Operations Management

Operations and Productivity Chapter 1

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

What is Operations Management?

Production is the creation of goods and services Operations management is the set of activities that creates goods and services through the transformation of inputs into outputs

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Contributions from
Human Factors Industrial Engineering Management Science Biological Science Physical Sciences Information Science
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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

Significant Events in OM
Division of labor (Smith, 1776) Standardized parts (Whitney, 1800) Scientific Management (Taylor, 1881) Coordinated assembly line (Ford 1913) Gantt charts (Gantt, 1916) Motion Study (the Gilbreths, 1922) Quality control (Shewhart, 1924)
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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

Significant Events - Continued

CPM/PERT (DuPont, 1957) MRP (Orlicky, 1960) CAD Flexible manufacturing systems (FMS) Manufacturing Automation Protocol (MAP) Computer Integrated Manufacturing (CIM)
Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

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 know what operations managers do OM is such a costly part of an organization
Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

What Operations Managers Do

Plan Organize Staff Lead Control

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Ten Critical Decisions

Managing quality Design of goods and services Location strategies Layout strategies Human resources Supply-chain management Inventory management Scheduling Maintenance
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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

The Critical Decisions

Quality management
Who is responsible for quality? How do we define quality?

Goods and services design

What product or service should we offer? How should we design these products and services?

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

The 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?

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

The 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?

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

The Critical Decisions - continued

Supply chain management and JIT Justin-time Inventory, Material Requirements Planning
Should we make or buy this item? Who are our good suppliers and how many should we have? How much inventory of each item should we have? When do we re-order?

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

The Critical Decisions - continued

Immediate, 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?

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

Organizational Functions
Marketing - generates demand or at least takes the order for a product or service Operations - creates the product Finance/accounting - tracks how well the organization is doing, pays the bills, collects the money

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Organizational Functions
Marketing

Gets customers

Operations

creates product or service

Finance/Accounting
Obtains funds Tracks money

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

1995 Corel Corp.

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Functions - Airline

Airline

1984-1994 T/Maker Co.

Marketing

Operations

Finance/ Accounting

Flight Operations

Ground Support

Facility Maintenance
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Catering

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Functions - Bank
Commercial Bank
1984-1994 T/Maker Co.

Marketing

Operations

Finance/ Accounting

Teller Scheduling

Check Clearing

Transactions Processing

Security

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Functions - Manufacturer

Manufacturing
Finance/ Accounting

Marketing

Operations

Manufacturing

Production Control
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Quality Control

Purchasing

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Where are the OM Jobs?

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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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

New Challenges in OM
From Local or national focus Batch shipments Low bid purchasing Lengthy product development Standard products Job specialization
Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

To Global focus Just-in-time Supply chain partnering Rapid product development Mass customization Empowered employees
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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Characteristics of Goods
Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction
Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

1995 Corel Corp.

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Characteristics of Service
Intangible product Produced & consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed
Transparency 1995 Corel Corp. Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Goods versus Services

Good Service

Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production
Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service
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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Goods versus Services

Good Service

Product is transportable Site of facility important for cost Often easy to automate Revenue generated primarily from tangible product
Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

Provider, not product is transportable Site of facility important for customer contact Often difficult to automate Revenue generated primarily from intangible service.
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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

The Economic System Transforms Inputs to Outputs

Inputs
Land, Labor, Capital, Management

Process
The economic system transforms inputs to outputs at about an annual 1% increase in productivity (capital 1/6 of 1%, labor (1/6 of 1%, management (2/3 of 1%)
Feedback loop

Outputs
Goods and Services

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Whirlpool
Productivity improved
Prtsp rmnh u a e a or
15 1 10 1 15 0 10 0 9 5 18 99 19 90 19 91
$.7 15 $.5 10 18 99 19 90 19 91 $.2 25 $.0 20

Costs were pared

Cs pru ito as inp io ot e n f p in n

Wages increased
Aeaewr e'sanacs v r g okr nul ah cm na n o p stio e
2 00 70 2 00 60 2 00 50 2 00 40 18 99 19 90 19 91

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Productivity
Measure of process improvement Represents output relative to input

Productivity = Units produced Input used

Productivity increases improve standard of living From 1889 to 1973, U.S. productivity increased at a 2.5% annual rate
Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Productivity Variables

Productivity

Output Labor + Material+ Energy+ Capital+Miscellaneous

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Productivity Variables
Labor - contributes about 1/6 of the annual increase Capital - contributes about 1/6 of the annual increase Management - contributes about 2/3 of the annual increase

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Key Variables for Improved Labor Productivity

Basic education appropriate for the labor force Diet of the labor force Social overhead that makes labor available Maintaining and enhancing skills in the midst of rapidly changing technology and knowledge
Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Jobs in the U.S.

6% 6% 5% Education, H ealth, etc. 5% 3% 1% Manufacturing Retail Trade State & Local Gov't Finance, Insurance 26% Wholesale Trade Transport, Public Util. 16% 18% Construction Federal Government Mining

14%

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Productivity Growth 1971- 1992

5 4.5 4

Labor
United States West Germany Japan

% per year

3.5 3 2.5 2 1.5 1 0.5 0

Whole Economy
Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

Manufacturing
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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Growth Rate of Labor Productivity

6 U.S. 4 U.K. W Germany France 2 Japan 1964-84 1979-84 0 0 2 4 6 8 10 12
Growth Rate of Gross Capital Per W orker (%)

Growth Rate o f Labo r P rodu ctiv ity (%)

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Investment and Productivity in Selected Nations

10 8
Percent increase in p roductiv ity (Mfg)

U.S. U.K. Canada Italy Belgium France Netherlands Japan Best fit 10 15 20 25 30 35

6 4 2 0
Nonresidential fixed investment to G NP (%)

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458

Service Productivity
Typically labor intensive Frequently individually processed Often an intellectual task performed by professionals Often difficult to mechanize Often difficult to evaluate for quality

Transparency Masters to accompany Operations Management, 5E (Heizer & Render)

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1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458