Introduction to Production & Operations Management

What is POM?
Production is the creation of goods and services Production and/or Operations Management are the activities that transform resources into goods and services

Why Study POM?

It is one of the 3 critical parts of any organization:
Marketing generates demand Operations creates the product Finance/accounting tracks organizational performance, pays bills, collects money

It shows us how goods and services are produced It shows us what POM managers do It is the most costly part of any organization

Jobs in POM
Less than 20% of all jobs are in manufacturing (and they are declining) Almost 60% of jobs are in the service sector (and they are increasing) Nearly half of all jobs are in POM Most POM jobs are professional and/or managerial

The Critical Decisions

Quality management
Who is responsible for quality? How do we define quality?

Service and product design

What product or service should we offer? How should we design these products and services?

The Critical Decisions - Continued

Process and capacity design
What processes will these products require and in what order? What equipment and technology is necessary for these processes?

Location
Where should we put the facility On what criteria should we base this location decision?

The Critical Decisions - Continued

Layout design
How should we arrange the facility? How large a facility is required?

Human resources and job design

How do we provide a reasonable work environment? How much can we expect our employees to produce?

The Critical Decisions - Continued

Supply chain management
Should we make or buy this item? Who are our good suppliers and how many should we have?

Inventory, material requirements planning,

How much inventory of each item should we have? When do we re-order?

The Critical Decisions - Continued

Intermediate, short term, and project scheduling
Is subcontracting production a good idea? Are we better off keeping people on the payroll during slowdowns?

Maintenance
Who is responsible for maintenance? When do we do maintenance?

Significant Events in POM

Division of labor (Adam Smith, The Wealth of Nations, 1776) Industrial Revolution Standardization of parts (Eli Whitney, 1765 - 1825)
Cotton Gin (1792) Contract with U.S. for muskets (1798)
Some doubt about true interchangeability Simeon North (Middletown) John Hall (Harpers Ferry)

Significant Events in POM (cont.)

Scientific management (Frederick Taylor 1865 - 1915)
The Principles of Scientific Management, 1911
Match employees to jobs Provide the proper training Provide the proper methods and tools Establish legitimate incentives

Significant Events in POM (cont.)

Taylors 4 Principles of Scientific Management:

Replace rule-of-thumb work methods with methods based on a scientific study of the tasks Scientifically select, train, and develop each worker rather than passively leaving them to train themselves Cooperate with the workers to ensure that the scientifically developed methods are being followed Divide work nearly equally between managers and workers, so that the managers apply scientific management principles to planning the work and the workers actually perform the tasks

Significant Events in POM (cont.)

Coordinated assembly line (Henry Ford 1863 -1947) Gantt charts (Henry Gantt 1861-1919) Motion studies (Frank and Lillian Gilbreth, 1922) Quality control (Shewhart, Juran, Feigenbaum, Deming, Taguchi, etc.) CAD Flexible manufacturing systems (FMS) Computer integrated manufacturing (CIM)

New Challenges in OM
From

To

Local or national focus Batch shipments Low bid purchasing Lengthy product development cycles Standardized products Job specialization

Global focus Just-in-time Supply chain partnering Rapid product development Strategic alliances Mass customization Empowered employees Teams

Goods vs. Services

Characteristics of Goods

Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction

1995 Corel Corp.

Characteristics of Services

Intangible product Produced & consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed
1995 Corel Corp.

Goods vs. Services

Goods Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production Service Reselling unusual Difficult to inventory Quality difficult to measure
Selling

is part of

service

Goods vs. Services - Continued

Goods
Product is transportable Site of facility important for cost Often easy to automate Revenue generated primarily from tangible product

Service
Provider, not product is transportable Site of facility important for customer contact Often difficult to automate Revenue generated primarily from intangible service

Goods Contain Services / Services Contain Goods

Automobile Computer Installed Carpeting Fast-food Meal Restaurant Meal Auto Repair Hospital Care Advertising Agency Investment Management Consulting Service Counseling 100
Percent of Product that is a Good

75

50

25

Percent of Product that is a Service

25

50

75

100

New Challenges in Operations Management

Changing Challenges for the Operations Manager

Past
Local or national focus Batch (large) shipments Low-bid purchasing Lengthy product development

Causes
Low-cost, reliable worldwide communication and transportation networks Cost of capital puts pressure on reducing investment in inventory Quality emphasis requires that suppliers be engaged in product improvement Shorter life cycles, rapid international communication, computer-aided design, and international collaboration

Future
Global Focus Just-in-time shipments Supply-chain partners Rapid product development, alliances, collaborative designs

Changing Challenges for the Operations Manager

The Productivity Challenge

The Economic System Transforms Inputs to Outputs

Inputs
Land, Labor, Capital, Management

Process
The economic system transforms inputs to outputs at about an annual 2.5% increase in productivity (capital 38% of 2.5%), labor (10% of 2.5%), management (52% of 2.5%)
Feedback loop

Outputs
Goods and Services

Productivity
Measure of process improvement Represents output relative to input

Productivity

Units produced = Input used

Only through productivity increases can our standard of living improve

Adam Smith on Productivity

He asserted that ten workers could produce 48,000 pins per day if each of eighteen specialized tasks was assigned to particular workers. Average productivity: 4,800 pins per worker per day. But absent the division of labor, a worker would be lucky to produce even one pin per day.

Henry Ford on Productivity

In 1907, Henry Ford announced his goal for the Ford Motor Company: to create "a motor car for the great multitude." At that time, automobiles were expensive, custom-made machines. Ford realized he'd need a more efficient way to produce the Model T in order to lower the price. He and his team looked at other industries and found four principles that would further their goal:
Interchangeable parts Continuous flow Division of labor Reducing wasted effort

Frank Gilbreth on Productivity

improved a five-thousand-year-old job and had enabled bricklayers to lay brick faster with less effort and fatigue. On one particularly difficult type of wall, where the previous record had been 120 bricks per hour, his methods allowed them to lay 350 bricks, an increase in productivity of over 190%.

Walter Shewhart on Productivity

the original notions of Total Quality Management and continuous improvement trace back to a former Bell Telephone employee named Walter Shewhart. One of W. Edwards Deming's teachers, he preached the importance of adapting management processes to create profitable situations for both businesses and consumers, promoting the utilization of his own creation: the SPC chart.

Impact of Quality Improvement

Productivity improved Costs were pared Wages increased

Parts per man hour

Cost per unit decreased

$2.25
$2.00 $1.75 $1.50

Average worker's annual cash compensation increased

115 110 105 100 95 Year A Year B Year C

27000 26000

25000
24000 Year A Year B Year C Year A Year B Year C

Measurement Problems
Quality may change while the quantity of inputs and outputs remains constant External elements may cause an increase or decrease in productivity Precise units of measure may be lacking

Productivity Increase
Labor - contributes about 10% of the annual increase Capital - contributes about 32% of the annual increase Management - contributes about 52% of the annual increase

Key Variables for Improved Labor Productivity

Basic education appropriate for the labor force Diet of the labor force Social overhead that makes labor available Maintaining and enhancing skills in the midst of rapidly changing technology and knowledge

Comparison of Productivity

Service Productivity
Typically labor intensive Frequently individually processed Often an intellectual task performed by professionals Often difficult to mechanize Often difficult to evaluate for quality

Current Trends
U.S. is becoming more of a knowledge intensive service economy Globalization Total Quality Control Need for flexibility and innovation