lecture of mgt-303= p.o.m. - 1

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Operations and Productivity

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Learning ObjectivesLearning ObjectivesDefinition of Operations Management (OM)Organizational FunctionsWhy Study OM?The future of the disciplineGoods Versus ServicesMeasuring productivityCareer opportunities in operations management

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What Is Operations What Is Operations Management?Management?

ProductionProduction is the creation of goods and services

Operations management (OM)Operations management (OM) is the set of activities that create value in the form of

goods and services by transforming inputs into

outputs

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Organizing to Produce Organizing to Produce Goods and ServicesGoods and Services

Essential functions:1.1. MarketingMarketing – generates demand2.2. Production/operationsProduction/operations – creates

the product3.3. Finance/accountingFinance/accounting – tracks how

well the organization is doing, pays bills, collects the money

4.4. Human Resources Human Resources – provides labor, wage and salary administration and job evaluation

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Commercial Bank

Operations

Teller Scheduling

Check Clearing

Collection

Transaction processing

Facilities design/layout

Vault operations

Maintenance

Security

Finance

Investments

Security

Real estate

Accounting

Auditing

Marketing

Loans

Commercial

Industrial

Financial

Personal

Mortgage

Trust Department

Human Resources

Recruitment

Job evaluation

Performance evaluation

Wage and Salary Adm.

Personnel records

Organizational ChartsOrganizational Charts

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Manufacturing

Operations

Facilities Construction; maintenanceProduction and inventory control Scheduling; materials controlQuality assurance and controlSupply-chain managementManufacturing Tooling; fabrication; assemblyDesign Product development and design Detailed product specificationsIndustrial engineering Efficient use of machines, space, and personnelProcess 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

MarketingSales promotionAdvertisingSalesMarket research

Human Resources

Recruitment

Job evaluation

Performance evaluation

Wage and Salary Adm.

Personnel records

Organizational ChartsOrganizational Charts

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Why Study OM?Why Study OM?1. OM is one of four major functions of

any organization, we want to study how people organize themselves for productive enterprise

2. We want (and need) to know how goods and services are produced

3. We want to understand what operations managers do

4. OM is such a costly part of an organization

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What Operations What Operations Managers DoManagers Do

Planning Organizing Staffing Leading Controlling

Basic Management FunctionsBasic Management Functions

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Ten Critical DecisionsTen Critical DecisionsTen Decision Areas

1. Design of goods and services2. Managing quality3. Process and capacity design 4. Location strategy5. Layout strategy6. Human resources and job design 7. Supply-chain management8. Inventory9. Scheduling10. Maintenance

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The Critical DecisionsThe Critical Decisions1. Design of goods and services

What good or service should we offer?

How should we design these products and services?

2. Managing quality How do we define quality? Who is responsible for quality?

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The Critical DecisionsThe Critical Decisions3. Process and capacity design

What process and what capacity will these products require?

What equipment and technology is necessary for these processes?

4. Location strategy Where should we put the facility? On what criteria should we base the

location decision?

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The Critical DecisionsThe Critical Decisions5. Layout strategy

How should we arrange the facility? How large must the facility be to meet

our plan?6. 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 DecisionsThe Critical Decisions7. Supply-chain management

Should we make or buy this component?

Who should be our suppliers and how can we integrate them into our strategy?

8. Inventory, material requirements planning, and JIT How much inventory of each item

should we have? When do we re-order?

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The Critical DecisionsThe Critical Decisions9. Intermediate and short–term

scheduling Are we better off keeping people on

the payroll during slowdowns? Which jobs do we perform next?

10.Maintenance How do we build reliability into our

processes? Who is responsible for maintenance?

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Characteristics of GoodsCharacteristics of Goods Tangible product Consistent product

definition Production usually

separate from consumption

Can be inventoried Low customer

interaction

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Characteristics of ServiceCharacteristics of Service Intangible product Produced and

consumed at same time Often unique High customer

interaction Inconsistent product

definition Often knowledge-based

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Industry and Services as Industry and Services as Percentage of GDPPercentage of GDP

Services Manufacturing

Aus

tral

ia

Can

ada

Chi

na

Cze

ch R

ep

Fran

ce

Ger

man

y

Hon

g K

ong

Japa

n

Mex

ico

Rus

sian

Fed

Sout

h A

fric

a

Spai

n

UK US

Turk

ey

90 −80 −70 −60 −50 −40 −30 −20 −10 −

0 −

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New Trends in OMNew Trends in OM Ethics Global focus Environmentally sensitive production Rapid product development Mass customization Empowered employees Supply-chain partnering Just-in-time performance

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Productivity ChallengeProductivity 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!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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Efficiency Versus Efficiency Versus EffectivenessEffectiveness

The difference between efficient and effective is that efficiency refers to how well you do something, whereas effectiveness refers to how useful it is.

“Efficiency is doing things right; effectiveness is doing the right things.”

Doing the Right Things is More Important than Doing Things Right

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Measure of process improvement Represents output relative to input Only through productivity increases

can our standard of living improve

ProductivityProductivity

Productivity =Units produced

Input used

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Productivity CalculationsProductivity Calculations

Productivity =Units produced

Labor-hours used

= = 4 units/labor-hour1,000250

Labor ProductivityLabor Productivity

One resource input single-factor productivity


Multi-Factor Productivity 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


Collins Title ProductivityCollins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day

Old System:Old System:

=Old labor productivity

8 titles/day32 labor-hrs






=Old labor productivity = .25 titles/labor-hr





14 titles/day Overhead = $800/dayNew System:New System:


=Old labor productivity

=New labor productivity

= .25 titles/labor-hr

14 titles/day14 titles/day32 labor-hrs32 labor-hrs







=Old labor productivity = .25 titles/labor-hr


=New labor productivity = .4375 titles/labor-hr






=Old multifactor productivity

8 titles/day$640 + 400







=Old multifactor productivity = .0077 titles/dollar








=New multifactor productivity

= .0077 titles/dollar

14 titles/day14 titles/day$640 + 800$640 + 800







14 titles/day$640 + 800


=New multifactor productivity




Measurement ProblemsMeasurement Problems1.1. QualityQuality may change while the quantity

of inputs and outputs remains constant (HDTV, iphones)

2.2. External elementsExternal elements may cause an increase or decrease in productivity (using more reliable electric power system)

3.3. Precise unitsPrecise units of measure may be lacking


Productivity VariablesProductivity Variables1.1. LaborLabor - contributes

about 10% of the annual increase

2.2. CapitalCapital - contributes about 38% of the annual increase

3.3. ManagementManagement - contributes about 52% of the annual increase


Key Variables for Improved Key Variables for Improved Labor ProductivityLabor Productivity

1. Basic education appropriate for the labor force

2. Diet of the labor force3. Social overhead that makes labor

available such as transportation and sanitation

Challenge is in maintaining and enhancing skills in the midst of rapidly changing technology and knowledge


Investment and Productivity Investment and Productivity

10

8

6

4

2

0

Perc

ent i

ncre

ase

in p

rodu

ctiv

ity

Percentage investment10 15 20 25 30 35


Service ProductivityService Productivity

1. Typically labor intensive (teaching, counseling)

2. Frequently focused on unique individual desires (customer representatives in banks)

3. Often an intellectual task performed by professionals

4. Often difficult to mechanize5. Often difficult to evaluate for quality


Ethics andEthics andSocial ResponsibilitySocial Responsibility

Challenges facing Challenges facing operations managers:operations managers:

Developing and producing safe, quality products

Maintaining a clean environment Providing a safe workplace Honoring stakeholder commitments

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Entry-Level Jobs in OMEntry-Level Jobs in OMPurchasing planner/buyerProduction (or operations) supervisorProduction (or operations)

scheduler/controllerProduction (or operations) analystInventory analystQuality specialistOthers …

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