1. Operations Management Operations and Productivity Chapter 1
At this point:
1. Introduce yourself - your students are likely to want to know something about your qualifications and interests - overall, where you are coming from.
2. Have students introduce themselves. Ask why they are taking this class. If you are fortunate enough to have a Polaroid camera, take pictures of each student for later posting on a class “board” so both they and you get to know each other.
3. Discuss both choice of textbook and development of syllabus.
4. If you are expecting students to work in teams, at east introduce the choice of team members. If at all possible, have students participate in a team building or team study exercise. It works wonders. Most student have been told to work in teams in prior classes, but have never examined exactly what a team is and how it works. One hour spent in a team building/examination exercise saves many hours and avoids many problems later on.

2. Outline Operations in the service sector The Productivity challenge
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
At this point, you may be most interested in getting the students to think. Ask questions such as:
- Why did Whirlpool go global.
- What did they do?
- Why did they not simply try to serve the global market from a single manufacturing center in the U.S.?
At this point, look more for answers that are thoughtful and show insight than answers that are strictly correct.
With this Whirlpool example, you might try to stress:
1. Achieving the desired change in outcome required a change in attitude throughout the whole organization
2. Management must “walk the talk,” e.g., lead by example
3. Success will not come without employee empowerment (changes in information technology create changes in the organizational power structure)
4. Successes need to be celebrated and all members of the organization need to have a share in the payoffs.

5. Whirlpool’s Management Team
Whirlpool Corporation’s management team believes in the company’s values-based strategy.
Teamwork: From the first to the last,
they take each step forward as a team.
Innovation is a key strategy of Whirlpool Corporation, and an essential part of the company's long-term growth. 

6. What Is Operations Management?
Production is the creation of goods and services
Operations management is the set of activities that creates goods and services by transforming inputs into outputs
Raw materials
Goods
Transformation process
Two additional points:
1. Any activity is an “operation”
2. No company produces only “goods” - service is a greater or lesser part of any product. (Discuss this in more detail later)
Human inputs
Services
INPUTS
OUTPUTS

7. Significant Events I Division of labor (Smith, 1776)
The origins of Operations Management can be traced back to the Industrial Revolution (in the late 18th and early 19th centuries )
Division of labor (Smith, 1776)
Standardized parts (Whitney, 1800)
Scientific management (Taylor, 1881)
Ada Smith treats the topic of the division of labor
Eli Whitney introduced concept of standard interchangeable parts in 1799
Gives you a chance to summarize some of the critical events in the evolution of OM.
He described how the application of the scientific method to the management of workers greatly could improve productivity

8. Significant Events II Coordinated assembly line (Ford 1913)
Gantt charts (Gantt, 1916)
Motion study (the Gilbreths, 1922)
Quality control (Shewhart, 1924)
Manufacturing process in which interchangeable parts are added to a product in a sequential manner to create a finished product faster than with handcrafting-type methods
Gantt designed his charts so that foremen or other supervisors could quickly know whether production was on schedule, ahead of schedule or behind schedule
From their various studies the Gilbreths developed, the laws of human motion from which evolved the principles of motion economy
Father of statistical quality control

9. Significant Events III
CPM / PERT (Dupont, 1957)
MRP (Orlicky, 1960)
CAD
Flexible manufacturing systems (FMS)
Manufacturing automation protocol (MAP)
Computer integrated manufacturing (CIM)
CPM: Critical Path Method, is used to determine what is the shortest time to carry out the project
PERT: Program (or Project) Evaluation and Review Technique, is a technique developed in the mid-50, used to program and control programmes to be carried out
Material Requirements Planning (MRP) is a software based production planning and inventory control system used to manage manufacturing processes.

10. 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
One might ask students to consider:
- marketing => deciding what is needed
- finance => securing resources
- operations => doing it!
What are the limitations of this perspective?

11. Why do I need OM in the future?
Many graduates are expected to rise to senior management levels
OM is the central core function of every company
Regardless of whether your area of expertise is, the techniques and concepts of OM will help you in your business career
Knowledge of OM will allow your future company to offer products and services cheaper, better, and faster.

12. What Operations Managers Do?
Plan: planning the schedule according to sales demand (defining priorities)
Organize: ensuring effective production of goods and services
Staff: motivating and monitoring
Lead: developing and cascading the organizations strategy
Control: creating and maintaining a positive flow of work
This is the typical breakdown one finds in many business courses. It may be helpful to the students if you discuss each of these elements in relationship to something you or they have done. Work on a group project, for example, can provide a useful vehicle for the discussion.

13. 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
The Critical Decisions - These decision areas form the structure of the text.
Quality management - Who is responsible for quality? - How do we define quality?
Service and product design - What product or service should we offer?
How should we design these products and services?
Process and capacity design - What processes will these products require and in what order?
What equipment and technology is necessary for these processes?
Location - Where should we put the facility
On what criteria should we base this location decision?
Layout design - How should we arrange the facility? - How large a facility is required?
Human resources and job design - How do we provide a reasonable work environment?
How much can we expect our employees to produce?
Supply chain management - Should we make or buy this item?
Who are our good suppliers and how many should we have?
Inventory, material requirements planning, JIT “just-in-time” inventory,
How much inventory of each item should we have?
When do we re-order?
Intermediate, short term, and project scheduling - Is subcontracting production a good idea?
Are we better off keeping people on the payroll during slowdowns?
Maintenance - Who is responsible for maintenance?

14. Organizational Functions
Marketing
Gets customers. It includes advertising, distribution and selling
Operations
Creates product or service
Is is the activity you carry out
Finance/Accounting
Obtains funds funds for business
Tracks money
Here is the point at which you can add to your discussion of the three business functions. In an effort to encourage student participation, you might allow students to lead the discussion as to the nature of each function, while you lead the discussion as to the relationship of the individual functions to the larger business.
Initiate a class discussion about how these functions expand as the firm grows and how new activities have become important (i.e., MIS and Human Resources)

15. Where are the OM Jobs?
As we said, OM is the central core function of every company, so there are a great variety of jobs in this field:
Technology/methods
Facilities/space utilization
Strategic issues
Response time
People/team development
Customer service
Quality
Cost reduction
Inventory reduction
Productivity improvement
Ask your students for input here. Look for positions that they or their parents have filled. You might also ask them (a) what positions they are seeking upon graduation; and (b) to “predict” how demand for workers in each of these areas is likely to change over time, and why. Finally, have them consider the skills required of the occupants of each position

16. New Challenges in OM Before After 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
Use this and the subsequent slide to get students thinking about some of the changes taking place in OM. Try to help them understand both the causes of the changes and the implications. In particular, have them consider the role of information and of information technology.

17. Characteristics of Goods
Tangible product
Consistent product definition
Production usually separate from consumption
Can be inventoried thereby giving system designers additional degrees of freedom
Low customer interaction
You might pick a company that produces a physical product that will be familiar to the students, ask students to identify the product, and discuss its characteristics. Once the students have identified the physical characteristics of the product, you can ask “What other characteristics does the company believe its product possesses?” This question will often raise the issue of “service.”
Companies which might it be helpful to consider include:
Xerox - an information management company (not just copiers)
McDonalds, Burger King, Wendys - either compare the viewpoints of the three companies, or contrast them to a gourmet restaurant
Volkswagen versus Volvo, Mercedes or Rolls Royce.

18. Characteristics of Goods

19. Characteristics of Service
Intangible product. No physical form
Produced & consumed at same time
Often unique
High customer interaction
Inconsistent product definition
Often knowledge-based. Labor intensive (well-trained humans)
Frequently dispersed
Here it is probably useful to look to the students to identify both company and product. You might use the approach of taking one characteristic at a time and asking the students to identify a service that has that characteristic:
Unique - wedding planning
High customer interaction - health care
Inconsistent definition - “consulting”
etc.

20. Characteristics of Service
Service transactions are repetitive. Service needs are continuous.
The arrival rate of service request is random.
Nature of service demand is heterogeneous. Customers have unique needs.
Cannot be inventoried. Cannot be stored.
Service quality is difficult to assess. Subjective.
Here it is probably useful to look to the students to identify both company and product. You might use the approach of taking one characteristic at a time and asking the students to identify a service that has that characteristic:
Unique - wedding planning
High customer interaction - health care
Inconsistent definition - “consulting”
etc.

21. Characteristics of Service
A service is defined as a transaction in which the customer largely perceives the dominant value-adding component as being the intangible part of the product bundle.
Each total product experience has a tangible component but their dominant component is intangible.

22. Examples of Services
Tourist Office Officer’s advice Flying tickets

23. Goods Versus Services Reselling unusual Can be resold
Goods Service
Reselling unusual
Difficult to inventory
Quality difficult to measure
Selling is part of service
Can be resold
Can be inventoried
Some aspects of quality measurable
Selling is distinct from production
At this point, you might approach this and the next several slides by asking students to identify a product (good or service as appropriate) that illustrates each characteristic. You might also ask them to identify products that violate one or more of these distinctions between goods and services.

24. Goods Versus Services - Continued
Goods Service
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.

25. Development of the Service Economy
Increasing exports + employment in services sector
Percent
United States
Canada
France
Italy
Britain
Japan
W Germany
1970
1991
Services
Industry
Farming
250
200
150
100 50 80
%70 60 40 30 20 10
U.S. Employment, % Share
Services as a Percent of GDP
U.S. Exports of Services
In Billions of Dollars
Year 2000 data is estimated
Have your students consider the U.S. Employment Services/Industry/Farming shares. What factors will ultimately act to limit changes in this graph. What about the other two graphs?

26. 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
Inputs
Process
Outputs
Ask your students to consider why the rate of growth of productivity in the U.S. is so low. As they identify factors, have them link these factors to the resources of capital, labor, and management.
This may also be a good point at which to introduce the notions of efficiency (doing a job well), and effectiveness (doing the right job). It may be especially helpful to discuss the conditions under which efficiency or effectiveness becomes the more important.

27. Productivity Units produced Productivity = Input used
Measure of process improvement
Represents output relative to input
Productivity increases improve standard of living and creates income.
From 1889 to 1973, U.S. productivity increased at a 2.5% annual rate
Productivity
Units produced
Input used =
The productivity discussion can continue with this slide.
One question for students might be: Why is the present rate of productivity improvement in the U.S. less than in the period 1889 to 1973?
You might also ask them to consider what happens as the rate of productivity improvement approaches zero. Does this simply mean that the standard of living ceases to rise, or are there more ominous manifestations?

28. Factors affecting Productivity
Capital investments in production/technology/equipment/ facilities.
e.g. Automatization & Computerization (minimizes tasks performed by employees).
Workforce knowledge and skill
Social environment. Making employees comfortable + work methods.
Quality of products/processes/management
Geographic factors
The productivity discussion can continue with this slide.
One question for students might be: Why is the present rate of productivity improvement in the U.S. less than in the period 1889 to 1973?
You might also ask them to consider what happens as the rate of productivity improvement approaches zero. Does this simply mean that the standard of living ceases to rise, or are there more ominous manifestations?

29. Measurement Problems
Quality may change while the quantity of inputs and outputs remains constant. And will affect productivity.
External elements may cause an increase or decrease in productivity
Precise units of measure may be lacking. It can only be measured indirectly, that is, by measuring other variables and then calculating productivity from them.
Ask the students to think about why productivity is so difficult to measure. Have them identify several tasks or jobs, and help them identify some possible productivity measures. Ask them how they would go about making these measurements. Student and faculty productivity certainly provide examples that can generate discussion! You might ask your students if they believe “grades” measure student productivity.

30. 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
Here again, faculty and student productivity make useful discussion generators. Students can certainly look at the role of both capital and management in the classroom - and they are likely to be able to tie the three productivity variables to the presentation or teaching methodologies of different faculty.
Key Variables for Improved Labor Productivity
Basic education appropriate for the labor force
Diet of the labor force
Social overhead that makes labor available
Maintaining and enhancing skills in the midst of rapidly changing technology and knowledge
You might first ask students to consider the conditions under which each of the key variables is most important. Once the conditions are identified, you might list the conditions on the board or screen and ask students to develop a method for comparing various countries on the basis of these conditions. Where would they place the U.S.? Developing countries? Etc.

31. Jobs in the U.S
You might ask the students, how, in general, they might expect the figures shown in this graph to change over the next twenty years.
In addition, initiate a discussion of how we have moved from “hunting and gathering” to “agriculture” to “manufacturing” to “service.”

32. Productivity Growth 1971- 1992 Labor % per year Whole Economy
Manufacturing
% per year
Labor
Have the students consider why the productivity growth rate in the U.S. is so much lower than that in Germany or Japan.

33. 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
You can use this slide to frame a discussion of service productivity.
Ask students to provide examples of services having each characteristic. Once they have done this, ask if they can think of a way to overcome or change the characteristics for that service so as to increase productivity.