Introduction

Introduction
 About Me

 Name: Aleema Shuja

 Qualification: MS Management Sciences, COMSATS University Islamabad
 Experience: 5 years, 6.5 months
 Courses Taught:
 Operations Management (BBA 4-Years; MBA 3.5 Years)

 Operations and Supply Chain Management (MBA 2-Years)

 Fundamentals of Supply Chain Management (BBA 4 Years)

 Total Quality Management (MBA Executive)

 Business Policy and Strategic Management (MBA Executive)

 Consulting Management (MBA 3.5 Years)

 Principles of Quality Management (BS Aviation Management

 Research Publications:
 8 Publications in HEC High recognized category and Scopus Indexed journals

 Papers Presented in 4 International Conferences (Germany, Russia, The Netherlands and Italy) and 2 Local Conferences.

 Memberships:
 Reviewer – Knowledge Management and E-Learning: An International Journal, University of Hong Kong

 Reviewer – IJELCS, Institute of Business and Management (IoBM) Karachi

Email: aleema.shuja@lbs.uol.edu.pk

Office no.: 2-28, 2nd Floor, LBS Building

Consultation Hours:

Monday to Thursday 11:00 AM to 1:00 PM

Friday 2:00 PM to 4:00 PM
Course Outline
Recommended Text Book

Website:
Gen.Lib.rus.ec
Some rules

• Be on time
• Break 20-25 minutes
• Turn-off your mobile or at-least put it on
vibration mode
• Follow the cut off dates and meet submission
deadlines
• Be participative
• Respect and Obedience
 Success and Failure Stories
 Successes!
 AMUL’s Forecast of Increased Sales during COVID Lockdown
 Walt Disney Parks and Resorts
 IKEA point of sale transaction data
 Zara’s JIT production system – 2 weeks production time

 Failures!
 Nike’s Failure to Forecast Demand due to faulty Demand Planning Software
 Downfall of TATA NANO
 Walmart got out of stock in 2013
 Cisco – Caught with piles of product on shelves in 2001
 Heathrow’s Poor Demand Forecast
8 Failure Stories

 Boeing’s Fatal Flaw – A documentary by Frontline, released on Sept 14, 2021

 Flaws in Tesla Model Y
 Toyota’s Recall in late 2009
 BPs Deepwater Horizon Drilling Rig Explosion in 2010
 Nokia’s Downfall
 Fatality (death of a miner) at Rustenburg Mining Site operated by Anglo
American Plc.
 Fall of Yayvo.com (skewed towards selling appliances)
 Fall of Reid and Taylor
Operations Management

Introduction

Course Instructor: Aleema Shuja

 Chapter- 1

Operations and Productivity

 Outline
 What is Operations Management?
 Why Study OM?
 Production vs. Service Organizations.
 Operations Management Dimensions.
 Recent Developments & Challenges.
 What Is Operations Management?

¨ Operations management is the management of systems that

produce goods and deliver services.
¨ Activities related to creation of goods and services
¨ It includes planning, designing and operating systems to achieve
organizational goals.

 Also defined as:

The set of activities that create value in the form of goods
and services by transforming inputs into outputs.
 Transforming Inputs to Outputs

Inputs Process Outputs

Land,
Labor,
Goods
Capital, Production or Service
System and
Materials,
Services
Equipment,
Management
Transforming Inputs to Outputs- Value Addition

The difference between the cost of inputs

and the value or price of outputs.

Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Control
Feedback Feedback
 Examples
Production Service
 Auto factories (assembly ¨ Hospitals
plants)
¨ Airlines
 Job shops (printing)
¨ Movie theaters
 Fast food restaurants
¨ Grocery stores
Goods-service Continuum
 Why Study OM?
 OM is one of three major functions of any organization
(Marketing, Finance, and Operations).

 To know how goods and services are produced.

 OM is such a costly part of an organization.

 Jobs!
 Organizational Functions

¨ Operations.
¨ Creates product or service.

 Marketing.
 Generates demand.

¨ Finance/Accounting.
¨ Obtains funds &
tracks money.
 Key Differences b/w Goods and Services
1. Customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
 Characteristics of Goods

¨ Tangible product.
¨ Consistent inputs and
outputs.
¨ Production separate from
consumption.
¨ Can be inventoried.
¨ Low customer interaction.
Characteristics of Service

¨ Intangible product.
¨ Variable inputs and outputs
(people!).
¨ Production and consumption at
same place and time.
¨ No inventories.
¨ High customer interaction.
 10 Critical Decisions for OM

 Product & service design (Lower limits of cost; upper limits of quality; time-to-market; customer
satisfaction; appearance; ease of production/assembly; ease of maintenance/service; competitive advantage; HR
required; sustainability)

 Quality management (Customer’s quality expectations; cont. improvement)

 Process capacity design (Process of production; technology, quality and HR; capital investments)

 Location strategy (Judgments regarding nearness to customers, supplier and talent while considering
costs, infrastructure, logistics and govt.)

 Layout of facilities (Integrating capacity needs, personnel levels, technology, inventory requirements for
efficient flow of material, people and information)
 10 Critical Decisions for OM
 Human resources & Job design (Recruitment, development, motivation and retention of people; Work
arrangement, ways decision-makers choose to organize work responsibilities, duties, activities, and tasks)

 Supply-chain management (Decisions about what to purchase, from whom, under what conditions)

 Inventory management (Inventory ordering and holding decisions; optimization for customer
satisfaction, supplier capability)

 Scheduling (Determining inter-mediate and short-term schedules for efficiently and effectively utilizing
resources; allocating and prioritizing demand to available facilities)

 Maintenance (Decisions about facility capacity; production demands and personnel to maintain reliable
process)
Significant Events in OM
 Recent Developments for OM

¨Information technology (computers, bar codes, EDI, internet, wireless,

etc.)
¨ Just-In-Time systems.
¨ Quality emphasis.
¨ Service economy.
¨ Globalization.
¨ Environmental concerns.
¨ Security.
 Productivity
 Productivity
 A measure of the effective use of resources, usually expressed as the
ratio of output to input
 Productivity ratios are used for
 Planning workforce requirements
 Scheduling equipment
 Financial analysis
 Productivity Measures
 Partial measures
 output/(single input)
 Multi-factor measures
 output/(multiple inputs)
 Total measure
 output/(total inputs)

Outputs
Productivity =
Inputs
 Productivity Growth

Productivity Growth =
Current Period Productivity – Previous Period Productivity
Previous Period Productivity
 Measures of Productivity

Partial Output Output Output Output

measures Labor Machine Capital Energy

Multifactor Output Output

measures Labor + Machine Labor + Capital + Energy

Total Goods or Services Produced

measure All inputs used to produce them
 Example

7040 Units Produced

Sold for $1.10/unit

Cost of labor of $1,000 What is the

multifactor
Cost of materials: $520 productivity?

Cost of overhead: $2000 Ans. 2.20

 Example Solution

MFP = Output
Labor + Materials + Overhead

MFP = (7040 units)*($1.10)

$1000 + $520 + $2000

MFP = 2.20
 Factors Affecting Productivity

Capital Quality

Technology Management
 Other Factors Affecting Productivity

 Standardization
 Quality
 Use of Internet
 Computer viruses
 Searching for lost or misplaced items
 Scrap rates
 New workers
 Other Factors Affecting Productivity

 Safety
 Shortage of IT workers
 Layoffs
 Labor turnover
 Design of the workspace
 Incentive plans that reward productivity
 Improving Productivity
 Develop productivity measures
 Determine critical (bottleneck) operations
 Develop methods for productivity improvements
 Establish reasonable goals
 Get management support
 Measure and publicize improvements
 Don’t confuse productivity with efficiency
 Numerical Problem
COMPUTING SINGLE-FACTOR AND MULTIFACTOR GAINS IN PRODUCTIVITY

Collins Title Insurance Ltd. wants to evaluate its labor and multifactor productivity with a new computerized title-
search system. The company has a staff of four, each working 8 hours per day (for a payroll cost of $640/day) and
overhead expenses of $400 per day. Collins processes and closes on 8 titles each day. The new computerized title-
search system 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 $800 per day.

SOLUTION:

1- Compute Labor Productivity

 Labor productivity with the old system: 8 titles per day 32 labor-hours = .25 titles per labor-hour
 Labor productivity with the new system: 14 titles per day 32 labor-hours = .4375 titles per labor-hour

2- Compute Multifactor Productivity

 Multifactor productivity with the old system: 8 titles per day $640 + 400 = .0077 titles per dollar
 Multifactor productivity with the new system: 14 titles per day $640 + 800 = .0097 titles per dollar

Labor productivity has increased from .25 to .4375. The change is (.4375 - .25)>.25 = 0.75, or a 75% increase in
labor productivity.

Multifactor productivity has increased from .0077 to .0097. This change is (.0097 - .0077)>.0077 = 0.26, or a 26%
increase in multifactor productivity.
 Example

Product = Hand Knitted Hats

In Cambodia, six laborers, each

making the equivalent of $3 per day,
can produce 40 units per day. In China,
ten laborers, each making the
equivalent of $2 per day, can produce
45 units. In Billings, Montana, two
laborers, each making $60 per day, can
make 100 units. Based on labor
productivity only, which location would
be ideal to go for production ?
 Example

A wrapping paper company produced 2,000 rolls of paper one day.

Standard price is $1 /roll. Labor cost was $ 160, material cost was $50,
and overhead was $320. Determine the multifactor productivity.
 Numerical Problem

 A catering company prepared and served 300 meals at an

anniversary celebration last week using eight workers. The
week before, six workers prepared and served 240 meals at
a wedding reception.
 For which event was the labor productivity higher? Explain.
 What are some possible reasons for the productivity
differences?
 Numerical Problem
 The manager of a crew that installs carpeting has tracked the crew’s output over the past
several weeks, obtaining these figures:

Week Crew Size Yards

Installed
1 4 96
2 3 72
3 4 92
4 2 50
 Compute the labor productivity
5 for each
3 of the weeks.69
On the basis of your calculations, what
can you conclude about crew size and productivity?
6 2 52
 Numerical Problem
 Compute the multifactor productivity measure for each of the
weeks shown for production of chocolate bars. What do the
productivity figures suggest? Assume 40-hour weeks and an hourly
wage of $12. Overhead is 1.5 times weekly labor cost. Material cost
is $6 per pound.

Week Output Workers Materials lbs

1 30,000 6 450
2 33,600 7 470
3 32,200 7 460
4 35,400 8 480