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Heizer chapter 01

The document outlines key topics in operations management including: 1. It provides learning objectives for the chapter on operations and productivity such as defining operations management, distinguishing between goods and services, and calculating productivity metrics. 2. It gives examples of organizational charts for different types of companies to illustrate the operations, marketing, and finance functions. 3. It describes the 10 critical decisions that operations managers must make, such as design of goods/services, quality management, and supply chain management.

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© 2008 Prentice Hall, Inc. 1 – 1 Operations Management Chapter 1 –Chapter 1 – Operations andOperations and ProductivityProductivity PowerPoint presentation to accompanyPowerPoint presentation to accompany Heizer/RenderHeizer/Render Principles of Operations Management, 7ePrinciples of Operations Management, 7e Operations Management, 9eOperations Management, 9e
© 2008 Prentice Hall, Inc. 1 – 2 OutlineOutline  Global Company Profile: Hard RockGlobal Company Profile: Hard Rock CafeCafe  What Is Operations Management?What Is Operations Management?  Organizing to Produce Goods andOrganizing to Produce Goods and ServicesServices  Why Study OM?Why Study OM?  What Operations Managers DoWhat Operations Managers Do  How This Book Is OrganizedHow This Book Is Organized
© 2008 Prentice Hall, Inc. 1 – 3 Outline - ContinuedOutline - Continued  The Heritage of OperationsThe Heritage of Operations ManagementManagement  Operations in the Service SectorOperations in the Service Sector  Differences between Goods andDifferences between Goods and ServicesServices  Growth of ServicesGrowth of Services  Service PayService Pay  Exciting New Trends in OperationsExciting New Trends in Operations ManagementManagement
© 2008 Prentice Hall, Inc. 1 – 4 Outline - ContinuedOutline - Continued  The Productivity ChallengeThe Productivity Challenge  Productivity MeasurementProductivity Measurement  Productivity VariablesProductivity Variables  Productivity and the Service SectorProductivity and the Service Sector  Ethics and Social ResponsibilityEthics and Social Responsibility
© 2008 Prentice Hall, Inc. 1 – 5 Learning ObjectivesLearning Objectives When you complete this chapterWhen you complete this chapter you should be able to:you should be able to: 1.1. Define operations managementDefine operations management 2.2. Explain the distinction betweenExplain the distinction between goods and servicesgoods and services 3.3. Explain the difference betweenExplain the difference between production and productivityproduction and productivity
© 2008 Prentice Hall, Inc. 1 – 6 Learning ObjectivesLearning Objectives When you complete this chapterWhen you complete this chapter you should be able to:you should be able to: 4.4. Compute single-factorCompute single-factor productivityproductivity 5.5. Compute multifactor productivityCompute multifactor productivity 6.6. Identify the critical variables inIdentify the critical variables in enhancing productivityenhancing productivity
© 2008 Prentice Hall, Inc. 1 – 7 The Hard Rock CafeThe Hard Rock Cafe  First opened in 1971First opened in 1971  Now – 121 restaurants in over 40 countriesNow – 121 restaurants in over 40 countries  Rock music memorabiliaRock music memorabilia  Creates value in the form of good foodCreates value in the form of good food and entertainmentand entertainment  3,5003,500++ custom meals per day in Orlandocustom meals per day in Orlando  How does an item get on the menu?How does an item get on the menu?  Role of the Operations ManagerRole of the Operations Manager
© 2008 Prentice Hall, Inc. 1 – 8 What Is OperationsWhat Is Operations Management?Management? ProductionProduction is the creation ofis the creation of goods and servicesgoods and services Operations management (OM)Operations management (OM) is the set of activities thatis the set of activities that creates value in the form ofcreates value in the form of goods and services bygoods and services by transforming inputs intotransforming inputs into outputsoutputs
© 2008 Prentice Hall, Inc. 1 – 9 Organizing to ProduceOrganizing to Produce Goods and ServicesGoods and Services  Essential functions:Essential functions:  Marketing – generates demandMarketing – generates demand  Production/operations – createsProduction/operations – creates the productthe product  Finance/accounting – tracks howFinance/accounting – tracks how well the organization is doing, payswell the organization is doing, pays bills, collects the moneybills, collects the money
© 2008 Prentice Hall, Inc. 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)Figure 1.1(A)
© 2008 Prentice Hall, Inc. 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)Figure 1.1(B) Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising
© 2008 Prentice Hall, Inc. 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)Figure 1.1(C)
© 2008 Prentice Hall, Inc. 1 – 13 Why Study OM?Why Study OM?  OM is one of three major functionsOM is one of three major functions (marketing, finance, and operations)(marketing, finance, and operations) of any organizationof any organization  We want (We want (and needand need) to know how) to know how goods and services are producedgoods and services are produced  We want to understand whatWe want to understand what operations managers dooperations managers do  OM is such a costly part of anOM is such a costly part of an organizationorganization
© 2008 Prentice Hall, Inc. 1 – 14 Options for IncreasingOptions for Increasing ContributionContribution SalesSales $100,000$100,000 $150,000$150,000 $100,000$100,000 $100,000$100,000 Cost of GoodsCost of Goods –– 80,00080,000 –– 120,000120,000 –– 80,00080,000 –– 64,00064,000 Gross MarginGross Margin 20,00020,000 30,00030,000 20,00020,000 36,00036,000 Finance CostsFinance Costs –– 6,0006,000 –– 6,0006,000 –– 3,0003,000 –– 6,0006,000 SubtotalSubtotal 14,00014,000 24,00024,000 17,00017,000 30,00030,000 Taxes at 25%Taxes at 25% –– 3,5003,500 –– 6,0006,000 –– 4,2504,250 –– 7,5007,500 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 ReduceReduce SalesSales FinanceFinance ProductionProduction CurrentCurrent Revenue 50%Revenue 50% Costs 50%Costs 50% Costs 20%Costs 20%
© 2008 Prentice Hall, Inc. 1 – 15 What OperationsWhat Operations Managers DoManagers Do  PlanningPlanning  OrganizingOrganizing  StaffingStaffing  LeadingLeading  ControllingControlling Basic Management FunctionsBasic Management Functions
© 2008 Prentice Hall, Inc. 1 – 16 Ten Critical DecisionsTen Critical Decisions Ten Decision AreasTen Decision Areas Chapter(s)Chapter(s)  Design of goods and servicesDesign of goods and services 55  Managing qualityManaging quality 6, Supplement 66, Supplement 6  Process and capacityProcess and capacity 7, Supplement 77, Supplement 7 designdesign  Location strategyLocation strategy 88  Layout strategyLayout strategy 99  Human resources andHuman resources and 10, Supplement 1010, Supplement 10 job designjob design  Supply chainSupply chain 11, Supplement 1111, Supplement 11 managementmanagement  Inventory managementInventory management 12, 14, 1612, 14, 16  SchedulingScheduling 13, 1513, 15  MaintenanceMaintenance 1717 Table 1.2Table 1.2
© 2008 Prentice Hall, Inc. 1 – 17 The Critical DecisionsThe Critical Decisions  Design of goods and servicesDesign of goods and services  What good or service should weWhat good or service should we offer?offer?  How should we design these productsHow should we design these products and services?and services?  Managing qualityManaging quality  How do we define quality?How do we define quality?  Who is responsible for quality?Who is responsible for quality? Table 1.2 (cont.)Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 18 The Critical DecisionsThe Critical Decisions  Process and capacity designProcess and capacity design  What process and what capacity willWhat process and what capacity will these products require?these products require?  What equipment and technology isWhat equipment and technology is necessary for these processes?necessary for these processes?  Location strategyLocation strategy  Where should we put the facility?Where should we put the facility?  On what criteria should we base theOn what criteria should we base the location decision?location decision? Table 1.2 (cont.)Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 19 The Critical DecisionsThe Critical Decisions  Layout strategyLayout strategy  How should we arrange the facility?How should we arrange the facility?  How large must the facility be to meetHow large must the facility be to meet our plan?our plan?  Human resources and job designHuman resources and job design  How do we provide a reasonable workHow do we provide a reasonable work environment?environment?  How much can we expect ourHow much can we expect our employees to produce?employees to produce? Table 1.2 (cont.)Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 20 The Critical DecisionsThe Critical Decisions  Supply chain managementSupply chain management  Should we make or buy this component?Should we make or buy this component?  Who are our suppliers and who canWho are our suppliers and who can integrate into our e-commerce program?integrate into our e-commerce program?  Inventory, material requirementsInventory, material requirements planning, and JITplanning, and JIT  How much inventory of each item shouldHow much inventory of each item should we have?we have?  When do we re-order?When do we re-order? Table 1.2 (cont.)Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 21 The Critical DecisionsThe Critical Decisions  Intermediate and shortIntermediate and short––termterm schedulingscheduling  Are we better off keeping people onAre we better off keeping people on the payroll during slowdowns?the payroll during slowdowns?  Which jobs do we perform next?Which jobs do we perform next?  MaintenanceMaintenance  Who is responsible for maintenance?Who is responsible for maintenance?  When do we do maintenance?When do we do maintenance? Table 1.2 (cont.)Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 22 Where are the OM Jobs?Where are the OM Jobs? Figure 1.2Figure 1.2
© 2008 Prentice Hall, Inc. 1 – 23 Where are the OM Jobs?Where are the OM Jobs?  Technology/methodsTechnology/methods  Facilities/space utilizationFacilities/space utilization  Strategic issuesStrategic issues  Response timeResponse time  People/team developmentPeople/team development  Customer serviceCustomer service  QualityQuality  Cost reductionCost reduction  Inventory reductionInventory reduction  Productivity improvementProductivity improvement
© 2008 Prentice Hall, Inc. 1 – 24 Significant Events in OMSignificant Events in OM Figure 1.3Figure 1.3
© 2008 Prentice Hall, Inc. 1 – 25 The Heritage of OMThe Heritage of OM  Division of labor (Adam Smith 1776;Division of labor (Adam Smith 1776; Charles Babbage 1852)Charles Babbage 1852)  Standardized parts (Whitney 1800)Standardized parts (Whitney 1800)  Scientific Management (Taylor 1881)Scientific Management (Taylor 1881)  Coordinated assembly line (Ford/Coordinated assembly line (Ford/ Sorenson 1913)Sorenson 1913)  Gantt charts (Gantt 1916)Gantt charts (Gantt 1916)  Motion study (Frank and Lillian GilbrethMotion study (Frank and Lillian Gilbreth 1922)1922)  Quality control (Shewhart 1924; DemingQuality control (Shewhart 1924; Deming 1950)1950)
© 2008 Prentice Hall, Inc. 1 – 26 The Heritage of OMThe Heritage of OM  Computer (Atanasoff 1938)Computer (Atanasoff 1938)  CPM/PERT (DuPont 1957)CPM/PERT (DuPont 1957)  Material requirements planning (OrlickyMaterial requirements planning (Orlicky 1960)1960)  Computer aided design (CAD 1970)Computer aided design (CAD 1970)  Flexible manufacturing system (FMS 1975)Flexible manufacturing system (FMS 1975)  Baldrige Quality Awards (1980)Baldrige Quality Awards (1980)  Computer integrated manufacturing (1990)Computer integrated manufacturing (1990)  Globalization (1992)Globalization (1992)  Internet (1995)Internet (1995)
© 2008 Prentice Hall, Inc. 1 – 27 Eli WhitneyEli Whitney  Born 1765; died 1825Born 1765; died 1825  In 1798, received governmentIn 1798, received government contract to make 10,000 musketscontract to make 10,000 muskets  Showed that machine tools couldShowed that machine tools could make standardized parts to exactmake standardized parts to exact specificationsspecifications Musket parts could be used in anyMusket parts could be used in any musketmusket
© 2008 Prentice Hall, Inc. 1 – 28 Frederick W. TaylorFrederick W. Taylor  Born 1856; died 1915Born 1856; died 1915  Known as ‘father of scientificKnown as ‘father of scientific management’management’  In 1881, as chief engineer forIn 1881, as chief engineer for Midvale Steel, studied how tasksMidvale Steel, studied how tasks were donewere done Began first motion and time studiesBegan first motion and time studies  Created efficiency principlesCreated efficiency principles
© 2008 Prentice Hall, Inc. 1 – 29 Taylor’s PrinciplesTaylor’s Principles  Matching employees to right jobMatching employees to right job  Providing the proper trainingProviding the proper training  Providing proper work methods andProviding proper work methods and toolstools  Establishing legitimate incentives forEstablishing legitimate incentives for work to be accomplishedwork to be accomplished Management Should Take MoreManagement Should Take More Responsibility for:Responsibility for:
© 2008 Prentice Hall, Inc. 1 – 30 Frank & Lillian GilbrethFrank & Lillian Gilbreth  Frank (1868-1924); Lillian (1878-1972)Frank (1868-1924); Lillian (1878-1972)  Husband-and-wife engineering teamHusband-and-wife engineering team  Further developed work measurementFurther developed work measurement methodsmethods  Applied efficiency methods to theirApplied efficiency methods to their home and 12 children!home and 12 children!  Book & Movie: “Cheaper by the Dozen,”Book & Movie: “Cheaper by the Dozen,” book: “Bells on Their Toes”book: “Bells on Their Toes”
© 2008 Prentice Hall, Inc. 1 – 31  Born 1863; died 1947Born 1863; died 1947  In 1903, created Ford MotorIn 1903, created Ford Motor CompanyCompany  In 1913, first used moving assemblyIn 1913, first used moving assembly line to make Model Tline to make Model T Unfinished product moved byUnfinished product moved by conveyor past work stationconveyor past work station  Paid workers very well for 1911Paid workers very well for 1911 ($5/day!)($5/day!) Henry FordHenry Ford
© 2008 Prentice Hall, Inc. 1 – 32 W. Edwards DemingW. Edwards Deming  Born 1900; died 1993Born 1900; died 1993  Engineer and physicistEngineer and physicist  Credited with teaching JapanCredited with teaching Japan quality control methods in post-quality control methods in post- WW2WW2  Used statistics to analyze processUsed statistics to analyze process  His methods involve workers inHis methods involve workers in decisionsdecisions
© 2008 Prentice Hall, Inc. 1 – 33 Contributions FromContributions From  Human factorsHuman factors  Industrial engineeringIndustrial engineering  Management scienceManagement science  Biological scienceBiological science  Physical sciencesPhysical sciences  Information technologyInformation technology
© 2008 Prentice Hall, Inc. 1 – 34 New Challenges in OMNew Challenges in OM  Global focusGlobal focus  Just-in-timeJust-in-time  Supply chainSupply chain partneringpartnering  Rapid productRapid product development,development, alliancesalliances  MassMass customizationcustomization  EmpoweredEmpowered employees, teamsemployees, teams ToToFromFrom  Local or national focusLocal or national focus  Batch shipmentsBatch shipments  Low bid purchasingLow bid purchasing  Lengthy productLengthy product developmentdevelopment  Standard productsStandard products  Job specializationJob specialization
© 2008 Prentice Hall, Inc. 1 – 35 Characteristics of GoodsCharacteristics of Goods  Tangible productTangible product  Consistent productConsistent product definitiondefinition  Production usuallyProduction usually separate fromseparate from consumptionconsumption  Can be inventoriedCan be inventoried  Low customerLow customer interactioninteraction
© 2008 Prentice Hall, Inc. 1 – 36 Characteristics of ServiceCharacteristics of Service  Intangible productIntangible product  Produced andProduced and consumed at same timeconsumed at same time  Often uniqueOften unique  High customerHigh customer interactioninteraction  Inconsistent productInconsistent product definitiondefinition  Often knowledge-basedOften knowledge-based  Frequently dispersedFrequently dispersed
© 2008 Prentice Hall, Inc. 1 – 37 Industry and Services asIndustry and Services as Percentage of GDPPercentage of GDP ServicesServices ManufacturingManufacturing AustraliaAustralia CanadaCanada ChinaChina CzechRepCzechRep FranceFrance GermanyGermany HongKongHongKong JapanJapan MexicoMexico RussianFedRussianFed SouthAfricaSouthAfrica SpainSpain UKUK USUS 9090 − 8080 − 7070 − 6060 − 5050 − 4040 − 3030 − 2020 − 1010 − 00 −
© 2008 Prentice Hall, Inc. 1 – 38 Goods Versus ServicesGoods Versus Services Table 1.3Table 1.3 Can be resoldCan be resold Can be inventoriedCan be inventoried Some aspects of qualitySome aspects of quality measurablemeasurable Selling is distinct fromSelling is distinct from productionproduction Product is transportableProduct is transportable Site of facility important for costSite of facility important for cost Often easy to automateOften easy to automate Revenue generated primarilyRevenue generated primarily from tangible productfrom tangible product Attributes of GoodsAttributes of Goods (Tangible Product)(Tangible Product) Attributes of ServicesAttributes of Services (Intangible Product)(Intangible Product) Reselling unusualReselling unusual Difficult to inventoryDifficult to inventory Quality difficult to measureQuality difficult to measure Selling is part of serviceSelling is part of service Provider, not product, isProvider, not product, is often transportableoften transportable Site of facility important forSite of facility important for customer contactcustomer contact Often difficult to automateOften difficult to automate Revenue generated primarilyRevenue generated primarily from the intangible servicefrom the intangible service
© 2008 Prentice Hall, Inc. 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 GoodPercent of Product that is a Good Percent of Product that is a ServicePercent of Product that is a Service 100%100% 7575 5050 2525 00 2525 5050 7575 100%100% || || || || || || || || || Figure 1.4Figure 1.4
© 2008 Prentice Hall, Inc. 1 – 40 120120 – 100100 – 8080 – 6060 – 4040 – 2020 – 00 – | | | | | | | 19501950 19701970 19901990 2010 (est)2010 (est) 19601960 19801980 20002000 Employment(millions)Employment(millions) Manufacturing and ServiceManufacturing and Service EmploymentEmployment Figure 1.5 (A)Figure 1.5 (A) ManufacturingManufacturing ServiceService
© 2008 Prentice Hall, Inc. 1 – 41 Manufacturing EmploymentManufacturing Employment and Productionand Production Figure 1.5 (B)Figure 1.5 (B) 4040 – 3030 – 2020 – 1010 – 00 – | | | | | | | 19501950 19701970 19901990 2010 (est)2010 (est) 19601960 19801980 20002000 – 150150 – 125125 – 100100 – 7575 – 5050 – 2525 – 00 Employment(millions)Employment(millions) Index:1997=100Index:1997=100 Manufacturing employment (left scale) IndustrialIndustrial productionproduction (right scale)(right scale)
© 2008 Prentice Hall, Inc. 1 – 42 Development of theDevelopment of the Service EconomyService Economy Figure 1.5 (C)Figure 1.5 (C) United States Canada France Italy Britain Japan W. Germany 1970 2008 (est) | | | | | 40 50 60 70 80 Percent
© 2008 Prentice Hall, Inc. 1 – 43 Organizations in Each SectorOrganizations in Each Sector Service SectorService Sector ExampleExample % of all% of all JobsJobs Education,Education, Legal, Medical,Legal, Medical, and otherand other Notre Dame University,Notre Dame University, San Diego Zoo, ArnoldSan Diego Zoo, Arnold Palmer HospitalPalmer Hospital 25.525.5 Trade (retail,Trade (retail, wholesale)wholesale) Walgreen’s, Wal-Mart,Walgreen’s, Wal-Mart, Nordstrom’sNordstrom’s 15.115.1 Utilities,Utilities, TransportationTransportation Pacific Gas & Electric,Pacific Gas & Electric, American Airlines, SantaAmerican Airlines, Santa Fe R.R., RoadwayFe R.R., Roadway ExpressExpress 5.25.2 Table 1.4Table 1.4
© 2008 Prentice Hall, Inc. 1 – 44 Organizations in Each SectorOrganizations in Each Sector Service SectorService Sector ExampleExample % of all% of all JobsJobs ProfessionalProfessional and Businessand Business ServicesServices Snelling and Snelling, WasteSnelling and Snelling, Waste Management, Pitney-BowesManagement, Pitney-Bowes 10.110.1 Finance,Finance, Information,Information, Real EstateReal Estate Citicorp, American Express,Citicorp, American Express, Prudential, Aetna, TrammelPrudential, Aetna, Trammel Crow, EDS, IBMCrow, EDS, IBM 9.69.6 Food, Lodging,Food, Lodging, EntertainmentEntertainment Olive Garden, Hard Rock Cafe,Olive Garden, Hard Rock Cafe, Motel 6, Hilton Hotels, WaltMotel 6, Hilton Hotels, Walt Disney, Paramount PicturesDisney, Paramount Pictures 8.58.5 PublicPublic AdministrationAdministration U.S., State of Alabama, CookU.S., State of Alabama, Cook CountyCounty 4.64.6 Table 1.4Table 1.4
© 2008 Prentice Hall, Inc. 1 – 45 Organizations in Each SectorOrganizations in Each Sector ManufacturingManufacturing SectorSector ExampleExample % of all% of all JobsJobs ManufacturingManufacturing General Electric, Ford,General Electric, Ford, U.S. Steel, IntelU.S. Steel, Intel 11.511.5 ConstructionConstruction Bechtel, McDermottBechtel, McDermott 7.97.9 AgricultureAgriculture King RanchKing Ranch 1.61.6 MiningMining Homestake MiningHomestake Mining 0.40.4 SectorSector Percent of all jobsPercent of all jobs ServiceService 78.6%78.6% ManufacturingManufacturing 21.4%21.4% Table 1.4Table 1.4
© 2008 Prentice Hall, Inc. 1 – 46 New Trends in OMNew Trends in OM Local orLocal or nationalnational focusfocus Reliable worldwideReliable worldwide communication andcommunication and transportation networkstransportation networks Global focus,Global focus, movingmoving productionproduction offshoreoffshore Batch (large)Batch (large) shipmentsshipments Short product life cyclesShort product life cycles and cost of capital putand cost of capital put pressure on reducingpressure on reducing inventoryinventory Just-in-timeJust-in-time performanceperformance Low-bidLow-bid purchasingpurchasing Supply chain competitionSupply chain competition requires that suppliers berequires that suppliers be engaged in a focus on theengaged in a focus on the end customerend customer Supply chainSupply chain partners,partners, collaboration,collaboration, alliances,alliances, outsourcingoutsourcing Figure 1.6Figure 1.6 PastPast CausesCauses FutureFuture
© 2008 Prentice Hall, Inc. 1 – 47 New Trends in OMNew Trends in OM LengthyLengthy productproduct developmentdevelopment Shorter life cycles,Shorter life cycles, Internet, rapid internationalInternet, rapid international communication, computer-communication, computer- aided design, andaided design, and international collaborationinternational collaboration Rapid productRapid product development,development, alliances,alliances, collaborativecollaborative designsdesigns StandardizedStandardized productsproducts Affluence and worldwideAffluence and worldwide markets; increasinglymarkets; increasingly flexible productionflexible production processesprocesses MassMass customizationcustomization with addedwith added emphasis onemphasis on qualityquality JobJob specializationspecialization Changing sociocultureChanging socioculture milieu; increasingly amilieu; increasingly a knowledge and informationknowledge and information societysociety EmpoweredEmpowered employees,employees, teams, and leanteams, and lean productionproduction Figure 1.6Figure 1.6 PastPast CausesCauses FutureFuture
© 2008 Prentice Hall, Inc. 1 – 48 New Trends in OMNew Trends in OM Low-costLow-cost focusfocus Environmental issues, ISOEnvironmental issues, ISO 14000, increasing disposal14000, increasing disposal costscosts EnvironmentallyEnvironmentally sensitivesensitive production, greenproduction, green manufacturing,manufacturing, recycledrecycled materials,materials, remanufacturingremanufacturing Ethics notEthics not at forefrontat forefront Businesses operate moreBusinesses operate more openly; public and globalopenly; public and global review of ethics; oppositionreview of ethics; opposition to child labor, bribery,to child labor, bribery, pollutionpollution High ethicalHigh ethical standards andstandards and socialsocial responsibilityresponsibility expectedexpected Figure 1.6Figure 1.6 PastPast CausesCauses FutureFuture
© 2008 Prentice Hall, Inc. 1 – 49 New Trends in OMNew Trends in OM  Global focusGlobal focus  Just-in-time performanceJust-in-time performance  Supply chain partneringSupply chain partnering  Rapid product developmentRapid product development  Mass customizationMass customization  Empowered employeesEmpowered employees  Environmentally sensitive productionEnvironmentally sensitive production  EthicsEthics
© 2008 Prentice Hall, Inc. 1 – 50 Productivity ChallengeProductivity Challenge Productivity is the ratio of outputs (goodsProductivity is the ratio of outputs (goods and services) divided by the inputsand services) divided by the inputs (resources such as labor and capital)(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
© 2008 Prentice Hall, Inc. 1 – 51 FeedbackFeedback looploop OutputsOutputs Goods and services ProcessesProcesses 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 InputsInputs Labor, capital, management Figure 1.7Figure 1.7
© 2008 Prentice Hall, Inc. 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 signaturesStop requiring signatures on credit card purchaseson credit card purchases under $25under $25 Saved 8 secondsSaved 8 seconds per transactionper transaction Change the size of the iceChange the size of the ice scoopscoop Saved 14 secondsSaved 14 seconds per drinkper drink New espresso machinesNew espresso machines Saved 12 secondsSaved 12 seconds per shotper shot
© 2008 Prentice Hall, Inc. 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 signaturesStop requiring signatures on credit card purchaseson credit card purchases under $25under $25 Saved 8 secondsSaved 8 seconds per transactionper transaction Change the size of the iceChange the size of the ice scoopscoop Saved 14 secondsSaved 14 seconds per drinkper drink New espresso machinesNew espresso machines Saved 12 secondsSaved 12 seconds per shotper shot Operations improvements haveOperations improvements have helped Starbucks increase yearlyhelped Starbucks increase yearly revenue per outlet by $200,000 torevenue per outlet by $200,000 to $940,000 in six years.$940,000 in six years. Productivity has improved by 27%,Productivity has improved by 27%, or about 4.5% per year.or about 4.5% per year.
© 2008 Prentice Hall, Inc. 1 – 54  Measure of process improvementMeasure of process improvement  Represents output relative to inputRepresents output relative to input  Only through productivity increases canOnly through productivity increases can our standard of living improveour standard of living improve ProductivityProductivity Productivity =Productivity = Units producedUnits produced Input usedInput used
© 2008 Prentice Hall, Inc. 1 – 55 Productivity CalculationsProductivity Calculations Productivity =Productivity = Units producedUnits produced Labor-hours usedLabor-hours used = == = 44 units/labor-hourunits/labor-hour 1,0001,000 250250 Labor ProductivityLabor Productivity One resource inputOne resource input  single-factor productivitysingle-factor productivity
© 2008 Prentice Hall, Inc. 1 – 56 Multi-Factor ProductivityMulti-Factor Productivity OutputOutput Labor + Material + EnergyLabor + Material + Energy + Capital + Miscellaneous+ Capital + Miscellaneous Productivity =Productivity =  Also known as total factor productivityAlso known as total factor productivity  Output and inputs are often expressedOutput and inputs are often expressed in dollarsin dollars Multiple resource inputsMultiple resource inputs  multi-factor productivitymulti-factor productivity
© 2008 Prentice Hall, Inc. 1 – 57 Collins Title ProductivityCollins Title Productivity Staff ofStaff of 44 worksworks 88 hrs/dayhrs/day 88 titles/daytitles/day Payroll cost =Payroll cost = $640$640/day/day Overhead =Overhead = $400$400/day/day Old System:Old System: == Old laborOld labor productivityproductivity 88 titles/daytitles/day 3232 labor-hrslabor-hrs
© 2008 Prentice Hall, Inc. 1 – 58 Collins Title ProductivityCollins Title Productivity Staff ofStaff of 44 worksworks 88 hrs/dayhrs/day 88 titles/daytitles/day Payroll cost =Payroll cost = $640$640/day/day Overhead =Overhead = $400$400/day/day Old System:Old System: 88 titles/daytitles/day 3232 labor-hrslabor-hrs == Old laborOld labor productivityproductivity == .25.25 titles/labor-hrtitles/labor-hr
© 2008 Prentice Hall, Inc. 1 – 59 Collins Title ProductivityCollins Title Productivity Staff ofStaff of 44 worksworks 88 hrs/dayhrs/day 88 titles/daytitles/day Payroll cost =Payroll cost = $640$640/day/day Overhead =Overhead = $400$400/day/day Old System:Old System: 1414 titles/daytitles/day Overhead =Overhead = $800$800/day/day New System:New System: 88 titles/daytitles/day 3232 labor-hrslabor-hrs == Old laborOld labor productivityproductivity == New laborNew labor productivityproductivity = .25 titles/labor-hr= .25 titles/labor-hr 1414 titles/daytitles/day 3232 labor-hrslabor-hrs
© 2008 Prentice Hall, Inc. 1 – 60 Collins Title ProductivityCollins Title Productivity Staff ofStaff of 44 worksworks 88 hrs/dayhrs/day 88 titles/daytitles/day Payroll cost =Payroll cost = $640$640/day/day Overhead =Overhead = $400$400/day/day Old System:Old System: 1414 titles/daytitles/day Overhead =Overhead = $800$800/day/day New System:New System: 88 titles/daytitles/day 3232 labor-hrslabor-hrs == Old laborOld labor productivityproductivity == .25.25 titles/labor-hrtitles/labor-hr 1414 titles/daytitles/day 3232 labor-hrslabor-hrs == New laborNew labor productivityproductivity == .4375.4375 titles/labor-hrtitles/labor-hr
© 2008 Prentice Hall, Inc. 1 – 61 Collins Title ProductivityCollins Title Productivity Staff ofStaff of 44 worksworks 88 hrs/dayhrs/day 88 titles/daytitles/day Payroll cost =Payroll cost = $640$640/day/day Overhead =Overhead = $400$400/day/day Old System:Old System: 1414 titles/daytitles/day Overhead =Overhead = $800$800/day/day New System:New System: == Old multifactorOld multifactor productivityproductivity 88 titles/daytitles/day $640 + 400$640 + 400
© 2008 Prentice Hall, Inc. 1 – 62 Collins Title ProductivityCollins Title Productivity Staff ofStaff of 44 worksworks 88 hrs/dayhrs/day 88 titles/daytitles/day Payroll cost =Payroll cost = $640$640/day/day Overhead =Overhead = $400$400/day/day Old System:Old System: 1414 titles/daytitles/day Overhead =Overhead = $800$800/day/day New System:New System: 88 titles/daytitles/day $640 + 400$640 + 400 == Old multifactorOld multifactor productivityproductivity == .0077.0077 titles/dollartitles/dollar
© 2008 Prentice Hall, Inc. 1 – 63 Collins Title ProductivityCollins Title Productivity Staff ofStaff of 44 worksworks 88 hrs/dayhrs/day 88 titles/daytitles/day Payroll cost =Payroll cost = $640$640/day/day Overhead =Overhead = $400$400/day/day Old System:Old System: 1414 titles/daytitles/day Overhead =Overhead = $800$800/day/day New System:New System: 88 titles/daytitles/day $640 + 400$640 + 400 == Old multifactorOld multifactor productivityproductivity == New multifactorNew multifactor productivityproductivity == .0077.0077 titles/dollartitles/dollar 1414 titles/daytitles/day $640 + 800$640 + 800
© 2008 Prentice Hall, Inc. 1 – 64 Collins Title ProductivityCollins Title Productivity Staff ofStaff of 44 worksworks 88 hrs/dayhrs/day 88 titles/daytitles/day Payroll cost =Payroll cost = $640$640/day/day Overhead =Overhead = $400$400/day/day Old System:Old System: 1414 titles/daytitles/day Overhead =Overhead = $800$800/day/day New System:New System: 88 titles/daytitles/day $640 + 400$640 + 400 1414 titles/daytitles/day $640 + 800$640 + 800 == Old multifactorOld multifactor productivityproductivity == New multifactorNew multifactor productivityproductivity == .0077.0077 titles/dollartitles/dollar == .0097.0097 titles/dollartitles/dollar
© 2008 Prentice Hall, Inc. 1 – 65 Measurement ProblemsMeasurement Problems  QualityQuality may change while themay change while the quantity of inputs and outputsquantity of inputs and outputs remains constantremains constant  External elementsExternal elements may cause anmay cause an increase or decrease inincrease or decrease in productivityproductivity  Precise unitsPrecise units of measure may beof measure may be lackinglacking
© 2008 Prentice Hall, Inc. 1 – 66 Productivity VariablesProductivity Variables  LaborLabor - contributes- contributes aboutabout 10%10% of theof the annual increaseannual increase  CapitalCapital - contributes- contributes aboutabout 38%38% of theof the annual increaseannual increase  ManagementManagement -- contributes aboutcontributes about 52%52% of the annual increaseof the annual increase
© 2008 Prentice Hall, Inc. 1 – 67 Key Variables for ImprovedKey Variables for Improved Labor ProductivityLabor Productivity  Basic education appropriate for theBasic education appropriate for the labor forcelabor force  Diet of the labor forceDiet of the labor force  Social overhead that makes laborSocial overhead that makes labor availableavailable  Maintaining and enhancing skills in theMaintaining and enhancing skills in the midst of rapidly changing technologymidst of rapidly changing technology and knowledgeand knowledge
© 2008 Prentice Hall, Inc. 1 – 68 Labor SkillsLabor Skills About half of the 17-year-olds in the US cannotAbout half of the 17-year-olds in the US cannot correctly answer questions of this typecorrectly answer questions of this type Figure 1.8Figure 1.8
© 2008 Prentice Hall, Inc. 1 – 69 Investment and ProductivityInvestment and Productivity 1010 88 66 44 22 00 PercentincreaseinproductivityPercentincreaseinproductivity Percentage investmentPercentage investment 1010 1515 2020 2525 3030 3535
© 2008 Prentice Hall, Inc. 1 – 70 Service ProductivityService Productivity  Typically labor intensiveTypically labor intensive  Frequently focused on uniqueFrequently focused on unique individual attributes or desiresindividual attributes or desires  Often an intellectual task performed byOften an intellectual task performed by professionalsprofessionals  Often difficult to mechanizeOften difficult to mechanize  Often difficult to evaluate for qualityOften difficult to evaluate for quality
© 2008 Prentice Hall, Inc. 1 – 71 Productivity at Taco BellProductivity at Taco Bell Improvements:Improvements:  Revised the menuRevised the menu  Designed meals for easy preparationDesigned meals for easy preparation  Shifted some preparation to suppliersShifted some preparation to suppliers  Efficient layout and automationEfficient layout and automation  Training and employee empowermentTraining and employee empowerment
© 2008 Prentice Hall, Inc. 1 – 72 Productivity at Taco BellProductivity at Taco Bell Improvements:Improvements:  Revised the menuRevised the menu  Designed meals for easy preparationDesigned meals for easy preparation  Shifted some preparation to suppliersShifted some preparation to suppliers  Efficient layout and automationEfficient layout and automation  Training and employee empowermentTraining 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
© 2008 Prentice Hall, Inc. 1 – 73 Ethics and Social ResponsibilityEthics and Social Responsibility Challenges facingChallenges facing operations managers:operations managers:  Developing and producing safe,Developing and producing safe, quality productsquality products  Maintaining a clean environmentMaintaining a clean environment  Providing a safe workplaceProviding a safe workplace  Honoring community commitmentsHonoring community commitments

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Heizer chapter 01

  • 1.
    © 2008 PrenticeHall, Inc. 1 – 1 Operations Management Chapter 1 –Chapter 1 – Operations andOperations and ProductivityProductivity PowerPoint presentation to accompanyPowerPoint presentation to accompany Heizer/RenderHeizer/Render Principles of Operations Management, 7ePrinciples of Operations Management, 7e Operations Management, 9eOperations Management, 9e
  • 2.
    © 2008 PrenticeHall, Inc. 1 – 2 OutlineOutline  Global Company Profile: Hard RockGlobal Company Profile: Hard Rock CafeCafe  What Is Operations Management?What Is Operations Management?  Organizing to Produce Goods andOrganizing to Produce Goods and ServicesServices  Why Study OM?Why Study OM?  What Operations Managers DoWhat Operations Managers Do  How This Book Is OrganizedHow This Book Is Organized
  • 3.
    © 2008 PrenticeHall, Inc. 1 – 3 Outline - ContinuedOutline - Continued  The Heritage of OperationsThe Heritage of Operations ManagementManagement  Operations in the Service SectorOperations in the Service Sector  Differences between Goods andDifferences between Goods and ServicesServices  Growth of ServicesGrowth of Services  Service PayService Pay  Exciting New Trends in OperationsExciting New Trends in Operations ManagementManagement
  • 4.
    © 2008 PrenticeHall, Inc. 1 – 4 Outline - ContinuedOutline - Continued  The Productivity ChallengeThe Productivity Challenge  Productivity MeasurementProductivity Measurement  Productivity VariablesProductivity Variables  Productivity and the Service SectorProductivity and the Service Sector  Ethics and Social ResponsibilityEthics and Social Responsibility
  • 5.
    © 2008 PrenticeHall, Inc. 1 – 5 Learning ObjectivesLearning Objectives When you complete this chapterWhen you complete this chapter you should be able to:you should be able to: 1.1. Define operations managementDefine operations management 2.2. Explain the distinction betweenExplain the distinction between goods and servicesgoods and services 3.3. Explain the difference betweenExplain the difference between production and productivityproduction and productivity
  • 6.
    © 2008 PrenticeHall, Inc. 1 – 6 Learning ObjectivesLearning Objectives When you complete this chapterWhen you complete this chapter you should be able to:you should be able to: 4.4. Compute single-factorCompute single-factor productivityproductivity 5.5. Compute multifactor productivityCompute multifactor productivity 6.6. Identify the critical variables inIdentify the critical variables in enhancing productivityenhancing productivity
  • 7.
    © 2008 PrenticeHall, Inc. 1 – 7 The Hard Rock CafeThe Hard Rock Cafe  First opened in 1971First opened in 1971  Now – 121 restaurants in over 40 countriesNow – 121 restaurants in over 40 countries  Rock music memorabiliaRock music memorabilia  Creates value in the form of good foodCreates value in the form of good food and entertainmentand entertainment  3,5003,500++ custom meals per day in Orlandocustom meals per day in Orlando  How does an item get on the menu?How does an item get on the menu?  Role of the Operations ManagerRole of the Operations Manager
  • 8.
    © 2008 PrenticeHall, Inc. 1 – 8 What Is OperationsWhat Is Operations Management?Management? ProductionProduction is the creation ofis the creation of goods and servicesgoods and services Operations management (OM)Operations management (OM) is the set of activities thatis the set of activities that creates value in the form ofcreates value in the form of goods and services bygoods and services by transforming inputs intotransforming inputs into outputsoutputs
  • 9.
    © 2008 PrenticeHall, Inc. 1 – 9 Organizing to ProduceOrganizing to Produce Goods and ServicesGoods and Services  Essential functions:Essential functions:  Marketing – generates demandMarketing – generates demand  Production/operations – createsProduction/operations – creates the productthe product  Finance/accounting – tracks howFinance/accounting – tracks how well the organization is doing, payswell the organization is doing, pays bills, collects the moneybills, collects the money
  • 10.
    © 2008 PrenticeHall, Inc. 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)Figure 1.1(A)
  • 11.
    © 2008 PrenticeHall, Inc. 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)Figure 1.1(B) Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising
  • 12.
    © 2008 PrenticeHall, Inc. 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)Figure 1.1(C)
  • 13.
    © 2008 PrenticeHall, Inc. 1 – 13 Why Study OM?Why Study OM?  OM is one of three major functionsOM is one of three major functions (marketing, finance, and operations)(marketing, finance, and operations) of any organizationof any organization  We want (We want (and needand need) to know how) to know how goods and services are producedgoods and services are produced  We want to understand whatWe want to understand what operations managers dooperations managers do  OM is such a costly part of anOM is such a costly part of an organizationorganization
  • 14.
    © 2008 PrenticeHall, Inc. 1 – 14 Options for IncreasingOptions for Increasing ContributionContribution SalesSales $100,000$100,000 $150,000$150,000 $100,000$100,000 $100,000$100,000 Cost of GoodsCost of Goods –– 80,00080,000 –– 120,000120,000 –– 80,00080,000 –– 64,00064,000 Gross MarginGross Margin 20,00020,000 30,00030,000 20,00020,000 36,00036,000 Finance CostsFinance Costs –– 6,0006,000 –– 6,0006,000 –– 3,0003,000 –– 6,0006,000 SubtotalSubtotal 14,00014,000 24,00024,000 17,00017,000 30,00030,000 Taxes at 25%Taxes at 25% –– 3,5003,500 –– 6,0006,000 –– 4,2504,250 –– 7,5007,500 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 ReduceReduce SalesSales FinanceFinance ProductionProduction CurrentCurrent Revenue 50%Revenue 50% Costs 50%Costs 50% Costs 20%Costs 20%
  • 15.
    © 2008 PrenticeHall, Inc. 1 – 15 What OperationsWhat Operations Managers DoManagers Do  PlanningPlanning  OrganizingOrganizing  StaffingStaffing  LeadingLeading  ControllingControlling Basic Management FunctionsBasic Management Functions
  • 16.
    © 2008 PrenticeHall, Inc. 1 – 16 Ten Critical DecisionsTen Critical Decisions Ten Decision AreasTen Decision Areas Chapter(s)Chapter(s)  Design of goods and servicesDesign of goods and services 55  Managing qualityManaging quality 6, Supplement 66, Supplement 6  Process and capacityProcess and capacity 7, Supplement 77, Supplement 7 designdesign  Location strategyLocation strategy 88  Layout strategyLayout strategy 99  Human resources andHuman resources and 10, Supplement 1010, Supplement 10 job designjob design  Supply chainSupply chain 11, Supplement 1111, Supplement 11 managementmanagement  Inventory managementInventory management 12, 14, 1612, 14, 16  SchedulingScheduling 13, 1513, 15  MaintenanceMaintenance 1717 Table 1.2Table 1.2
  • 17.
    © 2008 PrenticeHall, Inc. 1 – 17 The Critical DecisionsThe Critical Decisions  Design of goods and servicesDesign of goods and services  What good or service should weWhat good or service should we offer?offer?  How should we design these productsHow should we design these products and services?and services?  Managing qualityManaging quality  How do we define quality?How do we define quality?  Who is responsible for quality?Who is responsible for quality? Table 1.2 (cont.)Table 1.2 (cont.)
  • 18.
    © 2008 PrenticeHall, Inc. 1 – 18 The Critical DecisionsThe Critical Decisions  Process and capacity designProcess and capacity design  What process and what capacity willWhat process and what capacity will these products require?these products require?  What equipment and technology isWhat equipment and technology is necessary for these processes?necessary for these processes?  Location strategyLocation strategy  Where should we put the facility?Where should we put the facility?  On what criteria should we base theOn what criteria should we base the location decision?location decision? Table 1.2 (cont.)Table 1.2 (cont.)
  • 19.
    © 2008 PrenticeHall, Inc. 1 – 19 The Critical DecisionsThe Critical Decisions  Layout strategyLayout strategy  How should we arrange the facility?How should we arrange the facility?  How large must the facility be to meetHow large must the facility be to meet our plan?our plan?  Human resources and job designHuman resources and job design  How do we provide a reasonable workHow do we provide a reasonable work environment?environment?  How much can we expect ourHow much can we expect our employees to produce?employees to produce? Table 1.2 (cont.)Table 1.2 (cont.)
  • 20.
    © 2008 PrenticeHall, Inc. 1 – 20 The Critical DecisionsThe Critical Decisions  Supply chain managementSupply chain management  Should we make or buy this component?Should we make or buy this component?  Who are our suppliers and who canWho are our suppliers and who can integrate into our e-commerce program?integrate into our e-commerce program?  Inventory, material requirementsInventory, material requirements planning, and JITplanning, and JIT  How much inventory of each item shouldHow much inventory of each item should we have?we have?  When do we re-order?When do we re-order? Table 1.2 (cont.)Table 1.2 (cont.)
  • 21.
    © 2008 PrenticeHall, Inc. 1 – 21 The Critical DecisionsThe Critical Decisions  Intermediate and shortIntermediate and short––termterm schedulingscheduling  Are we better off keeping people onAre we better off keeping people on the payroll during slowdowns?the payroll during slowdowns?  Which jobs do we perform next?Which jobs do we perform next?  MaintenanceMaintenance  Who is responsible for maintenance?Who is responsible for maintenance?  When do we do maintenance?When do we do maintenance? Table 1.2 (cont.)Table 1.2 (cont.)
  • 22.
    © 2008 PrenticeHall, Inc. 1 – 22 Where are the OM Jobs?Where are the OM Jobs? Figure 1.2Figure 1.2
  • 23.
    © 2008 PrenticeHall, Inc. 1 – 23 Where are the OM Jobs?Where are the OM Jobs?  Technology/methodsTechnology/methods  Facilities/space utilizationFacilities/space utilization  Strategic issuesStrategic issues  Response timeResponse time  People/team developmentPeople/team development  Customer serviceCustomer service  QualityQuality  Cost reductionCost reduction  Inventory reductionInventory reduction  Productivity improvementProductivity improvement
  • 24.
    © 2008 PrenticeHall, Inc. 1 – 24 Significant Events in OMSignificant Events in OM Figure 1.3Figure 1.3
  • 25.
    © 2008 PrenticeHall, Inc. 1 – 25 The Heritage of OMThe Heritage of OM  Division of labor (Adam Smith 1776;Division of labor (Adam Smith 1776; Charles Babbage 1852)Charles Babbage 1852)  Standardized parts (Whitney 1800)Standardized parts (Whitney 1800)  Scientific Management (Taylor 1881)Scientific Management (Taylor 1881)  Coordinated assembly line (Ford/Coordinated assembly line (Ford/ Sorenson 1913)Sorenson 1913)  Gantt charts (Gantt 1916)Gantt charts (Gantt 1916)  Motion study (Frank and Lillian GilbrethMotion study (Frank and Lillian Gilbreth 1922)1922)  Quality control (Shewhart 1924; DemingQuality control (Shewhart 1924; Deming 1950)1950)
  • 26.
    © 2008 PrenticeHall, Inc. 1 – 26 The Heritage of OMThe Heritage of OM  Computer (Atanasoff 1938)Computer (Atanasoff 1938)  CPM/PERT (DuPont 1957)CPM/PERT (DuPont 1957)  Material requirements planning (OrlickyMaterial requirements planning (Orlicky 1960)1960)  Computer aided design (CAD 1970)Computer aided design (CAD 1970)  Flexible manufacturing system (FMS 1975)Flexible manufacturing system (FMS 1975)  Baldrige Quality Awards (1980)Baldrige Quality Awards (1980)  Computer integrated manufacturing (1990)Computer integrated manufacturing (1990)  Globalization (1992)Globalization (1992)  Internet (1995)Internet (1995)
  • 27.
    © 2008 PrenticeHall, Inc. 1 – 27 Eli WhitneyEli Whitney  Born 1765; died 1825Born 1765; died 1825  In 1798, received governmentIn 1798, received government contract to make 10,000 musketscontract to make 10,000 muskets  Showed that machine tools couldShowed that machine tools could make standardized parts to exactmake standardized parts to exact specificationsspecifications Musket parts could be used in anyMusket parts could be used in any musketmusket
  • 28.
    © 2008 PrenticeHall, Inc. 1 – 28 Frederick W. TaylorFrederick W. Taylor  Born 1856; died 1915Born 1856; died 1915  Known as ‘father of scientificKnown as ‘father of scientific management’management’  In 1881, as chief engineer forIn 1881, as chief engineer for Midvale Steel, studied how tasksMidvale Steel, studied how tasks were donewere done Began first motion and time studiesBegan first motion and time studies  Created efficiency principlesCreated efficiency principles
  • 29.
    © 2008 PrenticeHall, Inc. 1 – 29 Taylor’s PrinciplesTaylor’s Principles  Matching employees to right jobMatching employees to right job  Providing the proper trainingProviding the proper training  Providing proper work methods andProviding proper work methods and toolstools  Establishing legitimate incentives forEstablishing legitimate incentives for work to be accomplishedwork to be accomplished Management Should Take MoreManagement Should Take More Responsibility for:Responsibility for:
  • 30.
    © 2008 PrenticeHall, Inc. 1 – 30 Frank & Lillian GilbrethFrank & Lillian Gilbreth  Frank (1868-1924); Lillian (1878-1972)Frank (1868-1924); Lillian (1878-1972)  Husband-and-wife engineering teamHusband-and-wife engineering team  Further developed work measurementFurther developed work measurement methodsmethods  Applied efficiency methods to theirApplied efficiency methods to their home and 12 children!home and 12 children!  Book & Movie: “Cheaper by the Dozen,”Book & Movie: “Cheaper by the Dozen,” book: “Bells on Their Toes”book: “Bells on Their Toes”
  • 31.
    © 2008 PrenticeHall, Inc. 1 – 31  Born 1863; died 1947Born 1863; died 1947  In 1903, created Ford MotorIn 1903, created Ford Motor CompanyCompany  In 1913, first used moving assemblyIn 1913, first used moving assembly line to make Model Tline to make Model T Unfinished product moved byUnfinished product moved by conveyor past work stationconveyor past work station  Paid workers very well for 1911Paid workers very well for 1911 ($5/day!)($5/day!) Henry FordHenry Ford
  • 32.
    © 2008 PrenticeHall, Inc. 1 – 32 W. Edwards DemingW. Edwards Deming  Born 1900; died 1993Born 1900; died 1993  Engineer and physicistEngineer and physicist  Credited with teaching JapanCredited with teaching Japan quality control methods in post-quality control methods in post- WW2WW2  Used statistics to analyze processUsed statistics to analyze process  His methods involve workers inHis methods involve workers in decisionsdecisions
  • 33.
    © 2008 PrenticeHall, Inc. 1 – 33 Contributions FromContributions From  Human factorsHuman factors  Industrial engineeringIndustrial engineering  Management scienceManagement science  Biological scienceBiological science  Physical sciencesPhysical sciences  Information technologyInformation technology
  • 34.
    © 2008 PrenticeHall, Inc. 1 – 34 New Challenges in OMNew Challenges in OM  Global focusGlobal focus  Just-in-timeJust-in-time  Supply chainSupply chain partneringpartnering  Rapid productRapid product development,development, alliancesalliances  MassMass customizationcustomization  EmpoweredEmpowered employees, teamsemployees, teams ToToFromFrom  Local or national focusLocal or national focus  Batch shipmentsBatch shipments  Low bid purchasingLow bid purchasing  Lengthy productLengthy product developmentdevelopment  Standard productsStandard products  Job specializationJob specialization
  • 35.
    © 2008 PrenticeHall, Inc. 1 – 35 Characteristics of GoodsCharacteristics of Goods  Tangible productTangible product  Consistent productConsistent product definitiondefinition  Production usuallyProduction usually separate fromseparate from consumptionconsumption  Can be inventoriedCan be inventoried  Low customerLow customer interactioninteraction
  • 36.
    © 2008 PrenticeHall, Inc. 1 – 36 Characteristics of ServiceCharacteristics of Service  Intangible productIntangible product  Produced andProduced and consumed at same timeconsumed at same time  Often uniqueOften unique  High customerHigh customer interactioninteraction  Inconsistent productInconsistent product definitiondefinition  Often knowledge-basedOften knowledge-based  Frequently dispersedFrequently dispersed
  • 37.
    © 2008 PrenticeHall, Inc. 1 – 37 Industry and Services asIndustry and Services as Percentage of GDPPercentage of GDP ServicesServices ManufacturingManufacturing AustraliaAustralia CanadaCanada ChinaChina CzechRepCzechRep FranceFrance GermanyGermany HongKongHongKong JapanJapan MexicoMexico RussianFedRussianFed SouthAfricaSouthAfrica SpainSpain UKUK USUS 9090 − 8080 − 7070 − 6060 − 5050 − 4040 − 3030 − 2020 − 1010 − 00 −
  • 38.
    © 2008 PrenticeHall, Inc. 1 – 38 Goods Versus ServicesGoods Versus Services Table 1.3Table 1.3 Can be resoldCan be resold Can be inventoriedCan be inventoried Some aspects of qualitySome aspects of quality measurablemeasurable Selling is distinct fromSelling is distinct from productionproduction Product is transportableProduct is transportable Site of facility important for costSite of facility important for cost Often easy to automateOften easy to automate Revenue generated primarilyRevenue generated primarily from tangible productfrom tangible product Attributes of GoodsAttributes of Goods (Tangible Product)(Tangible Product) Attributes of ServicesAttributes of Services (Intangible Product)(Intangible Product) Reselling unusualReselling unusual Difficult to inventoryDifficult to inventory Quality difficult to measureQuality difficult to measure Selling is part of serviceSelling is part of service Provider, not product, isProvider, not product, is often transportableoften transportable Site of facility important forSite of facility important for customer contactcustomer contact Often difficult to automateOften difficult to automate Revenue generated primarilyRevenue generated primarily from the intangible servicefrom the intangible service
  • 39.
    © 2008 PrenticeHall, Inc. 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 GoodPercent of Product that is a Good Percent of Product that is a ServicePercent of Product that is a Service 100%100% 7575 5050 2525 00 2525 5050 7575 100%100% || || || || || || || || || Figure 1.4Figure 1.4
  • 40.
    © 2008 PrenticeHall, Inc. 1 – 40 120120 – 100100 – 8080 – 6060 – 4040 – 2020 – 00 – | | | | | | | 19501950 19701970 19901990 2010 (est)2010 (est) 19601960 19801980 20002000 Employment(millions)Employment(millions) Manufacturing and ServiceManufacturing and Service EmploymentEmployment Figure 1.5 (A)Figure 1.5 (A) ManufacturingManufacturing ServiceService
  • 41.
    © 2008 PrenticeHall, Inc. 1 – 41 Manufacturing EmploymentManufacturing Employment and Productionand Production Figure 1.5 (B)Figure 1.5 (B) 4040 – 3030 – 2020 – 1010 – 00 – | | | | | | | 19501950 19701970 19901990 2010 (est)2010 (est) 19601960 19801980 20002000 – 150150 – 125125 – 100100 – 7575 – 5050 – 2525 – 00 Employment(millions)Employment(millions) Index:1997=100Index:1997=100 Manufacturing employment (left scale) IndustrialIndustrial productionproduction (right scale)(right scale)
  • 42.
    © 2008 PrenticeHall, Inc. 1 – 42 Development of theDevelopment of the Service EconomyService Economy Figure 1.5 (C)Figure 1.5 (C) United States Canada France Italy Britain Japan W. Germany 1970 2008 (est) | | | | | 40 50 60 70 80 Percent
  • 43.
    © 2008 PrenticeHall, Inc. 1 – 43 Organizations in Each SectorOrganizations in Each Sector Service SectorService Sector ExampleExample % of all% of all JobsJobs Education,Education, Legal, Medical,Legal, Medical, and otherand other Notre Dame University,Notre Dame University, San Diego Zoo, ArnoldSan Diego Zoo, Arnold Palmer HospitalPalmer Hospital 25.525.5 Trade (retail,Trade (retail, wholesale)wholesale) Walgreen’s, Wal-Mart,Walgreen’s, Wal-Mart, Nordstrom’sNordstrom’s 15.115.1 Utilities,Utilities, TransportationTransportation Pacific Gas & Electric,Pacific Gas & Electric, American Airlines, SantaAmerican Airlines, Santa Fe R.R., RoadwayFe R.R., Roadway ExpressExpress 5.25.2 Table 1.4Table 1.4
  • 44.
    © 2008 PrenticeHall, Inc. 1 – 44 Organizations in Each SectorOrganizations in Each Sector Service SectorService Sector ExampleExample % of all% of all JobsJobs ProfessionalProfessional and Businessand Business ServicesServices Snelling and Snelling, WasteSnelling and Snelling, Waste Management, Pitney-BowesManagement, Pitney-Bowes 10.110.1 Finance,Finance, Information,Information, Real EstateReal Estate Citicorp, American Express,Citicorp, American Express, Prudential, Aetna, TrammelPrudential, Aetna, Trammel Crow, EDS, IBMCrow, EDS, IBM 9.69.6 Food, Lodging,Food, Lodging, EntertainmentEntertainment Olive Garden, Hard Rock Cafe,Olive Garden, Hard Rock Cafe, Motel 6, Hilton Hotels, WaltMotel 6, Hilton Hotels, Walt Disney, Paramount PicturesDisney, Paramount Pictures 8.58.5 PublicPublic AdministrationAdministration U.S., State of Alabama, CookU.S., State of Alabama, Cook CountyCounty 4.64.6 Table 1.4Table 1.4
  • 45.
    © 2008 PrenticeHall, Inc. 1 – 45 Organizations in Each SectorOrganizations in Each Sector ManufacturingManufacturing SectorSector ExampleExample % of all% of all JobsJobs ManufacturingManufacturing General Electric, Ford,General Electric, Ford, U.S. Steel, IntelU.S. Steel, Intel 11.511.5 ConstructionConstruction Bechtel, McDermottBechtel, McDermott 7.97.9 AgricultureAgriculture King RanchKing Ranch 1.61.6 MiningMining Homestake MiningHomestake Mining 0.40.4 SectorSector Percent of all jobsPercent of all jobs ServiceService 78.6%78.6% ManufacturingManufacturing 21.4%21.4% Table 1.4Table 1.4
  • 46.
    © 2008 PrenticeHall, Inc. 1 – 46 New Trends in OMNew Trends in OM Local orLocal or nationalnational focusfocus Reliable worldwideReliable worldwide communication andcommunication and transportation networkstransportation networks Global focus,Global focus, movingmoving productionproduction offshoreoffshore Batch (large)Batch (large) shipmentsshipments Short product life cyclesShort product life cycles and cost of capital putand cost of capital put pressure on reducingpressure on reducing inventoryinventory Just-in-timeJust-in-time performanceperformance Low-bidLow-bid purchasingpurchasing Supply chain competitionSupply chain competition requires that suppliers berequires that suppliers be engaged in a focus on theengaged in a focus on the end customerend customer Supply chainSupply chain partners,partners, collaboration,collaboration, alliances,alliances, outsourcingoutsourcing Figure 1.6Figure 1.6 PastPast CausesCauses FutureFuture
  • 47.
    © 2008 PrenticeHall, Inc. 1 – 47 New Trends in OMNew Trends in OM LengthyLengthy productproduct developmentdevelopment Shorter life cycles,Shorter life cycles, Internet, rapid internationalInternet, rapid international communication, computer-communication, computer- aided design, andaided design, and international collaborationinternational collaboration Rapid productRapid product development,development, alliances,alliances, collaborativecollaborative designsdesigns StandardizedStandardized productsproducts Affluence and worldwideAffluence and worldwide markets; increasinglymarkets; increasingly flexible productionflexible production processesprocesses MassMass customizationcustomization with addedwith added emphasis onemphasis on qualityquality JobJob specializationspecialization Changing sociocultureChanging socioculture milieu; increasingly amilieu; increasingly a knowledge and informationknowledge and information societysociety EmpoweredEmpowered employees,employees, teams, and leanteams, and lean productionproduction Figure 1.6Figure 1.6 PastPast CausesCauses FutureFuture
  • 48.
    © 2008 PrenticeHall, Inc. 1 – 48 New Trends in OMNew Trends in OM Low-costLow-cost focusfocus Environmental issues, ISOEnvironmental issues, ISO 14000, increasing disposal14000, increasing disposal costscosts EnvironmentallyEnvironmentally sensitivesensitive production, greenproduction, green manufacturing,manufacturing, recycledrecycled materials,materials, remanufacturingremanufacturing Ethics notEthics not at forefrontat forefront Businesses operate moreBusinesses operate more openly; public and globalopenly; public and global review of ethics; oppositionreview of ethics; opposition to child labor, bribery,to child labor, bribery, pollutionpollution High ethicalHigh ethical standards andstandards and socialsocial responsibilityresponsibility expectedexpected Figure 1.6Figure 1.6 PastPast CausesCauses FutureFuture
  • 49.
    © 2008 PrenticeHall, Inc. 1 – 49 New Trends in OMNew Trends in OM  Global focusGlobal focus  Just-in-time performanceJust-in-time performance  Supply chain partneringSupply chain partnering  Rapid product developmentRapid product development  Mass customizationMass customization  Empowered employeesEmpowered employees  Environmentally sensitive productionEnvironmentally sensitive production  EthicsEthics
  • 50.
    © 2008 PrenticeHall, Inc. 1 – 50 Productivity ChallengeProductivity Challenge Productivity is the ratio of outputs (goodsProductivity is the ratio of outputs (goods and services) divided by the inputsand services) divided by the inputs (resources such as labor and capital)(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.
    © 2008 PrenticeHall, Inc. 1 – 51 FeedbackFeedback looploop OutputsOutputs Goods and services ProcessesProcesses 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 InputsInputs Labor, capital, management Figure 1.7Figure 1.7
  • 52.
    © 2008 PrenticeHall, Inc. 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 signaturesStop requiring signatures on credit card purchaseson credit card purchases under $25under $25 Saved 8 secondsSaved 8 seconds per transactionper transaction Change the size of the iceChange the size of the ice scoopscoop Saved 14 secondsSaved 14 seconds per drinkper drink New espresso machinesNew espresso machines Saved 12 secondsSaved 12 seconds per shotper shot
  • 53.
    © 2008 PrenticeHall, Inc. 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 signaturesStop requiring signatures on credit card purchaseson credit card purchases under $25under $25 Saved 8 secondsSaved 8 seconds per transactionper transaction Change the size of the iceChange the size of the ice scoopscoop Saved 14 secondsSaved 14 seconds per drinkper drink New espresso machinesNew espresso machines Saved 12 secondsSaved 12 seconds per shotper shot Operations improvements haveOperations improvements have helped Starbucks increase yearlyhelped Starbucks increase yearly revenue per outlet by $200,000 torevenue per outlet by $200,000 to $940,000 in six years.$940,000 in six years. Productivity has improved by 27%,Productivity has improved by 27%, or about 4.5% per year.or about 4.5% per year.
  • 54.
    © 2008 PrenticeHall, Inc. 1 – 54  Measure of process improvementMeasure of process improvement  Represents output relative to inputRepresents output relative to input  Only through productivity increases canOnly through productivity increases can our standard of living improveour standard of living improve ProductivityProductivity Productivity =Productivity = Units producedUnits produced Input usedInput used
  • 55.
    © 2008 PrenticeHall, Inc. 1 – 55 Productivity CalculationsProductivity Calculations Productivity =Productivity = Units producedUnits produced Labor-hours usedLabor-hours used = == = 44 units/labor-hourunits/labor-hour 1,0001,000 250250 Labor ProductivityLabor Productivity One resource inputOne resource input  single-factor productivitysingle-factor productivity
  • 56.
    © 2008 PrenticeHall, Inc. 1 – 56 Multi-Factor ProductivityMulti-Factor Productivity OutputOutput Labor + Material + EnergyLabor + Material + Energy + Capital + Miscellaneous+ Capital + Miscellaneous Productivity =Productivity =  Also known as total factor productivityAlso known as total factor productivity  Output and inputs are often expressedOutput and inputs are often expressed in dollarsin dollars Multiple resource inputsMultiple resource inputs  multi-factor productivitymulti-factor productivity
  • 57.
    © 2008 PrenticeHall, Inc. 1 – 57 Collins Title ProductivityCollins Title Productivity Staff ofStaff of 44 worksworks 88 hrs/dayhrs/day 88 titles/daytitles/day Payroll cost =Payroll cost = $640$640/day/day Overhead =Overhead = $400$400/day/day Old System:Old System: == Old laborOld labor productivityproductivity 88 titles/daytitles/day 3232 labor-hrslabor-hrs
  • 58.
    © 2008 PrenticeHall, Inc. 1 – 58 Collins Title ProductivityCollins Title Productivity Staff ofStaff of 44 worksworks 88 hrs/dayhrs/day 88 titles/daytitles/day Payroll cost =Payroll cost = $640$640/day/day Overhead =Overhead = $400$400/day/day Old System:Old System: 88 titles/daytitles/day 3232 labor-hrslabor-hrs == Old laborOld labor productivityproductivity == .25.25 titles/labor-hrtitles/labor-hr
  • 59.
    © 2008 PrenticeHall, Inc. 1 – 59 Collins Title ProductivityCollins Title Productivity Staff ofStaff of 44 worksworks 88 hrs/dayhrs/day 88 titles/daytitles/day Payroll cost =Payroll cost = $640$640/day/day Overhead =Overhead = $400$400/day/day Old System:Old System: 1414 titles/daytitles/day Overhead =Overhead = $800$800/day/day New System:New System: 88 titles/daytitles/day 3232 labor-hrslabor-hrs == Old laborOld labor productivityproductivity == New laborNew labor productivityproductivity = .25 titles/labor-hr= .25 titles/labor-hr 1414 titles/daytitles/day 3232 labor-hrslabor-hrs
  • 60.
    © 2008 PrenticeHall, Inc. 1 – 60 Collins Title ProductivityCollins Title Productivity Staff ofStaff of 44 worksworks 88 hrs/dayhrs/day 88 titles/daytitles/day Payroll cost =Payroll cost = $640$640/day/day Overhead =Overhead = $400$400/day/day Old System:Old System: 1414 titles/daytitles/day Overhead =Overhead = $800$800/day/day New System:New System: 88 titles/daytitles/day 3232 labor-hrslabor-hrs == Old laborOld labor productivityproductivity == .25.25 titles/labor-hrtitles/labor-hr 1414 titles/daytitles/day 3232 labor-hrslabor-hrs == New laborNew labor productivityproductivity == .4375.4375 titles/labor-hrtitles/labor-hr
  • 61.
    © 2008 PrenticeHall, Inc. 1 – 61 Collins Title ProductivityCollins Title Productivity Staff ofStaff of 44 worksworks 88 hrs/dayhrs/day 88 titles/daytitles/day Payroll cost =Payroll cost = $640$640/day/day Overhead =Overhead = $400$400/day/day Old System:Old System: 1414 titles/daytitles/day Overhead =Overhead = $800$800/day/day New System:New System: == Old multifactorOld multifactor productivityproductivity 88 titles/daytitles/day $640 + 400$640 + 400
  • 62.
    © 2008 PrenticeHall, Inc. 1 – 62 Collins Title ProductivityCollins Title Productivity Staff ofStaff of 44 worksworks 88 hrs/dayhrs/day 88 titles/daytitles/day Payroll cost =Payroll cost = $640$640/day/day Overhead =Overhead = $400$400/day/day Old System:Old System: 1414 titles/daytitles/day Overhead =Overhead = $800$800/day/day New System:New System: 88 titles/daytitles/day $640 + 400$640 + 400 == Old multifactorOld multifactor productivityproductivity == .0077.0077 titles/dollartitles/dollar
  • 63.
    © 2008 PrenticeHall, Inc. 1 – 63 Collins Title ProductivityCollins Title Productivity Staff ofStaff of 44 worksworks 88 hrs/dayhrs/day 88 titles/daytitles/day Payroll cost =Payroll cost = $640$640/day/day Overhead =Overhead = $400$400/day/day Old System:Old System: 1414 titles/daytitles/day Overhead =Overhead = $800$800/day/day New System:New System: 88 titles/daytitles/day $640 + 400$640 + 400 == Old multifactorOld multifactor productivityproductivity == New multifactorNew multifactor productivityproductivity == .0077.0077 titles/dollartitles/dollar 1414 titles/daytitles/day $640 + 800$640 + 800
  • 64.
    © 2008 PrenticeHall, Inc. 1 – 64 Collins Title ProductivityCollins Title Productivity Staff ofStaff of 44 worksworks 88 hrs/dayhrs/day 88 titles/daytitles/day Payroll cost =Payroll cost = $640$640/day/day Overhead =Overhead = $400$400/day/day Old System:Old System: 1414 titles/daytitles/day Overhead =Overhead = $800$800/day/day New System:New System: 88 titles/daytitles/day $640 + 400$640 + 400 1414 titles/daytitles/day $640 + 800$640 + 800 == Old multifactorOld multifactor productivityproductivity == New multifactorNew multifactor productivityproductivity == .0077.0077 titles/dollartitles/dollar == .0097.0097 titles/dollartitles/dollar
  • 65.
    © 2008 PrenticeHall, Inc. 1 – 65 Measurement ProblemsMeasurement Problems  QualityQuality may change while themay change while the quantity of inputs and outputsquantity of inputs and outputs remains constantremains constant  External elementsExternal elements may cause anmay cause an increase or decrease inincrease or decrease in productivityproductivity  Precise unitsPrecise units of measure may beof measure may be lackinglacking
  • 66.
    © 2008 PrenticeHall, Inc. 1 – 66 Productivity VariablesProductivity Variables  LaborLabor - contributes- contributes aboutabout 10%10% of theof the annual increaseannual increase  CapitalCapital - contributes- contributes aboutabout 38%38% of theof the annual increaseannual increase  ManagementManagement -- contributes aboutcontributes about 52%52% of the annual increaseof the annual increase
  • 67.
    © 2008 PrenticeHall, Inc. 1 – 67 Key Variables for ImprovedKey Variables for Improved Labor ProductivityLabor Productivity  Basic education appropriate for theBasic education appropriate for the labor forcelabor force  Diet of the labor forceDiet of the labor force  Social overhead that makes laborSocial overhead that makes labor availableavailable  Maintaining and enhancing skills in theMaintaining and enhancing skills in the midst of rapidly changing technologymidst of rapidly changing technology and knowledgeand knowledge
  • 68.
    © 2008 PrenticeHall, Inc. 1 – 68 Labor SkillsLabor Skills About half of the 17-year-olds in the US cannotAbout half of the 17-year-olds in the US cannot correctly answer questions of this typecorrectly answer questions of this type Figure 1.8Figure 1.8
  • 69.
    © 2008 PrenticeHall, Inc. 1 – 69 Investment and ProductivityInvestment and Productivity 1010 88 66 44 22 00 PercentincreaseinproductivityPercentincreaseinproductivity Percentage investmentPercentage investment 1010 1515 2020 2525 3030 3535
  • 70.
    © 2008 PrenticeHall, Inc. 1 – 70 Service ProductivityService Productivity  Typically labor intensiveTypically labor intensive  Frequently focused on uniqueFrequently focused on unique individual attributes or desiresindividual attributes or desires  Often an intellectual task performed byOften an intellectual task performed by professionalsprofessionals  Often difficult to mechanizeOften difficult to mechanize  Often difficult to evaluate for qualityOften difficult to evaluate for quality
  • 71.
    © 2008 PrenticeHall, Inc. 1 – 71 Productivity at Taco BellProductivity at Taco Bell Improvements:Improvements:  Revised the menuRevised the menu  Designed meals for easy preparationDesigned meals for easy preparation  Shifted some preparation to suppliersShifted some preparation to suppliers  Efficient layout and automationEfficient layout and automation  Training and employee empowermentTraining and employee empowerment
  • 72.
    © 2008 PrenticeHall, Inc. 1 – 72 Productivity at Taco BellProductivity at Taco Bell Improvements:Improvements:  Revised the menuRevised the menu  Designed meals for easy preparationDesigned meals for easy preparation  Shifted some preparation to suppliersShifted some preparation to suppliers  Efficient layout and automationEfficient layout and automation  Training and employee empowermentTraining 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
  • 73.
    © 2008 PrenticeHall, Inc. 1 – 73 Ethics and Social ResponsibilityEthics and Social Responsibility Challenges facingChallenges facing operations managers:operations managers:  Developing and producing safe,Developing and producing safe, quality productsquality products  Maintaining a clean environmentMaintaining a clean environment  Providing a safe workplaceProviding a safe workplace  Honoring community commitmentsHonoring community commitments