1 Operations Management Operations and Productivity Chapter 1

2 Outline Global company profile: Whirlpool What is Operations Management?  The heritage of Operations Management  Why study OM?  What Operations Managers do Organizing to produce goods and services Where are the OM jobs?  Exciting new trends in Operations Management Operations in the service sector The Productivity challenge

3 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 Describe or Explain:  A brief history of operations management  The future of the discipline  Measuring productivity

4 Whirlpool Case Example Change in attitude - employees “live quality” Training - “use your heads as well as your hands” Flexible work rules Gain-sharing Global procurement Role of information/information technology Adoption of a Worldwide strategy

5 What Is Operations Management? Production is the creation of goods and services Let’s define goods and services with specific examples

6 Characteristics of Goods Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction e.g. :Pencil Production

7 Characteristics of Service Intangible product Produced & consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed e.g. :Taxi Service

8 Goods Versus Services Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service GoodsService Goods Service

9 Goods Versus Services - Continued Product is transportable Site of facility important for cost Often easy to automate Revenue generated primarily from tangible product Provider, not product is transportable Site of facility important for customer contact Often difficult to automate Revenue generated primarily from intangible service. GoodsService Goods Service

10 What Is Operations Management? Operations management There are two ways to define operations management (OM). by what it does. Put simply, operations management is the business function that manages that part of a business that transforms raw materials and human inputs into goods and services of higher value. ( Traditionally) A second way to define operations management is to do so in context of the overall activities of the firm. The second approach starts by recognizing that a business is really a set of processes, Each process has a job to do and each should be measured on how effective it is in achieving the desired outcomes. Most companies are engaged in four core business processes : Attract customers Design and develop products Factors of production and transformation into products of value, Providing business support services needed to effectively operate as a business.

11 Significant Events in OM Division of labor (Smith, 1776) Standardized parts (Whitney, 1800) Scientific management (Taylor, 1881) Coordinated assembly line (Ford 1913) Gantt charts (Gantt, 1916) Motion study (the Gilbreths, 1922) Quality control (Shewhart, 1924)

12 Significant Events - Continued CPM/PERT (Dupont, 1957) MRP (Orlicky, 1960) CAD Flexible manufacturing systems (FMS) Manufacturing automation protocol (MAP) Computer integrated manufacturing (CIM)

13 Why Study OM? OM is one of three major functions (marketing, finance, and operations) of any organization We want (and need) to know how goods and services are produced We want to know what operations managers do OM is such a costly part of an organization

14 What Operations Managers Do Plan (For effective planning seeks we should answer these questions)  What should the firm do?  When must the firm achieve these goals?  Who is responsible for doing it?  How should this be done?  How should performance be measured? Organize Staff Lead Control

15 Ten Critical Decisions Service, product design Quality management Process, capacity design Location Layout design Human resources, job design. Supply-chain management Inventory management Scheduling Maintenance

16 Organizational Functions Marketing  Gets customers Operations  creates product or service Finance/Accounting  Obtains funds  Tracks money

17 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

18 New Challenges in OM Local or national focus Batch shipments Low bid purchasing Lengthy product development Standard products Job specialization Global focus Just-in-time Supply chain partnering Rapid product development, alliances Mass customization Empowered employees, teams FromTo From To

Percent United States Canada France Italy Britain Japan W Germany Services Industry Farming % U.S. Employment, % ShareServices as a Percent of GDP U.S. Exports of Services In Billions of Dollars Year 2000 data is estimated Development of the Service Economy

20 The Economic System Transforms Inputs to Outputs The economic system transforms inputs to outputs at about an annual 1.7% increase in productivity (capital 38% of 1.7%), labor (10% of 1.7%), management (52% of 1.7%) Land, Labor, Capital, Management Goods and Services Feedback loop InputsProcessOutputs

21 Measure of process improvement Represents output relative to input Productivity increases improve standard of living From 1889 to 1973, U.S. productivity increased at a 2.5% annual rate Productivity ProductivityProductivity Units produced Input used ==

22 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

23 Productivity Variables Labor - contributes about 10% of the annual increase Capital - contributes about 32% of the annual increase Management - contributes about 52% of the annual increase

24 Jobs in the U.S

25 Productivity Growth Whole EconomyManufacturing % per yearLabor

26 Service Productivity Typically labor intensive Frequently individually processed Often an intellectual task performed by professionals Often difficult to mechanize Often difficult to evaluate for quality