More Related Content
Similar to UNIT-1.ppt (20)
More from KRISHNARAJ207 (20)
UNIT-1.ppt
- 1. © 2006 Prentice Hall, Inc. 1 – 1
Operations
Management
UNIT 1
OPERATIONS MANAGEMENT
© 2006 Prentice Hall, Inc.
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 6e
Operations Management, 8e
- 2. © 2006 Prentice Hall, Inc. 1 – 2
Outline
Global Company Profile: Hard Rock
Cafe
What Is Operations Management?
Organizing To Produce Goods And
Services
Why Study OM?
What Operations Managers Do
How This Book Is Organized
- 3. © 2006 Prentice Hall, Inc. 1 – 3
Outline - Continued
The Heritage Of Operations
Management
Operations In The Service Sector
Differences Between Goods And
Services
Growth Of Services
Service Pay
Exciting New Trends In Operations
Management
- 4. © 2006 Prentice Hall, Inc. 1 – 4
Outline - Continued
The Productivity Challenge
Productivity Measurement
Productivity Variables
Productivity And The Service Sector
Ethics And Social Responsibility
- 5. © 2006 Prentice Hall, Inc. 1 – 5
Learning Objectives
When you complete this chapter,
you should be able to:
Identify or Define:
Production and productivity
Operations management (OM)
What operations managers do
Services
- 6. © 2006 Prentice Hall, Inc. 1 – 6
Learning Objectives
When you complete this chapter,
you should be able to:
Describe or Explain :
A brief history of operations
management
Career opportunities in operations
management
The future of the discipline
Measuring productivity
- 7. © 2006 Prentice Hall, Inc. 1 – 7
The Hard Rock Cafe
First opened in 1971
Now – 110 restaurants in over 40 countries
Rock music memorabilia
Creates value in the form of good food
and entertainment
3,500+ custom meals per day in Orlando
How does an item get on the menu?
Role of the Operations Manager
- 8. © 2006 Prentice Hall, Inc. 1 – 8
What Is Operations
Management?
Production is the creation of
goods and services
Operations management (OM) is
the set of activities that creates
value in the form of goods and
services by transforming inputs
into outputs
- 9. © 2006 Prentice Hall, Inc. 1 – 9
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
- 10. © 2006 Prentice Hall, Inc. 1 – 10
Organizational Charts
Operations
Teller
Scheduling
Check Clearing
Collection
Transaction
processing
Facilities
design/layout
Vault operations
Maintenance
Security
Finance
Investments
Security
Real estate
Accounting
Auditing
Marketing
Loans
Commercial
Industrial
Financial
Personal
Mortgage
Trust Department
Commercial Bank
Figure 1.1(A)
- 11. © 2006 Prentice Hall, Inc. 1 – 11
Organizational Charts
Operations
Ground support
equipment
Maintenance
Ground Operations
Facility
maintenance
Catering
Flight Operations
Crew scheduling
Flying
Communications
Dispatching
Management science
Finance/
accounting
Accounting
Payables
Receivables
General Ledger
Finance
Cash control
International
exchange
Airline
Figure 1.1(B)
Marketing
Traffic
administration
Reservations
Schedules
Tariffs (pricing)
Sales
Advertising
- 12. © 2006 Prentice Hall, Inc. 1 – 12
Marketing
Sales
promotion
Advertising
Sales
Market
research
Organizational Charts
Operations
Facilities
Construction; maintenance
Production and inventory control
Scheduling; materials control
Quality assurance and control
Supply-chain management
Manufacturing
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/
accounting
Disbursements/
credits
Receivables
Payables
General ledger
Funds Management
Money market
International
exchange
Capital requirements
Stock issue
Bond issue
and recall
Manufacturing
Figure 1.1(C)
- 13. © 2006 Prentice Hall, Inc. 1 – 13
Why Study OM?
OM is one of three major functions
(marketing, finance, and operations)
of any organization
We want (and need) to know how
goods and services are produced
We want to understand what
operations managers do
OM is such a costly part of an
organization
- 14. © 2006 Prentice Hall, Inc. 1 – 14
Options for Increasing
Contribution
Sales $100,000 $150,000 $100,000 $100,000
Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000
Gross Margin 20,000 30,000 20,000 36,000
Finance Costs – 6,000 – 6,000 – 3,000 – 6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500
Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500
Finance/
Marketing Accounting OM
Option Option Option
Increase Reduce Reduce
Sales Finance Production
Current Revenue 50% Costs 50% Costs 20%
- 15. © 2006 Prentice Hall, Inc. 1 – 15
What Operations
Managers Do
Planning
Organizing
Staffing
Leading
Controlling
Basic Management Functions
- 16. © 2006 Prentice Hall, Inc. 1 – 16
Ten Critical Decisions
Ten Decision Areas Chapter(s)
Service and product design 5
Quality management 6
6 Supplement
Process and capacity 7
design 7 Supplement
Location 8
Layout design 9
Human resources, 10
job design 10 Supplement
Supply-chain 11
management 11 Supplement
Inventory management 12, 14, 16
Scheduling 13, 15
Maintenance 17 Table 1.2
- 17. © 2006 Prentice Hall, Inc. 1 – 17
The Critical Decisions
Service and product design
What good or service should we
offer?
How should we design these products
and services?
Quality management
How do we define quality?
Who is responsible for quality?
Table 1.2 (cont.)
- 18. © 2006 Prentice Hall, Inc. 1 – 18
The Critical Decisions
Process and capacity design
What process and what capacity will
these products require?
What equipment and technology is
necessary for these processes?
Location
Where should we put the facility?
On what criteria should we base the
location decision?
Table 1.2 (cont.)
- 19. © 2006 Prentice Hall, Inc. 1 – 19
The Critical Decisions
Layout design
How should we arrange the facility
and material flow?
How large must the facility be to meet
our plan?
Human resources and job design
How do we provide a reasonable work
environment?
How much can we expect our
employees to produce?
Table 1.2 (cont.)
- 20. © 2006 Prentice Hall, Inc. 1 – 20
The Critical Decisions
Supply-chain management
Should we make or buy this component?
Who are our suppliers and who can
integrate into our e-commerce program?
Inventory, material requirements
planning, and JIT
How much inventory of each item should
we have?
When do we re-order?
Table 1.2 (cont.)
- 21. © 2006 Prentice Hall, Inc. 1 – 21
The Critical Decisions
Intermediate and short–term
scheduling
Are we better off keeping people on
the payroll during slowdowns?
Which jobs do we perform next?
Maintenance
Who is responsible for maintenance?
When do we do maintenance?
Table 1.2 (cont.)
- 23. © 2006 Prentice Hall, Inc. 1 – 23
Where are the OM Jobs?
Technology/methods
Facilities/space utilization
Strategic issues
Response time
People/team development
Customer service
Quality
Cost reduction
Inventory reduction
Productivity improvement
- 25. © 2006 Prentice Hall, Inc. 1 – 25
The Heritage of OM
Division of labor (Adam Smith 1776;
Charles Babbage 1852)
Standardized parts (Whitney 1800)
Scientific Management (Taylor 1881)
Coordinated assembly line (Ford/
Sorenson/Avery 1913)
Gantt charts (Gantt 1916)
Motion study (Frank and Lillian Gilbreth
1922)
Quality control (Shewhart 1924; Deming
1950)
- 26. © 2006 Prentice Hall, Inc. 1 – 26
The Heritage of OM
Computer (Atanasoff 1938)
CPM/PERT (DuPont 1957)
Material requirements planning (Orlicky 1960)
Computer aided design (CAD 1970)
Flexible manufacturing system (FMS 1975)
Baldrige Quality Awards (1980)
Computer integrated manufacturing (1990)
Globalization (1992)
Internet (1995)
- 27. © 2006 Prentice Hall, Inc. 1 – 27
Eli Whitney
Born 1765; died 1825
In 1798, received government
contract to make 10,000 muskets
Showed that machine tools could
make standardized parts to exact
specifications
Musket parts could be used in any
musket
- 28. © 2006 Prentice Hall, Inc. 1 – 28
Frederick W. Taylor
Born 1856; died 1915
Known as ‘father of scientific
management’
In 1881, as chief engineer for
Midvale Steel, studied how tasks
were done
Began first motion and time studies
Created efficiency principles
- 29. © 2006 Prentice Hall, Inc. 1 – 29
Taylor’s Principles
Matching employees to right job
Providing the proper training
Providing proper work methods and
tools
Establishing legitimate incentives for
work to be accomplished
Management Should Take More
Responsibility for:
- 30. © 2006 Prentice Hall, Inc. 1 – 30
Frank & Lillian Gilbreth
Frank (1868-1924); Lillian (1878-
1972)
Husband-and-wife engineering team
Further developed work
measurement methods
Applied efficiency methods to their
home and 12 children!
Book & Movie: “Cheaper by the
Dozen,” book: “Bells on Their Toes”
- 31. © 2006 Prentice Hall, Inc. 1 – 31
Born 1863; died 1947
In 1903, created Ford Motor
Company
In 1913, first used moving assembly
line to make Model T
Unfinished product moved by
conveyor past work station
Paid workers very well for 1911
($5/day!)
Henry Ford
- 32. © 2006 Prentice Hall, Inc. 1 – 32
W. Edwards Deming
Born 1900; died 1993
Engineer and physicist
Credited with teaching Japan
quality control methods in post-
WW2
Used statistics to analyze process
His methods involve workers in
decisions
- 33. © 2006 Prentice Hall, Inc. 1 – 33
Contributions From
Human factors
Industrial engineering
Management science
Biological science
Physical sciences
Information science
- 34. © 2006 Prentice Hall, Inc. 1 – 34
New Challenges in OM
Global focus
Just-in-time
Supply chain
partnering
Rapid product
development,
alliances
Mass
customization
Empowered
employees, teams
To
From
Local or national focus
Batch shipments
Low bid purchasing
Lengthy product
development
Standard products
Job specialization
- 35. © 2006 Prentice Hall, Inc. 1 – 35
Characteristics of Goods
Tangible product
Consistent product
definition
Production usually
separate from
consumption
Can be inventoried
Low customer
interaction
- 36. © 2006 Prentice Hall, Inc. 1 – 36
Characteristics of Service
Intangible product
Produced and
consumed at same time
Often unique
High customer
interaction
Inconsistent product
definition
Often knowledge-based
Frequently dispersed
- 37. © 2006 Prentice Hall, Inc. 1 – 37
Industry and Services as
Percentage of GDP
Services Manufacturing
Australia
Canada
China
Czech
Rep
France
Germany
Hong
Kong
Japan
Mexico
Russian
Fed
South
Africa
Spain
UK
US
90 −
80 −
70 −
60 −
50 −
40 −
30 −
20 −
10 −
0 −
- 38. © 2006 Prentice Hall, Inc. 1 – 38
Goods Versus Services
Table 1.3
Can be resold
Can be inventoried
Some aspects of quality
measurable
Selling is distinct from
production
Product is transportable
Site of facility important for cost
Often easy to automate
Revenue generated primarily
from tangible product
Attributes of Goods
(Tangible Product)
Attributes of Services
(Intangible Product)
Reselling unusual
Difficult to inventory
Quality difficult to measure
Selling is part of service
Provider, not product, is
often transportable
Site of facility important for
customer contact
Often difficult to automate
Revenue generated primarily
from the intangible service
- 39. © 2006 Prentice Hall, Inc. 1 – 39
Goods and Services
Automobile
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 Good Percent of Product that is a Service
100% 75 50 25 0 25 50 75 100%
| | | | | | | | |
Figure 1.4
- 40. © 2006 Prentice Hall, Inc. 1 – 40
Organizations in Each Sector
Service Sector Example
% of all
Jobs
Professional
Services,
Education,
Legal, Medical
Notre Dame University,
San Diego Zoo, Arnold
Palmer Hospital
25.5
Trade (retail,
wholesale)
Walgreen’s, Wal-Mart,
Nordstrom’s
20.6
Utilities,
Transportation
Pacific Gas & Electric,
American Airlines, Santa
Fe R.R., Roadway
Express
7.1
Table 1.4
- 41. © 2006 Prentice Hall, Inc. 1 – 41
Organizations in Each Sector
Service Sector Example
% of all
Jobs
Business and
Repair Services
Snelling and Snelling,
Waste Management,
Pitney-Bowes
6.9
Finance,
Insurance,
Real Estate
Citicorp, American
Express, Prudential,
Aetna, Trammel Crow
6.7
Food, Lodging,
Entertainment
McDonald’s, Hard Rock
Café, Motel 6, Hilton
Hotels, Walt Disney,
Paramount Pictures
5.4
Public
Administration
U.S., State of Alabama,
Cook County
4.5
Table 1.4
- 42. © 2006 Prentice Hall, Inc. 1 – 42
Organizations in Each Sector
Manufacturing
Sector Example
% of all
Jobs
General General Electric, Ford,
U.S. Steel, Intel
13.3
Construction Bechtel, McDermott 7.1
Agriculture King Ranch 2.5
Mining Homestake Mining 0.4
Sector Percent of all jobs
Service 76.7%
Manufacturing 23.3%
Table 1.4
- 43. © 2006 Prentice Hall, Inc. 1 – 43
Services
Development of the
Service Economy
Figure 1.5 (A)
Agriculture
100
90
80
70
60
50
40
30
20
10
0
1800 1850 1900 1950 2000
- 44. © 2006 Prentice Hall, Inc. 1 – 44
Development of the
Service Economy
Figure 1.5 (B)
30 –
25 –
20 –
15 –
10 –
5 –
0 –
1950 1970 1990 2010
– 150
– 125
– 100
– 75
– 50
– 25
– 0
Employment
(millions)
Index:
1997
=
100
Manufacturing
employment
Industrial
production
Estimate
- 45. © 2006 Prentice Hall, Inc. 1 – 45
Development of the
Service Economy
Figure 1.5 (C)
United Sta
Cana
Fran
It
Brit
Jap
W. Germa
1970 2005
| | | | |
40 50 60 70 80
Percent
- 46. © 2006 Prentice Hall, Inc. 1 – 46
New Trends in OM
Local or
national
focus
Low-cost, reliable
worldwide communication
and transportation
networks
Global focus
Batch (large)
shipments
Short product life cycles
and cost of capital put
pressure on reducing
inventory
Just-in-time
shipments
Low-bid
purchasing
Quality emphasis requires
that suppliers be engaged
in product improvement
Supply-
chain
partners,
Enterprise
Resource
Planning,
e-commerce
Figure 1.6
Past Causes Future
- 47. © 2006 Prentice Hall, Inc. 1 – 47
New Trends in OM
Lengthy
product
development
Shorter life cycles,
Internet, rapid international
communication, computer-
aided design, and
international collaboration
Rapid product
development,
alliances,
collaborative
designs
Standardized
products
Affluence and worldwide
markets; increasingly
flexible production
processes
Mass
customization
with added
emphasis on
quality
Job
specialization
Changing socioculture
milieu; increasingly a
knowledge and information
society
Empowered
employees,
teams, and
lean
production
Figure 1.6
Past Causes Future
- 48. © 2006 Prentice Hall, Inc. 1 – 48
New Trends in OM
Low-cost
focus
Environmental issues, ISO
14000, increasing disposal
costs
Environmentally
sensitive
production,
green
manufacturing,
recycled
materials,
remanufacturing
Figure 1.6
Past Causes Future
- 49. © 2006 Prentice Hall, Inc. 1 – 49
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 this
measure of efficiency
Important Note!
Production is a measure of output
only and not a measure of efficiency
- 50. © 2006 Prentice Hall, Inc. 1 – 50
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 System
Inputs
Labor,
capital,
management
Figure 1.7
- 51. © 2006 Prentice Hall, Inc. 1 – 51
Increasing Productivity –
The LA Motor Pool
Before:
Cost $120 million annually
21,000 vehicles
30% of the 900 trash trucks were in repair
11% of police cars were in repair
Actions:
Created team assignments
Assigned parking places for trucks
Tires checked and trucks emptied each night
Standard customer pickups established
Computerized fleet management
Mechanics moved to night shift
- 52. © 2006 Prentice Hall, Inc. 1 – 52
Increasing Productivity –
The LA Motor Pool
Cost $120 million annually
21,000 vehicles
30% of the 900 garbage trucks were in repair
11% of police cars were in repair
Before:
Actions:
Creating team assignments
Assigned parking places for trucks
Tire checked and trucks emptied each night
Standard customer pickups established
Computerized fleet management
Mechanics moved to night shift
Results:
Total fleet reduced by 500 vehicles
Parts inventory dropped 20% reducing
cost by $5.4 million annually
Standardized pickups reduced costs by
$12 million annually
Out of service garbage trucks dropped
to 18%
- 53. © 2006 Prentice Hall, Inc. 1 – 53
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
- 54. © 2006 Prentice Hall, Inc. 1 – 54
Productivity Calculations
Productivity =
Units produced
Labor-hours used
= = 4 units/labor-hour
1,000
250
Labor Productivity
- 55. © 2006 Prentice Hall, Inc. 1 – 55
Multi-Factor Productivity
Output
Labor + Material + Energy
+ Capital + Miscellaneous
Productivity =
Also known as total factor productivity
Output and inputs are often expressed
in dollars
- 56. © 2006 Prentice Hall, Inc. 1 – 56
Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
=
Old labor
productivity
8 titles/day
32 labor-hrs
- 57. © 2006 Prentice Hall, Inc. 1 – 57
Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
8 titles/day
32 labor-hrs
=
Old labor
productivity = .25 titles/labor-hr
- 58. © 2006 Prentice Hall, Inc. 1 – 58
Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day
32 labor-hrs
=
Old labor
productivity
=
New labor
productivity
= .25 titles/labor-hr
14 titles/day
32 labor-hrs
- 59. © 2006 Prentice Hall, Inc. 1 – 59
Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day
32 labor-hrs
=
Old labor
productivity = .25 titles/labor-hr
14 titles/day
32 labor-hrs
=
New labor
productivity
= .4375 titles/labor-hr
- 60. © 2006 Prentice Hall, Inc. 1 – 60
Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
=
Old multifactor
productivity
8 titles/day
$640 + 400
- 61. © 2006 Prentice Hall, Inc. 1 – 61
Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day
$640 + 400
=
Old multifactor
productivity
= .0077 titles/dollar
- 62. © 2006 Prentice Hall, Inc. 1 – 62
Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day
$640 + 400
=
Old multifactor
productivity
=
New multifactor
productivity
= .0077 titles/dollar
14 titles/day
$640 + 800
- 63. © 2006 Prentice Hall, Inc. 1 – 63
Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day
$640 + 400
14 titles/day
$640 + 800
=
Old multifactor
productivity
=
New multifactor
productivity
= .0077 titles/dollar
= .0097 titles/dollar
- 64. © 2006 Prentice Hall, Inc. 1 – 64
Measurement Problems
Quality may change while the
quantity of inputs and outputs
remains constant
External elements may cause an
increase or decrease in productivity
Precise units of measure may be
lacking
- 65. © 2006 Prentice Hall, Inc. 1 – 65
Productivity Variables
Labor - contributes about 10% of
the annual increase
Capital - contributes about 32%
of the annual increase
Management - contributes about
52% of the annual increase
- 66. © 2006 Prentice Hall, Inc. 1 – 66
Key Variables for Improved
Labor Productivity
Basic education appropriate for the
labor force
Diet of the labor force
Social overhead that makes labor
available
Maintaining and enhancing skills in the
midst of rapidly changing technology
and knowledge
- 67. © 2006 Prentice Hall, Inc. 1 – 67
Labor Skills
About half of the 17-year-olds in the US cannot
correctly answer questions of this type
Figure 1.8
- 68. © 2006 Prentice Hall, Inc. 1 – 68
Investment and Productivity
in Selected Nations
US UK
Canada
Italy
Belgium
France
Netherlands
Japan
10
8
6
4
2
0
Percent
increase
in
mfg
productivity
Percentage investment
10 15 20 25 30 35
- 69. © 2006 Prentice Hall, Inc. 1 – 69
Service Productivity
Typically labor intensive
Frequently focused on unique
individual attributes or desires
Often an intellectual task performed by
professionals
Often difficult to mechanize
Often difficult to evaluate for quality
- 70. © 2006 Prentice Hall, Inc. 1 – 70
Productivity at Taco Bell
Improvements:
Revised the menu
Designed meals for easy preparation
Shifted some preparation to suppliers
Efficient layout and automation
Training and employee empowerment
- 71. © 2006 Prentice Hall, Inc. 1 – 71
Productivity at Taco Bell
Improvements:
Revised the menu
Designed meals for easy preparation
Shifted some preparation to suppliers
Efficient layout and automation
Training 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
- 72. © 2006 Prentice Hall, Inc. 1 – 72
Ethics and Social Responsibility
Challenges facing
operations managers:
Developing safe quality products
Maintaining a clean environment
Providing a safe workplace
Honoring community commitments
