1. 1 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 1 Operations and Productivity PowerPoint presentation to accompany Heizer and Render Operations Management, 10e Principles of Operations Management, 8e PowerPoint slides by Jeff Heyl

2. 1 - 2© 2011 Pearson Education, Inc. publishing as Prentice Hall The Hard Rock Cafe  First opened in 1971  Now – 129 restaurants in over 40 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

3. 1 - 3© 2011 Pearson Education, Inc. publishing as Prentice Hall What Is Operations Management? Production Production is the creation of goods and services Operations management (OM) Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs

4. 1 - 4© 2011 Pearson Education, Inc. publishing as Prentice Hall Organizing to Produce Goods and Services  Essential functions: 1.Marketing 1.Marketing – generates demand 2.Production/operations 2.Production/operations – creates the product 3.Finance/accounting 3.Finance/accounting – tracks how well the organization is doing, pays bills, collects the money

5. 1 - 5© 2011 Pearson Education, Inc. publishing as Prentice Hall Organizational Charts 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 Airline Figure 1.1(B) Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising

6. 1 - 6© 2011 Pearson Education, Inc. publishing as Prentice Hall Marketing Sales promotion Advertising Sales Market research Organizational Charts 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 Manufacturing Figure 1.1(C)

7. 1 - 7© 2011 Pearson Education, Inc. publishing as Prentice Hall Why Study OM? 1.OM is one of three major functions of any organization, we want to study how people organize themselves for productive enterprise 2.We want (and need) to know how goods and services are produced 3.We want to understand what operations managers do 4.OM is such a costly part of an organization

8. 1 - 8© 2011 Pearson Education, Inc. publishing as Prentice Hall Options for Increasing Contribution Table 1.1 Sales$100,000$150,000$100,000$100,000 Cost of Goods – 80,000– 120,000– 80,000– 64,000 Gross Margin20,00030,00020,00036,000 Finance Costs– 6,000 – 6,000– 3,000– 6,000 Subtotal14,00024,00017,00030,000 Taxes at 25%– 3,500– 6,000– 4,250– 7,500 Contribution$ 10,500$ 18,000$ 12,750$ 22,500 Finance/ MarketingAccountingOM OptionOptionOption IncreaseReduceReduce SalesFinanceProduction CurrentRevenue 50%Costs 50%Costs 20%

9. 1 - 9© 2011 Pearson Education, Inc. publishing as Prentice Hall Ten Critical Decisions Ten Decision AreasChapter(s) 1.Design of goods and services5 2.Managing quality6, Supplement 6 3.Process and capacity 7, Supplement 7 design 4.Location strategy8 5.Layout strategy9 6.Human resources and 10 job design 7.Supply-chain 11, Supplement 11 management 8.Inventory, MRP, JIT12, 14, 16 9.Scheduling13, 15 10.Maintenance17 Table 1.2

10. 1 - 10© 2011 Pearson Education, Inc. publishing as Prentice Hall 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

11. 1 - 11© 2011 Pearson Education, Inc. publishing as Prentice Hall Opportunities Figure 1.2

12. 1 - 12© 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)

13. 1 - 13© 2011 Pearson Education, Inc. publishing as Prentice Hall Significant Events in OM Figure 1.3

14. 1 - 14© 2011 Pearson Education, Inc. publishing as Prentice Hall The Heritage of OM  Division of labor (Adam Smith 1776; Charles Babbage 1852)  Standardized parts (Whitney 1800)  Scientific Management (Taylor 1881)  Coordinated assembly line (Ford/ Sorenson 1913)  Gantt charts (Gantt 1916)  Motion study (Frank and Lillian Gilbreth 1922)  Quality control (Shewhart 1924; Deming 1950)

15. 1 - 15© 2011 Pearson Education, Inc. publishing as Prentice Hall The Heritage of OM  Computer (Atanasoff 1938)  CPM/PERT (DuPont 1957, Navy 1958)  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)

16. 1 - 16© 2011 Pearson Education, Inc. publishing as Prentice Hall  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

17. 1 - 17© 2011 Pearson Education, Inc. publishing as Prentice Hall 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

18. 1 - 18© 2011 Pearson Education, Inc. publishing as Prentice Hall New Challenges in OM  Global focus  Just-in-time  Supply-chain partnering  Rapid product development, alliances  Mass customization  Empowered employees, teamsToFrom  Local or national focus  Batch shipments  Low bid purchasing  Lengthy product development  Standard products  Job specialization

19. 1 - 19© 2011 Pearson Education, Inc. publishing as Prentice Hall Characteristics of Goods  Tangible product  Consistent product definition  Production usually separate from consumption  Can be inventoried  Low customer interaction

20. 1 - 20© 2011 Pearson Education, Inc. publishing as Prentice Hall Characteristics of Service  Intangible product  Produced and consumed at same time  Often unique  High customer interaction  Inconsistent product definition  Often knowledge-based  Frequently dispersed

21. 1 - 21© 2011 Pearson Education, Inc. publishing as Prentice Hall Industry and Services as Percentage of GDP Services Manufacturing Australia Canada China Czech Rep France Germany Hong Kong Japan Mexico Russian Fed South Africa Spain UK US 90 − 80 − 70 − 60 − 50 − 40 − 30 − 20 − 10 − 0 −

22. 1 - 22© 2011 Pearson Education, Inc. publishing as Prentice Hall 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 GoodPercent of Product that is a Service 100%7550250255075100% |||||||||

23. 1 - 23© 2011 Pearson Education, Inc. publishing as Prentice Hall 120 – 100 – 80 – 60 – 40 – 20 – 0 – ||||||| 1950197019902010 (est) 196019802000 Employment (millions) Manufacturing and Service Employment Figure 1.4 (A) Manufacturing Service

24. 1 - 24© 2011 Pearson Education, Inc. publishing as Prentice Hall Manufacturing Employment and Production Figure 1.4 (B) 40 – 30 – 20 – 10 – 0 – ||||||| 1950197019902010 (est) 196019802000 150 – 150 125 – 125 100 – 100 75 – 75 50 – 50 25 – 25 0 – 0 Employment (millions) Index: 1997 = 100 Index: 1997 = 100 Manufacturing employment (left scale) Industrial production (right scale)

25. 1 - 25© 2011 Pearson Education, Inc. publishing as Prentice Hall New Trends in OM  Ethics  Global focus  Environmentally sensitive production  Rapid product development  Environmentally sensitive production  Mass customization  Empowered employees  Supply-chain partnering  Just-in-time performance

26. 1 - 26© 2011 Pearson Education, Inc. publishing as Prentice Hall 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

27. 1 - 27© 2011 Pearson Education, Inc. publishing as Prentice Hall Feedback loop Outputs Goods and services Transformation 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%). The Economic System Inputs Labor, capital, management Figure 1.6

28. 1 - 28© 2011 Pearson Education, Inc. publishing as Prentice Hall 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 machinesSaved 12 seconds per shot

29. 1 - 29© 2011 Pearson Education, Inc. publishing as Prentice Hall 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 machinesSaved 12 seconds per shot 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.

30. 1 - 30© 2011 Pearson Education, Inc. publishing as Prentice Hall  Measure of process improvement  Represents output relative to input  Only through productivity increases can our standard of living improve Productivity Productivity = Units produced Input used

31. 1 - 31© 2011 Pearson Education, Inc. publishing as Prentice Hall Productivity Calculations Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000 250 Labor Productivity One resource input  single-factor productivity

32. 1 - 32© 2011 Pearson Education, Inc. publishing as Prentice Hall 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

33. 1 - 33© 2011 Pearson Education, Inc. publishing as Prentice Hall Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: = Old labor productivity 8 titles/day 32 labor-hrs

34. 1 - 34© 2011 Pearson Education, Inc. publishing as Prentice Hall 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

35. 1 - 35© 2011 Pearson Education, Inc. publishing as Prentice Hall 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 = New labor productivity =.25 titles/labor-hr 14 titles/day 32 labor-hrs

36. 1 - 36© 2011 Pearson Education, Inc. publishing as Prentice Hall 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

37. 1 - 37© 2011 Pearson Education, Inc. publishing as Prentice Hall 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: = Old multifactor productivity 8 titles/day $640 + 400

38. 1 - 38© 2011 Pearson Education, Inc. publishing as Prentice Hall 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

39. 1 - 39© 2011 Pearson Education, Inc. publishing as Prentice Hall 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 = New multifactor productivity =.0077 titles/dollar 14 titles/day $640 + 800

40. 1 - 40© 2011 Pearson Education, Inc. publishing as Prentice Hall 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 14 titles/day $640 + 800 = Old multifactor productivity = New multifactor productivity =.0077 titles/dollar =.0097 titles/dollar

41. 1 - 41© 2011 Pearson Education, Inc. publishing as Prentice Hall Labor Skills About half of the 17-year-olds in the U.S. cannot correctly answer questions of this type Figure 1.7

42. 1 - 42© 2011 Pearson Education, Inc. publishing as Prentice Hall Service Productivity 1.Typically labor intensive 2.Frequently focused on unique individual attributes or desires 3.Often an intellectual task performed by professionals 4.Often difficult to mechanize 5.Often difficult to evaluate for quality

43. 1 - 43© 2011 Pearson Education, Inc. publishing as Prentice Hall 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  New water and energy saving grills

44. 1 - 44© 2011 Pearson Education, Inc. publishing as Prentice Hall 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  New water and energy saving grills Results:  Preparation time 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  Conserve 300 million gallons of water and 200 million KwH of electricity each year saving $17 million annually

45. 1 - 45© 2011 Pearson Education, Inc. publishing as Prentice Hall 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