Nguyễ Trí Dũng MSc. 1-1 Handout PRODUCTION AND OPERATIONS MANAGEMENT NGUYỄN TRÍ DŨNG MSc. HCMC UNIVERSITY OF TECHNOLOGY FACULTY OF MECHANICAL ENGINEERING DEPT. OF INDUSTRIAL SYSTEM ENGINEERING 2012

Nguyễ Trí Dũng MSc. 1-2 Reference Material  Nguyễn Văn Chung và Hồ Thanh Phong - Giáo trình Quản lý Sản xuất  William J. Stevenson, 2007 – Operations Management, 9 th edition, Irwin/McGraw-Hill  Robertas. Russell, Bertas. Russell, Bernard W. Taylor, 2005 – Operation Management: Quality and Competitiveness in a Global Environment, 5 th edition, Wiley  S. Nahmias – Production and Operation Management  Mark M.Davis & Janelle Heineke, 2005 – OPERATIOS MANAGEMENT Integrating Manufacturing and Services

Nguyễ Trí Dũng MSc. Evaluation  Midterm test:30%  Homework, Seminar, Diligence:20%  Final test:50% 1-3

McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. 1 Introduction to Operations Management

Nguyễ Trí Dũng MSc. INTRODUCTION  Why study POM or OM?  OM activities are at the core of all business organizations.  35% or more of all jobs are in OM-related areas.  Activities in all of other areas are interrelated with OM  have a basic understanding of OM.  All managers need to possess the knowledge and skills in the content areas YOU will learn  learn how to use quantitative tools that enhance managerial decision making 1-5

Nguyễ Trí Dũng MSc. 1-6 Operations Management  Operations Management is: The management of systems or processes that create goods and/or provide services  Operations Management affects:  Companies’ ability to compete  Nation’s ability to compete internationally

Nguyễ Trí Dũng MSc. 1-7 The Organization The Three Basic Functions Figure 1.1 Organization Finance Operations Marketing

Nguyễ Trí Dũng MSc. 1-8 Operations Finance Marketing

Nguyễ Trí Dũng MSc. 1-9 MAJOR FUNCTIONS - Finance  Activities relating to secured resources at favorable prices and allocating those resources throughout the organization  Finance and operations management personnel cooperate by exchanging information and expertise in:  Budgeting  Economic analysis of investment proposals  Provision of funds

Nguyễ Trí Dũng MSc MAJOR FUNCTIONS - Marketing  Marketing consists of selling and/or promoting the goods or service of an organization.  Marketing people make advertising and pricing decisions.  Respond for assessing customer wants and needs and then communicating those to operations people (short term) and design people (long term).

Nguyễ Trí Dũng MSc MAJOR FUNCTIONS - Marketing  Marketing, design and production must wok closely  Marketing needs the manufacturing or service lead time from operations.  Marketing, operations and finance must interface on product and process design, setting realistic schedules, quality and quantity decisions, and keeping each other informed on the other’s strengths and weaknesses.

Nguyễ Trí Dũng MSc MAJOR FUNCTIONS - Operations  The operational function consists of all activities directly related to producting goods or providing services  Goods-oriented: manufacturing and assembly operations  Service-oriented: health care, transportation, food handling, retailing, etc.  Finished goods or services use one or more transformation process.  Feedback  Control  The essence of the operations function is to add value during the transformation process: Value-added

Nguyễ Trí Dũng MSc Value-Added Process The operations function involves the conversion of inputs into outputs Inputs Land Labor Capital Transformation/ Conversion process Outputs Goods Services Control Feedback Value added Figure 1.2

Nguyễ Trí Dũng MSc Value-Added & Product Packages  Value-added is the difference between the cost of inputs and the value or price of outputs.  Product packages are a combination of goods and services.  Product packages can make a company more competitive.

Nguyễ Trí Dũng MSc. 1-15

Nguyễ Trí Dũng MSc Automobile assembly, steel making Home remodeling, retail sales Automobile Repair, fast food Goods-service Continuum Figure 1.3 Computer repair, restaurant meal Song writing, software development GoodsService Surgery, teaching

Nguyễ Trí Dũng MSc Food Processor InputsProcessing Outputs Raw VegetablesCleaning Canned vegetables Metal SheetsMaking cans WaterCutting EnergyCooking LaborPacking BuildingLabeling Equipment Table 1.2

Nguyễ Trí Dũng MSc Hospital Process InputsProcessingOutputs Doctors, nursesExaminationHealthy patients HospitalSurgery Medical SuppliesMonitoring EquipmentMedication LaboratoriesTherapy Table 1.2

Nguyễ Trí Dũng MSc Manufacturing or Service? Tangible Act

Nguyễ Trí Dũng MSc Production of Goods vs. Delivery of Services  Production of goods – tangible output  Delivery of services – an act  Service job categories  Government  Wholesale/retail  Financial services  Healthcare  Personal services  Business services  Education

Nguyễ Trí Dũng MSc Key Differences 1. Customer contact 2. Uniformity of input 3. Labor content of jobs 4. Uniformity of output 5. Measurement of productivity

Nguyễ Trí Dũng MSc Key Differences 6. Production and delivery 7. Quality assurance 8. Amount of inventory 9. Evaluation of work 10. Ability to patent design

Nguyễ Trí Dũng MSc Goods vs Service CharacteristicGoodsService Customer contactLowHigh Uniformity of inputHighLow Labor contentLowHigh Uniformity of outputHighLow OutputTangibleIntangible Measurement of productivityEasyDifficult Opportunity to correct problemsHighLow InventoryMuchLittle EvaluationEasierDifficult PatentableUsuallyNot usual

Nguyễ Trí Dũng MSc  Operations Management includes:  Forecasting  Capacity planning  Scheduling  Managing inventories  Assuring quality  Motivating employees  Deciding where to locate facilities  Supply chain management  And more... Scope of Operations Management

Nguyễ Trí Dũng MSc Types of Operations Table 1.4 OperationsExamples Goods ProducingFarming, mining, construction, manufacturing, power generation Storage/TransportationWarehousing, trucking, mail service, moving, taxis, buses, hotels, airlines ExchangeRetailing, wholesaling, banking, renting, leasing, library, loans EntertainmentFilms, radio and television, concerts, recording CommunicationNewspapers, radio and television newscasts, telephone, satellites

Nguyễ Trí Dũng MSc Figure 1.4

Nguyễ Trí Dũng MSc Decline in Manufacturing Jobs  Productivity  Increasing productivity allows companies to maintain or increase their output using fewer workers  Outsourcing  Some manufacturing work has been outsourced to more productive companies

Nguyễ Trí Dũng MSc Why Manufacturing Matters  Over 18 million workers in manufacturing jobs  Accounts for over 70% of value of U.S. exports  Average full-time compensation about 20% higher than average of all workers  Manufacturing workers more likely to have benefits  Productivity growth in manufacturing in the last 5 years is more than double U.S. economy

Nguyễ Trí Dũng MSc Why Manufacturing Matters  More than half of the total R&D performed is in the manufacturing industries  Manufacturing workers in California earn an average of about $25,000 more a year than service workers  When a California manufacturing job is lost, an average of 2.5 service jobs are lost

Nguyễ Trí Dũng MSc Challenges of Managing Services  Service jobs are often less structured than manufacturing jobs  Customer contact is higher  Worker skill levels are lower  Services hire many low-skill, entry-level workers  Employee turnover is higher  Input variability is higher  Service performance can be affected by worker’s personal factors

Nguyễ Trí Dũng MSc Operations Management Decision Making  Models  Quantitative approaches  Analysis of trade-offs  Systems approach  Establishing priorities  Ethics

Nguyễ Trí Dũng MSc Key Decisions of Operations Managers  What What resources/what amounts  When Needed/scheduled/ordered  Where Work to be done  How Designed  Who To do the work

Nguyễ Trí Dũng MSc Operations Interfaces Public Relations Accounting Industrial Engineering Operations Maintenance Personnel Purchasing Distribution MIS Legal

Nguyễ Trí Dũng MSc Trends in Business  Major trends  The Internet, e-commerce, e-business  Management technology  Globalization  Management of supply chains  Outsourcing  Agility  Ethical behavior

Nguyễ Trí Dũng MSc Management Technology  Technology: The application of scientific discoveries to the development and improvement of goods and services  Product and service technology  Process technology  Information technology

Nguyễ Trí Dũng MSc Suppliers’ Suppliers Direct Suppliers Producer Distributor Final Consumer Simple Product Supply Chain Figure 1.7 Supply Chain: A sequence of activities And organizations involved in producing And delivering a good or service

Nguyễ Trí Dũng MSc Stage of Production Value Added Value of Product Farmer produces and harvests wheat$0.15 Wheat transported to mill$0.08$0.23 Mill produces flour$0.15$0.38 Flour transported to baker$0.08$0.46 Baker produces bread$0.54$1.00 Bread transported to grocery store$0.08$1.08 Grocery store displays and sells bread$0.21$1.29 Total Value-Added$1.29 A Supply Chain for Bread

Nguyễ Trí Dũng MSc Other Important Trends  Ethical behavior  Operations strategy  Working with fewer resources  Revenue management  Process analysis and improvement  Increased regulation and product liability  Lean production

Nguyễ Trí Dũng MSc Competitiveness: How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services

Nguyễ Trí Dũng MSc Businesses Compete Using Marketing  Identifying consumer wants and needs  Pricing  Advertising and promotion

Nguyễ Trí Dũng MSc Businesses Compete Using Operations  Product and service design  Cost  Location  Quality  Quick response

Nguyễ Trí Dũng MSc Businesses Compete Using Operations  Flexibility  Inventory management  Supply chain management  Service and service quality  Managers and workers

Nguyễ Trí Dũng MSc Why Some Organizations Fail  Too much emphasis on short-term financial performance  Failing to take advantage of strengths and opportunities  Neglecting operations strategy  Failing to recognize competitive threats

Nguyễ Trí Dũng MSc Why Some Organizations Fail  Too much emphasis in product and service design and not enough on improvement  Neglecting investments in capital and human resources  Failing to establish good internal communications  Failing to consider customer wants and needs

Nguyễ Trí Dũng MSc Mission/Strategy/Tactics How does mission, strategies and tactics relate to decision making and distinctive competencies? StrategyTacticsMission

Nguyễ Trí Dũng MSc Strategy  Mission  The reason for existence for an organization  Mission Statement  States the purpose of an organization  Goals  Provide detail and scope of mission  Strategies  Plans for achieving organizational goals  Tactics  The methods and actions taken to accomplish strategies

Nguyễ Trí Dũng MSc Planning and Decision Making Mission Goals Organizational Strategies Functional Goals Finance Strategies Marketing Strategies Operations Strategies Tactics Operating procedures

Nguyễ Trí Dũng MSc Strategy Example Rita is a high school student. She would like to have a career in business, have a good job, and earn enough income to live comfortably Mission: Live a good life  Goal: Successful career, good income  Strategy: Obtain a college education  Tactics: Select a college and a major  Operations: Register, buy books, take courses, study, graduate, get job Example 1

Nguyễ Trí Dũng MSc Examples of Strategies  Low cost  Scale-based strategies  Specialization  Flexible operations  High quality  Service

Nguyễ Trí Dũng MSc Strategy and Tactics  Distinctive Competencies The special attributes or abilities that give an organization a competitive edge.  Strategy Factors  Price  Quality  Time  Flexibility  Service  Location

Nguyễ Trí Dũng MSc Banks, ATMsConvenienceLocation Disneyland Nordstroms Superior customer serviceService Burger King Supermarkets Variety VolumeFlexibility Express Mail, Fedex, One-hour photo, UPS Rapid delivery On-time delivery Time Sony TV Lexus, Cadillac Pepsi, Kodak, Motorola High-performance design or high quality Consistent qualityQuality U.S. first-class postage Motel-6, Red Roof Inns Low CostPrice Examples of Operations Strategies Table 2.2

Nguyễ Trí Dũng MSc Global Strategy  Strategic decisions must be made with respect to globalization  What works in one country may not work in another  Strategies must be changed to account for these differences  Other issues  Political, social, cultural, and economic differences

Nguyễ Trí Dũng MSc Strategy Formulation  Distinctive competencies  Environmental scanning  SWOT  Order qualifiers  Order winners

Nguyễ Trí Dũng MSc Strategy Formulation  Order qualifiers  Characteristics that customers perceive as minimum standards of acceptability to be considered as a potential purchase  Order winners  Characteristics of an organization’s goods or services that cause it to be perceived as better than the competition

Nguyễ Trí Dũng MSc  Economic conditions  Political conditions  Legal environment  Technology  Competition  Markets Key External Factors

Nguyễ Trí Dũng MSc  Human Resources  Facilities and equipment  Financial resources  Customers  Products and services  Technology  Suppliers Key Internal Factors

Nguyễ Trí Dũng MSc Operations Strategy  Operations strategy – The approach, consistent with organization strategy, that is used to guide the operations function.

Nguyễ Trí Dũng MSc Strategic OM Decisions Decision AreaAffects Product and service designCosts, quality liability and environmental CapacityCost structure, flexibility Process selection and layoutCosts, flexibility, skill level, capacity Work designQuality of work life, employee safety, productivity LocationCosts, visibility QualityAbility to meet or exceed customer expectations InventoryCosts, shortages MaintenanceCosts, equipment reliability, productivity SchedulingFlexibility, efficiency Supply chainsCosts, quality, agility, shortages, vendor relations ProjectsCosts, new products, services, or operating systems Table 2.4

Nguyễ Trí Dũng MSc Quality and Time Strategies  Quality-based strategies  Focuses on maintaining or improving the quality of an organization’s products or services  Quality at the source  Time-based strategies  Focuses on reduction of time needed to accomplish tasks

Nguyễ Trí Dũng MSc 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

Nguyễ Trí Dũng MSc Productivity  Partial measures  output/(single input)  Multi-factor measures  output/(multiple inputs)  Total measure  output/(total inputs) Productivity= Outputs Inputs

Nguyễ Trí Dũng MSc Productivity Growth Current Period Productivity – Previous Period Productivity Previous Period Productivity Productivity Growth =

Nguyễ Trí Dũng MSc Measures of Productivity Table 2.4 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

Nguyễ Trí Dũng MSc Units of output per kilowatt-hour Dollar value of output per kilowatt-hour Energy Productivity Units of output per dollar input Dollar value of output per dollar input Capital Productivity Units of output per machine hour machine hour Machine Productivity Units of output per labor hour Units of output per shift Value-added per labor hour Labor Productivity Examples of Partial Productivity Measures Table 2.5

Nguyễ Trí Dũng MSc Example Units Produced Cost of labor of $1,000 Cost of materials: $520 Cost of overhead: $2000 What is the multifactor productivity? Ans. 2.0 units per dollar of input

Nguyễ Trí Dũng MSc Example 3 Solution MFP =Output Labor + Materials + Overhead MFP =(7040 units) $ $520 + $2000 MFP =2.0 units per dollar of input

Nguyễ Trí Dũng MSc Factors Affecting Productivity CapitalQuality TechnologyManagement

Nguyễ Trí Dũng MSc  Standardization  Quality  Use of Internet  Computer viruses  Searching for lost or misplaced items  Scrap rates  New workers Other Factors Affecting Productivity