11

Operations Operations ManagementManagement

Operations and ProductivityOperations and ProductivityChapter 1Chapter 1

22

OutlineOutline Global company profileGlobal company profile What is Operations Management?What is Operations Management?

• The heritage of Operations ManagementThe heritage of Operations Management• Why study OM?Why study OM?• What Operations Managers doWhat Operations Managers do

Organizing to produce goods and servicesOrganizing to produce goods and services Where are the OM jobs?Where are the OM jobs?

• Exciting new trends in Operations Exciting new trends in Operations ManagementManagement

Operations in the service sectorOperations in the service sector The Productivity challengeThe Productivity challenge

33

Learning ObjectivesLearning ObjectivesWhen you complete this chapter, you When you complete this chapter, you

should be able to:should be able to: Identify or DefineIdentify or Define::

• Production and productivityProduction and productivity• Operations Management (OM)Operations Management (OM)• What operations managers doWhat operations managers do• ServicesServices

Describe or Explain:Describe or Explain:• A brief history of operations A brief history of operations

managementmanagement• The future of the disciplineThe future of the discipline• Measuring productivityMeasuring productivity

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What Is Operations Management?What Is Operations Management?

Operations management Operations management is the is the business function that manages business function that manages that part of a business that that part of a business that transforms raw materials and transforms raw materials and human inputs into goods and human inputs into goods and services of higher value.services of higher value.

ProductionProduction is the creation of goods is the creation of goods and servicesand services

55

Significant Events in OMSignificant Events in OM

Division of labor (Smith, 1776)Division of labor (Smith, 1776) Standardized parts (Whitney, 1800)Standardized parts (Whitney, 1800) Scientific management (Taylor, 1881)Scientific management (Taylor, 1881) Coordinated assembly line (Ford 1913)Coordinated assembly line (Ford 1913) Gantt charts (Gantt, 1916)Gantt charts (Gantt, 1916) Motion study (the Gilbreths, 1922)Motion study (the Gilbreths, 1922) Quality control (Shewhart, 1924)Quality control (Shewhart, 1924)

66

Significant EventsSignificant Events

CPM/PERT (Dupont, 1957)CPM/PERT (Dupont, 1957) MRP (Orlicky, 1960)MRP (Orlicky, 1960) CADCAD Flexible manufacturing systems (FMS)Flexible manufacturing systems (FMS) Manufacturing automation protocol Manufacturing automation protocol

(MAP)(MAP) Computer integrated manufacturing Computer integrated manufacturing

(CIM)(CIM)

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The importance of OMThe importance of OM For any organization are necessary For any organization are necessary

three basic functions (three basic functions (marketing, marketing, finance, and operationsfinance, and operations).).

How goods and services are How goods and services are produced?produced?

OM is such a costly part of an OM is such a costly part of an organizationorganization

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The Work of OMThe Work of OM

PlanPlan OrganizeOrganize StaffStaff LeadLead ControlControl

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Ten Critical DecisionsTen Critical Decisions Service, product designService, product design Quality managementQuality management Process, capacity designProcess, capacity design LocationLocation Layout designLayout design Human resources, job design.Human resources, job design. Supply-chain managementSupply-chain management Inventory management Inventory management SchedulingScheduling MaintenanceMaintenance

1010

Organizational FunctionsOrganizational Functions

MarketingMarketing•Need to get customers to sell the Need to get customers to sell the

products and offer servicesproducts and offer services OperationsOperations

•Need to create goods and servicesNeed to create goods and services Finance/AccountingFinance/Accounting

• Improvement of benefitsImprovement of benefits

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Where Are the OM Jobs?Where Are the OM Jobs? Technology/methodsTechnology/methods Facilities/space utilizationFacilities/space utilization Strategic issuesStrategic issues Response timeResponse time People/team developmentPeople/team development Customer serviceCustomer service QualityQuality Cost reductionCost reduction Inventory reductionInventory reduction Productivity improvementProductivity improvement

1212

New Challenges in OMNew Challenges in OM

Local or national Local or national focusfocus

Batch shipmentsBatch shipments Low bid purchasingLow bid purchasing

Lengthy product Lengthy product developmentdevelopment

Standard productsStandard products Job specializationJob specialization

Global focusGlobal focus Need to produce on Need to produce on

time goods and time goods and servicesservices

Supply chain Supply chain partneringpartnering

Rapid product Rapid product development, development, alliancesalliances

Mass customizationMass customization Empowered Empowered

employees, teamsemployees, teams

FromFrom ToTo

1313

Goods Versus ServicesGoods Versus ServicesDEFINITION DEFINITION

GOODS: Any company generates a GOODS: Any company generates a tangible product that customers usetangible product that customers use• For example a car is produced by a For example a car is produced by a

company and is sold afterwards. company and is sold afterwards. SERVICES:Any company offers a SERVICES:Any company offers a

intangible output to the customers intangible output to the customers • For example a company offers internet For example a company offers internet

service.service.

1414

Goods Versus ServicesGoods Versus Services

Tangible productTangible product Can be resoldCan be resold Can be Can be

inventoriedinventoried

Some aspects of Some aspects of quality quality measurablemeasurable

Selling is distinct Selling is distinct from productionfrom production

Intangible Intangible ProductProduct

Reselling unusualReselling unusual Difficult to Difficult to

inventoryinventory Quality difficult Quality difficult

to measureto measure Selling is part of Selling is part of

serviceservice

GoodsGoods ServiceService

1515

Goods Versus Services - Goods Versus Services - ContinuedContinued

Product is Product is transportabletransportable

Site of facility Site of facility important for costimportant for cost

Often easy to Often easy to automateautomate

Revenue generated Revenue generated primarily from primarily from tangible producttangible product

Provider, not Provider, not product is product is transportabletransportable

Site of facility Site of facility important for important for customer contactcustomer contact

Often difficult to Often difficult to automateautomate

Revenue generated Revenue generated primarily from primarily from intangibleintangible service. service.

GoodsGoods ServiceService

1616

The Economic System The Economic System Transforms Inputs to OutputsTransforms Inputs to Outputs

The economic system transforms inputs to outputs

Land, Labor, Capital, Management

Goods and Services

Feedback loop

Inputs Process Outputs

1717

Measure of process improvementMeasure of process improvement Represents output relative to inputRepresents output relative to input

Productivity increases improve Productivity increases improve standard of living standard of living

From 1889 to 1973, U.S. productivity From 1889 to 1973, U.S. productivity increased at a 2.5% annual rateincreased at a 2.5% annual rate

ProductivityProductivity

ProductivityProductivityProductivityProductivity UnitsUnits producedproducedUnitsUnits producedproducedInput usedInput usedInput usedInput used= = = =

1818

Measurement ProblemsMeasurement Problems

QualityQuality may change while the may change while the quantity of inputs and outputs quantity of inputs and outputs remains constantremains constant

External elementsExternal elements may cause an may cause an increase or decrease in productivityincrease or decrease in productivity

Precise unitsPrecise units of measure may be of measure may be lackinglacking

1919

Productivity VariablesProductivity Variables

LaborLabor - contributes about 10% of the - contributes about 10% of the annual increaseannual increase

CapitalCapital - contributes about 32% of - contributes about 32% of the annual increasethe annual increase

ManagementManagement - contributes about - contributes about 52% of the annual increase52% of the annual increase

2020

Jobs in the U.SJobs in the U.S

26%

18%

16%

14%

6%6% 5% 5%

3%1%

Education, Health, etc.

Manufacturing

Retail Trade

State & Local Gov't

Finance, Insurance

Wholesale Trade

Transport, Public Util.

Construction

Federal Government

Mining

2121

Productivity Growth 1971- 1992Productivity Growth 1971- 1992

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

5

United StatesWest GermanyJapan

Whole Economy Manufacturing

% p

er y

ear

LaborLabor

2222

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