Operations Management Textbook PDF

Operations Management Chapter 1 – Operations and Productivity © 2006 Prentice Hall, Inc. PowerPoint presentation to accompany Heizer/Render Principles of Operations Management, 6e Operations Management, 8e Outline What Is Operations Management? Organizing To Produce Goods And Services W...

Operations Management Chapter 1 – Operations and Productivity © 2006 Prentice Hall, Inc. PowerPoint presentation to accompany Heizer/Render Principles of Operations Management, 6e Operations Management, 8e Outline What Is Operations Management? Organizing To Produce Goods And Services Why Study OM? What Operations Managers Do Outline - Continued The Heritage Of Operations Management Operations In The Service Sector Exciting New Trends In Operations Management Outline - Continued The Productivity Challenge Productivity Measurement Productivity Variables Productivity And The Service Sector Ethics And Social Responsibility What Is Operations Management? Production is the creation of goods and services Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs Organizing to Produce Goods and Services Essential functions: Marketing – generates demand Production/operations – creates the product Finance/accounting – tracks how well the organization is doing, pays bills, collects the money Organizational Charts Operations Teller Scheduling Check Clearing Collection Transaction processing Facilities design/layout Vault operations Maintenance Security Finance Investments Security Real estate Accounting Auditing Marketing Loans Commercial Industrial Financial Personal Mortgage Trust Department Commercial Bank Figure 1.1(A) Organizational Charts Operations Ground support equipment Maintenance Ground Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications Dispatching Management science Finance/ accounting Accounting Payables Receivables General Ledger Finance Cash control International exchange Airline Figure 1.1(B) Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising Marketing Sales promotion Advertising Sales Market research Organizational Charts Operations Facilities Construction; maintenance Production and inventory control Scheduling; materials control Quality assurance and control Supply-chain management Manufacturing 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/ accounting Disbursements/ credits Receivables Payables General ledger Funds Management Money market International exchange Capital requirements Stock issue Bond issue and recall Manufacturing Figure 1.1(C) Why Study OM? OM is one of three major functions (marketing, finance, and operations) of any organization We want (and need) to know how goods and services are produced We want to understand what operations managers do OM is such a costly part of an organization Options for Increasing Contribution Sales $100,000 $150,000 $100,000 $100,000 Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000 Gross Margin 20,000 30,000 20,000 36,000 Finance Costs – 6,000 – 6,000 – 3,000 – 6,000 Subtotal 14,000 24,000 17,000 30,000 Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500 Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500 Finance/ Marketing Accounting OM Option Option Option Increase Reduce Reduce Sales Finance Production Current Revenue 50% Costs 50% Costs 20% What Operations Managers Do Planning Organizing Staffing Leading Controlling Basic Management Functions The Critical Decisions Service and product design What good or service should we offer? How should we design these products and services? Quality management How do we define quality? Who is responsible for quality? Table 1.2 (cont.) The Critical Decisions Process and capacity design What process and what capacity will these products require? What equipment and technology is necessary for these processes? Location Where should we put the facility? On what criteria should we base the location decision? Table 1.2 (cont.) The Critical Decisions Layout design How should we arrange the facility and material flow? How large must the facility be to meet our plan? Human resources and job design How do we provide a reasonable work environment? How much can we expect our employees to produce? Table 1.2 (cont.) The Critical Decisions Supply-chain management Should we make or buy this component? Who are our suppliers and who can integrate into our e-commerce program? Inventory, material requirements planning, and JIT How much inventory of each item should we have? When do we re-order? Table 1.2 (cont.) The Critical Decisions Intermediate and short–term scheduling Are we better off keeping people on the payroll during slowdowns? Which jobs do we perform next? Maintenance Who is responsible for maintenance? When do we do maintenance? Table 1.2 (cont.) 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 Significant Events in OM Figure 1.3 The Heritage of OM Division of labor (Adam Smith 1776; Charles Babbage 1852) Standardized parts (Whitney 1800) Scientific Management (Taylor 1881) Coordinated assembly line (Ford/ Sorenson/Avery 1913) Gantt charts (Gantt 1916) Motion study (Frank and Lillian Gilbreth 1922) Quality control (Shewhart 1924; Deming 1950) The Heritage of OM Computer (Atanasoff 1938) CPM/PERT (DuPont 1957) 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 Matching employees to right job Providing the proper training Providing proper work methods and tools Establishing legitimate incentives for work to be accomplished Management Should Take More Responsibility for: Frank & 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 & Movie: “Cheaper by the Dozen,” book: “Bells on Their Toes” 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!) Henry Ford 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 Human factors Industrial engineering Management science Biological science Physical sciences Information science Challenges in OM Global focus Just-in-time Supply chain partnering Rapid product development, alliances Mass customization Empowered employees, teams To From Local or national focus Batch shipments Low bid purchasing Lengthy product development Standard products Job specialization Characteristics of Goods Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction Characteristics of Service Intangible product Produced and consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed Goods Versus Services Table 1.3 Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production Product is transportable Site of facility important for cost Often easy to automate Revenue generated primarily from tangible product Attributes of Goods (Tangible Product) Attributes of Services (Intangible Product) Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service Provider, not product, is often transportable Site of facility important for customer contact Often difficult to automate Revenue generated primarily from the intangible service Goods and Services Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management Consulting service/ teaching Counseling Percent of Product that is a Good Percent of Product that is a Service 100% 75 50 25 0 25 50 75 100% | | | | | | | | | Figure 1.4 Services Manufacturing Development of the Service Economy Figure 1.5 (A) Agriculture 100 90 80 70 60 50 40 30 20 10 0 1800 1850 1900 1950 2000 New Trends in OM Local or national focus Low-cost, reliable worldwide communication and transportation networks Global focus Batch (large) shipments Short product life cycles and cost of capital put pressure on reducing inventory Just-in-time shipments Low-bid purchasing Quality emphasis requires that suppliers be engaged in product improvement Supply-chain partners, Enterprise Resource Planning, e-commerce Figure 1.6 Past Causes Future New Trends in OM Lengthy product development Shorter life cycles, Internet, rapid international communication, computer-aided design, and international collaboration Rapid product development, alliances, collaborative designs Standardized products Affluence and worldwide markets; increasingly flexible production processes Mass customization with added emphasis on quality Job specialization Changing socioculture milieu; increasingly a knowledge and information society Empowered employees, teams, and lean production Figure 1.6 Past Causes Future New Trends in OM Low-cost focus Environmental issues, ISO 14000, increasing disposal costs Environmentally sensitive production, green manufacturing, recycled materials, remanufacturing Figure 1.6 Past Causes Future 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 this measure of efficiency Important Note! Production is a measure of output only and not a measure of efficiency Feedback loop Outputs Goods and services Processes 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 System Inputs Labor, capital, management Figure 1.7 Increasing Productivity – The LA Motor Pool Before: Cost $120 million annually 21,000 vehicles 30% of the 900 trash trucks were in repair 11% of police cars were in repair Actions: Created team assignments Assigned parking places for trucks Tires checked and trucks emptied each night Standard customer pickups established Computerized fleet management Mechanics moved to night shift Increasing Productivity – The LA Motor Pool Cost $120 million annually 21,000 vehicles 30% of the 900 garbage trucks were in repair 11% of police cars were in repair Before: Actions: Creating team assignments Assigned parking places for trucks Tire checked and trucks emptied each night Standard customer pickups established Computerized fleet management Mechanics moved to night shift Measure of process improvement Represents output relative to input Only through productivity increases can our standard of living improve Productivity Productivity = Units produced Input used Productivity Calculations Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000 250 Labor Productivity Multi-Factor Productivity Output Labor + Material + Energy + Capital + Miscellaneous Productivity = Also known as total factor productivity Output and inputs are often expressed in dollars Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: = Old labor productivity 8 titles/day 32 labor-hrs Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 8 titles/day 32 labor-hrs = Old labor productivity =.25 titles/labor-hr Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day 32 labor-hrs = Old labor productivity = New labor productivity =.25 titles/labor-hr 14 titles/day 32 labor-hrs Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day 32 labor-hrs = Old labor productivity =.25 titles/labor-hr 14 titles/day 32 labor-hrs = New labor productivity =.4375 titles/labor-hr Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: = Old multifactor productivity 8 titles/day $640 + 400 Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day $640 + 400 = Old multifactor productivity =.0077 titles/dollar Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day $640 + 400 = Old multifactor productivity = New multifactor productivity =.0077 titles/dollar 14 titles/day $640 + 800 Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day $640 + 400 14 titles/day $640 + 800 = Old multifactor productivity = New multifactor productivity =.0077 titles/dollar =.0097 titles/dollar Measurement Problems Quality may change while the quantity of inputs and outputs remains constant External elements may cause an increase or decrease in productivity Precise units of measure may be lacking Productivity Variables Labor - contributes about 10% of the annual increase Capital - contributes about 32% of the annual increase Management - contributes about 52% of the annual increase Key Variables for Improved Labor Productivity Basic education appropriate for the labor force Diet of the labor force Social overhead that makes labor available Maintaining and enhancing skills in the midst of rapidly changing technology and knowledge Service Productivity Typically labor intensive Frequently focused on unique individual attributes or desires Often an intellectual task performed by professionals Often difficult to mechanize Often difficult to evaluate for quality Productivity at Taco Bell Improvements: Revised the menu Designed meals for easy preparation Shifted some preparation to suppliers Efficient layout and automation Training and employee empowerment Productivity at Taco Bell Improvements: Revised the menu Designed meals for easy preparation Shifted some preparation to suppliers Efficient layout and automation Training and employee empowerment Ethics and Social Responsibility Challenges facing operations managers: Developing safe quality products Maintaining a clean environment Providing a safe workplace Honoring community commitments