Opration management chapter 1 operation and productivity

Learning ObjectivesWhen you complete this chapter you should be able to: goods and services production and productivity... Production is the creation of goods and services Operations ma

Learning Objectives

When you complete this chapter you should be able to:

goods and services

production and productivity

6 Identify the critical variables in

enhancing productivity

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

Organizing to Produce Goods and Services

 Production/operations – creates

the product

 Finance/accounting – tracks how

well the organization is doing, pays bills, collects the money

Why Study OM?

(marketing, finance, and operations)

of any organization

 We want (and need We want ( and need ) to know how

goods and services are produced

operations managers do

organization

The Critical Decisions

 Design of goods and services

offer?

and services?

 Managing quality

Table 1.2 (cont.)

The Critical Decisions

 Process and capacity design

these products require?

necessary for these processes?

 Location strategy

location decision?

The Critical Decisions

 Layout strategy

our plan?

 Human resources and job design

environment?

employees to produce?

Table 1.2 (cont.)

The Critical Decisions

 Supply chain management

integrate into our e-commerce program?

 Inventory, material requirements

planning, and JIT

we have?

The Critical Decisions

 Intermediate and short –term

scheduling

the payroll during slowdowns?

 Maintenance

Table 1.2 (cont.)

Where are the OM Jobs?

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)

 Baldrige Quality Awards (1980)

 Globalization (1992)

 Internet (1995)

Taylor’s Principles

 Born 1863; died 1947

Company

line to make Model T

conveyor past work station

($5/day!)

Henry Ford

W Edwards Deming

quality control methods in WW2

decisions

interaction

Industry and Services as

Goods Versus Services

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

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%

(left scale)

Industrial production

(right scale)

Organizations in Each Sector

Manufacturing

Manufacturing General Electric, Ford,

U.S Steel, Intel 11.5Construction Bechtel, McDermott 7.9

Agriculture King Ranch 1.6

Mining Homestake Mining 0.4

Sector Percent of all jobs

Service 78.6%

Manufacturing 21.4%

Table 1.4

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

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

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

New Trends in OM

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

Feedback loop

Outputs

Goods and services

The Economic System

Inputs

Labor, capital, management

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

per shot

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

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.

 Measure of process improvement

increases can our standard of living improve

Productivity

Productivity = Units produced

Input used

Multi-Factor Productivity

Output Labor + Material + Energy + Capital + Miscellaneous

Productivity =

in dollars

Measurement Problems

 Quality Quality may change while the

quantity of inputs and outputs remains constant

 External elements External elements may cause an

increase or decrease in productivity

 Precise units Precise units of measure may be

lacking

Productivity Variables

 Labor Labor - contributes

about 10% of the annual increase

 Capital Capital - contributes

about 38% of the annual increase

 Management Management -

of the annual increase

Key Variables for Improved

Labor Productivity

labor force

available

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

Investment and Productivity

Service Productivity

individual attributes or desires

professionals

Productivity at Taco Bell

Improvements:

 Designed meals for easy preparation

 Shifted some preparation to suppliers

 Efficient layout and automation

Productivity at Taco Bell

Improvements:

 Designed meals for easy preparation

 Shifted some preparation to suppliers

 Efficient layout and automation

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

Ethics and Social Responsibility

Challenges facing

operations managers:

quality products