Operations Management

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© 2014 Pearson Education, Inc.

Operations and Productivity

PowerPoint presentation to accompany

Heizer and Render

Operations Management, Eleventh Edition

Principles of Operations Management, Ninth Edition

PowerPoint slides by Jeff Heyl

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© 2014 Pearson Education, Inc.

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© 2014 Pearson Education, Inc.

Outline

• Global Company Profile: Hard Rock Cafe

• What Is Operations Management?
• Organizing to Produce Goods and Services
• The Supply Chain
• Why Study OM?
• What Operations Managers Do

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Outline - Continued

• The Heritage of Operations Management
• Operations for Goods and Services
• Growth of Services
• Service Pay
• The Productivity Challenge
• Productivity Measurement
• Productivity Variables
• Productivity and the Service Sector

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Outline - Continued

• New Challenges in Operations Management
• Ethics, Social Responsibility, and Sustainability

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Learning Objectives

When you complete this chapter you should be able to:

• Define operations management
• Explain the distinction between goods and services
• Explain the difference between production and productivity

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Learning Objectives

When you complete this chapter you should be able to:

• Compute single-factor productivity
• Compute multifactor productivity
• Identify the critical variables in enhancing productivity

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Operations Management at Hard Rock Cafe

• First opened in 1971
• Now – 150 restaurants in over 53 countries
• Rock music memorabilia
• Creates value in the form of good food and entertainment
• 3,500+ custom meals per day in Orlando
• How does an item get on the menu?
• Role of the Operations Manager

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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 create 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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Organizational Charts

Figure 1.1

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Organizational Charts

Figure 1.1

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Organizational Charts

Figure 1.1

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The Supply Chain

• A global network of organizations and activities that supply a firm with goods and services
• Members of the supply chain collaborate to achieve high levels of customer satisfaction, efficiency and competitive advantage.

Figure 1.2

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Why Study OM?

OM is one of three major functions of any organization, we want to study how people organize themselves for productive enterprise

• We want (and need) to know how goods and services are produced
• We want to understand what operations managers do
• OM is such a costly part of an organization

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Options for Increasing Contribution

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What Operations
Managers Do

Basic Management Functions

• Planning
• Organizing
• Staffing
• Leading
• Controlling

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Ten Strategic Decisions

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The Strategic Decisions

Design of goods and services

• Defines what is required of operations
• Product design determines quality, sustainability and human resources

Managing quality

• Determine the customer’s quality expectations
• Establish policies and procedures to identify and achieve that quality

Table 1.2 (cont.)

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The Strategic Decisions

Process and capacity design

• How is a good or service produced?
• Commits management to specific technology, quality, resources, and investment.

Location strategy

• Nearness to customers, suppliers, and talent.
• Considering costs, infrastructure, logistics, and government.

Table 1.2 (cont.)

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The Strategic Decisions

Layout strategy

• Integrate capacity needs, personnel levels, technology, and inventory
• Determine the efficient flow of materials, people, and information.

Human resources and job design

• Recruit, motivate, and retain personnel with the required talent and skills.
• Integral and expensive part of the total system design.

Table 1.2 (cont.)

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Using this and subsequent slides, you might go through in more detail the decisions of Operations Management. While greater detail is provided by these slides than the earlier one, you may still decide to have the students contribute examples from their own experience.

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© 2014 Pearson Education, Inc.

The Strategic Decisions

Supply-chain management

• Integrate supply chain into the firm’s strategy.
• Determine what is to be purchased, from whom, and under what conditions.

Inventory management

• Inventory ordering and holding decisions.
• Optimize considering customer satisfaction, supplier capability, and production schedules.

Table 1.2 (cont.)

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The Strategic Decisions

Scheduling

• Determine and implement intermediate- and short-term schedules.
• Utilize personnel and facilities while meeting customer demands.

Maintenance

• Consider facility capacity, production demands, and personnel.
• Maintain a reliable and stable process.

Table 1.2 (cont.)

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Where are the OM Jobs?

• Technology/methods
• Facilities/space utilization
• Strategic issues
• Response time
• People/team development
• Customer service
• Quality
• Cost reduction
• Inventory reduction
• Productivity improvement

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Opportunities

Figure 1.3

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Certifications

• APICS, the Association for Operations Management
• American Society for Quality (ASQ)
• Institute for Supply Management (ISM)
• Project Management Institute (PMI)
• Council of Supply Chain Management Professionals
• Charter Institute of Purchasing and Supply (CIPS)

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Significant Events in OM

Figure 1.4

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The Heritage of OM

• Division of labor (Adam Smith 1776; Charles Babbage 1852)
• Standardized parts (Whitney 1800)
• Scientific Management (Taylor 1881)
• Coordinated assembly line (Ford/ Sorenson 1913)
• Gantt charts (Gantt 1916)
• Motion study (Frank and Lillian Gilbreth 1922)
• Quality control (Shewhart 1924; Deming 1950)

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The Heritage of OM

• Computer (Atanasoff 1938)
• CPM/PERT (DuPont 1957, Navy 1958)
• Material requirements planning (Orlicky 1960)
• Computer aided design (CAD 1970)
• Flexible manufacturing system (FMS 1975)
• Baldrige Quality Awards (1980)
• Computer integrated manufacturing (1990)
• Globalization (1992)
• Internet (1995)

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Eli Whitney

• Born 1765; died 1825
• In 1798, received government contract to make 10,000 muskets
• Showed that machine tools could make standardized parts to exact specifications
• Musket parts could be used in any musket

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Frederick W. Taylor

• Born 1856; died 1915
• Known as ‘father of scientific management’
• In 1881, as chief engineer for Midvale Steel, studied how tasks were done
• Began first motion and time studies
• Created efficiency principles

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Taylor’s Principles

Management Should Take More Responsibility for:

• Matching employees to right job
• Providing the proper training
• Providing proper work methods and tools
• Establishing legitimate incentives for work to be accomplished

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Frank & Lillian Gilbreth

• Frank (1868-1924); Lillian (1878-1972)
• Husband-and-wife engineering team
• Further developed work measurement methods
• Applied efficiency methods to their home and 12 children!
• Book & Movie: “Cheaper by the Dozen,” “Bells on Their Toes”

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• Born 1863; died 1947
• In 1903, created Ford Motor Company
• In 1913, first used moving assembly line to make Model T
• Unfinished product moved by conveyor past work station
• Paid workers very well for 1911 ($5/day!)

Henry Ford

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W. Edwards Deming

• Born 1900; died 1993
• Engineer and physicist
• Credited with teaching Japan quality control methods in post-WW2
• Used statistics to analyze process
• His methods involve workers in decisions

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Contributions From

• Human factors
• Industrial engineering
• Management science
• Biological science
• Physical sciences
• Information technology

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Operations for
Goods and Services

• Manufacturers produce tangible product, services often intangible
• Operations activities often very similar
• Distinction not always clear
• Few pure services

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Differences Between Goods and Services

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U.S. Agriculture, Manufacturing, and Service Employment

Figure 1.5

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Organizations in Each Sector

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Service Pay

• Perception that services are low-paying
• 42% of service workers receive above average wages
• 14 of 33 service industries pay below average
• Retail trade pays only 61% of national average
• Overall average wage is 96% of the average

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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

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The Economic System

Figure 1.6

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Improving Productivity at Starbucks

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

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Improving Productivity at Starbucks

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

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• Measure of process improvement
• Represents output relative to input
• Only through productivity increases can our standard of living improve

Productivity

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Productivity Calculations

Labor Productivity

One resource input  single-factor productivity

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Multi-Factor Productivity

• Also known as total factor productivity
• Output and inputs are often expressed in dollars

Multiple resource inputs  multi-factor productivity

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Collins Title Productivity

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Collins Title Productivity

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Collins Title Productivity

= .25 titles/labor-hr

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Collins Title Productivity

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Collins Title Productivity

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Collins Title Productivity

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Collins Title Productivity

= .0077 titles/dollar

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Collins Title Productivity

= .0077 titles/dollar

= .0097 titles/dollar

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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

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Productivity Variables

• Labor - contributes about 10% of the annual increase

• Capital - contributes about 38% of the annual increase

• Management - contributes about 52% of the annual increase

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Key Variables for Improved Labor Productivity

• Basic education appropriate for the labor force
• Diet of the labor force
• Social overhead that makes labor available

• Challenge is in maintaining and enhancing skills in the midst of rapidly changing technology and knowledge

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Labor Skills

About half of the 17-year-olds in the U.S. cannot correctly answer questions of this type

Figure 1.7

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Capital

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Management

• Ensures labor and capital are effectively used to increase productivity
• Use of knowledge
• Application of technologies
• Knowledge societies
• Difficult challenge

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Productivity and the Service Sector

• Typically labor intensive

• Frequently focused on unique individual attributes or desires
• Often an intellectual task performed by professionals
• Often difficult to mechanize and automate
• Often difficult to evaluate for quality

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Productivity at Taco Bell

Improvements:

• Revised the menu
• Designed meals for easy
  preparation
• Shifted some preparation to
  suppliers
• Efficient layout and automation
• Training and employee empowerment
• New water and energy saving grills

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Productivity at Taco Bell

Improvements:

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New Challenges in OM

• Global focus
• Supply-chain partnering
• Sustainability
• Rapid product development
• Mass customization
• Just-in-time performance
• Empowered employees

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Ethics, Social Responsibility, and Sustainability

Challenges facing operations managers:

• Develop and produce safe, high-quality green products
• Train, retrain, and motivate employees in a safe workplace
• Honor stakeholder commitments

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© 2014 Pearson Education, Inc.

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