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Operations Management Session 1 –  Operations and Productivity
Learning Objectives When you complete this chapter you should be able to: ,[object Object],[object Object],[object Object]
Learning Objectives When you complete this chapter you should be able to: ,[object Object],[object Object],[object Object]
What Is Operations Management? Production  is the creation of goods and services Operations management (OM)  is the set of activities that creates value in the form of goods and services by transforming inputs into outputs
Organizing to Produce Goods and Services ,[object Object],[object Object],[object Object],[object Object]
Why Study OM? ,[object Object],[object Object],[object Object],[object Object]
What Operations  Managers Do ,[object Object],[object Object],[object Object],[object Object],[object Object],Basic Management Functions
The Critical Decisions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Table 1.2 (cont.)
The Critical Decisions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Table 1.2 (cont.)
The Critical Decisions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Table 1.2 (cont.)
The Critical Decisions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Table 1.2 (cont.)
The Critical Decisions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Table 1.2 (cont.)
Where are the OM Jobs? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The Heritage of OM ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The Heritage of OM ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Taylor’s Principles ,[object Object],[object Object],[object Object],[object Object],Management Should Take More Responsibility for:
Henry Ford ,[object Object],[object Object],[object Object],[object Object],[object Object]
W. Edwards Deming ,[object Object],[object Object],[object Object],[object Object],[object Object]
Contributions From ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
New Challenges in OM ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],To From ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Characteristics of Goods ,[object Object],[object Object],[object Object],[object Object],[object Object]
Characteristics of Service ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Industry and Services as Percentage of GDP Services Manufacturing Australia Canada China Czech Rep France Germany Hong Kong Japan Mexico Russian Fed South Africa Spain UK US 90  − 80  − 70  − 60  − 50  − 40  − 30  − 20  − 10  − 0  −
Goods Versus Services Table 1.3 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 Attributes of Goods (Tangible Product) Attributes of Services  (Intangible Product) Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service  Provider, not product, is often transportable Site of facility important for customer contact Often difficult to automate Revenue generated primarily  from the intangible service
Goods and Services Figure 1.4 Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management Consulting service/ teaching Counseling Percent of Product that is a Good Percent of Product that is a Service 100% 75 50 25 0 25 50 75 100% | | | | | | | | |
Manufacturing and Service Employment Figure 1.5 (A) 120   – 100  – 80  – 60  – 40  – 20  – 0  – | | | | | | | 1950 1970 1990 2010 (est) 1960 1980 2000 Employment (millions) Manufacturing Service
Manufacturing Employment and Production Figure 1.5 (B) 40  – 30  – 20  – 10  – 0  – | | | | | | | 1950 1970 1990 2010 (est) 1960 1980 2000 –  150 –   125 –   100 –   75 –   50 –   25 –   0 Employment (millions) Index: 1997 = 100 Manufacturing employment (left scale) Industrial production (right scale)
Organizations in Each Sector Table 1.4 Manufacturing Sector Example % of all Jobs Manufacturing General Electric, Ford, U.S. Steel, Intel 11.5 Construction Bechtel, McDermott 7.9 Agriculture King Ranch 1.6 Mining Homestake Mining 0.4 Sector Percent of all jobs Service 78.6% Manufacturing 21.4%
New Trends in OM Figure 1.6 Local or national focus Reliable worldwide communication and transportation networks Global focus, moving production offshore Batch (large) shipments Short product life cycles and cost of capital put pressure on reducing inventory Just-in-time performance Low-bid purchasing Supply chain competition requires that suppliers be engaged in a focus on the end customer Supply chain partners, collaboration, alliances, outsourcing Past Causes Future
New Trends in OM Figure 1.6 Lengthy product development Shorter life cycles, Internet, rapid international communication, computer-aided design, and international collaboration Rapid product development, alliances, collaborative designs Standardized products Affluence and worldwide markets; increasingly flexible production processes Mass customization with added emphasis on quality Job specialization Changing socioculture milieu; increasingly a knowledge and information society Empowered employees, teams, and lean production Past Causes Future
New Trends in OM Figure 1.6 Low-cost focus Environmental issues, ISO 14000, increasing disposal costs Environmentally sensitive production, green manufacturing, recycled materials, remanufacturing Ethics not at forefront Businesses operate more openly; public and global review of ethics; opposition to child labor, bribery, pollution High ethical standards and social responsibility expected Past Causes Future
New Trends in OM ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
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
The Economic System Figure 1.7 Feedback   loop Outputs Goods and services Processes 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%). Inputs Labor, capital, management
Improving Productivity at Starbucks A team of 10 analysts continually look for ways to shave time. Some improvements: Stop requiring signatures on credit card purchases under $25 Saved 8 seconds per transaction Change the size of the ice scoop Saved 14 seconds per drink New espresso machines Saved 12 seconds per shot
Improving Productivity at Starbucks A team of 10 analysts continually look for ways to shave time. Some improvements: Stop requiring signatures on credit card purchases under $25 Saved 8 seconds per transaction Change the size of the ice scoop Saved 14 seconds per drink New espresso machines Saved 12 seconds per shot Operations improvements have helped Starbucks increase yearly revenue per outlet by $200,000 to $940,000 in six years. Productivity has improved by 27%, or about 4.5% per year.
Productivity ,[object Object],[object Object],[object Object],Productivity = Units produced Input used
Productivity Calculations Labor Productivity One resource input    single-factor productivity Productivity = Units produced Labor-hours used =  = 4 units/labor-hour 1,000 250
Multi-Factor Productivity  ,[object Object],[object Object],Multiple resource inputs    multi-factor productivity Output Labor + Material + Energy + Capital + Miscellaneous Productivity =
Measurement Problems ,[object Object],[object Object],[object Object]
Productivity Variables ,[object Object],[object Object],[object Object]
Key Variables for Improved Labor Productivity ,[object Object],[object Object],[object Object],[object Object]
Labor Skills About half of the 17-year-olds in the US cannot correctly answer questions of this type Figure 1.8
Investment and Productivity  10 8 6 4 2 0 Percent increase in productivity Percentage investment 10 15 20 25 30 35
Service Productivity ,[object Object],[object Object],[object Object],[object Object],[object Object]
Productivity at Taco Bell Improvements: ,[object Object],[object Object],[object Object],[object Object],[object Object]
Productivity at Taco Bell Improvements: ,[object Object],[object Object],[object Object],[object Object],[object Object],Results: ,[object Object],[object Object],[object Object],[object Object],[object Object]
Ethics and Social Responsibility Challenges facing operations managers: ,[object Object],[object Object],[object Object],[object Object]

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Session 1

  • 1. Operations Management Session 1 – Operations and Productivity
  • 2.
  • 3.
  • 4. What Is Operations Management? Production is the creation of goods and services Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs
  • 5.
  • 6.
  • 7.
  • 8.
  • 9.
  • 10.
  • 11.
  • 12.
  • 13.
  • 14.
  • 15.
  • 16.
  • 17.
  • 18.
  • 19.
  • 20.
  • 21.
  • 22.
  • 23. Industry and Services as Percentage of GDP Services Manufacturing Australia Canada China Czech Rep France Germany Hong Kong Japan Mexico Russian Fed South Africa Spain UK US 90 − 80 − 70 − 60 − 50 − 40 − 30 − 20 − 10 − 0 −
  • 24. Goods Versus Services Table 1.3 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 Attributes of Goods (Tangible Product) Attributes of Services (Intangible Product) Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service Provider, not product, is often transportable Site of facility important for customer contact Often difficult to automate Revenue generated primarily from the intangible service
  • 25. Goods and Services Figure 1.4 Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management Consulting service/ teaching Counseling Percent of Product that is a Good Percent of Product that is a Service 100% 75 50 25 0 25 50 75 100% | | | | | | | | |
  • 26. Manufacturing and Service Employment Figure 1.5 (A) 120 – 100 – 80 – 60 – 40 – 20 – 0 – | | | | | | | 1950 1970 1990 2010 (est) 1960 1980 2000 Employment (millions) Manufacturing Service
  • 27. Manufacturing Employment and Production Figure 1.5 (B) 40 – 30 – 20 – 10 – 0 – | | | | | | | 1950 1970 1990 2010 (est) 1960 1980 2000 – 150 – 125 – 100 – 75 – 50 – 25 – 0 Employment (millions) Index: 1997 = 100 Manufacturing employment (left scale) Industrial production (right scale)
  • 28. Organizations in Each Sector Table 1.4 Manufacturing Sector Example % of all Jobs Manufacturing General Electric, Ford, U.S. Steel, Intel 11.5 Construction Bechtel, McDermott 7.9 Agriculture King Ranch 1.6 Mining Homestake Mining 0.4 Sector Percent of all jobs Service 78.6% Manufacturing 21.4%
  • 29. New Trends in OM Figure 1.6 Local or national focus Reliable worldwide communication and transportation networks Global focus, moving production offshore Batch (large) shipments Short product life cycles and cost of capital put pressure on reducing inventory Just-in-time performance Low-bid purchasing Supply chain competition requires that suppliers be engaged in a focus on the end customer Supply chain partners, collaboration, alliances, outsourcing Past Causes Future
  • 30. New Trends in OM Figure 1.6 Lengthy product development Shorter life cycles, Internet, rapid international communication, computer-aided design, and international collaboration Rapid product development, alliances, collaborative designs Standardized products Affluence and worldwide markets; increasingly flexible production processes Mass customization with added emphasis on quality Job specialization Changing socioculture milieu; increasingly a knowledge and information society Empowered employees, teams, and lean production Past Causes Future
  • 31. New Trends in OM Figure 1.6 Low-cost focus Environmental issues, ISO 14000, increasing disposal costs Environmentally sensitive production, green manufacturing, recycled materials, remanufacturing Ethics not at forefront Businesses operate more openly; public and global review of ethics; opposition to child labor, bribery, pollution High ethical standards and social responsibility expected Past Causes Future
  • 32.
  • 33. 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
  • 34. The Economic System Figure 1.7 Feedback loop Outputs Goods and services Processes 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%). Inputs Labor, capital, management
  • 35. Improving Productivity at Starbucks A team of 10 analysts continually look for ways to shave time. Some improvements: Stop requiring signatures on credit card purchases under $25 Saved 8 seconds per transaction Change the size of the ice scoop Saved 14 seconds per drink New espresso machines Saved 12 seconds per shot
  • 36. Improving Productivity at Starbucks A team of 10 analysts continually look for ways to shave time. Some improvements: Stop requiring signatures on credit card purchases under $25 Saved 8 seconds per transaction Change the size of the ice scoop Saved 14 seconds per drink New espresso machines Saved 12 seconds per shot Operations improvements have helped Starbucks increase yearly revenue per outlet by $200,000 to $940,000 in six years. Productivity has improved by 27%, or about 4.5% per year.
  • 37.
  • 38. Productivity Calculations Labor Productivity One resource input  single-factor productivity Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000 250
  • 39.
  • 40.
  • 41.
  • 42.
  • 43. Labor Skills About half of the 17-year-olds in the US cannot correctly answer questions of this type Figure 1.8
  • 44. Investment and Productivity 10 8 6 4 2 0 Percent increase in productivity Percentage investment 10 15 20 25 30 35
  • 45.
  • 46.
  • 47.
  • 48.