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MODULE 1

(04 Hours)

Introduction to Production & Operations Management (POM): Nature of production & Operations, Systems approach to POM, Factors affecting POM today, types of Production and Production systems, Productivity and competitiveness, Production/Operations Strategy.

Introduction to POM Field

Chapter 1
Production and Operations Management (POM): An Introduction

Overview
Introduction Historical Milestones in POM Factors Affecting POM Today Different Ways of Studying POM Wrap-Up: What World-Class Producers Do

A Bird view of Production System


Marketing department Engineering Department Research & Development Plant Engineering Department

Customer In Target Market


Vendor/ Suppliers

Materials Management Division


Raw Materials Stores Factory Management & Liasioning Human Resource Department

Production Department (shop floor)

Sales Department

Quality Assurance Department Management Information System Department

Customer Support Department

Finance Department

Introduction
Production and operations management (POM) is the management of an organizations production system. A production system takes inputs and converts them into outputs. The conversion process is the predominant activity of a production system. The primary concern of an operations manager is the activities of the conversion

Organizational Model
Finance Sales POM Marketing QA HRM

Engineering

MIS

Accounting

Organization Chart-Major Elements


Manufacturing Organization
Operations Finance/Accounting Disbursements & Credits Funds Management Capital Requirements Marketing Sales Promotion Advertising Sales Market Research

Facilities Production & Inventory ontrol Quality Assurance & Control Procurement Engineering Design Industrial Engineering Process Engineering

Entry-Level Jobs in POM


Purchasing planner/buyer Production (or operations) supervisor Production (or operations) scheduler/controller Production (or operations) analyst Inventory analyst Quality specialist

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Historical Milestones in POM


The Industrial Revolution Post-Civil War Period Scientific Management Human Relations and Behaviorism Operations Research The Service Revolution

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The Industrial Revolution


The industrial revolution developed in England in the 1700s. The steam engine, invented by James Watt in 1764, largely replaced human and water power for factories. Adam Smiths The Wealth of Nations in 1776 touted the economic benefits of the specialization of labor. Thus the late-1700s factories had not only machine power but also ways of planning

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The Industrial Revolution


The industrial revolution spread from England to other European countries and to the United Sates. In 1790 an American, Eli Whitney, developed the concept of interchangeable parts. The first great industry in the U.S. was the textile industry. In the 1800s the development of the gasoline engine and electricity further

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Post-Civil War Period


During the post-Civil War period great expansion of production capacity occurred. By post-Civil War the following developments set the stage for the great production explosion of the 20th century:
increased capital and production capacity the expanded urban workforce new Western U.S. markets an effective national transportation system

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Scientific Management
Frederick Taylor is known as the father of scientific management. His shop system employed these steps:
Each workers skill, strength, and learning ability were determined. Stopwatch studies were conducted to precisely set standard output per worker on each task. Material specifications, work methods, and routing sequences were used to organize the shop. Supervisors were carefully selected and

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Scientific Management
In the 1920s, Ford Motor Companys operation embodied the key elements of scientific management:
standardized product designs mass production low manufacturing costs mechanized assembly lines specialization of labor interchangeable parts

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Human Relations and Behavioralism


In the 1927-1932 period, researchers in the Hawthorne Studies realized that human factors were affecting production. Researchers and managers alike were recognizing that psychological and sociological factors affected production. From the work of behavioralists came a gradual change in the way managers thought about and treated workers.

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Operations Research
During World War II, enormous quantities of resources (personnel, supplies, equipment, ) had to be deployed. Military operations research (OR) teams were formed to deal with the complexity of the deployment. After the war, operations researchers found their way back to universities, industry, government, and consulting firms.

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The Service Revolution


The creation of services organizations accelerated sharply after World War II. Today, more than two-thirds of the U.S. workforce is employed in services. About two-thirds of U.S. GDP is from services. There is a huge trade surplus in services. Investment per office worker now exceeds the investment per factory worker.

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Today's Factors Affecting POM


Global Competition U.S. Quality, Customer Service, and Cost Challenges Computers and Advanced Production Technology Growth of U.S. Service Sector Scarcity of Production Resources Issues of Social Responsibility

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Different Ways to Study POM


Production as a System Production as an Organization Function Decision Making in POM

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Production as a System
Production System Conversion Subsystem
Control Subsystem

Inputs

Outputs

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Inputs of a Production System


External
Legal, Economic, Social, Technological

Market
Competition, Customer Desires, Product Info.

Primary Resources
Materials, Personnel, Capital, Utilities

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Conversion Subsystem
Physical (Manufacturing) Locational Services (Transportation) Exchange Services (Retailing) Storage Services (Warehousing) Other Private Services (Insurance) Government Services (Federal, State,
Local)

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Outputs of a Production System


Direct
Products Services

Indirect
Waste Pollution Technological Advances

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Production as an Organization Function


U.S. companies cannot compete using marketing, finance, accounting, and engineering alone. We focus on POM as we think of global competitiveness, because that is where the vast majority of a firms workers, capital assets, and expenses reside. To succeed, a firm must have a strong operations function teaming with the other organization functions.

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Decision Making in POM


Strategic Decisions Operating Decisions Control Decisions

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Strategic Decisions
These decisions are of strategic importance and have long-term significance for the organization. Examples include deciding:
the design for a new products production process where to locate a new factory whether to launch a new-product development plan

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Operating Decisions
These decisions are necessary if the ongoing production of goods and services is to satisfy market demands and provide profits. Examples include deciding:
how much finished-goods inventory to carry the amount of overtime to use next week the details for purchasing raw material next month

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Control Decisions
These decisions concern the day-to-day activities of workers, quality of products and services, production and overhead costs, and machine maintenance. Examples include deciding:
labor cost standards for a new product frequency of preventive maintenance new quality control acceptance criteria

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What Controls the Operations System?


Information about the outputs, the conversions, and the inputs is fed back to management. This information is matched with managements expectations When there is a difference, management must take corrective action to maintain control of the system

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Wrap-Up: World Class Practice


POM important in any organization Global competition forces rapid evolution of POM Decision based framework focus of course
Strategic, Operating, and Control

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OBJECTIVES
Operations Management Why Study Operations Management? Transformation Processes Defined Operations as a Service The Importance of Operations Management Historical Development of OM Current Issues in OM

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What is Operations Management? Defined


Operations management (OM) is defined as the design, operation, and improvement of the systems that create and deliver the firms primary products and services

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Why Study Operations Management?


Systematic Approach to Org. Processes

Business Education

Operations Management

Career Opportunities

Cross-Functional Applications

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The Future of Operations


Outsourcing everything Smart factories Talking inventory Industrial army of robots Whats in the box Mass customization Personalized recommendations Sign here, please

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Operations Management Decision Types Strategic (long-term) Tactical (intermediate-term) Operational planning and control (short-term)

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What is a Transformation Process? Defined


A transformation process is defined as a use of resources to transform inputs into some desired outputs

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Transformations
Physical--manufacturing

Locational--transportation
Exchange--retailing

Storage--warehousing
Physiological--health care

Informational--telecommunications

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OM in the Organization Chart


Finance

Operations

Marketing

Plant Manager

Operations Manager

Director

Manufacturing, Production control, Quality assurance, Engineering, Purchasing, Maintenance, etc

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Core Services Performance Objectives


Quality

Flexibility

Operations Management

Speed

Price (or cost Reduction)

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Value-Added Service Categories


Problem Solving

Information

Operations Management

Sales Support

Field Support

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The Importance of Operations Management

Synergies must exist with other functional areas of the organization Operations account for 60-80% of the direct expenses that burden a firms profit.

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Historical Development of OM
JIT and TQC

Manufacturing Strategy Paradigm


Service Quality and Productivity Total Quality Management and Quality Certification

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Historical Development of OM (contd)


Business Process Reengineering
Supply Chain Management Electronic Commerce

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Current Issues in OM
Coordinate the relationships between mutually supportive but separate organizations. Optimizing global supplier, production, and distribution networks. Increased co-production of goods and services

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Current Issues in OM (contd)


Managing the customers experience during the service encounter
Raising the awareness of operations as a significant competitive weapon

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The Basics Of Operations Management


Operations Management
The process of managing the resources that are needed to produce an organizations goods and services. Operations managers focus on managing the five Ps of the firms operations:
People, plants, parts, processes, and planning and control systems.

G.Dessler, 2003

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The Production System


Input
A resource required for the manufacture of a product or service.

Conversion System
A production system that converts inputs (material and human resources) into outputs (products or services); also the production process or technology.

Output
A direct outcome (actual product or service) or indirect outcome (taxes, wages, salaries) of a production system.
G.Dessler, 2003

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The Basic Production System

FIGURE 151
G.Dessler, 2003

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Production System Components

G.Dessler, 2003

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Types of Production system

Manufacturing System

Service System

Continuous Production

Intermittent Production

Batch Production

Job Production

Mass production( Flow)

Processing Production

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Basic Types of Production Processes


Intermittent Production System
Production is performed on a start-and-stop basis, such as for the manufacture of madeto-order products.

Mass Production
A special type of intermittent production process using standardized methods and single-use machines to produce long runs of standardized items.
G.Dessler, 2003

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Basic Types of Production Processes (contd)


Mass Customization
Designing, producing, and delivering customized products to customers for at or near the cost and convenience of mass-produced items. Mass customization combines high production volume with high product variety. Elements of mass customization:
Modular product design Modular process design Agile supply networks
G.Dessler, 2003

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Basic Types of Production Processes (contd)


Continuous Production Processes
A production process, such as those used by chemical plants or refineries, that runs for very long periods without the start-and-stop behavior associated with intermittent production. Enormous capital investments are required for highly automated facilities that use special-purpose equipment designed for high volumes of production and little or no variation in the type of outputs.

G.Dessler, 2003

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Mass Production System( Flow)


Continuous Production Anticipation of demand May not have uniform production Standardized Raw material Big volume of limited product line Standard facility- high standardization. Fixed sequence of operation Material handling is easier High skilled operator not required More Human problem is foreseen Huge investment. High raw material inventory.

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Processing Production System


Extended form of mass production system F.G of one stage is fed to next stage More automatic machines One basic raw material is transferred into several products at several stages. Less highly skilled workers required More human problems foreseen Highly standardized system

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Batch Production System


Highly specialized Human resource is required Highly specialized multi tasking machines Machines are shared. Production in batches Production lots are based on customer demand or order. No single sequence of operation Finished goods are heterogeneous

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Custom built / job order production system


Highly specialized Human resource is required Highly specialized multi tasking machines Machines are shared Raw material is not standardized Process is not standardized No scope for repetition of production

Comparative study of different production systems


Type Parameter Per unit manf.cost Size & Capital Invest. Flexibility Technical ability Skills Orgn. Structure Industrial application

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Mass/ Flow
High Large Less No Less Line staff Automobile Sugar Refinery

Process
Low V. Large High No Less Line staff Chemical Petroleum Milk proces.

Job
High Small Low More High Functional

Batch
High Medium High More High Functional

Construction Consumer prod. Bridges M/c. Tools SPM

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CHAPTER

Competitiveness, Strategy, and Productivity

McGraw-Hill/Irwin

Operations Management, Eighth Edition, by William J. Stevenson Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

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Competitiveness:
How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services

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Identifying consumer wants and needs Pricing Advertising and promotion

Businesses Compete Using Marketing

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Businesses Compete Using Operations


Product and service design Cost Location Quality Quick response

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Businesses Compete Using Operations


Flexibility Inventory management Supply chain management Service

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Why Some Organizations Fail


Too much emphasis on short-term financial performance Failing to take advantage of strengths and opportunities Failing to recognize competitive threats Neglecting operations strategy

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Why Some Organizations Fail


Too much emphasis in product and service design and not enough on improvement Neglecting investments in capital and human resources Failing to establish good internal communications Failing to consider customer wants and needs

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Mission/Strategy/Tactics
Mission Strategy Tactics

How does mission, strategies and tactics relate to decision making and distinctive competencies?

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Strategy
Strategies
Plans for achieving organizational goals

Mission
The

reason for existence for an organization


the question What business are we in?

Mission Statement
Answers

Goals
Provide

detail and scope of mission

Tactics
The

methods and actions taken to accomplish strategies

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Figure 2.1

Planning and Decision Making


Mission Goals

Organizational Strategies
Functional Goals Finance Strategies Marketing Strategies Operations Strategies

Tactics Operating procedures

Tactics Operating procedures

Tactics Operating procedures

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Strategy and Tactics


Distinctive Competencies
The special attributes or abilities that give an organization a competitive edge. Price Quality Time Flexibility Service Location

Table 2.2

Examples of Distinctive Competencies


Low Cost U.S. first-class postage Motel-6, Red Roof Inns High-performance design Sony TV or high quality Consistent Lexus, Cadillac quality Pepsi, Kodak, Motorola Rapid delivery On-time delivery Variety Volume Superior customer service Convenience Express Mail, Fedex, One-hour photo, UPS Burger King Supermarkets Disneyland Nordstroms Banks, ATMs

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Price Quality Time Flexibility Service Location

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Operations Strategy
Operations strategy The approach, consistent with organization strategy, that is used to guide the operations function.

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Strategy Formulation
Distinctive competencies Environmental scanning SWOT Order qualifiers Order winners

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Strategy Formulation
Order qualifiers
Characteristics that customers perceive as minimum standards of acceptability to be considered as a potential purchase

Order winners
Characteristics of an organizations goods or services that cause it to be perceived as better than the competition

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Key External Factors


Economic conditions Political conditions Legal environment Technology Competition Markets

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Key Internal Factors


Human Resources Facilities and equipment Financial resources Customers Products and services Technology Suppliers

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Quality and Time Strategies


Quality-based strategies

Focuses on maintaining or improving the quality of an organizations products or services Quality at the source Focuses on reduction of time needed to accomplish tasks

Time-based strategies

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Operations Strategy and Competitiveness


Operations Strategy A Framework for Operations Strategy Meeting the Competitive Challenge Productivity Measurement

Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2006

Operations Strategy Strategic Alignment


Customer Needs Alignment Corporate Strategy

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Operations Strategy
Decisions

Core Competencies

Processes, Infrastructure, and Capabilities


Irwin/McGraw-Hill
The McGraw-Hill Companies, Inc., 2006
3

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Operations Priorities
Cost Quality Delivery Speed (Also, New Product Introduction Speed) Delivery Flexibility Greenness Delivery Reliability Coping with Changes in Demand Other Product-Specific Criteria
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The McGraw-Hill Companies, Inc., 2006
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Dealing with Trade-offs


Cost Flexibility Quality Plant within a Plant (PWP) Delivery

Traditional Approach

World Class Operations


Advanced Approaches
Trade-offs
Irwin/McGraw-Hill

FOCUS FOCUS

FOCUS FOCUS

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World-Class Organizations
World-class Organizations no longer view cost, quality, speed of delivery, and even flexibility as tradeoffs. They have become order qualifiers.

What are the order winners in todays market?


Irwin/McGraw-Hill
The McGraw-Hill Companies, Inc., 2006
6

A Framework for Organizational Strategy


Customer Needs

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Strategic Vision

New and Current Products Performance Priorities and Requirements

Quality, Dependability, Service Speed, Flexibility, and Price

Enterprise Capabilities
Operations & Supplier Capabilities Technology Systems People R&D CIM JIT TQM Distribution

Support Platforms Financial Management Human Resource Management Information Management


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OPERATIONS STRATEGY OBJECTIVES


MARKET REQMTS TO SPECIFIC OPERATIONS PRIMARY MISSIONS ASSURE OPERATIONS IS CAPABLE TO ACCOMPLISH PRIMARY MISSION.
TRANSLATE

1) SEGMENT MARKET BY PRODUCT GROUPS 2) IDENTIFY PRODUCT REQUIREMENTS 3) DETERMINE ORDER WINNERS AND QUALIFIERS 4) CONVERT ORDER WINNERS INTO SPECIFIC PERFORMANCE REQMTS

DEVELOPING PRODUCTION AND OPERATION STRATEGY


Economic Legal Social Political Assessment of business condition Competition Product / Service Plans Competitive priorities Cost, Time, Quality & Flexibility Hi-tech Machines Skilled HR Automation Worn out Prod. System Corporate Mission Dis -advantage in capturing market

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Business Strategy

Distinctive Competencies Or Weaknesses

Market Analysis Low prod. cost

Delivery performance High quality products & service Customer service & Flexibility

Production / operation Strategy

Positioning the production system Product / service plans Process and technology plans Strategic allocation of resources Facility Plan, Capacity Plan, Location and Layout.

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Elements of operation strategy


Positioning the production system A. Product Focused B. Process Focused Product / Service plans Out sourcing plans Process technology plans Strategic allocation of resources Facility plans *Capacity plans *Location *Layout

Productivity

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A measure of the effective use of resources, usually expressed as the ratio of output to input Productivity ratios are used for Planning workforce requirements Scheduling equipment Financial analysis

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MIT Commission on Industrial Productivity

Less emphasis on short-term financial payoffs and invest more in R&D. Revise corporate strategies to include responses to foreign competition.

1985 Recommendations - Still Very Accurate Today

greater investment in people and equipment

Knock down communication barriers within organizations and recognize mutuality of interests with other companies and suppliers.
Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2006 14

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MIT Commission on Industrial Productivity 1985 Recommendations


Recognize that the labor force is a resource to be nurtured, not just a cost to be avoided. Get back to basics in managing production/ operations. Build in quality at the design stage. Place more emphasis on process innovations rather than focusing sole attention on product innovations - dramatically improve costs, quality, speed, & flex.
Irwin/McGraw-Hill
The McGraw-Hill Companies, Inc., 2006 15

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U. S. Competitiveness Drivers
Product/Service Development - NPD Teams speed development and enhance manufacturability Waste Reduction (LEAN/JIT Philosophy) WIP, space, tool costs, and human effort Improved Customer-Supplier Relationships Look for Win-Win! Taken from Japanese Keiretsu Early Adoption of IT Technology Including PC Technology WWW - ERPS
Irwin/McGraw-Hill
The McGraw-Hill Companies, Inc., 2006 16

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Productivity
Outputs Productivi ty = Inputs

Partial measures

output/(single input)
output/(multiple inputs) output/(total inputs)
The McGraw-Hill Companies, Inc., 2006
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Multi-factor measures

Total measure

Irwin/McGraw-Hill

Example - Why is This Important?


10,000 Units Produced Sold for $10/unit 500 labor hours

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Labor rate: $9/hr


Cost of raw material: $5,000

What is the labor productivity?

Cost of purchased material: $25,000


Irwin/McGraw-Hill
The McGraw-Hill Companies, Inc., 2006
18

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Example--Labor Productivity
10,000 units/500hrs = 20 units/hour ...

... or we can arrive at a unit less figure (10,000 unit*$10/unit)/(500hrs*$9/hr) = 22.22 Can you think of any advantages or disadvantages of each approach? Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2006

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Applying Productivity Figures


Youve just told your boss that the plant labor productivity is better than that of a plant in a related business.

Why might he not be pleased with you?


Irwin/McGraw-Hill
The McGraw-Hill Companies, Inc., 2006
20

Productivity Growth

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Productivity Growth =
Current Period Productivity Previous Period Productivity Previous Period Productivity

Measures of Productivity
Table 2.4

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Partial measures
Multifactor measures Total measure

Output Labor

Output Output Machine Capital

Output Energy

Output Labor + Machine

Output Labor + Capital + Energy

Goods or Services Produced All inputs used to produce them

Examples of Partial Productivity Measures


Labor Productivity Machine Productivity Capital Productivity Energy Productivity
Units of output per labor hour Units of output per shift Value-added per labor hour Units of output per machine hour machine hour Units of output per dollar input Dollar value of output per dollar input Units of output per kilowatt-hour Dollar value of output per kilowatt-hour

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Example 3
7040 Units Produced Sold for $1.10/unit Cost of labor of $1,000 What is the multifactor productivity? Ans. 2.20

Cost of materials: $520


Cost of overhead: $2000

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Example 3 Solution
MFP = Output Labor + Materials + Overhead

MFP =

(7040 units)*($1.10) $1000 + $520 + $2000 2.20

MFP =

100

Factors Affecting Productivity


Capital Quality

Technology

Management

Other Factors Affecting Productivity


Standardization Quality Use of Internet Computer viruses Searching for lost or misplaced items Scrap rates New workers

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Other Factors Affecting Productivity


Safety Shortage of IT workers Layoffs Labor turnover Design of the workspace Incentive plans that reward productivity

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Figure 2.3

Bottleneck Operation
10/hr

Machine #1 Machine #2

10/hr

Bottleneck Operation
10/hr 10/hr

30/hr

Machine #3

Machine #4

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Improving Productivity
Develop productivity measures Determine critical (bottleneck) operations Develop methods for productivity improvements Establish reasonable goals Get management support Measure and publicize improvements Dont confuse productivity with efficiency