1. OPERATIONS MANAGEMENT
AND PRODUCTIVITY
$ Mo Money Mo Problems $

2. OUTLINE 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. WHAT IS OPERATIONS MANAGEMENT?
Operations Management is the set of activities that creates goods and services by transforming inputs into outputs
Operations Management focuses on carefully managing the processes to produce and distribute products and services.
AND PRODUCTION
Production is the creation of goods and services

5. SIGNIFICANT EVENTS IN OPERATIONS MANAGEMENT
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)

6. SCIENTISTS
Adam Smith
He suggested that the huge increases in productivity obtainable from technology or technological progress are possible because human and physical capital are matched, usually in an organisation.

7. Eli Whitney
Whitney's defenders have claimed that he invented the American system of manufacturing-- the combination of power machinery, interchangeable parts, and division of labor that would underlie the nation's subsequent industrial revolution.

8. Frederick Winslow Taylor
He developed the theory of management that analyzes and synthesizes processes, improving labor productivity.

9. Henry Ford
He said that an assembly line is a manufacturing process in which interchangeable parts are added to a product in a sequential manner using optimally planned logistics to create a finished product much faster than with handcrafting-type methods.

10. Henry Gantt
A Gantt chart is a popular type of bar chart that illustrates a project schedule. Gantt charts illustrate the start and finish dates of the terminal elements and summary elements of a project.

11. The Gilbreths
The Gilbreths' motion studies were more focused on how a task was done, and how best to eliminate unneeded, fatiguing steps in any process.

12. Walter Shewhart
Shewhart framed the problem in terms of assignable-cause and chance-cause variation and introduced the control chart as a tool for distinguishing between the two. Shewhart stressed that bringing a production process into a state of statistical control, where there is only chance-cause variation, and keeping it in control, is necessary to predict future output and to manage a process economically.

13. SIGNIFICANT EVENTS CPM/PERT (Dupont, 1957) MRP (Orlicky, 1960) CAD
Flexible manufacturing systems (FMS)
Manufacturing automation protocol (MAP)
Computer integrated manufacturing (CIM)

14. WHY STUDY OM?
OM is one of three major functions (marketing, finance, and operations) of an organization
We want/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

15. WHY STUDY OM? Related activities: managing purchases inventory control
quality control
storage
logistics
evaluations
and we need to comunicate them with each others.

16. WHY STUDY OM?
OM often includes substantial measurement and analysis of internal processes, because a great deal of focus is on efficiency and effectiveness of processes.
Ultimately, the nature of how operations management is carried out in an organization depends very much on the nature of products or services in the organization.

17. WHAT OPERATIONS MANAGERS DO (by Henri Fayol):
Plan
Organize
Staff
Lead
Control

18. PLANNING
The process of deciding what to do. Effective planning seeks to answer questions such as:
What should the firm do? The output of this process are goals and objectives.
When must the firm achieve these goals? The output is a schedule defining milestones and due dates.
Who is responsible for doing it? The outputs are assigned responsibilities.
How should this be done? The outputs may be directions or plans of action.
How should performance be measured? The output includes standards of performance.
Planning is forward looking. When planning is operational, the planning horizon is shorter and the level of detail within is greater. When strategic, the planning horizon is long and done in less detail.

19. ANALYSING
The process of making sense of data that is often: poorly structured, incomplete, inconsistent, inaccurate, and/or available in overwhelming quantities.
Analysis supports the planning process by
providing the “facts” in useful formats that can then be
used to evaluate business alternatives.
Analyzing also supports management’s control activity by providing the basis for corrective actions.

20. ORGANIZING
The process of building organization structures and interrelated task coordination teams. In the past, organizing dealt mostly with humans, but increasingly it involves data-getting:
the right person
the right information
in the right form
at the right time
those factors are the key success in organization design.

21. DIRECTING/IMPLEMENTING
An action-oriented process that carries out the outputs of the first three management activities.
This is where money is made and lost (!).
In this process, management expends resources to perform the tasks defined by the planning process.

22. CONTROLLING
The process of measuring the results of the other four management activities.
Were the plans any good?
Did the analysis provide meaningful information to the other processes?
How well did we organize our resources to get the job done?
How well did we do it?
We might even add, how well did we measure the performance of our control function?

23. 10 CRITICAL DECISIONS Service, product design Quality management
Process, capacity design
Location
Layout design
Human resources, job design.
Supply-chain management
Inventory management
Scheduling
Maintenance

24. SECTION OF OM Procurement (Purchasing) Practices
reviews guidelines for buying various materials from suppliers and vendors - materials, including computers, services from lawyers, insurance, etc.
Management Control and Coordinating Function
includes a broad range of activities to ensure that organizational goals are consistently being met in an effective and efficient fashion

25. SECTION OF OM Product and Service Management Quality Management
the major activities involved in product and service management are similar to those in operations management. However, operations management is focused on the operations of the entire organization, rather than managing a product or service.
Quality Management
is crucial to effective operations management, particularly continuous improvement. More recent advancements in quality, such as benchmarking and Total Quality Management, have resulted in advancements to operations management as well.

26. SECTION OF OM Inventory Management
Costs can be substantial to store and move inventory. Innovative methods, such as Just-in-Time inventory control, can save costs and move products and services to customers more quickly.
Logistics and Transportation Management
is focused on the flow of materials and goods from suppliers, through the organization and to the customers, with priority on efficiency and cost effectiveness.

27. SECTION OF OM Facilities Management Configuration Management
depnds a great deal on effective management of facilities, such as buildings, computer systems, signage, lighting, etc.
Configuration Management
It's important to track the various versions of products and services. Consider the various versions of software that continually are produced, each with its own version number. Tracking these versions is configuration management.
Distribution Channels
The means of distribution depend very much on the nature of the product or service.

28. ORGANISATIONAL FUNCTIONS
Marketing
Gets customers
Operations
creates product or service
Finance/Accounting
Obtains funds
Tracks money

29. 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

30. NEW CHALLENGES IN OM FROM TO Global focus Just-in-time
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

31. CHARACTERISTICS OF GOODS
Tangible product
Consistent product definition
Production usually separate from consumption
Can be inventoried
Low customer interaction

32. CHARACTERISTICS OF SERVICES
Intangible product
Produced & consumed at same time
Often unique
High customer interaction
Inconsistent product definition
Often knowledge-based
Frequently dispersed

33. GOODS VS. 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 f serviceo

34. GOODS VS. SERVICES (2) SERVICES GOODS
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.

35. THE ECONOMIC SYSTEM TRANSFORMS INPUTS TO OUTPUTS
Land, Labor, Capital, Management
Goods and Services
Feedback loop
Inputs
Process
Outputs

36. INPUTS / OUTPUTS

37. PRODUCTIVITY Units produced Productivity = Input used
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
Units produced
Input used =

38. 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

39. 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

40. 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