Operation management

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Operations and Productivity

PowerPoint presentation to accompany

Heizer, Render, Munson

Operations Management, Thirteenth Edition, Global Edition

Principles of Operations Management, Eleventh Edition

PowerPoint slides by Jeff Heyl

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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

The Productivity Challenge

Current Challenges in Operations Management

Ethics, Social Responsibility, and Sustainability

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Operations Management at Hard Rock Cafe

First opened in 1971

Now – 23 hotels and 168 restaurants in over 68 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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Learning Objectives

When you complete this chapter you should be able to:

1.1 Define operations management

1.2 Identify the 10 strategic decisions of operations management

1.3 Identify career opportunities in operations management

1.4 Explain the distinction between goods and services

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Learning Objectives

When you complete this chapter you should be able to:

1.5 Explain the difference between production and productivity

1.6 Compute single-factor productivity

1.7 Compute multifactor productivity

1.8 Identify the critical variables in enhancing productivity

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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 creates 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:

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

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Organization Charts

Figure 1.1

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Organization Charts

Figure 1.1

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Organization Charts

Figure 1.1

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The Supply Chain

A global network of organizations and activities that supplies 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

Farmer Syrup Bottler Distributor Retailer

producer

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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

TABLE 1.1

MARKETING OPTION

FINANCE/ ACCOUNTING OPTION

OM OPTION

CURRENT

INCREASE SALES REVENUE 50%

REDUCE FINANCE COSTS 50%

REDUCE PRODUCTION COSTS 20%

Sales

$100,000

$150,000

$100,000

Cost of goods

–80,000

–120,000

–80,000

–64,000

Gross margin

20,000

30,000

20,000

36,000

Finance costs

–6,000

–3,000

–6,000

Subtotal

14,000

24,000

17,000

30,000

Taxes at 25%

–3,500

–6,000

–4,250

–7,500

Contribution

$ 10,500

$ 18,000

$ 12,750

$ 22,500

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What Operations Managers Do

Basic Management Functions

Planning

Organizing

Staffing

Leading

Controlling

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Ten Strategic Decisions

TABLE 1.2
DECISION		CHAPTER(S)
1. Design of goods and services		5, Supplement 5
2. Managing quality		6, Supplement 6
3. Process and capacity strategy		7, Supplement 7
4. Location strategy		8
5. Layout strategy		9
6. Human resources and job design		10
7. Supply-chain management		11, Supplement 11
8. Inventory management		12, 14, 16
9. Scheduling		13, 15
10. Maintenance		17

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The Strategic Decisions

Design of goods and services

Defines what is required of operations

Product design determines cost, 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, human resources, and investments

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.

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?

Introducing new technologies and methods

Improving facility location and space utilization

Defining and implementing operations strategy

Improving response time

Developing people and teams

Improving customer service

Managing quality

Managing and controlling inventory

Enhancing productivity

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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

Chartered Institute of Procurement and Supply (CIPS)

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Significant Events in OM

Figure 1.4

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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 and 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 and 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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OM Relies on Contributions From

Industrial engineering

Statistics

Management

Analytics

Economics

Physical sciences

Information technology

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Operations for Goods and Services

Services – Economic activities that typically produce an intangible product (such as education, entertainment, lodging, government, financial, and health services)

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Operations for Goods and Services

Manufacturers produce tangible product, services often intangible

Operations activities are performed in both manufacturing and services

Distinction not always clear

Few pure services

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Differences Between Goods and Services

TABLE 1.3
CHARACTERISTICS OF SERVICES		CHARACTERISTICS OF GOODS
Intangible: Ride in an airline seat		Tangible: The seat itself
Produced and consumed simultaneously: Beauty salon produces a haircut that is consumed as it is produced		Product can usually be kept in inventory (beauty care products)
Unique: Your investments and medical care are unique		Similar products produced (iPods)
High customer interaction: Often what the customer is paying for (consulting, education)		Limited customer involvement in production
Inconsistent product definition: Auto Insurance changes with age and type of car		Product standardized (iPhone)
Often knowledge based: Legal, education, and medical services are hard to automate		Standard tangible product tends to make automation feasible
Services dispersed: Service may occur at retail store, local office, house call, or via Internet.		Product typically produced at a fixed facility
Quality may be hard to evaluate: Consulting, education, and medical services		Many aspects of quality for tangible products are easy to evaluate (strength of a bolt)
Reselling is unusual: Musical concert or medical care		Product often has some residual value

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U.S. Agriculture, Manufacturing, and Service Employment

Figure 1.5

100 -

80 –

60 –

40 –

20 –

0 .

Percent of Workforce

1800

1825

1850

1875

1900

1925

1950

1975

2000

2025 (est.)

Agriculture Services Manufacturing

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Organizations in Each Sector

TABLE 1.4
SECTOR	EXAMPLE	PERCENT OF ALL JOBS
Service Sector
Education, Medical, Other Trade (retail, wholesale), Transportation Information, Publishers, Broadcast Professional, Legal, Business Services, Associations Finance, Insurance, Real Estate Food, Lodging, Entertainment Public Administration	San Diego State University, Arnold Palmer Hospital Walgreen's, Walmart, Nordstrom, Alaska Airlines IBM, Bloomberg, Pearson, ESPN Snelling and Snelling, Waste Management, Inc., American Medical Association, Ernst & Young Citicorp, American Express, Prudential, Aetna Olive Garden, Motel 6, Walt Disney U.S., State of Alabama, Cook County	16.2 17.1 1.8 17.0 9.6 10.0 14.2	85.9
Manufacturing Sector	General Electric, Ford, U.S. Steel, Intel		7.9
Construction Sector	Bechtel, McDermott		4.3
Agriculture	King Ranch		1.5
Mining Sector	Homestake Mining		.4
Grand Total			100.0

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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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Feedback loop

Outputs

Goods and services

Transformation

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 System

Inputs

Labor, capital, management

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:

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

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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

Operations improvements have helped Starbucks increase yearly revenue per outlet by $250,000 to $1,000,000.

Productivity has improved by 27%, or about 4.5% per year.

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Measure of process improvement

Represents output relative to input

Only through productivity increases can our standard of living improve

Productivity

Productivity =

Units produced

Input used

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Productivity Calculations

Productivity =

Units produced

Labor-hours used

= = 4 units/labor-hour

1,000

250

Labor Productivity

One resource input  single-factor productivity

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Multi-Factor Productivity

Output

Labor + Material + Energy + Capital + Miscellaneous

Multifactor =

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

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

Old labor productivity

8 titles/day

32 labor-hrs

= .25 titles/labor-hr

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Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

14 titles/day Overhead = $800/day

New System:

8 titles/day

32 labor-hrs

Old labor productivity

New labor productivity

= .25 titles/labor-hr

14 titles/day

32 labor-hrs

= .4375 titles/labor-hr

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Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

14 titles/day Overhead = $800/day

New System:

Old multifactor productivity

8 titles/day

$640 + 400

= .0077 titles/dollar

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Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

14 titles/day Overhead = $800/day

New System:

8 titles/day

$640 + 400

Old multifactor productivity

New multifactor productivity

= .0077 titles/dollar

14 titles/day

$640 + 800

= .0097 titles/dollar

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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

3. Precise units of measure may be lacking

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Productivity Variables

1. Labor - contributes about 10% of the annual increase

2. Capital - contributes about 38% of the annual increase

3. 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

Percent increase in productivity

Percentage investment

10 15 20 25 30 35

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Management

Ensures labor and capital are effectively used to increase productivity

Use of knowledge

Application of technologies

Knowledge societies

Labor has migrated from manual work to technical and information-processing tasks

More effective use of technology, knowledge, and capital

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Productivity in the Service Sector

Productivity improvement in services is difficult because:

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:

Results:

Preparation time cut to 8 seconds

Management span of control increased from 5 to 30

In-store labor cut by 15 hours/day

Floor space reduced by more than 50%

Stores average 164 seconds/customer from drive-up to pull-out

Water- and energy-savings grills conserve 300 million gallons of water and 200 million KwH of electricity each year

Green-inspired cooking method saves 5,800 restaurants $17 million per year

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Current Challenges in OM

Globalization

Supply-chain partnering

Sustainability

Rapid product development

Mass customization

Lean operations

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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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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

Stakeholders

Those with a vested interest in an organization, including customers, distributors, suppliers, owners, lenders, employees, and community members.

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10 P A R T 1 | I N T R O D U C T I O N T O O P E R AT I O N S M A N AG E M E N T

By 1913, Henry Ford and Charles Sorensen combined what they knew about standardized parts with the quasi-assembly lines of the meatpacking and mail-order industries and added the revolutionary concept of the assembly line, where men stood still and material moved.

Quality control is another historically significant contribution to the field of OM. Walter Shewhart (1924) combined his knowledge of statistics with the need for quality control and provided the foundations for statistical sampling in quality control. W. Edwards Deming (1950) believed, as did Frederick Taylor, that management must do more to improve the work environ- ment and processes so that quality can be improved.

Operations management will continue to progress as contributions from other disciplines, including industrial engineering, statistics, management, analytics, and economics, improve deci- sion making.

Innovations from the physical sciences (biology, anatomy, chemistry, physics) have also contributed to advances in OM. These innovations include new adhesives, faster integrated circuits, gamma rays to sanitize food products, and specialized glass for iPhones and plasma TVs. Innovation in products and processes often depends on advances in the physical sciences.

Especially important contributions to OM have come from information technology, which we define as the systematic processing of data to yield information. Information technology—with wireless links, Internet, and e-commerce—is reducing costs and accelerating communication.

Decisions in operations management require individuals who are well versed in analyti- cal tools, in information technology, and often in one of the biological or physical sciences. In this textbook, we look at the diverse ways a student can prepare for a career in operations management.

Figure 1.4 Significant Events in Operations Management

Ev er

et t C

ol le

ct io

n/ Ne

w sc

Early Concepts 1776–1880 Labor Specialization (Smith, Babbage) Standardized Parts (Whitney)

Scientific Management Era 1880–1910 Gantt Charts (Gantt) Motion & Time Studies (Gilbreth) Process Analysis (Taylor) Queuing Theory (Erlang)

Mass Production Era 1910–1980 Moving Assembly Line (Ford/Sorensen) Statistical Sampling (Shewhart) Economic Order Quantity (Harris) Linear Programming

(Dantzig) Material Requirements Planning (MRP)

Mass Customization Era 1995–2005 Internet/E-Commerce Enterprise Resource Planning International Quality Standards (ISO) Finite Scheduling Supply Chain Management Mass Customization Build-to-Order Radio Frequency Identification (RFID)

Globalization Era 2005–2025 Global Supply Chains and Logistics Growth of Transnational Organizations Sustainability Ethics in the Global Workplace Internet of things (IoT) Digital Operations Industry 4.0

Lean Production Era 1980–1995 Just-in-Time (JIT) Computer-Aided Design (CAD) Electronic Data Interchange (EDI) Total Quality Management (TQM) Baldrige Award Empowerment Kanbans

Globalization FocusCustomization FocusQuality FocusCost Focus

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