FUNDAMENTALS OF OPERATIONS MANAGEMENT Roy D. Shapiro, Core Reading: Process Analysis, HBP No. 8007 (Boston: Harvard Business School Publishing, 2013).

OUTLINE What is Operations Management? Managing Operations (design, operating, improvement) Process, Elements of Process Process Analysis Performance Measures to Analyze Processes Key Issues in Operations Management Roy D. Shapiro, Core Reading: Process Analysis, HBP No. 8007 (Boston: Harvard Business School Publishing, 2013).

What Is Operations Management? Management of all OPERATIONS which transform inputs such as raw material and labor into outputs in the form of finished goods and services. Fundamentals of Operations Management 4e

Examples of Production Systems (Systems consist of a set of interacting components operating together to achieve a common goal) Production as a system Whole is worth more than the sum of its parts. 6 Introduction 6

Examples of Transformation are: The Economic System Inputs Labor, capital, management Transformation (Process) Examples of Transformation are: Storage Transportation Machining Outputs Goods and services Feedback loop Figure 1.6

Elements of a Process Inputs: labor, material, energy and capital, Outputs: Goods or services (cost, quality, timeliness) Transformation: The essence of operations function is to add value during the transformation process. Value is the difference between the cost of intputs and the value or price of outputs. Typical value-added operations are: manufacturing, transportation, retailing. Many studies have shown that we only add value to a product for less than 5% of the time, the rest of the time is wasted Roy D. Shapiro, Core Reading: Process Analysis, HBP No. 8007 (Boston: Harvard Business School Publishing, 2013).

The Material Flow Cycle Cycle time 95% 5% Input Wait for Wait to Move Wait in queue Setup Run Output inspection be moved time for operator time time © 2011 Pearson Education, Inc. publishing as Prentice Hall

Differences Between Goods and Services Tangible Can be inventoried No interaction between customer and process Production can be automated easily Services Intangible Cannot be inventoried Direct interaction between customer and process Knowledge intensive, not easy to automate Exhibit 1.7 1-6 Fundamentals of Operations Management 4e

Basic Business Functions Essential functions: Marketing – generates demand Production/operations – creates the product Finance/accounting – tracks how well the organization is doing, pays bills, collects the money Human Resources – provides labor, employs, assigns and gives training.

Role of OM within an Organization Exhibit 1.1 Fundamentals of Operations Management 4e

Top-down Approach to OM Strategy Operations Strategy Decisions Strategic (long-range) Facility Location, Long-Range Capacity Planning Tactical (medium-range) Facility Layout, Acquisition of resources Operational planning and control (short-range) Scheduling work-force and machinery Fundamentals of Operations Management 4e

Why Study OM? OM is one of four major functions of any organization, we want to study how people organize themselves for productive enterprise We want (and need) to know how goods and services are produced We want to understand how operations managers can analyze the processes and improve their performance OM is such a costly part of an organization that it offers lots of strategies for for performance improvement.

NEW TRENDS AND ISSUES IN OM Increased Global Competition Increased emphasis on logistics Advances in Information Technology Mass Customization Lean manufacturing, Agility Automated Manufacturing Technologies Environmentally Sensitive Production and Ethical Behavior Fundamentals of Operations Management 4e

GLOBALIZATION CAN TAKE PLACE BY Selling in foreign markets Producing in foreign lands Purchasing from foreign suppliers Partnering with foreign firms Roy D. Shapiro, Core Reading: Process Analysis, HBP No. 8007 (Boston: Harvard Business School Publishing, 2013).

Some Multinational Companies Roy D. Shapiro, Core Reading: Process Analysis, HBP No. 8007 (Boston: Harvard Business School Publishing, 2013).

Differentiation – better, or at least different Strategies to gain Competitive Advantage in this ever changing business environment Differentiation – better, or at least different Cost leadership – cheaper Response – more responsive

Ten Critical Decisions Made by Operations Managers to operate these systems 1. Design of goods and services 2. Quality Management 3. Process Design and Capacity Planning 4. Location strategy 5. Layout strategy 6. Human resources and job design 7. Supply-chain management 8. Inventory management 9. Production Planning and Scheduling 10. Maintenance

WHY & HOW TO STUDY AN INDUSTRIAL SYSTEM Measure/estimate performance, Improve operation Prepare for failures System Experiment with the actual system Experiment with a physical model of the system Experiment with a Model of the system Mathematical Models Simulation

MATHEMATICAL MODEL Model is an abstract and simplified representation of a system, when developing models, Make sure to include: Important components of the system AND Make sure to state: Assumptions/approximations about how the system works

Model Classifications Linear vs. nonlinear Static vs. dynamic Deterministic vs. probabilistic (stochastic) Prescriptive vs. descriptive Discrete vs. continuous Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

The Management Science Process to Study a System Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

Managing Operations Require three general categories of decisons: Design Choices (Choice of process, technology, equipment, layout, capacity) Operating Decisions (scheduling, setting batch size, inventory management) Improvement Decisions (improving productivity, quality, cost, delivery performance) Note that, variability and uncertainity in the inputs, in the transformation process and in the outputs increase the complexity of managing an operation. Roy D. Shapiro, Core Reading: Process Analysis, HBP No. 8007 (Boston: Harvard Business School Publishing, 2013).

Productivity: Definition Productivity is the relationship between the outputs generated from a system and the inputs that are used to create those outputs. Mathematically:

Systems Concept inputs outputs Customers transformations Land Goods people capital facilities equipment tools energy materials information Goods and services SYSTEM O I productivity

Productivity Improvement Productivity Improvement (PI) is the result of managing and intervening in transformation or work processes. PI will occur if:

productivity, efficiency, and effectiveness. Many people confuse. . . The concepts of productivity, efficiency, and effectiveness.

Efficiency Measures the resources expected to be consumed as compared to the resources actually consumed. Hence, it focuses on the input side of the system. (Doing the things right)

Effectiveness Measures what the system sets out to accomplish (objective) with what was actually accomplished; plan vs. actual Hence, effectiveness is an output measure. (Is the output “right” - right quality, right quantity, on time, etc.) Shortly, effectiveness means doing the right thing.

Productivity and Efficiency Productivity-- a broader concept than efficiency; It refers to effective use of a given set of resources Roy D. Shapiro, Core Reading: Process Analysis, HBP No. 8007 (Boston: Harvard Business School Publishing, 2013).

What are the factors that affect productivity? Training Methods Technology Management

How can productivity be raised? Training can improve the knowledge and skills of staff. Improved recruitment and selection may have the same effect. Investment in equipment and new technology may enable output per worker to increase. Better employee motivation can be the most powerful factor of all. Gaining engagement and loyalty of staff can  bring major gains in output and quality. Roy D. Shapiro, Core Reading: Process Analysis, HBP No. 8007 (Boston: Harvard Business School Publishing, 2013).

Single and Multi-Factor Productivity Single-factor Output Output Output Output measures Labor Machine Capital Energy All-factors Output measure All inputs

Single Factor Productivity Single-factor Output Output Output Output measures Labor Machine Capital Energy If only one product is produced, the numerator can be either the total units of the product or the total $ value of the product. If several products are produced, the numerator is the total $ value of all products. The denominator can be the units of input or the total $ value of input.

Example: Single Factor Productivity 10,000 Units Produced Sold for $10/unit 500 labor hours Labor rate: $9/hr What is the labor productivity?

Example: Labor Productivity 10,000 units / 500hrs = 20 units/hr (10,000 units * $10/unit) / 500hrs = $200/hr 10,000 units / (500hrs * $9/hr) = 2.2 unit/$ (10,000 units * $10/unit) / (500hrs * $9/hr) = 22.22 The last one is unit-less

Example: Multi-Factor Productivity 10,000 Units Produced Sold for $10/unit 500 labor hours Labor rate: $9/hr Cost of raw material: $30,000 Overhead: $15,500

Example : Multi-Factor Productivity Output Labor + Materials + Overhead MFP = (10,000 units) * ($10) (500)*($9) + ($30,000) + ($15,500) MFP = MFP = $2.0/1$

Roy D. Shapiro, Core Reading: Process Analysis, HBP No Roy D. Shapiro, Core Reading: Process Analysis, HBP No. 8007 (Boston: Harvard Business School Publishing, 2013).

Roy D. Shapiro, Core Reading: Process Analysis, HBP No Roy D. Shapiro, Core Reading: Process Analysis, HBP No. 8007 (Boston: Harvard Business School Publishing, 2013).

Roy D. Shapiro, Core Reading: Process Analysis, HBP No Roy D. Shapiro, Core Reading: Process Analysis, HBP No. 8007 (Boston: Harvard Business School Publishing, 2013).

Roy D. Shapiro, Core Reading: Process Analysis, HBP No Roy D. Shapiro, Core Reading: Process Analysis, HBP No. 8007 (Boston: Harvard Business School Publishing, 2013).