Opration management chapter 1 operation and productivity

Operations
Management
Session 1 –
Operations and
Productivity

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Learning Objectives
When you complete this chapter
you should be able to:
1. Define operations management
2. Explain the distinction between
goods and services
3. Explain the difference between
production and productivity

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Learning Objectives
When you complete this chapter
you should be able to:
4. Compute single-factor
productivity
5. Compute multifactor productivity

6. Identify the critical variables in
enhancing productivity

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What Is Operations
Management?
Production is the creation of
goods and services
Operations management (OM)
is the set of activities that
creates value in the form of
goods and services by
transforming inputs into
outputs
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Organizing to Produce
Goods and Services
 Essential functions:
 Marketing – generates demand
 Production/operations – creates
the product
 Finance/accounting – tracks how

well the organization is doing, pays
bills, collects the money

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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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What Operations
Managers Do
Basic Management Functions
 Planning
 Organizing
 Staffing
 Leading

 Controlling
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The Critical Decisions
 Design of goods and services
 What good or service should we
offer?
 How should we design these products
and services?

 Managing quality
 How do we define quality?
 Who is responsible for quality?
Table 1.2 (cont.)
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The Critical Decisions
 Process and capacity design
 What process and what capacity will
these products require?
 What equipment and technology is
necessary for these processes?

 Location strategy

 Where should we put the facility?
 On what criteria should we base the
location decision?
Table 1.2 (cont.)
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The Critical Decisions
 Layout strategy
 How should we arrange the facility?
 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?
Table 1.2 (cont.)
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The Critical Decisions
 Supply chain management
 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?
Table 1.2 (cont.)
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The Critical Decisions
 Intermediate and short–term
scheduling
 Are we better off keeping people on
the payroll during slowdowns?
 Which jobs do we perform next?

 Maintenance
 Who is responsible for maintenance?
 When do we do maintenance?
Table 1.2 (cont.)
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Where are the OM Jobs?











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Technology/methods
Facilities/space utilization
Strategic issues
Response time
People/team development
Customer service
Quality
Cost reduction
Inventory reduction
Productivity improvement
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The Heritage of OM
 Division of labor (Adam Smith 1776;
Charles Babbage 1852)
 Standardized parts (Whitney 1800)
 Scientific Management (Taylor 1881)

 Coordinated assembly line (Ford/
Sorenson 1913)
 Gantt charts (Gantt 1916)
 Motion study (Frank and Lillian Gilbreth
1922)
 Quality control (Shewhart 1924; Deming
1950)
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The Heritage of OM
 Computer (Atanasoff 1938)
 CPM/PERT (DuPont 1957)
 Material requirements planning (Orlicky
1960)
 Computer aided design (CAD 1970)
 Flexible manufacturing system (FMS 1975)
 Baldrige Quality Awards (1980)
 Computer integrated manufacturing (1990)
 Globalization (1992)
 Internet (1995)
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Taylor’s Principles
Management Should Take More

Responsibility for:
 Matching employees to right job
 Providing the proper training
 Providing proper work methods and
tools
 Establishing legitimate incentives for
work to be accomplished
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Henry Ford
 Born 1863; died 1947
 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!)
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W. Edwards Deming
 Born 1900; died 1993

 Engineer and physicist
 Credited with teaching Japan
quality control methods in postWW2
 Used statistics to analyze process
 His methods involve workers in
decisions
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Contributions From
 Human factors
 Industrial engineering
 Management science
 Biological science
 Physical sciences
 Information technology
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New Challenges in OM
From

To

 Local or national focus
 Batch shipments

 Global focus
 Just-in-time

 Low bid purchasing

 Supply chain
partnering
 Rapid product
development,
alliances
 Mass
customization
 Empowered
employees, teams

 Lengthy product
development
 Standard products
 Job specialization
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Characteristics of Goods
 Tangible product
 Consistent product
definition
 Production usually

separate from
consumption
 Can be inventoried
 Low customer
interaction
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Characteristics of Service
 Intangible product
 Produced and
consumed at same time
 Often unique
 High customer
interaction
 Inconsistent product
definition
 Often knowledge-based
 Frequently dispersed
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Industry and Services as
Percentage of GDP
90 −

Services

80 −

Manufacturing

70 −
60 −
50 −
40 −
30 −
20 −

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US

UK

Spain

South Africa

Russian Fed

Mexico

Japan

Hong Kong

Germany

France

Czech Rep

China

Canada

0−

Australia

10 −

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Goods Versus Services
Attributes of Goods
(Tangible Product)

Attributes of Services
(Intangible Product)

Can be resold
Can be inventoried
Some aspects of quality

measurable
Selling is distinct from
production
Product is transportable

Reselling unusual
Difficult to inventory
Quality difficult to measure

Site of facility important for cost
Often easy to automate
Revenue generated primarily
from tangible product
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Selling is part of service
Provider, not product, is
often transportable
Site of facility important for
customer contact
Often difficult to automate
Revenue generated primarily
from the intangible service
Table 1.3

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Goods and Services
Automobile

Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
100%
|

75
|

50
|

25
|

0
|

25
|

50
|

75
|

100%
|

Percent of Product that is a Good Percent of Product that is a Service
Figure 1.4
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