1. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-1 Operations Management Operations and Productivity Chapter 1

2. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-2 What Is Operations Management? Production is the creation of goods and services Operations management is the set of activities that creates value in the form of goods and services by transforming inputs into outputs

3. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-3 The Heritage of Operations Management

4. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-4 Significant Events in Operations Management

5. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-5 The Heritage of Operations Management Division of labor (Adam Smith 1776 and Charles Babbage 1852) Standardized parts (Whitney 1800) Scientific Management (Taylor 1881) Coordinated assembly line (Ford/Sorenson/Avery 1913) Gantt charts (Gantt 1916) Motion study (Frank and Lillian Gilbreth 1922 Quality control (Shewhart 1924; Deming 1950) Computer (Atanasoff 1938) CPM/PERT (DuPont 1957)

6. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-6 The Heritage of Operations Management - Continued 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)

7. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-7 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 © 1995 Corel Corp.

8. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-8 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 & time studies  Created efficiency principles © 1995 Corel Corp.

9. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-9 Taylor: Management Should Take More Responsibility for  Matching employees to right job  Providing the proper training  Providing proper work methods and tools  Establishing legitimate incentives for work to be accomplished

10. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-10 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 & 12 children!  (Book & Movie: “Cheaper by the Dozen,” book: “Bells on Their Toes”) © 1995 Corel Corp.

11. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-11  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 ‘ ‘ Make them all alike !’ © 1995 Corel Corp.

12. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-12 W. Edwards Deming  Born 1900; died 1993  Engineer & physicist  Credited with teaching Japan quality control methods in post-WW2  Used statistics to analyze process  His methods involve workers in decisions

13. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-13 Contributions From  Human factors  Industrial engineering  Management science  Biological science  Physical sciences  Information science

14. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-14 Significant Events in OM  Division of labor (Smith, 1776)  Standardized parts (Whitney, 1800)  Scientific management (Taylor, 1881)  Coordinated assembly line (Ford 1913)  Gantt charts (Gantt, 1916)  Motion study (the Gilbreths, 1922)  Quality control (Shewhart, 1924)

15. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-15 Significant Events - Continued  CPM/PERT (Dupont, 1957)  MRP (Orlicky, 1960)  CAD  Flexible manufacturing systems (FMS)  Manufacturing automation protocol (MAP)  Computer integrated manufacturing (CIM)

16. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-16 New Challenges in OM  Local or national focus  Batch shipments  Low bid purchasing  Lengthy product development  Standard products  Job specialization  Global focus  Just-in-time  Supply chain partnering  Rapid product development, alliances  Mass customization  Empowered employees, teams FromTo From To

17. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-17 What Operations Managers Do Plan - Organize - Staff - Lead - Control

18. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-18 Ten Critical Decisions  Service, product design……………..  Quality management…………………  Process, capacity design…………..  Location …………….…………………  Layout design ………………………..  Human resources, job design……..  Supply-chain management…………  Inventory management …………….  Scheduling ……………………………  Maintenance …………………………. Ch. 5 Ch. 6, 6S Ch. 7, 7S Ch. 8 Ch. 9 Ch. 10, 10S Ch. 11,11s Ch. 12, 14, 16 Ch. 3, 13, 15 Ch. 17

19. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-19 The Critical Decisions  Quality management  Who is responsible for quality?  How do we define quality?  Service and product design  What product or service should we offer?  How should we design these products and services?

20. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-20 The Critical Decisions - Continued  Process and capacity design  What processes will these products require and in what order?  What equipment and technology is necessary for these processes?  Location  Where should we put the facility  On what criteria should we base this location decision?

21. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-21 The Critical Decisions - Continued  Layout design  How should we arrange the facility?  How large a facility is required?  Human resources and job design  How do we provide a reasonable work environment?  How much can we expect our employees to produce?

22. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-22 The Critical Decisions - Continued  Supply chain management  Should we make or buy this item?  Who are our good suppliers and how many should we have?  Inventory, material requirements planning,  How much inventory of each item should we have?  When do we re-order?

23. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-23 The Critical Decisions - Continued  Intermediate, short term, and project scheduling  Is subcontracting production a good idea?  Are we better off keeping people on the payroll during slowdowns?  Maintenance  Who is responsible for maintenance?  When do we do maintenance?

24. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-24 Organizing to Produce Goods and Services

25. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-25 Organizing to Produce Goods and Services  Essential functions:  Marketing – generates demand  Operations –creates the product  Finance/accounting – tracks organizational performance, pays bills, collects money

26. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-26 Organizational Functions  Marketing  Gets customers  Operations  creates product or service  Finance/Accounting  Obtains funds  Tracks money © 1995 Corel Corp.

27. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-27 Sample Organization Chart s

28. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-28 Functions - Bank Operations Finance/ Accounting Marketing Check Clearing Teller Scheduling Transactions Processing Security Commercial Bank © 1984-1994 T/Maker Co.

29. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-29 Functions - Airline Operations Finance/ Accounting Marketing Ground Support Flight Operations Facility Maintenance Catering Airline © 1984-1994 T/Maker Co.

30. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-30 Functions - Manufacturer Operations Finance/ Accounting Marketing Production Control Manufacturing Quality Control Purchasing Manufacturing

31. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-31 Organizational Charts Commercial Bank Operations Teller Scheduling Check Clearing Transactions processing Facilities design/layout Vault operations Maintenance Security Finance Investments Security Real Estate Accounting Auditing Marketing Loans Commercial Industrial Financial Personal Mortgage Trust Department

32. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-32 Organizational Charts Airline 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 rates Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising

33. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-33 Organizational Charts Manufacturing Operations Facilities: Construction:maintenance Production & inventory control Scheduling: materials 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 issues and recall Marketing Sales promotions Advertising Sales Market research

34. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-34 Why Study OM?

35. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-35 Why Study OM?  OM is one of three major functions ( marketing, finance, and operations ) of any organization.  We want ( and need ) to know how goods and services are produced.  We want to understand what operations managers do.  OM is such a costly part of an organization.

36. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-36 Options for Increasing Contribution

37. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-37 Where are the OM Jobs

38. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-38 Where are the OM Jobs

39. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-39 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

40. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-40 Exciting New Challenges in Operations Management

41. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-41 Changing Challenges for the Operations Manager

42. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-42 Changing Challenges for the Operations Manager

43. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-43 Operations in the Service Sector

44. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-44 Characteristics of Goods  Tangible product  Consistent product definition  Production usually separate from consumption  Can be inventoried  Low customer interaction © 1995 Corel Corp.

45. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-45 Characteristics of Service  Intangible product  Produced & consumed at same time  Often unique  High customer interaction  Inconsistent product definition  Often knowledge-based  Frequently dispersed © 1995 Corel Corp.

46. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-46 Service Economies Proportion of Employment in the Service Sector

47. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-47 Goods Versus Services  Can be resold  Can be inventoried  Some aspects of quality measurable  Selling is distinct from production  Reselling unusual  Difficult to inventory  Quality difficult to measure  Selling is part of service GoodsService Goods Service

48. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-48 Goods Versus Services - Continued  Product is transportable  Site of facility important for cost  Often easy to automate  Revenue generated primarily from tangible product  Provider, not product is transportable  Site of facility important for customer contact  Often difficult to automate  Revenue generated primarily from intangible service. GoodsService Goods Service

49. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-49 Goods Contain Services / Services Contain Goods 0 2550 75 100 2550 75 100 Automobile Computer Installed Carpeting Fast-food Meal Restaurant Meal Auto Repair Hospital Care Advertising Agency Investment Management Consulting Service Counseling Percent of Product that is a Good Percent of Product that is a Service

50. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-50 Organizations in Each Sector – Table 1.4 Summary Sector% of all Jobs Service75.4% Manufacturing24.6%

51. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-51 1850 75 1900 25 50 75 200040 50 60 70 1970 75 80 85 90 95 2000 Percent United States Canada France Italy Britain Japan W Germany 1970 2000 Services Industry Farming 250 200 150 100 50 0 80 %70 60 50 40 30 20 10 0 U.S. Employment, % ShareServices as a Percent of GDP U.S. Exports of Services In Billions of Dollars Year 2000 data is estimated Development of the Service Economy

52. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-52 The Productivity Challenge

53. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-53 The Economic System Transforms Inputs to Outputs The economic system transforms inputs to outputs at about an annual 2.5% increase in productivity (capital 38% of 2.5%), labor (10% of 2.5%), management (52% of 2.5%) Land, Labor, Capital, Management Goods and Services Feedback loop InputsProcessOutputs

54. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-54 Typical Impact of Quality Improvement Parts per man hour 95 100 105 110 115 Year AYear BYear C Cost per unit decreased $1.50 $1.75 $2.00 $2.25 Year AYear BYear C Average worker's annual cash compensation increased 24000 25000 26000 27000 Year AYear BYear C As productivity improved Costs were pared Wages increased

55. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-55  Measure of process improvement  Represents output relative to input  Only through productivity increases can our standard of living improve Productivity ProductivityProductivity Units produced Input used ==

56. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-56 Multi-Product Productivity Productivity = Output Labor + material + energy + capital + miscellaneous

57. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-57 Measurement Problems  Quality may change while the quantity of inputs and outputs remains constant  External elements may cause an increase or decrease in productivity  Precise units of measure may be lacking

58. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-58 Productivity Variables  Labor - contributes about 10% of the annual increase  Capital - contributes about 32% of the annual increase  Management - contributes about 52% of the annual increase

59. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-59 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

60. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-60 Jobs in the U.S

61. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-61 Comparison of Productivity

62. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-62 Investment and Productivity in Selected Nations

63. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-63 Service Productivity  Typically labor intensive  Frequently individually processed  Often an intellectual task performed by professionals  Often difficult to mechanize  Often difficult to evaluate for quality

64. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 1-64 The Challenge of Social Responsibility Increasing emphasis on business and social responsibility