© 2008 prentice hall, inc.1 – 1 operations management chapter 1 – operations and productivity...
TRANSCRIPT
© 2008 Prentice Hall, Inc. 1 – 1
Operations ManagementOperations ManagementChapter 1 – Chapter 1 – Operations and Operations and ProductivityProductivity
PowerPoint presentation to accompany PowerPoint presentation to accompany Heizer/RenderHeizer/Render,, Operations Management, Operations Management, 11th Ed.11th Ed.
Some additions and deletions have been made by Ömer Yağız to this slide set. (Revised March 2015)
© 2008 Prentice Hall, Inc. 1 – 2
Some real life scenarios Some real life scenarios which I used in the past to which I used in the past to highlight the importance of highlight the importance of
Operations ManagementOperations Management• fortunately, some of these scenarios are no fortunately, some of these scenarios are no
more validmore valid
• many improvements have been realized both many improvements have been realized both in the public and private sectorin the public and private sector
• improvement, or improvement, or continuous improvement, to , to be exact, is the right approach to increasing be exact, is the right approach to increasing quality, efficiency, productivity, and quality, efficiency, productivity, and profitability. profitability.
© 2008 Prentice Hall, Inc. 1 – 3
SSome Real Life Scenarios in ome Real Life Scenarios in OMOM
Many of us have witnessed the agony and the suffering (and even deaths) that many senior citizens have had to endure in order to collect their retirement or pension pay from the various commercial banks. This was an episode that repeated every month or every three months, especially in large urban centers. The government organizations and the banks involved in this service process unfortunately did nothing for a long time to improve the situation and increase the quality of this rather routine service (now the situation is a little better)
© 2008 Prentice Hall, Inc. 1 – 4
SOME REAL-LIFE SCENARIOS IN SOME REAL-LIFE SCENARIOS IN OMOM
You mail a letter by Express Post (APS) to an address in İstanbul. The recipient gets it after 3 days; whereas a package sent to İstanbul via Yurtiçi Kargo (or any of the others) is in the hands of the addressee in 6 hours. Plus, order tracking on Google Earth! QUALITY OF SERVICE?
You buy a shirt from an expensive store and pay lots of money; the buttons come off after the shirt is worn three times. The manufacturer has to really make a special(!) effort to achieve this terrible quality.
SSome Real Life Scenarios in ome Real Life Scenarios in OMOM
© 2008 Prentice Hall, Inc. 1 – 5
A THY plane takes off 40 minutes late from an
airport because some Japanese tourists on
board forget to identify their baggage before
boarding the plane. The plane flies from
İstanbul to Ankara in 50 minutes. 40 minutes
delay for a 50 minute flight !! HOW DO WE
EXPLAIN THIS IN TERMS OF EFFICIENCY,
PRODUCTIVITY, AND PROFITABILITY ? (This
has been rectified some time ago by the
elimination of baggage identification prior to
boarding.)
SSome Real Life Scenarios in ome Real Life Scenarios in OMOM
© 2008 Prentice Hall, Inc. 1 – 6
A real episode at EsenboğaA real episode at Esenboğaon Feb. 6, 2012 on Feb. 6, 2012
Esenboğa Airport Esenboğa Airport lots of delays and lots of delays and
cancellations due to cancellations due to snow and winter snow and winter conditionsconditions
an operations manager’s an operations manager’s nightmare (kâbus)nightmare (kâbus)
unhappy and angry unhappy and angry passengers passengers
THY and TGS service THY and TGS service personnel in a very personnel in a very difficult (and unenviable) difficult (and unenviable) positionposition
© 2008 Prentice Hall, Inc. 1 – 7
A real episode at EsenboğaA real episode at Esenboğaon Feb. 6, 2012 on Feb. 6, 2012
This serious situation had a very This serious situation had a very happy ending for the passengers happy ending for the passengers and service personnel. HOW?and service personnel. HOW?
• full and timely information given to full and timely information given to passengers face-to-face and via electronic passengers face-to-face and via electronic boards boards
• effective and timely catering service to effective and timely catering service to passengers at the gatespassengers at the gates
• very courteous, understanding and helpful very courteous, understanding and helpful attitude by the ground service personnel attitude by the ground service personnel towards the passengerstowards the passengers
• nobody had the courage to complain nobody had the courage to complain and/or say something bad about the and/or say something bad about the situation, including myself..situation, including myself..
© 2008 Prentice Hall, Inc. 1 – 8
Why did some people prefer McDonald’s or similar fast-food restaurants despite the fact that it they were more expensive than comparable food served elsewhere? The same is true for Varan and Ulusoy bus companies..
When you go to some government office (say, the Tax Bureau) you spend so much you feel terribly exhausted after a very routine task. Is the whole process designed to maximize pain to citizens ? Now, things are a bit different; next slide…
SSome Real Life Scenarios in ome Real Life Scenarios in OMOM
© 2008 Prentice Hall, Inc. 1 – 9
Things are better at the Tax BureauThings are better at the Tax Bureau
• attitude change on the part of personnel (civil attitude change on the part of personnel (civil servant concept)servant concept)
• technology in general, IT in particular, makes technology in general, IT in particular, makes the whole process easier, less time-the whole process easier, less time-consuming, more efficient, and less costlyconsuming, more efficient, and less costly
• errors are minimizederrors are minimized
• personnel assist those in need of help for personnel assist those in need of help for filling out forms, etc.filling out forms, etc.
• they even offer you free tea at the Hitit Vergi they even offer you free tea at the Hitit Vergi Dairesi..Dairesi..
SSome Real Life Scenarios in ome Real Life Scenarios in OMOM
© 2008 Prentice Hall, Inc. 1 – 10
Things are also better at Çankaya Things are also better at Çankaya Kaymakamlığı..Kaymakamlığı..
• Apostille service unitApostille service unit
• 1.5 TL per apostille charged1.5 TL per apostille charged
• 2 X 1.5 TL = 3.00 TL2 X 1.5 TL = 3.00 TL
• a 3-ply receipt costs 3.00 TLa 3-ply receipt costs 3.00 TL
• no charge for 2 or less apostilles; 3 or no charge for 2 or less apostilles; 3 or more apostilles charged at the rate of 1.50 more apostilles charged at the rate of 1.50 TL per apostilleTL per apostille
• amazingly clever practice by a public amazingly clever practice by a public organization!! Olamaz, rüya mı bu?organization!! Olamaz, rüya mı bu?
SSome Real Life Scenarios in ome Real Life Scenarios in OMOM
© 2008 Prentice Hall, Inc. 1 – 11
During registration periods at many
universities, poor students have to report to
so many different offices and people, and
have to wait so long in several lines. Not only
the students but also instructors and
administrators have to go through the same
unpleasant experience. Indeed, we are a
society of endless waiting lines! IS THIS
SOMETHING ORDAINED BY GOD OR
WHAT ?? (Now with online registration, the
situation has improved somewhat)
SSome Real Life Scenarios in ome Real Life Scenarios in OMOM
© 2008 Prentice Hall, Inc. 1 – 12
• İnönü Boulevard traffic accident in İnönü Boulevard traffic accident in one of the underpasses just one of the underpasses just yesterdayyesterday
• Road into Ankara closed for hours; Road into Ankara closed for hours; cars backed up for kms.cars backed up for kms.
• No effective remedy for this serious No effective remedy for this serious problemproblem
• Hudson Tunnel in New York City in Hudson Tunnel in New York City in 1963 case1963 case
SSome Real Life Scenarios in ome Real Life Scenarios in OMOM
© 2008 Prentice Hall, Inc. 1 – 13
OutlineOutline
Global Company Profile: Hard Rock CaféGlobal Company Profile: Hard Rock Café
Big Chefs in Turkey (11 locations Big Chefs in Turkey (11 locations including Dubai)including Dubai)
What Is Operations Management?What Is Operations Management?
Organizing to Produce Goods and Organizing to Produce Goods and Services Services
The Supply ChainThe Supply Chain
Why Study OM?Why Study OM?
What Operations Managers DoWhat Operations Managers Do
© 2008 Prentice Hall, Inc. 1 – 14
Outline - ContinuedOutline - Continued
The The Heritage of Operations f Operations ManagementManagement
Operations in the Service SectorOperations in the Service Sector Differences between Goods and Differences between Goods and
ServicesServices
Growth of ServicesGrowth of Services
Service PayService Pay
Exciting New Trends in Operations Exciting New Trends in Operations ManagementManagement
© 2008 Prentice Hall, Inc. 1 – 15
Outline - ContinuedOutline - Continued
The Productivity ChallengeThe Productivity Challenge Productivity MeasurementProductivity Measurement
Productivity VariablesProductivity Variables
Productivity and the Service SectorProductivity and the Service Sector
New Challenges in OMNew Challenges in OM
EthicsEthics, , Social ResponsibilitySocial Responsibility and and SustainabilitySustainability
© 2008 Prentice Hall, Inc. 1 – 16
Learning ObjectivesLearning Objectives
When you complete this chapter When you complete this chapter you should be able to:you should be able to:
1.1. Define operations managementDefine operations management
2.2. Explain the distinction between Explain the distinction between goods and servicesgoods and services
3.3. Explain the difference between Explain the difference between production and productivityproduction and productivity
© 2008 Prentice Hall, Inc. 1 – 17
Learning ObjectivesLearning Objectives
When you complete this chapter When you complete this chapter you should be able to:you should be able to:
4.4. Compute single-factor Compute single-factor productivityproductivity
5.5. Compute multifactor productivityCompute multifactor productivity
6.6. Identify the critical variables in Identify the critical variables in enhancing productivityenhancing productivity
© 2008 Prentice Hall, Inc. 1 – 18
The Hard Rock CafeThe Hard Rock Cafe
First opened in 1971First opened in 1971; theme restaurant; theme restaurant Now – 1Now – 15050 restaurants in over restaurants in over 53 53 countriescountries
Rock music memorabiliaRock music memorabilia
Creates value in the form of good food Creates value in the form of good food and entertainmentand entertainment
3,5003,500++ custom meals per day in Orlando custom meals per day in Orlando
How does an item get on the menu?How does an item get on the menu?
Role of the Operations ManagerRole of the Operations Manager
© 2008 Prentice Hall, Inc. 1 – 20
DO & CO CateringDO & CO CateringAtilla Doğudan- ViennaAtilla Doğudan- Vienna
www.doco.com
© 2008 Prentice Hall, Inc. 1 – 21
• Dabba – metal lunchbox (sefer tası)Dabba – metal lunchbox (sefer tası)
• Dabbawala – one who carries dabbas Dabbawala – one who carries dabbas and delivers them to people in and delivers them to people in offices and elsewhereoffices and elsewhere– http://www.youtube.com/watch?v=sxW9sUnodM8
– http://www.youtube.com/watch?v=fTkGDXRnR9I
– This is required watching… On your own time.This is required watching… On your own time.
Dabbawala-Meal Delivery Dabbawala-Meal Delivery System in Mumbai, IndiaSystem in Mumbai, India
© 2008 Prentice Hall, Inc. 1 – 22
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
© 2008 Prentice Hall, Inc. 1 – 23
OM Involves Managing TransformationsOM Involves Managing Transformations
Input Output
People Plants Parts Processes Planning and Control
TransformationProcess
(Value Adding)
Transformation is enabled by The 5 Ps of OM:
© 2008 Prentice Hall, Inc. 1 – 24
TransformationsTransformations
• Physical and chemical--manufacturing Physical and chemical--manufacturing (shoes, PC’s, planes, paint, detergents)(shoes, PC’s, planes, paint, detergents)
• Locational--transportation (rail, sea, air, road)Locational--transportation (rail, sea, air, road)
• Exchange--retailing (all kinds of stores, Exchange--retailing (all kinds of stores, offices)offices), banking ??, banking ??
• Storage--warehousing (normal and cold Storage--warehousing (normal and cold storage)storage)
• Physiological--health care (hospitals, clinics)Physiological--health care (hospitals, clinics)
• Informational--telecommunications (schools, Informational--telecommunications (schools, Reuter Services, Internet and Reuter Services, Internet and blogsblogs, news , news media, TV services,media, TV services, METU)METU)
© 2008 Prentice Hall, Inc. 1 – 25
Operations as the Technical Operations as the Technical CoreCore
Operations
Finance
Capital Markets, Stockholders
Marketing
Customers
Wo
rker
s
Su
pp
lier
s
Pu
rch
asin
g
Per
son
nel
© 2008 Prentice Hall, Inc. 1 – 26
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
© 2008 Prentice Hall, Inc. 1 – 27
Organizational ChartsOrganizational Charts
OperationsTeller SchedulingCheck ClearingCollectionTransaction processingFacilities design/layoutVault operationsMaintenanceSecurity
FinanceInvestmentsSecurityReal estate
Accounting
Auditing
MarketingLoans Commercial Industrial Financial Personal Mortgage
Trust Department
Commercial Bank
Figure 1.1(A)Figure 1.1(A)
© 2008 Prentice Hall, Inc. 1 – 28
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
© 2008 Prentice Hall, Inc. 1 – 29
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)
© 2008 Prentice Hall, Inc. 1 – 30
The Supply ChainThe Supply Chain A global network of organizations and
activities that supply a firm with goods and services
Members of the supply chain collaborate to achieve high levels of customer satisfaction, efficiency and competitive advantage.
© 2008 Prentice Hall, Inc. 1 – 31
Why Study OM?Why Study OM?
OM is one of three major functions OM is one of three major functions (marketing, finance, and operations) (marketing, finance, and operations) of any organizationof any organization
We want (We want (and needand need) to know how ) to know how goods and services are producedgoods and services are produced
We want to understand what We want to understand what operations managers dooperations managers do
OM is such a costly part of an OM is such a costly part of an organizationorganization
© 2008 Prentice Hall, Inc. 1 – 32
Options for Increasing Options for Increasing ContributionContribution
SalesSales $100,000$100,000 $150,000$150,000 $100,000$100,000 $100,000$100,000
Cost of Goods Cost of Goods –– 80,000 80,000 –– 120,000 120,000 –– 80,000 80,000 –– 64,000 64,000
Gross MarginGross Margin 20,00020,000 30,00030,000 20,00020,000 36,00036,000
Finance CostsFinance Costs –– 6,000 6,000 –– 6,000 6,000 –– 3,000 3,000 –– 6,000 6,000
SubtotalSubtotal 14,00014,000 24,00024,000 17,00017,000 30,00030,000
Taxes at 25%Taxes at 25% –– 3,500 3,500 –– 6,000 6,000 –– 4,250 4,250 –– 7,500 7,500
ContributionContribution $ 10,500$ 10,500 $ 18,000$ 18,000 $ 12,750$ 12,750 $ 22,500$ 22,500
Finance/Finance/MarketingMarketing AccountingAccounting OMOM
OptionOption OptionOption OptionOption
IncreaseIncrease ReduceReduce ReduceReduceSalesSales FinanceFinance ProductionProduction
CurrentCurrent Revenue 50%Revenue 50% Costs 50%Costs 50% Costs 20%Costs 20%
Increase in contribution 71% 21% 114%
Cont /unit = p – v (TL)
Breakeven point = TFC/p-v (units)
© 2008 Prentice Hall, Inc. 1 – 33
What Operations What Operations Managers DoManagers Do
PlanningPlanning
OrganizingOrganizing
StaffingStaffing
LeadingLeading
ControllingControlling
Basic Management FunctionsBasic Management Functions
© 2008 Prentice Hall, Inc. 1 – 34
Ten Ten Strategic Strategic DecisionsDecisionsTen Decision AreasTen Decision Areas Chapter(s)Chapter(s)
Design of goods and servicesDesign of goods and services 55 Managing qualityManaging quality 6, Supplement 66, Supplement 6 Process and capacity Process and capacity 7, Supplement 77, Supplement 7
design design Location strategyLocation strategy 88 Layout strategyLayout strategy 99 Human resources and Human resources and 10, Supplement 1010, Supplement 10
job design job design Supply chain Supply chain 11, Supplement 1111, Supplement 11
management management Inventory managementInventory management 12, 14, 1612, 14, 16 SchedulingScheduling 13, 1513, 15 MaintenanceMaintenance 1717
Table 1.2Table 1.2
© 2008 Prentice Hall, Inc. 1 – 35
The The Strategic Strategic DecisionsDecisions
1.1. Design of goods and servicesDesign of goods and services Defines what is required of operationsDefines what is required of operations Product design determines quality, Product design determines quality,
sustainability and human resourcessustainability and human resources
2.2. Managing qualityManaging quality Determine the customer’s quality Determine the customer’s quality
expectationsexpectations Establish policies and procedures to Establish policies and procedures to
identify and achieve that qualityidentify and achieve that quality
Table 1.2 (cont.)Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 36
The The Strategic Strategic DecisionsDecisions
3.3. Process and capacity designProcess and capacity design How is a good or service produced?How is a good or service produced?
Commits management to specific Commits management to specific technology, quality, resources, and technology, quality, resources, and investmentinvestment..
4.4. Location strategyLocation strategy Nearness to customers, suppliers, and Nearness to customers, suppliers, and
talent.talent.
Considering costs, infrastructure, Considering costs, infrastructure, logistics, and government logistics, and government ..
Table 1.2 (cont.)Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 37
The The Strategic Strategic DecisionsDecisions5.5. Layout strategyLayout strategy
How should we arrange the facility?How should we arrange the facility?
Integrate capacity needs, personnel Integrate capacity needs, personnel levels, technology, and inventorylevels, technology, and inventory
6.6. Human resources and job designHuman resources and job design Recruit, motivate, and retain Recruit, motivate, and retain
personnel with the required talent and personnel with the required talent and skills.skills.
Integral and expensive part of the Integral and expensive part of the total system design. total system design.
Table 1.2 (cont.)Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 38
The The Strategic Strategic DecisionsDecisions
7.7. Supply chain managementSupply chain management Integrate supply chain into the firm’s Integrate supply chain into the firm’s
strategystrategy
Determine what is to be purchased, from Determine what is to be purchased, from whom, and under what conditions. whom, and under what conditions.
8.8. InventoryInventory management managementII IInventory ordering and holding nventory ordering and holding
decisions.decisions.
Optimize considering customer Optimize considering customer satisfaction, supplier capability, and satisfaction, supplier capability, and production schedules. production schedules. Table 1.2 (cont.)Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 39
The The Strategic Strategic DecisionsDecisions
9.9. SchedulingScheduling Determine and implement Determine and implement
intermediate- and short-term intermediate- and short-term schedules.schedules.
Utilize personnel and facilities while Utilize personnel and facilities while meeting customer demands. meeting customer demands.
10.10.MainMaintenancetenance
Consider facility capacity, production Consider facility capacity, production demands, and personnel.demands, and personnel.
Maintain a reliable and stable process. Maintain a reliable and stable process. Table 1.2 (cont.)Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 41
Where are the OM Jobs?Where are the OM Jobs?
Technology/methodsTechnology/methods Facilities/space utilizationFacilities/space utilization Strategic issuesStrategic issues Response timeResponse time People/team developmentPeople/team development Customer serviceCustomer service QualityQuality Cost reductionCost reduction Inventory reductionInventory reduction Productivity improvementProductivity improvement
1 - 42© 2011 Pearson Education, Inc. publishing as Prentice Hall
OpportunitiesOpportunities
Figure 1.2
1 - 43© 2011 Pearson Education, Inc. publishing as Prentice Hall
CertificationsCertifications APICS, the American Production and
Inventory Control Society
American Society of Quality (ASQ)
Institute for Supply Management (ISM)
Project Management Institute (PMI)
Council of Supply Chain Management Professionals
Charter Institute of Purchasing and Supply (CIPS)
© 2008 Prentice Hall, Inc. 1 – 44
Significant Events in OMSignificant Events in OM
Figure 1.3Figure 1.3
© 2008 Prentice Hall, Inc. 1 – 45
The Heritage of OMThe Heritage of OM Division of labor (Adam Smith 1776; Division of labor (Adam Smith 1776;
Charles Babbage 1852)Charles Babbage 1852)
Interchangeable (sInterchangeable (standardizedtandardized)) parts parts (Whitney 1800)(Whitney 1800)
Scientific Management (Taylor 1881)Scientific Management (Taylor 1881)
Coordinated assembly line (Ford/ Coordinated assembly line (Ford/ Sorenson 1913Sorenson 1913-- (93 minutes vs. 12.5 hours for chassis assembly)))
Gantt charts (Gantt 1916)Gantt charts (Gantt 1916)
Motion study (Frank and Lillian Gilbreth Motion study (Frank and Lillian Gilbreth 1922)1922)
Quality control (Shewhart 1924; Deming Quality control (Shewhart 1924; Deming 1950)1950)
© 2008 Prentice Hall, Inc. 1 – 46
The Heritage of OMThe Heritage of OM Electronic digital cElectronic digital computer (Atanasoff 1938)omputer (Atanasoff 1938)
not programmable; solved linear equationsnot programmable; solved linear equations
CPM/PERT (DuPont 1957)CPM/PERT (DuPont 1957)
Material requirements planning (Orlicky 1960)Material requirements planning (Orlicky 1960)
Computer aided design (CAD 1970)Computer aided design (CAD 1970)
Flexible manufacturing system (FMS 1975)Flexible manufacturing system (FMS 1975)
JIT,TQC,TQM,KANBAN, Poka Yoke (1980’s)JIT,TQC,TQM,KANBAN, Poka Yoke (1980’s)
EFQM and EFQM and Baldrige Quality Awards (1980)Baldrige Quality Awards (1980)
Computer integrated manufacturing (1990)Computer integrated manufacturing (1990)
Globalization (1992)Globalization (1992)
Internet (1995)Internet (1995)
e-business, e-government (1996- )e-business, e-government (1996- )
© 2008 Prentice Hall, Inc. 1 – 47
Eli WhitneyEli Whitney
Born 1765; died 1825Born 1765; died 1825
In 1798, received government In 1798, received government contract to make 10,000 musketscontract to make 10,000 muskets
Showed that machine tools could Showed that machine tools could make standardized parts to exact make standardized parts to exact specificationsspecificationsMusketMusket (tüfek) (tüfek) parts could be used in parts could be used in
any musketany musket
© 2008 Prentice Hall, Inc. 1 – 48
Frederick W. TaylorFrederick W. Taylor
Born 1856; died 1915Born 1856; died 1915
Known as ‘father of scientific Known as ‘father of scientific management’management’
In 1881, as chief engineer for In 1881, as chief engineer for Midvale Steel, studied how tasks Midvale Steel, studied how tasks were donewere doneBegan first motion and time studiesBegan first motion and time studies
Created efficiency principlesCreated efficiency principles
© 2008 Prentice Hall, Inc. 1 – 49
Taylor’s PrinciplesTaylor’s Principles
Matching employees to right jobMatching employees to right job
Providing the proper trainingProviding the proper training
Providing proper work methods and Providing proper work methods and toolstools
Establishing legitimate incentives for Establishing legitimate incentives for work to be accomplishedwork to be accomplished
Management Should Take More Management Should Take More Responsibility for:Responsibility for:
© 2008 Prentice Hall, Inc. 1 – 50
Frank & Lillian GilbrethFrank & Lillian Gilbreth
Frank (1868-1924); Lillian (1878-Frank (1868-1924); Lillian (1878-1972)1972)
Husband-and-wife engineering teamHusband-and-wife engineering team
Further developed work Further developed work measurement methodsmeasurement methods
Applied efficiency methods to their Applied efficiency methods to their home and 12 children! home and 12 children!
Book & Movie: “Cheaper by the Book & Movie: “Cheaper by the Dozen,” book: “Bells on Their Toes”Dozen,” book: “Bells on Their Toes”
© 2008 Prentice Hall, Inc. 1 – 51
Born 1863; died 1947Born 1863; died 1947
In 1903, created Ford Motor In 1903, created Ford Motor CompanyCompany
In 1913, first used moving assembly In 1913, first used moving assembly line to make Model Tline to make Model TUnfinished product moved by Unfinished product moved by
conveyor past work stationconveyor past work station
Paid workers very well for 1911 Paid workers very well for 1911 ($5/day!)($5/day!)
Henry FordHenry Ford
“The customer can have any color as long as it is black” H. Ford
© 2008 Prentice Hall, Inc. 1 – 52
W. Edwards DemingW. Edwards Deming
Born 1900; died 1993Born 1900; died 1993
Engineer and physicistEngineer and physicist
Credited with teaching Japan Credited with teaching Japan quality control methods in post-quality control methods in post-WW2WW2
Used statistics to analyze processUsed statistics to analyze process
His methods involve workers in His methods involve workers in decisionsdecisions
© 2008 Prentice Hall, Inc. 1 – 54
Contributions FromContributions From
Human factorsHuman factors (ergonomics, fatigue (ergonomics, fatigue studies)studies)
Industrial engineeringIndustrial engineering
Management scienceManagement science (operations research)(operations research)
Biological scienceBiological science
Physical sciencesPhysical sciences
Information technology Information technology
© 2008 Prentice Hall, Inc. 1 – 55
What is Industrial What is Industrial Engineering ?Engineering ?
Industrial engineering is concerned with the Industrial engineering is concerned with the design, installation, design, installation, and and improvementimprovement of of integrated systems of people, material, integrated systems of people, material, information, equipment and energy. information, equipment and energy.
It draws upon specializedIt draws upon specialized knowledge and skills knowledge and skills in the mathematical, physical and social in the mathematical, physical and social sciences, together with the principles and sciences, together with the principles and methods of engineering analysis and design to methods of engineering analysis and design to specify, predict and evaluate thespecify, predict and evaluate the results to be results to be obtained from such systems. obtained from such systems.
IIE Web Site -- http://www.iienet.org
© 2008 Prentice Hall, Inc. 1 – 56
What is Operations What is Operations Research ?Research ?
OR/MS Professionals aim to provide OR/MS Professionals aim to provide rational bases for decision makingrational bases for decision making by by seeking to understand and structure seeking to understand and structure complex situations and to use this complex situations and to use this understanding to predict system behavior understanding to predict system behavior and improve system performance.and improve system performance.
Much of this work is done using Much of this work is done using analytical analytical and numerical techniquesand numerical techniques to develop and to develop and manipulate manipulate mathematicalmathematical and and computer computer modelsmodels of organizational systems of organizational systems composed of people, machines, and composed of people, machines, and procedures. procedures. ... ...
http://www.informs.org/
© 2008 Prentice Hall, Inc. 1 – 57
What is Operations What is Operations Research ?Research ?
OR/MS draws upon ideas from engineering, OR/MS draws upon ideas from engineering, management, mathematics, and psychology management, mathematics, and psychology to contribute to a wide variety of application to contribute to a wide variety of application domains; the field is closely related to domains; the field is closely related to several other fields in the "several other fields in the "decision decision sciencessciences" -- applied mathematics, computer " -- applied mathematics, computer science, economics, and industrial science, economics, and industrial engineering.engineering.
INFORMS Web Site -- INFORMS Web Site -- http://www.informs.org
© 2008 Prentice Hall, Inc. 1 – 58
New Challenges in OMNew Challenges in OM
Global focusGlobal focus
Just-in-timeJust-in-time Supply chain Supply chain
partneringpartnering ( (keiretsu?)keiretsu?)
Rapid product Rapid product development, development, alliancesalliances
Mass customizationMass customization
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
© 2008 Prentice Hall, Inc. 1 – 59
Current IssuesCurrent Issues
Speeding up the time it takes to get new products into Speeding up the time it takes to get new products into production. (Concurrent engineering -- eş zamanlı production. (Concurrent engineering -- eş zamanlı mühendislik)mühendislik)
Developing flexible production systems to enable Developing flexible production systems to enable “mass customization” of products and services.“mass customization” of products and services.(kişiye özel seri üretim; kitlesel bireyselleştirme; (kişiye özel seri üretim; kitlesel bireyselleştirme; özelleştirme)özelleştirme)
Managing global production networks.Managing global production networks.
Developing and integrating new production Developing and integrating new production technologies into existing production systemstechnologies into existing production systems
……..
© 2008 Prentice Hall, Inc. 1 – 60
Achieving high quality quickly and keeping it up Achieving high quality quickly and keeping it up in the face of restructuring.in the face of restructuring.
Managing a diverse workforce.Managing a diverse workforce.
Conforming to environmental constraints, ethical Conforming to environmental constraints, ethical standards, and government regulations.standards, and government regulations.
Current IssuesCurrent Issues
© 2008 Prentice Hall, Inc. 1 – 61
Mass Customization (kişiye özel seri üretim)Interesting Example
Panasonic Bicycles
Matsushita Corp.- NBIC
21 employeees plus CAD system
18 basic models in 199 color patterns; 8 million variations
Standard model - 90 min/unit; special model - 150 min/unitPrice: %20-30 more than standard model
Delivery time: ~ 3 weeks (Why? -- feeling of anticipation for something special!!)
© 2008 Prentice Hall, Inc. 1 – 62
Mass customizationMass customization
• Kitlesel ÖzelleştirmeKitlesel Özelleştirme
• Kitle ÖzelleştirmesiKitle Özelleştirmesi
• KişiselleştirmeKişiselleştirme
• Kitlesel BireyselleştirmeKitlesel Bireyselleştirme
• Seri UyarlamaSeri Uyarlama
• Yığın KişiselleştirmeYığın Kişiselleştirme
• Kitlesel Özel ÜretimKitlesel Özel Üretim
• Kişiye Özel ÜretimKişiye Özel Üretim
• **Kişiye Özel Kitlesel (seri) Üretim Kişiye Özel Kitlesel (seri) Üretim
© 2008 Prentice Hall, Inc. 1 – 63
Many computer companies at one time Many computer companies at one time used to let you configure your own laptopused to let you configure your own laptopHPHP
ToshibaToshiba
DellDell
Gateway (one of the pioneers in this area)Gateway (one of the pioneers in this area)
Mass Customization (Mass Customization (kişiye özel seri üretimkişiye özel seri üretim))
© 2008 Prentice Hall, Inc. 1 – 64
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
Often easy to Often easy to automateautomate
© 2008 Prentice Hall, Inc. 1 – 65
Characteristics of ServiceCharacteristics of Service Intangible productIntangible product
Produced and consumed at Produced and consumed at same timesame time
Often uniqueOften unique
High customer interactionHigh customer interaction
Inconsistent product Inconsistent product definitiondefinition
Often knowledge-Often knowledge-
basedbased((education, medical, education, medical, legal, etc.)legal, etc.)
Frequently dispersedFrequently dispersed(local (local office, house call, etc.)office, house call, etc.)
Not possible or easy to Not possible or easy to automateautomate
© 2008 Prentice Hall, Inc. 1 – 66
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
1 - 67© 2014 Pearson Education
Differences Between Goods and Services
TABLE 1.3
CHARACTERISTICS OF SERVICES CHARACTERISTICS OF GOODS
Intangible: Ride in an airline seat Tangible: The seat itself
Produced and consumed simultaneously: Beauty salon produces a haircut that is consumed as it is produced
Product can usually be kept in inventory (beauty care products)
Unique: Your investments and medical care are unique
Similar products produced (iPods)
High customer interaction: Often what the customer is paying for (consulting, education)
Limited customer involvement in production
Inconsistent product definition: Auto Insurance changes with age and type of car
Product standardized (iPhone)
Often knowledge based: Legal, education, and medical services are hard to automate
Standard tangible product tends to make automation feasible
Services dispersed: Service may occur at retail store, local office, house call, or via internet.
Product typically produced at a fixed facility
Quality may be hard to evaluate: Consulting, education, and medical services
Many aspects of quality for tangible products are easy to evaluate (strength of a bolt)
Reselling is unusual: Musical concert or medical care Product often has some residual value
© 2008 Prentice Hall, Inc. 1 – 68
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%|| || || || || || || || ||
Figure 1.4Figure 1.4
© 2008 Prentice Hall, Inc. 1 – 69
120120 –
100 100 –
80 80 –
60 60 –
40 40 –
20 20 –
0 0 –| | | | | | |
19501950 19701970 19901990 2010 (est)2010 (est)19601960 19801980 20002000
Em
plo
ymen
t (m
illi
on
s)E
mp
loym
ent
(mil
lio
ns)
Manufacturing and Service Manufacturing and Service EmploymentEmployment
Figure 1.5 (A)Figure 1.5 (A)
ManufacturingManufacturing
ServiceService
© 2008 Prentice Hall, Inc. 1 – 70
Manufacturing Employment Manufacturing Employment and Productionand Production
Figure 1.5 (B)Figure 1.5 (B)
40 40 –
30 30 –
20 20 –
10 10 –
0 0 – | | | | | | |19501950 19701970 19901990 2010 (est)2010 (est)
19601960 19801980 20002000
– 150150
– 125125
– 100100
– 7575
– 5050
– 2525
– 00
Em
plo
ymen
t (m
illi
on
s)E
mp
loym
ent
(mil
lio
ns)
In
dex
: 19
97 =
100
Ind
ex:
1997
= 1
00
Manufacturingemployment
(left scale)
Industrial Industrial productionproduction
(right scale)(right scale)
© 2008 Prentice Hall, Inc. 1 – 71
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 2008 (est)
| | | | |
40 50 60 70 80Percent of GDP
© 2008 Prentice Hall, Inc. 1 – 72
Organizations in Each SectorOrganizations in Each Sector
Service SectorService Sector ExampleExample
% of all % of all JobsJobs(USA)(USA)
Education, Education, Legal, Medical, Legal, Medical, and otherand other
ODTÜ, Bayındır ODTÜ, Bayındır Hastaneleri,Hastaneleri, Arnold Arnold Palmer HospitalPalmer Hospital
25.525.5
Trade (retail, Trade (retail, wholesale)wholesale)
Migros,Migros,Walgreen’s, Wal-Walgreen’s, Wal-Mart, Nordstrom’sMart, Nordstrom’s, , TeknosaTeknosa
15.115.1
Utilities, Utilities, TransportationTransportation
Enerjisa, Başkent Gaz, Enerjisa, Başkent Gaz, THY, DDY, THY, DDY, Pacific Gas & Pacific Gas & Electric, American Electric, American Airlines, Santa Fe R.R., Airlines, Santa Fe R.R., Roadway ExpressRoadway Express
5.25.2
Table 1.4Table 1.4
© 2008 Prentice Hall, Inc. 1 – 73
Organizations in Each SectorOrganizations in Each Sector
Service SectorService Sector ExampleExample% of all % of all
JobsJobs
Professional Professional and Business and Business ServicesServices
Snelling and Snelling, Waste Snelling and Snelling, Waste Management, Pitney-BowesManagement, Pitney-Bowes
10.110.1
Finance, Finance, Information, Information, Real EstateReal Estate
Citicorp, American Express, Citicorp, American Express, Prudential, Aetna, Trammel Prudential, Aetna, Trammel Crow, EDS, IBMCrow, EDS, IBM
9.69.6
Food, Lodging, Food, Lodging, EntertainmentEntertainment
Olive Garden, Hard Rock Cafe, Olive Garden, Hard Rock Cafe, Motel 6, Hilton Hotels, Walt Motel 6, Hilton Hotels, Walt Disney, Paramount PicturesDisney, Paramount Pictures
8.58.5
Public Public AdministrationAdministration
U.S., State of Alabama, Cook U.S., State of Alabama, Cook CountyCounty
4.64.6
Table 1.4Table 1.4
© 2008 Prentice Hall, Inc. 1 – 74
Organizations in Each SectorOrganizations in Each SectorManufacturing Manufacturing SectorSector ExampleExample
% of all % of all JobsJobs
ManufacturingManufacturing TOFAŞ, ÇİMSA,TOFAŞ, ÇİMSA,General General Electric, Ford, U.S. Steel, Electric, Ford, U.S. Steel, IntelIntel
11.511.5
ConstructionConstruction MESA, TEKFEN, MESA, TEKFEN, Bechtel, Bechtel, McDermottMcDermott
7.97.9
AgricultureAgriculture King RanchKing Ranch 1.61.6
MiningMining Homestake MiningHomestake Mining 0.40.4
SectorSector Percent of all jobsPercent of all jobs
ServiceService 78.6%78.6%
ManufacturingManufacturing 21.4%21.4%Table 1.4Table 1.4
© 2008 Prentice Hall, Inc. 1 – 75
New Trends in OMNew Trends in OM
Local or Local or national national focusfocus
Reliable worldwide Reliable worldwide communication and communication and transportation networkstransportation networks
Global focus, Global focus, moving moving production production offshoreoffshore
Batch (large) Batch (large) shipmentsshipments
Short product life cycles Short product life cycles and cost of capital put and cost of capital put pressure on reducing pressure on reducing inventoryinventory
Just-in-time Just-in-time performanceperformance
Low-bid Low-bid purchasingpurchasing
Supply chain competition Supply chain competition requires that suppliers be requires that suppliers be engaged in a focus on the engaged in a focus on the end customerend customer
Supply chain Supply chain partners, partners, collaboration, collaboration, alliances, alliances, outsourcingoutsourcing
Figure 1.6Figure 1.6
PastPast CausesCauses FutureFuture
© 2008 Prentice Hall, Inc. 1 – 76
New Trends in OMNew Trends in OM
Lengthy Lengthy product product developmentdevelopment
Shorter life cycles, Shorter life cycles, Internet, rapid international Internet, rapid international communication, computer-communication, computer-aided design, and aided design, and international collaborationinternational collaboration
Rapid product Rapid product development, development, alliances, alliances, collaborative collaborative designsdesigns
Standardized Standardized productsproducts
Affluence and worldwide Affluence and worldwide markets; increasingly markets; increasingly flexible production flexible production processesprocesses
Mass Mass customization customization with added with added emphasis on emphasis on qualityquality
Job Job specializationspecialization
Changing socioculture Changing socioculture milieu; increasingly a milieu; increasingly a knowledge and information knowledge and information societysociety
Empowered Empowered employees, employees, teams, and lean teams, and lean productionproduction
Figure 1.6Figure 1.6
PastPast CausesCauses FutureFuture
© 2008 Prentice Hall, Inc. 1 – 77
New Trends in OMNew Trends in OM
Low-cost Low-cost focusfocus
Environmental issues, ISO Environmental issues, ISO 14000, increasing disposal 14000, increasing disposal costscosts
Environmentally Environmentally sensitive sensitive production, green production, green manufacturing, manufacturing, recycled recycled materials, materials, remanufacturingremanufacturing
Ethics not Ethics not at forefrontat forefront
Businesses operate more Businesses operate more openly; public and global openly; public and global review of ethics; opposition review of ethics; opposition to child labor, bribery, to child labor, bribery, pollutionpollution
High ethical High ethical standards and standards and social social responsibility responsibility expectedexpected
Figure 1.6Figure 1.6
PastPast CausesCauses FutureFuture
© 2008 Prentice Hall, Inc. 1 – 78
Summary- Summary- New Trends in OMNew Trends in OM
Global focusGlobal focus Just-in-time performanceJust-in-time performance Supply chain partneringSupply chain partnering Rapid product developmentRapid product development Mass customizationMass customization Empowered employeesEmpowered employees Environmentally sensitive productionEnvironmentally sensitive production EthicsEthics
© 2008 Prentice Hall, Inc. 1 – 79
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 productivity!The objective is to improve productivity!
Important Note!Production is a measure of output
only and not a measure of efficiency
© 2008 Prentice Hall, Inc. 1 – 80
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
Figure 1.7Figure 1.7
© 2008 Prentice Hall, Inc. 1 – 81
Improving Productivity at Improving Productivity at StarbucksStarbucks
A team of 10 analysts A team of 10 analysts continually look for ways continually look for ways to shave time. Some to shave time. Some improvements:improvements:
Stop requiring signatures Stop requiring signatures on credit card purchases on credit card purchases under $25under $25
Saved 8 seconds Saved 8 seconds per transactionper transaction
Change the size of the ice Change the size of the ice scoopscoop
Saved 14 seconds Saved 14 seconds per drinkper drink
New espresso machinesNew espresso machines Saved 12 seconds Saved 12 seconds per shotper shot
© 2008 Prentice Hall, Inc. 1 – 82
Improving Productivity at Improving Productivity at StarbucksStarbucks
A team of 10 analysts A team of 10 analysts continually look for ways continually look for ways to shave time. Some to shave time. Some improvements:improvements:
Stop requiring signatures Stop requiring signatures on credit card purchases on credit card purchases under $25under $25
Saved 8 seconds Saved 8 seconds per transactionper transaction
Change the size of the ice Change the size of the ice scoopscoop
Saved 14 seconds Saved 14 seconds per drinkper drink
New espresso machinesNew espresso machines Saved 12 seconds Saved 12 seconds per shotper shot
Operations improvements have Operations improvements have helped Starbucks increase yearly helped Starbucks increase yearly revenue per outlet by $200,000 to revenue per outlet by $200,000 to $940,000 in six years.$940,000 in six years.
Productivity has improved by 27%, Productivity has improved by 27%, or about 4.5% per year.or about 4.5% per year.
© 2008 Prentice Hall, Inc. 1 – 83
Efficiency vs. effectivenessEfficiency vs. effectiveness
Efficiency – doing a job with a minimum Efficiency – doing a job with a minimum of resources and waste i.e. doing the job of resources and waste i.e. doing the job well.well.Efficiency= actual output/standard output Efficiency= actual output/standard output
(70pcs/hr) / (60 pcs/hr) = 1.17
Effectiveness – achieving your stated Effectiveness – achieving your stated goal or purpose i.e. doing the right job.goal or purpose i.e. doing the right job.
© 2008 Prentice Hall, Inc. 1 – 84
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
© 2008 Prentice Hall, Inc. 1 – 85
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
One resource input One resource input single-factor productivity single-factor productivity
© 2008 Prentice Hall, Inc. 1 – 86
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
Multiple resource inputs Multiple resource inputs multi-factor productivity multi-factor productivity
© 2008 Prentice Hall, Inc. 1 – 87
Illustration-Illustration-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 Overhead = Overhead = $400$400/day/day
Old SystemOld System (Non-computerized) (Non-computerized)::
==Old labor Old labor
productivityproductivity88 titles/day titles/day
3232 labor-hrs labor-hrs
Note: Collins Title is a reinsurance company (tapu sigortası). It has set up a new computerized title search system.
© 2008 Prentice Hall, Inc. 1 – 88
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
88 titles/day titles/day
3232 labor-hrs labor-hrs==
Old labor Old labor productivityproductivity = = .25.25 titles/labor-hr titles/labor-hr
© 2008 Prentice Hall, Inc. 1 – 89
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 Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
3232 labor-hrs labor-hrs==
Old labor Old labor productivityproductivity
==New labor New labor
productivityproductivity
= .25 titles/labor-hr= .25 titles/labor-hr
1414 titles/day titles/day
3232 labor-hrs labor-hrs
© 2008 Prentice Hall, Inc. 1 – 90
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
3232 labor-hrs labor-hrs==
Old labor Old labor productivityproductivity = = .25.25 titles/labor-hr titles/labor-hr
14 14 titles/daytitles/day
3232 labor-hrs labor-hrs==
New labor New labor productivityproductivity = = .4375.4375 titles/labor-hr titles/labor-hr
75 % increase
© 2008 Prentice Hall, Inc. 1 – 91
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
==Old multifactor Old multifactor
productivityproductivity88 titles/day titles/day
$640 + 400$640 + 400
© 2008 Prentice Hall, Inc. 1 – 92
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
$640 + 400$640 + 400==
Old multifactor Old multifactor productivityproductivity = = .0077.0077 titles/dollar titles/dollar
© 2008 Prentice Hall, Inc. 1 – 93
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
$640 + 400$640 + 400==
Old multifactor Old multifactor productivityproductivity
==New multifactor New multifactor
productivityproductivity
= = .0077.0077 titles/dollar titles/dollar
1414 titles/day titles/day
$640 + 800$640 + 800
© 2008 Prentice Hall, Inc. 1 – 94
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
$640 + 400$640 + 400
1414 titles/day titles/day
$640 + 800$640 + 800
==Old multifactor Old multifactor
productivityproductivity
==New multifactor New multifactor
productivityproductivity
= = .0077.0077 titles/dollar titles/dollar
= = .0097.0097 titles/dollar titles/dollar
26 % increase
© 2008 Prentice Hall, Inc. 1 – 95
Measurement ProblemsMeasurement Problems
QualityQuality may change while the may change while the quantity of inputs and outputs quantity of inputs and outputs remains constantremains constant
External elementsExternal elements may cause an may cause an increase or decrease in increase or decrease in productivityproductivity(power or gas (power or gas shortages, strikes & lockouts, etc)shortages, strikes & lockouts, etc)
Precise unitsPrecise units of measure may be of measure may be lackinglacking (not all cars may require the (not all cars may require the same inputs– Opel Corsa vs. same inputs– Opel Corsa vs. Porsche)Porsche)
© 2008 Prentice Hall, Inc. 1 – 96
Productivity VariablesProductivity Variables
For the U.S. economy’s For the U.S. economy’s 2.5 % annual increase2.5 % annual increase
LaborLabor - contributes - contributes about about 10%10% of the of the annual increaseannual increase
CapitalCapital - contributes - contributes about about 38%38% of the of the annual increaseannual increase
ManagementManagement - - contributes about contributes about 52%52% of the annual increaseof the annual increase
© 2008 Prentice Hall, Inc. 1 – 97
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 (transportation, sanitation, (transportation, sanitation, health services, etc.)health services, etc.)
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
© 2008 Prentice Hall, Inc. 1 – 98
Labor SkillsLabor Skills
About half of the 17-year-olds in the US cannot About half of the 17-year-olds in the US cannot correctly answer questions of this typecorrectly answer questions of this type
Figure 1.8Figure 1.8
© 2008 Prentice Hall, Inc. 1 – 99
Investment and Productivity Investment and Productivity
1010
88
66
44
22
00
Per
cen
t in
crea
se in
pro
du
ctiv
ity
Per
cen
t in
crea
se in
pro
du
ctiv
ity
Percentage investmentPercentage investment
1010 1515 2020 2525 3030 3535
© 2008 Prentice Hall, Inc. 1 – 100
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
© 2008 Prentice Hall, Inc. 1 – 102
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
How about DO&CO İkram Hizmetleri A.Ş. (Airline Catering Company)? http://www.doco.com
© 2008 Prentice Hall, Inc. 1 – 103
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 of tacos 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
© 2008 Prentice Hall, Inc. 1 – 104
Ethics and Social ResponsibilityEthics and Social Responsibility
Challenges facing Challenges facing operations managers:operations managers:
Developing and producing safe, Developing and producing safe, quality productsquality products
Maintaining a clean environmentMaintaining a clean environment
Providing a safe workplaceProviding a safe workplace
Honoring community commitmentsHonoring community commitments
© 2008 Prentice Hall, Inc. 1 – 105
Copenhagen County HospitalCopenhagen County Hospital
• Textbook – p. 54Textbook – p. 54
• Cost cutting exampleCost cutting example
• Another example: think of Hacettepe Another example: think of Hacettepe Hospital (or any large-scale hospital Hospital (or any large-scale hospital in Turkey) – lots of opportunities for in Turkey) – lots of opportunities for cutting costs and increasing cutting costs and increasing efficiency and productivityefficiency and productivity
© 2008 Prentice Hall, Inc. 1 – 106
Some Bestseller Books on Operations Management
Porter, Michael E., The Competitive Advantage of Nations. The Free Press, 1990.
Womack, James P., Jones, Daniel T., and Daniel Roos. The Machine That Changed The World: The Story of Lean Production. Harper Collins, 1990.
Womack, James P., Jones, Daniel T. Lean Thinking. Simon and Schuster, 1996
Treacy, Michael and Fred Wiersema. The Discipline of Market Leaders. Addison Wesley, 1997.
Halberstam, David. The Reckoning. Avon Books, 1986
Hammer, Michael and James Champy. Reengineering the Corporation: A Manifesto for Business Revolution. Harper Collins, 1994.
Hammer, Michael and Steven A. Stanton. The Reengineering Revolution Handbook. Harper Collins, 1995
Liker, Jeffrey K. The Toyota Way. McGraw-Hill, 2004.
© 2008 Prentice Hall, Inc. 1 – 107
Some Bestseller Books on Operations Management
Pande, Peter S., Neuman, Robert P., Cavanagh, Roland R. The Six Sigma Way. McGraw-Hill 2000.
© 2008 Prentice Hall, Inc. 1 – 108
Some Landmark Articles on Operations Management
Porter, Michael E. “The Competitive Advantage of Nations.” Harvard Business Review (HBR), March-April 1990.
Skinner, Wickham. “Manufacturing - Missing Link in Corporate Strategy.” HBR, May-June 1969.
Skinner, Wickham. “The Focused Factory.” HBR, May-June 1974.
Wheelwright, Steven C. and Robert H. Hayes. “Competing Through Manufacturing.” HBR, January-February 1985.
Hayes, Robert H. “Why Japanese Factories Work.” HBR, July-August 1981.
Skinner, Wickham. “The Productivity Paradox.” HBR, July-August 1986.
Hayes, Robert H. and Kim Clark. “Why Some Factories Are More Productive Than Others.” HBR, September-October 1986.