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Chapters 1+2 - Introduction to Operations Management
Operations Managementby
R. Dan Reid & Nada R. Sanders2nd Edition © Wiley 2005
PowerPoint Presentation by R.B. Clough - UNH
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What is Operations Management?
The business function
responsible for planning,
coordinating, and controlling
the resources needed to produce a
company’s products and services
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Typical Organization Chart
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Business Information Flow
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OM’s Transformation Role
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Productivity
Inputs
OutputsP
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Differences between Manufacturers and Service Operations
Services: Intangible product Service cannot be
inventoried High customer
contact Short response time Labor intensive
Manufacturers:
Tangible product Product can be
inventoried Low customer contact Longer response time Capital intensive
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Service and Manufacturers
All use technology Both have quality, productivity, &
response issues All must forecast demand Each will have capacity, layout, and
location issues All have customers and suppliers All have scheduling and staffing issues
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Trends in OM Service sector growing
to 80% of non-farm jobs- See Figure 1-4
Global competitiveness Demands for higher
quality Huge technology
changes Time based competition Work force diversity
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OM Decisions
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Operations Management Decisions
Strategic: Product/Service
Design Process Selection Capacity
Planning Facility Location Facility Layout Job Design
Tactical: Quality Control Demand
Forecasting Supply Chain
Management Production Planning Inventory Control Scheduling
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Business/Functional Strategy
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Operations Strategy – Designing the Operations Function
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Competitive Priorities- The Edge
Four Important Operations Questions: Will you compete on –
Cost? Quality? Time? Flexibility? All of the above? Some? Tradeoffs?
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Competing on Cost?
Typically high volume products
Often limit product range & offer little
customization
May invest in automation to reduce unit costs
Can use lower skill labor
Probably use product focused layouts
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Competing on Quality? High performance design:
Superior features, high durability, & excellent customer service
Product & service consistency: Meets design specifications Close tolerances Error free delivery
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Competing on Time?
Fast delivery: Focused on shorter time between order placement
and delivery
On-time delivery: Deliver product exactly when needed every time
Rapid development speed Using concurrent processes to shorten product
development time
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Competing on Flexibility? Product flexibility:
Easily switch production from one item to another Easily customize product/service to meet specific
requirements of a customer
Volume flexibility: Ability to ramp production up and down to match
market demands
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Productivity
Inputs
OutputsP
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Measuring Productivity Productivity is a measure of how efficiently inputs
are converted to outputs
Productivity = output/input Total Productivity Measure
Productivity relative to all inputs
Partial Productivity Measure Productivity relative to a single input (e.g.,
labor hours) Multifactor Productivity Measure
Productivity relative to a subgroup of inputs (e.g., labor and materials)
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Labor Productivity
Example: Assume two workers paint twenty-four tables
in eight hours: Inputs: 16 hours of labor (2 workers x 8 hours) Outputs: 24 painted tables
hourtableshours
tables
Inputs
Outputs/5.1
16
24
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Multifactor Productivity Convert all inputs & outputs to $ values Example (labor and materials productivity):
200 units produced that sell for $12.00 each Materials cost $6.50 per unit 40 hours of labor were required at $10 an hour
200 $12/
200 $6.50/ 40 $10/
$24001.41
$1700
units unitOutputsInputs units unit hours hour
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Interpreting Productivity Measures
Is the productivity measure of 1.41 in the previous example good or bad?
Can’t tell without a reference point Compare to previous measures
(e.g.: last week) or to another benchmark
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Productivity Growth Rate
Can be used to compare a process’s productivity at a given time (P2) to the same process’ productivity at an earlier time (P1)
1
12
P
PPRateGrowth
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Productivity Growth RateExample:
Last week a company produced 150 units using 200 hours of labor This week, the same company produced 180 units using 250 hours
of labor
rategrowthnegativeaor
P
PPRateGrowth
hourunitshours
unitsP
hourunitshours
unitsP
%4
04.075.0
75.072.0
/72.0250
1802
/75.0200
150
1
12
1
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Productivity Example - An automobile manufacturer has presented the following data for the past three years in its annual report. As a potential investor, you are interested in calculating yearly productivity and year to year productivity gains as one of several factors in your investment analysis.
2003 2002 2001
Labor Productivity
Unit Car Sales/Employee 24.1 21.2 18.3
Year-to-year Improvement 13.7% 15.8%
Total Productivity
Total Cost Productivity 1.26 1.24 1.19
Year-to-year Improvement 1.6% 4.2%
Which is the best measurement?
2003 2002 2001
Unit car sales
2,700,000
2,400,000
2,100,000
Employees
112,000 113,000 115,000
$ Sales(billions$)
$49,000 $41,000 $38,000
Cost of Sales(billions)
$39,000 $33,000 $32,000
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Homework
Ch. 2 Problems: 1, 5, 6, 8, 9.