OPERATIONS MANAGEMENT OPERATIONS AND PRODUCTIVITY BARRY PUALENGCO KAREN TRINIDAD BARRY PUALENGCO KAREN TRINIDAD

Contents 1 Introduction to Operation Management 2 Productivity 3 Examples 3 Challenges 4

WHAT IS INSIDE A BUSINESS?

Production/Operation WE CREATE VALUE Production/Operation Finance/Accounting Marketing Facilities Construction Facilities Maintenance Production and inventory control Scheduling, material controls Quality Assurance and control Supply-chain management Manufacturing tooling fabrication; Assembly; Design products, product development Detailed product specification Industrial engineering, efficient use of machine, space, personnel. Disbursement/credits, Accounts receivable, payable, General ledger Fund management, money market, International exchange Capital requirements, Stock issue, Bond issue and recall Finance, cash control Investment Sale promotion Advertising Market research Sales

What are these activities? Production/Operation creation of goods and services Finance/ Accounting tracks how well the organization is doing, paying bills, and collecting money. Marketing generates the demand, or at least takes the order for a product or service.

Definition VALUE ADDED The difference between the cost of inputs and the value or price of outputs.

VALUE ADDED VALUE ADDED INPUTS Land Labor Capital TRANSFORMATION/ CONVERSION PROCESS OUTPUTS Goods Services FEEDBACK CONTROL FEEDBACK FEEDBACK

Definition Operation Management is the set of activities that creates value in the form of goods and services by transforming inputs into outputs

EXAMPLES INPUT-PROCESS-OUTPUT 1. INPUT 2. PROCESS 3. OUTPUT

FOOD PROCESSOR INPUTS PROCESSING OUTPUTS Cleaning Canned vegetables Raw Vegetables Cleaning Canned vegetables Metal Sheets Making cans Water Cutting Energy Cooking Labor Packing Building Labeling Equipment

HOSPITAL PROCESS INPUTS PROCESSING OUTPUTS Doctors Examination Raw Vegetables Doctors Examination Healthy patients Nurses Surgery Hospital Monitoring Medical Supplies Medication Equipment Therapy Laboratories

Difference between Goods and Services Can be resold Can be inventoried Some aspect of quality are measurable Selling is distinct from production Product is transportable Site of facility is important for cost Easy to automate Revenue generated from tangible product Reselling is unusual Cannot be inventoried Many aspect are difficult to measure Selling is often part of the services Provider is transportable Site of facility is important for customer contact Difficult to automate Revenue generated from intangible services GOODS SERVICES Difference between Goods and Services

Manufacturing or Service? Tangible Act

Goods-service Continuum Steel production Automobile fabrication Home remodeling Retail sales Auto Repair Appliance repair Maid Service Manual car wash Teaching Lawn mowing High percentage goods Low percentage service Low percentage goods High percentage service

Manufacturing vs Service Characteristics MANUFACTURING SERVICE Output Intangible Tangible Customer contact High Low Uniformity of input Low High Labor content Low High Uniformity of output High Low Measurement of productivity Easy Difficult Opportunity to correct quality problems High Low

MANUFACTURING VS. SERVICE US EMPLOYMENT MANUFACTURING VS. SERVICE

Lets Try This! Fisher Technologies is a small firm that double its dollar contribution to a fixed cost and profit in order to be profitable enough to purchase the next generation of production equipment.

Lets Try This! Management has determined that if the firm fails to increase contribution, its bank will not make the loan and the equipment cannot be purchased. It the firm cannot purchase the equipment,

Lets Try This! the limitations of the old equipment will force Fisher to go out of business and, in doing so, puts its employees out of work and discontinue producing goods and services for its customers.

Fisher Technologies Sales $100,000.00 Cost of Goods -80,000.00 Gross Margin 20,000.00 Finance costs -6,000.00 Subtotal 14,000.00 Taxes at 25% -3,500.00 Contribution $10,500 Option No. 1: (Marketing Option) Good marketing management may increase sales by 50% Option No. 2: (Finance/Accounting Option) Good financial management cut in half the finance costs. Option No. 3: (OM Option) Reduce production cost by 20%

Details Current Option 1 Option 2 Option 3 Sales $100,000.00 $150,000.00 Cost of Goods -80,000.00 -120,000.00 -64,000.00 Gross Margin 20,000.00 30,000.00 36,000.00 Finance costs -6,000.00 -3,000.00 Subtotal 14,000.00 24,000.00 17,000.00 Taxes at 25% -3,500.00 -4,250.00 -7,500.00 Contribution $10,500.00 $18,000.00 $12,750.00 $22,500.00

Productivity Challenge: Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital) Productivity = Goods and Services Labor and Capital Output Input = Objective: to improve productivity!

Efficiency Definition Doing job well- minimum resources/waste Effective doing the right thing.

How do we increase Productivity? 1. Reduce inputs, constant outputs 2. Increase outputs, constant inputs 3. Resulting to High ROI, lower prices. 4. High ROI, constant productivity = higher prices

Productivity Measurement indicates the ratio of one resource (input) to the goods and services produced (outputs) Single-factor productivity indicates the ratio of many or all resources (inputs) to the goods and services produced (outputs) Multifactor productivity

Example Collins Title wants to evaluate its labor and multifactor productivity with a new computerized 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. Use Single-factor productivity. Use multifactor productivity.

Productivity Variables Management which contributes about 52% of the annual increase. Capital contributes about 38% of the annual increase Labor contributes about 10% of the annual increase

CHALLENGES

What is the area of this rectangle? 6 yds 4 yds What is the area of this rectangle? 4 square yds 6 square yds 10 square yds 20 square yds 24 square yds

If 9Y + 3 = 6y + 15, then Y = 1 c. 4 2 d. 6

It is greater than 100 It is less than 100 Its is equal to 100 Which of the following is true about 84% of 100? It is greater than 100 It is less than 100 Its is equal to 100

Lets Try This. At Modern Lumber, Inc., Art Binley, president and producer of apple crates sold to growers, has been able, with his current equipment, to produce 240 crates per 100 logs. He currently purchases 100 logs per day, and each log requires 3 labor-hours to process. He believes that he can hire a professional buyer who can buy a better-quality log at the same cost. If this is the case, he can increase his production to 260 crates per 100 logs. His laobr-hours will increase by 8 hours per day. What will be the impact on productivity (measured in crates per labor-hour) if the buyer is hired?

Problem 2 Art Binley has decided to look at his productivity from a multifactor (total factor productivity) perspective (refer to Solved Problem 1.1). To do so, he has determined his labor, capital, energy, and material usage and decided to use dollars as the common denominator. His total labor-hours are now 300 per day and will increase to 308 per day. His capital and energy costs will remain constant at $350 and $150 per day, respectively. Material costs for the 100 logs per day are $1,000 and will remain the same. Because he pays an average of $10 per hour (with fringes), Binley determines his productivity increase as follows:

Solution Current System System with Professional Buyer Labor: 300hrs. @ $10 = $3,000 308 hrs @ $10 = $3,080 Material: 100 logs/day 1,000 1,000 Capital: 350 350 Energy: 150 150 Total Cost: $4,500 $4,580 Multifactor productivity of current system: = 240 crates/4,500 = .0533 crates/dollar Multifactor productivity of proposed system: = 260 crates/4580 = .0568 crates/dollar

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