1. OPERATION MANAGEMENT OPERATIONS AND PRODUCTIVITY
BARRY PUALENGCO – KAREN TRINIDAD

2. Contents 1 Introduction to Operation Management 2 Productivity 3
Examples 3
Challenges 4

3. WHAT IS INSIDE A BUSINESS?

4. Production/Operation
WE CREATE VALUE
Production/Operation
Finance/Accounting
Marketing
Facilities Construction
Facilities Maintenance
Production and inventory control
Scheduling, material controls
Quality Assurance and control
Supply-chain management
Manufacturing tooling fabrication; Assembly;
Design products, product development
Detailed product specification
Industrial engineering, efficient use of machine, space, personnel.
Disbursement/credits, Accounts receivable, payable, General ledger
Fund management, money market, International exchange
Capital requirements, Stock issue, Bond issue and recall
Finance, cash control
Investment
Sale promotion
Advertising
Market research
Sales

5. What are these activities?
Production/Operation
creation of goods and services
Finance/
Accounting
tracks how well the organization is doing, paying bills, and collecting money.
Marketing
generates the demand, or at least takes the order for a product or service.

6. VALUE ADDED VALUE ADDED INPUTS Land Labor Capital TRANSFORMATION/
CONVERSION
PROCESS
OUTPUTS
Goods
Services
FEEDBACK
CONTROL
FEEDBACK
FEEDBACK

7. Definition Operation Management
is the set of activities that creates value in the form of goods and services by transforming inputs into outputs

8. EXAMPLES
INPUT-PROCESS-OUTPUT 1.
INPUT 2.
PROCESS 3.
OUTPUT

9. FOOD PROCESSOR INPUTS PROCESSING OUTPUTS Cleaning Canned vegetables
Raw Vegetables
Cleaning
Canned vegetables
Metal Sheets
Making cans
Water
Cutting
Energy
Cooking
Labor
Packing
Building
Labeling
Equipment

10. HOSPITAL PROCESS INPUTS PROCESSING OUTPUTS Doctors Examination
Raw Vegetables
Doctors
Examination
Healthy patients
Nurses
Surgery
Hospital
Monitoring
Medical Supplies
Medication
Equipment
Therapy
Laboratories

11. Difference between Goods and Services
Can be resold
Can be inventoried
Some aspect of quality are measurable
Selling is distinct from production
Product is transportable
Site of facility is important for cost
Easy to automate
Revenue generated from tangible product
Reselling is unusual
Cannot be inventoried
Many aspect are difficult to measure
Selling is often part of the services
Provider is transportable
Site of facility is important for customer contact
Difficult to automate
Revenue generated from intangible services
GOODS
SERVICES
Difference between Goods and Services

12. Manufacturing or Service?
Tangible
Act

13. Goods-service Continuum
Steel production Automobile fabrication
Home remodeling Retail sales
Auto Repair
Appliance repair
Maid Service
Manual car wash
Teaching
Lawn mowing
High percentage goods
Low percentage service
Low percentage goods
High percentage service

14. Manufacturing vs Service
Characteristics
MANUFACTURING
SERVICE
Output
Intangible
Tangible
Customer contact
High
Low
Uniformity of input
Low
High
Labor content
Low
High
Uniformity of output
High
Low
Measurement of productivity
Easy
Difficult
Opportunity to correct quality problems
High
Low

15. MANUFACTURING VS. SERVICE
US EMPLOYMENT
MANUFACTURING VS. SERVICE

16. Lets Try This!
Fisher Technologies is a small firm that double its dollar contribution to a fixed cost and profit in order to be profitable enough to purchase the next generation of production equipment. Management has determined that if the firm fails to increase contribution, its bank will not make the loan and the equipment cannot be purchased. It the firm cannot purchase the equipment, the limitations of the old equipment will force Fisher to go out of business and, in doing so, puts its employees out of work and discontinue producing goods and services for its customers.

17. Fisher Technologies Sales $100,000.00 Cost of Goods -80,000.00
Gross Margin
20,000.00
Finance costs
-6,000.00
Subtotal
14,000.00
Taxes at 25%
-3,500.00
Contribution
$10,500
Option No. 1: (Marketing Option) Good marketing management may increase sales by 50%
Option No. 2: (Finance/Accounting Option) Good financial management cut in half the finance costs.
Option No. 3: (OM Option) Reduce production cost by 20%

18. Details Current Option 1 Option 2 Option 3 Sales $100,000.00
$150,000.00
Cost of Goods
-80,000.00
-120,000.00
-64,000.00
Gross Margin
20,000.00
30,000.00
36,000.00
Finance costs
-6,000.00
-3,000.00
Subtotal
14,000.00
24,000.00
17,000.00
Taxes at 25%
-3,500.00
-4,250.00
-7,500.00
Contribution
$10,500.00
$18,000.00
$12,750.00
$22,500.00

19. Productivity Challenge:
Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital)
Productivity =
Goods and Services
Labor and Capital
Output
Input =
Objective: to improve productivity!

20. Definition Efficiency
Doing job well- minimum resources/waste Effective doing the right thing.

21. How do we increase Productivity?1.
Reduce inputs, constant outputs 2.
Increase outputs, constant inputs 3.
Resulting to High ROI, lower prices. 4.
High ROI, constant productivity = higher prices

22. Productivity Measurement
indicates the ratio of one resource (input) to the goods and services produced (outputs)
Single-factor productivity
indicates the ratio of many or all resources (inputs) to the goods and services produced (outputs)
Multifactor productivity

23. Example
Collins Title wants to evaluate its labor and multifactor productivity with a new computerized search system. The company has a staff of four, each working 8 hours per day (for a payroll cost of $640/day) and overhead expenses of $400 per day. Collins processes and closes on 8 titles each day. The new computerized title-search system will allow the processing of 14 titles per day. Although the staff, their work hours, and pay are the same, the overhead expenses are now $800 per day.
Use Single-factor productivity.
Use multifactor productivity.

24. Productivity Variables
Management
which contributes about 52% of the annual increase.
Capital
contributes about 38% of the annual increase
Labor
contributes about 10% of the annual increase

25. CHALLENGES

26. What is the area of this rectangle?
6 yds
4 yds
What is the area of this rectangle?
4 square yds
6 square yds
10 square yds
20 square yds
24 square yds

27. If 9Y + 3 = 6y + 15, then Y =
1 c. 4
2 d. 6

28. It is greater than 100 It is less than 100 Its is equal to 100
Which of the following is true about 84% of 100?
It is greater than 100
It is less than 100
Its is equal to 100

29. Lets Try This.
At Modern Lumber, Inc., Art Binley, president and producer of apple crates sold to growers, has been able, with his current equipment, to produce 240 crates per 100 logs. He currently purchases 100 logs per day, and each log requires 3 labor-hours to process. He believes that he can hire a professional buyer who can buy a better-quality log at the same cost. If this is the case, he can increase his production to 260 crates per 100 logs. His laobr-hours will increase by 8 hours per day.
What will be the impact on productivity (measured in crates per labor-hour) if the buyer is hired?

30. Problem 2
Art Binley has decided to look at his productivity from a multifactor (total factor productivity) perspective (refer to Solved Problem 1.1). To do so, he has determined his labor, capital, energy, and material usage and decided to use dollars as the common denominator. His total labor-hours are now 300 per day and will increase to 308 per day. His capital and energy costs will remain constant at $350 and $150 per day, respectively. Material costs for the 100 logs per day are $1,000 and will remain the same. Because he pays an average of $10 per hour (with fringes), Binley determines his productivity increase as follows:

31. Solution
Current System
System with Professional Buyer
Labor: $10 = $3,000
308 $ = $3,080
Material: logs/day ,000
1,000
Capital:
350
Energy:
150
Total Cost: $4,500
$4,580
Multifactor productivity of current system: = 240 crates/4,500 = crates/dollar
Multifactor productivity of proposed system: = 260 crates/4580 = crates/dollar

32. Thank You!