Chapter 1 introduction
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Operations and Productivity
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Chapter 1 introduction
- 1. 1 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 Operations and Productivity
- 2. 1 - 2© 2011 Pearson Education, Inc. publishing as Prentice Hall What Is OperationsWhat Is Operations Management?Management? ProductionProduction is the creation of goods and services Operations management (OM)Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs
- 3. 1 - 3© 2011 Pearson Education, Inc. publishing as Prentice Hall Organizing to ProduceOrganizing to Produce Goods and ServicesGoods and Services Essential functions: 1.1. MarketingMarketing – generates demand 2.2. Production/operationsProduction/operations – creates the product 3.3. Finance/accountingFinance/accounting – tracks how well the organization is doing, pays bills, collects the money
- 4. 1 - 4© 2011 Pearson Education, Inc. publishing as Prentice Hall Organizational ChartsOrganizational 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)
- 5. 1 - 5© 2011 Pearson Education, Inc. publishing as Prentice Hall Organizational ChartsOrganizational 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
- 6. 1 - 6© 2011 Pearson Education, Inc. publishing as Prentice Hall Marketing Sales promotion Advertising Sales Market research Organizational ChartsOrganizational 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)
- 7. 1 - 7© 2011 Pearson Education, Inc. publishing as Prentice Hall Why Study OM?Why Study OM? 1. OM is one of three major functions of any organization, we want to study how people organize themselves for productive enterprise 2. We want (and need) to know how goods and services are produced 3. We want to understand what operations managers do 4. OM is such a costly part of an organization
- 8. 1 - 8© 2011 Pearson Education, Inc. publishing as Prentice Hall Options for IncreasingOptions for Increasing ContributionContribution Table 1.1 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%
- 9. 1 - 9© 2011 Pearson Education, Inc. publishing as Prentice Hall What OperationsWhat Operations Managers DoManagers Do Planning Organizing Staffing Leading Controlling Basic Management FunctionsBasic Management Functions
- 10. 1 - 10© 2011 Pearson Education, Inc. publishing as Prentice Hall Ten Critical DecisionsTen Critical Decisions Ten Decision Areas Chapter(s) 1. Design of goods and services 5 2. Managing quality 6, Supplement 6 3. Process and capacity 7, Supplement 7 design 4. Location strategy 8 5. Layout strategy 9 6. Human resources and 10 job design 7. Supply-chain 11, Supplement 11 management 8. Inventory, MRP, JIT 12, 14, 16 9. Scheduling 13, 15 10. Maintenance 17 Table 1.2
- 11. 1 - 11© 2011 Pearson Education, Inc. publishing as Prentice Hall The Critical DecisionsThe Critical Decisions 1. Design of goods and services What good or service should we offer? How should we design these products and services? 2. Managing quality How do we define quality? Who is responsible for quality? Table 1.2 (cont.)
- 12. 1 - 12© 2011 Pearson Education, Inc. publishing as Prentice Hall The Critical DecisionsThe Critical Decisions 3. Process and capacity design What process and what capacity will these products require? What equipment and technology is necessary for these processes? 4. Location strategy Where should we put the facility? On what criteria should we base the location decision? Table 1.2 (cont.)
- 13. 1 - 13© 2011 Pearson Education, Inc. publishing as Prentice Hall The Critical DecisionsThe Critical Decisions 5. Layout strategy How should we arrange the facility? How large must the facility be to meet our plan? 6. 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.)
- 14. 1 - 14© 2011 Pearson Education, Inc. publishing as Prentice Hall The Critical DecisionsThe Critical Decisions 7. Supply-chain management Should we make or buy this component? Who should be our suppliers and how can we integrate them into our strategy? 8. Inventory, material requirements planning, and JIT How much inventory of each item should we have? When do we re-order? Table 1.2 (cont.)
- 15. 1 - 15© 2011 Pearson Education, Inc. publishing as Prentice Hall The Critical DecisionsThe Critical Decisions 9. Intermediate and short–term scheduling Are we better off keeping people on the payroll during slowdowns? Which jobs do we perform next? 10.Maintenance How do we build reliability into our processes? Who is responsible for maintenance? Table 1.2 (cont.)
- 16. 1 - 16© 2011 Pearson Education, Inc. publishing as Prentice Hall Where are the OM Jobs?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
- 17. 1 - 17© 2011 Pearson Education, Inc. publishing as Prentice Hall New Challenges in OMNew Challenges in OM Global focus Just-in-time Supply-chain partnering Rapid product development, alliances Mass customization Empowered employees, teams ToToFromFrom Local or national focus Batch shipments Low bid purchasing Lengthy product development Standard products Job specialization
- 18. 1 - 18© 2011 Pearson Education, Inc. publishing as Prentice Hall Characteristics of GoodsCharacteristics of Goods Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction
- 19. 1 - 19© 2011 Pearson Education, Inc. publishing as Prentice Hall Characteristics of ServiceCharacteristics of Service Intangible product Produced and consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed
- 20. 1 - 20© 2011 Pearson Education, Inc. publishing as Prentice Hall Industry and Services asIndustry and Services as Percentage of GDPPercentage of GDP Services Manufacturing Australia Canada China CzechRep France Germany HongKong Japan Mexico RussianFed SouthAfrica Spain UK US 90 − 80 − 70 − 60 − 50 − 40 − 30 − 20 − 10 − 0 −
- 21. 1 - 21© 2011 Pearson Education, Inc. publishing as Prentice Hall Goods and ServicesGoods 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% | | | | | | | | |
- 22. 1 - 22© 2011 Pearson Education, Inc. publishing as Prentice Hall 120 – 100 – 80 – 60 – 40 – 20 – 0 – | | | | | | | 1950 1970 1990 2010 (est) 1960 1980 2000 Employment(millions) Manufacturing and ServiceManufacturing and Service EmploymentEmployment Figure 1.4 (A) Manufacturing ServiceService
- 23. 1 - 23© 2011 Pearson Education, Inc. publishing as Prentice Hall New Trends in OMNew Trends in OM Ethics Global focus Environmentally sensitive production Rapid product development Environmentally sensitive production Mass customization Empowered employees Supply-chain partnering Just-in-time performance
- 24. 1 - 24© 2011 Pearson Education, Inc. publishing as Prentice Hall Productivity ChallengeProductivity 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!The objective is to improve productivity! Important Note! Production is a measure of output only and not a measure of efficiency
- 25. 1 - 25© 2011 Pearson Education, Inc. publishing as Prentice Hall Feedback loop Outputs Goods and services Transformation 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 Inputs Labor, capital, management Figure 1.6
- 26. 1 - 26© 2011 Pearson Education, Inc. publishing as Prentice Hall Improving Productivity atImproving Productivity at StarbucksStarbucks A team of 10 analystsA team of 10 analysts continually look for wayscontinually look for ways to shave time. Someto shave time. Some improvements:improvements: Stop requiring signatures on credit card purchases under $25 Saved 8 seconds per transaction Change the size of the ice scoop Saved 14 seconds per drink New espresso machines Saved 12 seconds per shot
- 27. 1 - 27© 2011 Pearson Education, Inc. publishing as Prentice Hall Improving Productivity atImproving Productivity at StarbucksStarbucks A team of 10 analystsA team of 10 analysts continually look for wayscontinually look for ways to shave time. Someto shave time. Some improvements:improvements: Stop requiring signatures on credit card purchases under $25 Saved 8 seconds per transaction Change the size of the ice scoop Saved 14 seconds per drink New espresso machines Saved 12 seconds per shot Operations improvements have helped Starbucks increase yearly revenue per outlet by $200,000 to $940,000 in six years. Productivity has improved by 27%, or about 4.5% per year.
- 28. 1 - 28© 2011 Pearson Education, Inc. publishing as Prentice Hall Measure of process improvement Represents output relative to input Only through productivity increases can our standard of living improve ProductivityProductivity Productivity = Units produced Input used
- 29. 1 - 29© 2011 Pearson Education, Inc. publishing as Prentice Hall Productivity CalculationsProductivity Calculations Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000 250 Labor ProductivityLabor Productivity One resource input single-factor productivity
- 30. 1 - 30© 2011 Pearson Education, Inc. publishing as Prentice Hall Multi-Factor ProductivityMulti-Factor Productivity Output Labor + Material + Energy + Capital + Miscellaneous Productivity = Also known as total factor productivity Output and inputs are often expressed in dollars Multiple resource inputs multi-factor productivity
- 31. 1 - 31© 2011 Pearson Education, Inc. publishing as Prentice Hall Measurement ProblemsMeasurement Problems 1.1. QualityQuality may change while the quantity of inputs and outputs remains constant 2.2. External elementsExternal elements may cause an increase or decrease in productivity Precise unitsPrecise units of measure may be lacking
- 32. 1 - 32© 2011 Pearson Education, Inc. publishing as Prentice Hall Productivity VariablesProductivity Variables 1.1. LaborLabor - contributes about 10% of the annual increase 2.2. CapitalCapital - contributes about 38% of the annual increase 3.3. ManagementManagement - contributes about 52% of the annual increase
- 33. 1 - 33© 2011 Pearson Education, Inc. publishing as Prentice Hall Service ProductivityService Productivity 1. Typically labor intensive 2. Frequently focused on unique individual attributes or desires 3. Often an intellectual task performed by professionals 4. Often difficult to mechanize 5. Often difficult to evaluate for quality
- 34. 1 - 34© 2011 Pearson Education, Inc. publishing as Prentice Hall The Hard Rock CafeThe Hard Rock Cafe First opened in 1971 Now – 129 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
Editor's Notes
- Using this and subsequent slides, you might go through in more detail the decisions of Operations Management. While greater detail is provided by these slides than the earlier one, you may still decide to have the students contribute examples from their own experience.