AIMS 3770: Production Operations Analysis

Dr. Linda Leon

Summer 2015http://myweb.lmu.edu/lleon/aims3770/

What Is Operations Management?

• Operations management is the set of activities that creates goods and services by transforming inputs into outputs

• Production is the creation of goods and services

Why Study OM?• OM is one of three major functions

(marketing, finance, and operations) of any organization

• You need to know how goods and services are produced

• OM is a costly part of an organization

Options for Increasing Contribution

MarketingOption

Finance &Accounting

Option

OM Option

Current SalesRevenue :

+50%

FinanceCosts: -50%

ProductionCosts: -20%

Sales $100,000 $150,000 $100,000 $100,000

Cost ofGoods Sold

-80,000 -120,000 -80,000 -64,000

GrossMargin

20,000 30,000 20,000 36,000

FinanceCosts

-6,000 -6,000 -3,000 -6,000

14,000 24,000 17,000 30,000

Taxes @25%

-3,500 -6,000 -4,250 -7,500

Contribution 10,500 18,000 12,750 22,500

Functions - Bank

Operations Finance/Accounting

Marketing

FacilitiesLayout

TellerScheduling

Transactions

ProcessingSecurity

Commercial Bank© 1984-1994 T/Maker Co.

Functions - Airline

Operations Finance/Accounting

Marketing

GroundSupport

FlightOperations

AircraftMaintenance

Catering

Airline© 1984-1994 T/Maker Co.

Functions - Manufacturer

Operations Finance/Accounting

Marketing

ProductionControl

Facilities QualityControl

Supply Chain Management

Manufacturing

Efficiency = Value added to good or service

Productivity = Output/Input where inputs are

Labor + material + energy + capital + time + information

• Productivity increases when output increases more than input or when input decreases more than output.

• Increases in productivity measure process improvement and are correlated with improved standard of living

• Since 1869, U.S. productivity increased at an average rate of 2.5% per year.

• In 21st century, U.S. productivity has been slightly lower than 2.5 % per year on average

Productivity Increases

Variables that Create Productivity Increases

• Labor (10%)

• Capital (38%)

• Management (52%)

Operations Course Objectives• To understand the common principles of

production and operations management• To apply strategies dealing with various problems

encountered in the production of goods and services

• To be aware of current issues and trends encountered in the production of goods and services

New Challenges in OM• Local or national

focus• Batch shipments• Low bid purchasing

• Lengthy product development

• Standard products• Short-term low costs

• Global focus

• Just-in-time• Supply chain

partnering• Rapid product

development, alliances

• Mass customization• Sustainability

From To

CBA Core Outcomes• To utilize quantitative techniques to model and

evaluate business decisions

• To effectively utilize information technology and productivity software to analyze a business problem, recommend possible solutions, and communicate results to the appropriate audience

• To demonstrate critical thinking skills by defining, modeling, analyzing and evaluating complex business problems