Chapter 1

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Operations As a Competitive Weapon
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved.

Vocabulary
• Process
– An activity or group of activities that takes one or more inputs, transforms and adds value to them, and provides one or more outputs for its customers

• External Customers
– A customer who is either an end user or an intermediary
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved.

• Internal customers
– One or more other employees who rely on inputs from earlier processes in order to perform processes in the next office, shop, or department

• Nested process
– A process within a process

• Operations management
– The direction and control of the processes that transform inputs into products and services
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved.

• Productivity
– The value of outputs (goods and services) produced divided by the values of input resources (wages, costs of equipment, and the like)

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved.

Processes and Operations To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Sixth Edition © 2002 Prentice Hall. Inc. All rights reserved. .

All rights reserved.1 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Inc. Sixth Edition © 2002 Prentice Hall.Processes and Operations Inputs • • • • • • • • Workers Managers Equipment Facilities Materials Services Land Energy Figure 1. .

.Processes and Operations Inputs • • • • • • • • Workers Managers Equipment Facilities Materials Services Land Energy Processes and operations 1 2 3 5 4 Figure 1. Inc. All rights reserved. Sixth Edition © 2002 Prentice Hall.1 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis.

Processes and Operations Internal and external customers Inputs • • • • • • • • Workers Managers Equipment Facilities Materials Services Land Energy Processes and operations 1 2 3 5 4 Figure 1. Inc. . Sixth Edition © 2002 Prentice Hall. All rights reserved.1 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis.

Processes and Operations Internal and external customers Inputs • • • • • • • • Workers Managers Equipment Facilities Materials Services Land Energy Processes and operations 1 2 3 5 4 Outputs • Services • Goods Figure 1. All rights reserved. Sixth Edition © 2002 Prentice Hall.1 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Inc. .

Processes and Operations Internal and external customers Inputs • • • • • • • • Workers Managers Equipment Facilities Materials Services Land Energy Processes and operations 1 2 3 5 4 Outputs • Services • Goods Figure 1. . Sixth Edition © 2002 Prentice Hall. Inc. All rights reserved.1 Information on performance To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis.

All rights reserved. Sixth Edition © 2002 Prentice Hall.Nested Processes at Chase Manhattan Bank To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. . Inc.

.2 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. All rights reserved. Inc. Sixth Edition © 2002 Prentice Hall.Nested Processes at Chase Manhattan Bank BANK Operations Cash Management Loan operations Trading operations Others Retail Distribution Compliance Finance Human resources Products Auto Finance Cards Mortgages Others Wholesale Trading Loan administration Leasing Others ATM support Customer transactions Service quality Others Teller line transactions Track branch sales ATM hotline Others Credit applications Manage retail products Originate lease portfolio Others Fund management Market making spot Dealer support Others Maintain cards Research problems Site analysis Others Process deposits Cash checks Safe deposit boxes Others Loan documentation Review credit standing Obtain manager approval Others Prepare reports Attend meetings Input funds deals Others Figure 1.

. Sixth Edition © 2002 Prentice Hall. Location.Types of OM Decisions Strategic choices Process Quality Capacity. All rights reserved. Inc. Layout  Operating Decisions     To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis.

.Operations Management as a Function To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Sixth Edition © 2002 Prentice Hall. Inc. All rights reserved.

Operations Management as a Function Figure 1. Sixth Edition © 2002 Prentice Hall.3 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Inc. . All rights reserved.

3 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Inc. Sixth Edition © 2002 Prentice Hall.Operations Management As a Function Skill Areas • Quantitative methods • Organizational behavior • General management • Information systems • Economics • International business • Business ethics and law Figure 1. . All rights reserved.

Inc. . Sixth Edition © 2002 Prentice Hall.Continuum of Characteristics To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. All rights reserved.

Inc.Continuum of Characteristics More like a manufacturing organization More like a service organization Figure 1. All rights reserved.4 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Sixth Edition © 2002 Prentice Hall. .

. or international markets • Large facilities • Capital intensive • Quality Figure 1. durable product • Output that can be inventoried • Low customer contact • Long response time • Regional. All rights reserved. national.Continuum of Characteristics More like a manufacturing organization More like a service organization • Physical. Inc. Sixth Edition © 2002 Prentice Hall.4 easily measured To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis.

All rights reserved. Sixth Edition © 2002 Prentice Hall.4 easily measured • Intangible.Continuum of Characteristics More like a manufacturing organization More like a service organization • Physical. national. perishable product • Output that cannot be inventoried • High customer contact • Short response time • Local markets • Small facilities • Labor intensive • Quality not easily measured To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Inc. . or international markets • Large facilities • Capital intensive • Quality Figure 1. durable product • Output that can be inventoried • Low customer contact • Long response time • Regional.

Inc. All rights reserved. .Service Sector Jobs To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Sixth Edition © 2002 Prentice Hall.

Service Sector Jobs 40 – Percentage of workforce 30 – 20 – 10 – 0 | 1959 | | | | 1969 1979 1989 1999 Figure 1. Sixth Edition © 2002 Prentice Hall. . Inc. All rights reserved.5 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis.

All rights reserved. Sixth Edition © 2002 Prentice Hall.Service Sector Jobs 40 – Percentage of workforce 30 – 20 – Government 10 – 0 | 1959 | | | | 1969 1979 1989 1999 Figure 1. Inc.5 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. .

.5 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Sixth Edition © 2002 Prentice Hall. Inc.Service Sector Jobs 40 – Percentage of workforce 30 – 20 – Wholesale and retail sales Government 10 – 0 | 1959 | | | | 1969 1979 1989 1999 Figure 1. All rights reserved.

5 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. . Sixth Edition © 2002 Prentice Hall.Service Sector Jobs 40 – Other services Percentage of workforce 30 – 20 – Wholesale and retail sales Government 10 – 0 | 1959 | | | | 1969 1979 1989 1999 Figure 1. All rights reserved. Inc.

Service Sector Jobs 40 – Manufacturing.5 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Sixth Edition © 2002 Prentice Hall. All rights reserved. mining. Inc. and construction Other services Percentage of workforce 30 – 20 – Wholesale and retail sales Government 10 – 0 | 1959 | | | | 1969 1979 1989 1999 Figure 1. .

Inc. All rights reserved.Productivity To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Sixth Edition © 2002 Prentice Hall. .

Sixth Edition © 2002 Prentice Hall.Productivity Productivity = Output Input To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Inc. . All rights reserved.

All rights reserved. Inc. . Sixth Edition © 2002 Prentice Hall.1a To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis.Productivity Policies processed Labor productivity = Employee hours Example 1.

1a To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Inc. All rights reserved. .Productivity 600 policies Labor productivity = (3 employees)(40 hours/employee) Example 1. Sixth Edition © 2002 Prentice Hall.

All rights reserved. Inc.Productivity Labor productivity = 5 policies/hour Example 1. . Sixth Edition © 2002 Prentice Hall.1a To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis.

Sixth Edition © 2002 Prentice Hall. .Productivity Labor productivity = 5 policies/hour Multifactor productivity = Quantity at standard cost Labor cost + Materials cost + Overhead cost Example 1. All rights reserved.1b To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Inc.

1b To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Inc.Productivity Labor productivity = 5 policies/hour Multifactor productivity = (400 units)($10/unit) $400 + $1000 + $300 = $4000 = 2. Sixth Edition © 2002 Prentice Hall. All rights reserved.35 $1700 Example 1. .

All rights reserved.Productivity Measures To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. . Sixth Edition © 2002 Prentice Hall. Inc.

30. It expects to sell 4. Figure 1.1—Productivity Measures The state ferry service charges $18 per ticket plus a $3 surcharge to fund planned equipment upgrades. . what is the labor productivity ratio? Calculate labor productivity on an hourly basis. Inc.000.700 tickets during the eight-week summer season.Productivity Measures OM Explorer Tutor 1. a tourist-information sheet. If ferry-support staff work an average of 310 person-hours per week for the 8 weeks of the summer season. Click here to continue. Materials required for each passage sold (tickets. What is the multifactor productivity ratio? b. the ferry service will experience $110. Sixth Edition © 2002 Prentice Hall. and the like) cost $1. During that period. a.000 in labor costs. All rights reserved. Overhead during the period comes to $79.6a To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis.

and overhead costs. Use Tab to advance from one input cell to the next.Productivity Measures Tutor 1. To calculate multifactor productivity. the price per ticket. materials costs times number of passengers.700 $18 $3 Value of output: Step 2. divide value of output by value of input. To compute value of output.000 Materials costs: $1. . Multifactor productivity: Figure 1. add together labor costs. Inc. For value of input. Tickets sold: Price: Surcharge: 4. multiply tickets sold by the sum of price and surcharge. Multifactor productivity is the ratio of the value of output to the value of input. a. and overhead cost.1—Productivity Measures Enter data in yellow areas.000 Value of input: Step 3.30 Overhead: $79.6b To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Enter labor costs. materials costs per passenger. All rights reserved. and the surcharge per ticket. Step 1. Sixth Edition © 2002 Prentice Hall. Labor costs: $110. Enter the number of tickets sold during a season.

Hours per week: 310 Weeks: 8 Labor hours of input: Step 2. step 1. Figure 1. Sixth Edition © 2002 Prentice Hall.6b To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Inc.1—Productivity Measures Enter data in yellow areas. divide value of output by labor hours of input. Use Tab to advance from one input cell to the next. Labor productivity is the ratio of the value of output to labor hours The value of output is computed in part a. multiply the two together to calculate labor hours of input. Labor productivity: Click here to view the Results sheet. All rights reserved. .Productivity Measures Tutor 1. Enter person-hours per week and the number of weeks in the season. To calculate labor productivity. b. Step 1.

Inc.000 Materials costs: $1. To calculate multifactor productivity. divide value of output by value of input. materials costs per passenger. Step 1.6c To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis.1—Productivity Measures Place cell pointer on green shaded areas to examine formulas. materials costs times number of passengers. . multiply tickets sold by the sum of price and surcharge.110 Step 3.700 Step 2. Labor costs: $195. add together labor costs.000 Value of input: Figure 1. For value of input. To compute value of output. the price per ticket. and overhead cost. Enter labor costs. and overhead costs.Productivity Measures Tutor 1.30 Overhead: $79.700 $18 $3 Value of output: $98. Enter the number of tickets sold during a season. All rights reserved. Sixth Edition © 2002 Prentice Hall. a. Multifactor productivity is the ratio of the value of output to the value of input. Tickets sold: Price: Surcharge: 4. and the surcharge per ticket. Multifactor productivity: 0.51 $110.

Enter person-hours per week and the number of weeks in the season. All rights reserved.6c To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. To calculate labor productivity. step 1.Productivity Measures Tutor 1.80 Figure 1.480 Step 2.1—Productivity Measures Place cell pointer on green shaded areas to examine formulas. Inc. Hours per week: 310 Weeks: 8 Labor hours of input: 2. Labor productivity: $39. Step 1. b. multiply the two together to calculate labor hours of input. Labor productivity is the ratio of the value of output to labor hours The value of output is computed in part a. divide value of output by labor hours of input. Sixth Edition © 2002 Prentice Hall. .

Inc.Productivity Growth To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. . All rights reserved. Sixth Edition © 2002 Prentice Hall.

Inc. . All rights reserved.7(a) 1950s 1960s 1970s 1980s 1990s To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Sixth Edition © 2002 Prentice Hall.Productivity Growth 3 – 2 – Percent 1 – 0 Figure 1.

8 2.8 Average annual growth in productivity 2 – Percent 1 – 0 Figure 1.Productivity Growth 3 – 2. Sixth Edition © 2002 Prentice Hall. All rights reserved. . Inc.7(a) 1950s 1960s 1970s 1980s 1990s To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis.

. Sixth Edition © 2002 Prentice Hall.Productivity Growth 3 – 2.8 2.4 1 – 0 Figure 1.7(a) 1950s 1960s 1970s 1980s 1990s To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis.8 2. Inc. All rights reserved.0 Average annual growth in productivity 2 – Percent 1.

Inc.Productivity Growth 3 – 2. .0 Average annual growth in productivity 1.4 2 – Percent 1 – 0 Figure 1.8 2. All rights reserved.8 2. Sixth Edition © 2002 Prentice Hall.7(a) 1950s 1960s 1970s 1980s 1990s To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis.9 1.

All rights reserved.7(b) To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis.Productivity Growth Figure 1. . Inc. Sixth Edition © 2002 Prentice Hall.

7(b) To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Sixth Edition © 2002 Prentice Hall. Inc. Britain .Productivity Growth 100 – 80 – Percent 60 – 40 – 20 – 0 United States Germany France Japan Figure 1. All rights reserved.

Britain . Sixth Edition © 2002 Prentice Hall. All rights reserved.Productivity Growth 100 – 80 – Value added per hour worked Whole economy Percent 60 – 40 – 20 – 0 United States Germany France Japan Figure 1. Inc.7(b) To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis.

All rights reserved.7(b) To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis. Inc.Productivity Growth 100 – 80 – Value added per hour worked Whole economy Manufacturing Percent 60 – 40 – 20 – 0 United States Germany France Japan Figure 1. Sixth Edition © 2002 Prentice Hall. Britain .

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