16/09/15

Operations and
Productivity

PowerPoint presentation to accompany

Heizer and Render
Operations Management, 10e
Principles of Operations Management, 8e
PowerPoint slides by Jeff Heyl

2011 Pearson Education, Inc. publishing as Prentice Hall

1-1

What Is Operations
Management?
Production is the creation of
goods and services
Operations management (OM) is
the set of activities that create
value in the form of goods and
services by transforming inputs
into outputs
2011 Pearson Education, Inc. publishing as Prentice Hall

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Organizing to Produce
Goods and Services
u Essential functions:
1. Marketing generates demand
2. Production/operations creates
the product
3. Finance/accounting tracks how
well the organization is doing,
pays bills, collects the money

2011 Pearson Education, Inc. publishing as Prentice Hall

1-3

Why Study OM?

1. OM is one of three major functions of
any organization, we want to study
how people organize themselves for
productive enterprise
2. We want (and need) to know how
goods and services are produced
3. We want to understand what
operations managers do
4. OM is such a costly part of an
organization
2011 Pearson Education, Inc. publishing as Prentice Hall

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Options for Increasing

Contribution
Marketing
Option

Current
Sales
Cost of Goods
Gross Margin
Finance Costs
Subtotal
Taxes at 25%
Contribution

Finance/
Accounting
Option

Increase
Reduce
Sales
Finance
Revenue 50% Costs 50%

$100,000
80,000
20,000
6,000
14,000
3,500
$ 10,500

$150,000
120,000
30,000
6,000
24,000
6,000
$ 18,000

$100,000
80,000
20,000
3,000
17,000
4,250
$ 12,750

2011 Pearson Education, Inc. publishing as Prentice Hall

OM
Option
Reduce
Production
Costs 20%
$100,000
64,000
36,000
6,000
30,000
7,500
$ 22,500
Table 1.1

1-5

What Operations
Managers Do
Basic Management Functions
u Planning
u Organizing
u Staffing
u Leading
u Controlling
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The Critical Decisions

Design of goods and services
What good or service should we
offer?
How should we design these products
and services?

Managing quality
How do we define quality?
Who is responsible for quality?

Table 1.2 (cont.)

1-7

The Critical Decisions

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

Location strategy
Where should we put the facility?
On what criteria should we base the
location decision?
Table 1.2 (cont.)
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The Critical Decisions

Layout strategy
How should we arrange the facility?
How large must the facility be to meet
our plan?

Human resources and job design

How do we provide a reasonable work
environment?
How much can we expect our
employees to produce?
Table 1.2 (cont.)
1-9

The Critical Decisions

Supply chain management
Should we make or buy this component?
Who are our suppliers and who can
integrate into our e-commerce program?

Inventory, material requirements

planning, and JIT
How much inventory of each item should
we have?
When do we re-order?
Table 1.2 (cont.)
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The Critical Decisions

Intermediate and shortterm
scheduling
Are we better off keeping people on
the payroll during slowdowns?
Which jobs do we perform next?

Maintenance
Who is responsible for maintenance?
When do we do maintenance?
Table 1.2 (cont.)
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Where are the OM Jobs?

Figure 1.2

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Significant Events in OM

Figure 1.3
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The Heritage of OM
u Division of labor (Adam Smith 1776;
Charles Babbage 1852)
u Standardized parts (Whitney 1800)
u Scientific Management (Taylor 1881)
u Coordinated assembly line (Ford/
Sorenson 1913)
u Gantt charts (Gantt 1916)
u Motion study (Frank and Lillian Gilbreth
1922)
u Quality control (Shewhart 1924; Deming
1950)
2011 Pearson Education, Inc. publishing as Prentice Hall

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The Heritage of OM
u Computer (Atanasoff 1938)
u CPM/PERT (DuPont 1957, Navy 1958)
u Material requirements planning (Orlicky 1960)
u Computer aided design (CAD 1970)
u Flexible manufacturing system (FMS 1975)
u Baldrige Quality Awards (1980)
u Computer integrated manufacturing (1990)
u Globalization (1992)
u Internet (1995)
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Frederick W. Taylor
u Born 1856; died 1915
u Known as father of scientific
management
u In 1881, as chief engineer for
Midvale Steel, studied how tasks
were done
u Began first motion and time studies

u Created efficiency principles

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Taylors Principles
Management Should Take More
Responsibility for:
u Matching employees to right job
u Providing the proper training
u Providing proper work methods and
tools
u Establishing legitimate incentives for
work to be accomplished
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Henry Ford
u Born 1863; died 1947
u In 1903, created Ford Motor
Company
u In 1913, first used moving assembly
line to make Model T
uUnfinished product moved by
conveyor past work station

u Paid workers very well for 1911 ($5/

day!)
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W. Edwards Deming
u Born 1900; died 1993
u Engineer and physicist
u Credited with teaching Japan
quality control methods in postWW2
u Used statistics to analyze process
u His methods involve workers in
decisions
2011 Pearson Education, Inc. publishing as Prentice Hall

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New Challenges in OM
From

To

uLocal or national focus

uGlobal focus

uBatch shipments

uJust-in-time

uLow bid purchasing

uSupply-chain
partnering

uLengthy product
development

uRapid product
development,
alliances

uStandard products

uMass
customization

uJob specialization

uEmpowered
employees, teams

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Characteristics of Goods
u Tangible product
u Consistent product
definition
u Production usually
separate from
consumption
u Can be inventoried
u Low customer
interaction
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Characteristics of Service
u Intangible product
u Produced and
consumed at same time
u Often unique
u High customer
interaction
u Inconsistent product
definition
u Often knowledge-based
u Frequently dispersed
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Industry and Services as

Percentage of GDP
90

Services

80

Manufacturing

70
60
50
40
30
20

2011 Pearson Education, Inc. publishing as Prentice Hall

US

UK

Spain

South Africa

Russian Fed

Mexico

Japan

Hong Kong

Germany

France

Czech Rep

China

Canada

Australia

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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

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Manufacturing and Service

Employment
Employment (millions)

120
100

Service

80
60
40

Manufacturing

20
0

|
|
|
|
|
|
|
1950
1970
1990 2010 (est)
1960
1980
2000
Figure 1.4 (A)

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Industrial
production
(right scale)

150
125
100
75

40
30
20
10
0

Manufacturing 50
employment
(left scale)

Index: 1997 = 100

Employment (millions)

Manufacturing Employment
and Production

25
|
1950

|
|
|
|
| 0
1970
1990 2010 (est)
1960
1980
2000
Figure 1.4 (B)

2011 Pearson Education, Inc. publishing as Prentice Hall

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New Trends in OM
u Ethics
u Global focus
u Environmentally sensitive production
u Rapid product development
u Environmentally sensitive production
u Mass customization
u Empowered employees
u Supply-chain partnering
u Just-in-time performance
2011 Pearson Education, Inc. publishing as Prentice Hall

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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 productivity!
Important Note!
Production is a measure of output
only and not a measure of efficiency

2011 Pearson Education, Inc. publishing as Prentice Hall

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Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Stop requiring signatures
on credit card purchases
under $25

Saved 8 seconds
per transaction

Change the size of the ice

scoop

Saved 14 seconds
per drink

New espresso machines

Saved 12 seconds
per shot

2011 Pearson Education, Inc. publishing as Prentice Hall

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Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:

Operations improvements have

helped Starbucks
increase
yearly
Stop requiring signatures
Saved
8 seconds
revenue per outlet
$200,000 to
on credit card purchases
perby
transaction
$940,000 in six years.
under $25
improved
by 27%,
Change the sizeProductivity
of the ice hasSaved
14 seconds
or about 4.5% per
scoop
peryear.
drink
New espresso machines

2011 Pearson Education, Inc. publishing as Prentice Hall

Saved 12 seconds
per shot
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Productivity
Productivity =

Units produced
Input used

u Measure of process improvement

u Represents output relative to input
u Only through productivity increases
can our standard of living improve
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Productivity Calculations
Labor Productivity
Units produced
Labor-hours used

Productivity =

1,000
= 4 units/labor-hour
250

One resource input single-factor productivity

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Multi-Factor Productivity
Productivity =

Output
Labor + Material + Energy
+ Capital + Miscellaneous

u Also known as total factor productivity

u Output and inputs are often expressed
in dollars
Multiple resource inputs multi-factor productivity
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Measurement Problems
1. Quality may change while the
quantity of inputs and outputs
remains constant
2. External elements may cause an
increase or decrease in
productivity
u Precise units of measure may be
lacking

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Key Variables for Improved

Labor Productivity
1. Basic education appropriate for the
labor force
2. Diet of the labor force
3. Social overhead that makes labor
available
u Challenge is in maintaining and
enhancing skills in the midst of rapidly
changing technology and knowledge
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Service Productivity
1. Typically labor intensive
2. Frequently focused on unique individual
attributes or desires
3. Often an intellectual task performed by
professionals
4. Often difficult to mechanize
5. Often difficult to evaluate for quality

2011 Pearson Education, Inc. publishing as Prentice Hall

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Ethics and
Social Responsibility
Challenges facing
operations managers:
u Developing and producing safe,
quality products
u Maintaining a clean environment
u Providing a safe workplace
u Honoring stakeholder commitments
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