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operation manaagmentTRANSCRIPT
© 2008 Prentice Hall, Inc. 1 – 1
Operations and Productivity
© 2008 Prentice Hall, Inc. 1 – 2
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
© 2008 Prentice Hall, Inc. 1 – 3
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
© 2008 Prentice Hall, Inc. 1 – 4
Organizational Charts
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
© 2008 Prentice Hall, Inc. 1 – 5
MarketingSales promotionAdvertisingSalesMarket research
Organizational Charts
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
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What Operations Managers Do
Planning Organizing Staffing Leading Controlling
Basic Management Functions
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Ten Critical DecisionsTen Decision Areas
Design of goods and services Managing quality Process and capacity
design Location strategy Layout strategy Human resources and
job design Supply chain
management Inventory management Scheduling Maintenance
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The Critical Decisions Design of goods and services
What good or service should we offer?
How should we design these products and services?
Managing quality How do we define quality? Who is responsible for quality?
© 2008 Prentice Hall, Inc. 1 – 9
The Critical Decisions
Process and capacity design What process and what capacity will
these products require? What equipment and technology is
necessary for these processes? Location strategy
Where should we put the facility? On what criteria should we base the
location decision?
© 2008 Prentice Hall, Inc. 1 – 10
The Critical Decisions Layout strategy
How should we arrange the facility? How large must the facility be to
meet our plan? Human resources and job design
How do we provide a reasonable work environment?
How much can we expect our employees to produce?
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The Critical Decisions
Supply chain management Should we make or buy this
component? Who are our suppliers and who can
integrate into our e-commerce program?
Inventory, material requirements planning, and JIT How much inventory of each item
should we have? When do we re-order?
© 2008 Prentice Hall, Inc. 1 – 12
The Critical Decisions
Intermediate and short–term scheduling Are we better off keeping people on
the payroll during slowdowns? Which jobs do we perform next?
Maintenance Who is responsible for
maintenance? When do we do maintenance?
© 2008 Prentice Hall, Inc. 1 – 13
New Challenges in OM
Global focus Just-in-time Supply chain
partnering Mass
customization Empowered
employees, teams
ToFrom Local or national focus Batch shipments Low bid purchasing
Standard products
Job specialization
© 2008 Prentice Hall, Inc. 1 – 14
Characteristics of Goods Tangible product Production usually
separate from consumption
Can be inventoried
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Characteristics of Service Intangible product Produced and
consumed at same time Often unique Often knowledge-based
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Industry and Services as Percentage of GDP
Services Manufacturing
Au
stra
lia
Can
ada
Ch
ina
Cze
ch R
ep
Fra
nce
Ger
man
y
Ho
ng
Ko
ng
Jap
an
Mex
ico
Ru
ssia
n F
ed
So
uth
Afr
ica
Sp
ain
UK
US
90 −
80 −
70 −
60 −
50 −
40 −
30 −
20 −
10 −
0 −
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Goods Versus Services
Table 1.3
Can be resoldCan be inventoriedSome aspects of quality measurableSelling is distinct from productionProduct is transportable
Site of facility important for cost
Often easy to automateRevenue generated primarily from tangible product
Attributes of Goods(Tangible Product)
Attributes of Services (Intangible Product)
Reselling unusualDifficult to inventoryQuality difficult to measure
Selling is part of service
Provider, not product, isoften transportableSite of facility important forcustomer contactOften difficult to automateRevenue generated primarily from the intangible service
© 2008 Prentice Hall, Inc. 1 – 18
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
© 2008 Prentice Hall, Inc. 1 – 19
Feedback loop
Outputs
Goods and
services
Processes
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
© 2008 Prentice Hall, Inc. 1 – 20
Improving Productivity at StarbucksA team of 10 analysts continually look for ways to save 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
© 2008 Prentice Hall, Inc. 1 – 21
Improving Productivity at StarbucksA 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 $200,000 to $940,000 in six years.
Productivity has improved by 27%, or about 4.5% per year.
© 2008 Prentice Hall, Inc. 1 – 22
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
© 2008 Prentice Hall, Inc. 1 – 23
Productivity Calculations
Productivity =Units produced
Labor-hours used
= = 4 units/labor-hour1,000
250
Labor Productivity
One resource input single-factor productivity
© 2008 Prentice Hall, Inc. 1 – 24
Multi-Factor Productivity
OutputLabor + Material + Energy + Capital + Miscellaneous
Productivity =
Also known as total factor productivity Output and inputs are often expressed
in dollars
Multiple resource inputs multi-factor productivity
© 2008 Prentice Hall, Inc. 1 – 25
Problem 1Collins Title Company has a staff of 4,
each working 8 hours per day (for a payroll cost of $640/day) and overhead expenses of $400/day. Collins processes and closes on 8 titles each day. The company recently purchased a computerized title search system that will allow the processing of 14 titles per day. Although the staff, their work hours, and pay will be the same, the overhead expenses are now $800 per day.
© 2008 Prentice Hall, Inc. 1 – 26
= .25 titles per labor hour
= .0077 titles per dollar
multifactor productivity with the new system= 14 titles per day/(640+800) = .0097 titles per dollar
Labor productivity with the old system= 8 titles per day/32 labor hours
Labor productivity with the new system= 14 titles per day/32 labor hours = .4375 titles per labor hour
multifactor productivity with the old system= 8 titles per day/(640+400)
© 2008 Prentice Hall, Inc. 1 – 27
Labor productivity has increased from .25 to .4375. The change is .4375/.25= 1.75, or a 75% increase in labor productivity. Multifactor productivity has increased from .0077 to .0097. This change is .0097/.007= 1.259, or 25.9% increase in multifactor productivity.
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Problem 2Kaleen Karpet cleaned 65 rugs in
October, consuming the following resources:
Labor: 520 hours at $13 per hourSolvent: 100 gallons at $5 per
gallonMachine Rental: 20days at $50 per
daya) What is labor productivity per
dollar?b) What is multifactor productivity?
© 2008 Prentice Hall, Inc. 1 – 29
Problem 3David Upton is president of Upton
Manufacturing, a producer of Go-Kart Tires. Upton makes 1000 tires per day with following resources:
Labor: 400 hours per day @ $12.50 per hour
Raw material: 20000 pounds per day @ $1 per pound
Energy: $5000 per dayCapital: $10000 per day
© 2008 Prentice Hall, Inc. 1 – 30
Continued…..
a) What is the labor productivity per hour for these tires at Upton Manufacturing?
b) What is multifactor productivity for these tires at Upton Manufacturing?
c) What is the present change in multifactor productivity if Upton can reduce the energy bill by $1000 per day without cutting production or changing any other inputs?
© 2008 Prentice Hall, Inc. 1 – 31
Problem 4Eric produces “final exams care
packages” for resale by her sorority. She is currently working a total of 5 hours per day to produce 100 care packages.
a) What is Eric’s productivity?b) Eric thinks that redesigning the
package, she can increase her total productivity to 133 care packages per day. What will be her new productivity?
c) What will be the percentage increase in productivity if Eric makes the change?
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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
Maintaining and enhancing skills of labor
© 2008 Prentice Hall, Inc. 1 – 35
Service Productivity
Typically labor intensive
Often an intellectual task performed by professionals
Often difficult to mechanize Often difficult to evaluate for quality
© 2008 Prentice Hall, Inc. 1 – 36
Productivity at Taco Bell (A Case Study)
Improvements: Revised the menu Designed meals for easy preparation Shifted some preparation to suppliers Efficient layout and automation Training and employee empowerment
© 2008 Prentice Hall, Inc. 1 – 37
Productivity at Taco BellImprovements:
Revised the menu Designed meals for easy preparation Shifted some preparation to suppliers Efficient layout and automation Training and employee empowerment
Results:
Preparation time cut to 8 seconds Management span of control
increased from 5 to 30 In-store labor cut by 15 hours/day Stores handle twice the volume with
half the labor Fast-food low-cost leader