DCSN 200: Operations Systems

General Notes
Elie Dib
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Chapter 1: Operations and Productivity
1. What is Operations Management?
• Applies to all productive enterprises.
• Efficient production requires the tools operations management
teaches.
• Operations Management is the set of activities that creates values in
the form of goods and services (product) by transforming inputs into
outputs.
• Production is the creation of good and services.
• Activities that create goods and services take place in organizations.
• Manufacturing firms create goods that are tangible and quite obvious
(Harley-Davison creates motorcycles).
• Organizations that do not create tangible product create services.
Services are less obvious to spot as they are not material, and they are
hidden from the public (Transferring money in a bank, education of
students,…)
2. Organizing to Create Goods and Services
• All organization perform three functions to create goods and services.
• These functions are:
▪ Marketing which
• generates a demand.
• Takes orders of products and services.
▪ Production-Operations which
• Creates the product.
• Produces the product.
• Delivers the product.
▪ Finance- Accounting which
• Tracks how well is the organization doing.
• Collects money, revenues, and profits.
• Pays taxes and obligations.
3. The Supply Chain
• The three functions above create for the costumer.
• Additional value is created by the many suppliers a company interacts
with.
 • Supply chains is a global network of organizations and activities that
supply firms with goods and services.
• In the 21rst century, companies compete between supply chains, not
between individual companies because:
▪ More technology-oriented world (Instant Communication)
▪ Increased Specialization
▪ Expertise that come with specialization add value to the supply
chain.
▪ Collaboration can achieve high levels of customer satisfaction.
4. Why Study OM?
• Studying operations management is important because:
▪ Its one of the three major functions of organizations.
• Related to the other two.
• All companies must produce (aka operate).
• Important to know how people organize themselves to
have a productive output.
▪ To know how goods and services are made.
• OM is a part of our society which is responsible to bring
us the goods and services.
• Its important to know where they come from.
▪ To understand what operations managers do
• Can perform better in general (in any job) if one knows
what operations managers do.
• New potential career opportunities.
▪ It is a costly part of the organization.
• Large part of revenue is sent on operation ns
management.
• Major opportunity to improve profitability.
• Enhance services to society.
5. What Operations Managers Do
• Perform the basic functions of the management process (Planning,
Leading, Organizing and Controlling.)
• Apply these functions to the process of decisions they make in the
operations management field.
• The ten strategic OM decisions are:
▪ Design of goods and services.
 ▪ Managing Quality
▪ Process and Capacity Strategies
▪ Location Strategies
▪ Layout Strategies
▪ Human Resources, job design and work measurements.
▪ Supply Chain Management
▪ Inventory Management
▪ Scheduling
▪ Maintenance
• OM jobs are found all over inside the company
• Better background in accounting, statistics, finance, mathematics and
information systems, better chances of finding a job.
6. Heritage of Operations Management
• Eli Whitney (1800):

▪ Early popularization of interchangeable parts.

▪ Standardization and Quality Control.
▪ Able to command premium price.
• Frederick Taylor (1881):
 ▪ Father of scientific management
▪ Known for personal selection, planning, scheduling, motion
study and popular field ergonomics.
▪ Believed management should be more resourceful when it
comes to work methods.
▪ Four points of scientific management:
• Matching the right employee with the right task.
• Providing proper training
• Providing proper networks and tools
• Establishing incentives for finishing work.
• Henry Ford and Charles Sorensen (1913):
▪ Created the concept of assembly lines: men stood, and material
moved along the line.
• Walter Shewhart (1924):
▪ Quality control
▪ Statistical Sampling in quality control.
• W. Edward Deming (1950):
▪ Believed management should improve work environment.
• OM continues to grow today with more and more disciplines, such as
▪ Industrial engineering
▪ Statistics
▪ Management
▪ Analytics
▪ Economics
▪ Physical Science (Biology, Chemistry, Anatomy, Physics…)
▪ Information technologies
7. Operations for Goods and Services
• As established before
▪ Goods are tangible and material products.
▪ Services are intangible and immaterial products.
• Many products are a combination of goods and services.
• Operation activities for goods and services are often similar.
▪ Quality standards.
▪ Produced on schedules.
▪ Made in facilities.
▪ Made with and through people.
 • Differences between both exist also.
• Distinction between good and service are not a clear cut
▪ Many goods and services are actually a mix of tangible and

intangible proudcts.
▪ The sales of many goods require services, and many services
require goods to perform.
• Growth of Services
▪ Post industrial societies rely on services heavily.
▪ Service was the dominant employer in 1920s America.
▪ Many in the world can enjoy education, health services,
entertainment, and other services.
▪ Service Sector is the economic sector that includes professional
services such as education, trade, financial lodging and others.
8. The Productivity Challenge
• Productivity is the ratio of outputs (goods and services) divided by the
number of inputs (resources: such as labor and others).
• The challenge is the enhance this output, which would lead to
improved efficiency.
• One can improve the ratio by
 ▪ Reduce inputs and keep outputs constant.
▪ Increase output and keep inputs constant.
• High production might imply that more people are working but it does
not imply higher productivity.
• Measuring productivity is an excellent way to tell the living standards
inside a country.
▪ Only with increase in productivity can the standard of living
inside a country improve.
▪ Only in increase in productivity can labor, capital and
management receive additional funding.
• Increase only in can labor, capital and management
without productivity causes the prices to rise.
• Increase only in productivity without can labor, capital
and management cause the prices to go down.
• Benefit of improving productivity.
• Measuring Productivity:
▪ Can be direct: when one takes a single factor into consideration.
▪ Single-Factor Productivity can be summarized by the following
formula:

𝑈𝑛𝑖𝑡𝑠 𝑃𝑟𝑜𝑑𝑢𝑐𝑒𝑑
𝑆𝑖𝑛𝑔𝑙𝑒 𝐹𝑎𝑐𝑡𝑜𝑟 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
𝐼𝑛𝑝𝑢𝑡 𝐶ℎ𝑜𝑠𝑒𝑛
▪ Input chosen can be anything (labor hours, capital invested,
material,…)
▪ When it comes to single factor productivity, labor productivity
quite popular.
 ▪ In reality, productivity is a mix of many factors: Multifactor
productivity of Total Factor Productivity takes this into
consideration.
▪ The formula to find it is the following.
𝑈𝑛𝑖𝑡𝑠 𝑃𝑟𝑜𝑑𝑢𝑐𝑒𝑑
𝑀𝑢𝑙𝑡𝑖 𝐹𝑎𝑐𝑡𝑜𝑟 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
∑ 𝐼𝑛𝑝𝑢𝑡𝑠
𝑀𝐹𝑃 𝐸𝑥𝑎𝑚𝑝𝑙𝑒
𝑈𝑛𝑖𝑡𝑠 𝑃𝑟𝑜𝑑𝑢𝑐𝑒𝑑
=
𝐿𝑎𝑏𝑜𝑟 + 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 + 𝐸𝑛𝑒𝑟𝑔𝑦 + 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 + 𝑀𝑖𝑠𝑐𝑒𝑙𝑙𝑎𝑛𝑖𝑜𝑢𝑠

▪ The denominator should be in the same unit, which is a

currency unit to be able to add properly.
▪ Multifactor is usually better than single factor.
• Multifactor takes in considerations all the aspects of
production.
• Single factor can be misleading:
▪ Taking in consideration only labor while
productivity is the result of capital spending for
example.
▪ Some measurements problems in productivity are
• Quality (might chance while productivity stays the same)
• External Environment (may cause increase/decrease in
productivity that the formula doesn’t account for.)
• Precise unit measurements may be lacking.
▪ Measuring productivity in the service sector is difficult.
• End product can be hard to define.
• Hard to define what is “good quality” (Subjectivity)
• Labor Intensive
• Difficult to mechanize.
• Productivity Variables:
▪ Three Essential factors to improve productivity:
• Labor (affects the least)
• Capital
• Management (affects the most)
▪ Labor improvements
• Employees need a healthy and safe environment.
 • Three key variables to improve labor are
▪ Basic education for an effective labor force
• Maintain and enhance the level of
knowledge the employee has.
• Training and motivation.
▪ Good and healthy diet (clean water,…)
• Need to keep employees healthy to
minimize sick leaves.
• Better health
▪ Social Overhead that makes labor available
• Make employees access work more easily.
▪ Capital improvements
• Capital provides the tools for humans to be able to work.
• When capital drops, productivity drops with it.
• Using labor instead of capital will
▪ Reduced unemployment on the short run.
▪ Makes economies less productive on the long run
and hence lowers wages.
• The higher the capital the lower the labor is required.
▪ Management improvements
• Ensures capital and labor are efficiently used.
• Use of knowledge and new technologies.
▪ Critical in post-industrial societies.
▪ Knowledge societies are societies where labor
force has migrated from manual work to work
based on knowledge. All post-industrial societies
are knowledge societies.
▪ Requires high level of education.
• Productivity in the Sector Field
▪ Special challenge: cannot measure productivity accurately.
▪ Service work is hard to evaluate because
• Its labor intensive
• Frequently focuses on unique and individual attributes.
• Is often an intellectual task.
• Is difficult to mechanize.
• Is difficult to evaluate.
 ▪ The fact that some activities have moved out of homes to
become part of the measured economy leads to a low
productivity in the service sector.
▪ Improvements can still be made through management.
9. Current Challenges in Operations Management
• Globalization
▪ Markets have gone global due to the technological
improvements.
▪ Resources hence have also gone global.
▪ OM seeks creative designs to stay efficient in a worldwide
production.
• Supply-Chain Partnering
▪ Supply chains needs to be in tune with the needs of other users.
▪ Long term partnerships with critical partners.
• Sustainability
▪ Improving productivity is linked to design of processes that are
sustainable.
▪ Green products.
▪ Minimize resource use.
• Rapid Product Development
▪ Technology and rapid communication of news chops the
lifespan of products dramatically due to rapid change.
▪ New management structures.
▪ Digital technologies
• Mass customization
▪ The world is a marketplace.
▪ Firms need to respond to costumers aware of the new changes
in a creative way.
▪ Flexible production required.
▪ Goal is to produce customized products when needed.
• Lean Options
▪ Lean: management model sweeping the world and providing
the standards against which operation managers must compete.
▪ Costumers are satisfied.
▪ Employees are being well treated.
▪ Waste doesn’t exist (ideally)
 ▪ Build organizations that are more efficient.
10. Ethics, Social Responsibility and Sustainability
• World where ethics are evolving with the rest of the rapid pace, as
well as the laws and values of individuals.
• Conflicting perspectives between stakeholders, costumers, supplies
and other factors.
• Managers are challenged to
▪ Develop and produce in a safe and green way.
▪ Train and retain employees.
▪ Honor their commitments to stakeholders.
• Must also meet the demands of the market.
• Managers must have moral awareness.
• Employees are committed to the marketplace if they are satisfied.