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© 2011 Pearson Education, Inc. publishing as Prentice Hall

11Operations and

ProductivityOperations and

Productivity

PowerPoint presentation to accompany Heizer and Render Operations Management, 10e Principles of Operations Management, 8e

PowerPoint slides by Jeff Heyl


Multi-Factor Productivity

OutputLabor + Material + Energy +

Capital + Miscellaneous

Productivity =

Also known as total factor productivity Output and inputs are often expressed in

dollars

Multiple resource inputs multi-factor productivity


Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day

Old System:

=Old labor

productivity8 titles/day32 labor-hrs




Old System:

8 titles/day32 labor-hrs=

Old labor productivity = .25 titles/labor-hr




Old System:

14 titles/day Overhead = $800/day

New System:


Old labor productivity

=New labor

productivity

= .25 titles/labor-hr

14 titles/day32 labor-hrs




Old System:


New System:


Old labor productivity = .25 titles/labor-hr


New labor productivity = .4375 titles/labor-hr




Old System:


New System:

=Old multifactor

productivity8 titles/day$640 + 400




Old System:


New System:

8 titles/day$640 + 400=

Old multifactor productivity = .0077 titles/dollar




Old System:


New System:

8 titles/day$640 + 400=

Old multifactor productivity

=New multifactor

productivity

= .0077 titles/dollar

14 titles/day$640 + 800




Old System:


New System:

8 titles/day$640 + 400

14 titles/day$640 + 800

=Old multifactor

productivity

=New multifactor

productivity




Measurement Problems1. 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


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


Investment and Productivity

10

8

6

4

2

0

Perc

ent i

ncre

ase

in p

rodu

ctivi

ty

Percentage investment

10 15 20 25 30 35


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 professionals4. Often difficult to mechanize5. Often difficult to evaluate for quality


Ethics andSocial Responsibility

Challenges facing operations managers:

Developing and producing safe, quality products

Maintaining a clean environment Providing a safe workplace Honoring stakeholder commitments

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 …

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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

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Operations Management is:

• A management function

• An organization’s core function

• In every organization whether Service or

Manufacturing, profit or Not for profit

Operations Management ConceptsOperations 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.

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What is Role of OM?

• OM Transforms inputs to outputs

– Inputs are resources such as

• People, Material, and Money

– Outputs are goods and services

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OM’s Transformation Process

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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

23

Goods & Services

• Services• Intangible product• Product cannot be

inventoried• High customer contact• Short response time• Labor intensive

• Manufacturing• Tangible product• Product can be

inventoried• Low customer contact• Longer response time• Capital intensive

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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

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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 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

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

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.

Business

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