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This document is a PowerPoint presentation that outlines the key topics to be covered in a chapter on operations and productivity. The presentation covers the definition of operations management and how organizations are structured. It discusses important historical contributors to operations management such as Eli Whitney, Henry Ford, and W. Edwards Deming. Additionally, it compares characteristics of goods and services, noting the growth of the services sector. Productivity measurement and challenges are also outlined. The overall document provides an overview of the chapter's content and learning objectives.

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© 2011 Pearson 1 - 1 1 Operations and Productivity PowerPoint presentation to accompanyPowerPoint presentation to accompany Heizer and RenderHeizer and Render Operations Management, 10eOperations Management, 10e Principles of Operations Management, 8ePrinciples of Operations Management, 8e PowerPoint slides by Jeff Heyl
© 2011 Pearson 1 - 2 OutlineOutline  Global Company Profile: Hard Rock Cafe  What Is Operations Management?  Organizing to Produce Goods and Services  Why Study OM?  What Operations Managers Do
© 2011 Pearson 1 - 3 Outline - ContinuedOutline - 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
© 2011 Pearson 1 - 4 Outline - ContinuedOutline - Continued  The Productivity Challenge  Productivity Measurement  Productivity Variables  Productivity and the Service Sector  Ethics and Social Responsibility
© 2011 Pearson 1 - 5 Learning ObjectivesLearning Objectives When you complete this chapterWhen you complete this chapter you should be able to:you should be able to: 1. Define operations management 2. Explain the distinction between goods and services 3. Explain the difference between production and productivity
© 2011 Pearson 1 - 6 Learning ObjectivesLearning Objectives When you complete this chapterWhen you complete this chapter you should be able to:you should be able to: 4. Compute single-factor productivity 5. Compute multifactor productivity 6. Identify the critical variables in enhancing productivity
© 2011 Pearson 1 - 7 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
© 2011 Pearson 1 - 8 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
© 2011 Pearson 1 - 9 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
© 2011 Pearson 1 - 10 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)
© 2011 Pearson 1 - 11 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
© 2011 Pearson 1 - 12 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)
© 2011 Pearson 1 - 13 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
© 2011 Pearson 1 - 14 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%
© 2011 Pearson 1 - 15 What OperationsWhat Operations Managers DoManagers Do  Planning  Organizing  Staffing  Leading  Controlling Basic Management FunctionsBasic Management Functions
© 2011 Pearson 1 - 16 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
© 2011 Pearson 1 - 17 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.)
© 2011 Pearson 1 - 18 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.)
© 2011 Pearson 1 - 19 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.)
© 2011 Pearson 1 - 20 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.)
© 2011 Pearson 1 - 21 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.)
© 2011 Pearson 1 - 22 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
© 2011 Pearson 1 - 23 OpportunitiesOpportunities Figure 1.2
© 2011 Pearson 1 - 24 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)
© 2011 Pearson 1 - 25 Significant Events in OMSignificant Events in OM Figure 1.3
© 2011 Pearson 1 - 26 The Heritage of OMThe 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 1913)  Gantt charts (Gantt 1916)  Motion study (Frank and Lillian Gilbreth 1922)  Quality control (Shewhart 1924; Deming 1950)
© 2011 Pearson 1 - 27 The Heritage of OMThe Heritage of OM  Computer (Atanasoff 1938)  CPM/PERT (DuPont 1957, Navy 1958)  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)
© 2011 Pearson 1 - 28 Eli WhitneyEli 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
© 2011 Pearson 1 - 29 Frederick W. TaylorFrederick 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
© 2011 Pearson 1 - 30 Taylor’s PrinciplesTaylor’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 TakeManagement Should Take More Responsibility for:More Responsibility for:
© 2011 Pearson 1 - 31 Frank & Lillian GilbrethFrank & 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,” “Bells on Their Toes”
© 2011 Pearson 1 - 32  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 FordHenry Ford
© 2011 Pearson 1 - 33 W. Edwards DemingW. 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
© 2011 Pearson 1 - 34 Contributions FromContributions From  Human factors  Industrial engineering  Management science  Biological science  Physical sciences  Information technology
© 2011 Pearson 1 - 35 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
© 2011 Pearson 1 - 36 Characteristics of GoodsCharacteristics of Goods  Tangible product  Consistent product definition  Production usually separate from consumption  Can be inventoried  Low customer interaction
© 2011 Pearson 1 - 37 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
© 2011 Pearson 1 - 38 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 −
© 2011 Pearson 1 - 39 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% | | | | | | | | |
© 2011 Pearson 1 - 40 120 – 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
© 2011 Pearson 1 - 41 Manufacturing EmploymentManufacturing Employment and Productionand Production Figure 1.4 (B) 40 – 30 – 20 – 10 – 0 – | | | | | | | 1950 1970 1990 2010 (est) 1960 1980 2000 – 150150 – 125125 – 100100 – 7575 – 5050 – 2525 – 00 Employment(millions) Index:1997=100Index:1997=100 Manufacturing employment (left scale) IndustrialIndustrial productionproduction (right scale)(right scale)
© 2011 Pearson 1 - 42 Development of theDevelopment of the Service EconomyService Economy Figure 1.4 (C) United States Canada France Italy Britain Japan W. Germany 1970 2010 (est) | | | | | 40 50 60 70 80 Percent
© 2011 Pearson 1 - 43 Organizations in Each SectorOrganizations in Each Sector Service SectorService Sector ExampleExample % of all% of all JobsJobs Education, Legal, Medical, other San Diego Zoo, Arnold Palmer Hospital 25.8 Trade (retail, wholesale) Walgreen’s, Wal-Mart, Nordstrom’s 14.9 Utilities, Transportation Pacific Gas & Electric, American Airlines 5.2 Professional and Business Services Snelling and Snelling, Waste Management, Inc. 10.7 Table 1.3
© 2011 Pearson 1 - 44 Organizations in Each SectorOrganizations in Each Sector Service SectorService Sector ExampleExample % of all% of all JobsJobs Finance, Information, Real Estate Citicorp, American Express, Prudential, Aetna 9.6 Food, Lodging, Entertainment Olive Garden, Motel 6, Walt Disney 8.5 Public Administration U.S., State of Alabama, Cook County 4.6 Total 78.8 Table 1.3
© 2011 Pearson 1 - 45 Organizations in Each SectorOrganizations in Each Sector Other SectorsOther Sectors ExampleExample % of all% of all JobsJobs Manufacturing Sector General Electric, Ford, U.S. Steel, Intel 11.2 Construction Sector Bechtel, McDermott 8.1 Agriculture Sector King Ranch 1.4 Mining Sector Homestake Mining 0.5 Total 21.2 Table 1.3
© 2011 Pearson 1 - 46 Changing ChallengesChanging Challenges Traditional Approach Reasons for Change Current Challenge Ethics and regulations not at the forefront Public concern over pollution, corruption, child labor, etc. High ethical and social responsibility; increased legal and professional standards Local or national focus Growth of reliable, low cost communication and transportation Global focus, international collaboration Lengthy product development Shorter life cycles; growth of global communication; CAD, Internet Rapid product development; design collaboration Figure 1.5
© 2011 Pearson 1 - 47 Changing ChallengesChanging Challenges Traditional Approach Reasons for Change Current Challenge Low cost production, with little concern for environment; free resources (air, water) ignored Public sensitivity to environment; ISO 14000 standard; increasing disposal costs Environmentally sensitive production; green manufacturing; sustainability Low-cost standardized products Rise of consumerism; increased affluence; individualism Mass customization Figure 1.5
© 2011 Pearson 1 - 48 Changing ChallengesChanging Challenges Traditional Approach Reasons for Change Current Challenge Emphasis on specialized, often manual tasks Recognition of the employee's total contribution; knowledge society Empowered employees; enriched jobs “In-house” production; low-bid purchasing Rapid technological change; increasing competitive forces Supply-chain partnering; joint ventures, alliances Large lot production Shorter product life cycles; increasing need to reduce inventory Just-In-Time performance; lean; continuous improvement Figure 1.5
© 2011 Pearson 1 - 49 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
© 2011 Pearson 1 - 50 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
© 2011 Pearson 1 - 51 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
© 2011 Pearson 1 - 52 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
© 2011 Pearson 1 - 53 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.
© 2011 Pearson 1 - 54  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
© 2011 Pearson 1 - 55 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
© 2011 Pearson 1 - 56 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
© 2011 Pearson 1 - 57 Collins Title ProductivityCollins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System:Old System: = Old labor productivity 8 titles/day 32 labor-hrs
© 2011 Pearson 1 - 58 Collins Title ProductivityCollins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System:Old System: 8 titles/day 32 labor-hrs = Old labor productivity = .25 titles/labor-hr
© 2011 Pearson 1 - 59 Collins Title ProductivityCollins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System:Old System: 14 titles/day Overhead = $800/day New System:New System: 8 titles/day 32 labor-hrs = Old labor productivity = New labor productivity = .25 titles/labor-hr 14 titles/day14 titles/day 32 labor-hrs32 labor-hrs
© 2011 Pearson 1 - 60 Collins Title ProductivityCollins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System:Old System: 14 titles/day Overhead = $800/day New System: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
© 2011 Pearson 1 - 61 Collins Title ProductivityCollins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System:Old System: 14 titles/day Overhead = $800/day New System:New System: = Old multifactor productivity 8 titles/day $640 + 400
© 2011 Pearson 1 - 62 Collins Title ProductivityCollins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System:Old System: 14 titles/day Overhead = $800/day New System:New System: 8 titles/day $640 + 400 = Old multifactor productivity = .0077 titles/dollar
© 2011 Pearson 1 - 63 Collins Title ProductivityCollins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System:Old System: 14 titles/day Overhead = $800/day New System:New System: 8 titles/day $640 + 400 = Old multifactor productivity = New multifactor productivity = .0077 titles/dollar 14 titles/day14 titles/day $640 + 800$640 + 800
© 2011 Pearson 1 - 64 Collins Title ProductivityCollins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System:Old System: 14 titles/day Overhead = $800/day New System:New System: 8 titles/day $640 + 400 14 titles/day $640 + 800 = Old multifactor productivity = New multifactor productivity = .0077 titles/dollar = .0097 titles/dollar
© 2011 Pearson 1 - 65 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
© 2011 Pearson 1 - 66 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
© 2011 Pearson 1 - 67 Key Variables for ImprovedKey Variables for Improved Labor ProductivityLabor Productivity 1. Basic education appropriate for the labor force 2. Diet of the labor force 3. Social overhead that makes labor available  Challenge is in maintaining and enhancing skills in the midst of rapidly changing technology and knowledge
© 2011 Pearson 1 - 68 Labor SkillsLabor Skills About half of the 17-year-olds in the U.S. cannotAbout half of the 17-year-olds in the U.S. cannot correctly answer questions of this typecorrectly answer questions of this type Figure 1.7
© 2011 Pearson 1 - 69 Investment and ProductivityInvestment and Productivity 10 8 6 4 2 0 Percentincreaseinproductivity Percentage investment 10 15 20 25 30 35
© 2011 Pearson 1 - 70 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
© 2011 Pearson 1 - 71 Productivity at Taco BellProductivity 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  New water and energy saving grills
© 2011 Pearson 1 - 72 Productivity at Taco BellProductivity 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  New water and energy saving grills 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  Conserve 300 million gallons of water andConserve 300 million gallons of water and 200 million KwH of electricity each year200 million KwH of electricity each year saving $17 million annuallysaving $17 million annually
© 2011 Pearson 1 - 73 Ethics andEthics and Social ResponsibilitySocial Responsibility Challenges facingChallenges facing operations managers:operations managers:  Developing and producing safe, quality products  Maintaining a clean environment  Providing a safe workplace  Honoring stakeholder commitments
© 2011 Pearson 1 - 74 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

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360_ch01

  • 1.
    © 2011 Pearson 1- 1 1 Operations and Productivity PowerPoint presentation to accompanyPowerPoint presentation to accompany Heizer and RenderHeizer and Render Operations Management, 10eOperations Management, 10e Principles of Operations Management, 8ePrinciples of Operations Management, 8e PowerPoint slides by Jeff Heyl
  • 2.
    © 2011 Pearson 1- 2 OutlineOutline  Global Company Profile: Hard Rock Cafe  What Is Operations Management?  Organizing to Produce Goods and Services  Why Study OM?  What Operations Managers Do
  • 3.
    © 2011 Pearson 1- 3 Outline - ContinuedOutline - 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.
    © 2011 Pearson 1- 4 Outline - ContinuedOutline - Continued  The Productivity Challenge  Productivity Measurement  Productivity Variables  Productivity and the Service Sector  Ethics and Social Responsibility
  • 5.
    © 2011 Pearson 1- 5 Learning ObjectivesLearning Objectives When you complete this chapterWhen you complete this chapter you should be able to:you should be able to: 1. Define operations management 2. Explain the distinction between goods and services 3. Explain the difference between production and productivity
  • 6.
    © 2011 Pearson 1- 6 Learning ObjectivesLearning Objectives When you complete this chapterWhen you complete this chapter you should be able to:you should be able to: 4. Compute single-factor productivity 5. Compute multifactor productivity 6. Identify the critical variables in enhancing productivity
  • 7.
    © 2011 Pearson 1- 7 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
  • 8.
    © 2011 Pearson 1- 8 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
  • 9.
    © 2011 Pearson 1- 9 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
  • 10.
    © 2011 Pearson 1- 10 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)
  • 11.
    © 2011 Pearson 1- 11 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
  • 12.
    © 2011 Pearson 1- 12 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)
  • 13.
    © 2011 Pearson 1- 13 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
  • 14.
    © 2011 Pearson 1- 14 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%
  • 15.
    © 2011 Pearson 1- 15 What OperationsWhat Operations Managers DoManagers Do  Planning  Organizing  Staffing  Leading  Controlling Basic Management FunctionsBasic Management Functions
  • 16.
    © 2011 Pearson 1- 16 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
  • 17.
    © 2011 Pearson 1- 17 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.)
  • 18.
    © 2011 Pearson 1- 18 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.)
  • 19.
    © 2011 Pearson 1- 19 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.)
  • 20.
    © 2011 Pearson 1- 20 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.)
  • 21.
    © 2011 Pearson 1- 21 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.)
  • 22.
    © 2011 Pearson 1- 22 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
  • 23.
    © 2011 Pearson 1- 23 OpportunitiesOpportunities Figure 1.2
  • 24.
    © 2011 Pearson 1- 24 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)
  • 25.
    © 2011 Pearson 1- 25 Significant Events in OMSignificant Events in OM Figure 1.3
  • 26.
    © 2011 Pearson 1- 26 The Heritage of OMThe 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 1913)  Gantt charts (Gantt 1916)  Motion study (Frank and Lillian Gilbreth 1922)  Quality control (Shewhart 1924; Deming 1950)
  • 27.
    © 2011 Pearson 1- 27 The Heritage of OMThe Heritage of OM  Computer (Atanasoff 1938)  CPM/PERT (DuPont 1957, Navy 1958)  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)
  • 28.
    © 2011 Pearson 1- 28 Eli WhitneyEli 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
  • 29.
    © 2011 Pearson 1- 29 Frederick W. TaylorFrederick 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
  • 30.
    © 2011 Pearson 1- 30 Taylor’s PrinciplesTaylor’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 TakeManagement Should Take More Responsibility for:More Responsibility for:
  • 31.
    © 2011 Pearson 1- 31 Frank & Lillian GilbrethFrank & 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,” “Bells on Their Toes”
  • 32.
    © 2011 Pearson 1- 32  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 FordHenry Ford
  • 33.
    © 2011 Pearson 1- 33 W. Edwards DemingW. 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
  • 34.
    © 2011 Pearson 1- 34 Contributions FromContributions From  Human factors  Industrial engineering  Management science  Biological science  Physical sciences  Information technology
  • 35.
    © 2011 Pearson 1- 35 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
  • 36.
    © 2011 Pearson 1- 36 Characteristics of GoodsCharacteristics of Goods  Tangible product  Consistent product definition  Production usually separate from consumption  Can be inventoried  Low customer interaction
  • 37.
    © 2011 Pearson 1- 37 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
  • 38.
    © 2011 Pearson 1- 38 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 −
  • 39.
    © 2011 Pearson 1- 39 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% | | | | | | | | |
  • 40.
    © 2011 Pearson 1- 40 120 – 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
  • 41.
    © 2011 Pearson 1- 41 Manufacturing EmploymentManufacturing Employment and Productionand Production Figure 1.4 (B) 40 – 30 – 20 – 10 – 0 – | | | | | | | 1950 1970 1990 2010 (est) 1960 1980 2000 – 150150 – 125125 – 100100 – 7575 – 5050 – 2525 – 00 Employment(millions) Index:1997=100Index:1997=100 Manufacturing employment (left scale) IndustrialIndustrial productionproduction (right scale)(right scale)
  • 42.
    © 2011 Pearson 1- 42 Development of theDevelopment of the Service EconomyService Economy Figure 1.4 (C) United States Canada France Italy Britain Japan W. Germany 1970 2010 (est) | | | | | 40 50 60 70 80 Percent
  • 43.
    © 2011 Pearson 1- 43 Organizations in Each SectorOrganizations in Each Sector Service SectorService Sector ExampleExample % of all% of all JobsJobs Education, Legal, Medical, other San Diego Zoo, Arnold Palmer Hospital 25.8 Trade (retail, wholesale) Walgreen’s, Wal-Mart, Nordstrom’s 14.9 Utilities, Transportation Pacific Gas & Electric, American Airlines 5.2 Professional and Business Services Snelling and Snelling, Waste Management, Inc. 10.7 Table 1.3
  • 44.
    © 2011 Pearson 1- 44 Organizations in Each SectorOrganizations in Each Sector Service SectorService Sector ExampleExample % of all% of all JobsJobs Finance, Information, Real Estate Citicorp, American Express, Prudential, Aetna 9.6 Food, Lodging, Entertainment Olive Garden, Motel 6, Walt Disney 8.5 Public Administration U.S., State of Alabama, Cook County 4.6 Total 78.8 Table 1.3
  • 45.
    © 2011 Pearson 1- 45 Organizations in Each SectorOrganizations in Each Sector Other SectorsOther Sectors ExampleExample % of all% of all JobsJobs Manufacturing Sector General Electric, Ford, U.S. Steel, Intel 11.2 Construction Sector Bechtel, McDermott 8.1 Agriculture Sector King Ranch 1.4 Mining Sector Homestake Mining 0.5 Total 21.2 Table 1.3
  • 46.
    © 2011 Pearson 1- 46 Changing ChallengesChanging Challenges Traditional Approach Reasons for Change Current Challenge Ethics and regulations not at the forefront Public concern over pollution, corruption, child labor, etc. High ethical and social responsibility; increased legal and professional standards Local or national focus Growth of reliable, low cost communication and transportation Global focus, international collaboration Lengthy product development Shorter life cycles; growth of global communication; CAD, Internet Rapid product development; design collaboration Figure 1.5
  • 47.
    © 2011 Pearson 1- 47 Changing ChallengesChanging Challenges Traditional Approach Reasons for Change Current Challenge Low cost production, with little concern for environment; free resources (air, water) ignored Public sensitivity to environment; ISO 14000 standard; increasing disposal costs Environmentally sensitive production; green manufacturing; sustainability Low-cost standardized products Rise of consumerism; increased affluence; individualism Mass customization Figure 1.5
  • 48.
    © 2011 Pearson 1- 48 Changing ChallengesChanging Challenges Traditional Approach Reasons for Change Current Challenge Emphasis on specialized, often manual tasks Recognition of the employee's total contribution; knowledge society Empowered employees; enriched jobs “In-house” production; low-bid purchasing Rapid technological change; increasing competitive forces Supply-chain partnering; joint ventures, alliances Large lot production Shorter product life cycles; increasing need to reduce inventory Just-In-Time performance; lean; continuous improvement Figure 1.5
  • 49.
    © 2011 Pearson 1- 49 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
  • 50.
    © 2011 Pearson 1- 50 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
  • 51.
    © 2011 Pearson 1- 51 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
  • 52.
    © 2011 Pearson 1- 52 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
  • 53.
    © 2011 Pearson 1- 53 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.
  • 54.
    © 2011 Pearson 1- 54  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
  • 55.
    © 2011 Pearson 1- 55 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
  • 56.
    © 2011 Pearson 1- 56 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
  • 57.
    © 2011 Pearson 1- 57 Collins Title ProductivityCollins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System:Old System: = Old labor productivity 8 titles/day 32 labor-hrs
  • 58.
    © 2011 Pearson 1- 58 Collins Title ProductivityCollins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System:Old System: 8 titles/day 32 labor-hrs = Old labor productivity = .25 titles/labor-hr
  • 59.
    © 2011 Pearson 1- 59 Collins Title ProductivityCollins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System:Old System: 14 titles/day Overhead = $800/day New System:New System: 8 titles/day 32 labor-hrs = Old labor productivity = New labor productivity = .25 titles/labor-hr 14 titles/day14 titles/day 32 labor-hrs32 labor-hrs
  • 60.
    © 2011 Pearson 1- 60 Collins Title ProductivityCollins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System:Old System: 14 titles/day Overhead = $800/day New System: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
  • 61.
    © 2011 Pearson 1- 61 Collins Title ProductivityCollins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System:Old System: 14 titles/day Overhead = $800/day New System:New System: = Old multifactor productivity 8 titles/day $640 + 400
  • 62.
    © 2011 Pearson 1- 62 Collins Title ProductivityCollins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System:Old System: 14 titles/day Overhead = $800/day New System:New System: 8 titles/day $640 + 400 = Old multifactor productivity = .0077 titles/dollar
  • 63.
    © 2011 Pearson 1- 63 Collins Title ProductivityCollins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System:Old System: 14 titles/day Overhead = $800/day New System:New System: 8 titles/day $640 + 400 = Old multifactor productivity = New multifactor productivity = .0077 titles/dollar 14 titles/day14 titles/day $640 + 800$640 + 800
  • 64.
    © 2011 Pearson 1- 64 Collins Title ProductivityCollins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System:Old System: 14 titles/day Overhead = $800/day New System:New System: 8 titles/day $640 + 400 14 titles/day $640 + 800 = Old multifactor productivity = New multifactor productivity = .0077 titles/dollar = .0097 titles/dollar
  • 65.
    © 2011 Pearson 1- 65 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
  • 66.
    © 2011 Pearson 1- 66 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
  • 67.
    © 2011 Pearson 1- 67 Key Variables for ImprovedKey Variables for Improved Labor ProductivityLabor Productivity 1. Basic education appropriate for the labor force 2. Diet of the labor force 3. Social overhead that makes labor available  Challenge is in maintaining and enhancing skills in the midst of rapidly changing technology and knowledge
  • 68.
    © 2011 Pearson 1- 68 Labor SkillsLabor Skills About half of the 17-year-olds in the U.S. cannotAbout half of the 17-year-olds in the U.S. cannot correctly answer questions of this typecorrectly answer questions of this type Figure 1.7
  • 69.
    © 2011 Pearson 1- 69 Investment and ProductivityInvestment and Productivity 10 8 6 4 2 0 Percentincreaseinproductivity Percentage investment 10 15 20 25 30 35
  • 70.
    © 2011 Pearson 1- 70 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
  • 71.
    © 2011 Pearson 1- 71 Productivity at Taco BellProductivity 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  New water and energy saving grills
  • 72.
    © 2011 Pearson 1- 72 Productivity at Taco BellProductivity 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  New water and energy saving grills 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  Conserve 300 million gallons of water andConserve 300 million gallons of water and 200 million KwH of electricity each year200 million KwH of electricity each year saving $17 million annuallysaving $17 million annually
  • 73.
    © 2011 Pearson 1- 73 Ethics andEthics and Social ResponsibilitySocial Responsibility Challenges facingChallenges facing operations managers:operations managers:  Developing and producing safe, quality products  Maintaining a clean environment  Providing a safe workplace  Honoring stakeholder commitments
  • 74.
    © 2011 Pearson 1- 74 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

Editor's Notes

  • #20 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.