Course: Introduction To Operations Management

Course: Introduction to OPERATIONS MANAGEMENT
Instructor: Usman Ali Asif Institute of Administrative Sciences, University of the Punjab
Instructor: Usman Ali Asif Chapter 1 1
Operations Management
Chapter 1 : Operations and Productivity
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
Commercial Bank
Operations
Teller Scheduling Check Clearing Collection Transaction processing Facilities design/layout Vault operations Maintenance Security
Finance
Investments Security Real estate Accounting
Marketing
Loans Commercial Industrial Financial Personal Mortgage Trust Department
Figure 1.1(A)
Auditing
Organizational Charts
Manufacturing Operations
Facilities
Construction; maintenance
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
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
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

Marketing Option Finance/ Accounting Option OM Option Reduce Production Costs 20% $100,000 64,000 36,000 6,000 30,000 7,500 $ 22,500 Increase Reduce Sales Finance Revenue 50% Costs 50% $150,000 120,000 30,000 6,000 24,000 6,000 $ 18,000 $100,000 80,000 20,000 3,000 17,000 4,250 $ 12,750
Current
Sales Cost of Goods Gross Margin Finance Costs Subtotal Taxes at 25% Contribution $100,000 80,000 20,000 6,000 14,000 3,500 $ 10,500
What Operations Managers Do

Basic Management Functions
Planning
Organizing
Staffing
Leading
Controlling
Ten Critical Decisions

Ten Decision Areas Design of goods and services Managing quality Process and capacity design Location strategy Layout strategy Human resources and job design Supply chain management Inventory management Scheduling Maintenance Chapter(s) 5 6, Supplement 6 7, Supplement 7 8 9 10, Supplement 10 11, Supplement 11 12, 14, 16 13, 15 17
Table 1.2
History & Background of Operations Management
Significant Events in OM
Figure 1.3
The Heritage of OM
Frederick W. Taylor: In 1881, as chief engineer for Midvale Steel, studied how tasks were done
Began first motion and time studies Created efficiency principles
Henry Ford: In 1913, first used moving assembly line to make Model T:
Unfinished product moved by conveyor past work station
Services & Operations

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

Goods
Tangible product
VS
Services
Intangible product
Consistent product Produced and consumed at same time definition Production usually Often unique separate from High customer consumption interaction Can be inventoried Inconsistent product definition Low customer interaction Often knowledge-based
Frequently dispersed
Industry and Services as Percentage of GDP

90 80 70 60 50 40 Services
Manufacturing
30
20 10 0
Hong Kong
Japan
Russian Fed
Czech Rep
France
Germany
Canada
Mexico
South Africa
China
Spain
UK
Australia
US
Chapter 1 Session 2
Manufacturing Employment and Production

150
Employment (millions)
Industrial production
(right scale)
125 100
75
40 30 20 10 0 Manufacturing 50 employment
(left scale)
25 | 1950 | | | | | 0 1970 1990 2010 (est) 1960 1980 2000 | Figure 1.5 (B)
Index: 1997 = 100
Productivity Challenge
Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital) PRODUCTIVITY = OUTPUT / INPUT The objective is to improve productivity!
Important Note! Production is a measure of output only and not a measure of efficiency
The Economic System

Inputs
Labor, capital, management
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%).
Outputs
Goods and services
Feedback loop
Figure 1.7
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
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 Change the size of the ice scoop Saved 8 seconds per transaction Saved 14 seconds per drink
New espresso machines
Saved 12 seconds per shot

Improving Productivity at Starbucks

A team of 10 analysts continually look for ways to shave time. Some improvements:
Operations improvements have helped Starbucks increase yearly Stop requiring signatures Saved 8 seconds revenue per on credit card purchases outlet by $200,000 to per transaction $940,000 in six years. under $25
Productivity Change the size of the ice has improved by 27%, Saved 14 seconds or about 4.5% per year. scoop per drink New espresso machines Saved 12 seconds per shot
Productivity Calculations
Labor Productivity
Productivity = Units produced Labor-hours used 1,000 250 = 4 units/labor-hour
One resource input single-factor productivity

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
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 38% 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:
Results:the menu Revised Designed meals for easy preparation Preparation time cut to 8 seconds Shifted some preparation to suppliers Management span of control Efficient layout and automation increased from 5 to 30 Training and employee empowerment In-store labor cut by 15 hours/day Stores handle twice the volume with half the labor Fast-food low-cost leader
Ethics and Social Responsibility

Challenges facing operations managers:
Developing and producing safe, quality products Maintaining a clean environment Providing a safe workplace
Honoring community commitments

Where are the OM Jobs?
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
New Trends in OM
Past
Local or national focus
Batch (large) shipments
Causes
Reliable worldwide communication and transportation networks
Short product life cycles and cost of capital put pressure on reducing inventory Supply chain competition requires that suppliers be engaged in a focus on the end customer
Future
Global focus, moving production offshore
Just-in-time performance
Low-bid purchasing
Supply chain partners, collaboration, alliances, outsourcing
Figure 1.6
New Trends in OM
Past
Lengthy product development
Standardized products
Causes
Shorter life cycles, Internet, rapid international communication, computeraided design, and international collaboration Affluence and worldwide markets; increasingly flexible production processes
Changing socioculture milieu; increasingly a knowledge and information society
Future
Rapid product development, alliances, collaborative designs Mass customization with added emphasis on quality Empowered employees, teams, and lean production
Job specialization
Figure 1.6
New Trends in OM
Past
Low-cost focus
Causes
Environmental issues, ISO 14000, increasing disposal costs
Future
Environmentally sensitive production, green manufacturing, recycled materials, remanufacturing High ethical standards and social responsibility expected
Ethics not at forefront
Businesses operate more openly; public and global review of ethics; opposition to child labor, bribery, pollution
Figure 1.6
New Trends in OM
Global focus Just-in-time performance Supply chain partnering Rapid product development Mass customization Empowered employees Environmentally sensitive production Ethics
New Challenges in OM
From
Local or national focus Batch shipments Low bid purchasing Lengthy product development Standard products Job specialization
To
Global focus
Just-in-time Supply chain partnering Rapid product development, alliances
Mass customization
Empowered employees, teams

Course: Introduction To Operations Management

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Course: Introduction to OPERATIONS MANAGEMENT

Chapter 1 : Operations and Productivity

Instructor: Usman Ali Asif Chapter 1 2

What Is Operations Management?

Organizing to Produce Goods and Services

Production/operations creates the product

Instructor: Usman Ali Asif Chapter 1 4

Production and inventory control

Quality assurance and control Supply chain management Manufacturing

Why Study OM?

Options for Increasing Contribution

Instructor: Usman Ali Asif Chapter 1 8

What Operations Managers Do

Ten Critical Decisions

History & Background of Operations Management

Instructor: Usman Ali Asif Chapter 1 11

Instructor: Usman Ali Asif Chapter 1 13

Services & Operations

Goods and Services

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

Industry and Services as Percentage of GDP

Instructor: Usman Ali Asif Chapter 1 17

Instructor: Usman Ali Asif Chapter 1 18

Manufacturing Employment and Production

Index: 1997 = 100

The Economic System

Measure of process improvement

Improving Productivity at Starbucks

New espresso machines

Saved 12 seconds per shot

Improving Productivity at Starbucks

One resource input single-factor productivity

Precise units of measure may be lacking

Instructor: Usman Ali Asif Chapter 1 27

Key Variables for Improved Labor Productivity

Social overhead that makes labor available

Frequently focused on unique individual attributes or desires

Instructor: Usman Ali Asif Chapter 1 30

Productivity at Taco Bell

Instructor: Usman Ali Asif Chapter 1 31

Productivity at Taco Bell

Instructor: Usman Ali Asif Chapter 1 32

Ethics and Social Responsibility

Honoring community commitments

Where are the OM Jobs?

Instructor: Usman Ali Asif Chapter 1 34

Where are the OM Jobs?

Supply chain partners, collaboration, alliances, outsourcing

Instructor: Usman Ali Asif Chapter 1 36

Instructor: Usman Ali Asif Chapter 1 37

Ethics not at forefront

Instructor: Usman Ali Asif Chapter 1 38

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