1 - 1© 2014 Pearson Education, Inc. Operations and Productivity PowerPoint presentation to accompany Heizer and Render Operations Management, Eleventh

1 - 1© 2014 Pearson Education, Inc.

Operations and Productivity

PowerPoint presentation to accompany Heizer and Render Operations Management, Eleventh EditionPrinciples of Operations Management, Ninth Edition

PowerPoint slides by Jeff Heyl

11

© 2014 Pearson Education, Inc.


Outline

▶ What Is Operations Management?

▶ Organizing to Produce Goods and Services

▶ The Supply Chain

▶ Why Study OM?

▶ What Operations Managers Do

▶ Productivity Measurement


▶Operations: is the process of transforming inputs into outputs.

Inputs Transformation Outputs

Monitoring/Control

En

viron

me

nt

En

viron

me

nt

Value-added

What is Operations?


▶Example: the healthcare process in a hospital can be considered as an operations system.

Doctors, nurseHospitalMedical suppliersEquipmentLaboratories

Healthy patients

ExaminationSurgeryMonitoringMedicationTherapy

Monitoring / Control

InputTransformation Process (Activity) Output

What is Operations?


▶Example: the food processing in a company is considered as an operations system.

Raw vegetablesWaterLaborEnergyBuilding/Equipment

Canned vegetables

CleaningCuttingCookingPackingMaking cans

Monitoring / Control

InputTransformation Process (Activity)

Output

What is Operations?


What Is Operations Management?

Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs


Ten Strategic DecisionsTABLE 1.2

DECISION CHAPTER(S)

1. Design of goods and services 5, Supplement 5

2. Managing quality 6, Supplement 6

3. Process and capacity design 7, Supplement 7

4. Location strategy 8

5. Layout strategy 9

6. Human resources and job design 10

7. Supply-chain management 11, Supplement 11

8. Inventory management 12, 14, 16

9. Scheduling 13, 15

10. Maintenance 17


▶What is Operations Management?▶ Operations managers determine what type of

process is best suited to fulfill our customers needs.

▶ Operations managers needs to have knowledge of the facts and how to interpret information

▶ By measurement, operations managers can decide if their process is the most efficient for their product or service

Video


Organizing to Produce Goods and Services

▶ Essential functions:

1. Marketing – generates demand

2. Production/operations – creates the product

3. Finance/accounting – tracks how well the organization is doing, pays bills, collects the money


Organizational ChartsFigure 1.1


Organizational ChartsFigure 1.1


▶Supply Chain (SC): the global network of organizations and activities involved in designing, transforming, consuming and disposing of goods and services.

Supplier

Supplier

Supplier

} Mfg. Dist. Retailer Customer

The Supply Chain

Farmer Syrup Bottler Distributor Retailerproducer


▶Supply Chain Management (SCM): is management of the processes and relationships in a supply chain

▶Members of the supply chain collaborate to achieve high levels of customer satisfaction, efficiency and competitive advantage

The Supply Chain


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


What Operations Managers Do

Basic Management Functions

▶Planning▶Organizing▶Staffing▶Leading▶Controlling


▶ Technology/methods▶ Facilities/space utilization▶ Strategic issues▶ Response time▶ People/team development▶ Customer service▶ Quality▶ Cost reduction▶ Inventory reduction▶ Productivity improvement

What Operations Managers Do



Certifications▶ APICS, the Association for Operations

Management

▶ American Society for Quality (ASQ)

▶ Institute for Supply Management (ISM)

▶ Project Management Institute (PMI)

▶ Council of Supply Chain Management Professionals

▶ Charter Institute of Purchasing and Supply (CIPS)


Operations for Goods and Services

▶Manufacturers produce tangible product, services often intangible

▶Operations activities often very similar

▶Distinction not always clear

▶Few pure services


Differences Between Goods and Services

TABLE 1.3

CHARACTERISTICS OF SERVICES CHARACTERISTICS OF GOODS

Intangible: Ride in an airline seat Tangible: The seat itself

Produced and consumed simultaneously: Beauty salon produces a haircut that is consumed as it is produced

Product can usually be kept in inventory (beauty care products)

Unique: Your investments and medical care are unique

Similar products produced (iPods)

High customer interaction: Often what the customer is paying for (consulting, education)

Limited customer involvement in production

Inconsistent product definition: Auto Insurance changes with age and type of car

Product standardized (iPhone)

Often knowledge based: Legal, education, and medical services are hard to automate

Standard tangible product tends to make automation feasible

Services dispersed: Service may occur at retail store, local office, house call, or via internet.

Product typically produced at a fixed facility

Quality may be hard to evaluate: Consulting, education, and medical services

Many aspects of quality for tangible products are easy to evaluate (strength of a bolt)

Reselling is unusual: Musical concert or medical care Product often has some residual value


Productivity

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!

Productivity = Outputs

Inputs


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 $250,000 to $1,000,000 in seven years.

Productivity has improved by 27%, or about 4.5% per year.


Productivity

Single-factor Output Output Output Output

productivity Labor Material Capital Energy

Multifactor Output Output

productivity Labor + Material Labor + Capital + Energy(total factor Productivity)


Productivity

Example 1.1: 4 workers installed 720 square yards of carpeting in 8 hours, What is the labor productivity in square yards per hour?

Productivity = Yards of carpet installed Labor-hours worked

Productivity = 720 square yards 4 workers * 8 hours/worker

= 720 square yards 32 hours

= 22.50 yards/hour


Productivity

Example 1.2: A machine produced 68 usable pieces in two hours, What is the single-factor productivity of machine in pieces per hour?

= 34 pieces/hour

Productivity = Usable pieces production time

Productivity = 68 pieces 2 hours


ProductivityExample 1.3: 7040 units produced, sold for $1.10/unit

Cost of labor: $1,000 Cost of materials: $520 Overhead: $2000

What is the multifactor productivity in dollars per dollar?

MFP = 2.20 dollar/dollar

MFP = Price of all units Labor + Materials + Overhead

MFP = (7040 units)*($1.10/unit) $1000 + $520 + $2000


Productivity

▶Productivity increase rate is more appropriate than productivity itself as an index of an organization’s operation efficiency over time.

Productivity Increase Rate

= New Productivity – Old ProductivityOld Productivity


Productivity

Example 1.4: Collins Title Insurance Ltd. wants to evaluate its labor and multifactor productivity with a new system. The company has a staff of four, each working 8 hours per day (for a payroll cost of $640/day) and overhead expenses of $400 per day. Collins processes and closes on 8 titles per day. The new system will allow the processing of 14 titles per day. Although the staff, their work hours, and pay are the same, the overhead expenses are now $800 per day.

8 titles/day Overhead = $400/day

Old System:


New System:

8 titles/day

32 labor-hrs=

Old labor productivity

=New labor

productivity

= .25 titles/labor-hr

14 titles/day

32 labor-hrs

Staff of 4 works 8 hrs/day Payroll cost = $640/day

= .4375 titles/labor-hr

=Productivity

Increase Rate0.4375 – 0.25

0.25= .75

75% increase in labor Productivity


Old System:


New System:

Staff of 4 works 8 hrs/day Payroll cost = $640/day

=Productivity

Increase Rate0.0097 – 0.0077

0.0077= .26

26% increase in multi-factor Productivity

8 titles/day

$640 + 400

14 titles/day

$640 + 800

=Old multifactor

productivity

=New multifactor

productivity

= .0077 titles/dollar

= .0097 titles/dollar


EX in Class

A company has introduced a process improvement that reduces processing time for each unit, so that output is increased by 25% with less material, but one additional worker required. Under the old process, five workers could produce 60 units per hour. Labor rate is $12/hour, and material input was previously $16/unit. For the new process, material is now $10/unit. Overhead is charged at 1.6 times direct labor cost. Finished units sell for $31 each. What is the productivity growth rate associated with the process improvement?

Documents

1 - 1© 2014 Pearson Education, Inc. Operations and Productivity PowerPoint presentation to accompany Heizer and Render Operations Management, Eleventh