1 - 1© 2014 Pearson Education, Inc. Operations and Productivity PowerPoint presentation to accompany Heizer and Render Operations Management, Eleventh Edition Principles of Operations Management, Ninth Edition PowerPoint slides by Jeff Heyl 1 © 2014 Pearson Education, Inc.

1 - 2© 2014 Pearson Education, Inc. Outline ▶ What Is Operations Management? ▶ Organizing to Produce Goods and Services ▶ The Supply Chain ▶ Why Study OM? ▶ What Operations Managers Do ▶ Productivity Measurement

1 - 3© 2014 Pearson Education, Inc. ▶ Operations: is the process of transforming inputs into outputs. What is Operations?

1 - 4© 2014 Pearson Education, Inc. ▶ Example: the healthcare process in a hospital can be considered as an operations system. Doctors, nurse Hospital Medical suppliers Equipment Laboratories Healthy patients Examination Surgery Monitoring Medication Therapy Monitoring / Control Input Transformation Process (Activity) Output What is Operations?

1 - 5© 2014 Pearson Education, Inc. ▶ Example: the food processing in a company is considered as an operations system. Raw vegetables Water Labor Energy Building/Equipment Canned vegetables Cleaning Cutting Cooking Packing Making cans Monitoring / Control Input Transformation Process (Activity) Output What is Operations?

1 - 6© 2014 Pearson Education, Inc. What Is Operations Management? Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs

1 - 7© 2014 Pearson Education, Inc. Ten Strategic Decisions TABLE 1.2 DECISIONCHAPTER(S) 1. Design of goods and services5, Supplement 5 2. Managing quality6, Supplement 6 3. Process and capacity design7, Supplement 7 4. Location strategy8 5. Layout strategy9 6. Human resources and job design10 7. Supply-chain management11, Supplement Inventory management12, 14, Scheduling13, Maintenance17

1 - 8© 2014 Pearson Education, Inc. ▶ What is Operations Management? ▶ Operations managers determine what type of process is best suited to fulfill our customers needs. ▶ Operations managers needs to have knowledge of the facts and how to interpret information ▶ By measurement, operations managers can decide if their process is the most efficient for their product or service Video

1 - 9© 2014 Pearson Education, Inc. Organizing to Produce Goods and Services ▶ Essential functions: 1.Marketing – generates demand 2.Production/operations – creates the product 3.Finance/accounting – tracks how well the organization is doing, pays bills, collects the money

1 - 10© 2014 Pearson Education, Inc. Organizational Charts Figure 1.1

1 - 11© 2014 Pearson Education, Inc. Organizational Charts Figure 1.1

1 - 12© 2014 Pearson Education, Inc. ▶ Supply Chain (SC): the global network of organizations and activities involved in designing, transforming, consuming and disposing of goods and services. Supplier } Mfg.Dist.RetailerCustomer The Supply Chain FarmerSyrupBottlerDistributorRetailer producer

1 - 13© 2014 Pearson Education, Inc. ▶ Supply Chain Management (SCM): is management of the processes and relationships in a supply chain ▶ Members of the supply chain collaborate to achieve high levels of customer satisfaction, efficiency and competitive advantage The Supply Chain

1 - 14© 2014 Pearson Education, Inc. Why Study OM? 1.OM is one of three major functions of any organization, we want to study how people organize themselves for productive enterprise 2.We want (and need) to know how goods and services are produced 3.We want to understand what operations managers do 4.OM is such a costly part of an organization

1 - 15© 2014 Pearson Education, Inc. What Operations Managers Do Basic Management Functions ▶ Planning ▶ Organizing ▶ Staffing ▶ Leading ▶ Controlling

1 - 16© 2014 Pearson Education, Inc. ▶ Technology/methods ▶ Facilities/space utilization ▶ Strategic issues ▶ Response time ▶ People/team development ▶ Customer service ▶ Quality ▶ Cost reduction ▶ Inventory reduction ▶ Productivity improvement What Operations Managers Do

1 - 17© 2014 Pearson Education, Inc.

1 - 18© 2014 Pearson Education, Inc. Certifications ▶ APICS, the Association for Operations Management ▶ American Society for Quality (ASQ) ▶ Institute for Supply Management (ISM) ▶ Project Management Institute (PMI) ▶ Council of Supply Chain Management Professionals ▶ Charter Institute of Purchasing and Supply (CIPS)

1 - 19© 2014 Pearson Education, Inc. Operations for Goods and Services ▶ Manufacturers produce tangible product, services often intangible ▶ Operations activities often very similar ▶ Distinction not always clear ▶ Few pure services

1 - 20© 2014 Pearson Education, Inc. Differences Between Goods and Services TABLE 1.3 CHARACTERISTICS OF SERVICESCHARACTERISTICS OF GOODS Intangible: Ride in an airline seatTangible: The seat itself Produced and consumed simultaneously: Beauty salon produces a haircut that is consumed as it is produced Product can usually be kept in inventory (beauty care products) Unique: Your investments and medical care are uniqueSimilar products produced (iPods) High customer interaction: Often what the customer is paying for (consulting, education) Limited customer involvement in production Inconsistent product definition: Auto Insurance changes with age and type of car Product standardized (iPhone) Often knowledge based: Legal, education, and medical services are hard to automate Standard tangible product tends to make automation feasible Services dispersed: Service may occur at retail store, local office, house call, or via internet. Product typically produced at a fixed facility Quality may be hard to evaluate: Consulting, education, and medical services Many aspects of quality for tangible products are easy to evaluate (strength of a bolt) Reselling is unusual: Musical concert or medical careProduct often has some residual value

1 - 21© 2014 Pearson Education, Inc. Productivity Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital) The objective is to improve productivity! Productivity= Outputs Inputs

1 - 22© 2014 Pearson Education, Inc. Improving Productivity at Starbucks A team of 10 analysts continually look for ways to shave time. Some improvements: Stop requiring signatures on credit card purchases under $25 Saved 8 seconds per transaction Change the size of the ice scoop Saved 14 seconds per drink New espresso machinesSaved 12 seconds per shot

1 - 23© 2014 Pearson Education, Inc. Improving Productivity at Starbucks A team of 10 analysts continually look for ways to shave time. Some improvements: Stop requiring signatures on credit card purchases under $25 Saved 8 seconds per transaction Change the size of the ice scoop Saved 14 seconds per drink New espresso machinesSaved 12 seconds per shot Operations improvements have helped Starbucks increase yearly revenue per outlet by $250,000 to $1,000,000 in seven years. Productivity has improved by 27%, or about 4.5% per year.

1 - 24© 2014 Pearson Education, Inc. Productivity Single-factor Output Output Output Output productivity Labor Material Capital Energy Multifactor Output Output productivity Labor + Material Labor + Capital + Energy (total factor Productivity)

1 - 25© 2014 Pearson Education, Inc. Productivity Example 1.1: 4 workers installed 720 square yards of carpeting in 8 hours, What is the labor productivity in square yards per hour? Productivity =Yards of carpet installed Labor-hours worked Productivity =720 square yards 4 workers * 8 hours/worker =720 square yards 32 hours =22.50 yards/hour

1 - 26© 2014 Pearson Education, Inc. Productivity Example 1.2: A machine produced 68 usable pieces in two hours, What is the single-factor productivity of machine in pieces per hour? =34 pieces/hour Productivity =Usable pieces production time Productivity =68 pieces 2 hours

1 - 27© 2014 Pearson Education, Inc. Productivity Example 1.3: 7040 units produced, sold for $1.10/unit Cost of labor: $1,000 Cost of materials: $520 Overhead: $2000 What is the multifactor productivity in dollars per dollar? MFP =2.20 dollar/dollar MFP =Price of all units Labor + Materials + Overhead MFP =(7040 units)*($1.10/unit) $ $520 + $2000

1 - 28© 2014 Pearson Education, Inc. Productivity ▶ Productivity increase rate is more appropriate than productivity itself as an index of an organization’s operation efficiency over time. Productivity Increase Rate = New Productivity – Old Productivity Old Productivity

1 - 29© 2014 Pearson Education, Inc. Productivity Example 1.4: Collins Title Insurance Ltd. wants to evaluate its labor and multifactor productivity with a new 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 per day. The new 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.

8 titles/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day 32 labor-hrs = Old labor productivity = New labor productivity =.25 titles/labor-hr 14 titles/day 32 labor-hrs Staff of 4 works 8 hrs/dayPayroll cost = $640/day =.4375 titles/labor-hr = Productivity Increase Rate – =.75 75% increase in labor Productivity

8 titles/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: Staff of 4 works 8 hrs/dayPayroll cost = $640/day = Productivity Increase Rate – =.26 26% increase in multi-factor Productivity 8 titles/day $ titles/day $ = Old multifactor productivity = New multifactor productivity =.0077 titles/dollar =.0097 titles/dollar

1 - 32© 2014 Pearson Education, Inc. EX in Class A company has introduced a process improvement that reduces processing time for each unit, so that output is increased by 25% with less material, but one additional worker required. Under the old process, five workers could produce 60 units per hour. Labor rate is $12/hour, and material input was previously $16/unit. For the new process, material is now $10/unit. Overhead is charged at 1.6 times direct labor cost. Finished units sell for $31 each. What is the productivity growth rate associated with the process improvement?