1 Operation and Productivity

What Is Operations Management The Heritage of Operations

Production -> The creation of goods and services
Manageemnt
Operations Management (OM) -> Activities that relate to the creation of
goods and services through the transformation of inputs to outputs.

Organizing to Produce Goods and

Services
• Marketing -> generates the demand, or at least takes the order for
product or service (nothing happens until there is a sale). Operations for Goods and Services
• Production/ Operation -> creates, produces, and delivers the product.
Services
• Finance/ Accounting -> tracks how we the organization is doing, pays
— Service -> economic activities that typically produce an intangible
the bills, and collects the money.
product (such as education, entertainment, lodging, government, financial,
and health services)
— Almost all services and almost all goods are mixture of a service and
a tangible product

Service Sector

The Supply Chain
Supply Chain -> A global network of organizations and activities that
supplies a firm with goods and services
— Service sector -> the segment of the economy that includes trade,
financial, lodging, education, legal, medical, and other professional
occupations.
— service now constitute the largest economic sector in postindustrial
societies.
— The huge productivity increases in agriculture and manufacturing have
allowed more of our economic resources to be devoted to services

The Productivity Challenge

Productivity
Why Study OM — The ratio of outputs (goods and services) divided by one or more inputs
(labor, capital, management)
• To learn how people organize themselves for productive enterprise
— High production -> producing many units
• To learn how goods and services are produces
— High productivity -> producing units efficiently
• To understand what operations managers do
• Because OM is a costly part of an organization Single-Factor Productivity

What Operations Managers Do

— Indicates the ratio of goods and services produces (outputs) to one
resource (inputs)
Operations Managers job title -> plant manager, quality manager, process Unit produced
improvement consultant, operations analyst Input used

10 OM Strategic Decisions are required of operations managers Multi-Factor Productivity

• Design of goods and services
• Managing quality
• Process strategies
• Location Strategies
• Layout Strategies
• Human Resource
• Supply Chain Management
• Inventory Management
• Scheduling
• Maintenance
— Indicates the ratio of goods and services produces (outputs) to many or
all resource (inputs)
Output
Labor + Material + Energy + Capital + Miscellaneous
Productivity Measurement Problems
• Quality may change while the quantity of inputs and outputs remains
constant
• External elements may cause an increase or decrease in productivity
for which the system under study may not be directly responsible.
• Precise units of measure may be lacking
Productivity Variables
• Labor -> contributes about 10% of the annual increase
• Capital -> contributes about 38% of the annual increase
• Management -> contributes about 52% of the annual increase

Productivity and the Service Sector

|-> productivity of the service sector has proven difficult to improve
because service-sector work is:
— typically labor intensive (counseling, teaching)
— frequently focused on unique individual attributes or desires
(investment advice)
— often an intellectual task performed by professionals (medical
diagnosis)
— often difficult to mechanize and automate (a haircut)
— often difficult to evaluate for quality (performance of a law firm)

Current Challenges in Operation

Management
• Global focus, international collaboration
• Supply chain partnering, joint ventures, alliances
• Sustainability, green products, recycle, reuse
• Rapid product development, design collaboration
• Mass customization, customized product
• Lean operations, continuous improvement and elimination of waste

Ethics, Social Responsibility, and

Sustainability
• Efficiently developing and producing save, quality product
• Maintaining a clean environment
• Providing a save workplace
• Honoring stakeholder commitments
 Operations Strategy in a Global
2 Environment
A Global View of Operations and
Supply Chains
— Global competitiveness impact quality, variety, customization,
convenience, timeliness, and cost

6 reasons domestic business operations decide to change to some form of

international operation

• Improve the supply chain -> improved by locating facilities in

countries where unique resources are available
• Reduce costs and exchange rate risk -> reduce risks associated with
changing currency values (exchange rates) as well as take advantage
of the tangible opportunities to reduce their direct costs.
• Improve operations -> reduce time to meet customers’ changing
product and service requirements
• Understand markets
• Improve products
• Attract and retain global talent

The Supply Chain

Supply Chain -> A global network of organizations and activities that
supplies a firm with goods and services