Chapter 01 Operations and Productivity

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Operations Management
Chapter 1 Operations and Productivity
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Outline

• Global Company Profile Hard Rock Cafe

• What is Operations Management?
• Organizing to Produce Goods and Services
• Why Study OM?
• What Operations Managers Do
• How Our Course is Organized

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Outline - Continued

• The Heritage of OM
• Operations in the Service Sector
• Differences between Goods and Services
• Growth of Services
• Service Pay
• New Trends in OM

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Outline - Continued

• The Productivity Challenge
• Productivity Measurement
• Productivity Variables
• Productivity and the Service Sector
• Ethics and Social Responsibility

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Learning Objectives

• Operations Management (OM)
• Production and Productivity
• Career opportunities in OM
• History of OM
• New trend of OM
• Services and Product
• Measuring productivity

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The Hard Rock Café - Video

• 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 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

Management consists of planning, organizing,
staffing, leading, and controlling.
Operations Management (OM) 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

• Essential functions
• Marketing generates demand
• Production/operations creates the product
• Finance/accounting tracks how well the
  organization is doing, pays bills, collects the
  money

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10 Critical Decisions
10 OM Decision Chapters

• Service and product design 5
• Quality management and control 6, 6s
• Process and capacity design 7, 7s
• Location 8
• Layout design 9
• Human resources, job design 10, 10s
• Supply-chain management 11, 11s
• Inventory management 12, 14, 16
• Scheduling 13, 15
• Maintenance 17

Table 1.2
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Contributions From

• Human Factors
• Industrial Engineering
• Management Science
• Operations Research
• Biological Science
• Physical Sciences
• Information Science

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Organizational Charts
Commercial Bank
Figure 1.1(A)
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Organizational Charts
Airline
Figure 1.1(B)
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Organizational Charts
Manufacturing
Figure 1.1(C)
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Why Study OM?

• OM is one of three major functions of any
  organization
• To know how goods and services are produced, how
  to improve its efficiency and effectiveness
• To understand the role operations managers in an
  organization, and develop such skills
• To improve profitability on OM as a costly part

OM is demanding, exciting, and challenging
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Options for Increasing Contribution

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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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Where are the OM Jobs?
Figure 1.2
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Significant Events in OM
Figure 1.3
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The Heritage of OM

• Division of labor (Adam Smith 1776 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)

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The Heritage of OM

• Computer (Atanasoff 1938)
• CPM/PERT (DuPont 1957)
• Material requirements planning (MRP Orlicky 1960)
• Computer aided design (CAD 1970)
• Flexible manufacturing system (FMS 1975)
• Baldrige Quality Awards (1980)
• Computer integrated manufacturing (CIM 1990)
• Globalization (1992)
• Internet (1995)

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New Trends in OM
Global focus
Low-cost, reliable worldwide communication and
transportation networks
Local or national focus
Just-in-time shipments
Short product life cycles and cost of capital put
pressure on reducing inventory
Batch (large) shipments
Supply-chain partners, Enterprise Resource
Planning, e-commerce
Quality emphasis requires that suppliers be
engaged in product improvement
Low-bid purchasing
Figure 1.6
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New Trends in OM
Rapid product development, alliances,
collaborative designs
Shorter life cycles, Internet, rapid
international communication, computer-aided
design, and international collaboration
Lengthy product development
Mass customization with added emphasis on quality
Affluence and worldwide markets increasingly
flexible production processes
Standardized products
Empowered employees, teams, and lean production
Changing socioculture milieu increasingly a
knowledge and information society
Job specialization
Figure 1.6
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New Trends in OM
Past Causes Future
Environmentally sensitive production, green
manufacturing, recycled materials, remanufacturing
Environmental issues, ISO 14000, increasing
disposal costs
Low-cost focus
Figure 1.6
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Service Sector
Services Those economics activities that
typically produce an intangible product (such as
education, entertainment, lodging, government,
financial and health services)
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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

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Goods Versus Services
Table 1.3
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Goods and Services
Figure 1.4
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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
Production is a measure of output only and not a
measure of efficiency
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The Economic System
Figure 1.7
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Productivity

• Measure of process improvement
• Only through productivity increases can our
  standard of living improve

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Single-Factor Productivity
Labor Productivity
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Multi-Factor Productivity
Output Labor Material Energy Capital Misc
Productivity

• Also known as total factor productivity
• Inputs are often expressed in dollars

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Collins Title Productivity
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Collins Title Productivity
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Collins Title Productivity
.25 titles/labor-hr
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Collins Title Productivity
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Collins Title Productivity
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Collins Title Productivity
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Collins Title Productivity
.0077 titles/dollar
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Collins Title Productivity
.0077 titles/dollar
.0097 titles/dollar
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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.

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Ethics and Social Responsibility
Challenges facing operations managers

• Developing safe quality products
• Maintaining a clean environment
• Providing a safe workplace
• Honoring community commitments