Operations

Management
Chapter 1 –
Operations and Productivity
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 6e
Operations Management, 8e

© 2006
© 2006 Prentice
Prentice Hall, Inc. Hall, Inc. 1–1
 Learning Objectives
When you complete this chapter,
you should be able to:
Identify or Define:

 Production and productivity

 Operations management (OM)
 What operations managers do
 Services

© 2006 Prentice Hall, Inc. 1–5

 Learning Objectives
When you complete this chapter,
you should be able to:
Describe or Explain :
 A brief history of operations
management
 Career opportunities in operations
management
 The future of the discipline
 Measuring productivity
© 2006 Prentice Hall, Inc. 1–6
 What Is Operations
Management?

Production is the creation of

goods and services
Operations management (OM) is
the set of activities that creates
value in the form of goods and
services by transforming inputs
into outputs

© 2006 Prentice Hall, Inc. 1–8

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

© 2006 Prentice Hall, Inc. 1–9

 Organizational Charts
Commercial Bank

Operations Finance Marketing

Teller Investments Loans
Scheduling Security Commercial
Check Clearing Real estate Industrial
Collection Financial
Transaction Accounting Personal
processing
Facilities Mortgage
design/layout
Auditing
Vault operations
Trust Department
Maintenance
Security
Figure 1.1(A)
© 2006 Prentice Hall, Inc. 1 – 10
 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
exchange
Crew scheduling
Flying
Communications
Dispatching
Management science Figure 1.1(B)
© 2006 Prentice Hall, Inc. 1 – 11
 Organizational
Manufacturing
Charts

Operations Finance/ Marketing

Facilities accounting Sales
Construction; maintenance Disbursements/ promotion
Production and inventory control credits Advertising
Scheduling; materials control Receivables Sales
Quality assurance and control Payables
General ledger Market
Supply-chain management research
Manufacturing Funds Management
Tooling; fabrication; assembly Money market
Design International
Product development and design exchange
Detailed product specifications Capital requirements
Industrial engineering Stock issue
Efficient use of machines, space, Bond issue
and personnel and recall
Process analysis
Development and installation of
production tools and equipment Figure 1.1(C)
© 2006 Prentice Hall, Inc. 1 – 12
 Why Study OM?
 OM is one of four major functions
(marketing, finance, HR and
operations) of any organization
 We want (and need) to know how
goods and services are produced
 We want to understand what
operations managers do
 OM is such a costly part of an
organization
© 2006 Prentice Hall, Inc. 1 – 13
 What Operations
Managers Do
Basic Management Functions
 Planning
 Organizing
 Staffing
 Leading
 Controlling
© 2006 Prentice Hall, Inc. 1 – 15
 Ten Critical Decisions
Ten Decision Areas Chapter(s)
 Service and product design 5
 Quality management 6
6 Supplement
 Process and capacity 7
design 7 Supplement
 Location 8
 Layout design 9
 Human resources, 10
job design 10 Supplement
 Supply-chain 11
management 11 Supplement
 Inventory management 12, 14, 16
 Scheduling 13, 15
 Maintenance 17 Table 1.2
© 2006 Prentice Hall, Inc. 1 – 16
 The Critical Decisions
 Service and product design
 What good or service should we
offer?
 How should we design these products
and services?
 Quality management
 How do we define quality?
 Who is responsible for quality?

Table 1.2 (cont.)

© 2006 Prentice Hall, Inc. 1 – 17
 The Critical Decisions
 Process and capacity design
 What process and what capacity will
these products require?
 What equipment and technology is
necessary for these processes?
 Location
 Where should we put the facility?
 On what criteria should we base the
location decision?
Table 1.2 (cont.)
© 2006 Prentice Hall, Inc. 1 – 18
 The Critical Decisions
 Layout design
 How should we arrange the facility
and material flow?
 How large must the facility be to meet
our plan?
 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.)
© 2006 Prentice Hall, Inc. 1 – 19
 The Critical Decisions
 Supply-chain management
 Should we make or buy this component?
 Who are our suppliers and who can
integrate into our e-commerce program?
 Inventory, material requirements
planning, and JIT
 How much inventory of each item should
we have?
 When do we re-order?
Table 1.2 (cont.)
© 2006 Prentice Hall, Inc. 1 – 20
 The Critical Decisions
 Intermediate and short–term
scheduling
 Are we better off keeping people on
the payroll during slowdowns?
 Which jobs do we perform next?
 Maintenance
 Who is responsible for maintenance?
 When do we do maintenance?

Table 1.2 (cont.)

© 2006 Prentice Hall, Inc. 1 – 21
 Where are the OM Jobs?

© 2006 Prentice Hall, Inc.

Figure 1.2 1 – 22
 Where are the OM Jobs?
 Technology/methods
 Facilities/space utilization
 Strategic issues
 Response time
 People/team development
 Customer service
 Quality
 Cost reduction
 Inventory reduction
 Productivity improvement
© 2006 Prentice Hall, Inc. 1 – 23
 Significant Events in OM

Figure 1.3

© 2006 Prentice Hall, Inc. 1 – 24

 The Heritage of OM
 Division of labor (Adam Smith 1776;
Charles Babbage 1852)
 Standardized parts (Whitney 1800)
 Scientific Management (Taylor 1881)
 Coordinated assembly line (Ford/
Sorenson/Avery 1913)
 Gantt charts (Gantt 1916)
 Motion study (Frank and Lillian Gilbreth
1922)
 Quality control (Shewhart 1924; Deming
1950)
© 2006 Prentice Hall, Inc. 1 – 25
 The Heritage of OM
 Computer (Atanasoff 1938)
 CPM/PERT (DuPont 1957)
 Material requirements planning (Orlicky
1960)
 Computer aided design (CAD 1970)
 Flexible manufacturing system (FMS 1975)
 Baldrige Quality Awards (1980)
 Computer integrated manufacturing (1990)
 Globalization (1992)
 Internet (1995)
© 2006 Prentice Hall, Inc. 1 – 26
 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
 Standard products  Mass
customization
 Job specialization  Empowered
employees, teams
© 2006 Prentice Hall, Inc. 1 – 34
 Characteristics of Goods
 Tangible product
 Consistent product
definition
 Production usually
separate from
consumption
 Can be inventoried
 Low customer
interaction

© 2006 Prentice Hall, Inc. 1 – 35

 Characteristics of Service
 Intangible product
 Produced and
consumed at same time
 Often unique
 High customer
interaction
 Inconsistent product
definition
 Often knowledge-based
 Frequently dispersed
© 2006 Prentice Hall, Inc. 1 – 36
 Goods Versus Services
Attributes of Goods
(Tangible Product)
Can be resold
Can be inventoried
Some aspects of quality
measurable
Selling is distinct from
production
Product is transportable
Site of facility important for cost
Often easy to automate
Revenue generated primarily
from tangible product
© 2006 Prentice Hall, Inc.
Attributes of Services
(Intangible Product)
Reselling unusual
Difficult to inventory
Quality difficult to measure
Selling is part of service
Provider, not product, is
often transportable
Site of facility important for
customer contact
Often difficult to automate
Revenue generated primarily
from the intangible service
Table 1.3 1 – 38
 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 Good Percent of Product that is a Service

Figure 1.4
© 2006 Prentice Hall, Inc. 1 – 39
 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 this

measure of efficiency

Important Note!
Production is a measure of output
only and not a measure of efficiency

© 2006 Prentice Hall, Inc. 1 – 49

 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

© 2006 Prentice Hall, Inc. 1 – 53

 Productivity Calculations

Labor Productivity

Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250

© 2006 Prentice Hall, Inc. 1 – 54

 Multi-Factor Productivity

Output
Productivity =
Labor + Material + Energy
+ Capital + Miscellaneous

 Also known as total factor productivity

 Output and inputs are often expressed
in dollars

© 2006 Prentice Hall, Inc. 1 – 55

 Measurement Problems

 Quality may change while the

quantity of inputs and outputs
remains constant
 External elements may cause an
increase or decrease in productivity
 Precise units of measure may be
lacking

© 2006 Prentice Hall, Inc. 1 – 64

 Key Variables for Improved
Labor Productivity

 Basic education appropriate for the

labor force
 Diet of the labor force
 Social overhead that makes labor
available
 Maintaining and enhancing skills in the
midst of rapidly changing technology
and knowledge

© 2006 Prentice Hall, Inc. 1 – 66

 Service Productivity

 Typically labor intensive

 Frequently focused on unique
individual attributes or desires
 Often an intellectual task performed by
professionals
 Often difficult to mechanize
 Often difficult to evaluate for quality

© 2006 Prentice Hall, Inc. 1 – 69

 Productivity at Taco Bell
Improvements:
 Revised the menu
 Designed meals for easy preparation
 Shifted some preparation to suppliers
 Efficient layout and automation
 Training and employee empowerment

© 2006 Prentice Hall, Inc. 1 – 70

 Productivity at Taco Bell
Improvements:
Results:
Revised the menu
 Designed meals for easy preparation
 Preparation time cut to 8 seconds
 Shifted some preparation to suppliers
 Management span of control
 Efficient layout and automation
increased from 5 to 30
 Training and employee empowerment
 In-store labor cut by 15 hours/day
 Stores handle twice the volume with
half the labor
 Fast-food low-cost leader

© 2006 Prentice Hall, Inc. 1 – 71

 Ethics and Social Responsibility

Challenges facing
operations managers:

 Developing safe quality products

 Maintaining a clean environment
 Providing a safe workplace
 Honoring community commitments

© 2006 Prentice Hall, Inc. 1 – 72

 Thank you

© 2006 Prentice Hall, Inc. 1 – 73