Operations Management

1. Operations Management Chapter 1 – Operations and Productivity PowerPoint presentation to accompany Heizer/Render Principles of Operations Management, 6e Operations Management, 8e © 2006 Prentice Hall, Inc.

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

3. 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

4. Critical Decisions Made by Operations Managers • Service and product design • Quality management • Process and capacity design • Location • Layout design • Human resources and job design • Supply-chain management • Inventory planning, and JIT Table 1.2 (cont.)

5. Where are the OM Jobs? Figure 1.2

6. Characteristics of Goods • Tangible product • Consistent product definition • Production usually separate from consumption • Can be inventoried • Low customer interaction

7. Characteristics of Service • Intangible product • Produced and consumed at same time • Often unique • High customer interaction • Inconsistent product definition • Often knowledge-based • Frequently dispersed

8. Attributes of Goods (Tangible Product) Attributes of Services (Intangible Product) Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production Product is transportable Site of facility important for cost Often easy to automate Revenue generated primarily from tangible product Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service Provider, not product, isoften transportable Site of facility important forcustomer contact Often difficult to automate Revenue generated primarily from the intangible service Goods Versus Services Table 1.3

9. 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 Figure 1.4

10. Organizations in Each Sector Table 1.4

11. Organizations in Each Sector Table 1.4

12. Organizations in Each Sector Table 1.4

13. Organizations in Each Sector Table 1.4

14. 120– 100 – 80 – 60 – 40 – 20 – 0 – Service Employment (millions) Manufacturing | | | | | | | 1950 1970 1990 2010 (est) 1960 1980 2000 Manufacturing and Service Employment Figure 1.5 (A)

15. United States Canada France Italy Britain Japan W. Germany | | | | | 40 50 60 70 80 1970 2008 (est) Percent Development of the Service Economy Figure 1.5 (C)

16. 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 this measure of efficiency Important Note! Production is a measure of output only and not a measure of efficiency

17. Processes Outputs Inputs 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%). Goods andservices Labor,capital,management Feedbackloop The Economic System Figure 1.7

18. 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

19. Units produced Labor-hours used Productivity = 1,000 250 = = 4 units/labor-hour Productivity Calculations Labor Productivity

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

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

22. Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Old labor productivity = = .25 titles/labor-hr 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 New System: 14 titles/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

24. Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day New System: 14 titles/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

25. Collins Title Productivity Change in Productivity: New – Old Old Old Productivity = .25 titles/labor-hr New Productivity = .4375 titles/labor-hr .4375 - .2500 = .75 or 75% change .2500