ISQS Test 1 Chapter 1 and 10 Clicker question 1 o Productivity is the ratio of: Outputs/inputs OM defined o The science and

and art of ensuring that goods and services are created and delivered successfully to customers o Involves planning, organizing, directing, and controlling o Story: Phlamm worked at a sewing factory. After planning, they started directing, working, then controlling (quality checking). What goes on in the environment is important o In 2005 car companies raised their MPG limit o Ford, GM, & Chrysler ignored this up until they went bankrupt o Cost them $$$$

o Why is Operations Management important? o It is the heart of every organization o Operations are the tasks that create value o Weak dollar vs. Euro & Yen One Euro will buy $1.37 in dollars If Europeans buy US made goods in Europe with Euros they get more for their $$ than if they buy goods made in Europe Means it is good for the European countries to import US made goods Clicker Question 2 o From an overall perspective is it OK to lose manufacturing jobs to other countries with lower wages? It depends Two Things

What is the future of chasing cheap labor? Weak dollar = on shoring trend Shipping costs Quality Complicated logistics When Phlamm would get clothing manufactured in other countries, it would have bugs in it Coach is moving manufacturing jobs from China to Vietnam because labor wages are rising in China How can losing manufacturing jobs be bad since were becoming a service economy anyway? o It depends on what jobs are lost Skilled production 80% of manufacturers expect shortfall over the next 3 years Ex. The average age of a welder is 55 Story: o The textile business dried up and had to lay off 800 manufacturers because they were hiring manufacturers in other countries There have been productivity increases o Less man hours to produce the same product o More knowledge-based economy Industrial production up, manufacturing employment down If you cant measure it, you cant manage it Productivity o = outputs/inputs o The number of people it takes to complete a job o If you cant measure what you do, youre putting yourself at risk Productivity Measures o Partial measures A ratio of outputs to only one input Labor, productivity, machine utilization, energy efficiency o Multifactor measures A ratio of outputs to several, but not all, inputs o Total productivity measures The ratio of all revenues divided by all costs Labor productivity o Ex. 2 workers paint 24 tables in 8 hours Inputs: 16 hours of labor (2 workers x 8 hours) Outputs: 24 painted tables 24 tables/16 hours = 1.5 tables/hour Multifactor productivity o Convert all inputs and outputs to & value o Ex. 200 units produced sell for $12 each. Materials cost $6.50 per unit. 40 hours of labor were required at $10 an hour (200 units x 12/unit)/((200 units x 6.50/unit)+(40 hoursx$10/hr)) = 2400/1700=1.41 Interpreting Productivity Measures o Is the productivity measure of 1.41 in the previous example good or bad?

Cant tell without a reference point Compare to previous measures or to another benchmark You have to measure productivity against something to know if its good or not Productivity Index o Can be used to compare a process productivity at a given time (P2) to the same process productivity at an earlier time (P1) Growth rate = (P2-P1)/P1 Ex. Last week a company produced 150 units using 200 hours of labor. This week, the same company produced 180 units using 250 hours of labor. o P1=150 units/200 hours= 0.75 units/hour o P2=180 units/250 hours = .72 units/hour o Growth rate=(P2-P1)/P1= (.72-.75)/.75= -0.04 o Compares process productivity at a given time to its productivity at an earlier time Improvements in operations can simultaneously lower costs and improve customer satisfaction Improving operations often dependent on advances in technology Can obtain competitive advantage by improving operations Improvements can: o Lower costs o Improve customer satisfaction Often dependent on technology advances o Help obtain competitive advantage Clicker Q: o If inputs increase by 30% and outputs decrease by 15%, what is the percentage change in productivity? Base is 1. .85/1.3=.65 .65-1= -.346 Decrease by 34.62% Phlamm story: o Embroidery/manager for childrens clothes in Alabama o Ultimately gained 40% productivity by changing ways of production

o People are the most important aspect of a company

Sub-Optimization o Improvement in your part of the company but it hurts the company as a whole o Phlamm Story: He worked as an industrial engineer and made blow-out preventers. The production director decided to use computers to make pieces to save money on labor. The director hired minimum wage workers to run the machines, which ended up being really complicated and hard to run. The skilled workers saw they were being replaced and quit. Then the union got involved. The company brought in new machinery so they wouldnt have to pay skilled workers $20 an hour. This hurt the company as a whole. Information flows to and from Operations

40% of all jobs are OM jobs Info flows to and from operations IS OM Finance OM HR OM Engineering OM Accounting OM Marketing OM Defining Outputs o Durable manufactured goods Ex. jewelry o Non-durable manufactured goods Ex. food o Service delivery Service encounter Moment of truth When the service is actually delivered to the consumer. Phlamm Story: o He lived in Ransom Canyon and wanted a sprinkler put in his little strip of yard. Installers said it would be $1,500. Then he

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had 30 second of work done to fix the sprinklers in his yard and got charged $75. He called the company to ask about charge and the moment of truth came when they denied waiving the charge and Phlamm went to the other company. o Company did an awful job at providing their service Bad encounter o Bad service and didnt deliver Moment of truth Differences Between Services and Manufacturing/Goods o Services Intangible product No inventories High customer contact and participation Short response time Labor intensive Difficult to find a service that doesnt have any manufactured goods to go with it o Manufacturing Tangible product Can be inventoried Low customer contact Capital intensive Long response time Similarities Between Services and Manufacturing/Goods o All use technology o Quality, productivity, and response issues o Forecast demand Harder for service o Capacity, layout, and location issues o Customers and suppliers o Scheduling and staffing issues New Trends in OM o Ethics o Global focus o Environmentally sensitive production o Rapid product development o Mass customization o Empowered employees o Supply-chain partnering o Just-in-time performance o Cross functional approach Organization by Function v. by Process

Function Fragmented many control activities Aimed at vertical and functioning matters Emphasizes high/low relationships o Process Entire tasks Aimed at horizontal processes towards client Emphasizes interdependence and uniting leadership Industrial Revolution (late 1700s) o Replaced traditional craft methods o Substituted machine power for labor o Major contributions: James Watt (1764): steam engine Adam Smith (1776): division of labor Eli Whitney (1790): interchangeable parts Scientific Management (early 1900s)- employees motivated by money o Separated planning from doing o Managements job was to discover workers physical limits through measurement, analysis & observation o Major contributors Fredrick Taylor: stopwatch time studies Henry Ford: moving assembly line Human Relations Movement (1930s to 1960s) o Recognition that factors other than money contribute to worker productivity o Major contributions: Hawthorne effect People thought employees were only motivated by money. A company tested it by adding more lighting to the factory, and productivity went up. They changed the lighting again by making it darker, and productivity went up again. It turned out that what motivated employees was attention from managers. Found workers respond to managements attention regardless of environmental changes Led to Maslows Hierarchy of Needs

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Maslows Hierarchy of Needs o People can move up and down it

o Job Expansion o Adding more variety to jobs o Intended to reduce boredom associated with labor specialization Job enlargement Job rotation Job enrichment Employee empowerment Job Design Continuum o Specialization o Enlargement o Enrichment o Empowerment o Self-directed teams Self-Directed Teams o Group of empowered individuals working together to reach a common goal o May be organized for long-term or short-term objectives o Effective because Provide employees with empowerment Meet individual psychological needs o Work well o Supervisors must release control Benefits of teams and expanded job designs o Improved quality of work life o Improved job satisfaction o Increased motivation o Allows employees to accept more responsibility o Improved productivity and quality o Reduced turnover and absenteeism Limitations of job expansion

Higher capital cost Individuals may prefer simple jobs Higher wages rates for greater skills Smaller labor pool Higher training costs Average annual training hours per employee US-7 Sweden-170 Japan-200 Motivation and Incentive Systems o Bonuses Cash or stock options o Profit-sharing Profits for distribution to employees o Gain sharing Rewards for improvements o Incentive plans Typically based on production rates o Knowledge-based systems Reward for knowledge or skills o Ex. Ritz Carlton gives each employee $2,000 budget to solve problems Management Science (mid 1900s) o Developed new quantitative techniques for common OM problems Inventory modeling, linear programming, project management, forecasting, statistical sampling, and quality control techniques Played a large role in supporting American military operations during WWII Computer Age (1970s) o Provided the tool necessary to support the widespread use of Management Sciences quantitative techniques the ability to process huge amounts of data quickly & relatively cheaply o Major contributions include the development of Material Requirements Planning systems for production control Ex. Make 50 cars, how many bolts do you need? Developments (1980s) o Japanese influence o Just-In-Time Techniques designed to achieve high-volume production using coordinated material flows, continuous improvement, and elimination of waste o Total Quality Management Techniques designed to achieve high levels of product quality through shared responsibility and by eliminating the root causes of product defects Root cause- something you change or find out that prevents the problem from ever happening again o Business Process Reengineering Clean sheet redesign of work processes to increase efficiency, improve quality, and reduce costs Developments (1990s)

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Flexibility Offer a greater variety of product choices on a mass scale (mass customization) o Time-based competition Developing new product designs and delivering customer orders more quickly than competitors o Supply Chain Management Cooperating with suppliers and customers to reduce overall costs of the supply chain and increase responsiveness to customers o Global competition International trade agreements open new markets for expansion and lower barriers to the entry of foreign competitors NAFTA, CAFTA, GATT Creates the need for decision-making tools for facility location, local regulations, tailoring product offerings to local tastes, managing distribution networks o Environmental pressures Pressure from consumers and regulators to reduce, reuse and recycle solid wastes and discharges to air and water Tucker Video Questions o What part of the environment, etc. did Tucker do a good job with while developing his product? o In what areas did he not do so well? o What was Tuckers companys main core competency?