1. 1
Operations and
Productivity
PowerPoint presentation to accompany
Heizer and Render
Operations Management, 10e
Principles of Operations Management, 8e
PowerPoint slides by Jeff Heyl
© 2011 Pearson Education, Inc.
publishing as Prentice Hall

2. Multi-Factor Productivity
Productivity =
Output
Labor + Material + Energy +
Capital + Miscellaneous
 Also known as total factor productivity
 Output and inputs are often expressed in
dollars
Multiple resource inputs  multi-factor productivity
© 2011 Pearson Education, Inc.
publishing as Prentice Hall

3. Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
Old labor
productivity
© 2011 Pearson Education, Inc.
publishing as Prentice Hall
=
8 titles/day
Overhead = $400/day
8 titles/day
32 labor-hrs

4. Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
Old labor
productivity
© 2011 Pearson Education, Inc.
publishing as Prentice Hall
=
8 titles/day
Overhead = $400/day
8 titles/day
32 labor-hrs
= .25 titles/labor-hr

5. Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
8 titles/day
Overhead = $400/day
New System:
14 titles/day
Overhead = $800/day
Old labor
productivity
New labor
productivity
© 2011 Pearson Education, Inc.
publishing as Prentice Hall
=
=
8 titles/day
32 labor-hrs
14 titles/day
32 labor-hrs
= .25 titles/labor-hr

6. Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
8 titles/day
Overhead = $400/day
New System:
14 titles/day
Overhead = $800/day
Old labor
productivity
New labor
productivity
© 2011 Pearson Education, Inc.
publishing as Prentice Hall
=
=
8 titles/day
32 labor-hrs
14 titles/day
32 labor-hrs
= .25 titles/labor-hr
= .4375 titles/labor-hr

7. Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
8 titles/day
Overhead = $400/day
New System:
14 titles/day
Old multifactor
productivity
© 2011 Pearson Education, Inc.
publishing as Prentice Hall
Overhead = $800/day
=
8 titles/day
$640 + 400

8. Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
8 titles/day
Overhead = $400/day
New System:
14 titles/day
Old multifactor
productivity
© 2011 Pearson Education, Inc.
publishing as Prentice Hall
Overhead = $800/day
=
8 titles/day
$640 + 400
= .0077 titles/dollar

9. Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
8 titles/day
Overhead = $400/day
New System:
14 titles/day
Old multifactor
productivity
New multifactor
productivity
© 2011 Pearson Education, Inc.
publishing as Prentice Hall
Overhead = $800/day
=
8 titles/day
$640 + 400
=
14 titles/day
$640 + 800
= .0077 titles/dollar

10. Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
8 titles/day
Overhead = $400/day
New System:
14 titles/day
Old multifactor
productivity
New multifactor
productivity
© 2011 Pearson Education, Inc.
publishing as Prentice Hall
Overhead = $800/day
=
8 titles/day
$640 + 400
= .0077 titles/dollar
=
14 titles/day
$640 + 800
= .0097 titles/dollar

11. Measurement Problems
1. Quality may change while the quantity of
inputs and outputs remains constant
(HDTV, iphones)
2. External elements may cause an increase or
decrease in productivity (using more reliable
electric power system)
3. Precise units of measure may be lacking
© 2011 Pearson Education, Inc.
publishing as Prentice Hall

12. Productivity Variables
1. Labor - contributes about
10% of the annual
increase
2. Capital - contributes
about 38% of the annual
increase
3. Management contributes about 52% of
the annual increase
© 2011 Pearson Education, Inc.
publishing as Prentice Hall

13. Investment and Productivity
Percent increase in productivity
10
8
6
4
2
0
10
15
20
25
Percentage investment
© 2011 Pearson Education, Inc.
publishing as Prentice Hall
30
35

14. Service Productivity
1.
Typically labor intensive (teaching, counseling)
2.
Frequently focused on unique individual desires (customer
representatives in banks)
3.
Often an intellectual task performed by professionals
4.
Often difficult to mechanize
5.
Often difficult to evaluate for quality
© 2011 Pearson Education, Inc.
publishing as Prentice Hall

15. Ethics and
Social Responsibility
Challenges facing
operations managers:
 Developing and producing safe, quality
products
 Maintaining a clean environment
 Providing a safe workplace
 Honoring stakeholder commitments
© 2011 Pearson Education, Inc.
publishing as Prentice Hall

16. Entry-Level Jobs in OM
– Purchasing planner/buyer
– Production (or operations) supervisor
– Production (or operations) scheduler/controller
– Production (or operations) analyst
– Inventory analyst
– Quality specialist
– Others …

17. Let’s Review: Operations Management is:
The business function responsible for
planning, coordinating, and controlling the
resources needed to produce products and
services for a company
© Wiley 2010
17

18. Operations Management is:
• A management function
• An organization’s core function
• In every organization whether Service or
Manufacturing, profit or Not for profit
© Wiley 2010
18

19. Operations Management Concepts
– Quality: goods and services that are reliable and
perform correctly.
• Quality allows customers to receive the performance that
they expect.
– Efficiency: the amount of input to produce a given
output.
• Less input required lowers cost and waste.
– Responsiveness to customers: actions taken to
respond to customer needs.
• Firm can react quickly and correctly to customer needs as
they arise.

20. What is Role of OM?
• OM Transforms inputs to outputs
– Inputs are resources such as
• People, Material, and Money
– Outputs are goods and services
© Wiley 2010
20

21. OM’s Transformation Process
© Wiley 2010
21

22. OM’s Transformation Role
• To add value
– Increase product value at each stage
– Value added is the net increase between output product value and
input material value
• Provide an efficient transformation
– Efficiency – means performing activities well for least possible cost
© Wiley 2010
22

23. Goods & Services
• Manufacturing
• Services
• Tangible product
• Product can be
inventoried
• Low customer contact
• Longer response time
• Capital intensive
• Intangible product
• Product cannot be
inventoried
• High customer contact
• Short response time
• Labor intensive
© Wiley 2010
23

24. On the other hand…
•
•
•
•
•
Both use technology
Both have quality, productivity, & response issues
Both must forecast demand
Both will have capacity, layout, and location issues
Both have customers, suppliers, scheduling and staffing
issues
• Manufacturing often provides services
• Services often provides tangible goods
© Wiley 2010
24

25. Today’s OM Environment
• Customers demand better quality, greater speed, and
lower costs
• Companies implementing lean system concepts – a
total systems approach to efficient operations
• Recognized need to better manage information using
ERP and CRM systems
• Increased cross-functional decision making
© Wiley 2010
25

26. OM in Practice
• OM has the most diverse organizational function
• Manages the transformation process
• OM has many faces and names such as;
– V. P. operations, Director of supply chains, Manufacturing
manager
– Plant manger, Quality specialists, etc.
• All business functions need information from OM in
order to perform their tasks
© Wiley 2010
26

27. Self-check
• Define and explain OM
• Explain the role of OM in business
• Describe the decisions that operations
managers make
• Describe the differences between service and
manufacturing operations
• Identify current trends in OM

28. IKEA Case
•
•
Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver
a unique mix of value. IKEA, the Swedish retailer of home products, dominates markets in 43 countries, and is
poised to conquer North America.
Above all else, one factor accounts for IKEA's success: good quality at a low price. IKEA sells household items that
are cheap but not cheapo, with prices that typically run 30 to 50 percent below those of the competition. While
the price of other companies' products tends to rise over time, IKEA says it has reduced its retail prices by a total
of about 20 percent during the last four years. At IKEA the process of driving down costs starts the moment a new
item is conceived and continues relentlessly throughout the life of the product.
•
•
•
•
Global
IKEA has always had a 50-cent coffee mug. Prior to the new TROFé mug, the company offered the “Bang”
mug, which had been redesigned three times, in ways to maximize the number of mugs that could be stored on a
pallet. Originally, only 864 mugs would fit. A redesign added a rim such as you would find on a flowerpot so that
each pallet could hold 1,280 mugs. Another redesign created a shorter mug with a new handle, allowing 2,024 to
squeeze onto a pallet. These changes reduced shipping costs by 60 percent.
The latest version of the 50-cent coffee mug has been made even more useful with a simple notch on the bottom
that prevents water from pooling up around the base during a dishwasher run. Further refinements have
optimized the speed at which the cup can pass through the machines forming the cups and enable IKEA to fit the
maximum number into kilns, saving on the expensive firing process. Simple changes in the shape of the mug have
reduced the cost to produce the mug significantly while creating more value for customers purchasing this simple
50-cent coffee mug.
This is the essence of operations management: creating great value to the customer while reducing the cost of
delivering the good or service.