Operations

1 and
Productivity
PowerPoint presentation to accompany
Heizer and Render
Operations Management, 10e
Principles of Operations Management,
8e

PowerPoint slides by Jeff Heyl

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 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
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 Organizing to Produce
Goods and Services
◆ Essential functions:
1. Marketing – generates demand
2. Production/operations –
creates the product
3. Finance/accounting – tracks
how well the organization is
doing, pays bills, collects the
money

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 Organizational Charts
Commercial Bank

Operations Finance Marketing

Teller Investments Loans
Scheduling Security Commercial
Check Clearing Real estate Industrial
Collection Financial
Transaction Accounting Personal
processing
Mortgage
Facilities
design/layout
Auditing
Vault operations
Trust Department
Maintenance
Security
Figure
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 Organizational Charts
Airline

Operations Finance/ Marketing

Ground support accounting Traffic
equipment Accounting administration
Maintenance Payables Reservations
Ground Operations Receivables Schedules
General Ledger Tariffs (pricing)
Facility
maintenance Finance Sales
Catering Cash control Advertising
Flight Operations International
Crew scheduling exchange
Flying
Communications
Dispatching
Management science Figure 1.1(B)
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 Organizational
Manufacturing
Charts
Operations Finance/ Marketing
Facilities accounting Sales
Construction; maintenance Disbursements/ promotion
Production and inventory credits Advertising
control Receivables Sales
Scheduling; materials control Payables General
Quality assurance and control ledger Market
research
Supply-chain management Funds Management
Manufacturing Money market
Tooling; fabrication; assembly International
Design exchange
Product development and design Capital
Detailed product specifications requirements
Industrial engineering Stock issue
Efficient use of machines, space, and
personnel Bond issue and
Process analysis recall
Development and installation of
production tools and equipment Figure 1.1(C)
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 Why Study
1. OM?
OM is one of three major functions
of any organization, we want to
study how people organize
themselves for productive enterprise
2. We want (and need) to know how
goods and services are produced
3. We want to understand what
operations managers do
4. OM is such a costly part of an
organization
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 Options for Increasing
Contribution
Finance
Marketin / Account OM
g Option ing Option
Option
Increase Reduce Reduce
Sales Finance Productio
n
Sales $100,00 $150,000 $100,000 $100,000
Current Revenue 50% Costs 50% Costs
Cost of 0 – 120,000 – 80,000 – 64,000
20%
Goods Gross – 80,000 30,000 20,000 36,000
Margin 20,000
Finance – 6,000 – 6,000 – 3,000 – 6,000
Costs
Subtotal 14,0 24,0 17,0 30,0
Taxes at 25% 00 00 00 00
– – – –
Table 1.1
3,500
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6,000 4,250 7,500 1 - 8
 What Operations
Managers
Do
Basic Management Functions
◆ Planning
◆ Organizing
◆ Staffing
◆ Leading
◆ Controlling
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 Ten Critical Decisions
Ten Decision Areas Chapter(s)
1. Design of goods and 5
services 6, Supplement
2. Managing quality 6
3. Process and capacity 7, Supplement
design 7
8
4. Location strategy 9
5. Layout strategy 10
6. Human resources and job
design 11, Supplement 11
7. Supply-chain
management 12, 14, 16
8. Inventory, MRP, JIT 13, 15
9. Scheduling 17
10. Maintenance Table 1.2
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 The Critical Decisions
1. Design of goods and services
◆ What good or service should
we offer?
◆ How should we design these
products and services?
2. Managing quality
◆ How do we define quality?
◆ Who is responsible for
quality?
Table 1.2 (cont.)
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 The Critical Decisions
1. Process and capacity design
◆ What process and what capacity
will these products require?
◆ What equipment and technology is
necessary for these processes?
2. Location strategy
◆ Where should we put the facility?
◆ On what criteria should we base
the location decision?

Table 1.2 (cont.)

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 The Critical Decisions
1. Layout strategy
◆ How should we arrange the facility?
◆ How large must the facility be to
meet our plan?
2. Human resources and job design
◆ How do we provide a reasonable
work environment?
◆ How much can we expect our
employees to produce?

Table 1.2 (cont.)

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 The Critical Decisions
1. Supply-chain management
◆ Should we make or buy this
component?
◆ Who should be our suppliers and how
can we integrate them into our strategy?
2. Inventory, material requirements
planning, and JIT
◆ How much inventory of each item
should we have?
◆ When do we re-order?
Table 1.2 (cont.)
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 The Critical Decisions
1. Intermediate and short–term
scheduling
◆ Are we better off keeping people on
the payroll during slowdowns?
◆ Which jobs do we perform next?
2. Maintenance
◆ How do we build reliability into our
processes?
◆ Who is responsible for
maintenance?
Table 1.2 (cont.)
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 Where are the OM
Jobs?
◆ Technology/methods
◆ Facilities/space
utilization
◆ Strategic issues
◆ Response time
◆ People/team
development
◆ Customer service
◆ Quality
◆ Cost reduction
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◆ Inventory reduction
 New Challenges in OM
From To
◆ Local or national focus ◆ Global focus
◆ Batch shipments ◆ Just-in-time
◆ Low bid purchasing ◆ Supply-chain
partnering
◆ Lengthy product ◆ Rapid product
development development,
alliances
◆ Mass
◆ Standard products customization
◆ Empowered
◆ Job specialization employees, teams
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 Characteristics of
◆
Goods
Tangible product
◆ Consistent product
definition
◆ Production usually
separate from
consumption
◆ Can be inventoried
◆ Low customer
interaction

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 Characteristics of
Service ◆ Intangible product
◆ Produced and
consumed at same time
◆ Often unique
◆ High customer
interaction
◆ Inconsistent product
definition
◆ Often knowledge-based
◆
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 Industry and Services as
Percentage of GDP
90 −
Services Manufacturing
80 −
70 −
60 −
50 −
40 −
30 −
20 −
10 −
0−
A C C C Fr G H Ja M R S S U U
u a hi ze a er o p ex u o p K S
st n n c n m n a ic ss ut ai
ra a a h ce a g n o ia h n
lia d R n K n Af
a e y o F ri
p as Prentice
© 2011 Pearson Education, Inc. publishing n e ca 1 - 20
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 Goods and
Services
Automobile Computer
Installed carpeting
Fast-food meal Restaurant
meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling

100% 75 50 25 0 25 50 75 100%
| | | | | | | | |
Percent of Product that is a Percent of Product that is a
Good Service
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 Manufacturing and
Service
Employment 120 –

100 –
E
m 80 –
pl Servic
o 60 –
e
y
m 40 –
e
nt 20 –
(
Manufacturing
m 0–
illi
o
| | | | | | | 1970
n 1950 1990 2010 (est)
s) 1960 1980 2000
Figure 1.4
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 New Trends in OM
◆ Ethics
◆ Global focus
◆ Environmentally sensitive
production
◆ Rapid product development
◆ Environmentally sensitive
production
◆ Mass customization
◆ Empowered employees
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◆
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Supply-chain partnering
 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

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 The Economic
System
Inputs Transformation Outputs

Labor, capital, The U.S. economic system Goods

management transforms inputs to outputs and
at about an annual 2.5% services
increase in productivity per
year. The productivity increase
is the result of a mix of capital
(38% of 2.5%),
labor (10% of 2.5%), and
management (52% of 2.5%).

Feedback
loop
Figure 1.6

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 Improving Productivity at
Starbucks
A team of 10 analysts
continually look for
ways to shave time.
Some improvements:
Stop requiring signatures Saved 8 seconds
on credit card purchases per transaction
under $25
Change the size of the ice Saved 14
scoop seconds per drink
New espresso machines Saved 12
seconds per shot
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 Improving Productivity at
Starbucks
A team of 10 analysts continually look for
ways to shave time. Some
improvements:
Operations improvements have
Stop requiring
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credit card pruervcehnausesper
utpleetrb$25
under
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years.
Change the sizePorof dthuectiicveity
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h asSiaespresso
mvpedro1v4machines
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seconds per shot
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 Productivity

Units produced
Productivity =
Input used

◆ Measure of process improvement

◆ Represents output relative to input
◆ Only through productivity increases
can our standard of living improve

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 Productivity
Calculations
Labor Productivity
Units
Productivity = produced
Labor-hours
used

= 1,000 =4
units/labor-hour
250
One resource input single-factor productivity

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 Multi-Factor
Productivity
Output
Productivity = Labor + Material
+ Energy
+ Capital + Miscellaneous
◆ Also known as total factor productivity
◆ Output and inputs are often expressed in
dollars
Multiple resource inputs multi-factor productivity

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 Measurement Problems
1. Quality may change while the
quantity of inputs and outputs
remains constant
2. External elements may cause
an increase or decrease in
productivity
◆ Precise units of measure may be
lacking

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 Productivity Variables
1. Labor - contributes
about 10% of the
annual increase
2. Capital -
contributes about
38% of the annual
increase
3. Management -
contributes about
52% of the annual
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increase
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 Service
Productivity
1. Typically labor intensive
2. Frequently focused on unique
individual attributes or desires
3. Often an intellectual task performed
by professionals
4. Often difficult to mechanize
5. Often difficult to evaluate for quality

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 The Hard Rock
Cafe
◆ First opened in 1971
◆ Now – 129 restaurants in over 40
countries
◆ Rock music memorabilia
◆ Creates value in the form of good food
and entertainment
◆ 3,500+ custom meals per day in
Orlando
◆ How does an item get on the menu?
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◆ Role of the Operations Manager