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Operations and
Productivity
1-1
Input
Aloe Vera,
water, sugar,
preservatives,
plastic bottle,
machines,
artificial flavor
Process
Harvesting,
mixing, filling,
packaging
Output
Fruit Flavoured
Green Tea
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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
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Input
Washing
Peeling
Slicing
Frying
Packaging
Output
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Input
Washing
Peeling
Slicing
Blanching
Drying
Frying
Packaging
Output
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Input
Washing
Peeling
Slicing
Blanching
Drying
Frying
Packaging
Output
1-7
Input
Washing
Peeling
Slicing
Need high
capacity slicing
Blanching
Drying
Frying
Packaging
Output
Need high
capacity
dehydrator
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Input
Washing
Peeling
Slicing
Need high
capacity slicing
Blanching
Drying
Frying
Packaging
Output
Need high
capacity
dehydrator
Transportation
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Input
Washing
Peeling
Slicing
Need high
capacity slicing
Blanching
Drying
Frying
Packaging
Output
Need high
capacity
dehydrator
Transportation
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Input
Washing
Peeling
Slicing
Need high
capacity slicing
Blanching
Drying
Frying
Packaging
Output
Need high
capacity
dehydrator
Transportation
Organizing to Produce
Goods and Services
Essential functions:
1. Marketing generates demand
2. Production/operations creates
the product
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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
Accounting
Auditing
Trust Department
Figure 1.1(A)
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Organizational Charts
Airline
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
Marketing
Traffic
administration
Reservations
Schedules
Tariffs (pricing)
Sales
Advertising
Figure 1.1(B)
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Organizational
Charts
Manufacturing
Operations
Facilities
Construction; maintenance
Design
Product development and design
Detailed product specifications
Industrial engineering
Efficient use of machines, space,
and personnel
Finance/
accounting
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
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Figure 1.1(C)
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Core Process
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Example
Core Processes
Church
Financial institution
Investment, provision of
money/loan/management of
money, payroll management
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- engineers or production
people, food technologist
consultant, beautician
- Pharmacist / Chemist
Embroidery (Burdahand)
-embroiderer/ sewers/tailors
professors / teachers
Bank (BPI)
-accountants
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Operations
Examples
Goods Producing
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What Operations
Managers Do
Basic Management Functions
Planning
Organizing
Staffing
Leading
Controlling
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Table 1.2
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2. Managing quality
How do we define quality?
Who is responsible for quality?
Table 1.2 (cont.)
2011 Pearson Education, Inc. publishing as Prentice Hall
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4. Location strategy
Where should we put the facility?
On what criteria should we base the
location decision?
Table 1.2 (cont.)
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10. Maintenance
How do we build reliability into our
processes?
Who is responsible for maintenance?
Table 1.2 (cont.)
2011 Pearson Education, Inc. publishing as Prentice Hall
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Response time
People/team development
Customer service
Quality
Cost reduction
Inventory reduction
Productivity improvement
2011 Pearson Education, Inc. publishing as Prentice Hall
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Contributions From
Human factors
Industrial engineering
Management science
Biological science
Physical sciences
Information technology
2011 Pearson Education, Inc. publishing as Prentice Hall
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New Challenges in OM
From
To
Global focus
Batch shipments
Just-in-time
Supply-chain
partnering
Lengthy product
development
Rapid product
development,
alliances
Standard products
Mass
customization
Job specialization
Empowered
employees, teams
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Characteristics of Goods
(Product)
Tangible product
Consistent product
definition
Production usually
separate from
consumption
Can be inventoried
Low customer
interaction
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Characteristics of Service
Intangible product
Produced and
consumed at same time
Often unique
High customer
interaction
Inconsistent product
definition
Often knowledge-based
Frequently dispersed
2011 Pearson Education, Inc. publishing as Prentice Hall
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Services
80
Manufacturing
70
60
50
40
30
20
US
UK
Spain
South Africa
Russian Fed
Mexico
Japan
Hong Kong
Germany
France
Czech Rep
China
Canada
Australia
10
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75
50
25
25
50
75
100%
120
100
Service
80
60
40
Manufacturing
20
0
|
|
|
|
|
|
|
1950
1970
1990 2010 (est)
1960
1980
2000
Figure 1.4 (A)
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Manufacturing Employment
and Production
Industrial
production
(right scale)
125
100
75
40
30
20
10
0
Manufacturing 50
employment
(left scale)
|
1950
Employment (millions)
150
25
|
|
|
|
| 0
1970
1990 2010 (est)
1960
1980
2000
|
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Changing Challenges
Traditional
Approach
Reasons for
Change
Current
Challenge
Ethics and
regulations
not at the
forefront
Local or
national
focus
Lengthy
product
development
Rapid product
development;
design
collaboration
Figure 1.5
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Changing Challenges
Traditional
Approach
Low cost
production,
with little
concern for
environment;
free
resources
(air, water)
ignored
Low-cost
standardized
products
Reasons for
Change
Current
Challenge
Public sensitivity to
environment; ISO 14000
standard; increasing
disposal costs
Environmentally
sensitive
production; green
manufacturing;
sustainability
Rise of consumerism;
increased affluence;
individualism
Mass
customization
Figure 1.5
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Changing Challenges
Traditional
Approach
Reasons for
Change
Current
Challenge
Emphasis on
specialized,
often manual
tasks
Recognition of the
employee's total
contribution; knowledge
society
Empowered
employees;
enriched jobs
In-house
production;
low-bid
purchasing
Rapid technological
change; increasing
competitive forces
Supply-chain
partnering; joint
ventures,
alliances
Large lot
production
Just-In-Time
performance;
lean; continuous
improvement
Figure 1.5
2011 Pearson Education, Inc. publishing as Prentice Hall
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New Trends in OM
Ethics
Global focus
Mass customization
Empowered employees
Supply-chain partnering
Just-in-time performance
2011 Pearson Education, Inc. publishing as Prentice Hall
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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
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Transformation
Outputs
Labor,
capital,
management
Goods
and
services
Feedback loop
Figure 1.6
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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
Saved 14 seconds
per drink
Saved 12 seconds
per shot
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Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Saved 12 seconds
per shot
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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
2011 Pearson Education, Inc. publishing as Prentice Hall
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Productivity Calculations
Labor Productivity
Units produced
Productivity =
Labor-hours used
1,000
250
= 4 units/labor-hour
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Multi-Factor Productivity
Output
Productivity =
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
2011 Pearson Education, Inc. publishing as Prentice Hall
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8 titles/day
Overhead = $400/day
8 titles/day
Old labor
=
productivity 32 labor-hrs
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8 titles/day
Overhead = $400/day
8 titles/day
Old labor
=
productivity 32 labor-hrs = .25 titles/labor-hr
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8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old labor
=
productivity 32 labor-hrs = .25 titles/labor-hr
14 titles/day
New labor
=
productivity
32 labor-hrs
2011 Pearson Education, Inc. publishing as Prentice Hall
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8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old labor
=
productivity 32 labor-hrs = .25 titles/labor-hr
14 titles/day
New labor
=
= .4375 titles/labor-hr
productivity
32 labor-hrs
2011 Pearson Education, Inc. publishing as Prentice Hall
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8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old multifactor
=
productivity
$640 + 400
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8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old multifactor
=
= .0077 titles/dollar
productivity
$640 + 400
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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
2011 Pearson Education, Inc. publishing as Prentice Hall
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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
2011 Pearson Education, Inc. publishing as Prentice Hall
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10
8
6
4
2
0
10
15
20
25
30
35
Percentage investment
2011 Pearson Education, Inc. publishing as Prentice Hall
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Service Productivity
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
5. Often difficult to evaluate for quality
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Preparation
Revised the time
menucut to 8 seconds
span
control
increased
Management
Designed meals
forofeasy
preparation
from 5 to 30
Shifted some preparation to suppliers
In-store labor cut by 15 hours/day
Efficient layout and automation
Stores handle twice the volume with half
the
Training
laborand employee empowerment
Conserve
New water300
andmillion
energygallons
savingof
grills
water and
200 million KwH of electricity each year
saving $17 million annually
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More Examples
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Total Productivity
1) Value of a companys output such as
finished goods and work in progress is
P418,200. Value of inputs such as labor,
materials and capital = P352,600
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Partial Productivity
2) A bakery oven produces 346 pastries in
4 hours. What is its productivity?
3) 2 Workers paint tables in a furniture
shop. If the workers paint 22 tables in 8
hours. What is their productivity?
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Multifactor Productivity
4) Output is worth $382 and labor and
material cost are $168 and $98,
respectively.
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Example 2.1
Long Beach Bank employs three loan officers, each
working eight hours per day. Each officer processes
an average of five loans per day. The banks payroll
cost for the officers is $820 per day, and there is a daily
overhead expense of $500. The bank has just
purchased new computer software that should enable
each officer to process eight loans per day, although
the overhead expense will increase to $550. Evaluate
the change in labor and multifactor productivity before
and after implementation of the new computer
software.
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More examples
1.A company that processes fruits and
vegetables is able to produce 400 cases
of canned peaches in one-half hour with
4 workers. What is the labor
productivity?
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#7/p.49 (Reid)
Howard Plastics produces plastic containers for use in the food
packaging industry. Last year its average monthly production included
20,000 containers produced using one shift five days a week with an
eight-hour-a-day operation. Of the items produced 15 percent were
deemed defective. Recently, Howard Plastics has implemented new
production methods and a new quality improvement program. Its
monthly production has increased to 25,000 containers with 9 percent
defective.
a) Compute the monthly productivity ratios (unit per month / hr) for the
old and new production system.
b) Compare the changes in productivity between the two production
systems.
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End
Thank you
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