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1. 1 - 1
Operations Management Amity College
Operations and
Productivity
2. 1 - 2Operations Management Brixton College
First opened in 1971
Now – 129 restaurants in over 40 countries
Rock music memorabilia
Creates value in the form of good food
and entertainment
3,500+
custom meals per day in Orlando
How does an item get on the menu?
Role of the Operations Manager
3. 1 - 3
Definition of Operations Management (OM)
Organizational Functions
Why Study OM?
A brief history of operations management
The future of the discipline
Goods Versus Services
Measuring productivity
Career opportunities in operations
management
4. 1 - 4
Operations management (OM)Operations management (OM)
is the set of activities that
create value in the form of
goods and services by
transforming inputs into
outputs
5. 1 - 5
Operations management focuses on
carefully managing the processes to
produce and distribute products and
services. Major, overall activities often
include product creation, development,
production and distribution.
It is the management of that part of the
organization that is responsible for
producing goods and/or service.
Example: Bhageshwor Nursing, Wai-wai
7. 1 - 7
Essential functions:
1.1. MarketingMarketing – generates demand
2.2. Production/operationsProduction/operations – creates the
product
3.3. Finance/accountingFinance/accounting – tracks how
well the organization is doing, pays
bills, collects the money
4.4. Human ResourcesHuman Resources – provides labor,
wage and salary administration and
job evaluation
9. 1 - 9
Operations functions consists of all the
activities directly related to producing
good or providing services.
It is the core of any organization as it is
responsible for the creation of an
organization’s goods or services.
10. 1 - 10
Value Added
Inputs
Land
Labor
Capital
Information
Control
Transformatio
n/Conversion
Process
Feedback
Outputs
Goods
Services
Feedback
Feedback
11. 1 - 11
Value Added is the term used to
describe the difference between the
cost of inputs and the value or price of
outputs. Value addition differs in both
service and product and profit and non-
profit organization
Companies critically examine their
business productivity by the value added
to their product or service.
Eliminating/Improving operations
decreases the cost of inputs or
processing thereby increasing value.
12. 1 - 12
Budgeting: Budgets need to be
prepared periodically.
Economic analysis of investment
proposals
Provision of funds
Operations Management Brixton College
13. 1 - 13
Buying/Selling
Creating Demand
Selling what is produced and helping to
produce what is sellable.
Operations Management Brixton College
15. 1 - 15
Global focus
Just-in-time
Supply-chain
partnering
Rapid product
development,
alliances
Mass
customization
Empowered
employees, teams
ToToFromFrom
Local or national focus
Batch shipments
Low bid purchasing
Lengthy product
development
Standard products
Job specialization
16. 1 - 16
Tangible product
Consistent product
definition
Production usually
separate from
consumption
Can be inventoried
Low customer
interaction
17. 1 - 17
Intangible product
Produced and
consumed at same time
Often unique
High customer
interaction
Inconsistent product
definition
Often knowledge-based
Frequently dispersed
19. 1 - 19
Planning the geographical location of the plant
Purchasing Production Equipments
Layout of Equipment
Designing production processes and equipments
Product Design
Designing Production work and establishing work standards
Capacity Planning
Production Planning and scheduling
Production Control and monitoring productivity
Inventory Management
Supply Chain Management
Quality Control
Health and Safety
Industrial Relations
20. 1 - 20
Strategic Decision Making (Top Level)
Participation in implementation of ERP
Automation of company equipments as per the requirement.
Adherence to government policy.
Participation in product design and development.
Alliances and long-term relation with suppliers
Technology management and transfer of technology in case
of JV or merger with local or MNC’s
Be an internal auditor for certification of ISO 9000 and ISO
14000 series.
21. 1 - 21
Every company sets it’s goals and target to be achieved. The
company has a purpose for it’s existence and also objectives.
The hierarchy defines the companies objective. Therefore,
successful achievement of sub-goals leads to achievement of
the organizations objective.
“Bottle-neck is always at the top, so the success of a company
depends on the avoidance and clearance of bottle-neck.”
Thus, objectives need to be clearly defined , properly structured
and explicitly stated.
Core objective of any organization is to produce in required
quantity, quality at the stipulated time with minimum cost
incurred.
Quality, Quantity, Time at minimum cost would increase the
value of the product or the service rendered.
Can be subdivided as : Performance and Cost
22. 1 - 22
Efficiency: Output per unit of input, efficiency refers to
how well you do something.
Effectiveness: Effectiveness refers to how useful it is.
Efficiency is doing things right; effectiveness is doing the
right things.”
Doing the Right Things is More Important than Doing
Things Right
23. 1 - 23
For example, if a company is not doing well and
they decide to train their workforce on a new
technology. The training goes really well - they
train all their employees in avery short time and
tests show they have absorbed the training well.
But overall productivity doesn't improve. In this
case the company's strategy was efficient but not
effective.
24. 1 - 24
Quality: The extent to which a product or
service satisfies the customer
Lead Time or Throughput Time: Time
during conversion process. Hotel Kalash
Capacity Utilization: The percentage of
labor, equipment and other factors that
have been beneficially used.
Flexibility: Extent of flexibility of the
conversion process.
08/10/18
25. 1 - 25
Customer satisfaction with high quality
product/ service needs to be considered
with reduction in cost of production of
the goods/service.
Two Types of Cost:
› Explicit Cost: Visible Cost
› Implicit Cost: Invisible Cost
08/10/18
26. 1 - 26
Explicit Cost Implicit Cost
Material Cost Cost of Carrying Inventory
Direct and Indirect Labor Cost Cost of stock outs, shortages, back-
logging, lost sales
Scrap and rework cost Cost of delayed deliveries
Maintenance Cost Cost of material handling
Cost of Inspection
Cost of grievances or
dissatisfaction
Downtime Cost
Opportunity Cost.
08/10/18
27. 1 - 27
1776 -Specialization of labor in manufacturing -Adam
Smith
1799 -Interchangeable parts, cost accounting -Eli Viihitney
and others
1832 -Division of labor by skill; assignment of jobs by skill;
basics of time study -Charles Babbage
1900- Scientific management time study and work study
developed; dividing planning and doing of work
-Frederick W. Taylor
1900- Motion of study of jobs -Frank B. Gilbreth
28. 1 - 28
1901- Scheduling techniques for employees, machines
jobs in manufacturing -Henry L. Gantt
1915 -Economic lot sizes for inventory control -F.W. Harris
1927 -Human relations; the Hawthorne studies -Elton Mayo
1931 -Statistical inference applied to product quality:
quality control charts -W.A. Shewart
1935 -Statistical sampling applied to quality control;
inspection sampling plans -H.F. Dodge &H.G. Roming
29. 1 - 29
1940- Operations research applications in World War ll
-P.M. Blacker and others.
1946- Digital computer -John Mauchlly and J.P. Eckert
1947-Linear programming -GB. Dantzig, Williams & others
1950- Mathematical programming, on-Iinear and
stochastic processes –A. Charnes, W.W. Cooper & others
1951- Commercial digital computer; large s-cale
computations available. -Sperry Univac
30. 1 - 30
1960- Organizational behavior; continued study of
people at work -L. Cummings, L. Porter
1970- Integrating operations into overall strategy
and policy. Computer applications to
manufacturing. Scheduling and control. Material
requirement planning (MRP)-W. Skinner J. Orlicky
and G. Wright
1980-Quality and productivity applications from
Japan robotics. CAD-CAM -W.E. Deming and J.
Juran
31. 1 - 31
History of Production exists from the early days of
civilization.
Everything from product design, quality control, to
distribution was simple and done through
experience.
The scientific and proper production management
saw it’s beginning from the industrial revolution in
the 1700’s.
Prior to that, every thing was done manually,
design, technique and concept was in the minds
rather than in equipment.
08/10/18
32. 1 - 32
It is the process of handcrafting product/services
for individual customers.
Every piece manufactured was unique, hand
worked and developed entirely by one person
responsible for the product development.
Availability of raw material initiated the series of
industrial inventions that revolutionized the way of
working.
Mechanical equipments replaced the labor,
08/10/18
33. 1 - 33
The industrial revolution spread from
England to other European countries and to
the United Sates.
In 1790 an American, Eli Whitney,
developed the concept of
interchangeable parts.
The first great industry in the US was the
textile industry.
In the 1800s the development of the
gasoline engine and electricity further
advanced the revolution.
34. 1 - 34
Eli Whitney and team after the
introduction of the interchangeable
parts concept shifted manufacturing
from one at a time to volume
production.
It involved the production of standard
product like firearms, watches, sewing
machine and others.
08/10/18
35. 1 - 35
Cost Accounting and other accounting
tools though they were introduced by
the 1800’s scientific management
theories were non-existent until the early
1900’s.
F.W.Taylor also known as the father of
scientific management introduced the
concept of scientific management
based on observation, measurement
and analysis.
08/10/18
36. 1 - 36
Frederick Taylor is known as the father of
scientific management. His shop system
employed these steps:
› Each worker’s skill, strength, and learning
ability were determined.
› Stopwatch studies were conducted to
precisely set standard output per worker on
each task.
› Material specifications, work methods, and
routing sequences were used to organize
the shop.
37. 1 - 37
In the 1920s, Ford Motor Company’s
operation embodied the key elements
of scientific management:
› standardized product designs
› mass production
› low manufacturing costs
› mechanized assembly lines
› specialization of labor
› interchangeable parts
38. 1 - 38
The specialization theory was devised by Adam
Smith.
The specialization theory is better known as
division of labour.
The theory was created for specialized
knowledge of a particular trade or task, also
known as self interest.
Division of labour involved in the production of
a particular product leads to increased
productivity
39. 1 - 39
Today specialization can be seen in companies
and businesses.
Kellogg specializes in cereals.
Coca-Cola specializes in soft drinks.
Hershey’s specializes in candy.
Apple specializes technology.
40. 1 - 40
Motion of study of jobs was devised by
Frank B. Gilbreth
Motion study involves the analysis of the
basic hand, arm, and body movements
of workers as they perform work.
41. 1 - 41
Human relations theory is characterized byHuman relations theory is characterized by
a shift in emphasis from TASK to WORKERa shift in emphasis from TASK to WORKER
Need for attention
Social interaction
Individual achievement
Intended as a move away from the
“organization as machine” metaphor
Management recognizes employees as
humans with needs rather than cogs of a
machine
42. 1 - 42
“The Hawthorne Studies were conducted from
1927-1932 at the Western Electric Hawthorne Works
in Chicago, where Harvard Business School
Professor Elton Mayo examined productivity and
work conditions.”
“Mayo wanted to find out what effect fatigue and
monotony had on job productivity and how to
control them through such variables as rest breaks,
work hours, temperatures and humidity.”
43. 1 - 43
It was the Americans that took the lead
and became the experts of Mass
Production.
Human Relation Movement, Hawthrone
Studies, Herzberg Theory, Maslow,
McGregor were all developed during this
period.
08/10/18
44. 1 - 44
Japanese lead the word economy and
technology market in the 1970’s. They
were leaders of consumer electronics
and automobiles.
Major Focus on:
› Quality Comes First
› Improve product and process quality
continuously
› Eliminate all forms of waste.
08/10/18
45. 1 - 45
Mass Production produces volume but adaptation
with change in demand is difficult for the
companies.
Today the market is characterized by Product
Proliferation, Shortened Product life cycle, product
development, segmented market, customized
product and others.
The Japanese concept of Just in Time has
changed the market from mass production to lean
production.
TQM is the major reason for the success of the
organizations.
08/10/18
46. 1 - 46
With the increase in manufacturing
industries throughout the world,
environment degradation has been a
major issue of discussion
Recycle, Green Concept, Water safety
08/10/18
48. 1 - 48
Comparison between Service and Manufact
08/10/18
49. 1 - 49
Global Market Place
Operations Strategy
Total Quality Management
Flexibility
Time Reduction
Technology
Worker Involvement
08/10/18
50. 1 - 50
Re-engineering
Environmental Issues
Corporate downsizing or Right Sizing
Supply Chain Management
Lean Production
Change of Focus from seller to buyer
Ethical Production
08/10/18
52. 1 - 52
Productivity is the ratio of outputs (goods
and services) divided by the inputs
(resources such as labor and capital)
The objective is to improve productivity!The objective is to improve productivity!
Important Note!
Production is a measure of output
only and not a measure of efficiency
53. 1 - 53
Feedback loop
Outputs
Goods
and
services
Transformation
Economic system
transforms inputs to outputs
/CONVERSITION PROCESS
Inputs
Labor,
capital,
management
Figure 1.6
Random Disturbances
54. 1 - 54
Measure of process improvement
Represents output relative to input
Only through productivity increases
can our standard of living improve
Productivity =
Units produced
Input used
55. 1 - 55
Productivity =
Units produced
Labor-hours used
= = 4 units/labor-hour
1,000
250
Labor ProductivityLabor Productivity
One resource input single-factor productivity
56. 1 - 56
Output
Labor + Material + Energy
+ Capital + Miscellaneous
Productivity =
Also known as total factor productivity
Output and inputs are often expressed
in dollars
Multiple resource inputs multi-factor productivity
57. 1 - 57
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:Old System:
=
Old labor
productivity
8 titles/day
32 labor-hrs
58. 1 - 58
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:Old System:
8 titles/day
32 labor-hrs
=
Old labor
productivity = .25 titles/labor-hr
59. 1 - 59
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/day
New System:New System:
8 titles/day
32 labor-hrs
=
Old labor
productivity
=
New labor
productivity
= .25 titles/labor-hr
14 titles/day14 titles/day
32 labor-hrs32 labor-hrs
60. 1 - 60
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/day
New System:New System:
8 titles/day
32 labor-hrs
=
Old labor
productivity = .25 titles/labor-hr
14 titles/day
32 labor-hrs
=
New labor
productivity
= .4375 titles/labor-hr
61. 1 - 61
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/day
New System:New System:
=
Old multifactor
productivity
8 titles/day
$640 + 400
62. 1 - 62
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/day
New System:New System:
8 titles/day
$640 + 400
=
Old multifactor
productivity
= .0077 titles/dollar
63. 1 - 63
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/day
New System:New System:
8 titles/day
$640 + 400
=
Old multifactor
productivity
=
New multifactor
productivity
= .0077 titles/dollar
14 titles/day14 titles/day
$640 + 800$640 + 800
64. 1 - 64
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/day
New System:New System:
8 titles/day
$640 + 400
14 titles/day
$640 + 800
=
Old multifactor
productivity
=
New multifactor
productivity
= .0077 titles/dollar
= .0097 titles/dollar
65. 1 - 65
1.1. QualityQuality may change while the quantity
of inputs and outputs remains constant
(HDTV, iphones)
2.2. External elementsExternal elements may cause an
increase or decrease in productivity
(using more reliable electric power
system)
3.3. Precise unitsPrecise units of measure may be lacking
66. 1 - 66
1.1. LaborLabor - contributes
about 10% of the
annual increase
2.2. CapitalCapital - contributes
about 38% of the
annual increase
3.3. ManagementManagement -
contributes about
52% of the annual
increase
67. 1 - 67
1. Basic education appropriate for the labor
force
2. Diet of the labor force
3. Social overhead that makes labor
available such as transportation and
sanitation
Challenge is in maintaining and
enhancing skills in the midst of rapidly
changing technology and knowledge
68. 1 - 68
1. Typically labor intensive (teaching,
counseling)
2. Frequently focused on unique individual
desires (customer representatives in banks)
3. Often an intellectual task performed by
professionals
4. Often difficult to mechanize
5. Often difficult to evaluate for quality
69. 1 - 69
Customer Service
› Providing right thing at a right price at the
right time
› Manufacturing of goods of given,
requested or acceptable specificaiton
› Supply goods of given, requested or
acceptable specification
› Service Treatment of given requested or
acceptable specification
70. 1 - 70
Resource Utilization
› Obtaining maximum effect from resources,
minimization of loss and underutilization.
72. 1 - 72
Product Life Cycle
Sales /
Revenue
Time
Start up Growth Maturity Decline
73. 1 - 73
Intermittent Production System
Continuous Production System
74. 1 - 74
Goods and services produced to fulfill
the orders of customer.
No inventory
Flexible production facility
Furniture, Hospital, Work shop
75. 1 - 75
Characteristic
› Production in small quantity
› Unbalanced work load on work centers
› High skill manpower to carry out varied
designed works
› High process inventories
› Frequent change in planning, scheduling
› Highly flexible
› High unit cost
76. 1 - 76
Classification:
› Job or Unit Production System
Single Unit or single job completed by an
individual or a group
Furniture
› Batch Production System
Large amount or batch job/unit completed
by a group in accordance with the
demand of customer.
pharmaceuticals, books
77. 1 - 77
Production carried out in accordance
with sales forecast and stock position.
Importance given to planning
scheduling and controlling
FMCG, beers