Operations

Management
Chapter 1
Operations and Productivity
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 6e
Operations Management, 8e

2006
2006 Prentice
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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:
Marketing generates demand
Production/operations creates
the product
Finance/accounting tracks how
well the organization is doing, pays
bills, collects the money

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 Organizational
Manufacturing
Charts

Operations Finance/ Marketing

Facilities accounting Sales
Construction; maintenance Disbursements/ promotion
Production and inventory control credits Advertising
Scheduling; materials control Receivables Sales
Quality assurance and control Payables
General ledger Market
Supply-chain management research
Manufacturing Funds Management
Tooling; fabrication; assembly Money market
Design International
Product development and design exchange
Detailed product specifications Capital requirements
Industrial engineering Stock issue
Efficient use of machines, space, Bond issue
and personnel and recall
Process analysis
Development and installation of
production tools and equipment Figure 1.1(C)
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 Organizational Charts
Airline

Operations Finance/ Marketing

Ground support accounting Traffic
equipment Accounting administration
Maintenance Payables Reservations
Ground Operations Receivables Schedules
General Ledger Tariffs (pricing)
Facility
maintenance Finance Sales
Catering Cash control Advertising
Flight Operations International
exchange
Crew scheduling
Flying
Communications
Dispatching
Management science Figure 1.1(B)
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 What Operations
Managers Do
Basic Management Functions
Planning
Organizing
Staffing
Leading
Controlling
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 The Critical Decisions
Service and product design
What good or service should we
offer?
How should we design these products
and services?
Quality management
How do we define quality?
Who is responsible for quality?

Table 1.2 (cont.)

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 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
Where should we put the facility?
On what criteria should we base the
location decision?
Table 1.2 (cont.)
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 The Critical Decisions
Layout design
How should we arrange the facility
and material flow?
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.)
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 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.)
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 The Critical Decisions
Intermediate and shortterm
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.)

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 Where are the OM Jobs?

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Figure 1.2 1 12
 New Challenges in OM
From To
Local or national focus Global focus
Batch shipments Just-in-time
Low bid purchasing Supply chain
partnering
Lengthy product Rapid product
development development,
alliances
Standard products Mass
customization
Job specialization Empowered
employees, teams
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 Characteristics of Goods
Tangible product
Consistent product
definition
Production usually
separate from
consumption
Can be inventoried
Low customer
interaction

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 Characteristics of Service
Intangible product
Produced and
consumed at same time
Often unique
High customer
interaction
Inconsistent product
definition
Often knowledge-based
Frequently dispersed
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 Goods Versus Services
Attributes of Goods Attributes of Services
(Tangible Product) (Intangible Product)
Can be resold Reselling unusual
Can be inventoried Difficult to inventory
Some aspects of quality Quality difficult to measure
measurable
Selling is distinct from Selling is part of service
production
Product is transportable Provider, not product, is
often transportable
Site of facility important for cost Site of facility important for
customer contact
Often easy to automate Often difficult to automate
Revenue generated primarily Revenue generated primarily
from tangible product from the intangible service

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Table 1.3 1 16
 Goods 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

Figure 1.4
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 Organizations in Each Sector
% of all
Service Sector Example Jobs
Professional Notre Dame University, 25.5
Services, San Diego Zoo, Arnold
Education, Palmer Hospital
Legal, Medical

Trade (retail, Walgreens, Wal-Mart, 20.6

wholesale) Nordstroms
Utilities, Pacific Gas & Electric, 7.1
Transportation American Airlines, Santa
Fe R.R., Roadway
Express
Table 1.4
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 Organizations in Each Sector
% of all
Service Sector Example Jobs
Business and Snelling and Snelling, 6.9
Repair Services Waste Management,
Pitney-Bowes

Finance, Citicorp, American 6.7

Insurance, Express, Prudential,
Real Estate Aetna, Trammel Crow

Food, Lodging, McDonalds, Hard Rock 5.4

Entertainment Caf, Motel 6, Hilton
Hotels, Walt Disney,
Paramount Pictures

Public U.S., State of Alabama, 4.5

Administration Cook County Table 1.4
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 Organizations in Each Sector
Manufacturing % of all
Sector Example Jobs
General General Electric, Ford, 13.3
U.S. Steel, Intel

Construction Bechtel, McDermott 7.1

Agriculture King Ranch 2.5
Mining Homestake Mining 0.4
Sector Percent of all jobs
Service 76.7%
Manufacturing 23.3%
Table 1.4
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 Development of the
Service Economy
100
90
Services
80
70
60 M
an
50 uf
ac
tu
40 rin
g
30
20 Agriculture
10
0
1800 1850 1900 1950 2000
Figure 1.5 (A)
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 Development of the
Service Economy
United States
Canada
France
Italy
Britain
Japan
W. Germany
| | | | |
40 50 60 70 80
1970 2005 Percent

Figure 1.5 (C)

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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 this

measure of efficiency

Important Note!
Production is a measure of output
only and not a measure of efficiency

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 The Economic System
Inputs Processes Outputs

Labor, The U.S. economic system Goods

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

Feedback loop

Figure 1.7

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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

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 Multi-Factor Productivity

Output
Productivity =
Labor + Material + Energy
+ Capital + Miscellaneous

Also known as total factor productivity

Output and inputs are often expressed
in dollars

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

8 titles/day
Old labor =
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

8 titles/day
Old labor = = .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
New System:
14 titles/day

8 titles/day
Old labor = = .25 titles/labor-hr
productivity 32 labor-hrs

14 titles/day
New labor =
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
New System:
14 titles/day

8 titles/day
Old labor = = .25 titles/labor-hr
productivity 32 labor-hrs

14 titles/day
New labor = = .4375 titles/labor-hr
productivity 32 labor-hrs

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 Productivity Variables

Labor

Capital

Management

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 Key Variables for Improved
Labor Productivity
Basic education appropriate for the
labor force
Diet of the labor force
Social overhead that makes labor
available
Maintaining and enhancing skills in the
midst of rapidly changing technology
and knowledge

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 Service Productivity

Typically labor intensive

Frequently focused on unique
individual attributes or desires
Often an intellectual task performed by
professionals
Often difficult to mechanize
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

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 Productivity at Taco Bell
Improvements:
Revised the menu
Results:
Designed meals for easy preparation
Preparation time cut to 8 seconds
Shifted some preparation to suppliers
Management span of control
Efficient layout and automation
increased from 5 to 30
Training and employee empowerment
In-store labor cut by 15 hours/day
Stores handle twice the volume with
half the labor
Fast-food low-cost leader

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 Ethics and Social Responsibility

Challenges facing
operations managers:
Developing safe quality products
Maintaining a clean environment
Providing a safe workplace
Honoring community commitments

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