slides for ch1 10th ed

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Course Title: Operations Management
Course Book: Operations Management 10th
Edition. By Jay Heizer & Barry Render

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Chapter 1: Introduction to Operations
Management

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Outline
 What Is Operations Management?
 Organizing to Produce Goods and Services
 Why Study OM?
 What Operations Managers Do
 The Heritage of Operations Management
 Operations in the Service Sector
 Differences between Goods and Services
 Growth of Services
 Exciting New Trends in Operations Management

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Outline - Continued
 The Productivity Challenge
 Productivity Measurement
 Productivity and the Service Sector
 Ethics and Social Responsibility

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What Is Operations Management?
Production is the creation of goods and services
Operations management (OM) is the set of
activities that create value in the form of goods
and services by transforming inputs into outputs

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Organizing to Produce Goods and Services
 Essential functions:
1. Marketing – generates demand
2. Production / operations – creates the product
3. Finance / accounting – tracks how well the
organization is doing, pays bills, collects the
money

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Organizational Charts
Operations
• Teller
Scheduling
• Check Clearing
• Collection
• Transaction
processing
• Facilities
design/layout
• Vault operations
• Maintenance
• Security
Finance
• Investment
• Security
• Real estate
Accounting
Auditing
Marketing
Loans
• Commercial
• Industrial
• Financial
• Personal
• Mortgage
Trust Department
Commercial Bank
Figure 1.1(A)

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Organizational Charts
Operations
• Ground support
equipment
• Maintenance
• Ground Operations
• Facility
maintenance
• Catering
• Flight Operations
• Crew scheduling
• Flying
• Communication
• Dispatching
• Management science
Finance/
Accounting
• Accounting
• Payables
• Receivables
• General
Ledger
• Finance
• Cash control
• International
exchange
Airline
Figure 1.1(B)
Marketing
• Traffic
administration
• Reservation
Schedules
• Tariffs
(pricing)
• Sales
• Advertising

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Marketing
Sales
promotion
Advertising
Sales
Market
research
Organizational 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)

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Why Study OM?
1. OM is one of three major functions of any organization, we
want to study how people organize themselves for
productive enterprise
2. We want (and need) to know how goods and services are
produced
3. We want to understand what operations managers do
4. OM is such a costly part of an organization

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What Operations Managers Do
Basic Management Functions
 Planning
 Organizing
 Staffing
 Leading
 Controlling

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Ten Critical Decisions
Ten Decision Areas Chapter(s)
1. Strategy development
2. Project management
3. Forecasting
4. Managing quality 6, Supplement 6
5. Process and capacity 7, Supplement 7
design
6. Location strategy 8
7. Layout strategy 9
8. Human resources and
job design
9. Supply-chain
management
10. Inventory, MRP, JIT 12, 14, 16
11. Scheduling
12. Maintenance
Table 1.2

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The Critical Decisions (1/3)
1. Design of goods and services
 What good or service should we offer?
 How should we design these products and
services?
2. Managing quality
 How do we define quality?
 Who is responsible for quality?
3. Process and capacity design
 What process and what capacity will these products
require?
 What equipment and technology is necessary for
these processes?
Table 1.2 (cont.)

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The Critical Decisions (2/3)
4. Location strategy
 Where should we put the facility?
 On what criteria should we base the location
decision?
5. Layout strategy
 How should we arrange the facility?
 How large must the facility be to meet our plan?
6. Human resources and job design
 How do we provide a reasonable work
environment?
 How much can we expect our employees to
produce?
Table 1.2 (cont.)

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The Critical Decisions (3/3)
7. Supply-chain management
 Should we make or buy this component?
 Who should be our suppliers and how can we integrate
them into our strategy?
8. Inventory, material requirements planning, and JIT
 How much inventory of each item should we have?
 When do we re-order?
9. Intermediate and short–term scheduling
 Are we better off keeping people on the payroll during
slowdowns?
 Which jobs do we perform next?
10. Maintenance
 How do we build reliability into our processes?
 Who is responsible for maintenance? Table 1.2 (cont.)

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Where are the OM Jobs?
 Technology/methods
 Facilities/space utilization
 Strategic issues
 Response time
 People/team development
 Customer service
 Quality
 Cost reduction
 Inventory reduction
 Productivity improvement
About 40 % of management job require
OM expertise

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Certifications
 American Production and Inventory Control Society
(APICS)
 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)

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Significant Events in OM
Figure 1.3

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Eli Whitney (1/4)
 Born 1765; died 1825
 In 1798, received government contract to make
10,000 muskets
 Showed that machine tools could make standardized
parts to exact specifications
 Musket parts could be used in any musket

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Frederick W. Taylor (2/4)
 Born 1856; died 1915
 Known as ‘father of scientific management’
 In 1881, as chief engineer for Midvale Steel, studied
how tasks were done
 Began first motion and time studies
 Created efficiency principles

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 Born 1863; died 1947
 In 1903, created Ford Motor Company
 In 1913, first used moving assembly line to make Model T
 Unfinished product moved by conveyor past work
station
 Paid workers very well for 1911 ($5/day!)
Henry Ford (3/4)

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W. Edwards Deming (4/4)
 Born 1900; died 1993
 Engineer and physicist
 Credited with teaching Japan quality control methods
in post-WW2
 Used statistics to analyze process
 His methods involve workers in decisions

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Contributions From
 Human factors
 Industrial engineering
 Management science
 Biological science
 Physical sciences
 Information technology

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New Challenges in OM
 Global focus
 Just-in-time
 Supply-chain
partnering
 Rapid product
development, alliances
 Mass customization
 Empowered
employees, teams
To
From
 Local or national focus
 Batch shipments
 Low bid purchasing
 Lengthy product
development
 Standard products
 Job specialization

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Characteristics of Goods (1/2)
 Tangible product
 Consistent product
definition
 Production usually
separate from
consumption
 Can be inventoried
 Low customer interaction

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Characteristics of Service (2/2)
 Intangible product
 Produced and consumed at
same time (No inventory)
 Often unique
 High customer interaction
 Inconsistent product definition
 Often knowledge-based
 Frequently dispersed

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Industry and Services as Percentage of GDP
Services Manufacturing
Australia
Canada
China
Czech
Rep
France
Germany
Hong
Kong
Japan
Mexico
Russian
Fed
South
Africa
Spain
UK
US
90 −
80 −
70 −
60 −
50 −
40 −
30 −
20 −
10 −
0 −

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Goods and Services
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
Percent of Product that is a Good Percent of Product that is a Service
100% 75 50 25 0 25 50 75 100%
| | | | | | | | |

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120 –
100 –
80 –
60 –
40 –
20 –
0 – | | | | | | |
1950 1970 1990 2010 (est)
1960 1980 2000
Employment
(millions)
USA Manufacturing and Service Employment
Figure 1.4 (A)
Manufacturing
Service

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Productivity Challenge
Productivity is the ratio of outputs (goods and services)
divided by the inputs (resources such as labor and
capital)
The objective is to improve productivity!
Important Note!
Production is a measure of output
only and not a measure of efficiency

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Feedback loop
Outputs
Goods
and
services
Transformation
The U.S. economic system
transforms inputs to outputs
at about an annual 2.5%
increase in productivity per
year. The productivity
increase is the result of a
mix of capital (38% of 2.5%),
labor (10% of 2.5%), and
management (52% of 2.5%).
The Economic System
Inputs
Labor,
capital,
management
Figure 1.6

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 Measure of process improvement
 Represents output relative to input
 Only through productivity increases can our standard of
living improve
Productivity
Productivity =
Units produced
Input used

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Productivity Calculations
Productivity =
Units produced
Labor-hours used
= = 4 units/ labor-hour
1,000
250
Labor Productivity
One resource input  single-factor productivity

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Multi-Factor Productivity
Output
Labor + Material + Energy + Capital +
Miscellaneous
Productivity =
 Also known as total factor productivity
 Output and inputs are often expressed in dollars
Multiple resource inputs  multi-factor productivity

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Productivity Calculations
Productivity =
Units produced
Labor-hours used
= = 4 units/labor-hour
1,000
250
Labor Productivity
One resource input  single-factor productivity

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Multi-Factor Productivity
Output
Labor + Material + Energy
+ Capital + Miscellaneous
Productivity =
 Also known as total factor productivity
 Output and inputs are often expressed
in dollars
Multiple resource inputs  multi-factor productivity

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Productivity Example
Collin titles wants to evaluate its labor and multifactor
productivity with a new computerized title search
system. The company has a staff of four, each working
8 hours per day (for a payroll cost of 640 $/day) and
overhead expenses of 400 $/day. Collins processes and
closes 8 titles per day. The new computerized titles search
system will allow the processing of 14 titles/day. Although
the staff, their work hours and pay are the same, the overhead
expenses are now 800 $/day.

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

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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
8 titles/day
32 labor-hrs
=
Old labor
productivity = .25 titles/labor-hr

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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day
32 labor-hrs
=
Old labor
productivity
=
New labor
productivity
= .25 titles/labor-hr
14 titles/day
32 labor-hrs

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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
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

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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
=
Old multifactor
productivity
8 titles/day
$640 + 400

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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day
$640 + 400
=
Old multifactor
productivity
= .0077 titles/dollar

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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day
$640 + 400
=
Old multifactor
productivity
=
New multifactor
productivity
= .0077 titles/dollar
14 titles/day
$640 + 800

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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day
$640 + 400
14 titles/day
$640 + 800
=
Old multifactor
productivity
=
New multifactor
productivity
= .0077 titles/dollar
= .0097 titles/dollar

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Service Productivity a Difficult task to
Measure
1. Typically labor intensive
2. Frequently focused on unique individual attributes or
desires
3. Often an intellectual task performed by professionals
4. Often difficult to mechanize
5. Often difficult to evaluate for quality

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Ethics and
Social Responsibility
Challenges facing operations
managers:
 Developing and producing safe, quality products
 Maintaining a clean environment
 Providing a safe workplace
 Honoring stakeholder commitments

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Today's Summary (1/2)
 What Is Operations Management?
 Organizing to Produce Goods and Services
 Why Study OM?
 What Operations Managers Do
 The Heritage of Operations Management
 Operations in the Service Sector
 Differences between Goods and Services
 Growth of Services
 Exciting New Trends in Operations Management

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Today's Summary (2/2)
 The Productivity Challenge
 Productivity Measurement
 Productivity and the Service Sector
 Ethics and Social Responsibility