Operations and Productivity 1 PowerPoint presentation to accompany Heizer and Render Operations Management, 10e Principles of Operations Management, 8e PowerPoint slides by Jeff Heyl 01: Ch1 - Introduction (MGMT3102: Fall13)

Outline What Is Operations Management? Organizational Design Decisions in OM Significant Events in OM Operations in the Service Sector New Challenges in OM The Productivity Challenge Productivity Example Ethics and Social Responsibility 01: Ch1 - Introduction (MGMT3102: Fall13)

What Is Operations Management? Production is the creation of goods and services Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs 01: Ch1 - Introduction (MGMT3102: Fall13)

Organizational Charts Commercial Bank 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 Essential functions: Marketing – generates demand Production/operations – creates the product Finance/accounting – tracks how well the organization is doing, pays bills, collects the money Figure 1.1(A) 01: Ch1 - Introduction (MGMT3102: Fall13)

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 Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising Figure 1.1(B) 01: Ch1 - Introduction (MGMT3102: Fall13)

Organizational Charts Manufacturing 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 Marketing Sales promotion Advertising Sales Market research Figure 1.1(C) 01: Ch1 - Introduction (MGMT3102: Fall13)

The Critical Decisions(1 of 2) Design of goods and services Managing quality Process and capacity design Location strategy Layout strategy Design of goods and services What good or service should we offer? How should we design these products and services? Managing quality How do we define quality? Who is responsible for quality? Process and capacity design What process and capacity will these products require? What equipment & technology is necessary for these processes? Location strategy Where should we put the facility? On what criteria should we base the location decision? Layout strategy How should we arrange the facility? How large must the facility be to meet our plan? Table 1.2 (cont.) 01: Ch1 - Introduction (MGMT3102: Fall13)

The Critical Decisions(2 of 2) Human resources and job design Supply-chain management Inventory, MRP, and JIT Intermediate & short–term scheduling Maintenance Human resources and job design How do we provide a reasonable work environment? How much can we expect our employees to produce? Supply-chain management Should we make or buy this component? Who should be our suppliers and can we integrate into strategy? Inventory, material requirements planning, & JIT How much inventory of each item should we have? When do we re-order? Intermediate and short–term scheduling Should we keep people on the payroll during slowdowns? Which jobs do we perform next? Maintenance How do we build reliability into our processes? Who is responsible for maintenance? 01: Ch1 - Introduction (MGMT3102: Fall13)

Significant Events in OM Figure 1.3 01: Ch1 - Introduction (MGMT3102: Fall13)

How Important is Manufacturing? In 1978 the United States produced 22% of the worlds manufactured goods. What percent does the United States produce today? 21% The US is still the largest manufacturer in the world. Although China is growing quickly. American manufacturing, in fact, is so large that if it were a self-standing economy, it would be the eighth largest in the world. 21 percent versus china at 15%. Arguably so. http://shopfloor.org/2011/03/u-s-manufacturing-remains-worlds-largest/18756 01: Ch1 - Introduction (MGMT3102: Fall13)

How Important is Manufacturing 01: Ch1 - Introduction (MGMT3102: Fall13)

How Important is Manufacturing 01: Ch1 - Introduction (MGMT3102: Fall13)

How Important is Manufacturing 01: Ch1 - Introduction (MGMT3102: Fall13)

Goods versus Services goods McDonald’s (facilitating goods) services Pencil Manufacturer tangible storable* easy quality assessment centralized production long lead times capital intensive low customer contact production separate from consumption Psychologist intangible perishable* difficult quality assessment dispersed production short lead times labor intensity high customer contact production concurrent with consumption 01: Ch1 - Introduction (MGMT3102: Fall13)

Restaurant meal/auto repair investment management 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 Good Percent of Product that is a Service 100% 75 50 25 0 25 50 75 100% | | | | | | | | | 01: Ch1 - Introduction (MGMT3102: Fall13)

New Challenges in OM From To Local or national focus Global 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 To 01: Ch1 - Introduction (MGMT3102: Fall13)

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 01: Ch1 - Introduction (MGMT3102: Fall13)

Labor, capital, management The Economic System Inputs Labor, capital, management Transformation The U.S. economic system transforms inputs to outputs at about an annual 2.5% increase in productivity per year. Outputs Goods and services Feedback loop Figure 1.6 01: Ch1 - Introduction (MGMT3102: Fall13)

Productivity Units produced Input used Productivity = Measure of process improvement Represents output relative to input Only through productivity increases can our standard of living improve 01: Ch1 - Introduction (MGMT3102: Fall13)

Productivity Calculations Labor Productivity Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000 250 One resource input  single-factor productivity 01: Ch1 - Introduction (MGMT3102: Fall13)

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 01: Ch1 - Introduction (MGMT3102: Fall13)

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 01: Ch1 - Introduction (MGMT3102: Fall13)

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 01: Ch1 - Introduction (MGMT3102: Fall13)

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 32 labor-hrs 14 titles/day Overhead = $800/day New System: 8 titles/day 32 labor-hrs = Old labor productivity = .25 titles/labor-hr = New labor productivity 01: Ch1 - Introduction (MGMT3102: Fall13)

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 01: Ch1 - Introduction (MGMT3102: Fall13)

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 $640 + 400 14 titles/day Overhead = $800/day New System: = Old multifactor productivity 01: Ch1 - Introduction (MGMT3102: Fall13)

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 01: Ch1 - Introduction (MGMT3102: Fall13)

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: 14 titles/day $640 + 800 8 titles/day $640 + 400 = Old multifactor productivity = .0077 titles/dollar = New multifactor productivity 01: Ch1 - Introduction (MGMT3102: Fall13)

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 14 titles/day $640 + 800 = New multifactor productivity = .0097 titles/dollar 01: Ch1 - Introduction (MGMT3102: Fall13)

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 01: Ch1 - Introduction (MGMT3102: Fall13)

In-Class Problems from the Lecture Guide Practice Problems Problem 3: Joanna French is currently working a total of 12 hours per day to produce 240 dolls. She thinks that by changing the paint used for the facial features and fingernails that she can increase her rate to 360 dolls per day. Total material cost for each doll is approximately $3.50; she has to invest $20 in the necessary supplies (expendables) per day; energy costs are assumed to be only $4.00 per day; and she thinks she should be making $10 per hour for her time. Viewing this from a total (multifactor) productivity perspective, what is her productivity at present and with the new paint? Currently Using the new paint Labor 12 hrs * $10 = $120 = $ 120 Material 240 * $3.50 = $840 360 * $3.50 = $1260 Supplies   = $ 20 = $ 20 Energy = $ 4 = $ 4 Total Inputs = $984 = $1404 Productivity 240/984 = 0.24 360/1404 = .26 01: Ch1 - Introduction (MGMT3102: Fall13)

In-Class Problems from the Lecture Guide Practice Problems Problem 4: How would total (multifactor) productivity change if using the new paint raised Ms. French’s material costs by $0.50 per doll?   Using the new paint   Labor 12 hrs * $10 = $ 120 Material 360 * $4.00 = $1440 Supplies = $ 20 Energy = $ 4 Total Inputs = $1584 Productivity 360/1584 = 0.23 01: Ch1 - Introduction (MGMT3102: Fall13)