Operations Management

1. Operations Management Chapter 1 – Operations and Productivity PowerPoint presentation to accompany Heizer/Render Principles of Operations Management, 7e Operations Management, 9e

2. Outline • What Is Operations Management? • Organizing to Produce Goods and Services • Why Study OM? • What Operations Managers Do • How This Book Is Organized

3. Outline - Continued • The Heritage of Operations Management • Operations in the Service Sector • Differences between Goods and Services • Growth of Services • Service Pay • Exciting New Trends in Operations Management

4. Outline - Continued • The Productivity Challenge • Productivity Measurement • Productivity Variables • Productivity and the Service Sector • Ethics and Social Responsibility

5. Learning Objectives When you complete this chapter you should be able to: Define operations management Explain the distinction between goods and services Explain the difference between production and productivity

6. Learning Objectives When you complete this chapter you should be able to: Compute single-factor productivity Compute multifactor productivity Identify the critical variables in enhancing productivity

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

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

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

10. 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 Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising Organizational Charts Airline Figure 1.1(B)

11. Operations FacilitiesConstruction; maintenance Production and inventory controlScheduling; materials control Quality assurance and control Supply chain management ManufacturingTooling; 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 Marketing Sales promotion Advertising Sales Market research Organizational Charts Manufacturing Figure 1.1(C)

12. Why Study OM? • OM is one of three major functions (marketing, finance, and operations) of any organization • We want (and need) to know how goods and services are produced • We want to understand what operations managers do • OM is such a costly part of an organization

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

14. Ten Decision Areas Chapter(s) • Design of goods and services 5 • Managing quality 6, Supplement 6 • Process and capacity 7, Supplement 7 design • Location strategy 8 • Layout strategy 9 • Human resources and 10, Supplement 10 job design • Supply chain 11, Supplement 11 management • Inventory management 12, 14, 16 • Scheduling 13, 15 • Maintenance 17 Ten Critical Decisions Table 1.2

15. The Critical Decisions • Design of goods and services • What good or service should we offer? • How should we design these products and services? • Managing quality • How do we define quality? • Who is responsible for quality? Table 1.2 (cont.)

16. The Critical Decisions • Process and capacity design • What process and what capacity will these products require? • What equipment and technology is necessary for these processes? • Location strategy • Where should we put the facility? • On what criteria should we base the location decision? Table 1.2 (cont.)

17. The Critical Decisions • Layout strategy • How should we arrange the facility? • How large must the facility be to meet our plan? • 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.)

18. The Critical Decisions • Supply chain management • Should we make or buy this component? • Who are our suppliers and who can integrate into our e-commerce program? • Inventory, material requirements planning, and JIT • How much inventory of each item should we have? • When do we re-order? Table 1.2 (cont.)

19. The Critical Decisions • Intermediate and short–term scheduling • Are we better off keeping people on the payroll during slowdowns? • Which jobs do we perform next? • Maintenance • Who is responsible for maintenance? • When do we do maintenance? Table 1.2 (cont.)

20. Where are the OM Jobs? Figure 1.2

21. 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

22. Significant Events in OM Figure 1.3

23. 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)

24. The Heritage of OM • Computer (Atanasoff 1938) • CPM/PERT (DuPont 1957) • Material requirements planning (Orlicky 1960) • Computer aided design (CAD 1970) • Flexible manufacturing system (FMS 1975) • Baldrige Quality Awards (1980) • Computer integrated manufacturing (1990) • Globalization (1992) • Internet (1995)

25. Eli Whitney • Born 1765; died 1825 • In 1798, received government contract to make 10,000 muskets • Showed that machine tools could make standardized parts to exact specifications • Musket parts could be used in any musket

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

27. Taylor’s Principles Management Should Take More Responsibility for: • Matching employees to right job • Providing the proper training • Providing proper work methods and tools • Establishing legitimate incentives for work to be accomplished

28. Frank & Lillian Gilbreth • Frank (1868-1924); Lillian (1878-1972) • Husband-and-wife engineering team • Further developed work measurement methods • Applied efficiency methods to their home and 12 children! • Book & Movie: “Cheaper by the Dozen,” book: “Bells on Their Toes”

29. Henry Ford • 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!)

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

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

32. Characteristics of Goods • Tangible product • Consistent product definition • Production usually separate from consumption • Can be inventoried • Low customer interaction

33. Characteristics of Service • Intangible product • Produced and consumed at same time • Often unique • High customer interaction • Inconsistent product definition • Often knowledge-based • Frequently dispersed

34. Attributes of Goods (Tangible Product) Attributes of Services (Intangible Product) Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production Product is transportable Site of facility important for cost Often easy to automate Revenue generated primarily from tangible product Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service Provider, not product, isoften transportable Site of facility important forcustomer contact Often difficult to automate Revenue generated primarily from the intangible service Goods Versus Services Table 1.3

35. Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management Consulting service/ teaching Counseling 100% 75 50 25 0 25 50 75 100% | | | | | | | | | Percent of Product that is a Good Percent of Product that is a Service Goods and Services Figure 1.4

36. 120– 100 – 80 – 60 – 40 – 20 – 0 – Service Employment (millions) Manufacturing | | | | | | | 1950 1970 1990 2010 (est) 1960 1980 2000 Manufacturing and Service Employment Figure 1.5 (A)

37. Past Causes Future New Trends in OM Figure 1.6

38. Past Causes Future New Trends in OM Figure 1.6

39. Past Causes Future New Trends in OM Figure 1.6

40. New Trends in OM • Global focus • Just-in-time performance • Supply chain partnering • Rapid product development • Mass customization • Empowered employees • Environmentally sensitive production • Ethics

41. 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

42. Processes Outputs Inputs 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%). Goods andservices Labor,capital,management Feedbackloop The Economic System Figure 1.7

43. Improving Productivity at Starbucks A team of 10 analysts continually look for ways to shave time. Some improvements:

44. Operations improvements have helped Starbucks increase yearly revenue per outlet by $200,000 to $940,000 in six years. Productivity has improved by 27%, or about 4.5% per year. Improving Productivity at Starbucks A team of 10 analysts continually look for ways to shave time. Some improvements:

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

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

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

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

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

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