Heizer om10 ch01 [operation and productivity]

8/13/2010

Operations and
1 Productivity
Global Company Profile: Hard Rock
Outline

Cafe
What Is Operations Management?
PowerPoint presentation to accompany
P P i t t ti t
Heizer and Render Organizing to Produce Goods and
Operations Management, 10e
Principles of Operations Management, 8e
Services
PowerPoint slides by Jeff Heyl Why Study OM?
What Operations Managers Do

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1-1 © 2011 Pearson Education, Inc. publishing as Prentice Hall 1-2

Outline - Continued Outline - Continued
The Heritage of Operations
Management The Productivity Challenge
Productivity Measurement
Operations in the Service Sector
Productivity Variables
Differences between Goods and
Services Productivity and the Service Sector
Growth of Services Ethics and Social Responsibility
Service Pay
Exciting New Trends in Operations
Management

Learning Objectives Learning Objectives
When you complete this chapter When you complete this chapter
you should be able to: you should be able to:

1. Define operations management 4. Compute single-factor
productivity
d ti it
2. Explain the distinction between
goods and services 5. Compute multifactor productivity
3. Explain the difference between 6. Identify the critical variables in
production and productivity enhancing productivity


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8/13/2010

The Hard Rock Cafe What Is Operations
Management?
First opened in 1971
Now – 129 restaurants in over 40 countries Production is the creation of
Rock music memorabilia goods and services
Creates value in the form of good food Operations management (OM) is
and entertainment the set of activities that create
3,500+ custom meals per day in Orlando value in the form of goods and
How does an item get on the menu? services by transforming inputs
Role of the Operations Manager
into outputs


Organizing to Produce Organizational Charts
Goods and Services Commercial Bank

Essential functions:
Operations Finance Marketing
1. Marketing – generates demand Teller Investments Loans
Scheduling Secu ty
Security Co
Commercial
e ca
2. Production/operations – creates
/ Check Clearing Real estate Industrial
the product Collection Financial
Transaction Accounting Personal
3. Finance/accounting – tracks how processing
Mortgage
well the organization is doing, Facilities
design/layout
pays bills, collects the money Vault operations
Auditing
Trust Department
Maintenance
Security
Figure 1.1(A)
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1-9 © 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 10

Organizational Charts Organizational Charts
Manufacturing
Airline
Operations Finance/ Marketing
Operations Finance/ Marketing Facilities accounting Sales
accounting Construction; maintenance Disbursements/ promotion
Ground support Traffic Production and inventory control credits Advertising
equipment Accounting administration Scheduling; materials control Receivables Sales
Maintenance Payables Reservations Quality assurance and control Payables
Receivables Schedules General ledger Market
Ground Operations Supply-chain management research
General Ledger Tariffs (pricing) Funds Management
Facility Manufacturing
maintenance Finance Sales Tooling; fabrication; assembly Money market
Catering Advertising International
Cash control Design exchange
Flight Operations International Product development and design
exchange Detailed product specifications Capital requirements
Crew scheduling Industrial engineering Stock issue
Flying Efficient use of machines, space, Bond issue
Communications and personnel and recall
Dispatching Process analysis
Management science Development and installation of
Figure 1.1(B) production tools and equipment Figure 1.1(C)
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 11 © 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 12

2

8/13/2010

Why Study OM? Options for Increasing
Contribution
1. OM is one of three major functions of
any organization, we want to study Marketing
Finance/
Accounting OM
how people organize themselves for Option Option Option
productive enterprise Increase Reduce Reduce
Sales Finance Production
Current Revenue 50% Costs 50% Costs 20%
2. We
2 W want (and need) t k
t( d d) to know h
how
goods and services are produced Sales
Cost of Goods
$100,000
– 80,000
$150,000
– 120,000
$100,000
– 80,000
$100,000
– 64,000

3. We want to understand what Gross Margin
Finance Costs
20,000
– 6,000
30,000
– 6,000
20,000
– 3,000
36,000
– 6,000
operations managers do Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500
4. OM is such a costly part of an Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500
organization
Table 1.1

What Operations Ten Critical Decisions
Ten Decision Areas Chapter(s)
Managers Do 1. Design of goods and services 5
2. Managing quality 6, Supplement 6
Basic Management Functions 3. Process and capacity 7, Supplement 7
design
Planning 4. Location strategy
gy 8
Organizing 5. Layout strategy 9
6. Human resources and 10
Staffing job design
7. Supply-chain 11, Supplement 11
Leading management
8. Inventory, MRP, JIT 12, 14, 16
Controlling 9. Scheduling 13, 15
10. Maintenance 17 Table 1.2

The Critical Decisions The Critical Decisions
1. Design of goods and services 3. Process and capacity design
What good or service should we What process and what capacity will
offer? these products require?
How should we design these What equipment and technology is
q p gy
necessary for these processes?
products and services?
4. Location strategy
2. Managing quality
Where should we put the facility?
How do we define quality?
On what criteria should we base the
Who is responsible for quality? location decision?

Table 1.2 (cont.) Table 1.2 (cont.)

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8/13/2010

The Critical Decisions The Critical Decisions
5. Layout strategy 7. Supply-chain management
How should we arrange the facility? Should we make or buy this
How large must the facility be to meet component?
our plan? Who should be our suppliers and how
6. Human resources and job design can we integrate them into our strategy?

How do we provide a reasonable 8. Inventory, material requirements
work environment? planning, and JIT
How much can we expect our How much inventory of each item
employees to produce? should we have?
When do we re-order?
Table 1.2 (cont.) Table 1.2 (cont.)

The Critical Decisions Where are the OM Jobs?
Technology/methods
9. Intermediate and short–term Facilities/space utilization
scheduling
Strategic issues
Are we better off keeping people on
the payroll during slowdowns? Response time
Which jobs do we perform next? People/team development
P l /t d l t
10. Maintenance Customer service
How do we build reliability into our Quality
processes? Cost reduction
Who is responsible for maintenance? Inventory reduction
Productivity improvement
Table 1.2 (cont.)

Opportunities
Certifications
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)
Figure 1.2


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8/13/2010

Significant Events in OM The Heritage of OM
Division of labor (Adam Smith 1776;
Charles Babbage 1852)
Standardized parts (Whitney 1800)
Scientific Management (Taylor 1881)
Coordinated assembly line (Ford/
Sorenson 1913)
Gantt charts (Gantt 1916)
Motion study (Frank and Lillian Gilbreth
1922)
Quality control (Shewhart 1924; Deming
1950)
Figure 1.3

The Heritage of OM Eli Whitney
Computer (Atanasoff 1938)
Born 1765; died 1825
CPM/PERT (DuPont 1957, Navy 1958)
Material requirements planning (Orlicky 1960) In 1798, received government
Computer aided design (CAD 1970) contract to make 10,000 muskets
Flexible manufacturing system (FMS 1975) Showed that machine tools could
Baldrige Quality Awards (1980) make standardized parts to exact
Computer integrated manufacturing (1990) specifications
Globalization (1992) Musket parts could be used in any
Internet (1995) musket


Frederick W. Taylor Taylor’s Principles
Born 1856; died 1915 Management Should Take More
Responsibility for:
Known as ‘father of scientific
management’ Matching employees to right job
In 1881, as chief engineer for Providing the proper training
Midvale Steel, studied how tasks Providing proper work methods and
were done tools
Began first motion and time studies Establishing legitimate incentives for
work to be accomplished
Created efficiency principles

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8/13/2010

Frank & Lillian Gilbreth Henry Ford
Frank (1868-1924); Lillian (1878-1972) Born 1863; died 1947
Husband-and-wife engineering team In 1903, created Ford Motor
Company
Further developed work
measurement methods In 1913, first used moving assembly
1913
line to make Model T
Applied efficiency methods to their
home and 12 children! Unfinished product moved by
conveyor past work station
Book & Movie: “Cheaper by the
Dozen,” “Bells on Their Toes” Paid workers very well for 1911
($5/day!)

W. Edwards Deming Contributions From
Born 1900; died 1993 Human factors
Engineer and physicist Industrial engineering
Credited with teaching Japan
g p Management science
quality control methods in post-
WW2 Biological science
Used statistics to analyze process Physical sciences
His methods involve workers in Information technology
decisions

New Challenges in OM Characteristics of Goods
From To
Tangible product
Local or national focus Global focus
Consistent product
Batch shipments Just-in-time definition
Low bid purchasing Supply-chain
partnering
t i Production usually
separate from
Lengthy product Rapid product
development development,
consumption
alliances Can be inventoried
Standard products Mass Low customer
customization
interaction
Job specialization Empowered
employees, teams

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8/13/2010

Characteristics of Service Industry and Services as
Intangible product
Percentage of GDP
90 −
Produced and 80 −
Services Manufacturing

consumed at same time 70 −
60 −
Often unique 50 −
40 −
High customer
30 −
interaction 20 −

Inconsistent product 10 −
0−
definition

Germany

US
UK
Australia

Canada

China

France

South Africa
Czech Rep

Hong Kong

Japan

Mexico

Russian Fed

Spain
Often knowledge-based
Frequently dispersed

Goods and Services Manufacturing and Service
Automobile
Employment
Computer 120 –

Installed carpeting
100 –
Fast-food meal
Employment (millions)
Restaurant meal/auto repair 80 – Service
Hospital care
Advertising agency/ 60 –
investment management
Consulting service/ 40 –
teaching
Manufacturing
20 –
Counseling
100% 75 50 25 0 25 50 75 100% | | | | | | |
| | | | | | | | | 0–
1950 1970 1990 2010 (est)
Percent of Product that is a Good Percent of Product that is a Service 1960 1980 2000
Figure 1.4 (A)

Manufacturing Employment Development of the
and Production Service Economy
– 150
Industrial United Sta
production
Employment (millions)

– 125
(right scale)
Can
Index: 1997 = 100

– 100 Fra
(

– 75 It
Brit
40 – Manufacturing – 50
30 –
employment
(left scale)
Jap
20 – – 25
| | | | |
W. Germ
10 –
0 – | | | | | | –| 0 40 50 60 70 80
1950 1970 1990 2010 (est)
1960 1980 2000
1970 2010 (est) Percent

Figure 1.4 (B)
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 41 © 2011 Pearson Education, Inc. publishing as Prentice Hall
Figure 1.4 (C) 1 - 42

7

8/13/2010

Organizations in Each Sector Organizations in Each Sector
% of all % of all
Service Sector Example Jobs Service Sector Example Jobs
Education, San Diego Zoo, Arnold 25.8 Finance, Citicorp, American Express, 9.6
Legal, Medical, Palmer Hospital Information, Prudential, Aetna
other Real Estate

Trade (retail, Walgreen’s, Wal-Mart, 14.9 Food, L d i
F d Lodging, Olive G d
Oli Garden, Motel 6, Walt
M t l 6 W lt 8.5
85
wholesale) Nordstrom’s Entertainment Disney

Utilities, Pacific Gas & Electric, 5.2 Public U.S., State of Alabama, Cook 4.6
Transportation American Airlines Administration County

Professional and Snelling and Snelling, Waste 10.7
Total 78.8
Business Management, Inc.
Services
Table 1.3 Table 1.3

Organizations in Each Sector Changing Challenges
% of all Traditional Reasons for Current
Other Sectors Example Jobs Approach Change Challenge
Ethics and Public concern over High ethical and
Manufacturing General Electric, Ford, 11.2 regulations pollution, corruption, social
Sector U.S. Steel, Intel not at the child labor, etc. responsibility;
forefront increased legal
Construction Bechtel, McDermott 8.1 and professional
Sector standards
Local or Growth of reliable, low Global focus,
Agriculture King Ranch 1.4 national cost communication international
Sector focus and transportation collaboration

Mining Sector Homestake Mining 0.5 Lengthy Shorter life cycles; Rapid product
product growth of global development;
Total 21.2 development communication; CAD, design
Internet collaboration

Table 1.3 Figure 1.5

Changing Challenges Changing Challenges
Traditional Reasons for Current Traditional Reasons for Current
Approach Change Challenge Approach Change Challenge
Low cost Public sensitivity to Environmentally Emphasis on Recognition of the Empowered
production, environment; ISO 14000 sensitive specialized, employee's total employees;
with little standard; increasing production; green often manual contribution; knowledge enriched jobs
concern for disposal costs manufacturing; tasks society
environment; sustainability
free “In-house”
“In house” Rapid technological Supply-chain
Supply chain
resources production; change; increasing partnering; joint
(air, water) low-bid competitive forces ventures,
ignored purchasing alliances
Low-cost Rise of consumerism; Mass Large lot Shorter product life Just-In-Time
standardized increased affluence; customization production cycles; increasing need performance;
products individualism to reduce inventory lean; continuous
improvement

Figure 1.5 Figure 1.5

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8/13/2010

New Trends in OM Productivity Challenge
Ethics
Global focus Productivity is the ratio of outputs (goods
and services) divided by the inputs
Rapid product development (resources such as labor and capital)
Environmentally sensitive production
Mass customization The objective is to improve productivity!
Empowered employees
Supply-chain partnering Important Note!
Production is a measure of output
Just-in-time performance only and not a measure of efficiency


The Economic System Improving Productivity at
Starbucks
Inputs Transformation Outputs
A team of 10 analysts
Labor, The U.S. economic system Goods continually look for ways
capital, transforms inputs to outputs and
management at about an annual 2.5% services to shave time. Some
increase in productivity per
year. The productivity
improvements:
increase is the result of a
mix of capital (38% of 2.5%), Stop requiring signatures Saved 8 seconds
labor (10% of 2.5%), and on credit card purchases per transaction
management (52% of 2.5%).
under $25
Change the size of the ice Saved 14 seconds
Feedback loop scoop per drink
Figure 1.6 New espresso machines Saved 12 seconds
per shot

Improving Productivity at Productivity
Starbucks
A team of 10 analysts Units produced
continually look for ways Productivity =
to shave time. Some
Input used
improvements:
Operations improvements have
helped Starbucks increase yearly
Stop requiring signatures Saved 8 seconds
Measure of process improvement
on credit card purchases outlet by $200,000 to
revenue per per transaction Represents output relative to input
under $25 $940,000 in six years.
Change the size of the ice has improved by 27%,
Productivity Saved 14 seconds Only through productivity increases
scoop or about 4.5% per year.
per drink can our standard of living improve
New espresso machines Saved 12 seconds
per shot

9

8/13/2010

Productivity Calculations Multi-
Multi-Factor Productivity
Labor Productivity Output
Productivity =
Units produced
Labor + Material + Energy
Productivity = + Capital + Miscellaneous
Labor-hours used
Also known as total factor productivity
1,000 Output and inputs are often expressed
= = 4 units/labor-hour in dollars
250

One resource input single-factor productivity Multiple resource inputs multi-factor productivity


Collins Title Productivity Collins Title Productivity
Old System: Old System:
Staff of 4 works 8 hrs/day 8 titles/day Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day Payroll cost = $640/day Overhead = $400/day

Old labor 8 titles/day Old labor 8 titles/day
= =
productivity 32 labor-hrs productivity 32 labor-hrs = .25 titles/labor-hr


New System: New System:
14 titl /d
titles/day Overhead $800/d
O h d = $800/day 14 titl /d
O h d = $800/day

Old labor 8 titles/day Old labor 8 titles/day
= =
productivity 32 labor-hrs = .25 titles/labor-hr productivity 32 labor-hrs = .25 titles/labor-hr

New labor 14 titles/day New labor 14 titles/day
= = = .4375 titles/labor-hr
productivity 32 labor-hrs
labor- productivity 32 labor-hrs


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8/13/2010

14 titl /d
O h d = $800/day

Old multifactor 8 titles/day Old multifactor 8 titles/day
= = = .0077 titles/dollar
productivity $640 + 400 productivity $640 + 400


14 titl /d
O h d = $800/day

Old multifactor 8 titles/day Old multifactor 8 titles/day
= = .0077 titles/dollar = = .0077 titles/dollar
productivity $640 + 400 productivity $640 + 400

New multifactor 14 titles/day New multifactor 14 titles/day
productivity = $640 + 800 productivity = $640 + 800 = .0097 titles/dollar


Measurement Problems Productivity Variables
1. Quality may change while the 1. Labor - contributes
quantity of inputs and outputs about 10% of the
remains constant annual increase
2. External elements may cause an
2 E t l l t 2.
2 Capital - contributes
increase or decrease in about 38% of the
productivity annual increase
Precise units of measure may be 3. Management -
lacking contributes about 52%
of the annual increase

11

8/13/2010

Key Variables for Improved Labor Skills
Labor Productivity
About half of the 17-year-olds in the U.S. cannot
17-year-
correctly answer questions of this type
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
Figure 1.7

Investment and Productivity Service Productivity

10
1. Typically labor intensive
2. Frequently focused on unique
Percent increase in productivity

8
individual attributes or desires
6 3.
3 Often an intellectual task performed by
p

professionals
4
4. Often difficult to mechanize
2
5. Often difficult to evaluate for quality
0
10 15 20 25 30 35
Percentage investment


Productivity at Taco Bell Productivity at Taco Bell
Improvements: Results:
Improvements:
Revised the menu Preparation time cut to 8 seconds
Revised the menu
Designed meals for easy preparation Management span of control increased
Designed meals for easy preparation
from 5 to 30
Shifted some preparation to suppliers Shifted some preparation to suppliers
In-store labor cut by 15 hours/day
Efficient layout and automation Efficient layout and automation
Stores handle twice the volume with half
Training and employee empowerment the laborand employee empowerment
Training
New water and energy saving grills New water and energy saving grills
Conserve 300 million gallons of water and
200 million KwH of electricity each year
saving $17 million annually


12

8/13/2010

Ethics and
Social Responsibility
Challenges facing
operations managers:
Developing and producing safe,
safe
quality products 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,
Maintaining a clean environment recording, or otherwise, without the prior written permission of the publisher.
Printed in the United States of America.
Providing a safe workplace
Honoring stakeholder commitments


13

Heizer om10 ch01 [operation and productivity]

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