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Introduction to Operations Management

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1 Introduction to Operations Management
1 Heizer and Render Operations Management, 10E, Global Edition Principles of Operations Management, 10e, Global Edition

2 Outline What Is Operations Management?
Organizing to Produce Goods and Services Why Study OM? What are the operation managers Doing? The Differences between Goods and Services New Trends in Operations Management The Productivity ChallengeEthics and Social Responsibility Ethics and Social Responsibility © 2011 Pearson Education

3 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 © 2011 Pearson Education

4 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 © 2011 Pearson Education

5 What Is Operations Management?
Production is the creation of goods and services Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs (goods & services) © 2011 Pearson Education

6 Organizing to Produce Goods and Services
Three functions are essential : Marketing – generates demand Production/operations – creates the product Finance/accounting – tracks how well the organization is doing, pays bills, collects the money © 2011 Pearson Education

7 Why Study OM? OM is one of major functions of any organization, we want to study how people organize themselves for productive enterprise To know how goods and services are produced to understand what operations managers do OM is such a costly part of an organization © 2011 Pearson Education

8 What Operations Managers Do
Basic Management Functions Planning Organizing Staffing Leading Controlling © 2011 Pearson Education

9 Ten Critical Decisions
Ten important decisions must be performed by OM Design of goods and services Managing quality Process and capacity Location strategy Layout strategy Human resources and job design Supply-chain management Inventory control Scheduling Maintenance Table 1.2 © 2011 Pearson Education

10 Certifications American Production and Inventory Control Society (APICS) 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

11 Goods & Services Operation management are focused on goods and services (production) TV, automobiles , laptop ….etc are examples of goods Education , wash cars, hairdressing, healthcare,……etc are example of services © 2011 Pearson Education

12 Characteristics of Goods
Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction © 2011 Pearson Education

13 Characteristics of Service
Intangible product Produced and consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed © 2011 Pearson Education

14 Differences between G&S
Services Goods Operation Factors Value is provided by availability of the service leading to customer satisfaction Value is provided by physical processing during manufacturing Value Are intangible ; specification and operational characteristics are difficult to specify Are tangible; specification are easily defined Tangibility Difficult It must be designed in the presence of customer Easy It can be designed in isolated from customer Process design © 2011 Pearson Education

15 Differences between G&S
Service are consumed at the same time of creation goods can be stored for later time Inventory Capacity must be designed for maximum demand Capacity can be designed for average of demand Capacity Quality control is difficult Quality control is easy Quality Service facilities must be located near the customer Facilities can be located to minimize operation and transportation costs Location © 2011 Pearson Education

16 The Production System Inputs Transformation processes Outputs
Labour, capital, management Transformation processes location – transportation – construction etc. Outputs Goods and services Feedback loop Figure 1.6 © 2011 Pearson Education

17 Assignment (1) Explain with examples the difference between the system of commodity production and the service production (one service and one commodity) © 2011 Pearson Education

18 Production & Productivity Efficiency & Effectiveness
© 2011 Pearson Education

19 Production & productivity
production is represented by number of output Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labour , capital,..etc) Important Note! Production is a measure of output only while productivity is a measure of efficiency so our goal is to increase productivity © 2011 Pearson Education

20 Production & productivity
High production may imply only that more people are working and the employment levels are high but it doesn’t imply high productivity High production is interested in quantity/numbers of goods & services while productivity is related to the quality of the output The measurement of productivity is a good way to evaluate country's’ ability to improve standard of living for its people © 2011 Pearson Education

21 Efficiency & Effectiveness
Efficiency means doing the job well with a minimum of resources and waste (doing things right) Effectiveness means only doing the right things Organization may be effective but not efficient © 2011 Pearson Education

22 How can we increase Productivity
output unit input unit Three ways can be undertaken to increase productivity:- Reducing input while keeping output constant Increasing output while keeping inputs constant Reducing input and increasing output at the same time © 2011 Pearson Education

23 Productivity Measurement
Single-Factor productivity Multi-Factor Productivity © 2011 Pearson Education

24 Productivity Measurement single-factor productivity
Labor Productivity Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000 250 One resource input  single-factor productivity © 2011 Pearson Education

25 Multi-Factor Productivity
Output Labor + Material + Energy + Capital…etc Productivity = Also known as total factor productivity Output and inputs are often expressed in dollars Multiple resource inputs  multi-factor productivity © 2011 Pearson Education

26 Computing single factor and multifactor gains in productivity
Example p.47 Collins Title wants to evaluate its labor and multifactor productivity with a new computerized title-search system . The company has a staff of four , each working 8 hours per day (for a payroll cost of $640/day) and overhead expenses of $400/day . Collins processes and closes on titles each day . The new computerized title- search system will allow the processing of 14 titles per day . Although the staff , their work hours and pay are the same , the overhead expenses are now $ 800 per day . Which system is better ? © 2011 Pearson Education

27 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 © 2011 Pearson Education

28 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 © 2011 Pearson Education

29 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 © 2011 Pearson Education

30 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 = titles/labor-hr © 2011 Pearson Education

31 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 $ 14 titles/day Overhead = $800/day New System: = Old multifactor productivity © 2011 Pearson Education

32 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 $ = Old multifactor productivity = titles/dollar © 2011 Pearson Education

33 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 $ 8 titles/day $ = Old multifactor productivity = titles/dollar = New multifactor productivity © 2011 Pearson Education

34 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 $ = Old multifactor productivity = titles/dollar 14 titles/day $ = New multifactor productivity = titles/dollar © 2011 Pearson Education

35 Conclusion The new system is better because it shows increase in both the single –factor (labor) productivity - and multifactor productivity © 2011 Pearson Education

36 Productivity 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 © 2011 Pearson Education

37 Productivity Variables
Labor - contributes about 10% of the annual increase Capital - contributes about 38% of the annual increase Management - contributes about 52% of the annual increase © 2011 Pearson Education

38 Key Variables for Improved Labor Productivity
Basic education appropriate for the labor force Diet of the labor force some overhead that makes labor available (transportation) Maintaining and enhancing skills through (training – motivation- team building ……etc) © 2011 Pearson Education

39 Capital Productivity Capital investment is necessary for increased productivity Inflation and taxes rate affect the capital investment (increase the cost of capital ) When the capital invested per employee drop we expect drop in productivity © 2011 Pearson Education

40 Investment and Productivity
10 8 6 4 2 Percent increase in productivity Percentage investment © 2011 Pearson Education

41 Management Productivity
Management is responsible for more than 50% of productivity Management is responsible for ensuring that labor and capital are effectively used to increase productivity Management is responsible for change the society into knowledge- society by using knowledge and technology © 2011 Pearson Education

42 Service Productivity productivity of the service sector is more difficult to improve because the service sector work is :- Typically labor intensive (teaching) Frequently focused on unique individual attributes or desires (investment) Often an intellectual task performed by professionals (medical) Often difficult to evaluate for quality (law firm) © 2011 Pearson Education

43 Ethics and Social Responsibility
Challenges facing operations managers: Efficiently developing and producing safe, quality products Maintaining a sustainable clean environment Providing a safe workplace Honoring stakeholders commitments © 2011 Pearson Education

44 The End of Chapter One Assignment (2)
problems no. 1.1,1.3,1.5,1.6,1.8,1.9 ,1.11, 1.17 Pages 53-54 Good luck © 2011 Pearson Education


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