1. © 2006 Prentice Hall, Inc.1 – 1 Operations Management Chapter 1 – Operations and Productivity Chapter 1 – Operations and Productivity © 2006 Prentice Hall, Inc. PowerPoint presentation to accompany Heizer/Render Principles of Operations Management, 6e Operations Management, 8e

2. © 2006 Prentice Hall, Inc.1 – 2 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

3. © 2006 Prentice Hall, Inc.1 – 3 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

4. © 2006 Prentice Hall, Inc.1 – 4 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)

5. © 2006 Prentice Hall, Inc.1 – 5 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. © 2006 Prentice Hall, Inc.1 – 6 What Operations Managers Do  Planning  Organizing  Staffing  Leading  Controlling Basic Management Functions

7. © 2006 Prentice Hall, Inc.1 – 7 The Critical Decisions  Service and product design  What good or service should we offer?  How should we design these products and services?  Quality management  How do we define quality?  Who is responsible for quality? Table 1.2 (cont.)

8. © 2006 Prentice Hall, Inc.1 – 8 The Critical Decisions  Process and capacity design  What process and what capacity will these products require?  What equipment and technology is necessary for these processes?  Location  Where should we put the facility?  On what criteria should we base the location decision? Table 1.2 (cont.)

9. © 2006 Prentice Hall, Inc.1 – 9 The Critical Decisions  Layout design  How should we arrange the facility and material flow?  How large must the facility be to meet our plan?  Human resources and job design  How do we provide a reasonable work environment?  How much can we expect our employees to produce? Table 1.2 (cont.)

10. © 2006 Prentice Hall, Inc.1 – 10 The Critical Decisions  Supply-chain management  Should we make or buy this component?  Who are our suppliers and who can integrate into our e-commerce program?  Inventory, material requirements planning, and JIT  How much inventory of each item should we have?  When do we re-order? Table 1.2 (cont.)

11. © 2006 Prentice Hall, Inc.1 – 11 The Critical Decisions  Intermediate and short–term scheduling  Are we better off keeping people on the payroll during slowdowns?  Which jobs do we perform next?  Maintenance  Who is responsible for maintenance?  When do we do maintenance? Table 1.2 (cont.)

12. © 2006 Prentice Hall, Inc.1 – 12 Where are the OM Jobs? Figure 1.2

13. © 2006 Prentice Hall, Inc.1 – 13 New Challenges in OM  Global focus  Just-in-time  Supply chain partnering  Rapid product development, alliances  Mass customization  Empowered employees, teams ToFrom  Local or national focus  Batch shipments  Low bid purchasing  Lengthy product development  Standard products  Job specialization

14. © 2006 Prentice Hall, Inc.1 – 14 Characteristics of Goods  Tangible product  Consistent product definition  Production usually separate from consumption  Can be inventoried  Low customer interaction

15. © 2006 Prentice Hall, Inc.1 – 15 Characteristics of Service  Intangible product  Produced and consumed at same time  Often unique  High customer interaction  Inconsistent product definition  Often knowledge-based  Frequently dispersed

16. © 2006 Prentice Hall, Inc.1 – 16 Goods Versus Services Table 1.3 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

17. © 2006 Prentice Hall, Inc.1 – 17 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% ||||||||| Figure 1.4

18. © 2006 Prentice Hall, Inc.1 – 18 Organizations in Each Sector Service Sector Example % of all Jobs Professional Services, Education, Legal, Medical Notre Dame University, San Diego Zoo, Arnold Palmer Hospital 25.5 Trade (retail, wholesale) Walgreen’s, Wal-Mart, Nordstrom’s 20.6 Utilities, Transportation Pacific Gas & Electric, American Airlines, Santa Fe R.R., Roadway Express 7.1 Table 1.4

19. © 2006 Prentice Hall, Inc.1 – 19 Organizations in Each Sector Service Sector Example % of all Jobs Business and Repair Services Snelling and Snelling, Waste Management, Pitney-Bowes 6.9 Finance, Insurance, Real Estate Citicorp, American Express, Prudential, Aetna, Trammel Crow 6.7 Food, Lodging, Entertainment McDonald’s, Hard Rock Café, Motel 6, Hilton Hotels, Walt Disney, Paramount Pictures 5.4 Public Administration U.S., State of Alabama, Cook County 4.5 Table 1.4

20. © 2006 Prentice Hall, Inc.1 – 20 Organizations in Each Sector Manufacturing Sector Example % of all Jobs General General Electric, Ford, U.S. Steel, Intel 13.3 Construction Bechtel, McDermott 7.1 Agriculture King Ranch 2.5 Mining Homestake Mining 0.4 Sector Percent of all jobs Service76.7% Manufacturing23.3% Table 1.4

21. © 2006 Prentice Hall, Inc.1 – 21 Services Manufacturing Development of the Service Economy Figure 1.5 (A) Agriculture 1009080706050403020100 18001850190019502000

22. © 2006 Prentice Hall, Inc.1 – 22 Development of the Service Economy Figure 1.5 (C) United States Canada France Italy Britain Japan W. Germany 1970 2005 ||||| 4050607080 Percent

23. © 2006 Prentice Hall, Inc.1 – 23 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 this measure of efficiency Important Note! Production is a measure of output only and not a measure of efficiency

24. © 2006 Prentice Hall, Inc.1 – 24 Feedbackloop Feedback loop Outputs Goods and servicesProcesses 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 1.7

25. © 2006 Prentice Hall, Inc.1 – 25  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

26. © 2006 Prentice Hall, Inc.1 – 26 Productivity Calculations Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000250 Labor Productivity

27. © 2006 Prentice Hall, Inc.1 – 27 Multi-Factor Productivity Output Labor + Material + Energy + Capital + Miscellaneous Productivity =  Also known as total factor productivity  Output and inputs are often expressed in dollars

28. © 2006 Prentice Hall, Inc.1 – 28 Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Old System: = Old labor productivity 8 titles/day 32 labor-hrs

29. © 2006 Prentice Hall, Inc.1 – 29 Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Old System: 8 titles/day 32 labor-hrs = Old labor productivity =.25 titles/labor-hr

30. © 2006 Prentice Hall, Inc.1 – 30 Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Old System: 14 titles/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

31. © 2006 Prentice Hall, Inc.1 – 31 Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Old System: 14 titles/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

32. © 2006 Prentice Hall, Inc.1 – 32 Productivity Variables  Labor  Capital  Management

33. © 2006 Prentice Hall, Inc.1 – 33 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

34. © 2006 Prentice Hall, Inc.1 – 34 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

35. © 2006 Prentice Hall, Inc.1 – 35 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

36. © 2006 Prentice Hall, Inc.1 – 36 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 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

37. © 2006 Prentice Hall, Inc.1 – 37 Ethics and Social Responsibility Challenges facing operations managers:  Developing safe quality products  Maintaining a clean environment  Providing a safe workplace  Honoring community commitments