OPERATIONS MANAGEMENTOPERATIONS AND PRODUCTIVITY LECTURE 1 (CHAPTER 1)

Production is the creation of goods and services

Operations Management - management of the set of activities that creates value in the form of goods and services by transforming inputs into outputs

Applies to both manufacturing and service organizations

WHAT IS OPERATIONS MANAGEMENT?

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ORGANIZATIONAL FUNCTIONS

Marketing Gets customers

Operations creates product or service

Finance/Accounting Obtains funds Tracks money

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FUNCTIONS - BANK

Operations Finance/Accounting

Marketing

CheckClearing

TellerScheduling

Transactions

ProcessingSecurity

Commercial Bank

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FUNCTIONS - AIRLINES

Operations Finance/Accounting

Marketing

GroundSupport

FlightOperations

FacilityMaintenance

Catering

Airlines

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FUNCTIONS - MANUFACTURING

Operations Finance/Accounting

Marketing

ProductionControl

Manufacturing QualityControl

Purchasing

Manufacturing

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WHY STUDY OM?

OM is one of three major functions (marketing,

finance, and operations) of any organization

To know how goods and services are

produced/delivered

To understand what operations managers do

OM is a costly part of an organization

OM presents interesting career opportunities

e.g. SCM, QA, Process Re-engineering, etc 7

TEN CRITICAL DECISIONS

Service, product design ……. Quality Management ……… Process, capacity design …... Location ….……………….... Layout design ………..…….. Human resources, job

design.. Supply-chain management … Inventory management ….…. Scheduling .………………… Maintenance .……………….

Ch. 4

Ch. 5, 5S

Ch. 6, 6S

Ch. 7

Ch. 8

Ch. 9, 9S

Ch. 10,10s

Ch. 11, 13, 15

Ch. 12, 149

TEN CRITICAL DECISIONS

Service and product design What product or service should we offer?

How should we design these products and services?

Quality management How do we define quality?

Who is responsible for quality?

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TEN CRITICAL DECISIONS - CONTINUED

Process and capacity design What processes will these products require and in

what order? What equipment and technology is necessary for

these processes? Location

Where should we put the facility On what criteria should we base this location

decision?

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TEN CRITICAL DECISIONS - CONTINUED

Layout design How should we arrange the facility? How large a facility is required?

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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TEN CRITICAL DECISIONS - CONTINUED

Supply chain management Should we make or buy this item? Who are our good suppliers and how many should

we have? Inventory, material requirements planning,

How much inventory of each item should we have? When do we re-order?

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TEN CRITICAL DECISIONS - CONTINUED

Intermediate, short term, and project scheduling Is subcontracting production a good idea? Are we better off keeping people on the payroll

during slowdowns? Maintenance

Who is responsible for maintenance? When do we do maintenance?

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CHANGING CHALLENGES FOR THE OPERATIONS MANAGER

Past Causes Future Local or national focus

Low-cost, reliable worldwide communication and transportation networks

Global Focus

Batch (large) shipments

Cost of capital puts pressure on reducing investment in inventory

Just-in-time shipments

Low-bid purchasing

Quality emphasis requires that suppliers be engaged in product improvement

SC partners, ERP

Lengthy product development

Shorter life cycles, rapid international communication, computer-aided design, and international collaboration

Rapid product development, alliances, collaborative designs

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CHANGING CHALLENGES FOR THE OPERATIONS MANAGER

Past Causes Future Standardized products

Affluence and worldwide markets; increasingly flexible production processes

Mass customization

Job specialization

Changing socio-cultural scene. Increasingly a knowledge and information society.

Empowered employees, teams,

Low cost focus

Environmental issues, ISO increasing disposal costs

Environmentally sensitive production, Green manufacturing,

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CHARACTERISTICS OF GOODS

Tangible product

Production usually

separate from

consumption

Consistent product

definition

Low customer

interaction

Can be inventoried 17

CHARACTERISTICS OF SERVICE

Intangible product

(Intangibility)

Produced & consumed at

same time (simultaneity)

Inconsistent product

definition (Heterogeneity)

High customer interaction

Often unique

Often knowledge-based

Frequently dispersed

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GOODS CONTAIN SERVICES / SERVICES CONTAIN GOODS

0 25 50 75 100255075100

AutomobileComputer

Installed CarpetingFast-food Meal

Restaurant MealAuto RepairHospital Care

Advertising AgencyInvestment Management

Consulting ServiceCounseling

Percent of Product that is a GoodPercent of Product that is a Service19

SERVICE/PRODUCT BUNDLE

ElementElement Core Core Goods Goods ExampleExample

Core Core Service Service ExampleExample

BusinessBusiness Custom clothierCustom clothier Business hotelBusiness hotel

CoreCore Business suitsBusiness suits AccommodationAccommodation

Peripheral Peripheral GoodsGoods Garment bagGarment bag Bath robeBath robe

Peripheral Peripheral ServiceService

Deferred payment Deferred payment plansplans

In house In house restaurantrestaurant

VariantVariant Coffee loungeCoffee lounge Airport shuttleAirport shuttle

THE SERVICE PACKAGE Supporting Facility: The physical resources that

must be in place before a service can be sold.

Examples are golf course, hospital, hotel.

Facilitating Goods: The material consumed by

the buyer or items provided by the consumer.

Examples are food items, legal documents, golf

clubs, medical history.

Information: Operations data or information to

enable efficient and customized service. Examples

are patient medical records, seats available on a

flight, customer preferences, location of customer

to dispatch a taxi.

THE SERVICE PACKAGE (CONT.)

Explicit Services: Benefits readily observable

by the senses. The essential or intrinsic features.

Examples are absence of illness after treatment,

smoothly running vehicle after tune up, on-time

departure.

Implicit Services: Psychological benefits or

extrinsic features which the consumer may sense

only vaguely. Examples are privacy of loan office,

security of a well lighted parking lot, staff

courtesy.

PRODUCTIVITY

Measure of process improvement Represents ratio of output to input

Only through productivity increases can our standard of living improve

ProductivityProductivityProductivityProductivity UnitsUnits producedproducedUnitsUnits producedproducedInput usedInput usedInput usedInput used= = = =

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MULTI-FACTOR PRODUCTIVITY

Productivity = Output

Labor + material + capital + energy + Misc

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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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SERVICE PRODUCTIVITY

Reasons for low productivity in services

Frequently individually processed

Often an intellectual task performed by

professionals hence often difficult to

mechanize

Growth of low productivity activities e.g.

food preparation, laundry, house cleaning

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TACO BELL - IMPROVING SERVICE PRODUCTIVITY

Revision of menu to include meals that are easy to prepare

Substantial portion of food preparation shifted to suppliers e.g. pre-cooking, predicing, etc

Efficient design of layout and automation of operations

Training and empowerment of management to increase competence – reduce labor

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