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Topic 1. INTRODUCTION TO PRODUCTION AND
OPERATIONS MANAGEMENT
1. What is Production/Operations Management?
• Production: referring to the activities of manufacturing goods.
• Operations: referring to the activities of not manufacturing physical goods. It is usually relevant to service organization.
• Production/Operations: the creation of goods and services.
Elements of the production/operations system:
• Inputs• Transformation process• Outputs• Feedback
Definition of POM
Systematic planning, organizing, directing, staffing, leading, controlling of the transformation process.
Differences between production and service
• Tangible products• Make to stock• For sale• Physical transform• Large geographical market• Low customer contact• Capital intensive• Easier quality measurement
2. History of POM
• Industrial revolution (1770’s – 90’s) - steam engine, mass production, division of labor, interchangeable parts (Eli Whitney)
• Scientific management (1910’s) – time and motion studies (Frank Gilbreth, Frederick W. Taylor), Gantt chart, moving assemble line (Henry Ford)
• Human relations movement (1930’s – 60’s) – work environment (Lillian Gilbreth), employer-employee relationship, motivation theories (Theory X, Theory Y, Theory Z)
History of POM (continuous)
• Management Science (1947 – 60’s) – linear program, simulation, waiting line theory, decision theory, PERT/CPM, MRP
• Japanese production system (1970’s 80’s) – Lean production, JIT, TQM
• Computer in POM (1970’s - ) – CAD/CAM, FMS, CIM
• New challenges in POM – the service economy, environment awareness
3. Recent Trend
• Global Marketplace• Total Quality Management, worker
involvement• Corporate Downsizing, Business
Reengineering, Lean Production• Flexibility, Time Reduction
Tend of POM (continuous)
• Technology• Environmental Issues• Supply-Chain Management• E-commerce and internet
4. Productivity
• An index that measures output (goods and services) related to the input (labor, material, energy, and other resources).
• Meaning of Productivity - competitiveness (business leader), standard of living (nation’s leader)
Productivity Calculation
• Productivity = Output/Input– Partial Measurement (one input)
• Labor Productivity = Output/Labor hours used• Machine Productivity = Output/Machine hours used
– Multi-factor Measurement (two or more inputs)• Labor and Machine Productivity
= Output/ (labor cost + Machine cost )
– Total Measurement (all inputs)• Total productivity = Output/ (all input costs)
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:
14 titles/day Overhead = $800/day
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
8 titles/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
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?
5. Factors that Affect Productivity
• Methods • capital • quality • technology • management
6. Improving Productivity
• Develop productivity measures for all operations
• Decide critical operations in system• Develop methods for achieving productivity
improvements• Establish reasonable goals for improvement• Management supports and encourages
productivity improvement• Measure improvements and publicize them
7. Competitiveness
• How effectively an organization meets the needs of customers relative to that offer similar goods or services
8. Operation Strategies
• Price -- low cost • Quality -- high performance design and/or
high quality, consistent quality • Product differentiation – specific features• Time – rapid delivery, on time delivery• Flexibility – variety, volume• Service – superior customer service• Location – convenience
