Course Code and Title : CBME 1 - Operations Management with Total Quality

Management
Lesson Number : 1
Professor : Prof. Dimna Varona
Topic : Operations and Productivity
Learning Objectives
At the end of this lesson, you should be able to:
1. Discuss the concept of operations management
2. Explain the difference between production and productivity
3. Critically solve problems related to single-factor and multifactor productivity.

Pre-Assessment:
Direction. Read the questions carefully. Encircle the letter of your answer.
Multiple Choice. Select the letter that completes the statement.
____1. By definition, Operations is primarily concerned with:

a. customer satisfaction c. production

b. distribution d. profitability
____2. You have assumed a VP Operations position at a medium-sized frozen foods
company. Your job would focus on:

a. Ensuring working capital is available to fund operations

b. Forecasting revenue versus the sex month plan
c. Managing data collection from your online sources to estimate demand
d. Planning adequate production capability to meet the forecasts from
sales.
____3. You are the Operations manager for a large auto dealership services
department. Which of the following would you be most concerned with?
a. Coordinating prices with other dealerships carrying the same brand
b. Customer outreach to track satisfaction levels of purchase.
c. Mechanic staff availability to ensure most services are complete in
one working day.
 d. Number of cars on the lot for July 4 sale.
____4. Which one of the following is not a characteristic of goods?
a. can be inventoried c. easy to automate
b. Can be resold d. many are difficult to measure
____5. Which of the following best describes productivity?
a. Ratio of output to input
b. Measures efficiency of production
c. Measures the annual profit
d. Measures the total output produce per year

LESSON PRESENTATION
This module discusses the introduction to operations management, specifically,
operations and productivity. Operations management will be defined in many ways as
well as goods and services. Differences between goods and services will be identified
as well as production and productivity. Problems related to productivity will also be
analyzed and solved.

Figure 1. Production Process for Products and Services (Attribution: Copyright Rice
University, OpenStax, under CC BY 4.0 license.)

Operations management is a discipline that applies to all industries. Regardless

of whether it is a restaurant, a manufacturing company, a hotel, a hospital, or a
department store - the production of goods and services needs operation management.
And the effective and efficient production of goods and services requires application of
the concepts, tools and techniques of operations management. Before we proceed to
our main topic, let us first define some terms.

Production is the creation of goods and services. It turns inputs, such as natural
resources, raw materials, human resources, and capital, into outputs, which are goods
and services. This process is shown in the above Figure1. Managing this conversion
process is the role of operations management.

Goods are physical products that can be seen, touch, or possibly consume.

Services are primary or complementary activities that does not directly produce
physical products
Production management deals with decision making related to production processes
so that the resulting goods or services are produced according to specifications, in the
amount and by the schedule demanded and out of minimum cost.”E.S. Buffa

Production management is the process of planning and regulating the operations of

that part of a business which is responsible for actual transformation of materials into
finished products. A.W.Field
Production management is concerned with the process which convert the inputs into
outputs such as men, material, money, method etc. and the output such as goods or
services. H.A.Harding

Operations management involves three main types of decisions, typically made at

three different stages:

1. Production planning. The first decisions facing operations managers come at

the planning stage. At this stage, managers decide where, when, and how
production will occur. They determine site locations and obtain the necessary
resources.

2. Production control. At this stage, the decision-making process focuses on

controlling quality and costs, scheduling, and the actual day-to-day operations of
running a factory or service facility.

3. Improving production and operations. The final stage of operations

management focuses on developing more efficient methods of producing the firm’s
goods or services.
Heritage of Operations Management https://slideplayer.com/slide/8584134/#.XzevKTzAy2A.google
Example 1.
Collins title Company has a staff of 4 each, each working 8 hours per day (for a payroll
cost of P640/day) and overhead expenses of P400 per day. Collins processes and
closes on 8 titles each day. The company recently purchased a computerized title-
search system that 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 P800 per day.
What will be the impact on productivity of the new system?
Given: Old System New System
no. of staff = 4 working 8 hrs/day 4 working 8 hrs/day
Payroll cost = P640/day P640/day
Overhead expenses = P400/day P800
No. of closes = 8 titles /day 14 titles /day
Required: Impact on productivity
Solution:

Labor productivity has increased from .25 to .4375. The change is

.4375/.25 = 1.75, or a 75% increase in labor productivity.
 Multifactor productivity has increased from .0077 to .0097. This change is
0.0097/.0077 = 1.26 or a 26% increase in multifactor productivity.

Example 2.
Productivity can be measured in a variety of ways, such as by labor, capital, energy,
material usage, and so on. At Modern Lumber, Inc. Art Binley, president and
producer of apple crates sold to growers, has been able, with his current equipment,
to produce 240 crates per 100 logs. He currently purchases 100 logs per day, and
each log requires 3 labor-hours to process. He believes that he can hire a
professional buyer who can buy a better-quality log at the same cost. If this is the
case, he can increase his production to 260 crates per 100logs. His labor-hours will
increase by 8 hours per day.
What will be impact on productivity (measured in crates/labor-hour) if the buyer is
hired?
Given: current units produced per 100 logs = 240
Current Labor-hours per 100logs = 3
Units produced per 100 logs with buyer = 260
Labor-hours with buyer = 8
Required: impact on productivity
240crates
P=
Solution: Current labor productivity, 100logsx3hours/log = .8 crates/labor-hour
 P 1 =260crates
Labor productivity with buyer, (100logs)(3hours/log )+8hours = .844crates/labor-hour
Using current productivity as a base, the increase will be .844/.8 =1.055 or a 5.5%
Example 3.
Art Binley has decided to look at his productivity from a multifactor (total factor
productivity) perspective. To do so, he has determined his labor, capital, energy. And
material usage and decided to use dollars as the common denominator. His total
labor-hours are now 300 per day and will increase to 308 per day. His capital and
energy costs will remain constant at P350 and P150 per day, respectively. Material
costs for the 100 logs per day are P1,000 and will remain the same. If he pays an
average of P10 per hour (with fringes), determine the impact on the productivity.
Given: Labor-hour/day = 300
Material cost for 100 logs/day = P1,000
Capital = P350
Energy = 150
Pay/hour = P10
Required Impact on Productivity
Solution:

Current System System with Buyer

Labor 300hrs x P10 = P3,000 308 x 10 = P3,080

Material 100 logs/day = P1,000 P1,000

Capital 350 350
Energy 150 150
P4,500 P4,580
Multifactor 240crates 260 crates
= =0 . 0533crates/peso = =0 . 0568
Productivity P4,500 peso
Using the current productivity, the increase will be
0.0568/0.0533 = 1.066 or 6.6% increase.
To summarize, Production management according to E.S.Buffa, deals with decision
making related to production processes so that the resulting goods or services are
produced according to specifications, in the amount and by the schedule demanded
and out of minimum cost. To create goods and services, all organizations perform
three functions. These functions are necessary in order for the organization to
survive. These are marketing, which generates the demand, or at least takes the
order for a product or service, operations, which creates the product, and finance or
accounting, which tracks how well the organization is doing, pays bills and collects
the money. The field of operations management is relatively young, but its history
is quiet interesting. Our lifestyle and the field of operations have been greatly
enhanced by the innovations and contributions of many individuals, where majority
came from the twentieth century. Operations managers are key players to improve
productivity. Although productivity improvements are difficult to achieve, operations
managers are doing their best since they are the primary vehicle for making
improvements.

EVALUATION
Direction. Solve the following problems and write it in a letter size bond paper.
1. Riverside Metal Works produces cast bronze valves on a 10-person
assembly line. On a recent day, 160 valves were produced during an 8-
hour shift.
a) Calculate the labor productivity of the line.
b) The manager at Riverside changed the layout and was able to increase
production to 180 units per 8-hour shift. What is the new labor productivity
per labor-hour?
c) What is the percentage of productivity increase?
2. Eric Johnson makes billiard balls in his New England plant. With recent
increases in his costs, he has a new found interest in efficiency. Eric is
interested in determining the productivity of his organization. He would
like to know if his organization is maintaining the manufacturing average of
 3% increase in productivity. He has the following data representing a
month from last year and an equivalent month this year:

Last Year Now

Units produced 1,000 1,000
Labor (hours) 300 275
Resin (pounds) 50 45
Capital invested (P) 10,000 11,000
Energy (BTU) 3,000 2,850

Show the productivity percentage change for each category and then
determine the improvement for labor-hours, the typical standard for
comparison.
3. Lake Charles Seafood makes 500 wooden packing boxes for fresh
seafood per day, working in two 10-hour shifts. Due to increased demand,
plant managers have decided to operate three 8-hour shifts instead. The
plant is now able to produce 650 boxes per day.
a) Calculate the company’s productivity before the change in work rules
and after the change.
b) What is the percentage increase in productivity?
c) If production is increased to 700 boxes per day, what is the new
productivity?

REINFORCEMENT
Direction. Solve the following problems and write it in a letter size bond paper.
1. Briefly describe the contributions of four individuals who have contributed to the
theory and techniques of operations management.
2. Outline the operations, finance/accounting, and marketing functions of three
organizations. Prepare a chart similar to the organizational charts in the lesson
outlining the same functions for any two of the following:
a) a newspaper b) a drugstore c) a college library d) a school