1 - 1 2011 Pearson Education, Inc. publishing as Prentice Hall1Operations and ProductivityPowerPoint presentation to accompany Heizer and Render Operations Management, 10e Principles of Operations Management, 8ePowerPoint slides by Jeff Heyl1 - 2 2011 Pearson Education, Inc. publishing as Prentice HallProcessInputOutputAloe Vera, water, sugar, preservatives, plastic bottle, machines, artificial flavorHarvesting, mixing, filling, packagingFruit Flavoured Green Tea1 - 3 2011 Pearson Education, Inc. publishing as Prentice HallWhat Is Operations Management?Production is the creation of goods and servicesOperations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs1 - 4Definition from other authorsOM the management of systems or processes that create goods and/or provide services. (William Stevenson)OM as the design, operation, and improvement of the systems that create and deliver the firms primary products and services. (Chase, Jacobs, Aquilano) 2011 Pearson Education, Inc. publishing as Prentice Hall1 - 5Potato Chips Production 2011 Pearson Education, Inc. publishing as Prentice HallWashing InputPeeling Slicing FryingPackagingOutput1 - 6Potato Chips Production 2011 Pearson Education, Inc. publishing as Prentice HallWashing InputPeelingSlicingFryingPackagingOutputDryingBlanching1 - 7Potato Chips Production 2011 Pearson Education, Inc. publishing as Prentice HallWashing InputPeelingSlicingFryingPackagingOutputDryingBlanching1 - 8Potato Chips Production 2011 Pearson Education, Inc. publishing as Prentice HallWashing InputPeelingSlicingFryingPackagingOutputDryingBlanchingNeed high capacity dehydratorNeed high capacity slicing 1 - 9Potato Chips Production 2011 Pearson Education, Inc. publishing as Prentice HallWashing InputPeelingSlicingFryingPackagingOutputDryingBlanchingNeed high capacity dehydratorNeed high capacity slicing Good Manufacturing ProcessesTransportation1 - 10Potato Chips ProductionWashing InputPeelingSlicingFryingPackagingOutputDryingBlanchingNeed high capacity dehydratorNeed high capacity slicing Good Manufacturing PracticesTransportation Operations Management the design, operation, and improvement of the systems that create and deliver the firms primary products and services. (Chase, Jacobs, Aquilano)1 - 11Potato Chips ProductionWashing InputPeelingSlicingFryingPackagingOutputDryingBlanchingNeed high capacity dehydratorNeed high capacity slicing Good Manufacturing PracticesTransportationOperations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs. (Heizer, Render)1 - 12 2011 Pearson Education, Inc. publishing as Prentice HallOrganizing to Produce Goods and Services Essential functions:1. Marketing generates demand2. Production/operations creates the product3. Finance/accounting tracks how well the organization is doing, pays bills, collects the money Watch Video Mang Inasal1 - 13 2011 Pearson Education, Inc. publishing as Prentice HallOrganizational ChartsOperationsTeller SchedulingCheck ClearingCollectionTransaction processingFacilities design/layoutVault operationsMaintenanceSecurityFinanceInvestmentsSecurityReal estateAccountingAuditingMarketingLoansCommercialIndustrialFinancialPersonalMortgageTrust DepartmentCommercial BankFigure 1.1(A)1 - 14 2011 Pearson Education, Inc. publishing as Prentice HallOrganizational ChartsOperationsGround supportequipmentMaintenanceGround OperationsFacilitymaintenanceCateringFlight OperationsCrew schedulingFlyingCommunicationsDispatchingManagement scienceFinance/ accountingAccountingPayablesReceivablesGeneral LedgerFinanceCash controlInternationalexchangeAirlineFigure 1.1(B)MarketingTraffic administrationReservationsSchedulesTariffs (pricing)SalesAdvertising1 - 15 2011 Pearson Education, Inc. publishing as Prentice HallMarketingSales promotionAdvertisingSalesMarket researchOrganizational ChartsOperationsFacilitiesConstruction; maintenanceProduction and inventory controlScheduling; materials controlQuality assurance and controlSupply-chain managementManufacturingTooling; fabrication; assemblyDesignProduct development and designDetailed product specificationsIndustrial engineeringEfficient use of machines, space, and personnelProcess analysisDevelopment and installation ofproduction tools and equipmentFinance/ accountingDisbursements/ creditsReceivablesPayablesGeneral ledgerFunds ManagementMoney marketInternational exchangeCapital requirementsStock issueBond issue and recallManufacturingFigure 1.1(C)1 - 16 2011 Pearson Education, Inc. publishing as Prentice HallWhy Study OM?1. OM is one of three major functions of any organization, we want to study how people organize themselves for productive enterprise2. We want (and need) to know how goods and services are produced3. We want to understand what operations managers do4. OM is such a costly part of an organization1 - 17Other Reasons for Studying OM 2011 Pearson Education, Inc. publishing as Prentice HallDue to Trends in Work1. Do Multitasking2. Knowledgeable3. Familiarization to Technology1 - 18Operations function is the organizations core function 2011 Pearson Education, Inc. publishing as Prentice Hall1 - 19Core Process 2011 Pearson Education, Inc. publishing as Prentice Hall1 - 20 2011 Pearson Education, Inc. publishing as Prentice HallExampleSchool/university (service) NGO like World Vision Church Financial institution DOST (science institution) Training, learning, teaching (the core department or the most important employee are the teacher)Care/free education, Social Service, Health Check UpFacilitate worship activityInvestment, provision ofmoney/loan/management of money, payroll managementResearch/scholarship/ technology transferCore Processes1 - 21Inputs core human resource inputPrivate Manufacturing company (Purefoods)Parlor (David salon) Pharma company (Pfizer)Testing centers (BFAD, Intertek)Embroidery (Burdahand)Schools (San Beda)Bank (BPI)Search firm (John Clement)Audit Firms (SGV) 2011 Pearson Education, Inc. publishing as Prentice Hall- engineers or production people, food technologist- hair dresser, image consultant, beautician- Pharmacist / Chemist-embroiderer/ sewers/tailors professors / teachers--tellers ,or bank officers,- search consultants, HR Specialist-accountants1 - 22 2011 Pearson Education, Inc. publishing as Prentice HallOperations ExamplesGoods Producing Farming, mining, construction,manufacturing, power generationStorage/Transportation Warehousing, trucking, mailservice, moving, taxis, buses,hotels, airlinesExchange Retailing, wholesaling, banking,renting, leasing, library, loansEntertainment Films, radio and television,concerts, recordingCommunication Newspapers, radio and televisionnewscasts, telephone, satellites1 - 23 2011 Pearson Education, Inc. publishing as Prentice HallWhat Operations Managers Do Planning Organizing Staffing Leading ControllingBasic Management Functions1 - 24 2011 Pearson Education, Inc. publishing as Prentice HallTen Critical DecisionsTen Decision Areas1. Design of goods and services2. Managing quality3. Process and capacity design 4. Location strategy5. Layout strategy6. Human resources andjob design 7. Supply-chain management8. Inventory, MRP, JIT9. Scheduling10. Maintenance Table 1.21 - 25 2011 Pearson Education, Inc. publishing as Prentice HallThe Critical Decisions1. Design of goods and services What good or service should we offer? How should we design these products and services? 2. Managing quality How do we define quality? Who is responsible for quality?Table 1.2 (cont.)1 - 26 2011 Pearson Education, Inc. publishing as Prentice HallThe Critical Decisions3. Process and capacity design What process and what capacity will these products require? What equipment and technology is necessary for these processes?4. Location strategy Where should we put the facility? On what criteria should we base the location decision?Table 1.2 (cont.)1 - 27 2011 Pearson Education, Inc. publishing as Prentice HallThe Critical Decisions5. Layout strategy How should we arrange the facility? How large must the facility be to meet our plan?6. Human resources and job design How do we provide a reasonable work environment? How much can we expect our employees to produce?Table 1.2 (cont.)1 - 28 2011 Pearson Education, Inc. publishing as Prentice HallThe Critical Decisions7. Supply-chain management Should we make or buy this component? Who should be our suppliers and how can we integrate them into our strategy?8. Inventory, material requirements planning, and JIT How much inventory of each item should we have? When do we re-order?Table 1.2 (cont.)1 - 29 2011 Pearson Education, Inc. publishing as Prentice HallThe Critical Decisions9. Intermediate and shortterm scheduling Are we better off keeping people on the payroll during slowdowns? Which jobs do we perform next?10. Maintenance How do we build reliability into our processes? Who is responsible for maintenance?Table 1.2 (cont.)1 - 30 2011 Pearson Education, Inc. publishing as Prentice HallWhere are the OM J obs? Technology/methods Facilities/space utilization Strategic issues Response time People/team development Customer service Quality Cost reduction Inventory reduction Productivity improvement1 - 31Play Video of Frito Lay ProductPlay Video of Hardrock Caf ServicePlay Video of McDonald 2011 Pearson Education, Inc. publishing as Prentice Hall1 - 32 2011 Pearson Education, Inc. publishing as Prentice HallContributions From Human factors Industrial engineering Management science Biological science Physical sciences Information technology 1 - 33 2011 Pearson Education, Inc. publishing as Prentice HallNew Challenges in OMGlobal focusJust-in-timeSupply-chain partneringRapid product development, alliancesMass customizationEmpowered employees, teamsTo FromLocal or national focusBatch shipmentsLow bid purchasingLengthy product developmentStandard productsJob specialization1 - 34 2011 Pearson Education, Inc. publishing as Prentice Hall1 - 35Pineapples were first introduced into Europe in the 17th century So exotic that they were seen as a symbol of great status.Poorer middle-class families would even take to hiring pineapples for occasions when they wished to entertain, in order to appear grand, praying that no one would actually attempt to cut a slice.This story helps illustrate the institutionally-based approach to service 2011 Pearson Education, Inc. publishing as Prentice Hall1 - 36 2011 Pearson Education, Inc. publishing as Prentice HallCharacteristics of Goods (Product)Tangible productConsistent product definitionProduction usually separate from consumptionCan be inventoriedLow customer interaction1 - 37 2011 Pearson Education, Inc. publishing as Prentice HallCharacteristics of ServiceIntangible productProduced and consumed at same timeOften uniqueHigh customer interactionInconsistent product definitionOften knowledge-basedFrequently dispersed1 - 38 2011 Pearson Education, Inc. publishing as Prentice HallIndustry and Services as Percentage of GDPServices ManufacturingAustraliaCanadaChinaCzech RepFranceGermanyHong KongJapanMexicoRussian FedSouth AfricaSpainUKUS90 80 70 60 50 40 30 20 10 0 1 - 39 2011 Pearson Education, Inc. publishing as Prentice HallGoods and ServicesAutomobileComputerInstalled carpetingFast-food mealRestaurant meal/auto repairHospital careAdvertising agency/investment managementConsulting service/teachingCounselingPercent of Product that is a Good Percent of Product that is a Service100% 75 50 25 0 25 50 75 100%| | | | | | | | |1 - 40 2011 Pearson Education, Inc. publishing as Prentice Hall120 100 80 60 40 20 0 | | | | | | |1950 1970 1990 2010 (est)1960 1980 2000Employment (millions)Manufacturing and Service EmploymentFigure 1.4 (A)ManufacturingService1 - 41 2011 Pearson Education, Inc. publishing as Prentice HallManufacturing Employment and ProductionFigure 1.4 (B)403020100| | | | | | |1950 1970 1990 2010 (est)1960 1980 2000 150 125 100 75 50 25 0Employment (millions)Index: 1997 = 100Manufacturingemployment(left scale)Industrial production(right scale)1 - 42 2011 Pearson Education, Inc. publishing as Prentice HallChanging ChallengesTraditional ApproachReasons for ChangeCurrent ChallengeEthics and regulations not at the forefrontPublic concern over pollution, corruption, child labor, etc.High ethical and social responsibility; increased legal and professional standardsLocal or national focusGrowth of reliable, low cost communication and transportationGlobal focus, international collaborationLengthy product developmentShorter life cycles; growth of global communication; CAD, InternetRapid product development; design collaborationFigure 1.51 - 43 2011 Pearson Education, Inc. publishing as Prentice HallChanging ChallengesTraditional ApproachReasons for ChangeCurrent ChallengeLow cost production, with little concern for environment; free resources (air, water) ignoredPublic sensitivity to environment; ISO 14000 standard; increasing disposal costsEnvironmentally sensitive production; green manufacturing; sustainabilityLow-cost standardized productsRise of consumerism; increased affluence; individualismMass customizationFigure 1.51 - 44 2011 Pearson Education, Inc. publishing as Prentice HallChanging ChallengesTraditional ApproachReasons for ChangeCurrent ChallengeEmphasis on specialized, often manual tasksRecognition of the employee's total contribution; knowledge societyEmpowered employees; enriched jobsIn-house production; low-bid purchasingRapid technological change; increasing competitive forcesSupply-chain partnering; joint ventures, alliancesLarge lot productionShorter product life cycles; increasing need to reduce inventoryJust-In-Time performance; lean; continuous improvementFigure 1.51 - 45 2011 Pearson Education, Inc. publishing as Prentice HallNew 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 performance1 - 46 2011 Pearson Education, Inc. publishing as Prentice HallProductivity ChallengeProductivity 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 efficiency1 - 47 2011 Pearson Education, Inc. publishing as Prentice HallFeedback loopOutputsGoods andservicesTransformationThe 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 SystemInputsLabor,capital,managementFigure 1.61 - 48 2011 Pearson Education, Inc. publishing as Prentice HallImproving Productivity at StarbucksA team of 10 analysts continually look for ways to shave time. Some improvements:Stop requiring signatures on credit card purchases under $25Saved 8 seconds per transactionChange the size of the ice scoopSaved 14 seconds per drinkNew espresso machines Saved 12 seconds per shot1 - 49 2011 Pearson Education, Inc. publishing as Prentice HallImproving Productivity at StarbucksA team of 10 analysts continually look for ways to shave time. Some improvements:Stop requiring signatures on credit card purchases under $25Saved 8 seconds per transactionChange the size of the ice scoopSaved 14 seconds per drinkNew espresso machines Saved 12 seconds per shotOperations 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 - 50 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 improveProductivityProductivity =Units producedInput used1 - 51 2011 Pearson Education, Inc. publishing as Prentice HallProductivity CalculationsProductivity =Units producedLabor-hours used= = 4 units/labor-hour1,000250Labor ProductivityOne resource input single-factor productivity1 - 52 2011 Pearson Education, Inc. publishing as Prentice HallMulti-Factor Productivity OutputLabor + Material + Energy + Capital + MiscellaneousProductivity =Also known as total factor productivityOutput and inputs are often expressed in dollarsMultiple resource inputs multi-factor productivity1 - 53 2011 Pearson Education, Inc. publishing as Prentice HallCollins Title ProductivityStaff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:=Old labor productivity8 titles/day32 labor-hrs1 - 54 2011 Pearson Education, Inc. publishing as Prentice HallCollins Title ProductivityStaff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:8 titles/day32 labor-hrs=Old labor productivity= .25 titles/labor-hr1 - 55 2011 Pearson Education, Inc. publishing as Prentice HallCollins Title ProductivityStaff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:14 titles/day Overhead = $800/dayNew System:8 titles/day32 labor-hrs=Old labor productivity=New labor productivity= .25 titles/labor-hr14 titles/day32 labor-hrs1 - 56 2011 Pearson Education, Inc. publishing as Prentice HallCollins Title ProductivityStaff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:14 titles/day Overhead = $800/dayNew System:8 titles/day32 labor-hrs=Old labor productivity= .25 titles/labor-hr14 titles/day32 labor-hrs=New labor productivity= .4375 titles/labor-hr1 - 57 2011 Pearson Education, Inc. publishing as Prentice HallCollins Title ProductivityStaff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:14 titles/day Overhead = $800/dayNew System:=Old multifactor productivity8 titles/day$640 + 4001 - 58 2011 Pearson Education, Inc. publishing as Prentice HallCollins Title ProductivityStaff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:14 titles/day Overhead = $800/dayNew System:8 titles/day$640 + 400=Old multifactor productivity= .0077 titles/dollar1 - 59 2011 Pearson Education, Inc. publishing as Prentice HallCollins Title ProductivityStaff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:14 titles/day Overhead = $800/dayNew System:8 titles/day$640 + 400=Old multifactor productivity=New multifactor productivity= .0077 titles/dollar14 titles/day$640 + 8001 - 60 2011 Pearson Education, Inc. publishing as Prentice HallCollins Title ProductivityStaff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:14 titles/day Overhead = $800/dayNew System:8 titles/day$640 + 40014 titles/day$640 + 800=Old multifactor productivity=New multifactor productivity= .0077 titles/dollar= .0097 titles/dollar1 - 61 2011 Pearson Education, Inc. publishing as Prentice HallKey Variables for Improved Labor Productivity1. Basic education appropriate for the labor force2. Diet of the labor force3. Social overhead that makes labor availableChallenge is in maintaining and enhancing skills in the midst of rapidly changing technology and knowledge1 - 62 2011 Pearson Education, Inc. publishing as Prentice HallInvestment and Productivity 1086420Percent increase in productivityPercentage investment10 15 20 25 30 351 - 63 2011 Pearson Education, Inc. publishing as Prentice HallService Productivity1. Typically labor intensive2. Frequently focused on unique individual attributes or desires3. Often an intellectual task performed by professionals4. Often difficult to mechanize5. Often difficult to evaluate for quality1 - 64 2011 Pearson Education, Inc. publishing as Prentice HallProductivity at Taco BellImprovements: 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 - 65 2011 Pearson Education, Inc. publishing as Prentice HallProductivity at Taco BellImprovements: 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 200 million KwH of electricity each year saving $17 million annually1 - 66More Examples661 - 67Total Productivity1) Value of a companys output such as finished goods and work in progress is P418,200. Value of inputs such as labor, materials and capital = P352,600671 - 68Partial Productivity2) A bakery oven produces 346 pastries in 4 hours. What is its productivity?3) 2 Workers paint tables in a furniture shop. If the workers paint 22 tables in 8 hours. What is their productivity?681 - 69Multifactor Productivity4) Output is worth $382 and labor and material cost are $168 and $98, respectively.691 - 70Example 2.1Long Beach Bank employs three loan officers, each working eight hours per day.Each officer processes an average of five loans per day.The banks payroll cost for the officers is $820 per day, and there is a daily overhead expense of $500.The bank has just purchased new computer software that should enable each officer to process eight loans per day, although the overhead expense will increase to $550. Evaluate the change in labor and multifactor productivity before and after implementation of the new computer software.701 - 71More examples1.A company that processes fruits and vegetables is able to produce 400 cases of canned peaches in one-half hour with 4 workers.What is the labor productivity?711 - 722. A wrapping-paper company produced 2,000 rolls of paper in one day.Standard price is $1/roll.Labor cost was $160, material cost was $50, and overhead was $320.Determine the multifactor productivity?721 - 733. Compute the multifactor productivity measure for an eight-hour day in which the usable output was 300 units produced by 3 workers who used 600 pounds of materials.Workers have an hourly wage of $20, and material cost is $1 per pound. Overhead is 1.5 times labor cost.731 - 744.A health club has 2 employees who work on lead generation. Each employee works 40 hours a week, and is paid $20 an hour. Each employee identifies an average of 400 possible leads a week from a list of 8,000 names.Approximately 10% of the leads become members and pay a one time fee of $100.Material cost are $130 per week, and overhead costs are 1,000 per week.Calculate the Multifactor productivity for this operation in fees generated per dollar of input. 741 - 75#7/p.49 (Reid) Howard Plastics produces plastic containers for use in the food packaging industry. Last year its average monthly production included 20,000 containers produced using one shift five days a week with an eight-hour-a-day operation.Of the items produced 15 percent were deemed defective. Recently, Howard Plastics has implemented new production methods and a new quality improvement program. Its monthly production has increased to 25,000 containers with 9 percent defective. a) Compute the monthly productivity ratios (unit per month / hr) for the old and new production system. b) Compare the changes in productivity between the two production systems. 2011 Pearson Education, Inc. publishing as Prentice Hall1 - 76EndThank you 2011 Pearson Education, Inc. publishing as Prentice Hall1 - 77 2011 Pearson Education, Inc. publishing as Prentice Hall1 - 78 2011 Pearson Education, Inc. publishing as Prentice Hall1 - 79 2011 Pearson Education, Inc. publishing as Prentice Hall1 - 80 2011 Pearson Education, Inc. publishing as Prentice Hall1 - 81 2011 Pearson Education, Inc. publishing as Prentice Hall1 - 82 2011 Pearson Education, Inc. publishing as Prentice Hall1 - 831.10 / 591 - 841.6/ p571 - 851.15 / p591 - 861.16/ 591 - 87 2011 Pearson Education, Inc. publishing as Prentice Hall1 - 88 2011 Pearson Education, Inc. publishing as Prentice HallAll rights reserved. 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