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8/2/2019 Introduction to Production & Operations Management Mod I
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Introduction to Production &
Operations Management
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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
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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
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Jobs in POM
Less than 20% of all jobs are in manufacturing
(and they are declining)
Almost 60% of jobs are in the service sector
(and they are increasing)
Nearly half of all jobs are in POM
Most POM jobs are professional and/ormanagerial
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The Critical Decisions
Quality management
Who is responsible for quality?
How do we define quality?
Service and product design
What product or service should we offer?
How should we design these products and
services?
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The Critical Decisions - Continued
Process and capacity design
What processes will these products require andin what order?
What equipment and technology is necessaryfor these processes?
Location
Where should we put the facility
On what criteria should we base this locationdecision?
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The Critical Decisions - Continued
Layout design
How should we arrange the facility?
How large a facility is required?
Human resources and job design How do we provide a reasonable work
environment?
How much can we expect our employees toproduce?
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The Critical Decisions - Continued
Supply chain management
Should 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?
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The Critical Decisions - Continued
Intermediate, short term, and projectscheduling Is subcontracting production a good idea?
Are we better off keeping people on the payrollduring slowdowns?
Maintenance
Who is responsible for maintenance?
When do we do maintenance?
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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)
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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
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Significant Events in POM (cont.)
Taylors 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 thanpassively leaving them to train themselves
Cooperate with the workers to ensure that the scientificallydeveloped methods are being followed
Divide work nearly equally between managers and workers, so thatthe managers apply scientific management principles to planningthe work and the workers actually perform the tasks
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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)
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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
From To
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Goods vs. Services
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Characteristics of Goods
Tangible product
Consistent productdefinition
Production usuallyseparate fromconsumption
Can be inventoried Low customer
interaction 1995 Corel Corp.
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Characteristics of Services
Intangible product
Produced & consumed atsame time
Often unique
High customer interaction
Inconsistent productdefinition
Often knowledge-based Frequently dispersed
1995 Corel Corp.
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Goods vs. Services
Can be resold
Can be inventoried
Some aspects ofquality measurable
Selling is distinct
from production
Reselling unusual
Difficult to
inventoryQuality difficult to
measure
Selling is part ofservice
Goods Service
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Goods vs. Services - Continued
Product istransportable
Site of facilityimportant for cost
Often easy to automate
Revenue generated
primarily from tangibleproduct
Provider, not productis transportable
Site of facilityimportant forcustomer contact
Often difficult toautomate
Revenue generatedprimarily fromintangible service
Goods Service
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Goods Contain Services / Services ContainGoods
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
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New Challenges in Operations
Management
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Changing Challenges for theOperations Manager
Past Causes FutureLocal ornationalfocus
Low-cost, reliable worldwidecommunication andtransportation networks
Global Focus
Batch (large)
shipments
Cost of capital puts pressure on
reducing investment ininventory
Just-in-time
shipments
Low-bidpurchasing
Quality emphasis requires thatsuppliers be engaged in productimprovement
Supply-chainpartners
Lengthy
productdevelopment
Shorter life cycles, rapid
international communication,computer-aided design, andinternational collaboration
Rapid product
development,alliances,collaborativedesigns
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Changing Challenges for theOperations Manager
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The Productivity Challenge
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The Economic System TransformsInputs 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
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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 UnitsproducedInput used=
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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 perworker per day. But absent the division of
labor, a worker would be lucky to produce
even one pin per day.
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Henry Ford on Productivity
In 1907, Henry Ford announced his goal for the FordMotor Company: to create "a motor car for the greatmultitude." At that time, automobiles were expensive,custom-made machines.
Ford realized he'd need a more efficient way to producethe Model T in order to lower the price. He and his teamlooked at other industries and found four principles thatwould further their goal: Interchangeable parts
Continuous flow
Division of labor
Reducing wasted effort
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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 previousrecord had been 120 bricks per hour, his
methods allowed them to lay 350 bricks, an
increase in productivity of over 190%.
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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, hepreached 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.
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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
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Measurement Problems
Qualitymay 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 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
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Key Variables for Improved LaborProductivity
Basic education appropriate for the labor force
Diet of the labor force
Social overhead that makes labor available
Maintaining and enhancing skills in the midst
of rapidly changing technology and knowledge
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Comparison of Productivity
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Service Productivity
Typically labor intensive
Frequently individually processed
Often an intellectual task performed by
professionals
Often difficult to mechanize
Often difficult to evaluate for quality
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Current Trends
U.S. is becoming more of a knowledge
intensive service economy
Globalization
Total Quality Control
Need for flexibility and innovation
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