Operations and

1 Productivity

PowerPoint presentation to accompany

Heizer and Render
Operations Management, 10e
Principles of Operations Management, 8e

PowerPoint slides by Jeff Heyl

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1-1

 Outline
 Global Company Profile: Hard Rock
Cafe
 What Is Operations Management?
 Organizing to Produce Goods and
Services
 Why Study OM?
 What Operations Managers Do

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 Outline - Continued
 The Heritage of Operations
Management
 Operations in the Service Sector
 Differences between Goods and
Services
 Growth of Services
 Exciting New Trends in Operations
Management

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1-3

 Outline - Continued
 The Productivity Challenge
 Productivity Measurement
 Productivity Variables
 Productivity and the Service Sector
 Ethics and Social Responsibility

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1-4

 The Hard Rock Cafe

 First opened in 1971

 Now – 129 restaurants in over 40 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

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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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 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

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 Organizational Charts
Commercial Bank

Operations Finance Marketing

Teller Investments Loans
Scheduling Security Commercial
Check Clearing Real estate Industrial
Collection Financial
Transaction Accounting Personal
processing
Facilities Mortgage
design/layout
Auditing
Vault operations
Trust Department
Maintenance
Security
Figure 1.1(A)
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 Organizational Charts
Airline

Operations Finance/ Marketing

Ground support accounting Traffic
equipment Accounting administration
Maintenance Payables Reservations
Ground Operations Receivables Schedules
General Ledger Tariffs (pricing)
Facility
maintenance Finance Sales
Catering Cash control Advertising
Flight Operations International
exchange
Crew scheduling
Flying
Communications
Dispatching
Management science Figure 1.1(B)
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1-9
 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
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 10
 What Operations
Managers Do
Basic Management Functions
 Planning
 Organizing
 Staffing
 Leading
 Controlling
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 Ten Critical Decisions
Ten Decision Areas Chapter(s)
1. Design of goods and services 5
2. Managing quality 6, Supplement 6
3. Process and capacity 7, Supplement 7
design
4. Location strategy 8
5. Layout strategy 9
6. Human resources and 10
job design
7. Supply-chain 11, Supplement 11
management
8. Inventory, MRP, JIT 12, 14, 16
9. Scheduling 13, 15
10. Maintenance 17 Table 1.2
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 The Critical Decisions
1. Design of goods and services
 What product or service should we
offer?
 How should we design these
products and services?
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 1 - 13
 The Critical Decisions
3. Process and capacity design
 What process and what capacity will
these products require?
 What equipment and technology is
necessary for these processes?
4. Location strategy
 Where should we put the facility?
 On what criteria should we base the
location decision?

Table 1.2 (cont.)

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 14
 The Critical Decisions
5. Layout strategy
 How should we arrange the facility?
 How large must the facility be to meet
our plan?
6. 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.)

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 The Critical Decisions
7. Supply-chain management
 Should we make or buy this
component?
 Who should be our suppliers and how
can we integrate them into our strategy?
8. Inventory, material requirements
planning, and JIT
 How much inventory of each item
should we have?
 When do we re-order?
Table 1.2 (cont.)
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 The Critical Decisions
9. Intermediate and short–term
scheduling
 Are we better off keeping people on
the payroll during slowdowns?
 Which jobs do we perform next?
10. Maintenance
 How do we build reliability into our
processes?
 Who is responsible for maintenance?

Table 1.2 (cont.)

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 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
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 18
 Significant Events in OM

Figure 1.3
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 New Challenges in OM
From To
 Local or national focus  Global focus
 Batch shipments  Just-in-time
 Low bid purchasing  Supply-chain
partnering
 Lengthy product  Rapid product
development development,
alliances
 Standard products  Mass
customization
 Job specialization  Empowered
employees, teams
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 20
 Characteristics of Goods
 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 1 - 22
 Industry and Services as
Percentage of GDP
90 −
Services Manufacturing
80 −
70 −
60 −
50 −
40 −
30 −
20 −
10 −
0−
Germany
Czech Rep

Japan

Russian Fed
Hong Kong
France

Spain
Canada

UK
China

South Africa
Mexico
Australia

US
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 23
 Goods and Services
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
100% 75 50 25 0 25 50 75 100%
| | | | | | | | |

Percent of Product that is a Good Percent of Product that is a Service

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 Manufacturing and Service
Employment
120 –

Employment (millions) 100 –

80 – Service

60 –

40 –

Manufacturing
20 –

0– | | | | | | |
1950 1970 1990 2010 (est)
1960 1980 2000
Figure 1.4 (A)
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 Changing Challenges
Traditional Reasons for Current
Approach Change Challenge
Ethics and Public concern over High ethical and
regulations pollution, corruption, social
not at the child labor, etc. responsibility;
forefront increased legal
and professional
standards
Local or Growth of reliable, low Global focus,
national cost communication international
focus and transportation collaboration

Lengthy Shorter life cycles; Rapid product

product growth of global development;
development communication; CAD, design
Internet collaboration

Figure 1.5
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 Changing Challenges
Traditional Reasons for Current
Approach Change Challenge
Low cost Public sensitivity to Environmentally
production, environment; ISO 14000 sensitive
with little standard; increasing production; green
concern for disposal costs manufacturing;
environment; sustainability
free
resources
(air, water)
ignored
Low-cost Rise of consumerism; Mass
standardized increased affluence; customization
products individualism

Figure 1.5
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 27
 Changing Challenges
Traditional Reasons for Current
Approach Change Challenge
Emphasis on Recognition of the Empowered
specialized, employee's total employees;
often manual contribution; knowledge enriched jobs
tasks society
“In-house” Rapid technological Supply-chain
production; change; increasing partnering; joint
low-bid competitive forces ventures,
purchasing alliances
Large lot Shorter product life Just-In-Time
production cycles; increasing need performance;
to reduce inventory lean; continuous
improvement

Figure 1.5
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 28
 New Trends in OM
 Ethics
 Global focus
 Environmentally sensitive production
 Rapid product development
 Environmentally sensitive production
 Mass customization
 Empowered employees
 Supply-chain partnering
 Just-in-time performance
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 29
 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!

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 The Economic System
Inputs Transformation Outputs

Labor, The U.S. economic system Goods

capital, transforms inputs to outputs and
management at about an annual 2.5% services
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%).

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 Saved 8 seconds
on credit card purchases per transaction
under $25
Change the size of the ice Saved 14 seconds
scoop per drink
New espresso machines Saved 12 seconds
per shot
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 32
 Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Operations improvements have
helped Starbucks
Stop requiring signatures increase
Saved yearly
8 seconds
revenue per outlet
on credit card purchases perby $200,000 to
transaction
under $25 $940,000 in six years.
Change the sizeProductivity
of the ice hasSaved
improved by 27%,
14 seconds
scoop or about 4.5% per
peryear.
drink
New espresso machines Saved 12 seconds
per shot
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 33
 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 1 - 34

 Productivity Calculations
Labor Productivity
Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250

One resource input  single-factor productivity

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 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
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 Investment and Productivity
10
Percent increase in productivity

0
10 15 20 25 30 35
Percentage investment

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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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 Ethics and
Social Responsibility
Challenges facing
operations managers:
 Developing and producing safe,
quality products
 Maintaining a clean environment
 Providing a safe workplace
 Honoring stakeholder commitments

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 39