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20200528132053ch01_operations_productivity1.pptx1
ADMN580
CH01: PRODUCTIVITY
Roger Grinde
QUANTITATIVE DECISION MAKING
CH01: Operations & Productivity
ADMN580: Quantitative Decision Making
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LOOKING AHEAD
Check Access to eText & MyOMLab
Review Schedule / Canvas Assignments
SCHEDULE
Read Chapter 02: Operations Strategy
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Introduce Operations Management (OM)
Compare/Contrast Goods & Services
Conduct Productivity Analysis
Review Trends & Challenges
Discuss Ethics in Operations
AGENDA
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OPERATIONS MANAGEMENT
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Real Bottom Line Impact
Challenging Problems
Creative Solutions
Teamwork
Value
OM IS IMPORTANT, and FUN!
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What is Operations Management (OM)?
Activities that relate to the creation of goods and services through the transformation of inputs to outputs.
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The Textbook Definition
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Goods
Services
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OPS MGT – Visual Definition
Processes
1
2
3
4
5
People
Equipment
Facilities
Materials
Land
Energy
Optimizing Processes
Managing Resources
Producing Value
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Support Functions
Information Systems
Human Resources
Engineering
Etc.
Sales Revenues
Material & Service Inputs
Product & Service Outputs
SUPPLIERS
CUSTOMERS
Finance/Accounting
Track financials
Pay the bills
Collect the money
Marketing/Sales
Manage demand
Generate sales
Take orders
Operations
Manage resources
Optimize processes
Produce value (goods / services)
THE “BIG THREE” KEY FUNCTIONS
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Figure 1.1
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OPERATIONS FUNCTIONS
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Figure 1.1
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OPERATIONS FUNCTIONS
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Figure 1.1
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OPERATIONS FUNCTIONS
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You are leading a new tech start-up that makes virtual reality goggles. You need to double the dollar contribution to cover your fixed equipment costs and achieve a profit.
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Increase SALES REVENUE by 50%
Cut FINANCE costs in half
Reduce OPERATIONS cost by 20%
Which of the following helps you the most?
OPS HAS BOTTOM LINE IMPACT
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Table 1.1: FISHER TECHNOLOGIES P&L STATEMENT
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OPERATIONS FUNCTIONS
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EFFICIENTLY
OM MISSION
ADD VALUE
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$
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EFFICIENTLY
Meet customer requirements for quality, cost, delivery, etc
While minimizing waste (cost) and optimizing value
OM MISSION
ADD VALUE
OM is where a company really makes (or loses) money.
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Think of a recent job.
Any obvious process inefficiencies?
$
Increase customer value at each stage of the process
The “value added” is the net increase from input to output
Think of a recent job.
How did you “add value”?
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breakthrough ideas in ops have resulted in worldwide improvements
(ultimately resulting in better quality of life overall)
Do you agree?
W. Edwards Deming
(Quality Control)
Frederick W. Taylor
(Scientific Management)
Henry Ford
(Assembly Lines)
Frank & Lillian Gilbreth
(Work Measurement)
Eli Whitney (Standardized Parts)
Taiichi Ohno
(Lean / JIT)
OPS HALL OF FAME
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KEY DECISION AREAS IN OM
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$
DESIGN of goods and services
Measuring and Managing QUALITY
PROCESS and CAPACITY Strategies
LOCATION Strategy
LAYOUT Strategy
HUMAN RESOURCES and JOB DESIGN
SUPPLY CHAIN MANAGEMENT
INVENTORY MANAGEMENT
SCHEDULING
MAINTENANCE
FORECASTING
PROJECT MANAGEMENT
We will touch on many of these in this course
See Table 1.2
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EVOLUTION OF OPERATIONS MGT
1980
1995
2005
QUALITY
CUSTOMIZATION
COST
GLOBALIZATION
TIME
VALUE TO STAKEHOLDERS
Advancements in OM Deliver
Value to All Stakeholders
Shareholders
Employees
Customers
Suppliers
Community
Environment
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GOODS AND SERVICES
See more detail and examples in Table 1.3
WHICH ONE . . .
is physically tangible?
can you hold in inventory?
Requires more customer contact?
Requires shorter response times?
Is easier to track quality metrics?
| GOODS | SERVICES | |
| Tangible, physical product | Intangible services | |
| Can keep in inventory | Consumed when produced | |
| Limited customer contact | High customer interaction | |
| Longer response time | Shorter response time | |
| Easier to track quality | More difficult quality metrics |
What sectors have you worked in?
Goods / Services / Hybrid
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Understanding how your “operations machine” works will result in greater success!
Think about a past job and your “process”
jot down the following and think through the operations
Inputs / Outputs / Customers / Feedback Mechanism
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PRODUCTIVITY
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Productivity measures how efficiently inputs are converted into outputs
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OUTPUT
INPUT
Productivity is the ratio of outputs (goods and services) divided by the inputs (such as labor, capital, and management)
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Why is improving productivity a “game of seconds” at Starbucks?
| PROCESS IMPROVEMENT | SAVINGS |
| Stop requiring signatures on credit card purchases under $25 | 08 sec per transaction |
| Change the size of the ice scoop | 14 sec per drink |
| New espresso machines | 12 sec per shot |
Ops improvements have helped Starbucks increase yearly revenue per outlet by $250,000 to $1,000,000 in seven years. Productivity has improved by 27% (about 4.5% per year)
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PRODUCTIVITY AT STARBUCKS
read more about this in chapter one
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PRODUCTIVITY FORMULAS
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SINGLE-FACTOR PRODUCTIVITY
Units Produced
A Single Input
PRODUCTIVITY
Units Produced
Inputs Used
MULTIFACTOR PRODUCTIVITY
Units Produced
Labor + Material + Energy + Capital + Misc.
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LET’S BUILD A PRODUCTIVITY MODEL
Download CAR MODEL template
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| CAR MODEL | YEAR ONE | YEAR TWO | YEAR THREE |
| Unit car sales (millions) | 2.1 | 2.4 | 2.7 |
| Employees | 115,000 | 113,000 | 112,000 |
| Sales ($ millions) | $38,000 | $41,000 | $49,000 |
| Cost of Sales ($ millions) | $32,000 | $33,000 | $39,000 |
Build an excel model to calculate
Partial Productivity of unit car sales by employee
Total Cost Productivity for each year
BUILD A PRODUCTIVITY MODEL
include year-over-year
Percent Change
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BUILD A PRODUCTIVITY MODEL
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ANALYZE THE RESULTS
Which metric is better in this case?
Partial Productivity or Total Productivity
Why?
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ANALYZE THE RESULTS
Productivity measures must be compared to something, i.e. another year, a different company, a different product.
Actually, it depends . . .
Raw productivity calculations do not tell the whole story.
Which metric is better in this case?
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NEXT STEPS AS OPS MANAGERS
Our company has achieved partial productivity improvements in cars produced per employee
What changes could we implement to continue improving this
“Partial Productivity” metric?
Think of an equation as test equipment that we can use to model scenarios.
Partial Productivity
(cars per employee)
Cars Produced
=
Employees
output
input
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NEXT STEPS AS OPS MANAGERS
Your operational improvements will continue to increase cars produced per employee
How do your decisions impact
Other Organizational Metrics?
Shareholders
Employees
Customers
Suppliers
Community
Environment
Your Company Stakeholders?
Other Qualitative Factors?
Go beyond the quantitative analysis and think like an ops manager!
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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 is not a “perfect metric”
… but it is better than nothing!
PRODUCTIVITY METRICS CHALLENGES
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10% LABOR
38% CAPITAL
52% MANAGEMENT
smart application of knowledge and technology
“PRODUCTIVITY VARIABLES”
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read more about these in
chapter one
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TEXTBOOK TIPS (eText or Hard Copy)
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(On Paper) Outline Major Topics
Skim Chapter for main ideas
Read for detail. Add key ideas to notes.
Review outline and summarize main ideas in words: written, oral.
Review “Rapid Review” (end of chapter)
Next day. Review notes and re-skim chapter (REINFORCEMENT LEARNING)
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PRODUCTIVITY
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ANY QUESTIONS
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GROUP DISCUSSION: An Ethical Dilemma
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Assume your team owns a chain of auto repair shops . . .
Discuss how to dispose of old car batteries?
What factors drive your decision?
?
Car batteries contain lead (a toxic, harmful material)
The US car battery recycling rate now exceeds 95%
Recycling batteries in the US is difficult and expensive (EPA regulations include strict pollution controls)
Shipping old batteries to Mexico is legal, easy, and cheap (Mexican environmental regulations are much more lax)
One if Five used batteries currently go to Mexico for recycling
Health issues associated with lead include high blood pressure, kidney damage, neurological problems, and arrested development in children.
(from textbook chapter one)
Time Permitting
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OUR NEXT TOPIC WILL BE . . .
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OPERATIONS STRATEGY
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CHECK THE SCHEDULE
Any questions on the required
readings & deliverables?
Click to edit Master text styles
Second level
Third level
Fourth level
Fifth level
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Table 1.1: FISHER TECHNOLOGIES P&L STATEMENT
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OPERATIONS FUNCTIONS
Download FISHER TECH template
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BASELINE ASSUMPTIONS
COGS (as % Sales)80%
Tax on Profit25%
CONTRIBUTION DRIVERS
Increase in Sales Revenue
Reduction in Finance Costs
Reduction in Production Costs
Sales Revenue $ 100,000
Cost of goods $ (80,000)
Gross margin $ 20,000
Finance costs $ (6,000)
Pretax Profit $ 14,000
Taxes $ (3,500)
Contribution $ 10,500
CURRENT
SCENARIO ONE
Increase in Sales Revenue50%
Reduction in Finance Costs0%
Reduction in Production Costs0%
MARKETING
$ 150,000
$ (120,000)
$ 30,000
$ (6,000)
$ 24,000
$ (6,000)
$ 18,000
SCENARIO TWO
0%
50%
0%
FINANCE
$ 100,000
$ (80,000)
$ 20,000
$ (3,000)
$ 17,000
$ (4,250)
$ 12,750
SCENARIO THREE
0%
0%
20%
OPERATIONS
$ 100,000
$ (64,000)
$ 36,000
$ (6,000)
$ 30,000
$ (7,500)
$ 22,500
CAR MODEL
YEAR ONE
Unit car sales (millions)2.1
Employees115,000
Sales ($ millions)$38,000
Cost of Sales ($ millions)$32,000
Unit Car Sales/Employee18.26
Year-to-Year ImprovementN/A
Total Cost Productivity1.19
Year-to-Year ImprovementN/A
YEAR TWO
2.4
113,000
$41,000
$33,000
21.24
16.3%
1.24
4.6%
YEAR THREE
2.7
112,000
$49,000
$39,000
24.11
13.5%
1.26
1.1%
BLANK
| CAR MODEL | ||||
| YEAR ONE | YEAR TWO | YEAR THREE | ||
| Unit car sales (millions) | 2.1 | 2.4 | 2.7 | |
| Employees | 115,000 | 113,000 | 112,000 | |
| Sales ($ millions) | $38,000 | $41,000 | $49,000 | |
| Cost of Sales ($ millions) | $32,000 | $33,000 | $39,000 | |
| Unit Car Sales/Employee | ||||
| Year-to-Year Improvement | N/A | |||
| Total Cost Productivity | ||||
| Year-to-Year Improvement | N/A |
COMPLETE
| CAR MODEL | ||||
| YEAR ONE | YEAR TWO | YEAR THREE | ||
| Unit car sales (millions) | 2.1 | 2.4 | 2.7 | |
| Employees | 115,000 | 113,000 | 112,000 | |
| Sales ($ millions) | $38,000 | $41,000 | $49,000 | |
| Cost of Sales ($ millions) | $32,000 | $33,000 | $39,000 | |
| Unit Car Sales/Employee | 18.26 | 21.24 | 24.11 | |
| Year-to-Year Improvement | N/A | 16.3% | 13.5% | |
| Total Cost Productivity | 1.19 | 1.24 | 1.26 | |
| Year-to-Year Improvement | N/A | 4.6% | 1.1% |
WITH GRAPHS
| CAR MODEL | ||||
| YEAR ONE | YEAR TWO | YEAR THREE | ||
| Unit car sales (millions) | 2.1 | 2.4 | 2.7 | |
| Employees | 115,000 | 113,000 | 112,000 | |
| Sales ($ millions) | $38,000 | $41,000 | $49,000 | |
| Cost of Sales ($ millions) | $32,000 | $33,000 | $39,000 | |
| Unit Car Sales/Employee | 18.26 | 21.24 | 24.11 | |
| Year-to-Year Improvement | N/A | 16.3% | 13.5% | |
| Total Cost Productivity | 1.19 | 1.24 | 1.26 | |
| Year-to-Year Improvement | N/A | 4.6% | 1.1% |
Unit Car Sales/Employee
YEAR ONE YEAR TWO YEAR THREE 18.260869565217391 21.238938053097346 24.107142857142858
Total Cost Productivity
YEAR ONE YEAR TWO YEAR THREE 1.1875 1.2424242424242424 1.2564102564102564
MODEL SCENARIO
| CAR MODEL | |||||
| YEAR ONE | YEAR TWO | YEAR THREE | |||
| Unit car sales (millions) | 2.1 | 2.4 | 2.7 | <<< Try plugging in 2.4. | |
| Employees | 115,000 | 113,000 | 112,000 | ||
| Sales ($ millions) | $38,000 | $41,000 | $49,000 | ||
| Cost of Sales ($ millions) | $32,000 | $33,000 | $39,000 | ||
| Unit Car Sales/Employee | 18.26 | 21.24 | 24.11 | ||
| Year-to-Year Improvement | N/A | 16.3% | 13.5% | ||
| Total Cost Productivity | 1.19 | 1.24 | 1.26 | ||
| Year-to-Year Improvement | N/A | 4.6% | 1.1% |
Unit Car Sales/Employee
YEAR ONE YEAR TWO YEAR THREE 18.260869565217391 21.238938053097346 24.107142857142858
Total Cost Productivity
YEAR ONE YEAR TWO YEAR THREE 1.1875 1.2424242424242424 1.2564102564102564
BLANK
| CAR MODEL | |||||
| YEAR ONE | YEAR TWO | YEAR THREE | |||
| Unit car sales | (millions) | 2.1 | 2.4 | 2.7 | |
| Employees | 115,000 | 113,000 | 112,000 | ||
| Sales | ($ millions) | $38,000 | $41,000 | $49,000 | |
| Cost of Sales | ($ millions) | $32,000 | $33,000 | $39,000 | |
| Unit Car Sales/Employee | |||||
| Year-to-Year Improvement | N/A | ||||
| Total Cost Productivity | |||||
| Year-to-Year Improvement | N/A |
COMPLETE
| CAR MODEL | |||||
| YEAR ONE | YEAR TWO | YEAR THREE | |||
| Unit car sales | (millions) | 2.1 | 2.4 | 2.7 | |
| Employees | 115,000 | 113,000 | 112,000 | ||
| Sales | ($ millions) | $38,000 | $41,000 | $49,000 | |
| Cost of Sales | ($ millions) | $32,000 | $33,000 | $39,000 | |
| Unit Car Sales/Employee | 18.26 | 21.24 | 24.11 | ||
| Year-to-Year Improvement | N/A | 16.3% | 13.5% | ||
| Total Cost Productivity | 1.19 | 1.24 | 1.26 | ||
| Year-to-Year Improvement | N/A | 4.6% | 1.1% |
WITH GRAPHS
| CAR MODEL | |||||
| YEAR ONE | YEAR TWO | YEAR THREE | |||
| Unit car sales | (millions) | 2.1 | 2.4 | 2.7 | |
| Employees | 115,000 | 113,000 | 112,000 | ||
| Sales | ($ millions) | $38,000 | $41,000 | $49,000 | |
| Cost of Sales | ($ millions) | $32,000 | $33,000 | $39,000 | |
| Unit Car Sales/Employee | 18.26 | 21.24 | 24.11 | ||
| Year-to-Year Improvement | N/A | 16.3% | 13.5% | ||
| Total Cost Productivity | 1.19 | 1.24 | 1.26 | ||
| Year-to-Year Improvement | N/A | 4.6% | 1.1% |
Unit Car Sales/Employee
YEAR ONE YEAR TWO YEAR THREE 18.260869565217391 21.238938053097346 24.107142857142858
Total Cost Productivity
YEAR ONE YEAR TWO YEAR THREE 1.1875 1.2424242424242424 1.2564102564102564
MODEL SCENARIO
| CAR MODEL | ||||||
| YEAR ONE | YEAR TWO | YEAR THREE | ||||
| Unit car sales | (millions) | 2.1 | 2.4 | 2.7 | <<< Try plugging in 2.4. | |
| Employees | 115,000 | 113,000 | 112,000 | |||
| Sales | ($ millions) | $38,000 | $41,000 | $49,000 | ||
| Cost of Sales | ($ millions) | $32,000 | $33,000 | $39,000 | ||
| Unit Car Sales/Employee | 18.26 | 21.24 | 24.11 | |||
| Year-to-Year Improvement | N/A | 16.3% | 13.5% | |||
| Total Cost Productivity | 1.19 | 1.24 | 1.26 | |||
| Year-to-Year Improvement | N/A | 4.6% | 1.1% |
Unit Car Sales/Employee
YEAR ONE YEAR TWO YEAR THREE 18.260869565217391 21.238938053097346 24.107142857142858
Total Cost Productivity
YEAR ONE YEAR TWO YEAR THREE 1.1875 1.2424242424242424 1.2564102564102564
BLANK
| CAR MODEL | |||||
| YEAR ONE | YEAR TWO | YEAR THREE | |||
| Unit car sales | (millions) | 2.1 | 2.4 | 2.7 | |
| Employees | 115,000 | 113,000 | 112,000 | ||
| Sales | ($ millions) | $38,000 | $41,000 | $49,000 | |
| Cost of Sales | ($ millions) | $32,000 | $33,000 | $39,000 | |
| Unit Car Sales/Employee | |||||
| Year-to-Year Improvement | N/A | ||||
| Total Cost Productivity | |||||
| Year-to-Year Improvement | N/A |
COMPLETE
| CAR MODEL | |||||
| YEAR ONE | YEAR TWO | YEAR THREE | |||
| Unit car sales | (millions) | 2.1 | 2.4 | 2.7 | |
| Employees | 115,000 | 113,000 | 112,000 | ||
| Sales | ($ millions) | $38,000 | $41,000 | $49,000 | |
| Cost of Sales | ($ millions) | $32,000 | $33,000 | $39,000 | |
| Unit Car Sales/Employee | 18.26 | 21.24 | 24.11 | ||
| Year-to-Year Improvement | N/A | 16.3% | 13.5% | ||
| Total Cost Productivity | 1.19 | 1.24 | 1.26 | ||
| Year-to-Year Improvement | N/A | 4.6% | 1.1% |
WITH GRAPHS
| CAR MODEL | |||||
| YEAR ONE | YEAR TWO | YEAR THREE | |||
| Unit car sales | (millions) | 2.1 | 2.4 | 2.7 | |
| Employees | 115,000 | 113,000 | 112,000 | ||
| Sales | ($ millions) | $38,000 | $41,000 | $49,000 | |
| Cost of Sales | ($ millions) | $32,000 | $33,000 | $39,000 | |
| Unit Car Sales/Employee | 18.26 | 21.24 | 24.11 | ||
| Year-to-Year Improvement | N/A | 16.3% | 13.5% | ||
| Total Cost Productivity | 1.19 | 1.24 | 1.26 | ||
| Year-to-Year Improvement | N/A | 4.6% | 1.1% |
Unit Car Sales/Employee
YEAR ONE YEAR TWO YEAR THREE 18.260869565217391 21.238938053097346 24.107142857142858
Total Cost Productivity
YEAR ONE YEAR TWO YEAR THREE 1.1875 1.2424242424242424 1.2564102564102564
MODEL SCENARIO
| CAR MODEL | ||||||
| YEAR ONE | YEAR TWO | YEAR THREE | ||||
| Unit car sales | (millions) | 2.1 | 2.4 | 2.7 | <<< Try plugging in 2.4. | |
| Employees | 115,000 | 113,000 | 112,000 | |||
| Sales | ($ millions) | $38,000 | $41,000 | $49,000 | ||
| Cost of Sales | ($ millions) | $32,000 | $33,000 | $39,000 | ||
| Unit Car Sales/Employee | 18.26 | 21.24 | 24.11 | |||
| Year-to-Year Improvement | N/A | 16.3% | 13.5% | |||
| Total Cost Productivity | 1.19 | 1.24 | 1.26 | |||
| Year-to-Year Improvement | N/A | 4.6% | 1.1% |
Unit Car Sales/Employee
YEAR ONE YEAR TWO YEAR THREE 18.260869565217391 21.238938053097346 24.107142857142858
Total Cost Productivity
YEAR ONE YEAR TWO YEAR THREE 1.1875 1.2424242424242424 1.2564102564102564
