Production and

Operations Management
Syed Sajjad Ahmed
Head of Supply Planning & Sourcing @ Shell Pakistan
Visiting Faculty - IBA
Introduction to Operations
& Production Management

2
 3 What are Goods ?
 Something Tangible
 Consistent product definition
 Production usually separate from
consumption
 Low customer interaction
 Often procedure based
 Can be inventoried
 Produced by manufacturing process
 4 What are Services ?
 Intangible product
 Often unique, Inconsistent
product definition
 Produced and consumed at
same time
 High customer interaction
 Often knowledge-based
 Frequently dispersed
 Produced by business process
5 Goods
5
and Services
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

 6 What is Production ?
 Creating goods and services

Raw Goods &

Production
Material Services

 Examples are;
 Mcdonald’s used to provide take away meals.
 K-Electric generating and supplying electricity
 Automobile industry manufacturing cars.
7 What are Operations ?
 Creates value in the form of goods and services by
transforming inputs into outputs.

Raw Material Goods +

+ services + Operations Services +
information
Information
 Examples are;
 Now Mcdonald’s offers online delivery, take away and dine in service.
 K-Electric generating and supplying electricity with enhanced customer
care and better monitoring and control of their transmission.
 Automobile industry manufacturing cars and delivering enhanced after-
sales and buying services to the customers.
8 Essential Functions Materials &
Services
Inputs Finance
Operations Acquires financial
Translates materials resources and
And services into Support Functions capital
outputs • Accounting for inputs
• Information Systems
• Human Resources
• Engineering

Product & Sales

Service Revenue
Outputs

Marketing
Generates sales
of outputs
9 Essential Functions
10 Essential Functions
Essential Functions

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Supply chain

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13 Supply Chain
A global network of organizations and activities that supply a
firm with goods and services
Members of the supply chain collaborate to achieve high
levels of customer satisfaction, efficiency and competitive
advantage.
Every component of supply chain perform Operations
Management at their end.
What is supply chain?
What is supply chain?

© Dr. Muhammad Wasif - Associate Professor IMD, NEDUET

 16 Ten Operations Management Decision Areas
1. Design of goods and services
2. Capacity/Process Strategy
Corporate
3. Location strategy
4. Layout strategy Middle
Management
5. Sales and Operations Strategy
6. Managing quality Line
Management
7. Human resources and job design
8. Inventory management
9. Material/Enterprise Resource Planning
10.Maintenance
17 Objectives of Operations Management
1. Efficient Resource Utilization: To optimize the use of
resources, including labor, materials, and
equipment, ensuring minimal waste and cost-
effectiveness.
2. Quality and Customer Satisfaction: To deliver high-
quality products or services that meet or exceed
customer expectations, fostering trust and loyalty.
3. Timely Delivery and Productivity: To ensure the timely
completion of processes and maximize productivity,
aligning operations with organizational goals and
market demands.
Productivity

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 19 Productivity
 Productivity is a basic measure of performance for economies,
industries, firms, and processes.
 It is the measure of outputs (goods and services) gained with
respect to the inputs (labor, capital, material etc.) consumed.
 Productivity is the measure of how specified resources are
managed to accomplish timely objectives as stated in terms of
quantity and quality.
 Efficiency is the measure of tangible output relative to tangible
input, whereas productivity is of both tangible and in-tangible.
How to improve
Productivity?
21 Productivity
OPM
Inputs
Outputs

Products
Services

Feedback to control process

inputs or process technology
22 Productivity in Manufacturing & Service
Starbuck: 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
per shot

Productivity has improved by 27%, or about $250,000 per year.

 23 Productivity in Manufacturing & Service
 A manager at an insurance firm might measure office productivity as
the number of insurance policies processed per employee per week.
 A manager at a carpet company might measure the productivity of
installers as the number of square yards of carpet installed per hour.
 A manager at beverage company can measure productivity of a
capping machine by measuring number of capped bottles with the
invested capital on the machine.
 A manager can measure the number of part produced with the
electricity consumed by the machine.
 24 Single-factor Productivity
 Labor-hour is the common measure of input;
 Manufacturing output is easier to quantify.

 For example 1000 units are produced by 250 labor-hr

(25workers and 10 hours)
 25 Multi-factor Productivity
 Also known as total factor productivity
 Output and inputs are often expressed in dollars

 KLEMS represents all production inputs: K is capital

services; L is labor services; E, energy; M, materials; and S
refers to purchased services
 Use of productivity measures aids managers in
determining how well they are doing.
 26 Multi-factor Productivity
Example: (labor and materials productivity):
 200 units produced that sell for $12.00 each
 Materials cost $6.50 per unit
 40 hours of labor were required at $10 an hour

 Is the productivity measure of 1.41 in the previous example good or

bad?
 Can’t tell without a reference point
 Compare to previous measures (e.g.: last week) or to another
benchmark
 27 Relative Productivity
 Can be used to compare a process’s productivity at a given time (P2) to the
same process’ productivity at an earlier time (P1)

 Last week a company produced 150 units using 200 hours of labor. This
week, the same company produced 180 units using 250 hours of labor

150𝑢𝑛𝑖𝑡𝑠
𝑃 = = 0.75 𝑢𝑛𝑖𝑡𝑠 𝑝𝑒𝑟 𝑙𝑎𝑏𝑜𝑢𝑟 − ℎ𝑟
200𝑙𝑎𝑏𝑜𝑢𝑟 − ℎ𝑜𝑢𝑟

180𝑢𝑛𝑖𝑡𝑠
𝑃 = = 0.71 𝑢𝑛𝑖𝑡𝑠 𝑝𝑒𝑟 𝑙𝑎𝑏𝑜𝑢𝑟 − ℎ𝑟
250𝑙𝑎𝑏𝑜𝑢𝑟 − ℎ𝑜𝑢𝑟
 Productivity - Example
Collins Title Insurance Ltd. 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 per day. Collins processes and closes on 8 titles each day.
The new computerized title-search system will allow the processing of 14 titles per day. Although the staff,
their work hours, and pay are the same, the overhead expenses are now $800 per day.
 Labor productivity with the old system: 8 titles per day/32 labor@hours = .25
 Labor productivity with the new system: 14 titles per day/32 labor@hours = .4375
 Multifactor productivity with the old system: 8 titles per day/ ($640 + $400) = .0077 titles per dollar
 Multifactor productivity with the new system: 14 titles per day/($640 + $800) = .0097 titles per dollar
Labor productivity has increased from .25 to .4375. The change is (.4375 - .25)>.25 = 0.75, or a 75% increase in
labor productivity.
Multifactor productivity has increased from .0077 to .0097. This change is (.0097 - .0077)>.0077 = 0.26, or a 26%
increase in multifactor productivity.
INSIGHT : Both the labor (single-factor) and multifactor productivity measures show an increase in
productivity. However, the multifactor measure provides a better picture of the increase because it includes
all the costs connected with the increase in output.
 29 Productivity - Exercise
Following data is observed during the production of plastic
bottles in a shift of 8 hours
Parameter Formula Values Answer
 Plastic Bottle Produced = 300
 Defective Bottle Produced = 12 Labor Acceptible 𝑂𝑢𝑡𝑝𝑢𝑡
 Designed Capacity in a shift = 350 Productivity 𝐿𝑎𝑏𝑜𝑢𝑟 Hours

 Effective Capacity due to breaks,

cleaning, maintenance = 320 Energy Acceptible𝑂𝑢𝑡𝑝𝑢𝑡
Productivity Energy 𝑐𝑜𝑛𝑠𝑢𝑚𝑒𝑑
 No. of workers = 10 (of each average
Pay rate of Rs. 200/hrs) Machine Acceptible𝑂𝑢𝑡𝑝𝑢𝑡
 Electricity Unit = Rs. 22/ kWh Productivity 𝑀𝑎𝑐ℎ𝑖𝑛𝑒 Hours

 Machine Load/hr = 4000W x 5machine Acceptible𝑂𝑢𝑡𝑝𝑢𝑡

= 20,000W (20KW) Overall 𝐿𝑎𝑏. 𝑐𝑜𝑠𝑡 + 𝑈𝑡𝑖𝑙𝑖𝑡𝑦 𝑐𝑜𝑠𝑡
Productivity +𝑚𝑎𝑐ℎ𝑖𝑛𝑒 𝑐𝑜𝑠𝑡
 Machine Rate = Rs. 500/hr x 5 machines
 30 Productivity in Services
Productivity of the service sector has proven difficult to improve
because service-sector work is:
1. Typically, labor intensive (e.g., counseling, teaching).
2. Frequently focused on unique individual attributes or desires (e.g.,
investment advice).
3. Often an intellectual task performed by professionals (e.g., medical
diagnosis).
4. Often difficult to mechanize and automate (e.g., a haircut).
5. Often difficult to evaluate for quality (e.g., performance of a law
firm).
31 Measurement Problems
 Quality may change while the quantity of inputs and outputs
remains constant (increasing quality compliances may
decrease the productivity).

 External elements may cause an increase or decrease in

productivity (political situation, poor transpiration, law and
order situation etc.)

 Precise units of measure may be lacking

 32 Productivity Variables
 Labor - contributes about 10% of the
annual increase
 Capital - contributes about 38% of the
annual increase
 Management - contributes about 52% of
the annual increase
 Ensures labor and capital are effectively used
to increase productivity
 Knowledge societies
 Difficult challenge
33 Current Challenges

 Globalization
 Supply-chain partnering
 Sustainability
 Rapid product development
 Mass customization
 Lean operations
34 Ethical and Social Responsibilities
Managers are also challenged to:

 Develop and produce safe, high-quality green

products
 Train, retain, and motivate employees in a safe
workplace
 Honor stakeholder commitments
 Task for the week

Read chapter # 1 - Operations and Productivity (pages 4 to 19)

Solved Problems 1.1 and 1.2 (Pages 21 to 22)
Practice Problems 1.1 to 1.17 (Pages 22 to 24)

From the book:

Principles of Operations Management: Sustainability and

Supply Chain Management, 12th Ed., by J. Heizer & B.
Render.