1 L1: Manufacturing and Service Systems Management ISE 360 Engineering Economics Mahmut Ali GÖKÇE Industrial Systems Engineering Computer Sciences

Today Course Description Requirements, Topics Rules of the Course Lecture on Service and Manufacturing Systems

Course Description Management of Manufacturing and Service Systems.  Management in “Engineering” sense.  Learn what types of manufacturing and service systems exist.  Learn the importance of and difficulties in managing these systems  Learn methods and tools to manage  Exercise these methods.

Course Requirements and Rules Course will require  Analytical thinking  Mathematical modeling  Basic Calculus and Probability Theory  Reading Course Rules  Regular Attendance, Participation  Midterm 30%, Final 40%, HW/Quiz 20%, Part./Attendance 10%  Syllabus available at

Your Background and e-Service Interests What is your interest in this topic? Why? Which topics specifically interest you? Information Technology background Service management and/or manufacturing systems experience? Have you previously taken a service operations or service marketing class? E-Service experiences?

6 Definitions

Operations Finance Marketing Functional Areas of the Firm

Production is the creation of goods and services The set of activities that creates value in the form of goods and services by transforming inputs into outputs is called Operations management (OM)

Managing mfg./service systems = managing operations involved. All organizations have operations function. What are operations you see or get involved as customers? You might wake up with radio, wash your face, take public transportation, depend on banking to get money from parents…etc. etc. Operations differ in volume, variety, variation in demand and visibility

Organizational Charts Operations Teller Scheduling Check Clearing Collection Transaction processing Facilities design/layout Vault operations Maintenance Security Finance Investments Security Real estate Accounting Auditing Marketing Loans Commercial Industrial Financial Personal Mortgage Trust Department Commercial Bank Figure 1.1(A)

Organizational Charts Operations Ground support equipment Maintenance Ground Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications Dispatching Management science Finance/ accounting Accounting Payables Receivables General Ledger Finance Cash control International exchange Airline Figure 1.1(B) Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising

Marketing Sales promotion Advertising Sales Market research Organizational Charts Operations Facilities Construction; maintenance Production and inventory control Scheduling; materials control Quality assurance and control Supply-chain management Manufacturing Tooling; fabrication; assembly Design Product development and design Detailed product specifications Industrial engineering Efficient use of machines, space, and personnel Process analysis Development and installation of production tools and equipment Finance/ accounting Disbursements/ credits Receivables Payables General ledger Funds Management Money market International exchange Capital requirements Stock issue Bond issue and recall Manufacturing Figure 1.1(C)

Options for Increasing Contribution Sales$100,000$150,000$100,000$100,000 Cost of Goods – 80,000– 120,000– 80,000– 64,000 Gross Margin20,00030,00020,00036,000 Finance Costs– 6,000 – 6,000– 3,000– 6,000 Subtotal14,00024,00017,00030,000 Taxes at 25%– 3,500– 6,000– 4,250– 7,500 Contribution$ 10,500$ 18,000$ 12,750$ 22,500 Finance/ MarketingAccountingOM OptionOptionOption IncreaseReduceReduce SalesFinanceProduction CurrentRevenue 50%Costs 50%Costs 20%

Critical Decisions Decision Areas  Service and product design  Process and capacity design  Location  Layout design  Human resources, job design  Supply-chain management  Inventory management  Scheduling  Maintenance

Significant Events in OM Figure 1.3

Challenges in Mfg/Service Sys. Mgt  Global focus  Just-in-time  Supply chain partnering  Rapid product development, alliances  Mass customization  Empowered employees, teamsTo From  Local or national focus  Batch shipments  Low bid purchasing  Lengthy product development  Standard products  Job specialization

Characteristics of Goods  Tangible product  Consistent product definition  Production usually separate from consumption  Can be inventoried  Low customer interaction

Characteristics of Service  Intangible product  Produced and consumed at same time  Often unique  High customer interaction  Inconsistent product definition  Often knowledge-based  Frequently dispersed

Service The Service Economy  Early 1900s … 30% of U.S. economy produced services  Today (in the USA) … > 80% of economy produces services  Rate in Turkey is lower but increasing.  But is a dominantly service economy desirable?  Can there be service w/o manufacturing?

Service Categories of Service  Business services: consulting, finance, banking, insurance, real estate (FIRE)  Trade services: retailing, maintenance, repair  Social/personal services: restaurants, health care  Public administration: education, government  Infrastructure services: communications, transportation How to categorize e-Service?

Definitions: Service What is “service”?  Difficult to define … often, one observes circular definitions of what service is  General characteristics of services Services are deeds, processes, and performances Service is an experience Service is an activity that takes place between a customer and a service employee/system Service is co-produced by the consumer Service is intangible, goods are tangible Services are consumed at the same time as they are produced Goods exist over time, services perish if not consumed

Definitions: Service Service Components  Service package/Service product That which is “offered” or of value in the experience A bundle of goods and services that is provided in some environment Consists of goods, services, and information  Service process The way the service experience is created  Service supply chain Supports/facilitates the process

Definitions Service Service package consists of four features  Supporting facility physical resources; where the service is delivered  Facilitating goods some “thing” consumed or used during the service experience that contributed to the experience  Explicit services readily observable benefits of the service  Implicit services psychological benefits of the service, less easy to sense

Definitions What is e-Service? Given the previous definitions of a service  would an e-Service be characterized as a service?  would we have to modify those definitions?

Definitions What is e-Service? An e-Service is …  [1] a service package of goods, offline services, and digital content  [2] involves some agent ( Consumer, Business, Government) who consumes the service  [3] the consumer of service (“agent”) interacts with an IT technology delivery system to co-produce service  [4] digital content is a core attribute of service-product

Definitions Examples of e-Service  Digital watch  Vacuum with embedded intelligence  an intelligent good  Vending machine  Barcode scanner data put into internal database about supply chain information for optimizing supply chain  Traditional B2C, B2B, etc.  Digital watch with GPS, atomic clock polling  Vacuum with embedded intelligence that dynamically adapts via communication with centralized server  Vending machine with i-Phone support for payment process  Supply chain “object” (barcode scanner) that communicates status to customer of supply chain via “service-product”  E-Commerce B2C, B2B, etc. Not an e-Servicee-Service

28 e-Service Types of e-Service

Types of e-Service x2y’s  B2C  B2B  C2B, C2G, C2C, B2G, G2C, G2B, G2G, B2E, P2P xSP’s  ASP: application service provider  BSP: business service provider  CSP:commerce service provider  CSP: content service provider  MSP: management service provider  SSP: security service provider

Productivity Challenge Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital) The objective is to improve this measure of efficiency Important Note! Production is a measure of output only and not a measure of efficiency

 Measure of process improvement  Represents output relative to input  Only through productivity increases can our standard of living improve Productivity Productivity = Units produced Input used

Productivity Calculations Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1, Labor Productivity

Multi-Factor ProductivityOutput Labor + Material + Energy + Capital + Miscellaneous Productivity =  Also known as total factor productivity  Output and inputs are often expressed in dollars

Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: = Old labor productivity 8 titles/day 32 labor-hrs

Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 8 titles/day 32 labor-hrs = Old labor productivity =.25 titles/labor-hr

Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/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

Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day 32 labor-hrs = Old labor productivity =.25 titles/labor-hr 14 titles/day 32 labor-hrs = New labor productivity =.4375 titles/labor-hr

Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: = Old multifactor productivity 8 titles/day $

Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day $ = Old multifactor productivity =.0077 titles/dollar

Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day $ = Old multifactor productivity = New multifactor productivity =.0077 titles/dollar 14 titles/day $

Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day $ titles/day $ = Old multifactor productivity = New multifactor productivity =.0077 titles/dollar =.0097 titles/dollar

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

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

Next Lecture on Forecasting Reading :  Ch 2 from Nahmias