1. 1 - 1© 2011 Pearson Education 1 1 Introduction to Operations Management PowerPoint presentation to accompany Heizer and Render Operations Management, 10e, Global Edition Principles of Operations Management, 8e, Global Edition PowerPoint slides by Jeff Heyl

2. 1 - 2© 2011 Pearson Education Outline  Introduction to operations Management?  The productivity challenge  Ethics & social responsibility  Issues in operations strategy  Global operations strategy options

3. 1 - 3© 2011 Pearson Education The Hard Rock Cafe  First opened in 1971  Now – 129 restaurants in over 40 countries  Rock music memorabilia  Creates value in the form of good food and entertainment  3,500 + custom meals per day in Orlando  How does an item get on the menu?  Role of the Operations Manager

4. 1 - 4© 2011 Pearson Education What Is Operations Management? Production Production is the creation of goods and services Operations management (OM) Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs

5. 1 - 5© 2011 Pearson Education Characteristics of Goods  Tangible product  Consistent product definition  Production usually separate from consumption  Can be inventoried  Low customer interaction

6. 1 - 6© 2011 Pearson Education Characteristics of Service  Intangible product  Produced and consumed at same time  Often unique  High customer interaction  Inconsistent product definition  Often knowledge-based  Frequently dispersed

7. 1 - 7© 2011 Pearson Education 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 −

8. 1 - 8© 2011 Pearson Education 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 GoodPercent of Product that is a Service 100%7550250255075100% |||||||||

9. 1 - 9© 2011 Pearson Education Organizing to Produce Goods and Services  Essential functions: 1.Marketing 1.Marketing – generates demand 2.Production/operations 2.Production/operations – creates the product 3.Finance/accounting 3.Finance/accounting – tracks how well the organization is doing, pays bills, collects the money

10. 1 - 10© 2011 Pearson Education Organizational Charts Operations Teller Scheduling Check Clearing Collection Transaction processing Facilities design/layout Vault operations Maintenance Security Finance Investments Security Real estate Accounting Auditing Marketing Loans Commercial Industrial Financial Personal Mortgage Trust Department Commercial Bank Figure 1.1(A)

11. 1 - 11© 2011 Pearson Education Organizational Charts 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 Airline Figure 1.1(B) Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising

12. 1 - 12© 2011 Pearson Education 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)

13. 1 - 13© 2011 Pearson Education 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

14. 1 - 14© 2011 Pearson Education What Operations Managers Do  Planning  Organizing  Staffing  Leading  Controlling Basic Management Functions

15. 1 - 15© 2011 Pearson Education Ten Critical Decisions Ten Decision AreasChapter(s) 1.Design of goods and services5 2.Managing quality6, Supplement 6 3.Process and capacity 7, Supplement 7 design 4.Location strategy8 5.Layout strategy9 6.Human resources and 10 job design 7.Supply-chain 11, Supplement 11 management 8.Inventory, MRP, JIT12, 14, 16 9.Scheduling13, 15 10.Maintenance17 Table 1.2

16. 1 - 16© 2011 Pearson Education The Critical Decisions 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? Table 1.2 (cont.)

17. 1 - 17© 2011 Pearson Education The Critical Decisions 3.Process and capacity design  What process and what capacity will these products require?  What equipment and technology is necessary for these processes? 4.Location strategy  Where should we put the facility?  On what criteria should we base the location decision? Table 1.2 (cont.)

18. 1 - 18© 2011 Pearson Education The Critical Decisions 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.)

19. 1 - 19© 2011 Pearson Education The Critical Decisions 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? Table 1.2 (cont.)

20. 1 - 20© 2011 Pearson Education The Critical Decisions 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.)

21. 1 - 21© 2011 Pearson Education 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. 1 - 22© 2011 Pearson Education Significant Events in OM Figure 1.3

23. 1 - 23© 2011 Pearson Education 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. 1 - 24© 2011 Pearson Education The Heritage of OM  Computer (Atanasoff 1938)  CPM/PERT (DuPont 1957, Navy 1958)  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. 1 - 25© 2011 Pearson Education 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. 1 - 26© 2011 Pearson Education 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. 1 - 27© 2011 Pearson Education Taylor’s Principles  Matching employees to right job  Providing the proper training  Providing proper work methods and tools  Establishing legitimate incentives for work to be accomplished Management Should Take More Responsibility for:

28. 1 - 28© 2011 Pearson Education 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,” “Bells on Their Toes”

29. 1 - 29© 2011 Pearson Education  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

30. 1 - 30© 2011 Pearson Education 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. 1 - 31© 2011 Pearson Education Contributions From  Human factors  Industrial engineering  Management science  Biological science  Physical sciences  Information technology

32. 1 - 32© 2011 Pearson Education New Challenges in OM  Global focus  Just-in-time  Supply-chain partnering  Rapid product development, alliances  Mass customization  Empowered employees, teamsToFrom  Local or national focus  Batch shipments  Low bid purchasing  Lengthy product development  Standard products  Job specialization

33. 1 - 33© 2011 Pearson Education Changing Challenges Traditional Approach Reasons for Change Current Challenge Ethics and regulations not at the forefront Public concern over pollution, corruption, child labor, etc. High ethical and social responsibility; increased legal and professional standards Local or national focus Growth of reliable, low cost communication and transportation Global focus, international collaboration Lengthy product development Shorter life cycles; growth of global communication; CAD, Internet Rapid product development; design collaboration Figure 1.5

34. 1 - 34© 2011 Pearson Education Changing Challenges Traditional Approach Reasons for Change Current Challenge Low cost production, with little concern for environment; free resources (air, water) ignored Public sensitivity to environment; ISO 14000 standard; increasing disposal costs Environmentally sensitive production; green manufacturing; sustainability Low-cost standardized products Rise of consumerism; increased affluence; individualism Mass customization Figure 1.5

35. 1 - 35© 2011 Pearson Education Changing Challenges Traditional Approach Reasons for Change Current Challenge Emphasis on specialized, often manual tasks Recognition of the employee's total contribution; knowledge society Empowered employees; enriched jobs “In-house” production; low-bid purchasing Rapid technological change; increasing competitive forces Supply-chain partnering; joint ventures, alliances Large lot production Shorter product life cycles; increasing need to reduce inventory Just-In-Time performance; lean; continuous improvement Figure 1.5

36. 1 - 36© 2011 Pearson Education New Trends in OM  Ethics  Global focus  Environmentally sensitive production  Rapid product development  Environmentally sensitive production  Mass customization  Empowered employees  Supply-chain partnering  Just-in-time performance

37. 1 - 37 Productivity Challenge  Productivity Measurement  Productivity Variables  Productivity and the Service Sector © 2011 Pearson Education

38. 1 - 38© 2011 Pearson Education 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

39. 1 - 39© 2011 Pearson Education Improving Productivity at Starbucks A team of 10 analysts continually look for ways to save time. Some improvements: Stop requiring signatures on credit card purchases under $25 Saved 8 seconds per transaction Change the size of the ice scoop Saved 14 seconds per drink New espresso machinesSaved 12 seconds per shot

40. 1 - 40© 2011 Pearson Education Improving Productivity at Starbucks A team of 10 analysts continually look for ways to shave time. Some improvements: Stop requiring signatures on credit card purchases under $25 Saved 8 seconds per transaction Change the size of the ice scoop Saved 14 seconds per drink New espresso machinesSaved 12 seconds per shot 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.

41. 1 - 41© 2011 Pearson Education  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

42. 1 - 42© 2011 Pearson Education Productivity Calculations Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000 250 1.Labor productivity 2.Material productivity 3.Capital productivity e.g:Labor Productivity e.g:Labor Productivity One resource input  single-factor productivity

43. 1 - 43© 2011 Pearson Education 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

44. 1 - 44 Question 1 Collins Title wants to evaluate its labour 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 costs 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 a)Labour productivity with old system b)Labour productivity with new system c)Multifactor productivity with old system d)Multifactor productivity with new system © 2011 Pearson Education

45. 1 - 45© 2011 Pearson Education 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

46. 1 - 46© 2011 Pearson Education 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

47. 1 - 47© 2011 Pearson Education 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

48. 1 - 48© 2011 Pearson Education 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

49. 1 - 49© 2011 Pearson Education 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

50. 1 - 50© 2011 Pearson Education 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

51. 1 - 51© 2011 Pearson Education 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

52. 1 - 52© 2011 Pearson Education 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

53. 1 - 53© 2011 Pearson Education Measurement Problems 1.Quality 1.Quality may change while the quantity of inputs and outputs remains constant 2.External elements 2.External elements may cause an increase or decrease in productivity  Precise units  Precise units of measure may be lacking

54. 1 - 54© 2011 Pearson Education Productivity Variables 1.Labor 1.Labor - contributes about 10% of the annual increase 2.Capital 2.Capital - contributes about 38% of the annual increase 3.Management 3.Management - contributes about 52% of the annual increase

55. 1 - 55© 2011 Pearson Education 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

56. 1 - 56© 2011 Pearson Education 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