Heizer_01 Operations and Productivity

© 2008 Prentice Hall, Inc. 1 – 1

Operations ManagementOperations ManagementChapter 1 – Chapter 1 – Operations and Operations and ProductivityProductivity

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OutlineOutline

Global Company Profile: Hard Rock Global Company Profile: Hard Rock CafeCafe

What Is Operations Management?What Is Operations Management?

Organizing to Produce Goods and Organizing to Produce Goods and Services Services

Why Study OM?Why Study OM?

What Operations Managers DoWhat Operations Managers Do How This Book Is OrganizedHow This Book Is Organized


Outline - ContinuedOutline - Continued

The Heritage of Operations The Heritage of Operations ManagementManagement

Operations in the Service SectorOperations in the Service Sector Differences between Goods and Differences between Goods and

ServicesServices

Growth of ServicesGrowth of Services

Service PayService Pay

Exciting New Trends in Operations Exciting New Trends in Operations ManagementManagement


Outline - ContinuedOutline - Continued

The Productivity ChallengeThe Productivity Challenge Productivity MeasurementProductivity Measurement

Productivity VariablesProductivity Variables

Productivity and the Service Sector Productivity and the Service Sector

Ethics and Social ResponsibilityEthics and Social Responsibility


Learning ObjectivesLearning Objectives

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

1.1. Define operations managementDefine operations management

2.2. Explain the distinction between Explain the distinction between goods and servicesgoods and services

3.3. Explain the difference between Explain the difference between production and productivityproduction and productivity


Learning ObjectivesLearning Objectives

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

4.4. Compute single-factor Compute single-factor productivityproductivity

5.5. Compute multifactor productivityCompute multifactor productivity

6.6. Identify the critical variables in Identify the critical variables in enhancing productivityenhancing productivity



What Is Operations What Is Operations Management?Management?

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

Operations management (OM)Operations management (OM) is the set of activities that is the set of activities that

creates value in the form of creates value in the form of goods and services by goods and services by

transforming inputs into transforming inputs into outputsoutputs


Organizing to Produce Organizing to Produce Goods and ServicesGoods and Services

Essential functions:Essential functions: Marketing – generates demandMarketing – generates demand

Production/operations – creates Production/operations – creates the productthe product

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


Organizational ChartsOrganizational Charts

OperationsTeller SchedulingCheck ClearingCollectionTransaction processingFacilities design/layoutVault operationsMaintenanceSecurity

FinanceInvestmentsSecurityReal estate

Accounting

Auditing

MarketingLoans Commercial Industrial Financial Personal Mortgage

Trust Department

Commercial Bank

Figure 1.1(A)Figure 1.1(A)



OperationsGround support equipmentMaintenanceGround Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications DispatchingManagement science

Finance/ accountingAccounting Payables Receivables General LedgerFinance Cash control International exchange

Airline

MarketingTraffic administration Reservations Schedules Tariffs (pricing)SalesAdvertising


MarketingSales promotionAdvertisingSalesMarket research


OperationsFacilities Construction; maintenance

Production and inventory control Scheduling; materials control

Quality assurance and controlSupply chain managementManufacturing Tooling; fabrication; assembly

Design Product development and design Detailed product specifications

Industrial engineering Efficient use of machines, space, and personnel

Process analysis Development and installation of production tools and equipment

Finance/ accountingDisbursements/ credits Receivables Payables General ledgerFunds Management Money market International exchangeCapital requirements Stock issue Bond issue and recall

Manufacturing


Why Study OM?Why Study OM?

OM is one of three major functions OM is one of three major functions (marketing, finance, and operations) (marketing, finance, and operations) of any organizationof any organization

We want (We want (and needand need) to know how ) to know how goods and services are producedgoods and services are produced

We want to understand what We want to understand what operations managers dooperations managers do

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


What Operations What Operations Managers DoManagers Do

PlanningPlanning

OrganizingOrganizing

StaffingStaffing

LeadingLeading

ControllingControlling

Basic Management FunctionsBasic Management Functions


Ten Critical DecisionsTen Critical DecisionsTen Decision AreasTen Decision Areas

Design of goods and servicesDesign of goods and services Managing qualityManaging quality Process and capacity Process and capacity

design design Location strategyLocation strategy Layout strategyLayout strategy Human resources and Human resources and

job design job design Supply chain Supply chain

management management Inventory managementInventory management SchedulingScheduling MaintenanceMaintenance


The Critical DecisionsThe Critical Decisions

Design of goods and servicesDesign of goods and services What good or service should we What good or service should we

offer?offer? How should we design these products How should we design these products

and services? and services?

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



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 is What equipment and technology is necessary for these processes?necessary for these processes?

Location strategyLocation strategy Where should we put the facility?Where should we put the facility?

On what criteria should we base the On what criteria should we base the location decision?location decision?


The Critical DecisionsThe Critical Decisions Layout strategyLayout strategy

How should we arrange the facility?How should we arrange the facility?

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?



Supply chain managementSupply chain management Should we make or buy this component?Should we make or buy this component?

Who are our suppliers and who can Who are our suppliers and who can integrate into our e-commerce program?integrate into our e-commerce program?

Inventory, material requirements Inventory, material requirements planning, and JITplanning, and JIT How much inventory of each item should How much inventory of each item should

we have?we have?

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



Intermediate and shortIntermediate and short––term term schedulingscheduling Are we better off keeping people on Are we better off keeping people on

the 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?


Where are the OM Jobs?Where are the OM Jobs?


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


Significant Events in OMSignificant Events in OM


Contributions FromContributions From

Human factorsHuman factors

Industrial engineeringIndustrial engineering

Management scienceManagement science

Biological scienceBiological science

Physical sciencesPhysical sciences

Information technology Information technology


New Challenges in OMNew Challenges in OM

Global focusGlobal focus

Just-in-timeJust-in-time

Supply chain Supply chain partneringpartnering

Rapid product Rapid product development, development, alliancesalliances

Mass Mass customizationcustomization

Empowered Empowered employees, teamsemployees, teams

ToToFromFrom Local or national focusLocal or national focus

Batch shipmentsBatch shipments

Low bid purchasingLow bid purchasing

Lengthy product Lengthy product developmentdevelopment

Standard productsStandard products

Job specializationJob specialization


Characteristics of GoodsCharacteristics of Goods

Tangible productTangible product

Consistent product Consistent product definitiondefinition

Production usually Production usually separate from separate from consumptionconsumption

Can be inventoriedCan be inventoried

Low customer Low customer interactioninteraction


Characteristics of ServiceCharacteristics of Service Intangible productIntangible product

Produced and Produced and consumed at same timeconsumed at same time

Often uniqueOften unique

High customer High customer interactioninteraction

Inconsistent product Inconsistent product definitiondefinition

Often knowledge-basedOften knowledge-based

Frequently dispersedFrequently dispersed


Industry and Services as Industry and Services as Percentage of GDPPercentage of GDP

ServicesServices ManufacturingManufacturing

Au

stra

liaA

ust

ralia

Can

ada

Can

ada

Ch

ina

Ch

ina

Cze

ch R

epC

zech

Rep

Fra

nce

Fra

nce

Ger

man

yG

erm

any

Ho

ng

Ko

ng

Ho

ng

Ko

ng

Jap

anJa

pan

Mex

ico

Mex

ico

Ru

ssia

n F

edR

uss

ian

Fed

So

uth

Afr

ica

So

uth

Afr

ica

Sp

ain

Sp

ain

UK

UK

US

US

90 90 −

80 80 −

70 70 −

60 60 −

50 50 −

40 40 −

30 30 −

20 20 −

10 10 −

00 −


Goods Versus ServicesGoods Versus Services

Table 1.3Table 1.3

Can be resoldCan be resold

Can be inventoriedCan be inventoried

Some aspects of quality Some aspects of quality measurablemeasurable

Selling is distinct from Selling is distinct from productionproduction

Product is transportableProduct is transportable

Site of facility important for costSite of facility important for cost

Often easy to automateOften easy to automate

Revenue generated primarily Revenue generated primarily from tangible productfrom tangible product

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

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

Reselling unusualReselling unusual

Difficult to inventoryDifficult to inventory

Quality difficult to measureQuality difficult to measure

Selling is part of service Selling is part of service

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

Site of facility important forSite of facility important forcustomer contactcustomer contact

Often difficult to automateOften difficult to automate

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


Goods and ServicesGoods and ServicesAutomobile

Computer

Installed carpeting

Fast-food meal

Restaurant meal/auto repair

Hospital care

Advertising agency/investment management

Consulting service/teaching

Counseling

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

100%100% 7575 5050 2525 00 2525 5050 7575 100%100%|| || || || || || || || ||


New Trends in OMNew Trends in OM

Local or Local or national national focusfocus

Reliable worldwide Reliable worldwide communication and communication and transportation networkstransportation networks

Global focus, Global focus, moving moving production production offshoreoffshore

Batch (large) Batch (large) shipmentsshipments

Short product life cycles Short product life cycles and cost of capital put and cost of capital put pressure on reducing pressure on reducing inventoryinventory

Just-in-time Just-in-time performanceperformance

Low-bid Low-bid purchasingpurchasing

Supply chain competition Supply chain competition requires that suppliers be requires that suppliers be engaged in a focus on the engaged in a focus on the end customerend customer

Supply chain Supply chain partners, partners, collaboration, collaboration, alliances, alliances, outsourcingoutsourcing

Figure 1.6Figure 1.6

PastPast CausesCauses FutureFuture



Lengthy Lengthy product product developmentdevelopment

Shorter life cycles, Shorter life cycles, Internet, rapid international Internet, rapid international communication, computer-communication, computer-aided design, and aided design, and international collaborationinternational collaboration

Rapid product Rapid product development, development, alliances, alliances, collaborative collaborative designsdesigns

Standardized Standardized productsproducts

Affluence and worldwide Affluence and worldwide markets; increasingly markets; increasingly flexible production flexible production processesprocesses

Mass Mass customization customization with added with added emphasis on emphasis on qualityquality

Job Job specializationspecialization

Changing socioculture Changing socioculture milieu; increasingly a milieu; increasingly a knowledge and information knowledge and information societysociety

Empowered Empowered employees, employees, teams, and lean teams, and lean productionproduction





Low-cost Low-cost focusfocus

Environmental issues, ISO Environmental issues, ISO 14000, increasing disposal 14000, increasing disposal costscosts

Environmentally Environmentally sensitive sensitive production, green production, green manufacturing, manufacturing, recycled recycled materials, materials, remanufacturingremanufacturing

Ethics not Ethics not at forefrontat forefront

Businesses operate more Businesses operate more openly; public and global openly; public and global review of ethics; opposition review of ethics; opposition to child labor, bribery, to child labor, bribery, pollutionpollution

High ethical High ethical standards and standards and social social responsibility responsibility expectedexpected





Global focusGlobal focus Just-in-time performanceJust-in-time performance Supply chain partneringSupply chain partnering Rapid product developmentRapid product development Mass customizationMass customization Empowered employeesEmpowered employees Environmentally sensitive productionEnvironmentally sensitive production EthicsEthics


FeedbackFeedback looploop

OutputsOutputs

Goods and

services

ProcessesProcesses

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%).

The Economic SystemThe Economic System

InputsInputs

Labor,capital,

management



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


Ethics and Social ResponsibilityEthics and Social Responsibility

Challenges facing Challenges facing operations managers:operations managers:

Developing and producing safe, Developing and producing safe, quality productsquality products

Maintaining a clean environmentMaintaining a clean environment

Providing a safe workplaceProviding a safe workplace

Honoring community commitmentsHonoring community commitments

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Heizer_01 Operations and Productivity