Chapter 1, Heizer/Render, 5th edition

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Operations ManagementOperations and
Productivity Lecture 1 (Chapter 1)
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What Is Operations Management?

• Production is the creation of goods and services
• Operations Management - management of the set of
  activities that creates value in the form of
  goods and services by transforming inputs into
  outputs
• Applies to both manufacturing and service
  organizations

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Organizational Functions

• Marketing
• Gets customers

• Operations
• creates product or service

• Finance/Accounting
• Obtains funds
• Tracks money

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Functions - Bank
Commercial Bank
Finance/
Operations
Marketing
Accounting
Transactions
Check
Teller
Security
Clearing
Scheduling
Processing
5
Functions - Airlines
Airlines
Finance/
Operations
Marketing
Accounting
Facility
Ground
Flight
Catering
Support
Operations
Maintenance
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Functions - Manufacturing
Manufacturing
Finance/
Operations
Marketing
Accounting
Quality
Production
Manufacturing
Purchasing
Control
Control
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Why Study OM?

• OM is one of three major functions (marketing,
  finance, and operations) of any organization
• To know how goods and services are
  produced/delivered
• To understand what operations managers do
• OM is a costly part of an organization
• OM presents interesting career opportunities e.g.
  SCM, QA, Process Re-engineering, etc

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Options for Increasing Contribution
Back
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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. 4 Ch. 5, 5S Ch. 6, 6S Ch. 7 Ch. 8 Ch. 9,
9S Ch. 10,10s Ch. 11, 13, 15 Ch. 12, 14
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Ten Critical Decisions

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

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Ten 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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Ten 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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Ten 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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Ten 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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Changing Challenges for the Operations Manager
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Changing Challenges for the Operations Manager
Past


Causes


Future

Standardized
Affluence and worldwide

Mass
products
markets increasingly flexible
customization
production processes
Job
Changing socio-cultural scene.
Empow
ered
specialization
Increasingly a knowledge and
employees, teams,
information society.
Low cost

Environmental issues, ISO

Environmentally
focus
increasing disposal costs
sensitive
production, Green
manufacturing,



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Characteristics of Goods

• Tangible product
• Production usually separate from consumption
• Consistent product definition
• Low customer interaction
• Can be inventoried

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Characteristics of Service

• Intangible product (Intangibility)
• Produced consumed at same time (simultaneity)
• Inconsistent product definition (Heterogeneity)
• High customer interaction
• Often unique
• Often knowledge-based
• Frequently dispersed

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Goods Contain Services / Services Contain Goods
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
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Service/Product Bundle
Element Core Goods Example Core Service Example
Business Custom clothier Business hotel
Core Business suits Accommodation
Peripheral Goods Garment bag Bath robe
Peripheral Service Deferred payment plans In house restaurant
Variant Coffee lounge Airport shuttle
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The Service Package

• Supporting Facility The physical resources that
  must be in place before a service can be sold.
  Examples are golf course, hospital, hotel.
• Facilitating Goods The material consumed by the
  buyer or items provided by the consumer.
  Examples are food items, legal documents, golf
  clubs, medical history.
• Information Operations data or information to
  enable efficient and customized service.
  Examples are patient medical records, seats
  available on a flight, customer preferences,
  location of customer to dispatch a taxi.

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The Service Package (cont.)

• Explicit Services Benefits readily observable
  by the senses. The essential or intrinsic
  features. Examples are absence of illness after
  treatment, smoothly running vehicle after tune
  up, on-time departure.
• Implicit Services Psychological benefits or
  extrinsic features which the consumer may sense
  only vaguely. Examples are privacy of loan
  office, security of a well lighted parking lot,
  staff courtesy.

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Productivity

• Measure of process improvement
• Represents ratio of output to input
• Only through productivity increases can our
  standard of living improve

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Multi-Factor Productivity

• Productivity
• Output
• Labor material capital energy
  Misc

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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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Service Productivity

• Reasons for low productivity in services
• Frequently individually processed
• Often an intellectual task performed by
  professionals hence often difficult to mechanize
• Growth of low productivity activities e.g. food
  preparation, laundry, house cleaning

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Taco Bell - Improving Service Productivity

• Revision of menu to include meals that are easy
  to prepare
• Substantial portion of food preparation shifted
  to suppliers e.g. pre-cooking, predicing, etc
• Efficient design of layout and automation of
  operations
• Training and empowerment of management to
  increase competence reduce labor