Operations Management

Chapter 1 Operations and Productivity

PowerPoint presentation to accompany Heizer/Render Principles of Operations Management, 6e Operations Management, 8e
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What Is Operations Management?

Production is the creation of goods and services

Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs
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Organizing to Produce Goods and Services

Essential functions:
Marketing generates demand

Production/operations creates the product

Finance/accounting tracks how well the organization is doing, pays bills, collects the money

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Critical Decisions Made by Operations Managers

Service and product design Quality management Process and capacity design Location Layout design

Human resources and job design

Supply-chain management Inventory planning, and JIT
Table 1.2 (cont.)
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Where are the OM Jobs?

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Figure 1.2

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Characteristics of Goods
Tangible product

Consistent product definition

Production usually separate from consumption Can be inventoried Low customer interaction
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Characteristics of Service
Intangible product

Produced and consumed at same time

Often unique

High customer interaction

Inconsistent product definition Often knowledge-based Frequently dispersed
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Goods Versus Services

Attributes of Goods (Tangible Product) Attributes of Services (Intangible Product)

Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production Product is transportable
Site of facility important for cost Often easy to automate Revenue generated primarily from tangible product
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Reselling unusual Difficult to inventory Quality difficult to measure

Selling is part of service Provider, not product, is often transportable Site of facility important for customer contact Often difficult to automate Revenue generated primarily from the intangible service
Table 1.3
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Goods and Services

Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management Consulting service/ teaching Counseling
100%
|

75
|

50
|

25
|

0
|

25
|

50
|

75
|

100%
|

Percent of Product that is a Good Percent of Product that is a Service

Figure 1.4
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Organizations in Each Sector

Sector Service Manufacturing

Approximate % of all jobs in U.S. Economy

80% (78.6%) 20% (21.4%)

Table 1.4
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Organizations in Each Sector

Manufacturing Sector
Manufacturing Construction Agriculture Mining

Example
General Electric, Ford, U.S. Steel, Intel Bechtel, McDermott King Ranch Homestake Mining

% of all Jobs
11.5 7.9 1.6 0.4

Table 1.4
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Organizations in Each Sector

Service Sector Education, Legal, Medical, and other Trade (retail, wholesale) Utilities, Transportation Example Notre Dame University, San Diego Zoo, Arnold Palmer Hospital Walgreens, Wal-Mart, Nordstroms Pacific Gas & Electric, American Airlines, Santa Fe R.R., Roadway Express % of all Jobs 25.5

15.1 5.2

Table 1.4
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Organizations in Each Sector

Service Sector
Professional and Business Services Finance, Information, Real Estate Food, Lodging, Entertainment Public Administration
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Example
Snelling and Snelling, Waste Management, Pitney-Bowes Citicorp, American Express, Prudential, Aetna, Trammel Crow, EDS, IBM Olive Garden, Hard Rock Cafe, Motel 6, Hilton Hotels, Walt Disney, Paramount Pictures U.S., State of Alabama, Cook County

% of all Jobs
10.1

9.6

8.5

4.6
Table 1.4
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Manufacturing and Service Employment

120 100 80

Employment (millions)

Service

60
40 20 0

Manufacturing
| | | | | | | 1950 1970 1990 2010 (est) 1960 1980 2000

Figure 1.5 (A)

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Development of the Service Economy

United Sta

Cana Fran It

Brit Jap W. Germa

40

50

1970
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2008 (est)

60 70 Percent

80

Figure 1.5 (C)

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Productivity Challenge
Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital)
The objective is to improve this measure of efficiency
Important Note! Production is a measure of output only and not a measure of efficiency
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The Economic System

Inputs
Labor, capital, management

Processes
The U.S. economic system transforms inputs to outputs at about an annual 2.5% increase in productivity per year. The productivity increase is the result of a mix of capital (38% of 2.5%), labor (10% of 2.5%), and management (52% of 2.5%).

Outputs
Goods and services

Feedback loop
Figure 1.7
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Productivity
Units produced Productivity = Input used

Measure of process improvement

Represents output relative to input Only through productivity increases can our standard of living improve
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Productivity Calculations
Labor Productivity
Productivity = Units produced Labor-hours used 1,000 250

= 4 units/labor-hour

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Multi-Factor Productivity
Output Productivity = Labor + Material + Energy + Capital + Miscellaneous
Also known as total factor productivity Output and inputs are often expressed in dollars

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Collins Title Productivity

Old System:

Staff of 4 works 8 hrs/day Payroll cost = $640/day

8 titles/day

8 titles/day Old labor = productivity 32 labor-hrs

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Collins Title Productivity

Old System:

Staff of 4 works 8 hrs/day Payroll cost = $640/day

8 titles/day

8 titles/day Old labor = productivity 32 labor-hrs = .25 titles/labor-hr

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Collins Title Productivity

Old System:

Staff of 4 works 8 hrs/day Payroll cost = $640/day New System:

14 titles/day

8 titles/day

8 titles/day Old labor = productivity 32 labor-hrs = .25 titles/labor-hr 14 titles/day New labor = productivity 32 labor-hrs
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Collins Title Productivity

Old System:

Staff of 4 works 8 hrs/day Payroll cost = $640/day New System:

14 titles/day

8 titles/day

8 titles/day Old labor = productivity 32 labor-hrs = .25 titles/labor-hr 14 titles/day New labor = = .4375 titles/labor-hr productivity 32 labor-hrs
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Collins Title Productivity

Change in Productivity: New Old Old Old Productivity = .25 titles/labor-hr

New Productivity = .4375 titles/labor-hr

.4375 - .2500 = .75 or 75% change .2500
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