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OperationsManagementIntroduction ±Operations and Productivity

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PowerPoint presentation to accompanyPowerPoint presentation to accompany

Heizer/Render Heizer/Render 

Principles of Operations Management, 6ePrinciples of Operations Management, 6e

Operations Management, 8eOperations Management, 8e

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Learning ObjectivesLearning Objectives

When you complete this chapter,When you complete this chapter,you should be able to:you should be able to:

Identify or DefineIdentify or Define::

Diff. in Services & GoodsDiff. in Services & Goods

Operations management (OM)Operations management (OM)

What operations managers doWhat operations managers do

Production and productivity Production and productivity 

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Goods Versus ServicesGoods Versus Services

Table 1.3Table 1.3

Can be resold Can be resold 

Can be inventoried Can be inventoried 

Some aspects of quality Some aspects of quality 

measurablemeasurableSelling is distinct fromSelling is distinct from production production

Product is transportableProduct is transportable

Site of facility important for cost Site of facility important for cost 

Often easy to automateOften easy to automate

Revenue generated primarily Revenue generated primarily from tangible product from tangible product 

 Attributes of Goods Attributes of Goods(Tangible Product)(Tangible Product)

 Attributes of Services Attributes of Services(Intangible Product)(Intangible Product)

Reselling unusual Reselling unusual 

Difficult to inventory Difficult to inventory 

Quality difficult to measureQuality difficult to measure

Selling is part of serviceSelling is part of service

Provider, not product, isProvider, not product, isoften transportableoften transportable

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

Often difficult to automateOften difficult to automate

Revenue generated primarily Revenue generated primarily from the intangible servicefrom the intangible service

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What Is OperationsWhat Is Operations

Management? Management? 

ProductionProduction is the creation of is the creation of 

goods and servicesgoods and services

Operations management (OM) isthe set of activities that creates

value in the form of goods andservices by transforming inputsinto outputs

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Organizing to ProduceOrganizing to Produce

Goods and ServicesGoods and Services

Essential functions:Essential functions:

Marketing Marketing ± ± generates demand generates demand  Production/operationsProduction/operations ± ± createscreates

the product, helps in decisionsthe product, helps in decisions

Finance/accounting Finance/accounting ± ± tracks how tracks how 

well the organization is doing, payswell the organization is doing, paysbills, collects the money bills, collects the money 

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Marketing Sales promotion

 Advertising 

Sales

Market research

Organizational ChartsOrganizational Charts

OperationsFacilities

Construction; maintenance

Production and inventory control Scheduling; materials control 

Quality assurance and control 

Supply-chain management 

Manufacturing Tooling; fabrication; assembly 

Design

Product development and designDetailed product specifications

Industrial engineering Efficient use of machines, space,

and personnel 

Process analysisDevelopment and installation of  production tools and equipment 

Finance/ accounting Disbursements/ credits

ReceivablesPayablesGeneral ledger 

Funds Management 

Money market International 

exchangeCapital requirements

Stock issueBond issue

and recall 

Manufacturing 

Figur e 1.1(C)Figur e 1.1(C)

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Organizational ChartsOrganizational Charts

Operations

Ground support 

equipment Maintenance

Ground Operations

Facility maintenanceCatering 

Flight Operations

Crew scheduling Flying CommunicationsDispatching 

Management science

Finance/ accounting 

 Accounting PayablesReceivablesGeneral Ledger 

Finance

Cash control 

International exchange

 Airline

Figur e 1.1(B)Figur e 1.1(B)

Marketing 

Traffic 

administrationReservationsSchedulesTariffs (pricing)

Sales

 Advertising 

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The Critical DecisionsThe Critical Decisions

Process and capacity designProcess and capacity design

What process and what capacity will What process and what capacity will these products require? these products require? 

What equipment and technology isWhat equipment and technology isnecessary for these processes? necessary for these processes? 

LocationLocation

Where should we put the facility? Where should we put the facility? 

On what criteria should we base theOn what criteria should we base thelocation decision? location decision? 

Table 1.2 (cont.)Table 1.2 (cont.)

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The Critical DecisionsThe Critical Decisions

Layout designLayout design

How should we arrange the facility How should we arrange the facility and material flow? and material flow? 

How large must the facility be to meet How large must the facility be to meet our plan? our plan? 

Human resources and job designHuman resources and job design

How do we provide a reasonable work How do we provide a reasonable work environment? environment? 

How much can we expect our How much can we expect our employees to produce? employees to produce? 

Table 1.2 (cont.)Table 1.2 (cont.)

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The Critical DecisionsThe Critical Decisions

Supply Supply- -chain management chain management 

Should we make or buy this component? Should we make or buy this component? 

Who are our suppliers and who canWho are our suppliers and who canintegrate into our eintegrate into our e- -commerce program? commerce program? 

Inventory, material requirementsInventory, material requirements planning, and JIT  planning, and JIT 

How much inventory of each item should How much inventory of each item should we have? we have? 

When do we reWhen do we re- -order? order? 

Table 1.2 (cont.)Table 1.2 (cont.)

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The Critical DecisionsThe Critical Decisions

Intermediate and short Intermediate and short± ±termtermscheduling scheduling 

 Are we better off keeping people on Are we better off keeping people onthe payroll during slowdowns? the payroll during slowdowns? 

Which jobs do we perform next? Which jobs do we perform next? 

MaintenanceMaintenance

Who is responsible for maintenance? Who is responsible for maintenance? 

When do we do maintenance? When do we do maintenance? 

Table 1.2 (cont.)Table 1.2 (cont.)

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Measure of process improvement

Represents output relative to input

Only through productivity increasescan our standard of living improve

Productivity Productivity 

Productivity =Productivity =Units produced Units produced 

Input used Input used 

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Productivity CalculationsProductivity Calculations

Productivity =Productivity =Units produced Units produced 

Labor Labor- -hours used hours used 

= == = 44 units/labor units/labor- -hour hour 1,0001,000250250

Labor Productivity Labor Productivity 

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Example 1.6 Example 1.6 

Resource Last Year This Year Change Percent Change

Labor 1000

= 3.33

300

 1000

= 3.64

275

  0.310.31

= 9.3%

3.33

 

Resin1000

= 2050

 1000

= 22.2245

  2.222.22

=11.1%20

 

Capital1000

= 0.110000

 1000

= 0.0911000

  ±0.01 ±0.01

= ±10.0%0.1

 

Energy1000

= 0.333000

 1000

= 0.352850

 0.02

0.02= 6.1%

0.33 

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Multi Multi- -Factor Productivity Factor Productivity 

Output Output 

Labor + Material + Energy Labor + Material + Energy + Capital + Miscellaneous+ Capital + Miscellaneous

Productivity =Productivity =

 Also known as total factor productivity  Also known as total factor productivity  Output and inputs are often expressed Output and inputs are often expressed 

in dollarsin dollars

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Example 1.7 Example 1.7 

  L  Ye r  T  Ye r Production 1,000 1,000

La or Hr. @ $10 $3,000 $2,750

Re in @ $5 250 225Ca ita cost/month 100 110

Energy 1,500 1,425

$4,850 $4,510

![(1,000 / 4,850) (1,000 / 4,510)]

(1,000 / 4,850)  0.206 0.222 0.016

7.8% improvement0.206 0.206

!  

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Service Productivity Service Productivity 

Typically labor intensiveTypically labor intensive

Frequently focused on uniqueFrequently focused on uniqueindividual attributes or desiresindividual attributes or desires

Often an intellectual task performed by Often an intellectual task performed by  professionals professionals

Often difficult to mechanizeOften difficult to mechanize Often difficult to evaluate for quality Often difficult to evaluate for quality