Presentation on theme: "Operations Management"— Presentation transcript:
1 Operations Management Chapter 1 –Operations and ProductivityPowerPoint presentation to accompanyHeizer/RenderPrinciples of Operations Management, 7eOperations Management, 9eSome additions and deletions have been made by Ömer Yağız to this slide set (Revised February 2012)
2 Some real life scenarios which I used in the past to highlight the importance of Operations Managementfortunately, some of these scenarios are no more validmany improvements have been realized both in the public and private sectorimprovement, or continuous improvement, to be exact, is the right approach to increasing quality, efficiency, productivity, and profitability.
3 Some Real Life Scenarios in OM Many of us have witnessed the agony and the suffering (and even deaths) that many senior citizens have had to endure in order to collect their retirement or pension pay from the various commercial banks. This was an episode that repeated every month or every three months, especially in large urban centers. The government organizations and the banks involved in this service process unfortunately did nothing for a long time to improve the situation and increase the quality of this rather routine service (now the situation is a little better)
4 SOME REAL-LIFE SCENARIOS IN OM You mail a letter by Express Post (APS) to an address in İstanbul. The recipient gets it after 3 days; whereas a package sent to İstanbul via Yurtiçi Kargo (or any of the others) is in the hands of the addressee in 6 hours. Plus, order tracking on Google Earth! QUALITY OF SERVICE?You buy a shirt from an expensive store and pay lots of money; the buttons come off after the shirt is worn three times. The manufacturer has to really make a special(!) effort to achieve this terrible quality.
5 Some Real Life Scenarios in OM A THY plane takes off 40 minutes late from an airport because some Japanese tourists on board forget to identify their baggage before boarding the plane. The plane flies from İstanbul to Ankara in 50 minutes. 40 minutes delay for a 50 minute flight !! HOW DO WE EXPLAIN THIS IN TERMS OF EFFICIENCY, PRODUCTIVITY, AND PROFITABILITY ? (This has been rectified some time ago by the elimination of baggage identification prior to boarding.)
6 A real episode at Esenboğa on Feb. 6, 2012 Esenboğa Airport, two weeks agolots of delays and cancellations due to snow and winter conditionsan operations manager’s nightmare (kâbus)unhappy and angry passengersTHY and TGS service personnel in a very difficult (and unenviable) position
7 A real episode at Esenboğa on Feb. 6, 2012 This serious situation had a very happy ending for the passengers and service personnel. HOW?full and timely information given to passengers face-to-face and via electronic boardseffective and timely catering service to passengers at the gatesvery courteous, understanding and helpful attitude by the ground service personnel towards the passengersnobody had the courage to complain and/or say something bad about the situation, including myself..
8 Some Real Life Scenarios in OM Why do some people prefer McDonald’s or similar fast-food restaurants despite the fact that it they are more expensive than comparable food served elsewhere? The same is true for Varan and Ulusoy bus companies..When you go to some government office (say, the Tax Bureau) you spend so much you feel terribly exhausted after a very routine task. Is the whole process designed to maximize pain to citizens ? Now, things are a bit different; next slide…
9 Some Real Life Scenarios in OM Things are better at the Tax Bureauattitude change on the part of personnel (civil servant concept)technology in general, IT in particular, makes the whole process easier, less time- consuming, more efficient, and less costlyerrors are minimizedpersonnel assist those in need of help for filling out forms, etc.they even offer you free tea at the Hitit Vergi Dairesi..
10 Some Real Life Scenarios in OM Things are also better at Çankaya Kaymakamlığı..Apostille service unit1.5 TL per apostille charged2 X 1.5 TL = 3.00 TLa 3-ply receipt costs 3.00 TLno charge for 2 or less apostilles; 3 or more apostilles charged at the rate of 1.50 TL per apostilleamazingly clever practice by a public organization!! Olamaz, rüya mı bu?
11 Some Real Life Scenarios in OM During registration periods at many universities, poor students have to report to so many different offices and people, and have to wait so long in several lines. Not only the students but also instructors and administrators have to go through the same unpleasant experience. Indeed, we are a society of endless waiting lines! IS THIS SOMETHING ORDAINED BY GOD OR WHAT ?? (Now with online registration, the situation has improved somewhat)
12 Outline Global Company Profile: Hard Rock Cafe What Is Operations Management?Organizing to Produce Goods and ServicesWhy Study OM?What Operations Managers DoHow This Book Is Organized
13 Outline - Continued The Heritage of Operations Management Operations in the Service SectorDifferences between Goods and ServicesGrowth of ServicesService PayExciting New Trends in Operations Management
14 Outline - Continued The Productivity Challenge Productivity MeasurementProductivity VariablesProductivity and the Service SectorEthics and Social Responsibility
15 Learning ObjectivesWhen you complete this chapter you should be able to:Define operations managementExplain the distinction between goods and servicesExplain the difference between production and productivity
16 Learning ObjectivesWhen you complete this chapter you should be able to:Compute single-factor productivityCompute multifactor productivityIdentify the critical variables in enhancing productivity
17 The Hard Rock Cafe First opened in 1971 Rock music memorabilia Now – 121 restaurants in over 40 countriesRock music memorabiliaCreates value in the form of good food and entertainment3,500+ custom meals per day in OrlandoHow does an item get on the menu?Role of the Operations Manager
20 What Is Operations Management? Production is the creation of goods and servicesOperations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs
21 OM Involves Managing Transformations Process(Value Adding)InputOutputPeoplePlantsPartsProcessesPlanning and ControlTransformation isenabled by The 5 Ps of OM:
22 TransformationsPhysical and chemical--manufacturing (shoes, PC’s, planes, paint, detergents)Locational--transportation (rail, sea, air, road)Exchange--retailing (all kinds of stores, offices), banking ??Storage--warehousing (normal and cold storage)Physiological--health care (hospitals, clinics)Informational--telecommunications (schools, Reuter Services, Internet and blogs, news media, TV services, METU)
23 Operations as the Technical Core FinanceCapital Markets, StockholdersMarketingCustomersWorkersSuppliersPurchasingPersonnel
24 Organizing to Produce Goods and Services Essential functions:Marketing – generates demandProduction/operations – creates the productFinance/accounting – tracks how well the organization is doing, pays bills, collects the money
26 Organizational Charts AirlineOperationsGround support equipmentMaintenanceGround OperationsFacility maintenance CateringFlight OperationsCrew scheduling Flying Communications DispatchingManagement scienceFinance/ accountingAccountingPayables Receivables General LedgerFinanceCash control International exchangeMarketingTraffic administrationReservations Schedules Tariffs (pricing)SalesAdvertisingFigure 1.1(B)
27 Organizational Charts ManufacturingOperationsFacilities Construction; maintenanceProduction and inventory control Scheduling; materials controlQuality assurance and controlSupply chain managementManufacturing Tooling; fabrication; assemblyDesign Product development and design Detailed product specificationsIndustrial engineering Efficient use of machines, space, and personnelProcess analysis Development and installation of production tools and equipmentFinance/ accountingDisbursements/ creditsReceivables Payables General ledgerFunds ManagementMoney market International exchangeCapital requirementsStock issue Bond issue and recallMarketingSales promotionAdvertisingSalesMarket researchFigure 1.1(C)
28 Why Study OM?OM is one of three major functions (marketing, finance, and operations) of any organizationWe want (and need) to know how goods and services are producedWe want to understand what operations managers doOM is such a costly part of an organization
30 What Operations Managers Do Basic Management FunctionsPlanningOrganizingStaffingLeadingControlling
31 Ten Critical Decisions Ten Decision Areas Chapter(s)Design of goods and services 5Managing quality 6, Supplement 6Process and capacity 7, Supplement 7 designLocation strategy 8Layout strategy 9Human resources and 10, Supplement job designSupply chain 11, Supplement managementInventory management 12, 14, 16Scheduling 13, 15Maintenance 17Table 1.2
32 The Critical Decisions Design of goods and servicesWhat good or service should we offer?How should we design these products and services?Managing qualityHow do we define quality?Who is responsible for quality?Table 1.2 (cont.)
33 The Critical Decisions Process and capacity designWhat process and what capacity will these products require?What equipment and technology is necessary for these processes?Location strategyWhere should we put the facility?On what criteria should we base the location decision?Table 1.2 (cont.)
34 The Critical Decisions Layout strategyHow should we arrange the facility?How large must the facility be to meet our plan?Human resources and job designHow do we provide a reasonable work environment?How much can we expect our employees to produce?Using this and subsequent slides, you might go through in more detail the decisions of Operations Management. While greater detail is provided by these slides than the earlier one, you may still decide to have the students contribute examples from their own experience.Table 1.2 (cont.)
35 The Critical Decisions Supply chain managementShould we make or buy this component?Who are our suppliers and who can integrate into our e-commerce program?Inventory, material requirements planning, and JITHow much inventory of each item should we have?When do we re-order?Table 1.2 (cont.)
36 The Critical Decisions Intermediate and short–term schedulingAre we better off keeping people on the payroll during slowdowns?Which jobs do we perform next?MaintenanceWho is responsible for maintenance?When do we do maintenance?Table 1.2 (cont.)
38 Where are the OM Jobs? Technology/methods Facilities/space utilization Strategic issuesResponse timePeople/team developmentCustomer serviceQualityCost reductionInventory reductionProductivity improvement
40 The Heritage of OMDivision of labor (Adam Smith 1776; Charles Babbage 1852)Interchangeable (standardized) parts (Whitney 1800)Scientific Management (Taylor 1881)Coordinated assembly line (Ford/ Sorenson (93 minutes vs hours for chassis assembly))Gantt charts (Gantt 1916)Motion study (Frank and Lillian Gilbreth 1922)Quality control (Shewhart 1924; Deming 1950)
41 The Heritage of OM Electronic digital computer (Atanasoff 1938) not programmable; solved linear equationsCPM/PERT (DuPont 1957)Material requirements planning (Orlicky 1960)Computer aided design (CAD 1970)Flexible manufacturing system (FMS 1975)JIT,TQC,TQM,KANBAN, Poka Yoke (1980’s)EFQM and Baldrige Quality Awards (1980)Computer integrated manufacturing (1990)Globalization (1992)Internet (1995)e-business, e-government ( )
42 Eli WhitneyBorn 1765; died 1825In 1798, received government contract to make 10,000 musketsShowed that machine tools could make standardized parts to exact specificationsMusket (tüfek) parts could be used in any musket
43 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 doneBegan first motion and time studiesCreated efficiency principles
44 Taylor’s Principles Management Should Take More Responsibility for: Matching employees to right jobProviding the proper trainingProviding proper work methods and toolsEstablishing legitimate incentives for work to be accomplished
45 Frank & Lillian Gilbreth Husband-and-wife engineering teamFurther developed work measurement methodsApplied efficiency methods to their home and 12 children!Book & Movie: “Cheaper by the Dozen,” book: “Bells on Their Toes”
46 Henry Ford Born 1863; died 1947 In 1903, created Ford Motor Company In 1913, first used moving assembly line to make Model TUnfinished product moved by conveyor past work stationPaid workers very well for 1911 ($5/day!)“The customer can have any color as long as it is black”H. Ford
47 W. Edwards Deming Born 1900; died 1993 Engineer and physicist Credited with teaching Japan quality control methods in post-WW2Used statistics to analyze processHis methods involve workers in decisions
49 Contributions From Human factors (ergonomics, fatigue studies) Industrial engineeringManagement science (operations research)Biological sciencePhysical sciencesInformation technology
50 What is Industrial Engineering ? Industrial engineering is concerned with the design, installation, and improvement of integrated systems of people, material, information, equipment and energy.It draws upon specialized knowledge and skills in the mathematical, physical and social sciences, together with the principles and methods of engineering analysis and design to specify, predict and evaluate the results to be obtained from such systems.IIE Web Site --
51 What is Operations Research ? OR/MS Professionals aim to provide rational bases for decision making by seeking to understand and structure complex situations and to use this understanding to predict system behavior and improve system performance.Much of this work is done using analytical and numerical techniques to develop and manipulate mathematical and computer models of organizational systems composed of people, machines, and procedures
52 What is Operations Research ? OR/MS draws upon ideas from engineering, management, mathematics, and psychology to contribute to a wide variety of application domains; the field is closely related to several other fields in the "decision sciences" -- applied mathematics, computer science, economics, and industrial engineering.INFORMS Web Site --
53 New Challenges in OM From To Local or national focus Global focus Batch shipmentsLow bid purchasingLengthy product developmentStandard productsJob specializationGlobal focusJust-in-timeSupply chain partnering (keiretsu?)Rapid product development, alliancesMass customizationEmpowered employees, teamsTo
54 Current IssuesSpeeding up the time it takes to get new products into production. (Concurrent engineering -- eş zamanlı mühendislik)Developing flexible production systems to enable “mass customization” of products and services. (kişiye özel seri üretim; kitlesel bireyselleştirme; özelleştirme)Managing global production networks.Developing and integrating new production technologies into existing production systems….
55 Current IssuesAchieving high quality quickly and keeping it up in the face of restructuring.Managing a diverse workforce.Conforming to environmental constraints, ethical standards, and government regulations.
56 Mass Customization (kişiye özel seri üretim) Interesting Example Panasonic BicyclesMatsushita Corp.- NBIC21 employeees plus CAD system18 basic models in 199 color patterns; 8 million variationsStandard model - 90 min/unit; special model min/unitPrice: %20-30 more than standard modelDelivery time: ~ 3 weeks (Why? -- feeling of anticipation for something special!!)
57 Mass Customization (İsteğe Bağlı Seri Üretim) Interesting Example Many computer companies now let you configure your own laptopHPToshibaDellGateway (one of the pioneers in this area)
58 Characteristics of Goods Tangible productConsistent product definitionProduction usually separate from consumptionCan be inventoriedLow customer interactionOften easy to automate
59 Characteristics of Service Intangible productProduced and consumed at same timeOften uniqueHigh customer interactionInconsistent product definitionOften knowledge-based(education, medical, legal, etc.)Frequently dispersed(local office, house call, etc.)Not possible or easy to automate
60 Goods Versus Services Can be resold Can be inventoried Some aspects of quality measurableSelling is distinct from productionProduct is transportableSite of facility important for costOften easy to automateRevenue generated primarily from tangible productAttributes of Goods (Tangible Product)Attributes of Services (Intangible Product)Reselling unusualDifficult to inventoryQuality difficult to measureSelling is part of serviceProvider, not product, is often transportableSite of facility important for customer contactOften difficult to automateRevenue generated primarily from the intangible serviceTable 1.3
61 Restaurant meal/auto repair investment management Goods and ServicesAutomobileComputerInstalled carpetingFast-food mealRestaurant meal/auto repairHospital careAdvertising agency/investment managementConsulting service/teachingCounselingPercent of Product that is a Good Percent of Product that is a Service100% %| | | | | | | | |Figure 1.4
64 Development of the Service Economy United StatesCanadaFranceItalyBritainJapanW. Germany| | | | |Percent of GDP(est)Figure 1.5 (C)
65 Organizations in Each Sector Service SectorExample% of all JobsEducation, Legal, Medical, and otherNotre Dame University, San Diego Zoo, Arnold Palmer Hospital25.5Trade (retail, wholesale)Walgreen’s, Wal-Mart, Nordstrom’s15.1Utilities, TransportationPacific Gas & Electric, American Airlines, Santa Fe R.R., Roadway Express5.2Table 1.4
66 Organizations in Each Sector Service SectorExample% of all JobsProfessional and Business ServicesSnelling and Snelling, Waste Management, Pitney-Bowes10.1Finance, Information, Real EstateCiticorp, American Express, Prudential, Aetna, Trammel Crow, EDS, IBM9.6Food, Lodging, EntertainmentOlive Garden, Hard Rock Cafe, Motel 6, Hilton Hotels, Walt Disney, Paramount Pictures8.5Public AdministrationU.S., State of Alabama, Cook County4.6Table 1.4
67 Organizations in Each Sector Manufacturing SectorExample% of all JobsManufacturingGeneral Electric, Ford, U.S. Steel, Intel11.5ConstructionBechtel, McDermott7.9AgricultureKing Ranch1.6MiningHomestake Mining0.4SectorPercent of all jobsService78.6%21.4%Table 1.4
68 New Trends in OM Past Causes Future Local or national focus Reliable worldwide communication and transportation networksGlobal focus, moving production offshoreBatch (large) shipmentsShort product life cycles and cost of capital put pressure on reducing inventoryJust-in-time performanceLow-bid purchasingSupply chain competition requires that suppliers be engaged in a focus on the end customerSupply chain partners, collaboration, alliances, outsourcingFigure 1.6
69 New Trends in OM Past Causes Future Lengthy product development Shorter life cycles, Internet, rapid international communication, computer-aided design, and international collaborationRapid product development, alliances, collaborative designsStandardized productsAffluence and worldwide markets; increasingly flexible production processesMass customization with added emphasis on qualityJob specializationChanging socioculture milieu; increasingly a knowledge and information societyEmpowered employees, teams, and lean productionFigure 1.6
70 New Trends in OM Past Causes Future Low-cost focus Environmental issues, ISO 14000, increasing disposal costsEnvironmentally sensitive production, green manufacturing, recycled materials, remanufacturingEthics not at forefrontBusinesses operate more openly; public and global review of ethics; opposition to child labor, bribery, pollutionHigh ethical standards and social responsibility expectedFigure 1.6
71 Summary- New Trends in OM Global focusJust-in-time performanceSupply chain partneringRapid product developmentMass customizationEmpowered employeesEnvironmentally sensitive productionEthics
72 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
73 Labor, capital, management The Economic SystemInputsLabor, capital, managementProcessesThe 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%).OutputsGoods and servicesFeedback loopFigure 1.7
74 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 $25Saved 8 seconds per transactionChange the size of the ice scoopSaved 14 seconds per drinkNew espresso machinesSaved 12 seconds per shot
75 Improving Productivity at Starbucks A team of 10 analysts continually look for ways to shave time. Some improvements: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.Stop requiring signatures on credit card purchases under $25Saved 8 seconds per transactionChange the size of the ice scoopSaved 14 seconds per drinkNew espresso machinesSaved 12 seconds per shot
76 Efficiency vs. effectiveness Efficiency – doing a job with a minimum of resources and waste i.e. doing the job well.Efficiency= actual output/standard output (70pcs/hr) / (60 pcs/hr) = 1.17Effectiveness – achieving your stated goal or purpose i.e. doing the right job.
77 Productivity Units produced Input used Productivity = Measure of process improvementRepresents output relative to inputOnly through productivity increases can our standard of living improve
79 Multi-Factor Productivity OutputLabor + Material + Energy + Capital + MiscellaneousProductivity =Also known as total factor productivityOutput and inputs are often expressed in dollarsMultiple resource inputs multi-factor productivity
80 Illustration- Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System (Non-computerized):8 titles/day32 labor-hrs=Old labor productivityNote: Collins Title is a reinsurance company (tapu sigortası). It has set up a new computerized title search system
81 Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:8 titles/day32 labor-hrs=Old labor productivity= .25 titles/labor-hr
88 Measurement ProblemsQuality may change while the quantity of inputs and outputs remains constantExternal elements may cause an increase or decrease in productivity(power or gas shortages, strikes & lockouts, etc)Precise units of measure may be lacking (not all cars may require the same inputs– Opel Corsa vs. Porsche)
89 Productivity Variables For the U.S. economy’s 2.5 % annual increaseLabor - contributes about 10% of the annual increaseCapital - contributes about 38% of the annual increaseManagement - contributes about 52% of the annual increase
90 Key Variables for Improved Labor Productivity Basic education appropriate for the labor forceDiet of the labor forceSocial overhead that makes labor available (transportation, sanitation, health services, etc.)Maintaining and enhancing skills in the midst of rapidly changing technology and knowledge
91 Labor SkillsAbout half of the 17-year-olds in the US cannot correctly answer questions of this typeFigure 1.8
92 Investment and Productivity 108642Percent increase in productivityPercentage investment
93 Service Productivity Typically labor intensive Frequently focused on unique individual attributes or desiresOften an intellectual task performed by professionalsOften difficult to mechanizeOften difficult to evaluate for quality
95 Productivity at Taco Bell Improvements:Revised the menuDesigned meals for easy preparationShifted some preparation to suppliersEfficient layout and automationTraining and employee empowermentHow about DO&CO İkram Hizmetleri A.Ş. (Airline Catering Company)?
96 Productivity at Taco Bell Improvements:Revised the menuDesigned meals for easy preparationShifted some preparation to suppliersEfficient layout and automationTraining and employee empowermentResults:Preparation time of tacos cut to 8 secondsManagement span of control increased from 5 to 30In-store labor cut by 15 hours/dayStores handle twice the volume with half the laborFast-food low-cost leader
97 Ethics and Social Responsibility Challenges facing operations managers:Developing and producing safe, quality productsMaintaining a clean environmentProviding a safe workplaceHonoring community commitments
98 Some Bestseller Books on Operations Management Porter, Michael E., The Competitive Advantage of Nations. The Free Press, 1990.Womack, James P., Jones, Daniel T., and Daniel Roos. The Machine That Changed The World: The Story of Lean Production. Harper Collins, 1990.Womack, James P., Jones, Daniel T. Lean Thinking. Simon and Schuster, 1996Treacy, Michael and Fred Wiersema. The Discipline of Market Leaders. Addison Wesley, 1997.Halberstam, David. The Reckoning. Avon Books, 1986Hammer, Michael and James Champy. Reengineering the Corporation: A Manifesto for Business Revolution. Harper Collins, 1994.Hammer, Michael and Steven A. Stanton. The Reengineering Revolution Handbook. Harper Collins, 1995Liker, Jeffrey K. The Toyota Way. McGraw-Hill, 2004.
99 Some Bestseller Books on Operations Management Pande, Peter S., Neuman, Robert P., Cavanagh, Roland R. The Six Sigma Way. McGraw-Hill 2000.
100 Some Landmark Articles on Operations Management Porter, Michael E. “The Competitive Advantage of Nations.” Harvard Business Review (HBR), March-April 1990.Skinner, Wickham. “Manufacturing - Missing Link in Corporate Strategy.” HBR, May-June 1969.Skinner, Wickham. “The Focused Factory.” HBR, May-June 1974.Wheelwright, Steven C. and Robert H. Hayes. “Competing Through Manufacturing.” HBR, January-February 1985.Hayes, Robert H. “Why Japanese Factories Work.” HBR, July-August 1981.Skinner, Wickham. “The Productivity Paradox.” HBR, July-August 1986.Hayes, Robert H. and Kim Clark. “Why Some Factories Are More Productive Than Others.” HBR, September-October 1986.
101 Some Landmark Articles on Operations Management Drucker, Peter F. “The Emerging Theory of Manufacturing.” HBR, May-June 1990.Drucker, Peter F. “The Productivity Challenge.” HBR, November-December 1991.