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1 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall
11 Operations and Productivity
Operations and Productivity
PowerPoint presentation to accompany PowerPoint presentation to accompany Heizer and Render Heizer and Render Operations Management, 10e Operations Management, 10e Principles of Operations Management, 8ePrinciples of Operations Management, 8e
PowerPoint slides by Jeff Heyl
1 - 2© 2011 Pearson Education, Inc. publishing as Prentice Hall
The Hard Rock CafeThe Hard Rock Cafe
First opened in 1971 Now – 129 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
1 - 3© 2011 Pearson Education, Inc. publishing as Prentice Hall
What Is Operations What Is Operations Management?Management?
ProductionProduction is the creation of goods and services
Operations management (OM)Operations management (OM) is the set of activities that create value in the form of
goods and services by transforming inputs into
outputs
1 - 4© 2011 Pearson Education, Inc. publishing as Prentice Hall
Organizing to Produce Organizing to Produce Goods and ServicesGoods and Services
Essential functions:
1.1. MarketingMarketing – generates demand
2.2. Production/operationsProduction/operations – creates the product
3.3. Finance/accountingFinance/accounting – tracks how well the organization is doing, pays bills, collects the money
1 - 5© 2011 Pearson Education, Inc. publishing as Prentice Hall
Organizational ChartsOrganizational Charts
OperationsGround support equipmentMaintenanceGround Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications DispatchingManagement science
Finance/ accountingAccounting Payables Receivables General LedgerFinance Cash control International exchange
Airline
Figure 1.1(B)
MarketingTraffic administration Reservations Schedules Tariffs (pricing)SalesAdvertising
1 - 6© 2011 Pearson Education, Inc. publishing as Prentice Hall
MarketingSales promotionAdvertisingSalesMarket research
Organizational ChartsOrganizational Charts
OperationsFacilities Construction; maintenance
Production and inventory control Scheduling; materials control
Quality assurance and controlSupply-chain managementManufacturing Tooling; fabrication; assembly
Design Product development and design Detailed product specifications
Industrial engineering Efficient use of machines, space, and personnel
Process analysis Development and installation of production tools and equipment
Finance/ accountingDisbursements/ credits Receivables Payables General ledgerFunds Management Money market International exchangeCapital requirements Stock issue Bond issue and recall
Manufacturing
Figure 1.1(C)
1 - 7© 2011 Pearson Education, Inc. publishing as Prentice Hall
Why Study OM?Why Study OM?1. OM is one of three major functions of
any organization, we want to study how people organize themselves for productive enterprise
2. We want (and need) to know how goods and services are produced
3. We want to understand what operations managers do
4. OM is such a costly part of an organization
1 - 8© 2011 Pearson Education, Inc. publishing as Prentice Hall
Options for Increasing Options for Increasing ContributionContribution
Table 1.1
Sales $100,000 $150,000 $100,000 $100,000Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000Gross Margin 20,000 30,000 20,000 36,000Finance Costs – 6,000 – 6,000 – 3,000 – 6,000Subtotal 14,000 24,000 17,000 30,000Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500
Finance/Marketing Accounting OM
Option Option Option
Increase Reduce ReduceSales Finance Production
Current Revenue 50% Costs 50% Costs 20%
1 - 9© 2011 Pearson Education, Inc. publishing as Prentice Hall
Ten Critical DecisionsTen Critical DecisionsTen Decision Areas Chapter(s)
1. Design of goods and services 52. Managing quality 6, Supplement 63. Process and capacity 7, Supplement 7
design 4. Location strategy 85. Layout strategy 96. Human resources and 10
job design 7. Supply-chain 11, Supplement 11
management8. Inventory, MRP, JIT 12, 14, 169. Scheduling 13, 1510. Maintenance 17 Table 1.2
1 - 10© 2011 Pearson Education, Inc. publishing as Prentice Hall
Where are the OM Jobs?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
1 - 11© 2011 Pearson Education, Inc. publishing as Prentice Hall
OpportunitiesOpportunities
Figure 1.2
1 - 12© 2011 Pearson Education, Inc. publishing as Prentice Hall
CertificationsCertifications APICS, the American Production and
Inventory Control Society
American Society of Quality (ASQ)
Institute for Supply Management (ISM)
Project Management Institute (PMI)
Council of Supply Chain Management Professionals
Charter Institute of Purchasing and Supply (CIPS)
1 - 13© 2011 Pearson Education, Inc. publishing as Prentice Hall
Significant Events in OMSignificant Events in OM
Figure 1.3
1 - 14© 2011 Pearson Education, Inc. publishing as Prentice Hall
The Heritage of OMThe 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 1913)
Gantt charts (Gantt 1916)
Motion study (Frank and Lillian Gilbreth 1922)
Quality control (Shewhart 1924; Deming 1950)
1 - 15© 2011 Pearson Education, Inc. publishing as Prentice Hall
The Heritage of OMThe Heritage of OM Computer (Atanasoff 1938)
CPM/PERT (DuPont 1957, Navy 1958)
Material requirements planning (Orlicky 1960)
Computer aided design (CAD 1970)
Flexible manufacturing system (FMS 1975)
Baldrige Quality Awards (1980)
Computer integrated manufacturing (1990)
Globalization (1992)
Internet (1995)
1 - 16© 2011 Pearson Education, Inc. publishing as Prentice Hall
Born 1863; died 1947
In 1903, created Ford Motor Company
In 1913, first used moving assembly line to make Model TUnfinished product moved by
conveyor past work station
Paid workers very well for 1911 ($5/day!)
Henry FordHenry Ford
1 - 17© 2011 Pearson Education, Inc. publishing as Prentice Hall
W. Edwards DemingW. Edwards Deming
Born 1900; died 1993
Engineer and physicist
Credited with teaching Japan quality control methods in post-WW2
Used statistics to analyze process
His methods involve workers in decisions
1 - 18© 2011 Pearson Education, Inc. publishing as Prentice Hall
New Challenges in OMNew Challenges in OM
Global focus
Just-in-time
Supply-chain partnering
Rapid product development, alliances
Mass customization
Empowered employees, teams
ToToFromFrom Local or national focus
Batch shipments
Low bid purchasing
Lengthy product development
Standard products
Job specialization
1 - 19© 2011 Pearson Education, Inc. publishing as Prentice Hall
Characteristics of GoodsCharacteristics of Goods Tangible product
Consistent product definition
Production usually separate from consumption
Can be inventoried
Low customer interaction
1 - 20© 2011 Pearson Education, Inc. publishing as Prentice Hall
Characteristics of ServiceCharacteristics of Service Intangible product
Produced and consumed at same time
Often unique
High customer interaction
Inconsistent product definition
Often knowledge-based
Frequently dispersed
1 - 21© 2011 Pearson Education, Inc. publishing as Prentice Hall
Industry and Services as Industry and Services as Percentage of GDPPercentage of GDP
Services Manufacturing
Au
stra
lia
Can
ada
Ch
ina
Cze
ch R
ep
Fra
nce
Ger
man
y
Ho
ng
Ko
ng
Jap
an
Mex
ico
Ru
ssia
n F
ed
So
uth
Afr
ica
Sp
ain
UK
US
90 −
80 −
70 −
60 −
50 −
40 −
30 −
20 −
10 −
0 −
1 - 22© 2011 Pearson Education, Inc. publishing as Prentice Hall
Goods and ServicesGoods and ServicesAutomobile
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%| | | | | | | | |
1 - 23© 2011 Pearson Education, Inc. publishing as Prentice Hall
120 –
100 –
80 –
60 –
40 –
20 –
0 –| | | | | | |
1950 1970 1990 2010 (est)1960 1980 2000
Em
plo
ymen
t (m
illi
on
s)
Manufacturing and Service Manufacturing and Service EmploymentEmployment
Figure 1.4 (A)
Manufacturing
ServiceService
1 - 24© 2011 Pearson Education, Inc. publishing as Prentice Hall
Manufacturing Employment Manufacturing Employment and Productionand Production
Figure 1.4 (B)
40 –
30 –
20 –
10 –
0 – | | | | | | |1950 1970 1990 2010 (est)
1960 1980 2000
– 150150
– 125125
– 100100
– 7575
– 5050
– 2525
– 00
Em
plo
ymen
t (m
illi
on
s)
In
dex
: 19
97 =
100
Ind
ex:
1997
= 1
00
Manufacturingemployment
(left scale)
Industrial Industrial productionproduction
(right scale)(right scale)
1 - 25© 2011 Pearson Education, Inc. publishing as Prentice Hall
New Trends in OMNew Trends in OM Ethics
Global focus
Environmentally sensitive production
Rapid product development
Environmentally sensitive production
Mass customization
Empowered employees
Supply-chain partnering
Just-in-time performance
1 - 26© 2011 Pearson Education, Inc. publishing as Prentice Hall
Productivity ChallengeProductivity 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!The objective is to improve productivity!
Important Note!Production is a measure of output
only and not a measure of efficiency
1 - 27© 2011 Pearson Education, Inc. publishing as Prentice Hall
Feedback loop
Outputs
Goods and
services
Transformation
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%).
The Economic SystemThe Economic System
Inputs
Labor,capital,
management
Figure 1.6
1 - 28© 2011 Pearson Education, Inc. publishing as Prentice Hall
Improving Productivity at Improving Productivity at StarbucksStarbucks
A team of 10 analysts A team of 10 analysts continually look for ways continually look for ways to shave time. Some to shave time. Some improvements: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
1 - 29© 2011 Pearson Education, Inc. publishing as Prentice Hall
Improving Productivity at Improving Productivity at StarbucksStarbucks
A team of 10 analysts A team of 10 analysts continually look for ways continually look for ways to shave time. Some to shave time. Some improvements: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.
1 - 30© 2011 Pearson Education, Inc. publishing as Prentice Hall
Measure of process improvement
Represents output relative to input
Only through productivity increases can our standard of living improve
ProductivityProductivity
Productivity =Units produced
Input used
1 - 31© 2011 Pearson Education, Inc. publishing as Prentice Hall
Productivity CalculationsProductivity Calculations
Productivity =Units produced
Labor-hours used
= = 4 units/labor-hour1,000
250
Labor ProductivityLabor Productivity
One resource input single-factor productivity
1 - 32© 2011 Pearson Education, Inc. publishing as Prentice Hall
Multi-Factor Productivity 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
1 - 33© 2011 Pearson Education, Inc. publishing as Prentice Hall
Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
=Old labor
productivity8 titles/day
32 labor-hrs
1 - 34© 2011 Pearson Education, Inc. publishing as Prentice Hall
Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
8 titles/day
32 labor-hrs=
Old labor productivity = .25 titles/labor-hr
1 - 35© 2011 Pearson Education, Inc. publishing as Prentice Hall
Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/day
New System:New System:
8 titles/day
32 labor-hrs=
Old labor productivity
=New labor
productivity
= .25 titles/labor-hr
14 titles/day14 titles/day
32 labor-hrs32 labor-hrs
1 - 36© 2011 Pearson Education, Inc. publishing as Prentice Hall
Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/day
New System:New System:
8 titles/day
32 labor-hrs=
Old labor productivity = .25 titles/labor-hr
14 titles/day
32 labor-hrs=
New labor productivity = .4375 titles/labor-hr
1 - 37© 2011 Pearson Education, Inc. publishing as Prentice Hall
Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/day
New System:New System:
=Old multifactor
productivity8 titles/day
$640 + 400
1 - 38© 2011 Pearson Education, Inc. publishing as Prentice Hall
Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/day
New System:New System:
8 titles/day
$640 + 400=
Old multifactor productivity = .0077 titles/dollar
1 - 39© 2011 Pearson Education, Inc. publishing as Prentice Hall
Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/day
New System:New System:
8 titles/day
$640 + 400=
Old multifactor productivity
=New multifactor
productivity
= .0077 titles/dollar
14 titles/day14 titles/day
$640 + 800$640 + 800
1 - 40© 2011 Pearson Education, Inc. publishing as Prentice Hall
Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/day
New System:New System:
8 titles/day
$640 + 400
14 titles/day
$640 + 800
=Old multifactor
productivity
=New multifactor
productivity
= .0077 titles/dollar
= .0097 titles/dollar
1 - 41© 2011 Pearson Education, Inc. publishing as Prentice Hall
Labor SkillsLabor Skills
About half of the 17-year-olds in the U.S. cannot About half of the 17-year-olds in the U.S. cannot correctly answer questions of this typecorrectly answer questions of this type
Figure 1.7
1 - 42© 2011 Pearson Education, Inc. publishing as Prentice Hall
Service ProductivityService Productivity
1. Typically labor intensive
2. Frequently focused on unique individual attributes or desires
3. Often an intellectual task performed by professionals
4. Often difficult to mechanize
5. Often difficult to evaluate for quality
1 - 43© 2011 Pearson Education, Inc. publishing as Prentice Hall
Productivity at Taco BellProductivity at Taco Bell
Improvements:
Revised the menu
Designed meals for easy preparation
Shifted some preparation to suppliers
Efficient layout and automation
Training and employee empowerment
New water and energy saving grills
1 - 44© 2011 Pearson Education, Inc. publishing as Prentice Hall
Productivity at Taco BellProductivity at Taco Bell
Improvements: Revised the menu
Designed meals for easy preparation
Shifted some preparation to suppliers
Efficient layout and automation
Training and employee empowerment
New water and energy saving grills
Results: Preparation time cut to 8 seconds
Management span of control increased from 5 to 30
In-store labor cut by 15 hours/day
Stores handle twice the volume with half the labor
Conserve 300 million gallons of water and Conserve 300 million gallons of water and 200 million KwH of electricity each year 200 million KwH of electricity each year saving $17 million annuallysaving $17 million annually
1 - 45© 2011 Pearson Education, Inc. publishing as Prentice Hall
Ethics andEthics andSocial ResponsibilitySocial Responsibility
Challenges facing Challenges facing operations managers:operations managers:
Developing and producing safe, quality products
Maintaining a clean environment
Providing a safe workplace
Honoring stakeholder commitments