introduction to production & operations management
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Introduction to Production & Operations Management
Management Science
…is the study and development of techniques for the formulation and analysis of management and related business problems. Operations research models are often helpful in this process.
Operations Research
…is the application of techniques developed in mathematics, statistics, engineering and the physical sciences to the solution of problems in business, government, industry, economics and the social sciences.
Quantitative Methods
…employ mathematical models to reach a wide variety of business decisions. They give modern managers a competitive edge Managers do not need to have great mathematical
skills Familiarity allows one to:
Ask the right questions Recognize when additional analysis is necessary Evaluate potential solutions Make informed decisions
Qualitative Methods
…like more traditional methods, however, qualitative methods come in many varieties. Different researchers focus on different sources of data: One's own immediate experience Others' experiences, which we might seek to
understand through: their speech or writing, their other behaviors, their products - technology, artwork, footprints, etc.
What is POM?
Production is the creation of goods and services
Production and/or Operations Management are the activities that transform resources into goods and services
Why Study POM?
It is one of the 3 critical parts of any organization: Marketing – generates demand Operations – creates the product Finance/accounting – tracks organizational
performance, pays bills, collects money It shows us how goods and services are
produced It shows us what POM managers do It is the most costly part of any organization
Cost as a Percentage of Sales
Meat Furniture Restaurant Heavy
Packing Manufacturing Equipment
POM
Materials 79% 40% 38% 42%
Labor 8 15 20 12
Fringes 3 22 16 23
Total 90 77 74 77
S, G & A 9 15 22 20Int., Taxes, Profits, etc. 1 8 4 3
Jobs in the U.S.
26%
18%
16%
14%
6%6% 5% 5%
3%1%
Education, Health, etc.
Manufacturing
Retail Trade
State & Local Gov't
Finance, Insurance
Wholesale Trade
Transport, Public Util.
Construction
Federal Government
Mining
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Jobs in POM
Less than 20% of all jobs are in manufacturing (and they are declining)
Almost 80% of jobs are in the service sector (and they are increasing)
Nearly half of all jobs are in POMMost POM jobs are professional and/or
managerial
Chapters Covered in Text Forecasting…………………………… Service, product design…………….. Quality management………………… Process, capacity design…………... Location ..………….………………… Layout design ………………………. Human resources, job design…….. Supply-chain management………… Inventory management ……………. Scheduling ………………………….. Maintenance ...………………………
Ch. 4
Ch. 5
Ch. 6, 6S
Ch. 7, 7S
Ch. 8Ch. 9
Ch. 10, 10SCh. 11, 11s
Ch. 12, 14, 16Ch. 3, 13, 15Ch. 17
The Critical Decisions
Quality managementWho is responsible for quality?How do we define quality?
Service and product designWhat product or service should we offer?How should we design these products and
services?
The Critical Decisions - Continued
Process and capacity designWhat processes will these products require and
in what order?What equipment and technology is necessary
for these processes?Location
Where should we put the facilityOn what criteria should we base this location
decision?
The Critical Decisions - Continued
Layout designHow should we arrange the facility?How large a facility is required?
Human resources and job designHow do we provide a reasonable work
environment?How much can we expect our employees to
produce?
The Critical Decisions - Continued
Supply chain managementShould we make or buy this item?Who are our good suppliers and how many
should we have?Inventory, material requirements planning,
How much inventory of each item should we have?
When do we re-order?
The Critical Decisions - Continued
Intermediate, short term, and project schedulingIs subcontracting production a good idea?Are we better off keeping people on the
payroll during slowdowns?Maintenance
Who is responsible for maintenance?When do we do maintenance?
Significant Events in POM
Division of labor (Adam Smith, The Wealth of Nations, 1776)
Industrial Revolution Standardization of parts (Eli Whitney, 1765 -
1825) Cotton Gin (1792) Contract with U.S. for muskets (1798)
Some doubt about true interchangeability Simeon North (Middletown) John Hall (Harpers Ferry)
Significant Events in POM (cont.)
Scientific management (Frederick Taylor 1865 - 1915)
The Principles of Scientific Management, 1911
Match employees to jobs Provide the proper training Provide the proper methods and tools Establish legitimate incentives
Significant Events in POM (cont.)
Taylor’s 4 Principles of Scientific Management:
Replace rule-of-thumb work methods with methods based on a scientific study of the tasks
Scientifically select, train, and develop each worker rather than passively leaving them to train themselves
Cooperate with the workers to ensure that the scientifically developed methods are being followed
Divide work nearly equally between managers and workers, so that the managers apply scientific management principles to planning the work and the workers actually perform the tasks
Significant Events in POM (cont.)
Coordinated assembly line (Henry Ford 1863 -1947)
Gantt charts (Henry Gantt 1861-1919) Motion studies (Frank and Lillian Gilbreth,
1922) Quality control (Shewhart, Juran, Feigenbaum,
Deming, Taguchi, etc.) CAD Flexible manufacturing systems (FMS) Computer integrated manufacturing (CIM)
New Challenges in OM
Local or national focus Batch shipments Low bid purchasing Lengthy product
development cycles Standardized products Job specialization
Global focus Just-in-time Supply chain partnering Rapid product
development Strategic alliances Mass customization Empowered employees Teams
FromFrom ToTo
Goods vs. Services
Characteristics of Goods
Tangible product Consistent product
definition Production usually
separate from consumption
Can be inventoried Low customer
interaction© 1995 Corel Corp.
Characteristics of Services
Intangible product Produced & consumed at
same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed
© 1995 Corel Corp.
Goods vs. Services
Can be resoldCan be
inventoriedSome aspects of
quality measurable
Selling is distinct from production
Reselling unusualDifficult to
inventoryQuality difficult to
measure
Selling is part of service
GoodsGoods ServiceService
Goods vs. Services - Continued
Product is transportable
Site of facility important for cost
Often easy to automate
Revenue generated primarily from tangible product
Provider, not product is transportable
Site of facility important for customer contact
Often difficult to automate
Revenue generated primarily from intangible service
GoodsGoods ServiceService GoodsGoods ServiceService
Goods Contain Services / Services Contain Goods
0 25 50 75 100255075100
AutomobileComputerInstalled Carpeting
Fast-food MealRestaurant Meal
Auto RepairHospital Care
Advertising AgencyInvestment Management
Consulting ServiceCounseling
Percent of Product that is a Good Percent of Product that is a Service
New Challenges in Operations Management
Changing Challenges for the Operations Manager
Past Causes Future Local or national focus
Low-cost, reliable worldwide communication and transportation networks
Global Focus
Batch (large) shipments
Cost of capital puts pressure on reducing investment in inventory
Just-in-time shipments
Low-bid purchasing
Quality emphasis requires that suppliers be engaged in product improvement
Supply-chain partners
Lengthy product development
Shorter life cycles, rapid international communication, computer-aided design, and international collaboration
Rapid product development, alliances, collaborative designs
Changing Challenges for the Operations Manager
Past Causes Future Standardized products
Affluence and worldwide markets; increasingly flexible production processes
Mass customization
Job specialization
Changing sociocultural milieu. Increasingly a knowledge and information society.
Empowered employees, teams, and lean production
Low cost focus
Environmental issues, ISO 14000, increasing disposal costs
Environmentally sensitive production, Green manufacturing, recycled materials, remanufacturing
The Productivity Challenge
The Economic System Transforms Inputs to Outputs
The economic system transforms inputs to outputs at about an annual 2.5% increase in productivity (capital 38% of 2.5%), labor (10% of 2.5%), management (52% of 2.5%)
Land, Labor, Capital, Management
Goods and Services
Feedback loop
Inputs Process Outputs
Measure of process improvementRepresents output relative to input
Only through productivity increases can our standard of living improve
Productivity
ProductivityProductivityProductivityProductivity UnitsUnits producedproducedUnitsUnits producedproducedInput usedInput usedInput usedInput used= = = =
Adam Smith on Productivity
…He asserted that ten workers could produce 48,000 pins per day if each of eighteen specialized tasks was assigned to particular workers. Average productivity: 4,800 pins per worker per day. But absent the division of labor, a worker would be lucky to produce even one pin per day.
Henry Ford on Productivity
…In 1907, Henry Ford announced his goal for the Ford Motor Company: to create "a motor car for the great multitude." At that time, automobiles were expensive, custom-made machines.Ford realized he'd need a more efficient way to produce the Model T in order to lower the price. He and his team looked at other industries and found four principles that would further their goal: Interchangeable parts Continuous flow Division of labor Reducing wasted effort
Frank Gilbreth on Productivity
…improved a five-thousand-year-old job and had enabled bricklayers to lay brick faster with less effort and fatigue. On one particularly difficult type of wall, where the previous record had been 120 bricks per hour, his methods allowed them to lay 350 bricks, an increase in productivity of over 190%.
Walter Shewhart on Productivity
…the original notions of Total Quality Management and continuous improvement trace back to a former Bell Telephone employee named Walter Shewhart. One of W. Edwards Deming's teachers, he preached the importance of adapting management processes to create profitable situations for both businesses and consumers, promoting the utilization of his own creation: the SPC chart.
Impact of Quality Improvement
Parts per man hour
95
100
105
110
115
Year A Year B Year C
Cost per unit decreased
$1.50
$1.75
$2.00
$2.25
Year A Year B Year C
Average worker's annual cash compensation increased
24000
25000
26000
27000
Year A Year B Year C
Productivity improved Costs were pared Wages increased
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
Productivity Increase
Labor - contributes about 10% of the annual increase
Capital - contributes about 32% of the annual increase
Management - contributes about 52% of the annual increase
Key Variables for Improved Labor Productivity
Basic education appropriate for the labor force
Diet of the labor forceSocial overhead that makes labor
availableMaintaining and enhancing skills in the
midst of rapidly changing technology and knowledge
Comparison of Productivity
Service Productivity
Typically labor intensiveFrequently individually processedOften an intellectual task performed by
professionalsOften difficult to mechanizeOften difficult to evaluate for quality
Current Trends
U.S. is becoming more of a knowledge intensive service economy
GlobalizationTotal Quality ControlNeed for flexibility and innovation