganizational Charts

OperationsGround support equipmentMaintenanceGround Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications DispatchingManagement science

Finance/ accountingAccounting Payables Receivables General LedgerFinance Cash control International exchange

Airline

Figure 1.1(B)Figure 1.1(B)

MarketingTraffic administration Reservations Schedules Tariffs (pricing)SalesAdvertising


What Operations What Operations Managers DoManagers Do

PlanningPlanning

OrganizingOrganizing

StaffingStaffing

LeadingLeading

ControllingControlling

Basic Management FunctionsBasic Management Functions


The Critical DecisionsThe Critical Decisions

Service and product designService and product design What good or service should we What good or service should we

offer?offer? How should we design these products How should we design these products

and services? and services?

Quality managementQuality management How do we define quality?How do we define quality? Who is responsible for quality?Who is responsible for quality?

Table 1.2 (cont.)Table 1.2 (cont.)



Process and capacity designProcess and capacity design What process and what capacity will What process and what capacity will

these products require?these products require?

What equipment and technology is What equipment and technology is necessary for these processes?necessary for these processes?

LocationLocation Where should we put the facility?Where should we put the facility?

On what criteria should we base the On what criteria should we base the location decision?location decision?



The Critical DecisionsThe Critical Decisions Layout designLayout design

How should we arrange the facility How should we arrange the facility and material flow?and material flow?

How large must the facility be to meet How large must the facility be to meet our plan?our plan?

Human resources and job designHuman resources and job design How do we provide a reasonable work How do we provide a reasonable work

environment?environment? How much can we expect our How much can we expect our

employees to produce?employees to produce?




Supply-chain managementSupply-chain management Should we make or buy this component?Should we make or buy this component?

Who are our suppliers and who can Who are our suppliers and who can integrate into our e-commerce program?integrate into our e-commerce program?

Inventory, material requirements Inventory, material requirements planning, and JITplanning, and JIT How much inventory of each item should How much inventory of each item should

we have?we have?

When do we re-order?When do we re-order?Table 1.2 (cont.)Table 1.2 (cont.)



Intermediate and shortIntermediate and short––term term schedulingscheduling Are we better off keeping people on Are we better off keeping people on

the payroll during slowdowns?the payroll during slowdowns?

Which jobs do we perform next?Which jobs do we perform next?

MaintenanceMaintenance Who is responsible for maintenance?Who is responsible for maintenance?

When do we do maintenance?When do we do maintenance?



Where are the OM Jobs?Where are the OM Jobs?

Figure 1.2Figure 1.2


New Challenges in OMNew Challenges in OM

Global focusGlobal focus

Just-in-timeJust-in-time

Supply chain Supply chain partneringpartnering

Rapid product Rapid product development, development, alliancesalliances

Mass Mass customizationcustomization

Empowered Empowered employees, teamsemployees, teams

ToToFromFrom Local or national focusLocal or national focus

Batch shipmentsBatch shipments

Low bid purchasingLow bid purchasing

Lengthy product Lengthy product developmentdevelopment

Standard productsStandard products

Job specializationJob specialization


Characteristics of GoodsCharacteristics of Goods

Tangible productTangible product

Consistent product Consistent product definitiondefinition

Production usually Production usually separate from separate from consumptionconsumption

Can be inventoriedCan be inventoried

Low customer Low customer interactioninteraction


Characteristics of ServiceCharacteristics of Service Intangible productIntangible product

Produced and Produced and consumed at same timeconsumed at same time

Often uniqueOften unique

High customer High customer interactioninteraction

Inconsistent product Inconsistent product definitiondefinition

Often knowledge-basedOften knowledge-based

Frequently dispersedFrequently dispersed


Goods Versus ServicesGoods Versus Services

Table 1.3Table 1.3

Can be resoldCan be resold

Can be inventoriedCan be inventoried

Some aspects of quality Some aspects of quality measurablemeasurable

Selling is distinct from Selling is distinct from productionproduction

Product is transportableProduct is transportable

Site of facility important for costSite of facility important for cost

Often easy to automateOften easy to automate

Revenue generated primarily Revenue generated primarily from tangible productfrom tangible product

Attributes of GoodsAttributes of Goods(Tangible Product)(Tangible Product)

Attributes of ServicesAttributes of Services (Intangible Product) (Intangible Product)

Reselling unusualReselling unusual

Difficult to inventoryDifficult to inventory

Quality difficult to measureQuality difficult to measure

Selling is part of service Selling is part of service

Provider, not product, isProvider, not product, isoften transportableoften transportable

Site of facility important forSite of facility important forcustomer contactcustomer contact

Often difficult to automateOften difficult to automate

Revenue generated primarily Revenue generated primarily from the intangible servicefrom the intangible service


Goods and ServicesGoods and ServicesAutomobile

Computer

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

100%100% 7575 5050 2525 00 2525 5050 7575 100%100%|| || || || || || || || ||



Organizations in Each SectorOrganizations in Each Sector

Service SectorService Sector ExampleExample% of all % of all

JobsJobs

Professional Professional Services, Services, Education, Education, Legal, MedicalLegal, Medical

Notre Dame University, Notre Dame University, San Diego Zoo, Arnold San Diego Zoo, Arnold Palmer HospitalPalmer Hospital

25.525.5

Trade (retail, Trade (retail, wholesale)wholesale)

Walgreen’s, Wal-Mart, Walgreen’s, Wal-Mart, Nordstrom’sNordstrom’s

20.620.6

Utilities, Utilities, TransportationTransportation

Pacific Gas & Electric, Pacific Gas & Electric, American Airlines, Santa American Airlines, Santa Fe R.R., Roadway Fe R.R., Roadway ExpressExpress

7.17.1

Table 1.4Table 1.4


Organizations in Each SectorOrganizations in Each Sector

Service SectorService Sector ExampleExample% of all % of all

JobsJobs

Business and Business and Repair ServicesRepair Services

Snelling and Snelling, Snelling and Snelling, Waste Management, Waste Management, Pitney-BowesPitney-Bowes

6.96.9

Finance, Finance, Insurance, Insurance, Real EstateReal Estate

Citicorp, American Citicorp, American Express, Prudential, Express, Prudential, Aetna, Trammel CrowAetna, Trammel Crow

6.76.7

Food, Lodging, Food, Lodging, EntertainmentEntertainment

McDonald’s, Hard Rock McDonald’s, Hard Rock Café, Motel 6, Hilton Café, Motel 6, Hilton Hotels, Walt Disney, Hotels, Walt Disney, Paramount PicturesParamount Pictures

5.45.4

Public Public AdministrationAdministration

U.S., State of Alabama, U.S., State of Alabama, Cook CountyCook County

4.54.5

Table 1.4Table 1.4


Organizations in Each SectorOrganizations in Each SectorManufacturing Manufacturing SectorSector ExampleExample

% of all % of all JobsJobs

GeneralGeneral General Electric, Ford, General Electric, Ford, U.S. Steel, IntelU.S. Steel, Intel

13.313.3

ConstructionConstruction Bechtel, McDermottBechtel, McDermott 7.17.1

AgricultureAgriculture King RanchKing Ranch 2.52.5

MiningMining Homestake MiningHomestake Mining 0.40.4

SectorSector Percent of all jobsPercent of all jobs

ServiceService 76.7%76.7%

ManufacturingManufacturing 23.3%23.3%

Table 1.4Table 1.4


ServicesServices

Manufacturing

Manufacturing

Development of the Development of the Service EconomyService Economy

Figure 1.5 (A)Figure 1.5 (A)

AgricultureAgriculture

100100

9090

8080

7070

6060

5050

4040

3030

2020

1010

00

18001800 18501850 19001900 19501950 20002000


Development of the Development of the Service EconomyService Economy

Figure 1.5 (C)Figure 1.5 (C)

United States

Canada

France

Italy

Britain

Japan

W. Germany

1970 2005

| | | | |

40 50 60 70 80Percent


Productivity ChallengeProductivity Challenge

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

(resources such as labor and capital)(resources such as labor and capital)

The objective is to improve this The objective is to improve this measure of efficiencymeasure of efficiency

Important Note!Production is a measure of output

only and not a measure of efficiency


FeedbackFeedback looploop

OutputsOutputs

Goods and

services

ProcessesProcesses

The U.S. economic system transforms inputs to outputs

at about an annual 2.5% increase in productivity per

year. The productivity increase is the result of a

mix of capital (38% of 2.5%), labor (10% of 2.5%), and

management (52% of 2.5%).

The Economic SystemThe Economic System

InputsInputs

Labor,capital,

management



Measure of process improvementMeasure of process improvement

Represents output relative to inputRepresents output relative to input

Only through productivity increases Only through productivity increases can our standard of living improvecan our standard of living improve

ProductivityProductivity

Productivity =Productivity =Units producedUnits produced

Input usedInput used


Productivity CalculationsProductivity Calculations

Productivity =Productivity =Units producedUnits produced

Labor-hours usedLabor-hours used

= = = = 44 units/labor-hour units/labor-hour1,0001,000

250250

Labor ProductivityLabor Productivity


Multi-Factor Productivity Multi-Factor Productivity

OutputOutput

Labor + Material + Energy Labor + Material + Energy + Capital + Miscellaneous+ Capital + Miscellaneous

Productivity =Productivity =

Also known as total factor productivityAlso known as total factor productivity

Output and inputs are often expressed Output and inputs are often expressed in dollarsin dollars


Collins Title ProductivityCollins Title Productivity

Staff of Staff of 44 works works 8 8 hrs/dayhrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day

Old System:Old System:

==Old labor Old labor

productivityproductivity88 titles/day titles/day

3232 labor-hrs labor-hrs



Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day


88 titles/day titles/day

3232 labor-hrs labor-hrs==

Old labor Old labor productivityproductivity = = .25.25 titles/labor-hr titles/labor-hr



Staff of Staff of 44 works works 8 8 hrs/dayhrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day



New System:New System:



Old labor Old labor productivityproductivity

==New labor New labor

productivityproductivity

= .25 titles/labor-hr= .25 titles/labor-hr


3232 labor-hrs labor-hrs



Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day



New System:New System:



Old labor Old labor productivityproductivity = = .25.25 titles/labor-hr titles/labor-hr

14 14 titles/daytitles/day


New labor New labor productivityproductivity = = .4375.4375 titles/labor-hr titles/labor-hr


Productivity VariablesProductivity Variables

LaborLabor

CapitalCapital

ManagementManagement


Key Variables for Improved Key Variables for Improved Labor ProductivityLabor Productivity

Basic education appropriate for the Basic education appropriate for the labor forcelabor force

Diet of the labor forceDiet of the labor force

Social overhead that makes labor Social overhead that makes labor availableavailable

Maintaining and enhancing skills in the Maintaining and enhancing skills in the midst of rapidly changing technology midst of rapidly changing technology and knowledgeand knowledge


Service ProductivityService Productivity

Typically labor intensiveTypically labor intensive

Frequently focused on unique Frequently focused on unique individual attributes or desiresindividual attributes or desires

Often an intellectual task performed by Often an intellectual task performed by professionalsprofessionals

Often difficult to mechanizeOften difficult to mechanize

Often difficult to evaluate for qualityOften difficult to evaluate for quality


Productivity at Taco BellProductivity at Taco Bell

Improvements:Improvements: Revised the menu Revised the menu Designed meals for easy preparationDesigned meals for easy preparation Shifted some preparation to suppliersShifted some preparation to suppliers Efficient layout and automationEfficient layout and automation Training and employee empowermentTraining and employee empowerment


Productivity at Taco BellProductivity at Taco Bell

Improvements:Improvements: Revised the menu Revised the menu Designed meals for easy preparationDesigned meals for easy preparation Shifted some preparation to suppliersShifted some preparation to suppliers Efficient layout and automationEfficient layout and automation Training and employee empowermentTraining and employee empowerment

Results:

Preparation time cut to 8 seconds Management span of control

increased from 5 to 30 In-store labor cut by 15 hours/day Stores handle twice the volume with

half the labor Fast-food low-cost leader


Ethics and Social ResponsibilityEthics and Social Responsibility

Challenges facing Challenges facing operations managers:operations managers:

Developing safe quality productsDeveloping safe quality products

Maintaining a clean environmentMaintaining a clean environment

Providing a safe workplaceProviding a safe workplace

Honoring community commitmentsHonoring community commitments

© 2006 prentice hall, inc.1 – 1 operations management chapter 1 – operations and productivity...

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