Operations Management Chapter 1 – Operations and Productivity PowerPoint presentation to accompany Heizer/Render, Operations Management, 11th Ed. Some additions and deletions have been made by Ömer Yağız to this slide set. (Revised March 2015)

Some real life scenarios which I used in the past to highlight the importance of Operations Management fortunately, some of these scenarios are no more valid many improvements have been realized both in the public and private sector improvement, or continuous improvement, to be exact, is the right approach to increasing quality, efficiency, productivity, and profitability.

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)

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.

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.)

A real episode at Esenboğa on Feb. 6, 2012 Esenboğa Airport lots of delays and cancellations due to snow and winter conditions an operations manager’s nightmare (kâbus) unhappy and angry passengers THY and TGS service personnel in a very difficult (and unenviable) position

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 boards effective and timely catering service to passengers at the gates very courteous, understanding and helpful attitude by the ground service personnel towards the passengers nobody had the courage to complain and/or say something bad about the situation, including myself..

Some Real Life Scenarios in OM Why did some people prefer McDonald’s or similar fast-food restaurants despite the fact that it they were 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…

Some Real Life Scenarios in OM Things are better at the Tax Bureau attitude 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 costly errors are minimized personnel assist those in need of help for filling out forms, etc. they even offer you free tea at the Hitit Vergi Dairesi..

Some Real Life Scenarios in OM Things are also better at Çankaya Kaymakamlığı.. Apostille service unit 1.5 TL per apostille charged 2 X 1.5 TL = 3.00 TL a 3-ply receipt costs 3.00 TL no charge for 2 or less apostilles; 3 or more apostilles charged at the rate of 1.50 TL per apostille amazingly clever practice by a public organization!! Olamaz, rüya mı bu?

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)

Some Real Life Scenarios in OM İnönü Boulevard traffic accident in one of the underpasses just yesterday Road into Ankara closed for hours; cars backed up for kms. No effective remedy for this serious problem Hudson Tunnel in New York City in 1963 case

Outline Global Company Profile: Hard Rock Café Big Chefs in Turkey (11 locations including Dubai) What Is Operations Management? Organizing to Produce Goods and Services The Supply Chain Why Study OM? What Operations Managers Do

Outline - Continued The Heritage of Operations Management Operations in the Service Sector Differences between Goods and Services Growth of Services Service Pay Exciting New Trends in Operations Management

Outline - Continued The Productivity Challenge New Challenges in OM Productivity Measurement Productivity Variables Productivity and the Service Sector New Challenges in OM Ethics, Social Responsibility and Sustainability

Learning Objectives When you complete this chapter you should be able to: Define operations management Explain the distinction between goods and services Explain the difference between production and productivity

Learning Objectives When you complete this chapter you should be able to: Compute single-factor productivity Compute multifactor productivity Identify the critical variables in enhancing productivity

The Hard Rock Cafe First opened in 1971; theme restaurant Now – 150 restaurants in over 53 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

Köfteci Ramiz www.kofteciramiz.com

DO & CO Catering Atilla Doğudan- Vienna www.doco.com

Dabbawala-Meal Delivery System in Mumbai, India Dabba – metal lunchbox (sefer tası) Dabbawala – one who carries dabbas and delivers them to people in offices and elsewhere http://www.youtube.com/watch?v=sxW9sUnodM8 http://www.youtube.com/watch?v=fTkGDXRnR9I This is required watching… On your own time.

What Is Operations Management? Production is the creation of goods and services Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs

OM Involves Managing Transformations Process (Value Adding) Input Output People Plants Parts Processes Planning and Control Transformation is enabled by The 5 Ps of OM:

Transformations Physical 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)

Operations as the Technical Core Finance Capital Markets, Stockholders Marketing Customers Workers Suppliers Purchasing Personnel

Organizing to Produce Goods and Services Essential functions: Marketing – generates demand Production/operations – creates the product Finance/accounting – tracks how well the organization is doing, pays bills, collects the money

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 Figure 1.1(A)

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)

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)

The Supply Chain A global network of organizations and activities that supply a firm with goods and services Members of the supply chain collaborate to achieve high levels of customer satisfaction, efficiency and competitive advantage.

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

Options for Increasing Contribution Cont /unit = p – v (TL) Breakeven point = TFC/p-v (units) Sales $100,000 $150,000 $100,000 $100,000 Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000 Gross Margin 20,000 30,000 20,000 36,000 Finance Costs – 6,000 – 6,000 – 3,000 – 6,000 Subtotal 14,000 24,000 17,000 30,000 Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500 Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500 Finance/ Marketing Accounting OM Option Option Option Increase Reduce Reduce Sales Finance Production Current Revenue 50% Costs 50% Costs 20% Increase in contribution 71% 21% 114%

What Operations Managers Do Basic Management Functions Planning Organizing Staffing Leading Controlling

Ten Strategic Decisions Ten Decision Areas Chapter(s) Design of goods and services 5 Managing quality 6, Supplement 6 Process and capacity 7, Supplement 7 design Location strategy 8 Layout strategy 9 Human resources and 10, Supplement 10 job design Supply chain 11, Supplement 11 management Inventory management 12, 14, 16 Scheduling 13, 15 Maintenance 17 Table 1.2

The Strategic Decisions Design of goods and services Defines what is required of operations Product design determines quality, sustainability and human resources Managing quality Determine the customer’s quality expectations Establish policies and procedures to identify and achieve that quality Table 1.2 (cont.)

The Strategic Decisions Process and capacity design How is a good or service produced? Commits management to specific technology, quality, resources, and investment. Location strategy Nearness to customers, suppliers, and talent. Considering costs, infrastructure, logistics, and government . Table 1.2 (cont.)

The Strategic Decisions Layout strategy How should we arrange the facility? Integrate capacity needs, personnel levels, technology, and inventory Human resources and job design Recruit, motivate, and retain personnel with the required talent and skills. Integral and expensive part of the total system design. 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.)

The Strategic Decisions Supply chain management Integrate supply chain into the firm’s strategy Determine what is to be purchased, from whom, and under what conditions. Inventory managementI Inventory ordering and holding decisions. Optimize considering customer satisfaction, supplier capability, and production schedules. Table 1.2 (cont.)

The Strategic Decisions Scheduling Determine and implement intermediate- and short-term schedules. Utilize personnel and facilities while meeting customer demands. Maintenance Consider facility capacity, production demands, and personnel. Maintain a reliable and stable process. Table 1.2 (cont.)

Where are the OM Jobs? Figure 1.2

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

Opportunities Figure 1.2 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Certifications APICS, the American Production and Inventory Control Society American Society of Quality (ASQ) Institute for Supply Management (ISM) Project Management Institute (PMI) Council of Supply Chain Management Professionals Charter Institute of Purchasing and Supply (CIPS) © 2011 Pearson Education, Inc. publishing as Prentice Hall

Significant Events in OM Figure 1.3

The Heritage of OM Division of labor (Adam Smith 1776; Charles Babbage 1852) Interchangeable (standardized) parts (Whitney 1800) Scientific Management (Taylor 1881) Coordinated assembly line (Ford/ Sorenson 1913- (93 minutes vs. 12.5 hours for chassis assembly)) Gantt charts (Gantt 1916) Motion study (Frank and Lillian Gilbreth 1922) Quality control (Shewhart 1924; Deming 1950)

The Heritage of OM Electronic digital computer (Atanasoff 1938) not programmable; solved linear equations CPM/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 (1996- )

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 (tüfek) parts could be used in any musket

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

Taylor’s Principles 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

Frank & Lillian Gilbreth 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,” book: “Bells on Their Toes”

Henry Ford 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!) “The customer can have any color as long as it is black” H. Ford

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

Deming Institute: http://deming.org

Contributions From Human factors (ergonomics, fatigue studies) Industrial engineering Management science (operations research) Biological science Physical sciences Information technology

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 -- http://www.iienet.org

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. ... http://www.informs.org/

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 -- http://www.informs.org

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 (keiretsu?) Rapid product development, alliances Mass customization Empowered employees, teams To

Current Issues Speeding 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 ….

Current Issues Achieving 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.

Mass Customization (kişiye özel seri üretim) Interesting Example Panasonic Bicycles Matsushita Corp.- NBIC 21 employeees plus CAD system 18 basic models in 199 color patterns; 8 million variations Standard model - 90 min/unit; special model - 150 min/unit Price: %20-30 more than standard model Delivery time: ~ 3 weeks (Why? -- feeling of anticipation for something special!!)

Mass customization Kitlesel Özelleştirme Kitle Özelleştirmesi Kişiselleştirme Kitlesel Bireyselleştirme Seri Uyarlama Yığın Kişiselleştirme Kitlesel Özel Üretim Kişiye Özel Üretim *Kişiye Özel Kitlesel (seri) Üretim

Mass Customization (kişiye özel seri üretim) Many computer companies at one time used to let you configure your own laptop HP Toshiba Dell Gateway (one of the pioneers in this area)

Characteristics of Goods Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction Often easy to automate

Characteristics of Service Intangible product Produced and consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge-based(education, medical, legal, etc.) Frequently dispersed(local office, house call, etc.) Not possible or easy to automate

Goods Versus Services Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production Product is transportable Site of facility important for cost Often easy to automate Revenue generated primarily from tangible product Attributes of Goods (Tangible Product) Attributes of Services (Intangible Product) Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service Provider, not product, is often transportable Site of facility important for customer contact Often difficult to automate Revenue generated primarily from the intangible service Table 1.3

Differences Between Goods and Services TABLE 1.3 CHARACTERISTICS OF SERVICES CHARACTERISTICS OF GOODS Intangible: Ride in an airline seat Tangible: The seat itself Produced and consumed simultaneously: Beauty salon produces a haircut that is consumed as it is produced Product can usually be kept in inventory (beauty care products) Unique: Your investments and medical care are unique Similar products produced (iPods) High customer interaction: Often what the customer is paying for (consulting, education) Limited customer involvement in production Inconsistent product definition: Auto Insurance changes with age and type of car Product standardized (iPhone) Often knowledge based: Legal, education, and medical services are hard to automate Standard tangible product tends to make automation feasible Services dispersed: Service may occur at retail store, local office, house call, or via internet. Product typically produced at a fixed facility Quality may be hard to evaluate: Consulting, education, and medical services Many aspects of quality for tangible products are easy to evaluate (strength of a bolt) Reselling is unusual: Musical concert or medical care Product often has some residual value

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% | | | | | | | | | Figure 1.4

Manufacturing and Service Employment 120 – 100 – 80 – 60 – 40 – 20 – 0 – | | | | | | | 1950 1970 1990 2010 (est) 1960 1980 2000 Employment (millions) Service Manufacturing Figure 1.5 (A)

Manufacturing Employment and Production 40 – 30 – 20 – 10 – 0 – | | | | | | | 1950 1970 1990 2010 (est) 1960 1980 2000 – 150 – 125 – 100 – 75 – 50 – 25 – 0 Employment (millions) Index: 1997 = 100 Industrial production (right scale) Manufacturing employment (left scale) Figure 1.5 (B)

Development of the Service Economy United States Canada France Italy Britain Japan W. Germany | | | | | 40 50 60 70 80 Percent of GDP 1970 2008 (est) Figure 1.5 (C)

Organizations in Each Sector Service Sector Example % of all Jobs (USA) Education, Legal, Medical, and other ODTÜ, Bayındır Hastaneleri, Arnold Palmer Hospital 25.5 Trade (retail, wholesale) Migros,Walgreen’s, Wal-Mart, Nordstrom’s, Teknosa 15.1 Utilities, Transportation Enerjisa, Başkent Gaz, THY, DDY, Pacific Gas & Electric, American Airlines, Santa Fe R.R., Roadway Express 5.2 Table 1.4

Organizations in Each Sector Service Sector Example % of all Jobs Professional and Business Services Snelling and Snelling, Waste Management, Pitney-Bowes 10.1 Finance, Information, Real Estate Citicorp, American Express, Prudential, Aetna, Trammel Crow, EDS, IBM 9.6 Food, Lodging, Entertainment Olive Garden, Hard Rock Cafe, Motel 6, Hilton Hotels, Walt Disney, Paramount Pictures 8.5 Public Administration U.S., State of Alabama, Cook County 4.6 Table 1.4

Organizations in Each Sector Manufacturing Sector Example % of all Jobs Manufacturing TOFAŞ, ÇİMSA,General Electric, Ford, U.S. Steel, Intel 11.5 Construction MESA, TEKFEN, Bechtel, McDermott 7.9 Agriculture King Ranch 1.6 Mining Homestake Mining 0.4 Sector Percent of all jobs Service 78.6% 21.4% Table 1.4

New Trends in OM Past Causes Future Local or national focus Reliable worldwide communication and transportation networks Global focus, moving production offshore Batch (large) shipments Short product life cycles and cost of capital put pressure on reducing inventory Just-in-time performance Low-bid purchasing Supply chain competition requires that suppliers be engaged in a focus on the end customer Supply chain partners, collaboration, alliances, outsourcing Figure 1.6

New Trends in OM Past Causes Future Lengthy product development Shorter life cycles, Internet, rapid international communication, computer-aided design, and international collaboration Rapid product development, alliances, collaborative designs Standardized products Affluence and worldwide markets; increasingly flexible production processes Mass customization with added emphasis on quality Job specialization Changing socioculture milieu; increasingly a knowledge and information society Empowered employees, teams, and lean production Figure 1.6

New Trends in OM Past Causes Future Low-cost focus Environmental issues, ISO 14000, increasing disposal costs Environmentally sensitive production, green manufacturing, recycled materials, remanufacturing Ethics not at forefront Businesses operate more openly; public and global review of ethics; opposition to child labor, bribery, pollution High ethical standards and social responsibility expected Figure 1.6

Summary- New Trends in OM Global focus Just-in-time performance Supply chain partnering Rapid product development Mass customization Empowered employees Environmentally sensitive production Ethics

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

Labor, capital, management The Economic System Inputs Labor, capital, management Processes The 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%). Outputs Goods and services Feedback loop Figure 1.7

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 machines Saved 12 seconds per shot

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 $25 Saved 8 seconds per transaction Change the size of the ice scoop Saved 14 seconds per drink New espresso machines Saved 12 seconds per shot

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) = 1.17 Effectiveness – achieving your stated goal or purpose i.e. doing the right job.

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

Productivity Calculations Labor Productivity Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000 250 One resource input  single-factor productivity

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

Illustration- Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System (Non-computerized): 8 titles/day 32 labor-hrs = Old labor productivity Note: Collins Title is a reinsurance company (tapu sigortası). It has set up a new computerized title search system.

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

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

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 75 % increase

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

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

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

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 26 % increase

Measurement Problems Quality may change while the quantity of inputs and outputs remains constant External 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)

Productivity Variables For the U.S. economy’s 2.5 % annual increase Labor - contributes about 10% of the annual increase Capital - contributes about 38% of the annual increase Management - contributes about 52% of the annual increase

Key Variables for Improved Labor Productivity Basic education appropriate for the labor force Diet of the labor force Social overhead that makes labor available (transportation, sanitation, health services, etc.) Maintaining and enhancing skills in the midst of rapidly changing technology and knowledge

Labor Skills About half of the 17-year-olds in the US cannot correctly answer questions of this type Figure 1.8

Investment and Productivity 10 8 6 4 2 Percent increase in productivity Percentage investment 10 15 20 25 30 35

Service Productivity Typically labor intensive Frequently focused on unique individual attributes or desires Often an intellectual task performed by professionals Often difficult to mechanize Often difficult to evaluate for quality

NO COMMENT!

Productivity at Taco Bell Improvements: Revised the menu Designed meals for easy preparation Shifted some preparation to suppliers Efficient layout and automation Training and employee empowerment How about DO&CO İkram Hizmetleri A.Ş. (Airline Catering Company)? http://www.doco.com

Productivity at Taco Bell Improvements: Revised the menu Designed meals for easy preparation Shifted some preparation to suppliers Efficient layout and automation Training and employee empowerment Results: Preparation time of tacos cut to 8 seconds Management span of control increased from 5 to 30 In-store labor cut by 15 hours/day Stores handle twice the volume with half the labor Fast-food low-cost leader

Ethics and Social Responsibility Challenges facing operations managers: Developing and producing safe, quality products Maintaining a clean environment Providing a safe workplace Honoring community commitments

Copenhagen County Hospital Textbook – p. 54 Cost cutting example Another example: think of Hacettepe Hospital (or any large-scale hospital in Turkey) – lots of opportunities for cutting costs and increasing efficiency and productivity

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, 1996 Treacy, Michael and Fred Wiersema. The Discipline of Market Leaders. Addison Wesley, 1997. Halberstam, David. The Reckoning. Avon Books, 1986 Hammer, 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, 1995 Liker, Jeffrey K. The Toyota Way. McGraw-Hill, 2004.

Some Bestseller Books on Operations Management Pande, Peter S., Neuman, Robert P., Cavanagh, Roland R. The Six Sigma Way. McGraw-Hill 2000.

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.

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.