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Operations Operations ManagementManagement

Operations and ProductivityOperations and ProductivityChapter 1Chapter 1

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OutlineOutline Global company profile: WhirlpoolGlobal company profile: Whirlpool What is Operations Management?What is Operations Management?

– The heritage of Operations ManagementThe heritage of Operations Management– Why study OM?Why study OM?– What Operations Managers doWhat Operations Managers do

Organizing to produce goods and servicesOrganizing to produce goods and services Where are the OM jobs?Where are the OM jobs?

– Exciting new trends in Operations ManagementExciting new trends in Operations Management Operations in the service sectorOperations in the service sector The Productivity challengeThe Productivity challenge

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Learning ObjectivesLearning ObjectivesWhen you complete this chapter, you should be When you complete this chapter, you should be

able to:able to: Identify or DefineIdentify or Define::

– Production and productivityProduction and productivity– Operations Management (OM)Operations Management (OM)– What operations managers doWhat operations managers do– ServicesServices

Describe or ExplainDescribe or Explain::– A brief history of operations managementA brief history of operations management– The future of the disciplineThe future of the discipline– Measuring productivityMeasuring productivity

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Whirlpool Case ExampleWhirlpool Case Example Change in attitude - employees “live quality”Change in attitude - employees “live quality” Training - “use your heads as well as your Training - “use your heads as well as your

hands”hands” Flexible work rulesFlexible work rules Gain-sharingGain-sharing Global procurementGlobal procurement Role of information/information technologyRole of information/information technology Adoption of a Worldwide strategyAdoption of a Worldwide strategy

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Whirlpool’s Management TeamWhirlpool’s Management Team Whirlpool Corporation’s management team Whirlpool Corporation’s management team

believes in the company’s values-based believes in the company’s values-based strategystrategy. .

TeamworkTeamwork: From the first to the last, : From the first to the last, they take each step forward as a team. they take each step forward as a team.

InnovationInnovation is a key strategy of Whirlpool is a key strategy of Whirlpool Corporation, and an essential part of the Corporation, and an essential part of the company's long-term growth.  company's long-term growth. 

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What Is Operations What Is Operations Management?Management?

Operations managementOperations management is the set of is the set of activities that creates goods and services activities that creates goods and services by transforming inputs into outputsby transforming inputs into outputs

ProductionProduction is the creation of goods and is the creation of goods and servicesservices

Transformation process

Human inputs

Raw materials

Services

Goods

INPUTS OUTPUTS

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Significant Events ISignificant Events I

Division of labor (Division of labor (SmithSmith, 1776) , 1776)

Standardized parts (Standardized parts (WhitneyWhitney, 1800), 1800)

Scientific management (Scientific management (TaylorTaylor, 1881), 1881)

Ada Smith treats the topic of the division of labor

Eli Whitney introduced concept of standard interchangeable parts in 1799

He described how the application of the scientific method to the management of workers greatly could improve productivity

The origins of Operations Management can be traced back to the The origins of Operations Management can be traced back to the Industrial Revolution (in the late 18th and early 19th centuries ) Industrial Revolution (in the late 18th and early 19th centuries )

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Significant Events IISignificant Events II Coordinated assembly line (Coordinated assembly line (FordFord 1913) 1913)

Gantt charts (Gantt charts (GanttGantt, 1916), 1916)

Motion study (Motion study (the Gilbrethsthe Gilbreths, 1922) , 1922)

Quality control (Quality control (ShewhartShewhart, 1924), 1924)

Manufacturing process in which interchangeable parts are added to a product in a sequential manner to create a finished product faster than with handcrafting-type methods

Gantt designed his charts so that foremen or other supervisors could quickly know whether production was on schedule, ahead of schedule or behind schedule

From their various studies the Gilbreths developed, the laws of human motion from which evolved the principles of motion economy

Father of statistical quality control

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Significant Events IIISignificant Events III CPM / PERTCPM / PERT (Dupont, 1957) (Dupont, 1957)

MRPMRP (Orlicky, 1960) (Orlicky, 1960)

CADCAD Flexible manufacturing systems (Flexible manufacturing systems (FMSFMS)) Manufacturing automation protocol (Manufacturing automation protocol (MAPMAP)) Computer integrated manufacturing (Computer integrated manufacturing (CIMCIM))

CPM: Critical Path Method, is used to determine what is the shortest time to carry out the project

PERT: Program (or Project) Evaluation and Review Technique, is a technique developed in the mid-50, used to program and control programmes to be carried out

Material Requirements Planning (MRP) is a software based production planning and inventory control system used to manage manufacturing processes.

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Why Study OM?Why Study OM? OM is one of three major functions (OM is one of three major functions (marketing, marketing,

finance, and operationsfinance, and operations) of any organization) of any organization

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

We want to know what operations managers We want to know what operations managers dodo

OM is such a costly part of an organizationOM is such a costly part of an organization

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Why do I need OM in the future?Why do I need OM in the future? Many graduates are expected to rise to senior Many graduates are expected to rise to senior

management levelsmanagement levels

OM is the central core function of every companyOM is the central core function of every company

Regardless of whether your area of expertise is, Regardless of whether your area of expertise is, the techniques and concepts of OM will help you the techniques and concepts of OM will help you in your business careerin your business career

Knowledge of OM will allow your future company Knowledge of OM will allow your future company to offer products and services cheaper, better, to offer products and services cheaper, better, and faster.and faster.

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What Operations Managers Do?What Operations Managers Do? PlanPlan: : planning the schedule according planning the schedule according

to sales demand (defining priorities)to sales demand (defining priorities) OrganizeOrganize: : ensuring effective ensuring effective

production of goods and servicesproduction of goods and services StaffStaff: : motivating and monitoringmotivating and monitoring LeadLead: : developing and cascading the developing and cascading the

organizations strategyorganizations strategy ControlControl: : creating and maintaining a creating and maintaining a

positive flow of work positive flow of work

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Ten Critical DecisionsTen Critical Decisions Service, product designService, product design Quality managementQuality management Process, capacity designProcess, capacity design LocationLocation Layout designLayout design Human resources, job design.Human resources, job design. Supply-chain managementSupply-chain management Inventory management Inventory management SchedulingScheduling MaintenanceMaintenance

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Organizational FunctionsOrganizational Functions MarketingMarketing

– Gets customers. It includes Gets customers. It includes advertising, advertising, distribution and sellingdistribution and selling

OperationsOperations– Creates product or serviceCreates product or service– Is Is is the activity you carry outis the activity you carry out

Finance/AccountingFinance/Accounting– Obtains funds Obtains funds funds for businessfunds for business– Tracks moneyTracks money

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Where are the OM Jobs?Where are the OM Jobs? As we said, As we said, OM is the central core function of every OM is the central core function of every

company, so there are a great variety of jobs in this company, so there are a great variety of jobs in this field:field:

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

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New Challenges in OMNew Challenges in OM

Local or national Local or national focusfocus

Batch shipmentsBatch shipments Low bid purchasingLow bid purchasing

Lengthy product Lengthy product developmentdevelopment

Standard productsStandard products Job specializationJob specialization

Global focusGlobal focus Just-in-timeJust-in-time

Supply chain Supply chain partneringpartnering

Rapid product Rapid product development, development, alliancesalliances

Mass customizationMass customization Empowered Empowered

employees, teamsemployees, teams

BeforeBefore AfterAfter

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Characteristics of GoodsCharacteristics of Goods

Tangible productTangible product Consistent product definitionConsistent product definition Production usually separate from Production usually separate from

consumptionconsumption Can be inventoried Can be inventoried thereby giving system thereby giving system

designers additional degrees of freedomdesigners additional degrees of freedom

Low customer interactionLow customer interaction

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Characteristics of GoodsCharacteristics of Goods

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Characteristics of ServiceCharacteristics of Service

Intangible product. Intangible product. No physical formNo physical form

Produced & consumed at same timeProduced & consumed at same time Often uniqueOften unique High customer interactionHigh customer interaction Inconsistent product definitionInconsistent product definition Often knowledge-based. Often knowledge-based. Labor intensive (well-Labor intensive (well-

trained humans)trained humans)

Frequently dispersedFrequently dispersed

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Characteristics of ServiceCharacteristics of Service

Service transactions are repetitive. Service transactions are repetitive. Service Service needs are continuous. needs are continuous.

The arrival rate of service request is The arrival rate of service request is random.random.

Nature of service demand is Nature of service demand is heterogeneous. heterogeneous. Customers have unique needs.Customers have unique needs.

Cannot be inventoried. Cannot be inventoried. Cannot be stored.Cannot be stored.

Service quality is difficult to assess. Service quality is difficult to assess. Subjective.Subjective.

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Characteristics of ServiceCharacteristics of Service

A service is defined as a transaction in A service is defined as a transaction in which the customer largely perceives the which the customer largely perceives the dominant value-adding component as dominant value-adding component as being the intangible part of the product being the intangible part of the product bundlebundle. .

Each total product experience has a Each total product experience has a tangible component but their dominant tangible component but their dominant component is intangible.component is intangible.

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Examples of ServicesExamples of Services

Tourist Office Tourist Office Officer’s advice Officer’s advice Flying ticketsFlying tickets

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Goods Versus ServicesGoods Versus Services

Can be resoldCan be resold Can be inventoriedCan be inventoried

Some aspects of Some aspects of quality measurablequality measurable

Selling is distinct Selling is distinct from productionfrom production

Reselling Reselling unusualunusual

Difficult to Difficult to inventoryinventory

Quality difficult to Quality difficult to measuremeasure

Selling is part of Selling is part of serviceservice

GoodsGoods ServiceService

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Goods Versus Services - Goods Versus Services - ContinuedContinued

Product is Product is transportabletransportable

Site of facility Site of facility important for costimportant for cost

Often easy to Often easy to automateautomate

Revenue generated Revenue generated primarily from primarily from tangible producttangible product

Provider, not Provider, not product is product is transportabletransportable

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

Often difficult to Often difficult to automateautomate

Revenue generated Revenue generated primarily from primarily from intangibleintangible service. service.

GoodsGoods ServiceService

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1850 75 1900 25 50 75 2000 40 50 60 70 1970 75 80 85 90 95 2000Percent

United States

Canada

France

Italy

Britain

Japan

W Germany

19701991

Services

Industry

Farming

250

200

150

100

50

0

80

%70

60

50

40

30

20

10

0

U.S. Employment, % Share Services as a Percent of GDP U.S. Exports of ServicesIn Billions of Dollars

Year 2000 data is estimated

Development of the Service Development of the Service EconomyEconomy Increasing exports

+ employment in services sector

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The Economic System The Economic System Transforms Inputs to OutputsTransforms Inputs to Outputs

The economic system transforms inputs to outputs at about an annual 1.7% increase in productivity (capital 38% of 1.7%), labor (10% of 1.7%), management (52% of 1.7%)

Land, Labor, Capital, Management

Goods and Services

Feedback loop

Inputs Process Outputs

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Measure of process improvementMeasure of process improvement Represents output relative to inputRepresents output relative to input

Productivity increases improve standard of Productivity increases improve standard of living and creates income.living and creates income.

From 1889 to 1973, U.S. productivity From 1889 to 1973, U.S. productivity increased at a 2.5% annual rateincreased at a 2.5% annual rate

ProductivityProductivity

ProductivityProductivityProductivityProductivity Units producedUnits producedUnits producedUnits producedInput usedInput usedInput usedInput used= = = =

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Capital investments in Capital investments in production/technology/equipment/ facilities. production/technology/equipment/ facilities.

e.g. Automatization & Computerization (minimizes tasks e.g. Automatization & Computerization (minimizes tasks performed by employees).performed by employees).

Workforce knowledge and skillWorkforce knowledge and skill Social environment. Social environment. Making employees comfortable + Making employees comfortable +

work methods.work methods.

Quality of products/processes/managementQuality of products/processes/management Geographic factorsGeographic factors

Factors affecting ProductivityFactors affecting Productivity

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Measurement ProblemsMeasurement Problems

QualityQuality may change while the quantity of may change while the quantity of inputs and outputs remains constant. And inputs and outputs remains constant. And will affect productivity.will affect productivity.

External elementsExternal elements may cause an increase may cause an increase or decrease in productivityor decrease in productivity

Precise unitsPrecise units of measure may be lacking. of measure may be lacking. It It can only be measured indirectly, that is, by measuring other can only be measured indirectly, that is, by measuring other variables and then calculating productivity from them.variables and then calculating productivity from them.

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Productivity VariablesProductivity Variables

LaborLabor - contributes about 10% of the annual - contributes about 10% of the annual increase. increase.

CapitalCapital - contributes about 32% of the - contributes about 32% of the annual increaseannual increase

ManagementManagement - contributes about 52% of the - contributes about 52% of the annual increaseannual increase

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Jobs in the U.SJobs in the U.S

26%

18%

16%

14%

6%6% 5% 5%

3%1%

Education, Health, etc.

Manufacturing

Retail Trade

State & Local Gov't

Finance, Insurance

Wholesale Trade

Transport, Public Util.

Construction

Federal Government

Mining

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Productivity Growth 1971- 1992Productivity Growth 1971- 1992

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

5

United StatesWest GermanyJapan

Whole Economy Manufacturing

% p

er y

ear

LaborLabor

3333

Service ProductivityService Productivity

Typically labor intensiveTypically labor intensive Frequently individually processedFrequently individually processed Often an intellectual task performed by Often an intellectual task performed by

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