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© 2008 Prentice Hall, Inc. 1 – 1
11 Introduction to Operations Management
Introduction to Operations Management
PowerPoint presentation to accompany PowerPoint presentation to accompany
Heizer and Render Heizer and Render
Operations Management, 10e Operations Management, 10e
Principles of Operations Management, 8ePrinciples of Operations Management, 8e
PowerPoint slides by Jeff HeylPowerPoint slides by Jeff Heyl
© 2008 Prentice Hall, Inc. 1 – 2
OutlineOutline
1.1. What Is Operations Management ?What Is Operations Management ?
2.2. Organizing to Produce Goods & ServicesOrganizing to Produce Goods & Services
3.3. Why Study OM ?Why Study OM ?
4.4. What Operations Managers DoWhat Operations Managers Do
5.5. The Heritage of Operations ManagementThe Heritage of Operations Management
6.6. Operations in the Service SectorOperations in the Service Sector
7.7. Exciting New Trends in Operations ManagementExciting New Trends in Operations Management
8.8. Productivity ChallengeProductivity Challenge
© 2008 Prentice Hall, Inc. 1 – 3
1. What Is Operations Management ?1. What Is Operations Management ?
ProductionProduction is the creation of is the creation of
goodsgoods and and servicesservices
Operations management (OM)Operations management (OM) is the is the set of activities that creates value in the set of activities that creates value in the
form of goods and services by form of goods and services by transforming inputs into outputstransforming inputs into outputs
© 2008 Prentice Hall, Inc. 1 – 4
2. Organizing to Produce Goods & Services2. Organizing to Produce Goods & Services
Essential functions:Essential functions: MarketingMarketing – generates demand – generates demand
Production/operationsProduction/operations – creates the product – creates the product
Finance/accountingFinance/accounting – tracks how well the organization is – tracks how well the organization is doing, pays bills, collects the moneydoing, pays bills, collects the money
Operations FinanceMarketing
Organization
Basic Functions of the Business OrganizationBasic Functions of the Business Organization
© 2008 Prentice Hall, Inc. 1 – 5
Supply & DemandSupply & Demand
Supply Demand>
Supply Demand<
Supply Demand=
WastefulCostly
Opportunity LossCustomer Dissatisfaction
Ideal
Operations & Supply Chains Sales & Marketing
© 2008 Prentice Hall, Inc. 1 – 6
MarketingSales promotionAdvertisingSalesMarket research
Organizational Charts – Example (Organizational Charts – Example (ManufacturingManufacturing))e.g. Toyota, Frito-Lay, PTT, SCGe.g. Toyota, Frito-Lay, PTT, SCG
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
Figure 1.1(C)Figure 1.1(C)
© 2008 Prentice Hall, Inc. 1 – 7
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
Figure 1.1(B)Figure 1.1(B)
MarketingTraffic administration Reservations Schedules Tariffs (pricing)SalesAdvertising
Organizational Charts – Example (Organizational Charts – Example (ServiceService))e.g. THAI, Air Asia, etc.e.g. THAI, Air Asia, etc.
© 2008 Prentice Hall, Inc. 1 – 8
3. Why Study OM ?3. Why Study OM ?
OM is one of OM is one of three major functionsthree major functions (marketing, finance, and (marketing, finance, and operations) of any organizationoperations) of any organization
We want (We want (and needand need) to know how goods and services are ) to know how goods and services are producedproduced
We want to understand what operations managers doWe want to understand what operations managers do
Operations FinanceMarketing
Organization
CEOCEO
CMOCMO COOCOO CFOCFO
© 2008 Prentice Hall, Inc. 1 – 9
OpportunitiesOpportunities
© 2008 Prentice Hall, Inc. 1 – 10
ExampleExample: Options for Increasing Contribution: Options for Increasing Contribution
SalesSales $100,000$100,000 $150,000$150,000 $100,000$100,000 $100,000$100,000
Cost of Goods Cost of Goods –– 80,000 80,000 –– 120,000 120,000 –– 80,000 80,000 –– 64,000 64,000
(80% of sales)(80% of sales)
Gross MarginGross Margin 20,00020,000 30,00030,000 20,00020,000 36,00036,000
Finance CostsFinance Costs –– 6,000 6,000 –– 6,000 6,000 –– 3,000 3,000 –– 6,000 6,000
SubtotalSubtotal 14,00014,000 24,00024,000 17,00017,000 30,00030,000
Taxes at 25%Taxes at 25% –– 3,500 3,500 –– 6,000 6,000 –– 4,250 4,250 –– 7,500 7,500
ContributionContribution $ 10,500$ 10,500 $ 18,000$ 18,000 $ 12,750$ 12,750 $ 22,500$ 22,500
Finance/Finance/MarketingMarketing AccountingAccounting OMOM
OptionOption OptionOption OptionOption
IncreaseIncrease ReduceReduce ReduceReduceSalesSales FinanceFinance ProductionProduction
CurrentCurrent Revenue 50%Revenue 50% Costs 50%Costs 50% Costs 20%Costs 20%
OM is such a OM is such a costlycostly part of an organization !!! part of an organization !!!
© 2008 Prentice Hall, Inc. 1 – 11
4. What Operations Managers Do4. What Operations Managers Do
PlanningPlanning
OrganizingOrganizing
StaffingStaffing
LeadingLeading
ControllingControlling
Basic Management FunctionsBasic Management Functions
© 2008 Prentice Hall, Inc. 1 – 12
The 10 OM Critical DecisionsThe 10 OM Critical Decisions
Design of goods and services (Ch.5)Design of goods and services (Ch.5) What good or serviceWhat good or service should we offer? should we offer? How should we design these products and services? How should we design these products and services?
Managing quality (Ch. 6, Supplement 6)Managing quality (Ch. 6, Supplement 6) How do we define qualityHow do we define quality?? Who is responsible for quality?Who is responsible for quality?
Process and capacity design (Ch. 7, Supplement 7)Process and capacity design (Ch. 7, Supplement 7) What process and what capacity will these products require?What process and what capacity will these products require? What What equipment and technologyequipment and technology is necessary for these is necessary for these
processes?processes?
Location strategy (Ch. 8)Location strategy (Ch. 8) WhereWhere should we put the facility? should we put the facility? On what criteria should we base the location decision?On what criteria should we base the location decision?
Layout strategy (Ch. 9)Layout strategy (Ch. 9) HowHow should we should we arrange the facilityarrange the facility??
How large must the facility be to meet our plan?How large must the facility be to meet our plan?
© 2008 Prentice Hall, Inc. 1 – 13
The 10 OM Critical DecisionsThe 10 OM Critical Decisions
Human resources and job design (Ch. 10)Human resources and job design (Ch. 10) How do we provide a reasonable How do we provide a reasonable work environmentwork environment??
How much can we expect our How much can we expect our employees to produceemployees to produce??
Supply chain management (Ch. 11, Supplement 11)Supply chain management (Ch. 11, Supplement 11) Should we Should we make or buymake or buy this component? this component? Who are our Who are our supplierssuppliers and who can integrate into our e-commerce and who can integrate into our e-commerce
program?program? Inventory, material requirements planning, and JIT Inventory, material requirements planning, and JIT (Ch. 12, 14, 16)(Ch. 12, 14, 16)
How much inventoryHow much inventory of each item should we have? of each item should we have? When do we When do we re-orderre-order??
Intermediate and shortIntermediate and short––term scheduling (Ch. 13, 15)term scheduling (Ch. 13, 15) Are we better off keeping people on the payroll during Are we better off keeping people on the payroll during
slowdownsslowdowns??
Which jobs do we perform nextWhich jobs do we perform next??
Maintenance (Ch. 17)Maintenance (Ch. 17) WhoWho is responsible for maintenance? is responsible for maintenance?
WhenWhen do we do maintenance? do we do maintenance?
© 2008 Prentice Hall, Inc. 1 – 14
5. The Heritage of Operations Management5. The Heritage of Operations Management
Figure 1.3Figure 1.3
Significant Events in OMSignificant Events in OM
Maximizing outputsMaximizing outputs
Meeting customers’ expectationMeeting customers’ expectation
Providing choices to customersProviding choices to customers
© 2008 Prentice Hall, Inc. 1 – 15
• Frederick Winslow TaylorFrederick Winslow Taylor – Father of Scientific Management – Father of Scientific Management
– Believed in a Believed in a “science of management”“science of management” based on observation, based on observation,
measurement, analysis and improvement of work methods, and measurement, analysis and improvement of work methods, and
economic incentiveseconomic incentives
– Management is responsible for Management is responsible for planningplanning, carefully , carefully selectingselecting and and
training workerstraining workers, finding the best way to perform each job, , finding the best way to perform each job,
achieving achieving cooperationcooperation between management and workers, and between management and workers, and
separating management activities from work activitiesseparating management activities from work activities
– Emphasis was on Emphasis was on maximizing outputmaximizing output
• Henry FordHenry Ford - employed scientific management techniques to his - employed scientific management techniques to his factoriesfactories
• Moving assembly lineMoving assembly line
Ford assembly plant (Model T) – thenFord assembly plant (Model T) – then
Ford assembly plant (Mustang) – nowFord assembly plant (Mustang) – now
• Mass productionMass production
© 2008 Prentice Hall, Inc. 1 – 16
OM Progress With Contributions FromOM Progress With Contributions From
Industrial engineeringIndustrial engineering
Management scienceManagement science
Quantitative Analysis (e.g. statistics, Quantitative Analysis (e.g. statistics,
linear programming, PERT, decision linear programming, PERT, decision
analysis, transportation model, etc.)analysis, transportation model, etc.)
EconomicsEconomics
Physical sciences (e.g. biology, Physical sciences (e.g. biology,
anatomy, chemistry, physics, etc.)anatomy, chemistry, physics, etc.)
Human factorsHuman factors
Information and Communication Information and Communication
technology (ICT) technology (ICT)
© 2008 Prentice Hall, Inc. 1 – 17
Tangible Act-Oriented
Goods Services
Manufacturing and Service Organizations differ chiefly because manufacturing is goods-oriented and service is act-oriented.
Manufacturing vs. Service?Manufacturing vs. Service?
6. Operations in the Service Sector6. Operations in the Service Sector
© 2008 Prentice Hall, Inc. 1 – 18
Characteristics of GoodsCharacteristics of Goods
Tangible productTangible product
Consistent product Consistent product definitiondefinition
Production usually Production usually separate from separate from consumptionconsumption
Can be inventoriedCan be inventoried
Low customer Low customer interactioninteraction
© 2008 Prentice Hall, Inc. 1 – 19
Characteristics of ServiceCharacteristics of Service
Intangible productIntangible product
Produced and consumed at Produced and consumed at same timesame time
Often uniqueOften unique
High customer interactionHigh customer interaction
Inconsistent product definitionInconsistent product definition
Often knowledge-basedOften knowledge-based
Frequently dispersedFrequently dispersed
© 2008 Prentice Hall, Inc. 1 – 20
120120 –
100 100 –
80 80 –
60 60 –
40 40 –
20 20 –
0 0 –| | | | | | |
19501950 19701970 19901990 2010 (est)2010 (est)19601960 19801980 20002000
Em
plo
ymen
t (m
illi
on
s)E
mp
loym
ent
(mil
lio
ns)
Manufacturing and Service Employment (U.S.)Manufacturing and Service Employment (U.S.)
Figure 1.5 (A)Figure 1.5 (A)
ManufacturingManufacturing
ServiceService
© 2008 Prentice Hall, Inc. 1 – 21
Manufacturing Employment and Production (U.S.)Manufacturing Employment and Production (U.S.)
Figure 1.5 (B)Figure 1.5 (B)
40 40 –
30 30 –
20 20 –
10 10 –
0 0 – | | | | | | |19501950 19701970 19901990 2010 (est)2010 (est)
19601960 19801980 20002000
– 150150
– 125125
– 100100
– 7575
– 5050
– 2525
– 00
Em
plo
ymen
t (m
illi
on
s)E
mp
loym
ent
(mil
lio
ns)
In
dex
: 19
97 =
100
Ind
ex:
1997
= 1
00
Manufacturingemployment
(left scale)
Industrial Industrial productionproduction
(right scale)(right scale)
OutputOutput
InputInput
© 2008 Prentice Hall, Inc. 1 – 22
Industry and Services as Percentage of GDPIndustry and Services as Percentage of GDP
Services Manufacturing
Au
stra
liaA
ust
ralia
Can
ada
Can
ada
Ch
ina
Ch
ina
Cze
ch R
epC
zech
Rep
Fra
nce
Fra
nce
Ger
man
yG
erm
any
Ho
ng
Ko
ng
Ho
ng
Ko
ng
Jap
anJa
pan
Mex
ico
Mex
ico
Ru
ssia
n F
edR
uss
ian
Fed
So
uth
Afr
ica
So
uth
Afr
ica
Sp
ain
Sp
ain
UK
UK
US
US
90 −
80 −
70 −
60 −
50 −
40 −
30 −
20 −
10 −
0 −
© 2008 Prentice Hall, Inc. 1 – 23
Goods and ServicesGoods and Services
AutomobileAutomobile
ComputerComputer
Installed carpetingInstalled carpeting
Fast-food mealFast-food meal
Restaurant meal/auto repairRestaurant meal/auto repair
Hospital careHospital care
Advertising agency/Advertising agency/investment managementinvestment management
Consulting service/Consulting service/teachingteaching
CounselingCounseling
Percent of Product that is a Good Percent of Product that is a Service
100% 75 50 25 0 25 50 75 100%| | | | | | | | |
© 2008 Prentice Hall, Inc. 1 – 24
Changing ChallengesChanging Challenges
Traditional Traditional ApproachApproach
Reasons for Reasons for ChangeChange
Current Current ChallengeChallenge
Ethics and Ethics and regulations regulations not at the not at the forefrontforefront
Public concern over Public concern over pollution, corruption, child pollution, corruption, child labor, etc.labor, etc.
High ethical and social responsibility; increased legal and professional standards
Local or Local or national focusnational focus
Growth of reliable, low Growth of reliable, low cost communication and cost communication and transportationtransportation
Global focus, international collaboration
Lengthy Lengthy product product developmentdevelopment
Shorter life cycles; growth Shorter life cycles; growth of global communication; of global communication; CAD, InternetCAD, Internet
Rapid product development; design collaboration
7. Exciting New Trends in Operations Management7. Exciting New Trends in Operations Management
© 2008 Prentice Hall, Inc. 1 – 25
Changing ChallengesChanging Challenges
Traditional Traditional ApproachApproach
Reasons for Reasons for ChangeChange
Current Current ChallengeChallenge
Low cost Low cost production, production, with little with little concern for concern for environment; environment; free resources free resources (air, water) (air, water) ignoredignored
Public sensitivity to Public sensitivity to environment; ISO 14000 environment; ISO 14000 standard; increasing standard; increasing disposal costsdisposal costs
Environmentally sensitive production; green manufacturing; sustainability
Low-cost Low-cost standardized standardized productsproducts
Rise of consumerism; Rise of consumerism; increased affluence; increased affluence; individualismindividualism
Mass customization
© 2008 Prentice Hall, Inc. 1 – 26
Changing ChallengesChanging Challenges
Traditional Traditional ApproachApproach
Reasons for Reasons for ChangeChange
Current Current ChallengeChallenge
Emphasis on Emphasis on specialized, specialized, often manual often manual taskstasks
Recognition of the Recognition of the employee's total employee's total contribution; knowledge contribution; knowledge societysociety
Empowered employees; enriched jobs
““In-house” In-house” production; production; low-bid low-bid purchasingpurchasing
Rapid technological Rapid technological change; increasing change; increasing competitive forcescompetitive forces
Supply-chain partnering; joint ventures, alliances
Large lot Large lot productionproduction
Shorter product life Shorter product life cycles; increasing need to cycles; increasing need to reduce inventoryreduce inventory
Just-In-Time performance; lean; continuous improvement
© 2008 Prentice Hall, Inc. 1 – 27
Feedback loop
Outputs
Goods and
services
Transformation
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 (0.95%), labor (0.25%), and management
(1.3%).
The Economic SystemThe Economic System
Inputs
Labor,capital,
management
Figure 1.6
8. Productivity Challenge8. Productivity Challenge
© 2008 Prentice Hall, Inc. 1 – 28
ProductivityProductivity
Productivity is the ratio of outputs (goods and services) Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital)divided by the inputs (resources such as labor and capital)
Improve Improve productivityproductivity means improving means improving efficiencyefficiency
Productivity =Productivity = Units producedUnits produced
Input usedInput used
EfficientEfficient means doing the job well i.e. with a minimum of means doing the job well i.e. with a minimum of resources and wasteresources and waste
EffectiveEffective means doing the right thing means doing the right thing
Productivity measures are useful forProductivity measures are useful for– Tracking an operating unit’s performance over timeTracking an operating unit’s performance over time
– Judging the performance of an entire industry or countryJudging the performance of an entire industry or country
© 2008 Prentice Hall, Inc. 1 – 29
Productivity CalculationsProductivity Calculations
Productivity =Productivity =Units producedUnits produced
Labor-hours usedLabor-hours used
= = = = 44 units/labor-hour units/labor-hour1,0001,000
250250
Labor ProductivityLabor Productivity
ExampleExample : Units produced = 1,000 : Units produced = 1,000 and labor-hours used is 250and labor-hours used is 250
One resource input One resource input single-factor productivity single-factor productivity
© 2008 Prentice Hall, Inc. 1 – 30
Practice Problem 1.1 : Productivity Practice Problem 1.1 : Productivity (pp 1.2)(pp 1.2)
C. A. Ratchet, the local auto mechanic, finds that it usually takes him C. A. Ratchet, the local auto mechanic, finds that it usually takes him 2 2 hourshours to diagnose and fix a typical problem. to diagnose and fix a typical problem.
What is his daily productivity (assume an 8 hour day)? What is his daily productivity (assume an 8 hour day)? AnsAns : 4 problems/day : 4 problems/day
Mr. Ratchet believes he can purchase a small computer trouble-shooting Mr. Ratchet believes he can purchase a small computer trouble-shooting device, which will allow him to find and fix a problem in the incredible device, which will allow him to find and fix a problem in the incredible (at least to his customers!) time of (at least to his customers!) time of 1 hour1 hour. He will, however, have to . He will, however, have to spend an extra hour each morning adjusting the computerized spend an extra hour each morning adjusting the computerized diagnostic device. diagnostic device.
What will be the impact on his productivity if he purchases the device? What will be the impact on his productivity if he purchases the device? AnsAns : new productivity = 7 problems/day : new productivity = 7 problems/day
productivity increase of 75 %productivity increase of 75 %
© 2008 Prentice Hall, Inc. 1 – 31
Multi-Factor Productivity Multi-Factor Productivity
OutputOutput
Labor + Material + Energy + Labor + Material + Energy + Capital + MiscellaneousCapital + Miscellaneous
Productivity =Productivity =
Also known as Also known as total factor productivitytotal factor productivity
Output and inputs are often expressed in Output and inputs are often expressed in dollarsdollars
Multiple resource inputs Multiple resource inputs multi-factor productivity multi-factor productivity
© 2008 Prentice Hall, Inc. 1 – 32
ExampleExample - Collins Title Productivity - Collins Title Productivity
Collins Title wants to evaluate its Collins Title wants to evaluate its labor and multifactor productivitylabor and multifactor productivity with a new computerized title-search system. with a new computerized title-search system.
The company has a staff of four, each working 8 hours per day (for The company has a staff of four, each working 8 hours per day (for a payroll cost of $640/day) and overhead expenses of $400/day.a payroll cost of $640/day) and overhead expenses of $400/day.
Collins processes and closes on 8 titles each day. The new Collins processes and closes on 8 titles each day. The new computerized system will allow the processing of 14 titles per day. computerized system will allow the processing of 14 titles per day. The staff, their work hours, and pay are the same, but the overhead The staff, their work hours, and pay are the same, but the overhead expenses are now $800/day. expenses are now $800/day.
© 2008 Prentice Hall, Inc. 1 – 33
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
3232 labor-hrs labor-hrs==
Old labor Old labor productivityproductivity = = .25.25 titles/labor-hr titles/labor-hr
14 14 titles/daytitles/day
3232 labor-hrs labor-hrs==
New labor New labor productivityproductivity = = .4375.4375 titles/labor-hr titles/labor-hr
88 titles/day titles/day
3232 labor-hrs labor-hrs
1414 titles/day titles/day
3232 labor-hrs labor-hrs
Labor productivityLabor productivity
ExampleExample - Collins Title Productivity - Collins Title Productivity
© 2008 Prentice Hall, Inc. 1 – 34
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
$640 + 400$640 + 400
1414 titles/day titles/day
$640 + 800$640 + 800
==Old multifactor Old multifactor
productivityproductivity
==New multifactor New multifactor
productivityproductivity
= = .0077.0077 titles/dollar titles/dollar
= = .0097.0097 titles/dollar titles/dollar
88 titles/day titles/day
$640 + 400$640 + 400
1414 titles/day titles/day
$640 + 800$640 + 800
Multifactor productivityMultifactor productivity
ExampleExample - Collins Title Productivity - Collins Title Productivity
© 2008 Prentice Hall, Inc. 1 – 35
Practice Problem 1.2 : Multifactor Productivity Practice Problem 1.2 : Multifactor Productivity (pp 1.3, 1.5)(pp 1.3, 1.5)
Joanna French is currently working a total of 12 hours per day to produce 240 Joanna French is currently working a total of 12 hours per day to produce 240 dolls. She thinks that by changing the paint used for the facial features dolls. She thinks that by changing the paint used for the facial features and fingernails that she can increase her rate to 360 dolls per day. Total and fingernails that she can increase her rate to 360 dolls per day. Total material cost for each doll is approximately $3.50; she has to invest $20 material cost for each doll is approximately $3.50; she has to invest $20 in the necessary supplies (expendables) per day; energy costs are in the necessary supplies (expendables) per day; energy costs are assumed to be only $4.00 per day; and she thinks she should be making assumed to be only $4.00 per day; and she thinks she should be making $10 per hour for her time. $10 per hour for her time.
(a)(a) Viewing this from a total (multifactor) productivity perspective, what is her Viewing this from a total (multifactor) productivity perspective, what is her productivity at present and with the new paintproductivity at present and with the new paint? ? (Ans: 0.24, 0.26)(Ans: 0.24, 0.26)
(b)(b) How would total (multifactor) productivity change if using the new paint How would total (multifactor) productivity change if using the new paint
raised Ms. French’s material costs by $0.50 per doll?raised Ms. French’s material costs by $0.50 per doll? (Ans: 0.23)(Ans: 0.23)
(c)(c) If she uses the new paint, by what amount could Ms. French’s If she uses the new paint, by what amount could Ms. French’s material material costscosts increase without reducing total (multifactor) productivity? increase without reducing total (multifactor) productivity? (Ans: by $0.27)(Ans: by $0.27)
© 2008 Prentice Hall, Inc. 1 – 36
Ethics and Social ResponsibilityEthics and Social Responsibility
Challenges facing operations managers:Challenges facing operations managers:
Developing and producing Developing and producing safe, quality productssafe, quality products
Maintaining a Maintaining a clean environmentclean environment
Providing a Providing a safe workplacesafe workplace
Honoring Honoring stakeholder commitmentsstakeholder commitments
© 2008 Prentice Hall, Inc. 1 – 37
Video Case 1.1Video Case 1.1Frito-Lay: Operations Management in ManufacturingFrito-Lay: Operations Management in Manufacturing
More than three dozen brands, 15 brands sell more than $100 million annually, 7 sell over $1 billion
Planning processes covers 3 to 18 months
Unique processes and specially designed equipment
High fixed costs require high volumes and high utilization
Demand profile based on historical sales, forecasts, innovations, promotion, local demand data
Match total demand to capacity, expansion plans, and costs
Quarterly aggregate plan goes to 38 plants in 18 regions
Each plant develops 4-week plan for product lines and production runs
© 2008 Prentice Hall, Inc. 1 – 38
• First opened in 1971First opened in 1971– Now – 129 restaurants in over 40 countriesNow – 129 restaurants in over 40 countries
• Rock music memorabiliaRock music memorabilia
• Creates value in the form of good food and Creates value in the form of good food and entertainmententertainment
• 3,5003,500++ custom meals per day in Orlando custom meals per day in Orlando
• How does an item get on the menu?How does an item get on the menu?
• Role of the Operations ManagerRole of the Operations Manager
Video Case 1.2Video Case 1.2Hard Rock Cafe: Operations Management in ServicesHard Rock Cafe: Operations Management in Services
© 2008 Prentice Hall, Inc. 1 – 39
Identify how each of the 10 decisions of OM is applied at Identify how each of the 10 decisions of OM is applied at Frito LayFrito Lay VS VS Hard Rock CafeHard Rock Cafe
Discussion PointDiscussion Point
Operations DecisionsOperations Decisions GoodsGoods ServicesServices
Goods and service Goods and service designdesign
Product is usually tangibleProduct is usually tangible Product is not tangibleProduct is not tangible
QualityQuality Many objective standardsMany objective standards Many subjective standardsMany subjective standards
Process and capacity Process and capacity designdesign
Customers not involvedCustomers not involved Customer may be directly involvedCustomer may be directly involved
Capacity must match demandCapacity must match demand
Location selectionLocation selection Near raw materials and laborNear raw materials and labor Near customersNear customers
Layout designLayout design Production efficiencyProduction efficiency Enhances product and productionEnhances product and production
Human resources and Human resources and job designjob design
Technical skills, consistent labor Technical skills, consistent labor standards, output based wagesstandards, output based wages
Interact with customers, labor Interact with customers, labor standards varystandards vary
Supply chain Supply chain Relationship critical to final Relationship critical to final productproduct
Important, but may not be criticalImportant, but may not be critical
InventoryInventory Raw materials, work-in-process, Raw materials, work-in-process, and finished goods may be heldand finished goods may be held
Cannot be storedCannot be stored
SchedulingScheduling Level schedules possibleLevel schedules possible Meet immediate customer demandMeet immediate customer demand
MaintenanceMaintenance Often preventive and takes place Often preventive and takes place at production siteat production site
Often “repair” and takes place at Often “repair” and takes place at customer’s sitecustomer’s site
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