Operations and ProductivityRock 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
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Production is the creation of goods and services
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Organization’s core function
Service or Manufacturing
What Is Operations Management?
Why OM?
For long-run success companies must place much importance on their operations
The 1950-1960 era was the U.S. golden era where primary opportunities were marketing
The 1970-1980 U.S. companies experienced a large decline in productivity growth – international firms began to challenge in many markets
The 1970-1980 era saw U. S. firms lagging behind in methods and processes
The resurgence of American business in the 1990’s capitalized on improved operations
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Defined
A transformation process is defined as a user of resources to transform inputs into some desired outputs
OM Transforms inputs to outputs
Inputs are resources such as
People, Material, and Money
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Increase product value at each stage
Value added is the net increase between output product value and input material value
Provide an efficient transformation
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Transformations
Physical--manufacturing
Locational--transportation
Exchange--retailing
Storage--warehousing
Essential functions:
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and personnel
Process analysis
Why Study OM?
OM is one of three major functions (marketing, finance, and operations) of any organization
We want (and need) to know how goods and services are produced
We want to understand what operations managers do
OM is such a costly part of an organization
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Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000
Gross Margin 20,000 30,000 20,000 36,000
Finance Costs – 6,000 – 6,000 – 3,000 – 6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500
Contribution MU 10,500 MU18,000 MU 12,750 MU22,500
Finance/
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What
Decisions follow a similar path
First decisions very broad – Strategic decisions
Strategic Decisions – set the direction for the entire company; they are broad in scope and long-term in nature
Following decisions focus on specifics - Tactical decision
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Resource needs, schedules, & quantities to produce
Tactical decisions are very frequent
Strategic decisions less frequent
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How should we design these products and services?
Quality management
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Location
On what criteria should we base the location decision?
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How large must the facility be to meet our plan?
Human resources and job design
How do we provide a reasonable work environment?
How much can we expect our employees to produce?
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Using this and subsequent slides, you might go through in more detail the decisions of Operations Management. While greater detail is provided by these slides than the earlier one, you may still decide to have the students contribute examples from their own experience.
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Should we make or buy this component?
Who are our suppliers and who can integrate into our e-commerce program?
Inventory, material requirements planning, and JIT
How much inventory of each item should we have?
When do we re-order?
Intermediate and short–term scheduling
Are we better off keeping people on the payroll during slowdowns?
Which jobs do we perform next?
Maintenance
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Technology/methods: Improving
Quality: Best-in-class
Standardized parts (Whitney 1800)
Scientific Management (Taylor 1881)
Gantt charts (Gantt 1916)
Quality control (Shewhart 1924; Deming 1950)
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Baldrige Quality Awards (1980)
Computer integrated manufacturing (1990)
Management science Mid-1900s
Computer age 1970s
Environmental Issues 1970s
Reengineering 1990s
In 1798, received government contract to make 10,000 muskets
Showed that machine tools could make standardized parts to exact specifications
Musket parts could be used in any musket
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Known as ‘father of scientific management’
In 1881, as chief engineer for Midvale Steel, studied how tasks were done
Began first motion and time studies
Created efficiency principles
Providing the proper training
Establishing legitimate incentives for work to be accomplished
Management Should Take More Responsibility for:
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Applied efficiency methods to their home and 12 children!
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In 1903, created Ford Motor Company
In 1913, first used moving assembly line to make Model T
Unfinished product moved by conveyor past work station
Paid workers very well for 1911 ($5/day!)
Henry Ford
Engineer and physicist
Credited with teaching Japan quality control methods in post-World War II
Used statistics to analyze process
His methods involve workers in decisions
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Human factors
Industrial engineering
Management science
Biological science
Physical sciences
Information science
Network
Customer
Flexible
Global
Information/Knowledge
Global focus
Batch (large) shipments
Short product life cycles and cost of capital put pressure on reducing inventory
Just-in-time shipments
Low-bid purchasing
Quality emphasis requires that suppliers be engaged in product improvement
Supply-chain partners, Enterprise Resource Planning, e-commerce
Past Causes Future
Rapid product development, alliances, collaborative designs
Standardized products
Mass customization with added emphasis on quality
Job specialization
Empowered employees, teams, and lean production
Past Causes Future
Past Causes Future
Can be inventoried
Low customer interaction
Long response time
Often unique
Services:
All must forecast demand
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Some organizations are a blend of service/manufacturing/quasi-manufacturing, Known as Quasi-Manufacturing (QM) organizations
QM characteristics include
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Often easy to automate
Provider, not product, is
customer contact
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Notre Dame University, San Diego Zoo, Arnold Palmer Hospital
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20.6
Pacific Gas & Electric, American Airlines, Santa Fe R.R., Roadway Express
7.1
6.9
6.7
Food, Lodging, Entertainment
McDonald’s, Hard Rock Café, Motel 6, Hilton Hotels, Walt Disney, Paramount Pictures
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4.5
13.3
Construction
Companies implementing lean systems concepts – a total systems approach to efficient operations
Recognized need to better manage information using ERP and CRM systems
Increased cross-functional decision making
Optimizing global supplier, production, and distribution networks.
Increased co-production of goods and services
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Current Issues in POM (cont’d)
Managing the customers experience during the service encounter (Voice of the customer)
Raising the awareness of operations as a significant competitive weapon
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Global competitiveness
Productivity 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 this measure of efficiency
Important Note!
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Based on customer needs
Determined by the cost of the product and technical characteristics as suited to the specific requirements
Right Quantity
Produce products in right numbers
If produced more, then excess inventory and if produced less, then shortage of products
Objectives of Operations and Production Management
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Make optimal utilization of input resources to achieve the objectives
Right Manufacturing Cost
Cost is determined before the product is actually manufactured
Attempt to produce products at pre-determined cost in order to reduce the variation between actual cost and standard pre-determined cost
Objectives of Operations and Production Management
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Financial markets
Interest rates
Resource availability
Inventory tax
Only through productivity increases can our standard of living improve
Productivity
Capital/Labour Ratio
It is a measure whether enough investment is made in plant, machinery and tools to make best use of labour hours
Scarcity of some resources
Work-force changes
Innovations and technology
Factors Affecting Productivity
Bargaining power
Organized labour demand for wage increase excess of output increase, leading to productivity decline
Managerial factors
Organizations benefit from the unique planning and managerial skills of its managers
Quality of work life
Describes the organization culture, and the extent to which it motivates and satisfies employees
Factors Affecting Productivity
Output and inputs are often expressed in Monetary Units (MU).
Output
Productivity =
Measurement Problems
Quality may change while the quantity of inputs and outputs remains constant
External elements may cause an increase or decrease in productivity
Precise units of measure may be lacking
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Basic education appropriate for the labour force
Diet of the labour force
Social overhead that makes labour available
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Often an intellectual task performed by professionals
Often difficult to mechanize
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Corporate objectives
Honesty in business
Production systems
Employment relations
Unions must cooperate to benefit the enterprise
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Materials
Financing
Make more use of debt capital and less of equity capital
Training
Employees are rotated to learn a variety of skills
Worker participation
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Manages the transformation process
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
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Managerial decisions taken at the interface between various functional groups
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OM Across the Organization
Most businesses are supported by the functions of operations, marketing, and finance
The major functional areas must interact to achieve the organization goals
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OM Across the Organization - continued
Marketing is not fully capable of meeting customer needs if they do not understand what operations can produce
Finance cannot judge the need for capital investments if they do not understand operations concepts and needs
Information systems enables the information flow throughout the organization
Human resources must understand job requirements and worker skills
Accounting needs to consider inventory management, capacity information, and labour standards
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Module 1 Highlights
OM is the business function that is responsible for managing and coordinating the resources needed to produce a company’s products and services while adding value.
The role of OM is to transform organizational inputs into company’s products or services outputs
OM is responsible for a wide range of decisions, ranging from strategic to tactical.
Organizations can be divided into manufacturing and service organizations, which differ in the tangibility of the product or service
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Module 1 Highlights - continued
A number of historical milestones have shaped OM. Some of the more significant of these are the Industrial Revolution, scientific management, the human relations movement, management science, and the computer age.
OM is highly important function in today’s dynamic business environment. Among the trends with significant impact are just-in-time, TQM, business process reengineering (BPR), flexibility, time-based competition, SCM, global marketplace, and environmental issues.
OM works closely with all other business functions, such as marketing, finance, HR, international business, and strategic management.
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Define Operations Management. Explain the key concepts of Operations Management with schematic diagram.
Distinguish between manufacturing and service operation with example.
Briefly explain how service producers differ from goods producers in important aspects of their operations.
Explain, how the considerations of environmental assessment and organizational position provide a modeling framework for strategic planning of operations.
State the important objectives of operation management.
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Sample Questions
6. “Operations Strategy” – a key element in corporate strategy. Briefly explain.
7. Explain the historical evolution of production function till the 21st century.
8. What are the various decisions and their applications made by the operations manager in a POM system.
9. Briefly explain the importance of operations management in corporate management.