Operations Management Operations and Productivity Chapter 1

Operations Management Operations and Productivity Chapter 1
At this point: 1. Introduce yourself - your students are likely to want to know something about your qualifications and interests - overall, where you are coming from. 2. Have students introduce themselves. Ask why they are taking this class. If you are fortunate enough to have a Polaroid camera, take pictures of each student for later posting on a class “board” so both they and you get to know each other. 3. Discuss both choice of textbook and development of syllabus. 4. If you are expecting students to work in teams, at east introduce the choice of team members. If at all possible, have students participate in a team building or team study exercise. It works wonders. Most student have been told to work in teams in prior classes, but have never examined exactly what a team is and how it works. One hour spent in a team building/examination exercise saves many hours and avoids many problems later on. 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

Outline PROFILE: HARD ROCK CAFE WHAT IS OPERATIONS MANAGEMENT?
ORGANIZING TO PRODUCE GOODS AND SERVICES WHY STUDY OM? WHAT OPERATIONS MANAGERS DO How This Book Is Organized WHERE ARE THE OM JOBS? 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

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 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

Outline - Continued THE PRODUCTIVITY CHALLENGE
Productivity Measurement Productivity Variables Productivity and the Service Sector THE CHALLENGE OF SOCIAL RESPONSIBILITY 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

Learning Objectives When you complete this chapter, you should be able to : Identify or Define: Production and productivity Operations Management (OM) What operations managers do Services 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

Learning Objectives - Continued
When you complete this chapter, you should be able to : Describe or Explain: A brief history of operations management Career opportunities in operations management The future of the discipline Measuring productivity 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

The Hard Rock Cafe First opened in 1971 Rock music memorabilia
Now – 110 restaurants in over 40 countries Rock music memorabilia Creates value in the form of good food and entertainment 3,500+ custom meals per day How does an item get on the menu? Role of the Operations Manager 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

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 Two additional points: 1. Any activity is an “operation” 2. No company produces only “goods” - service is a greater or lesser part of any product. (Discuss this in more detail later) 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

Organizing to Produce Goods and Services
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

Organizing to Produce Goods and Services
Essential functions: Marketing – generates demand Operations –creates the product Finance/accounting – tracks organizational performance, pays bills, collects money 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

Organizational Functions
Marketing Gets customers Operations creates product or service © 1995 Corel Corp. Finance/Accounting Obtains funds Tracks money Here is the point at which you can add to your discussion of the three business functions. In an effort to encourage student participation, you might allow students to lead the discussion as to the nature of each function, while you lead the discussion as to the relationship of the individual functions to the larger business. Initiate a class discussion about how these functions expand as the firm grows and how new activities have become important (i.e., MIS and Human Resources) 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

Sample Organization Charts

Functions - Bank Commercial Bank Operations Finance/ Accounting
Marketing Check Clearing Teller Scheduling Transactions Processing Security Commercial Bank © T/Maker Co. 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

Functions - Airline Airline Operations Finance/ Accounting Marketing
Ground Support Flight Facility Maintenance Catering Airline © T/Maker Co. 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

Functions - Manufacturer
Operations Finance/ Accounting Marketing Production Control Manufacturing Quality Purchasing 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

Organizational Charts
Commercial Bank Operations Teller Scheduling Check Clearing Transactions processing Facilities design/layout Vault operations Maintenance Security Finance Investments Real Estate Accounting Auditing Marketing Loans Commercial Industrial Financial Personal Mortgage Trust Department 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

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 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

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 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

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. One might ask students to consider: - marketing => deciding what is needed - finance => securing resources - operations => doing it! What are the limitations of this perspective? 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

Options for Increasing Contribution
Students can do the math! It may be useful to show a more detailed breakdown of cost-of-goods-sold, and illustrate the contribution to cost-of-goods sold of marketing, finance/accounting, and operations. It may also be helpful to use this data to introduce and illustrate fixed and variable costs and their relationship to net contribution. 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

What Operations Managers Do
Plan - Organize - Staff - Lead - Control This is the typical breakdown one finds in many business courses. It may be helpful to the students if you discuss each of these elements in relationship to something you or they have done. Work on a group project, for example, can provide a useful vehicle for the discussion. 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

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 This slide introduces the 10 decision areas of Operations Management. These decision areas form the structure of the text. You may either go through this list quickly, and hold an enriched discussion using some of the slides that follow; or ask the students to give you examples of specific decisions from each area. As mentioned before - you may forego looking for precise answers at this point - and simply try to get them thinking and involved. 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

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? 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. 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

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? 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

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? 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

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? 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

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? 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

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 Ask your students for input here. Look for positions that they or their parents have filled. You might also ask them (a) what positions they are seeking upon graduation; and (b) to “predict” how demand for workers in each of these areas is likely to change over time, and why. Finally, have them consider the skills required of the occupants of each position 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

The Heritage of Operations Management

Significant Events in Operations Management
You should stress that the time-based historical perspective is only one way to look at the development of Operations Management, outcome focus is another. 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

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) 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

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) 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

Eli Whitney © 1995 Corel Corp. 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 You might ask students why standardization is so important. If their answers do not raise the issue, here is a good time to introduce the concept of “setup.” Discussion of Whitney also raises issues of quality control, and even worker training. 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

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 Some students argue that Taylor’s main objective was to get more from the workers. You might discuss the difference between trying to get more out of the workers and trying to improve their efficiency. © 1995 Corel Corp. 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

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 There are several issues which can be raised here: - the individual nature of individuals (not everyone is suited to the same job) - how does one decide what is “proper” training? - perhaps “a poor workman blames his tools;” but a workman may only be as good as his tools - “a day’s pay for a day’s work” - what is a “day’s work”? How do we decide? How do we arrive at a monetary value for this day’s work? 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

Frank & Lillian Gilbreth
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. Ask the students: So what? Get them to think about task performance at various levels of detail. - How does one determine the most efficient motions to be used? - How does one “balance” the performance of a task so that one limb does not bear an excessive load? - How can one “design a job” before actually performing a task? You might also wish to discuss the book and movies about the Gilbreths and their children. 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

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!) © 1995 Corel Corp. ‘Make them all alike!’ Assembly lines are widely accepted and used. Are they actually “God’s gift to repetitive manufacturing?” Have students consider the Volvo experiment where teams were used to build automobiles. 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

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 Have students consider why Dr. Deming’s popularity was so great in Japan, but took such a long time to develop in the U.S. 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

Contributions From Human factors Industrial engineering
Management science Biological science Physical sciences Information science Here you might try to make two points: - there are many contributions from outside the OM/business disciplines (one of the most important characteristics of an Operations Manager is the ability to work with or within multiple disciplines) - the greater contribution from the information sciences is not to make things occur faster (automation) but to enable the operations manager to look at problems from a different perspective. 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

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) Gives you a chance to summarize some of the critical events in the evolution of OM. 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

Significant Events - Continued
CPM/PERT (Dupont, 1957) MRP (Orlicky, 1960) CAD Flexible manufacturing systems (FMS) Manufacturing automation protocol (MAP) Computer integrated manufacturing (CIM) 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

New Challenges in OM From To 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 Use this and the subsequent slide to get students thinking about some of the changes taking place in OM. Try to help them understand both the causes of the changes and the implications. In particular, have them consider the role of information and of information technology. 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

Operations in the Service Sector

Characteristics of Goods
Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction © 1995 Corel Corp. You might pick a company that produces a physical product that will be familiar to the students, ask students to identify the product, and discuss its characteristics. Once the students have identified the physical characteristics of the product, you can ask “What other characteristics does the company believe its product possesses?” This question will often raise the issue of “service.” Companies which might it be helpful to consider include: Xerox - an information management company (not just copiers) McDonalds, Burger King, Wendys - either compare the viewpoints of the three companies, or contrast them to a gourmet restaurant Volkswagen versus Volvo, Mercedes or Rolls Royce. 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

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. Here it is probably useful to look to the students to identify both company and product. You might use the approach of taking one characteristic at a time and asking the students to identify a service that has that characteristic: Unique - wedding planning High customer interaction - health care Inconsistent definition - “consulting” etc. 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

Service Economies Proportion of Employment in the Service Sector

Goods Versus Services Can be resold Can be inventoried
Goods Service 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 At this point, you might approach this and the next several slides by asking students to identify a product (good or service as appropriate) that illustrates each characteristic. You might also ask them to identify products that violate one or more of these distinctions between goods and services. 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

Goods Versus Services - Continued
Goods Service 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. 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

Goods Contain Services / Services Contain Goods
Automobile Computer Installed Carpeting Fast-food Meal Restaurant Meal Auto Repair Hospital Care Advertising Agency Investment Management Consulting Service This slide should help you make the point that a “product” is seldom only a “good” or only a “service” but usually includes some of each. You might also raise the point that as companies are reaching the limit of evolution of the physical (good), they are tending to add information (a service) to their product. Finally, it is important that the student be able to cite examples illustrating each of the ranges shown in the slide. Counseling 25 50 75 100 Percent of Product that is a Good Percent of Product that is a Service 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

Organizations in Each Sector – Table 1.4
Service Sector Example % of all Jobs Professional services, education, legal, medical New York City PS108, Notre Dame University, San Diego Zoo 24.3 Trade (retail, wholesale) Walgreen’s, Wal-Mart, Nordstroms 20.6 Utilities, transportation Pacific Gas & Electric, American Airlines, Santa Fe R.R, Roadway Express 7.2 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

Service Sector Example % of all Jobs Business & Repair Services Snelling & Snelling, Waste Management, Pitney-Bowes 7.1 Finance, Insurance, Real Estate Citicorp, American Express, Prudential, Aetna, Trammel Crow 6.5 Food, Lodging, Entertainment McDonald’s, Hard Rock Café, Motel 6, Hilton Hotels, Walt Disney Paramount Pictures 5.2 Public Administration U.S., State of Alabama, Cook County 4.5 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

Manufacturing Sector Example % of all Jobs General General Electric, Ford, U.S. Steel, Intel 14.8 Construction Bechtel, McDermott 7.0 Agriculture King Ranch 2.4 Mining Homestake Mining 0.4 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

Organizations in Each Sector – Table 1.4 Summary
% of all Jobs Service 75.4% Manufacturing 24.6% 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

Development of the Service Economy
Percent United States Canada France Italy Britain Japan W Germany 1970 2000 Services Industry Farming 250 200 150 100 50 80 %70 60 40 30 20 10 U.S. Employment, % Share Services as a Percent of GDP U.S. Exports of Services In Billions of Dollars Year 2000 data is estimated Have your students consider the U.S. Employment Services/Industry/Farming shares. What factors will ultimately act to limit changes in this graph. What about the other two graphs? 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

Exciting New Challenges in Operations Management

Changing Challenges for the Operations Manager

The Productivity Challenge

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 Inputs Process Outputs Ask your students to consider why the rate of growth of productivity in the U.S. is so low. As they identify factors, have them link these factors to the resources of capital, labor, and management. This may also be a good point at which to introduce the notions of efficiency (doing a job well), and effectiveness (doing the right job). It may be especially helpful to discuss the conditions under which efficiency or effectiveness becomes the more important. 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

Typical Impact of Quality Improvement
As productivity improved Costs were pared Wages increased Parts per man hour 95 100 105 110 115 Year A Year B Year C Cost per unit decreased $1.50 $1.75 $2.00 $2.25 Year A Year B Year C Average worker's annual cash compensation increased 24000 25000 26000 27000 Year A Year B Year C This slide may help explain why an increasing productivity is so important if one wishes an increased standard of living. 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

Productivity Units produced Productivity = Input used
Measure of process improvement Represents output relative to input Only through productivity increases can our standard of living improve Productivity Units produced Input used = The productivity discussion can continue with this slide. One question for students might be: Why is the present rate of productivity improvement in the U.S. less than in the period 1889 to 1973? You might also ask them to consider what happens as the rate of productivity improvement approaches zero. Does this simply mean that the standard of living ceases to rise, or are there more ominous manifestations? 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

Multi-Product Productivity
Output Labor + material + energy + capital + miscellaneous This slide can be used to introduce multi-factor productivity. 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

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 Ask the students to think about why productivity is so difficult to measure. Have them identify several tasks or jobs, and help them identify some possible productivity measures. Ask them how they would go about making these measurements. Student and faculty productivity certainly provide examples that can generate discussion! You might ask your students if they believe “grades” measure student productivity. 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

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 Here again, faculty and student productivity make useful discussion generators. Students can certainly look at the role of both capital and management in the classroom - and they are likely to be able to tie the three productivity variables to the presentation or teaching methodologies of different faculty. 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

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 You might first ask students to consider the conditions under which each of the key variables is most important. Once the conditions are identified, you might list the conditions on the board or screen and ask students to develop a method for comparing various countries on the basis of these conditions. Where would they place the U.S.? Developing countries? Etc. 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

Jobs in the U.S You might ask the students, how, in general, they might expect the figures shown in this graph to change over the next twenty years. In addition, initiate a discussion of how we have moved from “hunting and gathering” to “agriculture” to “manufacturing” to “service.” 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

Comparison of Productivity

Investment and Productivity in Selected Nations

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 You can use this slide to frame a discussion of service productivity. Ask students to provide examples of services having each characteristic. Once they have done this, ask if they can think of a way to overcome or change the characteristics for that service so as to increase productivity. 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

The Challenge of Social Responsibility
Increasing emphasis on business and social responsibility 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

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