Operations and Productivity

1. Operations and Productivity 1 PowerPoint presentation to accompany Heizer and Render Operations Management, 10e Principles of Operations Management, 8e PowerPoint slides by Jeff Heyl

2. Outline • What Is Operations Management? • Organizational Design • Decisions in OM • Significant Events in OM • Operations in the Service Sector • New Challenges in OM • The Productivity Challenge • Productivity Example • Ethics and Social Responsibility

3. What Is Operations Management? Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs Production is the creation of goods and services

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

5. 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 Organizational Charts Airline Figure 1.1(B)

6. Operations FacilitiesConstruction; maintenance Production and inventory controlScheduling; materials control Quality assurance and control Supply-chain management ManufacturingTooling; 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 issue and recall Marketing Sales promotion Advertising Sales Market research Organizational Charts Manufacturing Figure 1.1(C)

7. The Critical Decisions(1 of 2) • Design of goods and services • Managing quality • Process and capacity design • Location strategy • Layout strategy Table 1.2 (cont.)

8. The Critical Decisions(2 of 2) • Human resources and job design • Supply-chain management • Inventory, MRP, and JIT • Intermediate & short–term scheduling • Maintenance

9. Significant Events in OM Figure 1.3

10. How Important is Manufacturing? In 1978 the United States produced 22% of the worlds manufactured goods. • What percent does the United States produce today? 21% The US is still the largest manufacturer in the world. Although China is growing quickly.

11. How Important is Manufacturing

12. How Important is Manufacturing

13. How Important is Manufacturing

14. Goods versus Services goods services McDonald’s (facilitating goods) • Pencil Manufacturer • tangible • storable* • easy quality assessment • centralized production • long lead times • capital intensive • low customer contact • production separate • from consumption • Psychologist • intangible • perishable* • difficult quality assessment • dispersed production • short lead times • labor intensity • high customer contact • production concurrent • with consumption

15. 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 and Services

16. From To • 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 New Challenges in OM

17. 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

18. Transformation Outputs Inputs The U.S. economic system transforms inputs to outputs at about an annual 2.5% increase in productivity per year. Goods andservices Labor,capital,management Feedback loop The Economic System Figure 1.6

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

20. Units produced Labor-hours used Productivity = 1,000 250 = = 4units/labor-hour Productivity Calculations Labor Productivity One resource input  single-factor productivity

21. Output Labor + Material + Energy + Capital + Miscellaneous Productivity = Multi-Factor Productivity • Also known as total factor productivity • Output and inputs are often expressed in dollars Multiple resource inputs  multi-factor productivity

22. Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old labor productivity = 8 titles/day 32 labor-hrs Collins Title Productivity

23. Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old labor productivity = = .25 titles/labor-hr 8 titles/day 32 labor-hrs Collins Title Productivity

24. Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day New System: 14 titles/day Overhead = $800/day Old labor productivity = 8 titles/day 32 labor-hrs 14 titles/day 32 labor-hrs New labor productivity = Collins Title Productivity = .25 titles/labor-hr

25. Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day New System: 14 titles/day Overhead = $800/day Old labor productivity = = .25 titles/labor-hr 8 titles/day 32 labor-hrs 14 titles/day 32 labor-hrs New labor productivity = = .4375 titles/labor-hr Collins Title Productivity

26. Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day New System: 14 titles/day Overhead = $800/day 8 titles/day $640 + 400 Old multifactor productivity = Collins Title Productivity

27. Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day New System: 14 titles/day Overhead = $800/day 8 titles/day $640 + 400 Old multifactor productivity = = .0077 titles/dollar Collins Title Productivity

28. Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day New System: 14 titles/day Overhead = $800/day 8 titles/day $640 + 400 Old multifactor productivity = 14 titles/day $640 + 800 New multifactor productivity = Collins Title Productivity = .0077 titles/dollar

29. Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day New System: 14 titles/day Overhead = $800/day 8 titles/day $640 + 400 Old multifactor productivity = 14 titles/day $640 + 800 New multifactor productivity = Collins Title Productivity = .0077 titles/dollar = .0097 titles/dollar

30. Challenges facing operations managers: Ethics andSocial Responsibility • Developing and producing safe, quality products • Maintaining a clean environment • Providing a safe workplace • Honoring stakeholder commitments

31. In-Class Problems from the Lecture Guide Practice Problems Problem 3: Joanna French is currently working a total of 12 hours per day to produce 240 dolls. She thinks that by changing the paint used for the facial features and fingernails that she can increase her rate to 360 dolls per day. Total material cost for each doll is approximately $3.50; she has to invest $20 in the necessary supplies (expendables) per day; energy costs are assumed to be only $4.00 per day; and she thinks she should be making $10 per hour for her time. Viewing this from a total (multifactor) productivity perspective, what is her productivity at present and with the new paint?

32. In-Class Problems from the Lecture Guide Practice Problems Problem 4: How would total (multifactor) productivity change if using the new paint raised Ms. French’s material costs by $0.50 per doll?