OM 1.pptx

Operations Management: Sustainability and Supply Chain Management Twelfth Edition Chapter 1 Operations and Productivity Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights...

Operations Management: Sustainability and Supply Chain Management Twelfth Edition Chapter 1 Operations and Productivity Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Outline (1 of 2) Global Company Profile: Hard Rock Café What Is Operations Management? Organizing to Produce Goods and Services The Supply Chain Why Study OM? What Operations Managers Do Outline (2 of 2) The Heritage of Operations Management Operations for Goods and Services The Productivity Challenge Current Challenges in Operations Management Ethics, Social Responsibility, and Sustainability Operations Management at Hard Rock Cafe First opened in 1971 – Now – 150 restaurants in over 53 countries Rock music memorabilia Creates value in the form of good food and entertainment 3,500+ custom meals per day in Orlando How does an item get on the menu? Role of the Operations Manager Learning Objectives (1 of 2) 1.1 Define operations management 1.2 Explain the distinction between goods and services 1.3 Explain the difference between production and productivity Learning Objectives (2 of 2) 1.4 Compute single-factor productivity 1.5 Compute multifactor productivity 1.6 Identify the critical variables in enhancing productivity What Is Operations Management? Production is the creation of goods and services Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs Organizing to Produce Goods and Services Essential functions: 1. Marketing – generates demand 2. Production/operations – creates the product 3. Finance/accounting – tracks how well the organization is doing, pays bills, collects the money Organizational Charts (1 of 3) Figure 1.1 Organization Charts for Two Service Organizations and One Manufacturing Organization Organizational Charts (2 of 3) Figure 1.1 [continued] Organizational Charts (3 of 3) Figure 1.1 [continued] The Supply Chain A global network of organizations and activities that supply a firm with goods and services Members of the supply chain collaborate to achieve high levels of customer satisfaction, efficiency and competitive advantage Figure 1.2 Soft Drink Supply Chain Why Study OM? 1. OM is one of three major functions of any organization; we want to study how people organize themselves for productive enterprise 2. We want (and need) to know how goods and services are produced 3. We want to understand what operations managers do 4. OM is such a costly part of an organization Table 1.1 Options for Increasing Contribution What Operations Managers Do Basic Management Functions Planning Organizing Staffing Leading Controlling Ten Strategic Decisions Table 1.2 Ten Strategic Operations Management Decisions Decision Chapter(s) 1. Design of goods and services 5, Supplement 5 2. Managing quality 6, Supplement 6 3. Process and capacity strategy 7, Supplement 7 4. Location strategy 8 5. Layout strategy 9 6. Human resources and job design 10 7. Supply-chain management 11, Supplement 11 8. Inventory management 12, 14, 16 9. Scheduling 13, 15 10. Maintenance 17 The Strategic Decisions (1 of 5) 1. Design of goods and services – Defines what is required of operations – Product design determines quality, sustainability and human resources 2. Managing quality – Determine the customer’s quality expectations – Establish policies and procedures to identify and achieve that quality The Strategic Decisions (2 of 5) 3. Process and capacity design – How is a good or service produced? – Commits management to specific technology, quality, resources, and investment 4. Location strategy – Nearness to customers, suppliers, and talent – Considering costs, infrastructure, logistics, and government The Strategic Decisions (3 of 5) 5. Layout strategy – Integrate capacity needs, personnel levels, technology, and inventory – Determine the efficient flow of materials, people, and information 6. Human resources and job design – Recruit, motivate, and retain personnel with the required talent and skills – Integral and expensive part of the total system design The Strategic Decisions (4 of 5) 7. Supply chain management – Integrate supply chain into the firm’s strategy – Determine what is to be purchased, from whom, and under what conditions 8. Inventory management – Inventory ordering and holding decisions – Optimize considering customer satisfaction, supplier capability, and production schedules The Strategic Decisions (5 of 5) 9. Scheduling – Determine and implement intermediate- and short- term schedules – Utilize personnel and facilities while meeting customer demands 10.Maintenance – Consider facility capacity, production demands, and personnel – Maintain a reliable and stable process Where Are the OM Jobs? Technology/methods Facilities/space utilization Strategic issues Response time People/team development Customer service Quality Cost reduction Inventory reduction Productivity improvement Opportunities Figure 1.3 Many Opportunities Exist for Operations Managers Certifications APICS, the Association for Operations Management American Society for Quality (ASQ) Institute for Supply Management (ISM) Project Management Institute (PMI) Council of Supply Chain Management Professionals Charter Institute of Procurement and Supply (C IPS) Significant Events in OM Figure 1.4 Significant Events in Operations Management The Heritage of OM (1 of 2) Division of labor (Adam Smith 1776; Charles Babbage 1852) Standardized parts (Whitney 1800) Scientific Management (Taylor 1881) Coordinated assembly line (Ford/ Sorenson 1913) Gantt charts (Gantt 1916) Motion study (Frank and Lillian Gilbreth 1922) Quality control (Shewhart 1924; Deming 1950) The Heritage of OM (2 of 2) Computer (Atanasoff 1938) CPM/PERT (DuPont 1957, Navy 1958) Material requirements planning (Orlicky 1960) Computer aided design (CAD 1970) Flexible manufacturing system (FMS 1975) Baldrige Quality Awards (1980) Computer integrated manufacturing (1990) Globalization (1992) Internet (1995) Eli Whitney Born 1765; died 1825 In 1798, received government contract to make 10,000 muskets Showed that machine tools could make standardized parts to exact specifications – Musket parts could be used in any musket Frederick W. Taylor Born 1856; died 1915 Known as ‘father of scientific management’ In 1881, as chief engineer for Midvale Steel, studied how tasks were done – Began first motion and time studies Created efficiency principles Taylor’s Principles Management Should Take More Responsibility for: 1. Matching employees to right job 2. Providing the proper training 3. Providing proper work methods and tools 4. Establishing legitimate incentives for work to be accomplished Frank and Lillian Gilbreth Frank (1868-1924); Lillian (1878-1972) Husband and wife engineering team Further developed work measurement methods Applied efficiency methods to their home and 12 children! Book and Movie: “Cheaper by the Dozen,” “Bells on Their Toes” Henry Ford Born 1863; died 1947 In 1903, created Ford Motor Company In 1913, first used moving assembly line to make Model T – Unfinished product moved by conveyor past work station Paid workers very well for 1911 ($5/day!) W. Edwards Deming Born 1900; died 1993 Engineer and physicist Credited with teaching Japan quality control methods in post-WW2 Used statistics to analyze process His methods involve workers in decisions Contributions from Industrial engineering Statistics Management Economics Physical sciences Information technology Operations for Goods and Services (1 of 2) Services – Economic activities that typically produce an intangible product (such as education, entertainment, lodging, government, financial, and health services) Operations for Goods and Services (2 of 2) Manufacturers produce tangible product, services often intangible Operations activities often very similar Distinction not always clear Few pure services Table 1.3 Differences between Goods and Services Characteristics of Services Characteristics of Goods Intangible: Ride in an airline seat Tangible: The seat itself Produced and consumed simultaneously: Beauty Product can usually be kept in inventory salon produces a haircut that is consumed as it is (beauty care products) produced Unique: Your investments and medical care are unique Similar products produced (iPods) High customer interaction: Often what the customer is Limited customer involvement in production paying for (consulting, education) Inconsistent product definition: Auto Insurance Product standardized (iPhone) changes with age and type of car Often knowledge based: Legal, education, and Standard tangible product tends to make medical services are hard to automate automation feasible Services dispersed: Service may occur at retail store, Product typically produced at a fixed facility local office, house call, or via internet. Quality may be hard to evaluate: Consulting, Many aspects of quality for tangible education, and medical services products are easy to evaluate (strength of a bolt) Reselling is unusual: Musical concert or medical care Product often has some residual value U.S. Agriculture, Manufacturing, and Service Employment Figure 1.5 U.S. Agriculture, Manufacturing, and Service Employment Table 1.4 Organizations in Each Sector Service Pay Perception that services are low-paying 42% of service workers receive above average wages 14 of 33 service industries pay below average Retail trade pays only 61% of national average Overall average wage is 96% of the average Productivity Challenge Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital) The objective is to improve productivity! Important Note! Production is a measure of output only and not a measure of efficiency The Economic System Figure 1.6 The Economic System Adds Value by Transforming Inputs to Outputs Improving Productivity at Starbucks (1 of 2) 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 Saved 14 seconds per Change the size of the ice scoop drink Saved 12 seconds per New espresso machines shot Improving Productivity at Starbucks (2 of 2) Operations improvements have helped Starbucks increase yearly revenue per outlet by $250,000 to $1,000,000. Productivity has improved by 27%, or about 4.5% per year. Productivity Units produced Productivity = Input used Measure of process improvement Represents output relative to input Only through productivity increases can our standard of living improve Productivity Calculations Labor Productivity Units produced Productivity = Labor - hours used 1,000 = = 4 units / labor - hour 250 One resource input  single-factor productivity Multi-Factor Productivity Output Multifactor = Labor + Material + Energy + Capital + Miscellaneous Also known as total factor productivity Output and inputs are often expressed in dollars Multiple resource inputs  multi-factor productivity Collins Title Productivity (1 of 4) Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day 8 titles / day Old labor productivity = =.25 titles / labor - hr 32 labor - hrs Collins Title Productivity (2 of 4) Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day New System: 14 titles/day Overhead = $800/day 8 titles / day Old labor productivity = =.25 titles / labor - hr 32 labor - hrs 14 titles / day New labor productivity = =.4375 titles / labor - hr 32labor - hrs Collins Title Productivity (3 of 4) Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day New System: 14 titles/day Overhead = $800/day 8 titles / day Old multifactor productivity = =.0077 titles / dollar $640 + 400 Collins Title Productivity (4 of 4) Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day New System: 14 titles/day Overhead = $800/day 8 titles / day Old multifactor productivity = =.0077 titles / dollar $640 + 400 14 titles / day New multifactor productivity = =.0097 titles / dollar $640 + 800 Measurement Problems 1. Quality may change while the quantity of inputs and outputs remains constant 2. External elements may cause an increase or decrease in productivity 3. Precise units of measure may be lacking Productivity Variables 1. Labor - contributes about 10% of the annual increase 2. Capital - contributes about 38% of the annual increase 3. Management - contributes about 52% of the annual increase Key Variables for Improved Labor Productivity 1. Basic education appropriate for the labor force 2. Diet of the labor force 3. Social overhead that makes labor available – Challenge is in maintaining and enhancing skills in the midst of rapidly changing technology and knowledge Labor Skills Figure 1.7 About half of the 17-year-olds in the U.S. cannot correctly answer questions of this type Capital Management Ensures labor and capital are effectively used to increase productivity – Use of knowledge – Application of technologies Knowledge societies – Labor has migrated from manual work to technical and information-processing tasks More effective use of technology, knowledge, and capital Productivity in the Service Sector Productivity improvement in services is difficult because: 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 Productivity at Taco Bell (1 of 2) Improvements: – Revised the menu – Designed meals for easy preparation – Shifted some preparation to suppliers – Efficient layout and automation – Training and employee empowerment – New water and energy saving grills Productivity at Taco Bell (2 of 2) Results: – Preparation time cut to 8 seconds – Management span of control increased from 5 to 30 – In-store labor cut by 15 hours/day – Floor space reduced by more than 50% – Stores average 164 seconds/customer from drive-up to pull-out – Water- and energy-savings grills conserve 300 million gallons of water and 200 million KwH of electricity each year – Green-inspired cooking method saves 5,800 restaurants $17 million per year Current Challenges in OM Globalization Supply-chain partnering Sustainability Rapid product development Mass customization Lean operations Ethics, Social Responsibility, and Sustainability (1 of 2) Challenges facing operations managers: Develop and produce safe, high-quality green products Train, retrain, and motivate employees in a safe workplace Honor stakeholder commitments Ethics, Social Responsibility, and Sustainability (2 of 2) Stakeholders Those with a vested interest in an organization, including customers, distributors, suppliers, owners, lenders, employees, and community members.