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PRODUCTION AND PRODUCTION AND OPERATIONS OPERATIONS
MANAGEMENTMANAGEMENT
Ch. 1: Operations and Ch. 1: Operations and ProductivityProductivity
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Learning ObjectivesLearning Objectives
Define operations managementDefine operations management
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What is Operations What is Operations Management?Management?
ProductionProduction is the creation of goods is the creation of goods and servicesand services
Operations managementOperations management is the set is the set of activities that creates goods and of activities that creates goods and services through the services through the transformation of inputs into transformation of inputs into outputsoutputs
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Operations: A systems view in Operations: A systems view in manufacturing manufacturing
Inbound Logistics
Production and
Operations
Outbound Logistics
Physical Inputs
Financial Inputs
Finance
Sales and Marketing
Physical Outputs
Financial Outputs
FeedbackPurchasing
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What is Operations Management?What is Operations Management?
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OM is one of three major functions OM is one of three major functions ((marketing, finance, and operationsmarketing, finance, and operations) of any ) of any organizationorganization
We want (We want (and needand need) to know how goods ) to know how goods and services are producedand services are produced
We want to know what operations We want to know what operations managers domanagers do
OM is such a costly part of an organizationOM is such a costly part of an organization
Why Study OM?Why Study OM?
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Why Study OM?Why Study OM?
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What Operations Managers What Operations Managers DoDo
PlanPlan OrganizeOrganize StaffStaff LeadLead ControlControl
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Critical Action areasCritical Action areas Managing qualityManaging quality Design of goods and servicesDesign of goods and services Location strategiesLocation strategies Layout strategiesLayout strategies Human resourcesHuman resources Supply-chain managementSupply-chain management Inventory managementInventory management SchedulingScheduling MaintenanceMaintenance
The job of OMThe job of OM
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Organizational FunctionsOrganizational Functions
MarketingMarketing
• Gets customersGets customers
OperationsOperations
• creates product or servicecreates product or service
Finance/AccountingFinance/Accounting
• Obtains fundsObtains funds
• Tracks moneyTracks money
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Functions - AirlineFunctions - Airline
OperationsFinance/
AccountingMarketing
Ground
Support
Flight
Operations
Facility
MaintenanceCatering
Airline
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Functions - BankFunctions - Bank
OperationsFinance/
AccountingMarketing
Check
Clearing
Teller
Scheduling
Transactions
ProcessingSecurity
Commercial Bank© 1984-1994 T/Maker Co.
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Functions - ManufacturerFunctions - Manufacturer
OperationsFinance/
AccountingMarketing
Production
ControlManufacturing
Quality
ControlPurchasing
Manufacturing
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Characteristics of GoodsCharacteristics of Goods
¨ Tangible product¨ Consistent product
definition¨ Production usually
separate from consumption
¨ Can be inventoried¨ Low customer
interaction© 1995 Corel Corp.
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Characteristics of ServiceCharacteristics of Service
¨ Intangible product¨ Produced & consumed at
same time¨ Often unique¨ High customer interaction¨ Inconsistent product
definition¨ Often knowledge-based¨ Frequently dispersed
© 1995 Corel Corp.
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Goods versus ServicesGoods versus Services
Can be resoldCan be resold Can be inventoriedCan be inventoried Some aspects of Some aspects of
quality measurablequality measurable Selling is distinct from Selling is distinct from
productionproduction
¨ Reselling unusual¨ Difficult to inventory¨ Quality difficult to
measure¨ Selling is part of
service
Good Service
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Goods versus ServicesGoods versus Services
Product is transportableProduct is transportable
Site of facility important for Site of facility important for
costcost
Often easy to automateOften easy to automate
Revenue generated primarily Revenue generated primarily
from tangible productfrom tangible product
Provider, not product is Provider, not product is
transportabletransportable
Site of facility important for Site of facility important for
customer contactcustomer contact
Often difficult to automateOften difficult to automate
Revenue generated primarily Revenue generated primarily
from intangible service.from intangible service.
Good Service
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Goods and servicesGoods and servicesse
rvic
es g
oodsGoods
Airline
Hotel
Law Firm
Steel Producer
Mining Firm
Farmer
Fast Food
Newspaper
Automobile Mfg
Computer Hardware
It is often difficult to exactly specify the difference between a good and a service - we shall use a scale
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Increasing Labor Intensity
Classification of Services: labor Classification of Services: labor intensityintensity
Labor intensity - the ratio of Labor intensity - the ratio of labor costs to the value of labor costs to the value of plant and equipment plant and equipment
People based
Service
Equipmentbased
Automatic Monitored Operated Unskilled Skilled Professional
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Interaction and CustomizationInteraction and Customization
The extent to which The extent to which customer-contact personnel customer-contact personnel exercise judgement exercise judgement (interaction) in meeting (interaction) in meeting individual customer needsindividual customer needs
The extent to which the The extent to which the service is customizedservice is customized
Judg
men
t
Customized
High
Low
High LowLegal servicesHealth careArchitect designPlumberTaxi
TelephoneHotelRetail bankingGood restaurant
Large scale education Preventive health programs
Public transportFast foodAppliance repairMovie theater Spectator sports
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The Service Process MatrixThe Service Process Matrix
Low labor intensityCapital Decisions Technology advances Managing service delivery
High labor intensityHiring and trainingMethods developmentEmployee schedulingControl of far locationsStartup of new units
managing growth
Low interaction/customizationMarketingMaking the service warmAttention to physical surroundingsManaging rigid hierarchy Standard Operating Proced.
High interaction/customizationFighting cost increasesMaintaining qualityReacting to customer interventionManaging the advance of people
MASS SERVICE
Retailing, WholesalingSchools, Dry cleaner
PROFESSIONAL SERVICE
Doctors, Lawyers, CPA
SERVICE Shop
Hospitals, Auto repairUpscale restaurants
SERVICE FACTORY
Airline, Hotel, Trucking, Fast Food
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New Challenges in OMNew Challenges in OM
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 Mass customization Empowered employees
From To
Operations ManagementOperations Management
A greatly simplified example…A greatly simplified example…
... the design, planning, operation, and ... the design, planning, operation, and creation of a spaghetti dinner [a creation of a spaghetti dinner [a good or service] at the Doe’s homegood or service] at the Doe’s home
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saute’onions
serve
tomatosauce
boilwater
cook serve
saute’garlic
spices
addpasta
drainready?
Tim
Sue
Jim
washlettuce
teardrainPeg mix
onionsgarlic
oil &vinegar
tomatoes
dough warmbake cut
openwine
servebreathe
tableware
glasses
Kim
Greg serve
serve
ready?
Ops Mgmt at the Doe’sOps Mgmt at the Doe’splanning, operation, and control for the creation of dinnerplanning, operation, and control for the creation of dinner
Low complexityLow complexity
saute’onions
serve
tomatosauce
boilwater
cook serve
saute’garlic
spices
addpasta
drainready?
Tim
Sue
Jim
washlettuce
teardrainPeg mix
onionsgarlic
oil &vinegar
tomatoes
dough warmbake cut
openwine
servebreathe
tableware
glasses
Kim
Greg serve
serve
ready?heat oliveoil in pan
yellowonions
green onions
cut / slice
saute’
Ops Mgmt at the Doe’sOps Mgmt at the Doe’splanning, operation, and control for the creation of dinnerplanning, operation, and control for the creation of dinner
Low complexityLow complexity
saute’onions
serve
tomatosauce
boilwater
cook serve
saute’garlic
spices
addpasta
drainready?
Tim
Sue
Jim
washlettuce
teardrainPeg mix
onionsgarlic
oil &vinegar
tomatoes
dough warmbake cut
openwine
servebreathe
tableware
glasses
Kim
Greg serve
serve
ready?
tomato paste
oliveoil
crush tomatoes
tomato puree
fresh basil
fresh parsley
tomatosauce
Ops Mgmt at the Doe’sOps Mgmt at the Doe’splanning, operation, and control for the creation of dinnerplanning, operation, and control for the creation of dinner
Low complexityLow complexity
Medium complexity Medium complexity : Planning & building of a home…: Planning & building of a home… 2 years clearing land, 1 year of design work2 years clearing land, 1 year of design work Approximately 250,000 construction stepsApproximately 250,000 construction steps Coordination of approximately 25 subcontractorsCoordination of approximately 25 subcontractors
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Ops Mgmt at the Doe’sOps Mgmt at the Doe’splanning, operation, and control for the creation of dinner planning, operation, and control for the creation of dinner
Another “medium Another “medium complexity” examplecomplexity” example
One morning’s breakfast makings at One morning’s breakfast makings at Anaheim’s Int’l House of Pancakes…Anaheim’s Int’l House of Pancakes…
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One morning’s breakfastOne morning’s breakfast 7,000 pancakes7,000 pancakes 5,500 eggs5,500 eggs 1,000 pounds pork1,000 pounds pork 600 glasses orange juice600 glasses orange juice 1,000 pots of coffee1,000 pots of coffee 10 cooks10 cooks 18 waiters18 waiters
Life April 20, 2007
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Another “medium Another “medium complexity” examplecomplexity” example
One day’s food on a modern cruise ship…One day’s food on a modern cruise ship…
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Cruise ship line: Production per dayCruise ship line: Production per day
12,000 meals12,000 meals 20,000 pounds of vegetables20,000 pounds of vegetables 3,000 pounds of meats and seafood3,000 pounds of meats and seafood 4,000 dinner rolls4,000 dinner rolls 3,000 eggs3,000 eggs 3,500 packages of sugar3,500 packages of sugar 50 gallons of ice cream50 gallons of ice cream
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““High complexity” examplesHigh complexity” examples
McDonald's supplying ~30,000 restaurants in McDonald's supplying ~30,000 restaurants in 121 countries121 countries
Aramark serving 100,000 meals/day for athletes, Aramark serving 100,000 meals/day for athletes, staff and media at Beijing Gamesstaff and media at Beijing Games
Bank of America operating 16,000 ATMs and Bank of America operating 16,000 ATMs and 5,700 branch banks in the United States5,700 branch banks in the United States
Federal Express operating over one million drop-Federal Express operating over one million drop-off mailboxes in 215 countriesoff mailboxes in 215 countries
Building a new subway for Athens, Greece ($2.6 Building a new subway for Athens, Greece ($2.6 billion)billion)
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Operations ManagementOperations Management
Many seemingly simple everyday tasks are very Many seemingly simple everyday tasks are very complex in nature, but repetitiveness and complex in nature, but repetitiveness and familiarity hide their complexityfamiliarity hide their complexity• Making dinner, tying your shoes, driving to Making dinner, tying your shoes, driving to
LA…LA…• Helping your parents setup a facebook pageHelping your parents setup a facebook page
Most real world problems demand sophisticated Most real world problems demand sophisticated methods at first exposure, but their complexity is methods at first exposure, but their complexity is hidden as they become “familiar”hidden as they become “familiar”
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PRODUCTIVITYPRODUCTIVITY
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ProductivityProductivity
¨ Measure of process improvement¨ Represents output relative to input
¨ Comparison variable (not absolute variable):¨ Which factory is more productive in terms of labor?¨ What production system is more energy efficient?¨ Which country produces more per employee? …
¨ Productivity increases improve standard of living ¨ From 1889 to 1973, U.S. productivity increased at a 2.5%
annual compound rate
ProductivityProductivity Output createdOutput created
Input usedInput used
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Productivity VariablesProductivity Variables
Productivity = Productivity =
Output (Income, units produced, etc.)Output (Income, units produced, etc.)
Labor + Material+ Energy+ Capital+ MiscellaneousLabor + Material+ Energy+ Capital+ Miscellaneous
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PRODUCTIVITY OF 2 MACHINESPRODUCTIVITY OF 2 MACHINES DAILY REQUIREMENTS
Daily outputunits
LaborHours
EnergyKw
Raw materialsKg
MACHINE 1 4000 20 400 800
MACHINE 2 1500 12 60 400
COSTS 24 2,6 2
$ per hour $ per Kw $ per Kg
Total productivity
MACHINE 1 1,282051 Units/$ MACHINE 1
MACHINE 2 1,205788 Units/$
Labor Productivity
MACHINE 1 200 Units/worked hour MACHINE 1
MACHINE 2 125 Units/worked hour
Energy productivity
MACHINE 1 10 Units/Kw
MACHINE 2 25 Units/Kw MACHINE 2
Materials productivity
MACHINE 1 5 Units/Kg MACHINE 1
MACHINE 2 3,75 Units/Kg
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Measurement ProblemsMeasurement Problems
QualityQuality may change while the may change while the quantity of inputs and outputs quantity of inputs and outputs remains constant.remains constant.
External elementsExternal elements may cause an may cause an increase or decrease in productivity.increase or decrease in productivity.
Precise unitsPrecise units of measure may be of measure may be lackinglacking
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Productivity VariablesProductivity Variables
LaborLabor - contributes about 1/6 of the - contributes about 1/6 of the annual increaseannual increase
CapitalCapital - contributes about 1/6 of the - contributes about 1/6 of the annual increaseannual increase
ManagementManagement - contributes about 2/3 - contributes about 2/3 of the annual increaseof the annual increase
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Key Variables for Improved Key Variables for Improved Labor ProductivityLabor Productivity
Basic Basic educationeducation appropriate for the labor force appropriate for the labor force WellbeingWellbeing of the labor force of the labor force Social support Social support (health, education, infrastructure, (health, education, infrastructure,
housing…) that makes labor availablehousing…) that makes labor available TechnologyTechnology used used Maintaining and enhancing Maintaining and enhancing skillsskills Business organizationBusiness organization Market access (Market access (economies of scale)economies of scale)
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Service ProductivityService Productivity
Typically labor intensiveTypically labor intensive Frequently individually processedFrequently individually processed Often an intellectual task performed Often an intellectual task performed
by professionalsby professionals Often difficult to mechanizeOften difficult to mechanize Often difficult to evaluate for qualityOften difficult to evaluate for quality