1. 1 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 1 Operations and Productivity PowerPoint presentation to accompany Heizer and Render Operations Management, 10e Principles of Operations Management, 8e PowerPoint slides by Jeff Heyl

2. 1 - 2© 2011 Pearson Education, Inc. publishing as Prentice Hall The Hard Rock Cafe  First opened in 1971  Now – 129 restaurants in over 40 countries  Rock music memorabilia  Creates value in the form of good food and entertainment  3,500 + custom meals per day in Orlando  How does an item get on the menu?  Role of the Operations Manager

3. 1 - 3 Learning Objectives  Definition of Operations Management (OM)  Organizational Functions  Why Study OM?  A brief history of operations management  The future of the discipline  Goods Versus Services  Measuring productivity  Career opportunities in operations management © 2011 Pearson Education, Inc. publishing as Prentice Hall

4. 1 - 4© 2011 Pearson Education, Inc. publishing as Prentice Hall What Is Operations Management? Production Production is the creation of goods and services Operations management (OM) Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs

5. 1 - 5© 2011 Pearson Education, Inc. publishing as Prentice Hall Organizing to Produce Goods and Services  Essential functions: 1.Marketing 1.Marketing – generates demand 2.Production/operations 2.Production/operations – creates the product 3.Finance/accounting 3.Finance/accounting – tracks how well the organization is doing, pays bills, collects the money 4.Human Resources 4.Human Resources – provides labor, wage and salary administration and job evaluation

6. 1 - 6© 2011 Pearson Education, Inc. publishing as Prentice Hall Commercial Bank 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 Human Resources Recruitment Job evaluation Performance evaluation Wage and Salary Adm. Personnel records Organizational Charts

7. 1 - 7© 2011 Pearson Education, Inc. publishing as Prentice Hall Manufacturing 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 Marketing Sales promotion Advertising Sales Market research Human Resources Recruitment Job evaluation Performance evaluation Wage and Salary Adm. Personnel records Organizational Charts

8. 1 - 8© 2011 Pearson Education, Inc. publishing as Prentice Hall Why Study OM? 1.OM is one of four 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

9. 1 - 9© 2011 Pearson Education, Inc. publishing as Prentice Hall Options for Increasing Contribution Table 1.1 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%

10. 1 - 10© 2011 Pearson Education, Inc. publishing as Prentice Hall What Operations Managers Do  Planning  Organizing  Staffing  Leading  Controlling Basic Management Functions

11. 1 - 11© 2011 Pearson Education, Inc. publishing as Prentice Hall Ten Critical Decisions Ten Decision AreasChapter(s) 1.Design of goods and services5 2.Managing quality6, Supplement 6 3.Process and capacity 7, Supplement 7 design 4.Location strategy8 5.Layout strategy9 6.Human resources and 10 job design 7.Supply-chain 11, Supplement 11 management 8.Inventory, MRP, JIT12, 14, 16 9.Scheduling13, 15 10.Maintenance17 Table 1.2

12. 1 - 12© 2011 Pearson Education, Inc. publishing as Prentice Hall The Critical Decisions 1.Design of goods and services  What good or service should we offer?  How should we design these products and services? 2.Managing quality  How do we define quality?  Who is responsible for quality? Table 1.2 (cont.)

13. 1 - 13© 2011 Pearson Education, Inc. publishing as Prentice Hall The Critical Decisions 3.Process and capacity design  What process and what capacity will these products require?  What equipment and technology is necessary for these processes? 4.Location strategy  Where should we put the facility?  On what criteria should we base the location decision? Table 1.2 (cont.)

14. 1 - 14© 2011 Pearson Education, Inc. publishing as Prentice Hall The Critical Decisions 5.Layout strategy  How should we arrange the facility?  How large must the facility be to meet our plan? 6.Human resources and job design  How do we provide a reasonable work environment?  How much can we expect our employees to produce? Table 1.2 (cont.)

15. 1 - 15© 2011 Pearson Education, Inc. publishing as Prentice Hall The Critical Decisions 7.Supply-chain management  Should we make or buy this component?  Who should be our suppliers and how can we integrate them into our strategy? 8.Inventory, material requirements planning, and JIT  How much inventory of each item should we have?  When do we re-order? Table 1.2 (cont.)

16. 1 - 16© 2011 Pearson Education, Inc. publishing as Prentice Hall The Critical Decisions 9.Intermediate and short–term scheduling  Are we better off keeping people on the payroll during slowdowns?  Which jobs do we perform next? 10.Maintenance  How do we build reliability into our processes?  Who is responsible for maintenance? Table 1.2 (cont.)

17. 1 - 17© 2011 Pearson Education, Inc. publishing as Prentice Hall Opportunities Figure 1.2

18. 1 - 18© 2011 Pearson Education, Inc. publishing as Prentice Hall Significant Events in OM Figure 1.3

19. 1 - 19© 2011 Pearson Education, Inc. publishing as Prentice Hall The Heritage of OM  Division of labor (Adam Smith 1776; Charles Babbage 1852)  Standardized parts (Whitney 1800)  Scientific Management (Taylor 1881)  Assembly line (Ford/ Sorenson 1913)  Gantt charts (Gantt 1916)  Motion study (Frank and Lillian Gilbreth 1922)  Quality control (Shewhart 1924; Deming 1950)

20. 1 - 20© 2011 Pearson Education, Inc. publishing as Prentice Hall The Heritage of OM  First Digital Computer (Atanasoff 1938)  CPM/PERT (DuPont 1957, Navy 1958)  Material requirements planning (Orlicky 1960)  Computer aided design (CAD 1970)  Flexible manufacturing system (FMS 1975)  Baldrige Quality Awards (1980)  Computer integrated manufacturing (1990)  Globalization (1992)  Internet (1995)  Mass Customization (2000s)

21. 1 - 21© 2011 Pearson Education, Inc. publishing as Prentice Hall New Challenges in OM  Global focus  Just-in-time  Supply-chain partnering  Rapid product development, alliances  Mass customization  Empowered employees, teamsToFrom  Local or national focus  Batch shipments  Low bid purchasing  Lengthy product development  Standard products  Job specialization

22. 1 - 22© 2011 Pearson Education, Inc. publishing as Prentice Hall Characteristics of Goods  Tangible product  Consistent product definition  Production usually separate from consumption  Can be inventoried  Low customer interaction

23. 1 - 23© 2011 Pearson Education, Inc. publishing as Prentice Hall Characteristics of Service  Intangible product  Produced and consumed at same time  Often unique  High customer interaction  Inconsistent product definition  Often knowledge-based  Frequently dispersed

24. 1 - 24© 2011 Pearson Education, Inc. publishing as Prentice Hall Industry and Services as Percentage of GDP Services Manufacturing Australia Canada China Czech Rep France Germany Hong Kong Japan Mexico Russian Fed South Africa Spain UK US Turkey 90 − 80 − 70 − 60 − 50 − 40 − 30 − 20 − 10 − 0 −

25. 1 - 25 Allocation of GDP by Sector, Turkey, 2010  Agriculture 8.8%  Industry 25.7%  Services 65.5%

26. 1 - 26© 2011 Pearson Education, Inc. publishing as Prentice Hall Goods and Services Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management Consulting service/ teaching Counseling Percent of Product that is a GoodPercent of Product that is a Service 100%7550250255075100% |||||||||

27. 1 - 27© 2011 Pearson Education, Inc. publishing as Prentice Hall Changing Challenges Traditional Approach Reasons for Change Current Challenge Ethics and regulations not at the forefront Public concern over pollution, corruption, child labor, etc. High ethical and social responsibility; increased legal and professional standards Local or national focus Growth of reliable, low cost communication and transportation Global focus, international collaboration Lengthy product development Shorter life cycles; growth of global communication; CAD, Internet Rapid product development; design collaboration Figure 1.5

28. 1 - 28© 2011 Pearson Education, Inc. publishing as Prentice Hall Changing Challenges Traditional Approach Reasons for Change Current Challenge Low cost production, with little concern for environment; free resources (air, water) ignored Public sensitivity to environment; ISO 14000 standard; increasing disposal costs Environmentally sensitive production; green manufacturing; sustainability Low-cost standardized products Rise of consumerism; increased affluence; individualism Mass customization Figure 1.5

29. 1 - 29© 2011 Pearson Education, Inc. publishing as Prentice Hall Changing Challenges Traditional Approach Reasons for Change Current Challenge Emphasis on specialized, often manual tasks Recognition of the employee's total contribution; knowledge society Empowered employees; enriched jobs “In-house” production; low-bid purchasing Rapid technological change; increasing competitive forces Supply-chain partnering; joint ventures, alliances Large lot production Shorter product life cycles; increasing need to reduce inventory Just-In-Time performance; lean; continuous improvement Figure 1.5

30. 1 - 30© 2011 Pearson Education, Inc. publishing as Prentice Hall New Trends in OM  Ethics  Global focus  Environmentally sensitive production  Rapid product development  Mass customization  Empowered employees  Supply-chain partnering  Just-in-time performance

31. 1 - 31© 2011 Pearson Education, Inc. publishing as Prentice Hall 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 productivity! Important Note! Production is a measure of output only and not a measure of efficiency

32. 1 - 32 Efficiency Versus Effectiveness  The difference between efficient and effective is that efficiency refers to how well you do something, whereas effectiveness refers to how useful it is.  “Efficiency is doing things right; effectiveness is doing the right things.”  Doing the Right Things is More Important than Doing Things Right

33. 1 - 33 Efficiency Versus Effectivenes  For example, if a company is not doing well and they decide to train their workforce on a new technology. The training goes really well - they train all their employees in avery short time and tests show they have absorbed the training well. But overall productivity doesn't improve. In this case the company's strategy was efficient but not effective.

34. 1 - 34© 2011 Pearson Education, Inc. publishing as Prentice Hall Feedback loop Outputs Goods and services Transformation Economic system transforms inputs to outputs /CONVERSITION PROCESS The Economic System Inputs Labor, capital, management Figure 1.6

35. 1 - 35© 2011 Pearson Education, Inc. publishing as Prentice Hall  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

36. 1 - 36© 2011 Pearson Education, Inc. publishing as Prentice Hall Productivity Calculations Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000 250 Labor Productivity One resource input  single-factor productivity

37. 1 - 37© 2011 Pearson Education, Inc. publishing as Prentice Hall Multi-Factor Productivity Output Labor + Material + Energy + Capital + Miscellaneous Productivity =  Also known as total factor productivity  Output and inputs are often expressed in dollars Multiple resource inputs  multi-factor productivity

38. 1 - 38© 2011 Pearson Education, Inc. publishing as Prentice Hall 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

39. 1 - 39© 2011 Pearson Education, Inc. publishing as Prentice Hall 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

40. 1 - 40© 2011 Pearson Education, Inc. publishing as Prentice Hall 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

41. 1 - 41© 2011 Pearson Education, Inc. publishing as Prentice Hall 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

42. 1 - 42© 2011 Pearson Education, Inc. publishing as Prentice Hall 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 $640 + 400

43. 1 - 43© 2011 Pearson Education, Inc. publishing as Prentice Hall 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 $640 + 400 = Old multifactor productivity =.0077 titles/dollar

44. 1 - 44© 2011 Pearson Education, Inc. publishing as Prentice Hall 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 $640 + 400 = Old multifactor productivity = New multifactor productivity =.0077 titles/dollar 14 titles/day $640 + 800

45. 1 - 45© 2011 Pearson Education, Inc. publishing as Prentice Hall 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 $640 + 400 14 titles/day $640 + 800 = Old multifactor productivity = New multifactor productivity =.0077 titles/dollar =.0097 titles/dollar

46. 1 - 46© 2011 Pearson Education, Inc. publishing as Prentice Hall Measurement Problems 1.Quality 1.Quality may change while the quantity of inputs and outputs remains constant (HDTV, iphones) 2.External elements 2.External elements may cause an increase or decrease in productivity (using more reliable electric power system) 3.Precise units 3.Precise units of measure may be lacking

47. 1 - 47© 2011 Pearson Education, Inc. publishing as Prentice Hall Productivity Variables 1.Labor 1.Labor - contributes about 10% of the annual increase 2.Capital 2.Capital - contributes about 38% of the annual increase 3.Management 3.Management - contributes about 52% of the annual increase

48. 1 - 48© 2011 Pearson Education, Inc. publishing as Prentice Hall Key Variables for Improved Labor Productivity 1.Basic education appropriate for the labor force 2.Diet of the labor force 3.Social overhead that makes labor available such as transportation and sanitation  Challenge is in maintaining and enhancing skills in the midst of rapidly changing technology and knowledge

49. 1 - 49© 2011 Pearson Education, Inc. publishing as Prentice Hall Investment and Productivity 10 8 6 4 2 0 Percent increase in productivity Percentage investment 101520253035

50. 1 - 50© 2011 Pearson Education, Inc. publishing as Prentice Hall Service Productivity 1.Typically labor intensive (teaching, counseling) 2.Frequently focused on unique individual desires (customer representatives in banks) 3.Often an intellectual task performed by professionals 4.Often difficult to mechanize 5.Often difficult to evaluate for quality

51. 1 - 51© 2011 Pearson Education, Inc. publishing as Prentice Hall Ethics and Social Responsibility Challenges facing operations managers:  Developing and producing safe, quality products  Maintaining a clean environment  Providing a safe workplace  Honoring stakeholder commitments

52. 1 - 52 Entry-Level Jobs in OM  Purchasing planner/buyer  Production (or operations) supervisor  Production (or operations) scheduler/controller  Production (or operations) analyst  Inventory analyst  Quality specialist  Others …