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L1: Manufacturing and Service Systems Management

ISE 360 Engineering EconomicsMahmut Ali GÖKÇEIndustrial Systems EngineeringComputer Sciences

www.izmirekonomi.edu.tr

Today

Course Description Requirements, Topics Rules of the Course Lecture on Service and

Manufacturing Systems


Course Description

Management of Manufacturing and Service Systems. Management in “Engineering” sense. Learn what types of manufacturing and service

systems exist. Learn the importance of and difficulties in

managing these systems Learn methods and tools to manage Exercise these methods.


Course Requirements and Rules Course will require

Analytical thinking Mathematical modeling Basic Calculus and Probability Theory Reading

Course Rules Regular Attendance, Participation Midterm 30%, Final 40%, HW/Quiz 20%, Part./Attendance

10% Syllabus available at http://homes.ieu.edu.tr/~agokce/


Your Background and e-Service Interests

What is your interest in this topic? Why? Which topics specifically interest you? Information Technology background Service management and/or manufacturing

systems experience? Have you previously taken a service operations or

service marketing class? E-Service experiences?


Definitions


Operations

Finance

Marketing

Functional Areas of the Firm


Production is the creation of goods and services

The set of activities that creates value in the form of goods and services by transforming inputs into outputs is called Operations management (OM)


Managing mfg./service systems = managing operations involved.

All organizations have operations function. What are operations you see or get involved as customers?

You might wake up with radio, wash your face, take public transportation, depend on banking to get money from parents…etc. etc.

Operations differ in volume, variety, variation in demand and visibility


Organizational 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)



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


MarketingSales promotionAdvertisingSalesMarket research


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)


Options for Increasing Contribution

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%


Critical Decisions Decision AreasDecision Areas

Service and product designService and product design Process and capacity designProcess and capacity design LocationLocation Layout designLayout design Human resources, job designHuman resources, job design Supply-chain managementSupply-chain management Inventory managementInventory management SchedulingScheduling MaintenanceMaintenance


Significant Events in OM

Figure 1.3Figure 1.3


Challenges in Mfg/Service Sys. Mgt

Global focus Just-in-time Supply chain

partnering Rapid product

development, alliances

Mass customization Empowered

employees, teams

ToToFromFrom Local or national Local or national

focusfocus

Batch shipmentsBatch shipments

Low bid purchasingLow bid purchasing

Lengthy product Lengthy product developmentdevelopment

Standard productsStandard products

Job specializationJob specialization


Characteristics of Goods

Tangible product Consistent product

definition Production usually

separate from consumption

Can be inventoried Low customer

interaction


Characteristics of Service Intangible product Produced and consumed at

same time Often unique High customer interaction Inconsistent product

definition Often knowledge-based Frequently dispersed


Service

The Service Economy Early 1900s … 30% of U.S. economy produced

services Today (in the USA) … > 80% of economy

produces services Rate in Turkey is lower but increasing. But is a dominantly service economy desirable? Can there be service w/o manufacturing?


Service

Categories of Service Business services: consulting, finance, banking,

insurance, real estate (FIRE) Trade services: retailing, maintenance, repair Social/personal services: restaurants, health care Public administration: education, government Infrastructure services: communications, transportation

How to categorize e-Service?


Definitions: Service What is “service”?

Difficult to define … often, one observes circular definitions of what service is

General characteristics of services Services are deeds, processes, and performances Service is an experience Service is an activity that takes place between a customer and

a service employee/system Service is co-produced by the consumer Service is intangible, goods are tangible Services are consumed at the same time as they are produced Goods exist over time, services perish if not consumed


Definitions: Service Service Components

Service package/Service product That which is “offered” or of value in the

experience A bundle of goods and services that is provided

in some environment Consists of goods, services, and information

Service process The way the service experience is created

Service supply chain Supports/facilitates the process


DefinitionsService Service package consists of four features

Supporting facility physical resources; where the service is delivered

Facilitating goods some “thing” consumed or used during the service

experience that contributed to the experience Explicit services

readily observable benefits of the service Implicit services

psychological benefits of the service, less easy to sense


DefinitionsWhat is e-Service? Given the previous definitions of a service

would an e-Service be characterized as a service?

would we have to modify those definitions?


DefinitionsWhat is e-Service? An e-Service is …

[1] a service package of goods, offline services, and digital content

[2] involves some agent (Consumer, Business, Government) who consumes the service

[3] the consumer of service (“agent”) interacts with an IT technology delivery system to co-produce service

[4] digital content is a core attribute of service-product


Definitions Definitions Examples of e-ServiceExamples of e-Service

Digital watch

Vacuum with embedded intelligence an intelligent good

Vending machine

Barcode scanner data put into internal database about supply chain information for optimizing supply chain

Traditional B2C, B2B, etc.

Digital watch with GPS, atomic clock polling

Vacuum with embedded intelligence that dynamically adapts via communication with centralized server

Vending machine with i-Phone support for payment process

Supply chain “object” (barcode scanner) that communicates status to customer of supply chain via “service-product”

E-Commerce B2C, B2B, etc.

Not an e-Service e-Service


e-Service Types of e-Service


Types of e-Service

x2y’s B2C B2B C2B, C2G, C2C, B2G, G2C, G2B, G2G, B2E, P2P

xSP’s ASP: application service provider BSP: business service provider CSP:commerce service provider CSP: content service provider MSP: management service provider SSP: security service provider


Productivity 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


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

our standard of living improve

Productivity

Productivity =Productivity =Units producedUnits produced

Input usedInput used


Productivity 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

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 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:

==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 Overhead = Overhead = $400$400/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 Overhead = Overhead = $400$400/day/day


1414 titles/day titles/day Overhead = Overhead = $800$800/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









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







==Old multifactor Old multifactor

productivityproductivity88 titles/day titles/day

$640 + 400$640 + 400








$640 + 400$640 + 400==

Old multifactor Old multifactor productivityproductivity = = .0077.0077 titles/dollar titles/dollar








$640 + 400$640 + 400==

Old multifactor Old multifactor productivityproductivity

==New multifactor New multifactor


= = .0077.0077 titles/dollar titles/dollar


$640 + 800$640 + 800








$640 + 400$640 + 400


$640 + 800$640 + 800

==Old multifactor Old multifactor


==New multifactor New multifactor





Measurement 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 productivityincrease or decrease in productivity

Precise unitsPrecise units of measure may be of measure may be lackinglacking


Productivity Variables

LaborLabor - contributes about - contributes about 10%10% of of the annual increasethe annual increase

CapitalCapital - contributes about - contributes about 32%32% of the annual increaseof the annual increase

ManagementManagement - contributes about - contributes about 52%52% of the annual increase of the annual increase


Next Lecture on Forecasting

Reading : Ch 2 from Nahmias

www.izmirekonomi.edu.tr 1 l1: manufacturing and service systems management ise 360 engineering...

Documents

engineering sense

service operations

service systems managementise

service wo manufacturing

service economy desirable

eservice experiences

eservice interestswhat

service marketing class