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Operations &

Productivity

Chapter 1

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What is Operations Management?

Operations Management (OM) is the set of activities that create value in the forms of goods/services by transforming inputs into outputs.

Production is the creation of goods and services

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Organizing to Produce Goods and Services

Essential functions: Marketing – generates demand Production/operations – creates the

product Finance/accounting – tracks how well the

organization is doing, pays bills, collects the money

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Organizational Charts

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Organizational Charts

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Organizational Charts

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Why study OM?We want to study how people organize themselves for productive enterprise

We want to know how goods and services are produced

We want to learn what operations managers (executives) do

OM is a costly part of an organization

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What Operations Managers Do

Planning Organizing Staffing Leading Controlling

The Heritage of OM

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Characteristics of Goods Tangible product Consistent product

definition Production usually

separate from consumption

Can be inventoried Low customer

interaction

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Characteristics of Service

Intangible product Produced and consumed at

same time Often unique High customer interaction Inconsistent product

definition Often knowledge-based Frequently dispersed

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Goods and ServicesAutomobile

ComputerInstalled carpeting

Fast-food mealRestaurant 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%| | | | | | | | |

New Trends in OM

Global focus Just-in-time performance Supply chain partnering Rapid product development Mass customization Empowered employees Environmentally sensitive production Ethics

Productivity Challenge

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

labor and capital)

The objective is to improve productivity!

Important Note!Production is a measure of output only and not a

measure of efficiency

Feedback loop

Outputs

Goods and

services

Processes

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 SystemInputs

Labor,capital,

management

Measure of process improvement Represents output relative to input Only through productivity increases can

our standard of living improve

Productivity

Productivity =Units produced

Input used

Productivity Calculations If units produced= 1000 and labor used is 250 hrs then

Productivity =Units produced

Labor-hours used

= = 4 units/labor-hour1,000250

Labor Productivity

One resource input single-factor productivity

Multi-Factor Productivity Output

Labor + Material + Energy + Capital + MiscellaneousProductivity =

Also known as total factor productivity Output and inputs are often expressed in

dollars

Multiple resource inputs multi-factor productivity

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Example 1 Riverside Metal Works produces cast bronze valves on a 10-person assembly line. On a recent day, 160 valves were produced during an 8-hour shift.

a) Calculate the labor productivity of the line.

b) The manager at Riverside changed the layout and was able to increase production to 180 units per 8-hour shift. What is the new labor productivity?

c) What is the percentage of productivity increase?

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Example 2Collins Title wants to evaluate its labor and multifactor productivity with a new computerized search system. The company has a staff of four, each working 8 hours per day (for a payroll cost of $160/day for each staff) and overhead expenses of $400 per day. Collins processes and closes on 8 titles each day. The new computerized title-search system will allow the processing of 14 titles per day. Although the staff, their work hours, and pay are the same, the overhead expenses are now $800 per day.

a) Calculate labor productivity of both old and new system.

b) Calculate multifactor productivity of both old and new system.

c) Is it wise for the company to switch to new system?

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Example 3 In December, General Motors produced 6,600 customized vans at its plant in Detroit. The labor productivity at this plant is known to have been 0.10 vans per labor hour during that month. 300 laborers were employed at the pant that month.

a) How many hours did the average laborer worked that month?

b) If productivity can be increased to 0.11 vans per hour, how many hours would the average laborer work that month?

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Questions/Discussions