Operations Management - Introduction & Productivity PDF

Operations Management Operations and Productivity Chapter 1 DG Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-1 © 2004 by Pren...

Operations Management Operations and Productivity Chapter 1 DG Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-1 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458  Learning Objectives When you complete this chapter, you should be able to : Identify or Define:  Operations Management (OM)  Production  Services  What operations managers do Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-2 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458  Learning Objectives - Continued When you complete this chapter, you should be able to : Describe or Explain:  A brief history of operations management  Career opportunities in operations management  The future of the discipline  Productivity and its measures Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-3 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458  What Is Operations Management? Production is the creation of goods and services Operations management is the set of activities that creates value in the form of goods and services by transforming inputs into outputs Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-4 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458  Main Organizational Functions  Marketing  Gets customers  Operations  Creates product or service  Finance/Accounting  Obtains funds  Tracks money © 1995 Corel Corp. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-5 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458  Organizational Charts Commercial Bank Operations: Finance: Marketing: Teller Scheduling Investments Loans Check Clearing Security Commercial Transactions Real Estate Industrial processing Accounting Financial Facilities design/layout Personal Vault operations Auditing Mortgage Maintenance Trust Department Security Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-6 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458  Organizational Charts Airline Operations: Finance & Marketing: Maintenance Accounting: Traffic administration Ground Operations Accounting Reservations Facility, buildings Payables Catering Schedules Receivables Flight Operations Tariffs (pricing) General Ledger Crew scheduling Finance Sales Flying Cash control Advertising Communications International Dispatching Food/Meals exchange rates Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-7 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458  Organizational Charts Manufacturing Operations: Finance & Accounting Marketing Facilities: Disbursements/credits Sales promotions Receivables Construction:maintenance Advertising Payables Production & inventory control General ledger Sales Market Scheduling: materials control Funds Management research Money market Supply-chain management International exchange Manufacturing Capital requirements Tooling, fabrication,assembly Stock issue Bond issues and recall Design Industrial engineering Efficient use of machines, space, and personnel Process analysis 1-8 Transparency Masters to accompany Heizer/Render – Principles of © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Operations Management, 5e, and Operations Management, 7e  Why Study OM?  An important part in Business Education is to know how goods and services are produced.  OM is usually the major cost of an organization, which requires knowledgeable managers/employees.  When we work in Sale or Finance, we need to understand what people in Operations do, in order to better carry out our job. 1 Finance Analyst_ Job.doc  OM is a good option (many job opportunities) for us, when we look for a new job. 1 YELLOW PAGES GROUP_ Job.doc (www.workoplois.com: ‘Logistics, Operations) http://www.workopolis.com Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-9 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458  Ten Critical Decisions of Operations Management  Service, product design…………….. Ch. 5  Quality management………………… Ch. 6, 6S  Process, capacity design………….. Ch. 7, 7S  Location …………….………………… Ch. 8  Layout design ……………………….. Ch. 9  Human resources, job design…….. Ch. 10, 10S (Excluded)  Supply-chain management………… Ch. 11  Inventory management ……………. Ch. 12, 14, 16  Scheduling …………………………… Ch. 3, 13, 15 (Partial)  Maintenance …………………………. Ch. 17 (Excluded) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-10 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458  Characteristics of Goods  Tangible product  Consistent product definition  Production usually separate from consumption  Can be inventoried  Can be resold  Low customer interaction © 1995 Corel Corp. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-11 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458  Characteristics of Service  Intangible product  Produced and consumed at same time  Often unique  High customer interaction  Inconsistent product definition  Often knowledge-based  Frequently dispersed Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-12 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458  Changing Challenges for the Operations Manager Past Causes Future Local or Low-cost, reliable worldwide Global Focus national communication and focus transportation networks Batch (large) Cost of capital puts pressure on Just-in-time shipments reducing investment in shipments inventory Low-bid Quality emphasis requires that Supply-chain purchasing suppliers be engaged in product partners improvement Lengthy Shorter life cycles, rapid Rapid product product international communication, development, development computer-aided design, and alliances, international collaboration collaborative designs Changing Challenges for the Operations Manager Past Causes Future Standardized Affluence and worldwide markets; Mass products increasingly flexible production customization processes Job Changing sociocultural milieu. Empowered specialization Increasingly a knowledge and employees, information society. teams, and lean production Low cost Environmental issues, ISO 14000, Environmentally focus increasing disposal costs sensitive production, Green manufacturing, Ethics Business operates more openly recycled materials, remanufacturing  The Economic System Transformation Inputs Outputs Using Labour, Capital, and Management, the U.S. Labour, Material, economic system transforms Goods Energy, Time, inputs to outputs at about an and annual 2.5% increase in services 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%). Feedback loop Figure 1.6 What is OM (1.35 min): https://www.youtube.com/watch?v=nG5-52a5lRo  Productivity  Measure of process improvement  Represents output relative to input Productivity Units produced = Input used  Only through productivity increases can our standard of living improve  1 chickenlifestyle Input-output.bmp 1 MC productivity 2006.rtf Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-16 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458  Productivity Measures 1_Productivity_Exercise_US_LDC Solution.doc a. Single-factor Productivity = Output / Labour, or Output / Material, or Output / Energy b. Multifactor Productivity = Output Labour + material + energy + capital + miscellaneous Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-17 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458  Productivity calculation Example Question  Collins Title Company has a staff of 4, each working 8 hours per day (for a payroll cost of $640/day) and overhead expenses of $400/day).  Collins processes and closes on 8 titles each day.  The company recently purchased a computerized title-search system that will allow the processing of 14 titles/day.  Although the staff, their work hours and pay are the same, the overhead expenses are now $800/day.  What is the change in productivity between the old and the new system? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-18 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458  Productivity calculation Example Answer Old system  Labour productivity: 8 titles per day =.25 titles/hour 32 labour-hours  Multifactor productivity: 8 titles per day =.0077 titles/$ $640 +$400 New system  Labour productivity: 14 titles per day =.4375 titles/hour 32 labour-hours  Multifactor productivity: 14 titles per day =.0097 titles/$ $640 +$800 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-19 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458  Productivity is key to higher living standards  Despite the booming economy, many Canadians were not better off.  For many employees, pay increases have not been growing as fast as inflation, even though inflation has been low.  It is only through sustained gains in productivity that we can have sustained gains in living standards.  Productivity is about working smarter (Not harder) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-20 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458  Productivity statistics in $US- 2015 Estimate GDP (Gross Domestic Product) per Capita (Per person)  Luxembourg- $102,000 US; Ireland- 61,2000  USA- 56,000; Canada- 43,400  Hong Kong- 42,300; Germany- 40,500  Japan- 32,500; China- $8,100 US The world sorted by their gross domestic product per capita at nominal values. This is the value of all final goods and services produced within a nation in a given year, converted at market exchange rates to current U.S. dollars, divided by the average (or mid-year) population for the same year. https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita  Productivity in Ontario VS other States  30 US states outperform Ontario.  Productivity in New York is 40% higher.  Productivity in New Jersey is 32% higher.  Productivity in Massachusetts is 25% higher.  Productivity in Alberta is 25% higher  Productivity in Quebec is 15% lower  When more people working in the economy, the GDP of a country grows. That takes place when jobs are created, and people do not retire early, more women and youngsters are employed. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-22 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458  How can we improve its productivity? https://www.conferenceboard.ca/hcp/provincial/economy/labour-productivity.aspx  Increasing the amount of capital, or technology available to each worker, to do his or her job.  1 Canada picks up pace in computer.docx  Improving the education and skills of the workers, as well as their experience. Investing in human capital.  Organize businesses in a smarter way, using logic, common sense, simple solutions, new technology and innovation. For more information about competitiveness: www.CompeteProsper.ca  Productivity Variables  Labor (Educated, trained) - contributes about 10% of the annual increase  Capital (Technology, automation) - contributes about 32% of the annual increase  1 Canada picks up pace in computer.docx  Management (Methods, knowledge, decisions) - contributes about 52% of the annual increase  1 Productivity Editorial- The Star.doc Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-24 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458  Productivity and the Service Sector (More difficult to improve)  Prices of goods increase at a much lower rate than prices of services. (Some even go down)  TV sets, computers and furniture went down in the last ten years.  Higher education, commercial bank services, repair, health services went up 1. Typically labor intensive 2. Frequently focused on unique individual attributes or desires 3. Often an intellectual task performed by professionals 4. Often difficult to mechanize and automate 5. Often difficult to evaluate for quality Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations 1-25 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 Management, 7e  Productivity increase in the last 150 years- Goods VS Services  Productivity of goods (and agriculture) increased a lot  Productivity of services has been low (zero in some cases)  Therefore, prices of goods decreased and services not  In Europe of 1880 the cheapest bicycle cost the equivalent of 6 months average wage  Bicycle cost went down to one month wage in 1910, and to one week wage in 1960 (Thomas Piketty)  A haircut today, takes the same time, as it took 150 years ago. Thus, the price of hair cut increased at the same rate of the average wage. Purchasing power for hair cut did not change 1-26  Improving Productivity at Starbucks A team of 10 analysts continually look for ways to shave time. Some improvements: Stop requiring signatures on Saved 8 seconds per credit card purchases under $25 transaction Change the size of the ice Saved 14 seconds per scoop drink New espresso machines Saved 12 seconds per Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-27 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 shot  Improving Productivity at Starbucks A team of 10 analysts continually look for ways to shave time. Some improvements: Operations improvements have helped Stop requiring signatures onStarbucks increase Saved yearly 8 seconds per revenue credit card purchases per outlet under $25 by $200,000 to transaction $940,000 in six years. Productivity has improved by 27%, Change the size of the ice or about Saved 4.5% per 14 seconds per year. scoop drink New espresso machines Saved 12 seconds per Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 1-28 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 shot  Key Definitions Efficiency Doing the Thing Right. (“To Manage”) At the lowest cost, at the shortest time, at the highest quality, etc. Effectiveness Doing the Right Thing. (“To Lead”) Doing the real important thing that adds value. What is more important, Efficiency or Effectiveness? “It is not enough to do your best; You must know what to do (Effective), and then do your best (Efficient)” (Edward Deming) “Management is doing things right; leadership is doing the right things.” — Peter F. Drucker Value = Quality / Price Operational Management Techniques  Break-even Point / Profitability  Forecasting  Layout Design (of equipment, services, )  Factor Rating. To locate a facility in one specific available location.  Centre of Gravity. To find the ideal location to serve few existing facilities.  Decision Trees. How to make decisions under uncertainty.  Capacity Planning and Utilization.  Flow Charts, Different Analyses, Different Diagrams.  Many more,,,,