10/03/2024

Post Graduate Diploma in Business

Management

OPERATIONS MANAGEMENT
Lewis Kaplan
Unit 1

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1
Operations and
Productivity

PowerPoint presentation to accompany

Heizer, Render, Munson
Operations Management, Thirteenth Edition, Global Edition
Principles of Operations Management, Eleventh Edition

PowerPoint slides by Jeff Heyl

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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 creates
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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The Supply Chain

▶A global network of organizations and
activities that supplies a firm with goods and
services
▶Members of the supply chain collaborate to
achieve high levels of customer satisfaction,
efficiency and competitive advantage
Figure 1.2

Farmer Syrup Bottler Distributor Retailer

producer

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What Operations
Managers Do
Basic Management Functions

▶Planning
▶Organizing
▶Staffing
▶Leading
▶Controlling

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Ten Strategic Decisions

TABLE 1.2
DECISION CHAPTER(S)
1. Design of goods and services 5, Supplement 5
2. Managing quality 6, Supplement 6
3. Process and capacity strategy 7, Supplement 7
4. Location strategy 8
5. Layout strategy 9
6. Human resources and job design 10
7. Supply-chain management 11, Supplement 11
8. Inventory management 12, 14, 16
9. Scheduling 13, 15
10. Maintenance 17

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The Strategic Decisions

1. Design of goods and services
▶ Defines what is required of operations
▶ Product design determines cost, quality,
sustainability and human resources
2. Managing quality
▶ Determine the customer’s quality
expectations
▶ Establish policies and procedures to
identify and achieve that quality
Table 1.2 (cont.)

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The Strategic Decisions

3. Process and capacity design
▶ How is a good or service produced?
▶ Commits management to specific
technology, quality, human resources, and
investments
4. Location strategy
▶ Nearness to customers, suppliers, and
talent
▶ Considering costs, infrastructure, logistics,
and government Table 1.2 (cont.)

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The Strategic Decisions

5. Layout strategy
▶ Integrate capacity needs, personnel levels,
technology, and inventory
▶ Determine the efficient flow of materials,
people, and information
6. Human resources and job design
▶ Recruit, motivate, and retain personnel with
the required talent and skills
▶ Integral and expensive part of the total
system design
Table 1.2 (cont.)

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The Strategic Decisions

7. Supply chain management
▶ Integrate supply chain into the firm’s strategy
▶ Determine what is to be purchased, from
whom, and under what conditions
8. Inventory management
▶ Inventory ordering and holding decisions
▶ Optimize considering customer satisfaction,
supplier capability, and production schedules

Table 1.2 (cont.)

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The Strategic Decisions

9. Scheduling
▶Determine and implement intermediate-
and short-term schedules
▶Utilize personnel and facilities while
meeting customer demands
10. Maintenance
▶Consider facility capacity, production
demands, and personnel
▶Maintain a reliable and stable process
Table 1.2 (cont.)

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Where are the OM Jobs?

▶Introducing new technologies and methods
▶Improving facility location and space utilization
▶Defining and implementing operations strategy
▶Improving response time
▶Developing people and teams
▶Improving customer service
▶Managing quality
▶Managing and controlling inventory
▶Enhancing productivity
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Opportunities
Figure 1.3

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Certifications
▶ APICS, the Association for Operations
Management
▶ American Society for Quality (ASQ)
▶ Institute for Supply Management (ISM)
▶ Project Management Institute (PMI)
▶ Council of Supply Chain Management
Professionals
▶ Chartered Institute of Procurement and
Supply (CIPS)

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Significant Events in OM

Figure 1.4
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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

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

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Frank and 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 and Movie: “Cheaper by the
Dozen,” “Bells on Their Toes”

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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!)

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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

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OM Relies on
Contributions From
▶Industrial engineering
▶Statistics
▶Management
▶Analytics
▶Economics
▶Physical sciences
▶Information technology
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Operations for
Goods and Services
Services – Economic activities that
typically produce an intangible product
(such as education, entertainment,
lodging, government, financial, and
health services)

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Operations for
Goods and Services
▶Manufacturers produce tangible
product, services often intangible
▶Operations activities are performed in
both manufacturing and services
▶Distinction not always clear
▶Few pure services

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Differences Between Goods and

Services
TABLE 1.3
CHARACTERISTICS OF SERVICES CHARACTERISTICS OF GOODS
Intangible: Ride in an airline seat Tangible: The seat itself
Produced and consumed simultaneously: Beauty salon Product can usually be kept in inventory (beauty care
produces a haircut that is consumed as it is produced products)
Unique: Your investments and medical care are unique Similar products produced (iPods)

High customer interaction: Often what the customer is Limited customer involvement in production
paying for (consulting, education)
Inconsistent product definition: Auto Insurance Product standardized (iPhone)
changes with age and type of car
Often knowledge based: Legal, education, and medical Standard tangible product tends to make automation
services are hard to automate feasible
Services dispersed: Service may occur at retail store, Product typically produced at a fixed facility
local office, house call, or via Internet.
Quality may be hard to evaluate: Consulting, Many aspects of quality for tangible products are easy
education, and medical services to evaluate (strength of a bolt)
Reselling is unusual: Musical concert or medical care Product often has some residual value

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U.S. Agriculture, Manufacturing,

and Service Employment
Figure 1.5
100 -

80 –
Percent of Workforce

60 –

40 –

20 –

| | | | | | | | |
0 .
1825 1875 1925 1975 2025 (est.)
1800 1850 1900 1950 2000

Agriculture Services Manufacturing

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Organizations in Each Sector

TABLE 1.4

PERCENT OF
SECTOR EXAMPLE ALL JOBS
Service Sector
Education, Medical, Other San Diego State University, Arnold Palmer 16.2
Hospital
Trade (retail, wholesale), Walgreen's, Walmart, Nordstrom, Alaska 17.1
Transportation Airlines
Information, Publishers, IBM, Bloomberg, Pearson, ESPN 1.8
Broadcast 85.9
Professional, Legal, Business Snelling and Snelling, Waste Management, Inc., 17.0
Services, Associations American Medical Association, Ernst & Young
Finance, Insurance, Real Estate Citicorp, American Express, Prudential, Aetna 9.6
Food, Lodging, Entertainment Olive Garden, Motel 6, Walt Disney 10.0
Public Administration U.S., State of Alabama, Cook County 14.2
Manufacturing Sector General Electric, Ford, U.S. Steel, Intel 7.9
Construction Sector Bechtel, McDermott 4.3
Agriculture King Ranch 1.5
Mining Sector Homestake Mining .4
Grand Total 100.0
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Service Pay
▶Perception that services are low-paying
▶42% of service workers receive above
average wages
▶14 of 33 service industries pay below
average
▶Retail trade pays only 61% of national
average
▶Overall average wage is 96% of the
average
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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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The Economic System

Inputs Transformation Outputs

Labor, The U.S. economic system Goods

capital, transforms inputs to outputs at and
management about an annual 2.5% increase services
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%).

Feedback loop

Figure 1.6

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Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Stop requiring signatures Saved 8 seconds
on credit card purchases per transaction
under $25
Change the size of the ice Saved 14 seconds
scoop per drink
New espresso machines Saved 12 seconds
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Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Operations improvements have
helped StarbucksSaved
Stop requiring signatures increase yearly
8 seconds
revenue per outlet
on credit card purchases perbytransaction
$250,000 to
under $25 $1,000,000.
Change the size Productivity
of the ice has improved
Saved 14by 27%, or
seconds
scoop about 4.5% per year.
per drink
New espresso machines Saved 12 seconds
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Productivity
Units produced
Productivity =
Input used

▶Measure of process improvement

▶Represents output relative to input
▶Only through productivity increases
can our standard of living improve

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Productivity Calculations
Labor Productivity
Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250

One resource input  single-factor productivity

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Multi-Factor Productivity
Output
Multifactor =
Labor + Material + Energy +
Capital + Miscellaneous
► Also known as total factor productivity
► Output and inputs are often expressed in
dollars

Multiple resource inputs  multi-factor productivity

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Collins Title Productivity

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

Old labor 8 titles/day

= = .25 titles/labor-hr
productivity 32 labor-hrs

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Collins Title Productivity

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 8 titles/day

productivity = = .25 titles/labor-hr
32 labor-hrs

New labor 14 titles/day

productivity = = .4375 titles/labor-hr
32 labor-hrs

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Collins Title Productivity

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 multifactor 8 titles/day

= = .0077 titles/dollar
productivity $640 + 400

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Collins Title Productivity

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 multifactor 8 titles/day

productivity = = .0077 titles/dollar
$640 + 400

New multifactor 14 titles/day

productivity = = .0097 titles/dollar
$640 + 800

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Measurement Problems
1. Quality may change while the
quantity of inputs and outputs remains
constant
2. External elements may cause an
increase or decrease in productivity
3. Precise units of measure may be
lacking

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Productivity Variables
1. Labor - contributes
about 10% of the
annual increase
2. Capital - contributes
about 38% of the
annual increase
3. Management -
contributes about 52%
of the annual increase
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Key Variables for Improved

Labor Productivity
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

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Labor Skills
About half of the 17-year-olds in the U.S. cannot
correctly answer questions of this type

Figure 1.7
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Capital
10
Percent increase in productivity

0
10 15 20 25 30 35
Percentage investment

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Management
▶Ensures labor and capital are effectively
used to increase productivity
▶Use of knowledge
▶Application of technologies
▶Knowledge societies
▶Labor has migrated from manual work to
technical and information-processing tasks
▶More effective use of technology,
knowledge, and capital
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Productivity in the Service

Sector
▶Productivity improvement in services is
difficult because:
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 and automate
5. Often difficult to evaluate for quality
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Productivity at Taco Bell

Improvements:
▶Revised the menu
▶Designed meals for easy
preparation
▶Shifted some preparation to
suppliers
▶Efficient layout and automation
▶Training and employee empowerment
▶New water and energy saving grills

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Productivity
Results: at Taco Bell
▶Preparation time cut to 8 seconds
▶Management span of control increased from 5
Improvements:
to 30
▶In-store labor cut by 15 hours/day
▶Floor space reduced by more than 50%
▶Stores average 164 seconds/customer from
drive-up to pull-out
▶Water- and energy-savings grills conserve 300
million gallons of water and 200 million KwH of
electricity each year
▶Green-inspired cooking method saves 5,800
restaurants $17 million per year

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Current Challenges in OM

▶Globalization
▶Supply-chain partnering
▶Sustainability
▶Rapid product development
▶Mass customization
▶Lean operations

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Ethics, Social Responsibility,

and Sustainability
Challenges facing
operations managers:
▶Develop and produce safe, high-quality
green products
▶Train, retrain, and motivate employees
in a safe workplace
▶Honor stakeholder commitments

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Ethics,Stakeholders
Social Responsibility,
and
Those Sustainability
with a vested interest in an
organization, including customers,
distributors,
Challenges facing suppliers, owners, lenders,
employees,
operations managers: and community members.

▶Develop and produce safe, high-quality

green products
▶Train, retrain, and motivate employees
in a safe workplace
▶Honor stakeholder commitments

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