1. O PERATIONS M ANAGEMENT O PERATIONS AND P RODUCTIVITY L ECTURE 1 (C HAPTER 1)

2. Production is the creation of goods and services Operations Management - management of the set of activities that creates value in the form of goods and services by transforming inputs into outputs Applies to both manufacturing and service organizations W HAT I S O PERATIONS M ANAGEMENT ? 2

3. O RGANIZATIONAL F UNCTIONS Marketing Gets customers  Operations  creates product or service  Finance/Accounting  Obtains funds  Tracks money 3

4. F UNCTIONS - B ANK Operations Finance/ Accounting Marketing Check Clearing Teller Scheduling Transactions Processing Security Commercial Bank 4

5. F UNCTIONS - A IRLINES Operations Finance/ Accounting Marketing Ground Support Flight Operations Facility Maintenance Catering Airlines 5

6. F UNCTIONS - M ANUFACTURING Operations Finance/ Accounting Marketing Production Control Manufacturing Quality Control Purchasing Manufacturing 6

7. W HY S TUDY OM? OM is one of three major functions (marketing, finance, and operations) of any organization To know how goods and services are produced/delivered To understand what operations managers do OM is a costly part of an organization OM presents interesting career opportunities e.g. SCM, QA, Process Re-engineering, etc 7

8. O PTIONS FOR I NCREASING C ONTRIBUTION 8 Back

9. T EN C RITICAL D ECISIONS Service, product design ……. Quality Management ……… Process, capacity design …... Location ….……………….... Layout design ………..…….. Human resources, job design.. Supply-chain management … Inventory management ….…. Scheduling.………………… Maintenance.………………. Ch. 4 Ch. 5, 5S Ch. 6, 6S Ch. 7 Ch. 8 Ch. 9, 9S Ch. 10,10s Ch. 11, 13, 15 Ch. 12, 14 9

10. T EN C RITICAL D ECISIONS Service and product design What product 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? 10

11. T EN C RITICAL D ECISIONS - C ONTINUED 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? 11

12. T EN C RITICAL D ECISIONS - C ONTINUED 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? 12

13. T EN C RITICAL D ECISIONS - C ONTINUED 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? 13

14. T EN C RITICAL D ECISIONS - C ONTINUED 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? 14

15. C HANGING C HALLENGES FOR THE O PERATIONS M ANAGER 15

16. C HANGING C HALLENGES FOR THE O PERATIONS M ANAGER Past Causes Future Standardized products Affluence and worldwide markets; increasingly flexible production processes Mass customization Job specialization Changing socio-cultural scene. Increasingly a knowledge and information society. Empowered employees, teams, Low cost focus Environmental issues, ISO increasing disposal costs Environmentally sensitive production, Green manufacturing, 16

17. C HARACTERISTICS OF G OODS Tangible product Production usually separate from consumption Consistent product definition Low customer interaction Can be inventoried 17

18. C HARACTERISTICS OF S ERVICE Intangible product (Intangibility) Produced & consumed at same time (simultaneity) Inconsistent product definition (Heterogeneity) High customer interaction Often unique Often knowledge-based Frequently dispersed 18

19. G OODS C ONTAIN S ERVICES / S ERVICES C ONTAIN G OODS 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 19

20. S ERVICE /P RODUCT B UNDLE ElementCore Goods ExampleCore Goods Example Core Service Example BusinessCustom clothierCustom clothierBusiness hotelBusiness hotel CoreBusiness suitsBusiness suitsAccommodation Peripheral Goods Garment bagGarment bagBath robeBath robe Peripheral Service Deferred payment plans In house restaurantIn house restaurant VariantCoffee loungeCoffee loungeAirport shuttleAirport shuttle

21. T HE S ERVICE P ACKAGE Supporting Facility: The physical resources that must be in place before a service can be sold. Examples are golf course, hospital, hotel. Facilitating Goods: The material consumed by the buyer or items provided by the consumer. Examples are food items, legal documents, golf clubs, medical history. Information: Operations data or information to enable efficient and customized service. Examples are patient medical records, seats available on a flight, customer preferences, location of customer to dispatch a taxi.

22. T HE S ERVICE P ACKAGE ( CONT.) Explicit Services: Benefits readily observable by the senses. The essential or intrinsic features. Examples are absence of illness after treatment, smoothly running vehicle after tune up, on-time departure. Implicit Services: Psychological benefits or extrinsic features which the consumer may sense only vaguely. Examples are privacy of loan office, security of a well lighted parking lot, staff courtesy.

23. P RODUCTIVITY  Measure of process improvement  Represents ratio of output to input  Only through productivity increases can our standard of living improve ProductivityProductivity Units produced Input used == 23

24. M ULTI -F ACTOR P RODUCTIVITY Productivity = Output Labor + material + capital + energy + Misc 24

25. M EASUREMENT P ROBLEMS 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 25

26. S ERVICE P RODUCTIVITY Reasons for low productivity in services Frequently individually processed Often an intellectual task performed by professionals hence often difficult to mechanize Growth of low productivity activities e.g. food preparation, laundry, house cleaning 26

27. T ACO B ELL - I MPROVING S ERVICE P RODUCTIVITY Revision of menu to include meals that are easy to prepare Substantial portion of food preparation shifted to suppliers e.g. pre-cooking, predicing, etc Efficient design of layout and automation of operations Training and empowerment of management to increase competence – reduce labor 27