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Operations Management Operations and Productivity Chapter 1 Operations Management Operations and Productivity Chapter 1

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Outline ( ) PROFILE: HARD ROCK CAFE WHAT IS OPERATIONS MANAGEMENT? ? ORGANIZING TO PRODUCE GOODS AND SERVICES WHY STUDY OM? WHAT OPERATIONS MANAGERS DO How This Book Is Organized ( ) WHERE ARE THE OM JOBS?

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Outline - Continued THE HERITAGE OF OPERATIONS MANAGEMENT OPERATIONS IN THE SERVICE SECTOR Differences between Goods and Services Growth of Services Service Pay EXCITING NEW TRENDS IN OPERATIONS MANAGEMENT

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Outline - Continued THE PRODUCTIVITY CHALLENGE Productivity Measurement Productivity Variables Productivity and the Service Sector THE CHALLENGE OF SOCIAL RESPONSIBILITY

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Learning Objectives When you complete this chapter, you should be able to : Identify or Define : Production and productivity Operations Management (OM) What operations managers do Services

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Learning Objectives - Continued When you complete this chapter, you should be able to : Describe or Explain : A brief history of operations management Career opportunities in operations management The future of the discipline Measuring productivity

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The Hard Rock Cafe First opened in 1971 Now 110 restaurants in over 40 countries Rock music memorabilia Creates value in the form of good food and entertainment 3,500 + custom meals per day 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 is the set of activities that creates value in the form of goods and services by transforming inputs into outputs

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Organizing to Produce Goods and Services

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Essential functions: Marketing generates demand Operations creates the product Finance/accounting tracks organizational performance, pays bills, collects money

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Organizational Functions Marketing Gets customers Operations creates product or service Finance/Accounting Obtains funds Tracks money 1995 Corel Corp.

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Sample Organization Chart s

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Functions - Bank Operations Finance/ Accounting Marketing Check Clearing Teller Scheduling Transactions Processing Security Commercial Bank 1984-1994 T/Maker Co.

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Functions - Airline Operations Finance/ Accounting Marketing Ground Support Flight Operations Facility Maintenance Catering Airline 1984-1994 T/Maker Co.

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Functions - Manufacturer Operations Finance/ Accounting Marketing Production Control Manufacturing Quality Control Purchasing Manufacturing

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Organizational Charts Commercial Bank Operations Teller Scheduling Check Clearing Transactions processing Facilities design/layout Vault operations Maintenance Security Finance Investments Security Real Estate Accounting Auditing Marketing Loans Commercial Industrial Financial Personal Mortgage Trust Department

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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 rates Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising

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Organizational Charts Manufacturing Operations Facilities: Construction:maintenance Production & inventory control Scheduling: materials 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 Finance & Accounting Disbursements/credits Receivables Payables General ledger Funds Management Money market International exchange Capital requirements Stock issue Bond issues and recall Marketing Sales promotions Advertising Sales Market research

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Why Study OM?

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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.

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Options for Increasing Contribution

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What Operations Managers Do Plan - Organize - Staff - Lead - Control

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Ten Critical Decisions Service, product design.. Quality management Process, capacity design.. Location . Layout design .. Human resources, job design.. Supply-chain management Inventory management . Scheduling Maintenance . Ch. 5 Ch. 6, 6S Ch. 7, 7S Ch. 8 Ch. 9 Ch. 10, 10S Ch. 11,11s Ch. 12, 14, 16 Ch. 3, 13, 15 Ch. 17

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The Critical Decisions Quality management Who is responsible for quality? How do we define quality? Service and product design What product or service should we offer? How should we design these products and services?

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The Critical Decisions - Continued Process and capacity design What processes will these products require and in what order? What equipment and technology is necessary for these processes? Location Where should we put the facility On what criteria should we base this location decision?

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The Critical Decisions - Continued Layout design How should we arrange the facility? How large a facility is required? Human resources and job design How do we provide a reasonable work environment? How much can we expect our employees to produce?

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The Critical Decisions - Continued Supply chain management Should we make or buy this item? Who are our good suppliers and how many should we have? Inventory, material requirements planning, How much inventory of each item should we have? When do we re-order?

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The Critical Decisions - Continued Intermediate, short term, and project scheduling Is subcontracting production a good idea? Are we better off keeping people on the payroll during slowdowns? Maintenance Who is responsible for maintenance? When do we do maintenance?

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Where are the OM Jobs

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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

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The Heritage of Operations Management

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Significant Events in Operations Management

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The Heritage of Operations Management Division of labor (Adam Smith 1776 and Charles Babbage 1852) Standardized parts (Whitney 1800) Scientific Management (Taylor 1881) Coordinated assembly line (Ford/Sorenson/Avery 1913) Gantt charts (Gantt 1916) Motion study (Frank and Lillian Gilbreth 1922 Quality control (Shewhart 1924; Deming 1950) Computer (Atanasoff 1938) CPM/PERT (DuPont 1957)

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The Heritage of Operations Management - Continued Material requirements planning (Orlicky 1960) Computer aided design (CAD 1970) Flexible manufacturing system (FMS 1975) Baldrige Quality Awards (1980) Computer integrated manufacturing (1990) Globalization(1992) Internet (1995)

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Eli Whitney Born 1765; died 1825 In 1798, received government contract to make 10,000 muskets Showed that machine tools could make standardized parts to exact specifications Musket parts could be used in any musket 1995 Corel Corp.

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Frederick W. Taylor Born 1856; died 1915 Known as father of scientific management( ) In 1881, as chief engineer for Midvale Steel, studied how tasks were done Began first motion & time studies Created efficiency principles 1995 Corel Corp.

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Taylor: Management Should Take More Responsibility for Matching employees to right job Providing the proper training Providing proper work methods and tools Establishing legitimate incentives for work to be accomplished

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Frank & Lillian Gilbreth Frank (1868-1924); Lillian (1878-1972) Husband-and-wife engineering team Further developed work measurement methods Applied efficiency methods to their home & 12 children! (Book & Movie: Cheaper by the Dozen, book: Bells on Their Toes) 1995 Corel Corp.

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Born 1863; died 1947 In 1903, created Ford Motor Company In 1913, first used moving assembly line to make Model T Unfinished product moved by conveyor past work station Paid workers very well for 1911 ($5/day!) Henry Ford Make them all alike ! 1995 Corel Corp.

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W. Edwards Deming Born 1900; died 1993 Engineer & physicist Credited with teaching Japan quality control methods in post-WW2 Used statistics to analyze process His methods involve workers in decisions

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Contributions From Human factors Industrial engineering Management science Biological science Physical sciences Information science

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Significant Events in OM Division of labor (Smith, 1776) Standardized parts (Whitney, 1800) Scientific management (Taylor, 1881) Coordinated assembly line (Ford 1913) Gantt charts (Gantt, 1916) Motion study (the Gilbreths, 1922) Quality control (Shewhart, 1924) pp. 9

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Significant Events - Continued CPM/PERT (Dupont, 1957) MRP (Orlicky, 1960) CAD Flexible manufacturing systems (FMS) Manufacturing automation protocol (MAP) Computer integrated manufacturing (CIM)

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New Challenges in OM Local or national focus Batch shipments Low bid purchasing Lengthy product development Standard products Job specialization Global focus Just-in-time Supply chain partnering Rapid product development, alliances Mass customization Empowered employees, teams FromTo From To pp. 16

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Operations in the Service Sector

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Characteristics of Goods Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction 1995 Corel Corp.

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Characteristics of Service Intangible product Produced & consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed 1995 Corel Corp.

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Service Economies Proportion of Employment in the Service Sector

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Goods Versus Services Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service GoodsService Goods Service pp. 12

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Goods Versus Services - Continued Product is transportable Site of facility important for cost Often easy to automate Revenue generated primarily from tangible product Provider, not product is transportable Site of facility important for customer contact Often difficult to automate Revenue generated primarily from intangible service. GoodsService Goods Service pp. 12

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Goods Contain Services / Services Contain Goods 0 2550 75 100 2550 75 100 Automobile Computer Installed Carpeting Fast-food Meal Restaurant Meal Auto Repair Hospital Care Advertising Agency Investment Management Consulting Service Counseling Percent of Product that is a Good Percent of Product that is a Service pp. 13

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Organizations in Each Sector Table 1.4 Service SectorExample% of all Jobs Professional services, education, legal, medical New York City PS108, Notre Dame University, San Diego Zoo 24.3 Trade (retail, wholesale) Walgreens, Wal-Mart, Nordstroms20.6 Utilities, transportation Pacific Gas & Electric, American Airlines, Santa Fe R.R, Roadway Express 7.2 pp. 15

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Organizations in Each Sector Table 1.4 Service SectorExample% of all Jobs Business & Repair Services Snelling & Snelling, Waste Management, Pitney-Bowes 7.1 Finance, Insurance, Real Estate Citicorp, American Express, Prudential, Aetna, Trammel Crow 6.5 Food, Lodging, Entertainment McDonalds, Hard Rock Caf, Motel 6, Hilton Hotels, Walt Disney Paramount Pictures 5.2 Public AdministrationU.S., State of Alabama, Cook County 4.5

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Organizations in Each Sector Table 1.4 Manufacturing Sector Example% of all Jobs GeneralGeneral Electric, Ford, U.S. Steel, Intel 14.8 ConstructionBechtel, McDermott7.0 AgricultureKing Ranch2.4 MiningHomestake Mining0.4

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Organizations in Each Sector Table 1.4 Summary Sector% of all Jobs Service75.4% Manufacturing24.6%

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1850 75 1900 25 50 75 200040 50 60 70 1970 75 80 85 90 95 2000 Percent United States Canada France Italy Britain Japan W Germany 1970 2000 Services Industry Farming 250 200 150 100 50 0 80 %70 60 50 40 30 20 10 0 U.S. Employment, % ShareServices as a Percent of GDP U.S. Exports of Services In Billions of Dollars Year 2000 data is estimated Development of the Service Economy pp. 14

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Exciting New Challenges in Operations Management pp. 14-15

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Changing Challenges for the Operations Manager pp. 15

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Changing Challenges for the Operations Manager

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The Productivity Challenge

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The Economic System Transforms Inputs to Outputs The economic system transforms inputs to outputs at about an annual 2.5% increase in productivity (capital 38% of 2.5%), labor (10% of 2.5%), management (52% of 2.5%) Land, Labor, Capital, Management Goods and Services Feedback loop InputsProcessOutputs pp. 17

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Typical Impact of Quality Improvement ( ) Parts per man hour 95 100 105 110 115 Year AYear BYear C Cost per unit decreased $1.50 $1.75 $2.00 $2.25 Year AYear BYear C Average worker's annual cash compensation increased 24000 25000 26000 27000 Year AYear BYear C As productivity improved Costs were pared Wages increased

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Measure of process improvement Represents output relative to input Only through productivity increases can our standard of living improve Productivity ( ) ProductivityProductivity Units produced Input used == pp. 19

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Multi-Product Productivity Productivity = Output Labor + material + energy + capital + miscellaneous pp. 19

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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 pp. 20

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Productivity Variables Labor( ) - contributes about 10% of the annual increase Capital ( )- contributes about 32% of the annual increase Management ( )- contributes about 52% of the annual increase pp. 21

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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

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Jobs in the U.S

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Comparison of Productivity

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Investment and Productivity in Selected Nations

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Service Productivity Typically labor intensive Frequently individually processed Often an intellectual task performed by professionals Often difficult to mechanize Often difficult to evaluate for quality

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The Challenge of Social Responsibility Increasing emphasis on business and social responsibility