OPERATIONS MANAGEMENT -1

Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Organizational Functions
Marketing

Gets customers

Operations

creates product or service

Finance/Accounting

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Obtains funds
Tracks money
Prof. Kedar P. Joshi

Options for Increasing Contribution

Marketing Option

Current
Sales
Cost of Goods Sold
Gross Margin
Finance Costs
Net
Margin
Taxes @ 25%
Contribution

Finance &
Accounting Option
Sales Revenue : +50% Finance Costs: -50%

OM Option

Production
Costs: -20%
$100,000
$100,000

$100,000

$150,000

-80,000

-120,000

-80,000

-64,000

20,000
-6,000
14,000

30,000
-6,000
24,000

20,000
-3,000
17,000

36,000
-6,000
30,000

-3,500
10,500

-6,000
18,000

-4,250
12,750

-7,500
22,500

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Organizational Charts
Commercial Bank
Operations

Finance

Marketing

Teller Scheduling
Check Clearing
Collection
Transaction
processing
Facilities
design/layout
Vault operations
Maintenance
Security

Investments
Security
Real estate

Loans
Commercial
Industrial
Financial
Personal
Mortgage

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Accounting

Auditing

Trust Department

Operations and Productivity

Prof. Kedar P. Joshi

Organizational Charts
Manufacturing
Operations

Finance/
accounting

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

Disbursements/
credits
Receivables
Payables
General ledger
Funds Management
Money market
International
exchange
Capital requirements
Stock issue
Bond issue
and recall

Marketing
Sales
promotion
Advertising
Sales
Market
research

Process analysis

Development and installation of

production tools and equipment

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

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

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

The Critical Decisions

Design of goods and services
What good or service should we offer?
How should we design these products and services?
Managing quality
How do we define quality?
Who is responsible for quality?

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

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 strategy
Where should we put the facility?
On what criteria should we base the location decision?
OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

The Critical Decisions

Layout strategy
How should we arrange the facility?
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?

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

The Critical Decisions

Supply chain management
Should we make or buy this component?
Who are our suppliers and who can integrate into our ecommerce program?
Inventory, material requirements planning, and JIT
How much inventory of each item should we have?
When do we re-order?

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

The Critical Decisions

Intermediate and shortterm 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?

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Where are the OM Jobs?

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Significant Events in OM

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

GOODS OR SERVICES?
OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

14

Characteristics of Goods
Tangible product
Consistent product
definition
Production usually separate
from consumption
Can be inventoried
Low customer interaction

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Characteristics of Services
Intangible product
Produced and consumed at
same time
Often unique
High customer interaction

Inconsistent product
definition
Often knowledge-based
Frequently dispersed
OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Goods Versus Services

Attributes of Goods
(Tangible Product)
Can be resold
Can be inventoried
Some aspects of quality
measurable
Selling is distinct from
production
Product is transportable

Reselling unusual
Difficult to inventory
Quality difficult to measure
Selling is part of service

Site of facility important for cost

Often easy to automate

Revenue generated primarily
from tangible product
OPM 1 Term 2, B2014-16, Oct-Dec 2014

Attributes of Services
(Intangible Product)

Provider, not product, is

often transportable
Site of facility important for
customer contact
Often difficult to automate
Revenue generated primarily
from the intangible service

Operations and Productivity

Prof. Kedar P. Joshi

Goods and Services

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Manufacturing and Service Employment

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Manufacturing Employment and Production

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

New Trends in OM
Global focus

Mass
customization

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Just-in-time
performance

Empowered
employees

Supply chain
partnering

Rapid
product
development

Environmentally
sensitive
production

Operations and Productivity

Ethics

Prof. Kedar P. Joshi

China Global Leader is Manufacturing

11th 5 yr plan
Heavy manufacturing
& high technology
Light industry

The end of cheap China: What do soaring Chinese wages mean for global manufacturing? Mar 10th 2012 | HONG KONG AND SHENZHEN
Source: http://www.economist.com/node/21549956
OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Manufacturing: China vs. India

Made In India*: As China begins to lose its competitive advantage, manufacturing starts moving to India by Goutam Das
Source: http://businesstoday.intoday.in/story/india-benefits-china-begins-to-lose-manufacturing-edge/1/203040.html

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Made in India
Havells

Bosch

Micromax

Made In India*: As China begins to lose its competitive advantage, manufacturing starts moving to India by Goutam Das
Source: http://businesstoday.intoday.in/story/india-benefits-china-begins-to-lose-manufacturing-edge/1/203040.html
OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

PRODUCTIVITY CHALLENGE
OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Improving Productivity at Starbucks

A team of 10 analysts continually look for
ways to shave time. Some improvements:
Stop requiring signatures on
credit card purchases under
$25

Saved 8 seconds per

transaction

Change the size of the ice

scoop

Saved 14 seconds per

drink

New espresso machines

Saved 12 seconds per

shot

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Improving Productivity at Starbucks

A team of 10 analysts continually look for
ways to cut time. Some improvements:
Stop requiring signatures on
credit card purchases under
$25
Change the size of the ice
scoop
New espresso machines

Saved 8 seconds per

transaction

Operations improvements have

helped
Starbucks
increase yearly
Saved 14
seconds per
drink per outlet by $200,000 to
revenue
$940,000
in six years.
Saved 12 seconds
per
shot
Productivity
has improved by 27%,
or about 4.5% per year.

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Productivity Challenge
Productivity is the ratio of outputs (goods and services) divided by the
inputs (resources such as labour and capital)
The objective is to improve productivity!
Important Note!

Production is a measure of output only and not a measure of efficiency

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Productivity
Productivity =

Units produced

Input used

Measure of process improvement

Represents output relative to input
Only through productivity increases can our standard of
living improve

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Productivity Calculations
Labor Productivity
Productivity =

Units produced
Labor-hours used

1,000
=
= 4 units/labor-hour
250
One resource input single-factor productivity
OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Multi-Factor Productivity
Productivity =

Output
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
OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Read problem from the handout provided.

PRACTICE PROBLEM
OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

32

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day

Old labor
=
productivity

OPM 1 Term 2, B2014-16, Oct-Dec 2014

8 titles/day
Overhead = $400/day

8 titles/day
32 labor-hrs

Operations and Productivity

Prof. Kedar P. Joshi

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day

8 titles/day
Overhead = $400/day

8 titles/day
Old labor
=
= .25 titles/labor-hr
productivity
32 labor-hrs

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day

8 titles/day
Overhead = $400/day
Overhead = $800/day

8 titles/day
Old labor
=
= .25 titles/labor-hr
productivity
32 labor-hrs
14 titles/day
New labor
=
productivity
32 labor-hrs
OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day

8 titles/day
Overhead = $400/day
Overhead = $800/day

8 titles/day
Old labor
=
= .25 titles/labor-hr
productivity
32 labor-hrs
14 titles/day
New labor
=
= .4375 titles/labor-hr
productivity
32 labor-hrs
OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:

8 titles/day
Overhead = $400/day

14 titles/day

Overhead = $800/day

Old multifactor
=
productivity

OPM 1 Term 2, B2014-16, Oct-Dec 2014

8 titles/day
$640 + 400

Operations and Productivity

Prof. Kedar P. Joshi

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day

8 titles/day
Overhead = $400/day
Overhead = $800/day

8 titles/day
Old multifactor
=
= .0077 titles/dollar
productivity
$640 + 400

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day

8 titles/day
Overhead = $400/day
Overhead = $800/day

8 titles/day
Old multifactor
=
= .0077 titles/dollar
productivity
$640 + 400
14 titles/day
New multifactor
=
productivity
$640 + 800
OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day

8 titles/day
Overhead = $400/day
Overhead = $800/day

8 titles/day
Old multifactor
=
= .0077 titles/dollar
productivity
$640 + 400
14 titles/day
New multifactor
=
= .0097 titles/dollar
productivity
$640 + 800
OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi

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

OPM 1 Term 2, B2014-16, Oct-Dec 2014

Operations and Productivity

Prof. Kedar P. Joshi