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© 2008 Prentice Hall, Inc. 1 – 1
Operations ManagementOperations ManagementChapter 1 Chapter 1 ––Operations and Operations and ProductivityProductivity
PowerPoint presentation to accompanyPowerPoint presentation to accompanyHeizer/Render Heizer/Render Principles of Operations Management, 7ePrinciples of Operations Management, 7eOperations Management, 9e Operations Management, 9e
© 2008 Prentice Hall, Inc. 1 – 2
OutlineOutlineGlobal Company Profile: Hard Rock Global Company Profile: Hard Rock CafeCafeWhat Is Operations Management?What Is Operations Management?Organizing to Produce Goods and Organizing to Produce Goods and Services Services Why Study OM?Why Study OM?What Operations Managers DoWhat Operations Managers Do
How This Book Is OrganizedHow This Book Is Organized
© 2008 Prentice Hall, Inc. 1 – 3
Outline Outline -- ContinuedContinued
The Heritage of Operations The Heritage of Operations ManagementManagementOperations in the Service SectorOperations in the Service Sector
Differences between Goods and Differences between Goods and ServicesServicesGrowth of ServicesGrowth of ServicesService PayService Pay
Exciting New Trends in Operations Exciting New Trends in Operations ManagementManagement
© 2008 Prentice Hall, Inc. 1 – 4
Outline Outline -- ContinuedContinued
The Productivity ChallengeThe Productivity ChallengeProductivity MeasurementProductivity MeasurementProductivity VariablesProductivity VariablesProductivity and the Service Sector Productivity and the Service Sector
Ethics and Social ResponsibilityEthics and Social Responsibility
© 2008 Prentice Hall, Inc. 1 – 5
Learning ObjectivesLearning ObjectivesWhen you complete this chapter When you complete this chapter you should be able to:you should be able to:
1.1. Define operations managementDefine operations management2.2. Explain the distinction between Explain the distinction between
goods and servicesgoods and services3.3. Explain the difference between Explain the difference between
production and productivityproduction and productivity
© 2008 Prentice Hall, Inc. 1 – 6
Learning ObjectivesLearning ObjectivesWhen you complete this chapter When you complete this chapter you should be able to:you should be able to:
4.4. Compute singleCompute single--factor factor productivityproductivity
5.5. Compute multifactor productivityCompute multifactor productivity6.6. Identify the critical variables in Identify the critical variables in
enhancing productivityenhancing productivity
© 2008 Prentice Hall, Inc. 1 – 7
The Hard Rock CafeThe Hard Rock Cafe
First opened in 1971First opened in 1971Now Now –– 121 restaurants in over 40 countries121 restaurants in over 40 countries
Rock music memorabiliaRock music memorabiliaCreates value in the form of good food Creates value in the form of good food and entertainmentand entertainment3,5003,500++ custom meals per day in Orlandocustom meals per day in OrlandoHow does an item get on the menu?How does an item get on the menu?Role of the Operations ManagerRole of the Operations Manager
© 2008 Prentice Hall, Inc. 1 – 8
What Is Operations What Is Operations Management?Management?
ProductionProduction is the creation of is the creation of goods and servicesgoods and services
Operations management (OM)Operations management (OM) is is the set of activities that creates the set of activities that creates value in the form of goods and value in the form of goods and
services by transforming inputs services by transforming inputs into outputsinto outputs
© 2008 Prentice Hall, Inc. 1 – 9
Organizing to Produce Organizing to Produce Goods and ServicesGoods and Services
Essential functions:Essential functions:Marketing Marketing –– generates demandgenerates demandProduction/operations Production/operations –– creates creates the productthe productFinance/accounting Finance/accounting –– tracks how tracks how well the organization is doing, pays well the organization is doing, pays bills, collects the moneybills, collects the money
© 2008 Prentice Hall, Inc. 1 – 10
Organizational ChartsOrganizational Charts
OperationsTeller SchedulingCheck ClearingCollectionTransaction processingFacilities design/layoutVault operationsMaintenanceSecurity
FinanceInvestmentsSecurityReal estate
Accounting
Auditing
MarketingLoans
CommercialIndustrialFinancialPersonalMortgage
Trust Department
Commercial Bank
Figure 1.1(A)Figure 1.1(A)
© 2008 Prentice Hall, Inc. 1 – 11
Organizational ChartsOrganizational Charts
OperationsGround support
equipmentMaintenanceGround Operations
Facilitymaintenance
CateringFlight OperationsCrew schedulingFlyingCommunicationsDispatching
Management science
Finance/ accountingAccounting
PayablesReceivablesGeneral Ledger
FinanceCash controlInternational
exchange
Airline
Figure 1.1(B)Figure 1.1(B)
MarketingTraffic administration
ReservationsSchedulesTariffs (pricing)
SalesAdvertising
© 2008 Prentice Hall, Inc. 1 – 12
MarketingSales
promotionAdvertisingSalesMarket research
Organizational ChartsOrganizational Charts
OperationsFacilities
Construction; maintenanceProduction and inventory control
Scheduling; materials controlQuality assurance and controlSupply chain managementManufacturing
Tooling; fabrication; assemblyDesign
Product development and designDetailed product specifications
Industrial engineeringEfficient use of machines, space,
and personnelProcess analysis
Development and installation ofproduction tools and equipment
Finance/ accountingDisbursements/
creditsReceivablesPayablesGeneral ledger
Funds ManagementMoney marketInternational
exchangeCapital requirements
Stock issueBond issue
and recall
Manufacturing
Figure 1.1(C)Figure 1.1(C)
© 2008 Prentice Hall, Inc. 1 – 13
Why Study OM?Why Study OM?OM is one of three major functions OM is one of three major functions (marketing, finance, and operations) (marketing, finance, and operations) of any organizationof any organizationWe want (We want (and needand need) to know how ) to know how goods and services are producedgoods and services are producedWe want to understand what We want to understand what operations managers dooperations managers doOM is such a costly part of an OM is such a costly part of an organizationorganization
© 2008 Prentice Hall, Inc. 1 – 14
Options for Increasing Options for Increasing ContributionContribution
SalesSales $100,000$100,000 $150,000$150,000 $100,000$100,000 $100,000$100,000Cost of Goods Cost of Goods –– 80,00080,000 –– 120,000120,000 –– 80,00080,000 –– 64,00064,000Gross MarginGross Margin 20,00020,000 30,00030,000 20,00020,000 36,00036,000Finance CostsFinance Costs –– 6,0006,000 –– 6,0006,000 –– 3,0003,000 –– 6,0006,000SubtotalSubtotal 14,00014,000 24,00024,000 17,00017,000 30,00030,000Taxes at 25%Taxes at 25% –– 3,5003,500 –– 6,0006,000 –– 4,2504,250 –– 7,5007,500ContributionContribution $ 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%
© 2008 Prentice Hall, Inc. 1 – 15
What Operations What Operations Managers DoManagers Do
PlanningPlanningOrganizingOrganizingStaffingStaffingLeadingLeadingControllingControlling
Basic Management FunctionsBasic Management Functions
© 2008 Prentice Hall, Inc. 1 – 16
Ten Critical DecisionsTen Critical DecisionsTen Decision AreasTen Decision Areas Chapter(s)Chapter(s)Design of goods and servicesDesign of goods and services 55Managing qualityManaging quality 6, Supplement 66, Supplement 6Process and capacity Process and capacity 7, Supplement 77, Supplement 7
design design Location strategyLocation strategy 88Layout strategyLayout strategy 99Human resources and Human resources and 10, Supplement 1010, Supplement 10
job design job design Supply chain Supply chain 11, Supplement 1111, Supplement 11
managementmanagementInventory managementInventory management 12, 14, 1612, 14, 16SchedulingScheduling 13, 1513, 15MaintenanceMaintenance 1717
Table 1.2Table 1.2
© 2008 Prentice Hall, Inc. 1 – 17
The Critical DecisionsThe Critical DecisionsDesign of goods and servicesDesign of goods and services
What good or service should we What good or service should we offer?offer?How should we design these products How should we design these products and services? and services?
Managing qualityManaging qualityHow do we define quality?How do we define quality?Who is responsible for quality?Who is responsible for quality?
Table 1.2 (cont.)Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 18
The Critical DecisionsThe Critical DecisionsProcess and capacity designProcess and capacity design
What process and what capacity will What process and what capacity will these products require?these products require?What equipment and technology is What equipment and technology is necessary for these processes?necessary for these processes?
Location strategyLocation strategyWhere should we put the facility?Where should we put the facility?On what criteria should we base the On what criteria should we base the location decision?location decision?
Table 1.2 (cont.)Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 19
The Critical DecisionsThe Critical DecisionsLayout strategyLayout strategy
How should we arrange the facility?How should we arrange the facility?How large must the facility be to meet How large must the facility be to meet our plan?our plan?
Human resources and job designHuman resources and job designHow do we provide a reasonable work How do we provide a reasonable work environment?environment?How much can we expect our How much can we expect our employees to produce?employees to produce?
Table 1.2 (cont.)Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 20
The Critical DecisionsThe Critical DecisionsSupply chain managementSupply chain management
Should we make or buy this component?Should we make or buy this component?Who are our suppliers and who can Who are our suppliers and who can integrate into our eintegrate into our e--commerce program?commerce program?
Inventory, material requirements Inventory, material requirements planning, and JITplanning, and JIT
How much inventory of each item should How much inventory of each item should we have?we have?When do we reWhen do we re--order?order?
Table 1.2 (cont.)Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 21
The Critical DecisionsThe Critical DecisionsIntermediate and shortIntermediate and short––term term schedulingscheduling
Are we better off keeping people on Are we better off keeping people on the payroll during slowdowns?the payroll during slowdowns?Which jobs do we perform next?Which jobs do we perform next?
MaintenanceMaintenanceWho is responsible for maintenance?Who is responsible for maintenance?When do we do maintenance?When do we do maintenance?
Table 1.2 (cont.)Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 22
Where are the OM Jobs?Where are the OM Jobs?
Figure 1.2Figure 1.2
© 2008 Prentice Hall, Inc. 1 – 23
Where are the OM Jobs?Where are the OM Jobs?Technology/methodsTechnology/methodsFacilities/space utilizationFacilities/space utilizationStrategic issuesStrategic issuesResponse timeResponse timePeople/team developmentPeople/team developmentCustomer serviceCustomer serviceQualityQualityCost reductionCost reductionInventory reductionInventory reductionProductivity improvementProductivity improvement
© 2008 Prentice Hall, Inc. 1 – 24
Significant Events in OMSignificant Events in OM
Figure 1.3Figure 1.3
© 2008 Prentice Hall, Inc. 1 – 25
The Heritage of OMThe Heritage of OM
Division of labor (Adam Smith 1776; Division of labor (Adam Smith 1776; Charles Babbage 1852)Charles Babbage 1852)Standardized parts (Whitney 1800)Standardized parts (Whitney 1800)Scientific Management (Taylor 1881)Scientific Management (Taylor 1881)Coordinated assembly line (Ford/ Coordinated assembly line (Ford/ Sorenson 1913)Sorenson 1913)Gantt charts (Gantt 1916)Gantt charts (Gantt 1916)Motion study (Frank and Lillian Gilbreth Motion study (Frank and Lillian Gilbreth 1922)1922)Quality control (Shewhart 1924; Deming Quality control (Shewhart 1924; Deming 1950)1950)
© 2008 Prentice Hall, Inc. 1 – 26
The Heritage of OMThe Heritage of OM
Computer (Atanasoff 1938)Computer (Atanasoff 1938)CPM/PERT (DuPont 1957)CPM/PERT (DuPont 1957)Material requirements planning (Orlicky 1960)Material requirements planning (Orlicky 1960)Computer aided design (CAD 1970)Computer aided design (CAD 1970)Flexible manufacturing system (FMS 1975)Flexible manufacturing system (FMS 1975)Baldrige Quality Awards (1980)Baldrige Quality Awards (1980)Computer integrated manufacturing (1990)Computer integrated manufacturing (1990)Globalization (1992)Globalization (1992)Internet (1995)Internet (1995)
© 2008 Prentice Hall, Inc. 1 – 27
Eli WhitneyEli Whitney
Born 1765; died 1825Born 1765; died 1825In 1798, received government In 1798, received government contract to make 10,000 musketscontract to make 10,000 musketsShowed that machine tools could Showed that machine tools could make standardized parts to exact make standardized parts to exact specificationsspecifications
Musket parts could be used in any Musket parts could be used in any musketmusket
© 2008 Prentice Hall, Inc. 1 – 28
Frederick W. TaylorFrederick W. Taylor
Born 1856; died 1915Born 1856; died 1915Known as Known as ‘‘father of scientific father of scientific managementmanagement’’In 1881, as chief engineer for In 1881, as chief engineer for Midvale Steel, studied how tasks Midvale Steel, studied how tasks were donewere done
Began first motion and time studiesBegan first motion and time studies
Created efficiency principlesCreated efficiency principles
© 2008 Prentice Hall, Inc. 1 – 29
TaylorTaylor’’s Principless Principles
Matching employees to right jobMatching employees to right jobProviding the proper trainingProviding the proper trainingProviding proper work methods and Providing proper work methods and toolstoolsEstablishing legitimate incentives for Establishing legitimate incentives for work to be accomplishedwork to be accomplished
Management Should Take More Management Should Take More Responsibility for:Responsibility for:
© 2008 Prentice Hall, Inc. 1 – 30
Frank & Lillian GilbrethFrank & Lillian GilbrethFrank (1868Frank (1868--1924); Lillian (18781924); Lillian (1878--1972)1972)HusbandHusband--andand--wife engineering teamwife engineering teamFurther developed work Further developed work measurement methodsmeasurement methodsApplied efficiency methods to their Applied efficiency methods to their home and 12 children! home and 12 children! Book & Movie: Book & Movie: ““Cheaper by the Cheaper by the Dozen,Dozen,”” book: book: ““Bells on Their ToesBells on Their Toes””
© 2008 Prentice Hall, Inc. 1 – 31
Born 1863; died 1947Born 1863; died 1947In 1903, created Ford Motor In 1903, created Ford Motor CompanyCompanyIn 1913, first used moving assembly In 1913, first used moving assembly line to make Model Tline to make Model T
Unfinished product moved by Unfinished product moved by conveyor past work stationconveyor past work station
Paid workers very well for 1911 Paid workers very well for 1911 ($5/day!)($5/day!)
Henry FordHenry Ford
© 2008 Prentice Hall, Inc. 1 – 32
W. Edwards DemingW. Edwards Deming
Born 1900; died 1993Born 1900; died 1993Engineer and physicistEngineer and physicistCredited with teaching Japan Credited with teaching Japan quality control methods in postquality control methods in post--WW2WW2Used statistics to analyze processUsed statistics to analyze processHis methods involve workers in His methods involve workers in decisionsdecisions
© 2008 Prentice Hall, Inc. 1 – 33
Contributions FromContributions From
Human factorsHuman factorsIndustrial engineeringIndustrial engineeringManagement scienceManagement scienceBiological scienceBiological sciencePhysical sciencesPhysical sciencesInformation technology Information technology
© 2008 Prentice Hall, Inc. 1 – 34
New Challenges in OMNew Challenges in OM
Global focusGlobal focusJustJust--inin--timetimeSupply chain Supply chain partneringpartneringRapid product Rapid product development, development, alliancesalliancesMass Mass customizationcustomizationEmpowered Empowered employees, teamsemployees, teams
ToToFromFromLocal or national focusLocal or national focusBatch shipmentsBatch shipmentsLow bid purchasingLow bid purchasing
Lengthy product Lengthy product developmentdevelopment
Standard productsStandard products
Job specializationJob specialization
© 2008 Prentice Hall, Inc. 1 – 35
Characteristics of GoodsCharacteristics of GoodsTangible productTangible productConsistent product Consistent product definitiondefinitionProduction usually Production usually separate from separate from consumptionconsumptionCan be inventoriedCan be inventoriedLow customer Low customer interactioninteraction
© 2008 Prentice Hall, Inc. 1 – 36
Characteristics of ServiceCharacteristics of ServiceIntangible productIntangible productProduced and Produced and consumed at same timeconsumed at same timeOften uniqueOften uniqueHigh customer High customer interactioninteractionInconsistent product Inconsistent product definitiondefinitionOften knowledgeOften knowledge--basedbasedFrequently dispersedFrequently dispersed
© 2008 Prentice Hall, Inc. 1 – 37
Industry and Services as Industry and Services as Percentage of GDPPercentage of GDP
ServicesServices ManufacturingManufacturing
Aus
tral
iaA
ustr
alia
Can
ada
Can
ada
Chi
naC
hina
Cze
ch R
epC
zech
Rep
Fran
ceFr
ance
Ger
man
yG
erm
any
Hon
g K
ong
Hon
g K
ong
Japa
nJa
pan
Mex
ico
Mex
ico
Rus
sian
Fed
Rus
sian
Fed
Sout
h A
fric
aSo
uth
Afr
ica
Spai
nSp
ain
UKUK
USUS
90 90 −80 80 −70 70 −60 60 −50 50 −40 40 −30 30 −20 20 −10 10 −00 −
© 2008 Prentice Hall, Inc. 1 – 38
Goods Versus ServicesGoods Versus Services
Table 1.3Table 1.3
Can be resoldCan be resoldCan be inventoriedCan be inventoriedSome aspects of quality Some aspects of quality measurablemeasurableSelling is distinct from Selling is distinct from productionproductionProduct is transportableProduct is transportable
Site of facility important for costSite of facility important for cost
Often easy to automateOften easy to automateRevenue generated primarily Revenue generated primarily from tangible productfrom tangible product
Attributes of GoodsAttributes of Goods(Tangible Product)(Tangible Product)
Attributes of ServicesAttributes of Services(Intangible Product)(Intangible Product)
Reselling unusualReselling unusualDifficult to inventoryDifficult to inventoryQuality difficult to measureQuality difficult to measure
Selling is part of service Selling is part of service
Provider, not product, isProvider, not product, isoften transportableoften transportableSite of facility important forSite of facility important forcustomer contactcustomer contactOften difficult to automateOften difficult to automateRevenue generated primarily Revenue generated primarily from the intangible servicefrom the intangible service
© 2008 Prentice Hall, Inc. 1 – 39
Goods and ServicesGoods and ServicesAutomobile
ComputerInstalled carpeting
Fast-food mealRestaurant meal/auto repair
Hospital careAdvertising agency/
investment managementConsulting service/
teachingCounseling
Percent of Product that is a GoodPercent of Product that is a Good Percent of Product that is a ServicePercent of Product that is a Service
100%100% 7575 5050 2525 00 2525 5050 7575 100%100%|| || || || || || || || ||
Figure 1.4Figure 1.4
© 2008 Prentice Hall, Inc. 1 – 40
120120 –
100 100 –
80 80 –
60 60 –
40 40 –
20 20 –
0 0 – | | | | | | |19501950 19701970 19901990 2010 (est)2010 (est)
19601960 19801980 20002000
Empl
oym
ent (
mill
ions
)Em
ploy
men
t (m
illio
ns)
Manufacturing and Service Manufacturing and Service EmploymentEmployment
Figure 1.5 (A)Figure 1.5 (A)
ManufacturingManufacturing
ServiceService
© 2008 Prentice Hall, Inc. 1 – 41
Manufacturing Employment Manufacturing Employment and Productionand Production
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
Empl
oym
ent (
mill
ions
)Em
ploy
men
t (m
illio
ns)
Inde
x:
Inde
x: 1
997
= 10
019
97 =
100
Manufacturingemployment
(left scale)
Industrial Industrial productionproduction
(right scale)(right scale)
© 2008 Prentice Hall, Inc. 1 – 42
Development of the Development of the Service EconomyService Economy
Figure 1.5 (C)Figure 1.5 (C)
United StatesCanadaFrance
ItalyBritainJapan
W. Germany
1970 2008 (est)
| | | | |
40 50 60 70 80Percent
© 2008 Prentice Hall, Inc. 1 – 43
Organizations in Each SectorOrganizations in Each Sector
5.25.2Pacific Gas & Electric, Pacific Gas & Electric, American Airlines, Santa American Airlines, Santa Fe R.R., Roadway Fe R.R., Roadway ExpressExpress
Utilities, Utilities, TransportationTransportation
15.115.1WalgreenWalgreen’’s, Wals, Wal--Mart, Mart, NordstromNordstrom’’ss
Trade (retail, Trade (retail, wholesale)wholesale)
25.525.5Notre Dame University, Notre Dame University, San Diego Zoo, Arnold San Diego Zoo, Arnold Palmer HospitalPalmer Hospital
Education, Education, Legal, Medical, Legal, Medical, and otherand other
% of all % of all JobsJobsExampleExampleService SectorService Sector
Table 1.4Table 1.4
© 2008 Prentice Hall, Inc. 1 – 44
Organizations in Each SectorOrganizations in Each Sector
4.64.6U.S., State of Alabama, Cook U.S., State of Alabama, Cook CountyCounty
Public Public AdministrationAdministration
8.58.5Olive Garden, Hard Rock Cafe, Olive Garden, Hard Rock Cafe, Motel 6, Hilton Hotels, Walt Motel 6, Hilton Hotels, Walt Disney, Paramount PicturesDisney, Paramount Pictures
Food, Lodging, Food, Lodging, EntertainmentEntertainment
9.69.6Citicorp, American Express, Citicorp, American Express, Prudential, Aetna, Trammel Prudential, Aetna, Trammel Crow, EDS, IBMCrow, EDS, IBM
Finance, Finance, Information, Information, Real EstateReal Estate
10.110.1Snelling and Snelling, Waste Snelling and Snelling, Waste Management, PitneyManagement, Pitney--BowesBowes
Professional Professional and Business and Business ServicesServices
% of all % of all JobsJobsExampleExampleService SectorService Sector
Table 1.4Table 1.4
© 2008 Prentice Hall, Inc. 1 – 45
Organizations in Each SectorOrganizations in Each Sector
21.4%21.4%ManufacturingManufacturing
78.6%78.6%ServiceService
Percent of all jobsPercent of all jobsSectorSector
0.40.4Homestake MiningHomestake MiningMiningMining
1.61.6King RanchKing RanchAgricultureAgriculture
7.97.9Bechtel, McDermottBechtel, McDermottConstructionConstruction
11.511.5General Electric, Ford, General Electric, Ford, U.S. Steel, IntelU.S. Steel, Intel
ManufacturingManufacturing
% of all % of all JobsJobsExampleExample
Manufacturing Manufacturing SectorSector
Table 1.4Table 1.4
© 2008 Prentice Hall, Inc. 1 – 46
New Trends in OMNew Trends in OM
Supply chain Supply chain partners, partners, collaboration, collaboration, alliances, alliances, outsourcingoutsourcing
Supply chain competition Supply chain competition requires that suppliers be requires that suppliers be engaged in a focus on the engaged in a focus on the end customerend customer
LowLow--bid bid purchasingpurchasing
JustJust--inin--time time performanceperformance
Short product life cycles Short product life cycles and cost of capital put and cost of capital put pressure on reducing pressure on reducing inventoryinventory
Batch (large) Batch (large) shipmentsshipments
Global focus, Global focus, moving moving production production offshoreoffshore
Reliable worldwide Reliable worldwide communication and communication and transportation networkstransportation networks
Local or Local or national national focusfocus
Figure 1.6Figure 1.6
PastPast CausesCauses FutureFuture
© 2008 Prentice Hall, Inc. 1 – 47
New Trends in OMNew Trends in OM
Empowered Empowered employees, employees, teams, and lean teams, and lean productionproduction
Changing socioculture Changing socioculture milieu; increasingly a milieu; increasingly a knowledge and information knowledge and information societysociety
Job Job specializationspecialization
Mass Mass customization customization with added with added emphasis on emphasis on qualityquality
Affluence and worldwide Affluence and worldwide markets; increasingly markets; increasingly flexible production flexible production processesprocesses
Standardized Standardized productsproducts
Rapid product Rapid product development, development, alliances, alliances, collaborative collaborative designsdesigns
Shorter life cycles, Shorter life cycles, Internet, rapid international Internet, rapid international communication, computercommunication, computer--aided design, and aided design, and international collaborationinternational collaboration
Lengthy Lengthy product product developmentdevelopment
Figure 1.6Figure 1.6
PastPast CausesCauses FutureFuture
© 2008 Prentice Hall, Inc. 1 – 48
New Trends in OMNew Trends in OM
High ethical High ethical standards and standards and social social responsibility responsibility expectedexpected
Businesses operate more Businesses operate more openly; public and global openly; public and global review of ethics; opposition review of ethics; opposition to child labor, bribery, to child labor, bribery, pollutionpollution
Ethics not Ethics not at forefrontat forefront
Environmentally Environmentally sensitive sensitive production, green production, green manufacturing, manufacturing, recycled recycled materials, materials, remanufacturingremanufacturing
Environmental issues, ISO Environmental issues, ISO 14000, increasing disposal 14000, increasing disposal costscosts
LowLow--cost cost focusfocus
Figure 1.6Figure 1.6
PastPast CausesCauses FutureFuture
© 2008 Prentice Hall, Inc. 1 – 49
New Trends in OMNew Trends in OMGlobal focusGlobal focusJustJust--inin--time performancetime performanceSupply chain partneringSupply chain partneringRapid product developmentRapid product developmentMass customizationMass customizationEmpowered employeesEmpowered employeesEnvironmentally sensitive productionEnvironmentally sensitive productionEthicsEthics
© 2008 Prentice Hall, Inc. 1 – 50
Productivity ChallengeProductivity Challenge
Productivity is the ratio of outputs (goods Productivity is the ratio of outputs (goods and services) divided by the inputs and services) divided by the inputs
(resources such as labor and capital)(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
© 2008 Prentice Hall, Inc. 1 – 51
FeedbackFeedback looploop
OutputsOutputs
Goods and
services
ProcessesProcesses
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 (38% of 2.5%), labor (10% of 2.5%), and
management (52% of 2.5%).
The Economic SystemThe Economic SystemInputsInputs
Labor,capital,
management
Figure 1.7Figure 1.7
© 2008 Prentice Hall, Inc. 1 – 52
Improving Productivity at Improving Productivity at StarbucksStarbucks
A team of 10 analysts A team of 10 analysts continually look for ways continually look for ways to shave time. Some to shave time. Some improvements:improvements:
Saved 12 seconds Saved 12 seconds per shotper shot
New espresso machinesNew espresso machines
Saved 14 seconds Saved 14 seconds per drinkper drink
Change the size of the ice Change the size of the ice scoopscoop
Saved 8 seconds Saved 8 seconds per transactionper transaction
Stop requiring signatures Stop requiring signatures on credit card purchases on credit card purchases under $25under $25
© 2008 Prentice Hall, Inc. 1 – 53
Improving Productivity at Improving Productivity at StarbucksStarbucks
A team of 10 analysts A team of 10 analysts continually look for ways continually look for ways to shave time. Some to shave time. Some improvements:improvements:
Saved 12 seconds Saved 12 seconds per shotper shot
New espresso machinesNew espresso machines
Saved 14 seconds Saved 14 seconds per drinkper drink
Change the size of the ice Change the size of the ice scoopscoop
Saved 8 seconds Saved 8 seconds per transactionper transaction
Stop requiring signatures Stop requiring signatures on credit card purchases on credit card purchases under $25under $25
Operations improvements have Operations improvements have helped Starbucks increase yearly helped Starbucks increase yearly revenue per outlet by $200,000 to revenue per outlet by $200,000 to $940,000 in six years.$940,000 in six years.Productivity has improved by 27%, Productivity has improved by 27%, or about 4.5% per year.or about 4.5% per year.
© 2008 Prentice Hall, Inc. 1 – 54
Measure of process improvementMeasure of process improvementRepresents output relative to inputRepresents output relative to inputOnly through productivity increases Only through productivity increases can our standard of living improvecan our standard of living improve
ProductivityProductivity
Productivity =Productivity =Units producedUnits produced
Input usedInput used
© 2008 Prentice Hall, Inc. 1 – 55
Productivity CalculationsProductivity Calculations
Productivity =Productivity =Units producedUnits produced
LaborLabor--hours usedhours used
= = = = 44 units/laborunits/labor--hourhour1,0001,000250250
Labor ProductivityLabor Productivity
One resource input One resource input singlesingle--factor productivityfactor productivity
© 2008 Prentice Hall, Inc. 1 – 56
MultiMulti--Factor Productivity Factor Productivity OutputOutput
Labor + Material + Energy Labor + Material + Energy + Capital + Miscellaneous+ Capital + Miscellaneous
Productivity =Productivity =
Also known as total factor productivityAlso known as total factor productivityOutput and inputs are often expressed Output and inputs are often expressed in dollarsin dollars
Multiple resource inputs Multiple resource inputs multimulti--factor productivityfactor productivity
© 2008 Prentice Hall, Inc. 1 – 57
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 8 8 hrs/dayhrs/day 88 titles/daytitles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
==Old labor Old labor productivityproductivity
88 titles/daytitles/day3232 laborlabor--hrshrs
© 2008 Prentice Hall, Inc. 1 – 58
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/dayhrs/day 88 titles/daytitles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
88 titles/daytitles/day3232 laborlabor--hrshrs==Old labor Old labor
productivityproductivity = = .25.25 titles/labortitles/labor--hrhr
© 2008 Prentice Hall, Inc. 1 – 59
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 8 8 hrs/dayhrs/day 88 titles/daytitles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/daytitles/day Overhead = Overhead = $800$800/day/dayNew System:New System:
88 titles/daytitles/day3232 laborlabor--hrshrs==Old labor Old labor
productivityproductivity
==New labor New labor productivityproductivity
= .25 titles/labor= .25 titles/labor--hrhr
1414 titles/daytitles/day3232 laborlabor--hrshrs
© 2008 Prentice Hall, Inc. 1 – 60
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/dayhrs/day 88 titles/daytitles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/daytitles/day Overhead = Overhead = $800$800/day/dayNew System:New System:
88 titles/daytitles/day3232 laborlabor--hrshrs==Old labor Old labor
productivityproductivity = = .25.25 titles/labortitles/labor--hrhr
14 14 titles/daytitles/day3232 laborlabor--hrshrs==New labor New labor
productivityproductivity = = .4375.4375 titles/labortitles/labor--hrhr
© 2008 Prentice Hall, Inc. 1 – 61
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/dayhrs/day 88 titles/daytitles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/daytitles/day Overhead = Overhead = $800$800/day/dayNew System:New System:
==Old multifactor Old multifactor productivityproductivity
88 titles/daytitles/day$640 + 400$640 + 400
© 2008 Prentice Hall, Inc. 1 – 62
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/dayhrs/day 88 titles/daytitles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/daytitles/day Overhead = Overhead = $800$800/day/dayNew System:New System:
88 titles/daytitles/day$640 + 400$640 + 400==Old multifactor Old multifactor
productivityproductivity = = .0077.0077 titles/dollartitles/dollar
© 2008 Prentice Hall, Inc. 1 – 63
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/dayhrs/day 88 titles/daytitles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/daytitles/day Overhead = Overhead = $800$800/day/dayNew System:New System:
88 titles/daytitles/day$640 + 400$640 + 400==Old multifactor Old multifactor
productivityproductivity
==New multifactor New multifactor productivityproductivity
= = .0077.0077 titles/dollartitles/dollar
1414 titles/daytitles/day$640 + 800$640 + 800
© 2008 Prentice Hall, Inc. 1 – 64
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/dayhrs/day 88 titles/daytitles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/daytitles/day Overhead = Overhead = $800$800/day/dayNew System:New System:
88 titles/daytitles/day$640 + 400$640 + 400
1414 titles/daytitles/day$640 + 800$640 + 800
==Old multifactor Old multifactor productivityproductivity
==New multifactor New multifactor productivityproductivity
= = .0077.0077 titles/dollartitles/dollar
= = .0097.0097 titles/dollartitles/dollar
© 2008 Prentice Hall, Inc. 1 – 65
Measurement ProblemsMeasurement Problems
QualityQuality may change while the may change while the quantity of inputs and outputs quantity of inputs and outputs remains constantremains constantExternal elementsExternal elements may cause an may cause an increase or decrease in productivityincrease or decrease in productivityPrecise unitsPrecise units of measure may be of measure may be lackinglacking
© 2008 Prentice Hall, Inc. 1 – 66
Productivity VariablesProductivity VariablesLaborLabor -- contributes contributes about about 10%10% of the of the annual increaseannual increase
CapitalCapital -- contributes contributes about about 38%38% of the of the annual increaseannual increaseManagementManagement --contributes about contributes about 52%52%of the annual increaseof the annual increase
© 2008 Prentice Hall, Inc. 1 – 67
Key Variables for Improved Key Variables for Improved Labor ProductivityLabor Productivity
Basic education appropriate for the Basic education appropriate for the labor forcelabor forceDiet of the labor forceDiet of the labor forceSocial overhead that makes labor Social overhead that makes labor availableavailableMaintaining and enhancing skills in the Maintaining and enhancing skills in the midst of rapidly changing technology midst of rapidly changing technology and knowledgeand knowledge
© 2008 Prentice Hall, Inc. 1 – 68
Labor SkillsLabor SkillsAbout half of the 17About half of the 17--yearyear--olds in the US cannot olds in the US cannot correctly answer questions of this typecorrectly answer questions of this type
Figure 1.8Figure 1.8
© 2008 Prentice Hall, Inc. 1 – 69
Investment and Productivity Investment and Productivity
1010
88
66
44
22
00
Perc
ent i
ncre
ase
in p
rodu
ctiv
ityPe
rcen
t inc
reas
e in
pro
duct
ivity
Percentage investmentPercentage investment1010 1515 2020 2525 3030 3535
© 2008 Prentice Hall, Inc. 1 – 70
Service ProductivityService Productivity
Typically labor intensiveTypically labor intensiveFrequently focused on unique Frequently focused on unique individual attributes or desiresindividual attributes or desiresOften an intellectual task performed by Often an intellectual task performed by professionalsprofessionalsOften difficult to mechanizeOften difficult to mechanizeOften difficult to evaluate for qualityOften difficult to evaluate for quality
© 2008 Prentice Hall, Inc. 1 – 71
Productivity at Taco BellProductivity at Taco BellImprovements:Improvements:
Revised the menu Revised the menu Designed meals for easy preparationDesigned meals for easy preparationShifted some preparation to suppliersShifted some preparation to suppliersEfficient layout and automationEfficient layout and automationTraining and employee empowermentTraining and employee empowerment
© 2008 Prentice Hall, Inc. 1 – 72
Productivity at Taco BellProductivity at Taco BellImprovements:Improvements:
Revised the menu Revised the menu Designed meals for easy preparationDesigned meals for easy preparationShifted some preparation to suppliersShifted some preparation to suppliersEfficient layout and automationEfficient layout and automationTraining and employee empowermentTraining and employee empowerment
Results:Preparation time cut to 8 secondsManagement span of control increased from 5 to 30In-store labor cut by 15 hours/dayStores handle twice the volume with half the laborFast-food low-cost leader
© 2008 Prentice Hall, Inc. 1 – 73
Ethics and Social ResponsibilityEthics and Social Responsibility
Challenges facing Challenges facing operations managers:operations managers:
Developing and producing safe, Developing and producing safe, quality productsquality productsMaintaining a clean environmentMaintaining a clean environmentProviding a safe workplaceProviding a safe workplaceHonoring community commitmentsHonoring community commitments