Heizer Om12 ch01

Outline
Operations and
▶ Global Company Profile: Hard Rock Cafe
Productivity
▶ What Is Operations Management?
▶ Organizing to Produce Goods and
PowerPoint presentation to accompany
Services
Heizer, Render, Munson ▶ The Supply Chain
Operations Management, Twelfth Edition, Global Edition
Principles of Operations Management, Tenth Edition, Global Edition ▶ Why Study OM?
PowerPoint slides by Jeff Heyl ▶ What Operations Managers Do
Copyright © 2017 Pearson Education, Ltd. 1-1 Copyright © 2017 Pearson Education, Ltd. 1-2
Operations Management
Outline - Continued
at Hard Rock Cafe
▶ The Heritage of Operations Management
▶ Operations for Goods and Services ▶ First opened in 1971
▶ The Productivity Challenge ▶ Now – 150 restaurants in over 53 countries
▶ Current Challenges in Operations ▶ Rock music memorabilia
Management ▶ Creates value in the form of good food and
▶ Ethics, Social Responsibility, and entertainment
Sustainability ▶ 3,500+ custom meals per day in Orlando
▶ How does an item get on the menu?
▶ Role of the Operations Manager
Learning Objectives Learning Objectives
When you complete this chapter When you complete this chapter
you should be able to: you should be able to:
1.1 Define operations management 1.4 Compute single-factor productivity

1.2 Explain the distinction between 1.5 Compute multifactor productivity
goods and services 1.6 Identify the critical variables in
1.3 Explain the difference between enhancing productivity
production and productivity
What Is Operations Organizing to Produce

Management? Goods and Services
Production is the creation of ▶ Essential functions:

goods and services 1. Marketing – generates demand
Operations management (OM) is 2. Production/operations – creates the
the set of activities that create product
value in the form of goods and 3. Finance/accounting – tracks how
services by transforming inputs well the organization is doing, pays
into outputs bills, collects the money
Organizational Charts Organizational Charts
Figure 1.1 Figure 1.1
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Organizational Charts The Supply Chain

Figure 1.1 ▶ 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
Farmer Syrup Bottler Distributor Retailer

producer
Copyright © 2017 Pearson Education, Ltd. 1 - 11 Copyright © 2017 Pearson Education, Ltd. 1 - 12
Options for Increasing
Why Study OM? Contribution
1. OM is one of three major functions of any
organization; we want to study how people TABLE 1.1
FINANCE/
organize themselves for productive MARKETING ACCOUNTING
OPTION OPTION OM OPTION
enterprise INCREASE REDUCE REDUCE
SALES FINANCE PRODUCTION
2. We want (and need) to know how goods CURRENT REVENUE 50% COSTS 50% COSTS 20%
Sales $100,000 $150,000 $100,000 $100,000
and services are produced Cost of goods –80,000 –120,000 –80,000 –64,000
3. We want to understand what operations Gross margin 20,000 30,000 20,000 36,000
Finance costs –6,000 –6,000 –3,000 –6,000
managers do Subtotal 14,000 24,000 17,000 30,000
4. OM is such a costly part of an Taxes at 25%

Contribution
–3,500
$ 10,500
–6,000
$ 18,000
–4,200
$ 12,750
–7,500
$ 22,500
organization
What Operations Ten Strategic Decisions

Managers Do TABLE 1.2
DECISION CHAPTER(S)
Basic Management Functions 1. Design of goods and services

2. Managing quality
5, Supplement 5
6, Supplement 6
3. Process and capacity strategy 7, Supplement 7
▶ Planning 4. Location strategy 8
▶ Organizing 5. Layout strategy 9
6. Human resources and job design 10
▶ Staffing 7. Supply‐chain management 11, Supplement 11
▶ Leading 8. Inventory management 12, 14, 16

9. Scheduling 13, 15
▶ Controlling 10. Maintenance 17
The Strategic Decisions The Strategic Decisions
1. Design of goods and services 3. Process and capacity design
▶ Defines what is required of operations ▶ How is a good or service produced?
▶ Product design determines quality, ▶ Commits management to specific
sustainability and human resources technology, quality, resources, and
investment
2. Managing quality
▶ Determine the customer’s quality 4. Location strategy
expectations ▶ Nearness to customers, suppliers, and
▶ Establish policies and procedures to talent
identify and achieve that quality ▶ Considering costs, infrastructure, logistics,
Table 1.2 (cont.)
and government Table 1.2 (cont.)
The Strategic Decisions The Strategic Decisions

5. Layout strategy 7. Supply chain management
▶ Integrate capacity needs, personnel levels, ▶ Integrate supply chain into the firm’s strategy
technology, and inventory
▶ Determine what is to be purchased, from
▶ Determine the efficient flow of materials, whom, and under what conditions
people, and information
8. Inventory management
6. Human resources and job design
▶ Inventory ordering and holding decisions
▶ Recruit, motivate, and retain personnel with
▶ Optimize considering customer satisfaction,
the required talent and skills
supplier capability, and production schedules
▶ Integral and expensive part of the total
system design
Table 1.2 (cont.) Table 1.2 (cont.)
The Strategic Decisions Where are the OM Jobs?
▶ Technology/methods
9. Scheduling
▶ Facilities/space utilization
▶ Determine and implement intermediate-
and short-term schedules ▶ Strategic issues
▶ Response time
▶ Utilize personnel and facilities while
meeting customer demands ▶ People/team development
▶ Customer service
10. Maintenance
▶ Quality
▶ Consider facility capacity, production
demands, and personnel ▶ Cost reduction
▶ Maintain a reliable and stable process ▶ Inventory reduction
▶ Productivity improvement
Table 1.2 (cont.)
Opportunities
Figure 1.3 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
(CIPS)
Significant Events in OM 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 1913)
▶ Gantt charts (Gantt 1916)
▶ Motion study (Frank and Lillian Gilbreth 1922)
▶ Quality control (Shewhart 1924; Deming 1950)
Figure 1.4
The Heritage of OM Eli Whitney

▶ Computer (Atanasoff 1938)
▶ Born 1765; died 1825
▶ CPM/PERT (DuPont 1957, Navy 1958)
▶ Material requirements planning (Orlicky 1960) ▶ In 1798, received government
▶ Computer aided design (CAD 1970)
contract to make 10,000 muskets
▶ Flexible manufacturing system (FMS 1975) ▶ Showed that machine tools could
▶ Baldrige Quality Awards (1980) make standardized parts to exact
▶ Computer integrated manufacturing (1990) specifications
▶ Globalization (1992) ▶ Musket parts could be used in any
▶ Internet (1995)
musket
Frederick W. Taylor Taylor’s Principles
▶ Born 1856; died 1915 Management Should Take More
▶ Known as ‘father of scientific Responsibility for:
management’ 1. Matching employees to right job
▶ In 1881, as chief engineer for 2. Providing the proper training
Midvale Steel, studied how tasks
3. Providing proper work methods and
were done tools
▶ Began first motion and time studies 4. Establishing legitimate incentives for
▶ Created efficiency principles work to be accomplished
Frank and Lillian Gilbreth Henry Ford

▶ Frank (1868-1924); Lillian (1878-1972) ▶ Born 1863; died 1947
▶ Husband and wife engineering team ▶ In 1903, created Ford Motor Company
▶ Further developed work measurement ▶ In 1913, first used moving assembly
methods line to make Model T
▶ Applied efficiency methods to their ▶ Unfinished product moved by conveyor
home and 12 children! past work station
▶ Book and Movie: “Cheaper by the ▶ Paid workers very well for 1911
Dozen,” “Bells on Their Toes” ($5/day!)
W. Edwards Deming Contributions From
▶ Born 1900; died 1993
▶ Industrial engineering
▶ Engineer and physicist
▶ Statistics
▶ Credited with teaching Japan quality
control methods in post-WW2 ▶ Management
▶ Used statistics to analyze process ▶ Economics
▶ His methods involve workers in ▶ Physical sciences
decisions
▶ Information technology
Operations for Operations for

Goods and Services Goods and Services
Services – Economic activities that ▶ Manufacturers produce tangible product,
typically produce an intangible product services often intangible
(such as education, entertainment, ▶ Operations activities often very similar
lodging, government, financial, and ▶ Distinction not always clear
health services)
▶ Few pure services
Differences Between Goods and
U.S. Agriculture, Manufacturing,
Services
TABLE 1.3 and Service Employment
CHARACTERISTICS OF SERVICES CHARACTERISTICS OF GOODS
Figure 1.5
Intangible: Ride in an airline seat Tangible: The seat itself
100 -
Produced and consumed simultaneously: Beauty salon Product can usually be kept in inventory (beauty care
produces a haircut that is consumed as it is produced products)
80 –
Unique: Your investments and medical care are unique Similar products produced (iPods)
Percent of Workforce
High customer interaction: Often what the customer is Limited customer involvement in production
60 –
paying for (consulting, education)
Inconsistent product definition: Auto Insurance Product standardized (iPhone)
changes with age and type of car 40 –
Often knowledge based: Legal, education, and medical Standard tangible product tends to make automation
services are hard to automate feasible 20 –
Services dispersed: Service may occur at retail store, Product typically produced at a fixed facility
local office, house call, or via internet. | | | | | | | | |
0 .
Quality may be hard to evaluate: Consulting, Many aspects of quality for tangible products are easy
education, and medical services to evaluate (strength of a bolt) 1825 1875 1925 1975 2025 (est.)
1800 1850 1900 1950 2000
Reselling is unusual: Musical concert or medical care Product often has some residual value
Agriculture Services Manufacturing
Organizations in Each Sector Service Pay

TABLE 1.4
PERCENT OF
SECTOR
Service Sector
EXAMPLE ALL JOBS
▶ Perception that services are low-paying
Education, Medical, Other San Diego State University, Arnold Palmer
Hospital
15.3
▶ 42% of service workers receive above
Trade (retail, wholesale),
Transportation
Walgreen's, Walmart, Nordstrom, Alaska
Airlines
15.8 average wages
Information, Publishers, Broadcast
Professional, Legal, Business
IBM, Bloomberg, Pearson, ESPN
Snelling and Snelling, Waste Management, Inc.,
1.9
13.6
85.2 ▶ 14 of 33 service industries pay below
Services, Associations
Finance, Insurance, Real Estate
American Medical Association, Ernst & Young
Citicorp, American Express, Prudential, Aetna 9.6
average
Food, Lodging, Entertainment
Public Administration
Olive Garden, Motel 6, Walt Disney
U.S., State of Alabama, Cook County
10.4
15.6
▶ Retail trade pays only 61% of national
Manufacturing Sector General Electric, Ford, U.S. Steel, Intel 8.6 average
Construction Sector Bechtel, McDermott 4.3
Agriculture King Ranch 1.4 ▶ Overall average wage is 96% of the
Mining Sector
Grand Total
Homestake Mining
100.0
.5
average
Productivity Challenge The Economic System
Inputs Transformation Outputs
Productivity is the ratio of outputs (goods
and services) divided by the inputs Labor, The U.S. economic system Goods
(resources such as labor and capital) capital, transforms inputs to outputs at and
management about an annual 2.5% increase services
in productivity per year. The
productivity increase is the
The objective is to improve productivity! result of a mix of capital (38%
of 2.5%), labor (10% of 2.5%),
and management (52% of
2.5%).
Important Note!
Production is a measure of output only
and not a measure of efficiency Feedback loop
Figure 1.6
Improving Productivity at Improving Productivity at

Starbucks Starbucks
A team of 10 analysts A team of 10 analysts
continually look for ways continually look for ways
to shave time. Some to shave time. Some
improvements: improvements:
Operations improvements have
Stop requiring signatures Saved 8 seconds helped StarbucksSaved
Stop requiring signatures increase yearly
8 seconds
on credit card purchases per transaction revenue
on credit card purchases per outlet
per transactionto
by $250,000
under $25 under $25 $1,000,000.
Change the size of the ice Saved 14 seconds Change the size Productivity
of the ice has improved
Saved 14by 27%, or
seconds
scoop per drink scoop about 4.5% per year.
per drink
New espresso machines Saved 12 seconds New espresso machines Saved 12 seconds
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Productivity Productivity Calculations
Units produced Labor Productivity

Productivity =
Input used Units produced
Productivity =
Labor-hours used
▶ Measure of process improvement
1,000
▶ Represents output relative to input = = 4 units/labor-hour
250
▶ Only through productivity increases
can our standard of living improve
One resource input  single-factor productivity
Multi-Factor Productivity Collins Title Productivity

Old System:
Output Staff of 4 works 8 hrs/day 8 titles/day
Multifactor =
Labor + Material + Energy + Payroll cost = $640/day Overhead = $400/day
Capital + Miscellaneous
► Also known as total factor productivity
► Output and inputs are often expressed in Old labor 8 titles/day
dollars = = .25 titles/labor-hr
productivity 32 labor-hrs
Multiple resource inputs  multi-factor productivity
Collins Title Productivity Collins Title Productivity
Old System: Old System:
Staff of 4 works 8 hrs/day 8 titles/day Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day Payroll cost = $640/day Overhead = $400/day
New System: New System:
14 titles/day Overhead = $800/day 14 titles/day Overhead = $800/day
Old labor 8 titles/day Old multifactor 8 titles/day

= = .25 titles/labor-hr = = .0077 titles/dollar
productivity 32 labor-hrs productivity $640 + 400
New labor 14 titles/day

= = .4375 titles/labor-hr
productivity 32 labor-hrs
Collins Title Productivity Measurement Problems

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
1. Quality may change while the
Payroll cost = $640/day Overhead = $400/day quantity of inputs and outputs remains
New System: constant
14 titles/day Overhead = $800/day 2. External elements may cause an
increase or decrease in productivity
Old multifactor 8 titles/day
productivity
=
$640 + 400
= .0077 titles/dollar 3. Precise units of measure may be
lacking
New multifactor 14 titles/day
= = .0097 titles/dollar
productivity $640 + 800
Productivity Variables Key Variables for Improved
Labor Productivity
1. Labor - contributes
about 10% of the 1. Basic education appropriate for the
annual increase labor force
2. Capital - contributes 2. Diet of the labor force
about 38% of the 3. Social overhead that makes labor
annual increase available
3. Management - ▶ Challenge is in maintaining and enhancing

skills in the midst of rapidly changing
contributes about 52% technology and knowledge
of the annual increase
Labor Skills Capital

About half of the 17-year-olds in the U.S. cannot
correctly answer questions of this type 10
Percent increase in productivity

8
0
10 15 20 25 30 35
Percentage investment
Figure 1.7
Productivity in the Service
Management Sector
▶ Ensures labor and capital are effectively ▶ Productivity improvement in services is
used to increase productivity difficult because:
▶ Use of knowledge
1. Typically labor intensive
▶ Application of technologies
2. Frequently focused on unique individual
▶ Knowledge societies attributes or desires
▶ Labor has migrated from manual work to 3. Often an intellectual task performed by
technical and information-processing tasks professionals
▶ More effective use of technology, 4. Often difficult to mechanize and automate
knowledge, and capital 5. Often difficult to evaluate for quality
Technology Innovation by
Productivity
Results: at Taco Bell
Uber ▶ Daily car trips reduced by 3% in Stockholm
▶ Number of active cars reduced by 5%
Innovation: Improvements:
▶ Reduced CO2 emissions
▶ Smartphone application
▶ Reduced emissions expected to generate
▶ Peer-to-peer technology economic value of up to $22 million
▶ Concept of mobility as a ▶ 3,000 jobs created in the short-run
▶ service ▶ Total value of $100 million per year created for
▶ Putting cab seekers directly in touch the society
with nearby cab providers
Current Challenges in OM Ethics, Social Responsibility,
and Sustainability
▶ Globalization
Challenges facing
▶ Supply-chain partnering
operations managers:
▶ Sustainability
▶ Rapid product development ▶ Develop and produce safe, high-quality
green products
▶ Mass customization ▶ Train, retrain, and motivate employees
▶ Lean operations in a safe workplace
▶ Honor stakeholder commitments
Ethics,Stakeholders
Social Responsibility,
and
Those Sustainability
with a vested interest in an
organization, including customers,
distributors,
Challenges facing suppliers, owners, lenders,
employees,
operations managers:and community members.
▶ Develop and produce safe, high-quality

green products
▶ Train, retrain, and motivate employees
in a safe workplace
▶ Honor stakeholder commitments
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Outline

1.1 Define operations management 1.4 Compute single-factor productivity

What Is Operations Organizing to Produce

Production is the creation of ▶ Essential functions:

Organizational Charts The Supply Chain

Farmer Syrup Bottler Distributor Retailer

4. OM is such a costly part of an Taxes at 25%

What Operations Ten Strategic Decisions

Basic Management Functions 1. Design of goods and services

▶ Leading 8. Inventory management 12, 14, 16

The Strategic Decisions The Strategic Decisions

The Heritage of OM Eli Whitney

Frank and Lillian Gilbreth Henry Ford

Operations for Operations for

Organizations in Each Sector Service Pay

Improving Productivity at Improving Productivity at

Units produced Labor Productivity

Multi-Factor Productivity Collins Title Productivity

Multiple resource inputs  multi-factor productivity

Old labor 8 titles/day Old multifactor 8 titles/day

New labor 14 titles/day

Collins Title Productivity Measurement Problems

3. Management - ▶ Challenge is in maintaining and enhancing

Labor Skills Capital

Percent increase in productivity

▶ Develop and produce safe, high-quality

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